MTL Mechel PAO

MECHEL REPORTS THE 2014 FINANCIAL RESULTS

Revenue amounted to $6.4 billion
Consolidated EBITDA(a) amounted to $709 million
Net loss attributable to shareholders of Mechel OAO amounted to $4.3 billion

Moscow, Russia – April 28, 2015 – Mechel OAO (MICEX: MTLR, NYSE: MTL), a leading Russian mining and steel group, announces financial results for the full year 2014.

Mechel OAO’s Chief Executive Officer Oleg Korzhov commented on the full year 2014 results:

“In 2014 all of Mechel’s enterprises demonstrated operating income and maintained the Group’s EBITDA at the previous year’s level, though the 2014 average annual coking coal and iron ore prices on international markets went down by 20% and 30% accordingly year-on-year. The program of optimizing our asset portfolio, which we are implementing, has enabled us to increase our EBITDA margin from 8.6% in 2013 to 11.1% in 2014, reaching 15.9% in 4Q2014 — which is our best result over the past 10 quarters”.

“In the end of 2014, the macroeconomic situation has drastically changed. Ruble depreciation led to the 23% decrease of the dollar denominated debt over the accounting period from $8.76 billion to $6.77 billion and a significant increase in our export sales profitability — as our adjusted operating income went up by 27% in 4Q2014 as compared to 3Q2014 to reach $157 million. Today Mechel is one of the world’s most efficient coal producers in terms of production costs, which will enable us to go through the period of low commodity prices with relative calm”.

“The downside of our asset disposal process and national currency devaluation was the decrease of the Group’s revenue by 25% and a major paper loss of $4.3 billion, which includes $1.5 billion in asset sale related write-offs and $2.4 billion of foreign exchange loss.

In 2014, the company launched talks on debt restructuring with our lenders. As we have not yet reached an agreement with lenders, our debt was re-classified as short-term. The company’s management is making every effort to resolve our debt issue as soon as possible”.

Consolidated Results For The Full Year 2014

Mining Segment

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

“A major weakening of steelmaking materials markets was characteristic of the past year. Contract prices for hard coking coal at the global market went down from $152 FOB in 4Q2013 to $120 FOB in 2Q2014 and remained at this level with minor fluctuations until the end of the year. The iron ore market suffered an even worse price slump.”
“We have cushioned the influence of the iron ore market’s negative dynamics by redirecting supplies of Korshunov Mining Plant iron ore to intra-Group consumption. The increase in coke demand and prices enabled us to increase the share of coking coal processed within the segment, increase the capacity utilization of our coke-producing facilities and increase the profitability of our saleable products. Ruble devaluation as well as seasonal factors and our ongoing process of cost optimization led to a significant decrease of production costs at practically every facility. As a result, we demonstrated a higher EBITDA margin from quarter to quarter. The exclusion of Mechel Bluestone’s negative influence from our results, as well as the beginning of large-scale coal mining and processing at the Elga deposit had their positive impact on the EBITDA as well.”

• The decrease in production costs on most of our products helped the growth of EBITDA(a) margin quarter by quarter throughout the year.

• As a result of the year, the segment demonstrated an adjusted net income of $56 million as compared to last year’s adjusted net loss of $217 million.

• The export share in segment sales grew to 81% in 4Q2014, which is significantly exceeding the export share of 70% in 3Q2014 and the average export share of 73% in 2014.

Steel Segment

Mechel Steel Management Company OOO’s Chief Executive Officer Vladimir Tytsky noted:

“In the second half of last year, became apparent the positive effect of the company’s efforts to optimize the segment’s production and sales structure, of Chelyabinsk Metallurgical Plant’s universal rolling mill launch, as well as of the incoming commodities price slump and a stronger market yield. The weaker ruble had its positive impact on the dollar-nominated production costs, but the same factor proved a negative influence on the segment’s largely ruble-nominated revenue when converted into US dollars.”
“Optimization of the asset structure, as well as a weaker ruble exchange rate, led to a decrease in the segment’s revenue in 2014 by nearly a third year-on-year. At the same time, EBITDA went up by 65% year-on-year and EBITDA margin reached 8.6% over the accounting period, exceeding 15% in 4Q2014.”
“The segment’s project which is key to perspective of further development — the universal rolling mill — has produced and shipped off over 120,000 tonnes of product last year. This year, the mill will continue to master new types of products. By the end of 2015, the mill is due to master production of over 20 new profiles.”

Power Segment

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

“In the past year, the segment demonstrated stable work. We ensured reliable supply of electricity and heat to our customers, performed requisite repairs and organized more efficient load of our facilities. This enables us to expect an increase in operational results in 2015. Negative dynamics in some financial results in 2014 as compared to 2013, when accounted in US dollars, is due to the weakening of the ruble.”

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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.

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

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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.

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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.

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

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Attachments to the FY 2014 Earnings Press Release
Attachment A

Non-GAAP financial measures. This press release includes financial information prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, as well as other financial measures referred to as non-GAAP. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP.

Adjusted EBITDA represents earnings before Depreciation, depletion and amortization, Foreign exchange gain / (loss), Loss from discontinued operations, Gain / (loss) from remeasurement of contingent liabilities at fair value, Interest expense, Interest income, Net result on the disposal of non-current assets, Impairment of goodwill and long-lived assets, Provision for amounts due from related parties, Result of disposed companies (incl. the result from their disposal), Amount attributable to noncontrolling interests, Income taxes 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 accounting principles generally accepted in the United States 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 generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived 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 Loss from discontinued operations, Result of disposed companies, Foreign exchange gain / (loss), Impairment of goodwill and long-lived assets and Provision for the amounts due from related parties, including the effect on income tax and amounts attributable to noncontrolling interests 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 accounting principles generally accepted in the United States 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 long-lived assets and goodwill and provision for the amounts due from related parties are considered operating costs under generally accepted accounting principles, 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, excluding finance lease liabilities, and trade working capital are presented below:

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

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