Metinvest returns USD 540 mln to shareholders in 2018

Metinvest (METINV), Ukraine’s largest steelmaker, released
its 2018 financial results on March 21. The holding confirmed that its 2018
EBITDA amounted to USD 2,513 mln (a 23% yoy rise), the value inferable from its monthly reports.
Revenue advanced 33% yoy to USD 11,880 mln, and its EBITDA margin dropped 2pp
yoy to 21%.

Metinvest’s metallurgical segment’s EBITDA jumped 60%
yoy to USD 1,291 mln, and EBITDA margin rose 2pp to 13%. Its mining segment’s
EBITDA slid 8% yoy to USD 1,268 mln, and EBITDA margin dropped 6pp to 34%.

Its CapEx jumped 66% yoy to USD 898 mln in 2018. The
share of expansion CapEx amounted to 32% (17% a year ago), and the share of its
metallurgical segment CapEx amounted to 57% (51% a year ago).

Metinvest’s net profit amounted to USD 1,188 mln in
2018, up 93% yoy, and net profit margin rose 3pp to 10%.

The holding revealed that it has acquired a 23.7%
stake in Yuzhcoke, a Ukrainian coke producer, for USD 30 mln. It also disclosed
its projections about another recent acquisition, Pokrovske Coal assets: EBITDA
margins of 45-65% and coal prices USD 160-191/t, depending on the year.

Regarding returns to its shareholders, Metinvest
repaid in full USD 482 mln of shareholder loans during 2018, together with USD
58 mln in dividends, totaling USD 540 mln. Metinvest also purchased from SCM,
its controlling shareholder, a 30% stake in an Italian subsidiary, Ferriera
Valsider, for USD 42 mln, paying USD 36 mln of that amount during 2018.

Dmytro Khoroshun: Having
repaid in full its shareholder loans in 2018, Metinvest will switch to
dividends as the method of returning money to shareholders, and we estimate
that the amount will be not less that USD 400-500 mln during 2019. In detail,
the 2H18 net profit, USD 520 mln, will allow Metinvest to return an additional
USD 260 mln (50%) to shareholders, in addition to about USD 100 mln the holding
has left for its profits during 2017 and 1H18. Once Metinvest publishes its
1H19 results, for which we tentatively expect USD 300 mln of net profit, it
will be able to distribute to shareholders another USD 150 mln.

Regarding Pokrovske Coal assets, their
profitability looks high enough to justify paying USD 760 mln for shares and
potentially repaying USD 1 bln of debt these assets have. Indeed, with EBITDA
of USD 70-120 per ton of coal concentrate and the recent production volume of
2.6 mmt per year, we come to annual EBITDA of USD 180-310 mln, and potentially
more if Metinvest invests in boosting production volume.