NLMK Group (LSE: NLMK), an international steel company with assets in Russia, the United States and Europe, announces the start of Strategy 2022 and changes in its dividend policy.
The target structural effect of the 2022 Strategy is + $ 1.25 bln to EBITDA * in annual terms, of which $ 0.5 bln per year will be obtained through programs to improve operating efficiency without investment.
Strategy 2022 is based on the development of the competitive advantages of NLMK Group. Due to operational measures and investment projects, as well as to clear out bottlenecks in the steelmaking industry, steel output at the Lipetsk site will increase by 1 million tons per year. The increase in steel production will be 100% provided by Stoilensky GOK's own iron ore.
The new volume of steel will be sold in the form of premium and niche products. The total target sales growth of high value added products will amount to 1.7 million tonnes due to investments in the Group's rolling stock in Russia, Europe and the United States.
As part of the strategic goal of sustainable development, the company will continue to implement targeted programs in environmental protection, industrial safety and reduction of industrial injuries.
In accordance with the updated dividend policy, NLMK Group plans to pay shareholders 100% free cash flow if the Net Debt /EBITDA ratio is less than or equal to 1, 0x, and 50% free cash flow if the Net Debt /EBITDA ratio is above 1.0x. At the same time, to calculate free cash flow for the purpose of paying dividends, the Group will use a normalized investment ratio in the amount of $ 700 million per year if actual investments are higher than this level.
* The full effect is expected to be realized in 2023. The effect is calculated by 2018
Strategy 2022 goals *:
1. Leadership in efficiency
- Increase in operational efficiency and move towards best technological practices
- Global leadership in steel production costs
- Target level of effect EBITDA: $ 0.5 billion per year
2. Growth of low-cost steel production
- Increase in steel production at the Lipetsk site by 1 million tons to 14.2 million tons per year
- Maintaining 100% level of self-sufficiency in iron ore raw materials due to an increase in concentrate production by 2.6 million tons to 20 million tons per year, pellets - by 1.3 million tons to 8 million tons per year at Stoilensky GOK
- Growth of self-sufficiency in electricity at the Lipetsk site from 60% up to 95%
- Reduction in coal consumption, including scarce grades
- Target level of EBITDA effect: $ 0.3 billion per year
3. World-class sales portfolio
- Growth in sales of steel products up to 18 million tonnes per year
- Growth in production and sales of premium products by 1.7 million tonnes
- Sales growth in key “home” markets by 2.7 million tonnes
- Target level of EBITDA effect: $ 0.45 billion per year
4. Leadership in sustainable development and safety
- Minimizing environmental impact, including reducing specific emissions per ton of steel at Russian sites to the level of the best available EU technologies
- Reduced injury rate to LTIFR ** 0.5
- High level of staff motivation and engagement
“We continue to set ambitious goals for ourselves. Thus, the goal of the new stage of the strategy is to achieve structural EBITDA growth of $ 1.25 billion per year, which is 35% of the high level of the financial result of 2018.
Strategy 2022 is distinguished by high resistance to external market factors, since it is based on the development of the company's competitive advantages: low production costs, effective vertical integration, diversification of the sales portfolio by product type and market, and a high level of localization of production and sales.
The new strategy is balanced in terms of instruments: the target effect of increasing operating efficiency is comparable to the effect of investment projects. The strategy is also balanced in terms of capital allocation: the company invests in growth projects while maintaining financial stability and implementing a highly competitive dividend policy. As part of Strategy 2022, we will continue our work to maximize return for shareholders, "commented NLMK Group President Grigory Fedorishin.
For more information on Strategy 2022, please follow this link.
Forward-looking statements:
This document may contain forward-looking statements. The forward-looking statements contained in this document include matters that are not historical facts or statements about the intentions, beliefs or current expectations of the Company, including the results of operations, financial condition, liquidity, prospects, growth, strategies and industry circumstances, in which the Company carries out its
