Slide 1: Investor presentation
1 Investor presentation May 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: Agenda
3 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • 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 Q1’21 LTM FINANCIALS SNAPSHOT TOP-20 globally* 800 Sustained position over the last 15 years Strong positions on the domestic and global 700 $3.2 bn - EBITDA markets (i.e. #1 in global slabs trade, TOP-5 in elec
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: Q1'21 LTM shipments: business model provides strong flexibility
Q1’21 LTM SHIPMENTS: BUSINESS MODEL PROVIDES STRONG FLEXIBILITY 6 ~62% OF GROUP’S SALES W/O NBH WERE FINISHED STEEL PRODUCTS NLMK: HOME MARKET SALES WITH NBH*, m t 63% of NLMK’s sales were Russia made in markets where the Semis 35% Group operates (home LDP feedstock 4% 4.0 Europe markets) HRC 22% 23
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 COMPACT’S PARTICIPANT – Creating long-term shareholder value – Caring about health, wellbeing and development of employees ENVIRONMENT HEALTH & SAFETY – Treating environment respon
Slide 8: Recognition of NLMK's results in the area of sustainability
RECOGNITION OF NLMK’S RESULTS IN THE AREA OF SUSTAINABILITY 8 Continuous improvements Out of 100 across the board resulted in Out of 100 NLMK’s ESG ratings upgrades 83 90 77 100 by the leading rating agencies 45 90 36 80 53 50 in the area of sustainability 33 45 70 40 22 60 35 50 30 40 25 20 30 Sust
Slide 9: Market update
9 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 10: High raw material prices fueled by strong surge in demand
HIGH RAW MATERIAL PRICES FUELED BY STRONG SURGE IN DEMAND 10 Business activity in Q1’21 remained MANUFACTURING PMI STEEL DEMAND IN KEY REGIONS, Q1’21, QoQ strong in all key regions 65 Activity 60 expansion 20% 17% Steel demand trends vary across geographies 55 15% 50 10% 8% – In the US, demand grew
Slide 11: Historical steel demand patterns, what to expect next?
HISTORICAL STEEL DEMAND PATTERNS, WHAT TO EXPECT NEXT? 11 Historically, every 1 p.p. change in global GLOBAL STEEL DEMAND DYNAMICS VS GDP 2016-17 CAGR 2020 GDP leads to a 2-3 p.p. change in apparent +3% GDP -3% GDP 20% 2009 2010 +5% ASU* -0.2% ASU* steel consumption, on average -2% GDP +4% GDP 15% -
Slide 12: Strategy 2022 highlights
12 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 13: Strategy 2022 targets additional $1.25 bn of EBITDA
STRATEGY 2022 TARGETS ADDITIONAL $1.25 BN OF EBITDA 13 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 14: Investing in high-quality projects
INVESTING IN HIGH-QUALITY PROJECTS 14 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 15: Leadership in operational efficiency – operational targets
LEADERSHIP IN OPERATIONAL EFFICIENCY – OPERATIONAL TARGETS 15 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 16: Leadership in operational efficiency – financial targets
LEADERSHIP IN OPERATIONAL EFFICIENCY – FINANCIAL TARGETS 16 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 17: Growth in low-cost steel production – operational targets
GROWTH IN LOW-COST STEEL PRODUCTION – OPERATIONAL TARGETS 17 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 18: Growth in low-cost steel production – financial targets
GROWTH IN LOW-COST STEEL PRODUCTION – FINANCIAL TARGETS 18 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 19: World-class sales portfolio – financial targets
WORLD-CLASS SALES PORTFOLIO – FINANCIAL TARGETS 19 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 20: World-class sales portfolio – Russia Flat & Long sales targets
WORLD-CLASS SALES PORTFOLIO – RUSSIA FLAT & LONG SALES TARGETS 20 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 21: World-class sales portfolio – Europe Strip & Plate sales targets
WORLD-CLASS SALES PORTFOLIO – EUROPE STRIP & PLATE SALES TARGETS 21 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 22: Leadership in sustainability and safety – targets
LEADERSHIP IN SUSTAINABILITY AND SAFETY – TARGETS 22 GROUP SAFETY TARGETS, LTIFR*, EMPLOYEES & CONTRACTORS Safety development programs 1.96 – Safety culture programs & communications 1.60 – Contractors management 1.15 1.12 1.25 0.85 0.77 0.86 – Safety risk management 0.5 Targeted 35% drop in LTIFR r
Slide 23: Strategy 2022 execution
23 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 24: Strategy 2022 – results snapshot
STRATEGY 2022 – RESULTS SNAPSHOT 24 Effects of Strategy 2022 implementation STRATEGY 2022 EFFECTS IN 2020, $ m pa 320 totaled $261 m in 2020 to 2019 base 270 Contributions from the operational 220 85 efficiency programs reached $176 m, well 261 170 above our annual target of $100 m 176 120 – The min
Slide 25: Capital allocation
25 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 26: Dividend policy – maximizing shareholder value
DIVIDEND POLICY – MAXIMIZING SHAREHOLDER VALUE 26 Dividend policy remains intact DIVIDENDS, $ bn – Minimum 100% of FCF if 158% FCF payout ND/EBITDA is below 1.0x 133% 190 % 113% 102% 3 104% 84% 140 % – Minimum 50% of FCF if 1.7 65% 2 ND/EBITDA is above 1.0x 26% 0.26 one-off dividend 90% 2 21% 2.1 1.
Slide 27: The Group's capex outlook
THE GROUP’S CAPEX OUTLOOK 27 CAPEX, $ bn 2021 CAPEX guidance: $1.1-1.2 bn – $0.5-0.6 bn: maintenance capex 1.124 1.1-1.2 1.0-1.1 – $0.6 bn: Strategy 2022 projects 0.4 0.6 0.7-0.8 Development, Strategy 2022 Investments to peak in 2021 due to completion of large maintenance 0.8 projects and active pha
Slide 28: NLMK's performance
28 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 29: Q1'21 sales were down on higher intragroup shipments and stocks build up
Q1’21 SALES WERE DOWN ON HIGHER INTRAGROUP SHIPMENTS AND STOCKS BUILD UP 29 Steel output increased by 12% qoq to POST-OVERHAUL INCREASE IN STEEL OUTPUT HIGHER FINISHED PRODUCTS SALES (W/O NBH) 4.4 m t following completion of +12% -7% steelmaking modernization at NLMK 4.4 4.5 4.2 4.2 Lipetsk site in
Slide 30: Q1'21 financial highlights: multi-year high results
Q1’21 FINANCIAL HIGHLIGHTS: MULTI-YEAR HIGH RESULTS 30 Revenue increased by 20% qoq to $2.9 bn amid FCF, EBITDA AND MARGIN DYNAMICS stronger prices 0 41% 1,400 EBITDA expanded by 31% qoq to $1.2 bn on improved 0 37% 1,200 price spreads 0 0 27% 26% 1,000 EBITDA margin reached 41% 24% 800 0 0 – Revenu
Slide 31: Q1'21 profitability gained momentum due to wider price spreads
Q1’21 PROFITABILITY GAINED MOMENTUM DUE TO WIDER PRICE SPREADS 31 Russian Flat products: EBITDA expanded to $772 m EBITDA BY DIVISION, $ m – (+) Increased price spreads 1,166 1300.0 1295.0 1290.0 1285.0 1280.0 1275.0 1270.0 1265.0 1260.0 1255.0 1250.0 1245.0 1240.0 1235.0 1230.0 1225.0 1220.0 1215.0
Slide 32: Q1'21 FCF increased two-fold on higher profits and lower capex
Q1’21 FCF INCREASED TWO-FOLD ON HIGHER PROFITS AND LOWER CAPEX 32 Q1’21 FCF BRIDGE, $ m Working capital build-up amounted to $289 m 0 100 200 300 400 500 600 700 800 900 1,0 00 1,1 00 1,2 00 1,3 00 – (-) $304 m: increase in receivables due to EBITDA 1,166 higher prices for steel products, higher sal
Slide 33: Strong debt portfolio and liquidity position
STRONG DEBT PORTFOLIO AND LIQUIDITY POSITION 33 DEBT* MATURITY, $ m COST OF DEBT REMAINS LOW, % Total debt decreased by 16% qoq to Working capital lines ECA lines Eurobonds $2.9 bn 4.9% – Scheduled repayment of working 4.4% capital lines 4.2% Net debt / 12M EBITDA stood at 0.65x 700 3.8% 484 542 601
Slide 34: Appendix
34 • NLMK at a glance • Market update • Strategy 2022 highlights • Strategy 2022 execution • Capital allocation • NLMK’s performance • Appendix
Slide 35: NLMK key highlights
NLMK KEY HIGHLIGHTS 35 Steel capacity utilization is STEEL PRODUCTION, m t above 90% through the Crude steel output Capacity utilization cycle 98% 99% 18.0 105% 95% 95% 95% 94% 94% 17.5 94% 100% Steel output growth in 17.0 93% 95% 2013-2018 driven by 16.5 efficiency improvements 17.5 16.0 90% 15.5 1
Slide 36: Sales in Russia
SALES IN RUSSIA 36 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 4,712 4,413 4,643 18% Pipe producers 4,130 4,089 4,243 5,000 The company has exposure to 80% 28% Semi-finishe
Slide 37: Sales & export structure
SALES & EXPORT STRUCTURE 37 NLMK - EXPORTS FROM RUSSIA BY PRODUCT, Q1’21 LTM, m t NLMK GROUP - SALES BREAKDOWN W/O NBH, Q1’21 LTM, m t RUSSIA: 38% Slabs to captive assets 1.0 0.8 Russia flat 1.0 Slabs to NBH 24% Russia long 1.8 31% Semi-finished products Russia slabs 0.5 9.1 m t 16.9 m t Longs Europ
Slide 38: NLMK has limited exposure to trade barriers
NLMK HAS LIMITED EXPOSURE TO TRADE BARRIERS 38 Significant portion of NLMK’s exports and total shipments is not subject to import 94% OF NLMK’S EXPORTS FROM RUSSIA WAS NOT GROUP’S SALES BY REGION (WITH NBH), restrictions SUBJECT TO IMPORT RESTRICTIONS, Q1’21 (LTM), m t Q1’21 LTM, m t – Semis are usu
Slide 39: Foreign assets performance
3,5 00 FOREIGN ASSETS PERFORMANCE 1,4 00 39 1,2 00 3,0 00 SLABS SALES FROM THE RUSSIAN FLAT PRODUCTS DIVISION, k t NBH ROLLED PRODUCTS SALES, k t 2,5 00 QoQ 1,0 00 Total +4% 800 QoQ 1,608 2,0 00 178 1,273 NLMK Dansteel+31% Dansteel 10 605 Total -10% 191 10 549 58 1,229 & NLMK USA 77 8 495 600 CRC 1,
Slide 40: NLMK's tailings dam – safety is number one priority
NLMK'S TAILINGS DAM – SAFETY IS NUMBER ONE PRIORITY 40 DAM SAFETY is ensured by multi – level checks REGULAR EXTERNAL CHECKS NLMK’s tailings dam was put into operation in 1984 (weekly, monthly and annual checks by state bodies) Tailings dam development plan was independently audited Emergency prepar
Slide 41: Less reliance on volatile commodity markets
LESS RELIANCE ON VOLATILE COMMODITY MARKETS 41 Gradual decline in reliance on volatile iron IRON ORE BALANCE, m t COST OF SALES STRUCTURE ore market 4.9 4.6 4.3 1% 1% 4.0 Other energy 3.7 3.4 – No iron ore supplies to the third parties in 3.1 2.8 4.2 resources 2.5 2.2 0.0 5% 1.9 2017 - 2018 after th
Slide 42: Exposure to FX rates
EXPOSURE TO FX RATES 42 Revenue/cost FX split provides FINANCIAL RESULTS AND BALANCE SHEET CURRENCY STRUCTURE, AS AT 31 March 2021 a solid cushion in volatile 100% commodity prices fluctuation 90% 80% 40% 35% 70% 54% Foreign currency 60% 50% 100% 93% NLMK’s EBITDA sensitivity to 40% 30% 60% 65% RUB
Slide 43: Coal prices and implications for NLMK
COAL PRICES AND IMPLICATIONS FOR NLMK 43 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… 400 Average discount c. 40% Consolidated Non-consolidated 350 363 – … hence, Russian coking 355 331329 333 3453223163193
Slide 44: Russia: demand structure and share of imports
RUSSIA: DEMAND STRUCTURE AND SHARE OF IMPORTS 44 In 2009, the GFC shed almost APPARENT STEEL USAGE (ASU)* IN RUSSIA, m t 10 m t of Russian demand for steel. COVID-19 has had much smaller Long Flat excl. pipes substrate Tubes NLMK’s share in total consumption impact on steel consumption in 15% 15% 16
Slide 45: Steel imports in Russia
STEEL IMPORTS IN RUSSIA 45 Ukraine is the main Q1’21 LTM FLAT STEEL IMPORTS, k t Q1’21 LTM LONG AND SEMIS STEEL Q1’21 LTM TOTAL IMPORTS (excl. pipes), k t steel importer into IMPORTS (excl. pipes), k t Belarus S. Korea Russia (40% of imports EU EU 205 128 197 LTM), particularly of 79 Others China 42
Slide 46: Strategy 2017 – key objectives achieved
STRATEGY 2017 – KEY OBJECTIVES ACHIEVED 46 In 2014-2018, Strategy 2017 delivered $1,348 m STRATEGY NET GAINS RELATIVE TO TARGET, $ bn of net gains*, well above initial target by Objective by Source 1.35 1.35 1.6 Operational efficiency projects driven by NLMK 1.4 Market 0.1 1.4 Production System cont
Slide 47: NLMK Group's global production chain
NLMK GROUP’S GLOBAL PRODUCTION CHAIN 47
Slide 48: Key financials
KEY FINANCIALS 48 ($ m) 2014 2015 2016 2017 2018 2019 2020 ($ m) 2014 2015 2016 2017 2018 2019 2020 Income Statement Balance Sheet Revenue 10,396 8,008 7,636 10,065 12,046 10,554 9,245 Cash 1,102 1,515 1,508 1,358 1,184 870 991 Cost of sales (7,389) (5,496) (5,074) (6,798) (7,680) (7,303) (5,920) In
Slide 49: Company IR contacts
COMPANY IR CONTACTS 49 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