Review of NLMK's consolidated financial statements for 2021 year

Обзор консолидированной финансовой отчетности НЛМК за 2021 год

NLMK (MCX: NLMK) — one of the world's largest producers of steel products and the first in terms of steel production in Russia. Production capacity reaches 18.5 million tons, and the assets are located in Russia, Europe and USA.

We recently reviewed the company's operating results, and now I propose to look at the key financial indicators from the consolidated financial statements.

As expected, the business posted strong financial performance on the back of record sales volumes of finished steel products and high average prices. As a result, the company recorded revenue growth of 75% and more than quadrupling net income. Besides, including recommended dividends for 4 quarter, the holding's final dividend payments based on the results of the past year may turn out to be record-breaking.

I suggest you take a look at the consolidated statements, to better understand, how business went through a difficult 2021, when high steel prices were accompanied by FAS claims and government export restrictions.

Disclaimer: if we write, that something went up or down by X%, then by default we mean a comparison with the report data for the same period last year, unless otherwise stated.

Revenue and profit

Thanks to high average steel prices, NLMK managed to record a record revenue, which grew by 75% year on year — up to 16.2 billion dollars. The main role in this was played by an increase in the share of sales of finished products with a higher added value..

Furthermore, all key business segments showed revenue growth:

  1. Flat rolled — 95%, up to $9.4 billion.
  2. Long products and hardware — 94%, up to $1.9 billion.
  3. Cast iron, slabs and billets — 42%, up to $3.8 billion.

By regions, the main income for business is still brought by home markets in Russia, USA and EU countries. At the end of 2021, the three home regions combined accounted for about 80% proceeds.

Structure of sales proceeds by types of products

Flat rolled 59,4%
Cast iron, slabs and billets 24,1%
Long products and hardware 12,2%
Coke and other chemical products 1,8%
Other products 2,5%
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Revenue structure by sales regions

Russia 41,0%
North America 21,3%
EU countries 17,5%
Near East 10,0%
Central and South America 4,4%
CIS countries 2,5%
Countries of Asia and Oceania 2,4%
Other 0,9%

Cost of sales increased by 32% - up to 7.8 billion dollars. This is due to an increase in the output of finished products and an increase in prices for raw materials and services.. At the same time, commercial, general and administrative expenses for 11% - up to 1.3 billion dollars - against the backdrop of high inflation. Besides, the company paid an additional 0.3 billion rubles of export customs duties due to temporary restrictions, who acted with 1 August 2021.

NLMK's operating profit increased by more than 3 times and amounted to 6.67 billion dollars.

The company's net income, taking into account various non-cash adjustments, was in 4 times higher than in 2020 and reached a record $5.05 billion.

Strong dynamics driven by rising steel prices in key markets. For comparison: market quotations for hot-rolled steel increased by 174%, in the EU 116%, and in Russia - 78%. If a price correction from 4 quarter of 2021 will continue into 1 half of 2022, this will have a significant impact on the financial results of the business.

NLMK's Financial Results, billion US dollars

Revenue Operating profit Net profit
2017 10,07 2,03 1,45
2018 12,05 3,01 2,24
2019 10,55 2,0 1,34
2020 9,25 2,07 1,24
2021 16,2 6,67 5,05

Dividends and debt

NLMK is one of the few Russian companies, which pays dividends 4 times a year at the end of each quarter. Payouts are made from free cash flow, and the rate depends on the level of debt load, which is determined on the basis of the ratio "net debt / EBITDA». If the coefficient does not exceed one, the company pays 100% from free cash flow.

In recent years, the company's debt load did not exceed the designated bar, although at the end of 2020 it dangerously approached it due to the crisis.

At the end of 2021, the ratio “net debt / EBITDA" decreased to 0.4×, despite an increase in net debt by 17% - up to 2.92 billion dollars. High steel prices helped to reduce the debt burden in relative terms, which allowed to increase EBITDA in 2,7 times - up to 7.26 billion dollars.

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Free cash flow against the backdrop of overall revenue growth increased by almost 3 times up to - 3.3 billion dollars - another company record and potentially high dividends for shareholders.

Against the background of all financial results, the board of directors recommended dividends following the results 4 quarter in size 12,18 P per share. If the shareholders approve the recommendation, then the total dividend per share for 2021 will be 46,84 R.

Debt load of NLMK, billion dollars

net debt net debt / EBITDA
2017 0,92 0,35×
2018 0,89 0,25×
2019 1,79 0,70×
2020 2,5 0,94×
2021 2,92 0,40×

free cash flow, billion dollars

2017 1,27
2018 2,03
2019 1,52
2020 1,1
2021 3,3

1,27

History of dividend payments

2017 14,04 R
2018 22,81 R
2019 17,36 R
2020 21,64 R
2021 46,84 R

14,04 R

What's the bottom line?

In 2021, NLMK successfully took advantage of the situation on the steel market and increased sales of high value-added finished products, which resulted in an increase in revenue 75% year-on-year to a record $16.2 billion.

Besides, thanks to vertical integration and competent work with costs, all key financial indicators have increased many times over. Shareholders can count on high dividend payments for the reporting year. But do not forget about the growth of net debt, which will become a problem in the event of another crisis of overproduction.

A strong increase in prices for steel products is rather an anomaly. There has already been a correction in the market 4 last year's quarter, which may continue into 1 half of 2022. Therefore, one should hardly expect the same impressive dynamics of financial indicators from the company in the new year.: It will be extremely difficult for NLMK to "beat" the high base of the past year.

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