Slide 1: Investor Presentation
Investor Presentation May 2014
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 2. Business Overview 3. Strategic overview 4. Financial overview 5. Appendix
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 Interkos-IV Profit Metals service center Covers 100% of MMK and stamped-product scrap needs. factory with 250 th. tpy capacity. 84% Belon 6% 3.6 mln tonnes of coking coal mined
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, 2013 Steel consumption is expected to be the highest in the CIS region Africa Americas 16% Europe 0,5% 0,4% 5,7% 12% Far East & 8% Asia 0,6% 4% Middle East Ru
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 vs. peer, USD/tonne 459 442 413 399 385 374 385 200 400 495 363 356 500 490 160 459 300 450 442 120 413 200 399 400 385 385 80 406 374 405 405 395 4
Slide 8: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 2. Business Overview 3. Strategic overview 4. Financial overview 5. Appendix
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 tonne
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, 2013FY 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 2012) Located in Belovo, Kemerovo Region, Russian Federation 25 23,4 40 Assets include 20 >30 >30 >30 17,5 30 o 3 underground
Slide 12: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 2. Business Overview 3. Strategic overview 4. Financial overview 5. Appendix
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 12 195 ≈12 600 11 937 ≈12 200 70% 11 941 12 000 11 060 11 419 11 158 10 409 60% 10 000 10 000 50% 8
Slide 15: Emphasized Direct Exposure to Niche Segments: Pipe Sector
2 EMPHASIZED DIRECT EXPOSURE TO NICHE SEGMENTS Strong positions in Pipe sector LDP Demand/Supply in Russia, th. tonnes Mill 5000 Utilization rates, th. tonnes 4 000 1 000 843 Demand for LDP remains strong 799 800 +6% 3 000 600 2 000 400 Higher demand for 1 000 thick plate in 2013 supported Mill 5000
Slide 16: Emphasized Direct Exposure to Niche Segments: Auto Industry
2 EMPHASIZED DIRECT EXPOSURE TO NICHE SEGMENTS Strengthening position in Auto industry Key Mill 2,000 specifications Light Vehicle Production in 2012, ‘000 units Capacity, th. tpa 2,000 10 000 9 940 Russia is on the way to Sheet width, mm 850-1,880 8 000 diminish the lag to developed countries Sheet
Slide 17: 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, 2013 9,0 H/r steel 8 MMK organically grows its share in C/r steel 38% Russian market while demand in export 1
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, % 2013 Self-sufficiency Level, % 100% 100% 15% 29% 75% 75% 64% 81% 90% 50% 100% 50% 100% 100% 85% 71% 25% 25% 36% 19% 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 <=2x at any time through the cycle • In order to man
Slide 20: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 2. Business Overview 3. Strategic overview 4. Financial overview 5. Appendix
Slide 21: Financial Highlights
FINANCIAL HIGHLIGHTS Demonstrating relative financial strength Summary of key results Revenue growth continued into 2013, USD mln 2013 2012 2011 2010 11 500 9 306 9 328 9 500 Crude steel output, kt 11,941 13,037 12,195 11,419 7 719 8 190 7 500 Finished steel, kt 11,060 11,937 11,158 10,409 5 081 5 5
Slide 22: Prudent Financial Policy: Key Management Considerations
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 2011 – 2013, USD mln FY 2011 FY 2012 FY 2013 1400 314 1200 1000 925 347 99 879 833 800 600 519 400 674 310 622 200 0 FFO 2011 WoC PPE FCF 2011 FFO 2012
Slide 24: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 2. Business Overview 3. Strategic overview 4. Financial overview 5. Appendix
Slide 25: High Level of Capacity Utilization
HIGH LEVEL OF CAPACITY UTILIZATION Key production indicators, ths tonnes • MMK Group finished steel products output in FY 2013 was 11 mln tonnes, down 7,3% y-o-y Q4 '13 Q3 '13 % 12M '13 12M '12 % Cast iron 2 364 2 331 1% 9 586 10 121 -5% • MMK Group High-Value-Added (HVA) steel products output in FY
Slide 26: Key Financial Highlights
KEY FINANCIAL HIGHLIGHTS • MMK Group sales for Q4 2013 were USD 1,869 million, flat q-o-q Q4 2013 revenue, million USD • MMK Group sales for FY 2013 were down 12% y-o-y due to a decline in 2300 1 877 1 869 output volumes and average steel prices in 2013 74 77 1800 133 168 • Revenue from high value a
Slide 27: Key Financial Highlights: EBITDA
KEY FINANCIAL HIGHLIGHTS EBITDA ММК Group for Q4 2013, million USD EBITDA ММК Group for FY 2013, million USD 312 1 363 20,0% 2 25,0% 86 1 4 1340 1 223 290 14 1 092 1140 131 20,0% 233 16,7% 15,0% 48 940 25 5 11 15,0% 190 12,4% 10,0% 740 14,6% 14,9% 293 540 1350 1019 1092 10,0% 218 90 5,0% 340 5,0% 14
Slide 28: Analysis of Key Financial Highlights
ANALYSIS OF KEY FINANCIAL HIGHLIGHTS • The key factor affecting MMK Group sales in 2013 was the decline in Analysis of MMK Group’s revenue, million USD average sales prices and production volumes 40 8 000 -685 • Cash cost of slab in Q4 2013 decreased 2% q-o-q to USD 356 due to -245 -50 -117 -41 impl
Slide 29: Balancing Book Value Through Impairment
BALANCING BOOK VALUE THROUGH IMPAIRMENT Fixed assets and Goodwill impairment, million USD Significant investments in fixed assets, million USD 2 500 2 307 2 500 2 209 42 2 112 270 Loss on disposal of 2 000 assets 2 000 279 Goodwill 1 613 1 500 507 1 500 Coal mining 1 154 1 000 1 000 Steel (Turkey) 6
Slide 30: MMK Group Debt Profile
MMK GROUP DEBT PROFILE Reduced debt burden, million USD CAPEX, million USD 3 000 4 000 4,0 Debt, adjusted by FMG stake value as of 31.12.2013 г. 3,0 801 3 000 3,0 2,6 2 000 2,5 2 000 3 992 2,0 3 518 3 026 1,8 1 819 1 000 1 000 2 225 1,0 1 010 0 0,0 0 154 31.12.2011 31.12.2012 31.12.2013 31.12.2013 L
Slide 31: MMK Group Capex
MMK GROUP CAPEX ММК Group CAPEX, million USD ММК Group 2014 CAPEX reduction, million USD 674 Growth due to early -8% 622 622 commissioning of blast furnace no. 54 600 6 in December 2013 68 42 600 70 8 80 4 400 400 +108% 270 15 544 552 23 496 200 130 200 8 17 3 232 102 0 0 Q3 13 Q4 13 FY 2012 FY 2013
Slide 32: Cash Flows, Million USD
CASH FLOWS, MILLION USD In FY 2013 MMK Group posted net loss in the amount of 2,429 million USD. The main reason for the loss was Impairment losses and provision for site restoration in the amount of 2,456 million USD. Cash inflow from Working capital in FY 2013 amounted to 99 million. Net Working C
Slide 33: FMG Stake – Additional Source of Liquidity
FMG STAKE – ADDITIONAL SOURCE OF LIQUIDITY mln t mln t USD 8,0 123 125 50 7,0 FMG‟s history, its proven ability to demonstrate an extraordinary pace of growth combined with stabilizing prices for 96 100 iron ore leave potential for the further rise in the company‟s share price 6,0 40 5,5 5,4 5,0 5,0
Slide 34: MMK's Profits Sensitivity to Ruble Devaluation
MMK‟S PROFITS SENCITIVITY TO RUBLE DEVALUATION ММК 2013 costs breakdown, million USD MМК ruble nominated costs, млн USD m USD Technological services 940 USD Industrial services 418 nominated 20% Axillary materials 169 Ruble Fuel 478 nominated 50% USD related Power 160 30% Salaries 373 Social expense