DJ EQS-News: PJSC Mechel: Mechel Reports The 2Q 2020 Financial Results
EquityStory.RS, LLC-News: PJSC Mechel / Key word(s): Half Year Results
PJSC Mechel: Mechel Reports The 2Q 2020 Financial Results
2020-08-19 / 13:50 MSK
The issuer is solely responsible for the content of this announcement.
MECHEL REPORTS THE 2Q 2020 FINANCIAL RESULTS
Consolidated revenue - 64.5 bln rubles (-4% compared to 1Q 2020)
EBITDA[*] - 8.9 bln rubles (-33% compared to 1Q 2020)
Profit attributable to equity shareholders of Mechel PAO - 47.1 bln rubles
Moscow, Russia - August 19, 2020 - Mechel PAO (MOEX: MTLR, NYSE: MTL), a leading Russian mining and steel
group, announces financial results for the 2Q 2020 and 1H2020.
Mechel PAO's Chief Executive Officer Oleg Korzhov commented:
"Despite a complicated epidemiological situation we saw in the second quarter, our mining and steelmaking
facilities did not slow down their operations. Steel production volumes went up by 6% quarter-on-quarter,
with coal mined by the Group's facilities up by 7% by this quarter's end. Nevertheless,
coronavirus-related restrictions had their impact on the structure of demand for our products, which put
pressure on our sales margins.
"For example, our clients' lower needs in rails and shrinking demand for other high value-added products
from engineering companies had a significant impact on the dynamics of our steel division's EBITDA. The
change in the mining division's supply pattern regarding sale destinations, as the company generated
additional volumes to be marketed while the demand structure altered due to tough quarantine measures
introduced by several countries, led to a decrease of the division's EBITDA. As a result, consolidated
EBITDA in 2Q2020 went down by 33% quarter-on-quarter.
"Despite a financial results decline, which was mainly due to the crisis conditions, we think that these
difficulties are temporary, and that our steel's traditional customers will return to normal, as will
demand for coal in those regions where steelmakers have not yet come back to their regular capacity
utilization.
"For our part, we continue to work on further increasing mining volumes at our mining facilities and
mastering production of new promising types of products at our steel plants. In order to attain these
goals, we continue to purchase new equipment, machines and upgrading those we already have. In addition,
in order to ensure stable supply for our customers, we continue to develop our own logistical facilities.
Port Posiet is already working on layout design for the new purchased shiploader, which is the final
element of the port's technical upgrade. We also plan to implement several development projects for our
ports' maritime and railroad infrastructure, which will enable us to boost their transshipment capacity."
Consolidated Results For The 2Q 2020 and 1H2020
Mln rubles 2Q' 20 1Q' 20 % 1H' 20 1H' 19 %
Revenue 64,536 67,237 -4% 131,773 148,456 -11%
from contracts
with external
customers
Operating (loss) (2,260) 7,930 -128% 5,670 22,391 -75%
/ profit
EBITDA 8,852 13,161 -33% 22,013 30,935 -29%
EBITDA, margin 14% 20% 17% 21%
Profit / (loss) 47,074 (36,878) 10,196 12,745 -20%
attributable to
equity
shareholders of
Mechel PAO
Mechel PAO's Chief Financial Officer Nelli Galeeva commented:
"Consolidated EBITDA in 1H2020 totaled 22 billion rubles. Profit attributable to equity shareholders of
Mechel PAO amounted to 10.2 billion rubles, which is 2.5 billion rubles, or 20%, less than in 1H2019.
Growing foreign exchange losses on foreign currency liabilities due to a weaker ruble in this reporting
period had a major impact on this result's dynamics, partly negating the positive effect from the sale of
Elga Coal Complex companies.
"The operating cash flow in 2Q2020 went down to 8.3 billion rubles from 16 billion in the previous
quarter. This was mostly a result of the decrease in revenue and worse cash turnover due to a global
economic situation with the spread of the new coronavirus infection.
"In 2Q2020, the Group's finance costs went down by 1.4 billion rubles quarter on quarter and amounted to
6.4 billion rubles. Over the first six months of 2020, finance costs went down by 3.3 billion rubles, or
19%, year-on-year. This was due to our partial repayment of loans with Gazprombank and VTB Bank using the
gain on the Elga Coal Complex sale and the Bank of Russia key interest rate decrease.
"The same factors had their impact on the amount of interest paid, including capitalized interest and
lease interest, which went down in 1H2020 by 1.4 billion rubles to 14.5 billion rubles from 15.9 billion
in 1H2019.
"As of today, the company's average debt portfolio cost is 5.6% per annum, average paid interest rate
amounts to 5.4% per annum.
"As of June 30, 2020, the Group's net debt excluding fines and penalties on overdue amounts went down by
89 billion rubles or by 22% as compared to December 31, 2019, and amounted to 311.5 billion rubles. This
was due to net loan settlement totaling 95.3 billion rubles as we repaid loans granted by Gazprombank and
VTB Bank with cash received from sale of assets and as debt decreased due to the effect of discontinued
operations related to disposal of companies comprising Elga Coal Complex amounted to 9.5 billion rubles,
and which effect was partly offset by the ruble's weakening against the US dollar and euro with the
effect of 18.5 billion rubles.
"Gain on sale of companies comprising Elga Coal Complex in the Group's IFRS statements amounted to 45.6
billion rubles. It was calculated as the sum of received consideration of 89.0 billion rubles and
derecognition of obligations regarding Gazprombank's option for the shares in companies comprising Elga
Coal Complex for a total of 49.4 billion rubles, less net assets disposed of as on the disposal date.
"The Net Debt to EBITDA ratio amounted to 6.9 at the end of 1H2020 as compared to 7.5 at the end of 2019.
It was primarily due to the overall decrease of net debt due to loan repayment. The ruble's weakening
against the US dollar and euro, as well as decreased EBITDA over the past 12 months ended on June 30,
2020, had a negative impact on this figure.
"The debt portfolio's structure has changed and is currently consists of 55% in rubles and the rest in
foreign currency (35% in euro and 10% in US dollars). The share of state-controlled banks is 86.5%."
Mining Segment
Revenue from contracts with external customers in 2Q2020 went up by 8% quarter-on-quarter. This was the
result of increased sales of all types of metallurgical coals, middlings and iron ore concentrate. The
prices in this reporting period remained overall on the level favorable for the company. EBITDA in 2Q2020
went down by 8% quarter-on-quarter as selling and distribution costs grew due to the share of export in
the overall volume of goods supplied to third parties, which increased from 65% to 78%.
Revenue from contracts with external customers in 1H2020 went down by 21% year-on-year. The division's
EBITDA in 1H2020 declined by 43% year-on-year. This was mostly due to weaker prices for all types of coal
products year-on-year.
Mechel Mining Management OOO's Chief Executive Officer Igor Khafizov noted:
"In 2Q2020 the division continued to increase coal mining volumes. Yakutugol Holding Company boosted
mining by 23.5%, Southern Kuzbass Coal Company maintained operational results at the previous period's
level. The overall growth was 7% quarter-on-quarter. Coal processing volumes increased by 18%. This
enabled us to step up supplies to both third parties and the Group's own facilities, and demonstrate
positive revenue dynamics.
"The export market of metallurgical coal has significantly weakened in 2Q2020 due to a worsening
epidemiological situation in India, increased supplies to China from Australia and Mongolia, as well as
additional measures adopted by Chinese authorities to toughen their customs clearance rules for coal. As
a result, in this reporting period average spot price level for premium low-volatile coking coals was at
$118 per tonne, which was 24% lower than average price levels in 1Q2020. Despite that, the average
selling prices of our coking coal in 2Q2020 remained at the previous quarter's level. Quarterly contracts
with domestic customers and a weaker average quarterly ruble exchange rate contributed to this price
stability.
"New machines and equipment continue to arrive at the division's mining facilities in order to maintain
positive dynamics of our output volumes. We pay particular attention to the technological infrastructure
of our washing plants, as their capacity utilization noticeably grew with the increase of mining volumes.
We also continue with the technical upgrade of our coke chemical plants using best available technologies
which enable us not only to improve our products' quality, but also to decrease the impact on the
environment."
Mln rubles 2Q' 20 1Q' 20 % 1H' 20 1H' 19 %
Revenue 18,292 16,988 8% 35,280 44,933 -21%
from contracts with
external customers
Revenue 8,364 8,331 0% 16,695 19,731 -15%
inter-segment
EBITDA 6,388 6,952 -8% 13,340 23,282 -43%
EBITDA, margin 24% 27% 26% 36%
Steel Segment
Revenue from contracts with external customers went down by 4% in 2Q2020 quarter-on-quarter, largely due
to Russian Railways' decreased demand for rails, weaker consumer demand for railroad axles, as well as
the division's other products due to limits imposed by the spread of the new coronavirus infection. This
effect was partly compensated by the growth of prices for key types of rolled products. EBITDA went down
by 43% in 2Q2020 as supplies of high value-added products suffered the most.
Revenue from sales to third parties in 1H2020 went down by 7% year-on-year. EBITDA in this reporting
(MORE TO FOLLOW) Dow Jones Newswires
August 19, 2020 06:50 ET (10:50 GMT)
DJ EQS-News: PJSC Mechel: Mechel Reports The 2Q -2-
period also decreased by 7% compared to the previous six months. Lower prices for construction product
range in 1H2020 year-on-year was one of the key contributing factors.
Mechel-Steel Management Company OOO's Chief Executive Officer Andrey Ponomarev noted:
"The division's 2Q2020 financial results reflected the overall weakening of business activity caused by
the COVID-19 pandemic. The division's output and sales volumes remained at the previous quarter's level,
with product groups redistributed within the sales structure.
"Weaker demand for rails from both Russian Railways and other customers as business activity went down
and investment projects were frozen, had a major impact on our results. These same factors reflected in
the fall of sales of flat steel, forgings and stampings. Products traditionally intended for the
engineering and machine-building industry suffered noticeably from the market situation. For example,
clients of Izhstal and Beloretsk Metallurgical Plant cut down on their needs. In this situation, we focus
on attracting new clients as well as preserving the existing ones. The pandemic had a marked impact on
Mechel Service Global's facilities as well. Many clients cut their workday or stopped operations
entirely. The clients' need for metal finishing also went down. As a result, it led to lower average
prices and overall profit margins.
"The transformation of the demand structure, which we saw in 2Q2020 and which our facilities were forced
to promptly react to, did not allow us to fully exploit the effect from increased pig iron and steel
output quarter-on-quarter, after Chelyabinsk Metallurgical Plant launched its overhauled blast furnace
and converter. Nevertheless, we expect that demand for our products, primarily high value-added products,
will recover in the future periods, and so continue to upgrade and repair our equipment as well as master
output of new product types."
Mln rubles 2Q' 20 1Q' 20 % 1H' 20 1H' 19 %
Revenue 40,256 42,144 -4% 82,400 88,812 -7%
from contracts with
external customers
Revenue 1,502 1,950 -23% 3,452 3,005 15%
inter-segment
EBITDA 2,565 4,533 -43% 7,098 7,604 -7%
EBITDA, margin 6% 10% 8% 8%
Power Segment
Mechel Energo OOO's Chief Executive Officer Denis Graf noted:
"The division's 2Q2020 revenue went down quarter-on-quarter. It was expected as the heating period with
its higher energy consumption ended. These reasons also had their impact on EBITDA's quarter-on-quarter
dynamics. The 1H2020 revenue demonstrated a slight decrease year-on-year as electricity and heat sale
volumes went down due to lower demand as average temperatures were higher this year. In 1H2020, EBITDA
grew more than five times year-on-year as non-regulated prices for capacity on the wholesale electrical
power and capacity market went up, as did sales premium compared to the same period last year."
Mln rubles 2Q' 20 1Q' 20 % 1H' 20 1H' 19 %
Revenue 5,988 8,105 -26% 14,093 14,711 -4%
from contracts with
external customers
Revenue 3,711 4,298 -14% 8,009 8,028 0%
inter-segment
EBITDA 387 901 -57% 1,288 194 564%
EBITDA, margin 4% 7% 6% 1%
***
Alexey Lukashov
Director of Investor Relations
Mechel PAO
Phone: 7-495-221-88-88
Fax: 7-495-221-88-00
alexey.lukashov@mechel.com
***
Mechel is an international mining and steel company. Its products are marketed in Europe, Asia, North and
South America, Africa. Mechel unites producers of coal, iron ore concentrate, steel, rolled products,
ferroalloys, heat and electric power. All of its enterprises work in a single production chain, from raw
materials to high value-added products.
***
Some of the information in this press release 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.
Attachments to the Press Release
Attachment A
Non-IFRS financial measures. This press release includes financial information prepared in accordance
with International Financial Reporting Standards, or IFRS, as well as other financial measures referred
to as non-IFRS. The non-IFRS financial measures should be considered in addition to, but not as a
substitute for the information prepared in accordance with IFRS.
Adjusted EBITDA (EBITDA) represents profit (loss) attributable to equity shareholders of Mechel PAO
before Depreciation and amortisation, Foreign exchange (gain) loss, net, Finance costs including fines
and penalties on overdue loans and borrowings and lease payments, Finance income, Net result on the
disposal of non-current assets, Impairment of goodwill and other non-current assets, net, Write-off of
trade and other receivables, Allowance for expected credit losses on financial assets, Provision
(reversal of provision) for doubtful accounts, Write-off of inventories to net realisable value, (Profit)
loss after tax for the period from discontinued operations, Net result on the disposal of subsidiaries,
Profit (loss) attributable to non-controlling interests, Income tax expense (benefit), Effect of pension
obligations, Other fines and penalties, Gain on restructuring and forgiveness of trade and other payables
and write-off of trade and other payables with expired legal term and Other one-off items. Adjusted
EBITDA margin is defined as adjusted EBITDA as a percentage of our Revenue. Our adjusted EBITDA may not
be similar to EBITDA measures of other companies. Adjusted EBITDA is not a measurement under IFRS and
should be considered in addition to, but not as a substitute for the information contained in our interim
condensed consolidated statement of profit (loss) and other comprehensive income. We believe that our
adjusted EBITDA provides useful information to investors because it is an indicator of the strength and
performance of our ongoing business operations, including our ability to fund discretionary spending such
as capital expenditures, acquisitions and other investments and our ability to incur and service debt.
While depreciation, amortisation and impairment of goodwill and other non-current assets are considered
operating expenses under IFRS, these expenses primarily represent the non-cash current period allocation
of costs associated with non-current assets acquired or constructed in prior periods. Our adjusted EBITDA
calculation is commonly used as one of the bases for investors, analysts and credit rating agencies to
evaluate and compare the periodic and future operating performance and value of companies within the
metals and mining industry.
Our calculation of Net debt, excluding fines and penalties on overdue amounts**[???] is presented below:
Mln rubles 30.06.2020 31.12.2019
Current loans and borrowings, excluding 292 319 370 206
interest payable, fines and penalties on
overdue amounts
Interest payable 8 533 9 014
Non-current loans and borrowings 201 7 205
Other non-current financial liabilities 1 950 48 303
Other current financial liabilities 298 147
less Cash and cash equivalents (4 272) (3 509)
Net debt, excluding lease liabilities, 299 029 431 366
fines and penalties on overdue amounts
Current lease liabilities 7 961 10 353
Non-current lease liabilities 4 497 7 002
Net debt, excluding fines and penalties on 311 487 448 721
overdue amounts
EBITDA can be reconciled to our interim condensed consolidated statement of profit (loss) and other
comprehensive income as follows:
Consolidated Mining Steel Power
Results Segment Segment*** Segment***
***
Mln rubles 6m 6m 6m 6m 6m 6m 6m 6m
2020 2019 2020 2019 2020 2019 2020 2019
Profit 10,196 12,745 32,58 9,632 (18,0 6,919 (1,40 (964)
(loss) 0 37) 4)
attributable
to equity
shareholders
of Mechel
PAO
Add:
Depreciation 6,943 6,266 3,437 3,094 3,267 2,932 240 240
and
amortisation
Foreign 18,939 (13,81 5,240 (2,74 13,66 (11,0 35 (20)
exchange 6) 1) 4 55)
loss (gain),
net
Finance 14,265 17,534 7,644 10,05 7,031 7,553 255 331
costs 0
including
fines and
penalties on
overdue
loans and
borrowings
and lease
payments
(MORE TO FOLLOW) Dow Jones Newswires
August 19, 2020 06:50 ET (10:50 GMT)
Finance (529) (481) (944) (601) (235) (263) (14) (16)
income
Net result 6,308 1,340 4,911 470 978 459 416 408
on the
disposal of
non-current
assets,
impairment
of goodwill
and other
non-current
assets, net,
write-off of
trade and
other
receivables,
allowance
for expected
credit
losses on
financial
assets,
provision
(reversal of
provision)
for doubtful
accounts and
write-off of
inventories
to net
realisable
value
(Profit) (41,60 3,313 (41,6 3,431 - (31) - (87)
loss after 9) 51)
tax for the
period from
discontinued
operations
Profit 241 689 (44) 385 120 367 165 (64)
(loss)
attributable
to
non-controll
ing
interests
Income tax 4,333 2,129 1,605 (704) 144 213 (254) (77)
expense
(benefit)
Effect of 135 102 116 87 17 14 2 2
pension
obligations
Other fines 2,838 1,184 450 221 191 522 1,847 442
and
penalties
Gain on (47) (70) (4) (42) (42) (26) - (1)
restructurin
g and
forgiveness
of trade and
other
payables and
write-off of
trade and
other
payables
with expired
legal term
EBITDA 22,013 30,935 13,34 23,28 7,098 7,604 1,288 194
0 2
EBITDA, 17% 21% 26% 36% 8% 8% 6% 1%
margin
Consolidated Mining Steel Power
Results Segment Segment*** Segment***
***
Mln rubles 2q 1q 2q 1q 2q 1q 2q 1q
2020 2020 2020 2020 2020 2020 2020 2020
Profit 47,074 (36,87 48,10 (15,5 7,226 (25,2 (1,60 201
(loss) 8) 0 20) 63) 5)
attributable
to equity
shareholders
of Mechel
PAO
Add:
Depreciation 3,325 3,618 1,744 1,692 1,459 1,808 122 118
and
amortisation
Foreign (14,27 33,210 (3,46 8,703 (10,7 24,43 (34) 68
exchange 1) 4) 74) 8
(gain) loss,
net
Finance 6,447 7,818 3,339 4,305 3,525 3,507 118 137
costs
including
fines and
penalties on
overdue
loans and
borrowings
and lease
payments
Finance (177) (352) (591) (353) (113) (122) (6) (8)
income
Net result 5,384 924 4,616 296 517 458 248 168
on the
disposal of
non-current
assets,
impairment
of goodwill
and other
non-current
assets, net,
write-off of
trade and
other
receivables,
allowance
for expected
credit
losses on
financial
assets,
provision
(reversal of
provision)
for doubtful
accounts and
write-off of
inventories
to net
realisable
value
(Profit) (45,35 3,746 (45,4 3,767 - 1 21 (21)
loss after 5) 18)
tax for the
period from
discontinued
operations
Profit 435 (194) 49 (92) 291 (171) 96 70
(loss)
attributable
to
non-controll
ing
interests
Income tax 3,645 688 (2,31 3,918 370 (226) (331) 77
expense 3)
(benefit)
Effect of 100 35 93 23 6 11 1 1
pension
obligations
Other fines 2,265 573 235 215 75 117 1,757 90
and
penalties
Gain on (20) (27) (2) (2) (17) (25) - -
restructurin
g and
forgiveness
of trade and
other
payables and
write-off of
trade and
other
payables
with expired
legal term
EBITDA 8,852 13,161 6,388 6,952 2,565 4,533 387 901
EBITDA, 14% 20% 24% 27% 6% 10% 4% 7%
margin
*** including inter-segment operations
Income tax, deferred tax related to the consolidated group of taxpayers are not allocated to segments as
they are managed on the group basis.
Attachment B
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT (LOSS) AND
OTHER COMPREHENSIVE INCOME
for the six months ended June 30, 2020
(All amounts are in millions of Russian rubles, unless stated otherwise)
Six months ended Six months ended
June 30, 2020 June 30, 2019
(unaudited) (unaudited)*
Continuing operations
Revenue from contracts 131,773 148,456
with
customers...............
........................
..............
Cost of (84,870) (91,695)
sales...................
........................
........................
...
Gross 46,903 56,761
profit..................
........................
........................
....
Selling and distribution (24,297) (24,037)
expenses................
........................
.................
Impairment of goodwill (3,498) -
and other non-current
assets,
net.....................
....................
Allowance for expected (849) (450)
credit losses on
financial
assets..................
........................
Taxes other than income (2,432) (1,834)
taxes...................
........................
................
Administrative and other (10,483) (8,351)
operating
expenses................
........................
.........
Other operating 326 302
income..................
........................
.....................
Total selling, (41,233) (34,370)
distribution and
operating income and
(expenses),
net.....................
..........
Operating 5,670 22,391
profit..................
........................
........................
.
Finance 529 481
income..................
........................
........................
..
Finance costs including (14,265) (17,534)
fines and penalties on
overdue loans and
borrowings and lease
payments...............
Foreign exchange (loss) (18,939) 13,816
gain,
net.....................
........................
............
Share of profit of 6 11
associates,
net.....................
........................
.............
Other 255 71
income..................
........................
........................
....
Other (95) (360)
expenses................
........................
........................
.....
Total other income and (32,509) (3,515)
(expense),
net.....................
........................
.......
(Loss) profit before tax (26,839) 18,876
from continuing
operations..............
........................
.....
Income tax (4,333) (2,129)
expense.................
........................
........................
.
(Loss) profit for the (31,172) 16,747
period from continuing
operations..............
........................
..
Discontinued
operations..............
........................
........................
Profit (loss) after tax 41,609 (3,313)
for the period from
discontinued
operations..............
......................
Profit for the 10,437 13,434
period..................
........................
.......................
Attributable to:
Equity shareholders of 10,196 12,745
Mechel
PAO.....................
........................
..........
Non-controlling 241 689
interests...............
........................
.......................
Other comprehensive
income
Other comprehensive 1,442 (839)
income (loss) that may
be reclassified to
profit or loss in
subsequent periods, net
of income tax
Exchange differences on 1,442 (839)
translation of foreign
operations..............
........................
...
Other comprehensive loss (127) (248)
not to be reclassified
to profit or loss in
subsequent periods, net
of income tax
Re-measurement of (127) (248)
defined benefit
plans...................
........................
.........
Other comprehensive 1,315 (1,087)
income (loss) for the
period, net of
tax.....................
...............
Total comprehensive 11,752 12,347
income for the period,
net of
tax.....................
....................
Attributable to:
Equity shareholders of 11,514 11,664
Mechel
PAO.....................
........................
..........
Non-controlling 238 683
interests...............
........................
.......................
Earnings per share
Weighted average number 415,251,749 416,270,745
of common
shares..................
........................
.......
Earnings per share 24.55 30.62
(Russian rubles per
share) attributable to
common equity
shareholders - basic and
diluted.......
(Loss) earnings per (75.65) 38.58
share from continuing
operations (Russian
rubles per share) -
basic and
diluted.............
Earnings (loss) per 100.20 (7.96)
share from discontinued
operations (Russian
rubles per share) -
basic and
diluted............
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as of June 30, 2020
(All amounts are in millions of Russian rubles)
June 30, December
(MORE TO FOLLOW) Dow Jones Newswires
August 19, 2020 06:50 ET (10:50 GMT)
