Contents:

Financial highlights
USD million
2016 2017 Change, y-o-y
Revenue 4,260.7 6,230.8 +46.2%
EBITDA 1,258.4 2,119.6 +68.4%
EBITDA margin, % 29.5% 34.0% +4.5 p.p.
Net income 1,152.7 1,405.6 +21.9%
Net Debt / EBITDA* 2.5x 1.9x (0.6x)

Revenue

Revenue by product
USD million
Revenue by region
USD million


In 2017, the Company’s revenue increased by 46.2% year-on-year to USD 6,230.8 million mainly due to the following factors:

  • Improved market conditions: global iron ore prices increased by 23.6%Argus Iron ore fines index, CFR Qingdao 62%., while steel prices rose by 32.6%Square billet, FOB Black Sea.;
  • àChange in the product mix: total volume of HBI shipments increased by 43.7% year-on-year
  • Rouble appreciation by 13.0% resulting in the growth of revenue in US dollar terms

In the reporting period, revenues from steel products rose by 43.7% to USD 3,248.5 million, while revenues from iron ore products increased by 51.5% to USD 2,814.8 million. The share of high value-added iron ore products (pellets, HBI) accounted for 75.5% of the total iron ore product sales.

In 2017, domestic sales accounted for 40.5% of the Company’s consolidated revenue, up from 39.6% in 2016, mainly due to rouble appreciation and higher supplies of steel products to OMK. The share of sales in Europe, the Middle East, and Asia slightly decreased to 22.6%,13.7%, and 4.0%, respectively.

Alexey Ievlev
Head of Corporate Clients Department,
member of the Management Board, ING
At ING, we value long-term cooperation with our clients, helping them stay one step ahead, in both business and everyday life. Our work with Metalloinvest has been the definition of a successful partnership, characterised by cooperation with a professional, reliable and efficient team, who always strive for progress. The Company has an extensive and successful track record in managing its debt portfolio under difficult market conditions, and is always open to dialogue. As a result, we have established a trusted partnership. ING is proud to have had an opportunity to support the Company’s major investment projects, such as the construction of HBI plants.
In 2017, Metalloinvest and ING successfully completed a number of joint deals and commenced the implementation of new projects.


Cost of Sales, Distribution, General and Administrative Expenses

Cost of sales
USD million

In 2017, the cost of sales increased by 38.8% to USD 3,069.3 million following price growth on purchased raw materials, a change in the product mix, as well as the national currency appreciation. Nevertheless, the cost of sales as a proportion of the overall revenue decreased to 49.3% vs 51.9% in 2016, supported by the Company’s programme of operational improvements.

In 2017, distribution expenses increased by 28.9% to USD 882.6 million, mainly due to higher transportation costs on railway shipments, as well as the rouble appreciation. Distribution expenses totalled 14.2% of the revenue compared to 16.1% in 2016.

General and administrative expenses totalled USD 345.7 million, or 5.6% of the revenue in the reporting year.

Gruppo Arvedi
We have been Metalloinvest’s longstanding partner for both HBI and steel-making pig iron. Metalloinvest is a reliable supplier which provides high quality products and services.


Höganös AB
Hoganos inspires the industry to make more with less by offering high quality iron and metal powders. At the Atomizing plant in Halmstad, Sweden, HBI, together with high quality iron scrap, is used as feedstock for the most demanding products. Metalloinvest is a reliable supplier offering timely deliveries and a product of consistent quality.


Riva Group
Working with Metalloinvest guarantees the supply of excellent products coupled with a professional and reliable service, designed to meet the customer’s requests. Metalloinvest’s innovative approach to iron ore mining makes it a reliable business partner.

EBITDA

EBITDA
USD million

In 2017, the Company’s EBITDA increased by 68.5% to USD 2,119.6 million compared to USD 1,258.4 million in 2016. The EBITDA margin stood at 34.0% vs 29.5% in 2016, up 4.5 p.p.

The Mining Segment’s EBITDA grew by 80.1% to USD 1,741.6 million from USD 967.2 million in 2016. This substantial increase was mainly due to the growing prices for the Company’s iron ore products, as well as an increase in high value-added products in the product mix following the launch of HBI-3 Plant.

The Steel Segment’s EBITDA grew by 34.9% to USD 406.0 million from USD 300.5 million in 2016, accounting for 19.2% in consolidated EBITDA vs 23.9% in 2016. The lower contribution of the Steel Segment to consolidated EBITDA was due to the growth of the Mining Segment pushed by the launch of HBI-3 Plant.

In 2017, the Company’s net income increased by 21.9% to USD 1,405.6 million, mainly due to higher operating income.

Andrea Lovato
CEO Tenova
Metalloinvest is a unique customer for Tenova as it give us the opportunity to offer the full portfolio of our products and technologies, both in the Metals and Mining division. We had the great chance to develop a conceptual strategy, together with the Metalloinvest management team, to reorganize and optimize the production processes of their Ural Steel Plant, and this empowered our experience in consulting. Last but not least, the relationship with Metallinvest’s professionals has always been excellent, at all levels, thanks to their commitment to innovation, quality, sustainable development, and a special attention to environmental issues, which we also share within our group of companies.
Çolakoğlu Metalurji
The steel sector is one of the most competitive sectors with high levels of pricing volatility. To be successful in such a sector, you must establish reliable and longterm relationships between customers and suppliers. We are glad to have Metalloinvest as our business partner. Our business relationship, which started years ago with the first HBI supply contract, has been growing stronger over time, with billet and pig iron being added to the portfolio. We hope that the synergy we have created will continue in the future and prove to be even stronger in the years to come.

CAPEX Programme

In 2017, Metalloinvest allocated USD 488.6 million for capital expenditure, up 68.6% year-on-year. This increase was due to a number of development projects implemented in the reporting period.

In July 2017, Metalloinvest launched its HBI-3 Plant at Lebedinsky GOK, Russia’s largest HBI production facility and one of the world’s most powerful plants, with an annual design capacity of 1.8 million tonnes of HBI. The Company invested approximately 24% of its 2017 capital expenditure in this project. At Mikhailovsky GOK, Metalloinvest completed the construction of an intake facility for the concentrate supplied by Lebedinsky GOK. The facility takes in and unloads Lebedinsky GOK’s iron ore concentrate, and mixes concentrate from Mikhailovsky GOK and Lebedinsky GOK to subsequently produce high quality pellets.

In 2017, Metalloinvest began the implementation of comprehensive development programmes at Lebedinsky GOK and Mikhailovsky GOK, aiming to increase the output of high value-added products, improve the product quality to the premium level, and lower operating expenses. The implementation of key engineering solutions is scheduled for 2018.

Lebedinsky GOK and Mikhailovsky GOK received eleven new 220-tonne and 130-tonne BelAZ trucks, four locomotives with a set of dump cars, two drilling machines and two excavators. The Company invested about 9% of its capital expenditure in upgrading its mining and transport operations.

OEMK successfully completed the technical re-equipment at DRI Plant #2, including the installation of modern equipment, which boosted the plant’s productivity from 88 to 110 tonnes per hour and helped decrease the scrap expenses. Approximately 10% of the total capital expenditure for 2017 was allocated to this project.

During the reporting period, OEMK completed key stages of construction and started commercial operations of the reduction and calibration section at the mid-size production line of Rolling Mill 350. This project enables the Company to increase its special bar quality (SBQ) output by 67,000 tonnes per year and reduce its production costs.

At Ural Steel, Continuous Casting Machine #1 and the vacuum degasser were commissioned after an upgrade. The project is aimed at strengthening the Company’s customer focus and changing its product mix towards higher-margin products (rail blooms and railway wheel billets). The equipment delivery was completed as part of the construction of the Roller Treatment Furnace #1 and Heat Treatment Machine #1 Complex, and installation works are underway. This project aims to increase the quality of heavy plates produced at Ural Steel.

The Company has continued the roll-out of its Industry 4.0 programme to create an integrated financial and business management system. The programme is aimed at reducing costs, boosting profitability, increasing accounting transparency, and ensuring timely decision making.


Erik Micek
Chairman of the Executive Board of TENOVA LOI Thermprocess
Metalloinvest is one of TENOVA LOI Thermprocess’ key customers, with a long history of mutuallybeneficial strategic cooperation. The benefits of this partnership are exemplified by the equipment supply contract with Ural Steel, signed in 2016, for the renovation of the roller treatment furnace and heat treatment machine . The tremendous scope of the project benefits both companies and allows TENOVA LOI Thermprocess to secure its position as a reliable supplier of heat treatment and quenching equipment for one of Russia’s leading plants. Once commissioned, the equipment will enable Metalloinvest to take advantage of cuttingedge industrial heat treatment technology for flat steel products, allowing it to produce high-quality products and increase the plant’s productivity.

Financial Position and Debt Management

Total debt
USD million

As at 31 December 2017, the Company’s total assets amounted to USD 6,503.2 million compared to USD 6,201.5 million as at 31 December 2016. The 4.9% increase in the US dollardenominated value of the Company’s assets was due to the appreciation of the rouble.

As at 31 December 2017, the Company’s cash and cash equivalents stood at USD 390.4 million. Moreover, as at the end of 2017, the Company had undrawn committed credit lines in roubles and USD for a total amount of ca. 810 million in US dollar terms.

At the end of the reporting period, the Company’s total debt stood at USD 4,445.9 million, up 6.3% year-on-year. Long-term debt accounted for 90.7% of the total debt, with the shortterm debt standing at USD 413.3 million. The short-term debt mainly comprises rouble-denominated bonds for a total of RUB 10 billion, all of which remained in the market following the put option exercised in February 2018, and pre-export credit facilities which were refinanced in January 2018.

As at the end of 2017, the Company’s net debt totalled USD 4,055.6 million. The Net Debt / EBITDA ratio decreased to 1.9x vs 2.5x as at 31 December 2016.

In the reporting period, Metalloinvest continued to optimise its debt portfolio and extend maturity profile:

  • In February – April 2017, the Company signed additional credit agreements with ING BANK (EURASIA), whereby the bank increased the limit of the Company’s revolving credit line from USD 100 million to USD 200 million and extended the loan maturity by two years, as well as improved the terms of the floating interest rate linked to LIBOR
  • In May 2017, the Company issued USD 800 million sevenyear Eurobonds with a 4.85% annual coupon rate, maturing in 2024. Proceeds from the Eurobond placement were used to finance a tender offer on its USD 1 billion 5.625% notes due in 2020 and for general corporate purposes. A total principal amount of USD 667 million of notes was tendered
  • In June 2017, the Company refinanced its USD 1.03 billion of pre-export credit facilities by signing a new pre-export credit facility (PXF-2017) with a group of international banks, which improved the Company’s debt repayment schedule and reduced its debt servicing costs
  • In August 2017, the Company repaid USD 100 million of tranche B of PXF-2016 ahead of its scheduled maturity dates
  • In October 2017, the Company and ING Bank signed two long-term credit facility agreements for EUR 16.7 million guaranteed by export credit agencies (ECAs). The funds will be used to purchase equipment for investment projects at Ural Steel
  • In December 2017, the Company signed loan agreements with Gazprombank to open committed credit lines for a total amount of RUB 15 billion

Metalloinvest’s proactive liability management in 2017 helped it reduce the average debt servicing cost and decrease the repayments due in 2017–2020.

Debt maturity schedule
USD billion
Investor Relations
Credit Ratings
Yan Veytsman
Managing Director, Head of Metals and Mining Division, Client Management Department of Sberbank CIB
Metalloinvest performed strongly in 2017. The Company’s debt and liquidity profiles have been optimised – its average debt servicing cost has been reduced, and the maturity profile has been extended. Metalloinvest also chose a successful strategy prioritising high value-added products, which has boosted their financial performance.
Sberbank CIB considers Metalloinvest a reliable partner with an impeccable business reputation. We are pleased to confirm the Company’s commitment to proactively providing information to its partners and their openness to investors and market participants. We are highly appreciative of our partnership with Metalloinvest and expect that the Company will progress even further in the coming years, setting and achieving more ambitious goals.