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Trading update for the first quarter of 2014

20 May 2014

20 May 2014 – Metinvest B.V., the parent company of a vertically integrated group of steel and mining companies (jointly referred to as “Metinvest” or “the Group”), today published a trading update for the first quarter ended 31 March 2014.

The information in this press release has been prepared based on preliminary financial results. Intragroup transactions have been eliminated in consolidation. This announcement does not contain sufficient information to constitute a full set of financial statements. The following preliminary results may differ from financial statements prepared in accordance with International Financial Reporting Standards (IFRS). The numbers in this press release have not been audited or reviewed.

Metinvest B.V. publishes consolidated financial statements prepared in accordance with IFRS for the six months ending 30 June and for the year ending 31 December.

FINANCIAL HIGHLIGHTS

(US$ million)

 

1Q 2014

1Q 2013

Change

Revenues

 

2,928

3,174

-8%

Adjusted EBITDA1

 

878

460

91%

margin

 

30%

14%

16 pp

CAPEX

 

124

96

29%

 

 

 

 

 

(US$ million)

 

31 Mar 2014

31 Dec 2013

Change

Total debt

 

3,842

4,308

-11%

short-term debt

 

1,444

1,718

-16%

long-term debt

 

2,227

2,425

-8%

seller notes

 

171

165

4%

Net debt2

 

3,445

3,525

-2%

Total debt to EBITDA3

 

1.4x

1.9x

-0.5x

Net debt to EBITDA

 

1.3x

1.5x

-0.2x

Revenues

In 1Q 2014, Metinvest’s consolidated revenues decreased by 8% y-o-y. This was primarily due to a fall in sales of iron ore (US$185 million), coking coal concentrate (US$35 million) and flat (US$141 million) and long (US$80 million) products, which was partly compensated by an increase in sales of pellets (US$121 million), pig iron (US$77 million) and billets (US$27 million). The Metallurgical division accounted for 76% of external sales (74% in 1Q 2013) and the Mining division for 24% (26% in 1Q 2013).

Revenues in Ukraine totalled US$736 million in 1Q 2014, down 11% y-o-y. Despite steady sales of iron ore products on the domestic market, sales of steel products declined amid lower demand in the major steel consuming sectors (construction, machine-building and pipeline infrastructure).

The share of international sales stood at 75% in 1Q 2014, up 1 percentage point (pp) y-o-y. The proportion of sales to the Middle East and North Africa (MENA) rose by 6 pp y-o-y to 20%, driven by greater volumes of semi-finished and flat products. The share of sales to the Commonwealth of Independent States (CIS, excluding Ukraine) was down 4 pp to 7% due to lower volumes of finished steel products, mainly to Russia. The proportion of sales to Southeast Asia dropped by 4 pp to 15% amid a decline in volumes of iron ore concentrate, semi-finished and flat steel products, which was partly compensated by greater sales of pellets to the region.

(US$ million)

 

1Q 2014

Share

 

1Q 2013

Share

 

Change

Ukraine

 

736

25%

 

827

26%

 

-1 pp

Europe

 

820

28%

 

854

27%

 

1 pp

MENA

 

591

20%

 

460

14%

 

6 pp

CIS (except Ukraine)

 

206

7%

 

345

11%

 

-4 pp

Southeast Asia

 

447

15%

 

589

19%

 

-4 pp

North America

 

76

3%

 

52

2%

 

1 pp

Other regions

 

52

2%

 

47

1%

 

1 pp

TOTAL

 

2,928

100%

 

3,174

100%

 

--

Metallurgical division

Revenues in the Metallurgical division come from sales of steel and coke products. In 1Q 2014, the division’s top line fell by 6% y-o-y to US$2,220 million, of which steel sales accounted for 90%. The drop was attributable to lower volumes of slabs, flat, long and railway products, offset by higher volumes of pig iron, billets and pipes.

Sales of semi-finished products totalled US$412 million in 1Q 2014, up 27% y-o-y. The rise was due to an increase in volumes of pig iron of 188 thousand tonnes – mainly to the US, Europe and MENA – and billets of 64 thousand tonnes, mainly to MENA. Sales of slabs decreased by 10% y-o-y due to a lower volumes, although average slab prices were up 3%.

Sales of finished products declined by 12% y-o-y to US$1,593 million in 1Q 2014, mainly due to lower volumes and average prices of flat and long products.

Sales of flat products totalled US$1,196 million in 1Q 2014, down 11% y-o-y, of which 8 pp was attributable to declining volumes and 3 pp to lower average prices. Volumes of flat products decreased by 266 thousand tonnes y-o-y due to reduced shipments to Ukraine, Europe, the CIS and Southeast Asia, although the fall was offset by a redistribution of 77 thousand tonnes from those markets to MENA.

Sales of long products amounted to US$314 million in 1Q 2014, down by 20% y-o-y, of which 14 pp was attributable to a fall in sales volumes in Ukraine, Russia and MENA, and 6 pp to lower average prices. Volumes in Ukraine dropped by 36 thousand tonnes, caused by a 12% decrease y-o-y4 in consumption of long products, primarily in the construction sector. Exports to Russia and MENA fell by a total of 119 thousand tonnes, which was partly compensated by a rise of 50 thousand tonnes in volumes to Europe.

In 1Q 2014, sales of tubular products soared by 115% y-o-y to US$28 million, driven mainly by an increase in volumes of 12 thousand tonnes as a result of orders from new pipeline projects.

Sales of railway products decreased by 25% y-o-y to US$55 million in 1Q 2014, as volumes in the CIS fell by 36 thousand tonnes, offset by an increase in sales to Ukraine of 13 thousand tonnes.

Sales of coke products – which include coke, coke breeze, nut coke and chemical products – remained stable  y-o-y at US$126 million.

Mining division

Revenues in the Mining division come from sales of iron ore products and coking coal concentrate. In 1Q 2014, the division’s top line dropped by 14% y-o-y to US$708 million, as sales of iron ore and coking coal concentrate slumped.

Sales of iron ore concentrate totalled US$304 million in 1Q 2014, down 38% y-o-y. Of this, 34 pp was attributable to a slump in volumes, as overall production dropped y-o-y following the adverse weather conditions in January-February 2014 and a shift in the iron ore product mix: an additional 1,048 thousand tonnes of pellets were sold to China instead of concentrate. As a result, shipments of concentrate to China decreased by 1,390 thousand tonnes y-o-y, while average selling prices in the region fell by 12%. Domestic sales of concentrate grew by 11% y-o-y, driven by a 19% rise in average selling prices, which was offset by a decrease in shipments of 123 thousand tonnes.

At the same time, sales of pellets grew by 58% y-o-y to US$328 million in 1Q 2014, primarily attributable to a rise in volumes to China. In addition, sales of pellets to Ukrainian customers increased by 6% y-o-y, supported by a positive price dynamic, although volumes declined by 58 thousand tonnes. Sales of pellets to Europe decreased by US$25 million y-o-y due to a fall in volumes of 189 thousand tonnes.

Sales of coking coal concentrate totalled US$46 million in 1Q 2014, down 43% y-o-y, of which 24 pp was attributable to lower average prices and 19 pp to declining volumes. Prices in the US fell more sharply than in Ukraine. As a result, sales of concentrate to Ukraine grew by 23%, supported by higher volumes, while sales volumes in the US decreased by 89 thousand tonnes.

EBITDA

Metinvest’s consolidated EBITDA totalled US$878 million5 in 1Q 2014, up 91% y-o-y. As a result, the EBITDA margin more than doubled y-o-y to 30%. Both divisions significantly increased their EBITDA and the margin: the Metallurgical division boosted its EBITDA by US$129 million y-o-y to US$137 million and the Mining division by US$236 million y-o-y to US$774 million. The rise in consolidated EBITDA was primarily attributable to hryvnia devaluation, which added US$301 million y-o-y to the total. Other key drivers of EBITDA growth were:

  • falling market prices for coking coal, scrap metals and ferroalloys, which reduced costs by US$52 million overall
  • lower gas consumption due to the launch of PCI at Ilyich Steel, a fall in gas price y-o-y and the optimisation of temperatures in metallurgical processes, which brought savings of US$54 million overall
  • lower distribution costs of US$12 million due to decreases in railway tariffs following the hryvnia devaluation

Debt management

At the end of 1Q 2014, total debt was down by 11% q-o-q (US$466 million) to US$3,842 million. This was mainly due to the scheduled repayment of US$198 million of pre-export finance facilities and a decrease of US$280 million in trade finance lines. As a result, net debt fell by 2% q-o-q to US$3,445 million, despite the lower cash balance of US$397 million as at 31 March 2014. Net debt to EBITDA improved from 1.5x at the end of 2013 to 1.3x at the end of 1Q 2014, primarily driven by the y-o-y rise in EBITDA.

Capital expenditure

Capital expenditure grew by 29% y-o-y to US$124 million6 in 1Q 2014. The Mining division accounted for 52% of capital expenditure (47% in 1Q 2013) and the Metallurgical division for 33% (46% in 1Q 2013).

Metallurgical division

Major investment projects in 1Q 2014 included the construction of the PCI facility and the infrastructure for a new air separation unit (ASU), preparations to build a new environmentally friendly sinter plant and the major overhaul of converter no. 1 at Yenakiieve Steel; preparations for fitting new filters to the existing sinter plant at Ilyich Steel; and the major overhaul of blast furnace no. 4 and replacement of a turbine air blower at Azovstal.

Mining division

Metinvest continued to implement investment programmes at Northern GOK, Ingulets GOK and Central GOK. These included the development of a deep-quarry crusher and conveyor system, and the construction of the required facilities, at the Pervomaisky quarry at Northern GOK; the construction of a crusher and conveyor system at Ingulets GOK; and the reconstruction of the Lurgi 278-B pelletising machine at Northern GOK.

SALES BY PRODUCT7

 

US$ million

 

'000 tonnes

METALLURGICAL DIVISION

 

1Q 2014

1Q 2013

Change

 

1Q 2014

1Q 2013

Change

Semi-finished products

 

412

324

27%

 

857

647

32%

Pig iron

 

122

45

171%

 

300

112

168%

Slabs

 

152

168

-10%

 

292

334

-13%

Billets

 

138

111

24%

 

265

201

32%

Finished products

 

1,593

1,817

-12%

 

2,594

2,868

-10%

Flat products

 

1,196

1,337

-11%

 

1,999

2,183

-8%

- incl. resale of Zaporizhstal’s products

 

416

374

11%

 

736

647

14%

Long products

 

314

394

-20%

 

519

603

-14%

Tubular products

 

28

13

115%

 

27

15

80%

Railway products

 

55

73

-25%

 

49

67

-27%

Coke products

 

126

126

0%

 

594

476

25%

Other products and services

 

89

87

2%

 

 --

--

--

TOTAL

 

2,220

2,354

-6%

 

4,045

3,991

1%

 

 

 

 

 

 

 

 

 

MINING DIVISION

 

1Q 2014

1Q 2013

Change

 

1Q 2014

1Q 2013

Change

Iron ore products

 

632

696

-9%

 

5,338

6,120

-13%

Iron ore concentrate

 

304

489

-38%

 

2,950

4,479

-34%

Pellets

 

328

207

58%

 

2,388

1,641

46%

Coking coal concentrate

 

46

81

-43%

 

459

570

-19%

Other products and services

 

30

43

-30%

 

--

--

--

TOTAL

 

708

820

-14%

 

5,797

6,690

-13%

 

SALES BY REGION

 

US$ million

 

'000 tonnes

METALLURGICAL DIVISION

 

1Q 2014

1Q 2013

Change

 

1Q 2014

1Q 2013

Change

Ukraine

 

415

518

-20%

 

875

893

-2%

Europe

 

770

770

0%

 

1,292

1,273

1%

Middle East and North Africa

 

591

452

31%

 

1,093

829

32%

CIS (excluding Ukraine)

 

206

345

-40%

 

323

506

-36%

- incl. Russia

 

154

254

-39%

 

260

375

-31%

Southeast Asia

 

138

233

-41%

 

262

434

-40%

Other regions

 

100

36

178%

 

200

56

257%

TOTAL

 

2,220

2,354

-6%

 

4,045

3,991

1%

 

 

 

 

 

 

 

 

MINING DIVISION

 

1Q 2014

1Q 2013

Change

 

1Q 2014

1Q 2013

Change

Ukraine

 

321

309

4%

 

2,798

2,932

-5%

Southeast Asia

 

309

356

-13%

 

2,286

2,628

-13%

Europe

 

50

84

-40%

 

447

684

-35%

North America

 

25

52

-52%

 

237

326

-27%

Other regions

 

3

19

-84%

 

29

120

-76%

TOTAL

 

708

820

-14%

 

5,797

6,690

-13%


Adjusted EBITDA is calculated as earnings before income tax, financial income and costs, depreciation and amortisation, impairment and devaluation of property, plant and equipment, sponsorship and other charity payments, share of results of associates and other non-core expenses. We will refer to adjusted EBITDA as EBITDA throughout this release.

2 Net debt is calculated as the sum of Long-term and Short-term loans and borrowings and Seller notes less cash and cash equivalents

3 EBITDA for the last 12 months

4 Calculations are based on Metal Courier statistics

5 Includes the EBITDA of the Mining and Metallurgical divisions as well as US$33 million of corporate overheads and eliminations

6 Includes US$19 million of corporate overheads

7  Excludes intragroup sales and intragroup utilisation

Flat products include hot-rolled quarto plates, hot-rolled heavy plates, and hot-rolled, cold-rolled and hot-dip galvanised sheets and coils

Long products include hot-rolled sections (light, medium, heavy), debars, merchant bars and wire rods

Tubular products include longitudinal submerged arc welded (LSAW) large-diameter pipes, electric resistance welded (ERW) pipes and seamless pipes

Rail products include light and heavy rails and rail fasteners

Coke products include coke, coke breeze, nut coke and chemical products

For editors:

METINVEST GROUP is a vertically integrated group of steel and mining companies that manages every link of the value chain, from mining and processing iron ore and coal to making and selling semi-finished and finished steel products. It comprises steel and mining production facilities located in Ukraine, Europe and the US, as well as a sales network covering all key global markets. The Group is structured into two operating divisions, Metallurgical and Mining, and its strategic vision is to become the leading vertically integrated steel producer in Europe, delivering sustainable growth and profitability resilient to business cycles and providing investors with returns above the industry benchmarks. For the first quarter of 2014 ended 31 March 2014, the Group reported revenues of US$2.9 billion and an EBITDA margin of 30%.

The major shareholders of METINVEST B.V. (the holding company of Metinvest Group) are SCM (71.25%) and SMART Holding (23.75%), which partner in its management.

METINVEST HOLDING LLC is the management company of Metinvest Group.