Mechel Reports the 1H 2016 Financial Results

Revenue – 130.2 bln rubles, Consolidated EBITDA* -  25.7 bln rubles

Net profit, attributable to shareholders of Mechel PAO – 8.3 bln rubles

MOSCOW, Aug. 29, 2016 (GLOBE NEWSWIRE) -- Mechel PAO (MICEX:MTLR) (NYSE: MTL), a leading Russian mining and steel group, announces financial results for the 1H 2016.

Mechel PAO’s Chief Executive Officer Oleg Korzhov commented on the 1H 2016 results:“If you compare the results of this year’s first six months with the same period of the previous year, you can see similar production volumes and revenue. Nevertheless, the company’s financial results have changed for the better — Mechel showed an increase in its operating profit by 23% to 17.2 billion rubles, net profit of 8.3 billion rubles and restoration of our cash flows.“A number of external and internal factors had their positive impact on the company’s results. The beginning of spring brought a revival of steelmaking commodities export markets and the domestic steel market. Product prices demonstrated growth compared to the minimums reached at the end of the previous year and at the beginning of this year. The market situation prompted a growth of the company’s operating profit and improvement of its financial results. In this period we completed restructuring of our loans with Russian state banks, which enabled us to balance our financial payments. Also in late June we completed the deal on selling 49% in the Elga project to Gazprombank, which allowed us to source repayment of loans in the amount of 32.9 billion rubles and overdue interest payments from the previous periods.“Currently we see a weaker activity on the metals market, which is offset by a major growth of spot prices for hard coking coal, and that will enable us to retain the Group’s profitability as a whole.”

Consolidated Results For The 1H 2016

Mln rubles	1H’ 16			1H’ 15			%
Revenuefrom external customers		130,197			130,334			0	%
Operating profit		17,200			13,945			23	%
EBITDA		25,721			23,602			9	%
EBITDA, margin		20	%		18	%
Net profit (loss) attributable to shareholders of Mechel PAO		8,300			(16,746	)

Mining Segment

Mechel Mining Management Company OOO’s Chief Executive Officer Pavel Shtark noted:“In late 2015, the metallurgical coal market reached its minimum. Despite the positive trends which appeared in 1Q2016, the overall price level in this period was significantly lower than the previous year’s. In the first and second quarters of this year, contract prices for hard coking coal were $81 and $84 per tonne, while in the first and second quarters of 2015 those prices were $117 and $109.5 per tonne. The decrease of sales of several types of products as market demand weakened in 1Q2016, had an additional negative impact on the division’s revenue. Nevertheless, optimization of our costs structure enabled us, despite a drop in revenue and prices, to increase the division’s EBITDA by 10% to 14.4 billion rubles, while the EBITDA margin went from 23% to 26% year-on-year.“It is worth noting that by mid-summer the level of prices for Australian coal returned to the early 2015 level. Limited supply of imported coal in China became the chief factor for growth. Also, due to strong rains in eastern and southern China shipping within the country became complicated, and consumers became more active in buying imported raw materials. Record low levels of commodity stock in Chinese ports and storages also contribute to increased demand. As of now, spot prices for Australian hard coking coal reached $128 per tonne, which should uphold the trend for a quarterly increase in contract prices.”

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

Mln rubles	1H’ 16			1H’ 15			%
Revenue from external customers		40,059			43,168			-7	%
Revenueinter-segment		14,711			13,309			11	%
EBITDA		14,438			13,139			10	%
EBITDA, margin		26	%		23	%

Steel Segment

Mechel-Steel Management Company OOO’s Chief Executive Officer Andrey Ponomarev noted:“For the second year in a row, the year’s first two quarters demonstrate a radically different market situation. The previous year began with an upsurge in demand and prices for construction product range affected by the devaluation of the ruble. After that, the heightened demand was calmed, prices went down and stayed low by the end of 1H2015. In late 2015 and early 2016, prices were at their minimum, but then, as export prices and steel deficit on local markets grew, prices for the division’s products also increased.“Despite mixed market dynamics in each quarter, average prices for each half-year were the same. Increased sales, particularly of rebar and other types of long products, resulted in growth of revenue by 5%. Comparable growth of costs allowed us to retain EBITDA margin flat.

“Prices on the steel market are currently being adjusted downwards. The division’s future operational results will be less volatile due to the change in the sales structure through this year’s planned increase of the Chelyabinsk Metallurgical Plant’s universal rolling mill capacity utilization to 60%, as well as the growth in production of high-quality steel grades at the group’s facilities.”

Mln rubles	1H’ 16			1H’ 15			%
Revenue from external customers		77,604			73,644			5	%
Revenueinter-segment		3,619			3,392			7	%
EBITDA		9,520			9,413			1	%
EBITDA, margin		12	%		12	%

Power Segment        

Mechel-Energo OOO’s Chief Executive Officer Petr Pashnin noted:“The division continues to demonstrate positive financial results. Despite a minor decrease in revenue, which was partly due to additional repairs and reconstruction of our generating facilities, our operational efficiency enabled us to improve our financial results.”

Mln rubles	1H’ 16			1H’ 15			%
Revenue from external customers		12,535			13,523			-7	%
Revenueinter-segment		7,899			7,467			6	%
EBITDA		2,014			1,339			50	%
EBITDA, margin		10	%		6	%

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 one of the leading Russian companies. Its business includes three operating segments: mining, steel and power. Mechel unites producers of coal, iron ore concentrate, steel, rolled products, ferroalloys, hardware, heat and electric power. Mechel products are marketed domestically and internationally.

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 2016 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 net profit or loss before Depreciation, depletion and amortization, Foreign exchange (gain) loss, net, Finance costs, including fines and penalties on overdue loans and borrowings and finance leases payments, Finance income, Net result on the disposal of non-current assets, Impairment of goodwill and other non-current assets, Allowance for doubtful accounts,  Write-offs of inventories to net realisable value, Loss (profit) after tax from discontinued operations, net, Net result on the disposal of subsidiaries, Income (loss) attributable to non-controlling interests, Income tax (benefit) expense, Pension service cost and actuarial loss, other expenses, Fines and penalties and Gain on write-off of accounts payable with expired legal term. 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, depletion and amortization 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) 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 net loss attributable to non-controlling interests, Foreign exchange (gain) loss, net, Pension service cost and actuarial loss, other expenses, Fines and penalties and, Gain on write-off of accounts payable with expired legal term. 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:

Mln rubles		30.06.2016			31.12.2015			30.06.2015
Short-term borrowings and current portion of long-term debt		410,334			444,199			371,596
Interest payable		16,246			27,269			17,454
Long-term debt		8,235			4,308			885
less Cash and cash equivalents		(2,822	)		(3,079	)		(2,500	)
Net debt, excluding finance lease liabilities, fines and penalties on overdue amounts		431,993			472,697			387,435
Finance lease liabilities, current portion		12,676			13,507			15,474
Finance lease liabilities, non-current portion		102			481			56
Net debt, excluding fines and penalties on overdue amounts		444,771			486,685			402,965
Mln rubles		30.06.2016			31.12.2015			30.06.2015
Trade and other receivables		19,979			16,013			19,781
Inventories		35,354			35,189			32,528
Other current assets		9,159			8,191			8,849
Income tax receivables		400			603			554
Trade current assets		64,892			59,996			61,712
Trade and other payables		50,162			54,602			58,889
Advances received		3,385			3,492			3,843
Provisions and other current liabilities		2,396			2,558			1,836
Tax payable other than income tax		10,373			8,034			9,730
Income tax payable		4,342			5,549			6,269
Trade current liabilities		70,658			74,235			80,567
Trade working capital		(5,766	)		(14,239	)		(18,855	)

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

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

	Consolidated Results							Mining Segment ****							Steel Segment ****							Power Segment ****
Mln rubles	6m 2016			6m 2015				6m 2016			6m 2015				6m 2016			6m 2015				6m 2016			6m 2015
Net profit (loss) attributable to shareholders of Mechel PAO		8,300			(16,746	)			250			(5,095	)			7,629			(11,254	)			669			(110	)
Add:
Depreciation, depletion and amortization		6,566			6,818				3,788			4,147				2,603			2,475				175			196
Foreign exchange (gain) loss, net		(17,442	)		(1,806	)			(10,009	)		(2,722	)			(7,358	)		927				(76	)		(11	)
Finance costs, including fines and penalties on overdue loans and borrowings and finance leases payments		29,800			32,675				22,150			18,108				8,153			14,008				587			1,224
Finance income		(3,887	)		(77	)			(3,551	)		(527	)			(1,337	)		(188	)			(89	)		(24	)
Net result on the disposal of non-current assets, impairment of goodwill and other non-current assets, allowance for doubtful accounts and write-offs of inventories to net realisable value		1,230			2,054				331			670				360			1,177				540			206
Loss (profit) after tax from discontinued operations, net		244			(598	)			(41	)		(701	)			270			88				15			15
Net result on the disposal of subsidiaries		(55	)		1				-			-				(55	)		1				-			-
Income (loss) attributable to non-controlling interests		862			820				273			385				465			454				125			(19	)
Income tax (benefit) expense		(630	)		242				821			(1,162	)			(1,510	)		1,556				59			(152	)
Pension service cost and actuarial loss, other expenses		83			83				61			61				21			20				1			3
Fines and penalties		668			273				366			(25	)			295			287				8			11
Gain on write-off of accounts payable with expired legal term		(18	)		(137	)			-			-				(18	)		(137	)			-			-
EBITDA		25,721			23,602				14,438			13,139				9,520			9,413				2,014			1,339
EBITDA, margin		20	%		18	%			26	%		23	%			12	%		12	%			10	%		6	%
Mln rubles	6m 2016			6m 2015				6m 2016			6m 2015				6m 2016			6m 2015				6m 2016			6m 2015
Net profit (loss) attributable to shareholders of Mechel PAO		8,300			(16,746	)			250			(5,095	)			7,629			(11,254	)			669			(110	)
Add:
Loss (profit) after tax from discontinued operations, net		244			(598	)			(41	)		(701	)			270			88				15			15
Net result on the disposal of subsidiaries		(55	)		1				-			-				(55	)		1				-			-
Effect on loss attributable to non-controlling interests		(40	)		(14	)			-			-				(40	)		(14	)			-			-
Foreign exchange (gain) loss, net		(17,442	)		(1,806	)			(10,009	)		(2,722	)			(7,358	)		927				(76	)		(11	)
Pension service cost and actuarial loss, other expenses		83			83				61			61				21			20				1			3
Fines and penalties		668			273				366			(25	)			295			287				8			11
Gain on write-off of accounts payable with expired legal term		(18	)		(137	)			-			-				(18	)		(137	)			-			-
Net (loss) profit, net of income tax		(8,260	)		(18,994	)			(9,374	)		(8,482	)			745			(10,083	)			618			(91	)
Operating profit		17,200			13,945				9,858			8,048				6,284			5,270				1,307			916
Add:
Loss on write-off of property, plant and equipment		121			99				109			38				13			61				-			-
Pension service cost and actuarial loss, other expenses		83			83				61			61				21			20				1			3
Fines and penalties		668			273				366			(25	)			295			287				8			11
Adjusted operating profit		18,072			14,400				10,393			8,122				6,612			5,637				1,316			930
**** including inter-segment operations

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

Attachment B

Interim condensed consolidated statement of financial position
(All amounts are in millions of Russian rubles)
		June 30, 2016				December 31,
		(unaudited)				2015*****
Assets
Current assets
Cash and cash equivalents			2,822				3,079
Trade and other receivables			19,979				16,013
Inventories			35,354				35,189
Income tax receivables			400				603
Other current financial assets			17				45
Other current assets			9,159				8,191
Total current assets			67,731				63,120
Non-current assets
Property, plant and equipment			210,687				215,844
Mineral licenses			37,593				38,517
Non-current financial assets			166				194
Investments in associates			295				284
Deferred tax assets			1,364				1,492
Goodwill			21,311				21,378
Other non-current assets			1,036				1,243
Total non-current assets			272,452				278,952
Total assets			340,183				342,072
Equity and liabilities
Current liabilities
Interest-bearing loans and borrowings, including Interest payable, fines and penalties on overdue amounts of RUB 36,111 million and RUB 47,475 million as of June 30, 2016 and December 31, 2015			446,445				491,674
Trade and other payables			50,162				54,602
Advances received			3,385				3,492
Provisions			2,365				2,532
Pension obligations			1,120				1,120
Finance lease liabilities			12,676				13,507
Income tax payable			4,342				5,549
Tax payable other than income tax			10,373				8,034
Other current liabilities			31				26
Total current liabilities			530,899				580,536
Non-current liabilities
Interest-bearing loans and borrowings			8,235				4,308
Provisions			3,604				3,439
Pension obligations			3,654				3,746
Finance lease liabilities			102				481
Deferred tax liabilities			10,749				11,090
Other non-current liabilities			171				189
Income tax payable			-				137
Total non-current liabilities			26,515				23,390
Total liabilities			557,414				603,926
Equity
Common shares			4,163				4,163
Preferred shares			833				833
Additional paid-in capital and other reserves			18,598				28,322
Accumulated other comprehensive income			1,579				445
Accumulated deficit			(293,232	)			(301,565		)
Equity attributable to equity shareholders of Mechel PAO			(268,059	)			(267,802		)
Non-controlling interests			50,828				5,948
Total equity			(217,231	)			(261,854		)
Total equity and liabilities			340,183				342,072

Interim condensed consolidated statement of profit (loss) and other comprehensive income (loss)
(All amounts are in millions of Russian rubles)		6 months ended June 30,
			2016				2015
		(unaudited)				(unaudited)
Continuing operations
Revenue			130,197				130,334
Cost of goods sold			(72,175	)			(77,007	)
Gross profit			58,022				53,327
Selling and distribution expenses			(28,167	)			(26,636	)
Loss on write-off of property, plant and equipment			(121	)			(99	)
Allowance for doubtful accounts			(543	)			(1,022	)
Taxes other than income taxes			(3,168	)			(2,856	)
Administrative and other operating expenses			(9,100	)			(8,829	)
Other operating income			277				60
Total selling, distribution and operating expenses, net			(40,822	)			(39,382	)
Operating profit			17,200				13,945
Finance income			3,887				77
Finance costs including fines and penalties on overdue loans and borrowings and finance leases payments of RUB 4,567 million, RUB 10,658 million for the periods ended June 30, 2016 and 2015			(29,800	)			(32,675	)
Foreign exchange gain (loss), net			17,442				1,806
Share of profit of associates			16				12
Other income			168				554
Other expenses			(137	)			(1	)
Total other income and (expense), net			(8,424	)			(30,227	)
Profit (loss) before tax from continuing operations			8,776				(16,282	)
Income tax benefit (expense)			630				(242	)
Profit (loss) from continuing operations			9,406				(16,524	)
Discontinued operations
(Loss) profit after tax from discontinued operations, net			(244	)			598
Profit (loss) for the period			9,162				(15,926	)
Attributable to:
Equity holders of the parent			8,300				(16,746	)
Non-controlling interests			862				820
Other comprehensive income
Other comprehensive income to be reclassified to profit or loss in subsequent periods, net of income tax:			1,077				3,442
Exchange differences on translation of foreign operations			1,085				3,434
Net (loss) gain on available for sale financial assets			(8	)			8
Other comprehensive income not to be reclassified to profit or loss in subsequent periods, net of income tax:			-				7
Re-measurement gain on defined benefit plans			-				7
Other comprehensive income for the period, net of tax			1,077				3,449
Total comprehensive income (loss), net of tax			10,239				(12,477	)
Attributable to:
Equity holders of the parent			9,377				(13,297	)
Non-controlling interests			862				820

Interim condensed consolidated statement of Cash Flows
(All amounts are in millions of Russian rubles, unless stated otherwise)		6 months ended June 30,
			2016				2015
		(unaudited)				(unaudited)
Cash Flows from Operating Activities
Net profit (loss)			9,162				(15,926	)
Loss (profit) from discontinued operations, net of income tax			244				(598	)
Net profit (loss) from continuing operations			9,406				(16,524	)
Adjustments to reconcile net profit (loss) from continuing operations to net cash provided by operating activities:
Depreciation			5,745				6,072
Depletion and amortization			822				746
Foreign exchange (gain) loss, net			(17,442	)			(1,806	)
Deferred income taxes			(252	)			337
Allowance for doubtful accounts			543				1,022
Write-off of accounts receivable			210				83
Write-off of inventories to net realisable value			386				962
Revision in estimated cash flows of rehabilitation provision			(12	)			(15	)
Loss on write-off of property, plant and equipment			121				99
Loss (gain) on sale of property, plant and equipment			10				(30	)
Gain on write-off of accounts payable with expired legal term			(16	)			(137	)
Pension service cost and actuarial loss, other expenses			83				83
Finance income			(3,887	)			(77	)
Finance costs, including fines and penalties on overdue loans and borrowings and finance leases payments			29,800				32,675
Other			72				559
Changes in working capital items:
Trade and other receivables			(5,247	)			(355	)
Inventories			(1,714	)			2,292
Trade and other payables			1,318				495
Advances received			65				(186	)
Taxes payable and other current liabilities			1,090				(260	)
Other current assets			(973	)			(77	)
Income tax paid			(545	)			(779	)
Net operating cash flows of discontinued operations			(306	)			(338	)
Net cash provided by operating activities			19,277				24,842
Cash Flows from Investing Activities
Monthly installments for acquisition of DEMP			(2,652	)			(2,694	)
Proceeds from disposal of securities			-				143
Loans issued and other investments			(11	)			(2	)
Interest received			1				25
Proceeds from disposal of subsidiaries			13				62
Proceeds from disposal of Bluestone			-				101
Proceeds from loans issued			28				7
Proceeds from disposals of property, plant and equipment			97				244
Purchases of property, plant and equipment			(989	)			(2,265	)
Interest paid, capitalized			(243	)			(478	)
Net cash used in investing activities			(3,756	)			(4,857	)
Cash Flows from Financing Activities
Proceeds from borrowings			4,140				2,137
Repayment of borrowings			(36,071	)			(7,227	)
Interest paid			(17,203	)			(15,412	)
Dividends paid to noncontrolling interest			-				(1	)
Disposal of noncontrolling interest in subsidiaries			34,300				-
Repayment of obligations under finance lease			(968	)			(849	)
Net cash used in financing activities			(15,802	)			(21,352	)
Effect of exchange rate changes on cash and cash equivalents			12				(36	)
Net decrease in cash and cash equivalents			(269	)			(1,403	)
Cash and cash equivalents at beginning of period			3,079				3,983
Cash and cash equivalents net of overdrafts at beginning of period			891				1,344
Cash and cash equivalents at end of period			2,822				2,500
Cash and cash equivalents net of overdrafts at end of period			622				(59	)

*****there were certain reclassifications to conform with the current period presentation

 

Alexey Lukashov
Director of Investor Relations
Mechel PAO
Phone: 7-495-221-88-88
Fax: 7-495-221-88-00
[email protected]

Source: Mechel PAO

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