Metinvest nearly halves EBITDA in 1H12, margin in line with Russians

Metinvest (METINV), Ukraine’s leading iron ore and steel producer, reported its 1H12 financials today: net revenue decreased 4% yoy to USD 6.74 bln as 2% growth in its mining segment was offset by a 6% yoy decline in the steel segment. In the steel division, the holding decreased its tonnage sales of semi-finished products by 20% yoy (and -29% yoy in value terms), while finished product sales volumes remained flat yoy (still -7% yoy in value terms). In the mining division, the key revenue driver was the coal segment (+18% yoy in value terms) despite a minor 2% decline in tonnage of sales; sales of iron ore increased 9% yoy in tons, but fell 2% yoy in value terms. EBITDA fell 47% yoy to USD 1.09 bln, including negative USD 205 mln EBITDA from the metallurgical segment. EBITDA margin declined 13 pp to 16% in 1H12. Metinvest reported a 10% yoy increase in net debt to USD 3.51 bln and 8% growth in gross debt to USD 4.23 bln. This implies gross debt/EBITDA ratio (annualized) doubled to 1.95x as of end-June 2012 (0.96x a year before).

Alexander Paraschiy: Metinvest’s top line change was broadly in line with the performance of its Russian peers, Evraz (-9% yoy) and Novolipetsk (-3% yoy). While the decline in Metinvest’s EBITDA was much higher (Russian peers posted 27%-28% yoy declines), the EBITDA margin is on par with its eastern peers (which had 15%-16% EBITDA margins in 1H12). The EBITDA margin of Metinvest’s steel segment of -4% is in sharp contrast to the Russians’ figures of around positive 10%. With gross debt to EBITDA remaining far below the 3.0x threshold, the company’s financial position remains strong even though operations will certainly not improve in 2H12 (as steel prices are now weaker globally).