Mechel Reports the 2017 Financial Results

Consolidated revenue – 299.1 bln rubles (+8% compared to FY2016)
EBITDA^* - 81.1 bln rubles (+23% compared to FY2016)
Profit attributable to equity shareholders of Mechel PAO – 11.6 bln rubles

MOSCOW, April 05, 2018 (GLOBE NEWSWIRE) -- Mechel PAO (MOEX:MTLR) (NYSE:MTL), a leading Russian mining and steel group, announces financial results for the full year 2017.

Mechel PAO’s Chief Executive Officer Oleg Korzhov commented:
“The 2017 financial results exceeded those of 2016. High coal prices greatly supported our mining division’s results. The steel division last year had to work in a more difficult environment, but by the end of the year the situation stabilized and the division attained good results.

“Metallurgical coal prices in 2017 were influenced by a large number of different factors, including weather cataclysms in Australia, China’s policy of regulating mining and steelmaking volumes, production and shipping problems in Australia’s mines and ports. As a result, coking coal prices were fluctuating very widely, with the annual average greatly exceeding expectations.

“The steel product market was less volatile, though the first and the second halves of the year were markedly different insofar as prices for finished products and production costs were concerned. The beginning of the year was characterized by high costs as coal and iron ore prices spiked, even as many products in our range met with weak demand and low price levels. The situation improved only in the second half of the year.

“One of our mining division’s key challenges was restoration of its mining volumes which have declined due to the lack of a sufficient amount of coal prepared for extraction. Starting in the second half of 2017 and throughout this year’s first quarter, we took steps to increase stripping operations by acquiring new equipment, actively funding repairs and bringing in contractors with equipment of their own.

“Last year, we have acquired and launched dozens of machines for our mines, open pits and washing plants, as well as modernized our environment-protection equipment. That includes 55 new equipment units for our Yakutia assets alone, including 5 excavators and 23 BelAZ trucks. This year more new equipment is forthcoming, which will enable us to step up mining volumes and take better advantage of the favorable market situation.

“The steel division consistently worked on optimizing its product range. Due to a decrease in the share of low-margin product sales, we increased output of high-value added products — structural steel, flat products, rails, stampings and forgings, products from specialty steels, and hardware from high-alloyed and stainless steels.

“The Group’s capital investment in 2017 totaled 11 billion rubles, including leasing, which is 25% more than the previous year. Our plans for 2018 include a further increase in capital investment.”

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

Consolidated Results For The Full Year 2017

Mining Segment

Mechel-Mining Management Company OOO’s Chief Executive Officer Pavel Shtark noted:
“This past year was successful for the mining division with regard to financial results. The division’s revenue has grown by 12% year-on-year, EBITDA went up by 47%, and EBITDA margin reached 43%.

“This improvement was due to a favorable market conditions. The metallurgical coal market was highly volatile in 2017, with spot prices fluctuating from $141 to $314 per tonne through the year. Nevertheless, coal prices in 2017 have well exceeded the 2016 price level. For example, the average price on quarterly contracts for high-quality hard coking coal was some $210 FOB Australia, which is $96 or 84% higher than in 2016. Late 2017 was characterized by an upward price dynamics for high-quality coking coal. In November 2017 prices again topped $200 and remained over this level until the end of March 2018. As a result, contract prices for premium coking coal demonstrated further growth in 1Q2018 and reached $237 per tonne.

“At the same time, there were factors that hampered the positive dynamics of our financial results. We were faced with occasional wagon shortages and natural disasters such as the Far East flooding. A decrease in coal mining and sales volumes had its impact on the division’s results. Starting the mid-2017, the division’s facilities are implementing a large-scale program to restore production volumes.

“We also plan to increase mining volumes by further developing Elga Coal Complex. Production plans for the Elga deposit in 2018 include mining volumes growth by nearly a quarter, up to nearly 5.3 million tonnes. High-quality coking coal will account for three quarters of this total volume.”

Steel Segment

Mechel-Steel Management Company OOO’s Chief Executive Officer Andrey Ponomarev noted:
“For the steel division, the past year was uneven. The first two quarters saw weak markets and high commodity prices. In the third quarter the market situation improved and remained stable until the year’s end. Prices for steel products consolidated, production costs went back to normal. As a result, profitability in the last two quarters rebounded, but overall 2017 results were weaker than in 2016, with EBITDA down by 19% year-on-year.

“In 2017 the division’s revenue went up by 7% year-on-year. This was largely due to changes in our production and sales structure. We have almost entirely given up on selling billets and wire rod and reduced rebar sales by 11%. At the same time, rail sales went up by 18%, sales of the universal rolling mill’s other structural shapes by 33%, stainless long steel by 16%, flat steel by 17%, forgings by 18% and stampings by 28%. Thus, sales of high value-added products demonstrated growth, which had its positive impact on the whole division’s profitability and make its results more resistant to market volatility.

“In order to further improve our product range, we continue to master new types of high value added products in demand by market. For example, last year Beloretsk Metallurgical Plant designed and produced new types of ropes, rope wires, stainless wire and bar of various sizes from more than 10 alloyed and high-alloyed steels. Chelyabinsk Metallurgical Plant increased exports of the universal rolling mill’s new products after they earned European quality certificates.”

Power Segment

Mechel-Energo OOO’s Chief Executive Officer Petr Pashnin noted:
“On the whole, production and sales of the division’s key products changed little year-on-year. Positive dynamics in our revenues, both from third parties and within the group, and EBITDA was due primarily to a planned growth of electricity and heat tariffs in 2017. Also, the price growth exceeded the increase in production costs.”

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The management of Mechel will host a conference call today at 6:00 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.

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Alexey Lukashov
Director of Investor Relations
Mechel PAO
Phone: 7-495-221-88-88
Fax: 7-495-221-88-00
alexey.lukashov@mechel.com

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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.

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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 FY 2017 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, depletion and amortization, 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 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 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 depreciation, depletion, amortization 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 profit (loss) represents 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 restructuring and forgiveness of accounts payable and write-off of accounts payable with expired legal term and Other one-off items. Our adjusted profit (loss) may not be similar to adjusted profit (loss) measures of other companies. Adjusted 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 consolidated statement of profit (loss). We believe that our adjusted 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 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 consolidated statement of profit (loss) as follows:

Attachment B