Nlmk · RUS:NLMK
Nlmk — Troika Dialog The Russia Forum 2012
33 slides from Nlmk's conference presentation, Feb 1, 2012
Slide 1: NLMK Corporate Presentation
NLMK CORPORATE PRESENTATION TROIKA DIALOG THE RUSSIA FORUM 2012 SERGEY TAKHIEV HEAD OF INVESTOR RELATIONS Moscow, 1 February 2012
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: Company overview; Sustainable growth strategy; Market trends
1. Company overview 2. Sustainable growth strategy 3. Market trends 3
Slide 4: Business Profile
BUSINESS PROFILE One of the most competitive steel players EBITDA PER TONNE, NLMK VS RUSSIAN PEERS o Last 5‐year EBITDA margin of 35% 500 $/t 375 400 302 Sustainable growth with a proven delivery record 300 268 243 269 234 180 205 o 2006‐12 liquid steel capacity increase of 70% 183 168 166 148 172 1
Slide 5: Balanced and Favorably Located Assets
BALANCED AND FAVORABLY LOCATED ASSETS Russian production platform enhanced with international assets Usinsky-3 Coking coal deposit Kaluga mini-mill Novolipetsk (under const’n) Steel: 12.4 mtpa NLMK USA Strip Projected capacity Flats: 5.5 mtpa Zhernovskoye 1 mini-mill & 2 rolling mills Steel: 1.5 m t
Slide 6: Production Costs
PRODUCTION COSTS Constantly one of the best Low cost steel producer AV. STEEL CASH COSTS, DEC’11 VS AUG ‘11 800 $/t Aug‐11 Dec‐11 o Due to vertical integration and efficiency of 700 operations 600 Q3 2011 cost position 500 o Further control over production costs 400 NLMK cost position 300 o Non‐sign
Slide 7: Efficient Vertical Integration
EFFICIENT VERTICAL INTEGRATION Ensures cost advantage in raw materials supply VERTICAL INTEGRATION CASH COST REDUCTION EFFECT, Q3 2011 Iron ore: 100% with over 100 years mine life $/t Coke: over 100% with modern facilities 550 502 Iron ore 500 Scrap: largest collector in Russia 450 Coke Scrap Other
Slide 8: Sales
SALES • Wide product mix with strong value‐added share Q3 2011 DIVERSIFIED SALES MIX Total 3,420 thousand tonnes Pig iron 7% • Rational export/domestic market balance 2% Slabs and billets 17% 2% 11% 7% Thick plates 7% • Slabs sales hedged by overseas rolling operations 4% 17% Hot rolled 27% 9% Cold
Slide 9: Domestic Market
DOMESTIC MARKET • Optimal flat and long products mix (65% vs 35%) NLMK: SHARE IN RUSSIAN STEEL PRODUCTION* • Leading supplier of value added products 14% • Exposure to niche segments NLMK • Leader in all key product lines Other 86% * Based on first eight months 2011 production data for Russian steel
Slide 10: Financial Highlights
FINANCIAL HIGHLIGHTS Sustainable performance in Q3 2011 DEBT MATURITIES AS OF THE END OF Q 2011 o Revenue $3.334 billion, +12% q‐o‐q 1,200 $ million o EBITDA $478 million (normalized $533 million*) o EBITDA margin 14% (normalized EBITDA margin is 16%) 900 Financial position as of the end of Q3 2011
Slide 11: Sustainable growth strategy
1. Company overview 2. Sustainable growth strategy 3. Market trends and outlook 11
Slide 12: Sustainable Growth
SUSTAINABLE GROWTH • Expansion of low cost steel capacity BALANCED VALUE CHAIN Operating profit by segment o Growth in BOF steel capacity by 36% 4,000 636 3,500 o Growth in EAF steel capacity by 70% 3,000 637 o Growth in quality of steel produced 2,500 2,000 321 14% o Decrease of per unit costs 1,50
Slide 13: Crude Steel Expansion
CRUDE STEEL EXPANSION • Capacity growth CRUDE STEEL CAPACITY GROWTH: +40% o BF/BOF Steelmaking (Russia) : 3.4 mtpa mtpa Brownfield project of ~$500/t investments o EAF Steelmaking (Russia): 1.5 mtpa 16 1.5 3.4 EAF: 1.5 mtpa Greenfield project of ~$750/t investments 12 from mid 2012 BF: 3.4 mtpa ‐ 20
Slide 14: Raw Materials Self-Sufficiency
RAW MATERIALS SELF‐SUFFICIENCY EXPANSION OF IRON ORE CONCENTRATE AND • Iron ore PELLETS CAPACITY o Growth in iron ore concentrate production mt 10 mt 20 +6 m t 18 +6mt o Pelletizing plant of 6 mtpa to be commissioned in 2014 18 8 16 14 6 • Coal 14 12 12 4 o PCI technology installation to reduce by 3
Slide 15: Organic Expansion of Rolling Capacities
ORGANIC EXPANSION OF ROLLING CAPACITIES • Expansion of HRC production DOWNSTREAM GROWTH IN RUSSIA o Location: Lipetsk site ,000 t Установка «печь- 1,500 500 1500 o Upgrading of the existing Mill 2000 400 ковш» 400 350 350 o Capacity growth: +400,000 tonnes by 2014 300 250 • CRC mill 200 o Location:
Slide 16: Downstream Integration - Duferco JV Acquisition
DOWNSTREAM INTEGRATION ‐ DUFERCO JV ACQUISITION • Getting direct access to 7 mtpa rolling BUILDING AN INTEGRATED PLATFORM o Hedge sales of additional crude steel production ,000 tonnes o Direct access to wide EU/US customer base o Increase/acquire downstream presence in the traditional 3,400 Sales t
Slide 17: NLMK Europe Strip Strategy
NLMK EUROPE STRIP STRATEGY • Exposure to resilient sectors of EU Proximity to key o Auto and trucks; Yellow goods; Transportation; Secondary customers in N.Europe transformation o Targeting 50% share of value added products in sales portfolio 100% slab • Operational de‐bottlenecking needs from o Upg
Slide 18: NLMK Europe Thick Plates Strategy
NLMK EUROPE THICK PLATES STRATEGY • Exposure to resilient sectors of EU NLMK PLATES o Machinery sector capital goods, energy, etc Re-rolling facilities with expanding capacities • Targeting new market niches o Exposure to value added niche products (Q&T plates) NLMK Clabecq and NLMK Verona 80% slab
Slide 19: NLMK USA Strategy
NLMK USA STRATEGY • Exposure to reviving sectors in USA o Machinery building sector • Creating product platform with strong pricing power • Geographic location close to scrap supply and end customers NLMK FLAT USA • Resilient financial and operating performance Re-rolling facilities forming during t
Slide 20: Alternative Scenario: Slab Market Impact
ALTERNATIVE SCENARIO: SLAB MARKET IMPACT • Merchant slab market has a limited volume GLOBAL SLAB MARKET o 5% of the total slabs produced 600 m tonnes 6% o NLMK’s share is 13% in global slab market 500 5% 5% 962 • Additional supply may distort the market 400 4% 4% 4% o Additional 10% growth in increm
Slide 21: European Industry Needs Finished Steel
EUROPEAN INDUSTRY NEEDS FINISHED STEEL Between the rock and the hard place EU STEELMAKING UTILIZATION RATES • Steel consumption per capita remains more resilient 180 mt 105% Finished steel consumption Steelmaking run rate • Steel production vs. steel consumption is diverging 160 100% 140 95% during
Slide 22: Global Slab Market
GLOBAL SLAB MARKET Lack of stability puts emphasis on downstream MERCHANT SLAB MARKET SHARE AS A TOTAL WORLD'S OUTPUT • Slab markets was fairly stable in size despite the 3% %, share mt 35 growth of the steel production 3% 30 • Slab demand has shifted to the Asian region and 25 2% became highly vola
Slide 23: EU Slab Market
EU SLAB MARKET Europe remains stable consumer while market SLAB VS HRC PRICE* penetration was the challenge $250 $/t • Total EU slab requirements by rolling mills remains Slab/HRC spread Average spread is ~$170/t stable through the cycle $200 • Average spread slab‐HRC prompted downstream $150 invest
Slide 24: European Steel Sector
EUROPEAN STEEL SECTOR Misplaced capacity vs resources EU STEEL SECTOR: PERFECTLY MISBALANCED • 12% of the global steel capacity is located in EU 14% as % of total global 12% • Structural shift of value into raw materials side 12% 10% 10% 9% made EU steel sector vulnerable to raw materials 8% prices
Slide 25: European Steel Sector
EUROPEAN STEEL SECTOR Current situation prompts restructuring and favors GLOBAL COST CURVE – HRC with overheads NLMK business model $800 $/t European steel • High cost leads to BFs closures producers $700 • EU steel sector structurally needs to shift to imported slabs $600 o Structurally high cost o
Slide 26: NLMK - Leading Slab Supplier
NLMK – LEADING SLAB SUPPLIER Geographic factor defines further strategy NLMK’S SLAB SALES TO EU VS REST Europe remains attractive market for CIS slab supplies 4,500 ,000 t 70% are most attractive for EU, as both regions are natural 4,000 60% 3,500 50% partners 3,000 2,500 40% o X2 times – savings on
Slide 27: Market trends and outlook
1. Company overview 2. Sustainable growth strategy 3. Market trends and outlook 27
Slide 28: Market Overview
MARKET OVERVIEW High cost of production globally HRC PRICE DYNAMICS VS METALLIC CHARGE* 1,000 o Growing prices for raw materials (iron ore/coal/scrap) 900 $/t 800 Difference between price and o Structurally non‐materials related costs are inflating 700 input material costs 600 o Steel price volatili
Slide 29: Short Range Trends
SHORT RANGE TRENDS Scrap as a leading indicator for steel price SCRAP AND STEEL PRICE CORRELATION trends 900 $/t o Growth in steel prices lag behind by 2‐3 mnth 800 that of scrap 700 600 o Possible HRC price stabilization / recovery 500 Inventory levels 400 o Steel stocks remain relatively low in de
Slide 30: Russian Market
RUSSIAN MARKET Growth in steel consumption DOMESTIC STEEL PRICES, HRC / CRC (EXW) $/t o 2011E – up to 40 m t of ASU 1,200 o Growth in real estate investments in 9M’2011 (+80% y‐ 1,000 800 o‐y ) 600 o Automotive production 40% up y‐o‐y 400 HRC EXW Pricing trends 200 CRC EXW Slab FOB o Stable pricing
Slide 31: EU Market
EU MARKET Flat steel prices under pressure HRC PRICE DYNAMICS, EU $950 $/t o Driven by massive destocking started in Aug‐Sept 2011 $850 o Trend largely replicates 2010 scenario but differs from $750 2009 $650 Steel consuming sectors represent a mixed bag $550 o Demand from industrial sector remains
Slide 32: US Market
US MARKET Flat steel relatively resilient HRC PRICE DYNAMICS $/t o Stable demand from machinery sector $1,050 o Lower imports $950 $850 Divergent tends in steel consuming sectors $750 $650 o Machinery and capital goods benefit from stable demand $550 o Construction is still anemic $450 $350 Inventor
Slide 33: 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