Russia's Mechel posts US GAAP net loss of $691 mln in Q1, worse than expected
MOSCOW. July 10 (Interfax) - Russia's Mechel coal and steel group ended the first quarter of 2009 with US GAAP net losses of $690.7 million, the company said in a report.
The company had negative EBITDA (earnings before interest, taxes, depreciation and amortization) of $474 million and sales revenue of $1.18 billion in the quarter.
The net losses and EBITDA were significantly worse than what analysts had predicted in a consensus forecast prepared by Interfax. Analysts thought Mechel would show net losses of $302 million on average and negative EBITDA of $115 million. The company's sales revenue was higher than the forecast of $975 million.
The company had an exchange rate loss of $592 million.
Debt totaled $5.8 billion as of March 31, 2009. Cash and equivalents amounted to $953.3 million on that date, for a net debt of $4.9 billion, compared with a net debt of $5.1 billion on December 31 on total debt of $5.4 billion.
Key financial indicators for Mechel in Q1 2009 ($ '000)
|Item||Q1 2009||Q4 2008|
|Sales revenue||1 179 405||1 370 024|
|Net operating income||13 781||(251 264)|
|Net loss||(690 701)||(496 931)|
|EBITDA||(474 297)||(817 323)|
|EBITDA, margin||-40.2 %||-59.7 %|
Among all company divisions, only the mining division eked out a positive EBITDA margin: 10.6% compared with 33.2% in the fourth quarter last year. Nonetheless, the mining division had a net loss of $65.8 million in the quarter compared with a net profit of $178.5 million in the fourth quarter. Mechel blamed the decline in the gross margin on falling demand for coking coal, which meant declining production and rising marginal costs.
"In view of decreased demand for coking coal especially in the domestic market we concentrated most of our efforts on finding new customers particularly in Asia," Senior Vice President Vladimir Polin is quoted in the press release as saying. "As a result in the second quarter we signed a number of large scale long-term contracts with Chinese, Japanese and South Korean companies, which will allow us to increase utilization of coking coal mining capacity setting the base for its restoration to pre-crisis levels. We intend to maximize our efforts to improve results of our mining segment adhering to tight costs control and active marketing policy."
In the metals segment, Mechel plans to continue reducing the share of low-value-added product in output and increasing high-value-added output. In addition, the company has seen definite stabilization in prices on metals production.
"Among other things this process is supported by a decrease in stock at traders' warehouses, which has fallen to its minimal level in Russia decreasing by 26% in the past half year. We are also witnessing some positive trends on our export markets. There has been some growth in demand from Middle East as well as from South-East Asia," Polin said.
It was reported earlier that the company is in negotiations to restructure loans of $1 billion and $1.78 billion. The company hopes to agree the restructuring and the specific terms with the banks by July 15.
Renaissance Capital analyst Boris Krasnozhenov said that excluding the $592 exchange rate loss, Mechel's results were about what was expected and maybe even better, considering the net operating revenue, declining inventories and receivables.
"Excluding the exchange rate loss, it doesn't look all that bad," Troika Dialog analyst Sergei Donskoi said. "The results might have been a little better than expected if not for the one-off charge. Specifically, EBITDA would have been positive," Donskoi said.
Mechel's capital expenditures on fixed assets and the acquisition of mineral licenses totaled $96.1 million in the first quarter, including $40.6 million on the company's mining segment, $42.7 million on the metals segments, $12.8 million on ferroalloys and $25,000 on energy.
The company spent $13.6 million on acquisitions in the quarter, including $4.1 million on the purchase of minority stakes in various subsidiaries.
Capex totaled $175.5 million in the first quarter of 2008 with $41.2 million going to the mining segment, $126.9 million to steel and $7.4 million to energy. Capex thus fell 44.4% in the first quarter of 2009.
Mechel also spent $0.7 million on the purchase of minority stakes in its mining subsidiaries in January-March 2008.
The group's capex program for 2009 is planned at about $723 million, or which $130 million will be supporting investment.
The company had capex of $1.2 billion in 2008, including $712 million for mining, $337 million for metals, $101 million for ferroalloys and $21 million for energy.
Mechel has consolidated controlling shares in coal and steel companies and a number of ports. It has assets in Russia, Romania and Lithuania. Igor Zyuzin, the chief executive, is the group's main beneficiary. The free float is around 25%.