Metinvest EBITDA turns negative in November

EBITDA at Ukraine’s largest steelmaker Metinvest
(METINV) dropped to negative USD 2 mln in November from positive USD 20 mln in
October, according to its monthly results published on Feb. 7. The holding’s
revenue lost 13.0% m/m to USD 693 mln. Metinvest’s operating cash flow before
working capital changes plunged to negative USD 3 mln in November from positive
USD 25 mln in October, whereas cash flow from operations (before profit tax and
interest) dropped 47.6% m/m to USD 43 mln.

 

The holding’s cash outflow from investment activities
inched up 1.6% m/m to USD 65 mln. Metinvest’s outflow from financing activities
amounted to USD 30 mln and its end-of-month cash balance decreased 24.2% m/m to
USD 353 mln. Its gross debt inched up USD 14 mln m/m to USD 2,971 mln.

 

Metinvest’s metallurgical segment EBITDA was USD -36
mln in November, sliding further into the red from USD -27 mln in October,
while its mining segment EBITDA dropped 12.2% m/m to USD 36 mln.

 

In 11M19, Metinvest’s revenue dropped 8.5% yoy to USD
9,980 mln, while its EBITDA plunged 48.0% to USD 1,252 mln.

 

Iron and steel product prices plunged m/m in October,
losing 13% for pig iron, 16% for slabs, 22% for square billets, 7% for flat
products and 4% for long products. Iron ore concentrate price gained 3% m/m,
while pellet price dropped 7% m/m.

 

Dmytro Khoroshun: Metinvest’s
November EBITDA clearly disappointed. While we expected a weak performance of
its metallurgical segment, we thought its mining segment’s results would be
stronger.

 

One of the reasons for the mining segment’s weak
performance could have been a change in sales geography. According to Ukrstat,
in 10M19 Ukraine exported 0.82 mmt per month of non-sintered iron ore products
to China (almost all of them being iron ore concentrate for this distant, less
profitable market), but in November that value jumped to 1.12 mmt.

 

Furthermore, Ukraine’s exports of sintered iron ore
products (most of them pellets) for the proximal, more profitable market of
Europe plunged from 0.71 mmt per month on average in 10M19 to 0.32 mmt in
November.

 

Notably, there also was a change in product mix that
likely contributed to the reduced profitability of Metinvest’s mining segment.
Namely, the holding’s total sales of the more profitable iron ore pellets to
third parties plunged from 628 kt on average in 10M19 to 282 kt in November.

 

We continue to expect a rebound in Metinvest’s overall
profitability in December-February, to at least USD 40-50 mln in EBITDA per
month. However, after rising since early November, Ukraine’s FOB export prices
for steel products started to correct in mid-January, and the situation with
coronavirus is likely to bring these prices further down during at least the
next few weeks. Therefore, Metinvest’s profitability might suffer again in the
middle of 1H20.

 

It is possible that Metinvest’s November EBITDA suffered
from one-off items such as write-offs and impairments. This is because revenue
from sales of other products in Metinvest’s mining segment, which averaged
about USD 9 mln per month in 10M19, amounted to negative USD -1 mln in
November. For the month of June, Metinvest also reported
negative revenue from sales of other products
in its mining segment, USD -5 mln, together with impairments of receivables of
USD 21 mln in its mining segment and USD 39 mln in its metallurgical segments.

 

We note that a USD 30 mln cash outflow from financing
activities and a USD 14 mln increase in gross debt are consistent with
Metinvest paying about USD 44 mln in dividends in November.

 

We maintain our neutral view on METINV bonds.