Nlmk · RUS:NLMK
Nlmk — Investor Presentation (November 2020)
53 slides from Nlmk's investor presentation, November 2020
Slide 1: Investor presentation November 2020
1 Investor presentation November 2020
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: Agenda
3 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 4: NLMK at a glance
NLMK AT A GLANCE 4 #1 producer in Russia* NLMK IS ONE OF THE LOWEST COST STEEL PRODUCERS LTM* FINANCIALS SNAPSHOT TOP-20 globally* 550 Sustained position over the last 15 years Strong positions on the domestic and global 500 $2.2 bn - EBITDA markets (i.e. #1 in global slabs trade, TOP-5 in 450 elect
Slide 5: Geography & business model
GEOGRAPHY & BUSINESS MODEL 5 Novolipetsk Coke: 2.6 m tpa Steel: 13,7 m tpa Flats: 6.0 m tpa NLMK USA NLMK Kaluga Russia Semis: 7.7 m tpa 1 mini-mill & 2 rolling Steel (EAF): 1.5 m tpa mills Longs: 0.9 m tpa Steel: 0.8 m tpa Moscow VIZ-Steel Denmark Flats: 2.9 m tpa GO steel flats: 0.2 m tpa NLMK Dan
Slide 6: Shipments: business model provides strong flexibility
LTM* SHIPMENTS: BUSINESS MODEL PROVIDES STRONG FLEXIBILITY 6 NLMK: HOME MARKET SALES WITH NBH*, m t ~61% OF SALES W/O NBH WERE FINISHED STEEL PRODUCTS 63% of NLMK’s sales were Russia made in markets where the Semis 35% Group operates (home 4.0 LDP feedstock 4% Europe markets) 23% HRC 21% 6.9 Finishe
Slide 7: Leadership in sustainability - key highlights
LEADERSHIP IN SUSTAINABILITY - KEY HIGHLIGHTS 7 NLMK’s key principles of sustainable development: NLMK IS THE UN GLOBAL COMPACT’S PARTICIPANT – Creating long-term shareholder value – Caring about health, wellbeing and development of employees ENVIRONMENT HEALTH & SAFETY – Treating environment respon
Slide 8: Market update
8 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 9: Macroeconomic update
MACROECONOMIC UPDATE 9 The spread of the virus affected all regions GDP DYNAMICS IN KEY REGIONS, yoy – China registered its first decline in GDP since 1992 in Q1’20, but recovered fast owing to significant Q3'20 Q4'20E 2020E 2021E fiscal and monetary support and is expected to be 8% 5% 6% 5% 10% the
Slide 10: Historical steel demand patterns, what to expect next?
HISTORICAL STEEL DEMAND PATTERNS, WHAT TO EXPECT NEXT? 10 Historically, every 1 p.p. change in global GLOBAL STEEL DEMAND DYNAMICS VS GDP GDP leads to a 2-3 p.p. change in apparent 20% 2009 2010 2016-17 CAGR steel consumption, on average -2% GDP +4% GDP +3% GDP 15% – This year, a 4% drop in global G
Slide 11: Market overview
MARKET OVERVIEW 11 In Oct-Nov, the sentiment continued to MANUFACTURING PMI STEEL DEMAND IN KEY REGIONS, Q3’20, QOQ improve in key regions except Russia, 60 Activity expansion where business activity was influenced 25.0% 22% 55 by high geopolitical uncertainty 20.0% 50 Steel demand and output improv
Slide 12: Russia: latest update on demand and pricing
RUSSIA: LATEST UPDATE ON DEMAND AND PRICING 12 Apparent domestic demand was down RUSSIAN STEEL DEMAND, % yoy RUSSIAN STEEL EXPORT PRICES, $/t 6.7% yoy during 9M’20 Slab, FOB Black Sea HRC, FOB Black Sea 8.7% 600 551 Domestic flat prices in RUB terms 9.0% 502 512 489 503 550 were marginally higher in
Slide 13: Russia: demand structure and share of imports
RUSSIA: DEMAND STRUCTURE AND SHARE OF IMPORTS 13 In 2009, the GFC shed almost APPARENT STEEL USAGE (ASU)* IN RUSSIA, m t 10 m t of Russian demand for steel. COVID-19 has had much smaller Long Flat excl. pipes substrate Tubes NLMK’s share in total consumption impact on steel consumption in 15% 16% 12
Slide 14: Prices continue to gradually rise
PRICES CONTINUE TO GRADUALLY RISE 14 Flat steel prices in Oct-Nov continued to HRC PRICES IN KEY REGIONS AND RUSSIAN EXPORT SLAB PRICES, $/t improve across key regions, reflecting uneven Q3'20 13/11/2020 % 13-Nov-20 vs. Q3’20 pace of recovery due to the Covid-19 pandemic 44% 22% 8% 14% 10% – In Chin
Slide 15: Strategy 2022 highlights
15 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 16: Strategy 2022 targets additional $1.25 bn of EBITDA
STRATEGY 2022 TARGETS ADDITIONAL $1.25 BN OF EBITDA 16 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 improvements (no World-class sales capex) to contribute almost half of the 0.45 portf
Slide 17: Investing in high-quality projects
INVESTING IN HIGH-QUALITY PROJECTS 17 Development capex under CAPEX & EFFECTS, $ bn Strategy 2022 to total $2.1 bn Development Target IRR Capex 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 World-class sa
Slide 18: Leadership in operational efficiency – operational targets
LEADERSHIP IN OPERATIONAL EFFICIENCY – OPERATIONAL TARGETS 18 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 - target
Slide 19: Leadership in operational efficiency – financial targets
LEADERSHIP IN OPERATIONAL EFFICIENCY – FINANCIAL TARGETS 19 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 pr
Slide 20: Growth in low-cost steel production – operational targets
GROWTH IN LOW-COST STEEL PRODUCTION – OPERATIONAL TARGETS 20 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 - sup
Slide 21: Growth in low-cost steel production – financial targets
GROWTH IN LOW-COST STEEL PRODUCTION – FINANCIAL TARGETS 21 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 integ
Slide 22: World-class sales portfolio – financial targets
WORLD-CLASS SALES PORTFOLIO – FINANCIAL TARGETS 22 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 - Electrica
Slide 23: World-class sales portfolio – Russia Flat & Long sales targets
WORLD-CLASS SALES PORTFOLIO – RUSSIA FLAT & LONG SALES TARGETS 23 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 1.4 1.4 1.2 +35% – Additional HDG capacity of
Slide 24: World-class sales portfolio – Europe Strip & Plate sales targets
WORLD-CLASS SALES PORTFOLIO – EUROPE STRIP & PLATE SALES TARGETS 24 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 ma
Slide 25: Leadership in sustainability and safety – targets
LEADERSHIP IN SUSTAINABILITY AND SAFETY – TARGETS 25 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 0.86 – Safety risk management 0.5 Targeted 35% drop in LTIFR relati
Slide 26: Strategy 2022 execution
26 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 27: Strategy 2022 – results snapshot
STRATEGY 2022 – RESULTS SNAPSHOT 27 Total effect from Strategy 2022 STRATEGY 2022 EFFECTS, $ m pa implementation amounted to $170 m during 9M’20 190 170 Contributions from the operational 150 46 efficiency programs have already exceeded our annual target of $100 m 170 130 124 110 Investment projects
Slide 28: Capital allocation
28 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 29: Dividend policy – maximizing shareholder value
DIVIDEND POLICY – MAXIMIZING SHAREHOLDER VALUE 29 Dividend policy remains intact DIVIDENDS, $ bn – Minimum 100% of FCF if 130% FCF payout ND/EBITDA is below 1.0x 153 % 113% 104% 102% 3 133 % – Minimum 50% of FCF if 84% 113 % 2 ND/EBITDA is above 1.0x 65% 93% 1.1 2 2.1 73% 26% 0.25 one-off dividend H
Slide 30: The Group's capex outlook
THE GROUP’S CAPEX OUTLOOK 30 CAPEX, $ bn 2020 CAPEX in the range of $1.1-1.2 bn Investments to peak in 2020-2021 due to 1.1-1.2 completion of large maintenance projects 1.1 Development, Strategy 2022 and active phase of Strategy 2022 0.9 execution 0.3 0.4 One-off maintenance 0.4 2020 capex estimate
Slide 31: NLMK's performance
31 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 32: Utilization rates dynamics
UTILIZATION RATES DYNAMICS 32 CAPACITY UTILIZATION, % Russian assets – NLMK Lipetsk site continues to Q2'20 Q3'20 Sept'20 run at 100% utilization 100% 100% 100% – Long products – capacity 92% 96% 85% utilization rates recovered owing 72% 76% 64% to the delayed demand effect and traditional construct
Slide 33: Q3'20 sales were supported by demand recovery in Russia
Q3’20 SALES WERE SUPPORTED BY DEMAND RECOVERY IN RUSSIA 33 Shipments increased by 2% qoq to SALES TO THE RUSSIAN MARKET RECOVERED SHARE OF FINISHED PRODUCTS INCREASED 4.4 m t mainly due to uptick in long +2% +2% steel sales 4.4 4.4 4.4 4.4 4.0 4.0 – Sales in Russia grew by 26% qoq 0.9 1.5 1.4 – Fini
Slide 34: Q3'20 – strong results despite market volatility
Q3’20 – STRONG RESULTS DESPITE MARKET VOLATILITY 34 Revenue recovered by 3% qoq due to higher deliveries and FCF, EBITDA AND MARGIN DYNAMICS improved sales mix 1,000 EBITDA stood at $579 m (-1% qoq): widening spreads and 0 27% 26% 900 ruble depreciation partially offset negative impact of an 25% 24%
Slide 35: Q3'20 profitability remained strong
Q3’20 PROFITABILITY REMAINED STRONG 35 Russian Flat products: EBITDA was $306 m (+1% qoq) EBITDA BY DIVISION, $ m – (-) Lower shipments amid the start of the second phase of 1200.0 1195.0 1190.0 1185.0 1180.0 1175.0 1170.0 1165.0 1160.0 1155.0 1150.0 1145.0 1140.0 1135.0 1130.0 1125.0 1120.0 1115.0
Slide 36: Q3'20 FCF reflects increased capex
Q3’20 FCF REFLECTS INCREASED CAPEX 36 Net operating cash flow rose by 8% qoq to $591 m Q3’20 FCF BRIDGE, $ m due to working capital release 0 100 200 300 400 500 600 700 800 EBITDA 579 Working capital release amounted to $98 m – (-) $37 m: increase in receivables due to Net working capital change +9
Slide 37: Strong debt portfolio and liquidity position
STRONG DEBT PORTFOLIO AND LIQUIDITY POSITION 37 Total debt down 5% qoq to $3.2 bn LIQUIDITY AND SHORT-TERM DEBT, $ m DEBT* MATURITY, $ m following scheduled repayment of working capital lines Working capital lines ECA lines Eurobonds Net debt / 12M EBITDA stood at 0.87x 1,486 Available – Net debt ro
Slide 38: Appendix
38 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 39: NLMK key highlights
NLMK KEY HIGHLIGHTS 39 Steel capacity utilization is STEEL PRODUCTION, m t above 90% through the Crude steel output Capacity utilization cycle 98% 99% 18.0 105% 95% 95% 95% 17.5 94% 100% Steel output growth in 17.0 93% 92% 95% 2013-2018 driven by 16.5 efficiency improvements 17.5 16.0 90% 15.5 16.6
Slide 40: Sales in Russia
SALES IN RUSSIA 40 NLMK holds leading positions NLMK: SALES TO THE RUSSIAN MARKET NLMK: FLAT STEEL SALES IN RUSSIA, m t in Russia in HVA production by sector by product type 6,000 100% 4,979 4,643 22% Pipe producers 4,130 4,089 4,243 4,413 5,000 The company has exposure to 80% 27% Semi-finished 3,79
Slide 41: Sales & export structure
SALES & EXPORT STRUCTURE 41 NLMK - EXPORTS FROM RUSSIA BY PRODUCT, LTM, m t NLMK GROUP - SALES BREAKDOWN W/O NBH, LTM, m t RUSSIA: 39% Slabs to captive assets 1.1 0.8 Russia flat 0.8 Slabs to NBH 29% 24% Russia long 2.0 Semi-finished products Russia slabs 0.5 17.5 m t 9.2 m t Longs Europe 11% HRC US
Slide 42: NLMK has limited exposure to trade barriers
NLMK HAS LIMITED EXPOSURE TO TRADE BARRIERS 42 Significant portion of NLMK’s exports and total shipments is not subject to import 95% OF NLMK’S EXPORTS FROM RUSSIA WAS NOT SALES BY REGION**, LTM, m t restrictions SUBJECT TO IMPORT RESTRICTIONS, LTM, m t – Semis are usually not subject to trade Semis
Slide 43: Foreign assets performance
3,5 00 FOREIGN ASSETS PERFORMANCE 1,2 00 43 3,0 00 1,0 00 SLABS SALES FROM THE RUSSIAN FLAT PRODUCTS DIVISION, k t NBH ROLLED PRODUCTS SALES, k t 2,5 00 800 2,0 00 QoQ QoQ 1,571 600 6 537 Total -1% 1,290 126 1,314 Total -16% 6 468 5 461 80 CRC 1,5 00 119 102 53 CRC -12% 472 Dansteel & 74 NLMK Danste
Slide 44: Recognition of NLMK's results in the area of sustainability
RECOGNITION OF NLMK’S RESULTS IN THE AREA OF SUSTAINABILITY 44 Continuous improvements across the board resulted in Out of 100 Out of 100 NLMK’s ESG ratings upgrades 90 77 83 by the leading research 45 80 36 53 50 33 70 agencies in the area of 45 60 40 22 35 50 sustainability 30 40 25 30 20 15 20 10
Slide 45: NLMK's tailings dam – safety is number one priority
NLMK'S TAILINGS DAM – SAFETY IS NUMBER ONE PRIORITY 45 DAM SAFETY is ensured by multi – level checks REGULAR EXTERNAL CHECKS NLMK’s tailings dam was put into operation in 1984 (weekly, monthly and annual checks by state bodies) Tailings dam development plan was independently audited Emergency prepar
Slide 46: Less reliance on volatile commodity markets
LESS RELIANCE ON VOLATILE COMMODITY MARKETS 46 Gradual decline in reliance on volatile iron IRON ORE BALANCE, m t COST OF SALES STRUCTURE ore market 4.9 4.6 4.3 1% 1% 4.0 3.7 Other energy 3.4 – No iron ore supplies to the third parties in 3.1 2.8 4.2 2.5 3% 2.2 0.0 resources 1.9 2017 - 2018 after th
Slide 47: Exposure to FX rates
EXPOSURE TO FX RATES 47 Revenue/cost FX split provides FINANCIAL RESULTS AND BALANCE SHEET CURRENCY STRUCTURE, AS AT 30 SEPTEMBER 2020 a solid cushion in volatile 100% commodity prices fluctuation 30% 90% 80% 40% 70% 55% Foreign currency 60% 50% 100% 95% NLMK’s EBITDA sensitivity to 70% 40% 30% 60%
Slide 48: Coal prices and implications for NLMK
COAL PRICES AND IMPLICATIONS FOR NLMK 48 Russian coal market is RUSSIAN COAL PRICES ARE 40% LOWER VS GLOBAL NLMK’S CASH COST OF SLABS oversupplied with 30% of $/t output exported… 400 Average discount c. 40% Consolidated Non-consolidated 350 – … hence, Russian coking Coking coal, China 331 329 333 3
Slide 49: Steel imports in Russia
STEEL IMPORTS IN RUSSIA 49 Ukraine is the main LTM* FLAT STEEL IMPORTS, k t LTM LONG AND SEMIS STEEL IMPORTS LTM TOTAL IMPORTS (excl. pipes), k t steel importer into (excl. pipes), k t Belarus S. Korea Russia (41% of imports EU EU 193 Others 192 LTM), particularly of 392 113 335 long products China
Slide 50: Strategy 2017 – key objectives achieved
STRATEGY 2017 – KEY OBJECTIVES ACHIEVED 50 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 51: NLMK Group's global production chain
NLMK GROUP’S GLOBAL PRODUCTION CHAIN 51
Slide 52: Key financials
KEY FINANCIALS 52 ($ m) 2014 2015 2016 2017 2018 2019 LTM ($ m) 2014 2015 2016 2017 2018 2019 LTM Income Statement Balance Sheet Revenue 10,396 8,008 7,636 10,065 12,046 10,554 9,172 Cash 1,102 1,515 1,508 1,358 1,184 870 1,256 Cost of sales (7,389) (5,496) (5,074) (6,798) (7,680) (7,303) (6,258) In
Slide 53: Company IR contacts
COMPANY IR CONTACTS 53 Dmitriy Kolomytsyn, CFA Director, Corporate Finance, IR Ekaterina Kokareva, CFA Head of IR 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