Mechel PAO
Q3 2017 Earnings Call Transcript

Published: 28 Nov 2017

[Operator:]

Good day and welcome to the Mechel Reports for the nine months 2017 Financial Results Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Alexey Lukashov, Director of Investor. Please go ahead.

[Alexey Lukashov:]

Thank you and good day, everyone. I would like to welcome you to Mechel’s conference call to discuss our nine months 2017 results, which we reported today. With us from management team today are Mr. Oleg Korzhov, Mechel’s CEO; and Mr. Sergey Rezontov, Mechel’s CFO. After management has made their formal remarks, we will take your questions to the presentation team. Please note that during the call, management will make forward-looking statements, some of which may have been made in the press release. Some of the information on this conference call may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel as defined in the Safe Harbor provision 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 United States Securities and Exchange Commission, which contain and identify important factors that could cause the actual results to differ materially from those contained in the projections of forward-looking statements. In addition, we will be using non-IFRS financial measures, including EBITDA, in our discussions today. A reconciliation of non-IFRS financial measures to the most direct and comparable IFRS financial measures are contained in the earnings press release, which is available on our website at www.mechel.com. At this point, I would like to turn the call over to Mechel’s CEO, Mr. Korzhov. Please go ahead.

[Oleg Korzhov:]

Good afternoon and good morning, ladies and gentlemen. We are glad to welcome you at the conference call for the company’s financial results of the first nine months of 2017. For our company, these nine months financial results were an improvement year-on-year Consolidated revenue went up by 13%, reaching RUB 223 billion, while EBITDA went up by 42% and reached RUB 59 billion. Net profit attributable to equity shareholders of Mechel nearly doubles to RUB 11 billion. The third quarter’s results were also better than those of the second quarter, with revenue up 2% and EBITDA up 9%. In the third quarter, we netted RUB 6 billion of profit, which is more than the net profit over the first-half of this year. These good results reflect the favorable price situation in metallurgical coal and steel market. After a period of high volatility early in the year, the price for hard coking coal reached its minimum of US$140 per tonne in June and began growing. By late August, prices tops US$200 and remained on that level almost until the end of the quarter. After a brief correction in October, in early November, prices were again on the rise reaching once more the level of US$200 per tonne. As a result, the average price level in the third quarter was comparable to that of the second quarter. With this, the mining division’s EBITDA over this year’s nine months nearly doubled year-on-year. Steel markets looked better in the third quarter than in the first-half of the year. Billet prices were growing as North African states increased their demand and Russia’s domestic rebound market also demonstrated positive price dynamics. Prices for rolls of small units sizes grew particularly strong due to shortages as producers preferred the more economically efficient export shipments of semi-finished products by late September. Global markets of raw materials, semi-finished products and rolls began to weaken followed by the domestic rebar markets. Despite the financial results overall positive dynamics, we have to admit that the growth was restrained by a decrease in coal production in sales, as well as high production costs year-on-year. We have already mentioned that we are implementing a sweeping program of overburden mining and acquisition of new mining machinery. This process is still underway with new excavators, heavy-duty trucks and equipment arriving at our facilities and being launched as planned. We pay a lot of attention to repairs and restoring equipment, as well as preparing reserves for future mining. In order to speed up the increase of our overburden mining volumes, we brought in several contractors with a mining fleet of their own. In the third and fourth quarter, we can already see the results of these efforts, but a more market increase of mining volumes will follow in 2018. In the steel division, we focused our efforts on repairing our production facilities, mastering new types of products and increasing environmental safety at our plants. This year, we conducted a series of repairs on our major facilities at Chelyabinsk metallurgical plant, a center plant, two blast furnaces, three converters, three concasters and other equipment have undergone a plant general over haul at Izhstal two furnaces and the consaster were over hauled. Chelyabinsk metallurgical plant expanded its product range for the European market. Certificates of compliance were awarded to two new types of H-beams and two new rail profiles produced at the Universal rolling mill. The welded beam workshop was also launched, which will enable the plant to expand its construction product range. In October and November, we made our first rail shipments to Eurasian economic union states Belarus and Kazakhstan. Next year, we plan to expand sales into those and other new markets. Apart from that, Chelyabinsk metallurgical plant passed compliance audit for production of reinforcement steel for the European market, rolls production at Chelyabinsk metallurgical plants, Universal rolling mill over these nine months grew by third year-on-year. I would separately like to note that last week, Mechel-Coke, which supplies Chelyabinsk metallurgical plant with raw materials launched and upgraded benzene facility. The project was implemented as part of Russia’s environment year, modernization of the cooler unit using state-of-the-art technologies enabled Mechel-Coke to completely get rid of the major source of air pollution. In this way, implementation of our programs aimed at the steel division’s development together with normalization of prices for coal and iron ore yield results. Even though, the division’s financial performance over these nine months did not improve over the same period last year when costs of metallurgical raw materials were at their historical lows. The third quarter’s EBITDA more than doubled quarter-on-quarter. And now I would like to give the floor to our Chief Financial Officer, Sergey Rezontov, who will give more details on the financial performance of all of our business segments. Thank you for your attention.

[Sergey Rezontov:]

Good afternoon, ladies and gentlemen. I would like to welcome you to our conference call to present financial results of Mechel Group and nine months 2017. Thank you very much await for your brief overview of the market environment and introduction. And now I want to switch to more detailed analysis of specific trends on our core markets and our latest consolidated financial results of the group as a whole and in segments. After my presentation, we will welcome your questions and we will be delighted to answer them. Slides that accompany my presentation are available on the web page, mechel.com. Traditionally, I will start with a brief market overview. Prices on the coal markets are dependent on stockpile levels, which bottoms across the supply chain in the second quarter of 2017, before recovering during the second-half of the year. Taking into account this factor, as well as a relatively scarcity of premium high coking coal, the market prices then was a premium to the high range high coking coal and semi-soft coals. After a record level of coking coal prices in the first quarter of 2016, we saw general trends take a downturn, as well as up and down rally with a peak of over $300 per tonne back in April 2017 and lowest level of $140 per tonne in June 2017. Relatively stable stability came to the coking coal market only in the third quarter 2017. When after bottoming to the level of $140 in June 2017, the prices rebounded to $200 in September. Between August and today, coal prices fluctuated in the range of $170 to $210 per tonne. Since the second quarter of 2017, the quarterly benchmark was replaced by a so-called reference price calculated as average spot index over three months. During the last quarter, it was fixed at the level of $194 in the second quarter and $170 in the third quarter. Analysts project that stockpile should drop again in the second quarter of 2018 due to the iron ore factor. As Chinese steel mills ramped up in anticipation of higher consumption activity and [indiscernible] producers is affected by the wet season, as well as labor strikes, a factor that hasn’t been fully resolved before making a full recovery in the second-half of the year. Nowadays, we again see pressure on the prices and the cycle was a trend of growing prices. Prices in our long steel products, including rebar on the Russian domestic market producing and it depends on exports of billet FOB Brexit [ph] prices, as well as currency exchange rates. In July and September, billet prices demonstrated fast growth due to the higher demand in the steel from North Africa. Since May, Egypt has improved temporary and dampened duty on the rebar imports from China, Tokyo and Ukraine to December 2017. All these factors resulted in billet prices skyrocketing this year after $125, $130 FOB Brexit per tonne in September. The average FOB Brexit billet price increased in the third quarter by 22%, up to $180 per tonne year-on-year. The domestic market followed these dynamics and average rebar prices moved from RUB 27.9000 in the third quarter to RUB 25.3000 in the second quarter and back to RUB 29.3000 in the third quarter. Average quarter sales prices for rebar were 50% higher than in previous quarter. Average rebar prices on the domestic market for these nine months of the year increased 6.1% year-on-year. Comparing the environment on the financial markets, we can point out the ruble appreciation against dollar was 3.2% in the third quarter of 2017, compared to the second quarter and amounted to RUB 59, via RUB 57 in the previous quarter. And the average rubble and dollar exchange rate during the nine months last year was RUB 68.4 comparing to RUB 58.4 this year, which is approximately 15% depreciation in the currency. Cost of borrowings, now domestic market has gone down since the beginning of the year. The Russian Central Bank reviewed the key trade three times to the level of 8.25% per annum. Mining segment, because of the benchmark prices in the third quarter 2017 compared to the second quarter was compensated by the currency depreciation. But all financial results of the Mining segment for the quarter has slightly decreased compared to the previous quarter, due to the high expense, which were mostly due to the intensified stripping box on all our mines. The segments operating profit decreased by 9% quarter-on-quarter and amounted to RUB 10.9 billion. Revenue from sale of coking coal products in the nine months 2017 increased by 49% period-on-period, representing a 45 per share of the Mining segments total revenue. Coking coal sales in the third quarter decreased by 3% quarter-on-quarter as a result of interruption of rail cost supply recurring from the rolling stock shortage at the Russian Railways as well as cyclone on the Far East, which frozen the expectation for a couple of weeks in August. Comparing nine months periods financial figures, you must note that superior result of the Mining segment were driven by the favorable global core market conditions and positive price dynamics. The Mining segments revenue from sale to the third parties went up by 24% to RUB 74.4 billion. Operating profit grew 2.5 times compared to the same period last year to RUB 40.1 billion. The Mining segments EBITDA run up to RUB 47.3 billion, representing a 45.4% EBITDA margin compared to almost RUB 24 billion EBITDA last year and 29% EBITDA margin. Our efforts to restore and chip in and production volumes at all our mines, Mechel resulted in that cash cost increase. Thus, cash cost on 1,000 Kuzbass grew in the third quarter by 9% quarter-on-quarter to RUB 2,500 per tonne. At Korshunov mine, cash costs grew up 10% to RUB 2,200 per tonne. Cash costs at Yakutugol stabilized at a level of RUB 930 per tonne. The share of our sales on Asian market has increased from 53% in the previous year to 64% in nine months 2017. The Chinese share of 32% compared to 24% for the same period last year. This was a result of Mechel’s consistent efforts to ramp up sales volumes to the Asian and particularly Chinese markets. At Elga coal deposits, over nine months of this year, we have mined 3 million tonnes of coal with coking coal accounting for 81% of the total amount. We’re proud to say that export sales from Elga Coal Complex doubled due to the production volume increase. In addition, during the washing capacities of the South Kuzbass of nine months 2017, we have enriched above 700,000 tonnes of coal, which give us total of approximately 2 million tonnes of coal from Elga, out of which export on domestic market sales are almost equal. Elga is a traditionally profitable for the group and brings additional cash flows. Steel segment. In this year third quarter, the Steel segment demonstrated a sound improvement of these financial results. Increase of prices for the final products and decrease of the cost on the raw materials enabled the Steel segment to gain – to get additional – to get EBITDA of RUB 6.2 billion over the last quarter, which is similar to the EBITDA amount through the first six months of the year. Our strategy of increasing of share of high-margin products led to this steel segments revenue grows in the nine months of 2017 by 9% period-on-period to RUB 129 billion. At the same time, operating profit decreased by 32% year-on-year, as raw material costs were much high in the first-half of the year led to the low EBITDA margin. The Steel segments EBITDA for the nine months amounted to RUB 12.2 billion, which is lower by 23% than in the same period last year and resulted an EBITDA margin of 9%. Compared to the second quarter of 2017, the Steel segment’s EBITDA grew 2.4 times to RUB 6.1 billion. As – at the same time, the EBITDA margin in the second quarter was 13.2%. Over these nine months, the Steel segment increased its sales volumes of higher value-added products, such as flat steel, stampings and long steel products, including rebar and wire rods by 28%, 25%, and 16%, respectively. Cash cost for rebar and wire rods in the third quarter 2017 were up by 6% and 8%, respectively, it is a lower cost of iron ore. Cash cost of carbon flat products and billets remains flat quarter-on-quarter. The share of our sales on the Russian market grew from 70% to 75% in nine months of 2017, as the domestic market margin profit from rebar sales was higher than the export of billets. The average realized to domestic FC price for rebar in third quarter went up 16% quarter-on-quarter to RUB 28.4000 per tonne, for hardware by 5%. Both ferrosilicon average – on an average basis, domestic and fixed price by 7% to RUB 63,000 per tonne, whereas the sales prices for the carbon long and flat product remained flat. The Universal rolling mill produced a record 90.8000 tonnes of rails in the third quarter and up 29% quarter-on-quarter. This resulted in carbon long to products revenue share reached up to 28% of the total steel segment revenue in third quarter of 2017. Total production at the Universal rolling mill in the third quarter has reached 170,000 tonnes, representing a 9% growth compared to the previous quarter. In the third quarter 2017, Mechel sold about 90% of its rails to the Russian Railways. In September, Mechel Group won a tender on supply of 35,000 tonnes of rails to construction – cycles in Moscow, which will become the second largest railway cycle of Moscow underground. For the consolidated results, Mechel continues to report strong financial results and improvement of its performance quarter-on-quarter. Group’s operating profit in the third quarter has grown 25% to RUB 15.7 billion, and EBITDA has grown 8.6% to RUB 18.9 billion compared with the second quarter. Consolidated revenue for nine months 2017 grew by 30% to RUB 222 billion driven by higher coal prices and better product mix in the Steel segment. Gross profit increased by 60% from our RUB 88 billion to RUB 102 billion. Operating profit increased even high by 61% from RUB 28.8 billion to RUB 46.4 billion, that is also result of efforts dedicated to decreasing of the commercial administrative expenses leading to savings of RUB 2.2 billion. EBITDA totaled for the first nine months of 2017, RUB 59 billion, increased by 42% comparing with the previous six – previous nine months of 2016. EBITDA margin remained at the high level of approximately 27%. Group’s net profit attributed to equity shareholders grew two-folds and amounted RUB 11 billion. Improved financial performance of the Group this year also supported expense increase of the free cash flow available for financing of our operation expenses, investment and payments and our – under our financial obligations. Cash flow from operation activity for nine months this year amounted to RUB 45.5 billion, which is approximately 39% higher than the previous year. At the same time, cash flow from operation activity in the third quarter this year has decreased comparing with the second quarter from RUB 17.6 billion to RUB 13.8 billion due to the decrease and prepayment of trade and other payables by RUB 3.4 billion, which is mainly related to the prepayment of our over due debts to the [indiscernible] and other from the long-term financing receipts from the Gazprombank. The Group has managed to restore and maintain a stable and positive level of working capital since this year. As we said before, we keep increasing our investments in our operations. Group’s capital expenditure, including the lease payments for nine months amounted to RUB 7.6 billion, compared to RUB 4.7 billion for the same period last year. Our finance cost has decreased from RUB 43 billion to RUB 36 billion period-on-period, following a decrease on the average interest rate under our debts from 10% to 8.7%. Most of our ruble debts with Russian banks and bonds are linked to the key central bank rate. Therefore, a decrease led to the full of our interest expenses. So our freight interest during nine months 2017 amounted to RUB 25 billion and decreased by 4% compared with the previous year since the base portion of interest remains almost unchanged at the level of RUB 7.9% per annum. The Group’s debt principal amounted to RUB 399 billion following amortization and the revelation of dollar-denominated debt in our accounts due to the appreciation of rubles. The structure of our debt remains unchanged where we have 67% of ruble denominated debt with the remaining portion of currency-denominated debt. We continue restructuring of our debts in September 2017. We completed the restructuring of Vnesheconombank. We continue to develop on the restructuring of PCI debt and ECA covered debts. With strong financial results for the last quarter, EBITDA for the last 12 end of months amounted to RUB 83.7 billion, which supports maintaining of stable net debt to EBITDA ratio at the level of 5.1 calculated as principal debt plus leasing less cash to EBITDA. Having said that, ladies and gentlemen, I would like to thank you for your attention and welcome you to open a Q&A session.

[Operator:]

Thank you. We will now take questions. [Operator Instructions] We’ll go first to Nikolay Sosnovskiy with Prosperity Capital Management.

[Nikolay Sosnovskiy:]

Yes this is Nikolay Sosnovskiy from Prosperity. I’ve got few questions. First of all on production. Number is, basically, we’re almost at the year-end, can you please somehow I don’t name the production targets for this year for coking coal concentrate, PCI anthracite and steam coal. And also given that the budget for next year is likely almost ready your targets for 2018? This is my first question?

[Oleg Korzhov:]

[Interpreted] The question will be answered by Rezontov. [Foreign Language] Rezontov?

[Sergey Rezontov:]

So considering the results of this year, we are making plans for the mining division to produce about 21 million tonnes of coal out of which we plan to have Kuzbass to produce about 21 million tonnes of coal, out of which we plan to have Kuzbass to produce about 8.5, the Yakutugol 8.5, and Elga Coal Complex 4,300. For next year, we are making plans for the production volumes, which will be greater than what we did this year, we planned, they would amount to approximately 23.5 million tonnes, including we plan to increase the output from South Kuzbass by about 1 million and total that would reach up to 9.5 million tonnes. Yakutugol shall remained at approximately the same level with maybe a little bit more so would end up having 8.5 there and we shall see. And from Elga, we plan to produce 5,300,000 tonnes of coal. So now, if we are to consider the structure of what we’re going to shape, having produced this amount of coal next year, we plan to ship approximately 20 million tonnes, out of which the coking concentrate will be at 9 million. The thermal coal at approximately 7.5 million tonnes, and anthracite and PCI will be at 3.5 million tonnes. So we’ve – you would need any more itemization, I would be ready to say.

[Nikolay Sosnovskiy:]

Thanks. So the first question is very clear. And my second question is basically on CapEx kind of linked to the first question, I noticed that in the third quarter, your CapEx has declined quite materially from like almost $40 million due to dual plan in, in the third quarter. So what are your expectations for the fourth quarter? And if CapEx remains the same low, can it somehow negatively affect production plants for next year?

[Oleg Korzhov:]

[Interpreted] Not everything is so pathetic and saddening amongst the figures that you’re quoting. So when I would talk about having, so I would categorize it into two pass the cost that we usually do for the maintenance CapEx and investments. So this year and I would probably begin with 2016 cost for maintenance investment the company spent RUB 2 billion. So whenever we’re planning for next year, we’re saying that maintenance for CapEx amount to RUB 6,400. And today we are aiming for the maintenance CapEx about that quite a big number of equipment that we are purchasing we are not spending money, but talk about the CapEx here we naturally do it this way. So this year during the nine months we quiet lease equipment with 2,700 on top of the 2,700 that I’ve already mentioned. So in this way, in Q4, for about additional 1 billion, we’re going to lease equipment. And so considering the year-end, we would plan to have our maintenance costs in terms of leasing would be at about 6,300 against the plant, 6,400 so the maintenance CapEx we maintained exactly at the level that we originally planned. But at the same time, we would like to note that this year, again, with a view to the next year, we have slightly altered our approaches to acquiring equipment considering the fact that we don’t have sufficient resources of our own to finance our CapEx with mining specifically when acquiring equipment. And leasing equipment is where we do encounter certain limitations from the banks. So today, we are actively engaged in bringing in contractors for stripping and mining operations in the case of South Kuzbass. This year, we entered into a contract to have an outside contractor, which is transporting the strip rock and this contractor came with six new [indiscernible] into South Kuzbass. And next year, this contract will continue, because it’s a long-term contract. As far as, Yakutugol is concerned, as of right now, we already have five units of equipment operational with five trucks. And so next year, we’re currently in negotiations with contractor, which will bring in excavators to drilling rigs and about 17 trucks. So and as far as the caution of mining original plant, where we have certain issues and as far as the stripping operations are concerned, we count the negotiation to negotiate into a counterparty, which will bring in 10 new [indiscernible] and will repair the seven of the last trucks,which we have, because they need repair and consequently do not operate. So part of what I’ve just described, which is the maintenance CapEx. And in view of the amount of coupon that we’re going to purchase in exactly as we planned them as of the third quarter would considerably increase our capacity to produce and to strip by having source to capacity brought in. And this is the kind of work, which we’ll continue next year. Similarly, I would like to note that as a result of various estimations, the price for the services that we pay for the outside contractors, as well as the cost of – if we were to do this whole work ourselves, it would be comfortable. So this kind of rationale enables us to be able to avoid having the funds diverted away from what we currently have in mind in terms of our settlement with the banks and our obligations.

[Oleg Korzhov:]

[Interpreted] And I would like to additionally comment not about the maintenance CapEx, but specifically on our investment projects, where we have some considerable money not I would say, save, but we were able to reduce this fund, because in our annual budget for investment project, we were planning to spend RUB 6 billion, but we currently see that we will be in a position to spend at about RUB 2 billion. But this reduction of funding, which we see evolving as an actuality is conditioned by certain objectives, because this year we planned three major projects, which was the overhaul of the blast furnace at the – in the Chelyabinsk than changing for new one of the third of the last one of the three converters and upgrading a furnace at the Bratsk Ferroalloy facility. And so these are the three major projects, which was sitting in the region. As a result, we made a decision considering the technical status of all these three facilities. And again, from the point of view of optimizing our cash flow, we made a decision to postpone funding for this project until next year. And in our next year’s plans, we’re planning to hold the renovation of the blast furnace and three converters. We’ll be doing that in the beginning of the second quarter, and we were planning to stoppage in the second quarter anyway, but this did not affect our operational performance in anyway. And I believe that on the contrary, we did the right thing, because without changing this equipment, we had them operating exactly with the same kind of performance as they would have been changed. So we were able to maintain our obligations and keep up the production statistics as originally planned.

[Nikolay Sosnovskiy:]

Okay. Thanks. That’s very clear. And last question on the Bratsk facility negotiation, can you please update what’s the status of these negotiations with creditors? Thank you.

[Oleg Korzhov:]

[Interpreted] So the structure of the syndicate has somewhat changed, because some of the banks hesitated and sold their share in this syndicated projects, where currently we are in negotiations with the banks, which vote out their anticipation in this syndicated loan. And more than half of lenders already support the conditions for restructuring, which we have proposed and which we continue talking to them about. We are continuing to talk to the remaining lenders trying to pull in the required number into this syndicated loan project in order to restructure it according to originally planned timing and timeframe.

[Nikolay Sosnovskiy:]

Thanks.

[Sergey Rezontov:]

Thanks.

[Alexey Lukashov:]

And next question, please.

[Operator:]

We’ll go next to Boris Krasnojenov with Alfa Bank.

[Boris Krasnojenov:]

Okay. Well, gentlemen, this is Boris Krasnojenov from Alfa Bank. Two questions from my side. The first question is for clarification. If I understood correctly you’re forecasting for this year 8 million tonne of coking coal production. I was looking at your nine months numbers, is it possible to derive a conclusion that fails in the fourth quarter going to coking coal going to exceed the 2 million tonne and basically get back to the level what we’ve seen in the second quarter? So that’s the first question just for clarification. And the second question, you – in presentation, you highlighted a growth of sales to China, so it’s roughly one-third of your sales. Now could you specify what kind of price benchmarks for coking coal sales and PCI sales are useful to Chinese customers? Do you derive the price from the Australian benchmark, or you use some local, say, Yuan-denominated domestic Chinese prices?

[Oleg Korzhov:]

[Interpreted] Positive, yes, is my answer to the first question, because we plan that in the fourth quarter, we’ll produce about 2 million tonnes in terms of what we’ll ship in the coking concentrate coal. Boris, and as far as the second question is concerned, which is pricing for our shipment to China, the prices in China are being based in two – this is two indicators. First, the coking coal and the PCIs, which China buys FOB and which are shipped into China from other countries, as well as domestic prices for similar coals, which are produced in China. In any case, when price is being defined, it comes from certain mix from both prices. So when considering and contracting prices for China, we use both indices in our negotiations to set our Chinese prices. The next question, please.

[Operator:]

We go next to Denis [indiscernible]

[Unidentified Analyst:]

Hi, it’s Denis [indiscernible]. So one question from my side, please. So last week Sun Media reported that minorities of Korshunovskiy Mining Plant failed some low sweeps regarding some loans to the holding company. So are there any claims that minorities submitted to on this case to Securities and Exchange Commission in the U.S? So could you comment on this? And in particular, do you consider making any provisions in Mechel financial statements on this claim?

[Oleg Korzhov:]

[Interpreted] The claims, which are submitted by minorities are related to the loans, which the Korshunov facility issued to the companies in the group. And we stated on more than one occasions that this particular money, which was made available to the group will be repaid to the Korshunov facility in order to fund the investment program of that company. For this back to settling an impairment, we are not currently planning to have it with respect to these lawsuits.

[Unidentified Analyst:]

That’s clear. Thank you so much.

[Alexey Lukashov:]

[Interpreted] The next question, please.

[Operator:]

We go next to [indiscernible]

[Unidentified Analyst:]

[Foreign Language]

[Oleg Korzhov:]

[Interpreted] LMS Investment Company raises a question. There are two points. The first one, are there any plans with respect to the treasury preferred stock? Are you at all planning to sell it? And the second question why in Mechel subsidiaries such at Korshunov Mining in Richmond plant and similar others, why don’t you start paying dividends instead of stripping money from these companies in favor of Mechel? Because in this case, Mechel’s money will in this form will be retractable and there wouldn’t be any interest that one will have to pay and minorities would be definitely happy to receive some dividends.

[Unidentified Analyst:]

Thank you for the beautiful answer.

[Oleg Korzhov:]

[Interpreted] With respect to the first question of the summing the treasury preferred stock, we can say that currently company is not entertaining any plans to divest from the stock. And with respect to the second question in the quarter 2017, Mechel subsidiary companies and some other subsidiaries often paying dividends, including some of the dividends were paid to minorities. However, with respect to the companies that you mentioned and not only those, we’re not planning to pay dividends because of the money that the company has had, where allocate – plans to be allocated into the investment projects that these companies were to undertake.

[Unidentified Analyst:]

[Foreign Language] [Interpreted] Thank you. But are you possibly have any plans to start paying dividends after the investment projects are completed?

[Oleg Korzhov:]

[Interpreted] We will definitely be considering this issue in the future and depending upon the guidance given by the Board of Directors and based on our financial performance in the future.

[Unidentified Analyst:]

[Foreign Language] [Interpreted] Thank you very much for your answers.

[Oleg Korzhov:]

[Interpreted] Next question, please.

[Operator:]

We have no further questions in the queue. [Operator Instructions] We have no questions at this time.

[Oleg Korzhov:]

Ladies and gentlemen, thank you for taking the time to join Mechel’s nine months 2017 financial results conference call today. The reply of the call will be available on Mechel’s website. If you have any further questions, please contact the investor relations office. Thank you again from all the team here.