Mmk · RUS:MAGN
Mmk — Investor Presentation (April 2015)
36 slides from Mmk's investor presentation, April 2015
Slide 1: MMK Corporate Presentation
MMK Corporate Presentation April 2015
Slide 2: Disclaimer
DISCLAIMER THIS PRESENTATION IS FOR INFORMATION ONLY AND IS CONFIDENTIAL. NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO OF FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE RUSSIAN FEDERATION OR ANY JURISDICTION WHERE SUCH RELEASE, PUBLICAT
Slide 3: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 3 2. Business Overview 8 3. Strategic overview 12 4. Financial overview 20 5. Appendices 24
Slide 4: Key Credit Highlights
KEY CREDIT HIGHLIGHTS Leading position in the MMK is the second largest steel producer in Russia by volume of production Russian steel market Moreover, MMK not only managed to maintain its share but also grow it over the recent years The largest single sight The large size of Magnitogorsk site
Slide 5: MMK – Global Player with Strong Russian Presence
ММК – GLOBAL PLAYER WITH STRONG RUSSIAN PRESENCE Benefits from central location with proximity to local and export markets Profit Covers 100% of MMK Belon scrap needs. 3.7 mln tonnes of 82% coking coal mined in 2014. Covered 37% of MMK needs in coal concentrate in 2014 6% MMK Metalurji >1% 10% 2.3 m
Slide 6: Dominant Share of Sales to Emerging Market High Growth Countries and Russia
OJSC MMK DOMINANT SHARE OF SALES TO EMERGING MARKET HIGH GROWTH COUNTRIES AND RUSSIA IN PARTICULAR Regional Sales Structure based on Volumes, 2014 The portion of Russian & CIS sales has been gradually increasing Americas 100% Africa 1% 16% 18% 1% 23% 31% 33% 75% Europe 6% 50% 84% 82% Middle East Rus
Slide 7: Competitive Cost Position
COMPETITIVE COST POSITION MMK benefits from relatively low input materials prices Slab Cash-cost and Raw-material Price, USD/tonne MMK’s Slab Cash-Cost, USD/tonne 459 442 413 399 385 400 385 374 363 356 200 337 322 495 308 500 490 160 300 450 459 120 442 200 413 80 399 400 385 385 374 100 363 356 40
Slide 8: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 3 2. Business Overview 8 3. Strategic overview 12 4. Financial overview 20 5. Appendices 24
Slide 9: Russian Steel Segment
RUSSIAN STEEL SEGMENT Main revenue contributor – 92% of Group’s revenue • All significant assets of the segment are located in Magnitogorsk, Russia Leading Domestic Market Position • Magnitogorsk Steel is the major production site: Russia‟s second largest integrated plant with more than 14m tonnes
Slide 10: Turkish Steel Segment
TURKISH STEEL SEGMENT Poised to become #2 flat steel producer in Turkey ММК Metalurji Located at two sites in Turkey: Iskenderun and Istanbul MMK Metalurji production breakdown, 2014FY Favourable geographic position (growing markets of Turkey and other Middle East countries) Hotrolled steel Tota
Slide 11: Coal Segment
COAL SEGMENT Belon is one of Russia’s largest coal producers Belon Group comprises coal mining and processing assets MMK Coal reserve life vs. operational reserves (as of 2013) Located in Belovo, Kemerovo Region, Russian Federation 35 >30 >30 >30 Assets include 30 25 23,4 o 3 underground mines:
Slide 12: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 3 2. Business Overview 8 3. Strategic overview 12 4. Financial overview 20 5. Appendices 24
Slide 13: Strategic Objectives of MMK Group
STRATEGIC OBJECTIVES OF MMK GROUP Focus on organic growth 1 Achieving quality balance Emphasized direct exposure 5 2 sheet to niche segments 4 3 Maintaining good progress Maximising share of domestic achieved in self-sufficiency sales 13
Slide 14: Focus on Organic Growth
1 FOCUS ON ORGANIC GROWTH …with increasing share of high value added products in MMK production MMK Group Steel Output Growth, th. tonnes MMK Group Increasing Share of HVA Products, th. tonnes 13 037 13 031 70% 12 195 11 941 11 937 12 158 12 000 11 158 11 419 11 060 60% 10 409 10 000 10 000 >45% 50%
Slide 15: Emphasized Direct Exposure to Niche Segments
2 EMPHASIZED DIRECT EXPOSURE TO NICHE SEGMENTS Strong positions in Pipe sector LDP & MDP Demand in Russia, m tonnes Mill 5000 Production Dynamics, th. tonnes 6 5,1 1 000 924 4,8 4,6 843 5 4,5 799 4,3 800 4 Demand for LDP remains strong 600 +9,6% 3 2,6 2,4 2,5 1,8 1,7 400 +5,5% Higher demand for 2 th
Slide 16: Maximising Share of Domestic Sales
3 MAXIMISING SHARE OF DOMESTIC SALES ... in order to enhance profit margins and reduce exposure to the seaborne market MMK Domestic and Export Sales, mln tonnes MMK Domestic Sales Structure, 2014 10 C/r steel H/r steel MMK organically grows its share in 39% Russian market while demand in export 9,6
Slide 17: Diversified Domestic Sales
3 DIVERSIFIED DOMESTIC SALES Top 8 customers, th. tonnes Top 10 Customers Share in Total Shipments, % 100% Autovaz; 106 ChTPZ; 578 16% Top eight Naberezhnoch Severski Pipe 75% customers account eln. Pipe Plant; 390 for only 24% of Plant; 238 MMK‟s shipments 60% 50% Lysvenski Total: 2,585 th. tonnes
Slide 18: Maintaining Good Progress Achieved in Self-Sufficiency
4 MAINTAINING GOOD PROGRESS ACHIEVED IN SELF-SUFFICIENCY Levels remain balanced across all business segments 2007 Self-sufficiency Level, % 2014 Self-sufficiency Level, % 100% 100% 15% 31% 75% 75% 63% 82% 90% 50% 100% 50% 100% 100% 85% 69% 25% 25% 37% 18% 10% 0% 0% Iron Ore Coal Scrap Electricity Ir
Slide 19: Achieving Quality Balance Sheet
5 ACHIEVING QUALITY BALANCE SHEET Continuous deleveraging • The group of focussed on achieving quality balance sheet by Healthy deleveraging, mln USD continuous deleveraging 4 000 • MMK has adopted a debt tolerance principle of Total Debt / EBITDA 2,99 <=2x at any time through the cycle 3,00 2,59 •
Slide 20: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 3 2. Business Overview 8 3. Strategic overview 12 4. Financial overview 20 5. Appendices 24
Slide 21: Financial Highlights
FINANCIAL HIGHLIGHTS Demonstrating relative financial strength Summary of key results Revenue growth continued into 2014, USD mln 2014 2013 2012 2011 11 500 9 306 9 328 9 500 Crude steel output, kt 13,031 11,941 13,037 12,195 7 719 8 190 7 952 7 500 Finished steel, kt 11,650 11,060 11,937 11,158 5 0
Slide 22: Prudent Financial Policy
PRUDENT FINANCIAL POLICY Target leverage <= 2.0x through Debt Tolerance Management’s commitment to Gross Debt/ EBITDA below 2x on a long-term basis the cycle Good relationship with banks and willingness to enter the bond market as an Liquidity and debt Cash on hand alternative source of funding mana
Slide 23: MMK Free Operating Cash Flow Generation
MMK FREE OPERATING CASH FLOW GENERATION Sound Free Operating Cash Flow Generation to support deleveraging Free Operating Cash Flow Generation Bridge 2012 – 2014, USD mln FY 2012 FY 2013 FY 2014 1400 1303 47 497 314 674 1200 1000 99 622 879 833 800 759 600 519 400 310 200 0 FFO 2012 WoC PPE FCF 2012
Slide 24: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 3 2. Business Overview 8 3. Strategic overview 12 4. Financial overview 20 5. Appendices 24
Slide 25: 2014 Achievements
2014 ACHIEVEMENTS MMK MC Dynamics, mln USD 1 Record > 1.6 bln USD EBITDA 2 577 2 500 -20% 2 Net debt down 1 bln USD 2 063 2 000 3 FCF yield ≈ 37% 1 500 Lost opportunity of FMG stake 4 1 000 sale in early 2014 500 Social life: Won Gagarin 5 Cup in ice hockey 0 01.01.2013 01.01.2014 IFRS Financial Sta
Slide 26: Historical EBITDA Dynamics
HISTORICAL EBITDA DYNAMICS • 2014 saw a record EBITDA, the highest since 2009. • Following a drop in 2013 – early 2014, quarterly EBITDA for the last three quarters was consistently higher than 2012-2014 average. • The process of adding new steel making capacities globally is slowing, which should r
Slide 27: High Capacity Utilisation
HIGH CAPACITY UTILISATION Key production indicators, ths tonnes • MMK Group finished steel products output in FY 2014 was up 9.9% y-o-y. This growth was driven by import substitution on the Russian Q4 '14 Q3 '14 % FY '14 FY '13 % market. Cast iron 2 476 2 629 -6% 10 280 9 586 7% • MMK Group High Val
Slide 28: Key Financial Highlights of MMK Group
KEY FINANCIAL HIGHLIGHTS OF MMK GROUP • Revenue for Q4 2014 decreased by 19.1% q-o-q to USD 1,727 million. The key factors were seasonal decline in sales volume and decrease in prices in dollar terms. • Revenue for FY 2014 decreased by 2.9% y-o-y. This was due to lower steel prices in 2014, which ar
Slide 29: Key Financial Highlights of MMK Group
KEY FINANCIAL HIGHLIGHTS OF MMK GROUP Quarterly EBITDA dynamics, mln USD 522 • MMK Group‟s EBITDA for Q4 2014 amounted to USD 392 mln, 490 with margin of 20.7%. The margin decreased by 1.7 p.p. q-o-q. 378 MMK Group‟s EBITDA for Q4 390 • MMK Group‟s EBITDA for FY 2014 increased by 31.4% y-o-y to 2014
Slide 30: Analysis of Key Financial Highlights
ANALYSIS OF KEY FINANCIAL HIGHLIGHTS MMK Group’s revenue, 2014 vs 2013, mln USD • The key factor affecting revenue in both Q4 2014 and FY 2014 was the rouble rate fluctuation vs the US dollar 622 -957 8 000 402 -341 36 • The cash-cost of slab decreased by 21.1% in Q4 2014 due to the decrease in pric
Slide 31: Decreasing Depreciation and Capex Support the Group's Profitability
DECREASING DEPRECIATION AND CAPEX SUPPORT THE GROUP’S PROFITABILITY • Deprecation costs in FY 2014 amounted to USD 746 mln, Lower depreciation costs decreases pressure on profit, mln USD down by more than 23% y-o-y 250 • It is expected that depreciation costs in dollar terms will 200 continue to dec
Slide 32: MMK Benefits from One of the Highest Free Cash Flow Yield in the Sector
MMK BENEFITS FROM ONE OF THE HIGHEST FREE CASH FLOW YIELD IN THE SECTOR, mln USD Free cash flow 759 -47 Market capitalisation as of 31.12.2014 2,063 1 500 -304 Free cash flow yield 36.8% 1 000 -497 1 607 1 256 500 759 0 EBITDA WoC Net financial cost, FFO PPE FCF 12m '14 tax, etc. Source: MMK IFRS Fi
Slide 33: Lower Capex for Higher Efficiency
LOWER CAPEX FOR HIGHER EFFICIENCY CAPEX structure in 2014, mln USD Planned CAPEX structure for 2015, mln USD Service 3% Service MMK Metalurji 3% Others Others MMK 2% 8% 7% Metalurji 2% Belon Belon 8% 9% ≈400 mln 497 mln MMK 79% MMK 79% Due to the absence of major investment projects in the investmen
Slide 34: High Operational Performance Supports Efficient Decrease of the Debt Load
HIGH OPERATIONAL PERFORMANCE SUPPORTS EFFICIENT DECREASE OF THE DEBT LOAD, mln USD • MMK Group‟s net debt as of the end of 2014 decreased by USD 988 mln compared to 31.12.2013. • At the end of 2014, net debt / EBITDA decreased to 1.27x, which the company sees as a comfortable level • In 2015, the co
Slide 35: MMK Group's Debt Profile
ММК GROUP’S DEBT PROFILE • Significant rouble devaluation in December 2014 resulted in Debt and cash funds structure by currency, mln USD further growth of the debt share denominated in USD – 59%. Debt C&CE + Bank deposit 3500 3 180 600 549 3000 3 • Volume of liquid funds in the MMK Group‟s balance
Slide 36: Comment on Market Situation
COMMENT ON MARKET SITUATION • In Q1 2015, demand for the company‟s products remains high, giving a forecast growth in sales of up to 3-4% q-o-q during the quarter. • The rouble price on the domestic market has been growing since November 2014, and has now reached export parity level. • Low global pr