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Metinvest announces financial results for the first six months of 2017

10 October 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 unaudited IFRS interim condensed consolidated financial statements for the six months ended 30 June 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 results1H 20171H 2016Change, y-o-y
US$ mn%
Income statement highlights  
  Revenues 3,913 2,880 1,033 36%
  Adjusted EBITDA1 839 580 259 45%
    Margin 21% 20% 1 pp
  Net profit 72 90 -18 -20%
    Margin 2% 3% -1 pp
Cash flow highlights  
Net cash from operations 305 163 142 87%
Net cash used in investing activities -169 -109 -60 55%
    incl. purchase of PPE and intangible assets2 -179 -130 -49 38%
Net cash used in financing activities -106 -50 -56 >100%
Summary - financial results30.06.201731.12.2016Change, YTD
US$ mn%
    Total debt3 2,949 2,969 -20 -1%
    Cash and cash equivalents4 258 226 32 14%
Key ratios   
    Net debt5/EBITDA6 1.9x 2.4x -0.5x
    Consolidated Net Leverage Ratio7 1.7x 2.1x   -0.4x


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, KrasnodonCoal 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 1H 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, 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, seller notes and subordinated shareholder loans less cash and cash equivalents.

6. EBITDA for the last 12 months.

7. Calculated in line with the Trust Deed.


Summary - production results1H 20171H 2016Change, y-o-y
Crude steel 3,923 4,187 -264 -6%
  Azovstal 2,166 1,809 357 20%
  Ilyich Steel 1,488 1,427 61 4%
  Yenakiieve Steel 269 951 -682 -72%
Iron ore concentrate 13,649 15,811 -2,162 -14%
  Northern GOK 5,544 6,269 -725 -12%
  Ingulets GOK 5,788 6,901 -1,113 -16%
  Central GOK 2,317 2,641 -324 -12%
Coking coal concentrate 1,447 1,580 -133 -8%
  Krasnodon Coal 129 323 -193 -60%
  United Coal 1,317 1,257 60 5%



  • On March 15, assets owned by PJSC Yenakiieve I&SW (including its Makiivka branch), Ukrainian-Swiss JV Metalen, PJSC Khartsyzk Pipe, PJSC Krasnodon Coal, PJSC Komsomolske Flux, PJSC Donetsk Coke and 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.
  • Avdiivka Coke sustained power supply cuts in early 2017 as a result of heavy shelling that damaged the power transmission lines. In May, the plant resumed operations at 100% of capacity after a three-month forced shutdown once a new high-voltage line to the plant was installed on territory controlled by the Ukrainian government.
  • The Group launched 32 new steel products, mainly heavy plates, hot-rolled and cold-rolled coils, as well as galvanized products used in construction, machine-building, shipbuilding and pipe production.



  • In January, 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.
  • In May, Metinvest secured a new five-year financing facility from Caterpillar Financial Ukraine to lease mining equipment for Ingulets GOK for the total value of around US$17 mn.
  • Following the implementation of the debt restructuring, international rating agencies Moody’s and Fitch both upgraded Metinvest’s credit ratings to ‘Caa1’ (‘positive’ outlook) and ‘B’ (‘stable’ outlook).

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

“In the first half of 2017, Metinvest proved able to successfully adapt to abrupt changes in the operating environment thanks to its robust business model and dedicated team. Amid favourable steel and iron ore prices and the ongoing economic recovery in Ukraine, the Group delivered a respectable financial performance.

During the reporting period, rising global demand pushed steel and iron ore prices to recover further from their recent multi-year lows. The dominant driver on both the demand and supply sides of the steel market was China, which increased domestic infrastructure investments while working to improve its steel industry’s efficiency by cutting excess steel production capacity. Global iron ore demand was driven by growing steel production and delayed new production capacity launches. While global price volatility remains a key concern, we are cautiously optimistic.

In Ukraine, the economic revival continues. The first and second quarters of the year were sustained by respective 2.5% and 2.3% year-on-year GDP growth and a relatively calm local currency. Buoyed by the resurgent economy, steel-consuming industries have driven demand for our products.

In the last few years, Metinvest has demonstrated the extraordinary resilience of its business and the skill of its people in dealing with adversity. Despite losing control over several facilities in the non-government controlled regions of Eastern Ukraine in March, we have maximised our available production capacity and adjusted the raw material supply chain to be able to work without disruption:

  • We have increased steel production at our Mariupol steelmakers (up 20% at Azovstal and 4% at Ilyich Steel), although total crude steel output declined 6% year-on-year to 3,923 thousand tonnes. As part of our Technological strategy review, we intend to invest to increase their annual capacity, focusing on boosting the share of higher value-added products.
  • The Group has found new third-party sources of steel billets for its Bulgarian re-roller to replace square billets produced at Yenakiieve Steel.
  • Metinvest has increased capacity at its US mines and sourced third-party supplies from Australia, Canada and the US to replace coal produced at Krasnodon Coal.

In addition, Avdiivka Coke has resumed operations at full capacity after the power supply vulnerability was eliminated following the installation of a new electricity transmission line on government-controlled territory.

Over the reporting period, the Group’s iron ore concentrate production fell by 14% to 13,649 thousand tonnes, mainly due to insufficient maintenance CAPEX during the previous challenging years. We have reversed this prolonged downward production trend by beginning to expand our heavy truck fleet. This resulted in a 4% quarter-on-quarter increase in concentrate production in the second quarter of 2017, marking the first improvement in this metric since the end of 2015. We devote particular attention to the quality of our iron ore products. In 2017, Northern GOK launched production of pellets from concentrate with a high Fe content from Ingulets GOK with a view to accessing the premium market segment. Our long-term strategy regarding iron ore is to pursue quality over quantity while maintaining low costs.

In the reporting period, we delivered a strong set of financial results, reflecting our operational performance and the year-on-year improvement in market conditions. Revenues grew by 36% y-o-y to US$3,913 million. Ukraine and the European Union remained our priority markets, accounting for 24% and 38% of sales, respectively, during the period. We also continued to develop the Middle East and North Africa market, taking advantage of Ukraine’s unique geographic position and the resulting logistical advantages.

EBITDA jumped by 45% to US$839 million, although profitability shifted again to the Mining segment (78% EBITDA contribution), which benefited from high iron ore prices. The Metallurgical segment’s performance was under pressure amid high raw material prices and impairment of seized inventories.

Operating cash flow for the period was US$305 million. It was affected by an outflow of working capital, which was heavily impacted by the required changes in our operating model and the loss of some local iron ore customers with operations in the non-government controlled parts of Ukraine. We finally stabilized our working capital in June, when we released US$50 million, and we will continue to work to resolve the issue completely.

As we continued to implement strategic CAPEX projects catching up on underinvestment in maintenance, free cash flow for the period amounted to US$126 million, which we spent on debt service. With a degree of stabilization in the operating environment, we began to pay contingent interest to senior creditors via a cash sweep set up by the restructuring agreements. We are also exploring all potential sources of financing within our limitations to match our long-term capex plans, including ECA financing and leasing. In May, after the restructuring was completed – and for the first time since 2013 – we secured a new long-term facility to lease mining equipment. Our goal remains to return to international debt capital markets at the earliest opportunity.

In the second half of 2017, the focus will be on maintaining operations without disruption by securing raw material suppliers, as well as on implementing the CAPEX programme.

We would like to thank our clients, investors, creditors, employees and other stakeholders for their support during a challenging and eventful first half of 2017. We are confident that the second half of the year will prove encouraging.”



Results of operations1H 20171H 2016Change, y-o-y
US$ mn% of revenues US$ mn% of revenuesUS$ mn%pp of revenues
Revenues 3,913 100% 2,880 100% 1,033 36% -
Cost of sales -3,006 -77% -2,240 -78% -766 34% 1
Gross profit 907 23% 640 22% 267 42% 1
  Distribution costs -361 -9% -347 -12% -14 4% 3
  General and administrative expenses -93 -2% -82 -3% -11 13% 1
  Other operating income 13 0% -5 0% 18 - -
Operating profit 466 12% 206 7% 260 >100% 5
Results of the loss of control over the assets located on temporarily non-controlled territory -329 -8% - 0% -329 - -8
  Finance income 74 2% 13 0% 61 >100% 2
  Finance costs -143 -4% -178 -6% 35 -20% 2
  Share of result of associates and JV 118 3% 70 2% 48 69% 1
Profit before income tax 186 5% 111 4% 75 68% 1
 Income tax -114 -3% -21 -1% -93 >100% -2
Net profit 72 2% 90 3% -18 -20% -1



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 market1H 20171H 2016Change, y-o-y
US$ mn% of revenuesUS$ mn% of revenuesUS$ mn%pp of revenues
Total revenues 3,913 100% 2,880 100% 1,033 36% -
  Ukraine 931 24% 698 24% 233 33% -
  Europe 1,473 38% 1,035 36% 439 42% 2
  MENA 628 16% 488 17% 140 29% -1
  CIS (ex Ukraine) 348 9% 226 8% 122 54% 1
  Southeast Asia 282 7% 270 9% 12 5% -2
  North America 222 6% 133 5% 89 67% 1
  Other regions 29 1% 29 1% -1 -3% -

In 1H 2017, Metinvest’s consolidated revenues increased by 36% y-o-y to US$3,913 mn. This was primarily due to a recovery in global prices for steel, iron ore and coal products, after they hit the lowest levels seen in the past several years in 1Q 2016. In addition, stronger demand spurred higher sales of slabs (+164 kt) and flat products (+96 kt), which partly compensated for lower sales of square billets (-148 kt) and long products (-317 kt) following the loss of control over Yenakiieve Steel since March 2017.

In 1H 2017, revenues in Ukraine amounted to US$931 mn, up 33% y-o-y, primarily due to better selling prices, as well as higher sales volumes of flat products amid greater local demand as the economic upturn continued. Real GDP was up 2.5% y-o-y in 1Q 2017 and 2.3% y-o-y in 2Q 2017[1]. Apparent consumption of steel products (excluding pipes) in Ukraine rose by 3.8% y-o-y to 2.6 mt[2] in 1H 2017, supported by renewed real demand in key steel-consuming industries. Economic activity was up 24.6% y-o-y in the construction sector1 and by 7.4% y-o-y in the machine-building industry1. Regarding iron ore products, sales in Ukraine decreased by 2,040 kt amid weaker demand as shipments to some customers in Eastern Ukraine stopped and some other customers temporarily shut down their operations. Meanwhile, Ukraine’s share of consolidated revenues remained flat y-o-y at 24%.

International sales accounted for 76% of consolidated revenues in 1H 2017. The biggest changes in market shares were for Europe and Southeast Asia. Europe’s share reached 38%, up 2 percentage points (pp) y-o-y, following 42% growth in sales to the region amid higher sales volumes of slabs (+131 kt) and iron ore products (+1,370 kt), as well as a hike in selling prices for all products. The share of sales to Southeast Asia decreased by 2 pp y-o-y to 7% as sales to this market increased by a marginal 4% y-o-y: higher selling prices and greater sales volumes of slabs, flat products and pellets were almost offset by lower volumes of iron ore concentrate (-1,952 kt).


Metallurgical segment

The Metallurgical segment generates revenues from sales of pig iron, steel and coke products and services. In 1H 2017, its revenues increased by 38% y-o-y to US$3,165 mn. In particular, sales of flat products rose by US$643 mn, slabs by US$124 mn, pig iron by US$76 mn, coke by US$62 mn and other products and services by US$61 mn. This was partly offset by lower sales of long products (US$56 mn) and square billets (US$35 mn). In 1H 2017, the Metallurgical segment accounted for 81% of external sales (80% in 1H 2016).

Metallurgical segment.
Sales by market
1H 20171H 2016Change, y-o-yChange, y-o-y %
US$ mn% of revenuesktUS$ mn% of revenuesktUS$ mnktUS$ mnkt
Total sales 3,165 100% 5,828 2,290 100% 6,175 875 -347 38% -6%
Ukraine 669 21% 1,066 484 21% 1,153 185 -87 38% -8%
Europe 1,213 38% 2,218 956 42% 2,475 257 -257 27% -10%
MENA 628 20% 1,279 488 21% 1,525 140 -246 29% -16%
CIS (ex Ukraine) 348 11% 527 226 10% 508 122 19 54% 4%
Southeast Asia 74 2% 161 28 1% 102 46 58 >100% 57%
North America 205 6% 517 79 3% 330 126 187 >100% 57%
Other regions 29 1% 61 29 1% 83 -1 -22 -3% -27%

Metallurgical segment
Sales by product
1H 20171H 2016Change, y-o-yChange, y-o-y %
US$ mnktUS$ mnktUS$ mnktUS$ mndue to pricedue to volume
Semi-finished products 467 1,191 302 1,197 165 -7 55% 55% -1%
  Pig iron 220 617 144 639 76 -23 52% 56% -4%
    incl. Zaporizhstal 8 22 15 74 -8 -53 -49% 22% -71%
  Slabs 220 506 96 343 124 164 >100% 81% 48%
  Square billets 27 68 62 215 -35 -148 -56% 12% -69%
Finished products 2,318 4,191 1,730 4,412 588 -221 34% 39% -5%
  Flat products 2,007 3,603 1,364 3,507 643 96 47% 44% 3%
    incl. Zaporizhstal 688 1,336 454 1,372 235 -36 52% 54% -3%
  Long products 311 589 367 905 -56 -317 -15% 20% -35%
Coke 140 447 78 566 62 -119 80% 101% -21%
Other products and services 240 - 179 - 61 - 34% - -
Total sales 3,165 5,829 2,290 6,175 876 -347 38% 44% -6%


Pig iron

In 1H 2017, sales of pig iron increased by 52% y-o-y to US$220 mn amid a rebound in the average selling price. Meanwhile, volumes declined by 4% (or 23 kt) y-o-y to 617 kt due to lower re-sales of Zaporizhstal’s pig iron (-53 kt) and destocking in 1H 2016. Given favourable market conditions, sales to North America and other regions grew by 142 kt and 25 kt, respectively. To fulfil orders in these markets, volumes were redirected from the Middle East and North Africa (MENA, 148 kt) and Europe (24 kt) amid lower demand from local consumers. At the same time, sales to Southeast Asia fell by 24 kt due to a one-off shipment to a client in Bangladesh in 1H 2016.


In 1H 2017, sales of slabs more than doubled y-o-y to US$220 mn, driven by a hike in the average selling price and a 48% uptick in sales volumes. Volumes rose by 164 kt y-o-y to 506 kt due to higher production amid stronger demand. Volumes to Europe were up 131 kt due to greater orders from customers in Italy and sales to a new client in Hungary. In addition, sales to Southeast Asia and Ukraine increased by 41 kt and 5 kt, respectively. Meanwhile, volumes to MENA decreased by 12 kt due lower sales to Turkey.

Square billets

In 1H 2017, sales of square billets dropped by 56% y-o-y to US$27 mn, primarily due to lower sales volumes. This was caused by the shutdown of Yenakiieve Steel in February 2017 due to the rail blockade in the zone between the territory controlled by Ukraine and the non-government controlled area, and the subsequent loss of control over the enterprise from 15 March 2017. As a result, there have been no external sales of billets since February 2017.

Flat products

In 1H 2017, sales of flat products surged by 47% y-o-y to US$2,007 mn, of which 44 pp was attributable to a higher average selling price and 3 pp to greater sales volumes. Volumes increased by 96 kt y-o-y to 3,603 kt, while re-sales of Zaporizhstal’s flat products dropped by 36 kt y-o-y to 1,336 kt, reducing their share in total sales volumes by 2 pp y-o-y to 37% in 1H 2017. Sales to Ukraine were up 102 kt as a local competitor left the market in 1Q 2017. Sales to Europe decreased by 121 kt as volumes were redistributed to other regions to account for 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 1H 2017, sales of long products subsided by 15% y-o-y to US$311 mn, caused by a 35% drop in sales volumes due to lower production levels and the loss of control over Yenakiieve Steel. Lower available volumes (589 kt), which were allocated between regions to maximise margin, were partly offset by higher selling prices on all markets for long products due to stronger billet quotations.


In 1H 2017, sales of coke increased by 80% y-o-y to US$140 mn, due to a doubling in the average selling price. This was partly offset by lower sales volumes, which declined by 21% (or 119 kt) y-o-y to 447 kt amid lower sales in Ukraine.


Mining segment

The Mining segment generates revenues from sales of iron ore, coal and other products and services. In 1H 2017, its revenues were up 27% y-o-y to US$748 mn, mainly due to higher iron ore and coal selling prices, which followed global benchmarks. This was partly offset by lower sales volumes amid lower overall production of iron ore products and coking coal concentrate. As a result, external sales of pellets increased by US$79 mn, iron ore concentrate by US$53 mn and other products and services by US$29 mn. Meanwhile, sales of coking coal concentrate dropped by US$3 mn. In 1H 2017, the Mining segment accounted for 19% of external sales (20% in 1H 2016).

Mining segment
Sales by market
1H 20171H 2016Change, y-o-yChange, y-o-y %
US$ mn% of revenuesktUS$ mn% of revenuesktUS$ mnktUS$ mnkt
Total sales 748 100% 8,042 590 100% 10,931 158 -2,888 27% -26%
Ukraine 262 35% 2,236 214 36% 4,249 48 -2,012 22% -47%
Europe 260 35% 2,800 79 13% 1,429 181 1,370 >100% 96%
MENA - - - 1 0% 14 -1 -14 - -
CIS (ex Ukraine) - - - - - - - - - -
Southeast Asia 208 28% 2,727 242 41% 4,541 -34 -1,814 -14% -40%
North America 18 2% 280 54 9% 698 -37 -418 -68% -60%
Other regions - - - - - - - - - -

Mining segment
Sales by product
1H 20171H 2016Change, y-o-yChange, y-o-y %
US$ mnktUS$ mnktUS$ mnktUS$ mndue to pricedue to volume
Iron ore products 607 7,560 475 10,058 132 -2,497 28% 53% -25%
Merchant iron ore concentrate 354 5,142 301 7,227 53 -2,085 17% 46% -29%
Pellets 253 2,418 174 2,831 79 -412 46% 60% -15%
Coking coal concentrate 68 482 71 873 -3 -391 -5% 40% -45%
Other products and services 73 - 44 - 29 - 67% - -
Total sales 748 8,042 590 10,931 158 -2,888 27% 53% -26%


Iron ore concentrate

In 1H 2017, sales of merchant iron ore concentrate increased by 17% y-o-y to US$354 mn, primarily due to an uptick in the average selling price. The latter followed the benchmark [3], which surged by 43% y-o-y to an average of US$74/t in 1H 2017, up from US$52/t a year earlier. Meanwhile, sales volumes dropped by 29% (or 2,085 kt) y-o-y to 5,142 kt as a result of lower production, higher inventories in 1H 2017 amid reduced intragroup consumption, and weaker demand in Ukraine compared with destocking in 1H 2016. As such, sales in Ukraine dropped by 956 kt as shipments to some customers in the eastern region stopped and other key customers temporarily shut down their operations. At the same time, sales to Europe – one of Metinvest’s priority markets for iron ore – rose by 823 kt. The remaining available volumes were sold to Southeast Asia, although volumes to that region were down 1,952 kt y-o-y.



In 1H 2017, sales of pellets increased by 46% y-o-y to US$253 mn, driven by a surge in the average selling price in line with the benchmark. At the same time, sales volumes decreased by 15% (or 412 kt) y-o-y to 2,418 kt as a result of lower production. Sales to Europe were up 547 kt amid stronger demand, which raised the region’s share in total sales volumes of pellets to 55% (+27 pp y-o-y) in 1H 2017. Meanwhile, sales to Ukraine dropped by 1,083 kt y-o-y due to the disruption of key customers’ operations. This led to higher sales to Southeast Asia (+138 kt), which is an opportunistic market for this product.


Coking coal concentrate

In 1H 2017, sales of coking coal concentrate declined by 5% y-o-y to US$68 mn amid a 45% drop in sales volumes, which was partly offset by higher average selling prices. Volumes fell by 391 kt y-o-y to 482 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 1H 2017, cost of sales rose by 34% y-o-y to US$3,006 mn, primarily attributable to:

  • higher purchase prices for raw materials (US$414 mn), including coal (US$305 mn), coke (US$55 mn), scrap (US$37 mn) and iron ore (US$17 mn);
  • higher cost of goods and services for resale (US$277 mn), mainly goods from Zaporizhstal and coal;
  • greater transportation expenses (US$92 mn), mainly amid a 15% upward tariff indexation by the Ukrainian state railway operator on 30 April 2016 and a change in other delivery terms;
  • higher services and other costs (US$71 mn) due to greater expenses on subsoil use tax, lease, insurance, blasting and drilling, as well as a net reversal of an inventory write-down in 1H 2016 of US$45 mn that was created at the end of 2015 due to sales of respective inventories, an increase in steel prices, and a recovery in gross margins; and
  • more spending on energy (US$28 mn) amid higher natural gas prices and electricity tariffs for Ukrainian assets, as well as greater consumption of fuel and gas.

These factors were partly offset by:

  • favourable movements in the USD/UAH exchange rate (US$88 mn); and
  • higher positive change in WIP and FG, which came to US$181 mn in 1H 2017 compared with US$46 mn in 1H 2016, mainly due to a rise in stocks of coal.

As a percentage of consolidated revenues, cost of sales decreased by 1 pp y-o-y to 77% in 1H 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 1H 2017, distribution costs were up 4% y-o-y to US$361 mn. Freight costs rose by US$45 mn, as higher crude oil prices inflated sea freight tariffs. This was partly offset by lower shipments of iron ore products to Southeast Asia, which also contributed to a decrease in other transportation costs of US$40 mn amid lower expenses on loading, unloading and storage in port. Railway costs increased, mainly due to a 15% upward tariff indexation by the Ukrainian state railway operator on 30 April 2016 and higher rail shipment volumes to Europe.

As a share of consolidated revenues, distribution costs fell by 3 pp y-o-y to 9% in 1H 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 lease.

In 1H 2017, general and administrative costs increased by 13% y-o-y to US$93 mn, mainly amid higher labour expenses.

As a share of consolidated revenues, general and administrative costs declined by 1 pp y-o-y to 2% in 1H 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 1H 2017, other operating income amounted to US$13 mn compared with US$5 mn of other operating expenses a year earlier. This was mainly due to higher operating foreign exchange gains (US$24 mn) as a result of revaluating trade receivables and trade payables.

As a share of consolidated revenues, other operating income remained flat y-o-y at 0% in 1H 2017.


Operating profit

In 1H 2017, operating profit doubled y-o-y to US$466 mn, primarily amid a hike in revenues of US$1,033 mn. This was partly offset by an increase in operating expenses of US$773 mn, which was caused by a number of factors, including higher prices for raw materials, energy and goods for resale. In 1H 2017, the operating margin increased by 5 pp y-o-y to positive 12%.



In 1H 2017, EBITDA soared by US$259 mn y-o-y to US$839 mn, driven by an increase in the contribution from the Mining segment of US$474 mn. The Metallurgical segment’s EBITDA decreased by US$196 mn, while corporate overheads and eliminations rose by US$19 mn.

EBITDA by segment 1H 2017 1H 2016 Change, y-o-y
US$ mn % of segment revenues US$ mn % of segment revenues US$ mn pp of segment revenues
Metallurgical segment 205 6% 401 17% -196 -11
- incl. JV 78   69 9
Mining segment 729 41% 255 26% 474 15
- incl. JV 101   41 60
Corporate o/hs and eliminations -95   -76 -19
Total EBITDA 839 21% 580 20% 259 1


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

  • sales price growth (US$1,192 mn);
  • higher contributions from JVs (US$69 mn); and
  • an effect of the hryvnia devaluation of US$70 mn, as the USD/UAH exchange rate averaged 26.76 in 1H 2017, compared with 25.54 in 1H 2016.

These factors were partly offset by:

  • higher cost of raw materials (US$419 mn), primarily due to increased market prices for coal, coke, scrap and iron ore materials;
  • lower sales volumes (US$158 mn), mainly long products, square billets, iron ore products and coking coal concentrate;
  • greater logistics costs (US$109 mn), mainly due to rising freight tariffs, a 15% upward tariff indexation by the Ukrainian state railway operator on 30 April 2016 and higher rail shipment volumes;
  • impairment of seized inventories (US$92 mn);
  • higher spending on energy (US$28 mn), due to increased natural gas prices and electricity tariffs, as well as greater consumption of fuel and natural gas; and
  • higher other costs (US$266 mn), mainly due to higher purchase prices for resale goods (US$315 mn).

In 1H 2017, the consolidated EBITDA margin increased by 1 pp y-o-y to 21%. The Mining segment’s EBITDA margin grew by 15 pp y-o-y to 41%, while the Metallurgical segment’s dropped by 11 pp y-o-y to 6%.


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 2017, finance income increased to US$74 mn compared with US$13 mn a year earlier, driven by a forex gain from financing activities related to intragroup loans and dividends (US$60 mn). As a percentage of consolidated revenues, finance income rose by 2 pp y-o-y to 2% 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 1H 2017, finance costs dropped by 20% y-o-y to US$143 mn, as no foreign-exchange loss from financing activity was incurred on intragroup loans and dividends during the reporting period. As a percentage of consolidated revenues, the financial costs decreased by 2 pp y-o-y to 4% in 1H 2017.


Share of result of associates and joint venture

In 1H 2017, the share of net income from associates and joint ventures increased by 69% y-o-y to US$118 mn, mainly due to the improved results at Southern GOK (US$38 mn) and Zaporizhstal (US$7 mn).


Income tax expense

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

In 1H 2017, the income tax expense increased by US$93 mn y-o-y to US$114 mn due to both higher current and deferred tax. The current tax expense increased by US$70 mn y-o-y as a result of higher selling prices and increased profitability at iron ore producers. The deferred tax expense increased by US$23 mn y-o-y, primarily due to the write-off during the reporting period of US$20 mn of deferred tax assets related to accumulated tax losses from prior periods at Yenakiieve Steel and Khartsyzk Pipe, which were seized in March. 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 20% in 1H 2017 (19% in 1H 2016).

Net profit

In 1H 2017, net profit decreased by 20% y-o-y to US$72 mn due to:

  • a hike in operating expenses (US$773 mn), mainly amid higher prices for raw materials, energy and goods for resale;
  • the loss of control over the assets located on the temporarily non-government controlled territory (US$329 mn); and
  • higher income tax (US$93 mn).

These factors were partly offset by greater revenues (US$1,033 mn), higher finance income (US$61 mn), lower finance costs (US$35 mn) and a larger share of result of associates and JV (US$48 mn).

The net margin amounted to positive 2% in 1H 2017 (positive 3% in 1H 2016).



Net cash from operating activities

In 1H 2017, Metinvest’s net cash flow from operating activities increased by 87% y-o-y to US$305 mn, driven by higher profit before income tax. Operating cash flow was affected by a US$320 mn outflow of working capital in 1H 2017. This was mainly due to a US$352 mn increase in trade and other accounts receivable following selling price growth since the beginning of the year and spare iron ore capacity. Inventories increased by US$166 mn mainly due to iron ore overstock amid lower internal consumption following the loss of control over Yenakiieve Steel and the cessation of sales in Eastern Ukraine, as well as an accumulation of purchased coal stocks to secure steel production following the seizure of Krasnodon Coal.

Net cash used in investing activities

In 1H 2017, net cash used in investing activities increased by 55% y-o-y to US$169 mn. This stemmed mainly from the need to compensate for underinvestment in maintenance CAPEX amid the liquidity constraints experienced from 2014 until 1H 2016, as well as to the ongoing CAPEX programme implementation.

Net cash used in financing activities

In 1H 2017, Metinvest used US$106 mn in financing activities (US$50 mn in 1H 2016). This was primarily driven by a repayment of US$60 mn of seller notes during January-June 2017 via a coal cash sweep, which was put in place following their restructuring in January 2017. In addition, cash used on other financing activities, namely on legal and consulting expenses related to debt restructuring and consent fees to lenders, amounted to US$57 mn in 1H 2017 (US$9 mn in 1H 2016). This was partly offset by US$13 mn of net trade finance proceeds received in 1H 2017, compared with US$33 mn of net repayment in 1H 2016.

These factors drove total debt down by US$20 mn y-t-d to US$2,949 mn as of 30 June 2017. Meanwhile, Metinvest’s cash balance stood at US$258 mn, up 14% y-t-d.

Capital expenditure

In 1H 2017, capital expenditure totalled US$193 mn, up 66% y-o-y. The expenditure on maintenance projects amounted to 89% of total investments (64% in 1H 2016) and that on expansion projects to 11% (36% in 1H 2016). The Metallurgical segment accounted for 37% of capital expenditure (53% in 1H 2016) and Mining for 61% (46% in 1H 2016). Capital expenditure on corporate overheads amounted to US$5 mn in 1H 2017.

Metallurgical segment

One of the key strategic projects in the Metallurgical segment is the ongoing construction of continuous casting machine no. 4 at Ilyich Steel. The active stage of construction began in September 2016 and the launch is expected in late 2018. The new equipment is intended to boost productivity, cut costs significantly, improve steel product quality and reduce the environmental impact in Mariupol.

In August, after the reporting date, 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 the steel surface quality and considerably reduce the process waste during slab production. The mill will also expand its portfolio to include coils, which are in demand for downstream processing. The commissioning is expected before 2020.

Azovstal continues to construct PCI facilities at its blast furnaces. PCI injection in blast furnace no. 4 started as planned in November 2016. Construction work at blast furnace no. 2 began in December 2016 and the PCI injection started in September 2017. Blast furnace no. 3 will be equipped with the PCI technology next. In addition, in July 2017, the final investment decision was made to conduct a major overhaul of this blast furnace with the aim 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 at Ilyich Steel, including to rebuild the sinter plant.


Mining segment

In 1H 2017, 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 is expected to be commissioned in 4Q 2018) and Ingulets GOK (the Vostochny conveyor line).

In addition, 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 replaced: filter no. 1 was replaced in 2Q 2017 and the final filter, no. 5, is expected to be launched in December 2017.

[1] Source: State Statistics Service of Ukraine

[2] Source: Metal Expert

[3] 62% Fe iron ore fines CFR China

For editors:

 Andriy Bondarenko
Head of Investor Relations
Tel: +41 22 591 03 74 (Switzerland)
Tel: +380 44 251 83 24 (Ukraine)

Yana Kalmykova
Manager of Investor Relations
Tel: +380 44 251 83 36 (Ukraine)

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 segments, Metallurgical and Mining, and its strategic vision is to become a 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 six months ended 30 June 2017, the Group reported revenues of US$3.9 bn and an EBITDA margin of 21%.

METINVEST HOLDING LLC is the management company of Metinvest Group.