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30 April 2020

NLMK Group Q1 2020 IFRS Financial Results

NLMK Group (LSE, MOEX: NLMK) increased its revenue by 6% qoq to $2,457 m, with its EBITDA margin growing to 24%. Free cash flow totalled $331 m.
Q1 2020 key highlights
  • Revenue grew by 6% qoq to $2.5 bn, supported by growth of sales, despite the slowdown of demand for steel in the global markets due to the COVID-19 outbreak.
  • EBITDA increased to $594 m (+24% qoq) due to the expansion of spreads in the first half of the quarter and the devaluation of the ruble, as well as operational efficiency gains. EBITDA margin grew to 24% (+3 p.p. qoq; flat yoy).
  • Free cash flow totalled $331 m, almost flat qoq, thanks to active working capital management.
  • Net profit grew by 45% qoq to $289 m, due to growth of revenue and FX risk hedging, which enabled the Company to avoid significant losses related to the devaluation of the ruble.
  • NLMK Group’s Strategy 2022 implementation is on course. The impact of Strategy 2022 operational efficiency gains on Q1 2020 EBITDA was $54 m (relative to Q1 2019 base).
    • Comment from NLMK Group CEO Grigory Fedorishin:

      “I would like to begin by stressing that we are placing the utmost focus on the safety and welfare of our people. For more information on our countermeasures to minimize the risk of COVID-19 spreading at NLMK Group sites please visit our corporate website.

      “Our key markets saw an uptick in demand and growing prices in the first half of Q1. However, the spread of the coronavirus pandemic resulted in slowing down business activities and increasing uncertainty in the second half of the quarter and in April. In Q2 2020, steel demand in EU and US could drop at double digit rates yoy, analysts predict. In Russia we also expect consumer activity to decline. On the whole, there is a high level of uncertainty in terms of the rate at which demand for steel is going to recover across different regions.

      “In this context, we have taken a number of preventive measures to ensure our financial stability. Our 2020 capex guidance was reduced to $0.9-0.95 bn from the previously announced $1.2 bn. The volume of available liquidity on the Company’s balance sheet was increased to $1.7 bn as of 31 March 2020 (+96% qoq); additional available credit lines are estimated at $0.8 bn.

      “NLMK shareholders decided not to approve the Q4 2019 dividend amount recommended earlier by the Board of Directors and proposed that it be halved. The Board of Directors gave NLMK shareholders an updated recommendation on the payment of Q4 2019 dividends in the amount of RUB 3.12 per share, and a recommendation on the payment of Q1 2020 dividends in the amount of RUB 3.21 per share, or 75% of the free cash flow for the relevant quarter.

        “A weak market is a good time to carry out the second stage of our planned major repairs at NLMK Lipetsk BF and BOF operations that will enable us to grow our steel output by 1 million tonnes next year. Amid these repairs, NLMK Group’s steel output and sales will reduce qoq in Q2.

      “All NLMK Group’s production sites currently continue operating.

      “NLMK Group’s flexible business model and Strategy 2022 projects and programmes enabled us to post strong financial in the previous quarter. NLMK Group’s revenue grew by 6% qoq to $2.5 bn, while EBITDA grew by 24% qoq to $594 m. Net debt/EBITDA stood at 0.72х at the end of Q1. Free cash flow totalled $331 m (flat qoq).”