Metinvest announces financial results for 6 months of 2013

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 announces its unaudited condensed interim consolidated financial information for the first six months ended 30 June 2013.

FINANCIAL HIGHLIGHTS

Commenting on the results, Igor Syry, General Director of Metinvest, said: “We are pleased to announce a strong set of financial results and progress in implementing our long-term strategy despite ongoing market turbulence. In the first six months of 2013, conditions in the global steel and mining industry remained challenging and uncertain. Steel consumption in the EU continued to decline and demand was also weak in other regions, although growth in China and Japan was robust thanks to government stimulus measures.

We again demonstrated the effectiveness of our resilient and flexible business model, keeping the top line stable and increasing the bottom line, despite a modest year-on-year decline in output of crude steel. We achieved this by acting on the key points of our strategy: we made prudent capital investments, implemented continuous improvement and lean production initiatives, launched a programme to release working capital, and strengthened our presence in strategic markets.

Our output was broadly stable year-on-year in the reporting period. We produced 6,239 thousand tonnes of crude steel and 18,664 thousand tonnes of iron ore concentrate, and mined 5,924 thousand tonnes of coking coal.

In the first six months of 2013, consolidated revenues totalled US$6,515 million. EBITDA reached US$1,243 million, up 14% year-on-year, while the EBITDA margin increased by 3 percentage points (pp) to 19%. The stronger EBITDA performance was attributable to a swing into net positive EBITDA in the Metallurgical division, partly due to raw material prices falling more rapidly than steel prices.

The successful technology investments at our metallurgical plants also made an important contribution. One key project was the continuing implementation of pulverised coal injection (PCI) technology at Ilyich Steel, which reached the planned levels in summer 2013, bringing the first cost savings. Another important factor was the ongoing continuous improvement programme, designed to reduce costs and increase operational efficiency at our metallurgical and coke plants.

As regards capital expenditure (CAPEX), we continued to implement our long-term Technological Strategy, a roadmap for our investments. It aims to increase operational efficiency and product quality, ensure world-class standards for workplace safety, and dramatically reduce our environmental footprint. One of the strategy’s key aspects is its flexibility, which allows us to adjust CAPEX depending on market conditions and focus on investments that aim to deliver rapid results and provide returns that can be channelled into new projects. CAPEX totalled US$250 million for the first six months of 2013, as we made significant progress in several key projects.

Despite the unfavourable economic situation, we are pressing ahead with projects that are important to our local communities and us, particularly environmental upgrades of sinter plants, blast furnaces and converters.

In our Metallurgical division, notable developments included the ongoing construction of a PCI system at Yenakiieve Steel. Once the PCI system is installed at Yenakiieve Steel, scheduled for 2014, we plan to carry out the same work at Azovstal, which would mean that all of our three primary steelmaking plants would use the technology and benefit from its higher efficiency. The build out of the infrastructure for a new air separation unit at Yenakiieve Steel, which will deliver 1,400 tonnes of oxygen, nitrogen and argon a day for steel production from next year, is also progressing well. In the Mining division, key projects included the development of ore crusher and conveyer facilities at Northern GOK and Ingulets GOK. At United Coal, in the US, we are completing the fourth and final section of the Affinity mine complex, which is due to be launched at the end of this year.

Speaking about geography of our sales, in the first half of 2013, we boosted sales volumes by 28% year-on-year in Europe and 44% in the Middle East and North Africa (MENA). The share of these regions in our overall sales of steel products rose by 4 pp and 5 pp, respectively. In Ukraine, while sales volumes for both steel and iron ore fell due to reduced consumption, we have maintained our leading market position by working with the key customers and developing our distribution network further. Strong demand for iron ore from developing markets, primarily China, mitigated the effect of weak demand in other regions and enabled us to increase volumes and revenues in our iron ore business amid falling prices for iron ore products.

As a committed corporate citizen, we continued to invest in our local communities during the first half of 2013, building on our social partnership agreements with the nine cities in three Ukrainian regions where we have production assets. Notably, our commitment to innovative environmental technology was recognised in May, when the Ukrainian government awarded three of our managers a state prize for research work aimed at developing coal-based solutions for improving energy efficiency.

After the end of the reporting period, our two shareholders, SCM Group and SMART Group, transferred stakes in five metals and mining companies to Metinvest, thus consolidating their sector assets and establishing a more transparent organisational structure. In July, we opened a sales office and a warehouse in Bryansk, Russia. In addition, in August, we were pleased to announce the appointment of Sergiy Novikov as Managing Director of our new Geneva-based finance department and Aleksey Kutepov as CFO of the Group. Sergiy Novikov’s main responsibility will be ensuring the Group’s efficient ongoing financing.

We expect conditions in the global steel and mining industry to remain challenging into 2014. In its latest short-term outlook for this year and the next, the World Steel Association mentions the possibility of additional turbulence in some key markets against a background of overall growth. However, our flexible investment strategy remains in place. We will continue to improve our product mix and quality, cut costs, expand our sales network, and enhance customer service. These measures will enable us to benefit from the longer-term consolidation in the steel market and shift in margins from raw materials to steel products.”

[1] Adjusted EBITDA is calculated as profits before income tax, financial income and costs, depreciation and amortisation, impairment and devaluation of property, plant and equipment, sponsorship and other charity payments, share of results of associates and other non-core expenses. We will refer to adjusted EBITDA as EBITDA throughout this release.

[2] LTM (last twelve months) EBITDA

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