MOSCOW, May 29 /PRNewswire-FirstCall/ -- Mechel OAO (NYSE: MTL), a leading Russian integrated mining and steel group, today announced financial results for the full year ended December 31, 2007.

    US$ thousand                   FY 2007         FY 2006         Change
                                                                   Y-on-Y
    Revenues                      6,683,842       4,397,811         52.0%
    Net operating income          1,397,593         725,698         92.6%
    Net operating margin               20.9%           16.5%            -
    Net income                      913,050         603,249         51.4%
    EBITDA *                      1,658,661       1,068,258         55.3%
    EBITDA margin                      24.8%           24.3%            -

     * See Attachment A.

Igor Zyuzin, Mechel's Chief Executive Officer, commented on the full year results: 'We achieved record financial results for the second consecutive year and benefited from our balanced business model, combining mining and steel assets. Based on our strategy of developing our base of raw materials and increasing market share of high value added products, we ramped up production volumes and improved our financial performance, nearly doubling operating income for the year. Mechel's strong performance was also due to synergistic acquisitions that supported our production capability and created a foundation for future growth.'

Consolidated Results

Net revenue in 2007 rose by 52.0% to $6.7 billion from $4.4 billion in 2006. Operating income rose 92.6% to $1.4 billion, or 20.9% of net revenue in 2007, compared to operating income of $725.7 million, or 16.5% of net revenue in 2006.

For 2007, Mechel reported consolidated net income of $913.1 million, or $2.19 per ADR / diluted share, an increase of 51.4% over consolidated net income of $603.2 million, or $1.48 per ADR / diluted share, in 2006.

Consolidated EBITDA rose 55.3% to $1.7 billion in 2007, compared to $1.1 billion in the year ago period, reflecting the positive impact of favorable market conditions, new assets acquisitions, entering into more effective market segments and a structured expense management approach.

    Mining Segment Results(1)

    US$ thousand                    FY 2007         FY 2006        Change
                                                                   Y-on-Y
    Revenues from external
     customers                    1,844,759       1,305,554         41.3%
    Intersegment sales              712,237         376,968         88.9%
    Operating income                886,698         319,048        177.9%
    Net income                      591,943         195,504        202.8%
    EBITDA                          995,660         404,666        146.0%
    EBITDA margin(2)                   38.9%           24.1%            -


     (1) - Results of 2006 are recalculated to reflect separate reporting for
           the power segment.
     (2) - EBITDA margin is calculated as a percentage of consolidated
           revenues of the segment, including intersegment sales.


    Mining Segment Output

    Product                   FY 2007, thousand tonnes   FY 2007 vs. FY 2006
    Coal                             21,195                     25%
    Coking coal                      10,419                      7%
    Steam coal                       10,775                     47%
    Iron ore concentrate              4,963                      0
    Nickel                            17.14                     19%

Mining segment revenue for 2007 totaled $1.8 billion, or 28% of consolidated net revenue, an increase of 41.3% over segment revenue of $1.3 billion, or 30% of consolidated net revenue in the 2006. The increase in revenue reflects production growth at our principal coal producer Southern Kuzbass, production growth at Yakutugol, and the acquisition of the remaining assets of Yakutugol, the largest Russian coking coal producer. These factors resulted in strengthened market position and increased sales of mining products to third parties for the year.

Operating income in the mining segment in 2007 increased by 177.9% to $886.7 million, or 34.7% of total segment sales, compared to operating income of $319.0 million, or 19.0% of total segment sales a year ago. EBITDA in the mining segment in 2007 increased by 146.0% to $995.7 million compared to EBITDA of $404.7 million in 2006. The EBITDA margin of the mining segment was 38.9% for the 2007 full year period, versus 24.1% in 2006.

Igor Zyuzin commented on the mining segment operating results: 'Mechel's mining segment experienced a breakthrough year in 2007. As demand and the pricing environment continued to improve significantly, Mechel increased production, successfully raising coal production by 25% and nickel production by 19%. With the acquisition of strategic assets, such as Yakutugol and Elgaugol, we have strengthened Mechel as global company with significant growth potential. As a result of favorable pricing and increased production, net income for 2007 increased 3 times compared to 2006. Profitability in the mining segment was also positively affected by cost control efforts and successful execution of the technical upgrade program for segment's mining plants technical upgrade program. As a part of the program, new highly productive extractive equipment is being commissioned at our facilities on a regular basis. Looking forward, favorable pricing at the end of last year has continued to improve in 2008. We intend to capitalize on the current market environment by increasing sales, controlling expenses and operating in the most attractive and promising markets.'

    Steel Segment Results(3)

    US$ thousand                    FY 2007         FY 2006        Change
                                                                   Y-on-Y
    Revenues from external
     customers                    4,335,768       3,042,793         42.5%
    Intersegment sales              107,432          40,859        162.9%
    Operating income                558,174         406,466         37.3%
    Net income                      394,207         410,142         (3.9%)
    EBITDA                          733,523         663,244         10.6%
    EBITDA margin(4)                   16.5%           21.5%            -


     (3) - Results of 2006 are recalculated to reflect separate reporting for
           the power segment.
     (4) - EBITDA margin is calculated as a percentage of consolidated
           revenues of the segment, including intersegment sales.


    Steel Segment Output

    Product                   FY 2007, thousand tonnes   FY 2007 vs. FY 2006
    Coke                               3,886                   51%
    Pig iron                           3,685                    1%
    Steel                              6,090                    2%
    Rolled products                    5,137                    9%
    Hardware                             683                   12%

Revenue from Mechel's steel segment increased by 42.5% in 2007 to $4.3 billion, or 65% of consolidated net revenue, from $3.0 billion, or 69% of consolidated net revenue, in 2006.

Operating income in the steel segment increased by 37.3% to $558.2 million, or 12.6% of total segment sales, compared to operating income of $406.5 million, or 13.2% of total segment sales, in the 2006 full year period. EBITDA in the steel segment for 2007 increased by 10.6% to $733.5 million over segment EBITDA of $663.2 million in 2006. The EBITDA margin of the steel segment was 16.5% in 2007 compared to 21.5% in 2006.

Commenting on operating results in the steel segment, Igor Zyuzin said: 'Although we successfully executed our plans to increase production capacity, the pricing environment for metallurgical products especially in the second half of the year remained challenging. With higher transportation costs and steadily growing prices for raw materials, scrap, electric power and gas, our steel products prices were flat to down. Record high nickel prices also affected profitability in Mechel's steels segment, which is Russia's largest stainless flat products producer. In addition, rebar market overstocking led to decreased pricing in the latter half of 2007, which put pressure on our profitability as we have a significant market share for long steel products. As a primary objective for the steel segment, we are continuing to concentrate on increasing output of high value-added products and achieving earnings growth through modernizing production facilities and controlling costs. Despite the ongoing high materials costs, we continue to see an improving economic environment for our products, which makes us optimistic regarding improved financial performance in the steel segment.'

    Power Segment Results(5)

    US$ thousand                    FY 2007         FY 2006        Change
                                                                   Y-on-Y
    Revenues from external
     customers                      503,316          49,463        917.6%
    Intersegment sales               95,199          73,859         28.9%
    Operating income                 12,627           8,649         46.0%
    Net income / (loss)             (13,047)          6,066
    EBITDA                           26,761           9,190        191.2%
    EBITDA margin(6)                    4.5%            7.5%


     (5) - Results of 2006 were previously reported as part of the mining
           and steel segments.
     (6) - EBITDA margin is calculated as a percentage of consolidated
           revenues of the segment, including intersegment sales.

Revenue in Mechel's power segment from sales to 3rd parties totaled $503.3 million, or 8% of consolidated net revenue, an increase of 917.6% over revenue from sales to the third parties of $49.5 million or 1% of consolidated net revenue in the 2006.

Operating income in the power segment in 2007, was $12.6 million, or 2.1% of total segment revenues, an increase of 46% compared to operating income of $8.6 million, or 7.0% of total segment revenues a year ago.