MOSCOW, Feb 15 (Reuters) - MMK, one of Russia’s largest steel makers, plans to lift its dividend payment for the second half of 2016 to 60 percent of free cash flow, rewarding shareholders for the company’s improved margins and lower debt burden.
MMK said its earnings before interest, taxation, depreciation and amortisation (EBITDA) totalled $1.6 billion in 2016, taking into account the sale of part of its stake in Australian iron ore company Fortescue.
The company’s EBITDA margin -- a measure of profitability -- jumped to 34.7 percent from 28.6 percent, its highest level since 2007, MMK said. Free cash flow for the year totalled $728 million and net debt fell 83 percent to $192 million.
MMK, the third largest steel producer in Russia, said the combination of strong free cash flow and a lower debt burden had helped it to pay out more to investors.
“This growth will not only increase the shareholders’ participation in the company’s results, but also share part of the profit from the sale of (Fortescue) shares with the shareholders,” the company said in a statement.
MMK said it now planned to submit a board proposal to increase its standard annual dividend payout ratio to at least 50 percent of free cash flow. That compares to a current policy of paying out no less than 30 percent of free cash flow.
MMK’s fourth-quarter EBITDA fell 6 percent quarter-on-quarter to $456 million, the company said. Revenue increased 5 percent to $1.6 billion, while net profit fell 50 percent to $208 million.
Russian steelmakers have suffered over the past two years as world steel prices plumbed 11-year lows and the country’s economic crisis sapped domestic demand.
But the companies now expect a stronger 2017 as Russia’s economy improves, buoyed by a rise in oil prices, and as higher steel prices support profits.
Efforts to raise money by some of MMK’s competitors point to increased confidence in the sector.
Russia’s biggest steel producer, NLMK, is currently drawing up a new expansion strategy and said in December it could issue Eurobonds this year.
Russia’s No.2 steelmaker EVRAZ is also considering a convertible bond issue while TMK, Russia’s largest maker of steel pipes for the oil and gas industry, sold a 13 percent stake through a secondary public offering in February.
“We reiterate our ‘Buy’ rating on MMK on its valuation and dividend growth potential,” Aton said in a note, adding that the company’s stock has been supported by market speculation that MMK shares may be included in the MSCI index.
Reporting by Jack Stubbs; Editing by Keith Weir