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4 March 2019

NLMK Group announces new strategy and new dividend policy

NLMK Group (LSE: NLMK), a global steel company with operations in Russia, the USA, and the EU, is pleased to announce the launch of its new Strategy 2022 and changes to its dividend policy.

Strategy 2022 targets net gains of +$1.25 bn to EBITDA* pa, with $0.5 bn pa from operational efficiency programmes that require no additional capex.

Strategy 2022 is based on enhancing NLMK Group’s competitive advantages. Through operational efficiency initiatives and investment projects, as well as debottlenecking our steelmaking operations, steel output at our Lipetsk site will increase by 1 m tpa. Steel output growth will be 100% covered by captive iron ore from Stoilensky.

Added steel output will be sold in the form of premium and niche HVA products. Target growth in sales of HVA products will total 1.7 m t, driven by investment into the Group’s rolling operations in Russia, Europe and the US.

As part of its strategic goal on sustainable development, NLMK will continue to execute its target programmes aimed at reducing its environmental footprint, improving occupational health and safety, and reducing the injury rate.

In line with its revised dividend policy, NLMK Group plans to pay out 100% of its free cash flow to shareholders if its Net debt/EBITDA is less than or equal to 1.0x; and 50% of its free cash flow if its Net debt/EBITDA is higher than 1.0x. NLMK Group will use a normalized capex of $700 m pa to calculate its free cash flow for the purpose of dividend payments, even if actual investments are higher.

* Full effect expected in 2023. Effect calculated vs. 2018.

Strategy 2022 goals*:

1. Leadership in operational efficiency

  • Focus on operational efficiency and approaching best production practices
  • Global leadership in cash cost of steel production
  • Target EBITDA gain: $0.5 bn pa

2. Growth in low-cost steel production  

  • Growth of steel output at NLMK Lipetsk by 1 m t to 14.2 m tpa
  • 100% self-sufficiency in iron ore maintained through growth of concentrate output by 2.6 m t to 20 m tpa; and growth of pellet output by 1.3 m t to 8 m tpa at Stoilensky
  • Growth of NLMK Lipetsk energy self-sufficiency from 60% to 95%
  • Decrease in coal consumption, including deficit grades
  • Target EBITDA gain: $0.3 bn pa

3. World-class sales portfolio

  • Growth of steel product sales to 18 m tpa
  • Growth of premium product output and sales by 1.7 m t
  • Growth of sales in key ‘home’ markets by 2.7 m t
  • Target EBITDA gain: $0.45 bn pa

4. Leadership in sustainability and safety

  • Minimization of environmental footprint, including a reduction of specific emissions per tonne of steel at NLMK Russia to the level of best available EU technologies
  • Reduction of injury rate to LTIFR** 0.5
  • High level of personnel motivation and engagement

Grigory Fedorishin, NLMK Group CEO and President, said:

“We continue to set ourselves ambitious objectives. Our new Strategy targets a structural EBITDA gain of $1.25 bn pa, or a 35% increase vs. 2018 EBITDA.

“Strategy 2022 is marked by high resilience to external market factors, being based on enhancing the Company’s competitive advantages: low cash cost, efficient vertical integration, product mix diversification by product and by market, and a high level of production and sales localization.

“NLMK’s new Strategy is balanced across operational and investment gains: our target operational efficiency gains are of the same magnitude as our target gains from investment projects. The new Strategy is also well-balanced in terms of capital allocation: NLMK invests in growth projects while maintaining its financial stability and adhering to a highly competitive dividend policy. As part of Strategy 2022, we will continue to work on maximizing stakeholder value.”

For more details on NLMK’s Strategy 2022, please follow the link.

Forward-looking statements:

This document may include forward-looking statements. These forward-looking statements include matters that are not historical facts or statements regarding the Company’s intentions, beliefs or current expectations concerning, among other things, the Company’s results of operations, financial condition, liquidity, prospects, growth, strategies, and the industry in which the Company operates. By their nature, forwarding-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward-looking statements are not guarantees of future performance and that the Company’s actual results of operations, financial condition and liquidity and the development of the industry in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this document. In addition, even if the Company’s results of operations, financial condition and liquidity and the development of the industry in which the Company operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in future periods. The Company does not undertake any obligation to review or confirm analysts’ expectations or estimates or to update any forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation.

* Up to and inclusive of 2023 vs. 2018

** LTIFR = Lost Time Injury Frequency Rate, the number of lost time injuries occurring in a workplace per 1 million
man-hours worked, employees and contractors