Mechel Reports the 2015 Financial Results

Revenue amounted to 253,141 million rubles
Consolidated EBITDA(a)^* amounted to 45,730 million rubles
Net loss attributable to shareholders of Mechel PAO amounted to 115,163 million rubles

MOSCOW, May 13, 2016 (GLOBE NEWSWIRE) -- Mechel PAO (MICEX:MTLR) (NYSE:MTL), a leading Russian mining and steel group, announces financial results for the full year 2015.

In accordance with legislation of the Russian Federation, starting from financial results for the year 2015 the Company will be reporting its financial statements in accordance with International Financial Reporting Standards (IFRS). Presentation currency will be Russian ruble.

Mechel PAO’s Chief Executive Officer Oleg Korzhov commented on the 2015 results:

“2015 was a complicated year for our company, but nevertheless a vital one. Our key event was reaching agreement in principle with the majority of our lenders on restructuring our debt. Even though not all official documents were signed in 2015, our main efforts and talks on restructuring conditions were made in that period. As of now, the company has announced signing deals with major lender banks as well as reaching an agreement with Gazprombank with the bank acquiring a share in the Elga project. So we may consider that the restructuring’s pivot point has been passed.

In 2015, our revenue went up by 4% to reach 253,141 million rubles, with EBITDA up by 54% to reach 45,730 million rubles, as the EBITDA margin reached 18% and adjusted operating income up by 140% year-on-year. The 115,163 million ruble net loss was largely due to negative currency rate trends.

Mechel’s operational and financial results improved to a large extent due to the fact that our key projects whose implementation had caused our company’s debt growth, are reaching target capacity utilization levels and increase returns on invested capital.

At Elga Coal Complex, four million tonnes of coal were mined last year, with coking coal accounting for two-thirds of that amount. Five million tonnes are planned to be mined in 2016. Starting in 2016, we began supplying rails produced by Chelyabinsk Metallurgical Plant’s universal rolling mill to Russian Railways, which will enable us to fully utilize the mill’s potential for producing high-margin products. Rail supplies to Russian Railways may amount to from 150,000 to 250,000 tonnes this year, with the mill’s overall output totaling over 500,000 tonnes of products.

The strengthening of steelmaking commodity and steel markets which we currently observe enable us to confidently conduct our operations and sales with a view to the company’s further development.”

*Please find the calculation of the EBITDA(a) and other measures used here and hereafter in Attachment A

Consolidated Results For The Full Year 2015

Mining Segment

Mechel Mining Management OOO’s Chief Executive Officer Pavel Shtark noted:

“In 2015 the trend in steelmaking commodity markets was mostly negative. China’s demand for coal imports took a constant downturn as facilities producing semi-finished steel goods faced massive closure. Imports were pushed out by local Chinese producers with the help of measures consistently taken by Chinese authorities. With this in mind, major Australian producers persisted in the policy of tough price competition with other global suppliers for the share in the market. Spot prices for coking coal plummeted, widening the gap with contract prices. As a result, the price for coking coal concentrate on the global market fell by more than 30% from $117 FOB in 1Q2015 to $81 FOB in 1Q2016 — further than it has been for many years.

In these conditions, our mining segment faced cuts in metallurgical coal sales. The chief decrease was in export sales, especially to China. At the same time the company increased coal supplies for internal use, for example, Elga coals replaced those coals that the Group’s enterprises used to acquire from third parties. Meanwhile, the growth of ruble denominated prices for coal offered significant compensation for the decrease in sales due to ruble devaluation. As a result, the segment’s revenue from sales to third parties demonstrated positive dynamics, while inter-segment revenue went up by a third. With operational costs at a stable level, the segment demonstrated a significant growth of its operational income and EBITDA, while its EBITDA margin reached 25%.

In the first quarter 2016, we saw some positive trends on the steel raw materials markets which led to contract prices reaching $84 per tonne, with spot prices rising higher than contract prices in April-May — for the first time since mid-2013. Considering low production costs at our mining assets and the decrease in transport costs due to ruble devaluation, the company’s products remain highly competitive both domestically and internationally, which will enable us to further demonstrate stable financial results.”

Steel Segment

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

“Throughout practically all of last year, we had to cope with weakened demand for steel products in the construction industry which is crucial for the segment’s sales structure. Russian long steel market in 2015 went down by 14% due to the decrease in construction volumes as the overall economic situation worsened, with effective demand going down and the state and business investment activity slowing down. Despite a significant decrease in visible consumption of construction-grade long steel in Russia, we maintained the volume of domestic sales at the level of the previous year, increasing our share at this strategically important market. We also optimized our sales portfolio for other types of long steel products, minimizing manufacture of low value-added products. We even managed to increase sales of some types of products, such as flat steel. Nevertheless, overall sales decreased tonnage-wise year-on-year. At the same time, ruble devaluation had a positive impact on domestic prices, which was the major cause of the growth of the segment’s revenue. Due to our efforts on optimizing our product range by increasing the share of high value-added products and cost control, the segment demonstrated a growth of operating income and EBITDA.

The increase of high value-added products’ share in our sales structure was largely thanks to the capacity utilization growth of the universal rolling mill. In 2015 the mill produced 175,000 tonnes and is due to more than double that volume this year. We consider Russian beam and rail markets to be among the most promising markets for the steel segment due to limited supply from domestic producers. Thus the mill’s contribution to the segment’s financial results will be more and more tangible each year.”

Power Segment        

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

“Last year, our segment demonstrated, as usual, stable operational profit. Electricity generation and sales topped those of the previous year, while heat production and sales saw a moderate decrease primarily due to climatic factors. As a result, we demonstrated a small increase in revenue from sales to third parties, while our EBITDA(a) went up by nearly half.”

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 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 FY 2015 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 (a)) represents net income or loss before Depreciation, depletion and amortization, Foreign exchange loss (gain), Finance costs, 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, (Profit) loss after tax for the year from discontinued operations, net, Net result on the disposal of subsidiaries, Amount attributable to non-controlling interests, Income taxes, Loss (profit) from pension obligations, Fines and penalties, Gain from accounts payable write-off and Other one-off items. Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of our net revenues. 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 operations. 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, depreciation and amortization are considered operating costs 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 income / (loss) represents net income / (loss) before Impairment of goodwill and other non-current assets, Allowance for amounts due from related parties, (Profit) loss after tax for the year from discontinued operations, net, Net result on the disposal of subsidiaries, Effect on net profit (loss) attributable to non-controlling interests, Foreign exchange loss (gain), Loss (profit) from pension obligations, Fines and penalties, Gain from accounts payable write-off and Other one-off items. Our adjusted net income / (loss) may not be similar to adjusted net income / (loss) measures of other companies. Adjusted net income / (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 operations. We believe that our adjusted net income / (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 and allowance for amounts due from related parties are considered operating costs 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 income / (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^† and trade working capital are presented below:

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

Adjusted EBITDA can be reconciled to our consolidated statements of operations as follows:

Attachment B

Consolidated statement of financial position
(All amounts are in millions of Russian rubles)

Consolidated statement of profit (loss) and other comprehensive income (loss)
(All amounts are in millions of Russian rubles)

Сonsolidated statement of Cash Flows
(All amounts are in millions of Russian rubles, unless stated otherwise)