Metinvest’s negative EBITDA worsens to USD 33 mln in December

Leading Ukrainian iron ore miner and steel producer Metinvest (METINV) reported total EBITDA of negative USD 296 mln in December 2015, according to its monthly report published on Feb. 29. The financial result contains a USD 263 mln impairment of trade receivables, recognized during the month, USD 246 mln of which was generated in the mining division. The adjusted EBITDA, without impairment losses, came in at negative USD 33 mln in December 2015, as both its divisions – metallurgy and mining – almost equally contributed to the negative financial result. Its sole source of profit was Zaporizhstal (a JV in its metallurgical division), which generated USD 2 mln in attributable EBITDA during last month of 2015 (Metinvest owns a 49.9% interest in Zaporizhstal).

 

Volumes of steel products sold remained flat in December, while sales in its mining division slid 18% m/m to 1.6 mmt.

 

Despite the negative EBITDA, Metinvest generated net cash from operating activities of USD 83 mln, having released working capital from receivables and inventories. The company spent USD 32 mln in CapEx in December. Cash outflow from financing activity came in at USD 43 mln due to a decreasing level of trade finance. Metinvest had USD 180 mln of cash and USD 2,945 mln of total debt as of end-2015.

 

The monthly results for October-December 2015 imply that its full-year 2015 EBITDA plunged 71% yoy to USD 778 mln (net of the impairment losses) and revenue declined 36% yoy to USD 6,769 mln.

 

Roman Topolyuk: For the third month in a row, Metinvest has offset its weak financial result from its core activity by squeezing liquidity out of its working capital. We believe there is still a certain reserve of working capital release in order to sustain operations, which is stuck in receivables. The key risk here is that some part of receivables are bad, as was hinted in December’s write-off. Another substantial part of trade receivables could be impaired soon as well, we believe, but the exact amount of recoverable and bad receivables is hard to estimate now. Total trade receivables stood at USD 1,563 mln as of June 2015.

 

The EBITDA result is in line with our expectations of minor losses during the month. The worsening EBITDA in December (net of the impairment losses) occurred mostly due to a decrease in selling prices, we estimate. Average realized prices declined 2-11% m/m on steel products and 19-21% m/m on iron ore products in December 2015. A decline in steel and iron ore prices in November was reflected in the company’s average selling prices in December at a one-month lag. Recall, it was in November when Metinvest shut down its two blast furnaces – one at Azovstal and another at Ilyich Steel – which now appears to be a step taken to mitigate losses.

 

We continue to expect that Metinvest might report minor losses in January, with some improvement possible compared to December (market prices for steel remained flat, iron ore fines prices lost some USD 6/t m/m and declined to USD 41/t, while the average hryvnia exchange rate fell 3% m/m). We estimate around half of Metinvest’s costs is denominated in hryvnias.

 

We expect also a weak financial result in February, when a 8% m/m hryvnia depreciation occurred against a 5-8% m/m decrease in projected realized steel prices, though a close-to-breakeven result is possible.

 

Metinvest may break even or generate small positive EBITDA in March (steel prices in February advanced 2-9% m/m, against a UAH/USD rate at 27x, down -2% m/m) as the global steelmakers’ rush to recover price levels gains momentum. If buyers accept the new levels, average Metinvest’s monthly prices in March will recover to levels in October, when the holding reported positive EBITDA of USD 2 mln.