Metinvest EBITDA drops 2% m/m in August

August EBITDA at Ukraine’s largest steel maker Metinvest (METINV) decreased 1.9% m/m to USD 157 mln, according to its monthly results published on Oct. 27. The holding’s revenue rose 1.8% m/m to USD 745 mln. Its operating cash flow before working capital changes decreased 3.6% m/m to USD 135 mln, whereas net cash flow from operations dropped 48.9% m/m to USD 70 mln. Its CapEx jumped 5.9x m/m to USD 65 mln and its end-August cash balance fell 19% m/m to USD 342 mln.

The monthly results imply that Metinvest’s EBITDA was USD 1,156 mln in 8M17, or a 35% yoy improvement. The holding also reported that it resold 55 kt of square billets and 14 kt of long products in August. The last time Metinvest sold square billets was in January, right before its Yenakiyeve Steel plant was shut down by the occupied government in the Donetsk region, which eventually took control of it.
Dmytro Khoroshun: During July-August, the FOB Black Sea prices of pig iron and slabs, the semi-finished products that Metinvest regularly sells, grew 15-25%, according to Metal Expert. However, we have not observed any m/m pickup in Metinvest’s realized prices during June-August. The higher prices mean Metinvest’s performance in September will be as strong as August, if not better.

Recall that it was on Sept. 1, about the time the holding had some idea of its steel sales portfolio in the short term, that Metinvest announced its decision to allocate USD 20 mln for the early repayment of its debt. We view Metinvest as being on track in achieving our full-year EBITDA target of USD 1.75 bln.
We have confirmed with Metinvest that the billets and longs it resold in August are the products of Dniprovskyy Steel. This iron and steel plant, owned by Industrial Union of Donbas (IUD), has an annual crude steel capacity of around 3.85 mmt but was not producing in April-June due to a lack of working capital and problems with securing supplies of raw materials. Dniprovskyy Steel, which is primarily a producer of billets and long products, was restarted in the end of July.

In an early July interview, Serhiy Taruta, a beneficiary of IUD, confirmed that Dniprovskyy Steel’s supplies of raw materials were a subject of his talks with Metinvest. We think that Metinvest’s resales of billets and longs produced by Dniprovskyy Steel might be a part of an agreement with IUD, which would allow Metinvest to regain its position in the market segments it lost with the loss of control over Yenakiyeve Steel.

We are retaining our position expressed in our Sept. 26 note on Metinvest that the holding will be able to refinance its Eurobond by the end of 2018, and we’re keeping our neutral view on Metinvest’s bond.