NLMK (MCX: NLMK) — one of the world's largest vertically built-in manufacturers of metal products with assets in the Russian Federation, USA and Europe in close proximity to the main sales markets.
22 July, the company released financial statements for the 1st half of 2021, in which it showed strong monetary performance in the face of rising steel prices, also growth in sales of finished products with higher added value. Industrial indicators of business - in the review, and at the moment I propose to consider the main monetary characteristics.
Monetary characteristics
In the first half of the year, revenue grew by an immediate fifty-one percent half-year-on-half to the highest 7 billion dollars in the face of an increase in average selling prices of metal products in the main sales markets. As well as, the company increased the percentage of sales of finished products with the highest added value, which made it possible to increase the marginality of the business.
The main income of the company, as before, is brought by sales of flat products - approximately 57,2 % proceeds. At the same time, the share of pig iron sales, slabs and billets decreased from thirty-one percent in the first half of last year to 25,9 % in January - June because, that NLMK began to process more semi-finished products at its enterprises to produce finished products.
Based on the beliefs of sales geography, the company's main market is the Russian Federation. In the first half of the year it had to 43,9 % all proceeds. NLMK also considers the European Union and North America as home markets, as it has industrial assets in these regions. The states of the European Union and North America had therefore 17,5 % And 17,3 % proceeds.
Commercial, Household and administrative expenses rose only one percent to $0.61 billion, which says good work with costs.
As a result, NLMK's operating profit, excluding the effect of participation in joint ventures and various write-offs, reached $2.92 billion in the first six months of this year, what in 3,3 times more than the results of the same period last year.
The company's net profit grew by almost 6 times with 0,37 to $2.14 billion due to last year's low base. In the first half of 2020, the company recorded foreign exchange losses due to the devaluation of the ruble, and also depreciated NBH joint venture assets in Europe due to the crisis and general uncertainty in the steel market.
Revenue for the first half, billion dollars
| 2016 | 3,45 |
| 2017 | 4,70 |
| 2018 | 5,91 |
| 2019 | 5,67 |
| 2020 | 4,63 |
| 2021 | 7 |
3,45
Structure of sales proceeds by types of products
| Flat rolled | 57,2% |
| Cast iron, slabs and billets | 25,9% |
| Long products and hardware | 12,6% |
| Coke and other chemical products | 1,7% |
| Other products | 2,6% |
57,2%
Revenue structure by sales regions
| Russia | 43,9% |
| EU countries | 17,5% |
| North America | 17,3% |
| Near East | 10,7% |
| Central and South America | 5,6% |
| CIS countries | 2,3% |
| Countries of Asia and Oceania | 1,9% |
| Other | 0,8% |
43,9%
Financial indicators for the first half of the year, billion dollars
| Operating profit | Net profit | |
|---|---|---|
| 2016 | 0,53 | 0,24 |
| 2017 | 0,92 | 0,67 |
| 2018 | 1,42 | 1,09 |
| 2019 | 1,15 | 0,80 |
| 2020 | 0,88 | 0,37 |
| 2021 | 2,92 | 2,14 |
Debts and dividends
The company's dividends directly depend on the amount of free cash flow, as well as the debt burden of the business, which is calculated on the basis of the “Net Debt / EBITDA».
NLMK's dividend policy states, what if “Net debt / EBITDA” at the end of the reporting period is less than 1×, then all free cash flow or even more is paid out. If the debt load exceeds 1 ×, then at least 50% from free cash flow.
In January-March, against the backdrop of favorable market conditions, the business managed to reduce its net debt by 21% up to $1.96 billion, reducing the amount of short-term and long-term loans and borrowings.
On the back of revenue growth, EBITDA rose by 2,7 year on year up to $3.2 billion. This allowed NLMK to reduce its “net debt / EBITDA» by 0.94× to 0.42×. Consequently, debt load is low, as well as the risk, that dividends will be reduced.
NLMK's free cash flow in the first half of 2021 rose to a record $1.32 billion, what in 2 times higher than the results of the same period last year.
Together with the release of the consolidated financial statements for the first half of the year, the recommendation of the board of directors regarding dividend payments for the second quarter became known. They can make up 13,62 P per share, if the shareholders approve the recommendation at the general meeting, to be held 27 august.
Let me remind you, that according to the results of the first quarter of 2021, the company has already declared dividends in the amount of 7,71 P per share.
Net debt dynamics, billion dollars
| 2016 | 0,76 |
| 2017 | 0,92 |
| 2018 | 0,89 |
| 2019 | 1,786 |
| 2020 | 2,5 |
| 2021 | 1,96 |
0,76
Dynamics of the ratio "Net debt / EBITDA»
| 2015 | 0,56× |
| 2016 | 0,39× |
| 2017 | 0,35× |
| 2018 | 0,25× |
| 2019 | 0,70× |
| 2020 | 0,94× |
| 1п2021 | 0,42× |
0,56×
Free cash flow for the first half of the year, billion dollars
| 2016 | 0,433 |
| 2017 | 0,533 |
| 2018 | 0,887 |
| 2019 | 0,936 |
| 2020 | 0,635 |
| 2021 | 1,316 |
0,433
Dividend per share
| 2017 | 14,04 R |
| 2018 | 22,81 R |
| 2019 | 17,36 R |
| 2020 | 21,64 R |
| 1к2021 | 7,71 R |
14,04 R
What's the bottom line?
As expected, the company showed strong financial results in the first half of the year due to the good situation in the steel market.
While there was a crisis, while prices and demand remained low, the company carried out repairs and modernization at its production sites. Now, when the pendulum in the market swung the other way, business is rapidly increasing the production of finished products, to have time to capitalize on high steel prices amid increased demand. Besides, control over the entire production chain allows the holding to restrain the growth of costs and increase the profitability of sales.
However, do not forget, that the ferrous metallurgy industry is one of the cyclical, which means, what manufacturers, including NLMK, highly dependent on steel demand and prices and the overall market situation, which can change. The state is already interested in a sharp increase in incomes of metallurgists, which introduced temporary duties on the export of metals from 1 August to 31 December 2021. Undoubtedly, this measure will negatively affect NLMK's bottom line and reduce the competitive advantage of Russian companies in the international market.
