Nlmk · RUS:NLMK
Nlmk — Investor Presentation (January 2018)
39 slides from Nlmk's investor presentation, January 2018
Slide 1: NLMK Corporate Presentation January 2018
NLMK Corporate Presentation January 2018
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: Market overview
▪ Market overview About NLMK NLMK Performance Strategy execution and shareholders returns capability Appendix 3
Slide 4: Steel demand recovers while Chinese exports subside
STEEL DEMAND RECOVERS WHILE CHINESE EXPORTS SUBSIDE Steel demand recovered across key markets in 2017 Growth in steel demand across key markets – USA: construction, automotive and energy %, yoy 2017 YTD* 2018 – EU: mechanical engineering, housing and non-residential 7,0% 8,0% – Russia: machinery and
Slide 5: Price spreads widen on demand growth
PRICE SPREADS WIDEN ON DEMAND GROWTH Chinese steel stocks level remains below 5Y average Chinese steel stocks levels remain low while supply picks up Mt Steel prices react strongly to better supply/demand balance 44 Output (rhs) 75 39 – EU: prices improved on lower competition and cost push 70 34 –
Slide 6: Russian steel market - S/D and pricing
RUSSIAN STEEL MARKET - S/D AND PRICING Supply improves on better export and domestic off-take Russia: home steel prices catch up with global benchmarks – YTD2017 steel supply down -1% yoy $/t k’RUB/tonne 700 40 – 11m’17 demand up 5.6% yoy 600 35 2017 steel demand is set to grow by 2.0 m t (+5-7% yoy
Slide 7: USA steel market - S/D and pricing
USA STEEL MARKET - S/D AND PRICING Better demand and margins attracted imports USA domestic steel prices (EXW) – 11m’17 demand up c. ±7% yoy to c. 90 m t $/t 1 000 – 11m’17 imports surged to 32 m t (+17% yoy) however from a low base 900 896 CRC – 11m’17 output increased to 75 m t (+4% yoy) 800 2017
Slide 8: EU steel market - S/D and pricing
EU STEEL MARKET - S/D AND PRICING Domestic supply catches up with demand growth of +2.5% yoy EU domestic steel prices (EXW) $/t – Demand driven by construction, engineering, autos and tubes 800 – 11m’17 steel output grew to 140 m t (+4% yoy) 736 CRC 700 688 Plate – 10m’17 imports up to 24 m t (+1% y
Slide 9: About NLMK
Market overview ▪ About NLMK NLMK Performance Strategy execution and shareholders returns capability Appendix 9
Slide 10: NLMK at a glance
NLMK AT A GLANCE #1 producer in Russia* NLMK is the lowest cost steel producer TOP-20 Globally* 600 Sustainable position over the last 15 years Strong positions in local and global markets 500 Cash cost USD/t (i.e. #1 in global slabs trade, TOP5 in electrical steel**) 400 Balanced and diversified pr
Slide 11: Geography & business model
GEOGRAPHY & BUSINESS MODEL NLMK USA NLMK Dansteel NLMK Kaluga Novolipetsk VIZ-Steel 1 mi ni-mill & 2 rolling mills Pl ates: 0.55 m tpa Ste el (EAF): 1 .5 m tpa Coke: 2.6 m tpa GO steel flats: Ste el: 0.8 m tpa Longs: 0.9 m tpa Ste el: 1 3 m tpa 0.2 m tpa Fl ats: 2.9 m tpa Fl ats: 6 .0 m tpa Se m is:
Slide 12: NLMK business model offering sales resilience
NLMK BUSINESS MODEL OFFERING SALES RESILIENCE Increased international integration ~65% of sales are made in home markets % – 63% of NLMK Russia slabs exports delivered to international subsidiaries – Up to 90% of foreign subsidiaries slabs needs covered by NLMK Russia – NLMK USA and NLMK Europe prod
Slide 13: NLMK Performance
Market overview About NLMK ▪ NLMK Performance Strategy execution and shareholders returns capability Appendix 13
Slide 14: Sales grew on stronger home markets demand
SALES GREW ON STRONGER HOME MARKETS DEMAND 2017 Sales increased by 3% yoy to 16.5 Mt ~66% of sales are finished steel products Semis 30% Finished steel is 65% (+1 pp) of the sales portfolio LDP feedstock 4% 30% of the finished steel sales are high value added products HRC 24% Finished products Long
Slide 15: Sales in Russia
SALES IN RUSSIA NLMK has leading positions in value added product with demand NLMK share in the Russian steel market outpacing supply 50 % 40 % 30% 27% 26% 30 % 40 % 20% Exposure to niche products: 100% 100% 39% 1 3% 20 % 3 4% – (LDP feedstock) – long term contract till 2019 30 % 30% 10% – The only
Slide 16: Financial highlights
FINANCIAL HIGHLIGHTS 2016 financials: Narrowing price/cost spreads weigh on margins EBITDA margin, % – Revenue $7,636 m (-5 % yoy) 0 29% – EBITDA: $1,941 m (flat yoy) 0 25% 25% – EBITDA margin: 25% (+1 pp yoy) 0 0 – Net income**: $935 m (-3% yoy) 0 – Capex $559 m (-6% yoy) 0 – Free cash flow* $1,089
Slide 17: Margins' growth on better prices and cost improvements
MARGINS’ GROWTH ON BETTER PRICES AND COST IMPROVEMENTS EBITDA by divisions EBITDA expanded on stronger sales and price spreads growth $M +7% Q2'17 Russian Flat Products: EBITDA up +32% on strong sales +32% 603 648 – (+) Seasonally strong demand drove volumes (+96 kt) and prices up Q3'17 453 – (+) St
Slide 18: Strong free cash flow with 64% QoQ growth
STRONG FREE CASH FLOW WITH 64% QOQ GROWTH Q3’17 CF bridge Net operating cash flow expanded by 47% qoq to $663 m – $M 0 10 0 20 0 30 0 40 0 50 0 60 0 70 0 80 0 working capital release of $109 m EBITDA 648 – (+) accounts receivables decreased on higher sales in Russia with better credit terms Net work
Slide 19: Sales grew on stronger home markets demand
SALES GREW ON STRONGER HOME MARKETS DEMAND Sales* up +3% yoy driven by growth in home markets sales – Shipments growth driven by sales to home markets* in US (+21%) and in Russia (+2%) Mt 15,7 15,9 16,5 +3% Total sales Higher finished steel sales (+5%) on stronger domestic sales Group sales growth d
Slide 20: Foreign assets performance
FOREIGN ASSETS PERFORMANCE Slabs sales from Russian Flat Division NBH Rolled product sales Kt Kt Yo Y 1 989 2 147 2 117 YoY 6 834 6 567 6 728 8 00 0, 0 800 0 Total +2% 61 53 7 00 0, 0 515 700 0 45 351 319 Total -1% 568 559 NLMK 374 1226 CRC -14% 6 00 0, 0 600 0 1271 1585 -2% Dansteel 768 757 5 00 0,
Slide 21: Strategy execution and shareholders returns capability
Market overview About NLMK NLMK performance ▪ Strategy execution and shareholders returns capability Appendix 21
Slide 22: Strategy 2017 targets recap
STRATEGY 2017 TARGETS RECAP Strategy 2017 targets announced by Vladimir Lisin, Chairman of the Board of Directors, at Capital Markets Day in 2014 22
Slide 23: Strategy 2017 progress: interim overview
STRATEGY 2017 PROGRESS: INTERIM OVERVIEW Annual gains vs. 2013 Structural profitability growth Capex below target level $ bn EBITDA margin (%) 1200 $ bn 40 % 1000 80 0 25% 55% -194 14% 60 0 20 % 1 000 1,5 741 40 0 547 0,9 20 0 0,6 0,6 0,6 0 0% Cumulative Market factors Net gains, Strategy 2017 2013
Slide 24: We remain committed to $1 bn Strategy 2017 target
WE REMAIN COMMITTED TO $1 BN STRATEGY 2017 TARGET Strategy ‘17 net gains $M Efficiency gains Gains from investments $547 m in 2014-16: efficiency gains (~70% of total) were front-loaded 2014-’161 500 47 547 gains c. $260 m in 2017, including gains from 2014-16 investment projects: – $150 m: pellet p
Slide 25: Further improvements in debt portfolio and liquidity
FURTHER IMPROVEMENTS IN DEBT PORTFOLIO AND LIQUIDITY Net debt / 12M EBITDA: 0.3x (down from 0.4x qoq) Liquidity and short-term debt* – Net debt: $0.74 bn (-29 % qoq) $M As of 30.09.2017 – Total debt: $2.56bn (+6% qoq) – Liquidity: $1.8 bn (+32% qoq) on strong FCF generation 1 901 Available credit li
Slide 26: Capex outlook
CAPEX OUTLOOK Total annual CAPEX (p.a.) 2017 capex estimate of $0.6 bn $ Bn 1.3 – $250 m: structural (core) maintenance capex 1400 Development 1200 – $120 m: large-scale repairs of Lipetsk BF/BOFs capex 1000 – $180 m: Strategy 2017 development capex, including final payments 0.6 0.6 80 0 60 0 Large-
Slide 27: Dividends
DIVIDENDS Accumulated liquidity used as a source for higher dividends Growth in FCF realized in higher dividends Dividend payments, in million USD Company to stick to the current dividend policy 50% of NI/FCF if 1000 90 0 NLMK ND/EBITDA is not higher than 1.0x 80 0 70 0 60 0 Approved Q2’17 dividends
Slide 28: Strategy 2017: 103% of annual goal achieved in 9M'17
STRATEGY 2017: 103% OF ANNUAL GOAL ACHIEVED IN 9M’17 In 9M’17 NLMK hit 103% of its Strategy 2017 target for the year 103% of annual target achieved in 9 months 2017 $M – $105 m gains achieved in Q3’17 (vs $106 m in Q2’17) as a result of new projects 260 269 $84 m gains from operational efficiency pr
Slide 29: Pelletizing plant and fines output growth
PELLETIZING PLANT AND FINES OUTPUT GROWTH Pelletizer output ramp-up has been achieved Pelletizing plant operates at full capacity MT – May-June ‘17 average utilization is ~100% with max. daily output of 20 kt 6,0 Growth in pellet output: 2017 production target revised upwards to 6 mt 1,6 Q2’17 pelle
Slide 30: Strategy 2022: focus areas
STRATEGY 2022: FOCUS AREAS Combination of efficiency, growth and innovations backed by sustainability and safety Innovations New B2B channels and digital interfaces Digital technologies in operations Value-creative growth Human capital development to support innovative growth Brownfield development
Slide 31: 'No-regret' growth: unlocking capacity along the chain
‘NO-REGRET’ GROWTH: UNLOCKING CAPACITY ALONG THE CHAIN Target: to reach 14 m t pa of crude steel (+ 1 m t pa) Debottlenecking of steel capacity at Russian Flat M t pa How: debottlenecking of steel-making… Pig iron Steelmaking – Unutilized pig iron capacity at Russian Flat 14,2 1,0 14,0 – Upgrade of
Slide 32: Further growth: careful consideration required
FURTHER GROWTH: CAREFUL CONSIDERATION REQUIRED Further growth is possible: integrated expansion along the value chain Possible steel capacity growth at Russian Flat to bring Russian flat capacity to over 15 m t pa M t pa 1,2 1,0 15,2 Our upstream production can be expanded to bring required resource
Slide 33: Appendix
Market overview About NLMK NLMK Performance Strategy execution and shareholders returns capability ▪ Appendix 33
Slide 34: NLMK key highlights
NLMK KEY HIGHLIGHTS Steel production, 2013-2017E Steel capacity utilization is well above 90% through the cycle Mt 95% 98% % 95% 95% 17,5 100% 17,0 93% 95 % Steel output growth driven by efficiency improvements 16,5 90 % 16,0 17,1 45% of the finished steel sales are high value added products 16,6 85
Slide 35: Exposure to FX rates?
EXPOSURE TO FX RATES? Revenue/Cost FX split provides a solid cushion in volatile Financial results and balance sheet currency structure commodity prices fluctuation 100% 1 5% At current rate levels (~60 RUB/$) 90 % 34% Foreign 80 % 1 RUB/$ movement translates into ≈$10 m pa. of EBITDA effect 70 % 64
Slide 36: Coal prices and implications for NLMK
COAL PRICES AND IMPLICATIONS FOR NLMK Russian coal market is oversupplied with 30% of output exported Rus coal 40% cheaper vs global – … hence RUS c/coal trades with a 40% to 50% discount vs global $/t 400 Average discount c. 40% 350 NLMK relies on Russian coal suppliers 300 Coking coal, China CFR 2
Slide 37: Trade barriers
TRADE BARRIERS EU recent trade barriers: case for HRC imports EU: Russian exports by peers – HRC from 5 countries (18% of imports in 2016): fixed charge per tonne on HRC import prices 368 12 5 CRC 249 280 8 239 153 157 For reference: NLMK International (EU & USA) rolling capacity 342 105 NLMK 268 28
Slide 38: World class corporate governance practices
WORLD CLASS CORPORATE GOVERNANCE PRACTICES Growing involvement of independent directors Board: % of independent directors – Number of Independent Directors increased – Audit Committee; HR, Remunerations and Social Policy Committee are chaired by Independent Directors 38% 36% 38% 50% 62% – Independen
Slide 39: Company IR contacts
COMPANY IR CONTACTS Sergey Takhiev Investor Relations Address 40, Bolshaya Ordynka Str., Bldg. 3 Moscow, 119017, Russia . IR E-mail Address st@nlmk.com Phone Number Office: +7 495 504 05 04; Mobile: +7 985 760 55 74 nlmkonair nlmk_group nlmk group 39