Mechel Reports the 1Q 2018 Financial Results


Consolidated revenue – 74.9 bln rubles (-3% compared to 1Q 2017)
EBITDA* – 18.4 bln rubles (-19% compared to 1Q 2017)
Profit attributable to equity shareholders of Mechel PAO – 3.3 bln rubles

MOSCOW, May 24, 2018 (GLOBE NEWSWIRE) -- Mechel PAO (MOEX:MTLR) (NYSE:MTL), a leading Russian mining and steel group, announces financial results for the 1Q 2018.

Mechel PAO’s Chief Executive Officer Oleg Korzhov commented:

“In 1Q 2018 we continued working, developing the priority areas set forth last year. The mining division focused on its efforts on restoring mining volumes and sales of coal products, while the steel division continued with optimization of its product range and mastering new product types.

“The new mining equipment arriving on our facilities has already begun yielding returns, and mining has stabilized quarter-on-quarter, while stripping volumes went up sharply. The share of high value-added products in the steel division’s sales structure continues to increase. In order to fulfill the assigned tasks, we continue to implement our capital investment program, with investment totaling 2 billion rubles in 1Q 2018 including finance lease.

“Nevertheless, there have been complications — in this reporting period there were limits set on transporting cargo to Far Eastern ports, and railcars were in short supply in Kuzbass. These factors, together with our halting Neryungrinskaya Washing Plant for planned repairs, led to a decrease in coking coal concentrate sales and run-of-mine coking coal accumulating in Yakutugol’s storage facilities, which led to a decrease in the mining division’s results. At the same time, the steel division’s operations were more stable.

“The market conditions in this quarter were favorable. Coal prices were at a good level and the highest since the peak of 1Q 2017. Right now, coal prices are stabilizing. The steel product market also demonstrated certain stability and was profitable for our company.

“Overall, the Group’s revenue remained practically unchanged both year-on-year and quarter-on-quarter, though EBITDA went down by 16% quarter-on-quarter mostly due to the weaker results in the mining division. Nevertheless, EBITDA margin remained at a fairly good level of 25%, and in this quarter the Group earned 3.3 billion rubles of profit attributable to equity shareholders of Mechel PAO.”

Consolidated Results For The 1Q2018

Mln rubles1Q’ 181Q’ 17%1Q’ 184Q’ 17%
Revenue
from external customers
74,852 77,414 -3%74,852 76,316 -2%
Operating profit13,383 18,089 -26%13,383 10,752 24%
EBITDA 18,436 22,806 -19%18,436 21,966 -16%
EBITDA, margin25% 29%  25% 29%  
Profit
attributable to equity shareholders of Mechel PAO
3,293 13,902 -76%3,293 443  

_____________________________________
* 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 OOO’s Chief Executive Officer Pavel Shtark noted:

“In 1Q 2018 the mining division’s results were weaker both year-on-year and quarter-on-quarter. The main reason of that was the decrease in sales volumes of the division’s products, particularly coking coal concentrate.

“Starting in mid-2017, the division’s facilities are implementing a program aimed at restoring mining volumes to the level of previous years. As of now, we have already acquired and commissioned a large number of mining machines, and brought in contractors with equipment of their own. We managed to attain a major increase in stripping volumes, and coal mining has stabilized. Overall, in 1Q 2018 the division demonstrated a small growth in mining volumes compared to the previous quarter. At the same time, sales of finished products have decreased for a number of reasons. For example, some shipments that have been planned for the first quarter were put off until the second quarter due to railcar shortages.

“Among positive factors I would like to note a significant growth of stripping volumes at our Yakut facilities. Preparing reserves for future mining will help to restore production volumes reduced earlier. In addition, new equipment and machines continue to arrive at the mining division’s facilities, including equipment for washing plants, which will help improve their operational efficiency.

“I would like to note that the market conditions in the first quarter were favorable. Positive dynamics in prices for high-quality coking coal, which we observed in late 2017, caused the first quarter’s contract prices to be fixed at the level of 237 dollars per tonne, which resulted in higher average prices quarter-on-quarter even as spot prices somewhat declined. In this quarter, we see the markets weaker to the level of 4Q 2017, which is still quite acceptable for our company.”

Mln rubles1Q’ 181Q’ 17%1Q’ 184Q’ 17%
Revenue
from external customers
22,724 27,988 -19%22,724 25,444 -11%
Revenue
inter-segment
9,412 12,465 -24%9,412 9,312 1%
EBITDA 10,483 19,956 -47%10,483 14,098 -26%
EBITDA, margin33% 49%  33% 41%  
           

Steel Segment

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

“The division obtained good results in this reporting period. We demonstrated revenue growth quarter-on-quarter. The EBITDA’s decrease by 7% was mostly due to a decrease in inter-segment sales and a minor growth of production costs. Production and sales remained at stable levels.

“The division’s entities continue to master production of new types of high value-added products both by expanding the assortment of the products we have already made as well as launching production of new product types for various industries. As part of these projects’ implementation, our facilities have already upgraded several manufacturing areas and equipment that meant not only their adaptation to putting out new product types, but also increased ecological safety of production.

“Despite a seasonal decrease in Russia’s construction market in the first quarter, prices in this reporting period were fairly stable and generally profitable for the division. In the second quarter we expect the market for construction steel products to become stronger as business activity picks up and export parity prices go up.”

Mln rubles1Q’ 181Q’ 17%1Q’ 184Q’ 17%
Revenue
from external customers
44,238 42,029 5%44,238 43,383 2%
Revenue
inter-segment
1,590 1,964 -19%1,590 2,209 -28%
EBITDA 6,204 3,556 74%6,204 6,642 -7%
EBITDA, margin14% 8%  14% 15%  
           

Power Segment        

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

“The power segment continues to demonstrate stable positive financial results. In this quarter, with the facilities’ capacity utilization at their traditional seasonal high, we had an additional increase of heat sales quarter-on-quarter and year-on-year, which was a result of lower outdoor temperatures. As electricity generation and sales volumes remained stable, this had a positive impact on the dynamics of our revenue from sales to third parties. As a result, our EBITDA grew comparing to the same period of previous year. A quarter-on-quarter decrease in EBITDA was primarily due to the growth of commercial costs and additional provisions for doubtful accounts.”

Mln rubles1Q’ 181Q’ 17%1Q’ 184Q’ 17%
Revenue
from external customers
7,891 7,396 7%7,891 7,489 5%
Revenue
inter-segment
4,037 4,638 -13%4,037 4,427 -9%
EBITDA 737 705 5%737 1,319 -44%
EBITDA, margin6% 6%  6% 11%  
           

The management of Mechel will host a conference call today at 6:00 p.m. Moscow time (4:00 p.m. London time, 11:00 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: +1 929-477-0448
Russia: +7 495 646 9190

Conference ID: 5683499

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 1Q2018 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 amortisation, 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,  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, depletion, 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 calculations of Net debt, excluding fines and penalties on overdue amounts** and trade working capital are presented below:

     
Mln rubles31.03.2018 31.12.2017 
Interest-bearing loans and borrowings, excluding interest payable, fines and penalties on overdue amounts378,434 380,541 
Interest payable20,712 20,420 
Non-current interest-bearing loans and borrowings15,618 17,360 
Other non-current financial liabilities41,719 40,916 
Other current financial liabilities760 734 
less Cash and cash equivalents(1,277)(2,452)
Net debt, excluding finance lease liabilities, fines and penalties on overdue amounts 455,966 457,519 
   
Current finance lease liabilities6,984 7,476 
Non-current finance lease liabilities1,790 1,878 
Net debt, excluding fines and penalties on overdue amounts464,740 466,873 
   
   
Mln rubles31.03.2018 31.12.2017 
Trade and other receivables21,237 18,762 
Inventories39,998 37,990 
Other current assets7,601 7,589 
Income tax receivables62 107 
Trade current assets68,898 64,448 
   
Trade and other payables35,080 33,469 
Advances received5,987 4,385 
Provisions and other current liabilities3,375 3,428 
Taxes and similar charges payable other than income tax8,464 6,696 
Income tax payable5,025 4,578 
Trade current liabilities57,931 52,556 
   
Trade working capital10,967 11,892 
     

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

_________________________________________
** Calculations of Net debt could be 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 rubles3m 20183m 2017 3m 20183m 2017 3m 20183m 2017 3m 20183m 2017
Profit (loss) attributable to equity shareholders of Mechel PAO3,293 13,902  271 12,858  2,043 2,218  (33)237 
Add:           
Depreciation, depletion and amortisation3,477 3,417  1,970 1,928  1,373 1,379  134 110 
Foreign exchange (gain) loss, net(508)(9,679) (497)(5,601) (12)(4,063) 1 (14)
Finance costs including fines and penalties on overdue loans and borrowings and finance leases payments10,463 12,392  7,700 9,062  2,979 3,626  158 231 
Finance income(93)(127) (348)(488) (108)(154) (11)(13)
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 and
write-off of inventories to net realisable value
1,241 577  364 173  437 298  440 106 
Net result on the disposal of subsidiaries- -  - -  - -  - - 
Profit attributable to non-controlling interests238 556  29 392  172 162  37 3 
Income tax expense (benefit)10 1,539  879 1,433  (862)68  (7)38 
Pension service cost and actuarial loss, other related expenses36 32  29 25  6 6  1 1 
Other fines and penalties310 226  92 174  199 44  19 7 
Gain on restructuring and forgiveness of accounts payable and write-off of accounts payable with expired legal term(31)(29) (6)-  (23)(28) (2)(1)
EBITDA18,436 22,806  10,483 19,956  6,204 3,556  737 705 
EBITDA, margin25%29% 33%49% 14%8% 6%6%
            


Mln rubles1q 20184q 2017 1q 20184q 2017 1q 20184q 2017 1q 20184q 2017
Profit (loss) attributable to equity shareholders of Mechel PAO3,293 443  271 1,316  2,043 (1,303) (33)522 
Add:           
Depreciation, depletion and amortisation3,477 3,185  1,970 1,716  1,373 1,353  134 116 
Foreign exchange (gain) loss, net(508)(635) (497)(715) (12)81  1 (1)
Finance costs including fines and penalties on overdue loans and borrowings and finance leases payments10,463 11,337  7,700 8,094  2,979 3,454  158 215 
Finance income(93)(140) (348)(407) (108)(145) (11)(13)
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 and write-off
of inventories to net realisable value
1,241 6,531  364 3,933  437 2,418  440 180 
Net result on the disposal of subsidiaries- 4  - 4  - -  - - 
Profit attributable to non-controlling interests238 168  29 22  172 36  37 110 
Income tax expense (benefit)10 344  879 134  (862)(31) (7)241 
Pension service cost and actuarial loss, other related expenses36 (128) 29 (133) 6 5  1 - 
Other fines and penalties310 1,659  92 465  199 1,243  19 (49)
Gain on restructuring and forgiveness of accounts payable and write-off of accounts payable with expired legal term(31)(802) (6)(331) (23)(469) (2)(2)
EBITDA18,436 21,966  10,483 14,098  6,204 6,642  737 1,319 
EBITDA, margin25%29% 33%41% 14%15% 6%11%
            
*** including inter-segment operations           
            
            

Attachment B

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT (LOSS) AND
OTHER COMPREHENSIVE INCOME
 
(All amounts are in millions of Russian rubles)3 months ended March 31,
 2018* 2017*
 (unaudited) (unaudited)
    
Revenue74,852  77,414 
Cost of sales(41,556) (40,429)
Gross profit33,296  36,985 
    
Selling and distribution expenses(14,451) (14,071)
Loss on write-off of non-current assets(132) (71)
(Provision) reversal of provision for doubtful accounts(344) 54 
Taxes other than income taxes(1,267) (1,201)
Administrative and other operating expenses(3,959) (3,842)
Other operating income240  235 
Total selling, distribution and operating income and (expenses), net(19,913) (18,896)
Operating profit13,383  18,089 
    
Finance income93  127 
Finance costs including fines and penalties on overdue loans and borrowings
and finance leases payments of RUB 308 million and RUB 306 million for the
3 months ended March 31, 2018 and 2017, respectively
(10,463) (12,392)
Foreign exchange gain (loss), net508  9,679 
Share of profit of associates, net18  5 
Other income31  533 
Other expenses(29) (44)
Total other income and (expense), net(9,842) (2,092)
Profit before tax3,541  15,997 
    
Income tax expense(10) (1,539)
Profit for the period3,531  14,458 
    
Attributable to:   
Equity shareholders of Mechel PAO3,293  13,902 
Non-controlling interests238  556 
    
Other comprehensive income   
Other comprehensive (loss) income to be reclassified to profit or loss in
subsequent periods, net of income tax:
(443) 824 
Exchange differences on translation of foreign operations(443) 824 
Other comprehensive income (loss) not to be reclassified to profit or loss in
subsequent periods, net of income tax:
3  - 
Re-measurement of defined benefit plans3  - 
Other comprehensive (loss) income for the period, net of tax(440) 824 
    
Total comprehensive income for the period, net of tax3,091  15,282 
    
Attributable to:   
Equity shareholders of Mechel PAO2,852  14,726 
Non-controlling interests239  556 
      
      


INTERIM CONDENSED CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
    
     
(All amounts are in millions of Russian rubles) March 31,
2018*
 December 31,
2017
  (unaudited)  
     
Assets    
Non-current assets    
Property, plant and equipment 196,736  197,875 
Mineral licenses 32,899  33,240 
Goodwill and other intangible assets 19,208  19,211 
Investments in associates 287  283 
Deferred tax assets 187  96 
Other non-current assets 734  758 
Non-current financial assets 194  202 
Total non-current assets 250,245  251,665 
     
Current assets    
Inventories 39,998  37,990 
Income tax receivables 62  107 
Trade and other receivables 21,237  18,762 
Other current assets 7,601  7,589 
Other current financial assets 570  562 
Cash and cash equivalents 1,277  2,452 
Total current assets 70,745  67,462 
     
Total assets 320,990  319,127 
     
Equity and liabilities    
Equity    
Common shares 4,163  4,163 
Preferred shares 833  833 
Additional paid-in capital 24,378  24,378 
Accumulated other comprehensive income 862  1,303 
Accumulated deficit (282,003) (283,743)
Equity attributable to equity shareholders of Mechel PAO (251,767) (253,066)
Non-controlling interests 9,084  8,933 
Total equity (242,683) (244,133)
     
Non-current liabilities    
Interest-bearing loans and borrowings 15,618  17,360 
Finance lease liabilities 1,790  1,878 
Other non-current financial liabilities 41,719  40,916 
Other non-current liabilities 133  138 
Pension obligations 3,505  3,512 
Provisions 4,183  3,814 
Deferred tax liabilities 9,355  11,494 
Total non-current liabilities 76,303  79,112 
     
Current liabilities    
Interest-bearing loans and borrowings, including interest payable, fines and penalties on overdue amounts
of RUB 42,381 million and RUB 41,992 million as of March 31, 2018 and December 31, 2017, respectively
 420,815  422,533 
Trade and other payables 35,080  33,469 
Finance lease liabilities 6,984  7,476 
Income tax payable 5,025  4,578 
Taxes and similar charges payable other than income tax 8,464  6,696 
Advances received 5,987  4,385 
Other current financial liabilities 760  734 
Other current liabilities 69  69 
Pension obligations 880  849 
Provisions 3,306  3,359 
Total current liabilities 487,370  484,148 
     
Total liabilities 563,673  563,260 
Total equity and liabilities 320,990  319,127 
     
     


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(All amounts are in millions of Russian rubles)  

3 months ended March 31,
  2018* 2017*
  (unaudited) (unaudited)
Cash flows from operating activities    
Profit for the period 3,531  14,458 
     
Adjustments to reconcile profit to net cash provided by operating activities:    
     
Depreciation and depletion of property, plant and equipment 3,086  3,002 
Depletion of mineral licenses and amortisation of intangible assets 391  415 
Foreign exchange (gain) loss, net (508) (9,679)
Deferred tax (income) expense (1,761) 350 
Provision (reversal of provision) for doubtful accounts 344  (54)
Write-off of accounts receivable 56  33 
Write-off of inventories to net realisable value 680  504 
Loss on write-off of non-current assets 132  71 
Loss on disposal of non-current assets 29  23 
Loss on sale of investments 4  1 
Gain on restructuring and forgiveness of accounts payable and write-off of
accounts payable with expired legal term
 (31) (29)
Pension service cost and actuarial loss, other related expenses 36  32 
Finance income (93) (127)
       
Finance costs including fines and penalties on overdue loans and
borrowings and finance leases payments of RUB 308 million and RUB 306
million for the 3 months ended March 31, 2018 and 2017, respectively
 10,463  12,392 
Gain on royalty and other proceeds associated with disposal of Bluestone -  (462)
Provisions for legal claims, on taxes other than income tax and other provisions 125  - 
Other (72) 26 
     
Changes in working capital items:    
Trade and other receivables (2,834) (4,911)
Inventories (3,120) (2,196)
Trade and other payables 2,739  (403)
Advances received 1,572  (112)
Taxes payable and other liabilities 3,327  1,911 
Other current assets (122) (303)
     
Income tax paid (1,304) (916)
     
Net cash provided by operating activities 16,670  14,026 
     
Cash flows from investing activities    
Interest received 37  58 
Royalty and other proceeds associated with disposal of Bluestone -  462 
Proceeds from disposal of subsidiaries, net of cash disposed -  82 
Proceeds from loans issued and other investments 5  142 
Proceeds from disposals of property, plant and equipment 42  41 
Purchases of property, plant and equipment (1,013) (971)
Purchases of intangible assets (75) - 
Interest paid, capitalised (132) (98)
Net cash used in investing activities (1,136) (284)
     
Cash flows from financing activities    
Proceeds from loans and borrowings 6,539  6,023 
Repayment of loans and borrowings (12,456) (10,924)
Dividends paid to non-controlling interest (1) - 
Interest paid, including fines and penalties (8,515) (7,786)
Repayment of obligations under finance lease (680) (1,116)
Deferred payments for acquisition of assets (187) (82)
Deferred consideration paid for the acquisition of subsidiaries in prior periods (1,058) (890)
Net cash used in financing activities (16,358) (14,775)
     
Effect of exchange rate changes on cash and cash equivalents 40  481 
     
Net decrease in cash and cash equivalents (784) (552)
     
Cash and cash equivalents at beginning of period 2,452  1,689 
Cash and cash equivalents, net of overdrafts at beginning of period 1,223  1,453 
Cash and cash equivalents at end of period 1,277  2,888 
Cash and cash equivalents, net of overdrafts at end of period 439  901 
       

* 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.