Mechel Reports The 9M 2018 Financial Results

Consolidated revenue – 237.0 bln rubles (+6% compared to 9M 2017)
EBITDA^* – 60.6 bln rubles (+3% compared to 9M 2017)
Profit attributable to equity shareholders of Mechel PAO – 11.0 bln rubles

MOSCOW, Nov. 27, 2018 (GLOBE NEWSWIRE) — Mechel PAO (MOEX: MTLR, NYSE: MTL), a leading Russian mining and steel group, announces financial results for the 9M 2018.

Mechel PAO’s Chief Executive Officer Oleg Korzhov commented:

“The Group’s nine months 2018 financial result from operating activities demonstrated a small growth year-on-year. The third quarter turned out weaker than the previous one.

“The key factors that impacted the dynamics of our results were the necessary planned repairs at our steelmaking facilities that have been put off in earlier periods due to lack of financing, as well as transport limitations due to railway car shortages. As the markets were favorable, this did not have a major impact on our revenue, but did increase operation costs and as such, brought down EBITDA and profitability.

“Later this year and next year we still have several major repairs ahead of us, necessary for increasing production and further expansion of our product range. In this reporting period, our steelmaking experts mastered and earned certificates for production of rails for speed railways, as well as mastered manufacturing of conductor rails for underground railway systems. We are also working on boosting production of stainless flats, which are much in demand.

“The mining division demonstrated stable levels of coal mining and a growth in iron ore concentrate production at Korshunov Mining Plant. Stripping volumes also demonstrated a marked increase throughout the division. Sales went down due to railcar shortages, coal was partly stored and will be sold in future periods. At the same time, coking coal concentrate sales to third parties demonstrated positive dynamics quarter-on-quarter. The decrease in shipments by third-party railcars was partially compensated by the growth in shipping using our own rolling stock. Later this year and next year we plan to expand our own railcar fleet to reduce our dependency on third-party operators.

“On a separate note, we have reached progress in restructuring our debt by refinancing our 1-billion-dollar pre-export syndicated loan. The unrestructured share of our debt portfolio is down to 9%. We continue working on restructuring the remainder of our loans and expect to complete this process next year.”

Consolidated Results For The 9M2018

Mining Segment

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

“Escalation of the trade conflict between the United States and China, the drop in yuan exchange rate and introduction of limitations against coal imports in Chinese ports led to a correction in international market spot prices for coking coal early in the third quarter to $172 per tonne FOB Australia. Later the Chinese government announced an expansion in investment into the country’s railroad infrastructure, which spiked Chinese steel production to record highs and prompted an increase in coking coal consumption. In India steel production levels have also been high. As a result, increased global demand for coking coal coincided with logistical difficulties with coal shipments from major coal exporting states, and by the quarter’s end, spot prices once again topped $200 per tonne.

“During this period, our facilities continued to implement the program of repairing and upgrading equipment, acquiring new mining machines as well as making up for the lag in preparing reserves for mining. For example, thanks to new equipment and bringing in contractors with their own fleet, stripping volumes at our coal facilities went up in the third quarter by 23% quarter-on-quarter. At Korshunov Mining Plant, stripping went up by 33%, while iron ore concentrate production increased by 17% quarter-on-quarter.

“At the same time, in this reporting period there were difficulties with supplying the division with necessary number of railcars both for transporting run-of-mine coal to washing plants and for shipping ready products to our customers. This hampered our ability to process and sell coal. Some coal remained at our storages and will be sold later when the railcar situation becomes normal.

“The decrease in coal shipments was partially compensated by the growth of coke and iron ore sales, so the slump in revenue was minor. At the same time, the growth of operation costs as stripping and repair works became more intensive had a negative impact on the EBITDA and margin dynamics.”

Steel Segment

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

“As a result of these nine months, the division demonstrated growing revenue and EBITDA, primarily due to this year’s improvement in the market situation. The third quarter’s results showed negative dynamics compared to the previous quarter. The main reason was the decrease in product sales due to production cuts. Production limitations were due to an increase in current and overhaul repairs aimed at making our equipment operation more reliable and stable. Until this year’s end and next year we plan a series of other major repairs as well as measures aimed at expanding our product range. Chelyabinsk Metallurgical Plant will conduct repairs at its blast furnace #4 and replace its converter #1 and other facilities. More works are scheduled at the plant’s agglomeration equipment, converters, concasters and rolling mills. It should be noted that this includes measures aimed at improving the plant’s safety and ecological friendliness.

“Over these nine months we have increased production of stampings by 60% due to the growth in sales of wagon axles, as the demand from both domestic and CIS rolling-stock manufacturers was high.

“I would also like to note that in the third quarter we have restored rails production volumes at Chelyabinsk Metallurgical Plant’s Universal rolling mill, which have slumped in the first half of the year. In the third quarter, we have shipped a total of 90,500 tonnes of rails which is nearly equal to the amount shipped in the first half of the year. The Universal rolling mill also continued to master production of new types of products. The mill began producing new types of shaped rolls, which are due to receive certificates from Russia’s Federal Railway Transport Register by the end of this year.”

Power Segment        

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

“The third quarter is traditionally a slow one as the heating season is over. Also, this is the time of active preparation for the new fall-winter season and preventive maintenance works on our generating equipment. As a result, the quarter’s results demonstrated an expected slump quarter-on-quarter. At the same time, nine months 2018 financial results markedly exceeded those of the same period last year, for example, EBITDA grew by 40%, which is primarily due to an increase in selling prices and the drop in operation costs.”

The management of Mechel will host a conference call today at 6:00 p.m. Moscow time (3:00 p.m. London time, 10:00 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 9411
US: +1 323-794-2575
Russia: +7 495 646 9190

Conference ID: 2937189

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 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 and amortisation, 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, 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, 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 calculation of Net debt, excluding fines and penalties on overdue amounts** is presented below:

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.

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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.

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