5 Oct 2010 18:37

Mechel posts net profit of $121 mln in H1, below forecast

MOSCOW. Oct 5 (Interfax) - Mechel coal and steel group posted a net profit of $121 million in the first half of 2010 under US GAAP, the company said in a statement.

Analysts told Interfax in a consensus forecast that the net profit would be in the range $90 million-$362 million depending on non-recurring items. Given that the net profit in the first quarter was $83 million, the actual result for the second quarter was well below forecast.

The exchange rate loss totaled $182 million. Renaissance Capital analyst Boris Krasnozhenov had said non-recurring expenses and the exchange rate loss in the second quarter might exceed $150 million. The day before, NLMK reported an exchange rate loss of $81 million (NLMK's net debt totaled $948 million compared with $6.3 billion for Mechel).

Key financial indicators for Mechel in H1 ($ mln):

H1 2010 H1 2009
Revenue 4 331 2 460
EBITDA 781 163.8
EBITDA margin (%) 18 6.7
Operating profit (loss) 555 (40.9)
Net profit (loss) 120.8 (471.4)

EBITDA amounted to $544 million and revenue was $2.4 billion.

Cash and equivalents totaled $273.7 million, total debt was $6.6 billion and net debt was $6.3 billion.

Alfa Bank analyst Sergei Krivokhizhin said that despite a decent second quarter EBITDA, the cash flow from operations remained negative, $159 million in the second quarter compared with negative $97 million in the first quarter, reflecting the increase in working capital through increasing reserves and agreements with a number of affiliated parties.

EBITDA in the mining segment was $586 million and the margin was 35%.

Mechel Mining Management Co CEO Boris Nikishichev commented on the mining segment's results: "Targeted increase in production volumes and prices growth in the first half of 2010 coupled with our efforts to produce higher value-added types of coals, such as anthracites and PCI, used in steel production, eventually crystallized in the positive dynamics of the mining segment's financial performance."

"Current price trends for our mining products allow us to anticipate continued strong operating performance of the segment through the remainder of this year," he said.

EBITDA in the steel segment was $166 million and the margin was 6.4%. "Before the end of the year we might see some weakening of demand for steel products due to seasonality and other factors. However, based on Mechel's diversified product portfolio, strong positions on the distribution market as well as limited scale of price correction we anticipate stable results for the segment overall for the year," the statement says.

EBITDA in the ferroalloy segment was $91.8 million. "We expect rather favorable market conditions for ferroalloys in the near future and anticipate improvement of the segment's financial performance for the remainder of the year," it says.

Mechel has consolidated controlling stakes in coal and steel companies and a number of ports. General Director Igor Zyuzin is Mechel's chief beneficiary. The free float is around 30%.