conference call presentation with ceo and cfo 3 q 2012 us gaap
DESCRIPTION
NLMK Q3 2012 FinancialsTRANSCRIPT
NLMK
Moscow, 2012
Q3 AND 9M 2012 US GAAP CONSOLIDATED RESULTS
OLEG BAGRIN, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF MANAGEMENT BOARD
GALINA AGLYAMOVA, CHIEF FINANCIAL OFFICER
This document is confidential and has been prepared by NLMK (the “Company”) solely for use at the investor presentation of the Company and may not be reproduced, retransmitted or further distributed to any other person or published, in whole or in part, for any other purpose. This document does not constitute or form part of any advertisement of securities, any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for, any shares in the Company or Global Depositary Shares (GDSs), nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or investment decision. No reliance may be placed for any purpose whatsoever on the information contained in this document or on assumptions made as to its completeness. No representation or warranty, express or implied, is given by the Company, its subsidiaries or any of their respective advisers, officers, employees or agents, as to the accuracy of the information or opinions or for any loss howsoever arising, directly or indirectly, from any use of this presentation or its contents. This document is for distribution only in the United Kingdom and the presentation is being made only in the United Kingdom to persons having professional experience in matters relating to investments falling within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or high net worth entities, and other persons to whom it may otherwise lawfully be communicated, falling within Article 49(2) of the Order (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this presentation or any of its contents. The distribution of this document in other jurisdictions may be restricted by law and any person into whose possession this document comes should inform themselves about, and observe, any such restrictions. This document may include forward-looking statements. These forward-looking statements include matters that are not historical facts or statements regarding the Company’s intentions, beliefs or current expectations concerning, among other things, the Company’s results of operations, financial condition, liquidity, prospects, growth, strategies, and the industry in which the Company operates. By their nature, forwarding-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward-looking statements are not guarantees of future performance and that the Company’s actual results of operations, financial condition and liquidity and the development of the industry in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this document. In addition, even if the Company’s results of operations, financial condition and liquidity and the development of the industry in which the Company operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in future periods. The Company does not undertake any obligation to review or confirm analysts’ expectations or estimates or to update any forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation. By attending this presentation you agree to be bound by the foregoing terms.
DISCLAIMER
2
0.6
0.7
0.8
0.9
1
1.1
1.2
Jan-1
1
Mar-1
1
May-1
1
Jul-1
1
Sep
-11
No
v-11
Jan-1
2
Mar-1
2
May-1
2
Jul-1
2
Sep
-12
Inventories Germany
Inventories China
Inventories U.S.$100
$300
$500
$700
$900
$1,100
Jan-1
1
Mar-1
1
May-1
1
Jul-1
1
Sep
-11
No
v-11
Jan-1
2
Mar-1
2
May-1
2
Jul-1
2
Sep
-12
HRC, CIS export, FOB
HRC U.S. domestic prices, FOB
HRC, Europe domestic prices, EXW
INTERNATIONAL MARKETS
3
STEELMAKING CAPACITIES UTILISTION
FLAT STEEL PRICES BY REGION
$/ metric tonne
0%
20%
40%
60%
80%
100%
Jan-0
8M
ar-08
May-0
8Ju
l-08
Sep
-08
No
v-08
Jan-0
9M
ar-09
May-0
9Ju
l-09
Sep
-09
No
v-09
Jan-1
0M
ar-10
May-1
0Ju
l-10
Sep
-10
No
v-10
Jan-1
1M
ar-11
May-1
1Ju
l-11
Sep
-11
No
v-11
Jan-1
2M
ar-12
May-1
2Ju
l-12
Sep
-12
China North America Europe
Quarterly dynamics adjusted for
production/ sales cycle
Index, January 2011 = 1
DEMAND
• Weaker demand on major markets
• Global run rates declined
PRICES
• Raw materials prices under pressure from lower steel
capacity utilization
• Steel prices continued to decline across all regions
with Russia being less impacted
INVENTORIES
• Steel stock remain low in developed economies
• Sizable decline in Chinese inventories
Source: Steel Business Briefing
STEEL INVENTORIES
Sources: CRU, Bloomberg (China statistic, Metals Service Center Inst.)
Source: World Steel Association
0.0
0.5
1.0
1.5
2.0
2.5
Jan
-08
May
-08
Sep
-08
Jan
-09
May
-09
Sep
-09
Jan
-10
May
-10
Sep
-10
Jan
-11
May
-11
Sep
-11
Jan
-12
May
-12
Sep
-12
20% 17%
29%
24%
39%
100%
~70%
19% ~20%
Cru
de steel
pro
du
ction
HR
C
CR
C
Galvan
ised
Pre-p
ainte
d
Transfo
rmer
Dyn
amo
Reb
ar
Metallw
are
100
200
300
400
500
600
700
800
900
1,000
1,100
1.0
2.0
3.0
4.0
5.0
6.0
Jan-1
1
Feb
-11
Mar-1
1
Ap
r-11
May-1
1
Jun
-11
Jul-1
1
Au
g-11
Sep
-11
Oct-1
1
No
v-11
Dec-1
1
Jan-1
2
Feb
-12
Mar-1
2
Ap
r-12
May-1
2
Jun
-12
Jul-1
2
Au
g-12
Sep
-12
Crude steel production Apparent steel useHRC price (r.h.) Rebar price (r.h.)
RUSSIAN MARKET
4
CRUDE STEEL PRODUCTION, STEEL USE AND PRICES
million t/month
DEMAND
• Stable on the back of economic growth. Apparent steel use increased by 5% in Q3
• Consumption by construction industry surpassed the peak of 2008
PRICES
• Flat steel prices for ordinary grades declined in line with global trends, value added remained stable
• The demand for long steel improved on the back of the increased activity in the construction sector
NLMK POSITION ON THE DOMESTIC MARKET
• Company’s share in steel production achieved 20%
• Leading positions in industries with sustainable demand
Production data for 9M 2012 Sources: Chermet, Metal-Expert, Company’s data
NLMK POSITIONS IN RUSSIAN MARKET STEEL DEMAND IN CONSTRUCTION
$/t
Sources: Rosstat, Company’s data
Sources: Metal-Expert, Metal Bulletin
ASU + 5%, q/q
million t/ month peak level of 2008
94%
85%
99%
91%
86%
100%
0% 20% 40% 60% 80% 100% 120%
NLMK USA
NLMK LongSteel
Novolipetsk
Q3 2012 Q2 2012
PRODUCTION
5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012F
Steel segment Long products segment Foreign rolled products segment
3,2
3,6 3,8 3,8 ~3,7
million t
STABLE OUTPUT IN Q3 2012
• Novolipetsk (Steel segment) 3.076 m t
(-2% q-o-q)
• NLMK Long Steel 0.479 m t
(+3% q-o-q)
• Foreign rolled products segment 0.216 m t
(-13% q-o-q)
CAPACITY UTILIZATION 96%
• Novolipetsk (Steel segment) 100% (+1 p.p.)
• NLMK Long Steel 86% (+1 p.p.)
• Foreign rolled products segment 91% (-3 p.p.)
OUTLOOK
• Q4 ’12: 3.7 m t (-2 % q-o-q)
• 2012: 15 m t (+25% y-o-y)
CRUDE STEEL PRODUCTION, QUARTERLY
CAPACITY UTILIZATION
1.06 1.10 1.20 1.26
0.56 0.83 0.75 0.64 0.34
0.38 0.33 0.27 0.50 0.63 0.61 0.49
0.83 0.63 0.55 0.73
0.26 0.30 0.37 0.43
0.0
1.0
2.0
3.0
4.0
5.0
Q4 2011 Q1 2012 Q2 2012 Q3 2012
Other regions Asia North America Middle East (incl. Turkey) EU Russia
SALES GEOGRAPHY
902 1,021 1,199 1,091
634 698
740 523
273 269
191 201
364 458
494
400
527 359
332
448
353 289 300
340
$0
$1,000
$2,000
$3,000
Q4 2011 Q1 2012 Q2 2012 Q3 2012
Russia EU
Middle East (incl. Turkey) North America
Asia Other regions
$ million
HIGHER SALES TO RUSSIAN MARKET
• +4% q-o-q beating absolute record level
GROWTH OF INTERNATIONAL SALES
• Lower demand from European and USA markets
offset by increased supplies to S.E. Asia and other
LOWER SLAB SUPPLIES TO OWN ROLLING ASSETS
• About 0.5 m t delivered in Q3 (-33% q/q) and 2 m t
in 9M 2012
6
SLABS SUPPLIES TO OWN ROLLING ASSETS
454 606 645
395
107 107
108
0%
10%
20%
30%
40%
50%
60%
0
200
400
600
800
1000
Q4 2011 Q1 2012 Q2 2012 Q3 2012
NLMK Europe NLMK USA Share of total slabs sales
3,552 3,872 3,818
million t
3,053 3,094 3,257
3,002 (-7.8% q/q)
3,816
-9% q/q
+4% q/q
-2% q/q
-7% q/q
REVENUE BY REGION
SALES BY REGION
million t
-20%
-13%
-13%
-7%
-6%
-5%
0%
2%
2%
14%
-30% -20% -10% 0% 10% 20%
SALES STRUCTURE
7
Thick plates*
Dynamo
Galvanised
Long products
HRC
Transformer
CRC
Pre-painted
Metallware
Slabs
2% 4% 2% 2% 4% 6% 7% 9%
14% 13%
5% 9%
2%
2% 10% 8%
24% 22%
26% 15%
5% 2% 9%
Sales Revenue
0%
20%
40%
60%
80%
100% Revenue from otheroperations*Pig iron
Slabs
HRC
Long products
Metallware
Thick plates
CRC
Galvanised
Pre-painted
Dynamo
Transformer
0.82 1.03 0.97 0.91
1.26 1.34 1.37 1.27
0.33 0.39 0.47
0.44
1.15 1.11 1.00 1.18
0
1
2
3
4
Q4 2011 Q1 2012 Q2 2012 Q3 2012
Semi-finished Longs Flats value added Flats
STEEL PRODUCTS SALES CHANGE IN SALES STRUCTURE Q3/Q2
SALES AND REVENUE BY PRODUCT
million t
Value added
products
*Note: Revenue from other operations include revenues from sales of iron ore, coke, scrap and others
Ordinary products
CHANGE IN SALES MIX
• Growth in slabs sales to 3rd parties
• … as European subsidiaries decreased utilization rates
due to seasonality and overall demand weakness
• Thick plates lower q-o-q due to upgrade of rolling
operations at NLMK DanSteel
VALUE ADDED STEEL SALES AT 35% OF TOTAL
• Strong domestic demand supported value added sales
*Lower thick plates sales partially relates to the launch of new mill at NLMK DanSteel
STRATEGIC DEVELOPMENTS
8
24% 19% 13% 18% 23%
76% 81% 87%
82% 77%
0
500
1000
1500
2000
2500
0%
20%
40%
60%
80%
100%
2008 2009 2010 2011 2012E
Maintenance capex Development Total investments
CAPEX
CAPEX BY SEGMENTS, 2012E
48%
16%
22%
13% Steel segment
Long productssegment
Mining segment
Foreign rolledproducts segment
$ million
GROWTH IN CRUDE STEEL CAPACITY
• Blast Furnace #7 / BOF 3.4 m tpa project
completed. Utilisation rates of the new capacities
are at maximum
• Improved steel quality, +30 new steel grades
• Kaluga mini mill (1.5 m tpa of long steel) to be
operation in 2013
FINISHED PRODUCTS OUTPUT GROWTH
• Growth in rolling capacity for value added products
• Improved quality of the existing (incl niche) products
(NLMK DanSteel rolling mill upgrade)
VERTICAL INTEGRATION
• Iron ore capacity growth with continued expansion
of Stoilensky
• Coke-chemical projects (PCI, tar pitch, etc.) to
reduce energy costs
• Expansion of scrap capacity
IMPROVED EFFICIENCY
• Growth of self-sufficiency and efficient use of energy
HIGHLIGHTS
0.03 0.03
0.05
0.03
5.0% 5.6%
8.5%
5.6%
0%
2%
4%
6%
8%
10%
$0.00
$0.01
$0.02
$0.03
$0.04
$0.05
Q4 2011 Q1 2012 Q2 2012 Q3 2012
Net income per share Net income margin (r.h.)
9
EPS
Q3 ‘12 FINANCIAL RESULTS
• Revenue $3,002 m (-8% q-o-q),
• EBITDA $483 m (-19%),
• EBITDA margin 16.1% (-2.2 p.p.),
• Net profit: $167 million (-40%),
• EPS $0,03,
• Operating cash flow: $684 m (+125%),
• CAPEX: $347 m (-23%),
• Net debt/EBITDA: 1.84
Q3 ‘12 OPERATING RESULTS
• Steel output: 3.772 m t (-2%),
• Steel sales: 3.816 m t (0%),
• Revenue/t: $787 (-8%),
• Slab cash cost at Lipetsk plant : $383 (-7%).
$/share
3.05 3.09 3.26
3.00
12% 14%
18%
16%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
$2.0
$2.2
$2.4
$2.6
$2.8
$3.0
$3.2
$3.4
Q4 2011 Q1 2012 Q2 2012 Q3 2012
Revenue EBITDA margin (r.h.)
REVENUE AND EBITDA MARGIN
$ billion
2,163 2,210 2,205 2,095
129 177 171 221
$0
$500
$1,000
$1,500
$2,000
$2,500
Q4 2011 Q1 2012 Q2 2012 Q3 2012
Production expenses Depreciation
Depreciation +29% q/q
PRODUCTION COSTS
10
CONSOLIDATED PRODUCTION COSTS Q3 2012
COST OF GOODS SOLD $ million
PRODUCTION COSTS DOWN BY 5%
• Impacted by lower prices for raw materials
• Strict control over operating expenses and overheads
• Lower consumption of pellets supplied by 3rd parties
• Slab cash cost decreased by 7% to $383/t.
DEPRECIATION
• Growth by 29% following growth in PPE
11%
18%
15%
4%
16%
7%
4%
0.8%
13%
12%
CASH COST FOR BOF STEEL GLOBALLY
$200
$250
$300
$350
$400
$450
$500
$550
$600
$650
1 8
15
22
29
36
43
50
57
64
71
78
85
92
99
10
6
11
3
12
0
12
7
13
4
14
1
Novolipetsk
100 mtpa 260 mtpa 500 mtpa 550 mtpa
$/t
Cumulative BOF capacities
Source: World Steel Dynamics. Data as of the end of 9M 2012
Prod. expenses -5% q/q
11%
18%
15%
4% 16%
7%
4% 0.8%
13%
12%
Iron ore
Coal / coke
Scrap
Ferroalloys
Materials
Electric energy
Natural gas
Other energy
Other costs
Labor
PROFITABILITY EBITDA DYNAMICS
• In Q3 overall EBITDA declined mainly due to
weakening market environment
• A decline in steel prices outpaces the decline for raw
materials negatively contributing to the company’s
profitability
KEY FACTORS BEHIND EBITDA CHANGE
• Lower steel prices and change in the product mix was
partially compensated by the reduced production
costs
EBITDA CHANGE BY SEGMENT
596
-32
-57
+11
-57
+22
483
200
300
400
500
600
Q2
201
2
Stee
l seg
men
t
Fore
ign
ro
lled
pro
du
cts
segm
ent
Lon
g p
rod
uct
sse
gmen
t
Min
ing
segm
ent
Oth
er o
per
atio
ns
incl
inte
rseg
men
tal
Q3
201
2
$ million
12%
14%
18%
16%
0%
5%
10%
15%
20%
Q4 2011 Q1 2012 Q2 2012 Q3 2012
EBITDA MARGIN EBITDA: FACTOR ANALYSIS
596
-46
-140
+81
-8
483
200
300
400
500
600
700
Q2
20
12
Vo
lum
es a
nd
pro
du
ct m
ix
Pri
ces
Pro
du
ctio
nco
sts
Oth
ers
Q3
20
12
$ million
11
CHANGE IN CASH
FX rate change
Dividends
FREE CASH FLOW TO THE FIRM
Other financial operations
Net loans
Purchase of property plant and equipment
OPERATING CASH FLOW
Profit tax
Other non cash operations
Working capital change
EBITDA
$ million
CASH FLOW
12
Q3’12 CASH BRIDGE
$ million
SIGNIFICANT CASH GROWTH
• Over $1bn of cash inflow in Q3
OPERATING CASH FLOW INCREASED
• $684 of cash from operation activities including
o $483 m EBITDA and
o $273 m from working capital changes
GROWTH IN CASH FROM FINANCIAL ACTIVITIES
• RUB bond (approximately US$320 million) and Euro
bond (US$500 million) placements.
DECREASE IN CAPEX
• -23% q-o-q to US$347 million
483
273
-9
-63
684
-347
+716
+4
1 057
-2
-21
1 034
Q3 2012 CASH INFLOW AS A RESULT OF WORKING CAPITAL MOVEMENTS
181
79 24 -11
273
0
50
100
150
200
250
300
Decline inAccountsreceivable
Decline inInventories
Increase inAccountspayable
Other factors Q3 2012
Cash flow statement data
46% 47%
13% 18%
40% 35%
0%
20%
40%
60%
80%
100%
Q2 2012 Q3 2012
RUR USD Euro
2.4 2.9
2.0
+0,9
-0,2
+0,4
2.4
$0
$1
$2
$3
$4
$5
$6
30 Jun 12 Debt raising Debtsettlements
FX rates andother factors
30 Sep 12
ST Debt LT Debt
DEBT DEBT POSITION
• Net debt $3.47 billion (-3%)
• Net debt / 12M EBITDA 1.84 (down from 1.9)
• Cash and equivalents1 $1.814 billion (+133%)
• Gross debt $5.28 billion (+22%)
DEBT MANAGEMENT
• In Q3 NLMK placed debut Eurobonds and additional
RUR notes totaling $883 million
• Average debt maturity extended to 2.7 years
RATING
• Investment grade rating (S&P, Moody’s, Fitch)
1. Cash and equivalents and ST deposits 2. As of 30.09.2012г. 3. Management accounts data
13
$ billion
CHANGE IN DEBT POSITION
CURRENCY OF THE DEBT AND REVENUE
Debt currency 2 Revenue currency3
40%
25%
35%
0%
20%
40%
60%
80%
100%
Q3 2012
3.0
2.5
2.7
2.2
2.4
2.6
2.8
3.0
3.2
Q1 2012 Q2 2012 Q3 2012
AVERAGE MATURITY AND NET DEBT/EBITDA2
Weighted average maturity period
Years 1.69
1.90
1.84
1.5
2.0
Q1 2012 Q2 2012 Q3 2012
Net debt/EBITDA
$0
$500
$1,000
$1,500
$2,000
$2,500
2012 2013 2014 2015 and onward
PXF Ruble bonds ECA EBRD NLMK Europe Others Eurobonds (USD)
1,814 2,285
1,070
773
816
493
203
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Liquidassets
Q4 12 Q1 13 Q2 13 Q3 13
14
LIQUID ASSETS AND ST DEBT MATURITY1
TOTAL DEBT MATURITY2
$ million
MATURITY
0%
5%
10%
15%
20%
$0
$10
$20
$30
$40
$50
$60
$70
Q4 2011 Q1 2012 Q2 2012 Q3 2012
Interest expense Interest expense to EBITDA (right hand)
$ million
$ million
DEBT MATURITY
• Substantial liquidity cushion and portfolio of
instruments for debt restructuring
• Short-term debt $2.43 billion
o Settlement of RUR three year notes in
Q4 2012
o Short term part of PXF
• Long term debt $2.85b illion
o incl. RUR notes and long term part of PXF, ECA
and liabilities of SIF
1. The ST maturity payments include interests accrued and bond coupon payments in 2012 2. The maturity payments do not include interests 3. Quarterly figures are derived by computational method based on reporting data for the 9M, 12M 2011 and for the 3M, 6M, 9M 2012.
Committed credit lines
Cash and equivalents
INTEREST EXPENSE3
PRODUCTION OUTLOOK
• Q4 2012: steel output to be at 3.7 m t, -2% q-o-q
• 12M 2012: 15 m t, + 25% y-o-y
FINANCIALS
• Revenue will decline by 1-5% q-o-q mainly due to lower seasonal demand
MARKET OUTLOOK
• Steel prices hit the bottom in Q4 2012
• Lower seasonal activity for the overall steel sector in the end of the year
• 2013 steel demand is likely to remain weak with possible anemic growth as compared to 2012
15
OUTLOOK
NLMK Investor relations Russia, 115054, Moscow
Bakhrushina str, 18, bldg 1
t. +7 495 915 15 75
f. +7 495 915 79 04
www.nlmk.com
16