Annual report 2015

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Annual report 2015

Four success factors

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Results
overview

Despite the drop in global iron ore prices, the Company’s EBITDA margin remains consistently high

Despite the drop in global iron ore prices, the Company’s EBITDA margin remains consistently high

Financial performance

Despite the challenging conditions in the global iron ore market and rouble fluctuations, the Company continued to deliver solid financial results.


Pavel Mitrofanov
Deputy CEO, Chief Financial Officer

In 2015, Metalloinvest worked to sustain its liquidity position and optimise the company’s debt structure. Funds raised on the domestic and international capital markets allowed the company to improve its debt repayment schedule.

Revenue

In 2015, the Company’s revenue dropped by 31.0% to USD 4,393 million (2014: USD 6,367 million) due to a sharp slump in global iron ore and steel prices (by 42% and 32%, respectively).

The mining segment generated revenue of USD 2,089 million or 47.6% of the Company’s consolidated revenue (2014: 48.7%). The 32.7% y-o-y decrease in the segment’s revenue was due to declining prices for iron ore products and the depreciation of the rouble.

2015 revenue by product

2014–2015 revenue by market

The steel segment accounted for 48.3% of the Company’s consolidated revenue (2014: 48.1%). The decrease in the segment’s revenue by 30.6% to USD 2,123 million was triggered by declining prices for pig iron and steel products and the depreciation of the rouble.

In 2015, the domestic market share of the Company’s consolidated revenue increased to 42.7% from 41.1% in 2014. Europe and the Middle East accounted for 22.0% and 16.4% of the Company’s revenue, respectively. Asia generated 5.8% of revenue.

Cost of sales, distribution, general and administrative expenses

In 2015, the Company’s cost of sales amounted to USD 2,275 million or 51.8% of revenue (2014: 53.1%). The 32.7% decrease (2014: USD 3,381 million) is attributable to the rouble depreciation and implementation of an operational improvement programme to reduce the cost of natural gas, energy and other items.

Distribution expenses totalled USD 690 million, representing a 28.5% decrease y-o-y, primarily due to the rouble depreciation and partial shift of iron ore shipments to the domestic market under existing long-term contracts. In 2015, distribution expenses made up 15.7% of the Company’s revenue compared to 15.2% in 2014.

General and administrative expenses in 2015 decreased by 35.9 % to USD 289 million, amounting to 6.6% of the Company’s revenue, which is slightly lower than the 7.1% figure in 2014.


Cost of sales in 2014–2015

Cost item, %
2014
2015
Raw materials and supplies
45.4
48.2
Energy costs
20.8
18.5
Labour costs
18.8
18.9
Depreciation, amortisation and impairment costs
9.2
8.9
Land, property and other taxes
2.5
2.5
Amortisation of mineral rights
1.6
1.5
Repair and maintenance
0.4
0.2
Other
1.4
1.2

General and administrative expenses dropped by 35.9%
 

Margin and net income

In 2015, the Company’s EBITDA declined by 27.0% to USD 1,432 million (2014: USD 1,961 million). The EBITDA margin grew by 1.8 p.p. y-o-y amounting to 32.6%.

The decrease in consolidated EBITDA was primarily due to lower EBITDA in the mining segment, hit by a sharp drop in global iron ore prices. The mining segment’s EBITDA totalled USD 872 million, representing a 36.2% or USD 494 mn decrease y-o-y. The share of the mining segment in consolidated EBITDA reduced from 69.7% in 2014 to 60.9% in 2015.

In 2015, the steel segment share of consolidated EBITDA was 27.4%. The steel segment’s EBITDA also decreased y-o-y, amounting to USD 392 million. However, this decline was much lower than that of the mining segment due to lower prices for supplies used in steel production. In addition, the Company grew sales of merchant pig iron and changed the structure of its steel product shipments.

In 2015, the Company earned net income of USD 218 million compared to USD 66 million in 2014. Despite a considerable decline in operating income, the Company’s net income increased by 3.3 times, mainly due to decreases in foreign exchange rate differences accrued on the US dollar-denominated part of the Company’s debt and lower net interest payments.

Financial position

As at 31 December 2015, the Company’s total assets amounted to USD 6,619 million (as at 31 December 2014: USD 7,266 million). The 8.9% decline in the Company’s US dollar-denominated total assets is mainly attributable to the rouble depreciation.

At the end of the reporting period, cash and cash equivalents stood at USD 424 million (31 December 2014: USD 550 million). The Company’s total liquidity amounted to USD 824 million, including short-term bank deposits of USD 400 million.

At the end of the reporting period, the Company’s net debt decreased to USD 3,563 million (2014: USD 4,185 million). The net debt/EBITDA ratio amounted to 2.49x compared to 2.13x as at 31 December 20141. The share of long-term debt fell slightly to 83.9% of the total (2014: 86.4%).

In 2015, net cash generated from operations amounted to USD 952 million, a 29.4% decrease compared to USD 1,348 mn in 2014.

Funds used for investment activities amounted to USD 987 mn (2014: USD 427 million).

Funds used for financing activities totalled USD 24 million (2014: USD 550 million). This decrease was mainly driven by dividend payments in 2014.

Capex programme

In 2015, the Company’s capex decreased by 29.9% to USD 417 million (2014: USD 595 million).

A major part of the Company’s capex (USD 33 million or 7.9% of total expenditures) was used for the construction of Pellet Plant #3 at Mikhailovsky GOK, which was completed in 2015.

At the end of the year, the construction of HBI-3 Plant at Lebedinsky GOK accounted for a large part of the Company’s capex. In 2015, USD 161 million or 38.6% of the total capex was invested in this project.

In 2015, apart from major investment projects, Metalloinvest continued to purchase high-capacity equipment for mining and transport operations, as well as upgrade and modernise existing production facilities.

In July, we signed a USD 750 million long-term pre-export credit facility agreement with a syndicate of international banks, which will be drawn on to fully repay all amounts maturing in 2016.

Pavel Mitrofanov
Deputy CEO, Chief Financial Officer

EBITDA margin grew by 1.8 p.p. to 32.6%

More details on the Company’s investment projects, see Strategic Investment Programmes

1  To calculate the net debt/EBITDA ratio, short-term bank deposits of USD 400 million were accounted for as cash and cash equivalents.

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