Severstal · RUS:CHMF
Severstal — Investor Day (November 2014)
54 slides from Severstal's investor day presentation, Nov 10, 2014
Slide 1: Delivering to Plan: Capital Markets Day
*% Severstal ve more together Delivering to Plan Capital Markets Day 10 November 2014
Slide 2: Disclaimer
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 projec
Slide 3: Today's Agenda
Today’s Agenda 1.15pm Presentations Christopher Clark, Chairman Alexey Mordashov, Chief Executive Officer Vadim Larin, Chief Operating Officer Alexey Kulichenko, Chief Financial Officer Q&A 3.30pm Coffee Reception
Slide 4: Today's Presenting Team
Christopher Clark Alexey Mordashov Vadim Larin Alexey Kulichenko Chairman of the Board Chief Executive Chief Operating Chief Financial of Directors Officer Officer Officer Today’s Presenting Team
Slide 5: Christopher Clark, Chairman of the Board of Directors
Introduction from Chairman of the Board Page 5 Christopher Clark Chairman of the Board of Directors
Slide 6: Corporate Governance
Il) s uf" y/ Corporate Governance Severstal >. S| —_
Slide 7: Corporate Governance development
Corporate Governance development New dividend policy demonstrates commitment to shareholders Dedicated to leading standards of corporate governance Balanced Board with half Independent Non-Executives Ronald Freeman and Peter Kraljic retired at AGM New independent Directors: • Philip Dayer;
Slide 8: Alexey Mordashov, Chief Executive Officer
Alexey Mordashov Chief Executive Officer
Slide 9: Developing to become the most efficient steelmaker globally
Developing to become the most efficient steelmaker globally
Slide 10: Delivery against strategic targets
Delivery against strategic targets Middle-to-the-left position of all our On integrated basis: Achieved Cost Position assets on the cost curve Individual assets: Strong progress Targeting cycle-average EBITDA Margins Delivered margin of c.20% FCF Stable positive free cash flow Delivered Mid-term tar
Slide 11: Three key pillars behind the delivery
Three key pillars behind the delivery 1 2 3 Relentless focus on Fundamental strengths Disposal of non-core cost-reduction and of our vertically assets to make the operational enhancements integrated business business more focused since 2010 model and streamlined Strong FCF and one of highest EBITDA
Slide 12: Maximizing shareholder returns
Maximizing shareholder returns Highlights The sold US assets Successful turnaround of the US steel portfolio $2.4bn proceeds received from the assets optimization: Dearborn Dearborn, Columbus, PBS Coals Premium valuation of divestments PBS Coals Implications for Severstal: • Lower net debt • E
Slide 13: Severstal post US assets disposal: one of the highest EBITDA margins
Severstal post US assets disposal: Ready to deliver one of the highest EBITDA margins globally Dynamics of Severstal’s EBITDA* and EBITDA Margin* 28% 23% 23% $636 $459 $506 Q1 2014 Q2 2014 Q3 2014 EBITDA, $mln EBITDA Margin, % * Excluding Severstal North America. Page 13
Slide 14: Further progress in efficiency and financial stability
Further progress in efficiency and financial stability EBITDA/tonne1, $ (1H 2014) EBITDA margin, % (1H 2014) Net debt/EBITDA (1H 2014)2 CSN Severstal Severstal 1st 318 23,1% ex-SNA 0,4 ex-SNA China Steel 2nd 197 CSN 1st 23,0% 1st 0,7 Salzgitter Severstal 189 Erdemir 2nd 20,6% Erdemir 2nd 1,1 ex-SNA
Slide 15: New dividend policy - further enhancing cash returns
New dividend policy - further enhancing cash returns Severstal is committed to predictable quarterly dividends The Company’s robust performance in 2014 and confidence in the outlook prompted the Board of Directors to modify Severstal’s existing dividend policy Following the Board resolution on
Slide 16: The market
Ly Severstal The market
Slide 17: Positive trends for steelmaking economics
Positive trends for steelmaking economics Steel price vs. raw material costs, Steel demand growth in 2014E, y-o-y, % USD/t of HRC 6% $800 $700 4% 3% 3% 3% $600 $271 $500 $274 1% $400 $265 $325 $300 $200 EU NAFTA MENA India ASEAN China $100 2011 2012 2013 2014E HRC price spread over raw materials Scr
Slide 18: Overcapacity remains a big issue for the industry
Overcapacity remains a big issue for the industry, while players start taking a more responsible stance Global steelmaking capacity utilization, % Trends 83% Global capex cuts 77% 77% Regional consolidation 75% Capacity restructuring in Europe 2000-2008 2009-2012 2013 2014YTD Reducing pipeli
Slide 19: Asset portfolio continues driving structural competitive advantage
Asset portfolio continues driving structural competitive advantage Cost advantage through One of the lowest steel Favorable logistics captive mining conversion costs globally Global slab production cost curve, $/t (September 2014) 600 550 Our mining Q3 2014 cash costs vs. global benchmark prices 500
Slide 20: Russian steel consumption is stable at record levels
Russian steel consumption is stable at record levels Russian finished steel consumption, mmt 46 +7% 43 43 44 42 40 41 35 36 25 1992 2007 2008 2009 2010 2011 2012 2013 2014E 2015F Source: Worldsteel Russia’s steel demand is at a 22-year-high and remains resilient Continuing imports substitution
Slide 21: Our next steps
Ly Severstal Our next steps
Slide 22: Strategy
Strategy Customer Lower costs Solid FCF & cash Care returns for shareholders Smart CAPEX Strong balance sheet Embedded culture of customer care & continuous improvement Page 22
Slide 23: Key areas of focus
Key areas of focus Market-leading service for domestic and international clients Customer focus and Quality improvements efficiency of sales Product enhancement Exploring further sources of cost efficiency across the production chain Operations - Burden optimization and consumption ratios
Slide 24: Sustainability
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Slide 25: Continuous improvement culture and involving leadership
Continuous improvement culture and involving leadership Performance review process covers 100% of the employees Mini MBA Program for senior managers of Severstal Ongoing training within our core program - Achieve More Together - for middle managers and those included in the Personnel Reserve.
Slide 26: Safety is our key priority
Safety is our key priority Strategic objective to eliminate all Lost Time Injury Frequency Rate (LTIFR) fatal accidents 1,76 Unified HSE policies at all assets 1,54 1,41 1,45 HSE is supervised by the Board of 1,00 Directors HSE Committee Identification and correction of unsafe production sit
Slide 27: Radical reduction of emissions at Cherepovets Steel Mill
Radical reduction of emissions at Cherepovets Steel Mill A large scale project to install filters at the BOF vessels of Cherepovets Steel Mill completed in October 2014: Total investment in the project is more than $100 mln All three BOFs upgraded Siemens VAI equipment Eightfold reduction of
Slide 28: Vadim Larin, Chief Operating Officer
Vadim Larin Chief Operating Officer
Slide 29: Looking for further operational enhancements
Looking for further operational enhancements
Slide 30: Our priorities are intact
Our priorities are intact Our priorities Key questions Low costs How are we going to continue cost reductions? Not run out of steam? Customer focus What are the “hard” changes we are implementing? Smart CAPEX Are there any new large projects? Do we stay within the limit? Page 30
Slide 31: EBITDA and EBITDA Margin improvements
EBITDA and EBITDA Margin improvements EBITDA, $m 2013 H1 2014 3Q 2014 Severstal Russian Steel 1,008 655 514 Severstal Resources 813 305 116 Group* 1,818 965 636 EBITDA Margin, % 2013 H1 2014 3Q 2014 Severstal Russian Steel 13% 18% 25% Severstal Resources 31% 29% 26% Group* 19% 23% 28% * Adjusted for
Slide 32: Vorkutaugol
Vorkutaugol Production back on the rise since Q3 2014. The causes for the decline in 2013 – 1H2014 have been managed (geological conditions at the Zapolyarnaya mine, consequences of the accident at the Vorkutinskaya mine in 2013) October 2ZH concentrate production is 410 kt, total cash cost is $
Slide 33: Karelsky Okatysh & Olkon
Karelsky Okatysh & Olkon Karelsky Okatysh Olkon Aggressive cost savings and weaker ruble The mine plan reviewed. At current price decreased cash cost by 25% in 2014 levels life of mine is 9 years @ 3.9 mt 4.5 mt of fluxed pellets produced with production Fe content increased from 63.7% to 66.0
Slide 34: Cherepovets Steel Mill – raising efficiency of hot metal production
Cherepovets Steel Mill – raising efficiency of hot metal production With the new pellets quality, upgraded coke battery and increased spread between pig iron and scrap we are returning back coke quality - CSR (coke hot strength) - to historical levels in 2015 with an estimated gain of $20 mln Th
Slide 35: Cherepovets Steel Mill - BOF and continuous caster process optimization
Cherepovets Steel Mill - BOF and continuous caster process optimization BOF yield target is 91% (+1%) through improved blowing and slag stopping. FeO content in slag is already declining Caster yield target is 98% (+1%) due to better scheduling and technical improvements Extra focus on quality
Slide 36: Purchasing process redesign
Purchasing process redesign Single purchasing organization: 45% of total purchases of Severstal are centralized from 2014 Single standards and processes Target effect is Backoffice is being centralized and moved to $150 mln. Yaroslavl Full effect is expected Category management revision: from
Slide 37: Customer Focus
Customer Focus Complete review of quality management process Product Quality Customer claims management Finishing mills capacity upgrade HRC mills OTIF in 2014 improved to 75% (+20% vs. 2013) for deliveries within a month On-time delivery Integrated Planning system launched in November – a
Slide 38: Investments in HVA production
Investments in HVA production Upgrade of HR Modernization of New HDG/Coating Mill-2000 the 4-stand CR Mill lines Effects: Effects: Effects: • HRC capacity to • CRC capacity to • HDG capacity to increase by 290 kt increase by 200 kt increase by 400 kt • Cost reduction • Cost reduction and • Coating c
Slide 39: Smart CAPEX
Smart CAPEX Continuous reduction of CAPEX Development projects in mining to be completed in 2015-2016 Selective investment in steel focused on efficiency/quality/high-return debottlenecking Prudent control over maintenance costs Total Capital Expenditures, $bn $1.4 $1.2 0.8 $0.9 0.6 $0.8 0.4 0
Slide 40: FCF – The ultimate goal
FCF – The ultimate goal Low costs Customer focus Strong FCF Smart CAPEX Page 40
Slide 41: Alexey Kulichenko, Chief Financial Officer
Page 41 Alexey Kulichenko Chief Financial Officer
Slide 42: Balanced Financial Policy
? Severstal Balanced Financial Policy
Slide 43: Financial priorities remain
Financial priorities remain Key financial goal: Sizable FCF generation for growing dividend payments and proactive debt reduction Financial priorities The effect Continuous Ongoing debt reduction with increased improvement at all dividend payment (50% payout) levels; non-stop Declining interes
Slide 44: US assets sale strengthen our financial profile
US assets sale strengthen our financial profile Revenues, $ mln EBITDA, $ mln EBITDA 28% Margin 19% 17% 3 253 3 192 636 606 2 240 543 Q2 2014 Severstal Q3 2013 Severstal Q3 2014 Severstal Q2 2014 Severstal Q3 2013 Severstal Q3 2014 Severstal with SNA with SNA post the SNA with SNA with SNA post the
Slide 45: FCF is our key focus
FCF is our key focus Free cash flow* Free cash flow* Free cash flow* generation generation in FY2012** generation in FY2013** in 9M 2014 1,728 1,377 1,384 Positive FCF of $807m Positive FCF 45 of $560m Positive FCF (622) 129 of $381m 88 (1,297) (1,084) OCF 2012 Capex 2012 Other adj. to FCF 2012 OCF
Slide 46: Proactive reduction of longer-term debt
Proactive reduction of longer-term debt All charts below are as of Q3 2014 As at 30.09.2014 the debt structure was dominated by public EUR RUB 5.0% 0.5% debt (80% of total) and the US dollar (94.5% of total). Debt Maturity Schedule*, $m USD 94.5% 1,165 Private 20% 709 Public 80% 579 414 Float 8% 457
Slide 47: Reduction in both gross and net debt
Reduction in both gross and net debt 1.8x 1.8x 1.6x 1.6x 1.5x 4,754 4,444 1.3x 3,718 3,860 3,528 3,552 3,080 4,001 4,173 3,695 3,329 0.4x 2,984 2,924 775 Q4 13 Q1 14 Q2 14 Q3 14 SNA portion, $m Total debt, $m Net debt, $m Net debt/EBITDA, x Net debt/EBITDA ex-SNA, x Highlights: Net debt/EBITDA is
Slide 48: Efficient cash management
Efficient cash management 3% 1% 9% 8% 4% 16% 13% 13% 21% 96% 97% 99% 87% 87% 91% 92% 84% 79% 31.12.2010 30.09.2011 31.12.2011 30.09.2012 31.12.2012 30.09.2013 31.12.2013 31.08.2014 30.09.2014 Cash in utilization (deposits, accounts accrued interest) Cash in operations Highlights: The share of cash
Slide 49: Working capital optimization
Working capital optimization Net working capital dynamics and turnover (figures exclude SNA) 17.6% 15.9% 14.5% 14.5% 13.9% 12.5% 64 11.6% 53 51 58 46 53 42 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Working capital turnover, days NWC/Revenue, % Highlights: Use of more complex tools with better paym
Slide 50: Achieved G&A target
Achieved G&A target G&A expenses development at Severstal (figures exclude SNA), $m 159 157 124 118 113 116 101 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Highlights: FY2014E annualized G&A of $404 mln is sustainable going forward FY2014E G&A of $404 mln represents the following reduction: • 38.6
Slide 51: Sensitivity to currency
Sensitivity to currency Position Effect* Revenues ~65% ruble denominated RUB outflow and inflow broadly All-in cost (COGS and SG&A) ~90% ruble denominated match CAPEX ~75% ruble denominated * Excluding Severstal North America. Neutral effect of FX on EBITDA due to high share of export shipments wi
Slide 52: CEO concluding remarks
CEO concluding remarks
Slide 53: Summary
Summary Severstal today is a very well focused and streamlined organization Progress to date reflects relentless focus on cost reduction and fundamental strengths of our business model Structural cost leadership is further re-enforced by rouble weakening We expect strong further upside from
Slide 54: Severstal
Severstal