Interpipe EBITDA surges 64% in 2019

EBITDA at Ukraine’s largest pipe and railway wheel
producer Interpipe (INTHOL) surged 64% yoy to USD 259 mln in 2019, according to
the company’s financial statement and accompanying presentation published on
Apr. 23. Net profit amounted to USD 829 mln in 2019, compared with a USD 48 mln
loss for 2018.

 

Interpipe’s revenue rose 4% yoy to USD 1,122 mln in
2019, driven by a 49% jump in railway product segment revenue to USD 425 mln,
which was in large part offset by a 13% drop in pipe segment revenue to USD 658
mln.

 

EBITDA of Interpipe’s railway product segment
skyrocketed 5.8x yoy to USD 190 mln in 2019. EBITDA of its pipe segment dropped
32% yoy to USD 35 mln, while that of its steel segment plunged 56% yoy to USD
32 mln.

 

Interpipe also introduced a second EBITDA definition,
with its steel segment’s EBITDA amounting only to the result from sales to
external customers and the remainder reallocated to its pipe and railway
product segments pro rata to external revenues. This “pass-through basis”
EBITDA for its pipe segment plunged 47% yoy to USD 55 mln in 2019, and that for
its railway product segment jumped 3.9x yoy to USD 200 mln.

 

The company’s net operating cash flow surged 69% yoy
to USD 189 mln in 2019. Its CapEx increased 37% yoy to USD 60 mln in 2019,
driven by a 62% rise in railway product segment investments to USD 21 mln,
while CapEx at its pipe segment rose 26% yoy to USD 26 mln.

 

Free cash flow doubled yoy to USD 133 mln in 2019.

 

Interpipe had USD 256 mln in cash at the end of
December, doubling yoy. During its Apr. 24 conference call with investors,
Interpipe’s management revealed its cash balance amounted to USD 134 mln at the
end of March.

 

At end-2019, Interpipe’s gross debt amounted to USD
338 mln (gross debt/L12M EBITDA 1.3x) and its net debt amounted to USD 82 mln
(net debt/EBITDA 0.3x). During 1Q20, Interpipe partially redeemed its 2024
notes (USD 98.5 mln) and fully repaid its working capital facilities (USD 22.5
mln), according to Interpipe’s presentation. At the end of 1Q20, the company’s
gross debt amounted to USD 211 mln, with no principal repayments until USD 150
mln in 2023 (with the remaining USD 61 mln to be repaid in 2024).

 

During the Apr. 24 call with investors, Interpipe
management disclosed that USD 82 mln is its planned 2020 CapEx. However,
because of the coronavirus pandemic and the plunge in oil prices, the company
plans to preserve mostly the planned USD 32 mln in maintenance CapEx, with all
new development CapEx projects suspended until the markets become more visible.

 

The company’s management also said on the conference
call that the company will be readily able to dismiss 2,100 employees (20% of
its workforce) by the end of June, if necessary, due to the pandemic and poor
markets. Interpipe also has suspended all variable remuneration to its top
management and some other employees.

 

At the end of 2019, Interpipe received USD 84 mln in
advances for its railway products, and in 1Q20 supplied wheels against about
USD 40 mln of these advances, its management said, adding that the company paid
about USD 10 mln in taxes and spent about USD 10 mln on CapEx in 1Q20.

 

Dmytro Khoroshun: Interpipe’s
pipe segment EBITDA (under the old definition) for 4Q19, negative USD 13 mln,
turned out substantially worse than our modest expectations of USD 3 mln.
Pipe segment revenue for 4Q19, USD 123 mln, was only USD 4 mln below our
estimate, with the remaining USD 9 mln in EBITDA miss being apparently due to
costs.

 

On the other hand, the actual 4Q19 EBITDA for its
railway product segment, USD 68 mln, exceeded our estimate by USD 9 mln, driven
by the segment’s 4Q19 revenue, USD 129 mln, being USD 12 mln higher than our
estimate.

 

Looking ahead, a critical aspect of Interpipe’s
financial stability will be its free cash flow, which – in the absence of debt
repayments during the next three years – will, if it turns negative due to poor
markets, determine its cash burn rate. When analyzing quarterly results for
2020, it will be necessary to keep in mind Interpipe’s USD 84 mln in
prepayments for wheels that was shifted, on a cash flow basis, from 2020 to
2019.

 

We think that Interpipe’s substantial USD 134 mln
cash cushion (end of 1Q20), together with its readiness to cut costs and CapEx,
will allow the company to operate without problems for at least the next few
quarters.