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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 rubles1H’ 161H’ 15%
Revenue
from 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 rubles1H’ 161H’ 15%
Revenue
from external customers
40,059 43,168 -7%
Revenue
inter-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 rubles1H’ 161H’ 15%
Revenue
from external customers
77,604 73,644 5%
Revenue
inter-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 rubles1H’ 161H’ 15%
Revenue
from external customers
12,535 13,523 -7%
Revenue
inter-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 rubles6m 20166m 2015 6m 20166m 2015 6m 20166m 2015 6m 20166m 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 rubles6m 20166m 2015 6m 20166m 2015 6m 20166m 2015 6m 20166m 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 alexey.lukashov@mechel.com

Source: Mechel PAO