10:11 18.09.2019

Metinvest sees 39% fall in net profit in H1

5 min read
Metinvest sees 39% fall in net profit in H1

Metinvest B.V. (the Netherlands), the parent company of Metinvest mining and metallurgical group, in January-June of this year saw 39% fall in net profit compared to the same period last year, to $408 million, margin by 4 p.p., to 7%.

According to preliminary unaudited interim financial results for the first half of 2019, for the reporting period its revenues decreased 6%, to $5.818 billion. The consolidated EBITDA margin decreased by 7 p.p. year-on-year, to 15%. The metallurgical segment's EBITDA margin fell by 11 p.p. year-on-year to 3%, while the mining segment's rose by 2 p.p. year-on-year, to 45%.

The company's total debts through January-June 2019 almost remain on the same level as a year ago – $2.753 billion. Cash and cash equivalents almost unchanged with $279 million. Net debts in the sum of 2.474 billion also unchanged.

According to Metinvest's report available on its website, its operating profit fell by 49% year-on-year, to $431 million, against falling of revenues by $361 million and growth of operating costs by $46 million.

In the first half of 2019, consolidated EBITDA decreased by 33% y-o-y to $890 million, primarily driven by a fall in the metallurgical segment's EBITDA of $623 million. At the same time, the Mining segment's EBITDA rose by $153 million year-on-year, while corporate overheads and eliminations dropped by $25 million year-on-year.

As a result, the mining segment's contribution to total EBITDA (before adjusting for corporate overheads and eliminations) reached 86% in H1, 2019 (46% in H1, 2018), while that of the metallurgical segment was 14% (54% in H1, 2018).

The decrease in consolidated EBITDA was primarily driven by two factors: lower average steel selling prices, which affected sales of in-house semi-finished and finished products, earnings from re-sales and the contribution from the metallurgical JV; and higher costs due to salary hikes for production personnel and corresponding social security expenses ($96 million).

Moreover, among other factors were higher spending on raw materials ($61 million), higher spending on transportation services ($31 million) and greater other costs ($104 million), amid higher impairment of trade receivables, increased repair and maintenance expenses and costs of other services.

These factors were partly compensated by greater sales volumes of iron ore products and steel products manufactured at Metinvest's facilities; and higher average iron ore selling prices.

Commenting on the results, Chief Executive Officer of Metinvest Yuriy Ryzhenkov said that in the first half of 2019, Metinvest continued to make solid progress on its long-term objectives, focusing foremost on improving its operations.

"Sustainability is a priority in our work and a major rationale for our long-term investments. We have multiple projects under way aimed at reducing our impact on the world in which we live. We are committed to making our communities cleaner and more comfortable as part of a broader push to position Ukraine at the forefront of the fight against global climate change. As such, in the first half of 2019, we expanded our direct spending on ecological efforts by 16% year-on-year to $163 million," he said.

Assessing its operational performance, Ryzhenkov said the group's assets delivered decent production results in the first half, with the output of iron ore concentrate up by 3% year-on-year, of coking coal up by 5% year-on-year and of crude steel up by 3% year-on-year.

Launching Illich Steel's new continuous casting machine allowed the Group to improve the metal product mix in favour of higher value-added goods.

At the same time, production of coke and hot metal was affected to some extent by coal supply interruptions, as Russia restricted deliveries to the Group.

"We were well prepared for this development, as we had put in place sufficient coal stocks, diversified our seaborne coal supplies and acquired a stake in the Pokrovske coal business in Ukraine, securing an additional local source," said Metinvest CEO.

According to him, the Group is well on track to upgrade its assets in line with the Technological Strategy 2030, increasing CAPEX by 15% year-on-year to $482 million in the first half of 2019.

"This sustained investment is important to achieving our strategic objectives. Amid several major projects to improve the quality and efficiency of production, enhance workplace safety and reduce environmental impact, the Group completed the major overhaul of blast furnace No. 3 at Azovstal and is now moving on to blast furnace No. 6," he said.

Ryzhenkov also said the enterprise was on the final stage of the reconstruction of the hot strip mill 1700 at Illich Steel, which is expected to be completed in the coming months and will help the Group to unlock additional margins on higher volumes of better quality hot-rolled coils.

In the first half of 2019, Metinvest's financial performance was affected by weak global pricing for steel, which impacted the top and bottom lines. Meanwhile, the vertical integration of the Group's business once again proved to be one of Metinvest's competitive advantages.

Following the group's report, elevated iron ore prices amid global supply constraints, primarily due to the aftermath of the Brumadinho dam disaster in Brazil in January 2019, led to a shift in the Group's EBITDA generation to the Mining segment, which contributed 86% of EBITDA during the reporting period. Turning to recent developments in Ukraine, the country witnessed smooth presidential and parliamentary elections this year, signalling the strength of its democratic institutions.

"We are optimistic about the economy and hope to see an acceleration from the robust 4.6% year-on-year GDP expansion recorded in the second quarter of 2019, which in turn would drive greater steel consumption. Looking forward, despite the uncertain global macro picture, we believe that Ukraine's growing economy can escape the contagion. Whatever the case, we will continue to do our best to deliver sustainable results and make our business more resilient to external shocks and economic cycles," CEO said.