nlmk presentation. goldman sachs conference. november 2013
DESCRIPTION
Corporate presentation of NLMK. Presented by Grigoriy Fedorishin, CFO, and Sergey Takhiev, Head of IRTRANSCRIPT
NLMK
20-21 NOVEMBER 2013, NEW YORK
Goldman Sachs Global Metals & Mining, Steel Conference
Grigory Fedorishin, CFO
SERGEY TAKHIEV, HEAD OF IR
DISCLAIMER
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.
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.
2
3
1. Business profile
2. Operating and financial profile
3. Strategy
BUSINESS PROFILE
4
• World’s leading steel producer with 17 mln t capacity o High quality steel producer with highest profitability
o Top 10 low cost steelmaker globally
o #1 in Russia with over 20% of Russian steel output
o 70% growth in output during the last 5 years
• Balanced business model o Low cost raw materials with over 80% sufficiency in iron ore*
and scrap, and 100% sufficiency in coke concentrated in Russia
o Low cost steelmaking operations concentrated close to raw materials sources in Russia with BOF/EAF split of 80%/20%
o Downstream processing located close to end-users and integrated with the Russian steel platform
o 80-90% of finished steel products sold locally (where they were manufactured)
• Diversified product mix and sales structure o Flat/long products 85/15 with over 40% value added steel
products
o Presence in high growth (Russian construction) and mature markets (European and US manufacturing, automotive, etc.)
o International/Russian sales 57/43 (in Q3’13)
• 2012 Operating highlights o 14,9 mln t of steel production, up 25%
o Revenue USD12.16 billion, up 4%
o 16% EBITDA margin
o Net debt/EBITDA: 1.88 with over $1 bn of cash
o The only M&M major in Russia with investment grade credit rating
* NLMK is 100% self-sufficient in iron ore concentrate and sinter. Pellets are currently purchased from 3rd parties.
23%
28%
19%
16%
8%
11% 9%
7%
0%
5%
10%
15%
20%
25%
30%
2009 2010 2011 2012
NLMK Global average
EBITDA MARGIN NLMK VS GLOBAL AVERAGE
Source: WSD, Company data
8,2 7,9 8,6 8,9 9,1 8,5 9,1 9,1 10,5 10,6 11,5 12,0
14,9
14%
20%
-2%
3%
8%
13%
18%
23%
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
NLMK crude steel production
NLMK share in Russian crude steel output
NLMK CRUDE STEEL PRODUCTION
m t Run rate of 100%
Run rate of 100%
BALANCED AND FAVORABLY LOCATED ASSETS Russian production platform enhanced with international assets
2012 Crude steel production
2012 Steel products sales
NLMK Group 14.9 m t 15.2 m t
Moscow
Novolipetsk Sinter: 15 m tpa Coke: 2.6 m tpa Steel: 12.4 m tpa Flats: 5.7 m tpa
VIZ-Stal Transformer steel: 0.17 m tpa
Altai-Koks Coke: 4.66 m tpa
NLMK Dansteel Thick plate about 0.5 m tpa
Belgium
France
Italy
Stoilensky Iron ore concentrate: 14 m tpa Sinter ore: 1.6 m tpa
Denmark
NLMK Belgium Holdings (NBH) HRC 1.7 m tpa incl. rerolling and coating Thick plates: 0.9 m tpa
NLMK USA Strip 1 mini-mill & 2 rolling mills HRC 2.7 m tpa incl.: - CRC 0.7 m tpa - HDG 0.8 m tpa
RUSSIA
USA
NLMK Long products Steel : 2.2 m tpa Longs: 2 m tpa
5
NLMK Kaluga Steel (EAF): 1.5 m tpa Longs: 0.9 m tpa
- NLMK Russia production and trading assets
- NLMK International operations
- NBH production assets - Service centres - Licenses to develop coal deposits
* numbers represents effective capacity
EFFICIENT VERTICAL INTEGRATION
~85%*
~115%*
~85%**
56%***
0%
20%
40%
60%
80%
100%
120%
Iron ore Coke Scrap Electricity
SELF-SUFFICIENCY
* NLMK currently is over 100% self-sufficient in iron ore concentrate, sinter ore and coke. Pellets are purchased from 3rd parties. From 2016 Group to achieve 100% self-sufficiency in pellets.
** at Russian operations. *** at Novolipetsk 6
• Iron ore: 85% self-sufficiency*
o The Group is over 100% self-sufficient in iron ore concentrate with over 100 years of mine life
o One of the most efficient iron ore producer globally
• Coke: over 100% self-sufficient with modern facilities
• Scrap: 85% self-sufficiency. Largest scrap collecting network in Russia
• Energy: 56% self-sufficiency from reuse of by-product gases ***
• Coal: Exposure to the local oversupplied market. Portfolio of coal deposit rights give an option to increase self-sufficiency
Self-sufficiency in 2012
COAL PRICE: DOMESTIC VS INTERNATIONAL
50
100
150
200
250
300
350
Oct
-09
Jan
-10
Ap
r-1
0
Jul-
10
Oct
-10
Jan
-11
Ap
r-1
1
Jul-
11
Oct
-11
Jan
-12
Ap
r-1
2
Jul-
12
Oct
-12
Jan
-13
Ap
r-1
3
Jul-
13
Oct
-13
Coking coal, Australia, FOB
Coking coal, Russia FCA
Source: Metal Bulletin, Metal Expert
200
250
300
350
400
450
500
550
600
650
3 123 236 342 454 546 632
NLMK Novolipetsk
Cumulative BOF capacities, mt/y
$/t
NLMK SLAB PRODUCTION COSTS VS GLOBAL
Source: WSD. Estimation of slab cash cost for BOF producers w/o overheads
Slab Price
DIVERSIFIED SALES
• Russian market remains a key sales region with 80% exposure into construction and infrastructure
• Wide product mix with strong value-added share
• Rational export/domestic market balance
• Slabs sales hedged by overseas rolling operations
• 80%-90% of total finished steel sold to local customers
• Market penetration through constantly improving product mix and quality
• Niche product sales in focus of development (transformer steel, specialty thick plates, feedstock for LDP, etc.)
Q3 ‘13 SALES AND REVENUE BY REGIONS
DIVERSIFIED SALES STRUCTURE
81%
30%
10%
8%
32%
10%
11%
9%
30%
29%
60%
0%
20%
40%
60%
80%
100%
NLMK Russia NLMK Europe NLMK USA
Others (inclstockholders)
Pipe producers
Machinery
Construction
7
43%
20%
14%
9%
4% 9%
43%
16%
14%
12%
6%
10% Russia
Europe
N.America
Middle East
S.E. Asia
Other regions
Sales – outer circle
Revenue – inner circle Total sales 3.72 million tonnes
SALES BY PRODUCT Q3 ‘13
Total revenue $2.83 million
NLMK divisional sales to consuming industries. w/o international trading. Q3 2013 data
2% 3%
4%
8%
15%
6%
12%
28%
1%
21%
0%
Metalware
Electrical steel
Pre-painted steel
Galvanized steel
CRC
Plate
Long products
HRC
Billets
Slabs
Pig iron
38% HVA products
HVA
Total sales 3.72 million tonnes
1. Business profile
2. Operating and financial profile
3. Strategy
8
0,6
0,7
0,8
0,9
1
1,1
1,2
1,3
1,4
Jan
-12
Mar
-12
May
-12
Jul-
12
Sep
-12
No
v-1
2
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
Germany China USA
60
80
100
120
140
160
180
200
300
400
500
600
700
800
900
Jan
-12
Feb
-12
Mar
-12
Ap
r-1
2
May
-12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-1
2
Dec
-12
Jan
-13
Feb
-13
Mar
-13
Ap
r-1
3
May
-13
Jun
-13
Jul-
13
Au
g-1
3
Sep
-13
Oct
-13
No
v-1
3
HRC USA, EXW HRC Europe, EXW
HRC China, EXW Iron ore, China, CFR, (rhs)
GLOBAL STEEL MARKET OVERVIEW
GLOBAL CAPACITY UTILIZATION
PRICES BY REGION
Index, January 2012 = 1
• Supply / Demand o Restocking at the beginning of 2013 followed by a significant
supply growth and increased competition
o Market environment improvement over Q3 supported by the slightly improved supply-demand balance
• Prices o Prices moved up over the Q3 driven by increased raw
materials prices and strengthened buying activity
o Prices are expected to stabilize in Q4 underpinned by low inventories
• Inventories o The pace of destocking slowed in Q3, inventories are now
considered to be at a historically low level and in balance with the demand
Source: Metal Bulletin
STEEL INVENTORIES
Source: CRU, Bloomberg
Source: World Steel Association
$/t
9
$/t
50%
60%
70%
80%
90%
Jan
-12
Feb
-12
Mar
-12
Ap
r-1
2
May
-12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-1
2
Dec
-12
Jan
-13
Feb
-13
Mar
-13
Ap
r-1
3
May
-13
Jun
-13
Jul-
13
Au
g-1
3
Sep
-13
Global China North America EU (27)
8
9
10
11
12
13
14
15
16
17
400
600
800
1 000
1 200
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
Jan
-13
May
-13
Sep
-13
US construction starts SAAR US auto sales SAAR
1,5
2
2,5
3
3,5
Jan
-12
Mar
-12
May
-12
Jul-
12
Sep
-12
No
v-1
2
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
-
100
200
300
400
500
100
300
500
700
900
Jan
-12
Feb
-12
Mar
-12
Ap
r-1
2
May
-12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-1
2
Dec
-12
Jan
-13
Feb
-13
Mar
-13
Ap
r-1
3
May
-13
Jun
-13
Jul-
13
Au
g-1
3
Sep
-13
Oct
-13
No
v-1
3
HRC US domestic prices, EXW HRC Spread US vs China (RHS)Spread US HRC vs scrap (RHS)
US MARKET
Source: US Census Bureau, Ward’s Automotive Group
US PRICE DYNAMICS
$/metric t
Source: Metal Bulletin
INVENTORY LEVEL
• Supply / Demand o LT demand looks strong with construction, machinery and energy
sectors performing relatively well and approaching pre-crisis levels
o Supply-side provides support to prices on improved producers’ discipline (quick adjustments of run rates) and reduced imports (YTD imports fell by 8% yoy).
• Prices o Steel prices have strengthened significantly since May
o Further price increases introduced by local producers supported by tight supply
• Inventories o Months of supply are below average at 2.4 in September
o Lead times for HRC and CRC increased as buying activity improves
US STEEL-CONSUMING SECTORS PERFORMANCE
US inventory/sales ratio, months
10
‘000 units
Source: Bloomberg
$/metric t
5-year average level
million units
$728/t
-80
-30
20
70
120
170
220
270
400
500
600
700
800
900
Jan
-12
Feb
-12
Mar
-12
Ap
r-1
2
May
-12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-1
2
Dec
-12
Jan
-13
Feb
-13
Mar
-13
Ap
r-1
3
May
-13
Jun
-13
Jul-
13
Au
g-1
3
Sep
-13
Oct
-13
No
v-1
3
HRC spread Northern EU domestic EXW vs import CFRHRC, Northern EU, EXWPlates, Northern EU, EXW
-50
-40
-30
-20
-10
0
10
0
10
20
30
40
50
60
70
Jan
-08
Ap
r-0
8
Jul-
08
Oct
-08
Jan
-09
Ap
r-0
9
Jul-
09
Oct
-09
Jan
-10
Ap
r-1
0
Jul-
10
Oct
-10
Jan
-11
Ap
r-1
1
Jul-
11
Oct
-11
Jan
-12
Ap
r-1
2
Jul-
12
Oct
-12
Jan
-13
Ap
r-1
3
Jul-
13
Oct
-13
Eurozone Manufacturing PMI EU-27 industrial confidence
1,5
2,0
2,5
3,0
3,5
Jan
-12
Feb
-12
Mar
-12
Ap
r-1
2
May
-12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-1
2
Dec
-12
Jan
-13
Feb
-13
Mar
-13
Ap
r-1
3
May
-13
Jun
-13
Jul-
13
Au
g-1
3
Sep
-13
EUROPEAN MARKET
EU PRICE DYNAMICS
$/t
Source: Metal Bulletin
• Emerging signs of recovery in the European industry o PMI above 50 for the 4th consecutive month
o Strengthening industrial and construction confidence in the core EU countries
• Supply / Demand o Apparent steel consumption growth is expected to turn positive
in 2014 (+2.9%) driven by the investment improvement*
o Imports pressure eased since Q2 and is expected to remain essentially stable
• Prices o Steel prices are expected to stabilize in Q4 on the seasonal
demand slowdown and balanced inventories with the uptick at the beginning of 2014 due to improved orders
GERMANY: STEEL INVENTORY
Source: CRU. I/S ratio adjusted by CRU (three month moving average) * Source: Eurofer 11
Inventory/sales ratio, months
INDUSTRIAL SECTOR INDICATORS
Source: Eurostat
5-year average level
$/t
100
600
1 100
1 600
2 100
2 600
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Jul-
12
Sep
-12
No
v-1
2
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
Flats Longs
0
10
20
30
40
50
60
70
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
E
20
14
E
• Growth in steel consumption o 2013 ASU to grow by 3.8% yoy to 43.6 m t (WSA forecast)
o 9M’13 finished steel consumption up by 3.5% yoy to 31.7 m t due to increased longs consumption (+5.1% yoy)
o Key drivers - construction and infrastructure sector, contributing about 2 m t to ASU, or over 100% of total ASU growth in 2013
o Long-term fundamentals for steel consumption growth remain strong
• Pricing trends o Ordinary grades replicate export market situation
o More stable pricing for value added grades
RUSSIAN MARKET
$/t
DOMESTIC STEEL PRICES, HRC / CRC (EXW)
Sources: Metal Bulletin, Metal Expert
m t
STEEL CONSUMPTION IN RUSSIA
Sources: McKinsey, World Steel Association
Delayed steel consumption from 1995 to 2005 is 170 m t
FINISHED STEEL CONSUMPTION
‘000 t
Sources: Metal Expert, NLMK 12
300
400
500
600
700
800
900
1 000
1 100
Jan
-12
Feb
-12
Mar
-12
Ap
r-1
2
May
-12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-1
2
Dec
-12
Jan
-13
Feb
-13
Mar
-13
Ap
r-1
3
May
-13
Jun
-13
Jul-
13
Au
g-1
3
Sep
-13
Oct
-13
No
v-1
3
Slab export, Russia FOB HRC Russia, EXWCRC Russia, EXW HDG Russia, EXW
66%
7%
12%
15%
Столбец1
Pipes&tubesindustry
Machinery
Processing, incl.white goods andconstruction
Construction &infrastructure
0
10
20
30
40
50
60
70
80
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
E
RUSSIAN MARKET - Construction
‘000 t
STEEL CONSUMPTION IN CONSTRUCTION
Source: Metal Expert
HOUSE COMPLETIONS IN RUSSIA
Source: Rosstat, NLMK estimates. Ministry of Economic Development
FLOOR SPACE PER CAPITA, M2
Source: Company estimates 13
• Market overview o Construction (sq m completions) surpassed pre-crisis peak
levels in 2012 o Residential completions up by 12% yoy in 9M’13 o New house sales supported by robust consumer confidence o 9M’13 steel consumption in construction and infrastructure
up by 8% yoy o flat steel +7% yoy o long steel +8.5% yoy
• NLMK strategy o Quality and service improvement o Ramp up of the launched in mid-2013 NLMK Kaluga with the
crude steel capacity of 1.5 m tpa (0.4 m t to be produced in 2013)
o New long steel products (angles, channels) including niche one – high strength rebar (A1000)
o Imports substitution
67
48
37
23
0
10
20
30
40
50
60
70
80
US EU EasternEurope
Russia
50%
50%
Столбец1
Normal
Obsolete
m square meters
0
500
1 000
1 500
2 000
2 500
3 000
Jan
-08
Mar
-08
May
-08
Jul-
08
Sep
-08
No
v-0
8Ja
n-0
9M
ar-0
9M
ay-0
9Ju
l-0
9Se
p-0
9N
ov-
09
Jan
-10
Mar
-10
May
-10
Jul-
10
Sep
-10
No
v-1
0Ja
n-1
1M
ar-1
1M
ay-1
1Ju
l-1
1Se
p-1
1N
ov-
11
Jan
-12
Mar
-12
May
-12
Jul-
12
Sep
-12
No
v-1
2Ja
n-1
3M
ar-1
3M
ay-1
3Ju
l-1
3Se
p-1
3
Flat steel Long steel
-
20
40
60
80
100
120
140
160
180
200
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
Jan
-13
May
-13
Sep
-13
Flat steel Long steel
• Market fundamentals o 3.3 times growth in cars production since 2009
o 50% of car fleet is over 10 years old
• Recent developments o YTD steel consumption in automotive sector down as auto
production of local brands remains soft
o Auto sales in 10M’13 down by 7% yoy
• NLMK strategy o New steel grades – IF, etc. steels
o Downstream development to grow market share
o Technology and experience transfer and synergy with its European division
RUSSIAN MARKET – Automotive
‘000 t
STEEL CONSUMPTION IN AUTOMOTIVE
Source: Metal Expert
Source: Avtostat 14
AGE OF CAR FLEET IN RUSSIA
12%
15%
23%
50%
< 3 years
3-5 years
5-10 years
> 10 years
RUSSIA: PRODUCTION OF CARS AND CAR FLEET
14
1,0 1,0 1,1 1,1
1,2 1,3
1,5
0,6
1,2
1,7
1,97 1,94
0
5
10
15
20
25
30
35
40
0,0
0,5
1,0
1,5
2,0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Е
Passenger cars production, l.h. Car fleet , r.h.
m units
Source: Rosstat, Avtostat, ASM-Holding
m units
RAW MATERIALS MARKET
• Prices and demand in international markets o Correlation between raw material and steel price trends
o In Q3 global prices for iron ore and coking coal recovered by 13% and 9% respectively underpinning steel prices upward movement
o Raw materials demand remains solid as steel output continues to grow
o Chinese imports of iron ore were up by 9% yoy in 9M’13
o Iron ore inventories at Chinese ports hit bottom in March’13 and started to recover
• Russian coking coal market remains oversupplied o 9M’13 exports increased by 30% while domestic shipments went
down by 4%
40
50
60
70
80
90
100
110
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1Ja
n-1
2M
ar-1
2M
ay-1
2Ju
l-1
2Se
p-1
2N
ov-
12
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
GLOBAL RAW MATERIAL PRICES
Sources: Metal Bulletin
0,4
0,5
0,6
0,7
0,8
0,9
1,0
1,1
1,2
Jan
-12
Feb
-12
Mar
-12
Ap
r-1
2
May
-12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-1
2
Dec
-12
Jan
-13
Feb
-13
Mar
-13
Ap
r-1
3
May
-13
Jun
-13
Jul-
13
Au
g-1
3
Sep
-13
Oct
-13
No
v-1
3
Iron ore fines (Fe 62%) import China, CFRCoking coal, export Australia, FOBScrap export Europe, FOBHRC China export, FOB
CHINA: IRON ORE IMPORTS AND INVENTORIES
m t
Sources: Bloomberg, NLMK estimates
-2% in Q3
274 295
552 601
100
200
300
400
500
600
700
9М '12 9М '13 Iron orelocal production(Fe 62% equivalent)
Iron ore imports
IRON ORE SUPPLY
IRON ORE INVENTORIES AT CHINESE PORTS m t
Jan 2012 index 1.0
15
RUSSIA: COKING COAL MARKET BALANCE
Sources: Metal Expert, NLMK estimates
-14,2 -17,5 -22,6
40,9 40,6 39,0
2,5 2,0 2,0
-20
-10
0
10
20
30
40
50
2011 2012 2013E
Export Sales to domestic market Import
m t
0%
20%
40%
60%
80%
100%
120%
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09
Q1'10
Q2'10
Q3'10
Q4'10
Q1'11
Q2'11
Q3'11
Q4'11
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
Q3'13
Lipetsk plant capacityutilization
Global average
OPERATING RESULTS
• High capacity utilization rates o Growth in steel production in Q3’13 to 3.9 m t (+3% qoq)
o Average capacity utilization rate 96%
o Lipetsk plant – 99%
o NLMK Indiana*– 91%
o NLMK Russia Long – 90%
• Steel production outlook o Q4’13 steel output up by 200,000 t, (+5% qoq) to 4.1 m t
driven by NLMK Kaluga production of 290,000 t
o 2013 steel output of 15.5 m t, +4% yoy (up from 14.9 m t in 2012)
16
STEELMAKING CAPACITY UTILISATION: NOVOLIPETSK AND GLOBAL AVERAGE
NLMK CRUDE STEEL PRODUCTION
87%
90%
96% 94%
91% 90%
99% 96%
70%
80%
90%
100%
NLMK USA NLMK Longproducts
Novolipetsk NLMK Group
Q2 '13 Q3 '13
NLMK: STEELMAKING CAPACITY UTILIZATION
3,0 3,1 3,1
0,5 0,5 0,6 0,2 0,2 0,2 3,7 3,8 3,9 ~4,1**
Q1'13 Q2'13 Q3'13 Q4'13 (P)
Steel Long products Foreign rolled products
m t
** Excluding NLMK Verona output in Q4’13
12,2
1,8 0,9
2012 2013 (P)
14,9 15,5**
* Steelmaking asset of NLMK Foreign rolled product segment
3,00 2,80 2,86 2,83 2,72
16,1%
13,9%
11,1%
14,1% 13,9%
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
14,0%
16,0%
18,0%
2,0
2,2
2,4
2,6
2,8
3,0
3,2
3,4
Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13
Revenue EBITDA margin
17
• 9М ’13 financial results
o Revenue $8,405 m (-10% yoy)
o EBITDA $1,096 m (-27% yoy)
o EBITDA margin 13% (-3,2 p.p.)
o Operating cash flow : $1,030 m (-31%)
o Investments: $658 m (-43%)
o Net debt*/12M EBITDA: 1.87
• Q3 ’13 financial results
o Revenue $2,72 m (-4% qoq)
o EBITDA $379 (-5% qoq)
o EBITDA margin 13,9% (-0.2 p.p.)
o Investments: $281 m
• Cash flow generation
o Sustainable free cash generation coupled with
continuous deceleration in Investments
FINANCIAL HIGHLIGHTS
$ bn
FINANCIAL PERFORMANCE, QUARTERLY
1 491
1 030 1 158
658
0
200
400
600
800
1 000
1 200
1 400
1 600
9М'12 9М'13
Operating cash flow Capex
$ m
OPERATING CASH FLOW AND INVESTMENTS**
** Investments include capitalized interest expense * Net debt w/o NBH debt (deconsolidated after NBH stake sales to SOGEPA)
$1,0 $0,6
$3,8
$3,5
$-
$1,0
$2,0
$3,0
$4,0
$5,0
as at 30 Jun 2013 as at 30 Sep 2013
ST debt LT debt
18
• Financial debt o Net debt* $2.77 bn (-19%)
o Total debt $4.12 bn (-14%)
o Cash and equivalents ** $1.35 bn (-1%)
o Net debt * / 12M EBITDA 1.87x
• NLMK Belgium Holdings (NBH) liabilities deconsolidation
• Consistent net debt reduction
• Investment credit rating (Moody’s, Fitch)
DEBT POSITION
LT AND ST DEBT
$ bn
* Net debt w/o NBH debt (deconsolidated after NBH stake sales to SOGEPA) **Cash and equivalents and ST deposits
$1,4 $1,4
$2,3 $2,3
Cash and equivalents Committed credit lines
3,0
2,5
2,7
3,1
3,3 3,4
3,6
2,0
2,2
2,4
2,6
2,8
3,0
3,2
3,4
3,6
3,8
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
Q3'132
MATURITY AND NET DEBT/EBITDA
Weighted average maturity
Years to maturity
1,69
1,90
1,84
1,88
1,93
2,15
1,87
0,0
0,5
1,0
1,5
2,0
2,5
3,0
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
Q3'132
Net debt/EBITDA
3,79 3,51
0,99
+0.40
-0.60
+0.25
-0.76
+0.05
0,62
2
3
4
5
6
30 Jun '13 Borrowings Debtrepayments
Reclass. ofdebt for SIFshares***
NBHdebt
deconsoli-dation
Otherfactors
30 Sept '13
ST debt LT debt
MATURITY AND NET DEBT/EBITDA
$ bn
DEBT MATURITY
• Significant liquidity position
• Comfortable maturity schedule
o Short term debt $0.62 bn, (-38% qoq)
o Ruble bonds
o Credit lines
o ECA- financing
o Long term debt $3.51 bn, (-7% qoq)
o Eurobonds and ruble bonds
o Long term part of ECA
• Financing costs as a % of EBITDA remain consistently low
19
LIQUID ASSETS AND ST DEBT MATURITY*
* ST maturity payments with interest accrued and debt maturity schedule
** Quarterly figures are derived by computational method on the basis of quarterly reports *** Maturity payments do not include interest expenses **** Credit lines
TOTAL DEBT MATURITY***
$ m
1351 616
2 331
42 187 175 212
$0
$500
$1 000
$1 500
$2 000
$2 500
$3 000
$3 500
$4 000
Liquid assets Q4 '13 Q1 '14 Q2 '14 Q3 '14 12M
$ m Undrawn committed credit lines
Cash and equivalents
27
895 723
2 434
$0
$500
$1 000
$1 500
$2 000
$2 500
$3 000
2013 2014 2015 2016 и and onward
RUB bonds ECA EBRD NLMK Dansteel Others **** Europbonds (USD)
24 31 31 27 22
42 37 33 35
35
0%
5%
10%
15%
20%
25%
0
10
20
30
40
50
60
70
Q3'12 Q4'12 Q1'13 Q2'13 Q3'13
Capitalized interest expense (lhs) Non-capitalized interest expense (lhs)
Interest expense to EBITDA (rhs)
INTEREST EXPENSES**
$ m
57 62 64
68 66
20
• Steel production
o Steel output in Q4’13 will grow by 5% to 4.1 m t, driven by production growth at NLMK Kaluga
o In 2013 steel production will reach 15.5 m t (or +4% y/y)
• Financials
o In Q4, we expect steel prices to soften due to the seasonal slowdown in demand and projected decline in steel raw material prices
o The company continues to work on offsetting the negative impact of market conditions by improving technical and business process
efficiency
OUTLOOK
21
1. Business profile
2. Operating and financial profile
3. Strategy
22
GLOBAL MARKET TRENDS
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2 000
2 200
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
mtpa
Excess capacity Crude steel production
Capacity utilization rate (RHS)
1980-2007 average run rate – 86%
2010-2012 average run rate – 77%
GLOBAL OVERCAPACITY
81% 78% 61%
35% 26% 27%
11% 7%
22%
22% 28% 32%
8% 15% 17%
44% 46% 42%
0%
25%
50%
75%
100%
1995 2000 2005 2010 2011 2017Е
Steelmaking Coking coal Iron ore
PROFITABILITY SHIFT TO UPSTREAM
Source: McKinsey Research. EBITDA split for HRC
Source: World Steel Association
Source: World Steel Dynamics
• Global overcapacity o Over 0.5 bn t of steelmaking overcapacity
o Capacity growth in EMs and capacity retention in DMs
• Production costs inflation o Decline in raw materials leads to cost curve flattening
o Operating costs inflated by other expenses items
o Steel demand becoming more “local”
• Profitability has slipped from steelmaking to mining
200
300
400
500
600
700
800
5 208 389 574
GLOBAL SLAB CASH COST
$/t
Cumulative capacities BF/BOF mtpa
2011
2012
2013
23
Maximising upstream integration into key resources
1
Maintaining efficient and
sustainable growth 2
Improving efficiency of operations
3
Developing niche segments
4
Operating in a safe, socially and environmentally responsible manner
5
STRATEGIC OBJECTIVES OF NLMK GROUP
0
6
0
2
4
6
8
10
2013 2016
12
14
>18
0
2
4
6
8
10
12
14
16
18
20
2010 2013 2016
MAXIMISING UPSTREAM INTEGRATION IN KEY RESOURCES • Iron ore
o Growth in iron ore concentrate production through brownfield expansion / debottlenecking
o Pelletizing plant of 6 m t – 2016 to cover 100% needs
• Coal o Use of alternative technology to improve coke quality and
decrease coal consumption o PCI technology installation to reduce by 20/30% coke and by
70% natural gas consumption per 1 t of steel
• Scrap o Target self-sufficiency of Russian operations at 80-85%
• Energy o Efficiency gains and to reduce energy intensity o Reuse of by-product gases to generate electricity in house
EXPANSION OF IRON ORE CONCENTRATE AND PELLETS CAPACITY
24
m t
+ over 6 m t
24
+ 6 m t
Iron ore concentrate Pellets
m t
0
1
2
3
4
5
6
7
8
2010 2011 2013-14 2014-15
New BF#7
COKING COAL CONSUMPTION DYNAMICS (LIPETSK)
m t
PCI effect
Sources: Bloomberg industries, iron ore production costs in 2012
0
20
40
60
80
100
120
140
160
180
0% 25% 50% 69% 90%
GLOBAL IRON ORE PRODUCTION COSTS
NLMK (Stoilensky)
$/t
2012 Cumulative capacities: 1.4 bn t
12.3
3.4
1.5
17,2
0
4
8
12
16
2010 BF#7 EAF (Kaluga) 2014Existing BF#7 EAF (Kaluga)
mtpa
BF: 3.4 m tpa from mid 2011
EAF: 1.5 m tpa from 2013
MAINTAINING EFFICIENT AND SUSTAINABLE GROWTH
• Steel capacity expansion is complete o BF/BOF steelmaking (Russia) : 3.4 m tpa
Brownfield project of ~$500/t* investments (in 2011)
o EAF steelmaking (Russia): 1.5 m tpa Greenfield project of ~$750/t* investments (in 2013)
• Improved steel grades portfolio o Allows for further improvement in existing portfolio of
downstream products and mastering new ones
o To win new contracts and gain market share or enter new markets
• Expanded diversity of products o New gauges of semis added – e.g. 2.5 m tpa of wide slabs
• Low cost position supplemented by quality improvements o Entering new markets (by geo and by segments)
o Improving position in the existing markets (e.g. green energy, construction, capital goods)
o Allowing for the full capacity load through the cycle (90% -100% run rate)
CRUDE STEEL CAPACITY GROWTH: +40%
25
Crude steel capacity growth for the Russian operations
* - total investments per annual capacity of the facility
30% 5%
58%
48%
12%
47%
0%
20%
40%
60%
80%
100%
Jan-11 Jan-12
Finished (Intl)
Finished (Russia)
Semis
INCREMENTAL STEEL SUPPLY HEDGED THROUGH CAPTIVE ROLLING
%
0,0
0,5
1,0
1,5
2,0
2,5
Q1
'08
Q2
'08
Q3
'08
Q4
'08
Q1
'09
Q2
'09
Q3
'09
Q4
'09
Q1
'10
Q2
'10
Q3
'10
Q4
'10
Q1
'11
Q2
'11
Q3
'11
Q4
'11
Q1
'12
Q2
'12
Q3
'12
Q4
'12
Q1
'13
Q2
'13
Q3
'13
Russian production Import
MAINTAINING EFFICIENT AND SUSTAINABLE GROWTH (2)
NLMK Kaluga project
• Russian rebar market overview o Consumption growth in Russia: x1.9 against 1H‘10
o Import growth in 1H’13: +60% yoy, x3 vs. 1H’10
o Regional demand/supply imbalance
• Modern 1.5 m tpa EAF capacities o Offering product mix in demand from construction: rebar and
sections
o Favorable location: 90 km from Moscow – consumption cluster (Central district)
o Total investments c. $1.2 billion (90% by 2013)
o Cost advantage (logistics, modern production, scrap collection network)
26
RUSSIAN REBAR CONSUMPTION, 2008-2013
400
900
0
200
400
600
800
1000
2013Е 2014Е
NLMK KALUGA: PRODUCTOIN PLAN BALANCE OF PRODUCTION AND CONSUMPTION AT REGIONS
Sources: Metal Expert. Data for 2012
46%
21%
8% 9% 8% 6%
1% 0%
17% 12%
31%
18%
11% 7%
2% 1%
0%
10%
20%
30%
40%
50%
Ura
ls
Sib
eria
Cen
tral
Pri
volz
hsk
y
No
rth
-W
est
Sou
th
Far
East
No
rth
Cau
casi
an
Share in long products production
Share in long products consumption
long products deficit – app. 3,8 million t/y
000’t
Source: Metal Expert
m t
Record level of 2008
Import, share is over 20%
Crude steel
EFFICIENCY OF OPERATIONS
• Cost optimization programs at all sites (effects to be presented to the market in Q1 2014)
• Optimization of coke making, sintering, BOF operations (Novolipetsk and Altai Koks) o Maximum use of equipment potential
o Minimizing raw material, fuel, material and energy consumption
o Optimizing fuel and raw material balance structure
o Reducing environmental footprint, including waste management
• Significant economic potential o Target announced in Feb 2013 - $60 m
o Effect of $80 m achieved in 9М13
o Target level of savings in 2013: c. $100 m*
27
REDUCED RAW MATERIAL CONSUMPTION FOLLOWING OPTIMIZATION MEASURES
100% 100% 100%
96,5% 97,6%
93,0%
80%
85%
90%
95%
100%
105%
Coal Pellets Scrap*
Before optimization After
Lower specific raw material consumption, 100% - Dec’12 level
* Reduced consumption of purchased scrap * Estimation of an effect comparing to 2012 level of utilization rates and prices (for Novolipetsk and Altai-Koks)
13
80 100
30
38
0
20
40
60
80
100
120
Q1'13 Q2'13 Q3'13 9M'13 12M'13 (Е)
PRODUCTION COSTS REDUCTION WITHIN “QUICK WINS” PROGRAM
$ m
75 67 64 66 56 52
34 34 27 27
27 31
12 10
10 9 9 9
50
39 27
121 111
100 102 92 92
0
50
100
150
200
2008 2009 2010 2011 2012 2013(Е)
Carsid + EAF andLong products +Safef Thonville
Service centers
NLMK Coating andNLMK Strasbourg
NLMK La Louviereand total overheadsfor division
NLMK Europe Strip
EUROPEAN ASSETS RESTRUCTURING • Restructuring workflow
o Restructuring program is being implemented since 2008
o Change in asset perimeter and transition to a re-roller model
o Consistent cost reduction through optimization programs
o NLMK La Louviere Restructuring Agreement (March 2013)
o Headcount optimization by 30%, Fixed costs reduction by $30 m/y (full effect in 2014)
• Involvement of the Belgian state-owned company SOGEPA* as a strategic partner in European assets o Sale of 20.5% interest in NLMK Belgium Holdings (NBH) for €91
m ($123 m)
o SOGEPA participation in governance
28
FIXED COSTS OF NLMK EUROPE STRIP
€ m
NLMK FOREIGN ASSET FINANCIALS
$ m $ m
NBH IMPACT ON THE 9M NLMK RESULTS
7 537
-1 226 1 300
7 611
NLMKGroup fact
NBH Sales Slab salesto NBH
NLMKGroup
withoutNBH
STEEL SALES
1 096
-125
1 221
13.0%
15.0%
NLMK Groupfact
NBH impact NLMK Groupwithout NBH
000’t $ m EBITDA
1 062
-125
1 235
1
2 297
-124
-500
0
500
1000
1500
2000
2500
Revenue 9М'13
EBITDA 9М'13
341
-46
409
11
750
-35
-100
0
100
200
300
400
500
600
700
800
RevenueQ3'13
EBITDAQ3'13
NBHNLMK USA and NLMK Dansteel
* Societe Wallonne de Gestion et de Participations S.A.
31%
69%
Столбец1 Development
Maintenance capex
2013 INVESTMENTS • Capex programme
o Lower capital intensity
o Focus on efficiency enhancement and niche products
o Balanced approach to assessing new projects
o Flexibility under various market scenarios
• Long products division development o NLMK Kaluga launch (EAF+ rolling mill)
• Strengthening vertical integration o Pelletizing plant construction projects launched at Stoilensky
o Coke making projects (PCI, etc.) to reduce energy costs
o Development of scrap collecting facilities
• Quality improvement and niche products o Mastering the revamped rolling mill at NLMK Dansteel
o Niche product development at NLMK Clabecq
o Continued GO steel development programmed at Novolipetsk and at VIZ-Steel
29
1936
1115 1462
2020
1453
850
0
500
1000
1500
2000
2008 2009 2010 2011 2012 2013Е
CAPEX DYNAMICS
$ m
45
24 17
30 24 20
0
10
20
30
40
50
2008 2009 2010 2011 2012 2013E
MAINTENANCE CAPEX PER TONNE OF STEEL
$/t
APPENDIX
30
CASH COST OF SLABS
CONSOLIDATED CASH COST OF SLABS (AT LIPETSK SITE)
Cost item Q3’13 Q2’13 ∆, $/t
Coke and coking coal $84 $91 -$7
Iron ore $60 $64 -$4
Scrap $29 $37 -$8
Other materials $27 $31 -$4
Electricity $23 $21 +$2
Natural gas $21 $18 +$3
Personnel $33 $33 0
Other expenses $52 $53 -$1
Total $329 $348 -$19
CASH COST OF SLABS (AT LIPETSK SITE), 2012-2013
Period $/t
Q1 '12 $395
Q2 '12 $411
Q3 '12 $383
Q4 '12 $361
Q1 '13 $364
Q2'13 $348
Q3 '13 $329
31
www.nlmk.com
NLMK Investor Relations 18, bldg 1 Bakhrushina str. 115054, Moscow Russia t. +7 495 915 15 75 f. +7 495 915 79 04 email: [email protected]