Ukraine Markets Daily (December 12, 2016)

Market news

  • Metinvest’s revenue dropped 15% y/y in 9M2016

Market comment

The UX index was down by 1.0% on Friday. PFTS is closed up to December 12, 2016 for technical reasons. The WIG-Ukraine index remained unchanged. On the interbank exchange market, the USD/UAH increased by 1.3% to UAH 26.08 (mid price), according to Bloomberg. The official exchange rate reported by the NBU was UAH 25.88.


Metinvest’s revenue dropped 15% y/y in 9M2016

On December 9, 2016, Metinvest B.V. disclosed its Trading Update for the nine months ended September 30, 2016. The company’s revenue dropped by 15% y/y to USD 4.6 bn in 9M2016, primarily due to lower selling prices on steel, iron ore and coal products, on top of reduced sales volumes for flat products, pipes, coke and pellets in key markets. The share of revenues generated in Ukraine increased by 3 ppt to 25%, however sales volume on the domestic market declined by 5% y/y to USD 1.1 bn, mostly due to lower sales prices on key products, and lower sales volumes for coke and coking coal concentrate. At the same time, international sales dropped by 18% y/y to USD 3.4 bn, with European sales falling by 10% y/y, sales in the MENA region by 29% y/y, and in Southeast Asia by 45% y/y, partially matched by 28% y/y growth in North America. The revenue from the metallurgical segment declined by 14% y/y, with the price factor contributing to 12% of the decline, against 2% sales volume contraction. The revenue from semi-finished products contracted by 24% dumped by loss of revenue from square billets (-56% y/y), mostly in the MENA and European regions, and a drop of 11% in finished products due to low prices on flat products. Mining revenue fell by 22% y/y to USD 887 mn mostly due to low prices (-16% y/y), and reduction of pellets sales volume (-24% y/y). The loss in revenue was most of all attributed to 45% y/y decline in the Southeast Asian markets. Due to tight liquidity position, the company has dedicated capital expenditure only to vital maintenance and top-priority expansion projects that offer a fast payback. Metinvest capital investment increased by 4% y/y to USD 199 mn in 9M 2016. The split between maintenance and expansion projects was 71% to 29% (68% to 32% in 9M 2015), with 48% of capital expenditure going to the mining segment (52% in 9M 2015) and 51% assigned to the metallurgical segment (44% in 9M 2015), the company reported. Overall, Metinvest reported an EBITDA increase of 21.2% y/y to USD 989 mn, growing by 31.4% y/y to USD 439 mn in the mining segment, and by 24% y/y to USD 650 mn in the metallurgical segment. The Group’s consolidated EBITDA margin increased by 7 ppt y/y to 22%, rising by 5 ppt y/y to 17% in the Metallurgical segment and by 13 ppt y/y to 28% in the Mining segment. The EBITDA improvement is among others attributed to strengthening sales volume in the metallurgical segment (pig iron, slabs, and long products), foreign exchange gains from the devaluation of the national currency, lower costs thanks to the Hryvnia depreciation, and some reduction of expenses on natural gas. Metinvest reported a total debt of USD 2.9 bn (-1% y/y) and net debt of USD 2.7 bn as of September 30, 2016. The company’s balance of cash and cash equivalent increased by 33% y/y to USD 239 mn in nine months.

Our view:

The news is moderately POSITIVE, showing the company to gradually overcome the negative impact of the Eastern Ukrainian conflict on its business, while benefitting from some improvement on international commodity markets. The overall result, however, still shows the company to be highly exposed to the geopolitical turbulence in the Middle East, together with the state of the East Asian economies, China above all. Nevertheless, the company has well-positioned itself to benefit from the economic recovery in Ukraine, and the growth momentum in North America.