Mmk · RUS:MAGN
Mmk — Investor Presentation (September 2016)
34 slides from Mmk's investor presentation, September 2016
Slide 1: MMK Corporate Presentation September 2016
MMK CORPORATE PRESENTATION SEPTEMBER 2016
Slide 2: MMK – The Value Story
MMK – THE VALUE STORY 9 MMK – Fully renewed …Set to change due to long …But still undervalued … story… term sustainability Among the TOP-30 global steel History-driven discount to peers in Sustainable margin advantage players EV/EBITDA multiple terms, possible compared to global peers High E
Slide 3: MMK Position in Global Metals & Mining Universe
ММК POSITION IN GLOBAL METALS & MINING UNIVERSE 31 33 Source: ММК, World Steel, Alfa Bank 3
Slide 4: Timeline: From Large-Scale Investment to Efficiency and Environment
TIMELINE: FROM LARGE-SCALE INVESTMENT TO EFFICIENCY AND ENVIRONMENT Major environmental MMK receives controlling project - sludge Reconstruction of stake in Belon Commissioning of EAF decantation complex rolled steel with annual capacity of of oxygen-converter production (mills 170, MMK acquires 100
Slide 5: MMK's BD Expertise Is Guaranteed by Its High-Profile, Professional Directors
MMK’S BD EXPERTISE IS GUARANTEED BY ITS HIGH-PROFILE, PROFESSIONAL DIRECTORS Name Education Experience Victor Rashnikov, 67 Magnitogorsk Institute of Mining and Chairman, MMK BD Metallurgy Zumrud Rustamova, 45 Moscow Economic and Statistics Deputy General Director, Polymetal Institute Valeriy Martsi
Slide 6: MMK Comparison to Global Steel Peers (Based on FY15 Results)
MMK COMPARISON TO GLOBAL STEEL PEERS (BASED ON FY15 RESULTS) Sales, mln tonnes 11.8 10.8 15.9 84.6 21.5 35.3 42.3 19.86 6,4 17.0 Revenue, mln USD 5,839 6,396 8,008 63,578 25,727 48,780 42,540 16,439 9,436 13,280 EBITDA, mln USD 1,668 2,096 1,948 5,231 2,559 4,976 4,591 1,822 477 1,345 EBITDA margin,
Slide 7: MMK Metalurji - $1 bn+ of Hidden Value
MMK METALURJI - $ 1 BN+ OF HIDDEN VALUE Iskenderun Production structure of MMK Metalurji, 2015 • Full-cycle steel making plant (2.3 mtpa) & rolling facilities • Metal service centre Hotrolled steel • Sea port facility 10% Total: 795 ths t Istanbul • Metal service centre Main operations HVA products,
Slide 8: MMK Margins Sustainability
MMK MARGINS SUSTAINABILITY Arguments in Favour of Long-term EBITDA Margin Sustainability Historical MMK EBITDA Dynamics, mln$ 4 000 28,6% 30,0% For instance: in 2015 MMK EBITDA/t was $141, while Top30 Global steel makers 29,4% had only $77 of EBITDA/t Even in adverse market conditions MMK’s MMK has
Slide 9: Benefits from the Domestic Market
BENEFITS FROM THE DOMESTIC MARKET 9 Structural surplus of the main raw materials in Russia, mln tonnes MMK’s focus on the Russian market and 120,0 80,0 proximity to end customers in the middle of 97,6 97,5 86,2 55,2 53,9 Russia result in a higher average realised 84,6 39,4 39,1 price (due to the net
Slide 10: Strategic Projects Portfolio Developed to Enact Further Operational Efficiency Growth
STRATEGIC PROJECTS PORTFOLIO DEVELOPED TO ENACT FURTHER OPERATIONAL EFFICIENCY GROWTH, 2016-2025 STRATEGY 1. Sales: Just in time (+/-3 days) 187 mln $ 2.Baby Capex and Lean 239 3.Digital Operations, IoT 136 4. Focus on core business, sale of non-core assets (FMG, MMK Metalurji) 5. Supply. Delivery j
Slide 11: Yandex – "Sniper" Project
YANDEX – “SNIPER” PROJECT 9 Source: ММК 11
Slide 12: Organic Growth Due to Investment in Large-Scale Projects for HVA Products Output
OGRANIC GROWTH DUE TO INVESTMENT IN LARGE-SCALE PROJECTS FOR HVA* PRODUCTS OUTPUT OJSC MMK finished goods sales structure, mln tonnes Leading positions on the domestic market 12 Downstream MMK's share in 11,0 Place in Russia 10,2 10,2 products Russia 10 8,7 1,9 1,5 HVA 1,4 HVA C/r steel HVA 3,0 3,4
Slide 13: This Enables MMK to Substitute Imports and Benefit from Domestic Demand Recovery
THIS ENABLES MMK TO SUBSTITUTE IMPORTS AND BENEFIT FROM DOMESTIC DEMAND RECOVERY IN FUTURE MMK Group sales structure, mln tonnes Products balance in Russia, mln tonnes mln t Changes in 80 12 11,0 2015/2000 7 7 7 5 4 10,2 10,2 60 5 2 45 46 45 8,7 42 41 RussiaРФ and(с 40 38 37 Рынок 8 CIS СНГ) 5,1 3,5
Slide 14: Appendices
APPENDICES 9 (1) Latest financials (2) Supporting documents 14
Slide 15: Key Highlights for MMK Group
KEY HIGHLIGHTS FOR MMK GROUP Q2 2016 Financial Results Revenue USD 1,552 mln up 47.8% q-o-q Cost of sales USD 1,025 mln up 29.9% q-o-q EBITDA USD 560 mln up 95.1% q-o-q EBITDA margin 36.1% up 8.8 p.p. q-o-q Net profit USD 329 mln up 109.6% in Q1 2016 Cash cost of slab USD 200 per tonne up 20.5% q-o-
Slide 16: High Capacity Utilisation
HIGH CAPACITY UTILISATION Key production indicators, ths tonnes Q2 2016 Q1 2016 % H1 2016 H1 2015 % • MMK Group’s finished steel products output in Q2 2016 was up 5.2% q-o-q. Pig iron 2,455 2,403 2.2% 4,859 4,935 -1.5% Steel (output), including 3,183 3,025 5.2% 6,208 6,197 0.2% • In Q2 2016 MMK Grou
Slide 17: MMK Group Sales Structure on the Russian and CIS Market
MMK GROUP SALES STRUCTURE ON THE RUSSIAN AND CIS MARKET Sales structure on the Russian and CIS market, ths • Total sales volume on the Russian and CIS market in Q2 2016 was 2,251 ths tonnes, up 387 ths tonnes, or 20.8% q-o-q. This was due to a seasonal recovery in tonnes domestic demand for steel. 1
Slide 18: MMK Group Position on Key International Markets
MMK GROUP POSITION ON KEY INTERNATIONAL MARKETS Sales structure on international markets, ths tonnes • Sales on international markets in Q2 2016 amounted to 752 ths tonnes, down 170 ths tonnes, or 18.4% q-o-q. This decrease was due to seasonal 922 752 demand recovery on the domestic market, which is
Slide 19: Key Financial Highlights of MMK Group
KEY FINANCIAL HIGHLIGHTS OF MMK GROUP • Revenue for Q2 2016 amounted to USD 1,552 mln, up 47.8% q-o-q. This was primarily due to higher sales volumes and a significant increase in the average sales price in US dollars (up 38.2% q-o-q) as a result of an increase in global prices for steel and the dep
Slide 20: Key Financial Highlights of MMK Group
KEY FINANCIAL HIGHLIGHTS OF MMK GROUP • Average sales price in Q2 2016 increased significantly due to higher global steel prices, seasonal recovery of demand and improved sales structure. Quarterly EBITDA dynamics, mln USD 600 • EBITDA for the steel segment (Russia) in Q2 2016 increased 99.2% q-o-q.
Slide 21: Analysis of Key Financial Highlights
ANALYSIS OF KEY FINANCIAL HIGHLIGHTS Analysis of revenue, Q2 2016 q-o-q, mln USD • Key factors impacting revenue in Q2 2016 were higher steel prices and sales volumes, as well as FX rate changes. 1 500 16 • In Q2 2016, the Company’s profit more than doubled q-o-q to USD 329 mln. 0,4 79 117 Key one-o
Slide 22: Depreciation and Capex Dynamics
DEPRECEATION AND CAPEX DYNAMICS Depreciation dynamics, mln USD • MMK Group’s capex in Q2 2016 amounted to USD 88 mln. The increase on the previous quarter was due to scheduled maintenance at a blast 250 furnace №4 and convertor. • The increase in depreciation in Q2 2016 vs the previous quarter was 2
Slide 23: Sustainable Generation of Positive Free Cash Flow (FCF)
SUSTAINABLE GENERATION OF POSITIVE FREE CASH FLOW (FCF) Net working capital dynamics, mln USD Operational Free Cash Flow (FCF), mln USD 1 400 As of the end of Q2 2016 net working capital / revenue ratio recovered to 14.5% -28 1 200 800 1 000 -352 600 800 1 245 1 214 847 600 1 203 -166 400 1 031 967
Slide 24: High Operational Performance Supports Efficient Decrease of the Debt Load
HIGH OPERATIONAL PERFORMANCE SUPPORTS EFFICIENT DECREASE OF THE DEBT LOAD, mln USD • MMK Group’s net debt as of the end of Q2 2016 decreased by USD 436 mln from 31.12.2015 to USD 688 mln. • This decrease supported a further reduction in the net debt / EBITDA ratio to 0.44x — the strongest since 2008
Slide 25: MMK Group's Debt Profile
ММК GROUP’S DEBT PROFILE Debt and cash funds structure by currency, mln USD • The share of debt denominated in foreign currencies (USD+EUR) amounted Debt C&CE and Deposits to approx. 85% as of 30 June 2016. 2 000 880 1 847 • The volume of cash funds and short-term deposits on MMK Group’s balance 723
Slide 26: Structure of Operating Costs and Cash Costs
STRUCTURE OF OPERATING COSTS AND CASH COSTS MMK Group operating costs, mln USD • In Q2 2016, the share of metal scrap significantly increased in the structure of OJSC MMK’s material costs, due to an increase in capacity utilisation of EAFs amid higher production volumes. Q2 16 Q1 16 +/- % • Pig iron
Slide 27: Appendices
APPENDICES 9 (1) Latest financials (2) Supporting documents 27
Slide 28: MMK Has Achieved Significant Improvements in Labour Productivity, Safety, and Environmental Impact
MMK HAS ACHIEVED SIGNIFICANT IMPROVEMENTS IN LABOUR PRODUCTIVITY, SAFETY, AND ENVIRONMENTAL IMPACT Headcount at OJSC declined by 45% LTIFR fell by 58% Emission rate fell by 51 % (ths people) (kg/t) (incidents per 1,000 people/y) -45% -58% -51% 36,6 33,5 0,71 18,5 0,30 18,1 2000 2015 2015F 2000 2015F
Slide 29: Investment in 2016-2025 Will Be Aimed at Increasing Efficiency and Decreasing Cost of Sales
INVESTMENT IN 2016-2025 WILL BE AIMED AT INCREASING EFFICIENCY AND DECREASING COST OF SALES Investment programme principles: CAPEX of MMK, 2006 - 2025 • Rigorous approach to projects selection, based 2,5 2,2 on DCF valuation and with risk assessment 2,1 2,0 From 2016 till 2025 MMK Group plan to • Ba
Slide 30: Maximising Domestic Sales Share
MAXIMISING DOMESTIC SALES SHARE MMK sales by market, mln tonnes MMK domestic sales structure H/r steel 10 MMK has been organically increasing share of C/r steel 36% domestic sales, while maintaining a 12% 8 significant share of export 8,4 HVA products, 6 44% Total: 8,424 ths t 3,7 4 2,1 2,6 2 Coated
Slide 31: Diversified Domestic Sales
DIVERSIFIED DOMESTIC SALES Top eight clients, ths tonnes Share of top eight clients in shipments, % 100% Metal Profile ChTPZ; 471 Company; 160 24% Severski Pipe 75% Top eight clients Plant (TMK); 284 account for just 19% Naberezhnochel in MMK sales n. Pipe Plant; 164 50% 57% Total: 2,134 ths tonnes
Slide 32: Self Sufficiency: Maintaining Good Progress
SELF SUFFICIENCY: MAINTAINING GOOD PROGRESS 2007 Self-sufficiency Level, % 2015 Self-sufficiency Level, % 100% 100% 15% 27% 75% 75% 63% 81% 90% 50% 100% 100% 50% 100% 85% 73% 25% 25% 37% 19% 10% 0% 0% Iron Ore Coal Scrap Electricity Iron Ore Coal Scrap Electricity Own Purchased Own Purchased Impress
Slide 33: Enhanced Direct Exposure to Niche Segments
ENHANCED DIRECT EXPOSURE TO NICHE SEGMENTS LDP & MDP Demand in Russia, m tonnes Mill 5000 Production Dynamics, th. tonnes 6 5,1 1 000 924 953 5 4,8 843 4,5 4,6 799 4,2 800 +3,1% 4 Demand for LDP remains strong 3,3 600 3 2,6 2,5 +9,6% 1,8 1,7 400 Healthy demand for 2 thick plate supports Mill 1 200 5
Slide 34: Disclaimer
DISCLAIMER •THIS PRESENTATION IS FOR INFORMATION ONLY. •THIS PRESENTATION IS FOR DISTRIBUTION IN UK ONLY AMONG THE PEOPLE HAVING PROFESSIONAL SKILL IN THE ISSUES RELATED TO INVESTMENTS WITHIN THE MEANING OF ARTICLE 19(5) OF DIRECTIVE ON FINANCIAL ADVERTISEMENT APPROVED IN 2005 ON THE BASIS OF LAW ON