Nlmk · RUS:NLMK
Nlmk — Investor Day (March 2015)
33 slides from Nlmk's investor day presentation, Mar 30, 2015
Slide 1: NLMK Capital Markets Day
NLMK Capital Markets Day London 30 March 2015
Slide 2: Disclaimer
DISCLAIMER This document is confidential and has been prepared by NLMK (the “Company”) solely for use at the presentation of the Company and may not be reproduced, retransmitted or further distributed to any other person or published, in whole or in part, for any other purpose. This document does no
Slide 3: Today's Speakers
TODAY’S SPEAKERS HELMUT WIESER OLEG BAGRIN GRIGORY FEDORISHIN Independent President and Chief Financial Officer Director Chief Executive Officer 3
Slide 4: Agenda
AGENDA 8:30 DELIVERING ON STRATEGY 2017 OLEG BAGRIN President and Chief Executive Officer 9:00 FINANCIAL HIGHLIGHTS GRIGORY FEDORISHIN Chief Financial Officer 9:20 CORPORATE GOVERNANCE & HELMUT WIESER CONCLUDING REMARKS Independent Director 9:30 Q&A 4
Slide 5: Delivering on Strategy 2017
DELIVERING ON STRATEGY 2017 Oleg Bagrin President and Chief Executive Officer
Slide 6: Strategy 2017: Key Targets
STRATEGY 2017: KEY TARGETS TARGETED ANNUAL NET GAINS IN 2018 VS 2013: $1,000 M Leadership in 100 1 operational $330 m efficiency 230 $280 m 430 2 World-class $480 m resource base 50 40 Leading positions 3 in strategic $190 m Vladimir Lisin markets 150 Capital Markets Day, February 2014 Leadership in
Slide 7: Strategy 2017: 40% of Targeted Gains Realized in 2014
STRATEGY 2017: 40% OF TARGETED GAINS REALIZED IN 2014 TARGETED ANNUAL NET GAINS 2018 VS 2013: $1,000 M GAINS ACHIEVED IN 2014: $400 M 6 Leadership in 100 • Management 1 operational $330 m $204 m initiatives efficiency 230 Operational efficiency 198 target achieved $280 m $288 m 7 $• Investment pro
Slide 8: Targeted Operational Efficiency Gains Achieved
TARGETED OPERATIONAL 1 Leadership in operational efficiency EFFICIENCY GAINS ACHIEVED 2 World-class resource base • Flat Products division is a home to NLMK 2014 STRUCTURAL GAINS BY PROCESS* Production System $m o Productivity gains: +200 k t of pig iron, +150 k t of steel, Process technology +150 k
Slide 9: Operational Efficiency Is Managed as a Process
OPERATIONAL EFFICIENCY 1 Leadership in operational efficiency IS MANAGED AS A PROCESS 2 World-class resource base • NLMK Production System is being rolled out NUMBER OF LIVE OPERATIONAL across all divisions and production sites EFFICIENCY PROJECTS, 2013-2014 1,310 • Efficiency programs structure has
Slide 10: Rationalization of the European Division Continues
RATIONALIZATION OF THE 1 Leadership in operational efficiency EUROPEAN DIVISION CONTINUES • Restructuring in Europe in progress since 2009 EU FLAT PRODUCTS: o Full transition to re-rolling model, cost reduction FIXED COSTS EVOLUTION through operational efficiency programs €m o 2013: setup of NBH* an
Slide 11: Iron Ore Projects Environment
IRON ORE PROJECTS ENVIRONMENT 2 World-class resource base • Major episode of global iron ore market IRON ORE PRICES oversupply, leading to 50% price drop $/t 180 160 • Stoilensky mine competitiveness remains intact 140 o One of the lowest cost mining operations globally 120 100 o 90% of costs in rub
Slide 12: Iron Ore Expansion Plan Revised
$ IRON ORE EXPANSION PLAN REVISED 2 World-class resource base • Iron ore concentrate: more efficient growth IRON ORE CONCENTRATE CAPACITY, M TPA o Operational efficiency: +1.0 m tpa in 2014, +0.4 m tpa Initial Target Revised Target further potential 19.5 1.8 17.2 o Expansion project scaled down: deb
Slide 13: Strategic Markets Environment
STRATEGIC MARKETS ENVIRONMENT 3 Leading positions in strategic markets • International markets: global steel demand GLOBAL MARKET: APPARENT STEEL USE will grow by 0.6% in 2015 mt 1 537 +0.6% 1 546 o NLMK core markets in the EU, MENA and the US 1 528 +0.6% continue to grow showing stable demand 557 +
Slide 14: Diversified Sales and Balanced Product Portfolio
DIVERSIFIED SALES AND 3 Leading positions in strategic markets BALANCED PRODUCT PORTFOLIO • Flexible sales structure SALES STRUCTURE BY MARKETS, 2014 o Actively managed sales with exports share of 50-70% Russia o Wide exports geography of more than 70 countries 10% 3% Europe o In Q1’15 exports incre
Slide 15: Improved Utilization and Product Mix in Strategic Markets
IMPROVED UTILIZATION AND 3 Leading positions in strategic markets PRODUCT MIX IN STRATEGIC MARKETS • Benefiting from strong domestic demand in 2014 SALES IN RUSSIA o Russian sales up 14% yoy capturing local price premium mt 43% o NLMK Kaluga reached 100% capacity utilization 39% Pipes and tubes 6.6
Slide 16: Strong Progress in Safety and Sustainability
STRONG PROGRESS IN SAFETY 4 Leadership in sustainability AND SUSTAINABILITY and safety • Relentless focus on safe operating practices LTIFR*, RUSSIAN ASSETS o Russian operations LTIFR* down by 36% to global best practice level 0.86 0.87 0.83 • Further reduction of environmental footprint -36% 0.60 0
Slide 17: Strategy 2017: Strong Progress in 2014
STRATEGY 2017: STRONG PROGRESS IN 2014 NET ANNUAL GAINS VS. 2013 CAPEX REDUCTION $ bn $ bn Strategy 2017 target of $1.0 bn pa Strategy 2017 target of $0.9 bn pa 1,000 40% 1.5 400 0.56 0.55 Strategy 2017 2014A 2011-13 2014 2015-18E Target (by 2018) Average CONSERVATIVE LEVERAGE STABLE POSITIVE FCF* H
Slide 18: CEO Remarks
CEO REMARKS • Management delivered good progress on strategy execution with $400 m gains realized in 2014 • Future net gains target of $1bn unchanged • Increased contribution to come from operational efficiency projects as continuous improvement culture strengthens • Iron ore expansion capex cut by
Slide 19: Financial Policy
FINANCIAL POLICY Grigory Fedorishin Chief Financial Officer
Slide 20: Key 2014 Numbers
KEY 2014 NUMBERS • All time record steel output in 2014: EBITDA MARGIN 2012-2014 15.9 m t (+3% yoy) 30% 27% 27% o NLMK Kaluga ramp up 25% 21% o >100% utilization of steelmaking at Lipetsk site 18% 18% 20% 16% 16% 14% 14% 14% 14% • Steel sales up 2% yoy to 15.1 m t 15% 11% 10% • FY’14 financial resul
Slide 21: Free Cash Flow Growth
FREE CASH FLOW GROWTH • Structural growth in business profitability CASH FLOW TREND, 2011-2014 4 $ bn 14% 16% o >$500 m of annual net gains from operational 3 13% efficiency programs generated in 2013-2014 11% 2 4% 8% o Forthcoming gains from investment projects 3% 1.2 6% 1 1.8 1.8 0.4 1.7 0.4 1.2 3
Slide 22: Updated Capex Target
UPDATED CAPEX TARGET • Strategy 2017 development capex scaled down STRATEGY 2017 TOTAL REQUIRED CAPEX Initial Target Revised Target o -$0.6 bn: iron ore capex reduction $m o +$0.1 bn: new projects (IRR>35%) offset by ruble devaluation effect on capex o $0.8 bn to invested in 2015-2018 1 600 200 • Mi
Slide 23: Deleveraging Target Achieved
DELEVERAGING TARGET ACHIEVED FINANCIAL DEBT, YEAR END • Maintaining leverage at comfortable level $ bn 1.88 1.80 o Strategic target of Net debt / EBITDA of 1.0x achieved 8 1.49 Strategy 2017 2 target of 1.0 o No plans for further deleveraging 6 1 4 • Efficient debt structure 2 4.4 4.6 4.2 0.67 0 3.4
Slide 24: New Dividend Policy
NEW DIVIDEND POLICY • Quarterly dividend payments NEW DIVIDEND POLICY EXAMPLE • Based on Net income (non-cash) and $m Dividend yield Free cash flow (cash) indicators range* • Adjusts for leverage (Net debt/EBITDA) 5.8% 7.1% 1 155 • Net debt/EBITDA of 1.0x or less 934 o Dividend payout in the range o
Slide 25: CFO Remarks
CFO REMARKS • Cost control and operational efficiency to support profitability • Conservative capex with high return hurdles • No need for further deleveraging • Structurally higher free cash flow available for shareholders • New dividend policy to improve visibility of payments and to increase payo
Slide 26: Corporate Governance
CORPORATE GOVERNANCE Helmut Wieser Independent Director
Slide 27: Commitment to Solid Corporate Governance
COMMITMENT TO SOLID CORPORATE GOVERNANCE • Experienced and involved Board DIRECTORS' EXPERIENCE IN METAL & MINING • Three independent directors • Board committees meet on a regular basis 2 Over 30 years o Strategic Planning Committee o Audit Committee 16-30 years o HR, Remuneration and Social Polici
Slide 28: Leading Positions to Translate into Shareholders Returns
LEADING POSITIONS TO TRANSLATE INTO SHAREHOLDERS RETURNS IMPRESSIVE GROWTH STORY LARGEST STEELMAKER IN RUSSIA 1ST QUARTILE COST POSITION 2010-2014 Steel output growth 2014 Steel output, m t Global cost curve, Dec’14 600 $/t 50% 15.9 15.5 38% 13.8 500 40% 0.7 13.0 3.7 400 30% 2.5 300 20% 14% 15.3 13.
Slide 29: Leading Positions to Translate into Shareholders Returns
LEADING POSITIONS TO TRANSLATE INTO SHAREHOLDERS RETURNS GROWTH RATES 2014/2012 Crude steel output EBITDA Free cash flow 249% 137% 25% 18% 50% 7% 10% 8% 5% (0%) (2%) (9%) NLMK Russian peer 1 Russian peer 2 Russian peer 3 Source: Companies’ data, Bloomberg as of March’15 MARKET CAPITALIZATION EV/ EBI
Slide 30: Appendix
APPENDIX
Slide 31: Balanced Asset Portfolio
BALANCED ASSET PORTFOLIO NLMK USA Novolipetsk NLMK Kaluga Altai-Koks 1 mini-mill & 2 rolling mills NLMK Dansteel Coke: 2.6 m tpa Steel (EAF): 1.5 m tpa Steel: 0.8 m tpa Plates: 0.55 m tpa Steel: 12.5 m tpa Coke: 4.7 m tpa Longs: 0.9 m tpa Flats: 2.9 m tpa Flats: 5.9 m tpa Slabs RUSSIA 1.7 m t Moscow
Slide 32: NLMK Core Competitive Advantages
NLMK CORE COMPETITIVE ADVANTAGES • The largest steelmaker in Russia with 1st quartile DECEMBER 2014 SLAB PRODUCTION COST* costs and one of the highest profitability globally 600 $/t • Balanced and diversified production chain 500 o All upstream assets and 95% of steelmaking capacity 400 (75% BOF, 25
Slide 33: Investor Relations
Investor Relations Sergey Takhiev +7 985 760 55 74 tahiev_sa@nlmk.com