Ukraine Markets Daily (February 27, 2017)

Market news

  • Metinvest’s revenue fell by 14% m/m in December 2016

Market comment

The UX index decreased by 0.1% on Friday, while the PFTS was up by 0.3% (in UAH term). The WIG-Ukraine index decreased by 0.6%. On the interbank exchange market, the USD/UAH remained unchanged at UAH 26.90 (mid price), according to Thompson Reuters. The official exchange rate reported by the NBU was UAH 26.97


Metinvest’s revenue fell by 14% m/m in December 2016

On February 24, 2017 Metinvest B.V., the parent company of a vertically integrated group of steel and mining companies (jointly referred to as "Metinvest" or "the Group") provided its monthly report for December 2016, in line with the company’s commitments in the framework of its debt restructuring negotiations. The company’s revenue declined by 14% m/m (+16.7% y/y) in December and amounted to USD 502 mn, as the increase in revenue from semi-finished products by 41.3% m/m could not offset the decline in all other business segments, including a contraction of revenue from the sales of finished products by 20.6% m/m (mostly flat products). Metinvest reported an adjusted EBITDA volume of USD 132 mn (+17.9% m/m) in December, up from USD 112 mn in November 2016, and recovering from a negative EBITDA of USD 296 mn in the corresponding month of 2015. The company reported a balance of cash and cash equivalent in the tune of USD 226 mn (-7% m/m), against a total debt of USD 2.9 bn (+1% m/m) as of December 31, 2016. Metinvest announced an operating cash flow before working capital changes in the amount of USD 83 mn (-3% m/m), leaving a net cash flow from operating activities worth USD 41 mn, up from USD 12 mn in the previous month. Decrease in inventories by USD 103 mn (an increase of USD 5 mn in November 2016), together with accumulating account payable in the amount of USD 127 mn (USD 26 mn in November) secured the positive operational cash flow result. The company used USD 83 mn in investing, expanding from USD 43 mn in the previous month, mostly invested in properties and equipment. The net cash flow from financing activities remained virtually at the same level as for the previous month, totaling USD 29 mn. The final December report allows estimating the company’s revenue for 2016 at USD 6.2 bn, declining by 8.9% y/y. Nevertheless, Metinvest recorded a significant adjusted EBITDA generation of up to USD 1.4 bn, surging from an adjusted EBITDA of USD 301 mn in 2015, while total borrowings increased by 0.8% y/y to USD 2.9 bn, therefore improving the ratio of total debt to adjusted EBITDA to 2.2x in 2016, compared with 9.8x in 2015. Operating cash flow before working capital changes amounted to USD 999 mn (+94.7% y/y), leaving a net operating cash flow of USD 494 mn (-21% y/y), supported by realization of inventories (USD 176 mn) and reduction in account receivable (USD 351 mn). Metinvest increased the volume of cash used in investing activities by 43.9% y/y to USD 341 mn, while reducing financing activities by 68.6% y/y to USD 97 mn. The overall development allowed reporting a balance of cash and cash equivalent in the tune of USD 226 mn (+25.6% y/y) in 2016

Our view:

The December result represents a NEGATIVE development, most likely mirroring a disruption of supply to the company’s production plants due to the starting blockage of railway traffic with the mining facilities located in the territories beyond control of the Ukrainian government. In the meantime, the loss from the political action was partially mitigated by favorable global market environment. However, the company’s results may dramatically erode already in January as supplies to the plants are frozen further, whereas inventory reserves are exhausted. Metinvest has announced production halt at some of its plants in February