NLMK · RUS:NLMK
NLMK — Investor Day (March 2019)
47 slides from NLMK's investor day presentation, March 2019
Slide 1: NLMK Group Strategy 2022
1 NLMK GROUP STRATEGY 2022 March 2019
Slide 2: Disclaimer
DISCLAIMER 2 This document is confidential and has been prepared by NLMK (the the industry in which the Company operates. By their nature, forwarding- “Company”) solely for use at the presentation of the Company and may looking statements involve risks and uncertainties because they relate to not be
Slide 3: Today's Speakers
TODAY’S SPEAKERS 3 Marjan Oudeman Oleg Bagrin Grigory Fedorishin Shamil Kurmashov Member of the Board of Member of the Board of CEO CFO Directors, Directors, Independent Director Chairman of the Strategy Committee
Slide 4: Agenda
AGENDA 4 8:30 CORPORATE GOVERNANCE IN FOCUS MARJAN OUDEMAN Independent Director 8:45 MAINTAINING LEADERSHIP OLEG BAGRIN Chairman of the Strategy Committee 9:00 STRATEGY 2022 HIGHLIGHTS GRIGORY FEDORISHIN CEO 9:30 BALANCED CAPITAL ALLOCATION SHAMIL KURMASHOV CFO 9:45 CONCLUDING REMARKS GRIGORY FEDORI
Slide 5: Corporate governance in focus
5 MARJAN OUDEMAN Independent Director Corporate governance in focus
Slide 6: Board Focus & Role
BOARD FOCUS & ROLE 6 Corporate governance is the • High corporate governance standards with highly engaged Board system of rules, practices and processes by which • Financial and non-financial reporting – a company is controlled and • Nomination and remuneration of the executive leadership directed
Slide 7: Board Composition Evolution
BOARD COMPOSITION EVOLUTION 7 NEW INDEPENDENT BOARD MEMBER • Ms. Marjan Oudeman joined the Board in June 2018 • Over 35 years of extensive experience in the steel industry and international business • Took senior executive positions at AkzoNobel, Corus Group, Hoogovens Group • Member of the Board of
Slide 8: High Corporate Governance Standards
HIGH CORPORATE GOVERNANCE STANDARDS 8 STRATEGY COMMITTEE HR COMMITTEE AUDIT COMMITTEE 66% >50% Independent Directors Expertise 100% experience in global 80% metals & mining 100% finance, Committees with strategy development 100% HR & general management compliance and risk 2/3 a majority of independe
Slide 9: Sustainable Development - Environment
SUSTAINABLE DEVELOPMENT - ENVIRONMENT 9 SPECIFIC AIR EMISSIONS WATER DISCHARGE NLMK has delivered significant progress on Kg/t of steel, NLMK integrated operations Kg/t of steel, NLMK integrated operations minimizing environmental impact 1.5 43.3 from its operations 50 1.6 45 1.4 40 1.2 1 35 22.3 20
Slide 10: Human Capital Development
HUMAN CAPITAL DEVELOPMENT 10 HR COMMITTEE REVIEWED AND APPROVED HUMAN CAPITAL DEVELOPMENT STRATEGY 2022 • Targeted 25%* increase in labor productivity across the Group • New processes to bring advanced management practices to the shop floor • Employee engagement at all levels to drive operational ex
Slide 11: Further Board Developments
FURTHER BOARD DEVELOPMENTS 11 FORWARD AGENDA ITEMS OF THE BOARD • Strategy 2022 delivery • Agenda beyond Strategy 2022 • Extending focus on Environmental, Social and Governance (ESG) & reporting in accordance with Global Reporting Initiative (GRI) • Board composition evolution
Slide 12: Maintaining Leadership
12 OLEG BAGRIN Chairman Strategy Committee of the Board of Directors Maintaining Leadership
Slide 13: Strategy 2017 Targets Recap
STRATEGY 2017 TARGETS RECAP 13 Strategy 2017 targets announced by Vladimir Lisin, Chairman of the Board, at NLMK Capital Markets Day, February 2014
Slide 14: Strategy 2017 – Key Objectives Achieved
STRATEGY 2017 – KEY OBJECTIVES ACHIEVED 14 2018 Target 2018 Actual PILLAR KEY METRICS 2013A 2018 Target 2018A gain, $ m gain, $ m o Slab cost reduction, $/t 1. Operational 329 -12 -24 +330 +701 o Productivity and yield Efficiency improvements in all operations 2. Resource o Iron ore concentrate outp
Slide 15: Strategy 2017 – Key Objectives Achieved
STRATEGY 2017 – KEY OBJECTIVES ACHIEVED 15 In 2014-2018, Strategy 2017 delivered $1,348 m STRATEGY NET GAINS RELATIVE TO TARGET, $ bn of net gains*, well above initial target by Objective by Source 1.35 1.35 1.6 Operational efficiency projects driven by NLMK 1.4 Market 0.1 1.4 Production System cont
Slide 16: Strategy 2017 – Key Objectives Achieved
STRATEGY 2017 – KEY OBJECTIVES ACHIEVED 16 LEVERAGE* BELOW TARGET STABLE HIGH FREE CASH FLOW*, $ bn Strategy 2017 execution resulted in strong 2.5 financial performance 2 Net Debt / EBITDA ratio 2.0 2.0 FCF was rising four years in a row supported 1.3 2 1.2 1.1 1.5 by earnings expansion and cost imp
Slide 17: Leading Positions – Growth, Profitability and Balance Sheet Strength
LEADING POSITIONS – GROWTH, PROFITABILITY AND BALANCE SHEET STRENGTH 17 #1 STEEL PRODUCER IN RUSSIA IMPRESSIVE PRODUCTION GROWTH NLMK is the largest steelmaker in Russia with 35% Share in 2018 Russian steel output 2018/2013 share of the country’s high value-added (HVA) products output 15% 20% 13% NL
Slide 18: Industry Trends – Slow Growth and Persistent Overcapacity
INDUSTRY TRENDS – SLOW GROWTH AND PERSISTENT OVERCAPACITY 18 Steel demand growth to slow MODERATE GROWTH OF GLOBAL STEEL CONSUMPTION, m t – Global consumption growth is set to drop CAGR 2000-2018 +4.3% CAGR 2018-2022 +0.8% from 4% pa in 2000-2018 to 1% pa until 2022 driven by less steel intensive gr
Slide 19: NLMK's Response to Global Industry Trends
NLMK’S RESPONSE TO GLOBAL INDUSTRY TRENDS 19 High level of diversification across products SALES BY PRODUCT*, 2018, % SALES BY REGION*, 2018, m t and markets – Mitigates exposure to and potential Russia total: 33% Russia profitability drops in specific segments Other 20% Russia: Flat 3.9 Europe regi
Slide 20: Strategy 2022 Builds on Strengths of Existing Platform
STRATEGY 2022 BUILDS ON THE STRENGTHS OF OUR EXISTING PLATFORM 20 LOW-COST GROWING Lowest steel production cost globally Growth across the integrated production chain Operational and process excellence Full self-sufficiency in key raw materials and energy SUSTAINABLE PREMIUM QUALITY Safe operations
Slide 21: Strategy 2022 highlights
21 GRIGORY FEDORISHIN CEO Strategy 2022 highlights
Slide 22: Low-Cost – Operational Targets
LOW-COST – OPERATIONAL TARGETS 22 GROWTH IN PRODUCTION THROUGH IMPROVED OPERATIONAL EFFICIENCY, m t Key focus areas of operational improvements with zero or minor capex Target effect 2018 – Production growth along integrated value chain +0.2 – Lower cost of steel - targeted slab cash cost +0.2 reduc
Slide 23: Low-Cost – Financial Targets
LOW-COST – FINANCIAL TARGETS 23 TARGET EBITDA GAIN BY 2023 VS 2018, BY AREA, $ m pa Target structural EBITDA gain of (+) $500 m pa 40 Production & technology Minor CAPEX requirements of $50 m 80 Logistics The largest gains to come from production +$500 m 40 Maintenance processes and technology 340 E
Slide 24: Growing – Operational Targets
GROWING – OPERATIONAL TARGETS 24 PRODUCTION VOLUMES, m t ‘No-regret’ growth project to increase steel Concentrate Pellets Steel, NLMK Lipetsk production to 14.2 m t pa (+1 m t) Base level Operational efficiency Investment – Continuous casting upgrade at NLMK Lipetsk - superior quality slabs 20.0 8.0
Slide 25: Growing – Financial Targets
GROWING – FINANCIAL TARGETS 25 TARGET EBITDA GAIN BY 2023 VS 2018, $ m pa Target structural EBITDA gain of (+) $300 m pa 30 +1 m t of integrated steel Targeted slab cash cost reduction of $9/t CAPEX requirement: $990 m +$300 m Captive power plant 100 170 – +1 m t of integrated steel: $510 m – Captiv
Slide 26: Premium Quality – Sales Targets
PREMIUM QUALITY – SALES TARGETS 26 TARGET SALES PRODUCT MIX IMPROVEMENT, m t Targeted total sales growth: +0.6 m t Commodity products HVA products 21.0 17.4 +1.0 +0.1 18.0 – Steel production growth 19.0 -0.5 17.0 – Structural sales of pig iron and billets to be 6.1 7.8 15.0 18.0 18.0 13.0 lower than
Slide 27: Premium Quality – Russia Flat & Long Sales Targets
PREMIUM QUALITY – RUSSIA FLAT & LONG SALES TARGETS 27 SALES TARGETS FOR SELECTED HVA PRODUCTS, RUSSIA FLAT, m t Russia Flat: New galvanizing line at NLMK Lipetsk HDG Pre-painted Electrical steels – Rising demand for coated products in Russia +35% +33% 0.8 – Additional HDG capacity of +0.4 m t to be
Slide 28: Premium Quality – Europe Strip & Plate Sales Targets
PREMIUM QUALITY – EUROPE STRIP & PLATE SALES TARGETS 28 EUROPE STRIP TARGET SALES, m t HR STEEL DEMAND FORECAST, EU-12, m t Europe Strip: Increased exposure to fast growing premium segments CAGR – Sales of thin and high-strength steel +0.6 m t. Thin-gauge 2.2 +6% 22.0 Wider accessible market, market
Slide 29: Premium Quality – Financial Targets
PREMIUM QUALITY – FINANCIAL TARGETS 29 TARGETED EBITDA GAIN BY 2023 VS 2018, $ m pa TOTAL REQUIRED CAPEX, 2019-2023, $ m Targeted structural EBITDA gain of (+) $450 m pa – 60% of the effect to be generated 40 Russia Flat 100 by the Russian divisions and 40% by 100 Russia Flat - Electrical 300 the Eu
Slide 30: Sustainable – Targets
SUSTAINABLE – TARGETS 30 GROUP SAFETY TARGETS, LTIFR*, EMPLOYEES & CONTRACTORS Safety development programs 1.96 – Safety culture programs & communications 1.60 – Contractors management 1.15 1.12 0.85 0.77 – Safety risk management 0.5 Targeted 35% drop in LTIFR relative to 2018 and zero fatalities Co
Slide 31: Strategy 2022 Enhances Competitive Advantages
STRATEGY 2022 AIMS AT ENHANCING THE COMPANY’S COMPETITIVE ADVANTAGES 31 LOW-COST GROWING Lowest steel production cost globally Growth across the integrated production chain Operational and process excellence Full self-sufficiency in + $500 m key raw materials and energy with minor capex + $300 m + 1
Slide 32: CEO's Remarks
CEO’S REMARKS 32 • NLMK is well positioned for the new strategic cycle and we plan to maintain our solid execution track record • We set an ambitious target to generate additional $1.25 bn of EBITDA through the implementation of Strategy 2022 • As we move towards our goals we will continue to mainta
Slide 33: Balanced capital allocation
33 SHAMIL KURMASHOV CFO Balanced capital allocation
Slide 34: Strategy 2017 Execution Resulted in Robust Balance Sheet and Strong FCF
STRATEGY 2017 EXECUTION RESULTED IN ROBUST BALANCE SHEET AND STRONG FCF 34 SOLID FCF AND EBITDA* DESPITE STRONG BALANCE SHEET*, $ bn EBITDA rose to 10-year high of MARKET TURBULENCE, $ bn $3.6 bn in 2018 following Net Debt / EBITDA Net debt Strategy 2017 implementation EBITDA FCF 3.6 2.8 4 3 3.5 1.9
Slide 35: Strategy 2022 Targets Additional $1.25 bn of EBITDA
STRATEGY 2022 TARGETS ADDITIONAL $1.25 BN OF EBITDA 35 BY STRATEGIC BY SOURCE: Targeted structural effect of Strategy 2022 OBJECTIVE: is extra $1.25 bn of EBITDA $1.25 bn $1.25 bn Operational Operational efficiency (no capex) to Premium quality contribute almost half of the target 0.45 0.57 B effici
Slide 36: The Group's Capex Outlook
THE GROUP’S CAPEX OUTLOOK 36 NLMK has guided for higher capex CAPEX, $ bn related to “no-regret” growth and 1.1 development: 0.4 0.9 – Large maintenance projects include BF and BOF overhauls in 2019-2020 0.6 0.7 0.4 0.6 ($0.25 bn of capex carried over from Development, Strategy 2022 0.1 0.3 prior ye
Slide 37: Investing in High-Quality Projects
INVESTING IN HIGH-QUALITY PROJECTS 37 Development capex under CAPEX & EFFECTS, $ bn Strategy 2022 to total $2.1 bn Investments Target IRR EBITDA effect Investment portfolio remains flexible $2.1 bn $0.7 bn pa 29% Focus is on low-risk projects that meet strict investment criteria Premium quality 1.1
Slide 38: Balanced Capital Allocation
BALANCED CAPITAL ALLOCATION 38 Capital allocation aimed at maximizing Current dividend New dividend total shareholder returns while policy policy preserving financial stability Base for calculation FCF and net income FCF Conservative financial policy Minimum payout if 50% of FCF – Target leverage ra
Slide 39: CFO's Remarks
CFO’S REMARKS 39 • NLMK enters new Strategic cycle with strong • The Group’s needs to maintain fixed assets and to financial profile as well as low leverage enable efficient development would be fulfilled • We will continue to adhere to a conservative • Higher capex requirements will not compromise
Slide 40: Concluding remarks
40 GRIGORY FEDORISHIN CEO Concluding remarks
Slide 41: Enhanced Value Creation Platform
ENHANCED VALUE CREATION PLATFORM 41 NLMK PLATFORM PROFITABILITY SHAREHOLDER ROBUST DEBT DISCIPLINED GROWTH RETURNS BALANCE SHEET CAPEX • Smart growth story • 100% FCF dividend payout • Low leverage • Investing in high quality projects • Well invested asset base • Transparent & consistent • Balanced
Slide 42: Strategy 2022 Is Balanced Across Different Dimensions
STRATEGY 2022 IS BALANCED ACROSS DIFFERENT DIMENSIONS 42 BY STRATEGIC OBJECTIVES BY SOURCE Operational efficiency & Premium sales portfolio management quality Low-cost Growing Investments BY CAPITAL ALLOCATION ✓ Net gains of $1.25 bn vs 2018 ✓ 100% FCF payout based on Growth Shareholder normalized c
Slide 43: Appendix
43 APPENDIX
Slide 44: Delivering on Our Promises – Strategy 2017 Targets Achieved
DELIVERING ON OUR PROMISES – STRATEGY 2017 TARGETS ACHIEVED 44 OPERATIONAL EFFICIENCY MARKET LEADERSHIP Slab cost reduction, $/t Shipments, m t Crude steel output, m t -$63/t, including 18 17.4 18.0 17.5 329 operational efficiency 17.5 17.5 16.3 350 16.3 17 17.0 effect of -$24/t 330 16.5 16.5 310 28
Slide 45: Key Assumptions
KEY ASSUMPTIONS 45 Key assumptions for long-term spread levels as well as prices for raw materials and steel are in line with average historical levels “SLAB – PELLET” SPREAD, $/t “SLAB – HCC” SPREAD, $/t average for the period 430 445 431 372 399 361 367 314 335 330 315 282 251 264 253 216 2013 201
Slide 46: Selected Projects' Sensitivity
SELECTED PROJECTS’ SENSITIVITY 46 $20/t change in $100/t change in HGO $20/t change in $20/t change in spreads and HF prices spreads spreads Growing Premium quality Premium quality Premium quality 500.0 500.0 500.0 600.0 510 450.0 450.0 450.0 500.0 400.0 400.0 400.0 350.0 350.0 350.0 35% IRR 400.0 2
Slide 47: Company's IR Contacts
COMPANY’S IR CONTACTS 47 Dmitriy Kolomytsyn, CFA Director, IR, Capital Markets Address 40, Bolshaya Ordynka Str., Bldg. 3 Moscow, 119017, Russia IR E-mail Address ir@nlmk.com Phone Number Office: +7 495 504 05 04 nlmkonair nlmk_group nlmk group