Russian miner Mechel OAO (MTL) posted net loss (as reported) of $648 million for the first half of 2014, lesser than net loss of $2,120 million recorded in the first half of 2013.
Adjusted net loss was $511 million for the first half of 2014, compared with $391 million registered in the first half of 2013.
For the second quarter of 2014, Mechel posted a net loss of $63 million, narrower than a loss of $585 million recorded in the first quarter as well as loss of $1,799 million logged a year-ago. Adjusted loss decreased to $37 million in the reported quarter from around $199 million registered in the year-ago quarter and $474 million in the previous quarter.
Revenues for the first half came in at roughly $3,444 million, down about 26% from $4,623 million in the year-ago period. The decline was due to the company’s disposal of unprofitable assets (Romanian facilities) as well as a cut down in sales of third-party products.
For the second quarter of 2014, revenues fell around 22.2% year over year and increased 3% sequentially to roughly $1,744 million.
Mechel registered an operating income of $17 million for the first half of 2014 compared with an operating income of $143 million for the first half of 2013. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 38% year over year to $250 million in the first half of 2014. The decrease in consolidated adjusted EBITDA was mainly because of lower prices for the mining division's key products as well as a decrease in sales of iron ore concentrate to third parties.
Mechel is in the process of restructuring its debt in order to stabilize its operations.
Segment Performance
Mining: The segment’s revenues from external customers were $1,122 million in the first half of 2014, down 23% from $1,463 million in the year-ago period. A decline in the prices for the division's products as well as a decrease in iron ore concentrate sales to third parties led to the decline.
EBITDA of the mining segment declined 39% year over year to $152 million in the first half of 2014. The weakness in metallurgical coal and iron ore markets significantly affected the division's operations and results in the first half of 2014.
Mechel successfully developed its Elga deposit which mined about 740,000 tons of coal, during the first nine months of 2014.
Steel: Revenues from the Steel segment decreased 29% year over year to $1,956 million in the first half of 2014. The decline resulted from the disposal of Romanian facilities and well as a cut down in sales of third-party products. Adjusted EBITDA of the Steel Mining segment declined 41% year over year to $74 million in the first half.
In the first half of 2014, the division almost entirely stopped selling billets. At present, almost all billets are processed within the company into higher-margin products, including rails and other types of rolls at Chelyabinsk Metallurgical Plant (CMP)'s universal rolling mill.
Power: The Power segment generated $366 million of revenues from external customers in the first half of 2014, down 8% year over year. The segment’s EBITDA was down 19% year over year to $21 million.
The division cut down its net loss by 7 times as compared with the first half of 2013, mainly due to the disposal of Toplofikatsia Rousse and Tikhvin Ferroalloy Plant. An increase in tariffs for the electricity produced by Kuzbass Power Sales Company OAO by 4% staring in second half is expected to have a positive impact on the segment’s results in the back half of 2014.
Mechel halted the Southern Urals Nickel Plant and disposed chrome assets, as a result of which the ferroalloys segment was excluded from the company's accounts. The division's management company was liquidated and the Bratsk Ferroalloy Plant was transferred into the steel division.
Financial Position
Capital expenditure for the first half of 2014 amounted to $276 million, with the mining division accounting for $244 million, the steel unit for $30 million and the power division for $2 million. As of Jun 30, 2014, net debt excluding financial lease obligations, was $8.7 billion (down 5% year over year), while cash and cash equivalents amounted to $68.9 million (down 74.9% year over year).
During the first half of 2014, long-term debts, including leasing debt, were re-classified as short-term as per accounting standards given the company is in the global debt restructuring process.
Mechel is a leading domestic steel and coal producer with a strong position in key businesses, including production of specialty steel and alloys. The company carries a Zacks Rank #2 (Buy).
Other steel companies worth considering include Nucor Corporation (NUE), POSCO (PKX) and Steel Dynamics Inc. (STLD), all of which carry the same rank as Mechel.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment