Metinvest EBITDA plunges 75% m/m in October

EBITDA at Ukraine’s largest steelmaker Metinvest
(METINV) dropped 75% m/m in October to USD 20 mln, according to its monthly
results published on Dec. 27. The holding’s revenue lost 8.7% m/m to USD 797
mln. Metinvest’s operating cash flow before working capital changes plunged 67%
m/m to USD 25 mln, whereas cash flow from operations (before profit tax and
interest) jumped to USD 82 mln in October from negative USD 13 mln in
September.

 

The holding’s cash outflow from investment activities
was USD 64 mln (including USD 44 mln inflow in dividends received),
compared with USD 21 mln in inflow in September. Metinvest’s inflow from
financing activities amounted to USD 288 mln and its end-of-month cash balance
skyrocketed 2.4x m/m to USD 466 mln. Its gross debt jumped USD 302 mln m/m to
USD 2,957 mln.

 

Metinvest’s metallurgical segment EBITDA was USD -27
mln in October, sliding further into the red from USD -22 mln in September,
while its mining segment EBITDA plunged 54% m/m to USD 41 mln.

 

In 10M19, Metinvest’s revenue dropped 7.1% yoy to USD
9,287 mln, while its EBITDA plunged 43.7% yoy to USD 1,254 mln.

 

Steel product prices mostly continued dropping m/m in
October, losing 2% for slabs and flat products, as well as 5% for long
products. However, prices rose m/m 1% for pig iron and 5% for billets. Iron ore
concentrate price lost 5% m/m, while its pellet price was unchanged.

 

Dmytro Khoroshun: Metinvest’s
October EBITDA was much smaller than the USD 70-100 mln we expected.

 

Mining segment results were particularly poor.
Especially surprising was the negative USD 1 mln contribution to EBITDA from
Southern Iron Ore, a joint venture in which Metinvest owns about 46%. The last
time the EBITDA contribution from Southern Iron Ore turned out negative was in
January 2016, at the same USD 1 mln. However, the average benchmark 62% iron
ore CFR China index during two months preceding January 2016 was USD 44/t,
about 50% less than in September 2019, USD 87/t.

 

We continue to expect Metinvest’s total monthly EBITDA
to amount to USD 70-100 mln starting from November-December.

 

In 1Q20, Metinvest’s profitability might improve,
driven by a rebound in Ukraine’s export iron and steel prices since early
November.

 

The USD 288 mln in cash inflows from financing
activity is consistent with Metinvest paying little or no dividends in October,
if one considers both Metinvest’s attracting USD 350 mln in net cash from its liability management
operation and prepaying USD 75 mln of its PXF loan
in October.

 

We maintain our neutral view on METINV bonds.