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Novolipetsk Steel

February 11, 2021

NLMK Group Q4 and 12M 2020 IFRS Financial Results

In Q4 2020, NLMK Group (LSE: NLMK, MOEX: NLMK) increased its revenue by 7% qoq to $2.4 bn with EBITDA reaching $890 m. At year-end, EBITDA amounted to $2.6 bn, gaining 3%, with EBITDA margin reaching 29% (+5 p.p. you).

Q4 2020 key highlights

  • Revenue increased to $2.4 bn (+7% qoq; +3% yoy), supported by a recovery in rolled product prices.

  • EBITDA grew to $890 m (+54% qoq; +85% yoy), due to the expansion of the raw material/slab price spreads, recovery of production volumes at Stoilensky after the September incident, accrued refund from the US Department of Commerce in line with the settlement agreement, and gains from Strategy 2022 projects. EBITDA margin was 37% (+11 p.p. qoq; +16 p.p. yoy).

  • Free cash flow reduced to $229 m (-4 % qoq). The increase in EBITDA was offset by the outflow of cash to replenish working capital amid growing global steel and raw material prices.

  • Net profit grew by 79% qoq to $558 m, due to an increase in operating profit.

12M 2020 key highlights

  • Revenue reduced by 12% yoy to $9.2 bn, due to a reduction in steel product prices in Q2-Q3 and an increase in the share of semi-finished products in total sales by 5 p.p. to 40%.

  • EBITDA grew by 3% yoy to $2.6 bn, supported by investment programme and operational efficiency programme gains, a weaker ruble, and refund from the US Department of Commerce under the settlement agreement. EBITDA margin reached 29% (+5 p. p. yoy).

  • Free cash flow reduced by 28% yoy to $1.1 bn, due to the high base of the previous year, when there was a significant release of cash from the working capital with a decrease in receivables and inventory reduction (for details, see p. 8, Q4 2019 Financial release).

  • Net profit reduced by 8% yoy to $1.2 bn amid increased losses in the joint ventures’ performance, including due to the recognition of the NBH investment value impairment in the amount of $120 m in Q2 2020. Without the impact of this non-cash transaction, net profit would have stood at $1.4 bn (+1% you).

Comment from NLMK Group CFO Shamil Kurmashov:

In Q4 2020, the recovery in business activity, including in the form of pent-up demand and restocking in the global supply chain coupled with a limited supply of steel products, led to a spike in steel product prices in our key regions. High iron ore prices supported this trend.

In this context, NLMK Group increased its revenue by 7% qoq to $2.4 bn, and its EBITDA by 54% qoq to $890 m in Q4 2020. EBITDA margin grew to 37%.

In 2020, despite the constraints of the pandemic, we maintained our capacity utilization rates and were able to achieve a 3% yoy increase in EBITDA, reaching $2.6 bn. Our flexible business model enabled a 3% yoy increase in sales to 17.5 m t. Free cash flow for 12M 2020 totalled $1.1 bn.

Over 12M 2020, the structural gain from our Strategy projects reached $261 m vs. the 2019 base. Operational efficiency programmes contributed $176 m, with $85 m coming from investment projects. We have completed upgrades at the Lipetsk site blast furnace and steelmaking operations, which will enable an increase in steel production capacity of 1 m t pa starting from 2021. Construction of a coal charge stamping unit was completed at Altai-Koks, which will reduce NLMK Group's dependence on expensive and scarce coal grades. The full-year effect of these projects will be reflected in our financial results in 2021.

Net debt/EBITDA ratio stood at 0.94x, total debt was $3.5 bn.

Solid financial performance enabled the management to recommend NLMK's Board of Directors to pay $570 as Q4 2020 dividends.

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