Mmk · RUS:MAGN
Mmk — Investor Presentation (February 2015)
30 slides from Mmk's investor presentation, February 2015
Slide 1: MMK Corporate Presentation
MMK Corporate Presentation February 2015
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 3 2. Business Overview 8 3. Strategic overview 12 4. Financial overview 20 5. Appendices 24
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 Profit Covers 100% of MMK Belon scrap needs. 3.7 mln tonnes of 82% coking coal mined in 2014. Covered 37% of MMK needs in coal concentrate in 2014 6% MMK Metalurji >1% 10% 2.3 m
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, 2014 The portion of Russian & CIS sales has been gradually increasing Americas 100% Africa 1% 16% 18% 1% 23% 31% 33% 75% Europe 6% 50% 84% 82% Middle East Rus
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, USD/tonne 459 442 413 399 385 400 385 374 363 356 200 337 322 495 308 500 490 160 300 450 459 120 442 200 413 80 399 400 385 385 374 100 363 356 40
Slide 8: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 3 2. Business Overview 8 3. Strategic overview 12 4. Financial overview 20 5. Appendices 24
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 tonnes
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, 2014FY 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 2013) Located in Belovo, Kemerovo Region, Russian Federation 35 >30 >30 >30 Assets include 30 25 23,4 o 3 underground mines:
Slide 12: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 3 2. Business Overview 8 3. Strategic overview 12 4. Financial overview 20 5. Appendices 24
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 13 031 70% 11 937 12 158 12 195 11 941 12 000 11 060 11 419 11 158 60% 10 409 10 000 10 000 50% 45%
Slide 15: Emphasized Direct Exposure to Niche Segments
2 EMPHASIZED DIRECT EXPOSURE TO NICHE SEGMENTS Strong positions in Pipe sector LDP & MDP Demand in Russia, m tonnes Mill 5000 Production Dynamics, th. tonnes 6 5,1 1 000 924 4,8 4,6 843 5 4,5 799 4,3 800 4 Demand for LDP remains strong 600 +9,6% 3 2,6 2,4 2,5 1,8 1,7 400 +5,5% Higher demand for 2 th
Slide 16: 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, 2014 10 H/r steel MMK organically grows its share in C/r steel 9,6 12% 39% 8 Russian market while demand in e
Slide 17: 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, % 2014 Self-sufficiency Level, % 100% 100% 15% 31% 75% 75% 63% 82% 90% 50% 100% 50% 100% 100% 85% 69% 25% 25% 37% 18% 10% 0% 0% Iron Ore Coal Scrap Electricity Ir
Slide 18: 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 19: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 3 2. Business Overview 8 3. Strategic overview 12 4. Financial overview 20 5. Appendices 24
Slide 20: 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 21: Prudent Financial Policy
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 22: 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 23: Table of Contents
TABLE OF CONTENTS 1. MMK at a Glance 3 2. Business Overview 8 3. Strategic overview 12 4. Financial overview 20 5. Appendices 24
Slide 24: Historical EBITDA Performance
HISTORICAL EBITDA PERFORMANCE • EBITDA performance shows that the bottom of the cycle has been passed. • Q3 2014 EBITDA is the highest for the last several years. • The process of adding new steel making capacities globally is slowing down which should result in recovery of the steel industry due to
Slide 25: High Level of Capacity Utilisation
HIGH LEVEL OF CAPACITY UTILISATION Key production indicators, ths tonnes • MMK Group finished steel products output in 9M 2014 was Q3 '14 Q2 '14 % 9M '14 9M '13 % up 11.4% y-o-y. This growth was driven by import substitution on the Russian market. Cast iron 2 629 2 571 2% 7 804 7 223 8% • MMK Group
Slide 26: OJSC MMK Average Prices by Markets
OJSC MMK AVERAGE PRICES BY MARKETS • Due to the high share of more expensive HVA products in MMK’s domestic sales, the difference between average domestic price and average export price in Q3 2014 recovered to 175 USD per tonne, but is still below 2011-2012 levels. MMK’s average price, USD/tonne 1 0
Slide 27: Analysis of Key Financial Highlights
ANALYSIS OF KEY FINANCIAL HIGHLIGHTS • Net profit for Q3 2014 amounted to USD 26 million, resulting in a profit Net profit/loss y-o-y, million USD for 9M 2014 of USD 106 million. • During 2014, net profit was mainly affected 40 by non-cash FX effect. Excluding this factor, net profit was USD 222 mil
Slide 28: MMK Group Debt Profile, mln USD
ММК GROUP DEBT PROFILE, MLN USD • Net debt at the end of 9M 2014 was USD 673 million lower compared to the end of 2013. • Net debt/EBITDA ratio as of the end of 9M 2014 decreased to 1.54x, which is already lower than the level considered to be comfortable for the company. 3,5 3,0 4 000 3,0 2,6 2,5 2
Slide 29: MMK Group Debt Profile
MMK GROUP DEBT PROFILE • Dollar-denominated debt prevails in the debt structure with a 53% Reduced debt burden, million USD share. Debt C&CE • Volume of liquid funds in the MMK Group’s balance sheet exceeds the short-term debt. RUB 27% • Debt maturity schedule does not presume any significant one-ti
Slide 30: MMK Group Capex
MMK GROUP CAPEX ММК Group CAPEX, million USD • In Q3 2014, MMK Group’s capex amounted to USD 112 million, down 25.3% q-o-q. 300 • Depreciation for 9M 2014 amounted to USD 594 million, down more than 18% y-o-y. 393 m USD 200 270 100 150 130 130 131 112 91 0 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q