1Q 2017 RESULTS PRESENTATION

Transcription

1 1Q 2017 RESULTS PRESENTATION May 31, 2017

2 Disclaimer This presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of Mechel PAO (Mechel) or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. Any purchase of securities should be made solely on the basis of information Mechel files from time to time with the U.S. Securities and Exchange Commission. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. None of the Mechel or any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection with the presentation. This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel, as defined in the safe harbour provisions of the U.S. Private Securities Litigation Reform Act of 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. The information and opinions contained in this document are provided as at the date of this presentation and are subject to change without notice 2 1Q 2017 RESULTS PRESENTATION

3 Key market drivers In response to significant coking coal price growth in the end of 2016 most coal producers in the US, Canada, Russia and Australia took an opportunity to increase their coal supplies to the market. Changes in Chinese coal mining volumes regulation policies led to intensification of competition on the market. In the 1Q2017 hard coking coal spot prices declined to $ per tonne from over $300 per tonne in November-December Benchmark price for the 1Q2017 was $285 that was higher than $200 for the 4Q2016. In general pricing environment for coal producers in the 1Q2017 was supportive. Tropical cyclone Debbie has destroyed railway infrastructure in one of the largest coal mining regions of Australia, that led to breaches of coal supplies and spot prices again spiked to over $300 per tonne levels at the beginning of 2Q2017. Iron ore prices in the 1Q2017 has demonstrated growth supported by an increase of steel prices. But with downward steel prices movements in the 2Q2017 iron ore prices started to decrease. Billet FOB Black Sea, US$/t Source: Metal Courier Spot HCC prices FOB Australia, US$/t Source: Bloomberg 3 1Q 2017 RESULTS PRESENTATION / KEY MARKET DRIVERS

4 KEY FINANCIAL RESULTS Sergey Rezontov Chief Financial Officer 4 1Q 2017 RESULTS PRESENTATION

5 1Q 2017 Financial results summary Consolidated Revenue amounted to 77.4 RUB, decrease by 3% in 1Q2017 compared to 4Q2016, due to Mining division Revenue decline. RUB mln 1Q17 1Q16 % 1Q17 4Q16 % Revenue 77,414 62,232 24% 77,414 79,659-3% Operating profit 18,089 6, % 18,089 13,929 30% EBITDA* decreased by 7% compared to 4Q2016 and amounted to 22.8 RUB with EBITDA margin 29%, due to decline of Revenue and increase of costs in steel segment at a higher raw material prices (iron ore). EBITDA* 22,806 9, % 22,806 24,593-7% EBITDA margin, % 29% 16% 29% 3 Group generated Net profit attributable to shareholders of Mechel PAO of 13.9 RUB vs 1.6 RUB in 4Q2016. Net profit attributable to equity shareholders of Mechel PAO 13, ,902 1,579 *Here and further EBITDA is calculated as Adjusted EBITDA in accordance with definition in Press release Appendix A 5 1Q 2017 RESULTS PRESENTATION / KEY FINANCIAL RESULTS

6 1Q 2017 Production and sales summary Lower coal mining volumes became a result of increased share of stripping works execution in order to secure future mining volumes. Production (th tonns) Product 1Q17 1Q16 % 1Q17 4Q16 % Production of pig iron and steel was at a stable level compared to the previous quarter. Run-of-mine Coal 5,074 5, ,074 5,596-9 Pig Iron 1,046 1, ,046 1, Steel 1,121 1, ,121 1,125 0 Coking and steam coal sales decline in 1Q2016 was a result of lower mining volumes and redirection of some coal volumes from export sales to internal consumption. PCI and Antracites sales volumes increased on high demand from Asian consumers. Flat products sales went up by 7% compared to 4Q2016 on higher demand and product-line expancion. Long products sales slightly decreased on seasonal factor (low construction season). Sales (th tonns) Product 1Q17 1Q16 % 1Q17 4Q16 % Coking Coal 1,996 2, ,996 2,172-8 Steam Coal 1,589 1, ,589 1,633-3 Flat Products Long Products Q 2017 RESULTS PRESENTATION / KEY FINANCIAL RESULTS

7 Mining segment Sales structure by regions remained almost unchanged compared to the previous quarter with Asian markets being the most important for the coal sales. High prices were the main factor of EBITDA growth by 1 compared to 4Q2016 which reached 20.0 rubles with EBITDA margin 49%. Share of domestic and inter-segment coking coal sales increased in the 1Q2017 vs 4Q2016 after export markets lost part of their price advantages. All volumes of iron ore concentrate produced by Korshunov Mining Plant were consumed internally. Revenue, EBITDA margin, RUB Bln Inter-segment revenues Revenues EBITDA margin 120% 40, % 80% , % % 49% 40% 25% 28% 34% 20% 0,0 0% EBITDA, RUB Bln Revenue breakdown by regions 25,0 20, % Europe 10% 15,0 10, China 26% Asia w/o China 3 5,0 0,0 EBITDA 4Q16 Prices External sales Inter-segment Cost of sales EBITDA 1Q17 volumes sales Russia 27% 7 1Q 2017 RESULTS PRESENTATION / KEY FINANCIAL RESULTS

8 Steel segment Domestic Russian and CIS markets are most important for our steel division with their share amounting to 85% of segment revenue. EBITDA decrease was a result of slightly lower sales volumes and significant growth of costs including inter-segment reallocation of profits. Higher costs were primarily result of higher raw materials prices. Approaching construction season should support sales volumes and prices for steel products. Revenue, EBITDA margin, RUB Bln Inter-segment revenues Revenues EBITDA margin % 40, , % 20,0 18% 15% 16% 10% 10,0 4% 8% 0,0 0% EBITDA, RUB Bln Revenue breakdown by regions 8,0 7,0 6, Europe 14% CIS 9% 5,0 4,0 3, ,0 1,0 0,0 EBITDA 4Q16 Prices External sales Inter-segment Cost of sales EBITDA 1Q17 volumes sales 3.6 Russia 76% 8 1Q 2017 RESULTS PRESENTATION / KEY FINANCIAL RESULTS

9 Consolidated revenue and EBITDA dynamics Revenue, RUB Bln Power Steel Mining Mining segment Revenue to 3 rd parties in 1Q2017 decreased by 6%, compared to 4Q2016 on lower sales volumes to third parties. Steel segment Revenue demonstrated a minor decrease of on seasonal market weakness. Power segment 3 rd party Revenue traditionally increased as winter season implies higher heat and electricity consumption ,3 Mining segment EBITDA increased by 1 compared to 4Q2016 mostly due to high coal prices and amounted to 20.0 RUB. Steel segment EBITDA lost 5 on higher costs arose from high raw materials prices and amounted to 3.6 RUB Revenue 4Q16 Mining Segment EBITDA, RUB Bln Steel Segment Power Segment 28.0 Revenue 1Q17 Power Steel Mining Power segment EBITDA became positive and amounted to 0.7 RUB ,8 23,0 23, EBITDA Q16 EBITDA 4Q16 Mining Segment Mining Segment Steel Segment Steel Segment Power EBITDA 1Q17 Segment Power EBITDA Segment 1Q17 9 1Q 2017 RESULTS PRESENTATION / KEY FINANCIAL RESULTS

10 Cash flow & trade working capital Cash flow from operations to a large extent covers Group's current expences. Through the reporting period the group continued to improve working capital and the accumulated a trade surplus of RUB8.2 at the end of the period. Group s capital expenditures for the 1Q2017 amounted to 2.2 rubles, including 1.1 rubles of leasing payments. CASH FLOW, RUB Bln Cash net of overdrafts as of 31/12/2016 Net operating activities Net investing activities Net financing activities Effect of exchange rate changes Cash net of overdrafts as of 31/03/2017 Trade working capital management, RUB Bln FREE CASH FLOW for 1Q 2017, RUB Bln Trade current assets Trade current liabilities Trade working capital Cash flow from Operations Net interest expenses, inlc. overdue interest Capital expenditures Free Cash Flow Net Free Cash settlement of Flow to Firm loan, lease and other obligations 10 1Q 2017 RESULTS PRESENTATION / KEY FINANCIAL RESULTS

11 Key projects results Universal rolling mill on Chelyabinsk metallurgical plant From January 2016 Mechel started supply of rails to Russian Railways. Total sales volume during FY2016 exceeded 500 th tonns, including about 300 th tonns of rails to Russian Railways. Steady ramp up of Universal rolling mill capacity utilization quarter by quarter in 2016 resulted in threefold growth of production volumes if compared to FY2015. Universal rolling mill capacity utilization in 2016 reached almost 50% and in 2017 it is expected to exceed 65%. Universal rolling mill total production since the launch of operations reached 1 million tonns in January Technology for new types of rails production (for use at European railways) is being currently adopted. Universal rolling mill production (th tonns) Product 1Q17 1Q16 % 1Q17 4Q16 % Rails, beams and shapes Universal rolling mill Production in FY Q 2017 (th tonnes) Rails Rails for Russian Railways Beams and Shapes Elga coal project development Plan for 2017 is 4.5 mln tonnes of coal. In 1Q2017 share of coking coal in total mining volumes reached almost 85%. Elga Coal Complex (th tonns) Product 1Q17 1Q16 % 1Q17 4Q16 % Run-of-mine coal Q 2017 RESULTS PRESENTATION / KEY FINANCIAL RESULTS

12 Debt structure & net debt / EBITDA ratio dynamics As of the date of financial release - 76% of Group s debt has been restructured; ruble portion of debt amounts to 67%; and Russian state banks hold 7 of our debt portfolio. New repayment schedules with Russian state banks came into force in the middle of April 2017, which assumes grace period till 1Q-2Q20 and equal monthly repayment till 2Q22. EBITDA growth led to net further leverage decrease from 6.6** as of December 31, 2016 to 5.3** as of March 31, Average interest rate through debt portfolio as of May 2017 is 9.4% per annum and it trends to lower as most Ruble denominated loans rate is linked to Central bank key interest rate; average paid interest rate (with PIC) amounts to 7.8% per annum. RUB RUB RUB RUB RUB RUB 433 RUB 421 FY'14 FY'15 1Q'16 1H'16 9M'16 FY'16 1Q'17 Finance lease Long-term borrowings Interest payable Short-term borrowings and current portion of long-term borrowings Net Debt**/EBITDA ** excluding GPB option on Elga ,0 25,0 20,0 15,0 10,0 5,0 0,0 EUR 6% Bonds 4% s In restructuring 24% USD 27% Syndicate 16% Restructured loans 76% RUB 67% ECA 7% Russian State Banks Q 2017 RESULTS PRESENTATION / KEY FINANCIAL RESULTS

13 APPENDIX 13 1Q 2017 RESULTS PRESENTATION

14 , ,069 1,211 1,495 1,815 2,079 1,967 1,900 1,778 1,986 2,284 2,253 2,102 2,341 3,121 3,008 3,704 3,094 2,909 3,009 4,656 4,608 1,223 1,307 1,805 2,127 1,613 4,129 4,130 4,137 4,261 6,586 8,321 7,852 8,898 8,437 7,936 11,628 13,318 Mining segment Revenue, EBITDA margin, RUB Bln Inter-segment revenues Revenues EBITDA margin Average sales prices FCA, RUB/tonne 40,0 30,0 20,0 10, % 28% 34% % 49% 100% 50% 0,0 Cash costs, RUB/tonne 0% Coke Coking coal Anthracite and PCI COS structure Steam coal Iron ore 12.0 RUB 12.6 RUB 10% 15% 15% 13% 13% 14% Depreciation and depletion Energy 25% 25% Staff costs 35% 35% Raw materials and goods for resale Coal SKCC Coal YU Coal Elga Iron ore 4Q16 1Q Q 2017 RESULTS PRESENTATION / APPENDIX

15 Mining segment Revenue breakdown by regions 1Q 2017 CIS Middle East 4Q 2016 CIS Middle East 1Q 2016 CIS 4% Middle East Europe 10% Russia 27% China 26% Asia w/o China 3 Russia 18% Europe 8% China 35% Asia w/o China 35% Europe 15% Russia 27% China 2 Asia w/o China 3 Revenue breakdown by products 1Q Q Q 2016 Coke 1 Middlings 5% Coking products Steam coal 1 Anthracites and PCI 20% RUB 28.0 Coking coal 48% Middlings 4% Coke 8% Coking products Steam coal 1 Anthracites and PCI 16% 3% RUB 29.7 Coking coal 55% Middlings 5% Coke 1 Coking products 3% Steam coal 14% 4% RUB 19.9 Anthracites and PCI 26% Coking coal 36% 15 1Q 2017 RESULTS PRESENTATION / APPENDIX

16 16,207 14,594 17,228 17,187 14,974 15,746 14,956 15,918 16,321 18,990 17,893 18,364 19,203 19,419 23,240 22,776 23,550 22,266 21,695 26,507 18,582 28,488 26,481 27,295 26,962 31,827 37,820 38,256 38,550 40,993 31,109 34,013 35,470 33,408 35,561 31,516 33,442 35,220 35,399 36,829 70,601 61,811 59,365 59,355 59,009 Steel segment Revenue, EBITDA margin, RUB Bln Inter-segment revenues Revenues EBITDA margin Average sales prices FCA, RUB/tonne % 40, % 20,0 18% 15% 16% 20% 4% 8% 10% 0,0 0% Rebar Hardware Carbon flat Carbon long products Ferrosilicon Cash costs, RUB/tonne 32.5 RUB 4% 14% 1 COS structure 37.1 RUB 3% 1 9% Depreciation and depletion Energy Staff costs 68% 75% Raw materials and goods for resale Billets Wire rod Rebar Carbon flat 4Q16 1Q Q 2017 RESULTS PRESENTATION / APPENDIX

17 Steel segment Revenue breakdown by regions 1Q 2017 Asia 4Q 2016 Asia 1Q 2016 Asia Middle East Europe 14% CIS 9% Russia 76% Europe 1 CIS 9% Russia 78% Europe 18% CIS 1 Russia 66% Revenue breakdown by products 1Q 2017 Stainless flat Ferrosilicon 10% 4Q 2016 Stainless flat Ferrosilicon 10% 1Q 2016 Stainless flat Ferrosilicon 3% 9% Semi-Finished Steel Products Carbon flat 13% RUB 42.0 Rebar 24% Semi-Finished Steel Products Carbon flat 1 RUB 42.7 Rebar 26% Semi-Finished Steel Products 4% Carbon flat 1 RUB 35.1 Rebar 25% Forgings and stampings 8% Hardware 15% Carbon long products 27% Forgings and stampings 7% Hardware 15% Carbon long products 26% Forgings and stampings 8% Hardware 14% Carbon long products 24% 17 1Q 2017 RESULTS PRESENTATION / APPENDIX

18 Power segment Revenue, EBITDA margin, RUB Bln Revenue for the period increased due to winter season. 1Q2017 EBITDA increased on higher heat and electricity demand and lower costs. 14,0 Inter-segment revenues Revenues EBITDA margin 50% 12,0 10,0 8,0 6,0 4, % % 30% 20% 10% 2,0 0,0-4% 6% 4% 0% -10% Average electricity sales prices and cash costs, RUB/ th KWh Cash costs Sales price COS structure 9.2 RUB 8.4 RUB 2,381 2,212 2,147 2,401 2, % 95% 4% 94% Depreciation and depletion Staff costs Raw materials and goods for resale including energy 4Q16 1Q Q 2017 RESULTS PRESENTATION / APPENDIX

19 Mechel is a global mining and metals company