MTL Mechel PAO

MECHEL REPORTS THE 1H 2015 FINANCIAL RESULTS

Revenue amounted to $2.3 billion
Consolidated EBITDA(a) amounted to $390 million
Net loss attributable to shareholders of Mechel OAO amounted to $239 million

Moscow, Russia – September 11, 2015 – Mechel OAO (MICEX: MTLR, NYSE: MTL), a leading Russian mining and steel group, announces financial results for the 1H 2015.

Mechel OAO’s Chief Executive Officer Oleg Korzhov commented:
“The company has confidently passed through the first half of the year. In comparison with the same period last year we have increased coal mining and pig iron and steel production. Financial results for this half-a-year period are also good. Despite a decrease in revenue, we have demonstrated a significant increase in EBITDA and EBITDA margin, with operational profit increasing multifold and our debt down by nearly a quarter as compared to the first half of last year. In 2Q 2015, the company has demonstrated net profit for the first time since 2012.
“Our investment projects were developing successfully. Chelyabinsk Metallurgical Plant’s rails have passed certification for supplies to Russian Railways OAO. The Elga deposit continues to increase its mining volumes. Comparing to the same period last year, mining volumes have increased by more than eight times, with the quarter-on-quarter rise at more than 20%.
“At the same time, the company’s chief efforts were focused on restructuring its debt portfolio. Stable operational and financial results, as well as the ruble’s devaluation, lent significant support to the negotiations. As of now, we have reached major progress. Negotiations with our largest lenders ¯ Gazprombank and VTB Bank ¯ were concluded by signing agreements. Negotiations with other lenders, including Sberbank, continue and are conducted in a constructive way. We may expect that restructuring will be complete within a few months and the company will move to a new and more stable stage of its development.”

Consolidated Results For The 1H 2015

Mining Segment

Mechel Mining Management Company OOO’s Chief Executive Officer Pavel Shtark noted:
“Due to a weaker demand for the division’s products on the export markets and a further decline in global metallurgical coal prices, our coal sales structure was altered. If in the first quarter the share of exports in our revenue was 80%, in the second quarter it slumped to some 70%. The decline in exports was compensated for by the growth of domestic supplies, including those to the Group’s own facilities. For example, we substituted some coal grades we used to buy from third parties for our coke and chemical plants with coal mined at the Elga deposit. At the same time, we increased coal mining volumes, retained coking coal concentrate sales on a stable level quarter-on-quarter, and even increased sales of other types of coal.
“Despite the fact that coal prices in the second quarter slumped to another historical minimum and production costs grew, particularly as the ruble strengthened in the second quarter, we did not allow a significant decrease of our financial results quarter-on-quarter. If we compare this half-a-year period results with the same period last year, however, we shall see that EBITDA has gone up a quarter, while EBITDA margin nearly doubled. Separately, I would like to note that as a result of this year’s second quarter, the segment demonstrated a net profit.”

Steel Segment

Mechel-Steel Management Company OOO’s Chief Executive Officer Vladimir Tytsky noted:
“The first two quarters of this year were successful for our division in terms of both operational and financial results. The 1H2015 operational results exceeded those of the same period last year. Sales of steel products in the second quarter increased quarter-on-quarter on the back of a seasonal growth in demand from construction companies and the engineering industry as well as the increased competitiveness of certain types of products on foreign markets as the ruble weakened. EBITDA in 1H2015 was more than 2.5 times higher than in the same period last year. The quarter-on-quarter decrease of EBITDA was due to a growth of operation costs as incoming commodities became more expensive, as well as some strengthening of the ruble.
“In the second quarter, we have successfully completed certification of our rails produced at Chelyabinsk Metallurgical Plant’s universal rolling mill for Russian Railways. We are currently in talks with Russian Railways and expect to sign an agreement on rail supplies shortly.
“Due to a constant increase in the share of high value-added products as the universal rolling mill’s load increases, the segment will retain a high level of capacity utilization of its facilities, stable sales and good financial results.”

Power Segment

Mechel-Energo OOO’s Chief Executive Officer Pyotr Pashnin noted:
“In the first half of this year, we increased electricity production by 22% as compared to the same period last year. This was due to a more stable operation of Southern Kuzbass Power Plant after repairs conducted in 2014. At the same time, in the second quarter we saw a traditional seasonal slump in both operational and financial results quarter-on-quarter as the heating season ended and we were implementing routine maintenance works for the next high-load period.”

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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 1H 2015 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 and trade working capital are presented below:

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