ULTIMA TRIMESTRALE
Mechel Reports Full Year 2004 Results
Monday June 27, 9:48 am ET
- Revenues increase 79.3% to $3.64 billion -
- Operating income rises 279.8% to $750.81 million -
- Net income increases to $1.3 billion, $3.59 per diluted share, $10.77 per ADR -
MOSCOW, June 27 /PRNewswire-FirstCall/ -- Mechel OAO (NYSE: MTL - News), a leading Russian integrated mining and steel group, today announced results for the full year ended December 31, 2004.
US$ thousand FY FY Change
2004 2003 Y-on-Y
Revenues 3,635,955 2,028,051 79.3 %
Net operating income 750,807 197,681 279.8 %
Net operating margin 20.65 % 9.75 % -
Net income 1,342,706 143,508 835.6 %
EBITDA (1) 1,707,711
Adjusted EBITDA (2) 907,729 341,472 165.8 %
EBITDA margin 24.97 % 16.84 % -
(1) See Attachment A.
(2) Adjusted EBITDA is EBITDA less the gain on the sale of our
shareholding in MMK. See Attachment A for a reconciliation between
EBITDA and Adjusted EBITDA.
Vladimir Iorich, Mechel's Chief Executive Officer, commented:
"2004 was a year of significant achievements for Mechel, in which we saw strong operational and financial performance. Our results for the full year were driven by strong demand for our mining and steel products, both domestically and internationally. This resulted in an increase in average realized prices for our products, as well as higher selling volumes. In addition, our position as one of the world's most integrated mining and steel companies allowed us to control raw material costs by leveraging our mining operations while also taking advantage of high market prices to sell approximately 56% of our coal production volumes on the open market. These efforts, combined with the strong market conditions we experienced, allowed us to expand gross margins in 2004 from 29.8% to 38.8% of net revenues, while operating margins improved from 9.7% to 20.6% year on year."
Consolidated Results
Net revenue in 2004 rose 79.3% to $3.64 billion from $2.03 billion in 2003. Driven by the significant growth in production volumes, higher product pricing and steps Mechel has taken to reduce operating costs, gross margin rose 133.2% to $1.41 billion, or 38.8% of net revenue, compared to $605.0 million, or 29.8% of net revenue for the 2003 full-year period. Operating income was $750.8 million, or 20.6% of net revenue, versus operating income of $197.7 million, or 9.7% of net revenue, in the 2003 full-year period, an increase of 279.8%.
r.i.c.e.. r.i.c.e.. For the 2004 full-year period, Mechel reported consolidated net income of $1.34 billion, or $3.59 per diluted share, a 835.6% increase compared with net income of $143.5 million, or $0.39 per diluted share, for the full year 2003. r.i.c.e.. r.i.c.e..
In 2004, Mechel sold its entire stake in Magnitogorsk Iron & Steel Works OJSC ("MMK"), and waived potential claims against MMK, to U.F.G.I.S. Trading Ltd., a company of the UFG Group, acting for a consortium of investors for a total of $870.0 million. The entire amount of $800.0 (net of purchase cost) million is reflected as a one-off item in the "Other income" line.
Total shares outstanding in the 2004 full-year period increased 10.1% to 403,118,680 from 366,178,815 in 2003, as a result of Mechel's initial public offering of common stock on the New York Stock Exchange on October 29, 2004.
Consolidated EBITDA, net of gain on sale of our shareholding in MMK, rose 165.8% to $907.7 million in 2004 from $341.5 million a year ago.
Mining Segment Results
US$ thousand FY FY Change
2004 2003 Y-on-Y
Revenues from external customers 878,417 413,943 112.2 %
Net income 328,350 29,497 1,013.2 %
EBITDA 458,068 95,652 378.9 %
EBITDA margin 52.1 % 23.1 % -
Mining segment output
Product 2004, thousand tonnes 2004 vs 2003, %
Coal 15,644 + 10.3
Coking coal 9,363 + 8.3
Steam coal 6,281 + 13.6
Iron ore concentrate 3,876 + 10.4
Nickel 12.7 - 5.9
Mining segment revenue for the 2004 full-year period totaled $0.9 billion, or 24.2%, of consolidated net revenue, an increase of 112.2% over segment revenue of $413.9 million, or 20.4%, of consolidated net revenue, in 2003. The increase in revenues reflects growth in output, stable market positions, and an increase of sales of mining products to third parties.
Operating income for 2004 in the mining segment rose 505.3% to $384.1 million, or 32.0%, of total segment revenues, compared to operating income of $63.5 million, or 10.6%, of total segment revenues a year ago. This increase in profitability reflects Mechel's tight control over costs and overall efficiency of mining operations. EBITDA in the mining segment for the 2004 full-year period was $458.1 million, significantly higher than segment EBITDA of $95.7 million in 2003.
Mr. Iorich commented on the results of the mining segment: "Driven by a global shortage in coking coal and lack of new coal projects worldwide, we saw a strong pricing environment for our mining products. In this context, we substantially increased production within our mining segment. With high- quality products and a broad customer base, Mechel was able to leverage market conditions into strong operating performance within this segment. In addition, during 2004, and continuing this year, we executed on our strategy to further expand our coal reserves, winning a number of auctions and substantially increasing our total reserves."
Steel Segment Results
US$ thousand FY FY Change
2004 2003 Y-on-Y
Revenues 2,757,538 1,614,108 70.8 %
Net income 1,014,356 114,011 789.7 %
EBITDA (1) 1,249,643
Adjusted EBITDA (2) 449,661 245,820 82.9 %
EBITDA margin (1) 16.3 % 15.2 % -
Steel segment output
Product 2004, thousand tonnes 2004 vs 2003, %
Coke 2,942 + 12.4
Pig iron 3,880 + 23.1
Steel 6,196 + 16.6
Rolled products 4,937 + 20.9
Hardware 592.7 + 27.1
Revenue from Mechel's steel segment increased 70.8% in the 2004 full-year period from $1.6 billion to $2.8 billion, or 75.8%, of consolidated net revenue, as compared to 79.6%, of consolidated net revenue in 2003. This revenue growth was driven by an increase in average selling prices for the Mechel's steel products versus those realized in 2003, as well as increasing output.
In 2004, the steel segment generated operating income of $366.8 million, or 12.9%, of total segment revenues, an increase of 173.2% over operating income of $134.2 million, or $8.1%, of total segment revenues in 2003. This increase in profitability reflects higher sales volumes, and the increase of share of continuous casting at Chelyabinsk Metallurgical Plant from 13.5% to 22.8%. EBITDA in the steel segment for the 2004 full-year, net of gain on sale of our shareholding in MMK, was $449.7 million, a significant increase over steel segment EBITDA of $245.8 million in 2003, or $203.9 million and 82.9%, respectively.
Mr. Iorich commented, "2004 saw strong revenue performance from our steel segment, driven by a favorable market environment. Production volumes increased strongly, reflecting the stronger market conditions and the steps we have taken internally to improve our manufacturing processes. Our focus on controlling costs continues in 2005, with the commencement of operations at our new sinter plant and an extension of our initiatives to further increase the use of continuous casting within the steel segment and increase efficiency by improving usage ratios.
Recent Highlights
Since its initial public offering, Mechel has taken a number of actions to continue the successful execution of its operating strategy and enhance its position in the Russian mining and steel and markets. Some of these actions include:
- A number of transactions that have significantly expanded the
capabilities of Mechel's coal segment. These include various
successes at license auctions to develop coal deposits in the
Olzherasskaya Mine plot, Razvedochny plot, Sorokinsky plot,
Erunakovskaya-1 Mine and Erunakovskaya-3 Mine plots, Raspadsky
Open Pit Mine area, Berezovsky-2 plot and Sibirginskaya mine area.
These transactions have increased Mechel's total reserves by
1.3 billion tonnes, according to Russian reserve valuation standards,
of which the vast majority is coking coal reserves of high quality.
- Mechel also won an auction for the sale of ordinary shares in
Yakutugol OAO that constitute 25 % + 1 share of the company's charter
capital for approximately $411.2 million. Yakutugol's annual output is
approximately 9 million tonnes, of which approximately 5.4 million
tonnes is coking coal. The acquisition further expands Mechel's mining
holdings while also increasing its exposure to the Asia-Pacific
region.
- Continued progress on Mechel's commitment to investing in its
operations to reduce operating costs and increase efficiency. In
April, Mechel announced the start-up of the first line of a new,
four-line sinter plant at its Chelyabinsk Metallurgical Plant
subsidiary. The new plant will increase Mechel's ability to
internally source its iron ore requirements from its iron ore mine,
Korshunov Mining Plant. Once fully operational, the plant, which
will cost approximately $154 million, will generate approximately
$70 million in annual cost savings.
Mr. Iorich concluded, "Overall, we are very pleased with our results for 2004. We generated strong operating and financial results, driven by both market conditions and the proper execution of our operating strategy. In 2005, we have seen global pricing for metals products decline significantly. While we cannot control the global marketplace, we believe our position as an integrated producer, our diversity of products and markets, and our ongoing commitment to cost control and enhancing operational efficiencies across both segments will allow us to continue to grow and be successful, and positions us well for the future."
Financial Position
Full-year cash expenditure on property, plant and equipment amounted to $303.4 million, of which $222.2 million was invested in the steel segment and $81.2 million in the mining segment.
In line with the strategy to expand and further integrate its operations, Mechel continued to acquire assets. Mechel spent $90.7 million (net of cash in acquired companies) on acquisitions during the year, comprised of $25.3 million for the acquisition of 62.3% of the shares of Izhstal OAO, $30 million for the acquisition of Port Posiet and the remaining $35.4 million on the acquisition of minority shares in its subsidiaries.
In 2005 Mechel has spent $463.4 million on acquisitions, comprised of $411.2 million for 25%+1 of the shares of Yakutugol Holding Company OAO, $3.9 million for 90.3% of the shares of Port Kambarka OAO, $15.7 million for 24.96% of the shares of Izhstal OAO, $32.3 million for 5.62% of the shares of Chelyabinsk Metallurgical Plant OAO and $0.3 million for 4.5% of the shares of Korshunov Mining Plant.
As of December 31, 2004, total debt(1) was at $565.0 million. Cash and cash equivalents amounted to $1,024.8 million at the end of 2004 and net debt amounted to $(459.8) million (Net debt is defined as total debt outstanding less cash and cash equivalents)
The management of Mechel will host a conference call today at 10 a.m. New York time (3 p.m. London time, 6 p.m. Moscow time) to review the 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.
(1) Total debt is comprised of short-term borrowings and long-term debt
Mechel is a Russian metals and mining company, uniting producers of steel, rolled products, hardware, coal, iron ore concentrate, and nickel. 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 F-1. 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 F-1, 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.
Attachments to the Full-Year 2004 Earnings Press Release
Attachment A
Non-GAAP financial measures. This press release includes financial information prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, as well as other financial measures referred to as non-GAAP. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP.
Earnings Before Interest, Depreciation and Amortization (EBITDA) and EBITDA margin. EBITDA represents earnings before interest, depreciation and amortization. EBITDA margin is defined as EBITDA as a percentage of our net revenues. Our EBITDA may not be similar to EBITDA measures of other companies; is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. We believe that EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions and other investments and our ability to incur and service debt. While interest, depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Our EBITDA calculation is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the metals and mining industry. EBITDA can be reconciled to our consolidated statements of operations as follows:
US$ thousands FY 2004 FY 2003
Net income 1,342,706 143,508
Add:
Depreciation, depletion and amortization 137,820 101,689
Interest expense 51,409 48,516
Income taxes 175,776 47,759
Consolidated EBITDA 1,707,711 341,472
Less:
Gain on sale of MMK shares (799,982) -
Adjusted EBITDA 907,729 -
EBITDA margin can be reconciled as a percentage to our Revenues as
follows:
US$ thousands FY 2004 FY 2003
Revenue, net 3,635,955 2,028,051
EBITDA (1) 907,729 341,472
EBITDA margin 24.97 % 16.84 %
(1) Represents Consolidated EBITDA for FY 2003 and Adjusted EBITDA
for FY 2004
MECHEL OAO
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2004 AND DECEMBER 31, 2003
(in thousands of U.S. dollars, except share amounts)
December 31, December 31,
2004 2003
ASSETS
Cash and cash equivalents $1,024,761 $19,279
Accounts receivable, net of allowance
for doubtful accounts of $20,850 in 2004
and $22,276 in 2003 135,597 85,472
Due from related parties 16,458 28,530
Inventories 568,545 348,958
Deferred cost of inventory in transit - 29,554
Current assets of discontinued operations 1,247 18,966
Deferred income taxes 7,491 10,558
Prepayments and other current assets 349,106 170,824
Total current assets 2,103,205 712,141
Long-term investments in related parties 9,270 52,943
Other long-term investments 66,663 15,069
Non-current assets of discontinued operations 165 416
Intangible assets, net 6,379 1,936
Property, plant and equipment, net 1,274,722 881,284
Mineral licenses, net 166,483 160,106
Deferred income taxes 11,940 5,212
Goodwill 39,441 5,402
Total assets $3,678,268 $1,834,509
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings and current
portion of long-term debt $348,880 $342,093
Accounts payable and accrued expenses:
Advances received 94,964 74,414
Accrued expenses and other current liabilities 69,847 60,628
Taxes and social charges payable 145,527 149,392
Trade payable to vendors of goods and services 186,233 140,975
Due to related parties 2,048 13,887
Current liabilities of discontinued operations 30 6,923
Asset retirement obligation 8,219 1,995
Deferred income taxes 26,521 16,883
Deferred revenue 760 52,915
Pension obligations 6,261 0
Total current liabilities 889,290 860,105
Long-term debt, net of current portion 216,113 122,311
Restructured taxes and social
charges payable, net of current portion 87,364 96,879
Asset retirement obligation,
net of current portion 66,758 11,942
Pension obligations, net of current portion 40,720 -
Deferred income taxes 105,330 108,684
Other long-term liabilities 240 1,418
Commitments and contingencies - -
Minority interests 214,824 184,344
SHAREHOLDERS' EQUITY
Common shares (10 Russian Rubles par value;
497,969,086 shares authorized,
416,270,745 and 382,969,086 shares issued
and 403,118,680 and 366,178,815 shares
outstanding as of December 31, 2004 and
December 31, 2003, respectively) 133,507 121,935
Treasury shares, at cost (13,152,065 and
16,790,271 common shares at December 31, 2004
and December 31, 2003, respectively) (4,187) (5,346)
Additional paid-in capital 304,404 92,659
Other comprehensive income 93,687 46,921
Retained earnings 1,530,218 192,657
Total shareholders' equity 2,057,629 448,826
Total liabilities and shareholders' equity $3,678,268 $1,834,509
MECHEL OAO
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(in thousands of U.S. dollars)
For the Years Ended 31st of December
2004 2003 2002
Cash Flows from Operating Activities
Net income $1,342,706 $ 143,508 $ 89,253
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 120,444 83,980 65,752
Depletion and amortization 17,376 17,709 13,022
Foreign exchange (gain) loss (1,884) 2,867 (9,094)
Deferred income taxes (11,217) (6,905) (26,055)
(Recovery of) provision
for doubtful accounts (7,859) 10,011 3,622
Inventory write-down 2,183 4,624 523
Accretion expense 2,081 2,433 -
Impairment of goodwill - - 7,219
Minority interest 11,673 (18,980) (10,433)
Effect of change in
accounting principle - 3,788 (10,859)
(Income) loss from equity investments (4,621) (1,221) 2,675
Non-cash interest on long-term
tax and pension liabilities 11,425 13,302 4,854
Loss (gain) on sale of property,
plant and equipment 5,736 4,111 (968)
(Gain) loss on sale of
long-term investments (803,405) (2,417) 566
Loss from discontinued operations 15,211 5,790 1,835
Gain on accounts payable
with expired legal term (1,250) (1,400) (4,000)
Gain on forgiveness of
fines and penalties (18,296) (9,588) (3,794)
Stock-based compensation expense 1,400 2,200 -
Amortization of capitalized costs
on bonds issue 1,525 835 -
Pension service cost and amortization
of prior year service cost 2,187 - -
Extraordinary (gain) (271) (5,740) (1,388)
Net change before changes in
working capital 685,144 248,907 122,729
Changes in working capital items,
net of effects from acquisition
of new subsidiaries:
Accounts receivable (2,831) (4,031) (401)
Inventories (170,726) (97,783) 6,815
Trade payable to vendors of goods
and services (1,305) (14,468) (19,012)
Advances received 4,902 13,316 13,216
Accrued taxes and other liabilities 4,176 19,328 (27,996)
Settlements with related parties 1,253 (12,815) (2,820)
Current assets and liabilities of
discontinued operations (4,134) (17,036) (1,616)
Deferred revenue and cost of
inventory in transit, net (22,607) 13,949 6,907
Other current assets (197,734) (29,509) (16,753)
Net cash provided by operating
activities 296,137 119,858 81,069
Cash Flows from Investing Activities
Acquisition of subsidiaries, less
cash acquired - (20,919) (4,461)
Acquisition of minority interest
in subsidiaries (37,021) (3,776) (3,487)
Investment in Korshunov Mining Plant - (82,793) (15,533)
Acquisition of Izhstal (22,742) - -
Acquisition of Port Posiet (29,966) - -
Acquisition of Kaslinsky
Architectural Casting Plant (996) - -
Investments in other
non-marketable securities (29,762) (28,525) (6,955)
Proceeds from disposal of
discontinued operations - 5,162 -
Proceeds from disposal of
non-marketable equity securities 875,967 33,577 1,808
Proceeds from disposals of
property, plant and equipment 3,647 3,813 2,980
Purchases of property, plant and
equipment (303,411) (116,856) (60,985)
Net cash provided from (used in)
investing activities 455,716 (210,317) (86,633)
Cash Flows from Financing Activities
Proceeds from short-term borrowings 954,733 781,525 394,388
Repayment of short-term borrowings (941,340) (747,815) (366,675)
Dividends paid (5,145) (26,282) (13,425)
Proceeds from issuance
of common stock 17 220,873 - -
Proceeds from long-term debt 75,241 112,736 40,916
Loans and notes (issued)
to/received from related parties - 6,397 (18,373)
Repayment of long-term debt (52,093) (23,482) (33,409)
Net cash provided by financing
activities 252,269 103,079 3,422
Effect of exchange rate changes
on cash and cash equivalents 1,360 991 (283)
Net increase (decrease) in cash
and cash equivalents 1,005,482 13,611 (2,425)
Cash and cash equivalents
at beginning of year 19,279 5,668 8,093
Cash and cash equivalents
at end of year $1,024,761 $19,279 $5,668
Supplementary cash flow information:
Interest paid, net of capitalized $(62,835) $(32,394) $(27,183)
Income taxes paid $(136,473) $(53,884) $(8,781)
Non-cash Activities:
Net assets of subsidiaries
contributed by minority
shareholders in exchange for
shares issued by SKCC (Note 17) $340 $4,428 $ -
Acquisition of plant and
equipment in exchange for goods $ 3,071 $ - $ -
Assumption of debt in business
combination (Note 2(e)) $ - $ 2,673 $ -
Net assets of subsidiaries
contributed by shareholders
(Note 14) $ - $ - $ 24,096
Treasury shares issued to
subsidiary (Note 17) $ 9,723 $ - $ 16,995
MECHEL OAO
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Consolidated Income Statements
(in thousands of U.S. dollars, except share amounts)
12m 12m
2004 2003
Revenue, net (including related party
amounts of $68,806, $211,943 and $134,965
during 2004, 2003 and 2002, respectively $3,635,955 $2,028,051
Cost of goods sold (including related party
amounts of $11,734, $212,492 and $133,326
during 2004, 2003 and 2002, respectively) (2,225,088) (1,422,987)
Gross margin 1,410,867 605,064
Selling, distribution and operating expenses:
Selling and distribution expenses (367,514) (213,977)
Taxes other than income tax (69,285) (44,716)
Accretion expenses (2,081) (2,433)
Goodwill impairment - -
Recovery of (provision for) doubtful accounts 7,859 (9,056)
General, administrative and other
operating expenses (229,039) (137,201)
Total selling, distribution and
operating expenses (660,060) (407,383)
Operating income 750,807 197,681
Other income and (expense):
Income (loss) from equity investees 4,621 1,221
Interest income 2,375 2,274
Interest expense (51,409) (48,516)
Other income, net 836,817 26,333
Foreign exchange gain/ (loss) 1,884 (2,867)
Total other income and (expense) 794,288 (21,555)
Income before income tax, minority
interest, discontinued operations,
extraordinary gain and changes in
accounting principles 1,545,095 176,126
Income tax expense (175,776) (47,759)
Minority interest in (income)
loss of subsidiaries (11,673) 18,979
Income from continuing operations 1,357,646 147,346
Income (loss) from discontinued
operations, net of tax (15,211) (5,790)
Extraordinary gain, net of tax 271 5,740
Income before cumulative effect of
changes in accounting principle 1,342,706 147,296
Change in accounting principle, net of tax - (3,788)
Net income $1,342,706 $143,508
Currency translation adjustment 49,116 46,921
Adjustment of available for sale securities (2,350) -
Comprehensive income $1,389,472 $190,429
Basic and diluted earnings per share:
Earnings per share from
continuing operations $3,63 $0,39
Loss per share effect of
discontinued operations (0.04) (0.01)
Earnings per share effect of
extraordinary gain 0 0.02
Earnings per share effect of a change
in accounting principle 0 (0.01)
Net income per share $3.59 $0.39
Weighted average number of common
shares outstanding 373,971,312 366,178,815
le.gg.e