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12 February 2020

Q4 and 12m 2019 NLMK Group consolidated financial results under IFRS

NLMK Group (LSE, MOEX: NLMK) today announced its Q4 and 12M 2019 financial results1. Q4 revenue amounted to $2,312 m, with an EBITDA margin of 21%. Free cash flow (FCF) in Q4 grew to $338 m (+36% qoq). NLMK Board of Directors recommended approving Q4 dividends in the amount of RUB 5.16/share (148% of FCF) in line with NLMK’s Dividend Policy.

12M 2019 key highlights

Revenue decreased by 12% yoy to $10.6 bn amid falling steel product prices and lower sales due to major repairs at NLMK Lipetsk BF and BOF operations.

EBITDA totalled $2.6 bn (-29% yoy) amid a decrease in revenue and narrower steel/raw material spreads. EBITDA margin was down to 24% (-6 p.p. yoy).

Free cash flow totalled $1.5 bn. The 25% decrease yoy is associated with the decrease in EBITDA and growth of capex as part of Strategy 2022 implementation.

Q4 2019 highlights

Revenue decreased by 10% qoq to $2.3 bn amid a decrease in average sales prices and an increase in the share of semi-finished products in the sales portfolio.

EBITDA decreased to $480 m (-27% qoq) due to an outstripping decrease in steel prices relative to raw materials. EBITDA margin decreased to 21% (-4 p.p. qoq).

Free cash flow grew to $338 m (+36% qoq) amid a decrease in stock prices and a set of working capital management measures.

Comment from NLMK Group CFO Shamil Kurmashov:

“The situation on steel product markets in 2019 was rather challenging. H2 2019 saw prices fall below the cycle average. The dive was so deep, we estimate that 80% of global HRC production was loss-making. The margins in the sector were further pressured by increasing prices for raw materials.

“Amid the low phase of the market NLMK carried out major overhauls at its blast furnace and BOF operations, resulting in a 3% yoy reduction in steel sales in 2019.

“NLMK Group revenue in 2019 decreased by 12% year-on-year. EBITDA was $2.6 billion, which is 29% lower than the previous year. The major factor to drive down our financial performance was the decline in prices for steel products. EBITDA margin decreased by 6 p.p. yoy to 24%.

“In 2019, we saw the first gains from Strategy 2022. The total structural effect on EBITDA from operational efficiency programmes and investment programme projects exceeded $200 m per annum (relative to the 2018 cost base).

“Net debt/EBITDA ratio reached 0.7х. The growth was associated with the active implementation phase of our investment programme as part of Strategy 2022, and a higher dividend payout in line with NLMK’s new Dividend Policy adopted in March 2019.

“Free cash flow totalled $1.5 bn. A positive free cash flow and maintaining the net debt/EBITDA ratio below 1.0x enabled NLMK management to recommend the Company’s Board of Directors to pay out Q4 dividends in the amount of $500 m.”