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Metinvest raises operating expenses by 21% in H1 due to higher prices for raw materials, other components

KYIV. Sept 2 (Interfax-Ukraine) – Metinvest B.V. (the Netherlands), the parent company of Metinvest mining and metallurgical group, in January-June 2021, increased its core operating expenses by 21% compared to the same period last year, to $5.785 billion due to rising prices for raw materials and related components.

According to the preliminary unaudited interim financial results for the first half of the year, released on Wednesday, an increase in operating expenses during this period was due to an increase in the cost of goods and services for resale by $806 million as a result of higher purchase prices for metal products, which followed the dynamics of benchmarks. In addition, this was facilitated by an increase in energy costs by $141 million (mainly due to an increase in consumption driven by increased production, and an increase in natural gas prices by 72%), an increase in raw materials costs by 101 million amid an increase in market prices, and an increase in consumption associated with an increase in production, which was partially offset by an increase in the level of self-sufficiency in coking coal after the consolidation of Pokrovske Coal Group in March 2021.

In addition, the growth was due to an increase in personnel costs by $95 million amid the recent consolidation of new enterprises, as well as an increase in salaries for production personnel at Ukrainian assets in May 2021, and an increase in depreciation deductions by $58 million, mainly due to newly acquired assets.

These factors were partially offset by foreign exchange receipts of $13 million (compared to a loss of $123 million in the first half of 2020) primarily as a result of the revaluation of outstanding payables and intra-group dividends receivable. Also, there was a positive effect on expenses from the depreciation of hryvnia against U.S. dollar ($119 million).

As a percentage of consolidated revenue, net operating costs decreased by 28 p.p. compared to the same period last year – up to 68% in the reporting period. At the same time, in the reporting period, the reversal of impairment of financial assets in the amount of $75 million amounted to 1% of the consolidated revenue and was due to the improvement in the creditworthiness of some of the group’s customers.

Operating income in the first half of 2021 was $2.760 billion, up from $86 million in the first half of 2020. The growth was mainly driven by an increase in revenues, as well as the reversal of impairment of financial assets. This was partially offset by an increase in net operating expenses. In the reporting period, the operating margin increased by 31 p.p., to 33%.

In addition, group’s EBITDA grew 5.3 times due to improved performance in each segment. EBITDA of the mining segment grew 4.5 times, to $2.462 billion, and EBITDA of the metallurgical segment – 7.3 times, to $1.742 billion.

As a result, in the first half of 2021, the share of the metallurgical segment in total EBITDA (before adjusting for overhead costs and elimination) increased to 41% (30% in the first half of 2020), while the share of the mining segment decreased to 59% (70% in the first half of 2020).