mechel's presentation (october, 2015)
TRANSCRIPT
MANAGEMENT PRESENTATION October 2015
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 OAO (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 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.
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 2
MECHEL AT A GLANCE
LEADING VERTICALLY INTEGRATED MINING & METALS COMPANY MECHEL INTEGRATED BUSINESS MODEL
OPERATING HIGHLIGHTS, SALES
Mining Segment
Source: Company data
8,0
6,5
2,5 3,0
1,9 1,3
1H 2014 1H 2015
Met Coal Steam Coal Iron ore concentrate
Steel Segment
‘000 t
onnes
4
Steel Mining Power
FINANCIAL HIGHLIGHTS
1H 2015 Revenue Breakdown 1H 2015 EBITDA(a)(1) Breakdown
Mining
Steel
SALES & MARKETING
LOGISTICS
‘000 t
onnes
(1) EBITDA(a) 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, One-off accrual of taxes for prior periods and Income taxes.
2,13 2,15
1,6 1,4
0,38 0,34
1H 2014 1H 2015
Steel (production) Long Products Hardware
10%
33% 57%
2%
47%
51%
$ 2,272 mln $390 mln
INVESTMENT HIGHLIGHTS
5
Best-in-class global coking coal producer and exporter
with attractive growth profile
• One of the largest metallurgical coal producers globally
• One of the leading exporters on the seaborne market
• Developing one of the largest coking coal deposits globally
Superior asset quality
• One of the largest coal reserves base globally
• Core assets positioned at the lower bound of the global cost curve
• Ability to supply steel producers with a full range of metallurgical coal
• First newly built rolling mill for high-speed long rails in Russia
Strategically positioned to
supply both Asia-Pacific and Atlantic seaborne markets
• Uniquely positioned to supply metallurgical coal to attractive Asia Pacific markets
• Access to key Far Eastern and European ports
• Lower transportation cost to supply key growth markets in Asia
• Own infrastructure including ports and rolling stock, secures access to end customers and export markets
Vertically integrated steel business model
• Steel business is virtually self-sufficient in coal and iron ore
• Established distribution and sales platform in core markets
Leading steel producer • Most diversified specialty steel producer in Russia
• Second largest long steel producer in Russia
• Largest distribution platform in Russia
Port Temryuk
Russian Federation
Lithuania
Kazakhstan
Elgaugol Yakutugol
Korshunov Mining Plant
Southern Kuzbass
Coal Company
Chelyabinsk Metallurgical Plant
Urals Stampings Plant
Beloretsk Metallurgical Plant
Izhstal
Moscow Coke
and Gas Plant
Vyartsilya Metal Products Plant
Port Posiet
Port Vanino*
Port Kambarka
Bratsk Ferroalloy Plant Southern Kuzbass
Power Plant
Moscow Mechel Coke
Ukraine
Mechel
Nemunas
BROAD GEOGRAPHIC FOOTPRINT TARGETING GROWTH MARKETS
REVENUE BREAKDOWN BY
MARKET (1H 2015)
Mining Segment
Steel Segment
Source: Company data
Mining
Steel Power
Port Head office
6
*Access to port secured by contractual agreements
Mongolia
China
Russia 68%
Europe 16%
CIS 13%
Asia 1%
Middle East 1%
Other 1%
China 27%
Russia 24%
Europe 22%
Asia w/o
China 19%
CIS 3%
Middle East 4%
Other 1%
TSO
%
of Total
Ordinary 416,270,745 75%
Preferred 138,756,915 25%
Preferred Publicly Trading 57,209,577 10%
Preferred held by Justice family 26,044,572 5%
Preferred Share held by Mechel as treasury
55,502,766 10%
Total 555,027,660 100%
CAPITAL STRUCTURE
CAPITALIZATION AND OWNERSHIP STRUCTURE
Preferred Shares
Ordinary Shares
Public Float
32.6%
Igor Zyuzin
(with family)
67.4%
Public Float
41%
Justice Family
19%
Mechel
40%
Source: Company data
OWNERSHIP STRUCTURE
7
NARROWED STRATEGY USING KEY COMPETITIVE ADVANTAGES FOR VALUE GROWTH
GROWTH IN SHAREHOLDER VALUE
BASED ON VERTICALLY-INTEGRATED BUSINESS
MODEL
One of the largest global metcoal producer 1
Leader in Russia and CIS construction steel market 2
Leader in specialty steel, stainless steel and hardware production 3
Optimization of asset structure to deleverage 4
8
4.3
10.1 6,3
3,2
Production Consumption
MM
t
MM
t
MM
t
MM
t
MM
t
Production Consumption Production Consumption
Shipped through
own ports
Shipped overall
(excl. US ports)
Own rolling stock Overall
9
Production Consumption
5th largest metallurgical coal
producer globally* with ability
to supply steel producers with
a wide range of metallurgical
coal types, coke and iron
ore concentrate.
Own infrastructure
helps to establish access to
end customers.
*Ex-China Source: Company data
- Volumes shipped through Vanino port
Sea Port capacity, 12m 2014 Cargo turnover, 12m 2014 Power, 12m 2014
Coking Coal Concentrate, 12m 2014 Iron Ore Feed, 12m 2014 Coke, 12m 2014
bln
KW
h
VERTICALLY INTEGRATED MINING & STEEL BUSINESS MODEL WITH FOCUS ON COMPETITIVE ADVANTAGES
1,9
3,4
6,0
12,3
4,4
10.4
48,6
14,9
5,3
3,7
7,6
9,3
9,4
10,4
12,5
13,0
15,3
24,5
27,0
78,4
0,0 20,0 40,0 60,0 80,0 100,0
4 361
3 690
2 576
1 602
1 500
1112
1 082
826
411
350
0 1 000 2 000 3 000 4 000 5 000
BMA
Mechel
Evraz
Vale
Alpha Natural Resources
Peabody
BHP
Anglo-American
Walter Energy
Glencore Xstrata
LEADING GLOBAL METALLURGICAL COAL PRODUCER
2nd largest metallurgical coal reserve base
One of the largest metallurgical coal producer globally with superior leverage to metallurgical coal
One of the largest global exporters of coking coal
Top Ten Metallurgical Coal Exporters in 2014 Ten Largest Metallurgical Coal Producers in 2014 Ten Largest Metallurgical Coal Producers by
Metallurgical Coal Reserves
MMt MMt
Source: CRU, company reports (1) Including 50% share of BMA
Source: Company Filings All production numbers shown on an attributable saleable basis unless otherwise disclosed (1) Met coal with some minor thermal coal production (2) Small part may be third-party purchased coal (3) not including Jellinbah (4) Coking coal concentrate+PCI+Anthracites
Source: Company Filings, IMC All reserve numbers shown on a 100% run-of-mine basis unless otherwise disclosed (1) Assumes 100% of disclosed reserves are metallurgical (2) On a saleable, attributable basis (3) Reserves as of 30 June 2012 (4) Adjusted for acquisition of Raspadskaya
10
MMt (1)
(1)
(1)
(3)
(4))
(1)
(2)
9,4
9,4
12,7
13,5
15,3
15,5
16,3
24,8
26,7
79,2
0,0 20,0 40,0 60,0 80,0 100,0
(4)
(3)
(1)
(2)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
LOW COST COKING COAL PRODUCER
Source: AME
Notes: (1) FOB excluding land freight and port costs
Source: AME
Cumulative Production (%)
Australia USA & Canada Russia Other
Cumulative Production (%)
Australia USA & Canada Russia Other
0
50
100
150
200
0
50
100
150
200
Yakutu
gol Mechel B
lended
0
50
100
150
200
0
50
100
150
200
Mechel B
lended
U$/t
Ya
ku
tug
ol
post - Elgaugol
About 80% of coking coal by open pit
Access to cheap labor Low production cost
Low raw material costs
ESTIMATED EXPORT COKING COAL COST CURVE (FCA(1)) ESTIMATED EXPORT COKING COAL COST CURVE (FOB)
U$/t
11
150
100
50
150
100
50
Port Posiet
Yakutugol Elgaugol
Southern
Kuzbass
Indonesia
USA
Canada
Europe
Australia
India
Japan China
Russia
292 mn t (2)
ABILITY TO SUPPLY ALL METCOAL MARKETS
Major coking coal
exporting regions
Target markets for Mechel’s
coking coal supplies
Target markets for Mechel’s
steam coal supplies
Major coking coal
importing regions
Mechel’s routes
3rd parties routes
Size of respective
seaborne coking coal markets
Notes: (1) FY2014 coal production
(2) Total seaborne met coal trade (2014 est), CRU
Source: MCQ47
Diversification / enhancement of sales channels to the fast-growing Asian and European markets
Extensive range of metcoal grades allow for diversified product portfolio to serve a variety of customer needs
Mechel’s own ports on the Sea of Japan and Azov Sea serve as a stable gateways to export markets
Freight rates from port Posiet
(Handysize 22 000 t)
to Northern China $8 pmt
to Yangtze River $9 pmt
to Southern China $11.75 pmt
to Thailand $12.75 pmt
to Philippines $14 pmt
to Indonesia $14 pmt
India (West Coast / East Coast)
$21.75 /
$18.25 pmt
to Japan $7 pmt
12.0 mn t (1) 9.4 mn t (1)
12
Freight rates from port Vanino
(45 000 t)
to Northern China $9.75 pmt
to Yangtze River $10.75 pmt
to Southern China $12.95 pmt
to Thailand $13 pmt
to Philippines $13.5 pmt
to Indonesia $13.5 pmt
India (West Coast / East
Coast)
$19 pmt / $17 pmt
to Japan $7 pmt
Port Vanino
1.2 mn t (1)
Source: Company data
MECHEL SERVICE GLOBAL -- MAP OF DISTRIBUTION HUBS
70 storage sites and service centers throughout Russia,
CIS & Europe
Real time market intelligence and pricing feedback
Opportunity to address specific customer needs and sell
more high-marginal, value-added products
ADVANTAGES
PRODUCT PRODUCTION
VOLUME, 12m 2014
‘000 tonnes
RUSSIAN
PRODUCTION
SHARE
RANK
Spring
wire 1 62% 52
Wire
products 1 29% 624
Wire rod 1 33% 868
High-
tensile wire 2 44% 43
Flat
stainless
steel 1 54% 18
Rebar 3 18% 1,590
LEADER IN SPECIALTY, STAINLESS STEEL & HARDWARE
13
Geographies of presence of Mechel Service
Mechel Service facilities
• Logistics flexibility on the Sea of
Azov and Black Sea
• Potential to increase export of coking
coal, PCI and anthracite to Europe
• Existing port capacity – 2 mln tonnes
• Target capacity - 4 mln tonnes
• Rolling stock of about 12,000 railcars
• Ensures uninterrupted transportation
• Reduces dependency on Russian
Railways, state-owned and
independent freighters
• Increase access to Asian coal
customers via seaborne market
• Existing port capacity – 7 million
tonnes per year
• Target capacity - 9 mn tonnes
(Panamax vessels) after 2nd stage of
modernization
MECHEL’S INFRASTRUCTURE ALLOWS SECURED ACCESS TO FINAL CUSTOMERS
• Increases logistics flexibility to Asian
coal customers via seaborne market
securing exports from Elgaugol
• Total turnover up to 10 million tonnes
of cargo per year
• Shorter transportation distances –
lower rail and vessel freights
TEMRYUK PORT MECHEL TRANS TRANSPORTATION COMPANY
POSIET PORT VANINO PORT*
14
* Access to port secured by contractual agreements
KEY PROJECT CHARACTERISTICS
4.7 7.0
1.8
1.8
10.0
2012 2014
Posiet Temryuk Vanino
6.5
18.8
TEMRYUK POSIET VANINO
EXISTING
CAPACITY 1.8 MMt per year 7.0 MMt per year 10.0 MMt per year
TARGET
CAPACITY 4.2 MMt per year 9 MMt per year na
DEVELOPMENT
STAGE Modernization Modernization na
VESSEL TYPE River-to-sea
vessels
Panamax (post
modernization) Panamax
TIMING 2017 na na Source: Company data
Notes: * Volumes secured by contractual agreements
Elgaugol Yakutugol
Southern
Kuzbass
Port Posiet
Port Vanino Port Temryuk
OWN SEAPORT FACILITIES
OWN SEAPORT ANNUAL TURNOVER CAPACITIES, MMt *
MECHEL TRANS – ACCESS TO SEABORNE MARKET
15
Access to main customers in Asia-Pacific and
Europe secured through own ports infrastructure
Port capacity aligned with expected growth in
export volumes
ALIGNING ASSETS STRUCTURE WITH STRATEGY
Mining Segment
Korshunov Mining
Plant
Iron Ore
Yakutugol
Southern Kuzbass
Coal Company
Elgaugol
Bluestone
Coal
Coke
Mechel Coke
Moscow Coke and
Gas Plant
Steel Segment
Vyartsilya Metal Products Plant
Beloretsk Metallurgical Plant
Urals Stampings Plant
Mechel Targoviste
(Romania)
Mechel Campia Turzii
(Romania)
Chelyabinsk Metallurgical Plant
Buzau Plant
(Romania)
Otelu Rosu Plant
(Romania)
Izhstal
Donetsk Electrometallurgical Plant
Laminorul Plant
(Romania)
Mechel Nemunas (Lithuania)
Ferroalloys Segment
Ferronickel
Ferrochrome
Ferrosilicon
Southern Urals Nickel
Plant
Tikhvin Ferroalloy Plant
Voskhod Chrome
Mining Plant
(Kazakhstan)
Bratsk Ferroalloy Plant
Uvatskoye Deposit of
Quartzite
Power Segment
Toplofikatsia Rousse
Power Plant -
Southern Kuzbass
Power Plant
Kuzbass Power
Sales Company
Generation
Distribution
Distribution
Mechel Service Global *
(ex Russia)
Mechel Trading House
Mechel Carbon
Mechel-Mining Trading
House
Mechel Trading
Mechel Service OOO
(Russia)
Invicta (UK)
Group 1
Group 2
16
Improvement in financial results and cash flow
Immediate deleverage
Deal closed
Deal closed
Deal closed
Deal closed
Deal closed
Deal closed
Deal closed
* Divestment in progress through inventory sell down
Mothballed
Deal closed
Deal closed
Deal closed
KEY DEVELOPMENTS
ELGA DEPOSIT: RAMP UP SECURED BY VEB PROJECT FINANCING
CURRENT STATUS
KEY PROJECT METRICS
LOCATION
OPERATIONAL
DETAILS
COAL TYPE
RESERVES
JORC STANDARDS
• Country Russia
• Location South-East of Yakutia
• Mine Type 100% OP
• Start of operations August 2011
• High volatile hard coking coal
• Steam coal
• Middlings
• 2.2 billion tonnes as of December 31, 2012
• Elga coal deposit reserves account for 67% of total
reserves of Mechel
• Russia, Asia-Pacific countries TARGET MARKETS
LOCATION OF OPERATIONS
Mongolia
Yakutugol Elgaugol
Port Vanino
Port Posiet China
Japan Kazakhstan
Source: Company data
18
Railroad in place
Wash plant up & running
Workers settlement under construction
Existing capacity up to 4-5 mn tonnes of coal mining,
2.7 mn tonnes of coal processing
In FY 2014 1,2 mln tonnes mined, over 700,000 tonnes processed
and about 1 mln tonnes shipped (includes coking coal concentrate ,
oxidized coal and middlings).
Expected to produce about 3,5 mln tonnes of run-of-mine coal in
2015
Seasonal washing plant became all year operational starting winter
2014-2015
Coal processing up to 2,7 mln tonnes starting from 2015 and till the
first module of permanent washing plant is in place and operating
(2018)
VEB project financing of 1st stage of Elga development: up to12 mn
tons of coal mined by 2018
Once 9 mn tons of coal is mined and processed at Elga, the project
should become operating cashflow positive
FURTHER EXPANSION
CAPACITY
PRODUCTS
CAPEX
TARGET
CONSUMERS
High-speed and low-temperature up to 100 meter long rails
H-beams, channel bars, angles and grooves
US$ 715 mn
Up to 1.1 mn t
Russian Railways
Off-take secured by a 20-year supply agreement
Russian Railways Strategy till 2030 provides for additional railway
construction of more than 20,000 km, including more than 12,000 km
of high-speed tracks
Construction industry
TIMING 2009 – 2013
UNIVERSAL ROLLING MILL – STRUCTURAL SHIFT IN LONG STEEL PRODUCTS PORTFOLIO
Increased Output of High Value-Added Products
Enhanced Profitability of Steel Division
Structural Shift in the Long Steel Portfolio
RAILS PRICING
KEY PROJECT CHARACTERISTICS
Source: Metal-Courier, Company data
Notes: * There was no import of 100m length rails in 2014
19
982
963
920
932
653
637
630
623
652
637
631
623
1596
1 597
1386
0
1413
1 310
1310
0
530
517
504
494
0 500 1000 1500 2000
Average 2H2012
Average 1H2013
Average 2H2013
Average 1H2014
Billets (FOB ЧМ Россия) Rails 100m length (DES Vladivostok)
Rails 100m length (DES St. Petersburg) L-bar (FOB Турция)
Channel bar (FOB Турция) Beams (DAP Казахстан)
Mill
CURREN PROJECT STATUS
The mill launched in July 2013
H-beams and rails sales to 3d parties ongoing. In 9 month 2014 period about
85,000 tonnes produced and sold.
Rails have been certified for use by Russian Railways in June 2015.
FINANCIAL HIGHLIGHTS
1H2015 FINANCIAL RESULTS SUMMARY
21 * See our press release for full calculations
1H15 1H14 % 2Q15 1Q15 %
Revenue 2,272 3,436 -34% 1,159 1,113 4%
EBITDA (a) 390 262 49% 179 211 -15%
Net (loss) / income (239) (648) -63% 34 (273) -112%
Net Debt* 6,974 9,053 -23% 6,974 6,822 2%
1H 2015 HIGHLIGHTS
22
+ Revenue increased by 4% QoQ primarily because of the increase of sales in
Steel segment by 13%.
+ 1H 2015 Operating income increased 16x times compared with similar period of 2014
+ EBITDA(a) was 15% lower QoQ mostly due to Steel segment EBITDA decrease on higher
costs.
+ Major segments contributed almost equally to consolidated EBITDA(a) in 1H 2015 –
51% Steel segment and 47% Mining segment.
+ Net debt amounted to $7 bln as of June 30, 2015.
Net debt increased by 2% QoQ because of revaluation of ruble denominated debts due to
depreciation of US$ from 58,46 to 55,52 at the end of the periods.
+ Bottom line supported by $189mln FX gain and amounted to $34 mln in 2Q 2015.
1H 2015 Net loss was $239 mln.
94 87 87 106 96
77
138
120 106
83
3
-7
12 6
0,15
Power
Steel
Mining
-7
548 489 483 390 363
1027 948
740
601 682
166
148
161
122 114
2Q14 3Q14 4Q14 1Q15 2Q15
Power
Steel
Mining
10%
33% 57%
11%
32% 57%
SEGMENTS OVERVIEW REVENUE BY SEGMENTS
$ Mln
(1) EBITDA(a) represents earnings before Depreciation, depletion and amortization, Foreign exchange gain / (loss), Loss from discontinued operations, 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.
23
Steel Mining Power
EBITDA(a)(1) BY SEGMENTS
2%
47%
51%
1H 2015
8%
29%
63%
1H 2014
REVENUE BY SEGMENTS
$ Mln
EBITDA(a) (1) BY SEGMENTS
$ 2,272 mln $390 mln
$3,436 mln $262 mln
$ 1,741
$ 1,159
$ 1,585
$ 1,384
$ 1,113
$ 211
$ 179
$ 227 $ 220
$176
3Q14 4Q14 1Q15 2Q14 2Q15
SEGMENT HIGHLIGHTS
24
+
International metallurgical coal prices continued to decrease. Hard coking coal benchmark decreased
from $117 FOB in 1Q 2015 to $109.5 FOB in 2Q 2015 and moved down to $ 93 FOB in 3Q 2015.
Domestic coal prices were more stable and profitability of domestic sales was supported by weaker
ruble
+
Lower export prices led to Mining segment Revenue decrease by 7% QoQ (from $390mln to $363mln)
and EBITDA(a) decrease by 8% QoQ (from $106mln to $97mln)
EBITDA margin for 1H 2015 almost doubled to 20,6% comparing with the previous year (1H 2014 –
11,6%)
+ Mining segment finished 2Q 2015 period with Net income of $53 mln
+ Steel segment Revenue grew by 13% QoQ on a stable prices and higher sales volumes
+ 1H 2015 Steel segment EBITDA(a) is 2.5x times higher than in 1H 2014
(increase from US$74mln to US$188mln)
EBITDA(a) margin decreased from 16,4% to 11,4% QoQ on higher costs
Mining Segment Steel Segment 35
30
55
44
31
27
26
61
28
22
20
51
26
18
15
32
30
19
18
44
Coal SKCC Coal YU Coal Elga Iron Ore KGOK
2Q14 3Q14 4Q14 1Q15 2Q15
548
489 483
390
363
151
144 106
101 131
13% 14% 15%
22% 20%
2Q14 3Q14 4Q14 1Q15 2Q15
Intersegment revenues Revenues EBITDA(a) margin
CASH COSTS, US$/TONNE
$ Mln
425
376
390
501
403
361
364
482
310
284
288
377
254
240
243 3
03
312
311
322 370
Billets* Wire rod Rebar Carbon Flat
2Q14 3Q14 4Q14 1Q15 2Q15
1027 948
740
601 682
55 46
41
40 44
7%
14% 15%
16%
11%
2Q14 3Q14 4Q14 1Q15 2Q15
Intersegment revenues Revenues EBITDA(a) margin
REVENUE, EBITDA(a)(1)
$ Mln
CASH COSTS, US$/TONNE
REVENUE, EBITDA(a)(1)
(1) EBITDA(a) represents earnings before Depreciation, depletion and amortization, Foreign exchange gain / (loss), Loss from discontinued operations, 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.
* Domestic sales
Coking coal 42%
Anthracite and PCI
27%
Coke 9%
Coking products
2%
Steam coal 9%
Iron ore 8%
Other 3%
China 39%
Russia 29%
Europe 14%
Asia w/o China 13%
CIS 2%
Middle East 2% Other
1%
Coking coal 33%
Anthracite and PCI
24%
Coke 11%
Coking products
3%
Steam coal 12%
Iron ore 4%
Other 2%
China 27%
Russia 24% Europe
22%
Asia w/o China 19%
CIS 3%
Middle East 4%
Other 1%
MINING SEGMENT
26
REVENUE BREAKDOWN BY REGION
REVENUE BREAKDOWN BY PRODUCTS
1H 2015
1H 2014
1H 2015 revenue $753 mln
1H 2015
1H 2014 revenue $1,115 mln
1H 2014
Rebar 29%
Carbon long products
19% Hardware
16%
Forgings and stampings
9%
Carbon flat 8%
Semi-Finished Steel Products
5%
Stainless flat 3%
Ferrosilicon 2%
Other 8%
Rebar 29%
Carbon long products
19% Hardware
16%
Forgings and stampings
8%
Semi-Finished Steel Products
6%
Carbon flat 10%
Stainless flat 2%
Ferrosilicon 2%
Other 8%
Russia 66% Europe
17%
CIS 13%
Asia 2%
Middle East 1% Other
1%
Russia 68%
Europe 16%
CIS 13%
Asia 1%
Middle East 1%
Other 1%
STEEL SEGMENT
27
REVENUE BREAKDOWN BY REGION
REVENUE BREAKDOWN BY PRODUCTS
1H 2015
4Q 2014
1H2015 revenue $1,283 mln
1H 2015
1H2014 revenue $1,956 mln
1H 2014
OPERATIONAL RESULTS 1H 2015
PRODUCTION:
Product
1H’15,
th. tonnes
1H’14,
th. tonnes %
2Q’15,
th. tonnes
1Q’15,
th. tonnes
%
Run-of-mine coal 11 448 11 198 +2 5 941 5 506 +8
Pig Iron 2 045 1 900 +8 994 1 051 -5
Steel 2 147 2 127 +1 1 045 1 102 -5
SALES:
Product name
1H’15,
th. tonnes
1H’14,
th. tonnes %
2Q’15,
th. tonnes
1Q’15,
th. tonnes
%
Coking coal concentrate 4 068 5 354 -24 2 028 2 040 -1
PCI 1 322 1 623 -19 669 653 +3
Anthracites 1 109 1 001 +11 564 544 +4
Steam coal 3 039 2 528 +20 1 563 1 476 +6
Iron ore concentrate 1 317 1 886 -30 609 707 -14
Coke 1 484 1 491 0 718 767 -6
Flat products 237 227 +4 120 117 +2
Long products 1 367 1 588 -14 730 637 +15
Billets 112 61 +84 31 81 -62
Hardware 340 384 -11 170 171 0
Forgings 28 26 +8 14 14 +2
Stampings 32 44 -27 20 13 +57
Ferrosilicon 39 42 -7 17 22 -22
28
POWER SEGMENT
29
AVERAGE ELECTRICITY SALES PRICES AND CASH COSTS (RUSSIA), US$/MWH
REVENUE, EBITDA(a)(1)
$ Mln
(1) EBITDA(a) represents earnings before Depreciation, depletion and amortization, Foreign exchange gain / (loss), Loss from discontinued operations, 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.
200
166 148
161
122 114
105
90 86 76
66 64
6%
1% -3%
5% 3%
0,1%
-5%
5%
15%
25%
35%
-50
50
150
250
350
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
Intersegment revenues Revenues EBITDA(a) margin
27 29
36
21
15 19
53,3 55,1 52,2
39,7
31,4 32,2
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
Cash costs Sales price
91%
4%
3%
1%
1%
1H15 1H14
Other
Depreciation anddepletion
Energy
Staff costs
Raw materials andpurchased goods
90%
4%
4%
1% 1%
COS STRUCTURE
$236 mln $366 mln
+ 1H 2015 EBITDA(a) $7 mln,
EBITDA(a) margin 1.9%.
+ Seasonal reduction in sales volumes and
ruble strengthening in 2Q 2015 led to an
increase in cash costs
+ 1H 2015 Net loss of $8,2 mln.
CONSOLIDATED P&L
30
REVENUE, $MLN
FINANCIAL PERFORMANCE HIGHLIGHTS:
$ Mln $ Mln
(1) EBITDA(a) represents earnings before Depreciation, depletion and amortization, Foreign exchange gain / (loss), Loss from discontinued operations, 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.
1741
1585
1384
1113 1159
36% 37%
44% 43% 41%
2Q14 3Q14 4Q14 1Q15 2Q15
Revenue Gross margin, %
176
227 220
211
179
10%
14%
16%
19%
15%
2Q14 3Q14 4Q14 1Q15 2Q15
EBITDA(a) EBITDA(a) margin
EBITDA(a)(1) , $MLN
+ 1H2015 revenue decreased 34% HoH mostly because of the ruble depreciation
Adjusted Operating income increased 5,5x times to US$260mln (1H2014: US$47mln)
+ EBITDA(a) increased to US$390mln (1H2014: 262mln) with EBITDA(a) margin increase from 7,6% to
17,2% for the comparable periods
+ Bottom line in 2Q 2015 became positive with support of $189mln FX-gain.
Net Income of $34 mln.
1H 2015 net loss of $239mln (1H2014 net loss $648mln)
CASH FLOW & TRADE WORKING CAPITAL
31
CASH FLOW, $MLN
+ Operating cash flow deficit became a result of significant increase in debt serving payments.
Cash deficit was financed by further decrease in trade working capital by $192 mln.
+ Investment cash flow amounted to $126 mln in 1H 2015 – mostly maintenance CAPEX and Elga.
TRADE WORKING CAPITAL MANAGEMENT, $MLN
72 45
191
-126
-99
Cash as of31.12.2014
Operatingactivities
Investmentactivities
Financingactivities
Cash as of30.06.2015
2 007
1 681
1 219 1 202 1 153
-1 939 -1 773 -1 661 -1 825
-1 968
68 -92
-442 -623
-815
Trade current assets Trade current liabilities Trade working capital
30.06.14 30.09.14 31.12.14 31.03.15 30.06.15
State banks 66%
Bonds 4%
Other lenders
5%
International
Banks
23%
+ At the end of August and beginning of September 2015 Group signed restructuring agreements with
Gazprombank and VTB which include grace period for debt repayment till April 2017 with onwards
repayment within 3 years
+
We have also signed restructuring agreement with other Russian and international banks such as Uralsib,
MKB, Raiffeisenbank Russia, EABR.
We are finalizing discussions with PXF and ECA lenders as well as RUR Bond holders on restructuring
terms
We discuss restructuring terms with Sberbank
+ Stable debt level and increase of financial results led to Net debt / EBITDA ratio of 8,3x.
DEBT PROFILE
BANK DEBT PROFILE AS OF SEPTEMBER 1, 2015
By currency By banks
32
Total Debt $6,313 mln
Note: converted at the exchange rate established by CB RF as of September 01, 2015
DEBT BURDEN DYNAMICS 2011-2015, USD BLN
3,5x
3,5x
7,2x
12,6x
10,0x 8,2x 8,3x
2010 2011 2012 2013 2014 3m2015 6m2015
Long-term Short-term Lease Net debt / EBITDAEUR 6%
USD 59%
RUR 35%
US$ MILLION UNLESS OTHERWISE STATED 1H15 1H14 % 2Q15 1Q15 %
Revenue (2) 2,272 3,436 -33.9% 1,159 1,113 4.1%
Cost of sales (1,324) (2,254) 41.3% (689) (635) 8.5%
Gross margin 41.7% 34.4% 40.6% 42.9%
Adjusted Operating income 260 47 453% 108 152 -28.9%
EBITDA(a) (1) 390 262 48.9% 179 211 -15.2%
EBITDA(a) margin 17% 8% 15% 19%
Net (loss) / income (239) (648) -63.1% 34 (273) -112.5%
Net (loss) / income margin -10.5% -18.9% 2.9% -24.5%
Net Debt 6,974 9,053 -23% 6,974 6,822 2%
CapEx 91 274 -66.8% 57 34 67.6%
FINANCIAL RESULTS OVERVIEW
(1) EBITDA(a) represents earnings before Depreciation, depletion and amortization, Foreign exchange gain / (loss), Loss from discontinued operations, 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.
(2) Includes sales to the external customers only
33
APPENDIX
ELGA WASHING PLANT
35
CHELYABINSK UNIVERSAL ROLLING MILL
36
SHAPES PRODUCED AT UNIVERSAL ROLLING MILL
37