Metinvest cash jumps to USD 643 mln in April, EBITDA rises 3% m/m

April EBITDA at Ukraine’s largest steelmaker Metinvest
(METINV) increased 2.7% m/m to USD 231 mln, according to its monthly results
published on July 18. The holding’s revenue contracted 2.7% m/m to USD 1,066
mln. Metinvest’s operating cash flow before working capital changes decreased
8.1% m/m to USD 181 mln, whereas cash flow from operations (before profit tax
and interest) jumped 6.6x m/m to USD 164 mln in April. The holding reported a cash
inflow from investment activities of USD 129 mln (vs. an outflow of USD 49 mln
in March) due to dividends received in April of USD 193 mln. Metinvest’s cash
inflow from financing activities amounted to USD 118 mln and its end-of-month cash balance jumped 2.5x m/m to USD 643 mln.

Dmytro Khoroshun: The huge
increase in Metinvest’s cash balance during April emphasizes the risk of
Metinvest deciding to pay dividends to support its controlling owner, the SCM
group, which might need to pay a USD 821 mln legal bill.

Metinvest has been able to pay dividends since early May, and was
allowed to distribute as much as USD 308 mln (of which USD 231 mln to SCM),
which is the allowed 50% of its net income for 2017. Once Metinvest publishes
1H18 financial statements, it should be able to distribute as dividends 50% of
its net income for 1H18. One way for Metinvest to boost the dividends cap might
be to book as income the USD 660 mln the holding managed to recover,
at least on paper, using its receivables (which it fully provisioned for long
ago) from the Industrial Union of Donbas.

Metinvest’s EBITDA remains strong as the EBITDA margin
of its Metallurgical segment increased m/m to 14% from 12% in March. However,
the EBITDA margin of the Mining segment decreased m/m to 31% from 41% in March.

The USD 193 mln of dividends received in April was
likely a portion of the dividends that a Metinvest joint venture, Southern Iron
Ore, declared in September 2017. We
calculate that Metinvest might receive an additional USD 186 mln of dividends
from Southern Iron Ore, comprising the remainder of the dividends declared in
September 2017, USD 39 mln, as well as USD 148 mln declared in June 2018.

We continue to expect Metinvest’s monthly EBITDA to be
close to, or exceed, the USD 200 mln level well into 2018 due to strong iron
ore and steel prices globally.