q4 and fy 2011 financial results presentation - rns · pdf fileq4 and fy 2011 financial...

Q4 and FY 2011 Financial Results Presentation 19 April 2012

Table of Contents

3 Q4 2011 Results Overview

7 Divisional Performance and Market Outlook

11 Financial Position

18 Appendices

Q4 and FY 2011 Results Overview

Summary

» Following the decision to separate Nordgold from Severstal, Nordgold’s results are shown as discontinued operations in Severstal’s Q3, Q4 and FY2011, as well as FY2010 financial results;

» FY 2011 revenue (ex Nordgold) increased 23.3% y/y to $15,812m due to higher prices and sales volumes across the portfolio, while Q4 Group revenue was 17.5% lower q/q to $3,727m due lower prices and volumes;

» Annual 2011 EBITDA* (ex Nordgold) went up 25.1% y/y to $3,584m with Q4 EBITDA reducing 24.7% q/q to $767m. The Q4 2011 EBITDA includes $52m one-off provisions related to accounts receivables and derivative liability. Net of the one-off, EBITDA would be approximately $819m;

» FY 2011 EBITDA margin was up 0.4 ppts, while Q4 EBITDA margin decreased by 1.9 ppts, but still remained one of the highest in the industry – above 20%;

» Q4 net profit** up 7.9% to $463m (Q3 2011: $429m). FY 2011 bottom line turned around to positive $2,035m from a loss of $575m with EPS of $2.02 per share;

» Recommended dividend payment of 3.56 rubles per share (approximately $0.12) for the 12 months ended 31 December 2011. This represents approximately 25% of the Q4 2011 net profit. The dividend is to be approved at the AGM on 28 June 2012. If approved, the dividend amount for all the quarters of 2011 will total 15.19 rubles, which is more than two times higher than the respective figure for the whole 2010;

» Key strategic developments in FY 2011 (sale of 3 underperforming US assets; decision to separate Nordgold; completion of CAPEX program in the US with the doubling capacities at Columbus and modernization of Dearborn; streamline of greenfield projects) have focused Severstal as a pure steel and steel related bulks producer, focusing more on mining and emerging markets.

Q4 and FY 2011 highlights***

*EBITDA represents profit /(loss) from operations plus depreciation and amortization of productive assets adjusted for gain/(loss) on disposals of property, plant, equipment and intangible assets; ** Attributable to shareholders of OAO Severstal; *** These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits”.

REVENUE Dynamics and Breakdown

Q4 2011 Revenue: $3,727m (Q3 2011: $4,519m; -17.5%)

Lower revenue driven by lower sales volumes as well as weaker pricing environment across the portfolio

FY 2011 Revenue: $15,812m (FY 2010: $12,819m; +23.3%)

Marked growth in selling volumes and realized prices led to overall annual increase in the top line

(391)

886

891

2 341

(489)

1 057

962

2 989

(600) - 600 1 200 1 800 2 400 3 000

Intersegment, etc.

Steel Resources

Severstal NorthAmerica

Russian Steel

Q3 2011* Q4 2011*

(1 868)

3 711

3 422

10 547

(1 640)

2 732

2 912

8 815

(2 000) 1 500 5 000 8 500 12 000

Intersegment, etc.

Steel Resources

Severstal NorthAmerica

Russian Steel

FY 2010* FY 2011

* These amounts reflect adjustments made in connection with the presentation of discontinued operations and the early adoption of the revised IAS 19 “Employee benefits”.

10

344

18

395

17

460

42

499

- 100 200 300 400 500 600

Intersegment, etc.

Steel Resources

Severstal North America

Russian Steel

Q3 2011* Q4 2011*

EBITDA Dynamics and Breakdown

Q4 2011 EBITDA: $767m (Q3 2011: $1,018m; -24.7%)

Weaker earnings due to deteriorating global economic environment and a $52 million one-off related to accounts receivables and derivatives liability

FY 2011 EBITDA: $3,584m (FY 2010: $2,864m; +25.1%)

Annual earnings growth across the divisions with SNA more than doubling its EBITDA

* These amounts reflect adjustments made in connection with the presentation of discontinued operations and the early adoption of the revised IAS 19 “Employee benefits”.

15

1 604

181

1 784

(53)

1 154

89

1 674

(500) - 500 1 000 1 500 2 000

Intersegment, etc.

Steel Resources

Severstal North America

Russian Steel

FY 2010* FY 2011

Divisional Performance and Market Outlook

162 155 154 162

885 826

723

867

00

100

200

300

400

Q3 2011 Q4 2011 FY 2010 FY 2011

EBITDA per tonne (US$/t) Average Selling Price (US$/t)*

Severstal Russian Steel

» Q4 2011 EBITDA down 20.8% to $395m (Q3 2011: $499m) with EBITDA margin up 0.2 ppts to 16.9% on declining input costs;

» Q4 revenue down 21.7% q/q to $2,341m on lower sales volumes (15.8% down q/q) and prices. Decrease in volumes was expected and driven by lower demand in Q4, exceptionally strong demand in Q3, sale of inventories in Q3 and some inventory build-up by the division’s traders in Q4 on anticipation of higher prices in Q1 2012. These accumulated stocks were sold in Jan-Feb’12 at higher prices;

» Share of high-value-added products of 46% in Q4 was up from 44% in Q3 on more resilient demand of HVA products. Share of sales volumes on the domestic market went up to 59% in 2011 from 54% in 2010.

Share of high-value-added products* in total steel shipments, %

EBITDA per tonne and average selling price

*All steel products, incl. pipes, etc.; Ex Works price terms.

Steel sales volumes by destination, %

* High-value-added comprises: plate; cold-rolled , galvanized and metallic coated, color coated sheet; metalware; large-diameter and other pipes.

EBITDA drivers in Q4 2011, $m

** Excluding foreign exchange effect

54% 61% 55%

60% 57%

46% 39% 45% 40% 43%

0%

20%

40%

60%

80%

100%

Q4 10 Q1 11 Q2 11 Q3 11 Q4 11

Russia Export

0%

20%

40%

60%

80%

100%

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11

Total finished steel, mt (lhs) share of HVA, %

376

395 71

(27)

499 (458)

(66)

-100

0

100

200

300

400

500

600

EBITDAQ3 2011

SalesVolume

SalesPrice**

COGSVolume

COGSPrice

Other EBITDAQ4 2011

Steel Resources

» Q4 2011 revenue contracted by 16.2% to $886m on overall lower coking coal and iron ore prices, as well as lower sales volumes of iron ore and coking coal;

» Q4 2011 EBITDA of $344m was down 25.2% from Q3 as a result of lower revenues and rising costs at our units. The division’s Q4 2011 EBITDA was also impacted by the $52m one-off provisions related to accounts receivables and derivative liability;

» At the same time Vorkuta’s unit cash costs were down from $127/t in Q3 to $72/t on commissioning a new huge longwall at the Vorgashorskaya mine and boost of semi-soft concentrate output.


Vo

rku

tau

gol (

RU

) (c

oki

ng

coal

co

nce

ntr

ate)

Ka

rels

ky O

katy

sh (

RU

) (p

elle

ts)

PB

S C

oal

s (U

SA)

(co

kin

g co

al c

on

cen

trat

e)

*Free carrier price terms.


84

(7)

49 51

182 162

124

163

(15)

185

(10)

10

30

50

70

90

Q3 2011 Q4 2011 2010 2011


77 65

56

72

135 133

103

134

0(10)

10

30

50

70

90

110

Q3 2011 Q4 2011 2010 2011


83 95

69

101

210

167 142

193

(30)

220

0

20

40

60

80

100

120

140

160

Q3 2011 Q4 2011 2010 2011


344

37

(46) (27)

460

(55) (25)

0

100

200

300

400

500

600

EBITDA Q32011

SalesVolume

Sales Price COGSVolume

COGS Price Other EBITDA Q42011

39

18 24

48

857 820

765

862

0 -

20

40

60

80

100

Q3 2011 Q4 2011 FY 2010 FY 2011

EBITDA per tonne (US$/t) Average Selling Price (US$/t*)

Severstal International (North America) » 2011 was a turning point for our North American division which saw its

EBITDA per tonne ratio double y/y from $24 to $48;

» Q4 2011 EBITDA of $18m (Q3 2011: $42m) and EBITDA margin of 2.0% (Q3 2011: 4.4%) as a result of bottomed prices and lower end demand, while still remaining in positive territory;

» During Q4 Severstal North America successfully completed its expansion program at Columbus by launching the new Push Pull Pickle Line, commissioned in Dec’11;

» Q4 sales volumes were 5% down due to softening demand, primarily in the auto and construction industries;

» Steel demand prospects remain solid for FY12, supported by auto, agricultural, container and machinery industries. Decline in natural gas prices could provoke softening of investments in oil & gas sector. Pick-up in the construction industry remains modest.



*All steel products, mixed price terms, resulting ex works.

SNA FY2011 revenue by plant

SNA FY2011 steel revenue by product 42

18

(44)

(39) 40

17 2

-50

-40

-30

-20

-10

0

10

20

30

40

50

EBITDA Q32011

SalesVolume

Sales Price COGSVolume

COGS Price Other EBITDA Q42011

Dearborn $2,002m

59%

Columbus $1,419

41%

HRC 49%

CRC 14%

Galvanized 37%

Financial Position

Cash Flow and Net Working Capital

» Strong cash position of $1,864m in cash and short-term deposits

» Doubled operating cash-flow in FY2011 as compared to FY2010 ($2,579m vs $1,259m)

» Strict and efficient control over net working capital: modest growth comparing to the previous year, despite increase in revenue and costs. NWC/revenues ratio decreased y/y to 15.2% by EOY2011 (17.0% as of Dec 31, 2010)

Net working capital, $m*

December 31, 2011 December 31, 2010 Change, %

2,402 2,176 10.4%

Net working capital as % of revenues*

December 31, 2011 December 31, 2010 Change, ppts

15.2% 17.0% (1.8 ppts)

Net Working Capital ** for FY2010-11, $m

* Figures exclude Lucchini, North America disposal groups, Gold segment (as of December 31, 2011, Gold segment’s balances have been classified as assets held for sale and its transactions have been accounted as discontinued operations).

** Calculation NWC excl. dividends and assets held for sale.

Highlights:

2,026

2 579

(1,915)

(609) (217)

1 864

-

1 000

2 000

3 000

4 000

5 000

Dec 2010 cash& ST deposits

Operating CF Investing CF Financing CF Cash ofdiscontinuedoperations

Dec 2011 cash& ST deposits

1,864

154 198 569

166

393

0

500

1 000

1 500

2 000

2 500

Liquidity 1Q 2012 2Q 2012 3Q 2012 4Q 2012

Cash Short-term Debt to be Repaid Unused Committed Credit Lines

Robust Liquidity and Sustainable Leverage

» Maintaining strong liquidity position:

» Cash and short-term deposits of $1,864m

» Committed unused credit lines of $393m

» Upcoming short-term debt maturities serviced with available liquidity – $2,257m.

» Q1 2012 repayments of $154m

» FY2012 maturities amounted to $1,087m

» Net Debt/EBITDA of 1.1x

* Excluding accrued interest and unamortised balance of transactional costs.

Total Short-term Debt to be Repaid of US$1,087m*

** On this charts figures exclude Gold segment’s balances.

6 025 5 976

4 212 4 112

х 1.5

х 1,1

х 0,0

х 1,0

х 2,0

х 3,0

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

EOY 2010 EOY 2011

Gross debt Net debt Net debt/EBITDA

Debt Structure

•On this chart the total debt excludes accrued interest and unamortised balance of transactional costs .

» As of 31.12.2011 no considerable changes in current debt structure, 65% of which is represented by public debt and 72% is denominated in USD

1,087

1,486

662

72

1,047 1,047 537

2012 2013 2014 2015 2016 2017 2018+

Debt Maturity Schedule, $m

Maturity

Russian Steel

$712m

Steel Resources

$491m

Severstal North

America $574m

CAPEX highlights

Group’s FY2011 CAPEX (ex Nordgold)

Group’s FY2012 target CAPEX

Russian Steel

$905m

Steel Resources

$659m

Severstal North

America $105m

Total $1,777m

Total $1,669m

Segment Project Effect Launch

RUSSIAN STEEL Balakovo mini-mill +1 mtpa of long products capacity

2013

SAP implementation Efficiency 2012

Full reconstruction of coke battery #7

Higher coke output, efficiency

2013

STEEL RESOURCES Construction of incline shafts at the Vorgashorskaya and Zapolyarnaya mines

Higher coal output, efficiency

2012-15

Equipment modernization at Karelsky Okatysh and Olkon

Higher iron ore output, efficiency

2012

Preparation of the pre-feasibility study at the Putu Range project

Pre-feasibility study 2012-13

SEVERSTAL NORTH AMERICA

Environmental, health & safety, IT-infrastructure and customer care projects

Efficiency 2012

Selected 2012 CAPEX projects

2012 Market Outlook

Global: » We expect global prices to increase in Q1-Q2, then some correction is expected due to steel production ramp-

up and real demand deceleration during summer. Some price upturn is then anticipated due to demand revival.

» Improving lead economic indicators suggest the global economy could pick up from the low levels seen in Q1.

» Supply to rise relatively quickly due to plentiful spare capacity.

» China’s economic growth could decelerate due to residential property market slowdown, although additional monetary easing is expected which would improve the economic situation.

» Uncertainty over European sovereign debt and the Eurozone’s banking system remain major risks.

Russia: » Increasing global oil prices are a key supporting factor for the Russian economy, which can boost investments in

oil & gas sector and the construction industry.

» Apparent steel demand in Russia is expected to slightly exceed GDP growth as the share of investments in GDP is set to grow.

» Increasing car market volume and the process of production localization to support steel consumption by the automotive industry.

USA: » Demand remains steady with strong automotive sector and also construction activity increasing from low levels.

» Import pressure to continue while import price arbitrage exists.

» HRC demand is stable driven by oil & gas tubes and pipes, machinery and agriculture, while HDG market is gaining strength on restoring construction activity.

Thank you. Q&A

Appendices

Summary Income Statement

$ million, unless otherwise stated Q4 2011*** Q3 2011*** FY 2011 FY 2010***

Revenue 3,727 4,519 15,812 12,819

EBITDA* 767 1,018 3,584 2,864

EBITDA margin, % 20.6% 22.5% 22.7% 22.3%

Profit from operations 598 848 2,917 2,205

Operating margin, % 16.0% 18.8% 18.4% 17.2%

Net profit/(loss)** 463 429 2,035 (575)

EPS, $ 0.46 0.43 2.02 (0.57)

Dividend per share, $**** 0.11 0.22

* EBITDA represents profit /(loss) from operations plus depreciation and amortization of productive assets adjusted for gain/(loss) on disposals of property, plant, equipment and intangible assets;

** Attributable to shareholders of OAO Severstal;

*** These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits”;

**** Dividends announced on the basis of respective period results, translated at the exchange rate as of the date of recommendation by Board of Directors

Q4 2011 REVENUE Breakdown by Region

Q4 and FY 2011 Highlights:

» Annual growth in revenues from all the major destinations – Russia, North America and Europe

» Drop in Q4 revenues from Russia and Europe on lower demand

» Less significant decrease in sales in North America due to resilience of the domestic market

Q4 2011/Q3 2011, $m FY 2011/FY 2010, $m

1 658

1 026

482

96

96

291

49

29

2 146

1 089

669

105

190

218

52

50

0 500 1 000 1 500 2 000 2 500

Russian Federation

North America

Europe

Central and South America

Middle East

China and Central Asia

South-East Asia

Africa

Q3 2011 Q4 2011

7 476

3 912

2 506

335

447

736

273

127

5 812

3 132

1 980

422

438

469

455

111

0 2 000 4 000 6 000 8 000

Russian Federation

North America

Europe

Central and South America

Middle East

China and Central Asia

South-East Asia

Africa

FY 2010 FY 2011

Q4 2011 Division Results

Q4 2011*** Q3 2011*** Change, % FY 2011 FY 2010*** Change, %

Revenue ($m) 2,341 2,989 (21.7%) 10,547 8,815 19.6%

Cost of sales ($m) (1,699) (2,245) (24.3%) (7,749) (6,006) 29.0%

G&A and distribution ($m) (308) (309) (0.3%) (1,272) (1,205) 5.6%

G&A and distribution as % of Revenue

13.2% 10.3% 2.9 ppts 12.1% 13.7% (1.6 ppts)

EBITDA ($m) 395 499 (20.8%) 1,784 1,674 6.6%

Operating Profit ($m) 315 416 (24.3%) 1,450 1,367 6.1%

EBITDA Margin, % 16.9% 16.7% 0.2 ppts 16.9% 19.0% (2.1 ppts)

EBITDA per tonne ($/t) 155 162 (4.3%) 162 154 5.2%

Average Selling Price (US$/t*) 826 885 (6.7%) 867 723 19.9%

Severstal Russian Steel

Q4 2011*** Q3 2011*** Change, % FY 2011 FY 2010*** Change, %

Revenue ($m) 891 962 (7.4%) 3,422 2,912 17.5%

Cost of sales ($m) (895) (936) (4.4%) (3,292) (2,909) 13.2%

G&A and distribution ($m) (21) (19) 10.5% (83) (78) 6.4%


2.4% 2.0% 0.4 ppts 2.4% 2.7% (0.3 ppts)

EBITDA ($m) 18 42 (57.1%) 181 89 103.4%

Operating (Loss) / Profit ($m) (17) 12 n.a. 62 (59) n.a.

EBITDA Margin, % 2.0% 4.4% (2.4 ppts) 5.3% 3.1% 2.2 ppts

EBITDA per tonne ($/t) 18 39 (53.8%) 48 24 100.0%

Average Selling Price (US$/t**) 820 857 (4.3%) 862 765 12.7%

Severstal International (North America) *All steel products, incl. pipes, etc.; Ex Works price terms

**All steel products; mixed price terms, mostly Ex Works. ***These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits”.

Q4 2011 Division Results (Continued)

Q4 2011* Q3 2011* Change, % FY 2011 FY 2010* Change, %

Revenue ($m) 886 1,057 (16.2%) 3,711 2,732 35.8%

Cost of sales ($m) (420) (490) (14.3%) (1,746) (1,387) 25.9%

G&A and distribution ($m) (144) (143) 0.7% (487) (295) 65.1%


16.3% 13.5% 2.8 ppts 13.1% 10.8% 2.3 ppts

EBITDA ($m) 344 460 (25.2%) 1,604 1,154 39.0%

Operating Profit ($m) 289 408 (29.2%) 1,394 951 46.6%

EBITDA Margin, % 38.8% 43.5% (4.7 ppts) 43.2% 42.2% 1.0 ppts

Steel Resources

* These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits”.

Summary Balance Sheet

$ million As at 31 December 2011 As at 31 December 2010*

Cash and Cash Equivalents 1,864 2,013

Total Assets: 17,910 19,408

Current Assets 8,930 9,571

Non-current Assets 8,980 9,837

Total Liabilities: 10,843 12,058

Current Liabilities 5,370 6,379

Non-current Liabilities 5,473 5,679

Total Equity 7,067 7,350

Total Equity and Liabilities 17,910 19,408

*These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits” .

Summary Cash Flow Statement

$ million Q4 2011* Q3 2011* FY 2011 FY 2010*

Profit before Financing and Taxation 580 821 2,852 2,082

Cash Generated from Operations 931 1,176 3,132 2,401

Interest Paid (83) (138) (441) (552)

Income Tax Paid (116) (145) (514) (310)

Net cash from operating activities – continuing operations

732 893 2,177 1,539

Net cash from/(used in) operating activities – discontinued operations

196 38 402 (280)

Net cash from Operating Activities 928 931 2,579 1,259

Cash used in investing activities – continuing operations

(394) (553) (1,550) (950)

Cash used in investing activites – discountinued operations

(133) (84) (352) (549)

Cash used in Investing Activites , incl. (527) (637) (1,902) (1,499)

Additions to PP&E and IA (508) (493) (1,716) (1,075)

Cash (used in)/from financing activities – continuing operations

(284) 201 (387) 18

Cash used in financing activitis – discontinued operations

(11) (77) (152) (306)

Cash (used in)/from Financing Activities (295) 124 (539) (288)

Effect of Exchange Rate on Cash and Cash Equivalents (20) (137) (70) (104)

Net increase/(decrease) in Cash and Cash Equivalents 86 281 68 (632)

Less Cash and CE of discontinued operations and AHFS at end of the period

(217) - (217) (208)

Cash and Cash Eqivalents at Beginning of the Period 1,995 1,714 2,013 2,853

Cash and Cash Eqivalents at End of the Period 1,864 1,995 1,864 2,013

*These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits” .

Disclaimer These materials are confidential and have been prepared by OAO Severstal

(Severstal) solely for your information and may not be reproduced, retransmitted

or further distributed to any other person or published, in whole or in part, for

any other purpose.

These materials may contain projections and other forward-looking statements

regarding future events or the future financial performance of Severstal. You can

identify forward-looking statements by terms such as “expect,” “believe,”

“estimate,” “intend,” “will,” “could,” “may” or “might”, or other similar

expressions. Severstal cautions you that these statements are only predictions

and that actual events or results may differ materially. Severstal will not update

these statements to reflect events and circumstances occurring after the date

hereof. Factors that could cause the actual results to differ materially from those

contained in projections or forward-looking statements of Severstal may include,

among others, general economic and competitive environment conditions in the

markets in which Severstal operates, market change in the steel and mining

industries, as well as many other risks affecting Severstal and its operations.

These materials do 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 securities of Severstal in any jurisdiction, nor shall they or any

part of them nor the fact of their presentation, communication or distribution

form the basis of, or be relied on in connection with, any contract or investment

decision.

No representation or warranty, express or implied, is given by Severstal, its

affiliates 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 these materials or their contents.

Photos in the presentation:

P. 1 Sheksna tube plant; P. 2 Cherepovets steel mill; P. 3 Dneprometiz plant;

P. 7 Karelskiy Okatysh; P. 11 Cherepovets steel mill; P. 16 Dneprometiz plant;

P. 17 Cherepovets steel mill; P. 24 Redaelli plant

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