Metinvest 1Q20 EBITDA drops 14%

Metinvest (METINV), Ukraine’s largest steelmaker,
released its 1Q20 financial results on May 29. The holding’s revenue lost 11% yoy
to USD 2,536 mln, EBITDA (including JVs) dropped 14% yoy to USD 373 mln (but
rose from negative USD 21 mln in 4Q19), and its EBITDA margin remained
unchanged yoy at 15%.

 

EBITDA (including JVs) of Metinvest’s mining segment
dropped 24% yoy (but jumped 2.2x qoq) to USD 277 mln in 1Q20, while that of its
metallurgical segment skyrocketed 2.4x yoy (and from negative USD 148 mln in
4Q19) to USD 166 mln.

 

Excluding JVs, Metinvest’s total EBITDA retreated 16%
yoy (but rose from negative USD 16 mln in 4Q19) to USD 329 mln. Its mining
segment EBITDA dropped 33% yoy but jumped 92% qoq to USD 211 mln, while the
EBITDA of Metinvest’s metallurgical segment climbed 2.4x yoy (and from negative
USD 127 mln in 4Q19) to USD 188 mln.

 

Metinvest’s CapEx amounted to USD 148 mln in 1Q20,
down 25% yoy, with its mining segment CapEx dropping 30% yoy to USD 67 mln and
that of its metallurgical segment losing 21% yoy to USD 78 mln.

 

Net debt stood at USD 2,779 mln at Mar. 31, up 1% YTD,
and the net leverage ratio of net debt to last-12-months EBITDA (including JVs)
amounted to 2.4x, inching up from 2.3x at the end of 2019. Excluding JVs,
Metinvest’s net leverage ratio rose to 2.8x at Mar. 31 from 2.6x at end-2019.

 

Its mining segment’s sales to Southeast Asia (which
includes China) skyrocketed 3.7x yoy (but dropped 13% qoq) to 1.55 mmt, while
sales to Europe dropped 39% yoy (but gained 24% qoq) to 1.34 mmt.

 

Its metallurgical segment’s sales to Southeast Asia
inched up 2% yoy (but lost 32% qoq) to 198 kt, while sales to Europe slid 6%
yoy (but gained 25% qoq) to 1.35 mmt and those to the MENA region slid 1% yoy
(but advanced 29% qoq) to 1.01 mmt.

 

Dmytro Khoroshun: After
rebounding strongly qoq in 1Q20 as steel prices rebounded and demand recovered,
Metinvest’s metallurgical segment EBITDA will likely drop qoq in 2Q20 because
of the spring slump in steel prices.

 

Metinvest’s 1Q20 results were supported by the qoq
drop in sales to the distant Chinese market. However, sales to China will
likely rise qoq in 2Q20, which will push Metinvest’s logistics costs up and
depress its EBITDA for both segments.

 

Nevertheless, because of the stable iron ore prices on
the global market, Metinvest’s overall profitability will be supported by its
mining segment, the EBITDA of which will drop less qoq in 2Q20 than its
metallurgical segment’s result.

 

We maintain our negative view on METINV bonds.