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Financial performance

Metalloinvest’s strong competitive position and the market recovery in the second half of 2016 helped the Company to boost its financial performance and stabilise its financial profile.


Revenue by product, USD million

Revenue by product, USD million Revenue by product, USD millionEnlarge

Revenue by market, USD million

Revenue by market, USD million Revenue by market, USD millionEnlarge

In the reporting period, the mining segment’s revenueSegment revenues represent proceeds from product sales at Metalloinvest enterprises. increased by 6.8% to USD 2,232 million, mainly due to the increased sales of high value-added pellets and HBI / DRI. The steel segment’s revenue remained almost flat year-on-year, totalling USD 2,119 million. The adverse effect of rouble depreciation on domestic revenue was offset by the increase in export sales.

The share of the domestic market in the Company’s consolidated revenue shrank from 42.7% in 2015 to 39.6% in 2016, largely due to a partial redistribution of shipments towards export markets. In 2016, Europe and the Middle East accounted for 23.9% and 15.3% of the Company’s revenue respectively, compared to 22.0% and 16.4% the previous year. Asia’s share of consolidated revenue stood at 5.1%, slightly down against 5.8% in 2015.

In 2016, the Company’s revenue dropped by 3.0% to USD 4,261 million (2015: USD 4,393 million). This slight decrease is mainly attributable to declining prices for the Company’s products in USD equivalent.

Cost of sales, distribution, general and administrative expenses

Cost of sales, USD million

Cost of sales, USD million Cost of sales, USD millionEnlarge

In 2016, despite growth in output and shipments and an increase in natural monopolies’ prices, the Company’s cash cost of production decreased by 2.8% to USD 2,211 million. This was attributable to the implementation of the operational improvements programme and the rouble depreciation. Cost of sales remained nearly flat at at 51.9% of revenue (2015: 51.8%). In 2016, distribution expenses totalled USD 685 million, representing a slight decrease against USD 690 million in the previous year, amounting to 16.1% of the Company’s revenue compared to 15.7% in 2015. In 2016, general and administrative expenses increased by 2.1% year-on-year to USD 295 million, remaining almost flat at 6.9% of the Company’s revenue.

Margin and net income

EBITDA, USD million

EBITDA, USD million EBITDA, USD millionEnlarge

Net income, USD million

Net income, USD million Net income, USD millionEnlarge

In 2016, the Company’s EBITDA decreased by 12.2% to USD 1,258 million compared to USD 1,432 million the previous year. The negative effect of the drop in the steel segment’s EBITDA was partially offset by EBITDA growth in the mining segment. EBITDA margin declined by 3.1 p.p. to 29.5% compared to 32.6% in 2015.

In 2016, the mining segment’s EBITDA grew by 14.6% to USD 999 million (2015: USD 872 million). The increase in the segment’s share of the Company’s consolidated EBITDA from 60.9% to 79.4% was due to the redistribution of sales towards export markets and growing deliveries of high value-added products. The steel segment’s EBITDA dropped by 23.2% to USD 301 million compared to USD 392 million in 2015, and accounted for 23.9% in the Company’s consolidated EBITDA. This decrease was due to commodity prices growing faster than those for finished steel products.

In 2016, the Company had a net income of USD 1,153 million compared to USD 218 million in 2015, mainly due to the reversal of foreign exchange rate differences on the US dollar-denominated part of its debt.

Financial position

Net debt, USD million

Net debt, USD million Net debt, USD millionEnlarge

Cash, USD million

Cash, USD million Cash, USD millionEnlarge

As at 31 December 2016, the Company’s total assets amounted to USD 6,201 million (USD 6,619 million as at 31 December 2015). The 6.3% decline in the Company’s US dollar-denominated total assets was mainly attributable to the repayment of loans made by the Company earlier. The repayment followed the consolidation of 100% shares of Holding Company Metalloinvest on USM Metalloinvest’s balance sheet. At the end of the reporting period, the Company’s gross debt decreased by 5.4% y-o-y to USD 4,150 million. Long-term debt accounted for 98.6% of total debt, while the short-term debt amounted to USD 58 million as at the reporting date stood at.

As at 31 December 2016, cash and cash equivalents totalled USD 989 million compared to USD 824 million as at 31 December 2015 (including short-term bank deposits). Liquidity growth came on the back of positive operating cash flow and the USD 342 million in proceeds from the sale of Norilsk Nickel shares. At the end of the reporting period, the Company’s net debt decreased to USD 3,161 million (31 December 2015: USD 3,563 million), largely due to the redemption of Eurobonds with a par value of USD 750 million in July 2016 and an increase in cash. The Company’s net debt / EBITDA ratio remained flat at 2,5хTo calculate the net debt / EBITDA ratio in 2015, short-term bank deposits of USD 400 million were accounted for as cash and cash equivalents..

In the reporting period, we made considerable progress in optimising our debt portfolio, through the issue of exchange bonds, refinancing and partial early repayments of pre-export facilities, and the redemption of our debut Eurobond. As a result, we were able to reduce our repayments due in 2017 to almost zero.

Alexey Voronov

Finance Director

Capex programme

In 2016, Metalloinvest’s capex decreased to USD 290 million (2015: USD 417 million). This decrease is attributable to the completion of financing Mikhailovsky GOK’s Pellet Plant #3 project. The Company spent USD 161 million, or 55.5% of its total capex, on the construction HBI-3 Plant at Lebedinsky GOK, its key investment project. By the end of 2016, Metalloinvest completed cold tests and major works related to the process facilities of the first start-up module. The launch of HBI-3 Plant is scheduled for the first half of 2017. In 2016, final investments in the construction of Pellet Plant #3 at Mikhailovsky GOK and the oxygen station at OEMK amounted to some USD 18 million (6.2% of total capex).

In the reporting year, the Company initiated some important capex-lite efficiency projects. As part of the upgrade of OEMK’s Metallisation Plant #2 to improve its performance, the Company started manufacturing key technological equipment. Concast AG was awarded a contract to engineer and supply key process equipment for the upgrade of CCM #1 at Ural Steel, to launch production of billets for railway wheels and rail billets.