Metinvest EBITDA surges 2.4x in 1Q17

Ukraine’s largest steelmaker Metinvest (METINV) reported on May 30 EBITDA of USD 96 mln in March, a drop of 36% m/m and an increase of 5% yoy. Its March EBITDA was affected by USD 87 mln provisions for the impairment of inventories at all assets located on the occupied territory of Ukraine (Yenakiyieve Steel, Krasnodon Coal and Khartsyzk Pipe; the holding officially lost control over them in mid-March). Without impairment charges, the holding’s March EBITDA would have been USD 183 mln, up 21% m/m and up 101% yoy.

Metinvest’s revenue increased 11% m/m to USD 663 mln in March. Its operating cash flow before working capital changes was USD 139 mln (+7% m/m). Its cash flow from operations become positive at USD 99 mln, as it recorded USD 32 mln in working capital investments during the month (vs. 149 mln in February). The holding’s CapEx increased 47% m/m to USD 47 mln and its end-March cash balance increased 12% m/m to USD 215 mln.

The monthly results imply that its EBITDA was USD 402 mln in 1Q17 (a surge 2.4x yoy). Its metallurgical revenue was USD 1.469 bln in 1Q17 (+45% yoy) and mining division revenue was USD 382 mln in 1Q17 (+39% yoy). This is despite its sales volumes declined yoy in 1Q17 (-13% yoy 2.808 mmt in the metallurgical division and -42% yoy to 3.575 mmt in the mining division).

Andriy Perederey: Metinvest’s preliminary 1Q17 EBITDA shows a great growth due to high steel and iron ore prices in 1Q17, even though volumes of goods produced decreased. We expect some weaker results in April due to lower output of attributable steel and problems with bottlenecks on railroads near Mariupol and some troubles with coke supplies. But the holding has a chance to boost its results in May as Avdiyivka Coke (AVDK UK) got a new electricity line and will have stable operating performance so that Mariupol-based mills haven’t got problems with coke supply. All in all, we are keeping a positive view on Metinvest bonds, which are now trading at 92-93% of par.