Mechel Reports the 1H 2017 Financial Results

Consolidated revenue – 149.4 bln rubles (+15% compared to 1H2016)
EBITDA^* - 40.2 bln rubles (+56% compared to 1H2016)
Net profit, attributable to equity shareholders of Mechel PAO – 5.0 bln rubles

MOSCOW, Aug. 23, 2017 (GLOBE NEWSWIRE) -- Mechel PAO (MOEX:MTLR) (NYSE:MTL), a leading Russian mining and steel group, announces financial results for the 1H2017.

Mechel PAO’s Chief Executive Officer Oleg Korzhov commented:

“The company’s 1H2017 results demonstrated a substantial improvement year-on-year. This became possible due to a positive dynamics in the coking coal market, significant diversification of our steel facilities’ products and an increase in the share of high value-added products — rails, beams and special steel. The company made every effort to efficiently use opportunities presented by favorable market conditions to improve its financial results and free cash flow. The net profit figure was largely driven by the currency denominated debt revaluation depending on currency exchange rates fluctuations.

Also, we  made significant progress in repairs of our technological equipment and increase in our machinery fleet by acquiring new vehicles,  lease financing and contractors outsourcing. Over the last six months, we made major repairs of our production facilities at our steel and mining segments, acquired and put into operation new trucks, excavators and other mining machinery. Capital investment in 1H2017 increased by more than twofold and reached 5.4 bln rubles. More than several dozen of vehicles are planned to arrive at our mining facilities by the end of the year. Considering the specifics of mining, the results of these efforts will be reflected in our future operating results.”

Consolidated Results For The 1H 2017

^*  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:

“The coking coal market’s volatility, which we observed late last year and early this year, remained in the second quarter. April began with a hike in prices for high-quality hard coking coal concentrate from around $150 per tonne to over $300 per tonne after tropical storm Debbie seriously damaged the railroads used for transportation of coal mined in Australia’s Queensland to ports. These damages had briefly cut down coal exports from this region to international markets, creating a supply shortage. By mid-May, as local infrastructure recovered, coal prices went back to the level prior to the force majeure and remained there until the end of the quarter. In the third quarter, coal prices again began to grow and currently spot prices for hard coking coal are nearly at the level of $200 per tonne.

Due to uncertain spot market situation, negotiations between Australian mining companies and Japanese steelmakers regarding the 2Q2017 contract prices for hard coking coal had dragged out and ultimately resulted in a transfer to a new price system linked to spot indices. The ‘benchmark’ for hard coking coal was replaced by a ‘reference rate’ calculated as an average spot index over the period a month before the supply period.

The division took the advantage from the favorable market situation early in this quarter and increase coking coal exports to Asia-Pacific Region. We increased mining volumes by 4% quarter-on-quarter. Sales of coking coal concentrate also increased by 4%. Coking coal concentrate exports in 2Q2017 went up by over 20% quarter-on-quarter, and we nearly quadrupled our exports of Elga coal. Nevertheless, average commodity prices in 2Q2017 were lower than in 1Q2017, that led to a decrease in revenue and EBITDA quarter-on-quarter.”

Steel Segment

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

“In 2Q2017, we continued to increase the share of high value-added products in the division’s sales structure. We have almost given up selling billets and reduced sales of wire rod by more than a quarter. Flat products sales remained at the previous quarter’s level. Sales of products made at Chelyabinsk Metallurgical Plant’s universal rolling mill, rebar and hardware went up. At the same time, the division’s revenue growth was limited by the second quarter’s market situation, which was weaker than in the first quarter. Since April, Russia’s rebar market has been hit by a negative price dynamics due to high stock, weak demand and the price slump on global markets of semi-finished and finished products. Prices began to recover only by the end of the quarter. This positive dynamics still persists, but effect from current prices will be reflected in the third quarter’s results. Meanwhile, even as revenue from sales to third parties grew, the division’s EBITDA decreased. Diversification of our product range improved the division’s financial results, but high commodity prices, including prices for raw materials acquired within the group, negated this effect.

In 2Q2017, we made a range of repairs to our facilities’ equipment. At Chelyabinsk Metallurgical Plant, we repaired two sintering machines and completed equipment repairs in the oxygen-converter workshop. At Izhstal, we conducted major repairs of the arc furnace for alloyed, stainless and high-speed steels. These measures will ensure stable and efficient work of those facilities and increase the level of ecological safety. We also continued to master production of new types of products. For example, Chelyabinsk Metallurgical Plant implemented technical solutions enabling the plant to produce bulk ingots. This production technology was successfully tested early in the third quarter 2017. The universal rolling mill also mastered production of new types of profiles, including rails compliant with the European railroad standards.”

Power Segment        

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

“The second quarter’s financial results demonstrated a foreseen decrease quarter-on-quarter, as heat and electricity generation and sales went down with the closure of the heating season and beginning of repairs. The weakening of 1H2017 financial results year-on-year, even with a positive dynamics in our revenue, is due to the growth of tariffs on electricity for resale.”

The management of Mechel will host a conference call today at 18:00 p.m. Moscow time (4:00 p.m. London time, 11 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.

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 2017 Financial results 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 net profit (loss) attributable to equity shareholders of Mechel PAO before Depreciation and depletion, Foreign exchange (gain) loss, 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, Provision (reversal of provision) for doubtful accounts,  Write-off of inventories to net realisable value, Loss (profit) after tax from discontinued operations, net, 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 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). 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 interest expenses, depreciation and depletion 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.

Adjusted net profit (loss) represents net profit (loss) attributable to equity shareholders of Mechel PAO before Impairment of goodwill and other non-current assets, Loss (profit) after tax from discontinued operations, net, Net result on the disposal of subsidiaries, Effect on loss attributable to non-controlling interests, Foreign exchange (gain) loss, net, Pension service cost and actuarial loss, other related expenses, Other fines and penalties, Gain on write-off of accounts payable with expired legal term and Other one-off items. Our adjusted net profit (loss) may not be similar to adjusted net profit (loss) measures of other companies. Adjusted net profit (loss) 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). We believe that our adjusted net profit (loss) provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations. While impairment of goodwill and other non-current assets is considered operating expenses under IFRS, these expenses represent the non-cash current period allocation of costs associated with assets acquired or constructed in prior periods. Our adjusted net profit (loss) calculation is 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:

**  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) 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.