Nlmk · RUS:NLMK
Nlmk — Investor Presentation (October 2021)
50 slides from Nlmk's investor presentation, October 2021
Slide 1: Investor presentation October 2021
1 Investor presentation October 2021
Slide 2: Disclaimer
DISCLAIMER 2 This document is confidential and has been prepared by NLMK (the the industry in which the Company operates. By their nature, forwarding- “Company”) solely for use at the presentation of the Company and may looking statements involve risks and uncertainties because they relate to not be
Slide 3: NLMK at glance
3 NLMK AT GLANCE Market update Strategy 2022 highlights Strategy 2022 execution Strategy 2030: focus areas Capital allocation NLMK’s performance Appendix
Slide 4: NLMK at a glance
NLMK AT A GLANCE 4 #1 producer in Russia* NLMK IS ONE OF THE LOWEST COST STEEL PRODUCERS Q3’21 LTM FINANCIALS SNAPSHOT TOP-20 globally* 900 SUSTAINED POSITION OVER THE LAST 15 YEARS $6.4 bn EBITDA Hot-rolled coil cash cost USD/t 800 Strong positions on the domestic and 700 global markets (i.e. #1 in
Slide 5: Geography & business model
GEOGRAPHY & BUSINESS MODEL 5 Novolipetsk Coke: 2.6 m tpa Steel: 14.2 m tpa Flats: 6.3 m tpa NLMK USA NLMK Kaluga Russia Semis: 7.9 m tpa 1 mini-mill & 2 rolling Steel (EAF): 1.4 m tpa mills Longs: 0.9 m tpa Steel: 0.8 m tpa Moscow VIZ-Steel Denmark Flats: 2.9 m tpa GO steel flats: 0.2 m tpa NLMK Dan
Slide 6: Q3'21 LTM shipments: business model provides strong flexibility
Q3’21 LTM SHIPMENTS: BUSINESS MODEL PROVIDES STRONG FLEXIBILITY 6 ~65% OF GROUP’S SALES W/O NBH WERE FINISHED STEEL PRODUCTS NLMK: HOME MARKET SALES WITH NBH*, m t 66% of NLMK’s sales were made in markets where the Semis 31% Russia Group operates (home LDP feedstock 4% markets) Europe HRC 23% 3.4 Fi
Slide 7: Leadership in sustainability - key highlights
LEADERSHIP IN SUSTAINABILITY - KEY HIGHLIGHTS 7 NLMK’s key principles of sustainable development: NLMK IS THE UN GLOBAL HEALTH & SAFETY COMPACT’S PARTICIPANT – Creating long-term shareholder value – Caring about health, wellbeing and 0.5 ENVIRONMENT LTIFR target in 2023 vs. development of employees
Slide 8: Reducing carbon footprint – 2023 target
REDUCING CARBON FOOTPRINT – 2023 TARGET 8 Measurable target to reduce CO2 DIRECT & INDIRECT CO2 EMISSIONS DYNAMICS CO2 EMISSIONS AT NLMK LIPETSK emissions by 2023 t CO2 (scope 1 + scope 2) EU ETS methodology, t CO2 per t of steel (scope 1) NLMK blast furnaces are among the 2.04 2.02 2.00 1,98 1.98 1
Slide 9: Recognition of NLMK's results by leading ESG rating agencies
RECOGNITION OF NLMK’S RESULTS BY THE LEADING ESG RATING AGENCIES 9 Continuous improvements Out of 100 across the board resulted in Out of 100 NLMK’s ESG ratings upgrades 83 90 ESG rating, 77 old methodology 100 by the leading rating agencies 45 90 36 80 53 50 in the area of sustainability 33 45 70 4
Slide 10: Market update
10 NLMK AT GLANCE Market update Strategy 2022 highlights Strategy 2022 execution Strategy 2030: focus areas Capital allocation NLMK’s performance Appendix
Slide 11: Raw material prices – roller coaster ride in Q3'21
RAW MATERIAL PRICES – ROLLER COASTER RIDE IN Q3’21 11 The pace of economic expansion in MANUFACTURING PMI STEEL DEMAND IN KEY REGIONS, Q3’21, QoQ developed markets decelerated in 65 Activity Sep’21. Manufacturing in emerging expansion 10% 6% 60 markets is close to stagnation 5% 55 0% 50 Steel demand
Slide 12: Mixed price trends in Q3'21 across developed and emerging markets
MIXED PRICE TRENDS IN Q3’21 ACROSS DEVELOPED AND EMERGING MARKETS 12 During Q3’21 regional steel prices exhibited HRC PRICES IN KEY REGIONS AND RUSSIAN EXPORT SLAB PRICES, $/t divergent trends on the back of government Q2'21 Q3'21 % Q3’21 vs. Q2’21 stimulus and policy restrictions 24% 8% 2% -9% -9%
Slide 13: Russia: latest update on demand and pricing
RUSSIA: LATEST UPDATE ON DEMAND AND PRICING 13 Apparent domestic steel consumption RUSSIAN STEEL DEMAND, % yoy RUSSIAN STEEL EXPORT PRICES, $/t was up 3.6% yoy during 8m’21 amid Slab, FOB Black Sea HRC, FOB Black Sea higher CRC consumption (+17%) and 10.0% 3.6% 986 1100 coated steel (+11%) 5.0% 1000
Slide 14: Strategy 2022 highlights
14 NLMK AT GLANCE Market update Strategy 2022 highlights Strategy 2022 execution Strategy 2030: focus areas Capital allocation NLMK’s performance Appendix
Slide 15: Strategy 2022 targets additional $1.25 bn of EBITDA
STRATEGY 2022 TARGETS ADDITIONAL $1.25 BN OF EBITDA 15 BY STRATEGIC BY SOURCE: Targeted structural effect of Strategy 2022 OBJECTIVE: is extra $1.25 bn of EBITDA $1.25 bn $1.25 bn Operational Operational efficiency improvements (no World-class sales capex) to contribute almost half of the 0.45 portf
Slide 16: Investing in high-quality projects
INVESTING IN HIGH-QUALITY PROJECTS 16 Development capex under CAPEX & EFFECTS, $ bn Strategy 2022 to total $2.1 bn Development Target IRR Capex EBITDA effect Investment portfolio remains flexible $2.1 bn $0.7 bn pa 29% Focus is on low-risk projects that meet strict investment criteria World-class sa
Slide 17: Leadership in operational efficiency – operational targets
LEADERSHIP IN OPERATIONAL EFFICIENCY – OPERATIONAL TARGETS 17 GROWTH IN PRODUCTION THROUGH IMPROVED OPERATIONAL EFFICIENCY, m t Key focus areas of operational improvements with zero or minor capex Target effect 2018 – Production growth along integrated value chain +0.2 – Lower cost of steel - target
Slide 18: Leadership in operational efficiency – financial targets
LEADERSHIP IN OPERATIONAL EFFICIENCY – FINANCIAL TARGETS 18 TARGET EBITDA GAIN BY 2023 VS 2018, BY AREA, $ m pa Target structural EBITDA gain of (+) $500 m pa 40 Production & technology Minor CAPEX requirements of $50 m 80 Logistics The largest gains to come from production +$500 m 40 Maintenance pr
Slide 19: Growth in low-cost steel production – operational targets
GROWTH IN LOW-COST STEEL PRODUCTION – OPERATIONAL TARGETS 19 PRODUCTION VOLUMES, m t ‘No-regret’ growth project to increase steel Concentrate Pellets Steel, NLMK Lipetsk production to 14.2 m t pa (+1 m t) Base level Operational efficiency Investment – Continuous casting upgrade at NLMK Lipetsk - sup
Slide 20: Growth in low-cost steel production – financial targets
GROWTH IN LOW-COST STEEL PRODUCTION – FINANCIAL TARGETS 20 TARGET EBITDA GAIN BY 2023 VS 2018, $ m pa Target structural EBITDA gain of (+) $300 m pa 30 +1 m t of integrated steel Targeted slab cash cost reduction of $9/t CAPEX requirement: $990 m +$300 m Captive power plant 100 170 – +1 m t of integ
Slide 21: World-class sales portfolio – financial targets
WORLD-CLASS SALES PORTFOLIO – FINANCIAL TARGETS 21 TARGETED EBITDA GAIN BY 2023 VS 2018, $ m pa TOTAL REQUIRED CAPEX, 2019-2023, $ m Targeted structural EBITDA gain of (+) $450 m pa – 60% of the effect to be generated 40 Russia Flat 100 by the Russian divisions and 40% by 100 Russia Flat - Electrica
Slide 22: World-class sales portfolio – Russia Flat & Long sales targets
WORLD-CLASS SALES PORTFOLIO – RUSSIA FLAT & LONG SALES TARGETS 22 SALES TARGETS FOR SELECTED HVA PRODUCTS, RUSSIA FLAT, m t Russia Flat: New galvanizing line at NLMK Lipetsk HDG Pre-painted Electrical steels – Rising demand for coated products in Russia 1.4 1.4 1.2 +35% – Additional HDG capacity of
Slide 23: World-class sales portfolio – Europe Strip & Plate sales targets
WORLD-CLASS SALES PORTFOLIO – EUROPE STRIP & PLATE SALES TARGETS 23 EUROPE STRIP TARGET SALES, m t HR STEEL DEMAND FORECAST, EU-12, m t Europe Strip: Increased exposure to fast growing premium segments CAGR – Sales of thin and high-strength steel +0.6 m t. Thin-gauge 2.2 +6% 22.0 Wider accessible ma
Slide 24: Leadership in sustainability and safety – targets
LEADERSHIP IN SUSTAINABILITY AND SAFETY – TARGETS 24 GROUP SAFETY TARGETS, LTIFR*, EMPLOYEES & CONTRACTORS Safety development programs – Safety culture programs & communications 1.76 1.60 1.50 – Contractors management 1.25 1.12 – Safety risk management 0.85 0.77 0.86 Concealment prevention program l
Slide 25: Strategy 2022 execution
25 NLMK AT GLANCE Market update Strategy 2022 highlights Strategy 2022 execution Strategy 2030: focus areas Capital allocation NLMK’s performance Appendix
Slide 26: Strategy 2022 – results snapshot
STRATEGY 2022 – RESULTS SNAPSHOT 26 Effects of Strategy 2022 implementation STRATEGY 2022 EFFECTS IN 9M’21, $ m pa totaled $248 m in 9M’21 to 2020 base 300 250 Operational efficiency programs 200 129 contributed $119 m driven by Russian Flat, 248 150 Russian Long and Mining divisions 100 50 119 Inve
Slide 27: Investment projects – status update
INVESTMENT PROJECTS – STATUS UPDATE 27 Equipment assembly at new captive* power plant was started – Capacity: 300 MW – CAPEX: $420 m CAPTIVE POWER PLANT AT LIPETSK HDGL #5 AT LIPETSK SITE – Effects: growth in captive power generation from 64% to 95%, CO2 emission reduction by 650 kt pa – To be commi
Slide 28: Strategy 2030: focus areas
28 NLMK AT GLANCE Market update Strategy 2022 highlights Strategy 2022 execution Strategy 2030: focus areas Capital allocation NLMK’s performance Appendix
Slide 29: Integrated production chain with maximum digitalization
INTEGRATED PRODUCTION CHAIN WITH MAXIMUM DIGITALIZATION 29 $3.5 bn investments 1 2 3 4 Increasing ore Building new ore Building new Setting up a facility extraction beneficiation capacities for for hot-briquetted and processing capacities producing pellets iron production with a high Fe content +24
Slide 30: Low-carbon steelmaking process
LOW-CARBON STEELMAKING PROCESS 30 Average specific Average specific СО2 HBI is a cutting-edge raw material emissions of pollutants, emissions, t/t of steel for green steel production kg/t of steel The downward CO2 emission trend drives global demand for HBI High added value: replacing pig iron and s
Slide 31: Using best available technologies to reduce environmental footprint
USING BEST AVAILABLE TECHNOLOGIES TO REDUCE ENVIRONMENTAL FOOTPRINT 31 CONVEYOR MAXIMUM TRANSPORTATION UTIILIZATION FROM OPEN-PIT OF RECYCLED MINE RAW MATERIALS х2 reduction in emissions* CLOSED LOOP EFFECTIVE GAS WATER SYSTEM PURIFICATION 99% * compared to diesel locomotives
Slide 32: Capital allocation
32 NLMK AT GLANCE Market update Strategy 2022 highlights Strategy 2022 execution Strategy 2030: focus areas Capital allocation NLMK’s performance Appendix
Slide 33: Capital allocation policy
CAPITAL ALLOCATION POLICY 33 Dividend policy remains intact DIVIDENDS, $ bn – Minimum 100% of FCF if 158% 210 % 4 133% 127% ND/EBITDA is below 1.0x 3 113% 102% 104% 100% 160 % 84% 65% FCF payout 3 – Minimum 50% of FCF if 110 % 2 26% ND/EBITDA is above 1.0x 21% 60% 2 2.1 10% Higher capex during the s
Slide 34: NLMK's performance
34 NLMK AT GLANCE Market update Strategy 2022 highlights Strategy 2022 execution Strategy 2030: focus areas Capital allocation NLMK’s performance Appendix
Slide 35: Lower sales in Q3'21 due to a one-off steel output loss
LOWER SALES IN Q3’21 DUE TO A ONE-OFF STEEL OUTPUT LOSS 35 Output decreased by 15% qoq to 3.9 m t ONE-OFF DECLINE IN STEEL OUTPUT AT THE LIPETSK SITE… … LED TO LOWER SEMIS SALES TO CAPTIVE ASSETS -15% -4% – (-) Incident in the oxygen supply 4.6 4.4 4.3 infrastructure of the steelmaking 3.9 3.9 4.1 p
Slide 36: Q3'21 financial highlights: four quarters of sequential growth
Q3’21 FINANCIAL HIGHLIGHTS: FOUR QUARTERS OF SEQUENTIAL GROWTH 36 Revenue increased by 10% qoq to $4.6 bn due to higher FCF, EBITDA AND MARGIN DYNAMICS steel prices 1 EBITDA rose 11% qoq to $2.3 bn on the back of widening 50% 50% 1 2,500 price spreads 41% 37% 2,287 2,000 0 EBITDA margin stood at 50%
Slide 37: EBITDA 11% higher QoQ amid price spreads expansion
EBITDA 11% HIGHER QOQ AMID PRICE SPREADS EXPANSION 37 Russian Flat products: EBITDA softened to $1,154 m EBITDA BY DIVISION, $ m – (-) Decrease in shipments – one-off steel production loss 2,287 2500.0 2494.5 2489.0 2483.5 2478.0 2472.5 2467.0 2461.5 2456.0 2450.5 2445.0 2439.5 2434.0 2428.5 2423.0
Slide 38: Q3'21 further growth of FCF following solid profitability
Q3’21 FURTHER GROWTH OF FCF FOLLOWING SOLID PROFITABILITY 38 Working capital build-up amounted to $451 m Q3’21 FCF BRIDGE, $ m 0 100 200 300 400 500 600 700 800 900 1,0 00 1,1 00 1,2 00 1,3 00 1,4 00 1,5 00 1,6 00 1,7 00 1,8 00 1,9 00 2,0 00 2,1 00 2,2 00 2,3 00 2,4 00 2,5 00 – (-) $223 m – increase
Slide 39: Strong debt portfolio and liquidity position
STRONG DEBT PORTFOLIO AND LIQUIDITY POSITION 39 DEBT* MATURITY, $ m COST OF DEBT REMAINS LOW, % Total debt increased by 20% qoq to $3.4 bn Working capital lines ECA lines Eurobonds Net debt / 12M EBITDA stood at 0.43x 4.9% 1,083 4.4% – Net debt up 40% qoq to $2.7 bn 4.2% 852 – Liquidity was at the $
Slide 40: Appendix
40 NLMK AT GLANCE Market update Strategy 2022 highlights Strategy 2022 execution Strategy 2030: focus areas Capital allocation NLMK’s performance Appendix
Slide 41: NLMK key highlights
NLMK KEY HIGHLIGHTS 41 Steel capacity utilization is above 90% through the STEEL PRODUCTION, m t cycle Crude steel output Capacity utilization 98% 99% 95% 96% 18.0 100% Steel output growth in 95% 95% 94% 94% 98% 93% 17.5 2013-2018 driven by 96% 17.0 94% efficiency improvements 16.5 92% 17.5 16.0 90%
Slide 42: Sales in Russia
SALES IN RUSSIA 42 NLMK holds leading positions NLMK: SALES TO THE RUSSIAN MARKET NLMK: FLAT STEEL SALES IN RUSSIA, m t in Russia in HVA production by sector by product type 6,000 100% 4,911 4,757 4,413 4,643 16% Pipe producers 4,130 4,089 4,243 5,000 The company has exposure to 80% 30% Semi-finishe
Slide 43: Sales & export structure
SALES & EXPORT STRUCTURE 43 NLMK - EXPORTS FROM RUSSIA BY PRODUCT, Q3’21 LTM, m t NLMK GROUP - SALES BREAKDOWN W/O NBH, Q3’21 LTM, m t RUSSIA: 38% Slabs to captive assets 0.9 1.6 Russia flat 24% 24% 0.7 Slabs to NBH Russia long 0.4 Semi-finished products Russia slabs 8.8 m t 16.6 m t 1.8 Longs 13% E
Slide 44: NLMK has limited exposure to trade barriers
NLMK HAS LIMITED EXPOSURE TO TRADE BARRIERS 44 Significant portion of NLMK’s exports and total shipments is not subject to import 90% OF NLMK’S EXPORTS FROM RUSSIA WAS NOT GROUP’S SALES BY REGION (WITH NBH), restrictions SUBJECT TO IMPORT RESTRICTIONS, Q3’21 (LTM), m t Q3’21 LTM, m t – Semis are usu
Slide 45: Foreign assets performance
FOREIGN ASSETS PERFORMANCE 1,0 00 45 3,0 00 900 2,5 00 SLABS SALES FROM THE RUSSIAN FLAT PRODUCTS DIVISION, k t NBH ROLLED PRODUCTS SALES, k t 800 2,014 700 QoQ 172 2,0 00 600 QoQ Total -32% 5 461 1,314 507 1,363 Total +16% 500 2 384 1,5 00 102 123 NLMK Dansteel-28% Dansteel 74 5 330 CRC CRC -53% 40
Slide 46: Exposure to commodity markets and FX
EXPOSURE TO COMMODITY MARKETS AND FX 46 FINANCIAL RESULTS AND BALANCE SHEET COST OF SALES STRUCTURE Revenue/cost FX split provides a solid CURRENCY STRUCTURE, AS AT 30 SEPTEMBER 2021 cushion in volatile commodity prices 1% 1% Other energy fluctuation resources 5% 9% Iron ore 3% NLMK’s EBITDA sensiti
Slide 47: Coal prices and implications for NLMK
COAL PRICES AND IMPLICATIONS FOR NLMK 47 Russian coal market is RUSSIAN COAL PRICES ARE 40% LOWER VS GLOBAL NLMK’S CASH COST OF SLABS oversupplied with >30% of $/t output exported… 700 Average discount c. 40% Consolidated Non-consolidated 527 – … hence, Russian coking 600 coal trades with с. 40% 500
Slide 48: Steel demand and imports structure in Russia
STEEL DEMAND AND IMPORTS STRUCTURE IN RUSSIA 48 In 2009, the GFC shed APPARENT STEEL USAGE (ASU)* IN RUSSIA, m t almost 10 m t of Russian demand for steel. COVID-19 Long Flat excl. pipes substrate Tubes NLMK’s share in total consumption has had much smaller 15% 16% 15% 12% impact on steel 70 8% 7% 1
Slide 49: Key financials
KEY FINANCIALS 49 ($ m) 2015 2016 2017 2018 2019 2020 LTM ($ m) 2015 2016 2017 2018 2019 2020 LTM Income Statement Revenue 8,008 7,636 10,065 12,046 10,554 9,245 13,951 Balance Sheet Cash 1,515 1,508 1,358 1,184 870 991 669 Cost of sales -5,496 -5,074 -6,798 -7,680 -7,303 -5,920 -6,768 Inventories 1
Slide 50: Company IR contacts
COMPANY IR CONTACTS 50 Dmitriy Kolomytsyn, CFA Director, Corporate Finance, IR Ekaterina Kokareva, CFA Head of IR Address 40, Bolshaya Ordynka Str., Bldg. 3 Moscow, 119017, Russia IR E-mail Address ir@nlmk.com Phone Number Office: +7 495 504 05 04 nlmkonair nlmk_group nlmk group