FY 2015 RESULTS PRESENTATION · 2020-03-21 · FY 2015 HIGHLIGHTS 5 + Revenue increased by 4% YoY...

FY 2015 RESULTS PRESENTATION May 13, 2016

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 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

FINANCIAL HIGHLIGHTS

10%

32% 58%

10%

33% 57%

FY 2015 FINANCIAL RESULTS SUMMARY

* For full calculations here and after see our press release

4

Power Mining Steel

5%

37%

58%

FY 2015

5%

50%

45%

FY 2014

253 bln RUB 46 bln RUB


Bln. RUB FY 15 FY 14 Change

Revenue 253 244 4%

EBITDA(a)* 46 30 54%

Net (loss) / income (115) (133) -13%

Net Debt* 507 407 25%

Revenue by segments EBITDA(a) (1) by segments

FY 2015 HIGHLIGHTS

5

+ Revenue increased by 4% YoY that together with lower Selling, distribution and operating expenses

resulted in operating profit and EBITDA(a) increase.

+ EBITDA(a) margin in 2015 increased to 18% from 12% in 2014.

+ Mining segment`s contribution to consolidated EBITDA(a) amounted to 58%, Steel segment share

was 37% and Power segment share was 5%.

+ Net debt amounted to 507 bln rubles as of December 31, 2015.

Net debt increased by 25% from 407 bln rubles as of the end of 2014 primarily due to further ruble

depreciation and growth in Interest payable, fines and penalties on overdue amounts.

+ Net loss in 2015 decreased by 13% compared to the year 2014.

The major cause of 115 bln rubles Net loss was 71 bln rubles FX-loss .

MINING SEGMENT

6

+ Chinese demand decrease resulted in lower metallurgical coal sales volumes …

… but it was fully offset by ruble denominated prices growth on ruble depreciation.

+ Weaker demand in China resulted in decrease of China share in segment sales from 35% to 27%.

Asia w/o China share as well as Europe share both increased from 15% to 20%.

+ Revenue from external customers was stable YoY (+1%)

Intersegment sales increased as a result of coke and iron ore ruble prices increase due to ruble

depreciation.

+ Higher ruble denominated coal prices with stable cash costs and lower selling and distribution

expenses resulted in EBITDA(a) growth from 13 bln rubles in 2014 to 27 bln rubles in 2015.

+ EBITDA(a) margin amounted to 25%, compared to 13% in 2014.

0.

0.

5,5

05

2,3

50

2,6

84

1,3

73

2,2

55

7,9

80

3,9

26

4,5

63

1,9

70

2,8

22

7,8

81

2,8

79

3,1

94

1,8

14 2,9

23

8,1

26

3,2

36

3,1

80

1, 223 2,5

89

8, 687

3,1

88

3,1

31

1,1

28 2

,777

Coke Coking coal Anthracite andPCI

Steam coal* Iron ore

4Q14 1Q15 2Q15 3Q15 4Q15

80 81

21 28

13%

25%

0%

20%

40%

60%

80%

0

50

100

150

2014 2015

Intersegment revenues Revenues EBITDA(a) margin

1,3

20

1,0

53

953

2,4

24

1,6

45

1,1

11

918

1,9

71

1,5

66

997

972

2,3

33

1,5

60

895

863

1,8

49

1,6

72

964

853

2,1

63

Coal SKCC Coal YU Coal Elga Iron Ore KGOK

4Q14 1Q15 2Q15 3Q15 4Q15

MINING SEGMENT

CASH COSTS, RUB/TONNE

7

REVENUE, EBITDA(a)(1)

* Restated to include middlings

AVERAGE SALES PRICES FCA, RUB/TONNE

COS STRUCTURE

43%

25%

11%

15%

6%

Other

Depreciation anddepletion

Energy

Staff costs

Raw materials andpurchased goods

2014 2015

41%

26%

10%

16%

7%

COS STRUCTURE

51.4 bln RUB 51.3 bln RUB

Bln Rub

Coking coal 39%

Anthracites and PCI

28%

Coke 11%

Coking products

3%

Steam coal and

middlings 12%

Iron ore 5%

Other 2 %

China 35%

Russia 26%

Europe 15%

Asia w/o China 15%

CIS 5%

Middle East 3%

Other 1%

MINING SEGMENT

8

REVENUE BREAKDOWN BY REGION

REVENUE BREAKDOWN BY PRODUCTS

2014

2014 revenue 80 bln RUB

2014

Coking coal 34%

Anthracites and PCI

31%

Coke 12%

Coking products

3%

Steam coal and

middlings 15%

Iron ore 2%

Other 3%

China 27%

Russia 26%

Europe 20%

Asia w/o China 20%

CIS 3%

Middle East 3%

Other 1%

2015


2015

MINING SEGMENT OPERATIONAL RESULTS

PRODUCTION:

Product

FY 2015,

thousand

tonnes

FY 2014,

thousand

tonnes

Change

Run-of-mine coal 23,181 22,624 +2%

SALES:

Product

FY 2015,

thousand

tonnes

FY 2014,

thousand

tonnes

Change

Coking coal concentrate 8,215 10,140 -19%

PCI 2,251 3,063 -27%

Anthracites 2,076 2,107 -1%

Steam coal 6,564 5,958 +10%

Iron ore concentrate 2,806 3,120 -10%

Coke 2,911 3,234 -10%

9

4Q 2015,

thousand

tonnes

3Q 2015,

thousand

tonnes

Change

5,776 5,957 -3%

4Q 2015,

thousand

tonnes

3Q 2015,

thousand

tonnes

Change

2,014 2,133 -6%

457 472 -3%

506 462 +10%

1,657 1,867 -11%

737 752 -2%

670 757 -11%

10

World coking coal trade (a key market of Elga and

Yakutugol) is estimated to 290-295 million tonnes.

The share of hard coking coal (HCC) in the total exports

in 2015 amounted to ~ 70 % or ~ 205 million tonnes.

In 2012-2013, China became the largest consumer of

coal, but the reduction in domestic demand led to a

decrease in demand for imports, which in turn had an

impact on the overall dynamics of world trade.

Meanwhile, the demand from other players (Japan,

Korea and India) is growing. Therefore, excluding

China, who internally covers 92-93% of its own needs, it

can be said that the export market of coking coal is

developing steadily.

According to CRU Int., Mechel’s export-oriented mining

assets are below the level of marginal producer at the

specified volumes of world trade. In other words we are

fundamentally competitive and we can sell everything

we mine even at a strong price competition.

MECHEL ON HCC COST CURVE IN 2015

Source: CRU, Company analysis

WORLD COKING COAL TRADE, MLN TONNES

BEST CASH COST COAL PRODUCER

11 Source CRU, Company analysis, other open sources

In January 2016, China’s Central Bank granted yuan loans for the

amount of approximately $385 billion. There was no such large

capital infusions even in 2008-2009.

Increase of capital inflows to construction sector stimulated the

growth of steel products demand.

Speculative element was added to fundamental factors: the

expectation of further measures to stimulate domestic demand

and to reduce steel production in Tangshan during horticulture

exhibition.

As a result, there was a price boom on steel products on a

domestic market, which in turn pulled up the prices for iron ore

and coking coal. We expect this trend to remain in place in the

nearest future.

Eventually, in April spot coking coal prices exceeded contract

prices and reached $100/ton for different types. So in the third

quarter contract prices will be arranged near the level of $100/ton

FOB Australia.

BILLETS AND IMPORTED RAW MATERIALS PRICES IN CHINA

VOLUME OF OUTSTANDING CREDITS AND IRON ORE PRICES

¥2 510

$0

$40

$80

$120

$160

$200

¥0

¥500

¥1 000

¥1 500

¥2 000

¥2 500

¥3 000

¥3 500

¥4 000

¥4 500

¥5 000

jan

may

sep

jan

may

sep

jan

may

sep

jan

may

sep

jan

may

sep

jan

may

sep

jan

may

sep

jan

may

sep

jan

2008 200920102010 2011 2012 2013 2014 2015 2016

Volume of outstanding credits (bln. yuan)

Iron Ore 62% Fe CFR China

CONTRACT PRICES AND SPOT PRICES HCC, USD/MT FOB AUSTRALIA

$50

$70

$90

$110

$130

$150

$170

$190

$210

$230

$250

jan

mar

may

jul

sep

nov

jan

mar

may

jul

sep

nov

jan

mar

may

jul

sep

nov

jan

mar

may

jul

sep

nov

jan

mar

may

2012 2013 2014 2015 2016

Australia, Peak Downs: contract, FOB

Australia, Peak Downs: spot, FOB

COKING COAL, INTERNATIONAL MARKET – IS THE BOTTOM PASSED?

¥0

¥1 000

¥2 000

¥3 000

¥4 000

¥5 000

$0

$50

$100

$150

$200

$250

$300

$350

mar

jul

nov

mar

jul

nov

mar

jul

nov

mar

jul

nov

mar

jul

nov

mar

jul

nov

mar

2010 2011 2012 2013 2014 2015 2016

Iron Ore 62% Fe CFR China

НСС CIF China

Billet Tangshan (incl. 17% vat) RMB/t

STEEL SEGMENT

12

+ Revenue from third parties increased 5% YoY mostly due to steel prices increase driven by ruble

depreciation.

+ COGS grew at lower rate that led to insignificant increase in profitability.

+ EBITDA(a) grew by 15% YoY and amounted to 17 bln rubles.

+ Ruble denominated cash costs were gradually increasing throughout the year on growing prices for

steel raw materials

+ Revenue structure by products and markets slightly changed YoY.

52,2

48

73,2

48

65,5

99

66,2

46

66,9

14

22

,28

9

29,8

29

25,3

95

27,3

19

25,4

65

34, 702

32,3

40

32,5

27

21

,30

0 3

3,3

05

29,8

29

32,6

05

21, 715 33,0

46

31,6

75

32,9

90

20,0

89

33,9

02

31,3

00

32,7

08

Rebar Hardware Carbon flat Carbon longproducts

Ferrosilicon

4Q14 1Q15 2Q15 3Q15 4Q15

71%

11%

12%

4%

2%

Other


Energy

Staff costs

Raw materials andpurchased goods

14,6

95

13,4

63

13,6

49 17,8

84

15,8

19

14,9

44

15,1

01 18,8

28

16,4

29

16,3

52

16,9

60

19,4

87

17,8

07

17,6

27

18,2

68

21,1

11

17,5

69

17,5

67

18,1

97

20,7

81

Billets* Wire rod Rebar Carbon Flat

4Q14 1Q15 2Q15 3Q15 4Q15

CASH COSTS, RUB/TONNE

139 146

8 7

10% 11%

0%

10%

20%

30%

40%

0

50

100

150

200

2014 2015


13

REVENUE, EBITDA(a)

Bln. Rub

* Domestic sales

AVERAGE SALES PRICES FCA, RUB/TONNE

COS STRUCTURE

74%

10%

12%

3% 1%

COS STRUCTURE

119.6 bln RUB 115.5 bln RUB

2014 2015

STEEL SEGMENT

Rebar 27%

Carbon long products

19%

Hardware 16%

Forgings and stampings

8%

Carbon flat 10%

Semi-Finished Steel Products

6%

Stainless flat 2%

Ferrosilicon 2%

Other 10%

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 9%

Russia 68%

Europe 16%

CIS 12%

Asia 2%

Middle East 1%

Other 1%

Russia 68%

Europe 16%

CIS 13%

Asia 1%

Middle East 1%

Other 1%

14

REVENUE BREAKDOWN BY REGION

REVENUE BREAKDOWN BY PRODUCTS

2014

2015


2014


2015

STEEL SEGMENT

STEEL SEGMENT OPERATIONAL RESULTS

PRODUCTION:

Product

FY 2015,

thousand

tonnes

FY 2014,

thousand

tonnes Change

Pig Iron 4,065 3,946 +3%

Steel 4,321 4,269 +1%

SALES:

Product

FY 2015,

thousand

tonnes

FY 2014,

thousand

tonnes

Change

Flat products 478 451 +6%

Long products 2,743 2,960 -7%

Billets 232 117 +98%

Hardware 692 766 -10%

Forgings 54 53 +2%

Stampings 67 84 -20%

Ferrosilicon 81 87 -7%

15

4Q 2015,

thousand

tonnes

3Q 2015,

thousand

tonnes Change

1,006 1,014 -1%

1,081 1,093 -1%

4Q 2015,

thousand

tonnes

3Q 2015,

thousand

tonnes

Change

121 121 0%

641 734 -13%

64 56 +14%

162 189 -14%

12 15 -19%

17 18 -5%

22 23 -4%

16

LAUNCH OF NEW LONG STEEL CAPACITIES IN RUSSIA, MLN TONNES

Russian rebar market is one of the key markets for the Company

based on high capacity and dynamic demand

The development of our own regional distribution network allowed us

to gain additional market share despite the growth of competition on

the part of new capacities and decrease of the demand in 2015.

Positive trends on export markets, caused by refocusing of Chinese

exporters on their domestic market following the seasonal growth of

demand, provided for price increase on domestic market at the end of

1Q 2016.

Together with seasonal growth of demand in construction sector, it

led to a sharp price increase - to a level higher than the level of the

end of 2014 and the beginning of 2015 when the main factor was

ruble devaluation.

Current price increase in Russia has also a fundamental component

(seasonal growth of demand in Russia and on a domestic market of

China), so the rebar price growth trend in Russia can remain in the

months ahead.

REBAR: RISING PRICES

REBAR PRICE IN MOSCOW AND PARITIES, TH. RUB./T EXW WITH VAT

* rebar А500С Ø14-16 мм fixed length Source: Metall-Expert, statistics of RZD, publicly available information, Company analysis

0,0

1,0

2,0

3,0

4,0

2012 2013 2014 2015 2016

TEM-PO

Ishstal

Volzskyi EMZ

StavStal

Tulskiy KZ

UGMK-Tumen

CC-Balakovo

NLMK Kaluga

BALANCE OF RUSSIAN REBAR MARKET, MLN TONNES

6,2

4,1

5,1

6,5

7,8 8,6

9,0

7,5

17%

20% 21%

19%

14,8% 12% 13%

15,4%

-5%

5%

15%

25%

35%

45%

55%

-2

0

2

4

6

8

10

2008 2009 2010 2011 2012 2013 2014 2015

Production Import Domestic supplyExport Mechel's share

17

19

21

23

25

27

29

31

jan

mar

may

jul

sept

nov

jan

mar

may

jul

sept

nov

jan

mar

may

jul

sept

nov

jan

mar

2013 2014 2015 2016

Rebar export parity Billets export parity

Price ex warehouse, Moscow*

17

Russian market of beams and rails is one of the most attractive

markets for our metallurgical segment due to limited supply of

domestic production.

Market of beams in Russia has a capacity of approximately 1

mln. tonnes. The decline in demand in recent years was caused

by the decrease of capital expenditures and limited access to

international capital markets.

At the same time the limited supply, as a result of high market

entry barriers, leads to a higher yield of beams in comparison

with other types of long products (rebar, small shapes).

Rails market capacity is comparable to the capacity of beams

market. As the bulk of rails is consumed by Russian Railways,

the development of this market is largely connected with the

implementation of the investment programme of Russian

Railways.

BEAMS AND RAILS

BALANCE OF RUSSIAN BEAM MARKET, MLN TONNES

3%

15% 22% 22%

28% 28% 32%

37%

-0,1

0

0,1

0,2

0,3

0,4

0,5

-0,3

0,0

0,3

0,6

0,9

1,2

1,5

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Ты

ся

чи

Production Domestic Export

Import Consumption Mechel's share

BEAMS VS. REBAR, PRICES RUB/Т EXW MOSCOW + VAT

15,0

20,0

25,0

30,0

35,0

40,0

45,0

january

febru

ary

marc

h

april

may

june

july

august

septe

mber

oct

ober

novem

ber

dece

mber

january

febru

ary

marc

h

april

may

june

july

august

septe

mber

oct

ober

novem

ber

dece

mber

january

febru

ary

marc

h

april

2014 2015 2016

Beam 30-40Б Rebar A500C 14-16

Source: Metall-Expert, statistics of RZD, publicly available information, Company analysis

BALANCE OF RUSSIAN RAIL MARKET, MLN TONNES

0% 1% 2%

22% 24%

31% 34%

38%

-10%

0%

10%

20%

30%

40%

50%

60%

-0,2

0,0

0,2

0,4

0,6

0,8

1,0

1,2

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Production Export RZDMetro Railway switch plants OtherDomestic Import Mechel's share

26 26

14 15

3% 5%

0%

10%

20%

30%

0

2014 2015


POWER SEGMENT

18

AVERAGE ELECTRICITY SALES PRICES AND CASH COSTS (RUSSIA), RUB/KWH

REVENUE, EBITDA(a)

Bln RUB

986 944 976 1 066 1 053

1 868 1 953

1 692

2 038 2 070

4Q14 1Q15 2Q15 3Q15 4Q15

Cash costs Sales price

90%

3%

4%

1%

2%

2014 2015

Other


Energy

Staff costs

Raw materialsand purchasedgoods

91%

4%

3%

1% 1%

COS STRUCTURE


+ Revenue from external customers was flat.

Intersegment Revenue grew on increase of

supplies to Group`s assets.

+ Stable cash cost and prices result in stable

margins.

76,5

65,0 59,4

-66,3

-77,6 -68,7

10,2

-12,6 -9,3

Trade current liabilities Trade current assets Trade working capital

31.12.13 31.12.14 31.12.15

1,3 0,9

10 -10

-0,7 0,3

Cash as of31.12.2014

Operatingactivities

Investmentactivities

Financingactivities

Effect onexchange rate

changes

Cash as of31.12.2015

CASH FLOW & TRADE WORKING CAPITAL

19

CASH FLOW, BLN RUBLES

+ Trade working capital increased by 3.3 bln rubles year-on-year

TRADE WORKING CAPITAL MANAGEMENT, BLN RUBLES

DEBT PROFILE

20

State banks 69%

23%

Other 8% International

banks

DEBT PROFILE AS OF MAY 10, 2016

By currency By banks

Debt (without leasing and penalties) 447.0 RUR bln

DEBT BURDEN DYNAMICS 2014-2015, RUB BLN

RUR 66%

USD 27%

EUR 6%

+

As of the end of 2015 our dollar denominated debt

(without leasing and penalties) has decreased to

US$6,14bln from US$6,79bln (9,6% y-o-y) despite

the debt growth in the reporting currency

+ Restructuring agreements with Russian state banks

were not signed and effective as of Dec 31, 2015

therefore most of the debt is classified as short-term

+ Restructuring agreements with all Russian state

banks were signed and become effective by mid

April 2016

+ As a result of restructuring part of our debt was

converted in RUB and therefore share of RUB

denominated debt has increased from 36% to 66%

+ Interest coverage ratio increased from 0.88 in 2014

to 1.08 in 2015.


13.7x 11.1x

2014 2015

Lease

Interest payable, fines and penalties

Short-term borrowings and current portion of long-term debt

Net debt / EBITDA

21

INTEREST EXPENSE DETAILS

MILLION RUBLES UNLESS OTHERWISE STATED FY 15 FY 14

Interest expense in PL (60,452) (28,110)

Fines on loans and leasing 19,167 1,829

Other expenses* 947 708

Capitalized interest (1,912) (8,331)

Interest plus Capitalized interest and net of Fines plus Other

expenses (42,251) (33,904)

EBITDA(a) 45,730 29,759

* Interest expenses under pension liabilities, Expenses related to discounting of financial instruments, Accretion expense

MLN RUBLES UNLESS OTHERWISE STATED FY 15 FY 14 Change

Revenue (1) 253,141 243,992 4%

Cost of sales (151,334) (153,057) -1%

Gross margin 40% 37%

Adjusted operating income 29,203 12,147 140%

EBITDA(a) * 45,730 29,759 54%

EBITDA(a) margin 18% 12%

Net (loss) / income (115,163) (132,704) -13%

Net (loss) / income margin -45% -54%

Net Debt * 506,891 407,240 25%

CapEx 5,146 11,401 -55%

FINANCIAL RESULTS OVERVIEW

(1) Includes sales to the external customers only

* For full calculations here and after see our press release

22

FY 2015 RESULTS PRESENTATION · 2020-03-21 · FY 2015 HIGHLIGHTS 5 + Revenue increased by 4% YoY...

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Transcript of FY 2015 RESULTS PRESENTATION · 2020-03-21 · FY 2015 HIGHLIGHTS 5 + Revenue increased by 4% YoY...