Trading update for the first nine months of 2016

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.

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.

FINANCIAL HIGHLIGHTS

1. Adjusted EBITDA is calculated as earnings before income tax, financial income and costs, depreciation and amortisation, impairment and devaluation of property, plant and equipment, foreign exchange gains and losses (starting from 1 January 2015), the share of results of associates and other expenses that the management considers non-core, plus the share in EBITDA of joint ventures. We will refer to adjusted EBITDA as EBITDA throughout this release.

2. CAPEX is calculated on an accrual basis (recognition).

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 the sum of long-term and short-term loans and borrowings and seller notes less cash and cash equivalents.

Revenues

In 9M 2016, Metinvest’s consolidated revenues decreased by 15% y-o-y to US$4,568 million. This was primarily due to lower selling prices of steel, iron ore and coal products, which hit their lowest over the last 10 years in 1Q 2016. Since then, prices have recovered to some extent but have remained volatile. In addition, weak demand in key markets caused sales volumes of flat products, pipes, coke and pellets to drop.

Revenues in Ukraine totalled US$1,148 million in 9M 2016, down 5% y-o-y. The decline was mainly driven by lower sales prices of key products, as well as lower volumes of coke and coking coal concentrate. This was partly compensated by higher sales volumes of flat, long and iron ore products. Meanwhile, the share of Ukraine in consolidated revenues increased by 3 percentage points (pp) y-o-y to 25%.

International sales dropped by 18% y-o-y to US$3,420 million, while the breakdown by market changed. The proportion of sales to Europe rose by 3 pp y-o-y to 36%, mainly due to higher sales volumes of long and iron ore products. The share of the Middle East and North Africa (MENA) dropped by 3 pp y-o-y to 16% amid lower selling prices of key products and sales volumes of pig iron, billets and pellets. The proportion of sales to Southeast Asia decreased by 4 pp y-o-y to 8%, driven by lower selling prices and volumes of flat and iron ore products. The share of North America increased by 1 pp y-o-y to 5%, mainly due to greater sales of pig iron and coking coal concentrate.

Metallurgical segment

The Metallurgical segment generates revenues from sales of pig iron, steel and coke products and services. In 9M 2016, its top line fell by 14% y-o-y to US$3,681 million. The drop was attributable to lower sales of flat (US$351 million), semi-finished (US$164 million), tubular (US$62 million) and coke (US$93 million) products. Meanwhile, sales of long products and other products and services rose by US$73 million and US$22 million respectively. The share of finished products in the steel sales mix rose to 77% in 9M 2016, up 2 pp y-o-y, as more square billets were reallocated for making higher-margin long products. In 9M 2016, the segment accounted for 81% of external sales (79% in 9M 2015).

Pig iron 

In 9M 2016, sales of pig iron decreased by 11% y-o-y to US$260 million, primarily due to a slump in selling prices. At the same time, sales volumes increased by 3% y-o-y (or 34 thousand tonnes) to 1,073 thousand tonnes, driven by higher overall production (38 thousand tonnes) and destocking (66 thousand tonnes). This was partly offset by lower re-sales of Zaporizhstal’s pig iron, which declined by 65 thousand tonnes y-o-y to 120 thousand tonnes in 9M 2016. Sales volumes in Southeast Asia increased by 24 thousand tonnes y-o-y, due to shipments to a new client in Bangladesh. Sales volumes in North America increased by 216 thousand tonnes y-o-y, as new long-term contracts with US customers were concluded. To fulfil its obligations under these contracts, Metinvest redirected volumes from other markets: 126 thousand tonnes from MENA, 12 thousand tonnes from Europe and 35 thousand tonnes from other regions.

Slabs 

In 9M 2016, sales of slabs declined by 13% y-o-y to US$186 million. This was caused by a drop in the average selling price (-18 pp), partly compensated by higher sales volumes (+5 pp). In the period, volumes increased by 30 thousand tonnes y-o-y to 594 thousand tonnes, amid greater demand in Southeast Asia, MENA and other regions. At the same time, volumes to Europe decreased by 33 thousand tonnes y-o-y, mainly due to lower sales to Italy.

Square billets

In 9M 2016, sales of square billets decreased by 56% y-o-y to US$83 million, of which 13 pp was attributable to a slump in the average selling price and 43 pp to a drop in sales volumes, mainly to MENA, amid lower production. Meanwhile, MENA remained the main market, accounting for 51% of total sales volumes, supported by regular sales to key clients. Sales volumes to other regions increased by 20 thousand tonnes y-o-y, due to some sales in the Dominican Republic. 

Flat products

In 9M 2016, sales of flat products decreased by 14% y-o-y to US$2,139 million, due to a decline in the average selling price (-12 pp) and sales volumes (-2 pp). Total volumes declined by 103 thousand tonnes y-o-y to 5,125 thousand tonnes. At the same, re-sales of Zaporizhstal’s flat products dropped by 122 thousand tonnes y-o-y to 1,955 thousand tonnes, reducing their share in total sales volumes by 2 pp y-o-y to 38% in 9M 2016. Volumes to Europe fell by 127 thousand tonnes y-o-y, caused by lower sales to Italy. Volumes to Southeast Asia dropped by 118 thousand tonnes y-o-y amid antidumping duties and protective measures imposed by the Indian government and the redirection of volumes to other markets. In contrast, sales volumes in Ukraine increased by 74 thousand tonnes y-o-y as a result of higher sales of galvanised and polymer-coated sheets in 9M 2016. Sales volumes to Russia rose by 33 thousand tonnes y-o-y, due to lower sales in the comparable period of 2015, when that market was less attractive than others. 

Long products 

In 9M 2016, sales of long products rose by 14% y-o-y to US$603 million, driven by a 29% y-o-y increase in sales volumes to 1,435 thousand tonnes amid higher demand and overall production. As such, sales to all regions increased, except the CIS (ex Ukraine). Meanwhile, the negative y-o-y price trend on all markets for long products was due to weaker scrap and billet quotations.

Tubular products

In 9M 2016, sales of tubular products amounted to US$1 million, down 99% y-o-y, as Khartsyzk Pipe has been idle since June 2015 amid a lack of orders. 

Coke 

In 9M 2016, sales of coke declined by 44% y-o-y to US$118 million, of which 28 pp was attributable to a lower average selling price and 17 pp to a decrease in sales volumes. Volumes contracted by 168 thousand tonnes y-o-y to 842 thousand tonnes, driven by lower sales in Ukraine.

Mining segment

The Mining segment generates revenues from sales of iron ore, coal and other products and services. In 9M 2016, its top line dropped by 22% y-o-y to US$887 million, mainly because of a slump in iron ore and coal products, as well as lower sales volumes of pellets. In 9M 2016, the segment accounted for 19% of external sales (21% in 9M 2015).