In Q3, revenue increased by 19% qoq to $2.2 bn, driven by a 7% qoq growth in sales to 4.2 m t. EBITDA increased by 46% qoq to $673 m; EBITDA margin reached 30% (+5 p.p. qoq), including 18% for NLMK’s international companies. Net income doubled qoq to $385 m. Net debt / EBITDA decreased to 0.4õ.

Q3 2016 highlights

• Sales increased by 7% qoq to 4.2 m t (+2% yoy); with the share of finished products of 66% of total sales (+1 p.p. qoq and -2 p.p. yoy)
• Revenue grew to $2,225 m (+19% qoq and +10% yoy), driven by the increase in sales and prices for steel products
• EBITDA increased by 46% qoq to $673 m (+32% yoy)
• EBITDA margin expanded to 30% (+5 p.p. qoq and +5 p.p. yoy)
• Net income* doubled qoq to $385 m (-6% yoy)
• Capex decreased to $104 m (-35% qoq and -29% yoy)
• Free cash flow increased to $474 m (a threefold increase qoq and +28% yoy)

9M 2016 highlights

• Group sales increased by 2% yoy to 12.3 m t
• Revenue totalled $5,671 m (-11% yoy) due to the drop in average prices for steel products
• EBITDA was $1,423 m (-13% yoy)
• EBITDA margin was 25% (-1 p.p. yoy)
• Capex decrease to $384 m (-14% yoy)
• 9M 2016 free cash flow was $906 m (+2% yoy)
• Operational efficiency gains: $48 m
• Net debt fell to $0.7 bn (-37% vs. end of 2015)

Q4 2016 Outlook

• Q4 results will soften sequentially into a low season but profitability is expected to improve on a year on year basis.

Comment from NLMK Group CFO Grigory Fedorishin:

“In Q3 2016, NLMK revenue grew by 19% qoq to $2.2 bn, driven by the increase in deliveries and the increase in average sales prices; and improvements to the structure of sales. The Group’s local markets, Russia, the EU, and the US, accounted for approximately 66% of steel product sales.

“The increase in the revenue, coupled with operational efficiency gains, supported a 46% qoq increase in EBITDA to $673 m. Group’s EBITDA margin gained 5 p.p. qoq to 30%, hitting its highest since Q2 2010. NLMK Group’s international companies in the US and Europe posted a Q3 EBITDA margin of 18% on the back of improved market conditions, hitting a peak since 2008.

“Gains from operational efficiency programmes (projects not requiring capex), rolled out across all Group sites, totalled $48 m for 9M 2016 vs. 2015.

“In November 2016, Stoilensky is planning to receive the first output of pellets at its new pelletizing plant, the latter covering 100% of the Group’s iron ore pellet needs. This will enable the company to achieve a reduction in steel production costs, consolidating its position as one of the most cost-efficient manufacturers in the world.

“The increase in operating cash flow (+76% qoq) supported a threefold increase in free cash flow qoq to $474 m; and a 37% decrease in net debt vs. the beginning of 2016 to $0.7 bn. Net debt to EBITDA was 0.4õ.

“Q3 dividends will be recommended at a meeting of NLMK’s Board of Directors on 17 November 2016.”

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