Metinvest 1H20 EBITDA drops 20%

Metinvest (METINV), Ukraine’s largest steelmaker,
released its 1H20 financial results on Sept. 8. The holding’s revenue lost 15%
yoy to USD 4,968 mln, EBITDA (including contributions from joint ventures, JVs)
dropped 20% yoy to USD 715 mln, and net profit was negative USD 240 mln vs.
positive USD 408 mln a year ago. Its EBITDA margin decreased 1pp yoy to 14%.

 

EBITDA of Metinvest’s mining segment dropped 31% yoy
to USD 546 mln in 1H20, while that of its metallurgical segment jumped 80% yoy
to USD 238 mln.

 

EBITDA excluding contributions from JVs dropped 19%
yoy to USD 615 mln in 1H20.

 

Operating cash flows before working capital dropped
15% yoy to USD 677 mln. Net cash from operations increased 20% yoy to USD 685
mln. Operating cash inflow due to changes in working capital was USD 138 mln in
1H20 vs. an outflow of USD 2 mln in 1H19.

 

Metinvest’s CapEx amounted to USD 313 mln in 1H20,
down 35% yoy, due to a 39% yoy drop in its metallurgical segment’s investments
to USD 147 mln and a 30% yoy decrease in its mining segment’s CapEx to USD 155
mln.

 

Net debt stood at USD 2,545 mln at June 30, down 8%
YTD, and the ratio of net debt to last-12-months EBITDA (excluding JVs)
amounted to 2.8x, inching up from 2.6x at the end of 2019.

 

Metinvest did not pay dividends in 1H20 (USD 31 mln
paid in 1H19).

 

At a conference call with investors on the same day,
Metinvest’s CEO Yuriy Ryzhenkov said the holding expects CapEx of around USD
800 mln in both 2020 (25% less yoy) and 2021. A further working capital release
occurred in July-August, but later in the year the holding expects its working
capital to rise due to increases in prices.

 

Dmytro Khoroshun: Metinvest
avoided breaching its 3x net leverage covenant in large part due to releasing
working capital, particularly USD 210 mln in June,
frontloading CapEx cuts, and refraining from paying dividends.

 

Nevertheless, Metinvest’s leverage remains high, and
possible drops in steel and iron ore prices later in 2H20 and in 2021 might increase
the risks of Metinvest breaching its covenants.

 

We maintain our neutral view on METINV bonds.