9m 2018 results presentation€¦ · this presentation may contain projections or other...

9M 2018 RESULTS PRESENTATIONNovember 27, 2018

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.com9M 2018 RESULTS PRESENTATION

KEY FINANCIAL RESULTS

Nelli R. Galeeva – Chief Financial Officer

www.mechel.com3 9M 2018 RESULTS PRESENTATION

Key market drivers

Escalation of the trade conflict between the USA and China, the drop in Yuan

exchange rate and introduction of limitations against coal imports in Chinese

ports led to a correction in international market spot prices for coking coal

early in the third quarter to $172 per tonne FOB Australia. Later the Chinese

government announced an expansion in investment into the country’s railroad

infrastructure, which spiked Chinese steel production to record highs and

prompted an increase in coking coal consumption. In India steel production

levels have also been high. As a result, increased global demand for coking

coal coincided with logistical difficulties with coal shipments from major coal

exporting states, and by the quarter’s end, spot prices once again topped

$200 per tonne.

At the Russian coal market in 3Q 2018 new coking coal supply contracts were

signed at levels similar to the previous quarter.

As a result of international coal market volatility and further Ruble

depreciation, average Ruble-nominated sales prices in 3Q 2018 were 5%

higher than in 2Q 2018.

4Q 2018 started with further increase of seaborne coal prices to $223 FOB

Australia after production at North Goonyella Mine was stopped as a result of

fire. On top of that there are still limitations on deliveries from Australia,

Tropical Storm Florence in the USA caused delays at major coal terminals

operations, while demand for coal from China and India remains strong.

In 3Q 2018 average level of price for Fe 62% iron ore remained unchanged

compared to 2Q 2018 at a level of $66 $/dmt CFR China.

In 3Q 2018 average billet FOB prices declined by 5% as amid Turkish market

weakness the center of billet consumption moved from MENA region to

South-East Asia that implies higher freight rates.

Rebar prices on the local Russian market in 3Q 2018 demonstrated moderate

growth and resulted in 7% average price increase. In 4Q 2018 we see mostly

downtrend but market activity is quite stable and by the end of quarter trend

reversal can be expected on restocking.

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

Billet FOB Black Sea, US$/t

Source: Metal Courier

HCC prices FOB Australia, US$/t

Source: Bloomberg

www.mechel.com9M 2018 RESULTS PRESENTATION/ KEY MARKET DRIVERS4

117 11093 89 81 84 92

200

285

194

170192

237197

188213

0

50

100

150

200

250

300

350

Jan-1

5

Ma

r-1

5

Ma

y-1

5

Jul-1

5

Sep-1

5

No

v-1

5

Jan-1

6

Ma

r-1

6

Ma

y-1

6

Jul-1

6

Sep-1

6

No

v-1

6

Jan-1

7

Ma

r-1

7

Ma

y-1

7

Jul-1

7

Sep-1

7

No

v-1

7

Jan-1

8

Ma

r-1

8

Ma

y-1

8

Jul-1

8

Sep-1

8

No

v-1

8

HCC spot price HCC quarterly benchmark price HCC quarterly reference price

Consolidated Revenue in 3Q 2018 amounted to 80.0 bln RUB,

decreasing by 3% compared to 2Q 2018, on lower revenue in

Mining, Steel and Power segments as a result of weaker sales

volumes.

3Q 2018 EBITDA* came down by 17% compared to 2Q 2018 and

amounted to 19.2 bln RUB with EBITDA margin decreasing to 24%

which was a result of higher costs.

Group generated Profit attributable to equity shareholders of

Mechel PAO of 6.3 bln RUB in 3Q 2018.

www.mechel.com

RUB mln 9M18 9M17 % 3Q18 2Q18 %

Revenue 237,003 222,797 6% 79,965 82,186 -3%

Operating profit 47,802 46,415 3% 15,161 19,258 -21%

EBITDA* 60,646 59,148 3% 19,206 23,004 -17%

EBITDA margin, % 26% 27% 24% 28%

Profit

attributable to equity

shareholders

of Mechel PAO

10,997 11,114 -1% 6,304 1,400

3Q 2018 Financial results summary

5

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

release Attachment A

9M 2018 RESULTS PRESENTATION / KEY FINANCIAL RESULTS

In 3Q 2018 coal mining volumes remained on a stable level and added 1%

compared to 2Q 2018. Iron ore mining demonstrates consistent growth and

increased by 13% Q-o-Q.

Stripping works significantly increased on all our mining assets in 3Q 2018.

Yakutugol added 29%, Elga – 13%, Southern Kuzbass - 30%, Korshunov

mining plant – 33%.

Production of pig iron and steel descended by 6% and 7% respectively Q-o-Q

due to the scheduled repair works at Chelyabinsk Metallurgical Plant’s facilities.

Repairs will increase stability and environmental friendliness of our steel

production hereafter.

Coking coal sales in 3Q 2018 declined by 2% as a consequence of railway cars

deficit we faced in the reporting period.

Steam coal sales decreased in 3Q 2018 by 8% on lower steam coal mining

volumes at Southern Kuzbass due to face transfer at Olzherasskaya Novaya

Underground mine.

Lower steel production negatively influenced flat and long steel sales.

www.mechel.com

Production (th tonnes)

Sales (th tonnes)

Product 9M18 9M17 % 3Q18 2Q18 %

Run-of-mine

Coal14,472 15,694 -8 4,781 4,726 1

Pig Iron 2,817 3,048 -8 889 943 -6

Steel 2,976 3,217 -7 925 995 -7

Product 9M18 9M17 % 3Q18 2Q18 %

Coking Coal 5,401 5,970 -10 1,881 1,911 -2

Steam Coal 4,319 4,642 -7 1,298 1,411 -8

Flat Products 390 453 -14 119 133 -10

Long Products 2,110 2,214 -5 699 724 -3

3Q 2018 Production and sales summary

6 9M 2018 RESULTS PRESENTATION / KEY FINANCIAL RESULTS

14.4

11.7

0.4

-0.6-0.2 -0.2

-2.1

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

EBITDA 2Q18 Prices External salesvolumes

Inter-segmentsales

Cost of sales Other EBITDA 3Q18

Share of Mining segment sales to China decreased from 28% in 2Q 2018 to

23% in 3Q 2018 as a result of lower steam coal sales on lower steam coal

production and partial redirection of volumes from export to domestic

market, increasing share of Russia from 18% to 19% Q-o-Q. Share of other

Asian countries increased from 37% to 39% Q-o-Q as in 3Q 2018 we

resumed our sales to India and started sales to Indonesia.

Lower coal sales volumes together with price volatility on seaborne market

negatively influenced both Revenue and EBITDA.

Stripping works growth resulted in costs increase which was the main factor

of Mining segment EBITDA decline Q-o-Q by 19%.

Mining EBITDA margin decreased to 34% in 3Q 2018.

www.mechel.com

Revenue, EBITDA margin, RUB Bln

23.2 25.4 22.7 25.7 24.9

9.79.3

9.49.6 9.4

39% 41%33%

41%34%

0%

20%

40%

60%

80%

100%

0,0

20,0

40,0

3Q17 4Q17 1Q18 2Q18 3Q18

Inter-segment revenue Revenue EBITDA margin

Revenue breakdown by regions (9M 2018)EBITDA, RUB Bln

Mining segment

Asia w/o China38%

Russia22%

China22%

Europe12%

Middle East3%

CIS3%


8.37.5

1.0

0.3

-1.5

-0.1 -0.5

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

9,0

10,0

EBITDA 2Q18 Prices External salesvolumes

Inter-segmentsales

Cost of sales Other EBITDA 3Q18

In 3Q 2018 segment sales volumes decreased as a result of lower steelproduction. Revenue remained on stable level.

Lower third-party sales volumes and higher costs were major factors of Steelsegment EBITDA decrease by 10% Q-o-Q.

Segment`s EBITDA margin despite decline from 16% to 15% Q-o-Q remainsat one of the highest levels since beginning of 2017.

www.mechel.com


44.4 43.4 44.2 50.1 49.5

1.7 2.2 1.6

1.4 1.3

13%15% 14%

16% 15%

0%

10%

20%

30%

0,0

10,0

20,0

30,0

40,0

50,0

3Q17 4Q17 1Q18 2Q18 3Q18


EBITDA, RUB Bln

Steel segment

Russia69%

Europe17%

CIS12%

Asia1%

Other1%


Revenue breakdown by regions (9M 2018)

14.4

20,5 19,7 19,4

11.7

8.3

7.5

0.5 -2.7

-0.8 -0.3 0.2

EBITDA 2Q18 MiningSegment

SteelSegment

PowerSegment

EBITDA 3Q18

Power Steel Mining

25.7 24.9

50.1 49.5

6.4

-0.8 -0.6 -0.8

5.6

Revenue2Q18

MiningSegment

SteelSegment

PowerSegment

Revenue3Q18

Power Steel Mining

Consolidated revenue and EBITDA dynamics

Mining segment Revenue to 3rd parties in 3Q 2018 decreased by 3%,compared to 2Q 2018, on lower coal sales volumes.

Steel segment Revenue remained almost unchanged with 1% decrease in3Q 2018. Overall lower long and flat steel sales were partly offset byhigher rails and stainless flat products sales. Favorable market conditionsalso supported Revenue.

Power segment Revenue to 3rd parties decreased by 12% as expectedsince heat and electricity generation and sales had gone down with theclosure of the heating season and beginning of repairs.

Mining segment EBITDA decreased by 19% in 3Q 2018 compared to 2Q2018 and amounted to 11.7 bln RUB.

Steel segment EBITDA lost 10% on lower sales volumes and higher costsand amounted to 7.5 bln RUB.

Power segment EBITDA seasonally decreased by 61% Q-o-Q andamounted to 0.2 bln RUB.

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 2Q and 3Q 2018 our trade working capital remained on a stable level of

14.6 bln RUB.

Group’s capital expenditures in 3Q 2018 amounted to 2.0 bln RUB, including

0.7 bln RUB of lease payment.

www.mechel.com

CASH FLOW, RUB Bln

FREE CASH FLOW for 9M 2018, RUB BlnTrade working capital management, RUB Bln

64.6 64.468.9 68.9 67.0

(53.8) (52.6)(57.9) (54.2) (52.4)

10.8 11.8 11.014.7 14.6

30.09.2017 31.12.2017 31.03.2018 30.06.2018 30.09.2018

Trade current assets Trade current liabilities Trade working capital


1.2 2.0

53.8

0.4

-3.5

-49.9

Cash net ofoverdrafts asof 31.12.2017

Net Operatingactivities

Net Investingactivities

Net Financingactivities

Effect ofexchange rate

changes

Cash net ofoverdrafts asof 30.09.2018

53.8

24.4

1.8

-25.5

-3.9

-22.6

Cash flow fromOperations

Net interestexpenses, incl

overdue interest

Capitalexpenditures

(excluding financelease)

Free Cash Flow Net Settelment ofloan,lease and

other obligations

Free Cash Flow toFirm

73.4 61.486.6 75.6

56.0

90.881.6 44.5

31.079.0

6.2

9.03.0

6.9

0.9

3Q17 4Q17 1Q18 2Q18 3Q18

Rails Rails for Russian Railways Beams and Shapes

Rails production rebounded in 3Q 2018 after decline in the first half of 2018. It

resulted in overall rolling mill production volumes growth by 27% Q-o-Q.

In 3Q 2018 we produced 147 th tonnes of rails and it is almost equal to

production volumes for the first six months of 2018.

We continue developing and producing new types of rails at Universal rolling

mill. We started production of Z-profile and switch point rails. In 3Q 2018 we

completed certification of rails for high-speed railroads with speed up to 250

km/h.

In the near term we plan to start mastering new rail types for railroads with

speed up to 400 km/h.

www.mechel.com

Universal rolling millat Chelyabinsk metallurgical plant

Production in 2018 is expected to reach 5.3 mln tonnes of coal.

Mining volumes at Elga in 3Q 2018 increased by 1% compared to 2Q 2018.

Mining volumes in 9M 2018 jumped up by 28% compares to 9M 2017.

In 9M 2018 share of coking coal in total mining volumes amounted to 72%.

Elga coal project development

Universal rolling mill production (th tonnes)

Product 9M18 9M17 % 3Q18 2Q18 %

Rails, beams

and shapes403 484 -17 147 115 27

Product 9M18 9M17 % 3Q18 2Q18 %

Run-of-mine

coal

3,899 3,049 28 1,359 1,343 1

Elga Coal Complex (th tonnes)

Key projects results

11

Universal rolling mill Production in 3Q 2017– 3Q 2018

(th tonnes)

170.4 152.0 134.1


113.5 135.9

Debt structure & net debt / EBITDA ratio dynamics

www.mechel.com

13.7

11.0

6.65.3 5.2 5.1

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

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

RUB

406 bln

RUB

487 bln RUB

433 bln

* excluding GPB option on Elga, fines and penalties

12

RUB

426 bln


RUB

431 bln

RUB

421 bln

Russian State

Banks87%

ECA 8%

ECA 8%

Bonds3%

Others2%

Restructured loans91%

In restructuring9%

RUB64%

USD13%

EUR23%

As of the date of financial release – portion of restructured debt reached

91%; ruble portion of debt amounts to 64%; and Russian state banks hold

87% of our debt portfolio.

Net leverage decreased to a level of 5.1 on lower debt.

Average interest rate through the debt portfolio as of November 2018 is

8.0% per annum; average paid interest rate amounts to 7.8% per annum.

In 3Q 2018 Group repaid 5.5 bln RUB of debt.

APPENDIX

www.mechel.com13 9M 2018 RESULTS PRESENTATION

1,5

72*

1,6

49

* 2,2

13

*

2,2

72*

1,9

88*

2,4

95

930

1,1

60

2,1

682

,739

1,2

60

1,3

11

3,1

63

2,8

97

1,3

91 1,7

43

4,2

65

2,6

66

1,6

36

1,6

23

2,9

46

2,9

00

2,1

31

1,7

02

2,4

99

Coal SKCC Coal YU Coal Elga* Iron ore

3Q17 4Q17 1Q18 2Q18 3Q18

42%

28%

10%

15%

5%

9M2017 9M2018

Other

Depreciation andamortisation

Energy

Staff costs

Raw materials and goodsfor resale

49%

24%

10%

12%

5%

www.mechel.com

Cash costs, RUB/tonne COS structure

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

Mining segment

23.2 25.4 22.7 25.7 24.9

9.79.3

9.49.6 9.4

39% 41%33%

41%34%

0%

50%

100%

0,0

10,0

20,0

30,0

40,0

3Q17 4Q17 1Q18 2Q18 3Q18


12,3

06

5,6

59

3,9

16 1,7

95

6,5

22

14,5

76

5,9

17

4,3

00

1,9

65

6,4

75

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 7,0

67

13,3

26

7,0

29

6,0

54

1,0

16

5,3

60

Coke Coking coal Anthracite andPCI

Steam coal Iron ore

3Q17 4Q17 1Q18 2Q18 3Q18

41.0 bln RUB37.1 bln RUB

14

Coking coal concentrate produced on Elga

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

9M 2018 RESULTS PRESENTATION / APPENDIX

www.mechel.com

Revenue breakdown by regions

3Q 2018

Revenue breakdown by products

3Q 2018


2Q 2018


2Q 2018

Mining segment

Coking coal48%

Anthracites and PCI

18%

Steam coal 9%

Middlings7%

Coke13%

Coking products

3%

Other2%

Asia w/o China39%

Russia19%

China23%

Europe12%

Middle East5%

CIS 2%

Coking coal46%

Anthracites and PCI

22%

Steam coal10%

Middlings8%

Coke9%

Coking products

3%

Other2%

Asia w/o China37%

Russia18%

China28%

Europe13%

Middle East3%

CIS1%

RUB

24.9

bln

RUB

25.7

bln

15 9M 2018 RESULTS PRESENTATION / APPENDIX

74%

9%

11%4%

2%

9M17 9M18

Other

Depreciation

Energy

Staff costs

Raw materials andpurchased goods

76%

10%

10%3% 1%

www.mechel.com

Cash costs, RUB/tonne COS structure

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

Steel segment

44.4 43.4 44.2

50.1 49.51.7 2.2 1.6

1.4 1.3

13%15% 14%

16% 15%

0%

10%

20%

30%

40%

0,0

20,0

40,0

3Q17 4Q17 1Q18 2Q18 3Q18


21,8

19

19,6

05

20,9

63

25,0

44

28,4

90

22,4

49

20,0

32

21,2

61

25,7

67

30,9

22

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

Billets Wire rod Rebar Carbon flat Railway rails

3Q17 4Q17 1Q18 2Q18 3Q18113.7 bln RUB

111.1 bln RUB

16

28,4

42 4

1,7

25

34,8

08

33,0

66 44,2

42

63,0

05

28,6

21

46,1

86

39,1

97

33,1

90 44,0

74

77,8

73

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

Rebar Hardware Carbon flat Railway rails Structuralshapes

Ferrosilicon

3Q17 4Q17 1Q18 2Q18 3Q18

9M 2018 RESULTS PRESENTATION / APPENDIX

www.mechel.com


3Q 2018


3Q 2018


2Q 2018


2Q 2018

Steel segment

Rebar25%

Carbon long products

15%

Hardware16%

Forgings and stampings

8%

Carbon flat11%

Stainless flat1%

Ferrosilicon2%

Railway rails7%

Structural shapes7%

Other8%

Russia70%

Europe17%

CIS12%

Asia1%

RUB

49.5

bln


Russia69%

Europe17%

CIS12%

Asia1.7%

Other0.3%

Rebar26%

Carbon long products

16%

Hardware16%

Forgings and stampings

8%

Carbon flat12%

Stainless flat0.3%

Ferrosilicon2%

Railway rails3%

Structural shapes7%

Other9.7%

RUB

50.1

bln

www.mechel.com

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


9M 2018 Revenue and EBITDA demonstrated growth by 6% and 40%respectively Y-o-Y on higher sales prices and lower costs.

3Q 2018 Revenue decreased by 12% and EBITDA went down by 61%compared to 2Q 2018 due to heating season end and traditional period ofmaintenance works at equipment.

Power segment

94%

4%

1%

1%

9M17 9M18

Other

Depreciation

Staff costs

Raw materials and goodsfor resale including energy

94%

4%

1%

1%

912 880 940 8931,066

2,4562,603 2,645

2,471 2,505

3Q17 4Q17 1Q18 2Q18 3Q18

Cash costs Sales price

5.8 7.5 7.9 6.4 5.6

3.4

4.4 4.0

3.63.6

0%

11%

6% 5%2%

-10%

0%

10%

20%

30%

40%

0,0

2,0

4,0

6,0

8,0

10,0

12,0

3Q17 4Q17 1Q18 2Q18 3Q18


21.7 bln RUB21.8 bln RUB


Mechel is a global mining and metals company

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