Nlmk · RUS:NLMK
Nlmk — FY2017 Earnings Presentation
39 slides from Nlmk's earnings presentation, Feb 20, 2018
Slide 1: Strategy 2017 Results: 2017 IFRS Financials
Strategy 2017 Results 2017 IFRS Financials 20 February 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: Agenda
AGENDA MARKET UPDATE OLEG BAGRIN President and STRATEGY 2017 RESULTS Chief Executive Officer Turning strategic projects into shareholder returns FINANCIAL RESULTS OF 2017 SERGEY KARATAEV Strategy effects drive performance Acting Chief Financial Officer Q&A 3
Slide 4: Market Update and Strategy 2017 Results
Market Update and Strategy 2017 Results Financial Highlights Appendix 4
Slide 5: Strategy 2017 Targets Recap
STRATEGY 2017 TARGETS RECAP Strategy 2017 targets announced by Vladimir Lisin, Chairman of the Board of Directors, at 2014 Capital Markets Day Strategy 2017 levers: Operational efficiency: best in class production costs and productivity World class resource base: efficient upstream integration,
Slide 6: Challenging Backdrop for Strategy 2017 Execution
CHALLENGING BACKDROP FOR STRATEGY 2017 EXECUTION Global steel demand failed to grow in 2014-2016 Demand turned less positive than expected Mt Mt Chinese steel exports flooded markets (1.9x up in 2015 vs. 2013) 1700 Global growth 900 1672 triggering wave of trade measures globally expectations in 201
Slide 7: Recovery Started in 2017 on Better Supply-Demand Balance
RECOVERY STARTED IN 2017 ON BETTER SUPPLY-DEMAND BALANCE Demand in key markets started to grow in 2017 with positive Steel demand growth across key markets momentum extending into 2018 %, yoy 2017 YTD* 2018E 2017 utilization rates improved on better supply discipline 7,0% 6,0% 6,0% 5,1% 2017 prices
Slide 8: NLMK Delivers Another Year of Record Results
NLMK DELIVERS ANOTHER YEAR OF RECORD RESULTS Strong sales and Strategy 2017 effects boost profitability Sales increase for 5th year in a row Mt 18 16,5 – Sales: 16.5 mt (+3% yoy) 15,8 15,9 17 16 14,8 15,1 – Revenue: $10,065 m (+32% yoy) 15 – EBITDA: $2,655 m (+37% yoy) 14 – EBITDA margin: 26% (+1 pp
Slide 9: Strategy 2017 Results for the Period 2014-2017
STRATEGY 2017 RESULTS FOR THE PERIOD 2014-2017 In 2014-2017 Strategy execution delivered $1,019 m of gains, fully on target In 2017, gains reached $377 m exceeding guidance of $260 m: – $169 m: iron ore pellets and concentrate production growth after new facilities commissioning – $20 m: PCI technol
Slide 10: Operational Efficiency Is a Backbone of Our Strategy
❶ OPERATIONAL EFFICIENCY IS A BACKBONE OF OUR STRATEGY Operational efficiency contribution 2014-17: $523 m pa, 158% of target Productivity grows across production chain Mt Incremental Number of efficiency projects grew 13x to 3,050 as NLMK Production 17,0 +15% 13,5 +6% 2013 level +9% System feeds th
Slide 11: Resource Base: Better Integration, Lower Consumption
❷ RESOURCE BASE: BETTER INTEGRATION, LOWER CONSUMPTION Earnings impact in 2014-17: $384 m pa (80% of target, target will be Self-sufficiency in key resources will improve further hit in 2018 as newly launched facilities ramp up) *% self-sufficiency Fines Pellets Energy Better self-sufficiency in key
Slide 12: NLMK's Sales Grew Faster Than Our Markets
❸ NLMK’S SALES GREW FASTER THAN OUR MARKETS Earnings impact in 2014-17: $111 m pa (60% of target mainly due to NLMK sales* outpaced market growth deterioration of Russian market) 2017 vs 2013 levels ASU** growth NLMK sales 2017 sales to home markets increased by +1 m t vs 2013 levels 24% 24% All bus
Slide 13: People and Sustainability Remain Our Top Priority
❹ PEOPLE AND SUSTAINABILITY REMAIN OUR TOP PRIORITY Relentless focus on safe operating practices Focus on safety translated into industry leading results – LTIFR* of Group operations down by 53% vs 2013 level to 0,97 2,5 Global average LTIFR* – LTIFR* of Russian operations down by 41% vs 2013 level
Slide 14: Key Strategy 2017 Goals Achieved
KEY STRATEGY 2017 GOALS ACHIEVED Impressive growth story Structural profitability growth Conservative capex 2017/2013 EBITDA ($ bn) $ bn EBITDA margin (%) 10x 76% 25% 26% 90 % 12 23% 24% 66% 80 % 4 10 14% 70% 10% 2,7 3 6x 60 % 8 12% 8% 50 % 10% Strategy 3 1,5 6 1,0 40 % 8% 30 % 4 3x 25% 6% 2 effects
Slide 15: Strategy Gains Will Carry Over into 2018
STRATEGY GAINS WILL CARRY OVER INTO 2018 Strategy 2017 net gains $M Management initiatives Investments 2014-2017: $1,019 m gains exceed Strategy 2017 target of $1,000 m 2014-17 1 740 279 1 019 actual gains 2018: gains of $159 m from investments completed in 2016-17: – c.$63 m: iron ore fines output
Slide 16: CEO Concluding Remarks
CEO CONCLUDING REMARKS Strategy 2017 EBITDA target of $ 1 bn achieved despite challenging market conditions Over 70% of actual gains came from efficiency (zero-capex) projects generated by NLMK Production System Self-sufficiency in key raw materials has been reached with positive NPV on the investme
Slide 17: Financial Highlights
Market Update and Strategy 2017 results Financial Highlights Appendix 17
Slide 18: Financial Highlights
FINANCIAL HIGHLIGHTS Strong results delivered in 2017 EBITDA growth – Revenue: $10,065 m (+32% yoy) 90 0 USD m 786 – EBITDA: $2,655 m (+37% yoy) 80 0 700 – EBITDA margin: 26% (+1 pp yoy) 60 0 648 – Net income: $1,450 m (+55% yoy) 50 0 40 0 520 30 0 20 0 318 100 0 Q1'13 Q2'13 Q3'13 Q1'14 Q2'14 Q3'14
Slide 19: 2017: Profits Growth on Wider Spreads and Strong Sales
2017: PROFITS GROWTH ON WIDER SPREADS AND STRONG SALES EBITDA by divisions EBITDA expanded on record sales and Strategy 2017 effects $M +37% Russian Flat Products: EBITDA up +28% on strong sales +28% 2 655 2016 – (+) Demand recovery drove volumes (+360 kt) up 1 943 2017 1 722 – (+) Better product mi
Slide 20: 2017: Solid Free Cash Flow with 16% YoY Growth
2017: SOLID FREE CASH FLOW WITH 16% YOY GROWTH 2017 CF bridge Net operating cash flow expanded by 12% yoy to $1,9 bn 0 100 200 300 400 500 600 700 800 900 1 00 0 1 10 0 1 20 0 1 30 0 1 40 0 1 50 0 1 60 0 1 70 0 1 80 0 1 90 0 2 00 0 2 10 0 2 20 0 2 30 0 2 40 0 2 50 0 2 60 0 2 70 0 2 80 0 $M – (+) Str
Slide 21: 2017 Debt Maturity Improved, Cost of Debt Declined
2017 DEBT MATURITY IMPROVED, COST OF DEBT DECLINED Superior liquidity on profitability growth and moderate capex Liquidity and Debt maturity Debt maturities extended with -20% short-term debt reduction… $M – Sep’17: $317 m repurchase of ‘18 and ‘19 Eurobonds with coupons 4.45-4.95% ECA lines – Sep’1
Slide 22: Balanced Approach to Capital Allocation in 2014-2017
BALANCED APPROACH TO CAPITAL ALLOCATION IN 2014-2017 Free cash flow grew in 2015-2017 on stronger cash flow from Disciplined CAPEX contributed to higher FCF operations and disciplined capex 1 153 1 266 Leverage improved on earnings expansion and strong FCF $M 1 092 2 00 0 1 500 992 1 400 1 300 1 80
Slide 23: CFO Concluding Remarks
CFO CONCLUDING REMARKS Strategy 2017 projects improved CF generation and enabled record dividends w/o compromising growth Disciplined approach to capital allocation resulted in Investment grade from S&P, Moody’s and Fitch NLMK cost of debt reduced through active debt portfolio management and conserv
Slide 24: Appendix
Market Update and Strategy 2017 results Financial Highlights Appendix 24
Slide 25: Q4 Free Cash Flow Seasonally Lower
Q4 FREE CASH FLOW SEASONALLY LOWER Q4’17 CF bridge Net operating cash flow was down by 28% qoq to $476 m on $M -300 -200 -100 0 100 200 300 400 500 600 700 800 900 working capital buildup of $190 m EBITDA 786 – (+) prices growth influenced on inventories value ($90 m) – (+) accounts receivables incr
Slide 26: Q4: Russian Flat Products
Q4: RUSSIAN FLAT PRODUCTS Sales dropped by 6% qoq on seasonal slowdown in demand Revenue & steel sales volumes Mt $ Bn – (+) Slabs sales grew on better exports sales & domestic pipe sector +6% -6% – (-) Semis sales to captive assets down by 16% qoq as stocks normalized 3,42 3,23 2,06 1,93 – (-) Fini
Slide 27: Q4: Russian Long Products
Q4: RUSSIAN LONG PRODUCTS Sales increased by 11% qoq Revenue & steel sales volumes – (-) Seasonal slowdown in demand for longs in Russia, relatively high Kt +11% $ Bn +22% level of inventories 0,82 0,56 0,74 0,46 – (+) Strong demand in export markets fully offset low season in Russia 0,25 0,14 0,15
Slide 28: Q4: Mining
Q4: MINING Lower sales volumes (-4%), mix improved on stronger pellets sales (+6%) Revenue & sales volumes – (-) Lower concentrate sales (-3%) due to lower offtake from Lipetsk Kt $ Bn -4 % +20 % 4,39 4,23 Revenue increased by 20% qoq on higher selling prices and mix improvement 0,24 480 % 460 % 440
Slide 29: Q4: NLMK USA
Q4: NLMK USA Sales seasonally decreased by 3% qoq Revenue & steel sales volumes – (-) HRC sales dropped by 4% qoq Kt -3% $M -3 % 0,57 0,55 0,42 – (+) HVA sales share grew in the sales mix 0,41 Revenue decreased by 3% qoq on volumes decline 0,32 0,31 0,20 0,20 – (~) Sales prices flat on Section 232 d
Slide 30: Q4: NLMK Dansteel
Q4: NLMK DANSTEEL Revenue & steel sales volumes Sales seasonally increased by 14% qoq Kt $M +14% +22% Revenue up by 22% qoq 0,12 0,11 0,12 – (+) Sales volumes seasonally grew by 14% 0,09 0,01 – (+) Selling prices increased by 7% 0,01 0,11 0,12 0,11 0,09 EBITDA down on poor price/cost spreads – (-) P
Slide 31: 2017: Russian Flat Products
2017: RUSSIAN FLAT PRODUCTS Sales grew by 3% yoy on stronger finished product sales and increased Revenue & steel sales volumes demand for semis Mt +3% $ Bn +37% 12,69 13,05 7,66 – (+) Slabs sales to captive assets grew by 5% on better demand on home markets 4,22 5,58 2,06 4,03 – (+) HVA sales grew
Slide 32: 2017: Russian Long Products
2017: RUSSIAN LONG PRODUCTS Sales increased by 6% Revenue & steel sales volumes – (+) Sales up on higher demand on export markets Mt +6% $ Bn +39% 2,96 1,79 Revenue up by 39% yoy on volume and price improvements 2,81 0,69 1,29 0,40 – (+) Sales prices grew on strong demand in export markets 0,61 0,26
Slide 33: 2017: Mining
2017: MINING Sales volumes decreased slightly by 1% yoy as product mix changed Revenue & sales volumes to Lipetsk site – (+) Pellets sales up with pelletizer reached 100% capacity utilization Mt $ Bn -1 % 17,13 +58 % 18 1 0,92 Revenue up by 58% yoy on selling prices hike 17, 8 17, 6 17, 4 17, 2 17 1
Slide 34: 2017: NLMK USA
2017: NLMK USA Sales increased by 21% yoy to an all-time high 2.24 m Revenue & steel sales volumes – (+) Improved demand for HRC and HDG from key clients Mt +21% $ Bn +44 % – (+) additional galvanizing line start 2,24 1,67 1,86 1,16 Revenue increased by 44% yoy 1,23 0,78 0,94 – (+) Average prices im
Slide 35: 2017: NLMK Dansteel
2017: NLMK DANSTEEL Revenue & steel sales volumes Sales down by 1% yoy due to sharp competition with imported thick Kt $M plate from Asia and the CIS -1% +28% 0,48 0,48 0,42 Revenue increased by 28% yoy 0,33 0,04 – (-) Sales volumes down by 1% 0,06 – (+) Selling prices supported revenue growth 0,48
Slide 36: 2017 NLMK Sales, Output, Lipetsk Slabs Costs
2017 NLMK SALES, OUTPUT, LIPETSK SLABS COSTS Steel production Group sales to external customers by segments Mt Mt yoy: +1% yoy: +3% 8,74 10,00 yoy: +2% 16,85 9,00 18,00 8,00 16,00 13,20 7,00 14,0 0 yoy: +6% 6,00 yoy: +16% 12,00 10,00 5,00 yoy: -2% yoy: +5% yoy: +11% 2,96 2,71 4,0 0 8,00 yoy: +11% 2,
Slide 37: 2017: Sales Geography and Product Mix
2017: SALES GEOGRAPHY AND PRODUCT MIX Steel product sales by region Sales structure by product Mt Mt 14 15.83 15.93 16.47 15.83 15.92 16.47 12 2,43 2,72 2,42 Others Semi- 6,04 5,71 5,71 0,57 0,32 0,65 0,57 0,78 0,49 M. East* finished 10 8 3,49 3,42 3,05 Commercial N.America 5,48 5,89 6 5,26 products
Slide 38: Foreign Assets Performance
FOREIGN ASSETS PERFORMANCE Slabs sales from Russian Flat Division NBH Rolled product sales Kt Kt YoY 1 989 2 147 2 112 YoY 6 834 6 567 6 728 8 000,0 8 000 Total +2% 61 53 7 000,0 515 7 0 00 45 351 313 Total -2% 568 559 NLMK 374 1226 CRC -14% 6 000,0 -2% 6 000 1271 1585 Dansteel 768 757 5 000,0 5 000
Slide 39: Company IR Contacts
COMPANY IR CONTACTS NLMK IR team 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 39