NLMK.L Regulatory News (NLMK)

RNS Announcement

09 November

NLMK GROUP CONSOLIDATED US GAAP RESULTS FOR 9M AND Q3 2012

9M 2012 FINANCIAL AND OPERATING RESULTS

·; Revenue: $9,354 million (+8% y-o-y)

·; EBITDA: $1,511 million (-20%)

·; EBITDA margin: 16.2% (-5.5 p.p.)

·; Net profit: $617million (-49%)

·; Cash flow from operations: $1,491 million (+0,4%)

·; Capex: $1,157 million (-24%)

·; Revenue per tonne of steel: $813 (-13%)

·; Steel output: 11,2 million tonnes (+28%)

·; Steel product sales: 11.5 million tonnes (+24%)

Q3 2012 FINANCIAL AND OPERATING RESULTS

·; Revenue: $3,002 million (-8% q-o-q)

·; EBITDA: $483 million (-19%)

·; EBITDA margin: 16.1% (-2.2 p.p.)

·; Net profit: $167 million (-40%)

·; Cash flow from operations: $684 million (+125%)

·; Capex: $347 million (-23%)

·; Revenue per tonne of steel: $787 (-8%)

·; Steel output: 3.8 million tonnes (-2%)

·; Steel product sales: 3.8 million tonnes (0%)

OUTLOOK

We expect Q4 steel output will be 3.7 million tonnes (-2%), and in 2012, steel production will grow by 25% to approximately 15 million tonnes.

In view of the weak market conditions and the seasonal consumer slowdown, in Q4 steel prices hit bottom for 2012. Low production costs and a balanced sales mix allowed the Company to partially offset the adverse impact of the external factors on its financial performance. Nonetheless, we expect Q4 revenue to be down by 5% largely due to lower selling prices, and profit will further decrease.

In the beginning of Q1 2013, we anticipate a minor pick-up in demand in a number of regions, driven by restocking.

Disclaimer

This announcement may contain a number of forward-looking statements relating to, among others, the financial condition and results of operations of the Company. Such forward-looking statements involve A number of risks and uncertainties that could cause actual results to differ materially from those suggested by them and are based on assumptions regarding the Company's present and future business strategies and the environment in which the Company and its subsidiaries operate both now and in the future. Forward-looking statements speak only as at the date of this announcement and save as required by applicable legal and/or regulatory requirements the Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements.

KEY HIGHLIGHTS

Примечания:

1 Reporting periods of the Company are 9M and H1 2012. Q3 figures are derived by computational method. The same assumption applies to the calculation of segmental financial results.2High value added (HVA) products include plates, cold‐rolled, galvanised, pre‐painted and electrical steel, and metalware.3EBITDA calculations are presented in the Appendix. EBITDA is calculated as operating profit adjusted to loss or gain from impairment losses (including goodwill) and depreciation and amortisation.4Net profit attributable to NLMK shareholders.5Net debt is calculated as the sum of LT and ST credits and loans less cash and cash equivalents, as well as ST financial investments at period end.

6Net debt / EBITDA is represented by net debt as at the end of the period and EBITDA is presented as Last 12 months EBITDA.

CONFERENCE CALL DETAILS

NLMK is pleased to invite the investment community to a conference call with the management of NLMK:

Friday, 09 November, 2012

08:00 (New York)

13:00 (London)

17:00 (Moscow)

To join the conference call, please, register on-line:

https://eventreg1.conferencing.com/webportal3/reg.html?Acc=097741&Conf=185889

or dial

International Call-in Number: +44 (0)20 7162 0025

US Call-in Number: +1 334 323 6201

Conference ID: 925211

*We recommend that participants register on-line to avoid waiting in a queue or to start dialing in 5-10 minutes prior to ensure a timely start to the conference call.

The conference call replay will be available through 14 November 2012

International Replay Number: +44 (0) 20 7031 4064

US Replay Number: +1 954 334 0342

Replay Access Code: 925211

About NLMK:

NLMK is an international vertically-integrated steelmaking company with production facilities located in Russia, Europe and the US. The liquid steel capacity of its operating units exceeds 15 mtpy. The Company generated $11.7 billion of revenues and a 19.5% EBITDA margin for the full year 2011. The Company's shares and GDSs are traded on the MICEX-RTS and LSE, respectively.

For more information:

NLMK

Investor Relations:

+7 (495) 915-1575

e-mail: st@nlmk.com

MANAGEMENT COMMENTS

·; Production and sales

Q3 utilisation rates remained high, bringing steel output to 3,722 million tonnes (-2%). The Group sales stayed at a record 3.8 million tonnes, including 35% of high value added.

In 9M 2012, crude steel production increased by 28% to 11.2 million tonnes, with 94% produced by the Group's Russian assets. NLMK's Russian assets accounted for around 20% of the country's total steel output, securing NLMK Group's leadership among Russian steel producers.

·; Sales markets

In Q3, the Company capitalised on increased demand from construction and machine-building in Russia, growing its sales to these sectors to 1.05 million tonnes (+4%) and 0.12 million tonnes (+5%), or approximately 84% and 9% of total sales, respectively.

Weaker sales in Europe, including by NLMK Europe's rolling assets, were offset by the growth in slab sales from Novolipetsk to South-East Asia and the Middle East.

·; Sales structure

In Q3, NLMK Group increased slightly the share of slab sales in its sales mix: slab sales to third parties totaled 977,000 tonnes (+14% q-o-q).

With the high demand and stable prices in the domestic market, the share of high value added sales reached 35% (or 1.35 million tonnes).

·; Pricing trends

Deterioration in the pricing environment started in the mid-second quarter well continued in the third quarter, putting significant pressure on ordinary grade products - pig iron, slabs and HRC. Prices in the Russian market remained relatively stable, supported by high demand from construction. Year-on-year, however, prices were an average 5-10% lower.

In Europe, with the seasonal softening in demand, coupled with the persistent economic slowdown, steel product consumption slumped, putting pressure on prices across the board resulting in a sequential decline of 2-7% and 10% on a year on year basis. Inventory levels for trading companies and end consumers are still at the low level.

In the USA, prices were pressured by imports, which added to the weakening in the market conditions. In Q4, however, US producers are attempting to increase prices for their products in order to restore production profitability.

·; Production costs

In Q3, the Group's production costs decreased by 5% to $2,095 million. Slab cash costs at the Lipetsk site were down by 8% to $383/t, due to lower raw material prices, management efforts to streamline operational expenses, and the weakening of the RUB/US FX rate.

·; Capex programme

Q3 investments decreased by 23% to $347 million. 9M 2012 investments were down by 24% to $1,157 million, with maintenance capex accounting for approximately 30%.

NLMK continues to implement its key Technical Upgrade Programme projects, including the

construction of the NLMK Kaluga mini-mill (1.5 million tonnes of steel and long products per year). The first stage is scheduled for launch in 2013.

Stoilensky continues the expansion of its open pit iron ore mine, and the construction of the 4 mt/y capacity Beneficiation Plant. Preparatory activities are under way for the construction of the 6 mt/y capacity Pelletising Plant to produce metallised pellets.

In the second half of October, NLMK DanSteel completed the construction of its new Plate Mill (including the Plate Mill Stand 4300), enabling the production of a new type of product, 4300 mm wide and 5-200 mm thick plates, widely used in the energy industry, including the construction of oil and gas drilling platforms, and in shipbuilding.

Novolipetsk is in the process of introducing Pulverised Coal Injection (PCI) technologн for its blast furnace operations. PCI commissioning and start-up activities for NLMK's 2.6 million tonne BF-5 (accounts for approximately 20% of the total BF capacity at Novolipetsk) are scheduled for early 2013. We are planning to gradually develop these technologies in 2013-2014. PCI technologies are used to reduce natural gas and coke consumption for pig iron production by injecting steam coals into the blast furnace.

·; Debt management

On September 27, NLMK closed of its debut US$500 million 7-year Eurobond offering with an annual coupon rate of 4.95%, the lowest coupon ever achieved for a benchmark Eurobond issue among Russia's non-state-owned companies.

The proceeds from the issue will be used for the refinancing of NLMK's current debt.

In October 2012 NLMK repaid a 3-year RUR10 billion bond issue.

At the end of Q3, the share of US$-denominated debt in the Company's debt portfolio increased by 5 p.p. The average maturity increased to 2.7 years (from 2.5 years at the end of Q2).

·; Shareholder meeting

On October 25, 2012 NLMK shareholders at an Extraordinary General Meeting ("EGM") elected Mr. Oleg Bagrin as NLMK President (Chairman of the Management Board).Mr. Bagrin has been serving as Member of the Board of Directors since 2004.

NLMK's KEY FINANCIALS

·; Revenue

NLMK Group's Q3 2012 revenue decreased by 8% to US$3 billion, adversely impacted by weaker prices and changes in the sales mix.

·; Production costs (COGS)

Q3 production costs (excluding depreciation and amortisation) decreased by 5% to US$2,095 million, due to lower prices for raw materials and reduced consumption of pellets purchased from the third parties. Changes to the product sales mix in Q3 served as an additional factor in driving NLMK's production costs down. With approximately 70% of the Group's production costs being RUB-denominated, the further depreciation of the RUB/US$ FX rate also had a positive impact of NLMK's costs.

·; Depreciation and amortisation

Amortisation charges in Q3 amounted to approximately US$221 million (+29% quarter-on-quarter), due to the growth in property, plant and equipment.

·; SG&A

SG&A expenses decreased by 2% to US$99 million due to persistent optimization measures.

Selling expenses sequentially decreased by 10% to US$279 million, driven mainly by the changes in the geography and structure of sales.

·; Interest expenses

Part of the interest payments were capitalised under US GAAP standards. Interest expensesin the amount of US$24 million were recognised in the P&L statement in Q3 due to the gradual commissioning of new equipment. Without the capitalisation effect, Q3 interest payments totalled US$65 million (+5% quarter-on-quarter).

·; Operationalprofit

Operational profit decreased by 38% quarter-on-quarter to US$262 million, pressured mostly by the weakening in prices in NLMK's key markets, and still elevated production costs.

·; Net profit

Net profit decreased by 40% quarter-on-quarter to US$167 million, due to lower profit from main activities, and an increase in the recognition of interest expenses. The net profit margin was 5.6%, (-2.9 p.p. quarter-on-quarter).

·; Cash flow from operations

Cash flow from operations increased by 125% quarter-on-quarter to US$684 million, driven mainly by the significant working capital improvement: US$181 million were released from accounts receivable, and US$79 were released from inventories.

Improved supplier relations added an extra US$24 million to the Group's cash flow from operations.

·; Cash flow from investment activities

Net outflow decreased by 44% quarter-on-quarter to US$337 million, including US$347 million (-23% quarter-on-quarter) capex. This sequential decline resulted from management efforts aimed at investment cash outflow optimization, and the annual installment paid under the agreement to purchase the rolling assets of Steel Invest and Finance in Q2 2012.

·; Cash flow from financial activities

Net inflow amounted to US$707 million (x6.4 quarter-on-quarter), supported by the RUB bond (approximately US$320 million) and Euro bond (US$500 million) placements.

Steel segment*

In Q3 2012, revenue from external customers increased to US$1,836 million (+1% quarter-on-quarter). Revenue from intersegmental operations decreased to US$295 million (-36% quarter-on-quarter), due to lower slab deliveries to the Group's international rolling assets and their partial shift towards external customers.

Q3 EBITDA was US$286 million (-10% q-o-q); the EBITDA margin was 13%. Lower profitability was primarily due to lower average selling prices.

9M 2012 revenue was largely in line with 9M 2011 (-3%). However, there was a shift towards intersegmetal sales, explained by the fact that last year slab sales to the international rolling assets prior to their consolidation from Q3 2011 were reflected as sales to external customers. The effect from the price weakening for steel products in 2012 was partially offset by the significant increase in sales.

9M profit decreased year-on-year as a result of lower average product prices. However, the decrease was capped by higher sales and lower raw material prices in Q3 2012.

Outlook:

Despite the consumer slowdown, we expect the segment's operating results and utilisation rates in Q4 to remain at high levels, supported, among other factors, by slab supplies to the Group's international rolling assets. Scheduled maintenance and repair activities are planned for the Novolipetsk rolling equipment during this period.

*As part of the consolidation of Steel Invest and Finance rolling assets, the Group's segment reporting breakdown was adjusted (see Note #22 to Consolidated US GAAP Results for 12M 2011).

- A separate Foreign Rolled Products segment was formed, alongside Steel Invest and Finance comprising NLMK Indiana and NLMK DanSteel, which used to be included in the Steel segment (in H1 2011 results).

- Results for Altai-Koks were included in the Steel segment (it previously formed a separate Coke-chemical segment).The Steel segment comprises: Novolipetsk (Lipetsk site), VIZ-Stal (a producer of electrical steel), trading companies Novexco Limited, Cyprus and Novex Trading S.A., Switzerland, Altai-Koks (Russia's largest non-integrated coke manufacturer), as well as a number of service companies.

Long products segment*

Higher output in Q3 2012 was supported by the stable demand from construction in the Russian market. Higher output in 9M 2012 was supported by full utilisation rates (note: one of the two EAF's had to be idled since July 2011 due to transformer repairs).

In Q3, revenue from external customers declined 5% q-o-q, primarily due toa slight decrease in sales volumes. Intersegmental revenues were down, mostly as a result of lower volumes of scrap deliveries to the Lipetsk site following the partial replacement of scrap with pig iron at the Novolipetsk BOF operations.

In 9M 2012, almost all long product sales were sold in Russia, supported by increased demand from the local construction sector. As export sales (done through traders that are part of the Steel segment) contracted, revenue from intersegmental operations fell by 30% to US$358 million.

In Q3 2012, the Segment's EBITDA was largely flat as compared to Q2 at US$61 million, and the EBITDA margin was 14%. 9M EBITDA increased by 78% year-on-year to US$139 million; the EBITDA margin was 11%, supported by higher average selling prices and improved operating performance.

Losses after income tax were mostly associated with interest expenses from intercompany loans provided by the main production site in Lipetsk.

Outlook:

Given the seasonal slowdown in demand from the construction sector, we expect the segment's operating performance to level off in Q4. We believe, the segment's performance will also be affected by a seasonal reduction in scrap sales to third parties and scheduled maintenance and repair works.

* The Long products segment includes the financial performance of the Long Products Division companies: NSMMZ, UZPS, scrap collecting and processing facilities, and others. The core activities of these companies are ferrous and non-ferrous scrap collection and processing, steelmaking (EAF-based) and long products and metalware manufacturing.

Mining segment*

Q3 iron ore concentrate sales were 3.8 million tonnes (-3% quarter-on-quarter). The segment's 9M 2012 operating performance increased as the Group's beneficiation capacities were expanded in mid-2011.

Q3 EBITDA was US$190 million (-23% quarter-on-quarter) driven by lower iron ore prices; the EBITDA margin was 60%. 9M EBITDA was US$654 million (-16% year-on-year); the EBITDA margin was 66% (-6 p.p.). Weaker average selling prices compared to 9M 2011 lead to the change in the segment's profit.

Outlook:

Ongoing control over production costs supported by stable sales should allow the segment to maintain high operating results and margins in Q4 2012.

* NLMK's Mining segment comprises Stoilensky (the Group's key mining asset), Dolomit and Stagdok. These companies mainly supply raw materials to NLMK's production facilities in Lipetsk and also sell limited volumes outside the Group.

**Sales to third parties.

Foreign rolled products segment*

In Q3, deteriorating conditions in the international markets, notably in Europe, adversely impacted the Foreign rolled products segment sales which went down by 19% to 0.9 million tonnes.

As sales and prices weakened, Q3 revenue declined by 26% to US$759 million. Cash cost optimisation efforts and lower prices for purchased slabs were not able to fully offset the decrease in revenue, leading to an increase in the segment losses.

The segment's Q3 EBITDA amounted to -US$62 million; the margin was -8%.

The significant year-on-year change is associated with the consolidation of the rolling assets of Steel Invest and Finance (JV with Duferco) starting from July 2011.

Outlook:

The segment companies will continue to work on cutting costs and maximising sales, ensuring higher efficiency for the segment in the medium-term.

* The Foreign Rolled Products segment comprises steelmaking companies located outside Russia, including rolling assets in Europe (NLMK Europe) and the USA (NLMK USA), including those that became part of the Group starting from July 2011. NLMK Europe is represented by thick plates producers NLMK DanSteel (Denmark, the company was part of the Steel segment until July 1, 2011), NLMK Clabecq (Belgium), NLMK Verona (Italy) and strip product producers NLMK La Louvière (Belgium), NLMK Coating (France), NLMK Strasbourg (France). NLMK USA includes NLMK Pennsylvania, Sharon Coating, NLMK Indiana (part of the Steel segment until July 1, 2011).

Appendix

(1) EBITDA*

Note: * Effective from 2012 the Company is changing the formula for EBITDA calculation in order to simplify and make the calculation of this indicator more transparent for external users. From Q1 2012, EBITDA is calculated as operating profit adjusted to loss or gain from impairment losses (including goodwill) and depreciation and amortisation.

(2) Sales by region in 2011-2012(in '000 tonnes)

(3) Sales by products in 2011-2012(in '000 tonnes)

(4) Revenue by region

(5) Working capital

(6) Consolidated production costs for products sold

OJSC NLMK

Interim condensed consolidated balance sheets

as at September 30, 2012 and December 31, 2011 (unaudited)

(All amounts in thousands of US dollars, except for share data)

OJSC NLMK

Interim condensed consolidated statements of income

for the nine months ended September 30, 2012 and 2011 (unaudited)

(All amounts in thousands of US dollars, except for earnings per share amounts)

OJSC NLMK

Interim condensed consolidated statements of cash flows

for the nine months ended September 30, 2012 and 2011 (unaudited)

(thousands of US dollars)