Metinvest 2020 EBITDA soars 82%

Metinvest (METINV), Ukraine’s largest steelmaker,
released its 2020 financial results on Feb. 16. The holding’s revenue lost 3%
yoy to USD 10,453 mln, EBITDA soared 82% yoy to USD 2,204 mln, and net profit
jumped 54% yoy to USD 526 mln. Its EBITDA margin increased 10pp yoy to 21%, and
its net margin rose 2pp to 5%.

 

EBITDA of Metinvest’s mining segment rose 8% yoy to
USD 1,448 mln in 2020, while that of its metallurgical segment skyrocketed to
positive USD 890 mln from negative USD 107 mln in 2019.

 

Operating cash flow before working capital changes
jumped 66% yoy to USD 1,832 mln. Net cash from operations soared 2.1x yoy to
USD 1,740 mln. Operating cash inflow due to changes in working capital jumped
48% yoy to USD 242 mln.

 

Metinvest’s CapEx dropped 37% yoy to USD 663 mln in
2020, as its mining segment’s CapEx lost 39% yoy to USD 313 mln and its
metallurgical segment’s CapEx decreased 36% yoy to USD 332 mln.

 

Net debt stood at USD 2,111 mln at Dec. 31, 23% less
yoy, and the ratio of net debt to last 12 month (LTM) EBITDA amounted to 1.0x,
plunging from 2.3x at the end of 2019.

 

In 2020, Metinvest paid USD 100 mln in dividends to
its owners (2019: USD 100 mln) and paid USD 77 mln under a guarantee. Metinvest
also reported that it declared USD 200 mln of dividends in February 2021.

 

Metinvest disclosed that in 2019-2020 the Pokrovske
coal business had restructured a significant part of its debt and changed the
ownership structure of the business. At the end of 2020, Metinvest owned 24.77%
of the Pokrovske coal business and its co-investors owned 75.22%. Metinvest
owns an option to buy its co-investors’ 75.22% stake in the Pokrovske coal
business and expects to exercise this option in two steps: 25.23% within a year
and 49.99% by the end of 2022, according to its 2020 financial statements.

 

Dmytro Khoroshun: The
profitability of Metinvest’s steel business significantly improved yoy in 2020,
and we expect it to be even stronger at least in 1Q21 after the increase in
steel prices during November-January. However, we expect the steel prices to
correct during 2021.

 

The profitability of Metinvest’s iron ore business
should also be stronger in 1Q21 than on average during 2020 after the recent
jump in prices at the global markets, but these prices are also likely to
decrease by the year end.

 

Overall, Metinvest’s profitability in 2021 would
improve yoy, at least marginally, we expect.

 

Regarding Metinvest’s USD 77 mln payment under a
guarantee, it is possible that Metinvest will eventually recover these funds.
It is likely that the guarantee in question was the one issued by Metinvest for
the obligations of its co-investors into the Pokrovske coal business (the
companies likely affiliated with Metinvest’s owners, the SCM and Smart groups).
One way for Metinvest to recover these funds might be to agree with its
co-investors to set off the USD 77 mln guarantee payment against the amounts
(estimated at USD 0.5-0.6 bln in total) to be paid to the co-investors if
Metinvest exercises the option for 75.22% in the Pokrovske coal business.

 

We maintain our neutral view on METINV bonds.