NLMK Group Q2 and 6M 2020 IFRS Financial Results
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 $304 m. NLMK Board of Directors recommended approving Q2 dividends in the amount of RUB 4.75/share (132% of FCF).
Key highlights
| k t/$ million | Q2 2020 | Q1 2020 | QoQ | Q2 2019 | YoY | 6M 2020 | 6M 2019 | YoY |
| Sales volumes | 4,352 | 4,505 | -3% | 4,268 | 2% | 8,857 | 8,882 | 0% |
| Revenue | 2,174 | 2,457 | -12% | 2,797 | -22% | 4,631 | 5,666 | -18% |
| EBITDA 2 | 582 | 594 | -2% | 735 | -21% | 1,176 | 1,430 | -18% |
| EBITDA margin | 27% | 24% | +3 p.p. | 26% | +1 p.p. | 25% | 25% | 0 p.p. |
| Profit for the period 3 | 77 | 289 | -73% | 414 | -81% | 366 | 796 | -54% |
| Free cash flow 4 | 304 | 331 | -8% | 258 | 18% | 635 | 936 | -32% |
| Net debt 5 | 1,830 | 1,770 | 3% | 1,291 | 42% | 1,830 | 1,291 | 42% |
| Net debt/EBITDA 5 | 0.79x | 0.72x |
| 0.39x |
| 0.79x | 0.39x |
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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.
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| Investor relations contact: Dmitry Kolomytsyn, CFA +7 (495) 504 0504 | Media relations contact: Maria Simonova +7 (915) 322 62 25 simonova_mn@nlmk.com |
1 Consolidated financial results are prepared under IFRS. Reporting periods of the Company are 3M, 6M, 9M and 12M. Quarterly figures are obtained by calculation, including in the segment reporting. Figures for comparable periods may differ from figures posted earlier because of rounding off to integers.
2 EBITDA is the operating profit before equity share in financial results of joint ventures, impairment of capital assets and losses from retirement of fixed assets, allowed for amortization and depreciation. EBITDA calculations and further details are presented in the Appendix.
3 Profit for the period attributable to NLMK shareholders.
4 Free cash flow is determined as net cash from operations plus interest received net of interest paid and capital investment. Free cash flow calculations are presented in the Appendix.
5 Net debt is calculated as the sum of long-term and short-term borrowings less cash and cash equivalents, as well as short-term deposits at period end. Net debt / EBITDA is represented by net debt as at the end of the reporting period and EBITDA as last 12 months EBITDA. Net debt calculations are presented in the Appendix.
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 0.79х, 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."
TELECONFERENCE
NLMK is pleased to invite the investment community to a conference call with the Company management:
Thursday, 23 July 2020
· 10:30 a.m. - New York
· 3:30 p.m. - London
· 5:30 p.m. - Moscow
To join the conference call and web-cast, the participants are invited to dial:
US number:
+1 334-777-6978 (local access) // 800-367-2403 (toll free)
UK number:
+44 (0)20 8089 2860 (local access) // 0800 031 4838 (toll free)
Russian number:
+7 499 609 1260 (local access) // 8 800 100 9471 (toll free)
Conference code: 8802682
To join the webcast, please follow the link: https://webcasts.eqs.com/nlmk20200723
* We recommend participants start dialling 5-10 minutes in advance to avoid waiting.
MANAGEMENT COMMENTS
Q2 2020 market review
· In Q2, the spread of the COVID-19 pandemic caused demand to plummet in the Russian, EU and US markets, coupled with an uptick in buyer activity in Asia.
· In China, a broad range of economic incentives supported increased internal demand for steel, while export continued to decline.
· Steel companies in many regions across the globe (including the EU, USA, Japan, and India) temporarily mothballed or significantly reduced capacity utilization rates at their facilities amid lockdown constraints. The drop in the production of steel, iron ore, and coking coal was comparable to the drop in consumption in the corresponding regions, preventing prices from collapsing.
· Steel consumption in the EU and the USA dropped by over 20% qoq*. The construction and wind energy sectors displayed the most resilient demand. Sectors that are directly dependent on end consumers, such as automotive, significantly curbed their steel consumption. Despite the easing of most constraints in Europe and the USA in mid-May, consumer activity remained low till the end of the quarter. COVID-19 outbreaks in some US states forced regional authorities to reintroduce lockdown constraints. Nonetheless, recent macroeconomic indicators point to a gradual economic recovery in the US and some European countries.
· Demand trends in Russia were significantly impacted by the lockdown in construction in Moscow and the Moscow Region, as well as the 'non-working' days in April and May. The gradual easing of restrictions, the decrease in Russia's Central Bank rate, combined with state economic incentives, including preferential mortgage rates, helped restore buyer activity toward the end of June to 2019 levels. There was also an uptick in demand from the oil and gas sector. Therefore, according to preliminary estimates, demand decreased by 10-15% qoq.
| Q2 2020 prices · Raw material prices: average global coal prices dropped by 23% qoq due to weak demand from Japan, India, and Europe amid the COVID-19 pandemic, and concerns that import quotas to China might stiffen. Iron ore prices grew by 3% qoq, driven by a swift recovery of Chinese industry at the end of the quarter. · Market prices** for flat steel were pressured by weak demand amid the COVID-19 pandemic. Prices in the US decreased by 11-16% qoq (-12-20% yoy); prices in Europe decreased by 4-8% qoq (-11-13% yoy). · Steel product prices in the Russian market denominated in dollars fell by 6-12% qoq (up to -18% yoy). Rebar prices in dollar terms decreased by 8% qoq (-22% yoy). · Export slab prices (FOB Black Sea) decreased by 17% qoq (-25% yoy).
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*Data on steel consumption trends on regional markets are estimates.
** Market prices reflect the level of prices for a given calendar period and differ from the average sales prices of the Company and its segments due to the time lag of the production & sales cycle.
| Q2 2020 output and sales breakdown · Steel output* decreased by 8% qoq to 3.9 m t (-3% yoy) following the drop in steel output by NLMK Russia Long Products and NLMK USA due to weak demand amid the COVID-19 pandemic. Capacity utilization rate at NLMK Lipetsk was 100%. · Sales decreased by 3% qoq to 4.4 m t, due mostly to the decrease in sales by NLMK USA and NLMK DanSteel by 39% and 26% qoq, respectively. Compared to the same period last year, sales grew by 2% yoy, driven by the increase in production output at NLMK Lipetsk. · Sales of semis increased by 10% qoq to 1.9 m t (+27% yoy), driven by higher pig iron and billet exports. Slab sales grew by 1% qoq to 1.4 m t (+12% yoy). · Finished product sales dropped by 12% qoq to 2.4 m t (-14% yoy), amid weaker demand and a corresponding redistribution of a part of the portfolio to semi-finished products. · Export sales grew by 51% qoq (+71% yoy) to 2 m t, as the share of semi-finished products in exports increased. 6M 2020 output and sales breakdown · Steel output* decreased by 1% yoy to 8 m t due to the drop in steel output by NLMK Russia Long Products, NLMK USA and NLMK EU amid the COVID-19 pandemic. · Sales were flat yoy at 8.9 m t. · Sales of semis to third parties grew by 15% yoy to 2.5 m t, driven by higher pig iron exports. Slab sales to NBH increased by 5% yoy to 1.2 m t. · Finished product sales dropped by 7% yoy to 5.2 m t amid a redistribution of sales toward semi-finished products. · Export sales grew by 6% yoy to 3.4 m t, driven by the increase in pig iron sales to |
| * Hereinafter NLMK Group steel output and sales on home markets include NBH. Consolidated sales are given without NBH. Sales to home markets mean sales of the Group's companies in the regions, where production capacities are located in Russia, Europe, and the US. |
| NLMK GROUP KEY FINANCIALS Q2 2020 revenue · Revenue reduced by 12% qoq to $2.2 bn (-22% yoy) due to declining sales volumes and steel product prices, including with an increase in the share of semi-finished products in the sales mix. · The share of semi-finished products in the revenue increased by 3 p.p. qoq to 33%, while the share of finished products decreased by 5 p.p. qoq to 61%. The share of high value-added products decreased by 3 p.p. to 35%. · The share of the Russian market in the revenue was down to 37% (-4 p.p. qoq; -4 p.p. yoy) as a result of higher export deliveries from the Group's Russian sites and changes in the regional breakdown: the share of Asian countries increased to 15% (+14 p.p. qoq; +13 p.p. yoy), while the EU share was down to 16% |
| 6M 2020 revenue · Revenue decreased by 18% yoy to $4.6 bn due to declining sales prices, which was partly driven by an increase in the share of semi-finished products in the sales portfolio. · The share of semi-finished products in the revenue increased by 3 p.p. yoy to 31% as a result of growing pig iron sales to third parties; the share of finished products decreased by 2 p.p. yoy to 64%. The share of revenue from high value-added products totalled 36% (flat yoy). · The Russian market share in the revenue increased to 39% (+2 p.p. yoy) as a result of a sharper revenue decline in the US (-30% yoy) and the EU (-26% yoy) compared to Russia (-14% yoy). The US share in the revenue decreased to 17% (-3 p.p. yoy); the EU share decreased to 19% (-2 p.p. yoy).
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| Q2 2020 EBITDA · EBITDA* went down by 2% qoq to $582 m (-21% yoy) due to a decrease in steel product prices and sales volumes partially offset by the ruble depreciation and operational efficiency gains. · Commercial expenses grew by 7% qoq to $227 m (+12% yoy) with higher transport expenses driven by an increase in exports to remote destinations. · General and administrative expenses decreased by 5% qoq to $82 m (-7% yoy), driven by managed cost optimization efforts. 6M 2020 EBITDA · EBITDA decreased by 18% yoy to $1.2 bn amid narrowing steel/raw material price spreads, which was partially offset by operational efficiency gains and the ruble depreciation. · Commercial expenses increased by 3% yoy to $439 m due to higher exports. · General and administrative expenses decreased by 1% yoy to $168 m. Net profit** · Q2 2020 net profit decreased by 73% qoq to $77 m (-81% yoy), due mainly to the impairment of a $120 m investment in NBH. The recognition of a $70 m loss from FX difference served as an additional factor. · 6M 2020 net profit decreased by 54% yoy to $366 m due to EBITDA decline and impairment of the NBH investment.
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| * EBITDA used in NLMK's financial releases is calculated as operating profit before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets, adjusted to depreciation and amortization. EBITDA is not an indicator of operating profit, operating activity or liquidity under IFRS, and NLMK discloses it because equivalent indicators could be used by investors and analysts. That said, NLMK's EBITDA should not be viewed on a standalone basis, or in place of profit before tax, or cash flows from operations, as defined by IFRS, or as an indicator of operational efficiency, or as the sum of free cash funds that NLMK can invest into business development. NLMK's EBITDA margin and EBITDA might not be comparable to similar indicators disclosed by other companies as there are no commonly accepted rules for calculating them. For instance, NLMK's EBITDA is calculated similar to what is termed as 'Adjusted EBITDA' in other companies, as NLMK's EBITDA excludes other profit/loss items in addition to interest payments, income tax, depreciation and amortization. **Profit for the period, attributable to NLMK shareholders. |
| Q2 2020 free cash flow · Free cash flow went down by 8% qoq to $304 m with a decrease in operating cash flow, which was partially offset by a managed capex reduction. Year-on-year, free cash flow increased by 18% due to cash inflows from working capital. · Operating cash flow decreased by 11% qoq to $549 m due to lower EBITDA. · Cash inflow from working capital totalled $57 m due to: o + $109 m: a decrease in receivables, driven by active efforts to speed up payments from clients, as well as declining steel product sales and prices. o + $23 m: iron ore inventory reduction and finished product destocking, driven by a decline in NLMK USA steel output. o - $76 m: a decrease in payables, driven by lower slab purchasing at NLMK USA. 6M 2020 free cash flow · Free cash flow decreased by 32% yoy to $635 m, due mainly to lower EBITDA and a 25% yoy increase in investment. · Cash inflow from working capital totalled $142 m due to: o + $65 m: a decrease in receivables due to declining steel product prices. o + $149 m: lower inventory levels, driven by a decrease in the cost of raw materials and steel products. o - $75 m: a decrease in payables in Q2 2020. |
Investment
· NLMK Group's Q2 2020 investment decreased by 24% qoq to $219 m against the backdrop of a managed slowdown of capex projects and payment schedule optimization.
· NLMK Group's 6M 2020 investment increased by 25% yoy to $507 m. The growth in investment was associated with major overhauls at NLMK Lipetsk BF and BOF operations.
Dividends
· In Q2 2020 NLMK paid out $271 m in dividends.
· On 23 July 2020, the Board of Directors recommended that shareholders approve the payment of Q2 2020 dividends in the amount of RUB 4.75 per share, which is equivalent to 132% of free cash flow.
Strategy 2022 execution
· In Q2 2020 structural EBITDA gains from operational efficiency improvements totalled $41 m (relative to the 2019 cost base). The main part of the gains came from NLMK Russia Flat Products segment.
· In 6M 2020 operational efficiency improvements added $97 m to EBITDA.
Debt management
· Total debt in Q2 2020 decreased by 3% qoq to $3.4 bn due to the repayment of a short-term debt of $150 m.
· Net debt increased by 3% qoq to $1.8 bn. Net debt/EBITDA ratio stood at 0.79 x.
Q3 2020 outlook
· We expect a decrease in the Lipetsk site steel output to the level of the same period last year due to the start of the second stage of major overhauls at NLMK Lipetsk hot-end operations (Blast Furnace No. 4 and BOF No. 3). These projects are part of the Group's upgrade programme, which will add 1 m t annually to the NLMK Lipetsk steel output.
| NLMK Russia Flat Products |
| Q2 2020 highlights · Sales decreased by 1% qoq amid weaker demand for finished products in April and May. · Revenue went down by 9% qoq as average sales prices decreased and the product portfolio structure changed. · EBITDA totalled $303 m (-15% qoq) due to lower sales and changes in the product portfolio, which was partially offset by a weaker ruble, and operational efficiency programme gains. 6M 2020 highlights · Sales increased by 7% yoy to 6.9 m t as production output increased and demand was high on the Russian market in Q1 2020. · Revenue decreased by 12% yoy to $3.41 bn as steel product prices decreased, which was partially offset by higher sales. · EBITDA decreased by 25% yoy to $658 m amid narrower price spreads.
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| NLMK Russia Long Products |
| Q2 2020 highlights · Sales increased by 4% qoq to 0.59 m t due to higher billet exports and the deferred demand effect (active destocking as customer activity picked up following the easing of lockdown constraints (June)). · Revenue increased by 3% qoq to $326 m, following the growth of sales. · EBITDA in the segment totalled $10 m, which is 29% lower qoq, as the share of billets in the sales structure increased following a decrease in rebar demand on the Russian market. 6M 2020 highlights · Sales decreased by 22% yoy to 1.2 m t due to a high Q1 2019 base, as well as relatively low billet exports compared to last year. · Revenue decreased by 27% yoy to $642 m, following lower sales and long product prices. · EBITDA decreased by 47% yoy to $24 m due to lower sales and changes in the sales structure, as well as narrower rebar/scrap spreads, which was partially offset by operational efficiency programme gains.
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| Mining and Processing of Raw Materials |
| Q2 2020 highlights · Sales increased by 6% qoq (+8% yoy) to 4.9 m t, following output growth. Iron ore sales to independent buyers increased fivefold to 0.45 m t. · Revenue grew by 8% qoq to $336 m (+5% yoy) due to higher sales and a 9-13% qoq increase in ruble-denominated prices for concentrate and pellets. · EBITDA increased by 9% qoq to $248 m, driven by higher revenue and gains from capex projects aimed at increasing output. 6M 2020 highlights · Sales reached 9.5 m t (+4% yoy) against the backdrop of higher equipment productivity and the implementation of operational efficiency programmes. · Revenue grew to $648 m (+10% yoy), due mainly to increased iron ore prices and higher sales. · EBITDA totalled $475 m (+13% yoy), supported by higher iron ore prices and increased output.
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| NLMK USA |
| Q2 2020 highlights · Sales went down by 39% qoq to 0.33 m t (-43% yoy) due to a sharp demand drop on the US market amid the COVID-19 pandemic. Additionally, planned routine repairs were carried out in June at the NLMK Indiana plant. · Revenue decreased by 37% qoq to $238 m (-50% yoy), following the drop in sales. · EBITDA reached $3 m (vs. -$22 m the quarter before), since the slab/rolled product price spread widened and the previous quarter's base was low due to the accrual of a non-monetary reserve for inventory re-evaluation amounting to -$15 m. 6M 2020 highlights · Sales decreased by 27% yoy to 0.87 due to weak Q2 2020 performance. · Revenue went down by 39% yoy to $615 m due to a steel price adjustment and lower sales, which was partially offset by the share of high value-added products increasing by 7 p.p and reaching 52%. · EBITDA decreased to -$19 m (vs. $33 m the year before) due to narrower price spreads and an adjustment of rolled product prices in Q2 2020.
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| NLMK DanSteel* |
| Q2 2020 highlights · Sales of plate decreased by 26% qoq to 0.12 m t (-11% yoy) due to lower demand in almost all sectors except wind energy amid the COVID-19 pandemic. · Revenue went down by 27% qoq to $95 m, reflecting the sales performance. · EBITDA totalled -$3 m (vs. +$6 m the quarter before) as the slab/plate price spread narrowed and sales decreased. 6M 2020 highlights · Sales increased by 1% yoy to 0.29 m t as demand from wind energy, shipbuilding, and infrastructure projects grew in January and February. · Revenue decreased by 17% yoy to $225 m due to an adjustment of plate prices. · EBITDA amounted to $3 m (vs. +$6 m the year before) due to a narrower price spread in Q2 2020.
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| * NLMK Dansteel и сеть продаж толстого листа. |
| JV performance (NBH) |
| Q2 2020 highlights · Sales went down to 0.47 m t (-23% qoq), mainly due to lower strip sales amid the overall demand drop on the European market. · Revenue decreased by 19% qoq to $308 m, following lower sales. · EBITDA was -$14 m vs. -$19 m in Q1 2020. 6M 2020 highlights · NBH sales decreased by 5% yoy to 1.07 m t due to lower demand in Q2 2020. · Revenue went down by 18% yoy to $690 m due to lower steel product sales prices. · EBITDA totalled -$33 m vs. -$64 m the year before. EBITDA growth was due to previously purchased cheap slabs being used in production, as well as the Q2 2019 accrual of a non-operational reserve to restructure NLMK Clabecq.
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Appendix No. 1 Operating and financial results
(1) Sales markets
| k t | Total | Sales markets | |||||
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| Russia | ЕС | Russia | Middle | Russia | Other | |
| NLMK Group (with NBH) | 4,348 | 1,447 | 727 | 474 | 555 | 44 | 1,101 |
| Division sales to third parties: |
|
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|
|
|
|
|
| NLMK Russia Flat | 2,834 | 1,080 | 89 | 142 | 542 | 44 | 938 |
| NLMK Russia Long | 594 | 367 | 90 | 0 | 10 | 0 | 127 |
| International subsidiaries and affiliates, incl.: | 920 | 0 | 548 | 332 | 3 | 0 | 36 |
| NLMK USA | 330 | 0 | 0 | 330 | 0 | 0 | 0 |
| European rolling facilities (NLMK DanSteel and NBH) | 590 | 0 | 548 | 2 | 3 | 0 | 36 |
(2) NLMK Russia Flat
| k t/$ million | Q2 2020 | Q1 2020 | QoQ | Q2 2019 | YoY | 6M 2020 | 6M 2019 | YoY |
| Steel product sales, incl.: | 3,432 | 3,469 | -1% | 3,055 | 12% | 6,902 | 6,458 | 7% |
| external cutmores | 2,834 | 2,500 | 13% | 2,122 | 34% | 5,334 | 4,780 | 12% |
| semis to NBH | 472 | 734 | -36% | 709 | -33% | 1,206 | 1,150 | 5% |
| intersegmental sales | 126 | 235 | -47% | 224 | -44% | 361 | 528 | -32% |
| Revenue, incl.: | 1,624 | 1,788 | -9% | 1,923 | -16% | 3,412 | 3,899 | -12% |
| external customers | 1,384 | 1,376 | 1% | 1,444 | -4% | 2,760 | 3,068 | -10% |
| intersegmental operations | 240 | 412 | -42% | 479 | -50% | 652 | 831 | -22% |
| EBITDA | 303 | 355 | -15% | 455 | -33% | 658 | 879 | -25% |
| EBITDA margin | 19% | 20% | -1 p.p. | 24% | -5 p.p. | 19% | 23% | -4 p.p. |
(3) NLMK Russia Long
| k t/$ million | Q2 2020 | Q1 2020 | QoQ | Q2 2019 | YoY | 6M 2020 | 6M 2019 | YoY |
| Steel product sales | 594 | 569 | 4% | 715 | -17% | 1,163 | 1,483 | -22% |
| Revenue, incl.: | 326 | 316 | 3% | 468 | -30% | 642 | 883 | -27% |
| external customers | 251 | 260 | -3% | 379 | -34% | 511 | 753 | -32% |
| intersegmental operations | 75 | 56 | 34% | 89 | -16% | 131 | 130 | 1% |
| EBITDA | 10 | 14 | -29% | 36 | -72% | 24 | 45 | -47% |
| EBITDA margin | 3% | 4% | -1 p.p. | 8% | -5 p.p. | 4% | 5% | -1 p.p. |
(4) Mining Segment
| k t/$ million | Q2 2020 | Q1 2020 | QoQ | Q2 2019 | YoY | 6M 2020 | 6M 2019 | YoY |
| Iron ore products sales, incl.: | 4,880 | 4,604 | 6% | 4,513 | 8% | 9,484 | 9,102 | 4% |
| sales to Lipetsk plant | 4,428 | 4,529 | -2% | 4,401 | 1% | 8,957 | 8,990 | 0% |
| Revenue, incl.: | 336 | 312 | 8% | 320 | 5% | 648 | 588 | 10% |
| external customers | 24 | 10 | 2.4x | 16 | 50% | 34 | 20 | 70% |
| intersegmental operations | 312 | 302 | 3% | 304 | 3% | 614 | 568 | 8% |
| EBITDA | 248 | 227 | 9% | 232 | 7% | 475 | 422 | 13% |
| EBITDA margin | 74% | 73% | +1 p.p. | 73% | +1 p.p. | 73% | 72% | +1 p.p. |
(5) NLMK USA
| k t/$ million | Q2 2020 | Q1 2020 | QoQ | Q2 2019 | YoY | 6M 2020 | 6M 2019 | YoY |
| Steel product sales | 330 | 537 | -39% | 584 | -43% | 867 | 1,185 | -27% |
| Revenue, incl.: | 238 | 377 | -37% | 476 | -50% | 615 | 1,002 | -39% |
| external customers | 238 | 377 | -37% | 476 | -50% | 615 | 1,002 | -39% |
| intersegmental operations | - | - | 0% | - | 0% | - | - | 0% |
| EBITDA | 3 | (22) | -114% | 16 | -81% | (19) | 33 | -158% |
| EBITDA margin | 1% | -6% | +7 p.p. | 3% | -2 p.p. | -3% | 3% | -6 p.p. |
(6) NLMK DanSteel
| k t/$ million | Q2 2020 | Q1 2020 | QoQ | Q2 2019 | YoY | 6M 2020 | 6M 2019 | YoY |
| Steel product sales | 122 | 164 | -26% | 137 | -11% | 286 | 283 | 1% |
| Revenue, incl.: | 95 | 130 | -27% | 131 | -27% | 225 | 270 | -17% |
| external customers | 95 | 130 | -27% | 130 | -27% | 225 | 269 | -16% |
| intersegmental operations | - | - | 0% | 1.0 | -100% | - | 1 | -100% |
| EBITDA | (3) | 6 | -150% | 3 | -200% | 3 | 6 | -50% |
| EBITDA margin | -3% | 5% | -8 p.p. | 2% | -5 p.p. | 1% | 2% | -1 p.p. |
(7) NBH
| k t/$ million | Q2 2020 | Q1 2020 | QoQ | Q2 2019 | YoY | 6M 2020 | 6M 2019 | YoY |
| Steel product sales | 468 | 605 | -23% | 618 | -24% | 1,073 | 1,130 | -5% |
| Revenue, incl.: | 308 | 382 | -19% | 448 | -31% | 690 | 844 | -18% |
| external customers | 297 | 370 | -20% | 437 | -32% | 667 | 822 | -19% |
| intersegmental operations | 11.0 | 12.0 | -8% | 11.0 | 0% | 23 | 22 | 5% |
| EBITDA | (14) | (19) | -26% | (49) | -71% | (33) | (64) | -48% |
| EBITDA margin | -5% | -5% | 0 p.p. | -11% | +6 p.p. | -5% | -8% | +3 p.p. |
(8) Sales by product
| k t | Q2 2020 | Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 |
| Pig iron | 368 | 292 | 253 | 54 | 156 |
| Slabs | 1,445 | 1,430 | 1,172 | 1,173 | 1,288 |
| Thick plates | 122 | 164 | 128 | 118 | 137 |
| Hot-rolled steel | 904 | 921 | 912 | 852 | 901 |
| Cold-rolled steel | 405 | 528 | 473 | 533 | 498 |
| Galvanized steel | 292 | 362 | 331 | 338 | 331 |
| Pre-painted steel | 96 | 97 | 113 | 117 | 100 |
| Transformer steel | 65 | 70 | 66 | 63 | 74 |
| Dynamo steel | 62 | 72 | 50 | 75 | 68 |
| Billet | 116 | 30 | 1 | 60 | 78 |
| Long products | 426 | 474 | 596 | 568 | 570 |
| Metalware | 53 | 65 | 77 | 65 | 68 |
| TOTAL | 4,352 | 4,505 | 4,172 | 4,015 | 4,268 |
(9) Sales by region
| k t | Q2 2020 | Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 |
| Russia | 1,447 | 1,767 | 1,805 | 1,682 | 1,704 |
| European Union | 767 | 1,026 | 787 | 674 | 1,130 |
| Middle East, including Turkey | 553 | 529 | 556 | 633 | 409 |
| North America | 472 | 826 | 727 | 606 | 748 |
| Central and South America | 44 | 134 | 73 | 164 | 24 |
| CIS | 76 | 91 | 91 | 114 | 106 |
| Asia and Oceania | 899 | 23 | 69 | 21 | 61 |
| Rest of World | 95 | 110 | 64 | 122 | 85 |
| TOTAL | 4,352 | 4,507 | 4,172 | 4,015 | 4,268 |
(10) Revenue by region
| Region | Q2 2020 | Q1 2020 | Q4 2019 | |||
| $ million | share | $ million | share | $ million | share | |
| Russia | 797 | 37% | 1,009 | 41% | 1,073 | 46% |
| European Union | 358 | 16% | 505 | 21% | 377 | 16% |
| Middle East, including Turkey | 250 | 11% | 241 | 10% | 246 | 11% |
| North America | 299 | 14% | 485 | 20% | 408 | 18% |
| Central and South America | 23 | 1% | 70 | 3% | 40 | 2% |
| CIS | 58 | 3% | 75 | 3% | 88 | 4% |
| Asia and Oceania | 333 | 15% | 29 | 1% | 54 | 2% |
| Rest of World | 57 | 3% | 43 | 2% | 26 | 1% |
| TOTAL | 2,174 | 100% | 2,457 | 100% | 2,312 | 100% |
(11) EBITDA*
| $ million | Q2 2020 | Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 |
| Operating income** | 437 | 439 | 338 | 512 | 593 |
| minus: |
|
|
|
|
|
| Depreciation and amortization | (145) | (155) | (142) | (142) | (142) |
| EBITDA | 582 | 594 | 480 | 654 | 735 |
* EBITDA used in NLMK's financial releases is calculated as operating profit before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets, adjusted to depreciation and amortization. EBITDA is not an indicator of operating profit, operating activity or liquidity under IFRS, and NLMK discloses it because equivalent indicators could be used by investors and analysts. That said, NLMK's EBITDA should not be viewed on a standalone basis, or in place of profit before tax, or cash flows from operations, as defined by IFRS, or as an indicator of operational efficiency, or as the sum of free cash funds that NLMK can invest into business development. NLMK's EBITDA margin and EBITDA might not be comparable to similar indicators disclosed by other companies as there are no commonly accepted rules for calculating them. For instance, NLMK's EBITDA is calculated similar to what is termed as 'Adjusted EBITDA' in other companies, as NLMK's EBITDA excludes other profit/loss items in addition to interest payments, income tax, depreciation and amortization.
** Operating profit before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets
(12) Free cash flow
| $ million | Q2 2020 | Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 |
| Net cash provided operating activities | 549 | 617 | 710 | 568 | 494 |
| Interest paid | (28) | (2) | (22) | (4) | (12) |
| Interest received | 2 | 4 | 9 | 1 | 3 |
| Advance VAT payments on imported equipment | - | - | - | - | - |
| Capex | (219) | (288) | (359) | (316) | (227) |
| Free Cash Flow | 304 | 331 | 338 | 249 | 258 |
(13) Net debt
| $ million | Q2 2020 | Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 |
| Short-term borrowings | 1,219 | 1,678 | 468 | 389 | 544 |
| Long-term borrowings | 2,139 | 1,799 | 2,188 | 2,288 | 2,257 |
| Cash and cash equivalents | (1,121) | (1,456) | (713) | (421) | (1,142) |
| Short-term deposites | (407) | (251) | (157) | (520) | (368) |
| Net debt | 1,830 | 1,770 | 1,786 | 1,736 | 1,291 |
(14) Production of main products
| k t | Q2 2020 | Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 |
| Crude steel, incl.: | 3,809 | 4,171 | 3,749 | 3,714 | 3,940 |
| Steel Segment | 3,145 | 3,325 | 2,977 | 2,818 | 2,952 |
| Long products Segment, incl.: | 610 | 659 | 603 | 719 | 802 |
| NLMK-Kaluga | 272 | 256 | 215 | 256 | 349 |
| Foreign Rolled Products Segment | 53 | 188 | 169 | 176 | 185 |
| Finished products, incl.: | 2,467 | 2,852 | 2,642 | 2,725 | 2,784 |
| Flat steel | 1,978 | 2,240 | 2,058 | 2,071 | 2,129 |
| Long steel | 489 | 612 | 584 | 653 | 655 |
| Coke (6% moisture), incl.: | 1,530 | 1,540 | 1,487 | 1,418 | 1,417 |
| Novolipetsk | 643 | 645 | 652 | 655 | 644 |
| Altai-Koks | 887 | 895 | 834 | 762 | 774 |
(15) Slab sales, including intra-group sales to NLMK Group companies
| k t | Q2 2020 | Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 |
| Sales to 3rd parties, incl.: | 973 | 696 | 648 | 743 | 579 |
| Export | 796 | 406 | 473 | 532 | 314 |
| Sales to subsidiaries & associates | 598 | 970 | 851 | 550 | 933 |
| Sales to NBH | 472 | 734 | 523 | 430 | 709 |
| TOTAL | 1,571 | 1,665 | 1,499 | 1,292 | 1,512 |
(16) Export shipments of steel products from Russian assets of the Group to third party consumers
| k t | Q2 2020 | Q1 2020 | QoQ | Q2 2019 | YoY | 6M 2020 | 6M 2019 | YoY |
| Semi-finished products | 1,280 | 728 | 76% | 540 | 2.4x | 2,008 | 1,706 | 18% |
| Pig iron | 368 | 292 | 26% | 156 | 2.4x | 659 | 203 | 3.2x |
| Slabs | 796 | 406 | 96% | 314 | 2.5x | 1,203 | 1,264 | -5% |
| Billets | 116 | 30 | 3.8x | 70 | 66% | 146 | 238 | -39% |
| Flat products | 591 | 438 | 35% | 490 | 21% | 1,029 | 1,125 | -9% |
| HRC | 352 | 148 | 2.4x | 208 | 69% | 500 | 520 | -4% |
| CRC | 135 | 159 | -15% | 158 | -15% | 294 | 345 | -15% |
| HDG | 8 | 17 | -54% | 8 | -1% | 24 | 36 | -33% |
| Coated | 0 | 0 | 14% | 2 | -74% | 1 | 3 | -72% |
| Dynamo | 42 | 54 | -23% | 51 | -18% | 95 | 96 | 0% |
| Transformer | 55 | 60 | -9% | 64 | -14% | 115 | 126 | -9% |
| Long products | 110 | 135 | -19% | 104 | 6% | 245 | 278 | -12% |
| Total | 1,981 | 1,302 | 52% | 1,134 | 75% | 3,282 | 3,109 | 6% |
(17) Segmental information
| Q2 2020 | Russian Flat Steel | Russian Long Products | Mining | NLMK USA | NLMK DanSteel and Plates Distribution Network | Investments in NBH | Totals | Intersegmental operations and balances | NBH | Consolidated |
| $ million |
| |||||||||
| Revenue from external customers | 1,384 | 251 | 24 | 238 | 95 | 297 | 2,289 | - | (115) | 2,174 |
| Intersegment revenue | 240 | 75 | 312 | - | - | 11 | 638 | (627) | (11) | - |
| Gross profit | 455 | 34 | 245 | 1 | 9 | 15 | 759 | 26 | (26) | 759 |
| Operating income/(loss) | 213 | (1) | 221 | (11) | (6) | (28) | 388 | 32 | 17 | 437 |
| Income / (loss) before minority interest | 355 | (7) | 178 | (11) | (7) | (30) | 478 | (275) | (126) | 77 |
| Segment assets including goodwill | 7,196 | 922 | 1,661 | 724 | 368 | 1,385 | 12,256 | (983) | (1,143) | 10,130 |
Balance figures presented as of 30.06.2020
| Q1 2020 | Russian Flat Steel | Russian Long Products | Mining | NLMK USA | NLMK DanSteel and Plates Distribution Network | Investments in NBH | Totals | Intersegmental operations and balances | NBH | Consolidated |
| $ million |
| |||||||||
| Revenue from external customers | 1,376 | 260 | 10 | 377 | 130 | 370 | 2,523 | - | (66) | 2,457 |
| Intersegment revenue | 412 | 56 | 302 | - | - | 12 | 782 | (770) | (12) | - |
| Gross profit | 492 | 36 | 219 | (14) | 20 | 14 | 767 | 15 | (28) | 754 |
| Operating income/(loss) | 258 | 2 | 199 | (37) | 3 | (33) | 392 | 28 | 19 | 439 |
| Income / (loss) before minority interest | 190 | (5) | 160 | (38) | 2 | (34) | 275 | 25 | (11) | 289 |
| Segment assets including goodwill | 6,808 | 865 | 1,576 | 828 | 391 | 1,376 | 11,844 | (1,070) | (1,080) | 9,694 |
Balance figures presented as of 31.03.2020
| Novolipetsk Steel Interim condensed consolidated statement of financial position (unaudited) (millions of US dollars) |
|
| |
| As at |
| As at |
| Assets |
|
|
|
|
|
|
|
|
|
|
| Current assets |
|
|
|
|
| Cash and cash equivalents |
| 1,121 |
| 713 |
| Short-term financial investments |
| 450 |
| 287 |
| Trade and other accounts receivable |
| 918 |
| 1,047 |
| Inventories |
| 1,376 |
| 1,634 |
| Other current assets |
| 13 |
| 14 |
|
|
| 3,878 |
| 3,695 |
| Non-current assets |
|
|
|
|
| Long-term financial investments |
| 5 |
| 5 |
| Investments in joint ventures |
| 177 |
| 223 |
| Property, plant and equipment |
| 5,574 |
| 6,039 |
| Goodwill |
| 223 |
| 248 |
| Other intangible assets |
| 160 |
| 162 |
| Deferred income tax assets |
| 104 |
| 101 |
| Other non-current assets |
| 9 |
| 11 |
|
|
| 6,252 |
| 6,789 |
| Total assets |
| 10,130 |
| 10,484 |
|
|
|
|
|
|
| Liabilities and equity |
|
|
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
| Trade and other accounts payable |
| 948 |
| 1,124 |
| Dividends payable |
| 285 |
| 318 |
| Short-term borrowings |
| 1,219 |
| 468 |
| Current income tax liability |
| 36 |
| 32 |
|
|
| 2,488 |
| 1,942 |
| Non-current liabilities |
|
|
|
|
| Long-term borrowings |
| 2,139 |
| 2,188 |
| Deferred income tax liability |
| 375 |
| 405 |
| Other long-term liabilities |
| 35 |
| 2 |
|
|
| 2,549 |
| 2,595 |
| Total liabilities |
| 5,037 |
| 4,537 |
|
|
|
|
|
|
| Equity attributable to Novolipetsk Steel shareholders |
|
|
|
|
| Common stock |
| 221 |
| 221 |
| Additional paid-in capital |
| 9 |
| 9 |
| Accumulated other comprehensive loss |
| (6,816) |
| (6,140) |
| Retained earnings |
| 11,668 |
| 11,840 |
|
|
| 5,082 |
| 5,930 |
| Non-controlling interests |
| 11 |
| 17 |
| Total equity |
| 5,093 |
| 5,947 |
| Total liabilities and equity |
| 10,130 |
| 10,484 |
|
|
|
| Novolipetsk Steel Interim condensed consolidated statement of profit or loss (unaudited) (millions of US dollars, unless otherwise stated) |
|
|
|
| For the six months ended |
| For the six months ended |
| For the three months ended |
| For the three months ended |
|
|
|
|
|
|
|
|
|
|
| Revenue |
| 4,631 |
| 5,666 |
| 2,174 |
| 2,797 |
| Cost of sales |
| (3,118) |
| (3,886) |
| (1,415) |
| (1,898) |
|
|
|
|
|
|
|
|
|
|
| Gross profit |
| 1,513 |
| 1,780 |
| 759 |
| 899 |
|
|
|
|
|
|
|
|
|
|
| General and administrative expenses |
| (168) |
| (170) |
| (82) |
| (88) |
| Selling expenses |
| (439) |
| (428) |
| (227) |
| (202) |
| Net impairment losses on financial assets |
| (5) |
| (2) |
| (2) |
| (1) |
| Other operating income, net |
| 9 |
| 5 |
| 6 |
| 3 |
| Taxes, other than income tax |
| (34) |
| (33) |
| (17) |
| (18) |
|
|
|
|
|
|
|
|
|
|
| Operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment |
| 876 |
| 1,152 |
| 437 |
| 593 |
|
|
|
|
|
|
|
|
|
|
| Loss on disposals of property, plant and equipment |
| (2) |
| (1) |
| (2) |
| (1) |
| Impairment of non-current assets |
| (1) |
| (5) |
| - |
| - |
| Share of results of joint ventures |
| (176) |
| (45) |
| (146) |
| (49) |
| Finance income |
| 5 |
| 8 |
| 2 |
| 4 |
| Finance costs |
| (41) |
| (35) |
| (20) |
| (19) |
| Foreign currency exchange (loss)/gain, net |
| (67) |
| (40) |
| (70) |
| 21 |
| Hedging result |
| (4) |
| - |
| (2) |
| - |
| Expenses on operations with financial instruments |
| (31) |
| - |
| (31) |
| - |
| Other (expenses)/income, net |
| (40) |
| (17) |
| (16) |
| 3 |
|
|
|
|
|
|
|
|
|
|
| Profit before income tax |
| 519 |
| 1,017 |
| 152 |
| 552 |
|
|
|
|
|
|
|
|
|
|
| Income tax expense |
| (153) |
| (220) |
| (75) |
| (137) |
|
|
|
|
|
|
|
|
|
|
| Profit for the period |
| 366 |
| 797 |
| 77 |
| 415 |
|
|
|
|
|
|
|
|
|
|
| Profit attributable to: |
|
|
|
|
|
|
|
|
| Novolipetsk Steel shareholders |
| 366 |
| 796 |
| 77 |
| 414 |
| Non-controlling interests |
| - |
| 1 |
| - |
| 1 |
|
|
|
|
|
|
|
|
|
|
| Earnings per share - basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share attributable to |
| 0.0611 |
| 0.1328 |
| 0.0128 |
| 0.0691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Novolipetsk Steel Interim condensed consolidated statement of cash flows (unaudited) (millions of US dollars) |
|
| |
| For the six months ended |
| For the six months ended |
| Cash flows from operating activities |
|
|
|
|
| Profit for the period |
| 366 |
| 797 |
| Adjustments to reconcile profit for the period to net cash provided by operating activities: |
|
|
|
|
| Depreciation and amortisation |
| 300 |
| 278 |
| Loss on disposals of property, plant and equipment |
| 2 |
| 1 |
| Finance income |
| (5) |
| (8) |
| Finance costs |
| 41 |
| 35 |
| Share of results of joint ventures |
| 176 |
| 45 |
| Income tax expense |
| 153 |
| 220 |
| Impairment of non-current assets |
| 1 |
| 5 |
| Foreign currency exchange loss, net |
| 67 |
| 40 |
| Hedging result |
| 4 |
| - |
| Expenses on operations with financial instruments |
| 31 |
| - |
| Change in impairment allowance for inventories and credit loss allowance for accounts receivable |
| 4 |
| 3 |
| Changes in operating assets and liabilities |
|
|
|
|
| Decrease/(increase) in trade and other accounts receivable |
| 65 |
| (82) |
| Decrease in inventories |
| 149 |
| 174 |
| Decrease in other operating assets |
| 3 |
| 4 |
| (Decrease)/increase in trade and other accounts payable |
| (75) |
| 15 |
| Сash provided by operating activities |
| 1,282 |
| 1,527 |
| Income tax paid |
| (116) |
| (182) |
| Net cash provided by operating activities |
| 1,166 |
| 1,345 |
| Cash flows from investing activities |
|
|
|
|
| Purchases and construction of property, plant and equipment and |
| (507) |
| (405) |
| Proceeds from sale of property, plant and equipment |
| 1 |
| 1 |
| Purchases of investments and loans given, net |
| - |
| (62) |
| Proceeds from repayment of loans given |
| 85 |
| - |
| Placement of bank deposits |
| (405) |
| (644) |
| Withdrawal of bank deposits |
| 159 |
| 282 |
| Interest received |
| 6 |
| 19 |
| Contribution to share capital of joint venture |
| (131) |
| - |
| Acquisition of non-controlling interest |
| - |
| (1) |
| Net cash used in investing activities |
| (792) |
| (810) |
| Cash flows from financing activities |
|
|
|
|
| Proceeds from borrowings |
| 1,307 |
| 853 |
| Repayment of borrowings |
| (635) |
| (213) |
| Payments on leases |
| (9) |
| (7) |
| Interest paid |
| (30) |
| (23) |
| Dividends paid to Novolipetsk Steel shareholders |
| (579) |
| (1,162) |
| Net cash provided by/(used in) financing activities |
| 54 |
| (552) |
| Net increase/(decrease) in cash and cash equivalents |
| 428 |
| (17) |
| Effect of exchange rate changes on cash and cash equivalents |
| (20) |
| (20) |
| Cash and cash equivalents at the beginning of the year |
| 713 |
| 1,179 |
| Cash and cash equivalents at the end of the period |
| 1,121 |
| 1,142 |
|
|
|
|
|
|
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