NLMK's revenue and profit decreased despite an increase in sales of metal products, the volume of which in January-March 2016 grew to a record level of 4.1 million tons

Work of the Novolipetsk Iron and Steel Works branch in Kaluga (Photo: Andrey Rudakov/Bloomberg)

The net profit of the NLMK group in January-March 2016 amounted to $56.9 million, which is 82% less than the result for the first quarter of 2015 ($320.4 million), follows from the company’s report prepared in accordance with international financial reporting standards (IFRS) . Compared to the fourth quarter of 2015, NLMK’s profit decreased by 25%, then the group earned $76 million.

The reduction in profits in the company is attributed, among other things, to losses from changes in exchange rates - their fluctuations in the first quarter of 2016 brought the company a loss of $66 million against a profit of $74 million in the fourth quarter of 2015.

At the same time as the profit, NLMK's revenue also decreased. On an annual basis, it decreased by 29% (from $2.216 billion to $1.577 billion), and on a quarterly basis - by 4%. Even the increase in the physical volume of sales of metal products, which in the first quarter of 2016 reached a record level for the company of 4.141 million tons, did not help to keep revenue and profit from falling.

The NLMK report associates the fall in financial indicators with the weakening of the ruble (74.63 rubles/$ in the first quarter of 2016 against 65.94 rubles/$ in the fourth quarter of 2015) and the low level of prices for metal products in October-December 2015 from -for deferred recognition of export sales. At the beginning of 2016, prices began to rise (in the USA they grew by 5%, in Europe - by 6%), which will be reflected in the results of the second quarter of this year.

“In the first quarter of 2016, global steel production stabilized compared to the previous quarter, with growth observed in the EU and the USA, while steel production decreased in China. This dynamics was the result of increased consumption and replenishment of inventories in developed countries against the backdrop of increasing trade barriers to the import of metal products from developing countries, including China. These factors, as well as the resumption of growth in commodity prices, had a positive impact on prices for steel products,” explained Grigory Fedorishin, vice president for finance at NLMK Group, as quoted in the company’s statement . He also noted that low steel prices were partially offset by NLMK's implementation of programs to improve operational efficiency. The company’s report estimates the positive effect from the implementation of programs for the first quarter of 2016 at $14 million.

In the first quarter of 2016, the share of NLMK's revenue from sales in Russia was 37% compared to 35% at the beginning of the previous year. The share of revenue from sales to the North American market remained at 18%, the share of the European Union increased year on year from 17% to 20%, the share of the Middle East and Turkey remained at 8%. At the same time, the sales volume of products from NLMK's foreign factories increased by 9% year on year.

According to Fedorishin, the presence of its own production in key markets allowed NLMK to increase sales of metal products to a record level. Earlier it became known that NLMK could benefit from the introduction of customs duties on cold-rolled steel in the United States, since the exclusion of Chinese suppliers from the market would clear it for the Russian group’s factories located directly in the United States.

NLMK's net profit in the first quarter fell by 82%