Mechel Reports the 9M 2017 Financial Results

Consolidated revenue – 222.8 bln rubles (+13% compared to 9M2016)
EBITDA^* - 59.1 bln rubles (+42% compared to 9M2016)
Net profit, attributable to equity shareholders of Mechel PAO – 11.1 bln rubles

MOSCOW, Nov. 28, 2017 (GLOBE NEWSWIRE) -- Mechel PAO (MOEX:MTLR) (NYSE:MTL), a leading Russian mining and steel group, announces financial results for the 9M 2017.

Mechel PAO’s Chief Executive Officer Oleg Korzhov commented:

“The company’s financial results for 3Q2017 and 9M2017 were better than both 2Q2017 and 9M2017. The improvement was due to a favorable market situation as well as efforts made by the company to maintain its production volumes, optimize its products range, attract new customers and expand into new markets, increasing internal efficiency and cost control.

“Prices for our coal products remain comfortable both domestically and internationally. The steel product market, which was weak in the first half of this year, went back to normal by mid-year due to growing steel prices and stabilization of costs for raw materials for steelmaking.

“At the same time we worked on optimizing of our steel division’s product range and improving operational results of our mining division. The steel division continued to increase production and sales of high value-added products — structural shapes from Chelyabinsk Metallurgical Plant’s Universal rolling mill, products from special steels, and new types of products, including those oriented toward international markets.

“Using opportunities offered by favorable market conditions, we actively invested in large-scale repairs, modernization of our equipment and mining fleet. Capital investment in 9M2017 totaled 7.6 billion rubles (including leasing) that is 62% more year-on-year. These investments will enable us to reach our planned goals on production volumes and profit margin.”

Consolidated Results For The 9M 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 situation in the coal markets in 3Q2017 was more stable than in the first half of this year. Spot prices for hard coking coal in the global market grew, topping 200 US dollars per tonne by late August and staying at this level nearly until the end of the quarter. High demand from China, which was formed in the wake of high prices for finished products, as well as strikes, force majeure and production problems on some Australian mines, fueled these rates. Average spot prices for premium coking coal in 3Q2017 amounted to 189 dollars per tonne, practically unchanged since the high average price level of 2Q2017, caused by floods in Australia. In the beginning of 4Q2017, spot prices wavered around 180-190 dollars per tonne. A small shortage of premium coals as well as Asian customers’ desire to quickly secure coal contracts as shipments from Queensland ports continue to be delayed support these prices.

“Nevertheless, several factors such as shortage of rail cars and Port Posiet coal delivery limitations due to floods in the Far East led to a decrease in coal sales and accordingly a decrease in revenue quarter-on-quarter.

“By implementing measures aimed at restoring our mining volumes and coal sales, we paid great attention to preparing reserves for future mining, as well as repairs and modernization of equipment for open pits, mines and washing plants. These measures led to an increase in production costs, which brought down EBITDA quarter-on-quarter. At the same time, we expect that launching new machinery that already has partly arrived at the facilities, while the rest is due to arrive until the end of this year and in early 2018, together with additional volumes of stripping works completed, will enable us to demonstrate a stable coal production volumes recovery.”

Steel Segment

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

“The division’s results in 3Q2017 were better than in 2Q2017, as expected. The primary cause was the improvement of prices and a decrease in costs for incoming raw materials. This more than doubled our EBITDA quarter-on-quarter even as revenue remained practically at the same level. The decrease in EBITDA over 9M2017 by a quarter year-on-year was also due to cost dynamics — prices for metallurgical raw materials in this accounting period were markedly higher than last year.

“In 3Q2017 we continued to focus on increasing the high value-added products’ share in the division’s production and sales structure, as well as worked on further expanding the range of our high-margin products and their markets. The division’s facilities in this accounting period continued to master new types of products. Chelyabinsk Metallurgical Plant expanded its product range for the European market — certificates of compliance were awarded to two new types of H-beams and two new rail profiles produced at the Universal rolling mill. The welded beam workshop was also launched, which will enable the plant to expand its construction product range. In October and November, we shipped our rails to Belarus and Kazakhstan. Apart from that, Chelyabinsk Metallurgical Plant passed compliance audit for production of reinforcement steel for the European market.

“In 3Q2017 we conducted a series of large-scale repairs. At Chelyabinsk Metallurgical Plant, one of its major facilities, blast furnace #1, has undergone planned general overhaul. At Izhstal, a general overhaul was made at the smelting complex producing continuously cast billets from specialty steels.”

Power Segment

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

“The increase in the division’s revenue year-on-year was due to an increase in sales, including that of electricity generated by Southern Kuzbass Power Plant due to major repairs having been conducted in 2016, and an increase in electricity supply prices. At the same time, negative dynamics of profit and profit margin results was due to costs growth outstripping the growth of electricity tariffs, as well as an increase in costs of power transmission.”

The management of Mechel will host a conference call today at 18:00 p.m. Moscow time (3:00 p.m. London time, 10 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.

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 9M 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.