Metinvest 2019 EBITDA plunges 52%

Metinvest (METINV), Ukraine’s largest steelmaker,
released its 2019 financial results on Mar. 4. The holding’s revenue lost 9% yoy
to USD 10,757 mln, EBITDA plunged 52% yoy to USD 1,213 mln, and net profit fell
71% yoy to USD 341 mln. Its EBITDA margin decreased 10pp yoy to 11%, and its
net margin dropped 7pp to 3%.

 

EBITDA of Metinvest’s mining segment rose 6% yoy to
USD 1,343 mln in 2019, while that of its metallurgical segment plunged to
negative USD 107 mln from positive USD 1,291 mln in 2018.

 

Operating cash flows before working capital dropped
50% yoy to USD 1,101 mln. Net cash from operations decreased 26% yoy to USD 814
mln. Operating cash inflow due to changes in working capital amounted to USD
163 mln, compared with an outflow of USD 500 mln in 2018.

 

Metinvest’s CapEx rose 17% yoy to USD 1,055 mln in
2019, driven by a 39% yoy jump in its mining segment’s CapEx to USD 510 mln.

 

In 2019, Metinvest paid USD 100 mln in dividends to
its owners (2018: USD 58 mln) and provided USD 146 mln in loans, most of it to
parties related to its majority owner SCM.

 

Net debt stood at USD 2,758 mln at Dec. 31, 12% more yoy,
and the ratio of net debt to last-12-month (L12M) EBITDA amounted to 2.3x,
jumping from 1.0x at the end of 2018.

 

Dmytro Khoroshun: Metinvest’s
metallurgical business is in dire straits, and we expect the holding’s monthly
EBITDA not to exceed USD 100 mln in 1H20, and likely to be substantially below
on average.

 

We note that given Metinvest’s 2H19 EBITDA of 323 mln,
and assuming USD 2.76 bln of net debt by the end of 1H20 (the same as the
end-2019 level), the holding has to earn USD 99 mln per month of EBITDA on
average during 1H20 in order for its net debt to L12M EBITDA ratio to remain
below the 3x level. Such a high profitability is unlikely to be achieved by
Metinvest.

 

If Metinvest earns USD 60 mln per month of EBITDA on
average in 1H20, which now seems as a reasonable best-case scenario, its net
leverage ratio will approach 4x by the end of 1H20.

 

Metinvest’s profitability might improve in 2H20 if
China stimulates its steel-consuming industries, such as infrastructure and
real estate investments.

 

Due to the looming increase in Metinvest’s leverage
ratio, we downgrade our view on METINV bonds to negative.