NLMK Group (LSE, MOEX: NLMK) Q2 2020 EBITDA was $582 m, its EBITDA margin growing by 3 p.p. qoq to 27%. Free cash flow (FCF) totalled $304 m. NLMK Board of Directors recommended approving Q2 dividends in the amount of RUB 4.75/share (132% of FCF).

Q2 2020 key highlights

• Revenue decreased by 12% qoq to $2.2 bn (-22% yoy), following the decrease in average sales prices and the increase in the share of semis in the product mix against the backdrop of the weakening in demand for finished products, and following the drop in sales by NLMK USA and NLMK DanSteel.
• EBITDA decreased by 2% qoq to $582 m (-21% yoy), against the backdrop of the decrease in revenue. This was partially offset by the drop in raw material prices, the devaluation of the ruble, and operational efficiency gains. EBITDA margin increased by 3 p.p. qoq to 27% (+1 p.p. yoy).
• Free cash flow (FCF) decreased by 8% qoq to $304 m.
• Net profit decreased by 73% qoq to $77 m (-81% yoy) due mainly to the depreciation of investments into NBH. Without taking this non-cash transaction into account, net profit would have decreased by 24% qoq to $221 m. Aside from the investment impairment, the result was impacted by the recognition of FX difference losses in the amount of $70 m.

6M 2020 key highlights

• Revenue decreased by 18% yoy to $4.6 bn due to the drop in steel product prices and the increase in the share of semi-finished products in total sales by 4 p.p. yoy to 42%.
• EBITDA decreased by 18% yoy to $1.2 bn, driven by the decrease in revenue. EBITDA margin was 25% (flat yoy).
• Free cash flow decreased by 32% yoy to $635 m, following the decrease in EBITDA and growth of capex as part of Strategy 2022, with the capex programme going into active execution stage in Q2 2019.
• Net profit decreased by 54% yoy to $366 m, against the backdrop of lower revenue and the recognition of NBH investment impairment.

Comment from NLMK Group CFO Shamil Kurmashov:

“In Q2 2020, the COVID-19 pandemic caused serious headwinds for overall business activity, resulting in a significant weakening in demand for steel in our traditional sales markets and a drop in steel product prices.

“In order to keep capacity utilization rates high at our flagship production site, NLMK Lipetsk, we made changes to our regional sales structure (for instance, we grew shipments to the Asian market in April and May), and diversified our product mix. At the end of April, we were already actively working on our export order book for June.

“In April we were forced to decrease our output at the NLMK Russia Long Products division, as construction projects were frozen across key regions, and due to a shortage of scrap amid lockdown constraints in Russia. Nonetheless, division sales grew qoq, driven by higher billet exports and the deferred demand effect at the end of Q2.

“All of our teams and departments worked together to implement cost optimization initiatives and new operational efficiency projects, enabling us to keep our financial performance high in the past quarter. Despite the fact that NLMK Group’s revenue decreased by 12% qoq to $2.2 bn, EBITDA fell by a mere 2% qoq to $582 m EBITDA margin was 27%.

“Net debt/EBITDA stood at 0.79õ, total debt decreased by 3% qoq to $3.4 bn.

“In line with our dividend policy, NLMK management recommended the Board of Directors to pay Q2 2020 dividends in the amount of $400 m.”

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