Q3 2019 key highlights

• Revenue decreased by 8% qoq (-18% yoy) due to lower sales volumes (-6% qoq) against the backdrop of ongoing overhauls at NLMK Lipetsk blast furnace and basic oxygen furnace operations. Additionally, revenue was affected by the downward price movement on the international steel markets.
• EBITDA totalled $654 m (-11% qoq; -36% yoy) against the backdrop of a decline in steel prices outstripping key raw material prices. EBITDA margin went down to 25% (-1 p.p qoq).
• Free cash flow totalled $249 m. The qoq 3% decrease was associated with increased investment within the scope of Strategy 2022.

Comment from NLMK Group CFO Shamil Kurmashov:

“Q3 2019 saw the situation on the steel markets aggravate due to a weakening in demand and the resulting decline in steel prices, amid an economic growth slowdown in the Company’s key international sales regions.

“NLMK continued overhauling its blast furnace and basic oxygen furnace operations, which will enable the Company to grow its steel output by 1 million tonnes by 2021 to 14.2 million tonnes per year. The overhauls drove the Company’s steel product sales down by 6% qoq.

As a result, NLMK Group’s revenue dropped by 8% qoq. EBITDA was down to $654 m, while EBITDA margin stood at 25%, or 1 p.p. down from Q2, caused by narrower price spreads.

“Net debt/EBITDA stands at a comfortable 0.59х (0.39х as at the end of Q2 2019). This growth was driven by keeping dividend payments high against the backdrop of investment as part of executing NLMK Group’s strategy.

“Free cash flow totalled $249 m. Positive free cash flow, Net debt/EBITDA below 1.0x and dividend policy implementation enabled the Company’s management to recommend NLMK’s Board of Directors $300 m in Q3 dividends.”