OREANDA-NEWS. July 5, 2011. Metinvest, the international vertically integrated steel and mining group of companies, today announced its audited consolidated IFRS financial results for the full year ended December 31, 2010.

Financial Highlights 

Consolidated revenues up 55.3% year-on-year to USD  9,358 million

Adjusted EBITDA1 up 82.3% year-on-year to USD  2,552 million with the margin increasing from 23.2% to 27.3%

Operating Profit up 56.1% year-on-year to USD  943 million

Net Profit up 30.8% year-on-year to USD  437 million

Capital expenditures up to 79.6% year-on-year to USD  582 million

Cash and cash equivalents of USD  449 million at the end of the period (vs. USD 159 million as of 31 December 2009)

Operating Highlights 

Crude steel production up 24.4% year on year to 8,744 thousand tonnes

Coking and steam coal (mined) up 3.7% year on year to 12,989 thousand tonnes

Iron ore concentrate production up 16.6% year on year to 35,726 thousands tonnes

Corporate Highlights

Acquisition of a 99% effective interest in the share capital of PJSC Ilyich Iron and Steel Works (“Ilyich Steel”)

Debut on the Eurobond market with a USD  500 million five-year issue

Issue of a 3-year USD  700 million syndicated pre-export finance facility

Receipt of a C4Gas SA’s Supplier Certificate and inclusion in the Gaz de France’s list of trusted suppliers

Igor Syry, Chief Executive Officer of Metinvest, commented: “In 2010, Metinvest continued to deliver growth and strengthening its market position across all target segments. Our efforts to introduce cost-control measures, increase efficiency and expand the share of higher-value steel products in the sales mix were generously paid off. Metinvest’s revenues were up by 55.3% year-on-year and the Company demonstrated one of the highest EBITDA profitability levels among regional steel and mining players. We successfully dealt with volatility in the global steel business and managed to generate strong cash flows.

One of the last year’s key achievements was the development of a long-term strategy aimed at maximizing potential of our business through greater vertical integration, improving our sales function and increasing productivity. Our goals are to process all of our iron ore in our own steel plants and improve the efficiency of our steelmaking. The acquisition and integration of PJSC Ilyich Iron and Steel Works was fully in line with the new strategy and allowed us to boost our annual steelmaking capacity to 15 million tonnes.

The year 2010 saw our successful debut on the Eurobond market. Our five-year USD  500 million issue was several times oversubscribed, proving a high level of interest to Metinvest’s investment story in international markets. Later in the year, we raised a three-year USD  700 million pre-export finance facility which became the largest loan facility to be secured by a Ukrainian private company for the last several years. Our ability to attract financing on favorable terms so quickly after the economic slow-down demonstrates the strength of our business and underlines investor confidence in our corporate governance and risk management.  

Our primary goal for 2011 is to boost steel output organically by improving technology at existing plants. We are planning to implement further investments in order to reinforce our vertical integration and increase output of finished products. We are fully focused on efficient implementation of our strategy and committed to delivering value for all our stakeholders.”  

GROUP FINANCIAL REVIEW

USD , million

FY 2010

FY 2009

∆, y-o-y

Sales - external

9,358

6,026

55.3%

Steel

5,708

3,990

43.1%

Coke and Coal

1,149

737

55.9%

Iron ore

2,501

1,299

92.5%

 

 

 

 

Sales - intersegment

2,083

1,177

77.0%

Steel

68

49

38.8%

Coke and Coal

1,052

602

74.8%

Iron ore

963

526

83.1%

 

 

1,177

55.3%

Adjusted EBITDA

2,552

1,400

82.3%

Steel

112

407

-72.5%

Coke and Coal

447

244

83.2%

Iron ore

2,097

811

158.6%

Eliminations and corp. overheads

-104

-62

-

 

 

 

 

EBITDA margin,%

27.3%

23.2%

4.1 pp

Steel

1.9%

10.1%

-8.2 pp

Coke and Coal

20.3%

18.2%

2.1 pp

Iron ore

60.5%

44.4%

16.1 pp

Revenues

In 2010, Metinvest's consolidated revenues amounted to USD 9,358 million, 55.3% higher than the USD 6,026 million in 2009. The Steel and Rolled Products division accounted for 61.0% of external revenues (compared with 66.2% in 2009), the Iron Ore division for 26.7% (21.6% in 2009) and the Coal and Coke division for 12.3% (12.2% in 2009). The key revenue drivers were resurgent demand for steel and higher, if volatile, prices of steel, iron ore and coking coal.

The Steel and Rolled Products division accounted for 51.6% of the increase in consolidated revenues in 2010. This was driven primarily by a year-on-year increase of 27.9% in sales volumes, as well as a 23.7% rise in average steel prices. Alongside the broader global economic recovery, this was helped by the start, from July, of sales of the products from Ilyich Iron and Steel Works, which was consolidated from 17 November 2010.

Iron ore sales were responsible for 36.1% of the rise in consolidated revenues in 2010. This was driven primarily by a year-on-year increase of 7.9% in sales volumes, as well as a 28.4% rise in average iron ore prices. The volume of iron ore products sold to external customers increased primarily due to a recovery in key sales markets and thus overall demand for the products. In particular, with the average price of iron ore products having been increasing, the Company’s three main iron ore plants have been operating at full capacity since July 2009.

Coke and Coal sales accounted for 12.3% of the increase in consolidated revenues last year. Higher prices of coking coal drove external revenue growth in the segment, particularly to customers in Ukraine, where overall production of high-grade coking coal fell.

Ukraine accounted for 36.9% of Metinvest’s total revenues in 2010 (compared with 27.1% in 2009), reflecting the economic rebound in the country, as well as associated strong demand for the Company’s products across its three production divisions. The rest of Europe accounted for 24.2% of revenues (18.7% in 2009) and South East Asia for 15.8% (23.0% in 2009). Please see Appendix 1 for further details on sales by region.

Cost of sales

Last year, the cost of sales amounted to USD 6,372, 46.0% higher than the USD 4,365 million in 2009. As a share of consolidated revenues, however, the cost of sales fell to 68.1%, down from 72.4% in 2009.

This drop was partly attributable to greater sales volumes and prices for Metinvest’s products, as certain elements of fixed costs remained relatively unchanged year-on-year. Importantly, there was a time lag between the rise in prices of products and of raw materials and other inputs, such as natural gas and electricity.

The results of the anti-crisis programme implemented during the economic turbulence in the second half of 2008 and throughout 2009 continued to deliver cost reductions in 2010.

Other expenses

Distribution costs rose to USD 820 million, 17.8% higher than the USD 696 million in 2009, primarily due to the increase in transportation costs as a result of higher sales volumes. General and administrative expenses came to USD 296 million, representing 3.2% of consolidated revenues and an increase of 10.9% compared with the USD 267 million in 2009, which was driven mainly by higher salaries.

Other operating expenses stood at USD 252 million, representing 2.7% of consolidated revenues, compared with USD 94 million in 2009.

During 2010, an impairment charge of goodwill of USD 675 million has been recorded against The Steel and Rolled Products division mainly in relation to the Group’s European assets acquired in 2008. The main reason for this impairment charge is the prolonged decline in margins of steel producers due to significantly increased prices for iron ore and coke and coal.

EBITDA

Metinvest’s consolidated adjusted EBITDA amounted to USD 2,552 million in 2010, 82.3% higher than the USD 1,400 million in 2009. The EBITDA margin increased to 27.3%, 4.1 percentage points above the 23.2% in 2009. The Iron Ore division accounted for 82.2% of Metinvest’s adjusted EBITDA, the Coal and Coke division for 17.5%, and the Steel and Rolled Products division for 4.4%.

Operating profit

Operating profit increased to USD 943 million in 2010, 56.1% higher than the USD 604 million in 2009. The operating margin stood at 10.1% (2009: 10.0%).

Finance income and costs

Finance income totalled USD 45 million in 2010, representing 0.5% of consolidated revenues and a rise of 4.7% above the USD 43 million in 2009.

Finance costs climbed by 47.3% to USD 246 million, compared with USD 167 million in 2009, amounting to 2.6% of consolidated revenues. The increase was primarily due to greater interest expenses on bonds issued and on long-term bank loans in 2010. In addition, interest rates on bank loans increased and a USD 30 million loss was recognized on  origination of financial receivables from related parties. Those components of finance costs were partly offset by lower net foreign-exchange losses from financing activities compared with 2009.

Income tax expense

In 2010, income tax expense rose by 91.5% to USD 270 million, compared with USD 141 million in 2009. This was primarily due to a 48.8% increase in pre-tax profit to USD 707 million, compared with USD 475 million in 2009. The effective tax rate applicable to the Company’s operations was 38.2%, compared with 29.7% in 2009. This change was mainly due to the 2010 pre-tax profit reflecting the USD 675 million goodwill impairment loss as well as changes in the Tax Code of Ukraine.

Net profit

Metinvest remained profitable during the financial crisis and continued to deliver solid bottom-line growth in 2010. Net profit climbed by 30.8% to USD 437 million in 2010, compared with USD 334 million in 2009, resulting in a net profit margin of 4.7%.

Dividends

In 2010, dividends paid to shareholders amounted to USD 685 million, an increase of more than 10-fold compared with the USD 58 million paid in 2009.

Consolidated cash flow

Cash generated from operations rose by 4.2% to USD 1,696 million in 2010, compared with USD 1,628 million in 2009. Net cash from operating activities was USD 1,035 million, compared with USD 1,210 million in 2009.

Net cash used in investing activities climbed by 51.0% to USD 740 million in 2010, compared with USD 490 million in 2009. The increase was mainly attributable to the purchase of property, plant and equipment as part of the investment programmes at the main production enterprises as well as the acquisition of Ilyich Iron and Steel Works.

Liquidity and capital resources

The Company seeks to maintain an optimal capital structure to reduce the cost of raising capital and ensure its long-term stability and ability to deliver returns to shareholders.

Metinvest’s cash balances stood at USD 449 million as at 31 December 2010, compared with USD 159 million a year earlier. Proceeds from bank loans and bond issued increased more than 10-fold to USD 1,351 million during the reporting period, compared with USD 115 million in 2009, while repayments of loans and borrowings totalled USD 624 million, versus USD 719 million in 2009.

Net debt (loans, borrowings and sellers’ notes less cash and cash equivalents) stood at USD 2,715 million as at 31 December 2010, compared with USD 2,275 million a year earlier.

Metinvest’s credit is rated by two international ratings agencies, Fitch (‘B’) and Moody’s (‘B2’), and is currently capped by Ukraine’s sovereign rating.

CAPEX

Metinvest’s capital expenditure climbed by 79.6% to USD 582 million in 2010, compared with USD 324 million in 2009. The Iron Ore division accounted for 43.6% of CAPEX, the Steel and Rolled Products division for 32.6%, and the Coke and Coal division for 23.0%. Corporate overheads accounted for less than 1%. Major capital investments last year included spending on plant and equipment at Ingulets GOK, Northern GOK, Central GOK, Yenakiieve Steel, United Coal and Krasnodon Coal.

Significant events after the end of the Reporting Period

On January 12, 2011, SCM’s facility, under which the Group had pledged 60% plus 1 share of each of PJSC Central Iron Ore Enrichment Works and PJSC Northern Iron Ore Enrichment Works was repaid in full. The pledges were released in March 2011.

On February 14, 2011, Metinvest issued USD  750 million 7-year Eurobond with a coupon of 8.75% and maturity on February 14, 2018. The placement was implemented within the framework of a USD  1 billion Euro Medium Term Notes (EMTN) programme.

On February 17, 2011, Metinvest secured USD  75 million 2-year pre-export loan facility from Rabobank Group.

On February 28, 2011, Metinvest’s subsidiary, PJSC Azovstal Iron and Steel Works, the second largest Ukrainian steel producer, has made the last coupon payment and redeemed 100% of its 5-year USD denominated debut Eurobond issue.

On March 9, 2011,  Metinvest secured USD  175 million 3-year amortized stand-by credit line from Sberbank of Russia.

On March 9, 2011, Metinvest’s subsidiary, PJSC Khartsyzsk Pipe Plant, a producer of large diameter pipes for oil and gas industry, has fully repaid a USD  39.5 million credit facility provided by VTB Bank (Ukraine) in June 2010. 

On April 12, 2011, Metinvest secured a USD  100 million 3-year pre-export loan facility from UniCredit.

APPENDIX 1

SALES BY REGIONS

FY 2010

FY 2009

∆ %, y-o-y

000 t

USD  m

000 t

USD  m

Steel

 

5,708

 

3,990

43.1%

Ukraine

1,715

1,282

801

536

139.2%

Europe

2,960

1,898

1,671

963

97.1%

Middle East & North Africa

1,381

729

1,290

543

34.3%

CIS (except Ukraine)

1,079

880

1,182

908

-3.1%

South east Asia

1,504

855

2,123

994

-14.0%

North America

15

10

-

-

-

Other regions

94

54

129

46

17.4%

 

 

 

 

 

 

Coal and coke

 

1,149

 

737

55.9%

Ukraine

3,204

681

2,905

377

80.6%

Europe

148

17

132

13

30.8%

Middle East & North Africa

162

37

183

31

19.4%

CIS (except Ukraine)

119

34

88

28

21.4%

South east Asia

2

3

4

3

0.0%

North America

3,247

358

2,277

285

25.6%

Other regions

77

19

-

-

-

 

 

 

 

 

 

Iron ore

 

2,501

 

1,299

92.5%

Ukraine

18,849

1,490

14,133

719

107.2%

Europe

3,168

348

2,310

150

132.0%

Middle East & North Africa

285

38

584

43

-11.6%

CIS (except Ukraine)

60

0

-

-

-

South east Asia

5,722

625

5,813

387

61.5%

North America

-

-

-

-

-

Other regions

-

-

-

-

-

APPENDIX 2

SALES BY PRODUCTS

FY 2010

FY 2009

∆ %, y-o-y

000 t

USD  m

000 t

USD  m

Steel

 

5,708

 

3,990

43.1%

Pig iron

62

25

69

20

25.0%

 

 

 

 

 

 

Semi-finished products

3,073

1,582

3,000

1,191

32.8%

Slabs

2,087

1,098

1,593

655

67.6%

Square billets

986

484

1,407

536

-9.7%

 

 

 

 

 

 

Finished products

5,613

4,101

4,127

2,779

47.6%

Flat products

2,762

2,005

1,470

1,064

88.4%

Long products

2,153

1,324

1,807

894

48.1%

Railway products

203

171

143

105

62.9%

Tubular products

304

366

534

643

-43.1%

Other products

191

72

173

73

-1.4%

Other services

-

163

-

-

-

 

 

 

 

 

 

Coal and coke

 

1,149

 

737

55.9%

Coking coal concentrate

3,090

491

2,560

337

45.7%

Steam coal concentrate

1,739

118

1,319

92

28.3%

Coke

1,291

351

762

123

185.4%

Other products

839

171

948

135

26.7%

Other services

-

18

-

50

-64.0%

 

 

 

 

 

 

Iron ore

 

2,501

 

1,299

92.5%

Concentrate

19,083

1,780

14,691

870

104.6%

Pellets

5,172

626

5,180

365

71.5%

Other products

3,829

73

2,969

64

14.1%

Other services

-

22

-

-

-