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
244 bln RUB 30 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 revenue 81 bln RUB
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
Depreciation anddepletion
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
Intersegment revenues Revenues EBITDA(a) margin
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 revenue 139 bln RUB
2014
2015 revenue 146 bln RUB
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
Intersegment revenues Revenues EBITDA(a) margin
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
Depreciation anddepletion
Energy
Staff costs
Raw materialsand purchasedgoods
91%
4%
3%
1% 1%
COS STRUCTURE
29 bln RUB 30 bln RUB
+ 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.
407 bln RUB 507 bln RUB
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
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