Mechel update ferroalloys segment result for H1 2010
H1'10 H1'09 Change
Revenue 227,539 130,988 73.70%
Intersegment sales 77,125 19,419 297.20%
Operating income 4,719 -30,341 115.60%
Net income -91,842 -202,503 54.60%
(In thousand USD)
Ferroalloy segment revenue from external customers in the first half of 2010 amounted to USD 227.5 million, or 5.3% of the consolidated net revenue, an increase of 73.7% compared with segment revenue from external customers of USD 131.0 million or 5.3% of the consolidated net revenue in the first half of 2009.
In the first half of 2010 the operating income in the ferroalloy segment totaled USD 4.7 million or 1.55% of total segment revenue, versus operating loss of USD 30.3 million, or -20.17% of total segment’s revenue in the first half of 2009. The EBITDA in the ferroalloy segment in the first half of 2010 increased by 857.5% and amounted USD 40.0 million, compared to segment’s EBITDA loss of USD 5.3 million in the first half of 2009.
The EBITDA margin of the ferroalloy segment comprised 13.13% in the first half of 2010 compared to the EBITDA negative margin of 3.51% in the first half of 2009. Ferroalloy segment depreciation, depletion and amortization in the first half of 2010 was USD 32.6 million, an increase of 49.5% over USD 21.8 million in the first half of 2009.
Mr Gennadiy Ovchinnikov CEO of Mechel Ferroalloys Management Company said “We saw significant improvement of market conditions for our ferroalloy products in the first half of 2010. Combined with sales volumes growth, including our intersegment sales, it allowed us to substantially enhance revenue and to attain operating profit for the period.
However there were some factors which had a negative impact on the results of the ferroalloys segment. In particular raw materials and electricity price growth in the second quarter of this year led to an increase in ferronickel and ferrochrome production costs, although the ferrosilicon production costs on the contrary decreased. In response to the market conditions we reduced the share of 75% ferrosilicon and increased production of 65% ferrosilicon in our sales, which requires less electricity for production.
Difficult mining and geological conditions at Voskhod chromites mine resulted in decrease of chromites ore production and hence reduction of ferrochrome output at Tikhvin Ferroalloy Plant. However, by now we have already reached a new mining layer and are planning to increase ore production in the fourth quarter accordingly.
Overall, we consider the segment’s results for the period to be fairly good. 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.”
