WOOD Flash – NLMK: 4Q17 financial results - stronger than expected EBITDA growth, but weaker FCF

NLMK reported its 4Q17 financial results this morning. These were broadly in line with our expectations (3% ahead at the EBITDA level, 2% behind on net income), but 9% above the Interfax consensus EBITDA. EBITDA rose 21% qoq compared to 22% and 11% qoq increases for Severstal and MMK, respectively, as NLMK’s higher exports mean that it is less exposed to the seasonal weakness in the Russian winter. FCF fell 62% qoq to USD 200m due to higher capex and a large, seasonal working capital build-up. This was weaker than we expected, however, as the working capital build was USD 90m more than we modelled and capex was USD 41m higher than we expected. Annual capex of USD 592m was still within the revised guidance of USD 550-600m from July, and well below the USD 700m target at the beginning of the year, so we do not see this as a negative result. In addition, management announced that it had achieved the USD 1bn of EBITDA gains it targeted, as a result of the 2014-17E strategy, at USD 1,019m on its estimates. A further USD 160m in gains are expected this year because of recently-completed projects, namely an increase in iron ore volumes and the ramp-up of PCI facilities. Overall, we expect the results to be welcomed by the market.