Mariupol's'kyi MK im Illicha VAT : Trading update for the first nine months of 2016

[Attachment]Metinvest B.V., the parent company of a vertically integrated group of steel and mining companies (jointly referred to as 'Metinvest' or 'the Group'), today published a trading update for the nine months ended 30 September 2016.

The information in this press release has been prepared based on preliminary financial results. Intragroup transactions have been eliminated in consolidation. This announcement does not contain sufficient information to constitute a full set of financial statements. The following preliminary results may differ from financial statements prepared in accordance with International Financial Reporting Standards (IFRS). The numbers in this press release have not been audited or reviewed.

Metinvest B.V. publishes consolidated financial statements prepared in accordance withIFRS for the six months ending 30 June and for the year ending 31 December.

Due to rounding, numbers presented throughout this release may not add up precisely to the totals provided and percentages may not precisely reflect absolute figures.

FINANCIAL HIGHLIGHTS

(US$ million)	9M 2016	9M 2015	Change
Revenues	4,568	5,397	-15%
AdjustedEBITDA	989	816	21%
margin	22%	15%	7 pp
CAPEX	199	191	4%
(US$ million)	30 Sep 2016	31 Dec 2015	Change
Total debt	2,907	2,946	-1%
Cash and cash equivalents	239	180	33%
Net debt	2,668	2,766	-4%

1. AdjustedEBITDA is calculated as earnings before income tax, financial income and costs, depreciation and amortisation, impairment and devaluation of property, plant and equipment, foreign exchange gains and losses (starting from 1 January 2015), the share of results of associates and other expenses that the management considers non-core, plus the share inEBITDA of joint ventures. We will refer to adjustedEBITDA asEBITDA throughout this release.

2. CAPEX is calculated on an accrual basis (recognition).

3. Cash and cash equivalents do not include blocked cash for cash collateral under issued letters of credit and irrevocable bank guarantees and include cash blocked for foreign currency purchases.

4. Net debt is calculated as the sum of long-term and short-term loans and borrowings and seller notes less cash and cash equivalents.

Revenues

In 9M 2016, Metinvest's consolidated revenues decreased by 15% y-o-y to US$4,568 million. This was primarily due to lower selling prices of steel, iron ore and coal products, which hit their lowest over the last 10 years in 1Q 2016. Since then, prices have recovered to some extent but have remained volatile. In addition, weak demand in key markets caused sales volumes of flat products, pipes, coke and pellets to drop.

Revenues in Ukraine totalled US$1,148 million in 9M 2016, down 5% y-o-y. The decline was mainly driven by lower sales prices of key products, as well as lower volumes of coke and coking coal concentrate. This was partly compensated by higher sales volumes of flat, long and iron ore products. Meanwhile, the share of Ukraine in consolidated revenues increased by 3 percentage points (pp) y-o-y to 25%.

International sales dropped by 18% y-o-y to US$3,420 million, while the breakdown by market changed. The proportion of sales to Europe rose by 3 pp y-o-y to 36%, mainly due to higher sales volumes of long and iron ore products. The share of the Middle East and North Africa (MENA) dropped by 3 pp y-o-y to 16% amid lower selling prices of key products and sales volumes of pig iron, billets and pellets. The proportion of sales to Southeast Asia decreased by 4 pp y-o-y to 8%, driven by lower selling prices and volumes of flat and iron ore products. The share of North America increased by 1 pp y-o-y to 5%, mainly due to greater sales of pig iron and coking coal concentrate.

Revenues by market	9M16		9M15		Change, y-o-y
	US$m	% of revenues	US$m	% of revenues	US$m	%	pp of revenues
Total revenues	4,568	100%	5,397	100%	-828	-15%	-
Ukraine	1,148	25%	1,204	22%	-56	-5%	3
Europe	1,624	36%	1,804	33%	-180	-10%	3
MENA	735	16%	1,041	19%	-306	-29%	-3
CIS (ex Ukraine)	409	9%	460	9%	-51	-11%	-
incl. Russia	356	8%	347	6%	9	3%	2
Southeast Asia	356	8%	646	12%	-291	-45%	-4
North America	244	5%	191	4%	53	28%	1
Other regions	53	1%	51	1%	2	5%	-

Metallurgical segment

The Metallurgical segment generates revenues from sales of pig iron, steel and coke products and services. In 9M 2016, its top line fell by 14% y-o-y to US$3,681 million. The drop was attributable to lower sales of flat (US$351 million), semi-finished (US$164 million), tubular (US$62 million) and coke (US$93 million) products. Meanwhile, sales of long products and other products and services rose by US$73 million and US$22 million respectively. The share of finished products in the steel sales mix rose to 77% in 9M 2016, up 2 pp y-o-y, as more square billets were reallocated for making higher-margin long products. In 9M 2016, the segment accounted for 81% of external sales (79% in 9M 2015).

Metallurgical segment Sales by market	9M16			9M15			Change, y-o-y		Change, y-o-y %
	US$m	% of revenues	000 t	US$m	% of revenues	000 t	US$m	000 t	US$m	000 t
Total sales	3,681	100%	9,349	4,256	100%	9,505	-575	-156	-14%	-2%
Ukraine	806	22%	1,858	844	20%	1,827	-38	31	-5%	2%
Europe	1,448	39%	3,541	1,668	39%	3,597	-220	-56	-13%	-2%
MENA	734	20%	2,147	1,011	24%	2,443	-277	-296	-27%	-12%
CIS (ex Ukraine)	409	11%	838	460	11%	887	-51	-49	-11%	-6%
incl. Russia	356	10%	712	347	8%	710	9	2	3%	0%
Southeast Asia	67	2%	203	116	3%	262	-50	-59	-43%	-22%
North America	164	4%	610	106	2%	367	58	243	55%	66%
Other regions	53	1%	151	51	1%	122	2	29	5%	24%

Metallurgical segment Sales by product	9M16		9M15		Change, y-o-y		Change, y-o-y %
	US$m	000 t	US$m	000 t	US$m	000 t	US$m	due to price	due to volume
Semi-finished products	528	1,946	692	2,091	-164	-145	-24%	-17%	-7%
Pig iron	260	1,073	293	1,039	-34	34	-11%	-15%	3%
incl. Zaporizhstal	27	120	56	185	-30	-65	-52%	-17%	-35%
Slabs	186	594	213	564	-27	30	-13%	-18%	5%
Square billets	83	279	186	488	-104	-209	-56%	-13%	-43%
Finished products	2,742	6,561	3,083	6,404	-341	157	-11%	-14%	2%
Flat products	2,139	5,125	2,490	5,228	-351	-103	-14%	-12%	-2%
incl. Zaporizhstal	702	1,955	896	2,077	-193	-122	-22%	-16%	-6%
Long products	603	1,435	530	1,111	73	324	14%	-15%	29%
Tubular products	1	1	63	65	-62	-64	-99%	0%	-98%
Coke	118	842	212	1,010	-93	-168	-44%	-28%	-17%
Other products and services	292	-	270	-	22	-	8%	-	-
Total sales	3,681	9,349	4,256	9,505	-575	-156	-14%	-12%	-2%

Pig iron

In 9M 2016, sales of pig iron decreased by 11% y-o-y to US$260 million, primarily due to a slump in selling prices. At the same time, sales volumes increased by 3% y-o-y (or 34 thousand tonnes) to 1,073 thousand tonnes, driven by higher overall production (38 thousand tonnes) and destocking (66 thousand tonnes). This was partly offset by lower re-sales of Zaporizhstal's pig iron, which declined by 65 thousand tonnes y-o-y to 120 thousand tonnes in 9M 2016. Sales volumes in Southeast Asia increased by 24 thousand tonnes y-o-y, due to shipments to a new client in Bangladesh. Sales volumes in North America increased by 216 thousand tonnes y-o-y, as new long-term contracts with US customers were concluded. To fulfil its obligations under these contracts, Metinvest redirected volumes from other markets: 126 thousand tonnes from MENA, 12 thousand tonnes from Europe and 35 thousand tonnes from other regions.

Slabs

In 9M 2016, sales of slabs declined by 13% y-o-y to US$186 million. This was caused by a drop in the average selling price (-18 pp), partly compensated by higher sales volumes (+5 pp). In the period, volumes increased by 30 thousand tonnes y-o-y to 594 thousand tonnes, amid greater demand in Southeast Asia, MENA and other regions. At the same time, volumes to Europe decreased by 33 thousand tonnes y-o-y, mainly due to lower sales to Italy.

Square billets

In 9M 2016, sales of square billets decreased by 56% y-o-y to US$83 million, of which 13 pp was attributable to a slump in the average selling price and 43 pp to a drop in sales volumes, mainly to MENA, amid lower production. Meanwhile, MENA remained the main market, accounting for 51% of total sales volumes, supported by regular sales to key clients. Sales volumes to other regions increased by 20 thousand tonnes y-o-y, due to some sales in the Dominican Republic.

Flat products

In 9M 2016, sales of flat products decreased by 14% y-o-y to US$2,139 million, due to a decline in the average selling price (-12 pp) and sales volumes (-2 pp). Total volumes declined by 103 thousand tonnes y-o-y to 5,125 thousand tonnes. At the same, re-sales of Zaporizhstal's flat products dropped by 122 thousand tonnes y-o-y to 1,955 thousand tonnes, reducing their share in total sales volumes by 2 pp y-o-y to 38% in 9M 2016. Volumes to Europe fell by 127 thousand tonnes y-o-y, caused by lower sales to Italy. Volumes to Southeast Asia dropped by 118 thousand tonnes y-o-y amid antidumping duties and protective measures imposed by the Indian government and the redirection of volumes to other markets. In contrast, sales volumes in Ukraine increased by 74 thousand tonnes y-o-y as a result of higher sales of galvanised and polymer-coated sheets in 9M 2016. Sales volumes to Russia rose by 33 thousand tonnes y-o-y, due to lower sales in the comparable period of 2015, when that market was less attractive than others.

Long products

In 9M 2016, sales of long products rose by 14% y-o-y to US$603 million, driven by a 29% y-o-y increase in sales volumes to 1,435 thousand tonnes amid higher demand and overall production. As such, sales to all regions increased, except the CIS (ex Ukraine). Meanwhile, the negative y-o-y price trend on all markets for long products was due to weaker scrap and billet quotations.

Tubular products

In 9M 2016, sales of tubular products amounted to US$1 million, down 99% y-o-y, as Khartsyzk Pipe has been idle since June 2015 amid a lack of orders.

Coke

In 9M 2016, sales of coke declined by 44% y-o-y to US$118 million, of which 28 pp was attributable to a lower average selling price and 17 pp to a decrease in sales volumes. Volumes contracted by 168 thousand tonnes y-o-y to 842 thousand tonnes, driven by lower sales in Ukraine.

Mining segment

The Mining segment generates revenues from sales of iron ore, coal and other products and services. In 9M 2016, its top line dropped by 22% y-o-y to US$887 million, mainly because of a slump in iron ore and coal products, as well as lower sales volumes of pellets. In 9M 2016, the segment accounted for 19% of external sales (21% in 9M 2015).

Mining segment Sales by market	9M16			9M15			Change, y-o-y		Change, y-o-y %
	US$m	% of revenues	000 t	US$m	% of revenues	000 t	US$m	000 t	US$m	000 t
Total sales	887	100%	15,544	1,140	100%	16,570	-253	-1,026	-22%	-6%
Ukraine	342	39%	6,324	360	32%	5,170	-18	1,154	-5%	22%
Europe	175	20%	3,005	135	12%	2,187	40	818	29%	37%
MENA	1	0%	14	30	3%	372	-29	-358	-97%	-96%
CIS (ex Ukraine)	-	-	-	-	-	-	-	-	-	-
incl. Russia	-	-	-	-	-	-	-	-	-	-
Southeast Asia	289	33%	5,152	530	46%	7,870	-241	-2,718	-45%	-35%
North America	80	9%	1,049	85	7%	970	-5	78	-6%	8%
Other regions	-	-	-	-	-	-	-	-	-	-

Mining segment Sales by product	9M16		9M15		Change, y-o-y		Change, y-o-y %
	US$m	000 t	US$m	000 t	US$m	000 t	US$m	due to price	due to volume
Iron ore products	718	14,196	914	15,230	-196	-1,034	-21%	-15%	-7%
Merchant iron ore concentrate	436	9,838	489	9,515	-53	323	-11%	-14%	3%
Pellets	282	4,358	424	5,714	-143	-1,356	-34%	-10%	-24%
Coking coal concentrate	107	1,347	132	1,340	-25	7	-19%	-20%	1%
Other products and services	63	-	95	-	-32	-	-34%	-	-
Total sales	887	15,544	1,140	16,570	-253	-1,026	-22%	-16%	-6%

Iron ore concentrate

In 9M 2016, sales of merchant iron ore concentrate declined by 11% y-o-y to US$436 million, mainly due to a lower average selling price. It followed the benchmark [1], which declined by 7% y-o-y to an average of US$54/tonne in 9M 2016, from an average of US$59/tonne in the corresponding period of 2015. At the same time, total sales volumes increased by 3% y-o-y (or 323 thousand tonnes) to 9,838 thousand tonnes, driven by destocking in 1Q 2016. Sales in Europe increased by 429 thousand tonnes y-o-y amid greater purchases by key clients. To fulfil the orders, volumes were redirected from Southeast Asia (110 thousand tonnes). Sales volumes in Ukraine remained flat y-o-y.

Pellets

In 9M 2016, sales of pellets decreased by 34% y-o-y to US$282 million, of which 10 pp was attributable to a drop in the average selling price and 24 pp to lower sales volumes amid lower production. Given the greater demand and market premiums in Ukraine and Europe, volumes in these regions rose by 1,242 thousand tonnes and 369 thousand tonnes y-o-y respectively. This reduced the remaining available volume and resulted in lower sales to Southeast Asia (2,608 thousand tonnes) and MENA (358 thousand tonnes). The average selling price followed the benchmark, which dropped by 7% y-o-y.

Coking coal concentrate

In 9M 2016, sales of coking coal decreased by 19% y-o-y to US$107 million, primarily caused by a lower average selling price. Volumes increased by 1% y-o-y (or 7 thousand tonnes) to 1,347 thousand tonnes in 9M 2016, driven by greater sales in North America. The average selling price moved largely in line with the benchmark [2] for hard coking coal, which dropped by 20% y-o-y.

EBITDA

In 9M 2016, Metinvest's consolidatedEBITDA climbed by 21% y-o-y to US$989 million. The contributions from the Metallurgical and Mining segments increased by US$126 million and US$105 million y-o-y respectively, partly offset by a rise in corporate overheads and eliminations of US$57 million.

EBITDA by segment	9M16		9M15		Change, y-o-y
	US$m	% of segment revenues	US$m	% of segment revenues	US$m	pp of segment revenues
Metallurgical segment	650	17%	524	12%	126	5
- incl. JV	124		136		-12
Mining segment	439	28%	334	15%	105	13
- incl. JV	73		58		16
Corporate o/hs andeliminations	-100		-43		-57
TotalEBITDA	989	22%	816	15%	173	7

The increase in consolidatedEBITDA was primarily attributable to the following factors:

• a rise in the Metallurgical segment's sales volumes of US$15 million;
• a positive effect of the hryvnia devaluation of US$264 million, as the USD/UAH exchange rate averaged 25.48 in 9M 2016, compared with 21.43 in 9M 2015;
• a drop in logistics costs of US$172 million, due to lower freight costs (US$136 million) and other transportation expenses, partly offset by higher railway costs following an upward indexation in tariffs of 15% on 30 April 2016 (US$27 million);
• decreased spending on energy (US$93 million), mainly due to lower expenses on natural gas amid lower prices (US$65 million) and reduced consumption (US$57 million) - which were partly offset by increased electricity tariffs (US$25 million);
• a decrease in the cost of raw materials amid lower market prices of coal, scrap, iron ore and coke (US$186 million), partly offset by greater consumption volumes driven by higher crude steel production (US$71 million);
• a decline in other costs of US$353 million, primarily due to a drop in the cost of goods and services for resale.

These factors were partly offset by a decrease in selling prices in the Metallurgical segment (US$590 million) and the Mining segment (US$138 million), as well as lower sales volumes in the Mining segment (US$115 million).

In 9M 2016, the Group's consolidatedEBITDA margin increased by 7 pp y-o-y to 22%. TheEBITDA margin rose by 5 pp y-o-y to 17% in the Metallurgical segment and by 13 pp y-o-y to 28% in the Mining segment.

Debt management

In 2016, Metinvest has made significant progress in the debt restructuring discussions with its creditors.

On 24 May 2016, the Group agreed non-binding heads of terms for restructuring the notes and PXF facilities (the Heads of Terms) with the ad hoc committee of noteholders and the coordinating committee of PXF lenders. Among other terms, this includes an extension of Metinvest's debt maturities until the end of 2021, including a grace period on the scheduled amortisation of PXF debt principal until the end of 2018.

The Group now intends that the practice statement letter launching the scheme of arrangement to implement the restructuring will be published in the coming weeks. Settlement of the restructuring is expected to occur sometime in the beginning of 2017 in accordance with the normal timetable for an English law-governed scheme of arrangement.

Notwithstanding the occurrence of the termination date of both the moratorium under the notes and the standstill agreement with the PXF lenders on 30 November 2016, Metinvest intends to continue servicing the debt on the terms set out in the Moratorium and the Standstill Agreement. The next interest payment dates will be on 31 December 2016 and, if applicable, 31 January 2017.

Capital expenditure

Metinvest maintained low capital expenditure of US$199 million[3] in 9M 2016, up 4% y-o-y. Due to the tight liquidity situation and the high volatility of global steel and iron ore prices, the focus remained on vital maintenance projects, as well as top-priority expansion projects that offer a fast payback. In 9M 2016, the split by maintenance and expansion projects was 71% to 29% (68% to 32% in 9M 2015). The Mining segment accounted for 48% of capital expenditure (52% in 9M 2015) and the Metallurgical segment for 51% (44% in 9M 2015).

Metallurgical segment

Major investment projects at Ilyich Steel include the construction of continuous casting machine no. 4 (launched in September 2016), the major overhaul of blast furnace (BF) no. 4 (completed in May 2016), and the ongoing reconstruction of the sinter plant and the existing dust-trapping facilities of converter no. 2. Construction of the PCI facilities at Azovstal (BF no. 4) and Yenakiieve Steel (BF nos. 3 and 5) is in the final stage.

Mining segment

Several projects are ongoing in the Mining segment. These include the construction of deep-quarry crusher and conveyor systems at Northern GOK (the first facility for iron ore transportation at the Pervomaisky quarry was launched in May 2016) and Ingulets GOK (Vostochny conveyor line only), as well as the replacement of gas cleaning units on the Lurgi 552-B pelletising machine at Northern GOK.

[1] 62% Fe iron ore fines CFR China

[2] Hard coking coal quarterly contract FOB Australia

[3] Includes US$2 million of corporate overheads