10 February 2014

NLMK Group enters a new growth phase with the launch of “Strategy 2017”

NLMK Group (“NLMK” or “the Group”), the largest steel producer in Russia and a leading international steel company, today announces the launch of its “Strategy 2017”.

“Strategy 2017” targets net gains of $1.0[1] billion per annum and contemplates total new investment of $1.6 billion. “Strategy 2017” is focused on unlocking significant internal potential of the Group’s businesses by boosting operational and process efficiency across the entire production chain, enhancing vertical integration into key raw materials, increasing sales of high-value added (HVA) products, and pursuing environmental, safety and human capital development programmes.

In implementing “Strategy 2017”, the Group will maintain its commitment to a conservative financial policy aimed at further debt reduction and financing investments through internal cashflow. As a result, the Group targets a Net Debt/EBITDA leverage ratio of 1.0x.

In addition, NLMK will adhere to a consistent dividend policy that provides for a payout ratio of at least 20% of US GAAP net income and an average payout of 30% during 5 year period.

Oleg Bagrin, NLMK Group CEO, said:

“With the launch of our “Strategy 2017”, NLMK enters the next phase of its growth. We have a proven track record of successfully delivering on our strategic objectives in the past and we believe our new strategy will enable us to strengthen our leading positions in the industry.

“Over the last 10 years we have invested $11 billion, doubling the size of our business. We now intend to exploit the potential of this platform to ensure further growth and value creation.

“Strategy 2017” has a modular structure combining multiple projects across all business units. We intend to significantly improve the Group’s operating efficiency and the quality of our business processes, and increase self-sufficiency in strategic resources. In the same time we are working on enhancing our positions in the key markets through better utilization of the newly-built and upgraded facilities.

“We seek to ensure the robustness of the strategy both through efficiency programs launched in each division (NLMK Production System) and through implementing more than one hundred investment projects with high return hurdles. The mix of operational and investment levers will ensure the Group’s sustainable development under various market conditions. NLMK Production system has already delivered savings of $235 million in 2013 compared to 2012 levels.

“The Group’s new strategy places a special emphasis on industrial safety, a key priority for the company, sustainability and human capital development, which are critical for long-term leadership.

“We are today presenting “Strategy 2017” to the investment community and look forward to explaining our vision in more detail”.

Objectives and targets of “Strategy 2017”:

1. Leadership in operational efficiency
  • 100% rollout of NLMK Production System
  • Targeted net gains of $330 million per annum
2. World-class resource base
  • 100% self-sufficiency in iron ore with a flexible feed structure (pellets, sinter, sinter ore)
  • Reduced consumption of valuable resources
  • Targeted net gains of $480 million per annum
3. Leading positions in strategic markets
  • 16.3 mt steel product sales vs. 14.9 mt in 2013
  • High value added products in total sales of 40% vs. 35% in 2013
  • Domestic market sales of 45% vs. 39% in 2013
  • Targeted net gains of $190 million per annum
4. Leadership in sustainability and safety
  • Systematic minimization of environmental footprint
  • Full compliance of production processes with health and safety standards
  • Industry leadership in labour efficiency with motivated and engaged workforce
About NLMK Group

NLMK Group is a vertically integrated steelmaking company, and Russia’s leading manufacturer of steel and HVA rolled products. NLMK Group’s high-quality steel products are used in a variety of industries, from construction and machine-building to the manufacture of power generation equipment and offshore windmills.

NLMK’s production facilities are located in Russia, Europe and the USA. The Company’s crude steel capacity is over 17 mt per annum, of which approximately 16 mt are located in Russia. The Company generated $12.2 billion in revenue and $1.9 billion in EBITDA in 2012.

NLMK’s ordinary shares are traded on the Moscow Stock Exchange (ticker “NLMK”) and its global depositary shares on the London Stock Exchange (ticker “NLMK:LI”).