Metinvest 1Q15 EBITDA plunges 61% yoy

First-quarter EBITDA at Ukraine’s largest steelmaker and iron ore miner, Metinvest (METINV), plunged 61% yoy to USD 341 mln (-48% qoq) amid a 38% yoy decline in revenue to USD 1,821 mln (-13.4% qoq), according to the holding’s trading update published on June 4.

The holding’s 1Q15 top line was adversely affected by a decline in both selling prices and sales volumes, as the war in Donbas restrained Metinvest’s ability to fully load its capacities, just as global steel and iron ore markets experienced significant weakening during the quarter. The revenue of its metallurgical division declined 36% yoy to USD 1,426 mln, as prices fell 12% yoy and volumes sold slid 23% yoy. Revenue at its mining division plunged 44% yoy to USD 395 mln, as prices declined 35% yoy and volumes sold fell 9% yoy.

Metvinest’s metallurgical division generated USD 253 mln in EBITDA (+85% yoy) in 1Q15, thus having surpassed its mining division, which earned just USD 106 mln (-86% yoy) as iron ore prices headed for fresh lows during the quarter.

The holding cut CapEx substantially in 1Q15 to USD 38 mln (-69% yoy), compared to the previous guidance of necessary quarterly CapEx of around USD 112-125 mln, amid a default on several of its debt facilities and ongoing military action in Donbas. Metinvest finished the quarter with total debt of USD 3,139 mln and cash on balance of USD 189 mln. Thus, the total debt-to-LTM EBITDA came in at 1.3x (compared to 1.2x as of December 2014). By end-April, total debt decreased by another 5.4% to USD 3,059 mln due to a loss of its trade finance facilities (which stood at USD 349 mln as of end February).

Roman Topolyuk: The EBITDA plunge was caused by negative factors, most of which are persisting in 2Q15. Expected improvements in production volumes during 2Q15 are being offset by weakening market prices, so we expect to see flat financial performance in 2Q15 qoq as the best-case scenario. From that standpoint, our most recent 2015 EBITDA projection of USD 1.65 bln (-39% yoy) appears to be a bit optimistic.

However, the company has demonstrated a robust cut in capital expenditures in 1Q15, surprising to the upside, which will support free cash flow (FCF) generation in 2015 close to our expectations of USD 715 mln, given Metinvest manages to keep PP&E investments at 1Q15 levels by the year end.

A drop in trade financing in late April is further deteriorating the company’s debt profile, which means that these financers were troubled by the steelmaker’s liquidity problems since early 2015 and have been decreasing exposure. In case this process continues, Metinvest’s liquidity gap is at risk of widening. We reiterate our negative view on METINV.