September 24, 2018

Metinvest announces financial results for the first six months of 2018

Metinvest B.V., the parent company of a vertically integrated group of steel and mining companies (jointly referred to as “Metinvest” or “the Group”), announced its unaudited IFRS interim condensed consolidated financial statements for the six months ended 30 June 2018.

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 - production results6 1H 2018 1H 2017 Change, y-o-y
kt %
Crude steel 3 794 3 654 140 4%
Azovstal 2 181 2 166 15 1%
Ilyich Steel 1 613 1 488 125 8%
Iron ore concentrate 13 987 13 649 338 2%
Northern GOK 5 729 5 544 185 3%
Ingulets GOK 6 231 5 788 443 8%
Central GOK 2 026 2 317 -291 -13%
Coking coal concentrate 1 340 1 317 23 2%
United Coal 1 340 1 317 23 2%


Summary - financial results 1H 2018 1H 2017 Change, y-o-y
US$ mn %
Income statement highlights        
Revenues 6 179 3 913 2 266 58%
Adjusted EBITDA1 1 335 839 496 59%
Margin 22% 21%   1 pp
Net profit 668 72 596 >100%
Margin 11% 2%   9 pp
Cash flow highlights        
Net cash from operations 457 305 152 50%
Net cash used in investing activities -97 -169 72 -43%
Net cash used in financing activities -240 -106 -134 >100%
Summary - financial results 6/30/2018 12/31/2017 Change, YTD
US$ mn %
Gross debt2 2 891 3 017 -126 -4%
Cash and cash equivalents3 370 259 111 43%
Net debt4 2 263 2 298 -34 -2%
Net debt4/EBITDA5 0.9x 1.1x   -0.2x



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.

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

3). 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.

4). Net debt is calculated as gross debt less cash and cash equivalents less subordinated shareholder loans.

5). EBITDA for the last 12 months

6). Figures for 2017 have been updated to exclude production at assets, control over which was lost in March 2017.



In July, after the reporting date, Metinvest secured long-term coal supplies in Ukraine by acquiring, with four other co-investors, stakes of up to 100% in some coking coal assets, the most significant being Pokrovske Colliery and Svyato-Varvarinskaya Enrichment Plant, which form the largest coking coal extraction and production business in the country. The Group’s effective interest in the newly acquired business equals 24.99%, for which the total consideration was around US$190 mn. In addition, Metinvest obtained an option to purchase the remaining 75.01% from the other co-investors pursuant to certain conditions including governmental consents.

  • Over the first half of the year, the Group launched 20 new steel products, mainly heavy plates and coils (hot and cold-rolled) used in construction, machine-building and pipe production, as well as further steel downstream.
  • In April, the first-phase facility of the sinter plant gas cleaning system was launched at Ilyich Steel.


  • In February, Metinvest fully repaid United Coal’s seller notes.
  • In April, the Group completed the refinancing of its US$2,271 mn of debt, issuing two tranches of bonds and amending and restating its pre-export finance (PXF) facility. As a result, Metinvest issued US$1,592 mn in new bonds and secured US$765 mn in the PXF facility. New incremental proceeds from the combined transaction amounted to around US$205 mn.
  • In May and July, after the reporting period, Metinvest repaid ahead of schedule US$237 mn under the PXF facility using new proceeds from the refinancing and its own cash flows. Following this repayment, the total outstanding under the PXF facility is US$528 million, while certain PXF agreement restrictions have been eased, including regarding some restricted payments.
  • In July, after the reporting period, the Group secured a seven-year repayment buyer credit facility of some EUR43.2 mn for the construction of continuous casting machine no. 4 at Ilyich Steel. The facility is covered by an Austrian export guarantee issued by Oesterreichische Kontrollbank Aktiengesellschaft (OeKB), while Raiffeisen Bank International AG acted as a sole lender.
  • In January, international rating agency S&P assigned Metinvest a long-term corporate credit rating of 'B-', the outlook ‘stable’. In April, after the successful completion of the refinancing, Fitch changed its outlook to ‘positive’ and affirmed its ‘B’ credit rating.


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

“In the first half of 2018, Metinvest delivered strong operational and financial results, as our clear strategic vision helped to navigate the volatile environment and set the basis for sustainable growth.

Hot metal production surged by 14% year-on-year to 4,292 thousand tonnes. Given the bottleneck in steel casting capacity at Ilyich Steel, this translated into a more moderate rise in crude steel output, of 4% year-on-year to 3,794 thousand tonnes, and a greater increase in pig iron production. We remain focused on delivering organic growth from the existing assets and boosting the share of high value-added products. A new continuous casting machine at Ilyich Steel, due for completion by the year-end, will make it possible to use additional hot metal to improve crude steel and finished product volumes.

Iron ore concentrate production rose by 2% year-on-year to 13,987 thousand tonnes, while the mix between pellets and concentrate shifted in favour of pellets.

Coal production climbed by 2% year-on-year to 1,340 thousand tonnes. Metinvest has secured important additional long-term supplies of high-quality coking coal in Ukraine by acquiring up to 24.99% in several assets, the most significant of which are Pokrovske Colliery and Svyato-Varvarinskaya Enrichment Plant. This is in line with the Group’s strategic priority of improving self-sufficiency in coking coal to strengthen vertical integration.

Metinvest’s performance was buoyed by rising global steel prices amid strong demand in all regions, as well as a spike in premiums for both Fe content and pellets, despite a drop in the 62% Fe iron ore benchmark. While global protectionism remains a concern amid trade disputes between the US, Europe and China, we are confident of being able to mitigate any negative impact on our business.

Revenues surged by 58% year-on-year to US$6,179 million amid higher prices, a greater share of in-house product volumes and higher resales. Sales in Ukraine soared by 80% year-on-year, driven by recovering demand as the economy continued to grow for the 10th consecutive quarter. Ukraine’s GDP rose by 3.1% year-on-year in the first quarter of 2018 and an even stronger 3.8% year-on-year in the second quarter.

Europe remains our priority market for steel and iron, accounting for 32% of metallurgical sales and 46% of mining sales. The Middle East and North Africa region confirmed its status of a fast-growing market, as our sales there doubled year-on-year.

Higher prices and volumes translated into improved EBITDA, which surged by 59% year-on-year to US$1,335 million. Importantly, resales contributed US$184 million of this. The EBITDA margin reached 22%, up 1 percentage point year-on-year, amid a higher contribution from the Metallurgical segment.

With the ongoing implementation of our Technological Strategy 2030, capital expenditure doubled year-on-year to US$420 million, while the share of expansion projects grew to 37%. Free cash flow totalled US$360 million, given the strong EBITDA and the dividends from our mining joint venture.

In April, Metinvest successfully completed the refinancing of its US$2,271 million of debt, which allowed it to extend its debt maturity profile, decrease total funding costs and secure a longer-term capital structure. The Group remains committed to further deleveraging, having voluntarily repaid US$237 million under the syndicated facility in May and July. This brought our net leverage ratio to below 1.0 times, the market standard for investment-grade companies. Metinvest’s financing strategy also envisages using ECA facilities offering cheaper and longer funding for investment projects. In July, the Group secured its first facility covered by an Austrian export guarantee, with a tenor of seven years.

Looking ahead, we remain cautiously optimistic. In 2019, there is potential for some turbulence due to the elections in Ukraine and uncertainty about future global growth. Nonetheless, we believe that there will always be demand for high-quality products, which should underpin global steel and iron ore prices, and quality is central to our Technological Strategy 2030.”


Results of operations 1H 2018 1H 2017 Change, y-o-y
US$ mn % of revenues  US$ mn % of revenues US$ mn % pp of revenues
Revenues 6 179 100% 3 913 100% 2 266 58% -
Cost of sales -4 739 -77% -3 006 -77% -1 733 58% -
Gross profit 1 440 23% 907 23% 533 59% -
Distribution costs -432 -7% -361 -9% -71 20% 2
General and administrative expenses -104 -2% -93 -2% -11 12% -
Other operating expenses -66 -1% 13 0% -79 <-100% -1
Operating profit 838 14% 466 12% 372 80% 2
Results of the loss of control over the assets located on temporarily non-controlled territory - 0% -329 -8% 329 - 8
Finance income 115 2% 74 2% 41 55% -
Finance costs -206 -3% -143 -4% -63 44% 1
Share of result of associates and JV 91 1% 118 3% -27 -23% -2
Profit before income tax 838 14% 186 5% 652 >100% 9
Income tax -170 -3% -114 -3% -56 49% -
Net profit 668 11% 72 2% 596 >100% 9



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 1H 2018 1H 2017 Change, y-o-y
US$ mn % of revenues US$ mn % of revenues US$ mn % pp of revenues
Total revenues 6 179 100% 3 913 100% 2 265 58% -
Ukraine 1 676 27% 931 24% 746 80% 3
Europe 2 096 34% 1 473 38% 622 42% -4
MENA 1 267 21% 628 16% 639 >100% 5
CIS (ex Ukraine) 410 7% 348 9% 62 18% -2
Southeast Asia 260 4% 282 7% -22 -8% -3
North America 388 6% 222 6% 166 75% -
Other regions 82 1% 29 1% 53 >100% -

In 1H 2018, Metinvest’s consolidated revenues increased by 58% y-o-y to US$6,179 mn due to several factors. First, steel selling prices rose y-o-y in line with global benchmarks, while iron ore realised prices grew amid higher premiums for quality and focus on priority markets. Second, stronger demand spurred greater sales volumes of pig iron, slabs, flat products, coke and pellets. Third, the volume of goods and services for resale surged.

In 1H 2018, revenues in Ukraine amounted to US$1,676 mn, up 80% y-o-y, primarily due to increased selling prices, as well as higher sales volumes of flat (+288 kt) and long (+50 kt) products amid greater local demand, as the economic upturn continued. Real GDP increased by 3.1% y-o-y in 1Q 2018 and 3.8% in 2Q 2018 [1]. Apparent consumption of steel products (excluding pipes) in Ukraine rose by 6.4% y-o-y to 2.7 mt [2] in 1H 2018, supported by stable demand in key steel-consuming industries. Economic activity climbed by 2.8% y-o-y in the construction sector [3], 6.6% y-o-y in the machine-building industry1 and 4.9% in the hardware production sector2. Moreover, sales of coke and pellets increased by 591 kt and 772 kt, respectively, amid stronger demand. As a result, the share of Ukraine in consolidated revenues rose by 3 pp y-o-y to 27%.

International sales increased by 51% y-o-y to US$4,503 mn in 1H 2018, accounting for 73% of consolidated revenues. Sales to Europe rose by 42% y-o-y amid higher realised prices of steel and iron ore products, as well as greater sales volumes of semi-finished (+468 kt), long (+126 kt) and iron ore (+1,134 kt) products. At the same time, the region’s share in consolidated revenues was 34%, down 4 pp y-o-y. Sales to the Middle East and North Africa (MENA) doubled y-o-y amid greater sales volumes of semi-finished (+780 kt) and flat (+175 kt) products, as well as higher selling prices of all products, boosting MENA’s share in consolidated revenues by 5 pp y-o-y to 21%. Sales to the CIS (ex Ukraine) rose by 18% y-o-y, due to higher selling prices and volumes of both flat and long products. Meanwhile, the region’s share in consolidated revenues decreased by 2 pp y-o-y to 7%. Sales to North America rose by 75% y-o-y, mainly due to higher pig iron prices and volumes (+452 kt), while the region’s share in consolidated revenues remained flat y-o-y at 6%. Sales in Southeast Asia dropped by 8% y-o-y, mainly due to lower volumes of iron ore products (-1,749 kt). As a result, that market’s share in consolidated revenues fell by 3 pp y-o-y to 4%. Sales to other regions tripled y-o-y, which helped keep their share in consolidated revenues flat y-o-y at 1%.


Metallurgical segment [3]

The Metallurgical segment generates revenues from sales of pig iron, steel and coke products and services. In 1H 2018, its revenues increased by 68% y-o-y to US$5,313 mn, driven by higher selling prices, stronger demand for Metinvest’s products and greater resales. Sales of flat products rose by US$658 mn, square billets by US$376 mn, pig iron by US$352 mn, coke by US$203 mn, slabs by US$202 mn, long products by US$187 mn, tubular products by US$4 mn and other products and services by US$164 mn. In 1H 2018, the Metallurgical segment accounted for 86% of external sales (81% in 1H 2017).


Metallurgical segment
Sales by market
1H 2018 1H 2017 Change, y-o-y Change, y-o-y %
US$ mn % of reven. kt US$ mn % of reven. kt US$ mn kt US$ mn kt
Total sales 5 313 100% 8 919 3 165 100% 5 900 2 147 3 020 68% 51%
Ukraine 1 318 25% 2 055 669 21% 1 105 650 950 97% 86%
Europe 1 701 32% 2 711 1 213 38% 2 218 488 493 40% 22%
MENA 1 267 24% 2 204 628 20% 1 279 639 926 >100% 72%
CIS (ex Ukraine) 410 8% 587 348 11% 559 62 29 18% 5%
Southeast Asia 155 3% 276 74 2% 161 81 115 >100% 72%
North America 387 7% 949 205 6% 517 182 432 89% 84%
Other regions 74 1% 136 29 1% 61 46 75 >100% >100%


Metallurgical segment
Sales by product
1H 2018 1H 2017 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 1 397 2 992 467 1 191 930 1 801 >100% 48% >100%
Pig iron 572 1 468 220 617 352 852 >100% 22% >100%
incl. resales 203 520 8 22 195 499 >100% >100% >100%
Slabs 422 754 220 506 202 247 92% 43% 49%
Square billets 403 770 27 68 376 702 >100% >100% >100%
incl. resales 403 770 - - 403 770 - - -
Finished products 3 209 4 890 2 359 4 262 850 627 36% 21% 15%
Flat products 2 661 4 068 2 003 3 595 658 474 33% 20% 13%
incl. resales 984 1 638 684 1 328 300 310 44% 21% 23%
Long products 503 754 315 597 187 157 59% 33% 26%
incl. resales 175 285 7 15 168 270 >100% >100% >100%
Tubular products 45 68 41 71 4 -3 11% 15% -5%
Coke 344 1 038 140 447 203 591 >100% 13% >100%
Other products and services 363 - 199 - 164 - 82% - -
Total sales 5 313 8 919 3 165 5 900 2 147 3 019 68% 17% 51%


Pig iron

In 1H 2018, sales of pig iron increased by around 160% y-o-y to US$572 mn, primarily driven by a comparable hike in sales volumes. Volumes rose by 852 kt y-o-y to 1,468 kt, as a result of strong market demand for the Group’s pig iron (+353 kt) and greater resales (+499 kt). The share of resales in total sales volumes reached 35% in 1H 2018 (+31 pp y-o-y). Sales to all markets climbed y-o-y, primarily North America (+452 kt), Europe (+202 kt) and MENA (+98 kt), following greater orders from existing and new customers. In addition, increased average selling prices also contributed to higher sales.



In 1H 2018, sales of slabs increased by 92% y-o-y to US$422 mn, of which 49 pp was attributable to greater sales volumes and 43% to higher average selling prices. Volumes rose by 247 kt y-o-y to 754 kt, spurred by demand and supported by greater production, as well as lower sales in 1H 2017 resulting in stock increase. The share of Europe in slab sales volumes reached 68% (+5 pp y-o-y), following an increase of 198 kt in sales to the region amid greater orders from customers in Italy and sales to new clients in France and Romania. The rise in the average selling price followed the benchmark for slabs (FOB Black Sea), which rose by 32% y-o-y.

Square billets

In 1H 2018, sales of square billets reached US$403 mn (US$27 mn in 1H 2017), due to comparable growth in sales volumes and a jump in the average selling price. Volumes rose by 702 kt y-o-y to 770 kt as a result of higher resales and were primarily sold in MENA, which accounted for 89% of sales. Average selling prices followed the dynamics of the square billet FOB Black Sea benchmark, which climbed by 32% y-o-y.


Flat products 

In 1H 2018, sales of flat products surged by 33% y-o-y to US$2,661 mn, of which 20 pp was attributable to a higher average selling price and 13 pp to greater sales volumes. Volumes increased by 474 kt y-o-y to 4,068 kt, while resales of Zaporizhstal’s goods rose by 310 kt y-o-y to 1,638 kt, helping to boost their share in total sales volumes by 3 pp y-o-y to 40% in 1H 2018. Sales to Ukraine climbed by 288 kt, as a local competitor left the market in 1Q 2017. Sales to Europe dropped by 105 kt due to redirection of hot-rolled coil (HRC) to MENA, which was partly compensated by greater sales of hot-rolled plates and galvanised flat products. 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 26% y-o-y.

Long products 

In 1H 2018, sales of long products jumped by 59% y-o-y to US$503 mn, of which 33 pp was attributable to higher selling prices and 26 pp to greater sales volumes. Volumes increased by 157 kt y-o-y to 754 kt, following the launch of resales. At the same time, the positive y-o-y price trend on all markets for long products was due to stronger billet quotations: the billet FOB Black Sea benchmark rose by 32% y-o-y.


Tubular products 

In 1H 2018, sales of tubular products increased by 11% y-o-y to US$45 mn following a higher average selling price. This was partly offset by lower sales volumes, which dropped by 5% y-o-y to 68 kt, given weaker demand in the CIS (ex Ukraine).



In 1H 2018, sales of coke soared by around 150% y-o-y to US$344 mn, primarily following a comparable increase in sales volumes (or 591 kt) to 1,038 kt, driven by greater orders in Ukraine. In addition, the average selling price rose by 13% y-o-y.


Mining segment

The Mining segment generates revenues from sales of iron ore, coal and other products and services. In 1H 2018, its revenues were up 16% y-o-y to US$866 mn, driven by greater sales volumes of pellets, which offer higher margins than iron ore concentrate. In addition, average realised prices of iron ore products increased y-o-y amid strong quality premiums and greater sales to higher-margin markets. As a result, external sales of pellets increased by US$166 mn, while sales of iron ore concentrate decreased by US$62 mn. At the same time, sales of coking coal concentrate dropped by US$30 mn due to higher intragroup consumption. Sales of other products and services rose by US$44 mn. In 1H 2018, the Mining segment accounted for 16% of external sales (19% in 1H 2017).


Mining segment
Sales by market
1H 2018 1H 2017 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 866 100% 7 667 748 100% 8 042 118 -376 16% -5%
Ukraine 358 41% 2 635 262 35% 2 236 96 399 37% 18%
Europe 394 46% 3 933 260 35% 2 800 134 1 134 52% 40%
MENA - - - - - - - - - -
CIS (ex Ukraine) - - - - - - - - - -
Southeast Asia 104 12% 978 208 28% 2 727 -104 -1 749 -50% -64%
North America 2 0% 47 18 2% 280 -16 -233 -89% -83%
Other regions 8 1% 73 - - - 8 73 - -


Mining segment
Sales by product
1H 2018 1H 2017 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 711 7 464 607 7 560 104 -96 17% 18% -1%
Merchant iron ore concentrate 292 3 854 354 5 142 -62 -1 288 -18% 8% -25%
Pellets 419 3 610 253 2 418 166 1 192 65% 16% 49%
Coking coal concentrate 38 202 68 482 -30 -280 -44% 14% -58%
Other products and services 117 - 73 - 44 - 60% - -
Total sales 866 7 667 748 8 042 118 -376 16% 20% -5%

Iron ore concentrate

In 1H 2018, sales of merchant iron ore concentrate decreased by 18% y-o-y to US$292 mn, primarily due to lower sales volumes (25 pp), which was partly compensated by a higher average selling price (8 pp). Volumes dropped by 1,288 kt y-o-y to 3,854 kt amid lower merchant product output and higher intragroup consumption. Given the premiums in Europe and weaker demand in Ukraine, sales to Europe increased by 554 kt y-o-y, resulting in lower sales in Ukraine (-327 kt) and Southeast Asia (-1,589 kt). The average selling price rose y-o-y as a result of higher premiums for Fe content globally and a change in the basis for pricing in Europe and Southeast Asia to the 65% Fe benchmark. At the same time, the 62% Fe iron ore fines CFR China benchmark fell by 6% y-o-y to an average of US$70/t in 1H 2018, up from US$74/t a year earlier.


In 1H 2018, sales of pellets rose by 65% y-o-y to US$419 mn, primarily following a 49% increase in sales volumes to 3,610 kt amid stronger demand in such strategic markets as Europe (580 kt y-o-y) and Ukraine (772 kt y-o-y). Meanwhile, sales to Southeast Asia fell by 160 kt y-o-y, as this is an opportunistic market for this product. At the same time, the average selling prices on all markets increased y-o-y following stronger pellets premium quotations.

Coking coal concentrate

In 1H 2018, sales of coking coal concentrate declined by 44% y-o-y to US$38 mn, driven by a 58% drop in volumes to 202 kt amid higher internal consumption, which affected sales in North America and Ukraine. This was partly offset by a higher average selling price given Ukraine’s greater share in total sales volumes. Meanwhile, the average selling price in both Ukraine and North America decreased y-o-y following an increase of the share of less expensive coal and cheaper steam coal respectively in sales.


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 1H 2018, cost of sales rose by 58% y-o-y to US$4,739 mn, primarily attributable to:


  • higher cost of goods and services for resale (US$1,090 mn), mainly pig iron and steel products;
  • greater cost of purchased raw materials (US$203 mn), primarily amid higher consumption of third-party coal (US$113 mn) and billets for further re-rolling (US$116 mn);
  • greater spending on raw material transportation (US$116 mn), mainly amid an increase in railway costs in the US related to internal coal supplies, upward tariff indexation by the Ukrainian state railway operator and greater rail shipments;
  • higher energy materials expenses (US$91 mn) amid higher prices and consumption; and
  • greater labour costs (US$46 mn) amid increased salaries and corresponding social security expenses.

As a percentage of consolidated revenues, cost of sales remained flat y-o-y at 77% in 1H 2018.

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 1H 2018, distribution costs increased by 20% y-o-y to US$432 mn mainly due to higher expenses on railway, freight and other transportation services. Railway costs rose by US$26 mn following a 15% railway tariff increase in Ukraine from April 2018 on the back of greater iron ore and steel product distribution by rail. Freight costs rose by US$14 mn amid greater steel sales volumes to Europe, MENA, North America and Southeast Asia, as well as higher freight tariffs globally following a 35% y-o-y increase in crude oil prices, which was partly offset by a 64% drop in iron ore sales to China. Other transportation expenses on loading, unloading and storage rose by US$23 mn due to higher pig iron sales to North America, flat product sales to MENA and Southeast Asia.

As a share of consolidated revenues, distribution costs decreased by 2 pp y-o-y to 7% in 1H 2018.

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 service expenses; insurance costs; and leasing expenses.

In 1H 2018, general and administrative costs increased by 12% y-o-y to US$104 mn, primarily amid higher expenses on wages and salaries and service fees.

As a share of consolidated revenues, general and administrative costs remained flat y-o-y at 2% in 1H 2018.

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 1H 2018, other operating expenses amounted to US$66 mn compared with US$13 mn of other operating income a year earlier. This was primarily attributable to operating foreign exchange losses of US$54 mn in 1H 2018, compared with operating foreign exchange gains of US$28 mn in 1H 2017. At the same time, sponsorship and other charitable spending increased by US$4 mn. This was partly compensated by higher other income, which rose by US$18 mn y-o-y.

As a share of consolidated revenues, other operating expenses amounted to 1% in 1H 2018 (0% in 1H 2017).

Operating profit

In 1H 2018, operating profit rose by 80% y-o-y to US$838 mn amid higher revenues (US$2,266 mn), which was partly offset by higher operating expenses (US$1,894 mn). The operating margin rose by 2 pp y-o-y to 14% in 1H 2018.



In 1H 2018, consolidated EBITDA soared by 59% y-o-y to US$1,335 mn, primarily driven by an increase in the Metallurgical segment’s EBITDA of US$550 mn. At the same time, the Mining segment’s EBITDA dropped by US$91 mn, while corporate overheads and eliminations decreased by US$37 mn. As a result, the segments’ shares in total EBITDA (before adjusting for corporate overheads and eliminations) changed y-o-y: the Metallurgical segment contributed 54% in 1H 2018 (22% in 1H 2017) and the Mining segment 46% (78% in 1H 2017).


EBITDA by segment 1H 2018 1H 2017 Change, y-o-y
US$ mn % of segment revenues US$ mn % of segment revenues US$ mn pp of segment revenues
Metallurgical segment 755 14% 205 6% 550 8
- incl. JV 82   78   4  
Mining segment 638 35% 729 41% -91 -6
- incl. JV 84   101   -17  
Corporate o/hs and eliminations -58   -95   37  
Total EBITDA 1 335 22% 839 21% 496 1


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

  • a rise in sales prices of Metinvest’s products (US$638 mn);
  • greater sales volumes of the Group’s pig iron, slabs, flat products, coke and pellets (US$354 mn); and
  • higher earnings on resales due to increased prices and volumes (US$184 mn).


These factors were partly offset by:

  • higher cost of raw materials (US$203 mn), primarily due to greater consumption of purchased coal driven by a 25% y-o-y rise in coke output and purchased billets as feedstock to roll at Promet Steel;
  • greater logistics costs (US$186 mn), mainly amid increased shipment volumes of raw materials and finished goods, as well as higher freight and railway tariffs;
  • more spending on energy (US$91 mn), due to due to higher natural gas prices (+16% y-o-y) and electricity tariffs (+14% y-o-y), as well as greater consumption of natural gas amid a 14% y-o-y increase in hot metal output;
  • higher other costs (US$188 mn) amid higher labour costs, repairs and maintenance expenses, as well as spending on other services; and
  • lower contributions from the JVs (US$12 mn), particularly Southern GOK.

In 1H 2018, the consolidated EBITDA margin increased by 1 pp y-o-y to 22%. The Metallurgical segment’s EBITDA margin rose by 8 pp y-o-y to 14% in 1H 2018, while the Mining segment’s dropped by 6 pp y-o-y to 35%.

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 1H 2018, finance income increased by 55% y-o-q to US$115 mn following higher forex gains from financing activities. This reflects the hryvnia appreciation against major foreign currencies in the first half of 2018, which mainly originated on intragroup dividends payable balances.

As a percentage of consolidated revenues, finance income amounted to 2% in the reporting period, flat y-o-y.

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 1H 2018, finance costs rose by 44% y-o-y to US$206 mn, mainly due to expenses relating to the refinancing transaction. This was partly compensated by lower interest expenses (US$18 mn) following a decrease in the amount outstanding under the PXF facility and the repayment of seller notes.

As a percentage of consolidated revenues, finance costs decreased by 1 pp y-o-y to 3% in 1H 2018.

Share of result of associates and joint venture

In 1H 2018, the share of net income from associates and joint ventures fell by 23% y-o-y to US$91 mn, due to a lower contribution from the Southern GOK JV (US$50 mn), which was partly compensated by a higher contribution from the Zaporizhstal JV (US$24 mn).

Income tax expense

Metinvest is subject to taxation in several jurisdictions, depending on the residence of its subsidiaries. In 1H 2018, corporate income tax rates were as follows: 18% in Ukraine (18% in 1H 2017), 10% in Switzerland (10% in 1H 2017), 10-28% in the EU (10-34% in 1H 2017) and 35% in the US (35% in 1H 2017).

In 1H 2018, the income tax expense increased by 49% y-o-y to US$170 mn, due to a higher current tax expense, which rose by US$84 mn y-o-y as a result of the improved profitability of each business segment. At the same time, deferred tax assets increased by US$28 mn y-o-y, as a significant amount of the seized enterprises’ deferred tax assets arising on tax losses carried forward were written off in 1H 2017.

The effective tax rate, calculated as total income tax divided by profit before tax, was 20% in 1H 2018 (20% in 1H 2017 as adjusted for the loss of seized assets).

Net profit

In 1H 2018, net profit amounted to US$668 mn, compared with US$72 mn a year earlier, primarily due to higher revenues (US$2,266 mn), no impact from the loss of control over the assets located on temporarily non-controlled territory (US$329 mn) and higher finance income (US$41 mn). These factors were partly offset by a hike in operating expenses (US$1,894 mn), higher finance costs (US$63 mn), greater income tax (US$56 mn) and a lower share of result of associates and JVs (US$27 mn).

The net margin amounted to 11% in 1H 2018, up 9 pp y-o-y.



Net cash from operating activities

In 1H 2018, Metinvest’s net cash flow from operating activities increased by 50% y-o-y to US$457 mn, driven by a rise in profit before income tax. It was affected by an outflow of working capital (US$356 mn), higher income tax paid (US$122 mn) and greater interest paid (US$104 mn).

The negative change in working capital in 1H 2018 was attributable to an increase in trade and other accounts receivable of US$467 mn, primarily amid higher sales, and inventories of US$36 mn, which were partly compensated by a rise in trade and other accounts payable of US$147 mn. Working capital as a percentage of the last 12-month’s revenues remained flat y-t-d at 18%.

Net cash used in investing activities

In 1H 2018, net cash used in investing activities fell by 43% y-o-y to US$97 mn, mainly due to US$261 mn of dividends received from the Southern GOK JV. Meanwhile, total cash used to purchase property, plant and equipment and intangible assets doubled y-o-y to US$363 mn, as the Group continued to implement its Technological Strategy 2030. Interest received totalled US$5 mn (US$10 mn in 1H 2017).

Net cash used in financing activities

In 1H 2018, net cash used in financing activities doubled y-o-y to US$240 mn. Although Metinvest raised US$1,419 mn of gross new proceeds from the refinancing, several minor bank term loans and finance lease, it used US$1,503 mn to reduce its liabilities, both voluntarily and as per the agreed schedule under several debt instruments. This compares with no new proceeds raised and US$2 mn of loans and borrowings repaid during the corresponding period of 2017. Other finance costs increased by 37% y-o-y to US$78 mn, primarily due to a premium paid to bondholders for tendering bonds due 2021 and other refinance-related expenses. Net repayments under trade finance facilities totalled US$29 mn in 1H 2018, compared with US$13 mn of net new proceeds received under such facilities in 1H 2017. In addition, dividends paid amounted to US$29 mn in 1H 2018, while payments for the acquisition of non-controlling interests in subsidiaries totalled US$13 mn.

At the end of June 2018, gross debt was US$2,891 mn (down 4% y-t-d), the cash balance was US$370 mn (up 43% y-t-d) and net debt excluding subordinated shareholder loans was US$2,263 mn (down 1% y-t-d).

Capital expenditure

In 1H 2018, capital expenditure doubled y-o-y to US$420 mn. The expenditure on maintenance projects rose by 53% y-o-y and amounted to 63% of total investments (89% in 1H 2017), while that on expansion projects jumped by almost eight times y-o-y and amounted to 37% (11% in 1H 2017). The Metallurgical segment accounted for 65% of capital expenditure (37% in 1H 2017) and Mining for 35% (61% in 1H 2017). Capital expenditure on corporate overheads amounted to US$3 mn in 1H 2018, down 31% y-o-y. 

Several strategic projects continue at the Group’s steelmakers. One key initiative at Ilyich Steel is the ongoing construction of continuous casting machine no. 4, which is expected to be launched by the end of 2018. After the commissioning of the facility, the ingot casting area will be taken out of operation and the blooming mill will be shut down. The launch of the machine will also enable the plant to cut costs by reducing metal losses and energy consumption, while increasing output of crude steel and finished products. The new equipment is designed to have continuous casting production capacity of 2.5 mt/y and will boost the steelmaker’s total capacity by 1.5 mt/y to around 4 mt/y, as another continuous casting machine will be shut down. As a result, casting production capacity will be balanced with existing hot metal capacity. The new equipment will also contribute to environmental improvements in Mariupol.

Another large-scale expansion initiative under way at Ilyich Steel is the reconstruction of the 1700 hot strip mill. 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 due to be ready in 2H 2018, after which work will start and commissioning is expected in 2Q 2019.

Azovstal is conducting 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 has been postponed to 1Q 2019 due to delays with engineering and a lack of personnel of contractors. In parallel, construction of PCI facilities at the facility continues. PCI injection has been also postponed to 1Q 2019 to align with the major overhaul schedule.

The key ongoing environmental project is the reconstruction of the sinter plant at Ilyich Steel. In April 2018, new bag hose filters of the second-phase gas cleaning system were put into operation on sintering machines nos. 7-9. Cyclone replacement on sintering machines nos. 9-11 continues. Progress has been made on other environmental projects, such as a major overhaul of gas-cleaning equipment of secondary steel treatment facilities at Azovstal and extensive maintenance of over-chambers at Avdiivka Coke and Zaporizhia Coke.

In 4Q 2017, Metinvest Shipping decided to purchase 1,800 open rail wagons to deliver raw materials and dispatch finished products. the aim being to mitigate the impact from the shortage of rolling stock in Ukraine. Among other things, this is due to lower turnover of rail cars at Ukrainian Railways over 2012-17. A total of 800 open wagons were purchased by the end of 2017, while the rest was 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. The replacement of the last one, no. 5, is expected in 2H 2018.


[1] Source: National Bank of Ukraine

[2] Source: Metal Expert

[3] Source: State Statistics Service of Ukraine

[4] 2017 resale volumes were updated

share кнопка открытия/закрытия "поделиться"
download pdf