07 February 2019, 17:12 / Business

NLMK reported a record growth in financial performance for ten years

The company explains this by rising prices and demand for steel, as well as the completion of the implementation of a five-year strategy Polina Trifonova

NLMK co-owner Vladimir Lisin should be satisfied with the results of his company / Grigory Sysoev / RIA Novosti

At the end of 2018, Vladimir Lisin’s NLMK revenue increased by 20% to $12 billion, EBITDA by 35% to $3.6 billion, net profit by 54% to $2.2 billion, follows from the company’s report for 2018, published on February 7. For the first time in 10 years, the company achieved an EBITDA margin of 30%; a year earlier, this figure was 4 percentage points less. Unlike its competitors in the industry - Severstal and MMK - NLMK's profitability since 2009 has always been below 30%. The company's free cash flow increased by 60% to $2 billion.

“The company achieved record results for a decade not only thanks to favorable market conditions – rising prices for steel products and restoration of demand for steel, but also thanks to the implementation of the five-year “Strategy 2017”, which ended in 2018,” said NLMK President Grigory Fedorishin in video message at the end of the year. The company's sales increased by 7% to 17.6 million tons of steel products. The company's capacity was loaded at 99%, according to NLMK materials. According to the company, global steel consumption growth in 2018 was 4%, in 2019 the growth will be 1.4%.

Almost a third of the increase in EBITDA is the effects of Strategy 2017, explained a company representative. Operational efficiency projects, which are aimed at reducing the consumption of raw materials and materials, reducing repair times, improving product quality, optimizing logistics schemes, added $189 million to EBITDA, he cites data: $51 million of which are effects from projects aimed at increasing steel production and rolled products, $31 million – optimization of blast furnace charge, $23 million – projects to improve product quality, $17 million – improvement of production processes, which made it possible to increase concentrate production. “More than $120 million is the effect of investment projects: the launch of crushing equipment at the Stoilensky GOK, the development of technology for injecting pulverized coal into blast furnaces, which allows reducing the costs of coke and natural gas, the launch of a new turbogenerator No. 5,” lists a NLMK representative . Other factors for the significant growth in indicators are an increase in sales by 7% and strengthening of positions in all key markets thanks to a flexible business model, and rising prices. The company will present the new strategy in March this year at investor day.

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In 2018, two main trends were observed in the steel market: the restoration of demand for steel and the growth of protectionism in the main markets, notes NLMK Vice President for Finance Shamil Kurmashov (quotes from the press release). NLMK's flexible business model ensured the strengthening of its position in key sales markets and allowed it to increase sales by 1.1 million tons, which is a company record, he emphasized. Net debt/EBITDA decreased over the year from 0.35 to 0.25. Together with the growth of free cash flow, the company will maintain high dividend payments, despite the increase in investments, Kurmashov concludes.

The annual results of all metallurgists in 2018 are very high, emphasizes Raiffeisenbank analyst Irina Alizarovskaya. This is due to high steel prices. However, already in the fourth quarter there was a decline in steel prices (on average 10%), while prices for iron ore were rising. “Increasing operational efficiency is the right thing to do, but all results ultimately depend on the price environment and the ruble exchange rate,” the expert emphasizes. In an environment of increasing trade restrictions, NLMK’s presence abroad is a plus for the company, she notes. “This applies to the European market, where the company has no import duties on slabs. But not everything is so simple in the American division: with the decline in steel prices in the USA and the inexpediency of importing our own slabs and paying a 25% duty, the margin of the American division is declining,” concludes Alizarovskaya.

Global steel consumption is growing steadily along with global GDP, but the market is subject to many temporary and often difficult to predict factors - trade wars, bans and barriers, interruptions in the supply of raw materials due to weather and other force majeure, new industrial practices in China, comments the director for metallurgy and mining Prosperity Capital Management Nikolay Sosnovsky.

NLMK’s indicators reflect the situation on the market, says Kirill Chuiko, head of the analytical department of BCS Global Markets. In the future, the company's results will depend on steel prices, and they will begin to decline, he believes.

2019 will be a difficult year for the industry, as the Chinese economy is slowing down, followed by a slowdown in demand for steel, says Aton analyst Andrey Lobazov: “It was the strong domestic demand in China in previous years that led to a significant decrease in steel exports from the country - from 112 million tons in 2015 to 76 million tons in 2017. This stimulated the growth of the global steel industry.”

Corrected version. The position of Grigory Fedorishin has been corrected in the article.