Mechel reports 2007 first quarter results
|
US$ thousand |
1Q 2007
|
1Q 2006
|
Change
Y-on-Y
|
|
Revenues
|
1,416,166
|
853,518
|
65.9%
|
|
Net operating income |
327,655
|
58,996
|
455.4%
|
|
Net operating margin |
23.1%
|
6.9%
|
-
|
|
Net income
|
205,014
|
62,881
|
226.0%
|
|
EBITDA (1)
|
355,450
|
134,411
|
164.5%
|
|
EBITDA margin |
25.1%
|
15.7%
|
-
|
Igor Zyuzin, Mechel’s Chief Executive Officer, commented: “The first quarter of 2007 was a successful one for Mechel that continued the strong performance we have seen recently. Coupled with a market environment that continues to be favorable, we increased our production volumes and improved operational performance, which drove significant growth in all aspects of our business when compared to a year ago.”
For the first quarter of 2007, Mechel reported consolidated net income of $205.0 million, or $1.47 per ADR ($0.49 per diluted share), compared to consolidated net income of $62.9 million, or $0.48 per ADR ($0.16 per diluted share) in the first quarter of 2006.
Consolidated EBITDA was $355.5 million in the first quarter of 2007, compared to $134.4 million a year ago, an increase of 164.5%. The increase in EBITDA was primarily the result of the higher sales volumes in the Company’s main product categories, as well as positive pricing dynamics and the impact of steps the Company has taken to improve production efficiency and lower operating costs. Selling expenses decreased to 8.4% of sales for the first quarter or 2007 compared with 12.0% for the same quarter in the prior year as a result of positive changes to the sales structure. General and administrative expense were reduced to 5.4% of sales for the quarter, compared with 7.2% in the first quarter of 2006, due to tighter cost controls.
Please see the attached tables for a reconciliation of consolidated EBITDA to net income.
|
US$ thousand |
1Q 2007
|
1Q 2006
|
Change
Y-on-Y
|
|
Revenues from external customers |
421,420
|
289,459
|
45.6%
|
|
Intersegment sales |
168,354
|
75,871
|
121.9%
|
|
Operating income |
181,700
|
29,289
|
520.4%
|
|
Net income
|
103,810
|
27,467
|
277.9%
|
|
EBITDA
|
196,229
|
58,000
|
238.3%
|
|
EBITDA margin (1) |
33.3%
|
15.9%
|
-
|
(1) EBITDA margin calculation is based on the total revenues of the segment including intersegment sales.
|
Product
|
1Q 2007, thousand tonnes
|
1Q 2007 vs. 1Q 2006
|
|
Coal
|
4,543
|
13%
|
|
Coking coal
|
2,223
|
0%
|
|
Steam coal
|
2,320
|
30%
|
|
Iron ore concentrate |
1,095
|
(3)%
|
|
Nickel
|
4.1
|
22%
|
Mining segment revenue from external customers for the first quarter of 2007 totaled $421.4 million, or 29.8% of consolidated net revenue, an increase of 45.6% over segment revenue from external customers of $289.5 million, or 33.9% of consolidated net revenue, in the first quarter of 2006.
Operating income in the first quarter of 2007 in the mining segment was $181.7 million, or 30.8% of total segment revenues, an increase of 520.4% compared to operating income of $29.3 million, or 8.0% of total segment revenues, a year ago. EBITDA in the mining segment for the 2007 first quarter was $196.2 million, an increase of 238.3% compared to EBITDA of $58.0 million a year ago, with an EBITDA margin increase to 33.3% from 15.9% in the 2006 first quarter. Results in the Company’s mining segment for the first quarter of 2006 include a one-time extraction tax accrual of $20 million, as previously announced.
Igor Zyuzin commented on the results of the mining segment, “Market conditions remained strong in the mining segment, and Mechel continued to implement its strategy aimed at further growing its mining operations. Investments in construction of new mining facilities and modernization of mining equipment allowed us to achieve significant increase in coal output in the first quarter of 2007 as compared to the same period a year ago. We leveraged the strong market conditions and doubled EBITDA margin for the segment to 33.3%. We also increased our nickel output by 22% due to the further optimization of our production processes. Taking into consideration current favorable market conditions, we remain optimistic with regard to the overall outlook for the segment for the remainder of this year.|
US$ thousand |
1Q 2007
|
1Q 2006
|
Change
Y-on-Y
|
|
Revenues from external customers |
994,746
|
564,059
|
76.4%
|
|
Intersegment sales |
14,636
|
5,173
|
182.9%
|
|
Operating income |
145,955
|
29,707
|
391.3%
|
|
Net income
|
101,204
|
35,414
|
185.8%
|
|
EBITDA
|
159,222
|
76,411
|
108.4%
|
|
EBITDA margin (1)
|
15.8%
|
13.4%
|
-
|
|
Product
|
1Q 2007, thousand tonnes
|
1Q 2007 vs. 1Q 2006
|
|
Coke
|
930
|
82%
|
|
Pig iron
|
930
|
13%
|
|
Steel
|
1,488
|
9%
|
|
Rolled products
|
1,274
|
19%
|
|
Hardware
|
158
|
18%
|
For the first quarter of 2007, the steel segment generated operating income of $146.0 million, or 14,5% of total segment revenues, an increase of 391.3% compared to operating income of $29.7 million, or 5.2% of total segment revenues, during the first quarter of 2006. EBITDA in the steel segment for the 2007 first quarter was $159.2 million, an increase of 108.4% when compared to EBITDA of $76.4 million in the 2006 first quarter. The EBITDA margin in the first quarter of 2007 was 15.8%, compared to 13.4% a year ago.
Igor Zyuzin commented, “In the steel segment, we continue to focus our efforts on enhancing profitability through modernization of production and control over costs as well as further shifting our sales mix to an increased proportion of value-added, higher margin products. The capital expenditure program which we continue to implement in the steel segment has enabled us to decrease raw material consumption ratios, resulting in reduced production costs and increased production output. We also continued to steadily increase the share of continuously cast steel. At the end of last year we commissioned a new continuous casting machine at Chelyabinsk Metallurgical Plant, and another one was commissioned at our Romanian subsidiary, Mechel Targoviste, in the first quarter of this year.”
Recent developments
• In July, Mechel OAO announced the appointment of Stanislav Ploschenko as its Acting Chief Financial Officer. In this position Stanislav Ploschenko replaced Anton Vishanenko.
• In July, Mechel OAO provided additional information regarding its capital expenditure program for 2007-2011. Mechel plans to invest about $1.5 billion in its steel segment and about $1.2 billion in its coal segment during five years.
Igor Zyuzin concluded, «Overall, we achieved significant progress in the first quarter of 2007, compared to the first quarter of 2006. We continue to steadily implement our strategy, focusing on modernizing production, increasing output and controlling costs while also capitalizing on the favorable conditions currently seen in our markets. As we carry out our recently announced capital expenditure program, we intend to further focus on increasing operational performance in both segments. Our position as an integrated producer with a diversified product portfolio and broad market base will allow us to flexibly react to the changing market environment, positioning us well for the future.»
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