Metinvest 1H18 results confirm USD 1.34 bln EBITDA

Metinvest (METINV), Ukraine’s largest steelmaker,
released its 1H18 financial results on Sept. 14. The holding confirmed that its
EBITDA amounted to USD 1,335 mln (a 59% yoy surge), the value inferable from
its monthly reports. Revenue rose 58% yoy to USD 6,179 mln, and net income
surged 9.3x yoy to USD 668 mln. Its EBITDA margin increased 1pp yoy to 22%, and
its net margin climbed 9pp to 11%.

Operating cash flows before working capital jumped 56%
yoy to USD 1,148 mln. Net cash from operations increased 50% yoy to USD 457
mln. Operating cash outflow due to changes in working capital rose 11% yoy to
USD 356 mln, driven by the outflows due to the increase in receivables (USD 467
mln, a 32% yoy jump).

Metinvest’s CapEx amounted to USD 420 mln in 1H18, up
2.2x yoy, driven by a 3.8x yoy jump in its metallurgical segment’s CapEx to USD
271 mln.

In 1H18, Metinvest received USD 261 mln in dividends
from its joint venture Southern Iron Ore (1H17: zero) and paid USD 29 mln in
dividends to its owners (1H17: zero).

Net debt (including subordinated loans) stood at USD
2,521 mln at June 30, decreasing 8% ytd, and the ratio of net debt to
last-12-months EBITDA amounted to 1.0x, sliding from 1.3x at the end of 2017.

Metinvest disclosed that the USD 190 mln consideration
for the 24.99% stake in Pokrovske Coal and related assets that the holding
acquired after the balance sheet date
is payable (with interest) over a maximum period of 6 years. Regarding the
remaining 75.01% currently owned by four co-investors, Metinvest seems to have
guaranteed the settlement of the obligations of these co-investors before the
sellers of Pokrovske Coal. Metinvest has an option to acquire this 75.01%
stake.

Dmytro Khoroshun: We note as
positive Metinvest’s restraint in paying dividends to its owners (only USD 29
mln) and the focus on capital investments, particularly in its metallurgical
segment.

Overall, considering the very successful debt
refinancing and restructuring finalized in April, the first half of 2018 has been quite a success for Metinvest, and we
expect its operations to remain similarly strong in 2H18 (monthly EBITDA of
around USD 200 mln). However, we continue to see the risks of Metinvest declaring and paying a large amount
of dividends in
order to finance the legal expenses of its majority owner, SCM. Under its
Eurobond covenants, after having published its 1H18 financials, Metinvest
should be able to declare and pay out a total of USD 642 mln in dividends (50%
of its cumulative net income since the beginning of 2017), including USD 308
mln for 2017 and USD 334 mln for 1H18.