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Mechel Reports the 2Q 2019 Financial Results

15.08.2019  |  GlobeNewswire

Consolidated revenue – 78.5 bln rubles (+5% compared to 1Q2019)
EBITDA* – 15.0 bln rubles (-2% compared to 1Q2019)
Profit attributable to equity shareholders of Mechel PAO – 1.4 bln rubles

MOSCOW, Aug. 15, 2019 -- Mechel PAO (MOEX: MTLR, NYSE: MTL), a leading Russian mining and steel group, announces financial results for the 2Q 2019.

Mechel PAO’s Chief Executive Officer Oleg Korzhov commented:

“Consolidated EBITDA in the second quarter went down by 2% quarter-on-quarter even as Steel and Mining divisions’ EBITDA steadily grew, due to the change in inter-segment margin and inter-segment inventories balance.

“Regarding our operational results, I would like to mention the 31% rise in coal mining volumes quarter-on-quarter. It was accomplished due to our earlier efforts to restore mining fleet at our mining facilities as well as to prepare reserves for mining. Stripping volumes went up 28% quarter-on-quarter. This enabled us to increase coking coal concentrate sales by 13% and PCI sales by 9% quarter-on-quarter. The steel division also demonstrated an increase in sales volumes of its main products upon stable steel output. Sales of long products (including intra-group sales) went up by 8%, stampings by 5%, hardware by 3%. Sales of the universal rolling mill’s high-margin products, which also fall into long products category, went up by 13%.

“Coal mining volumes will continue to grow in the future. Despite a decrease in mining in 1Q2019, this year’s total results will exceed last year’s. The steel division will continue increasing the share of high value-added products in its sales. Even though we suspended a blast furnace at Chelyabinsk Metallurgical Plant for an overhaul, we do not plan to decrease output and sales, with priority given to the most profitable products.

“As for the company’s plans and perspectives, it must be noted that we are approaching the period of our main debt’s maturity in accordance with loan agreements we made with lender banks in 2016. Even though the company is working stably and generating a cash flow sufficient to meet all current financial obligations, debt servicing and financing capital expenditures, in the current conditions this cash flow will not be enough to fulfill all our obligations on repaying the debt in the period of 2020-2022. We have accordingly called on our lenders with an offer on moving the debt maturity to a later period. The banks are now considering our offer, and we expect to reach an agreement on this issue in the nearest future.”

Consolidated Results For The 2Q2019 and 1H2019

Mln rubles 2Q’ 19 1Q’ 19 % 1H’ 19 1H’ 18 %
Revenue
from contracts with external customers
78,470 74,856 5 % 153,326 157,038 -2 %
Operating profit 9,922 10,837 -8 % 20,759 32,641 -36 %
EBITDA 15,025 15,322 -2 % 30,347 41,440 -27 %
EBITDA, margin 19 % 20 % 20 % 26 %
Profit
attributable to equity shareholders of Mechel PAO
1,409 11,336 -88 % 12,745 4,693 172 %

Mechel PAO’s Chief Financial Officer Nelli Galeeva commented:

“Consolidated EBITDA in the second quarter totaled 15.0 billion rubles. Profit attributable to equity shareholders of Mechel PAO went down quarter-on-quarter to 1.4 billion rubles. Dynamics of foreign exchange gains on foreign currency obligations had a major impact on this indicator in connection with the ruble strengthening against US dollar and euro downward trend in this reporting period.

“The mining division’s gross profit went up by 8% and EBITDA by 5% in 2Q2019 quarter-on-quarter.

“Elgaugol, the mining segment’s key investment project, demonstrated an increase in mining volumes by 41% quarter-on-quarter. Increased output brought Elgaugol a 15% increase in revenue quarter-on-quarter.

“In the second quarter, the steel segment demonstrated restored output and sales volumes. Sales went up across nearly the entire product range. The increase in sales, supported by the seasonal hike in prices for steel products, led to an overall 11% increase in revenue quarter-on-quarter. Despite a persistent upward trend in iron ore prices, the segment upped its gross profit by 18%, EBITDA went up from 3.3 billion rubles in 1Q2019 to 4.4 billion in 2Q2019, with EBITDA margin of 9%.

“Despite a slight decrease in cash inflows from operating activity, the operating cash flow remains sufficient not only for providing for the Group’s operational needs but also for reducing its leverage.

“Our financial expenses went down by 0.2 billion rubles from 10.1 billion rubles in 1Q2019 to 9.9 billion rubles in 2Q2019, which was due to lower average currency exchange rate as well as a lower Central Bank of the Russian Federation key interest rate and other floating rates in our loan portfolio.

“We paid a total of 8.2 billion rubles interest in 2Q2019, including capitalized interest, which complies with the average quarterly results on this point. Current average interest rate is 7.8%, average paid interest rate is 7.7%.

“The Group’s net debt excluding fines and penalties on overdue amounts and options went down by 12 billion rubles as compared to December 31, 2018, and amounted to 411 billion rubles. This was due to the ruble’s strengthening against US dollar and euro, as well as some repayment of loan principal, which was partly offset by the increased lease obligations in accordance with IFRS 16 Leases that requires to recognize assets and obligations not only on financial but also long-term operating lease, which led to an increase in such assets and obligations in 1H2019 by over 8 billion rubles.

“The Net Debt to EBITDA ratio amounted to 6.4 by the end of 2Q2019. This figure grew compared to the previous reporting period due to EBITDA decrease. The debt portfolio’s structure was stable, with 65% of our debt nominated in rubles and the remainder in foreign currency. Russian state-owned banks account for 88% of our lenders.”

Mining Segment

Revenue from contracts with external customers went up by 3% quarter-on-quarter as coking coal concentrate sales increased. The division’s revenue dynamics in 1H2019 year-on-year was determined by a variety of factors — an increase in sales of coking coal concentrate, steam coal, iron ore concentrate and coke was partly offset by a decrease in sales of other metallurgical coals and middlings. As a result, the segment’s revenue in 1H2019 went up by 3% year-on-year.

The second quarter’s EBITDA demonstrated a 5% growth quarter-on-quarter. The increase in coking coal concentrate sales, higher iron ore and steam coal prices had a positive effect on EBITDA. Positive dynamics was restricted by increased production costs due to significant stripping volumes, as well as higher selling expenses and railroad tariffs. EBITDA’s 9% decrease in 1H2019 year-on-year was caused by increased production and sales costs due to advanced stripping volumes and an extensive repair program.

Mechel Mining Management OOO’s Chief Executive Officer Igor Khafizov noted:

“In the second quarter, coal mining at Yakutugol Holding Company went up by 40.6%, at Elgaugol by 41% and at Southern Kuzbass Coal Company by 18% quarter-on-quarter. As a result, total mining volumes went up by 31% as compared to the previous quarter. The division’s facilities also significantly increased stripping volumes.

“Naturally, extra effort of preparing reserves for future mining currently impact our products’ costs and the division’s financial results, but it is important for further restoration of coal mining volumes. In the future, we plan to see a further increase in mining and stripping works will continue at high level.

“In order to improve our operational performance, we continue to put into operation new mining machines, repair our existing equipment and expand contractors presence at our facilities.

“In the second quarter, Elgaugol launched a walking dragline ESh 20/90. Southern Kuzbass Coal Company received a lot of new equipment. In the second half of this year, four new trucks will be launched at Korshunov Mining Plant and 11 more at Southern Kuzbass. Yakutugol’s washing plant will receive over ten new equipment units. Also, in the third quarter Southern Kuzbass plans to launch two new longwalls at V.I. Lenina Underground and Sibirginskaya Underground mines, with a total capacity of over 1.5 million tonnes of coking coal.”

Mln rubles 2Q’ 19 1Q’ 19 % 1H’ 19 1H’ 18 %
Revenue
from contracts with external customers
25,258 24,545 3 % 49,803 48,400 3 %
Revenue
inter-segment
10,258 9,473 8 % 19,731 19,045 4 %
EBITDA 11,588 10,986 5 % 22,574 24,891 -9 %
EBITDA, margin 33 % 32 % 32 % 37 %

Steel Segment

Revenue from contracts with external customers went up by 11% quarter-on-quarter as sales volumes and prices of division’s products increased. Rebar and rails demonstrated the most growth. The 6% decrease in 1H2019 revenue year-on-year was due to a decrease in steel output and sales of rebar, other long products and flat products.

The second quarter’s EBITDA demonstrated a 34% growth quarter-on-quarter. EBITDA’s positive dynamics was held back by higher production costs as iron ore prices went up. The 1H2019 EBITDA’s year-on-year drop by 47% was largely due to a decrease in output and sales that was partly compensated for by higher prices.

Mechel-Steel Management Company OOO’s Chief Executive Officer Andrey Ponomarev noted:

“In the second quarter, our division boosted output and sales volumes. Thanks to a seasonal spike in demand for construction products we increased rebar sales by 11%. In addition, rail sales went up by over 90% quarter-on-quarter. Signing a new agreement with Russian Railways, key consumer of our rails, in late 1Q2019 helped with this.

“Increase in sales volumes came during a favorable market trend characteristic for the summer period. Heightened rates of residential construction proved an additional support to market prices. In these conditions, the division’s financial results demonstrated strong positive dynamics as compared to the previous quarter.

“Currently prices for construction products remain high, even though the trend has turned downward as the second half of this year began. Nevertheless, we expect that our maintaining the tendency of increasing the share of high value-added products in our sales structure will support the division’s financial results. The downward trend in iron ore prices, which peaked early in the third quarter, will also have a positive effect on our output’s profitability Vale S.A. resuming production at its assets as well as gradual output increase by other iron ore producers will help dampen the prices.

“In order to ensure stable output, we continue to pursue our repair program. In the second quarter, Chelyabinsk Metallurgical Plant conducted planned repairs of the sinter machine #4, blast furnace #1, converter #2 and two concasters as well as the universal rolling mill. In July, we began overhauling the blast furnace #4. We also plan to begin replacing the converter #1 in the third quarter.

“Urals Stampings Plant joined forces with Chelyabinsk Metallurgical Plant to master production of bulk steel rolls from 61-tonne ingots. The plant is working on the know-how of producing and forging 72- and 80-tonne ingots.”

Mln rubles 2Q’ 19 1Q’ 19 % 1H’ 19 1H’ 18 %
Revenue
from contracts with external customers
46,750 42,062 11 % 88,812 94,382 -6 %
Revenue
inter-segment
1,441 1,595 -10 % 3,036 2,955 3 %
EBITDA 4,376 3,259 34 % 7,635 14,484 -47 %
EBITDA, margin 9 % 7 % 8 % 15 %

Power Segment

Mechel-Energo OOO’s Chief Executive Officer Denis Graf noted:

“The division’s operational results and its financial indicators dynamics are mostly seasonal in nature. Due to the heating period’s end and beginning of summer repairs of our key generating equipment, the division’s financial results in the second quarter decreased quarter-on-quarter. EBITDA’s decrease in 1H2019 year-on-year was due to higher prices for electricity purchased as well as on raw materials such as coal and residual fuel oil.”

Mln rubles 2Q’ 19 1Q’ 19 % 1H’ 19 1H’ 18 %
Revenue
from contracts with external customers
6,462 8,249 -22 % 14,711 14,256 3 %
Revenue
inter-segment
3,665 4,400 -17 % 8,065 7,621 6 %
EBITDA 47 234 -80 % 281 1,200 -77 %
EBITDA, margin 0 % 2 % 1 % 5 %

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.

_______________________

* EBITDA - Adjusted EBITDA. Please find the calculation of the Adjusted EBITDA and other non-IFRS measures used here and hereafter in Attachment A.


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, 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, 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 30.06.2019 31.12.2018
Loans and borrowings, excluding interest payable, fines and penalties on overdue amounts 380,139 402,417
Interest payable 7,873 7,749
Non-current loans and borrowings 10,001 6,538
Other non-current financial liabilities 46,488 44,510
less Cash and cash equivalents (3,772 ) (1,803 )
Net debt, excluding lease liabilities, fines and penalties on overdue amounts 440,729 459,411
Current lease liabilities 8,234 5,880
Non-current lease liabilities 8,115 2,413
Net debt, excluding fines and penalties on overdue amounts 457,078 467,704

__________________

** Calculations of Net debt could be differ from indicators calculated in accordance with loan agreements upon dependence on definitions in such agreements.

EBITDA can be reconciled to our interim condensed consolidated statement of profit (loss) and other comprehensive income as follows:

Consolidated Results Mining Segment *** Steel Segment*** Power Segment***
Mln rubles 6m 2019 6m 2018 6m 2019 6m 2018 6m 2019 6m 2018 6m 2019
6m 2018
Profit (loss) attributable to equity shareholders of Mechel PAO 12,745 4,693 9,632 1,893 6,919 2,105 (964 ) 649
Add:
Depreciation and amortisation 7,183 6,991 4,011 3,916 2,932 2,825 240 250
Foreign exchange (gain) loss, net (14,630 ) 11,580 (3,555 ) 7,792 (11,055 ) 3,771 (20 ) 17
Finance costs including fines and penalties on overdue loans and borrowings and lease payments 19,989 21,445 12,504 15,867 7,553 6,036 331 281
Finance income (490 ) (7,863 ) (611 ) (6,170 ) (262 ) (1,661 ) (16 ) (771 )
Net result on the disposal of non-current assets, impairment of goodwill and other non-current assets, 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 1,424 1,536 556 475 458 511 408 553
Net result on the disposal of subsidiaries - (310 ) - (3 ) - (307 ) - -
Profit (loss) attributable to non-controlling interests 689 587 385 85 367 393 (64 ) 110
Income tax expense (benefit) 2,168 2,465 (666 ) 1,163 213 392 (77 ) 86
Effect of pension obligations 102 71 87 59 14 11 2 1
Other fines and penalties 1,237 309 273 (163 ) 522 447 442 26
Gain on restructuring and forgiveness of trade and other payables and write-off of trade and other payables with expired legal term (70 ) (64 ) (42 ) (23 ) (26 ) (39 ) (1 ) (2 )
EBITDA 30,347 41,440 22,574 24,891 7,635 14,484 281 1,200
EBITDA, margin 20 % 26 % 32 % 37 % 8 % 15 % 1 % 5 %
Consolidated Results Mining Segment*** Steel Segment*** Power Segment***
Mln rubles 2q 2019 1q 2019 2q 2019 1q 2019 2q 2019 1q 2019 2q 2019 1q 2019
Profit (loss) attributable to equity shareholders of Mechel PAO 1,409 11,336 3,644 5,988 (16 ) 6,935 (744 ) (220 )
Add:
Depreciation and amortisation 3,525 3,658 1,942 2,069 1,465 1,467 118 122
Foreign exchange (gain) loss, net (2,651 ) (11,979 ) (944 ) (2,611 ) (1,705 ) (9,350 ) (2 ) (18 )
Finance costs including fines and penalties on overdue loans and borrowings and lease payments 9,904 10,085 6,257 6,247 3,678 3,875 167 164
Finance income (258 ) (232 ) (349 ) (262 ) (99 ) (163 ) (8 ) (8 )
Net result on the disposal of non-current assets, impairment of goodwill and other non-current assets, 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 912 512 346 210 278 180 286 122
Profit (loss) attributable to non-controlling interests 311 378 205 180 170 197 (65 ) 1
Income tax expense (benefit) 1,037 1,131 294 (960 ) 290 (77 ) (35 ) (42 )
Effect of pension obligations 54 48 47 40 7 7 1 1
Other fines and penalties 797 440 148 125 320 202 329 113
Gain on restructuring and forgiveness of trade and other payables and write-off of trade and other payables with expired legal term (15 ) (55 ) (2 ) (40 ) (12 ) (14 ) - (1 )
EBITDA 15,025 15,322 11,588 10,986 4,376 3,259 47 234
EBITDA, margin 19 % 20 % 33 % 32 % 9 % 7 % 0 % 2 %
*** 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, 2019
(All amounts are in millions of Russian rubles, unless stated otherwise)
Six months ended
June 30,
Six months ended
June 30,
2019 2018
(unaudited) (unaudited)
Revenue from contracts with customers 153,326 157,038
Cost of sales (94,022 ) (85,384 )
Gross profit 59,304 71,654
Selling and distribution expenses (27,549 ) (28,851 )
Allowance for expected credit losses on financial assets (449 ) (528 )
Taxes other than income taxes (2,208 ) (2,396 )
Administrative and other operating expenses (8,664 ) (7,885 )
Other operating income 325 647
Total selling, distribution and operating income and (expenses), net (38,545 ) (39,013 )
Operating profit 20,759 32,641
Finance income 490 7,863
Finance costs including fines and penalties on overdue loans and borrowings and leases payments (19,989 ) (21,445 )
Foreign exchange gain (loss), net 14,630 (11,580 )
Share of profit (loss) of associates, net 11 36
Other income 71 401
Other expenses (370 ) (171 )
Total other income and (expense), net (5,157 ) (24,896 )
Profit before tax 15,602 7,745
Income tax expense (2,168 ) (2,465 )
Profit for the period 13,434 5,280
Attributable to:
Equity shareholders of Mechel PAO 12,745 4,693
Non-controlling interests 689 587
Other comprehensive income
Other comprehensive loss that may be reclassified to profit or loss in subsequent periods, net of income tax (839 ) (321 )
Exchange differences on translation of foreign operations (839 ) (321 )
Other comprehensive (loss) income not to be reclassified to profit or loss in subsequent periods, net of income tax (248 ) 6
Re-measurement of defined benefit plans (248 ) 6
Other comprehensive loss for the period, net of tax (1,087 ) (315 )
Total comprehensive income for the period, net of tax 12,347 4,965
Attributable to:
Equity shareholders of Mechel PAO 11,664 4,378
Non-controlling interests 683 587
Earnings per share
Weighted average number of common shares 416,270,745 416,270,745
Basic and diluted, profit for the period attributable to common equity shareholders of Mechel PAO (Russian rubles per share) 30,62 11,27


INTERIM CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL POSITION as of June 30, 2019
(All amounts are in millions of Russian rubles)
June 30, 2019 December 31, 2018
(unaudited)
Assets
Non-current assets
Property, plant and equipment 195,729 189,879
Mineral licenses 31,589 32,068
Goodwill and other intangible assets 16,818 16,883
Investments in associates 304 293
Deferred tax assets 7,345 5,488
Other non-current assets 623 630
Non-current financial assets 231 244
Total non-current assets 252,639 245,485
Current assets
Inventories 42,793 43,423
Income tax receivables 61 121
Trade and other receivables 20,338 17,612
Other current assets 6,877 8,673
Other current financial assets 313 508
Cash and cash equivalents 3,772 1,803
Total current assets 74,154 72,140
Total assets 326,793 317,625
Equity and liabilities
Equity
Common shares 4,163 4,163
Preferred shares 833 833
Additional paid-in capital 24,378 24,378
Accumulated other comprehensive income 690 1,771
Accumulated deficit (263,418 ) (274,186 )
Equity attributable to equity shareholders of Mechel PAO (233,354 ) (243,041 )
Non-controlling interests 10,457 9,846
Total equity (222,897 ) (233,195 )
Non-current liabilities
Loans and borrowings 10,001 6,538
Lease liabilities 8,115 2,413
Other non-current financial liabilities 46,488 44,510
Other non-current liabilities 112 120
Pension obligations 4,076 3,819
Provisions 4,529 3,719
Deferred tax liabilities 13,623 13,506
Total non-current liabilities 86,944 74,625
Current liabilities
Loans and borrowings, including interest payable, fines and penalties on overdue amounts of RUB 10,149 million and RUB 9,877 million as of June 30, 2019 and December 31, 2018, respectively 390,287 412,294
Trade and other payables 37,366 34,800
Lease liabilities 8,234 5,880
Income tax payable 8,923 6,425
Taxes and similar charges payable other than income tax 7,132 6,106
Advances received and other current liabilities 4,814 5,096
Pension obligations 797 772
Provisions 5,193 4,822
Total current liabilities 462,746 476,195
Total liabilities 549,690 550,820
Total equity and liabilities 326,793 317,625


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended June 30, 2019
(All amounts are in millions of Russian rubles)
Six months
ended June 30,
Six months
ended June 30,
2019 2018
(unaudited) (unaudited)
Cash flows from operating activities
Profit for the period 13,434 5,280
Adjustments to reconcile profit to net cash provided by operating activities
Depreciation of property, plant and equipment and amortisation of mineral licenses and other intangible assets 7,183 6,991
Foreign exchange (gain) loss, net (14,630 ) 11,580
Deferred income tax benefit (1,672 ) (678 )
Changes in allowance for expected credit losses and write-off of trade and other receivables and payables, net 385 531
Write-off of inventories to net realisable value 621 710
Impairment of goodwill and other non-current assets and loss on write-off of non-current assets 216 252
Finance income (490 ) (7,863 )
Finance costs including fines and penalties on overdue loans and borrowings and lease payments 19,989 21,445
Provisions for legal claims, taxes and other provisions 2,775 1,157
Other 204 27
Changes in working capital items
Trade and other receivables (3,952 ) (1,023 )
Inventories (2,190 ) (4,221 )
Trade and other payables 2,231 736
Advances received (275 ) 932
Taxes payable and other liabilities 2,725 1,588
Other current assets 1,407 (139 )
Income tax paid (1,165 ) (2,501 )
Net cash provided by operating activities 26,796 34,804
Cash flows from investing activities
Interest received 56 37
Royalty and other proceeds associated with disposal of subsidiaries 17 3
Proceeds from loans issued and other investments 310 5
Proceeds from disposals of property, plant and equipment 207 64
Purchases of property, plant and equipment (2,584 ) (2,155 )
Purchases of intangible assets - (150 )
Interest paid, capitalised (92 ) (267 )
Net cash used in investing activities (2,086 ) (2,463 )
Cash flows from financing activities
Proceeds from loans and borrowings, including proceeds from factoring arrangement of RUB 156 million and RUB 3,193 million for the six months ended June 30, 2019 and 2018, respectively 7,130 4,054
Repayment of loans and borrowings, including payments of factoring arrangement of RUB 2,066 million and nil for the six months ended June 30, 2019, and 2018, respectively (11,767 ) (15,256 )
Dividends paid to non-controlling interests (6 ) (5 )
Interest paid, including fines and penalties (15,811 ) (16,818 )
Repayment of lease obligations (833 ) (1,474 )
Effect of sale and leaseback transactions 87 -
Deferred payments for acquisition of assets (52 ) (406 )
Deferred consideration paid for the acquisition of subsidiaries in prior periods (361 ) (2,393 )
Net cash used in financing activities (21,613 ) (32,298 )
Foreign exchange (gain) loss on cash and cash equivalents, net (608 ) 37
Changes in allowance for expected credit losses on cash and cash equivalents (16 ) (32 )
Net increase in cash and cash equivalents 2,473 48
Cash and cash equivalents at beginning of period 1,803 2,452
Cash and cash equivalents, net of overdrafts at beginning of period 380 1,223
Cash and cash equivalents at end of period 3,772 2,936
Cash and cash equivalents, net of overdrafts at end of period 2,853 1,271

There were certain reclassifications to conform with the current period presentation. These interim condensed consolidated financial statements were prepared by Mechel PAO in accordance with IFRS and have not been audited by the independent auditor. If these interim condensed consolidated financial statements are audited in the future, the audit could reveal differences in our consolidated financial results and we cannot assure that any such differences would not be material.


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