Interpipe EBITDA surges 47% qoq in 1Q20

EBITDA at Ukraine’s largest pipe and railway wheel producer
Interpipe (INTHOL) surged 47% qoq and 26% yoy to USD 86.0 mln in 1Q20,
according to the company’s financial statement and accompanying presentation
published on June 19. Net profit amounted to USD 133 mln in 1Q20, compared with
a USD 1 mln loss for 1Q19.

 

Interpipe’s revenue dropped 3% qoq to USD 251.0 mln in
1Q20, driven by an 8% drop in its pipe segment revenue to USD 112.5 mln.
Revenue from its railway product segment slid 1% qoq to USD 127.8 mln.

 

EBITDA (before reallocation from its steel segment) of
Interpipe’s railway product segment jumped 2.8x yoy and climbed 2% qoq to USD
69.6 mln in 1Q20. EBITDA of its pipe segment was negative USD 4.7 mln in 1Q20,
compared with USD 30.7 mln in 1Q19 and negative USD 12.7 mln in 4Q19. EBITDA of
Interpipe’s steel segment jumped 69% yoy and 7.5x qoq to USD 20.7 mln.

 

The company’s net operating cash flow plunged 78% yoy
and 86% qoq to USD 7 mln in 1Q20. Cash outflow due to the release of advances
received in 4Q19 amounted to approximately USD 68 mln in 1Q20.

 

Interpipe’s CapEx increased 25% yoy but dropped 41%
qoq to USD 11 mln in 1Q20. Free cash flow was negative USD 4 mln in 1Q20,
compared with USD 31 mln in 4Q19 and USD 23 mln in 1Q19.

 

At end-March, Interpipe’s gross debt amounted to USD
221 mln (gross debt/L12M EBITDA 0.8x) and its net debt amounted to USD 88 mln
(net debt/EBITDA 0.3x).

 

Interpipe had USD 133 mln in cash at the end of March,
48% less for the quarter driven by the repayment of USD 121 mln of debt.

 

During a June 19 conference call with investors,
Interpipe management disclosed that the amount of advances received in 4Q19
remaining to be released is USD 25 mln. The company’s cash as of the date of
the call was USD 190 mln, including USD 30 mln of restricted cash. Cash
generation from operating activities is expected to be USD 30 mln.

 

The company’s management also said on the conference
call that the company will be dismissing 1,500 employees (15% of its workforce)
at the beginning of July, and that the yearly savings from the workforce
reduction will be USD 15 mln.

 

The recent drop in railway product prices and the reintroduction of the 34.22% duty
on Interpipe’s wheels by Russia starting from June 2 will combine to reduce
Interpipe’s revenue from the sales of its railway products to the CIS region by
approximately 50%, the management said on the call.

 

The disclosure of 1H20 results is expected around
mid-September, management said on the call.

 

Dmytro Khoroshun: Interpipe’s
move to dismiss 1,500 workers might be due to the owners preparing to sell the
company, which is only a hypothetical scenario for now that is based on
numerous reports that shareholder Victor Pinchuk is making moves to exit from
Ukrainian business. An ownership change might lead to the refinancing of
Interpipe’s notes. However, if the owners attempt to sell Interpipe to a
Russian company, they might face politically motivated and anti-monopoly
hurdles in Ukraine.

 

Interpipe’s 1Q20 EBITDA of USD 86 mln exceeded our
expectations of USD 54 mln due to cost outperformance in all its segments. We
expect the EBITDA of Interpipe’s railway product segment to have peaked in
1Q20, while the outlook for its pipe segment EBITDA remains depressed.