Mechel (MOEX: MTLR) is a Russian industrial holding, which includes more than 20 enterprises. The company is engaged in the production of coal, become, iron ore, rolled, ferroalloys, thermal and power energy.
Financial results
In mid-November, Mechel published operating and financial results for the third quarter of 2021, which showed a drop of 5-10% compared to the second quarter of 2021.
The company's total revenue in the third quarter fell by 5% to 102.913 billion rubles against the backdrop of weak performance of one of the segments — metallurgical, the results of which were immediately reduced by 8% because of, that after the introduction of export duties in the Russian Federation, the volume of sales of finished products decreased.
EBITDA, as well as revenue, decreased by 5% up to 31.918 billion rubles for the same reason: weak results in the metallurgical segment. After the introduction of export duties, Russian metallurgists tried to reorient themselves to the domestic market, as a result, in the third quarter, this led to a surplus in supply and a reduction in sales of Mechel.
Net profit in the current quarter fell by 11% - up to 21.277 billion rubles in comparison with the results of the second quarter. The main reason is the decline in revenues of the metallurgical segment, which in the current quarter earned 4.707 billion rubles against 11.406 billion rubles in the second quarter of 2021.
The main achievement of Mechel in the third quarter is the reduction of the debt burden. According to data on 30 September 2021, net debt/EBITDA ratio decreased from 4.27× to 3.18×, and pure debt, not including fines and penalties on overdue debts, decreased to 299.137 billion rubles.
Mechel Consolidated Results, billion rubles
3к2021 | 2к2021 | 3к2020 | 9м2021 | 9м2020 | |
---|---|---|---|---|---|
total revenues | 102,913 | 108,862 | 64,424 | 287,823 | 196,197 |
Extractive segment | 29,765 | 29,320 | 17,190 | 75,325 | 52,470 |
Metallurgical segment | 67,184 | 73,222 | 41,354 | 191,704 | 123,754 |
Energy segment | 5,964 | 6,320 | 5,879 | 20,794 | 19,972 |
Total EBITDA | 31,918 | 33,727 | 9,349 | 83,887 | 31,362 |
Extractive segment | 23,552 | 19,551 | 6,406 | 51,429 | 19,746 |
Metallurgical segment | 10,041 | 14,980 | 3,022 | 34,421 | 10,120 |
Energy segment | 0,514 | −0,162 | 0,254 | 1,306 | 1,542 |
Intersegment communication | −2,189 | −0,642 | −0,333 | −3,269 | −0,046 |
Net profit | 21,277 | 23,909 | −25,959 | 53,082 | −15,763 |
Extractive segment | 18,439 | 16,254 | −3,368 | 38,460 | 29,212 |
Metallurgical segment | 4,707 | 11,406 | −21,487 | 20,360 | −39,525 |
Energy segment | −0,108 | −0,474 | 0,063 | −0,287 | −1,341 |
Intersegment communication | −1,761 | −3,277 | −1,167 | −5,451 | −4,109 |
net debt | 299,137 | 305,244 | 336,069 | 299,137 | 336,069 |
net debt / EBITDA | 3,18× | 4,27× | 8,15× | 3,18× | 8,15× |
Extractive segment - the most profitable line of business for Mechel, which in the third quarter increased EBITDA and net profit by 15-20% due to higher prices for almost all products in the segment. The segment's revenue increased by only 2% against the backdrop of a decrease in sales volumes.
Average selling prices, rubles per ton
3к2020 | 4к2020 | 1к2021 | 2к2021 | 3к2021 | |
---|---|---|---|---|---|
Coke | 10 691 | 12 279 | 15 979 | 20 975 | 25 856 |
Coking coal | 3427 | 4066 | 4616 | 6967 | 11 083 |
Anthracite | 2895 | 3144 | 4304 | 4379 | 7624 |
Steam coal | 2189 | 1829 | 2091 | 3129 | 5216 |
Iron ore | 9438 | 10 361 | 13 526 | 16 352 | 15 664 |
Revenue of this segment by types of products in 3 quarter of 2021
Coking coal | 29% |
Coke | 28% |
Anthracite | 25% |
Middlings' second-class coal | 10% |
Coke products | 4% |
Steam coal | 2% |
Iron ore | 1% |
Other | 1% |
29%
Segment sales geography in 3 quarter of 2021
China | 46,3% |
Russia | 20,4% |
Asia without China | 13% |
Europe | 11% |
CIS | 9% |
Other | 0,3% |
46,3%
Metallurgical segment - the largest segment of Mechel by revenue, which showed mediocre results in the third quarter: revenue decreased by 8% against the backdrop of a reduction in sales volumes, and EBITDA fell immediately by 33% due to market instability after the introduction of export duties.
Average selling prices, rubles per ton
3к2020 | 4к2020 | 1к2021 | 2к2021 | 3к2021 | |
---|---|---|---|---|---|
Armature | 31 888 | 36 812 | 46 681 | 54 037 | 58 899 |
Hardware | 44 546 | 49 234 | 64 184 | 71 238 | 84 583 |
Flat rolled | 44 077 | 45 647 | 61 382 | 79 066 | 84 800 |
Structural products | 42 998 | 44 569 | 56 979 | 70 220 | 76 202 |
Railroad rails | 45 024 | 60 948 | 58 265 | 71 269 | 76 453 |
Ferrosilicon | 70 079 | 75 580 | 78 442 | 99 158 | 127 767 |
Revenue of this segment by types of products in 3 quarter of 2021, billion rubles
Armature | 27% |
Hardware | 16% |
Long products | 15% |
Flat rolled | 13% |
Structural products | 10% |
Forged and stamped products | 5% |
Ferrosilicon | 3% |
Flat stainless steel | 2% |
Railroad rails | 1% |
Semi-finished steel products | 1% |
Other | 7% |
27%
Segment sales geography in 3 quarter of 2021
Russia | 64% |
Europe | 19% |
CIS | 14% |
Asia | 3% |
64%
Energy segment - an insignificant line of business for Mechel, bringing him about 6% income. In the third quarter of 2021, this segment showed neutral results compared to similar past performance. EBITDA increased by 102% due to one-off factors, which led to a reduction in general business, administrative and other operating expenses. Revenue increased by 1% amid rising electricity prices, the company received a loss for the current quarter of 108 million rubles against a profit a year earlier of 63 million rubles.
What did you not like about the report?
There are two points in the results of the industrial holding for the third quarter of 2021, which cause concern: debt reduction rate and operating results.
Debt load. The current coal situation is a real gift for Mechel shareholders. Thanks to high prices, the company can significantly reduce its debt burden to acceptable levels for the first time in a long time. Since the beginning of the year, the holding has been doing this - net debt has decreased by 26 billion rubles, at the same time, the rate of decline in net debt in the third quarter significantly decreased to 6 billion rubles against 13 billion rubles in the second quarter and 7 billion rubles in the first quarter.
Debt load of Mechel, billion rubles
net debt | net debt / EBITDA | |
---|---|---|
1к2019 | 456,585 | 5,70× |
2к2019 | 457,078 | 6,40× |
3к2019 | 454,850 | 7,83× |
4к2019 | 448,721 | 8,40× |
1к2020 | 476,244 | 9,20× |
2к2020 | 311,487 | 6,83× |
3к2020 | 336,069 | 8,15× |
4к2020 | 325,572 | 7,93× |
1к2021 | 318,093 | 6,83× |
2к2021 | 305,244 | 4,27× |
3к2021 | 299,137 | 3,18× |
Operational results. Mechel reported weak operating results in the third quarter both in the metallurgical segment, and in mining.
Sales of coking coal concentrate decreased by 30% due to a decrease in coal production at the Neryungrinsky open pit, and also because, that in the second quarter, Mechel sold almost all of its stock. The same facts were reflected in the sales of thermal coal., which fell on 10%.
Iron ore concentrate sales decreased by 12% against the background of repair work at a subsidiary - Korshunovskiy GOK. And sales of coke products decreased by 8% due to sales from the warehouse of accumulated inventory in the second quarter. Pulverized coal sales volumes (PCI) and anthracite have not changed.
In the third quarter, the share of exports from Mechel's metallurgical segment decreased by 10%, this led to a reduction in sales of finished products:
- ferrosilicon on 11%;
- rolled steel on 19%;
- flat-rolled products on 12%;
- hardware on 8%.
The company explains this as follows: after the introduction of export duties, Mechel redirected volumes partially to the domestic market, partly for stock replenishment, which decreased significantly after the second quarter.
Sales of Mechel's finished products in 3 quarter, thousand tons
3к2021 | 2к2021 | The change | |
---|---|---|---|
Coking coal concentrate | 1 056 | 1 501 | −30% |
PCI coals | 322 | 322 | 0% |
Anthracite | 345 | 347 | −1% |
Thermal coal | 643 | 716 | −10% |
Iron ore concentrate | 367 | 414 | −12% |
Coke | 690 | 752 | −8% |
Ferrosilicon | 18 | 21 | −11% |
Long products | 555 | 685 | −19% |
Flat rolled | 106 | 121 | −12% |
Hardware | 130 | 142 | −8% |
Forged Products | 8 | 10 | −19% |
Stamped products | 18 | 17 | 4% |
Dividends
The main idea in preferred shares of Mechel is dividend payments, which for 2021 can bring investors a double-digit dividend yield. The company annually distributes 20% net profit under IFRS on non-voting securities. Dividend policy for 9 months of 2021, a payment was earned in the amount of 76,5 R, what at current prices, even excluding the fourth quarter, assumes dividend yield 27%. Looking at such a big dividend yield, the question immediately arises, are there any risks.
The main risk is a paper or other loss, which the company may designate in the fourth quarter of 2021, to keep as much money in your accounts as possible, which would help Mechel reduce its debt burden.
The secondary risk is a deterioration in the market situation, which will have minimal impact on 2021 dividends, but payments in 2022 can greatly spoil.
Mechel's dividend payments on preferred shares
2011 | 31,28 R |
2012 | 0,05 R |
2013 | 0,05 R |
2014 | 0,05 R |
2015 | 0,05 R |
2016 | 10,28 R |
2017 | 16,66 R |
2018 | 18,21 R |
2019 | 3,48 R |
2020 | 1,17 R |
31,28 R
Outcome
Even taking into account weak operating performance, Mechel was able to demonstrate good financial results in the third quarter of 2021: net profit was at the level of the previous quarter's record, debt burden continues to decrease little by little, and the net debt / EBITDA ratio reached a quite good level of 3.18×.
Given the abnormally high net profit, which the company earned for 9 Months, Investors should expect huge dividend payouts, which the industrial holding will distribute at the end of 2021, unless there is a big loss in the fourth quarter.