Moody’s Investors Service has upgraded corporate family rating (CFR) and probability of default rating (PDR) of Metinvest B.V. (Metinvest) to B2 from B3. Concurrently, the rating outlooks on Metinvest’s ratings were revised to stable from positive, Moody’s has said in a press release.
The stable outlook on Metinvest’s ratings is in line with the stable outlook on Ukraine’s sovereign rating, and reflects Moody’s expectation that the company will sustain strong operating and financial performance for their rating level and will maintain healthy liquidity.
Metinvest has fairly broad goals of reducing environmental footprint and introducing more efficient energy-saving technologies in order to meet the best global standards in this area. In 2019, Metinvest spent around $384 million (2018: $263 million) in environmental projects, including $155 million of capital spending.
“Being a vertically integrated company, Metinvest takes responsibility for the whole production chain and continues to improve the environmental footprint of its segments,” Moody’s said.
The corporate governance risks are mitigated by the fact that Metinvest demonstrates a good level of public information disclosure, including a track record of regular public reporting of audited consolidated financial statements prepared in accordance with IFRS as well as quarterly operational reporting.
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 United States, as well as a sales network covering all key global markets.
Metinvest, an international vertically integrated group of mining and metallurgical companies, has conducted a comprehensive assessment of its environmental performance, social policy and corporate governance (ESG) with the assistance of Sustainalytics, a leading independent provider of research, ratings and data in the field of ESG.
“This is the first time that Sustainalytics has assessed Metinvest’s ESG performance using its ESG Risk Ratings methodology. An ESG Risk Ratings score is a measure of unmanaged ESG risks on an absolute scale of 0-100, with a lower score signaling less unmanaged ESG risks,” the group said on its website.
“Metinvest received an overall ESG Risk Rating score of 32.0. While the risk of experiencing material financial impacts driven by ESG factors was assessed as high due to the steel industry’s significant exposure, Sustainalytics recognized the Group’s management of material ESG issues as strong,” the report says.
“Notably, Metinvest’s management in such areas as human capital, occupational health and safety, as well as community relations was assessed as strong. In addition, Sustainalytics assigned a high score for the group’s corporate governance and its adherence to high standards of business ethics,” it says.
“When compared with industry peers, Metinvest is ranked at ninth place out of the 140 steel companies assessed by Sustainalytics worldwide,” according to the document.
“We recognize that mining and steel manufacturing always have a high level of exposure relative to many other industries. Metinvest consistently takes into account environmental, social and governance factors in its business decisions, therefore we have launched our first external assessment in the ESG field as part of our overall commitment to business transparency. We believe that measuring our ESG performance helps us to better understand our strengths and weaknesses for further sustainable development. We have received vital feedback and analyzed how we can build more robust risk management institutions to ensure the group’s continued industry leadership,” Yuriy Ryzhenkov, the Chief Executive Officer of Metinvest, said.
“ESG topics are gaining importance worldwide for all groups of stakeholders, including lenders. We believe that this rating assigned to the group by Sustainalytics will help to alleviate the decision-making process in funds allocation for our existing and future investors and creditors,” Oleksandr Liubarev, the Corporate Finance and Treasury Director at Metinvest, said.
MetinvestB.V. (the Netherlands), the parent company of the Metinvest mining and metallurgical group, received consolidated revenues declined by 11% in January-March 2020 compared to the same period in 2019, to $2.536 billion.
According to the preliminary unaudited consolidated financial statements released on Friday, May 29, the adjusted EBITDA was $373 million over the first quarter, which is 14% lower than during the same period in 2019.
Within the reporting period, consolidated revenues decreased mainly due to lower metal sales prices that followed the global benchmarks, as well as the effects of coronavirus (COVID-19) pandemic on business activity and steel demand in several strategic markets for the Group. Furthermore, resale volumes decreased. In addition, selling prices of coking coal concentrate and coke fell following a drop in coking coal benchmark quotations.
Moreover, the iron ore sales mix and geography were affected by weak demand in Europe and reduced pellet premiums. At the same time, Metinvest boosted its revenues from merchant iron ore concentrate due to higher sales volumes and selling prices amid global supply disruptions.
In the first quarter of 2020, revenues in Ukraine declined by 6% compared to the same period in 2019, to $726 million, mainly due to lower selling prices of steel products, coke and coking coal concentrate, as well as lower coke resale volumes. The share of Ukraine in consolidated revenues rose by 2 percentage points (p.p.), to 29%.
Other markets’ sales decreased by 13%, to $1.810 billion accounting for 71% of total revenue. In particular, revenues from Europe decreased by 23%, mainly due to lower selling prices of steel products and pellet premiums, as well as lower shipments of iron ore products (down 42%) and flat (down 7%) products. As a result, the region’s share in overall revenue declined by 5 p.p., to 32%.
The revenue of the metallurgical segment decreased by 14%, to $2.018 billion in the first quarter of 2020 mainly driven by lower sales of flat products ($203 million), coke ($59 million) and square billets ($33 million). Overall, the segment accounted for 80% of the overall top line, own 1 p.p. lower compared to the same period in 2019.
The mining segment’s revenues decreased by 2%, to $518 million, primarily driven by a lower contribution from pellets ($81 million) and other products and services ($34 million). This was partly compensated by greater revenues from iron ore concentrate ($88 million) and coking coal concentrate ($16 million). In the reporting period, the segment accounted for 20% of the overall top line, to 1 p.p. higher than the same period in 2019.
The group’s consolidated EBITDA amounted to $373 million in January-March, which is 14% lower than in January-March 2019. This was driven by a decrease in the Mining segment’s contribution of $89 million and an increase in eliminations of $70 million. The metallurgical segment’s EBITDA increased by $98 million.
The decrease in consolidated EBITDA was primarily driven by lower average selling prices for Metinvest’s metal products, coke and coking coal concentrate, as well as weaker pellet premiums ($ 189 million) and the 9% year-over-year appreciation of the hryvnia against the U.S. dollar to an average of UAH 25.04 the U.S. dollar compared with UAH 27.30 per the U.S. dollar in January-March 2019 ($54 million). In addition, this was due to a 15% salary increase mainly for production personnel in April 2019 and corresponding social security expenses ($25 million), a deteriorated contribution from the Zaporizhstal JV ($11 million), as well as greater spending on goods transportation services ($10 million), mainly due to a 3.7 fold increase in iron ore sales volumes to Southeast Asia.
These factors were partially compensated by lower spending on raw materials by $152 million, mainly as a result of reduced purchase prices of coking coal, coke, scrap and iron ore materials ($93 million); lower consumption of coking coal due to a 12% y-o-y drop in coke output; lower y-o-y inventory destocking; and lower raw material transportation costs. It was also compensated by lower expenses on energy materials of $37 million, mainly due to a decrease in natural gas prices by 42% and PCI coal by 23%, a higher contribution from the Southern GOK JV ($14 million); greater sales volumes ($5 million), primarily iron ore and coking coal concentrate. In addition, a decrease in other expenses by $20 million, mainly amid lower repair and maintenance expenses.
In the first quarter of 2020, the consolidated EBITDA margin remained flat at 15% compared to the same period in 2019. The Metallurgical segment’s EBITDA margin increased by 5 p.p., to 8%, while the mining segment’s fell by 5 p.p., to 37%.
As of March 31, 2020, total debt was up 2% since the beginning of 2020, to $3.107 billion. This was mainly due to greater use of trade finance facilities ($31 million); a consolidation of Dnipro Coke’s debt ($28 million) after obtaining the controlling interest in the asset in March; and an increase in interest accrued under bonds ($20 million). Thus, in 2020, EUR 34 million has been secured for such purpose sat Ilyich Steel through two buyer credit facilities granted by Raiffeisen Bank International: one of EUR 24.4 million for up to 11 years for the construction of an air separation unit and vaporisation station covered by an export guarantee from France; and another of EUR 9.8 million for up to ten years for the purchase and installation of a hydraulic down coiler for the HSM1700covered by an export guarantee from Austria.
As of March 31, 2020, cash and cash equivalents amounted to $328 million (an increase of 20% since the beginning of 2020), net debt amounted to $2.779 billion (an increase of 1% from the beginning of 2020), and the ratio of net debt to EBITDA for the last 12 months amounted to 2.4x (an increase of 0.1x from the beginning of 2020).
Metinvest B.V. (the Netherlands), the parent company of the Metinvest mining and metallurgical group, paid a $22.6 million coupon on newly issued eurobonds maturing in 2029.
“We paid the coupon. This is a regular payment. The company usually does not make any announcements on such payments,” the Metinvest’s press service told Interfax-Ukraine.
Metinvest issued 2029 bonds on October 17, 2019 as part of the group’s successful debut placement of bonds in two currencies and the completion of a transaction to extend the maturity of outstanding eurobonds. In particular, 10-year $500 million eurobonds were placed at 7.95% per annum and five-year EUR 300 million eurobonds at 5.75% per annum.
Bond -2029 were added to the high-yield CEMBI indices after their regular recalculation on November 29, 2019: CEMBI Broad and CEMBI Broad Diversified.
The enterprises of Metinvest Group, the largest Ukrainian mining and metallurgical holding, according to the results of operational improvement measures implemented in January-March 2020 brought $53.8 million of economic effect, of which about $25 million fell to Mariupol-based Illich Iron and Steel Works and Azovstal Iron and Steel Works.
The Metinvest-Mariupol division said on its Facebook page on Monday, May 4, that the greatest result was made by Azovstal, which reduced electricity consumption in the thick-sheet workshop and significantly reduced the length of the sheet production by using a manual marker for machine sheet marking after hot plate leveller. In the lime-burning workshop, the amount of calcine limestone was increased by 2% at a similar gas flow rate due to a change in the torch type of the furnace burner. Due to the implementation of these and other measures, the metallurgical plant saved $17.6 million.
In turn, Illich Iron and Steel Works in the first quarter following the replacement of four furnace carriage coke feed in the blast-furnace workshop with the three furnace carriage coke feed reduced coke and electricity consumption. In the lime-burning workshop, an increase in the load weight of 60 kg per furnace carriage allowed to save natural gas, without reducing the productivity and quality characteristics of the products. Due to a qualitatively new interaction between the remote sections of combined heat and power plants (CHPP), which previously belonged to CHPP-1 and CHPP-2, the minimum emission of blast furnace gas to flare was achieved and additional electricity generation was obtained. The economic effect of operational improvements introduced at the plant amounted to $7.3 million in January-March 2020.
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 United States, as well as a sales network covering all key global markets. Metinvest business is divided for financial reporting purposes into two segments: metallurgical and mining. The group ended the first quarter with revenues of $2.9 billion and an EBITDA margin was 15%.
Metinvest Holding LLC is the management company of Metinvest Group.