Nlmk · RUS:NLMK
Nlmk — Troika Dialog Conference The Russia Forum 2011
35 slides from Nlmk's conference presentation, Feb 3, 2011
Slide 1: NLMK Troika Dialog Conference The Russia Forum 2011
NLMK TROIKA DIALOG CONFERENCE THE RUSSIA FORUM 2011 Moscow, 3 February 2011
Slide 2: Disclaimer
Disclaimer This document is confidential and has been prepared by NLMK (the “Company”) solely for use at the investor 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 documen
Slide 3: Agenda
1. Company overview 2. Market trends and performance 3. Sustainable growth strategy 4. Outlook 5. Appendixes 3
Slide 4: NLMK: Business profile
NLMK: Business profile Profitability leadership maintained Balanced portfolio of assets EBITDA per tonne, NLMK vs Russian peers 500 USD 375 400 Favorable geographic locations 302 268 269 300 243 234 183 180 168 166 200 Efficient vertical integration 70 117 84 102 100 35 0 Diversified sales and produ
Slide 5: NLMK: balanced and favorably located assets
NLMK: balanced and favorably located assets Russian production platform enhanced with international assets Usinskoe-3 Coking coal deposit Sharon Coating Dan Steel Kaluga mini-mill NLMK Long products Zhernovskoe (under Novolipetsk HDG Thick plate: (under Steel : 1.7 m t construction) Steel: 8.4 m t 0
Slide 6: Efficient vertical integration
Efficient vertical integration Ensures cost advantage in raw materials supply Iron ore: 100% for 190 years Vertical integration cash cost reduction effect, Q3 2010 500 USD/t Coke: over 100% with modern facilities 450 417 Iron ore 400 Coke Other raw Scrap: becoming the largest collector in Russia 350
Slide 7: Production costs
Production costs Constantly one of the best Q2 2010 cost position Average steel cash cost by region o Coking coal dynamics impacted on slab cost increase 550 USD/tonne 500 to $325/t (+13.6% q-o-q) 450 o Billet cost remained largely flat (q-o-q) 400 350 300 Q3 2010 cost position 250 200 o Strict cost
Slide 8: Market trends and performance
1. Company overview 2. Market trends and performance 3. Sustainable growth strategy 4. Outlook 5. Appendixes 8
Slide 9: Diversified sales and product mix
Diversified sales and product mix Timely response to improved market environment Wide product mix with strong value-added share Q3’10: Diversified sales structure Pig iron Flexible export/domestic markets balance 5% 13% Slabs and billets 2% 2% Hot rolled Dynamic export market strategy 3% 30% Cold ro
Slide 10: NLMK in the global market environment
NLMK in the global market environment Resilience to challenging market through the last 10 years Market diversification ensures higher sales Steel prices are supported by costs of raw materials… 600 Av. HRC price in 2009 Group can gain from low markets as a low cost 550 500 producer 450 400 Slab sal
Slide 11: Steel outlook
Steel outlook China’s continuous growth is a support factor Global steel demand 1600 1496 Million t 1431 Low inventories reflecting concerns over price 1400 1272 1340 1199 volatility 1200 1125 1000 Steel demand is growing driven by developing 800 nations 600 400 Raw materials play today much more im
Slide 12: Financial highlights
Financial highlights Exceptional performance and confident outlook Robust performance in Q3 2010 Debt maturities pay-off as of the end of Q3 2010 o Revenue USD2.232 billion, +4% q-o-q $ million 900 o EBITDA USD695 million, -10% q-o-q o EBITDA margin 31% 600 Strong financial position o USD1.148 billi
Slide 13: Sustainable growth strategy
1. Company overview 2. Market trends and performance 3. Sustainable growth strategy 4. Outlook 5. Appendixes 13
Slide 14: Sustainable growth strategy
Sustainable growth strategy A leading producer in Russia in terms of organic development Strategic goals CAPEX* vs reinvestment rate ** o Expanding low cost steel production platform 2.00 1.93 4.5 USD, billion o Improving quality and product mix 1.60 4 o Developing upstream assets 1.50 3.5 3 1.12 0.
Slide 15: M&A approach
M&A approach Pursuing strategic objectives through prudent M&A approach Downstream vertical integration Iron ore price vs cash cost* 100 o Securing slab processing USD/t o Improving earnings quality 75 o Technology transfer 50 o Market expansion 25 Niche market share gains 0 o Commercial synergies d
Slide 16: Duferco JV
Duferco JV … A solid part of downstream integration strategy JV rationale Slab supply flows to JV o Increase presence in the key company markets o Diversify product and market portfolio Operating and financial performance o Break-even in 2010 with further improvement in 2011 o Sales in 2009 – 2.8 ml
Slide 17: Project: BF Production
Project: BF Production BLAST FURNACE Iron production capacity (Lipetsk) o Location: Lipetsk 14.0 Установка 12.4 12.0 «печь- o Status: over 80% complete 9.4 BF #7 launch in 10.0 ковш» mid-2011 o Capacity: 3.4 m t pa 8.0 6.0 PCI TECHNOLOGY INTEGRATION* 4.0 2.0 o Launch date: Q4 2011 – Q1 2012 0.0 o To
Slide 18: Project: Steelmaking
Project: Steelmaking LADLE FURNACES and VACUUM DEGASSER o Location and installation date: Lipetsk site, 2010-11 Ladle Furnace o Improved quality o New grades of steel, incl. for machinery and automotive GAS EXHAUST DUCTS o Lipetsk site, 2010 o Reduced environmental impact o Higher equipment reliabil
Slide 19: Project: Rolling Capacities
Project: Rolling Capacities EXPANSION OF HRC PRODUCTION Flat steel for the Russian market o Location: Lipetsk 60% Установка o Capacity growth: +400,000 tonnes by 2014 50% «печь- Completed 40% ковш» EXPANSION OF PLATE PRODUCTION 30% 55% o Location: DanSteel (Denmark) 20% 40% o Capacity growth: +70,00
Slide 20: Project: High Grade Transformer Steel
Project: High Grade Transformer Steel PRODUCTION UPGRADES AT NOVOLIPETSK Transformer steel upgrade 400 ‘000 High-permeability transformer o Status: 80% complete tonnes steel production 350 60 Possible o 60,000 t pa of high-permeability transformer steel 300 further 250 expansion of o Total investmen
Slide 21: Project: Long Products
Project: Long Products KALUGA MINI-MILL (EAF) Steel and Finished product capacity 4.0 mt 3.8 o Location: Kaluga region (80 km from Moscow) o Capacity: 1.55 m t pa 3.0 2.2 100% o Total investments: c. $1.2 bn 2.0 finished 80% products o Extended output of construction steel 1.0 finished products 0.0
Slide 22: Project: Iron Ore Production
Project: Iron Ore Production OPEN PIT EXPANSION Iron ore concentrate production capacity 15.0 mt o Location: Stoilensky (Stary Oskol) o +30% growth in iron ore raw extraction 14.0 +2mt o Goal: maintain 100% self-sufficiency in low cost 13.0 iron ore 12.0 BENEFICIATION PLANT, 4th SECTION 11.0 o Locat
Slide 23: Outlook
1. Company overview 2. Market trends and performance 3. Sustainable growth strategy 4. Outlook 5. Appendixes 23
Slide 24: Outlook
Outlook Q4 10 Outlook o Crude steel production and steel products sales to reach 3 m t o Average sales prices to reflect seasonality trends o Production cost to increase due to the seasonal restocking of scrap inventories and growing prices for coking coal o EBITDA margin will be in the range of 20-
Slide 25: Appendixes
1. Company overview 2. Market trends and performance 3. Sustainable growth strategy 4. Outlook 5. Appendixes 25
Slide 26: Sales trends
Sales trends Domestic market recovered Sales to the domestic market recovering HRC price cycle: China FOB vs Russia export FOB o Q3 ‘10: Domestic sales of 35% (+3.p.p. q-o-q) 800 700 Sales growth to developed markets 600 Russia FOB 500 o 22% and 17% of overall sales goes to Europe and USA China FOB
Slide 27: Global market environment: China
Global market environment: China Steel production and exports in China are capped by Steel inventories in China o High cost of production 10000 ,000 t USD/t 1000 o Government successful efforts to restructure steel 9000 YTD11% growth industry 8000 850 • Banning construction/expansion of steel capaci
Slide 28: Global market environment: Europe
Global market environment: Europe Inventory low EU: HRC and slab price dynamics o Lean inventory management to cap substantial 800 inventory rebuilding 700 USD$/t o ...current European stock level is well below historical 600 average 500 Demand mixed 400 300 o Prices are about to increase driven by
Slide 29: Global market environment: USA
Global market environment: USA Stocks: restocking is almost complete USA: HRC and slab price dynamics o Stock levels are growing but still below historical 800 USD$/t 700 average 600 Supply balancing 500 o July ‘10 utilization rate grew to 75% (up from 44% in 400 H1 ’09) with the decline in the firs
Slide 30: Russian economy
Russian economy Stabilization continues Inflation remains low Russia: PMI, monthly o Annualized 2010 inflation is expected to be c7%* 55.0 Driven by, mainly, domestic demand 50.0 Interest rates are stable 45.0 40.0 o RR unchanged at 7.75% (-4.7 p.p. lower y-o-y) 35.0 o Growth in mortgage loans up to
Slide 31: Domestic steel sector
Domestic steel sector Domestic steel consumption bounces back CIS: HRC and slab price dynamics o YTD2009 ASU is 31% higher y-o-y 800 USD$/t 700 Low cost position benefits exports 600 o Russian steelmakers benefit from vertically integrated 500 model and high efficiency 400 300 200 Slab FOB Black/ Ba
Slide 32: Domestic market: Construction
Domestic market: Construction Steady revival in the most important segment Construction sector recovery in 2010 Mortgage loans dynamics o Growth in real estate investments in 2010 (+52% y-o-y ) 50 RUR bn 16% 42 Strong upward trend in construction sector’s steel 40 36 39 14% 33 32 consumption 30 28 2
Slide 33: Coal supplies
Coal supplies … risk mitigation Key risks Coal price vs EBITDA per tonne 800 o Growing prices to increase overall cash cost $/t 700 Risks mitigated by 600 o Diversified supplier base 500 o Integration into coke operations 400 300 o Option to develop own coal deposit 200 o Diversified business model
Slide 34: Transformer steel
Transformer steel Sustainable performance in the high margin high end sector Transformer steel market Transformer steel sales vs prices 4,000 400 o Dominated by 6 large producers USD/t ‘000 tonnes 3,500 350 o High entry barriers due to advanced technology and 3,000 300 “know how” required 2,500 250
Slide 35: NLMK Investor Relations
NLMK Investor Relations 18, bldg 1 Bakhrushina str. 115054, Moscow Russia t. +7 495 915 15 75 f. +7 495 915 79 04 email: ir@nlmk.com www.nlmk.com
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