News

6 March 2017

NLMK Group presents 2016 year-end update on the execution of its Strategy 2017

NLMK Group (LSE: NLMK), the largest steelmaker in Russia and one of the most efficient in the world, is pleased to present its 2016 year-end update on the execution of its Strategy 2017

Key achievements of Strategy 2017

  • Over the course of 2014-2016, NLMK Group’s Strategy 2017 delivered a structural net EBITDA gain of $547 million per year.
  • The key objective of Strategy 2017, an annual net gain of $1 billion on 2013 EBITDA, remains unchanged. NLMK is on track to achieve this level by 2018 owing to newly launched capex projects and further operational efficiency improvements.

Strategy 2017 gains are due to progress towards key strategic objectives:

Global leadership in efficiency.

Target: cost reduction and growth in productivity.
Net gain of $364 million per year from dedicated projects, or 110% of the declared target (up to 2018). This has led to significant cost reduction and production growth, such as:

  • Maintained cost leadership: In 2016, the slab cash cost decreased by close to 50% from the 2013 level to $194 per tonne. This is 44% below the global industry average.
  • Increased equipment productivity: NLMK Group’s increased its output by 1 million tonnes of pig iron, while total HRC output at NLMK Lipetsk grew by 500,000 tonnes from the 2013 level.

World-class resource base.
Target: greater self-sufficiency in key raw materials and lower consumption of expensive resources.
Sustainable net gain in 2014-2016 of $97 million, or 20% of the target level. In 2017-2018, additional gains are expected from completed and late stage Strategy 2017 investment projects, such as:

  • In November 2016, a Pelletizing Plant was launched at Stoilensky with a production capacity of 6 million tonnes of pellets per year, which has the potential to increase output to 7.2 million tonnes. 2017 output is expected to be around 5.5 million tonnes.
  • NLMK Group will increase iron ore fines output during 2017 by an additional 1.7 million tonnes per year to 16.6 million tonnes by 2018, in order to increase feedstock supply to the newly launched Pelletizing Plant.
  • Decreased consumption of expensive resources: In 2016 vs. 2013, energy consumption at the Lipetsk site decreased by 1%, Fe materials consumption was down by 2%, coal consumption decreased by 2%, coke consumption decreased by 6%, and natural gas consumption fell by 12% per tonne of steel.

Leadership in strategic markets: net gain was $86 million per year in 2014-2016, or 45% of the target level.

  • Sales reached a record 15.9 million tonnes in 2016, climbing for the third year running
  • Sales in NLMK Group’s home markets of Russia, the EU, and the USA grew by 8% vs. 2013 to 10.3 million tonnes. Sales growth by the Group’s divisions outperformed the growth of steel consumption in its home markets, which collectively accounted for 65% of 2016 sales.
  • Sales of value-added products increased by 12%, from 10.9 million tonnes in 2013 to 12.2 million tonnes in 2016.

Leadership in sustainability and safety

  • LTIFR* declined to 0.82 for the consolidated Group and to 0.34 for Russian assets, representing a 60% improvement on 2013 levels.
  • Specific air emissions reduced by 5% to 20.8 kg/t vs. 2013
  • Employee productivity grew by 22% vs. 2013
  • Key elements of Strategy 2022

    • The company is actively developing the next phase of its strategy, Strategy 2022, which is expected to be presented in early 2018.
    • The new phase of NLMK strategy will be a balanced combination of long-term growth projects, further operational efficiency improvement and integration of innovative solutions. The company remains dedicated to excellence in safety and sustainability.
    • In Strategy 2022, NLMK Group will target a balance between investments in growth projects, a conservative financial policy and high returns to NLMK shareholders.

    Oleg Bagrin, NLMK Group CEO, said:

    “NLMK Group continues to implement its strategy. Our goals of strengthening NLMK’s position as a one of the world’s most efficient steelmaking companies and generating $1 billion of EBITDA per year remain unchanged.

    “We’ve accomplished a lot over the last three years: the long-term impact of our strategy on the Group’s financial performance to date is $547 million of additional EBITDA per year, despite challenging market conditions.

    “We have achieved record steel output while improving profitability. NLMK’s debt leverage is several times below the industry average and a moderate capex plan enables us to generate significant free cash flow. Our shareholders enjoy the full benefit of our financial success, through high and stable dividends.

    “In 2017, we will maintain our progress towards the targets we have set. We will also develop the next phase of our strategy, Strategy 2022, focusing on further consolidation of our competitive advantages and seizing value-creative growth opportunities that our flexible business model opens up for us.”

    * LTIFR – Lost-Time Frequency Rate