Mechel Reports the 1H 2018 Financial Results

Consolidated revenue – 157.0 bln rubles (+5% compared to 1H 2017) 
EBITDA^* – 41.4 bln rubles (+3% compared to 1H 2017) 
Profit attributable to equity shareholders of Mechel PAO – 4.7 bln rubles

MOSCOW, Aug. 22, 2018 (GLOBE NEWSWIRE) -- Mechel PAO (MOEX: MTLR, NYSE: MTL), a leading Russian mining and steel group, announces financial results for the 1H 2018.

Mechel PAO’s Chief Executive Officer Oleg Korzhov commented:

“In the second quarter, the Group improved its financial results quarter-on-quarter. The first half of the year’s results have also improved year-on-year. This was due to the implementation of our strategy of increasing the share of high-margin products in our production and sales structure, as well as a favorable market environment for most of our products.

“In the second quarter, our company managed to stabilize mining volumes. The measures undertaken since mid-last year and aimed at renewing and replenishing our mining fleet, yielded positive results. The only decline in mining we registered was at Yakutugol, which had accumulated sufficient stockpiles for processing and shipping. Yakutugol focused on stripping works, which is preparation for future coal mining. Other mining facilities, including Korshunov Mining Plant, demonstrated increase in mining volumes. We continue to work on restoring our production volumes.

“A minor decrease in our steel division’s pig iron and steel production was due to planned repairs at Chelyabinsk Metallurgical Plant. We also continue to push forward with our investment projects that will enable us to substitute imports and further improve our competitive advantages and profit margin. Practically all our facilities take advantage of favorable market conditions to master production of new product types and expand into new markets.

“Among other positive news I would like to note that the Group has received Gazprombank’s confirmation of adherence to the debt repayment schedule agreed for our credit facilities, which led to the write-off of fines and penalties totaling 7.3 billion rubles.”

Consolidated Results For The 1H2018

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^*  EBITDA - Adjusted EBITDA. Please find the calculation of the Adjusted EBITDA and other non-IFRS measures used here and hereafter in Attachment A.

Mining Segment

Mechel Mining Management OOO’s Chief Executive Officer Pavel Shtark noted:

“In 2Q2018, the division demonstrated an improvement in financial results. Revenue from sales of our products to third parties went up by 13% quarter-on-quarter, EBITDA increased by 37%, and EBITDA margin reached 41%. The increase of sales of key products became the main factor that had a positive impact on the dynamics of the division’s results.

“The situation in the global coal market has worsened in 2Q2018 quarter-on-quarter as contract prices for premium hard coking coal slumped from $237 to $197 per tonne and average spot prices went down from $228 to $190 per tonne. Russia’s coal market was more stable, which enabled us to avoid the decrease in ruble prices on FCA basis quarter-on-quarter.

“The situation in China and Australia will traditionally have an impact on coal prices’ further dynamics. In August, Chinese authorities announced that investment into railway infrastructure in 2018 will most likely exceed 800 billion yuan instead of 732 billion planned earlier. China’s growing demand for steel products, combined with limitations on steel production in that country, which likely contribute to an inflated demand for high-quality imported raw materials. It is also possible that China will continue to amalgamate and consolidate coal producers while limiting mining volumes, which should also support prices.

“As for Australia, I should note that the leading producer of Australian coking coal reached record mining volumes, but export of Australian coal is unlikely to beat any records as insufficient funding will force rail freight operator Aurizon to reduce coal shipments by 20 million tonnes in 2018, including 16 million tonnes of coking coal.

“In the second quarter, the division increased coal sales volumes, as mining at Southern Kuzbass Coal Company and Elgaugol went up by 2% and 12% respectively. Mining at Yakutugol decreased quarter-on-quarter by 20%, which was due to an added focus on stripping works that exceeded the previous quarter’s results by 40%. In addition, in 1Q2018 a certain amount of coal has not been shipped, but remained in storage to be sold in the second quarter, which ensured a quarter-on-quarter increase in coal shipments. Due to large volumes of stripping works done at Yakutugol, production costs of products sold went up, but growth of mining volumes at Southern Kuzbass and Yakutugol led to a decrease in product unit costs and, ultimately, to an improved EBITDA and margin.”

Steel Segment

Mechel-Steel Management Company OOO’s Chief Executive Officer Andrey Ponomarev noted:

“In this reporting period, the division continued to improve its operational and financial results. There was an improvement of financial results both in 2Q2018 quarter-on-quarter and in 1H2018 year-on-year. Revenue from sales to third parties went up by 13% quarter-on-quarter, EBITDA went up by 33%, and margin reached 16%.

“Though early in 2Q2018 market growth was restrained by high competition and our consumers’ persistently low business activity, by mid-period demand has begun to pick up. Even though in June The 2018 FIFA World Cup put a damper on construction activity and overall demand, the price level for our products was higher quarter-on-quarter, which supported our financial results. Early in 3Q2018 prices in the market for long rolls began to grow, even though the excitement characteristic for the construction season is lacking.

“In this reporting period we increased sales of long products, hardware and stampings. Pig iron and steel production slumped by 4% and 6% accordingly quarter-on-quarter, which was due to planned repairs of Chelyabinsk Metallurgical Plant’s key facilities. In addition, we decreased shipments of rails both quarter-on-quarter and half a year on half a year, for the duration of negotiations on a new annual contract terms with Russian Railways. During this pause, the universal rolling mill was additionally loaded with beam production.”

Power Segment        

Mechel-Energo OOO’s Chief Executive Officer Petr Pashnin noted:

“In 2Q2018 the power division demonstrated an expected decline in financial and operational results quarter-on-quarter as the heating season came to a close and the repair campaign aimed at preparing our key heat and electrical equipment for the new season began. At the same time, in 1H2018 the power division demonstrated an improvement in both financial and operational results year-on-year, which was due to a higher load of our facilities in the cold winter season.”

The management of Mechel will host a conference call today at 6:00 p.m. Moscow time (4:00 p.m. London time, 11:00 a.m. New York time) to review Mechel’s financial results and comment on current operations. The call may be accessed via the Internet at http://www.mechel.com, under the Investor Relations section.

Please dial the number below approximately 10 minutes prior to the scheduled time of the call.

Conference Call Phone Numbers:

International: +44 (0) 330 336 9125 
US: +1 323-994-2082
Russia: +7 495 213 1767

Conference ID: 1122595

Alexey Lukashov
Director of Investor Relations
Mechel PAO
Phone: 7-495-221-88-88
Fax: 7-495-221-88-00
alexey.lukashov@mechel.com

Mechel is an international mining and steel company. Its products are marketed in Europe, Asia, North and South America, Africa. Mechel unites producers of coal, iron ore concentrate, steel, rolled products, ferroalloys, heat and electric power. All of its enterprises work in a single production chain, from raw materials to high value-added products.

Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel, as defined in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. We wish to caution you that these statements are only predictions and that actual events or results may differ materially. We do not intend to update these statements. We refer you to the documents Mechel files from time to time with the U.S. Securities and Exchange Commission, including our Form 20-F. These documents contain and identify important factors, including those contained in the section captioned “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in our Form 20-F, that could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, the achievement of anticipated levels of profitability, growth, cost and synergy of our recent acquisitions, the impact of competitive pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Russian economic, political and legal environment, volatility in stock markets or in the price of our shares or ADRs, financial risk management and the impact of general business and global economic conditions.

Attachments to the 1H 2018 Earnings Press Release

Attachment A

Non-IFRS financial measures. This press release includes financial information prepared in accordance with International Financial Reporting Standards, or IFRS, as well as other financial measures referred to as non-IFRS. The non-IFRS financial measures should be considered in addition to, but not as a substitute for the information prepared in accordance with IFRS.

Adjusted EBITDA (EBITDA) represents profit (loss) attributable to equity shareholders of Mechel PAO before Depreciation, depletion and amortization, Foreign exchange loss (gain), net, Finance costs including fines and penalties on overdue loans and borrowings and finance lease payments, Finance income, Net result on the disposal of non-current assets, Impairment of goodwill and other non-current assets, Write-off of accounts receivable, Write-off of inventories to net realisable value, Allowance for expected credit losses on financial assets, Allowance for doubtful accounts,  Net result on the disposal of subsidiaries, Profit (loss) attributable to non-controlling interests, Income tax expense (benefit), Pension service cost and actuarial loss, other related expenses, Other fines and penalties, Gain on restructuring and forgiveness of accounts payable and write-off of accounts payable with expired legal term and Other one-off items. Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of our Revenue. Our adjusted EBITDA may not be similar to EBITDA measures of other companies. Adjusted EBITDA is not a measurement under IFRS and should be considered in addition to, but not as a substitute for the information contained in our interim condensed consolidated statement of profit (loss) and other comprehensive income. We believe that our adjusted EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions and other investments and our ability to incur and service debt. While depreciation, depletion, amortisation and impairment of goodwill and other non-current assets are considered operating expenses under IFRS, these expenses primarily represent the non-cash current period allocation of costs associated with non-current assets acquired or constructed in prior periods. Our adjusted EBITDA calculation is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the metals and mining industry.

Our calculations of Net debt, excluding fines and penalties on overdue amounts** and trade working capital are presented below:

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** Calculations of Net debt could be differ from indicators calculated in accordance with loan agreements upon dependence on definitions in such agreements.

EBITDA can be reconciled to our interim condensed consolidated statement of profit (loss) and other comprehensive income as follows:

Attachment B

These interim condensed consolidated financial statements were prepared by Mechel PAO in accordance with IFRS and have not been audited by the independent auditor. If these interim condensed consolidated financial statements are audited in the future, the audit could reveal differences in our consolidated financial results and we cannot assure that any such differences would not be material.
There were certain reclassifications to conform with the current period presentation.