1q2019 results presentation · this presentation may contain projections or other forward-looking...

1Q2019 RESULTS PRESENTATION

May 23, 2019

www.mechel.com

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 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.

The information and opinions contained in this document are

provided as at the date of this presentation and are subject to

change without notice

Disclaimer

2www.mechel.com1Q 2019 RESULTS PRESENTATION

KEY FINANCIAL RESULTS

Nelli R. Galeeva – Chief Financial Officer

www.mechel.com3 1Q 2019 RESULTS PRESENTATION

Key market drivers

Hard coking coal prices in 1Q and 2Q2019 demonstrate relative stability.

Persisting difficulties with custom clearance of imported coal in Chinese ports

were balanced by disruption of coal supplies from Australia as a result of

interruptions in major ports operations and mine accidents.

As a result 1Q2019 HCC reference price decreased by just $2 to $210 FOB

Australia and average spot price level decreased by 7% to $206 per tonne

compared to 4Q2018 price levels. 2Q2019 HCC reference price shows

another $3 decline compared to 1Q2019 and average spot price will remain at

a level of 1Q2019.

Russian coal market was even more stable as players contract coal supplies

on quarterly basis and short term international price fluctuations do not reflect

in price levels.

Iron ore price growth continues on market fears regarding anticipated

decrease in production at Australian mines, enhanced by forecasted supplies

decline from Brazil.

Turkish market weakness led to billet prices bottomed in January 2019 to

$408 FOB Black Sea. Ramadan standstill in May will further affect semi-

finished products market.

Now the US administration decision dated May 17, 2019, to abolish additional

25% import duties on Turkish steel products (the US used to be the major

market for Turkish steel) will support demand growth for scrap and semi-

finished steel from Turkish steelmakers. It will also decrease competition at

MENA and SEA regions where Turkish producers had to redirect their

products initially intended for sales to the US. This will have positive impact

on billet pricing at FOB Black Sea basis.

Rebar market in 1Q2019 despite traditional seasonal weakness remained in

average on the levels of 4Q2018. By the end of 2Q2019 recovery of market

activity is expected that may lead to prices increase.

Billet FOB Black Sea, US$/t

Source: Metal Courier

HCC prices FOB Australia, US$/t

Source: Bloomberg

www.mechel.com1Q 2019 RESULTS PRESENTATION / KEY MARKET DRIVERS4

210

117 11093 89 81 84 92

200

285

194

170192

237197

188

0

50

100

150

200

250

300

350

Jan-1

5M

ar-

15

Ma

y-1

5Jul-1

5

Sep-1

5N

ov-1

5Jan-1

6M

ar-

16

Ma

y-1

6Jul-1

6

Sep-1

6N

ov-1

6Jan-1

7M

ar-

17

Ma

y-1

7Jul-1

7

Sep-1

7N

ov-1

7Jan-1

8M

ar-

18

Ma

y-1

8Jul-1

8

Sep-1

8N

ov-1

8Jan-1

9M

ar-

19

Ma

y-1

9

HCC spot price (NAMC0031 PLDP Index) HCC quarterly benchmark price

HCC quarterly reference price HCC spot price (HCCAM1 SSYF Index)

212

200

250

300

350

400

450

500

550

Jan-1

5

Apr-

15

Jul-1

5

Oct-

15

Jan-1

6

Apr-

16

Jul-1

6

Oct-

16

Jan-1

7

Apr-

17

Jul-1

7

Oct-

17

Jan-1

8

Apr-

18

Jul-1

8

Oct-

18

Jan-1

9

Apr-

19

207

Consolidated Revenue in 1Q2019 amounted to 74.9 bln RUB, a

slight decrease of 1% compared to 4Q2018. This was a result of

Steel segment Revenue decline by 5% Q-o-Q offset by Mining

segment Revenue increase by 4%.

1Q2019 EBITDA* went up by 2% compared to 4Q2018 and

amounted to 15.3 bln RUB with EBITDA margin decreased to 20%.

Group generated Profit attributable to equity shareholders of

Mechel PAO of 11.3 bln RUB in 1Q2019 due to ruble appreciation.

www.mechel.com

RUB mln 1Q19 1Q18 % 1Q19 4Q18 %

Revenue 74,856 74,852 0% 74,856 75,571 -1%

Operating profit 10,837 13,383 -19% 10,837 1,978 448%

EBITDA* 15,322 18,436 -17% 15,322 15,021 2%

EBITDA margin, % 20% 25% 20% 20%

Profit

attributable to equity

shareholders

of Mechel PAO

11,336 3,293 244% 11,336 1,631 595%

1Q2019 Financial results summary

5

*Here and further EBITDA is calculated as Adjusted EBITDA in accordance with definition in Press

release Attachment A

1Q 2019 RESULTS PRESENTATION / KEY FINANCIAL RESULTS

In 1Q2019 coal mining volumes decreased by 29% compared to 1Q2018 and

by 19% compared to 4Q2018 as a result of production plan correction aimed to

decrease coal stocks at our mining plants built up amid railcars supply

constrains at the end of 2018.

Pig iron production remained flat Q-o-Q.

Steel production increased by 3% Q-o-Q.

Overall coking coal sales in 1Q2019 decreased by 3% Q-o-Q but sales to third-

parties grew by 3%.

Steam coal sales increased in 1Q2019 by 37% Q-o-Q and third-party sales

jumped by 45% on transportation constraints elimination.

Flat products sales increased by 26% Q-o-Q as a result of flat steel production

ramp-up at Chelyabinsk Metallurgical Plant and due to higher sales of third-

party flat products to machine-building enterprises in Austria and Germany and

to steel structures producers in Croatia.

Long products sales decreased by 2% Q-o-Q on seasonal construction market

weakness.

www.mechel.com

Production (th tonnes)

Sales (th tonnes)

Product 1Q19 1Q18 % 1Q19 4Q18 %

Run-of-mine

Coal3,520 4,965 -29 3,520 4,341 -19

Pig Iron 870 985 -12 870 872 0

Steel 930 1,055 -12 930 905 3

Product 1Q19 1Q18 % 1Q19 4Q18 %

Coking Coal 1,697 1,610 5 1,697 1,747 -3

Steam Coal 1,333 1,611 -17 1,333 971 37

Flat Products 114 138 -17 114 91 26

Long Products 607 686 -11 607 621 -2

1Q2019 Production and sales summary

6 1Q 2019 RESULTS PRESENTATION / KEY FINANCIAL RESULTS

8.9

11.0

1.90.4 0.4

-0.4

-0.2

0,0

2,0

4,0

6,0

8,0

10,0

12,0

EBITDA4Q2018

Prices External salesvolumes

Inter-segmentsales

Cost of sales Other EBITDA1Q2019

Share of Mining segment sales to China decreased to 12% in 1Q2019 from

18% in 4Q2018 (15% in 1Q2018) due to higher sales of Southern Kuzbass

coal to local market on general sales volumes growth. Also there were test

deliveries of Elga coal to South Korea and Yakutugol coal to Malaysia and

Indonesia that further decrease share of China.

External sales volumes growth was the major factor of EBITDA increase in

1Q2019 vs 4Q2018.

Mining EBITDA margin increased to 32% in 1Q2019.

www.mechel.com

Revenue, EBITDA margin, RUB Bln

22.7 25.7 24.9 23.6 24.5

9.49.6 9.4 9.1 9.5

33%41%

34%

27%32%

0%

20%

40%

60%

80%

100%

0,0

20,0

40,0

1Q18 2Q18 3Q18 4Q18 1Q19

Inter-segment revenue Revenue EBITDA margin

Revenue breakdown by regions (1Q2019)EBITDA, RUB Bln

Mining segment

Asia w/o China50%

Russia20%

China12%

Europe14%

CIS3%

Middle East1%


6.0

3.3

0.2

0.4

-2.0-0.1 -1.2

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

EBITDA4Q2018

Prices External salesvolumes

Inter-segmentsales

Cost of sales Other EBITDA1Q2019

In 1Q2019 Revenue decreased mostly due to lower prices and seasonalconstruction market weakness.

Steel segment EBITDA decreased by 46% Q-o-Q on lower Revenue andhigher cost due to iron ore prices growth.

Segment`s EBITDA margin fell Q-o-Q from 13% to 7%.

www.mechel.com


44.2 50.1 49.5 44.1 42.1

1.6

1.4 1.3

1.71.6

14%16% 15%

13%7%

0%

10%

20%

30%

0,0

10,0

20,0

30,0

40,0

50,0

1Q18 2Q18 3Q18 4Q18 1Q19


EBITDA, RUB Bln

Steel segment

Russia67%

Europe19%

CIS12%

Asia2%

8

Revenue breakdown by regions (1Q2019)


0.84

8.9

15,1 14,5 14,6 14,611.0

6.0 3.3

0.2

2.1

-2.7 0.07 0.84 0.2

EBITDA4Q2018

MiningSegment

SteelSegment

PowerSegment

Consolidatedadj.

EBITDA1Q2019

Power Steel Mining Consolidated adj.

23.6

76,5 74,5 74,8

24.5

44.1 42.1

7.9

0.9 -2.0 0.3

8.2

Revenue4Q2018

MiningSegment

SteelSegment

PowerSegment

Revenue1Q2019

Power Steel Mining

Consolidated revenue and EBITDA dynamics

Mining segment Revenue to 3rd parties in 1Q2019 increased by 4%,compared to 4Q2018, on higher coal sales volumes partly offset by weakerprices.

Steel segment Revenue to 3rd parties in 1Q2019 decreased by 5%compared to 4Q2018 on weaker prices.

Power segment Revenue to 3rd parties added 4% in 1Q2019 vs 4Q2018due to higher demand for heat and hot water in winter season andincreased sales at capacity market.

Mining segment EBITDA increased by 23% in 1Q2019 compared to4Q2018 and amounted to 11.0 bln RUB due to higher sales volumes andcosts decrease.

Steel segment EBITDA decreased by 46% Q-o-Q on higher costs andamounted to 3.3 bln RUB.

Power segment EBITDA increased by 41% Q-o-Q and amounted to 0.2 blnRUB.

www.mechel.com

Revenue, RUB Bln

EBITDA, RUB Bln


Cash flow & trade working capital

Cash flow from operations completely covers Group's current expenses,

including debt service and lease payments.

In 1Q2019 there was 2.7 bln RUB trade working capital release.

Group’s capital expenditures in 1Q2019 amounted to 1.7 bln RUB, including

0.5 bln RUB of lease payment.

www.mechel.com

CASH FLOW, RUB Bln

FREE CASH FLOW for 1Q2019, RUB BlnTrade working capital management, RUB Bln

68.9 68.9 67.0 69.8 71.3

(57.9) (54.2) (52.4) (57.2) (61.4)

11.014.7 14.6 12.6 9.9

31.03.2018 30.06.2018 30.09.2018 31.12.2018 31.03.2019

Trade current assets Trade current liabilities Trade working capital

10

0.41.4

14.0

-0.6

-12.0

-0.4

Cash net ofoverdrafts asof 31.12.2018

Net Operatingactivities

Net Investingactivities

Net Financingactivities

Effect ofexchange rate

changes

Cash net ofoverdrafts asof 31.03.2019

14.0

5.71.4

0.4

-7.6

-1.1

-4.3

Cash flow fromOperations

Net interestexpenses, incl

overdue interestand capitalized

Capitalexpenditures

(excludinglease)

Net investingactivity

Free Cash Flow Net Settelmentof loan,lease

and otherobligations

Free Cash Flowto Firm


Debt structure & net debt / EBITDA ratio dynamics

www.mechel.com

13.7

11.0

6.65.3 5.2 5.1 5.6 5.7

0,0

5,0

10,0

15,0

20,0

25,0

30,0

0

100 000

200 000

300 000

400 000

500 000

600 000

FY'14 FY'15 FY'16 FY'17 1H'18 9M'18 FY'18 1Q'19

LeaseLong-term borrowingsInterest payableShort-term borrowings and current portion of long-term borrowingsNet Debt*/EBITDA

RUB

406 bln

RUB

487 blnRUB

433 bln

* excluding GPB option on Elga, fines, penalties other non-current financial liabilities

11

RUB

426 bln

RUB

431 blnRUB

421 bln Portion of restructured debt reached 92%; ruble portion of debt amounts

to 65%; and Russian state-owned banks hold 88% of our debt portfolio.

Net leverage increased to 5.7 on lower EBITDA.

Average interest rate through the debt portfolio as of May 2019 is 8.2%

per annum; average paid interest rate amounts to 7,9% per annum.

In 1Q2019 Group repaid 4.3 bln RUB of debt, including capitalized

interest.

RUB

423 bln

Russian state-owned Banks88%

ECA 8%

Bonds2%

Others2%

Restructured loans92%

In restructuring8%

RUB65%

USD13%

EUR22%


RUB

411 bln

APPENDIX

www.mechel.com12 1Q 2019 RESULTS PRESENTATION

2,8

97

1,3

91

2,2

13*

4,2

65

2,6

66

1,6

36

2,2

72*

2,9

46

2,9

00

2,1

31

1,9

88*

2,4

99

3,1

86

2,3

86

2,7

48*

3,4

41

3,1

19

3,1

01

1,8

02*

2,9

26

Coal SKCC Coal YU Coal Elga* Iron ore

1Q18 2Q18 3Q18 4Q18 1Q19

1,7

43

1,6

23

1,7

02

2,4

43

1,3

84

52%

19%

10%

10%

9%

4Q2018 1Q2019

Other

Depreciation andamortisation

Energy

Staff costs

Raw materials and goodsfor resale

44%

24%

11%

11%

10%

www.mechel.com

Cash costs, RUB/tonne COS structure

Average sales prices FCA, RUB/tonneRevenue, EBITDA margin, RUB Bln

Mining segment

22,7 25,7 24,9 23,6 24,5

9,49,6 9,4

9,1 9,5

33%41%

34%27%

32%

0%

50%

100%

0,0

10,0

20,0

30,0

40,0

1Q18 2Q18 3Q18 4Q18 1Q19


12,5

39

6,6

92

5,1

63

1,4

23 6,7

87

13,4

15

7,3

33

5,5

26

1,5

74 7

,067

13,3

26

7,0

29

6,0

54

1,0

16

5,3

60

13,7

74

8,0

08

6,0

44

2,1

39

4,7

24

14,7

35

7,7

77

5,5

60

1,6

60

4,8

68

Coke Coking coal Anthracite andPCI

Steam coal Iron ore

1Q18 2Q18 3Q18 4Q18 1Q19

15.8 bln RUB16.2 bln RUB

13

Coking coal concentrate produced on Elga

* Coking coal concentrate produced on Elga and Southern Kuzbass Coal Company washing facilities

1Q 2019 RESULTS PRESENTATION / APPENDIX

www.mechel.com

Revenue breakdown by regions

1Q2019

Revenue breakdown by products

1Q2019


4Q2018


4Q2018

Mining segment

Coking coal42%

Anthracites and PCI

14%

Steam coal 15%

Middlings5%

Coke17%

Coking products

2%

Other2%

Iron ore3%

Asia w/o China50%

Russia20%

China12%

Europe14%

Middle East1%

CIS 3%

Coking coal45%

Anthracites and PCI

19%

Steam coal7%

Middlings6%

Coke14%

Coking products

3%

Other3% Iron ore

3%

Asia w/o China45%

Russia17%

China18%

Europe15%

Middle East2%

CIS3%

RUB

24.5

bln

RUB

23.6

bln

14 1Q 2019 RESULTS PRESENTATION / APPENDIX

74%

10%

11%4%

1%

4Q18 1Q19

Other

Depreciation

Energy

Staff costs

Raw materials andpurchased goods

74%

10%

11%4% 1%

www.mechel.com

Cash costs, RUB/tonneCOS structure

Average sales prices FCA, RUB/tonneRevenue, EBITDA margin, RUB Bln

Steel segment

44.2 50.1 49.5 44.1 42.1

1.6

1.4 1.3

1.71.6

14%16% 15%

13%

7%

0%

10%

20%

30%

40%

0,0

20,0

40,0

1Q18 2Q18 3Q18 4Q18 1Q19


22,8

72

21,3

46

22,0

87

27,3

04

32,2

57

23,7

09

21,1

47

22,4

68

27,7

26

39,4

22

24,4

78

22

,46

2

23,6

88 3

0,9

82 3

8,4

08

26,2

68

23

,33

3

24,5

38

35,2

51 4

2,9

73

25

,82

5

24,3

94

25,3

17 31,3

43

44,6

01

Billets Wire rod Rebar Carbon flat Railway rails

1Q18 2Q18 3Q18 4Q18 1Q19


15

29,7

16

46,3

67

41,2

84

34

,47

0

44,2

36

83,3

12

32,9

85 4

7,2

86

45,2

81

38,7

43

45,5

97

86,4

35

34,6

12 4

8,0

56

44,3

91

36

,22

5

45,9

83

85,1

70

33,6

18

49,6

74

46,6

41

35,9

99

45,1

67

83,8

56

31,3

10

47,2

55

44,3

56

36,9

90

42,3

03

78,5

45

Rebar Hardware Carbon flat Railway rails Structuralshapes

Ferrosilicon

1Q18 2Q18 3Q18 4Q18 1Q19


www.mechel.com


1Q2019


1Q2019


4Q2018


4Q2018

Steel segment

Rebar25%

Carbon long products

15%

Hardware16%

Forgings and stampings

9%

Carbon flat12%

Stainless flat2%

Ferrosilicon2%

Railway rails3%

Structural shapes7%

Other9%

Russia67%

Europe19%

CIS12%

Asia2%

RUB

42.1

bln

16

Rebar25%

Carbon long products

15%

Hardware16%

Forgings and stampings

9%

Carbon flat10%

Stainless flat1%

Ferrosilicon3%

Railway rails5%

Structural shapes8%

Other8%

Russia71%

Europe17%

CIS10%

Asia2%

RUB

44.1

bln


www.mechel.com

Average electricity sales prices and cash costs, RUB/ th KWh COS structure


1Q2019 Revenue demonstrated 4% growth Q-on-Q as a result of seasonallyhigher demand for heat and hot water and increased sales at capacitymarket.

1Q2019 EBITDA grew by 41% compared to 4Q2018 on higher sales to bothexternal and internal customers.

Power segment

94%

3%

1%

2%

4Q18 1Q19

Other

Depreciation

Staff costs

Raw materials and goodsfor resale including energy

94%

3%

1%

2%

940 8931,066 1,024 1,009

2,6452,471 2,505

2,377 2,479

1Q18 2Q18 3Q18 4Q18 1Q19

Cash costs Sales price

7.9 6.4 5.6 7.9 8.2

4.0

3.63.6

4.3 4.4

6% 5%2% 2% 2%

-10%

0%

10%

20%

30%

40%

0,0

2,0

4,0

6,0

8,0

10,0

12,0

1Q18 2Q18 3Q18 4Q18 1Q19



17 1Q 2019 RESULTS PRESENTATION / APPENDIX

Mechel is a global mining and metals company

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1q2019 results presentation · this presentation may contain projections or other forward-looking...

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