Mechel Reports the 1Q 2017 Financial Results

Consolidated revenue – 77.4 bln rubles, EBITDA^* -  22.8 bln rubles
Net profit, attributable to equity shareholders of Mechel PAO – 13.9 bln rubles

MOSCOW, May 31, 2017 (GLOBE NEWSWIRE) -- Mechel PAO (MOEX:MTLR) (NYSE:MTL), a leading Russian mining and steel group, announces financial results for the 1Q 2017.

Mechel PAO’s Chief Executive Officer Oleg Korzhov commented:

“In the first quarter of 2017 the Group showed good financial results. Favorable price trends had their positive impact. Even though spot prices for premium coking coal went down from the heights they reached in the fourth quarter of 2016 to $150-170 per tonne by mid-quarter, the first quarter’s contract prices were higher than in the fourth quarter of 2016, which enabled us to retain average prices at a high level. Thanks to this situation, our mining segment managed to achieve an observable growth of EBITDA.

“At the same time, for our steel segment which produces primarily construction range products, the first quarter is traditionally the time of weaker demand and lower prices. High prices for coal and iron ore, which support our mining segment’s results, contributed to production cost growth of our steel segment. As a result, even though revenue was only 2% lower quarter-on-quarter, the steel segment’s EBITDA declined by half.

“In total our consolidated revenue was 77.4 billion rubles for the reporting period, which is 3% less than in the fourth quarter of 2016, while EBITDA went down by 7% and reached 22.8 billion rubles. At the same time, our net profit attributable to equity shareholders of Mechel PAO for the first quarter went up by nearly nine times, reaching 13.9 billion rubles.”

Consolidated Results For The 1Q 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 Company OOO’s Chief Executive Officer Pavel Shtark noted:

“In the first quarter of 2017 the segment demonstrated an improvement in financial results if compared with the fourth quarter of 2016, with EBITDA up by 11%, EBITDA margin reaching 49%. It became possible due to a good price trend on seaborne coal markets. The growth of iron ore prices, which continued in the first quarter, also helped to improve our financial results.

“In this reporting period, our facilities slightly decreased its coal mining volumes in comparison with previous quarter due to intensification of the stripping works to prepare reserves. Also the decrease of volumes in the first quarter was affected by seasonality of climatic conditions that requires more efforts in equipment maintenance. The decrease in supplies of coking coal concentrate to third parties was partly due to the fact that we have again re-directed some of our coal volumes for internal use as export market prices became less attractive. At the same time, we increased shipments of PCI and anthracites, primarily to our Asian customers.

“We used the beneficial economic situation to boost the technical reequipment of our facilities. In the first quarter, Yakutugol put into operation an EKG-18 excavator and a Liebherr R 9200 excavator. In the second quarter, we plan to put into operation one more excavator. To maintain our mining capacity, in 2017 we plan to acquire and put into service more than 20 new vehicles such as trucks, bulldozers and other equipment at both Yakutugol and the Elga deposit. This year, we plan to complete construction and launch a run-of-mine coal crushing facility with a 2.3-million-tonne capacity at Elga. As a result we will ensure the stability of mining volumes and recovery of mining volumes where they temporarily decreased.”

Steel Segment

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

“In the first quarter of this year our segment demonstrated robust performance. A small decrease in long steel sales was mostly seasonal and was due to a decrease in construction activity in the winter period. We expect that those products for construction industry that have not been sold in the first quarter due to weak demand and respective weak prices will be sold in the next periods at higher prices when the construction season picks up. In the first quarter sales of high-margin products, such as stampings and forgings, went up, as well as sales of flat steel, which was partly due to an extension of our product range and gaining new markets.

“Our revenue in the first quarter of 2017 remained on the level of the previous quarter. The 51% decrease of our EBITDA was due to the growth of production costs conditioned by high prices for input raw materials.

“The main tendencies that characterized our segment’s operations last year, remain in force at the beginning of the current year. We continue to increase the capacity utilization of Chelyabinsk Metallurgical Plant’s universal rolling mill, to master new competitive types of products at all of our facilities and to upgrade our equipment.”

Power Segment        

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

“In the first quarter of 2017, we saw the seasonal hike in consumption of all our segment products in comparison with the fourth quarter of 2016, and as a result, the increase in heat and electricity generation. The main factor was lower outside temperature. The increase in electricity generation was affected by the completion of repairs of the boiler equipment at Southern Kuzbass Power Plant. The financial results of the first quarter of 2017 improved accordingly quarter-on-quarter.”

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 an international mining and steel company. Its products are marketed in Europe, Asia, North and South America, and 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 1Q 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, (Reversal of provision) 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 different 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

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