Mechel reports Q1 2008 and 9 months financial results

Mechel announced financial results for the first half ended June 30, 2008 and for the nine months ended September 30, 2008.

—       Revenues in the first nine months increased 84.7% to $8.6 bln

—       Operating income in the first nine months increased 167% to $2.8 bln

— Net income in the first nine months increased 132% to $1.6 bln, or $3.94 per ADR/ordinary share

Igor Zyuzin, Mechel OAO’s Chief Executive Officer, commented: “Mechel’s record financial and operational performance in the first nine months of 2008 was the result of successful implementation of our strategy to grow the Company both organically and through acquisitions.  Favorable market conditions for mining and steel products also contributed to the Company’s performance.”

Consolidated Results for the first half of 2008

^{1 - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.}

Net revenue in the first half of 2008 rose 79.1% to $5.35 bln, from $2.99 bln in the first half of 2007, reflecting increased production volumes and strong selling prices across the Company’s primary product categories. Operating income rose by 117.4% to $1.6 bln, or 30.0% of net revenue, versus operating income of $738.9 mln, or 24.7% of net revenue, in 2007.

For the first half of 2008, Mechel reported consolidated net income of $1.1 bln, or $2.65 per ADR/ordinary share.

Consolidated EBITDA rose by 131.0% to $1.87 bln in the first half of 2008 compared to $813.6 mln in the first half of 2007.

Consolidated Results for the nine months of 2008

^{2 - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.}

Net revenue for the first nine months of 2008 rose 84.7% to $8.58 bln, from $4.65 bln in the first nine months of 2007. Operating income rose by 167.0% to $2.8 bln, or 32.7% of net revenue, versus operating income of $1.05 bln, or 22.6% of net revenue, in 2007.

For the first nine months of 2008, Mechel reported consolidated net income of $1.6 bln, or $3.94 per ADR/ordinary share.

Consolidated EBITDA rose by 137.7% to $2.86 bln in the first nine months of 2008 from $1.2 bln a year ago.

Steel Segment Results for the first half of 2008

^{5 - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.}

Steel Segment Output for the first half of 2008

Revenue from external customers in Mechel’s steel segment increased to $3.0 bln in the first half of 2008, or 56.2% of consolidated net revenue from external customers, an increase of 44.5% over the first half of 2007. 

In the first half of 2008, the steel segment generated operating income of $598.9 mln, or 19.1% of total segment revenue, an increase of 80.9% over operating income of $331.0 mln, or 15.6% of total segment revenue, in the first half of 2007.  EBITDA in the steel segment for the first half of 2008 increased by 102.0% over the prior year period to $771.3 mln. EBITDA margin for the steel segment rose to 24.5% in the first half of 2008, compared to 18.0% reported in the same period of last year.

Steel Segment Results for the nine months of 2008

^{6 - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.}

Steel Segment Output for the nine months of 2008

Revenue from external customers in Mechel’s steel segment increased to $4.8 bln in the first nine months of 2008, or 56.3% of consolidated net revenue from external customers, an increase of 54.8% over the first nine months of 2007.

In the first nine months of 2008, the steel segment generated operating income of $1.1 bln, or 22.6% of total segment revenue, an increase of 139.8% over operating income of $472.8 mln, or 14.9% of total segment revenue in the first nine months of 2007.  EBITDA in the steel segment for the first nine months of 2008 increased 95.9% over the first nine months of 2007.  EBITDA margin for the steel segment rose to 22.6% in the first nine months of 2008, compared to 18.3% reported in the same period of last year.

Mr.Polin commented on the results of the steel segment: “Mechel’s record steel segment results were due to our commitment to the continued optimization of our sales structure and our production cost reductions program, as well as a favorable pricing environment for steel products and the contribution of acquisitions.

Our efforts to improve production efficiencies allowed us to improve our consumption ratios, and as a result, total output of steel products increased while coke and pig iron consumption declined.  Mechel also significantly reduced its output of low margin commercial billets and increased output of higher margin, value added products, such as hardware and wire products. 

At the same time we expanded our geographic presence, strengthening our position in the Eastern European steel products market with acquisition in April 2008 of Ductil Steel in Romania. Now Mechel has four steel subsidiaries in Romania presenting additional operational and sales synergy opportunities, and began realizing these through the recent establishment of  Mechel’s East-European Steel Division. 

Our previous actions designed to enhance sales efficiency by increasing our direct interaction with the end customer and reducing third party sales through traders have started to pay off.  This year we have significantly expanded the branch network of Mechel Service, which is engaged in steel product sales to end customers.  Given the current soft rolled product market, these efforts give Mechel competitive advantages and guaranteed volume for its metal products orders by avoiding bulk traders who for the most part ceased their offtake.”