Mechel Reports First Half and Nine Months 2013 Financial Results
(ENP Newswire Via Acquire Media NewsEdge) ENP Newswire - 30 December 2013
Release date- 24122013 - Moscow, Russia - Mechel OAO (NYSE: MTL), a leading Russian mining and steel group, today announced financial results for the 1H and 9M 2013.
Evgeny Mikhel, Mechel OAO's Chief Executive Officer, commented on the company's 9M2013 financial results: 'This year, the company operated in the conditions of continuing weakness on our key markets, which to a large extent had an impact on its main financial results. Nevertheless, by strictly adhering to our planned course aimed at creating conditions for deleveraging, we managed to resolve the most critical issues. We have successfully negotiated with our creditor banks for covenant holidays until the end of 2014.
The program for disposal of non-core assets has largely been implemented. As a result of this business restructuring we saw an improvement in operating cashflows. However, the other side of this process was one-off write-downs that led to a net loss of $2.2 billion for 9 months of 2013.
Production and sales volumes have been maintained at planned levels. We have also successfully ensured funding for our key strategic investment project - the Elga deposit - by obtaining Vnesheconombank's positive decision on project financing.
'Despite a fairly complicated macroeconomic situation, steel production and consumption of raw materials for steelmaking is growing in the world, and we intend to continue focusing on improving production efficiency, market diversification and expanding our client base, to increase Mechel's shareholder value.'
Mechel Mining Management Company OOO's Chief Executive Officer Pavel Shtark commented on the mining division's results: 'During this period, the Group's mining division continued to work despite volatility on the markets of raw materials for steelmaking. Despite the change in coal prices, we managed to maintain the division's adjusted EBITDA on a fairly stable level quarter on quarter. This was due to stable volumes of mining and processing as well as the sales subsidiaries' efforts on optimizing the sales structure considering the volatile demand in the regions of our products' consumers. For example, we managed to significantly increase sales of PCI coals by boosting our cooperation with Chinese customers, as well as expanding the client base by including steelmaking facilities of Arcelor Mittal and Tata Steel in Belgium and Britain.
'The seasonal decrease in production costs also had its positive impact on the financial results of the mining division's enterprises.
'We managed to make major headway in financing the Elga project. In September, Vnesheconombank's supervisory board approved financing for the development of Elga Coal Complex's first stage, and in November we drew the first funds within the framework of this financing. Vnesheconombank's participation will ensure that the project's first stage is implemented without financial pressure on the mining division, which will enable us to focus our efforts on ensuring uninterrupted and stable operations at all our enterprises, as well as the
'We therefore enter the coming year with all issues regarding financing of our key investment project well resolved, stable operations at our enterprises and a streamlined and versatile sales system. Taking into account that prices next year should be, on average, no worse than this year, we can expect positive financial results from the division in the future as well.'
Commenting on the steel segment's results, Mechel-Steel Management Company OOO's Chief Executive Officer Vladimir Tytsky noted: 'This year we continued with optimization of the structure of the division's production and sales facilities. As part of the company's strategy on reforming the asset structure, we disposed of the Romanian-based enterprises.
The company stopped producing and selling loss-making products, halted inefficient technological lines and equipment, shut down some of Mechel Service Global sales network's European sales facilities, and decreased or stopped supplies to loss-making partner enterprises. We are constantly working on improving production technologies to cut down on cost in raw materials and energy resources.
'The division's sales volumes and sales structure reflected those changes. Despite a relative decrease in our results as compared to the figures from the same period last year, we have seenan overall recuperation of our financial situation. The division stopped generating losses in noncore assets that were out of line with the company's strategy, and freed up the cash flow. We practically completed our investment program by launching the universal rolling mill at Chelyabinsk Metallurgical Plant. I expect that these changes will have their positive impact on our results in the future.'
Mechel-Ferroalloys Management Company OOO's Chief Executive Officer Sergey Zhilyakov noted: 'The past period was defined by major changes in the division's structure. After halting Southern Urals Nickel Plant in summer we signed an agreement for the disposal of our ferrochrome assets in Russia and Kazakhstan. As such, financial results of these companies have been excluded from operating income (loss) and presented separately as 'loss from discontinued operation'.
Looking at the results of the renewed division, we must note that the results from the second and third quarters are an improvement on the first quarter's results as well as those from the same periods last year. The division shows stable operational profit. The results' improvement is due to sales growth and our successes in bringing down production costs. Next year, Bratsk Ferroalloy Plant will fully transfer to its own raw materials mined at the Uvatsk quartzite deposit, which will also enable us to improve financial results.'
Mechel-Energo OOO's Chief Executive Officer Pyotr Pashnin noted: 'Over the past two quarters, the division operated with the cut in production volumes, due to seasonal low demand. We used lower workloads on our equipment to make necessary repairs and maintenance before the season of high electricity and heat consumption. On the whole, the division's profit and operational revenue remained at the same level as last year. The decrease in electricity and heat generation compared to last year's figures was due to two facilities - Toplofikatsia Rousse and Nytva-Energo OOO - leaving the power division.'
In June, Mechel announced the decision of the company's Board of Directors to authorize the buyback of up to $100 million of ADRs representing Mechel OAO's common shares. In June, the Federal Subsoil Resources Management Agency approved the revised schedule for the works under the subsoil license agreement for development of the Elga coal deposit.
In June, Mechel announced results of its annual general shareholders' meeting, approving the payment of dividends based upon the results of the 2012 fiscal year and other questions of the agenda. In July, Mechel reported that Chelyabinsk Metallurgical Plant fulfilled the order for a new class of steel for helicopter-making for the Russian Helicopters holding. In July, Mechel announced the appointment of Pavel Shtark as the new Chief Executive Officer of Mechel Mining Management Company OOO, who replaced Boris Nikishichev, who left the company due to retirement.
In July, Mechel announced the launch of the universal rolling mill at Chelyabinsk Metallurgical Plant. The universal rolling mill is Russia's first complex universal producer of high-quality structural shapes and rails 12.5 to 100 meters long. The mill's complex includes all necessary technological equipment and uses state-of-the-art rolling, correction, processing and quality control technologies. The mill's capacity is up to 1.1 million tonnes of finished product a year. Investment in the project totaled some 715 million US dollars.
In July, within the strategy of divesting assets that are not part of the Group's priority development areas, Mechel reported selling 100% of the shares of Toplofikatsia Rousse EAD (TPP Rousse, Bulgaria), 100% of shares of British-based steel plant Invicta Merchant Bar. In August Mechel announced signing an agreement for disposal of several ferroalloys assets to Turkey's Yildirim Groupan namely Voskhod Mining Plant (Khromtau, Kazakhstan) and Tikhvin Ferroalloy Plant (Tikhvin, Leningrad Region, Russia). In August, Mechel announced that it has started supplying coal concentrate to the People's Republic of China by rail through new border checkpoint Makhalino - Hunhun.
In September, Vnesheconombank Supervisory Board approved financing the development of Elga Coal Complex for a total amount of 2,5 billion US dollars. The funds are to be used to complete the first phase of the Elga deposit's development project, which includes construction of a railroad and a mining and washing complex with an annual capacity of 11.7 million tonnes of run-of-mine coal by 2017. The project's implementation will create over 5,000 new jobs.
In September, Mechel announced the completion of the construction project for a grinding-mixing complex to produce cement in Chelyabinsk Metallurgical Plant's industrial zone. Its annual capacity is 1.6 million tonnes. Investment in the project totaled 174.4 million US dollars.
In October, in the presence of the Russian Federation's Prime Minister Dmitry Medvedev, Mechel signs an agreement with Vnesheconombank for allocating the first tranche of financing for Elga Coal Complex amounting to 150 million US dollars within the project financing for Elga Coal Complex's first stage totaling 2.5 billion US dollars.
In October, Mechel Group, represented by Mecheltrans OOO, sold some 28% of port Vanino's equity capital to an outside investor, retaining a minor share package for itself. The transaction amounted to 5.04 billion rubles. As the consortium of investors is not interested in transshipping their products through Port Vanino, Mechel is able to use the port's entire capacity in the company's interests.
In December, Mechel announced reaching agreement to extend the grace period and maturity of its USD 1 billion syndicated facility. The agreement was signed on behalf of a syndicate of leading international banks, including ABN Amro, BNP Paribas, Caterpillar Financial Services Corporation, Commerzbank Aktiengesellschaft, ICBC (London) plc., ING Bank N.V., Natixis, Raiffeissen Bank International AG, Societe Generale, UniCredit, VTB.
In December, Mechel announced reaching agreement on covenant holidays until the end of 2014 on bilateral credit lines from VTB Bank amounting to USD 1.8 billion and on bilateral credit lines from Sberbank of Russia amounting to 44.9 billion rubles (approximately 1.36 billion US dollars). In December, Mechel announced signing agreements with Sberbank of Russia on restructuring of part Mechel OAO's debt to the bank (25.5 billion rubles, approximately 773 million US dollars). The Group's obligations to the bank are extended by 5 years, with a grace period until the first quarter of 2015.
Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the 2Q 2013 amounted to $188.8 million, of which $109.3 million was invested in the mining segment, $76.6 million was invested in the steel segment, $2.8 million was invested in the ferroalloy segment and $0 million was invested in the power segment. As of June 30, 2013, total debt was $9.1 billion. Cash and cash equivalents amounted to $97.1 million and net debt amounted to $9.0 billion (net debt is defined as total debt outstanding less cash and cash equivalents) at end of 2Q 2013.
Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the 3Q 2013 amounted to $91.6 million, of which $37.4 million was invested in the mining segment, $49.7 million was invested in the steel segment, $0.6 million was invested in the ferroalloy segment and $3.9 million was invested in the power segment.
As of September 30, 2013, total debt was $9.1 billion. Cash and cash equivalents amounted to $ 104.3 million and net debt amounted to $9.0 billion (net debt is defined as total debt outstanding less cash and cash equivalents) at end of 3Q 2013.
The management of Mechel will host a conference call today at 9:00 a.m. New York time (2:00 p.m. London time, 6:00 p.m. Moscow time) to review Mechel's financial results and comment on current operations. The call may be accessed via the Internet at http://www.mechel.com, under the Investor Relations section.
Mechel is one of the leading Russian companies. Its business includes four segments: mining, steel, ferroalloy and power. Mechel unites producers of coal, iron ore concentrate, steel, rolled products, ferroalloys, hardware, heat and electric power. Mechel products are marketed domestically and internationally.
Some of the information in this press release 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.
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