Metinvest EBITDA plunges 63% in 1H15

Ukraine’s largest steel maker and iron ore miner Metinvest (METINV) reported on Nov. 20 a 39% yoy drop in its 1H15 revenue to USD 3.65 bln. Its 1H15 EBITDA plunged 63% yoy to USD 620 mln, while its bottom line went negative to USD 166 mln compared to a profit of USD 653 mln in the same year-ago period. Net cash from operations decreased 54% yoy to USD 351 mln, and Metinvest reduced its CapEx by 57% yoy to USD 117 mln. Free cash flow dropped 51% yoy to USD 238 mln in 1H15.

In 2Q15 alone, Metinvest’s revenue stood flat qoq at USD 1,829 mln, EBITDA decreased 18% qoq to USD 279 mln, and CapEx remained at a moderate level of USD 79 mln, even though it doubled qoq. Total debt decreased 2% during the quarter to USD 3.07 bln due to a decrease in trade finance as providers continued reducing their exposure to Metinvest, being in default on its banking debt. Its total debt-to-LTM EBITDA worsened to 1.9x as of June, compared to 1.3x as of March 2015.

Roman Topolyuk: Despite the sharp yoy decrease in revenue and earnings reported in 1H15, Metinvest has reported quite a neutral financial performance compared to what we would have expected to see in 2H15. Slab prices are being quoted at USD 232/t at Black Sea ports and iron ore fines trade around USD 45/t in China, which means the company will be able to barely break even in 2H16 in both its metallurgical and mining divisions, based on our projections. Thus, in the best case, 1H15 EBITDA has strong chances to equal 2015 annual EBITDA. Total debt-to-EBITDA will most probably exceed 4x as of end-2015, and free cash flow is set turn negative. Hence, we expect that the ongoing restructuring talks will be protracted for an uncertain period of time, probably beyond Jan. 31, 2016, for as long as the standstill with bondholders lasts.