NLMK.L Regulatory News (NLMK)

Investor relations contact:

Dmitry Kolomytsyn, CFA

+7 (495) 504 0504

ir@nlmk.com

Media relations contact:

Maria Simonova

+7 (915) 322 62 25

simonova_mn@nlmk.com

Q2 2020 prices

· Raw material prices: average global coal prices dropped by 23% qoq due to weak demand from Japan, India, and Europe amid the COVID-19 pandemic, and concerns that import quotas to China might stiffen. Iron ore prices grew by 3% qoq, driven by a swift recovery of Chinese industry at the end of the quarter.

· Market prices** for flat steel were pressured by weak demand amid the COVID-19 pandemic. Prices in the US decreased by 11-16% qoq (-12-20% yoy); prices in Europe decreased by 4-8% qoq (-11-13% yoy).

· Steel product prices in the Russian market denominated in dollars fell by 6-12% qoq (up to -18% yoy). Rebar prices in dollar terms decreased by 8% qoq (-22% yoy).

· Export slab prices (FOB Black Sea) decreased by 17% qoq (-25% yoy).

Q2 2020 output and sales breakdown

· Steel output* decreased by 8% qoq to 3.9 m t (-3% yoy) following the drop in steel output by NLMK Russia Long Products and NLMK USA due to weak demand amid the COVID-19 pandemic. Capacity utilization rate at NLMK Lipetsk was 100%.

· Sales decreased by 3% qoq to 4.4 m t, due mostly to the decrease in sales by NLMK USA and NLMK DanSteel by 39% and 26% qoq, respectively. Compared to the same period last year, sales grew by 2% yoy, driven by the increase in production output at NLMK Lipetsk.

· Sales of semis increased by 10% qoq to 1.9 m t (+27% yoy), driven by higher pig iron and billet exports. Slab sales grew by 1% qoq to 1.4 m t (+12% yoy).

· Finished product sales dropped by 12% qoq to 2.4 m t (-14% yoy), amid weaker demand and a corresponding redistribution of a part of the portfolio to semi-finished products.

· Export sales grew by 51% qoq (+71% yoy) to 2 m t, as the share of semi-finished products in exports increased.

6M 2020 output and sales breakdown

· Steel output* decreased by 1% yoy to 8 m t due to the drop in steel output by NLMK Russia Long Products, NLMK USA and NLMK EU amid the COVID-19 pandemic.

· Sales were flat yoy at 8.9 m t.

· Sales of semis to third parties grew by 15% yoy to 2.5 m t, driven by higher pig iron exports. Slab sales to NBH increased by 5% yoy to 1.2 m t.

· Finished product sales dropped by 7% yoy to 5.2 m t amid a redistribution of sales toward semi-finished products.

· Export sales grew by 6% yoy to 3.4 m t, driven by the increase in pig iron sales to0.7 m t. China and USA were the main pig iron export destinations.

* Hereinafter NLMK Group steel output and sales on home markets include NBH. Consolidated sales are given without NBH. Sales to home markets mean sales of the Group's companies in the regions, where production capacities are located in Russia, Europe, and the US.

NLMK GROUP KEY FINANCIALS

Q2 2020 revenue

· Revenue reduced by 12% qoq to $2.2 bn (-22% yoy) due to declining sales volumes and steel product prices, including with an increase in the share of semi-finished products in the sales mix.

· The share of semi-finished products in the revenue increased by 3 p.p. qoq to 33%, while the share of finished products decreased by 5 p.p. qoq to 61%. The share of high value-added products decreased by 3 p.p. to 35%.

· The share of the Russian market in the revenue was down to 37% (-4 p.p. qoq; -4 p.p. yoy) as a result of higher export deliveries from the Group's Russian sites and changes in the regional breakdown: the share of Asian countries increased to 15% (+14 p.p. qoq; +13 p.p. yoy), while the EU share was down to 16%(-5 p.p. qoq; -6 p.p. yoy) and the US share was down to 14% (-6 p.p. qoq and yoy).

6M 2020 revenue

· Revenue decreased by 18% yoy to $4.6 bn due to declining sales prices, which was partly driven by an increase in the share of semi-finished products in the sales portfolio.

· The share of semi-finished products in the revenue increased by 3 p.p. yoy to 31% as a result of growing pig iron sales to third parties; the share of finished products decreased by 2 p.p. yoy to 64%. The share of revenue from high value-added products totalled 36% (flat yoy).

· The Russian market share in the revenue increased to 39% (+2 p.p. yoy) as a result of a sharper revenue decline in the US (-30% yoy) and the EU (-26% yoy) compared to Russia (-14% yoy). The US share in the revenue decreased to 17% (-3 p.p. yoy); the EU share decreased to 19% (-2 p.p. yoy).

Q2 2020 EBITDA

· EBITDA* went down by 2% qoq to $582 m (-21% yoy) due to a decrease in steel product prices and sales volumes partially offset by the ruble depreciation and operational efficiency gains.

· Commercial expenses grew by 7% qoq to $227 m (+12% yoy) with higher transport expenses driven by an increase in exports to remote destinations.

· General and administrative expenses decreased by 5% qoq to $82 m (-7% yoy), driven by managed cost optimization efforts.

6M 2020 EBITDA

· EBITDA decreased by 18% yoy to $1.2 bn amid narrowing steel/raw material price spreads, which was partially offset by operational efficiency gains and the ruble depreciation.

· Commercial expenses increased by 3% yoy to $439 m due to higher exports.

· General and administrative expenses decreased by 1% yoy to $168 m.

Net profit**

· Q2 2020 net profit decreased by 73% qoq to $77 m (-81% yoy), due mainly to the impairment of a $120 m investment in NBH. The recognition of a $70 m loss from FX difference served as an additional factor.

· 6M 2020 net profit decreased by 54% yoy to $366 m due to EBITDA decline and impairment of the NBH investment.

* EBITDA used in NLMK's financial releases is calculated as operating profit before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets, adjusted to depreciation and amortization. EBITDA is not an indicator of operating profit, operating activity or liquidity under IFRS, and NLMK discloses it because equivalent indicators could be used by investors and analysts. That said, NLMK's EBITDA should not be viewed on a standalone basis, or in place of profit before tax, or cash flows from operations, as defined by IFRS, or as an indicator of operational efficiency, or as the sum of free cash funds that NLMK can invest into business development. NLMK's EBITDA margin and EBITDA might not be comparable to similar indicators disclosed by other companies as there are no commonly accepted rules for calculating them. For instance, NLMK's EBITDA is calculated similar to what is termed as 'Adjusted EBITDA' in other companies, as NLMK's EBITDA excludes other profit/loss items in addition to interest payments, income tax, depreciation and amortization.

**Profit for the period, attributable to NLMK shareholders.

Q2 2020 free cash flow

· Free cash flow went down by 8% qoq to $304 m with a decrease in operating cash flow, which was partially offset by a managed capex reduction. Year-on-year, free cash flow increased by 18% due to cash inflows from working capital.

· Operating cash flow decreased by 11% qoq to $549 m due to lower EBITDA.

· Cash inflow from working capital totalled $57 m due to:

o + $109 m: a decrease in receivables, driven by active efforts to speed up payments from clients, as well as declining steel product sales and prices.

o + $23 m: iron ore inventory reduction and finished product destocking, driven by a decline in NLMK USA steel output.

o - $76 m: a decrease in payables, driven by lower slab purchasing at NLMK USA.

6M 2020 free cash flow

· Free cash flow decreased by 32% yoy to $635 m, due mainly to lower EBITDA and a 25% yoy increase in investment.

· Cash inflow from working capital totalled $142 m due to:

o + $65 m: a decrease in receivables due to declining steel product prices.

o + $149 m: lower inventory levels, driven by a decrease in the cost of raw materials and steel products.

o - $75 m: a decrease in payables in Q2 2020.

NLMK Russia Flat Products

Q2 2020 highlights

· Sales decreased by 1% qoq amid weaker demand for finished products in April and May.

· Revenue went down by 9% qoq as average sales prices decreased and the product portfolio structure changed.

· EBITDA totalled $303 m (-15% qoq) due to lower sales and changes in the product portfolio, which was partially offset by a weaker ruble, and operational efficiency programme gains.

6M 2020 highlights

· Sales increased by 7% yoy to 6.9 m t as production output increased and demand was high on the Russian market in Q1 2020.

· Revenue decreased by 12% yoy to $3.41 bn as steel product prices decreased, which was partially offset by higher sales.

· EBITDA decreased by 25% yoy to $658 m amid narrower price spreads.

NLMK Russia Long Products

Q2 2020 highlights

· Sales increased by 4% qoq to 0.59 m t due to higher billet exports and the deferred demand effect (active destocking as customer activity picked up following the easing of lockdown constraints (June)).

· Revenue increased by 3% qoq to $326 m, following the growth of sales.

· EBITDA in the segment totalled $10 m, which is 29% lower qoq, as the share of billets in the sales structure increased following a decrease in rebar demand on the Russian market.

6M 2020 highlights

· Sales decreased by 22% yoy to 1.2 m t due to a high Q1 2019 base, as well as relatively low billet exports compared to last year.

· Revenue decreased by 27% yoy to $642 m, following lower sales and long product prices.

· EBITDA decreased by 47% yoy to $24 m due to lower sales and changes in the sales structure, as well as narrower rebar/scrap spreads, which was partially offset by operational efficiency programme gains.

Mining and Processing of Raw Materials

Q2 2020 highlights

· Sales increased by 6% qoq (+8% yoy) to 4.9 m t, following output growth. Iron ore sales to independent buyers increased fivefold to 0.45 m t.

· Revenue grew by 8% qoq to $336 m (+5% yoy) due to higher sales and a 9-13% qoq increase in ruble-denominated prices for concentrate and pellets.

· EBITDA increased by 9% qoq to $248 m, driven by higher revenue and gains from capex projects aimed at increasing output.

6M 2020 highlights

· Sales reached 9.5 m t (+4% yoy) against the backdrop of higher equipment productivity and the implementation of operational efficiency programmes.

· Revenue grew to $648 m (+10% yoy), due mainly to increased iron ore prices and higher sales.

· EBITDA totalled $475 m (+13% yoy), supported by higher iron ore prices and increased output.

NLMK USA

Q2 2020 highlights

· Sales went down by 39% qoq to 0.33 m t (-43% yoy) due to a sharp demand drop on the US market amid the COVID-19 pandemic. Additionally, planned routine repairs were carried out in June at the NLMK Indiana plant.

· Revenue decreased by 37% qoq to $238 m (-50% yoy), following the drop in sales.

· EBITDA reached $3 m (vs. -$22 m the quarter before), since the slab/rolled product price spread widened and the previous quarter's base was low due to the accrual of a non-monetary reserve for inventory re-evaluation amounting to -$15 m.

6M 2020 highlights

· Sales decreased by 27% yoy to 0.87 due to weak Q2 2020 performance. 

· Revenue went down by 39% yoy to $615 m due to a steel price adjustment and lower sales, which was partially offset by the share of high value-added products increasing by 7 p.p and reaching 52%.

· EBITDA decreased to -$19 m (vs. $33 m the year before) due to narrower price spreads and an adjustment of rolled product prices in Q2 2020.

NLMK DanSteel*

Q2 2020 highlights

· Sales of plate decreased by 26% qoq to 0.12 m t (-11% yoy) due to lower demand in almost all sectors except wind energy amid the COVID-19 pandemic.

· Revenue went down by 27% qoq to $95 m, reflecting the sales performance.

· EBITDA totalled -$3 m (vs. +$6 m the quarter before) as the slab/plate price spread narrowed and sales decreased.

6M 2020 highlights

· Sales increased by 1% yoy to 0.29 m t as demand from wind energy, shipbuilding, and infrastructure projects grew in January and February.

· Revenue decreased by 17% yoy to $225 m due to an adjustment of plate prices.

· EBITDA amounted to $3 m (vs. +$6 m the year before) due to a narrower price spread in Q2 2020.

* NLMK Dansteel и сеть продаж толстого листа.

JV performance (NBH)

Q2 2020 highlights

· Sales went down to 0.47 m t (-23% qoq), mainly due to lower strip sales amid the overall demand drop on the European market.

· Revenue decreased by 19% qoq to $308 m, following lower sales.

· EBITDA was -$14 m vs. -$19 m in Q1 2020.

6M 2020 highlights

· NBH sales decreased by 5% yoy to 1.07 m t due to lower demand in Q2 2020.

· Revenue went down by 18% yoy to $690 m due to lower steel product sales prices.

· EBITDA totalled -$33 m vs. -$64 m the year before. EBITDA growth was due to previously purchased cheap slabs being used in production, as well as the Q2 2019 accrual of a non-operational reserve to restructure NLMK Clabecq.

k t

Total

Sales markets

Russia

ЕС

Russia

MiddleEast and Turkey

Russia

Other

NLMK Group (with NBH)

4,348

1,447

727

474

555

44

1,101

Division sales to third parties:

NLMK Russia Flat

2,834

1,080

89

142

542

44

938

NLMK Russia Long

594

367

90

0

10

0

127

International subsidiaries and affiliates, incl.:

920

0

548

332

3

0

36

NLMK USA

330

0

0

330

0

0

0

European rolling facilities (NLMK DanSteel and NBH)

590

0

548

2

3

0

36

Novolipetsk Steel

Interim condensed consolidated statement of financial position (unaudited)

(millions of US dollars)

As at30 June 2020

As at31 December 2019

Assets

Current assets

Cash and cash equivalents

1,121

713

Short-term financial investments

450

287

Trade and other accounts receivable

918

1,047

Inventories

1,376

1,634

Other current assets

13

14

3,878

3,695

Non-current assets

Long-term financial investments

5

5

Investments in joint ventures

177

223

Property, plant and equipment

5,574

6,039

Goodwill

223

248

Other intangible assets

160

162

Deferred income tax assets

104

101

Other non-current assets

9

11

6,252

6,789

Total assets

10,130

10,484

Liabilities and equity

Current liabilities

Trade and other accounts payable

948

1,124

Dividends payable

285

318

Short-term borrowings

1,219

468

Current income tax liability

36

32

2,488

1,942

Non-current liabilities

Long-term borrowings

2,139

2,188

Deferred income tax liability

375

405

Other long-term liabilities

35

2

2,549

2,595

Total liabilities

5,037

4,537

Equity attributable to Novolipetsk Steel shareholders

Common stock

221

221

Additional paid-in capital

9

9

Accumulated other comprehensive loss

(6,816)

(6,140)

Retained earnings

11,668

11,840

5,082

5,930

Non-controlling interests

11

17

Total equity

5,093

5,947

Total liabilities and equity

10,130

10,484

Novolipetsk Steel

Interim condensed consolidated statement of profit or loss (unaudited)

(millions of US dollars, unless otherwise stated)

For the six months ended30 June 2020

For the six months ended30 June 2019

For the three months ended30 June 2020

For the three months ended30 June 2019

Revenue

4,631

5,666

2,174

2,797

Cost of sales

(3,118)

(3,886)

(1,415)

(1,898)

Gross profit

1,513

1,780

759

899

General and administrative expenses

(168)

(170)

(82)

(88)

Selling expenses

(439)

(428)

(227)

(202)

Net impairment losses on financial assets

(5)

(2)

(2)

(1)

Other operating income, net

9

5

6

3

Taxes, other than income tax

(34)

(33)

(17)

(18)

Operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment

876

1,152

437

593

Loss on disposals of property, plant and equipment

(2)

(1)

(2)

(1)

Impairment of non-current assets

(1)

(5)

-

-

Share of results of joint ventures

(176)

(45)

(146)

(49)

Finance income

5

8

2

4

Finance costs

(41)

(35)

(20)

(19)

Foreign currency exchange (loss)/gain, net

(67)

(40)

(70)

21

Hedging result

(4)

-

(2)

-

Expenses on operations with financial instruments

(31)

-

(31)

-

Other (expenses)/income, net

(40)

(17)

(16)

3

Profit before income tax

519

1,017

152

552

Income tax expense

(153)

(220)

(75)

(137)

Profit for the period

366

797

77

415

Profit attributable to:

Novolipetsk Steel shareholders

366

796

77

414

Non-controlling interests

-

1

-

1

Earnings per share - basic and diluted:

Earnings per share attributable toNovolipetsk Steel shareholders (US dollars)

0.0611

0.1328

0.0128

0.0691

Novolipetsk Steel

Interim condensed consolidated statement of cash flows (unaudited)

(millions of US dollars)

Cash flows from operating activities

Profit for the period

366

797

Adjustments to reconcile profit for the period to net cash provided by operating activities:

Depreciation and amortisation

300

278

Loss on disposals of property, plant and equipment

2

1

Finance income

(5)

(8)

Finance costs

41

35

Share of results of joint ventures

176

45

Income tax expense

153

220

Impairment of non-current assets

1

5

Foreign currency exchange loss, net

67

40

Hedging result

4

-

Expenses on operations with financial instruments

31

-

Change in impairment allowance for inventories and credit loss allowance for accounts receivable

4

3

Changes in operating assets and liabilities

Decrease/(increase) in trade and other accounts receivable

65

(82)

Decrease in inventories

149

174

Decrease in other operating assets

3

4

(Decrease)/increase in trade and other accounts payable

(75)

15

Сash provided by operating activities

1,282

1,527

Income tax paid

(116)

(182)

Net cash provided by operating activities

1,166

1,345

Cash flows from investing activities

Purchases and construction of property, plant and equipment andintangible assets

(507)

(405)

Proceeds from sale of property, plant and equipment

1

1

Purchases of investments and loans given, net

-

(62)

Proceeds from repayment of loans given

85

-

Placement of bank deposits

(405)

(644)

Withdrawal of bank deposits

159

282

Interest received

6

19

Contribution to share capital of joint venture

(131)

-

Acquisition of non-controlling interest

-

(1)

Net cash used in investing activities

(792)

(810)

Cash flows from financing activities

Proceeds from borrowings

1,307

853

Repayment of borrowings

(635)

(213)

Payments on leases

(9)

(7)

Interest paid

(30)

(23)

Dividends paid to Novolipetsk Steel shareholders

(579)

(1,162)

Net cash provided by/(used in) financing activities

54

(552)

Net increase/(decrease) in cash and cash equivalents

428

(17)

Effect of exchange rate changes on cash and cash equivalents

(20)

(20)

Cash and cash equivalents at the beginning of the year

713

1,179

Cash and cash equivalents at the end of the period

1,121

1,142