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NLMK Corporate PresentationVTB Capital Investment Forum "RUSSIA CALLING!"
Moscow
14-15 October 2015
DISCLAIMER
2
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 not constitute or form part of any advertisement of securities, any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for, any shares in the Company or Global Depositary Shares (GDSs), nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or investment decision.
No reliance may be placed for any purpose whatsoever on the information contained in this document or on assumptions made as to its completeness. No representation or warranty, express or implied, is given by the Company, its subsidiaries or any of their respective advisers, officers, employees or agents, as to the accuracy of the information or opinions or for any loss howsoever arising, directly or indirectly, from any use of this presentation or its contents.
The distribution of this document in other jurisdictions may be restricted by law and any person into whose possession this document comes should inform themselves about, and observe, any such restrictions.
This document may include forward-looking statements. These forward-looking statements include matters that are not historical facts or statements regarding the Company’s intentions, beliefs or current expectations concerning, among other things, the Company’s results of operations, financial condition, liquidity, prospects, growth, strategies, and the industry in which the Company operates. By their nature, forwarding-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward-looking statements are not guarantees of future performance and that the Company’s actual results of operations, financial condition and liquidity and the development of the industry in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this document. In addition, even if the Company’s results of operations, financial condition and liquidity and the development of the industry in which the Company operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in future periods. The Company does not undertake any obligation to review or confirm analysts’ expectations or estimates or to update any forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation.
By attending this presentation you agree to be bound by the foregoing terms.
CONTENT
3
About NLMK 4
Strategy 2017 7
Q2 2015 Operating results 13
Financial Performance and Position 20
Market overview 26
Appendix 32
ABOUT NLMK
Blast furnace keeper at Novolipetsk (BF operations) For more visuals go to instagram.com/nlmk_group
95%
5%
Russia International
USA Moscow
Belgium
France
Italy
Denmark
RUSSIA
Well positioned and diversified value chain
GEOGRAPHY & PRODUCTION CAPACITY
5
Novolipetsk Coke: 2.6 m tpaSteel: 12.6 m tpaFlats: 5.9 m tpaSemis: 6.5 m tpa
Altai-KoksCoke: 4.7 m tpa
NLMK DansteelPlates: 0.55 m tpa
NLMK USA1 mini-mill & 2 rolling millsSteel: 0.8 m tpaFlats: 2.9 m tpa
NLMK Kaluga Steel (EAF): 1.5 m tpa Longs: 0.9 m tpa
NLMK Belgium Holdings (NBH)Strips: 1.7 m tpaPlates: 1.1 m tpa
Stoilensky (open pit)Iron ore fines: 15 m tpaSinter ore: 1.8 m tpaReserves: 5 bn t
NLMK Long ProductsSteel : 2.0 m tpaLongs: 1.9 m tpaMetalware: 0.5 m tpa
VIZ-StalGO steel flats: 0.2 m tpa
- Raw materials producing assets
- BF/BOF steelmaking
- EAF mini-mill
- Rolling assets
- Licenses to develop coal deposits
NLMK CRUDE STEEL CAPACITY
17 m t
71%
92%100%
NLMK Russia NLMK Europe NLMK USA
“DOMESTIC” SALES OF FINISHED STEEL PRODUCTION CAPACITY, M TPA
17.0
12.6
3.4
Crude steel Flat steel Long steel
Well positioned to further enhance its competitive position
KEY COMPETITIVE ADVANTAGES
• The largest steelmaker in Russia with 1st quartile costs and one of the highest profitability levels globally
• Balanced and diversified production chain
o All upstream assets and 95% of steelmaking capacity(80% BOF, 20% EAF) located in Russia
o Self-sufficiency in raw materials: iron ore 85%, coke 100%, scrap 85%, energy 60% (Lipetsk Site)
o 15 m tpa downstream facilities in Russia, EU and the US source slabs from Russian operations
• One of the most diversified steelmakers globally
o Up to 100% of finished rolled products produced in Russia, EU and the US are sold locally
o Diversified product portfolio (flat 85%, long 15%) with c. 30% of high value added
o Diversified customer base (from infrastructure to automotive and energy) in more than 70 countries
• 100% utilization, 25 p.p. above industry average
• Low risk growth opportunities across the existing production platform
o Scalable value chain: growth options in upstream, midstream and downstream
o Low capex due to organic/brownfield growth options
6
SLAB PRODUCTION COST (SEPTEMBER 2015)
DIVERSIFIED BUSINESS MODEL
43
57
Sales
InternationalRussia
80
20
Production route
BOFEAF
31
69
Product mix
Commercial gradeHVA
82
18
Product type
FlatLong
150
200
250
300
350
400
450
500
550
0 100 200 300 400 500 600 700 800
Cas
h c
ost
USD
/t
Cumulative capacities (M tonnes)
NLMK
Source: World Steel Dynamics
STRATEGY 2017: PROGRESS
Cooling tower at Novolipetsk (BF operations) For more visuals go to instagram.com/nlmk_group
Delivering superior shareholder value
FOUR PILLARS OF STRATEGY 2017
8
o Increase market share in Russia/CIS
o Improve utilization rates at the US and European facilities
o Scale up efficient iron ore mining platform
o Reduce consumption of expensive resources
o Minimize environmental footprint
o Promote safe operating practices
o Develop motivated and engaged workforce
Leading positions in strategic markets
World-class resource base
Leadership in sustainability & safety
o Achieve best-in-class operational efficiency standards across production chain
Leadership in operational efficiency
1
2
3
4
Group-wide efficiency gains structurally deflate costs / improve productivity
LEADERSHIP IN OPERATIONAL EFFICIENCY
• Continued growth of efficiency projects portfolioo Over 300 new efficiency projects initiated in H1’15
• H1’15 savings totaled $102m - 100% of the total 2015 target
• Steel segment1
o Productivity improvements led to +160 k tpa of slabs and +80 k tpa of hot-rolled coil output
o Lower resource utilization:◦ -18 kg/t of coking coal consumption
◦ -4 kg/t of iron ore, -4 kg/t of metallics in charge
• Long products segment1
o Optimized EAFs operations led to lower consumption of energy and materials
• Mining segment1
o +300 k t of iron ore concentrate production
• International operations1
o Significant productivity and quality gains (c.1% to 98.9% of prime products) in EU Strip division
o Yield improvement (-23% yields drop)
o Headcount optimization
9
GROWING NUMBER OF EFFICIENCY PROJECTS
H1’15 OPERATIONAL EFFICIENCY GAINS
29 128 182 236
339
898 1,011
1,310
1,460
1,613
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15
Steel segment74%
Long products segment10%
Mining segment5%
Foreign rolled segment5%
NBH6%
1 6 months 2015 numbers, yoy change
1
Cost savings to exceed $200m
WORLD CLASS RESOURCE BASE
• New pelletizing planto Project status at the end of June 2015:
◦ Engineering and equipment supply: >80%
◦ Building and installation works: 40%
◦ Invested as at 30 June 2015: $430 m
o Commissioning: 2H’16
• Stoilensky mine developmento Iron ore production hit record level in H1’15 with output
up by 11% since 2012
o +1.8 m tpa of extra iron ore concentrate capacity in 2016-17 as a low capex option (c. $120 m)
• After the launch of pelletizing plant, 95% self-sufficiency in iron ore and pellets will be achieved
10
IRON ORE CAPACITY GROWTH
IRON ORE COST CURVE
IRON ORE OUTPUT GROWTH
13.9
17.2
1.00.4
1.8
Output '13 Done In Progress 2017 Capacity '17Е
M tonnes
13.9 14.9
1.51.6
15.416.5
-
2.0
4.0
6.0
8.0
10. 0
12. 0
14. 0
16. 0
2013 2014
Iron ore concentrate Sinter ore
7.4 7.7
0.8 0.9
8.1 8.6
-
2.0
4.0
6.0
8.0
10. 0
12. 0
14. 0
16. 0
H1'14 H1'15
0
20
40
60
80
100
120
140
160
0% 25% 50% 75% 100%
Cumulative capacity: 1.4 bn t
Stoilensky mine: $10/t EXW + $4/ttransport cost to NLMK steelmaking
95
% s
elf-
suff
icie
ncy
M tonnes
Source: Bloomberg Intelligence
2
100% run rates supported by flexible sales
LEADERSHIP IN STRATEGIC MARKETS
• +3% sales growth supported by flexible sales structure
• Captured price premium in the Russian marketo Q2’15 Russian sales share up 2 p.p. qoq to 38%
◦ Flat steel, including HVA* products: +4% qoq
◦ Long products driven by NLMK Kaluga: +33% qoq
• Growth in slab sales to captive foreign assets
o 11% yoy growth in captive sales
• Sales growth at international operationso Supported by stable demand in developed markets
o NLMK USA HVA products sales increased by 3% qoq
11
SLAB SALES STRUCTURE
EXPORT SHARE VS. RUN RATES
POSITIVE TREND IN SALES
70% 69%
63%
73%68% 67% 68%
61% 60%55% 53%
59%64% 62%
40%
50%
60%
70%
80%
90%
100 %
40%
50%
60%
70%
80%
90%
100%
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Q1
'14
Q2
'14
Q3
'14
Q4
'14
Q1
'15
Q2
'15
Export share, % Utilization rate (NLMK steelmaking)
2.6 2.84.1
3.9 3.6
2.4
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2012 2013 2014
Subsidiaries/associates 3-rd parties
1.8 2.0
1.4 1.4
-0.5
0.5
1.5
2.5
3.5
4.5
5.5
6.5
H1'14 H1'15
M tonnes
6.5 6.4 6.5
3.2 3.4
1.41 1.53
2.55 2.47
-
0.5 0
1.0 0
1.5 0
2.0 0
2.5 0
3.0 0
3.5 0
4.0 0
4.5 0
Q1'15 Q2'15
Russian Export
0.430.48
0.3 0
0.3 5
0.4 0
0.4 5
0.5 0
0.5 5
0.6 0
0.6 5
0.7 0
0.7 5
Q1'15 Q2'15
0.62
0.70
0.3 0
0.4 0
0.5 0
0.6 0
0.7 0
0.8 0
0.9 0
Q1'15 Q2'15
M tonnes
NLMK USANLMK EuropeTotal sales
3.96 4.00
3
Sustainability and safety remain a priority
LEADERSHIP IN SUSTAINABILITY AND SAFETY
• Relentless focus on safe operating practiceso Russian operations LTIFR* down by 9% yoy – below global
best practice level
o Proactive management of risks to life and health of employees and contractors
o Continued focus on accident and fatality prevention
o Improvement of employees’ H&S awareness, competence and motivation at all Group facilities
• Further reduction of environmental footprinto Air emissions at the main integrated plant reduced by
4.4% while output increased
o Key environmental projects on track: ◦ Air: gas-treatment facilities upgrade at Lipetsk and Long steel
plants
◦ Water: biochemical water treatment facility
◦ Waste: BF slag handling facility at Lipetsk
12
LTIFR*, RUSSIAN ASSETS
AIR EMISSIONS (LIPETSK SITE)Kg/t of steel
34.0529.90
22.30 22.03 21.05 18.90
2007 2010 2013 2014 H1'15 Bestavailable
technology
0.88 0.83
0.55 0.500.60 0.60
2012 2013 2014 H1'15 Target2017
Best practice(global)
* LTIFR – Lost Time Injury Frequency Rate (per 1 mln man-hours worked). Russian assets include Russian Flat Products, Russian Long Products, Russian Mining
4
Q2 2015 OPERATING HIGHLIGHTS
High value added products at the warehouse For more visuals go to instagram.com/nlmk_group
Sustainably high utilization rates
OUTPUT
• Q2’15 steel output increased to 4.0 mt (+7% yoy)o The key driver is the Lipetsk site + 12% yoy (to 3.23 mt)
o Maintaining high utilization rates
o Major repairs were performed in Q1’15 (Russia & USA)
• Q2’15 Finished products output was up to 4.0 mt(+9% yoy) driven by semis production
• Group utilization rates are close to maximum levels and well above global average
14
NLMK GROUP STEEL OUTPUT
NLMK GROUP FINISHED PRODUCTS OUTPUT
RUN RATES BY SEGMENTM tonnes
3.0 3.1 3.1 3.2 3.1 2.9 3.2 3.4 3.1 3.2
0.6 0.7 0.8 0.9 0.8 0.91.0 0.7
0.8 0.8
3.63.8 3.9
4.13.9 3.8
4.2 4.13.9 4.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15
BOF EAF
1.8 1.9 1.9 1.8 1.9 2.1 2.0 1.9 2.0 2.0
0.4 0.5 0.5 0.6 0.50.6 0.7
0.5 0.6 0.5
1.2 1.0 0.7
1.61.1
1.0 1.2 1.6 1.3 1.5
3.4 3.43.1
4.0
3.53.7
3.9 4.0 3.9 4.0
33% 33% 37%29% 33% 34% 31% 29% 30% 28%
0%
20%
40%
60%
80%
100 %
120 %
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15
Semis Long Flat HVA share
M tonnes
81% 80%
98%94%
50%
90%
100%
94%
65%
90%
100%94%
40%
60%
80%
100 %
Foreign segment Long products Steel segment NLMK Group
Q2'14 Q1'15 Q2'15 Global average utilization rate
71%
75% 72%
Stable and diversified sales volumes help to maintain high profitability
SALES
• Q2’15 sales increased to 4.0 mt (+4% yoy) driven by slab shipments
• Flexible business model allows too swiftly switch between semis/finished products
o capture Russian market price premiums
• Large client base in more than 70 countries keeps sales at a high level
15
NLMK GROUP SALES BY SEGMENTS*
SLAB SALES TO GROUP* AND 3RD PARTIES
NBH SALESM tonnes
M tonnes
2.4 2.4 2.2 2.4 2.7 2.5 2.4 2.6 2.9 2.7
0.4 0.5 0.60.6
0.70.7 0.6
0.60.6 0.7
1.0 0.9 0.9 0.5
0.60.6
0.60.6
0.5 0.6
3.8 3.8 3.73.5
4.03.8
3.63.8
4.0 4.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15
Foreign Rolled Products Long Products Steel
* NBH is consolidated to Foreign Rolled Products segment up until 30 September 2013 ** Data presented for the H1’2015
M tonnes
0.5 0.60.9
0.30.5 0.4
0.70.5 0.4 0.4
0.4
0.50.4
0.5
0.50.5
0.70.2
0.2
0.1
0.1
0.2
0.2
0.2
0.20.2
0.21.0 0.70.6
0.7
0.6
0.4
0.2 0.5 0.7 0.3
1.7
1.51.6
1.5
1.8
1.4
1.61.7
1.8
1.6
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15
Export LDP producers Associates Subsidiaries
0.13 0.13 0.150.20 0.17 0.15 0.16 0.20 0.22
0.270.09 0.11 0.08
0.090.09
0.08 0.070.07
0.08
0.100.14
0.15 0.180.16
0.170.17 0.16
0.17 0.15
0.160.400.43 0.44
0.49 0.470.44 0.43
0.47 0.48
0.56
0.0 0
0.1 0
0.2 0
0.3 0
0.4 0
0.5 0
0.6 0
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15
Semis CRC Plates Pre-painted HRC
Diversified sales geography
SALES MIX: BY PRODUCT AND GEOGRAPHY
• NLMK has a wide diversification of sales…
• … by regionso Six main region: Russia, Europe, North and South
Americas, Middle East (incl. Turkey) and Asia
o Share of the Russian market (key and domestic market) is in the range of 25-45% of total sales
o Share of other regions does not exceed 25%
• … by type of productso 28% of sales - HVA products + NBH rerolling products
o Lack of prevailing type of products
16
SALES BY PRODUCTS, Q2’15
SALES BY REGIONS (VOLUMES, Q2’15)
SALES STRUCTURE BY REGION
28%
17%
19%
36%
HVA products Semis, excl. NBH
Semis to NBH HRC and longs
43%
20%
12%
11%
8%6%
Metalware
Pre-painted
Plates
GO & NGO steel
HDG
CRC
4.01 mt
38%
29%
16%
10%
1%
6%Russia
Europe
North America
Middle East and Turkey
Asia
ROW
4.01 mt
42%
2%
18%
41%57%
2%
20%
26%
22%
3%
6%
3%
3%
9%14%
88%
5% 15%5%
6% 4% 2% 6%
NLMK(revenue)
ArcelorMittal(volumes)
ThyssenKrupp(revenue)
Posco(revenue)
RoW
S. America
SE Asia
M. East
N.America
Europe
Russia
36%
47%
17%
0%
20%
40%
60%
80%
100%
Sales by producttype in Q2'15
Semi-finished
Flat steel
Long products andmetalware
Exposure to diverse and niche customer base
SALES IN RUSSIA
• NLMK has leading positions in value added product with demand outpacing supply
• Exposure to niche products: o (LDP feedstock) – long term contract till 2019
o Monopolist at electrical steel market (high value added product with the highest margin)
• Diversification to flat / long products
• Flexibility to relocate shipments from domestic to export markets and vice versa
17
SALES BY SECTOR AND PRODUCT
NLMK SHARE IN THE RUSSIAN STEEL MARKET
SHARE OF RUSSIAN MARKET IN TOTAL SALES
18
%
24
%
17
%
21
%
20
%
10
0%
14
%
34
%
21
%
31
%
21
%
10
0%
9%
18%22%
33%
12%
0%-20%
-10%
0%
10%
20%
30%
40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
HRC CRC Glavanizedsteel
Pre-painted Rebar Electrical
Share in consumption Share in production Import share in ASU
30% 31%
37%
27%32% 33% 32%
39% 40%
45%47%
41%
36%38%
0%
10%
20%
30%
40%
50%
60%
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Q1
'14
Q2
'14
Q3
'14
Q4
'14
Q1
'15
Q2
'15
by sector by product
73%
9%
18%
0%
20%
40%
60%
80%
100%
Sales by industriesin Q2'15
Pipe producers
Machine building
Construction andinfrastructure
Strong position in high growth segments
SALES IN EUROPE
• 71% of sales on EU market – products manufactured in Europe (DanSteel & NBH)
• 94% of all manufactured steel sold locally
• Highly diversified product mix with 60% of HVA
• Diverse industry exposure o Machinery, automotive, wind-mills
o Key clients: Daimler-Crysler, Volvo, Fiat, PSA, Renault, VW, Caterpillar, Dong Energy
o DanSteel controls 1/3 of plates supply to German shipbuilders, with sales booked up to 2018
• Growth in sales (20% qoq) and high run rates (85%) due to growth in value added products
18
NLMK EU: SALES BY INDUSTRY, Q2’15
NLMK EU: SALES BY PRODUCT, Q2’15
NLMK EU: SALES BY COUNTRY, Q2’15
* incl. SSC & Merchants
2% 8%
14%
13%
8%7%
14%
3%
8%
23%
Boiler & pressure vessel
Wind turbines
Shipyards
Construction
Structural
Stockholder / oxycutter
Automative
Tubes
Rerollers
Other industries*
35%
32%
18%
7%
4%2%
2%
HRC
Plates
CRC
HDG
GO & NGO Steel
Ingots
Pre-painted
25%
13%
11%7%6%
6%
28%
4% Germany
France
Italy
Belgium
Netherlands
UK
Rest EU
RoW
0.9 m t
0.9 m t 0.9 m t
48%
21%
10%
3%
11%
2%
1%
4%Service centers
Tubing
Converter
Construction
Automotive
Electrical equipment
Agricultural
Other industries
Strong positions in the local U.S. market
SALES IN THE USA
• 100% of locally produced products sold locally
• 78% of USA sales produced by NLMK USA division
• ~80% of product mix – finished steel, incl. 35% - HVA products
• Well-diversified product mix of NLMK USA by industry
19
SALES ON US MARKET BY SOURCE, Q2’15
NLMK USA: SALES BY PRODUCT, Q2’15
NLMK USA: SALES BY INDUSTRY, Q2’15
78%
21%
1%
NLMK USA
NLMK Russia
NLMK EU divisions (incl. NBH)
43%
22%
20%
14%
1%
HRC
Semis
CRC
HDG
Plates
GO & NGO Steel
0.6 m t
0.6 m t 0.6 m t
FINANCIAL PERFORMANCE AND POSITION
Cold rolled coil stock at Novolipetsk For more visuals go to instagram.com/nlmk_group
Superior profitability retained
FINANCIAL HIGHLIGHTS
21
FINANCIAL PERFORMANCE
DEBT POSITION
0%
5%
10%
15%
20%
25%
30%
0
500
1,000
1,500
2,000
2,500
3,000
Q1
'13
Q2
'13
Q3
'13
Q4
'13
Q1
'14
Q2
'14
Q3
'14
Q4
'14
Q1
'15
Q2
'15
Revenue EBITDA EBITDA margin
M USD
M USD
0.0
0.5
1.0
1.5
2.0
2.5
0
1,000
2,000
3,000
4,000
5,000
Q1
'13
Q2
'13
Q3
'13
Q4
'13
Q1
'14
Q2
'14
Q3
'14
Q4
'14
Q1
'15
Q2
'15
Total Debt Cash & CE Net Debt/EBITDA
• H1’15 HIGHLIGHTS
o Revenue: $4,356 m (-20% yoy)
o EBITDA: $1,115 m (+5% yoy)
o EBITDA margin: 26% (+6% p.p. yoy)
o EBITDA per tonne: $140/t (+1% yoy)
o Net income: $491 m (+48% yoy)
• Q2’15 HIGHLIGHTS
o Revenue: $2,140 m (-3% qoq)
o EBITDA: $476 m (-25% qoq)
o EBITDA margin: 22% (-7 p.p qoq)
o EBITDA per tonne: $119/t (-26% qoq)
o Net income: $170 m (-47% qoq)
o Capex: $178 m (+54% qoq)
o Free cash flow*: $218 m (-32% qoq)
• FINANCIAL POSITION AS OF 30/06/2015
o Net Debt: $1,133 m (-9% qoq; -46% yoy)
o Net Debt/EBITDA: 0.47x (0.49x as of 31/03/15)
* Free cash flow = operational cash flow minus capex minus net interest payments
Structurally low capex
CAPEX
• Strategy 2017 development capex scaled downo -$0.6 bn: iron ore capex reduction
o +$0.1 bn: new projects (IRR>35%) offset by ruble devaluation effect on capex
o $0.8 bn to invested in 2015-2018
• Mid-term total average annual capex of $0.55 bn (down from $0.9 bn) o $0.2 bn pa. – Strategy 2017 projects capex
o $0.25 bn pa. – structural maintenance and environmental capex
o $0.1 bn pa. – one-off BF and BOF capital repairs program of 2015-2018
• Capex 2015E of $600 mo $0.25 bn – active phase of pelletizing project
o 2014 capex carryovers
22
STRATEGY 2017 TOTAL INVESTMENTS
ANNUAL CAPEX HISTORY AND PROJECTIONS
770
1 600
1 000
200
800
Strategy 2017(Feb.'14)
Total capex2014-18
Capex 2014 Total capex2015-18
Initial targetfor 2014-18
Revised targetfor 2014-18
M USD
1.94
1.11
1.46
2.02
1.45
0.76
0.56 0.55
0.0
0.5
1.0
1.5
2.0
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
-2
01
8
Bln USD
0.25
0.2
0.1
Maintenance capex
Strategy 2017
BF and converter repairs
0.55
∆ $600 m
1.25
0.43 0.180.04
0.09
1.13
0.0
0.5
1.0
1.5
Net Debt(31 Mar '15)
Net operatingcash flow
Capex Dividends FX rate andother factors
Net Debt(30 Jun '15)
1.93
2.15
1.87
1.80
1.39
1.14
0.830.67
0.49
0.47
0.0
0.5
1.0
1.5
2.0
2.5
Q1
'13
Q2
'13
Q3
'13
Q4
'13
Q1
'14
Q2
'14
Q3
'14
Q4
'14
Q1
'15
Q2
'15
3.33.4
3.6
3.33.2
3.02.9
3.1
3.02.9
2.4
2.8
3.2
3.6
4.0
Q1
'13
Q2
'13
Q3
'13
Q4
'13
Q1
'14
Q2
'14
Q3
'14
Q4
'14
Q1
'15
Q2
'15
Net debt/EBITDA is below Strategy 2017 target level of 1.0
DEBT POSITION
• Debt reduction and liquidity growtho Net Debt: $1.13 bn (-9% qoq, -46% yoy)
o Total debt: $2.52 bn (-2% qoq, -34% yoy)
o Cash and equivalents*: $1.38 bn (+5% qoq, -20% yoy)
• Net debt / 12M EBITDA: 0.47x
• Recent events (July, 2015)o NLMK guarantees for NBH reduced by $144 m to $366 m
following NBH debt restructuring
o Placement of 10Y RUB 5 bn ($87 m) bonds, 11.5% coupon rate with 1 year put option
23
DEBT MATURITY AND LEVERAGE
CHANGE IN DEBT IN Q2’15
NET DEBT CHANGE IN Q2’15
Weighted average maturity
Net debt/EBITDA
1.89 1.94
0.67 0.09 0.05 0.58
0
1
2
3
31 Mar'15 Net borrowings FX rate changeimpact
30 Jun'15
ST debt LT debt
2.56 2.52
Bln USD
Bln USD
* Cash and cash equivalents and short term investments
31 27 22
33 32 33 32 28 22 18
33
35 35
22 21 17 16
10
7 10
20%
16% 15%13%
11%8% 7% 6%
5%6%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
0
10
20
30
40
50
60
70
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15
Capitalized interest expense Non-capitalized interest expenseInterest expense to EBITDA
491
296 274
818
599
0
200
400
600
800
1,0 00
2015 2016 2017 2018 2019 and on
RUB bonds ECA lines Eurobonds (USD)
Revolving lines Other debt
Robust liquidity and comfortable maturity
LIQUIDITY AND DEBT MATURITY PROFILE
• Comfortable maturity profile o Short term debt $0.55 bln incl. revolving credit lines for
working capital financing, ruble bonds, ECA financing
o Long term debt $1.94 bln, incl. Eurobonds, ruble bonds, long term part of ECA financing
• Strong liquidity position of $1.38 bln
• Low interest expense due to investment grade
24
INTEREST EXPENSE**
DEBT MATURITY PROFILE*
LIQUIDITY AND 12M DEBT REPAYMENTS*
1,384
549
1,547
220
27146 12
0
1,0 00
2,0 00
3,0 00
Liquid assets Q3'15 Q4'15 Q1'16 Q2'16 12 months
M USD
M USD
M USD
** Quarterly numbers are derived by computational method on the basis of quarterly reports * Short-term maturity payments without interest accrued
Superior Free Cash Flow generation to support above 50% dividends payments
FREE CASH FLOW AND CAPITAL DEPLOYMENT
• Structural increase in free cash flow driven byo Improved profitability
o Less capital intensive growth
• Debt at minimal levels
• Dividend policy o Quarterly dividend payments
o If Net debt/EBITDA < 1.0x dividend will be between 50% of FCF and 50% of Net income
o If Net debt/EBITDA > 1.0x dividend will be between 30% of FCF and 30% of Net income
25
FREE CASH FLOW
DIVIDEND YIELD
62125 386 660 683 738 471 46 379 376 116 115 304 179 86
18% 19% 22%
48%
33% 33%
21% 21%
30% 28%
20%
35% 36%
56%51%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
0
200
400
600
800
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Q1
'15
Q2
'15
E*
Dividends % of Net income
M USD
5.5%
3.9%
2.2%
0.4%
1.9% 1.8%
1.0% 1.1%
3.9%
5.4%
0%
1%
2%
3%
4%
5%
6%
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
H1
'15
E**
** H1’15E dividend yield is calculated based on declared dividends for Q2’15 and dividends paid for Q1’15 and H2’14 * Q2’15E dividends were declared on 13 August 2015 in the amount of RUB5,574 M
DIVIDEND HISTORY
Bln USD
1.8 1.8
1.21.7
0.9
-2.0-1.5
-0.8 -0.6-0.3-0.2
0.4 0.4
1.20.5
-1%
3%4%
14% 14%
-12%
-10%
-7%
-5%
-2%
1%
3%
6%
8%
11%
13%
16%
-3
-2
-1
0
1
2
3
4
2011 2012 2013 2014 6M'15
Operational cash flow Capex Free cash flow FCF Yield
Free cash flow = operational cash flow minus capex minus net interest payments FCF yield = Free cash flow / market cap; 6m’15 FCF Yield is calculated on annualized FCF
MARKET OVERVIEW
The loading of plates at NLMK DanSteel For more visuals go to instagram.com/nlmk_group
Prices under pressure from commodities fall / steel overcapacity
GLOBAL STEEL MARKET
• Supplyo 8m’15 global steel output down 2.1% yoy to 1,075 mt
◦ Asia: mainly China, Japan and South Korea (-1.2% yoy; -7.7 mt)
◦ US (-8.5% yoy; -5.0 mt)
• Priceso In the US and EU HRC prices have been stable for the
last quarter with little correction starting Sep’15
o In EM prices (in USD term) are declining◦ Russian prices are under pressure from FX and drop in demand,
but in Sep’15 trend has changed
◦ Chinese prices falling due to excess supply
• Inventorieso De-stocking trend might continue up to Q4’15
27
STEEL INVENTORIES
GLOBAL CAPACITY UTILIZATION
HOT-ROLLED COIL PRICES (EXW) BY REGIONS
Source: World Steel Association (global), NLMK estimates (regions)
55%
60%
65%
70%
75%
80%
85%
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Global China North America EU (27)
200
300
400
500
600
700
800
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
US EU China Russia
USD/tonne (excl. VAT)
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
Germany
China
US
Index, January 2014 = 1.0
Source: Metal BulletinSource: CRU, Bloomberg
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
350
400
450
500
550
600
650
700
750
800
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
HRC, EXW
Plates, EXW
EUR/USD1.5
2.0
2.5
3.0
3.5
4.0
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Single-digit growth due to pent up demand / improved fundamentals
EUROPEAN STEEL MARKET
• Supply / Demando 8m2015 steel output was flat yoy at 113.7 mt
o 2015 ASU to grow 1.8% supported by improved macro in EU
o Key drivers:◦ Easing of credit restrictions
◦ Weaker euro (-9.3% YTD) derails imports
• Priceso Relatively stable prices (both in USD and EUR) in Q2’15
declined by c. 4.5% qoq in Q3’15
• Inventorieso Inventories declined providing support to prices
28
GERMANY: STEEL INVENTORY
INDUSTRIAL SECTOR INDICATORS
NORTHERN EUROPE STEEL PRICES
Source: Eurostat
Source: Metal BulletinSource: CRU
Inventory/sales ratio, months
5-year average level
USD/tonne EUR/USD
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
48
49
50
51
52
53
54
55
Jan
.14
Feb
.14
Mar
.14
Ap
r.1
4
May
.14
Jun
.14
Jul.1
4
Au
g.1
4
Sep
.14
Oct
.14
No
v.1
4
Dec
.14
Jan
.15
Feb
.15
Mar
.15
Ap
r.1
5
May
.15
Jun
.15
Jul.1
5
Au
g.1
5
Eurozone Manufacturing PMI
EU-27 industrial confidence (RHS)
Stabilized demand to support prices and drive profits
US STEEL MARKET
• Supply / Demando Production is down in Jan-Aug’15 (-8.5% yoy to 54.0 mt)
due to intense competition
o ASU recovers driven by construction (+18.8% YTD) and auto (car sales +2.2% YTD) segments
• Priceso Q2’15 prices seasonally were stable
o In Aug’15 steel prices down due to scrap/raw materials decline
o Price/cost spreads expanded
• Inventorieso US traders may decide to start re-stocking earlier due to
import duties
29
STEEL INVENTORIES
CONSUMING SECTORS INDICATORS
US STEEL PRICES
Source: US Census Bureau, Ward’s Automotive Group
Source: Metal BulletinSource: Bloomberg
K units M units
Inventory/sales ratio, months USD/tonne
1.5
2.0
2.5
3.0
3.5
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
5-year average level
50
100
150
200
250
300
350
400
100
200
300
400
500
600
700
800
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
HRC US domestic prices, EXW
HRC Spread US vs China (RHS)
Spread US HRC vs scrap (RHS)
13.5
14
14.5
15
15.5
16
16.5
17
17.5
18
0
200
400
600
800
1,000
1,200
1,400
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
US construction starts SAAR
US auto sales SAAR (RHS)
10
12
14
16
18
20
22
24
26
28
200
250
300
350
400
450
500
550
600
650
700
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
HRC in USD Rebar in USD
HRC in RUB Rebar in RUB
Demand downturn offset by lower imports
RUSSIAN STEEL MARKET
• Supply / Demando 8m2015 supply is stable c. 47.8mt (flat yoy)
o Lower imports and industry consolidation to partially offset softer demand◦ LDPs consumption to grow +10-15% and long cycle in
construction to support ASU in 2015
◦ 8M’15 finished steel imports already down by 39% yoy to 2.7 mt
• Priceso Domestic prices in national currency corrected in Q2’15
due to ruble strengthening
o Uptick in steel prices in USD terms during Q2’15 & Q3’15 was triggered by ruble appreciation
30
FLAT AND LONG STEEL CONSUMPTION
STEEL PRICES (EXW) IN THE RUSSIAN MARKET
STEEL EXPORT PRICES
Source: Metal Bulletin, NLMK estimates. Prices excl. 18% VAT
Source: Metal Bulletin, World Steel DynamicsSource: Metal Expert
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Flats Longs Share of imports in consumption (RHS)
K tonnes
100
150
200
250
300
350
400
450
500
550
600
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
Slab, FOB Black Sea
HRC, FOB Black Sea
NLMK slab production cash cost
USD/tonne
USD/tonne k’RUB/tonne
Ruble devaluation makes import less attractive
STEEL IMPORTS IN RUSSIA
• Imports structureo Flats / longs / pipes: 55% / 35% / 10%
o 40% from Ukraine and 20% from other CIS countries
• Imports declined in 2014 and 8M’15…o 2014 imports down by 22% yoy to 6.3 mt
o 2014 imports from Ukraine dropped by 34% yoy to 2.4 mt
o 8M’15 imports declined by 39% yoy to 2.7 mt
• …driven byo RUB weakening led to softer pricing environment
making imports less attractive
o New capacity added competing with imports
31
STEEL IMPORTS BY REGION
RUSSIAN STEEL MARKET BALANCE 2014
STEEL IMPORTS BY PRODUCT
Source: Metal Expert, NLMK estimates
Source: Metal Bulletin, World Steel DynamicsSource: Metal Expert, Federal Customs Service, Comtrade, NLMK estimates
M tonnes M tonnes
M tonnes
63
43
126
14
Production (finishedsteel equivalent)
Export Import Consumption
Semi-finished
Finished
3.6 3.62.4
1.7 1.7
1.5
0.9 0.9
0.8
0.7 0.8
0.7
1.3 1.0
0.9
2012 2013 2014
Ukraine CIS excl Ukraine Europe China Other regions
8.2
6.3
8.1
3.0 3.42.2 1.6
0.7
4.3 3.8
3.4
2.3
1.7
0.9 0.9
0.7
0.5
0.2
8.2 8.1
6.3
4.4
2.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2012 2013 2014 8m2014 8m2015
Pipes Flat Long
-39%
-22%
APPENDIX
Slab production at Novolipetsk For more visuals go to instagram.com/nlmk_group
NLMK holds one of the lowest slab cash cost positions globally
CASH COST OF SLAB
SLAB CASH COST STRUCTURE*
33
HISTORICAL SLAB CASH COST*
COST ITEMQ2 2015 (k’RUB/t)
Q2 2015 (USD/t)
Q1 2015 (USD/t)
QoQ(USD/t)
Coking coal 3.7 70 51 19
Iron ore 1.9 36 33 3
Scrap 1.2 24 20 4
Other materials 1.4 27 23 4
Electricity 0.6 11 10 1
Natural gas 0.7 13 12 1
Personnel 1.1 21 18 3
Other expenses 1.9 37 30 7
Total 12.5 238 197 41
PERIOD USD/t USD/RUB
FY’2012 388 31.07
Q1’2013 364 30.42
Q2’2013 348 31.66
Q3’2013 329 32.80
Q4’2013 349 32.54
FY’2013 348 31.91
Q1’2014 310 35.14
Q2’2014 308 35.02
Q3’2014 295 36.16
Q4’2014 225 47.55
FY’2014 283 38.60
Q1’2015 197 63.19
Q2’2015 238 52.77
*Consolidated cash cost of slab at Lipetsk site.
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