Companies -> Metinvest

Business description

Metinvest Holding – one of the largest Ukrainian companies, vertically integrated steel&ore producer with assets in Ukraine, USA and EU. With total crude steel production capacity of 15Mt, the company belongs to the TOP-50 largest metallurgical companies in the world.

Since the beginning of Y2014 operations and financial performance of the company have been negatively impacted by the conflict in the East of Ukraine and significant decline of global steel&ore prices to the lowest levels for more than ten years.

Metinvest production facilities in Donetsk and Lugansk regions experienced operational and logistics disruptions, not only physical damage, but disruptions of key railway supply routes as well. Three enterprises which can be referred as key ones – Yenakieve Steel Mill, Krasnodon Coal and Khartsyzsk Pipe Plant – remained on the territory not controlled by Ukraine. In addition after escalation of the conflict three important for Metinvest railway hubs were damaged (Volnovaha, Debalceve and Yasinuvata), so that the group was forced to find alternative routes for delivery of raw materials to its steel-makers.

Iron ore is produced by 3 enterprises under full control of the group – Nothern GOK, Ingulets GOK and Central GOK, and also Yuzhniy GOK, 46% of which is controlled by Metinvest. All mentioned enterprises are situated in Krivoy Rog, Dnipropetrovsk region (under full control of Ukraine). Iron ore concentrate production (disregarding Yuzhniy GOK) in Y2015 made 32.2Mt (-8% vs. Y2014). Iron ore concentrate output covers current Group needs by more than three times, the rest is realized to 3rd parties (approximately 40% - on Ukrainian market, mainly to ISD).

During last years self-sufficiency of Metinvest in own coking coal stood at close to 50%. After the start of conflict in the East of Ukraine, main Ukrainian asset producing coking coal – Krasnodon Coal – was situated on the territory not controlled by Ukraine. As a result its reported output declined from 2.8Mt in Y2013 to 346k tons in Y2015. At the moment US-based asset of Metinvest – United Coal with production of 2.9Mt in Y2015 - accounts for main part of total coal output of the group (self-sufficiency in Y2015 made 48%, by 5% less than in Y2015 due to decline in crude steel production).

Coking coal is supplied to the Group’s coking facilities in Ukraine. Coke is produced by Azovstal (1.2Mt produced in Y2015), Avdeevka Coke (1.9Mt) and Zaporizhya Coke (0.8Mt). At the moment self-sufficiency in coke production is close to 100%, along with it, operations of Avdeevka Coke are at large risk due to its proximity to conflict zone (factually Avdeevka is situated on the borderline between controlled and non-controlled by Ukrainain government territory where periodical shelling take place).

In Y2015 crude steel production of the company (ex-Zaporizhstal production) made 7.7Mt (-17% vs. Y2014):
Crude steel output, k tons 2015 2014 2013 Change Y15/Y13,%
Azovstal 3 206 3 599 4 468 -28%
Ilyich Steel 2 645 3 544 5 035 -47%
Yenakievo Steel 1 818 2 062 2 888 -37%
Yenakieve steel is situated at the non-controlled by Ukraine territory, another two mills are under risk as well in a view of proximity to conflict zone (both are situated in Mariupol).

During last period of time Zaporozhstal capacities have been loaded by up to 100%, in Y2015 its total output made almost 4.0Mt.

75% of Metinvest is owned by SCM Group (beneficiary owner Rinat Akhmetov), 25% - Smart Holding.

Operating Figures

1H 2016 1H 2015 .. 2015 2014 2013
Crude steel output, k tons 4 187 3 875 7 669 9 205 12 391
incl. Zaporizhstal, k tons 5 181 4 847 9 659 11 185 14 298
Iron ore concentrate production, k tons 15 811 15 806 32 308 34 888 36 926
Coking coal production, k tons 1 580 1 638 3 285 4 098 5 513
Coke output, k tons 2 190 1 834 4 087 4 795 6 110

Financial information

USD M 1H 2016 1H 2015 .. 2015 2014 2013
Sales 2 880 3 650 6 832 10 565 12 807
Gross Profit 640 603 745 2 325 2 401
EBITDA 580 623 513 2 702 2 361
EBITDA margin, % 20% 17% 8% 26% 18%
Net Profit 90 -166 -1 003 159 392
30.06.16 .. 31.12.15 31.12.14 31.12.13
Total Assets 9 030 - 9 182 12 556 16 906
Fixed Assets 6 373 - 6 805 9 068 11 329
Current Assets 2 657 - 2 377 3 488 5 577
Inventory 798 - 766 1 222 1 863
Receivables 1 632 - 1 365 2 042 2 738
Cash 183 - 180 114 783
Equity 3 936 - 4 024 6 762 9 631
Debt 2 892 - 2 858 3 146 4 218
1H 2016 1H 2015 .. 2015 2014 2013
Net Operating CF 163 354 625 1 489 1 465
Financing CF -50 -212 -309 -1 542 -524
Dividends paid 0 0 0 -388 -544
Net Borrowings -41 -209 -309 -1 154 20
Investing CF -109 -94 -237 -559 263

Latest financial report of Metinvest

Comments to latest financials:

  • Financial performance of the company have been negatively impacted by the conflict in the East of Ukraine and significant decline of global steel&ore prices to the lowest levels for more than ten years.
  • Total revenues declined by almost two times - from USD 12.8bln in Y2013 to USD 6.8M in Y2015. During the same period of time Metinvest steel products prices reduced by 30-35% (benchmark index prices decreased even more, there is some time gap between decrease of world prices and Metinvest realization prices). Iron ore price benchmark decreased from USD 135/ton in Y 2013 to USD 56/t in Y2015.
  • As for realization in natural terms, sales of steel products in Y2015 were by about 30% lower than in Y2013, mainly as a result of negative influence of conflict in the East of Ukraine. Sales of iron ore concentrate and pellets in the same period of time declined by 8.5%.
  • As a result of all above-mentioned factors influence, key performance figures during last reporting periods have been following:
    USD M 1H 2016 1H 2015 .. 2015 2014 2013
    Metallurgical division
    Sales to 3rd parties 2 290 2 839 5 407 8 192 9 726
    EBITDA 401 421 486 1 123 274
    Mining division
    Sales to 3rd parties 590 811 1 425 2 415 3 080
    EBITDA 255 218 88 1 754 2 252
  • During FYs2010-2013 Mining division has been main profit center of the group, while metallurgical business performed on close to break-even level. In FYs2014-15, following significant decline in iron ore prices (steel prices decreased much less), situation completely changed – EBITDA of metallurgical division became higher than Mining (close to break-even in Y2015).
  • In 1H 2016 revenues of Metinvest decreased y-o-y by 21%. The reason was general decline in prices: as spot world prices declined vs. 1H 2015 – for iron ore by 14% (to USD 52/t), for steel billets - by 15% (to USD 312/t), for slabs - by 6% to USD 308/t, realization prices of Metinvest also decreased – for semi-finished products by approximately 30%, for finished – by 20%. Along with it, in June’16 steel prices have been higher vs. January’16 by about 40%.
  • On the other side in last reporting period total steel production of the company grew by 8% y-o-y up to 4.187Mt, while iron ore concentrate output remained stable at 15.8Mt. Steel output grew mainly because of low base of 1H 2015, when there have been significant disruptions of operations due to conflict in the east of Ukraine escalation.
  • Despite decline in average realization price, in 1H 2016 profitability slightly improved – EBITDA margin made 20% vs. 17% in 1H 2015. Main contributor to growth of profitability was UAH devaluation (positive influence on costs comprised USD 218M, average USD/UAH rate in last reporting period made 25.47 vs. 21.4 a year ago). Also one should note decrease of energy cost due to lower natural gas consumption and its lower y-o-y price (USD 80M) and lower logistics cost (USD 106M).
  • In Y2015 costs structure of the company looked as follows (disregarding cost of goods for resale and depreciation): 37% - raw materials, 25% - energy costs, 8% - labor costs, 30% - other. The company is highly sensitive to energy prices and USD/UAH rate, on the other side, vertical integration remains main benefit.
  • Despite only slightly lower than in 1H 2016 EBITDA (USD 580M vs. USD 623M), operating cash flow decreased more significantly (USD 163M in last reporting period). Main reason – growth of Receivables from USD 1 365M as of 31.12.15 up to USD 1 632M, mainly due to higher realization prices in Q2 2016 vs. Q4 2015. CAPEX in 1H 2016 made USD 116M (stable y-o-y).
  • As for balance sheet structure and quality in general, we see it as average and adequate as for activity of the company. Main question regarding assets is related to quality of receivables. As for financing structure, after Metinvest repaid close to USD 1.4bln during two last years , we see debt burden of the company as fully sustainable, though as at the moment it’s fully short-term, so adequate repayment schedule should be established with extension of maturity in line with free cash flow projections (we expect EBITDA of Metinvest to make USD 1.2-1.3 bln in Y2016 and USD 700-800M in following years, provided expected by main part of industry analysts decrease of steel&ore will take place).
  • Metinvest keeps negotiations with its lenders about restructuring of its obligations, mainly PXF facilities in total amount of USD 1 089M and Eurobonds of USD 1 181M. In May’16 heads of terms for restructuring have been agreed, but final agreement is not reached yet. At the moment Metinvest pays 30% of due interest payments, while the rest is capitalized. In October’16 terms of negotiations with lender finishing have been extended till 31.12.16.
  • Main risks for the company at the moment – market risk (expected steel overproduction due to decrease of Chinese consumption) and geopolitical (possible conflict in the east of Ukraine escalation, mainly operations in Avdeevka coke and metallurgical plants in Mariupol are under risk). As for upside potential one should note that in Q4 2016 certain improvements in railway logistics are expected to be realized which should allow Metinvest to increase output of its Mariupol enterprises.
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Type Price Weekly change,% Annual change,%
Wheat CBOT
Iron Ore
Crude Oil

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