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PJSC Magnitogorsk Iron and Steel Works: MMK Q4 and FY 2018 IFRS Results

Dow Jones received a payment from EQS/DGAP to publish this press release.

PJSC Magnitogorsk Iron and Steel Works (MMK) 
PJSC Magnitogorsk Iron and Steel Works: MMK Q4 and FY 2018 IFRS Results 
 
07-Feb-2019 / 07:59 CET/CEST 
Dissemination of a Regulatory Announcement, transmitted by EQS Group. 
The issuer is solely responsible for the content of this announcement. 
 
MMK Group Financial Statements 
 
Key consolidated results for Q4 and FY 2018 
 
(USD mln) 
 
                     Q4 2018 Q3 2018      %     FY FY 2017     % 
                                              2018 
Revenue                1,962   2,091  -6.2%  8,214   7,546  8.9% 
Cost of sales         -1,387  -1,338   3.7% -5,531  -5,268  5.0% 
Operating profit         384     528 -27.3%  1,833   1,455 26.0% 
EBITDA, of which         537     671 -20.0%  2,418   2,032 19.0% 
Steel segment            516     628 -17.8%  2,282   1,887 20.9% 
(Russia) 
Steel segment            -15       0      -     -9      50     - 
(Turkey) 
Coal segment              32      43 -25.6%    137     104 31.7% 
Consolidation effect       4       0      -      8      -9     - 
EBITDA margin          27.4%   32.1%         29.4%   26.9% 
Profit for the           245     401 -38.9%  1,317   1,189 10.8% 
period 
Free cash flow           239     362 -34.0%  1,027     694 48.0% 
 
Record EBITDA, 
 
Stronger net profit and 
 
Growth in FCF by 1.5x 
 
       - EBITDA for FY 2018 amounted to USD 2,418 mln, up 19.0% year-on-year 
(y-o-y), - the highest in the Company's history. The EBITDA margin increased 
            to 29.4%. 
 
         - Net profit for FY 2018 amounted to USD 1,317 mln, up 10.8% y-o-y. 
 
  - Free cash flow for FY 2018 was up nearly 1.5x on FY 2017 and amounted to 
            USD 1,027 mln. 
 
            Q4 2018 highlights vs Q3 2018 
 
 The decrease in revenue for Q4 2018 was due to the fall in the average sale 
     price of finished products against a backdrop of a seasonal decrease in 
            sales of steel products. 
 
In Q4 2018, the cost of sales grew q-o-q, mainly due to higher prices of key 
            raw materials on the domestic market. 
 
      As a result, EBITDA decreased by 20.0% on the previous quarter. EBITDA 
            margin amounted to 27.4%. 
 
Quarterly profit amounted to USD 245 mln. One-off factors that had an impact 
   on profit include a positive FX effect of USD 39 mln, impairment of Steel 
        (Turkey) segment in the amount of USD 258 mln and restoration of the 
 provision created in 2013 for impairment purposes of Steel (Russia) segment 
            in the amount of USD 256 mln. 
 
            FCF amounted to USD 239 mln. 
 
FY 2018 highlights vs FY 2017 
 
   Revenue grew 8.9% year-on-year (y-o-y), thanks to higher sales volumes on 
    the back of increased average sales prices by USD 46 per tonne, or 8.0%. 
 
 In FY 2018, EBITDA grew 19.0% y-o-y, while EBITDA margin amounted to 29.4%. 
This significant growth in EBITDA was due to finished product prices growing 
 faster than raw materials prices, as well as share of HVA products reaching 
            46,5% of total Group sales. 
 
            Net income for the period grew by 10.8% y-o-y. 
 
      FCF for the period grew 48.0% y-o-y, amid favourable conditions in the 
           Company's key markets, high steel prices, and continued growth in 
            operational efficiency. 
 
            Balance-sheet and cash-flow highlights 
 
Debt 
 
   As of the end of FY 2018, MMK Group's total debt amounted to USD 536 mln, 
   slightly below the level as of the end of 2017 and fully in line with its 
            conservative leverage policy. 
 
 As of 31 December 2018, the Company had USD 739 mln in cash and deposits on 
 its accounts. This high level of funds on the Company's accounts was due to 
    the partial payment of dividends for Q3 2018 at the beginning of January 
            2019. 
 
  As a result of high cash liquidity on its balance sheet, the Company's net 
       debt as of the end of FY 2018 was negative and stood at USD -203 mln. 
 
Capital expenditure and cash flow 
 
   In Q4 2018, capital expenditure amounted to USD 204 mln, in line with the 
    investment programme. This growth q-o-q was due to approaching the final 
    stage of construction of sinter plant No. 5 and the launch of the design 
            stage of the coke battery construction project. 
 
   In FY 2018, the Company's CAPEX amounted to USD 860 mln, in line with the 
        current investment plan, meaning major investment projects are being 
           implemented at a faster pace than envisioned in the initial plan. 
 
    In Q4 2018, cash inflow from working capital was USD 11 mln (compared to 
  cash outflow to working capital of USD 16 mln in Q3 2018), mainly due to a 
  USD 100 mln decrease in accounts receivable (following a seasonal decrease 
  in sales volumes amid a correction in steel prices). At the same time, net 
   working capital to revenue ratio amounted to 14.6% as of the end of 2018. 
 
    Strong profitability along with effective working capital management and 
    lower operational costs enabled the Company to increase its FCF by 48.0% 
            y-o-y to USD 1,027 mln in FY 2018. 
 
MMK Group highlights by segments 
 
Steel segment (Russia) 
 
  Revenue for FY 2018 grew by 8.5% y-o-y and amounted to USD 7,826 mln. This 
growth was due to increased sales volumes, improved sales mix and favourable 
            price environment on the Company's key markets. 
 
Revenue for Q4 2018 amounted to USD 1,850 mln, down 8.6% q-o-q. This decline 
  was due to a decrease in the global price of steel products along with the 
decline in sales volumes. These factors were partly offset by improved sales 
            mix. 
 
 The segment's EBITDA for Q4 2018 amounted to USD 516 mln, down 17.8% q-o-q. 
    The main factor that influenced this was the growth in the cost of sales 
       (due to more expensive key raw materials) amid a decrease in revenue. 
 
The cash cost of a tonne of slab in Q4 2018 amounted to USD 298 (compared to 
            USD 276 per tonne in Q3 2018). 
 
     The Company's profitability was positively affected by the results of a 
  programme aimed at increasing operational efficiency and optimising costs, 
 which enabled the Company to reduce costs by approximately USD 13 mln in Q4 
 2018. Overall since the start of the year, the Company has reduced costs by 
            USD 70 mln. 
 
Steel segment (Turkey) 
 
MMK Metalurji's revenue for Q4 2018 amounted to USD 158 mln, up 42.3% q-o-q. 
       This growth was due to an increase in the volume of sales of finished 
            products by 47.0% q-o-q due to higher export sales. 
 
 Despite such a significant increase in sales volumes, lower sale prices and 
 higher transportation costs resulted in a decrease in EBITDA for Q4 2018 to 
            USD -15 mln. 
 
  The decline in the company's performance was due to an overall downturn in 
 the Turkish economy amid economic instability and depreciation of the local 
            currency, resulting in a decrease in effective domestic demand. 
 
Coal segment 
 
The revenue of the coal segment for FY 2018 amounted to USD 340 mln, up 6.3% 
            y-o-y. 
 
  The decrease in revenue in Q4 2018 by 2.3% q-o-q was due to the decline in 
            coal concentrate production by 3.4% q-o-q. 
 
   In FY 2018, the segment's EBITDA increased by 31.7% y-o-y and amounted to 
   USD 137 mln. This was due to an increase in the operational efficiency of 
     the business, an increase in the production and processing of MMK's own 
      coking coal and a decrease in the purchase of coal from third parties. 
 
Comments on the market situation 
 
     At the moment, despite the seasonal decline in business activity on the 
      domestic market, the Company sees a sufficient demand to maintain high 
            capacity utilisation at its production facilities. 
 
  In general, the Company expects that in 2019 its high capacity utilisation 
will be supported by a high global steel consumption. Additional support may 
         be expected from continued realisation of the production capacities 
     reduction programme in China, coming along with ecological restrictions 
      imposed on steel smelting and implementation of the incentives plan to 
            support domestic demand. 
 
   The Company's financial results for Q1 2019 will be affected by high iron 
       ore prices. This negative factor should be offset by the start of the 
  seasonal recovery in steel prices, as well as high capacity utilisation at 
        the facilities producing high-margin products (including Mill 5000). 
 
MMK management will hold a conference call on these financial statements on 
7 February 2019 at 4 pm Moscow time (1 pm London time, 8 am New York time). 
 
The conference call dial-in numbers are: 
UK 
 
+44 (0) 330 336 9128 (Local access) / 0800 358 6377 (Toll free) 
 
Russia 
 
+7 495 213 1767 (Local access) / 8 800 500 9283 (Toll free) 
 
US 
 
+1 929-477-0402 (Local access) / 888-204-4368 (Toll free) 
 
Conference ID: 9976452 
 
The call recording will be available for seven days via the following 
numbers: 
 
UK 
 
+44 (0) 207 660 0134 (Local access) / 0 808 101 1153 (Toll free) 
 
Russia 
 
810 800 2702 1012 (Toll free) 
 
US 
 
+1 719-457-0820 (Local access) / 888-203-1112 (Toll free) 
 
            Conference ID: 9976452 
 
   A presentation of the financial results and the IFRS financial statements 
   can be found at: http://eng.mmk.ru/for_investor/financial_statements/ [1] 
 
OJSC MMK is one of the world's largest steel producers and a leading Russian 
    metals company. The company's operations in Russia include a large steel 
producing complex encompassing the entire production chain, from preparation 
 of iron ore to downstream processing of rolled steel. MMK turns out a broad 
        range of steel products with a predominant share of high-value-added 
            products. 
 
Contacts 
 
Investor Relations Department 
 
Andrey Serov 
 
+7 3519 24-52-97 
 
serov.ae@mmk.ru 
 
Communications Department 
 
Dmitry Kuchumov Dmitry Bulin 
 

(MORE TO FOLLOW) Dow Jones Newswires

February 07, 2019 02:00 ET (07:00 GMT)

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