Metinvest EBITDA drops 13% m/m in October

EBITDA at Ukraine’s largest steelmaker Metinvest (METINV)
dropped 13.2% m/m in October to USD 211 mln, according to its monthly results
published on Dec. 27. The holding’s revenue inched up 2.3% m/m to USD 932 mln.
Metinvest’s operating cash flow before working capital changes decreased 14.9%
m/m to USD 172 mln, whereas cash flow from operations (before profit tax and
interest) rose 4.9% m/m to USD 171 mln in October.

The holding reported a net cash outflow from
investment activities of USD 49 mln (vs. USD 132 mln in September), including
an inflow of USD 31 mln from dividends received. Metinvest’s cash outflow from
financing activities amounted to USD 88 mln and its end-of-month cash balance
slid 0.2% m/m to USD 445 mln.

Metinvest’s metallurgical segment EBITDA dropped 29.5%
m/m to USD 105 mln, while mining segment EBITDA slid 1.0% m/m to USD 104 mln.

Prices for iron & steel products demonstrated some
weakness m/m for pig iron (-6%) and long products (-4%), while prices for
slabs, billets and flat products all inched up 1% m/m.

Dmytro Khoroshun: Because of
the recent plunge in steel prices that intensified in August, we expect
Metinvest’s metallurgical segment EBITDA to drop to the level of USD 40-60 mln
by the end of 1Q19. Furthermore, the recent weakness in pellet and iron ore
concentrate prices might cause a decrease in Metinvest’s mining segment’s
EBITDA to the level of USD 90-100 mln. Therefore, we expect Metinvest’s total
monthly EBITDA to drop to the level of USD 120-160 mln by the end of 1Q19.

The USD 31 mln of dividends received in October were
likely from Metinvest’s joint venture Southern Iron Ore. We calculate that
Metinvest has already received USD 377 mln from Southern Iron Ore in
April-October 2018, which, considering FX differences, might be the entire
amount the holding is entitled to receive.

The high end-October cash amount underlines the risks of Metinvest declaring and
paying large amounts of dividends. Metinvest already paid USD 29 mln of dividends in 1H18, and we
calculate that the holding is able to distribute USD 308 mln in dividends from 2017 income and USD
334 mln from 1H18 income.