March 19, 2018

Metinvest announces financial results for 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”), today announced its audited IFRS consolidated financial statements for the 12 months ended 31 December 2017 in compliance with Clause 8.4 and Condition 4(w) of the trust deed dated 22 March 2017 (“the Trust Deed”) executed between Madison Pacific Trust Limited as trustee and Metinvest B.V. as issuer.

Due to rounding, numbers presented throughout this release may not add up precisely to the totals provided and percentages may not precisely reflect absolute figures.

Summary - financial results FY2017 FY2016 Change, y-o-y
US$ mn %
Income statement highlights        
Revenues 8,931 6,223 2,708 44%
Adjusted EBITDA1 2,044 1,153 891 77%
  Margin 23% 19%   4 pp
Net profit 617 118 499 >100%
  Margin 7% 2%   5 pp
Cash flow highlights        
Net cash from operations 595 490 105 22%
Net cash used in investing activities -449 -331 -118 36%
  incl. purchase of PPE and intangible assets2 -465 -358 -107 30%
Net cash used in financing activities -110 -105 -5 5%


Summary - financial results 31.12.2017 31.12.2016 Change, YTD
US$ mn %
Total debt3 3,017 2,969 48 2%
Cash and cash equivalents4 259 226 33 15%
Key ratios         
Net debt5/EBITDA6 1.1x 2.0x   -0.9x
Consolidated Net Leverage Ratio7 1.4x 2.1x   -0.8x


1). Adjusted EBITDA is calculated as earnings before income tax, finance income and costs, depreciation and amortisation, impairment and devaluation of property, plant and equipment, foreign-exchange gains and losses, the share of results of associates and other expenses that the management considers non-core, plus the share of EBITDA of joint ventures. We will refer to adjusted EBITDA as EBITDA throughout this release. On 15 March 2017, Metinvest lost control over all tangible assets owned by enterprises located in the temporarily non-government controlled territory of Ukraine, including Yenakiieve Steel, Krasnodon Coal and Khartsyzk Pipe. Subsequently, the Group decided to make a provision for impairment of all assets of these enterprises, of which US$92 mn for inventories is accounted for in the 2017 EBITDA.

2). Comprises Capital Expenditures defined in the Trust Deed

3).Total debt is calculated as the sum of bank loans, bonds, trade finance, finance lease, seller notes and subordinated shareholder loans.

4).Cash and cash equivalents do not include blocked cash for cash collateral under issued letters of credit and irrevocable bank guarantees and include cash blocked for foreign-currency purchases.

5). Net debt is calculated as the sum of bank loans, bonds, trade finance, finance lease and seller notes less cash and cash equivalents.

6). EBITDA for the last 12 months

7). Calculated in line with the Trust Deed


Summary - production results FY2017 FY2016 Change, y-o-y
kt %
Crude steel 7,630 8,393 -763 -9%
  Azovstal 4,265 3,705 560 15%
  Ilyich Steel 3,096 2,736 360 13%
  Yenakiieve Steel 269 1,952 -1,683 -86%
Iron ore concentrate 27,464 29,640 -2,176 -7%
  Northern GOK 11,366 11,634 -268 -2%
  Ingulets GOK 11,429 12,783 -1,353 -11%
  Central GOK 4,669 5,224 -554 -11%
Coking coal concentrate 2,590 3,051 -461 -15%
  Krasnodon Coal 129 750 -620 -83%
  United Coal 2,461 2,302 159 7%



  • On March 15, assets owned by Group subsidiaries like PJSC Yenakiieve I&SW (including its Makiivka branch), the Ukrainian-Swiss JV Metalen, PJSC Khartsyzk Pipe, PJSC Krasnodon Coal, PJSC Komsomolske Flux, PJSC Donetsk Coke and its affiliate PJSC Yenakiieve Coke, which are located in the territory not controlled by the Ukrainian government, were seized following an ultimatum issued by the unrecognised local authorities to re-register these assets.
  • In early 2017, Avdiivka Coke experienced power cuts due to heavy shelling that damaged electricity transmission lines. This forced the plant to scale back coke production for a three-month period and postpone the launch of coke oven battery no. 8 from January to May. In May, the plant resumed operations, with eight coke oven batteries, after a new high-voltage line to it was installed on territory controlled by the Ukrainian government.
  • In September, Azovstal started pulverised coal injection (PCI) at blast furnace no. 2.
  • Over the year, Metinvest launched 47 new steel products, mainly heavy plates and coils (hot and cold-rolled), as well as galvanised products used in construction, machine-building, shipbuilding and pipe production.



  • In January, the Group’s seller notes were restructured. Their maturity was extended to 31 December 2021.
  • In March, Metinvest successfully concluded the restructuring of its bonds and pre-export financing (PXF) facilities, issued new bonds totalling US$1.2 bn and amended, restated and combined four PXF facilities into one facility totalling US$1.1 bn, both due in 2021.
  • Following the debt restructuring, international rating agencies Moody’s and Fitch upgraded Metinvest’s credit ratings to ‘Caa1’ (‘positive’ outlook) and ‘B’ (‘stable’ outlook) respectively.
  • In May, Metinvest secured a new five-year financing facility totalling around US$14 mn from Caterpillar Financial Ukraine to lease mining equipment for Ingulets GOK.
  • In December, Spartan UK, Metinvest’s re-rolling plant in Newcastle (UK), secured a revolving GBP15 mn commodity trade finance facility from the Bank of London and The Middle East. The facility has an initial term of 12 months with an option for extension.
  • In December 2017, Metinvest-Shipping secured a US$7.35 mn five-year facility from a Ukrainian bank to partly finance railway wagon purchases..



  • In 12 January 2018, international rating agency S&P assigned Metinvest a long-term corporate credit rating of 'B-', the outlook ‘stable’.
  • In February 2018, Metinvest fully repaid seller notes of United Coal.

Commenting on the results, Yuriy Ryzhenkov, Chief Executive Officer of Metinvest, said:

“For the full-year 2017, Metinvest delivered a strong set of operational and financial results, a tribute to its proven business model, prudent strategy and committed human capital. A supportive external environment aided our operational performance and profitability.

During the reporting period, rising global demand for steel and iron ore led to continued price growth. Positive market trends continued into the first quarter of 2018, and we see this continuing over the short to medium term.

At the same time, protectionist sentiments persisted globally. As a group, we actively participate in major anti-dumping investigations and are open to dialogue. We are also confident that we will find a way to mitigate any negative impact from tariffs and other measures.

Ukraine saw another year of economic recovery and relative economic and political stability. The GDP grew 2.1% year-on-year. This has driven demand for steel products from the construction, machine building and other industries.

Last year also saw important developments in Eastern Ukraine. In March 2017, we lost control over assets in non-government-controlled territories. However, with the outstanding efforts of our entire team, we were able to rapidly adjust our operating model and make our business even more robust. Among other measures, we maximised steel capacity utilisation, increasing steel production at our Mariupol steelmakers by 14%.

In 2017, we made a comprehensive review of our Technological Strategy in light of the operating environment. Our updated strategy aims to make the Group more resilient in market downturns while creating opportunities in the upward part of the cycle by focusing on high-value-added products to access premium markets. We already saw promising results in 2017, as the share of high-value-added steel products reached 42% of the sales mix. In iron ore, the share of pellets with Fe content above 65.0% rose 16 percentage points to 54% of sales and that of concentrate with Fe content above 68.0% increased by 17 percentage points to 26% of sales.

Last year, crude steel production stood at 7.6 million tonnes and iron ore output amounted to 27.5 million tonnes. At the same time, we delivered a solid set of financial results, reflecting the stronger market environment and our operational performance. Revenues grew by 44% year-on-year to US$8,931 million. The share of Ukraine in total sales increased to 28%, while the share of Europe, another priority steel and iron ore market for us, remained steady at 36% of sales. Our EBITDA jumped 77% year-on-year to US$2,044 million amid sales price growth. Importantly, operational improvements delivered a positive effect of US$100 million over the year. Profitability shifted towards the Mining segment, which contributed 67% to EBITDA, while the EBITDA margin reached a healthy 40%.

Operating cash flow for the period increased by 22% year-on-year to US$595 million. It was affected by an outflow of working capital, attributable to the required changes in the operating model, rising inventories and receivables build-up, mainly amid sales growth. We are closely monitoring this issue. Importantly, we spent US$542 million to maintain and upgrade our production facilities for continued organic growth.

On the back of improved liquidity, Metinvest fully repaid the seller notes and is current on interest under its outstanding bonds and pre-export finance facility. We are actively reviewing all options to return to international debt capital markets to reschedule maturities to suit the business cyclicality and payback periods of our investment projects.

In summary, I want to underline my belief that Metinvest Group is back on track for growth. We anticipate that 2018 will be a year of great opportunities. We are cautiously optimistic that, today, we have reached a new horizon with promising frontiers beyond.

I would like to thank our clients, investors, creditors, employees and other stakeholders for their support during 2017.”



Results of operations FY2017 FY2016 Change, y-o-y
US$ mn % of revenues  US$ mn % of revenues US$ mn % pp of revenues
Revenues 8,931 100% 6,223 100% 2,708 44% -
Cost of sales -6,756 -76% -4,833 -78% -1,923 40% 2
Gross profit 2,175 24% 1,390 22% 785 56% 2
  Distribution costs -721 -8% -660 -11% -61 9% 3
  General and administrative expenses -193 -2% -183 -3% -10 5% 1
  Other operating income 39 0% -222 -4% 261 - 4
Operating profit 1,300 15% 325 5% 975 >100% 10
Results of the loss of control over the assets located on temporarily non-controlled territory -329 -4% - 0% -329 - -4
  Finance income 29 0% 26 0% 3 12% -
  Finance costs -350 -4% -397 -6% 47 -12% 2
  Share of result of associates and JV 191 2% 205 3% -14 -7% -1
Profit before income tax 841 9% 159 3% 682 >100% 6
  Income tax -224 -3% -41 -1% -183 >100% -2
Net profit 617 7% 118 2% 499 >100% 5



Metinvest’s revenues are generated from sales of its steel, iron ore, coal and coke products and resales of products from third parties. Unless otherwise stated, revenues are reported net of value-added tax and discounts and after eliminating sales within the Group.

Revenues by market FY2017 FY2016 Change, y-o-y
US$ mn % of revenues US$ mn % of revenues US$ mn % pp of revenues
Total revenues 8,931 100% 6,223 100% 2,709 44% -
Ukraine 2,467 28% 1,606 26% 861 54% 2
Europe 3,219 36% 2,267 36% 952 42% -
MENA 1,469 16% 949 15% 520 55% 1
CIS (ex Ukraine) 775 9% 591 9% 184 31% -
Southeast Asia 505 6% 413 7% 93 22% -1
North America 437 5% 320 5% 117 37% -
Other regions 60 1% 77 1% -17 -22% -

In 2017, Metinvest’s consolidated revenues increased by 44% y-o-y to US$8,931 mn, driven primarily by higher steel and iron ore selling prices, which followed global benchmarks. In addition, stronger demand spurred greater sales of pig iron, slabs, flat products and coke. Moreover, the Group started resales of square billets and long products to compensate lower sales volumes of these products manufactured at seized facilities.

In 2017, revenues in Ukraine amounted to US$2,467 mn, up 54% y-o-y, primarily due to increased selling prices, as well as higher sales volumes of flat products (+447 kt) and coke (+347 kt) amid greater local demand, as the economic upturn continued. Real GDP increased by 2.1% y-o-y in 2017 [1]. Apparent consumption of steel products (excluding pipes) in Ukraine rose by 6.1% y-o-y to 5.3 mt[2] in 2017, supported by renewed real demand in key steel-consuming industries. Economic activity climbed by 20.9% y-o-y in the construction sector[3], 7.3% y-o-y in the machine-building industry3 and 3.2% in the hardware production2. Meanwhile, iron ore sales in Ukraine decreased by 3,313 kt amid weaker demand, as shipments to some customers in Eastern Ukraine stopped and some other customers temporarily halted operations. As a result, Ukraine’s share in consolidated revenues rose by 2 pp y-o-y to 28%.

International sales increased by 40% y-o-y to US$6,465 mn in 2017, accounting for 72% of consolidated revenues. Sales to Europe rose by 42% y-o-y amid higher realised prices and greater sales volumes of pig iron (+108 kt), slabs (+471 kt) and iron ore products (+2,601 kt), which helped to keep the region’s share in consolidated revenues flat y-o-y at 36%. Sales to the Middle East and North Africa (MENA) climbed by 55% y-o-y amid higher sales volumes of square billets and flat products, as well as a hike in selling prices, while that market’s share in consolidated revenues increased by 1 pp y-o-y to 16%. Sales to the CIS (ex Ukraine) rose by 31% y-o-y, primarily due to selling price growth, which helped to keep the region’s share in consolidated revenues flat y-o-y at 9%. Sales in Southeast Asia climbed by 22% y-o-y, as higher prices and volumes of flat products, square billets and pellets were partly offset by lower volumes of iron ore concentrate. As a result, that market’s share in consolidated revenues decreased by 1 pp y-o-y to 6%. Sales to North America increased by 37% y-o-y due to higher prices and volumes of pig iron and flat products, while the region’s share in consolidated revenues remained flat y-o-y at 5%. Sales to other regions declined by 22% y-o-y, while their share in consolidated revenues remained flat at 1%.


Metallurgical segment

The Metallurgical segment generates revenues from sales of pig iron, steel and coke products and services. In 2017, its revenues increased by 47% y-o-y to US$7,411 mn, mainly amid a rise in resales of US$960 mn. In addition, sales of products manufactured at Metinvest’s facilities increased: by US$749 mn for flat products, US$295 mn for slabs,US$290 mn for coke and US$179 mn for pig iron. Meanwhile, sales of long products and square billets produced at Metinvest’s plants dropped by US$211 mn and US$71 mn respectively. At the same time, sales of other products and services rose by US$194 mn. In 2017, the Metallurgical segment accounted for 83% of external sales (81% in 2016).

Metallurgical segment
Sales by market
FY2017 FY2016 Change, y-o-y Change, y-o-y %
US$ mn % of revenues kt US$ mn % of revenues kt US$ mn kt US$ mn kt
Total sales 7,411 100% 13,455 5,027 100% 12,294 2,384 1,161 47% 9%
Ukraine 1,889 25% 3,043 1,129 22% 2,472 760 570 67% 23%
Europe 2,605 35% 4,697 1,989 40% 4,762 617 -65 31% -1%
MENA 1,469 20% 2,931 948 19% 2,683 521 248 55% 9%
CIS (ex Ukraine) 775 10% 1,146 591 12% 1,166 184 -20 31% -2%
Southeast Asia 197 3% 420 76 2% 226 121 194 >100% 86%
North America 416 6% 1,083 217 4% 767 199 316 92% 41%
Other regions 60 1% 135 77 2% 216 -17 -82 -22% -38%


Metallurgical segment
Sales by product
FY2017 FY2016 Change, y-o-y Change, y-o-y %
US$ mn kt US$ mn kt US$ mn kt US$ mn due to price due to volume
Semi-finished products 1,448 3,492 675 2,423 773 1,069 >100% 70% 44%
  Pig iron 606 1,689 350 1,392 256 297 73% 52% 21%
   incl. resales 113 308 37 157 76 151 >100% >100% 96%
  Slabs 521 1,146 227 711 294 435 >100% 69% 61%
  Square billets 321 657 98 320 223 337 >100% >100% >100%
   incl. resales 294 589 - - 294 589 - - -
Finished products 4,905 8,536 3,778 8,791 1,128 -255 30% 33% -3%
  Flat products 4,211 7,351 2,954 6,854 1,257 497 43% 35% 7%
    incl. resales 1,461 2,781 953 2,537 508 244 53% 44% 10%
  Long products 694 1,185 824 1,937 -129 -751 -16% 23% -39%
    incl. resales 82 147 - - 82 147 - - -
Coke 461 1,427 171 1,080 290 347 >100% >100% 32%
Other products and services 597 - 403 - 194 - 48% - -
Total sales 7,411 13,455 5,027 12,294 2,384 1,161 47% 38% 9%


Pig iron

In 2017, sales of pig iron increased by 73% y-o-y to US$606 mn. Of that, 52 pp was attributable to a higher average selling price and 21 pp to greater sales volumes, which rose by 297 kt y-o-y to 1,689 kt, driven by strong market demand and greater resales of Zaporizhstal’s pig iron. Sales in North America and Europe grew by 313 kt and 108 kt respectively, given favourable margins and orders from both existing and new customers. This resulted in lower sales to MENA (135 kt).


In 2017, sales of slabs more than doubled y-o-y to US$521 mn, driven by a hike in the average selling price and a 61% increase in sales volumes. Volumes rose by 435 kt y-o-y to 1,146 kt, spurred by demand and supported by greater production. Volumes to Europe climbed by 471 kt due to greater orders from customers in Italy and sales to a new client in Hungary. Meanwhile, volumes to MENA decreased by 46 kt due lower sales to Turkey. The increase in the average selling price followed the benchmark for slabs (FOB Black Sea), which rose by 34% y-o-y.

Square billets

In 2017, sales of square billets tripled y-o-y to US$321 mn, due to a doubling in sales volumes and a jump in the average selling price. Volumes rose by 337 kt y-o-y to 657 kt as a result of higher resales (589 kt), which compensated lower volumes of own products following the loss of control over Yenakiieve Steel (252 kt). All available volumes were sold in MENA and Southeast Asia, and MENA accounted for 84% of total sales volumes. Average selling prices followed dynamics of the square billet FOB Black Sea benchmark, which climbed by 33% y-o-y.

Flat products

In 2017, sales of flat products surged by 43% y-o-y to US$4,211 mn, of which 35 pp was attributable to a higher average selling price and 7 pp to greater sales volumes. Volumes increased by 497 kt y-o-y to 7,351 kt, while resales of Zaporizhstal’s goods rose by 244 kt y-o-y to 2,781 kt, keeping their share in total sales volumes at 38% in 2017. Sales to Ukraine climbed by 447 kt, as a local competitor left the market in 1Q 2017. Greater sales in MENA (+168 kt) were driven by strong demand. Other sales volumes were redistributed between regions based on market conditions. Average selling prices were in line with the HRC FOB Black Sea benchmark, which rose by 31% y-o-y.

Long products

In 2017, sales of long products subsided by 16% y-o-y to US$694 mn, caused by a 39% drop in sales volumes due to lower production levels and the loss of control over Yenakiieve Steel, which was partly compensated by higher resales (147 kt). At the same time, the positive y-o-y price trend on all markets for long products was due to stronger billet quotations.


In 2017, sales of coke almost tripled y-o-y to US$461 mn, as the average selling price more than doubled and sales volumes increased by 32% (or 347 kt) y-o-y to 1,427 kt, driven by greater orders in Ukraine.


Mining segment

The Mining segment generates revenues from sales of iron ore, coal and other products and services. In 2017, its revenues were up 27% y-o-y to US$1,520 mn, mainly due to higher iron ore and coal selling prices, which followed global benchmarks. This was partly offset by weaker sales volumes amid lower overall production of iron ore products and coking coal concentrate, as well as higher intragroup consumption of coal. As a result, external sales of pellets increased by US$196 mn, iron ore concentrate by US$91 mn and other products and services by US$78 mn. Meanwhile, sales of coking coal concentrate dropped by US$40 mn. In 2017, the Mining segment accounted for 17% of external sales (19% in 2016).

Mining segment
Sales by market
FY2017 FY2016 Change, y-o-y Change, y-o-y %
US$ mn % of revenues kt US$ mn % of revenues kt US$ mn kt US$ mn kt
Total sales 1,520 100% 15,732 1,196 100% 19,448 325 -3,716 27% -19%
Ukraine 578 38% 4,848 477 40% 8,168 101 -3,320 21% -41%
Europe 614 40% 6,832 278 23% 4,251 335 2,581 >100% 61%
MENA - - - 1 0% 14 -1 -14 -100% -100%
CIS (ex Ukraine) 0 0% - - - - 0 - - -
Southeast Asia 308 20% 3,698 337 28% 5,656 -29 -1,958 -8% -35%
North America 20 1% 354 103 9% 1,359 -82 -1,005 -80% -74%
Other regions - - - - - - - - - -


Mining segment
Sales by product
FY2017 FY2016 Change, y-o-y Change, y-o-y %
US$ mn kt US$ mn kt US$ mn kt US$ mn due to price due to volume
Iron ore products 1,264 15,048 978 17,732 286 -2,684 29% 44% -15%
  Merchant iron ore concentrate 644 9,145 554 11,769 91 -2,624 16% 39% -22%
  Pellets 620 5,903 424 5,963 196 -60 46% 47% -1%
Coking coal concentrate 96 684 136 1,716 -40 -1,032 -30% 31% -60%
Other products and services 160 - 82 - 78 - 96% - -
Total sales 1,520 15,732 1,196 19,448 324 -3,716 27% 46% -19%


Iron ore concentrate

In 2017, sales of merchant iron ore concentrate increased by 16% y-o-y to US$644 mn, primarily due to an uptick in the average selling price. The latter followed the benchmark [4], which surged by 21% y-o-y to an average of US$72/t in 2017, up from US$59/t a year earlier. Meanwhile, sales volumes dropped by 22% (or 2,624 kt) y-o-y to 9,145 kt amid lower production and weaker demand in Ukraine during the reporting period, compared with destocking a year earlier. As such, sales in Ukraine dropped by 1,898 kt, as shipments to some customers in the eastern region stopped and other key customers temporarily halted operations. At the same time, sales to Europe – one of Metinvest’s priority markets for iron ore – rose by 1,307 kt. The remaining available volumes went to Southeast Asia, although sales to that region fell by 2,033 kt y-o-y.



In 2017, sales of pellets increased by 46% y-o-y to US$620 mn, driven by a surge in the average selling price in line with the benchmark. At the same time, sales volumes decreased by 1% (or 60 kt) y-o-y to 5,903 kt. Sales to Europe advanced by 1,294 kt amid stronger demand, which raised the region’s share in total pellet sales volumes to 54% (+22 pp y-o-y) in 2017. Meanwhile, sales to Ukraine dropped by 1,415 kt y-o-y amid a cessation of shipments to some customers in the eastern region. This led to higher sales to Southeast Asia (+76 kt), an opportunistic market for this product.


Coking coal concentrate

In 2017, sales of coking coal concentrate declined by 30% y-o-y to US$96 mn amid a 60% drop in sales volumes, which was partly offset by higher average selling prices. Volumes fell by 1,032 kt y-o-y to 684 kt due to lower production and higher internal consumption, which resulted in lower sales in North America.


Cost of sales

Cost of sales consists primarily of the cost of raw materials; the cost of energy materials; payroll and related expenses for employees at its production facilities; depreciation and amortisation; impairment of property, plant and equipment; repair and maintenance expenses; outsourcing; taxes; and other costs.

In 2017, cost of sales rose by 40% y-o-y to US$6,756 mn, primarily attributable to:

  • higher cost of goods and services for resale (US$1,146 mn), mainly pig iron, steel products and coal;
  • higher purchase prices of raw materials (US$625 mn), including coal (US$495 mn), coke (US$48 mn), scrap (US$68 mn) and iron ore (US$14 mn);
  • greater expenses on raw materials transportation (US$162 mn), mainly amid an increase in railway costs in the US and freight costs related to coal supplies, as well as upward tariff indexation by the Ukrainian state railway operator; and
  • higher services and other costs (US$109 mn) due to higher expenses on subsoil use tax, lease, insurance, blasting and drilling, as well as a net reversal of an inventory write-down in 2016 of US$45 mn, which was created at the end of 2015 due to the sale of respective inventories, an increase in steel prices and the recovery of gross margins.

 These factors were partly offset by favourable movements in the USD/UAH exchange rate, which accounted for US$86 mn.

As a percentage of consolidated revenues, cost of sales decreased by 2 pp y-o-y to 76% in 2017.


Distribution costs

Distribution costs consist largely of transportation costs, salaries paid to sales and distribution employees, and commissions paid by Metinvest’s European subsidiaries to third-party sales agents and trade offices for their services and costs of materials.

In 2017, distribution costs increased by 9% y-o-y to US$721 mn. Freight costs rose by US$76 mn, as metal product sales volumes to Italy, the Middle East, the Red Sea region and the US increased; and higher crude oil prices inflated sea freight tariffs. This was partly offset by lower shipments of iron ore products to Southeast Asia (-1,957 kt), which also contributed to lower other transportation costs of US$45 mn due to lower expenses on loading, unloading and storage in port. Railway costs increased by US$33 mn mainly due to greater iron ore and steel product distribution by rail, as well as a 15% upward tariff indexation by the Ukrainian state operator on 30 April 2016 and a further 15% increase on 1 November 2017. This was partly compensated by lower sales of United Coal’s coal to third parties and the loss of control over      operations of Yenakiieve Steel.

As a share of consolidated revenues, distribution costs fell by 3 pp y-o-y to 8% in 2017.


General and administrative costs

General and administrative costs consist largely of salaries paid to administrative employees; consultancy fees (except fees in relation to debt restructuring); audit, legal (except fees in relation to debt restructuring) and banking services expenses; insurance costs; and leasing expenses.

In 2017, general and administrative costs increased by 5% y-o-y to US$193 mn, which resulted mainly from higher expenses on labour costs (US$11 mn). In addition, service fees increased by US$7 mn y-o-y amid additional spending on logistics, security and legal consulting services. As a share of consolidated revenues, general and administrative costs declined by 1 pp y-o-y to 2% in 2017.


Other operating income / expenses

Other operating income and expenses consist primarily of sponsorship and other charity expenses, foreign-exchange gains or losses, maintenance of social infrastructure, impairment of goodwill and trade and other accounts receivable, and gains or losses on disposals of property, plant and equipment.

In 2017, other operating income amounted to US$39 mn, compared with US$222 mn of other operating expenses a year earlier, primarily due to lower impairment of trade and other accounts receivable (US$220 mn). In addition, operating foreign exchange gains arising from the revaluation of trade receivables and trade payables increased by US$48 mn. As a share of consolidated revenues, other operating income decreased by 4 pp y-o-y to 0% in 2017.


Operating profit

In 2017, operating profit quadrupled y-o-y to US$1,300 mn, primarily amid higher revenues (US$2,708 mn) and lower impairment of trade and other accounts receivable (US$220 mn). This was partly offset by an increase in cost of sales of US$1,923 mn, as well as distribution, general and administrative costs of US$71 mn. The operating margin rose by 10 pp y-o-y to 15% in 2017.



In 2017, EBITDA soared by 77% y-o-y to US$2,044 mn, primarily driven by an increase in the contribution from the Mining segment of US$832 mn. In addition, EBITDA of the Metallurgical segment rose by US$71 mn, while corporate overheads and eliminations increased by US$12 mn.

EBITDA by segment FY2017 FY2016 Change, y-o-y
US$ mn % of segment revenues US$ mn % of segment revenues US$ mn pp of segment revenues
Metallurgical segment 808 11% 737 14% 71 -3
   - incl. JV 135   165   -30  
Mining segment 1,380 40% 548 24% 832 16
   - incl. JV 190   120   70  
Corporate o/hs and eliminations -144   -132   -12  
Total EBITDA 2,044 23% 1,153 19% 891 4

The y-o-y increase in consolidated EBITDA was driven by:

  • sales price growth (US$2,403 mn);
  • greater sales volumes (US$305 mn);
  • higher contributions from JVs (US$40 mn);
  • the foreign-exchange effect of hryvnia devaluation (US$94 mn), as the USD/UAH exchange rate averaged 26.60 in 2017, compared with 25.59 in 2016; and
  • lower other costs (US$206 mn).

These factors were partly offset by:

  • higher cost of goods and services for resale (US$1,146 mn) due to higher both prices and volumes;
  • higher cost of raw materials (US$672 mn), primarily due to increased market prices of coal, coke and scrap, higher consumption of purchased coal and higher costs of ferroalloys and purchased semis;
  • greater logistics costs (US$247 mn), mainly amid an increase in railway costs in the US related to coal supplies, upward tariff indexation by the Ukrainian state railway operator, greater rail shipments, as well as a rise in freight costs; and
  • impairment of seized inventories (US$92 mn).

In 2017, the consolidated EBITDA margin increased by 4 pp y-o-y to 23%. The Mining segment’s EBITDA margin grew by 16 pp y-o-y to 40%, while the Metallurgical segment’s dropped by 3 pp y-o-y to 11%.


Finance income

Finance income comprises finance foreign-exchange gains, interest income on bank deposits and loans issued, imputed interest on other financial instruments and other finance income.

In 2017, finance income amounted to US$29 mn (US$26 mn in 2016). As a percentage of consolidated revenues, finance income remained unchanged y-o-y at 0% in the reporting period.


Finance costs

Finance costs include interest expenses on bank borrowings and debt securities, finance foreign-exchange losses, interest cost on retirement benefit obligations and other finance costs.

In 2017, finance costs dropped by 12% y-o-y to US$350 mn, mainly as a result of lower foreign exchange losses from financing activity incurred on intragroup loans and dividends during the reporting period. As a percentage of consolidated revenues, finance costs decreased by 2 pp y-o-y to 4% in 2017.


Share of result of associates and joint venture

In 2017, the share of net income from associates and joint ventures decreased by 7% y-o-y at US$191 mn. Improved iron ore prices contributed to better results for Southern GOK (US$40 mn), but affected net income for Zaporizhstal (US$48 mn). The share of net income from other companies decreased by US$6 mn.

Income tax expense

Metinvest is subject to taxation in several jurisdictions, depending on the residence of its subsidiaries. In 2017, corporate income tax rates remained the same as in 2016were as follows: 18% in Ukraine (18% in 2016), 10% in Switzerland (10% in 2016), 10-28% in the EU (10-32% in 2016) and 35% in the US (35% in 2016).

In 2017, the income tax expense increased by US$183 mn y-o-y to US$224 mn due to the higher current tax expense, which rose by US$158 mn y-o-y as a result of improved profitability. In addition, the deferred tax asset fell by US$24 mn, as a significant amount of deferred tax assets arising on tax losses carried forward was recognised through an impairment of accounts receivable in 2016. The effective tax rate – calculated as total income tax divided by profit before tax, both adjusted for the effects of the loss of seized assets – was 18% in 2017 (26% in 2016).


Net profit

In 2017, net profit increased by more than five times y-o-y to US$617 mn, primarily due to higher revenues (US$2,708 mn) and lower impairment of trade and other accounts receivable (US$220 mn). These factors were partly offset by: (i) a hike in cost of sales (US$1,923 mn), mainly amid higher prices of raw materials and greater costs of goods for resale; (ii) the loss of control over assets in the temporarily non-controlled territory (US$329 mn); and (iii) higher income tax expense (US$183 mn). As a result, the net margin increased by 5 pp y-o-y to 7% in 2017.




Net cash from operating activities

In 2017, Metinvest’s net cash flow from operating activities increased by 22% y-o-y to US$595 mn, driven by a rise in profit before income tax. It was affected by the outflow of working capital (US$850 mn), income tax paid (US$154 mn) and interest paid (US$135 mn).

The negative change in working capital in 2017 was mainly attributable to:


  • an increase in inventories of US$358 mn, which primarily resulted from two factors. The first was greater costs of production since the beginning of the year amid higher market prices of key raw materials. The second was a rise in inventories of coal (+301 kt) to create contingency stock following a fall in self-sufficiency in coking coal, slabs (+76 kt) amid a temporary lack of vessels for intragroup deliveries and third-party sales in 3Q 2017, flat products (+177 kt) amid an increase in production in 4Q 2017 and pig iron (+50 kt) to form a stock to substitute scrap during winter period. Meanwhile, iron ore inventories decreased y-t-d, as Metinvest managed to reallocate spare volumes following lower internal consumption in 1H 2017 and lower sales in Ukraine to other markets.
  • an increase in net receivable position [5] from joint ventures of US$345 mn, primarily amid a substantial growth in volumes and prices of iron ore products and coke sold to Zaporizhstal; and
  • an increase in receivables from third parties of US$151 mn, which resulted mainly from steel and iron ore selling price growth y-t-d.

Income tax paid amounted to US$154 mn in 2017, compared with US$35 mn of income tax reimbursed in 2016. This was mainly due to improved profitability of iron ore producers during the reporting period, while a year earlier they were reimbursed for corporate income tax prepaid during 2015.

Interest paid amounted to US$135 mn, as Metinvest paid contingent interest via a cash sweep, in addition to obligatory interest on bonds and the PXF facility during 2017, amid improved liquidity.


Net cash used in investing activities

In 2017, net cash used in investing activities increased by 36% y-o-y to US$449 mn. Total cash used to purchase property, plant and equipment and intangible assets amounted to US$465 mn, up 30% y-o-y. No proceeds were received from sale of subsidiaries and associates, compared with US$6 mn received in January 2016, when Metinvest sold its investment in Black Iron (Cyprus) Limited. Proceeds received from the sale of property, plant and equipment and intangible assets amounted to US$1 mn (US$3 mn in 2016). Interest received totalled US$15 mn (US$18 mn in 2016).


Net cash used in financing activities

In 2017, net cash used in financing activities totalled US$110 mn, up 5% y-o-y. Following the successful completion of global debt restructuring negotiations, US$85 mn was used to repay seller notes and US$90 mn to repay loans and borrowings, while expenditures incurred in relation to the restructuring amounted to US$57 mn (US$27 mn in 2016). At the same time, this was partly offset by (i) US$117 mn of net trade finance proceeds received in 2017, compared with net repayments of US$67 mn a year earlier; and (ii) US$6 mn of proceeds received from loans and borrowings during the year, as Metinvest Shipping secured a bank term loan from a Ukrainian bank to partly finance rail wagon purchases, compared with no such proceeds received in 2016.

At the end of December 2017, total debt stood at US$3,017 mn, up 2% y-t-d, primarily amid higher trade finance utilisation, finance lease and interest accrued but not paid under the subordinated shareholder loans. Meanwhile, Metinvest’s cash balance stood at US$259 mn, up 15% y-t-d.


Capital expenditure

In 2017, capital expenditure totalled US$542 mn, up 45% y-o-y. The expenditure on maintenance projects amounted to 83% of total investments (75% in 2016) and that on expansion projects to 17% (25% in 2016). The Metallurgical segment accounted for 51% of capital expenditure (52% in 2016) and Mining for 48% (46% in 2016). Capital expenditure on corporate overheads amounted to US$9 mn in 2017 (US$4 mn in 2016).

A number of strategic projects are ongoing at the Group’s steelmakers. One key initiative at Ilyich Steel is the ongoing construction of continuous casting machine no. 4. The active stage of construction began in September 2016 and the launch is expected at the end of 2018. The new equipment is intended to boost productivity, cut costs significantly, improve steel product quality and reduce the environmental impact in Mariupol.

In 3Q 2017, Ilyich Steel launched another large-scale expansion project entailing the reconstruction of the 1700 hot strip mill. The basic engineering is being developed by Primetals Technologies Austria GmbH and total investment is slated at around US$85 mn. As part of the project, new equipment is to be installed to increase the hot strip mill’s capacity, significantly improve steel surface quality and considerably reduce process waste during slab production. The mill will also expand its portfolio to include coils, which are in demand for downstream processing. Detailed engineering and documentation are expected to be ready in 2018 and commissioning is expected in 2Q 2019.

Azovstal continues to construct PCI facilities at its blast furnaces. As part of the project’s second stage, PCI injection into blast furnace no. 2 started in September 2017, while construction at blast furnace no. 3 started in 3Q 2017 and is expected to be completed in 3Q 2018.

In addition, in 3Q 2017, Azovstal started a major overhaul of blast furnace no. 3, the aim being to increase its hot metal production capacity by 0.5-0.8 mt/y and reduce production costs. Its launch is expected in 3Q 2018.

Several environmental projects are ongoing, including to rebuild the sinter plant at Ilyich Steel.

In 4Q 2017, Metinvest Shipping decided to purchase 1,800 open rail wagons to deliver raw materials and dispatch finished products. The decision stemmed from the need to curtail the negative effect on the Group from the shortage of rolling stock in Ukraine. Among other things, this is due to lower turnover of rail cars at Ukrainian Railways in 2012-2017. A total of 800 open wagons were purchased by the end of 2017, while the rest are to be supplied in 1H 2018.

Metinvest continued to implement several projects at its iron ore producers. The largest ones are the construction of the crushing and conveying systems at Northern GOK’s Pervomaisky open-pit mine (the second facility for rock transportation) and Ingulets GOK (the Vostochny conveyor line).

The replacement of gas cleaning units on Northern GOK’s Lurgi 552-B pelletising machine is ongoing. Currently, four out of five filters have been changed. Filter no. 1 was replaced in 2Q 2017. The replacement of the last one, no. 5, was postponed from December 2017 to September 2018 to align it with the major overhaul schedule.


[1] Source: National Bank of Ukraine

[2] Source: Metal Expert

[3] Source: State Statistics Service of Ukraine

[4] 62% Fe iron ore fines CFR China. Source: Bloomberg

[5] Calculated as a change in accounts receivable minus a change in accounts payable

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