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Mechel Reports The 9M 2012 Financial Results

In 3Q2012, the operating loss in the ferroalloys segment decreased by 81.9% and totaled $24.5 million, or -21.5% of total segment revenue, as compared to an operating loss of $135.3 million, or    -87.6% of total segment revenue, in 2Q2012. The adjusted EBITDA in the ferroalloys segment in 3Q2012 increased by 57.4% and amounted to negative $3.1 million, compared to segment's adjusted negative EBITDA of $7.4 million in 2Q2012. The adjusted EBITDA margin of the ferroalloys segment was -2.8% in 3Q2012 compared to the adjusted EBITDA margin of -4.8% in 2Q2012. The ferroalloys segment's depreciation, depletion and amortization in 3Q2012 was $20.9 million, a decrease of 23.7% over $27.4 million in 2Q2012.

Mechel-Ferroalloys Management OOO's Chief Executive Officer Sergey Zhilyakov noted:

"As the situation on the ferroalloy product markets continues to worsen, we had to resort to drastic measures in a bid to reduce the negative economic effect. In the third quarter, production at Southern Urals Nickel Plant was dramatically reduced. In late September, nickel production at the plant was halted completely. Tikhvin Ferroalloy Plant's production program was also revised. At the same time, Bratsk Ferroalloy Plant, using its modernized furnace's full capacity, increased manufacturing products whose sales bring the company profit even despite the markets' high volatility. As a result, operational loss and negative EBITDA were markedly reduced. The division will continue to optimize its operations in a bid to achieve positive results."

Power Segment Results for The 9M 2012

US$ thousand  9M 2012 (1)  9M 2011 (1) Change Y-on-Y
Revenue from external customers 565,192 566,087 -0.2%
Intersegment sales 358,362 380,502 -5.8%
Operating (loss) / income (42,208) 23,071 --
Net (loss) / income attributable to shareholders of Mechel OAO (62,496) 99 --
Adjusted net (loss) / income (1) (2) (8,603) 99 --
Adjusted EBITDA (1) (3) 21,184 33,520 -36.8%
Adjusted EBITDA, margin (4) 2.29% 3.54% --
(1)   See Attachment A.
(2)   Adjusted net (loss) income is net (loss) income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects) 
(3)   Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income .
(4)   Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.
US$ thousand  3Q 2012 (1)  2Q 2012 (1) Change Q-on-Q
Revenue from external customers 147,059 174,691 -15.8%
Intersegment sales 109,101 113,099 -3.5%
Operating loss (10,850) (56,237) -80.7%
Net loss attributable to shareholders of Mechel OAO (13,877) (60,053) -76.9%
Adjusted net loss (1) (2) (13,877) (6,160) 125.3%
Adjusted EBITDA (1) (3) (6,610) 287 --
Adjusted EBITDA, margin (4) -2.58% 0.10% --
(1)   See Attachment A.
(2)   Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects) 
(3)    Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income.
(4)   Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

Power Segment Output and Sales For The 9M 2012

Product name 9M 2012 9M 2011 9M 2012 vs. 9M 2011, %
Electric power generation (ths. kWh) 3,097,211 2,830,884 9%
Heat power generation (Gcal) 5,409,167 4,804,525 13%

Mechel's power segment revenue from external customers in 3Q 2012 was $147.0 million, or 5% of consolidated net revenue, a decrease of 15.8% compared with the segment's revenue from external customers of $174.7 million or 6% of consolidated net revenue in 2Q2012.

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