MAGNITOGORSK IRON & STEEL WORKS
Q1 2011 IFRS Financial Statements Presentation
MMK Group Q1 2011 Highlights
2
Revenue USD 2,216 mln – 15% growth to Q4 2010
Operating profit USD 155 mln – 45% growth to Q4 2010
EBITDA USD 403 mln – on level with Q4 2010
EBITDA margin – 18,2%
Q1 2011 Financials
Q1 2011 Key Operational Figures
Finished steel output – 2,707 th. tonnes – 8% growth to Q4 2010
High value added (HVA) products output – 1,080 th. tonnes
Share of HVA products in sales – 39%
Share of domestic sales in revenue – 76%
Key Contribution Factors
3
• Largest domestic player with strong direct exposure to growing sectors of
Russian economy
• Import substitution strategy with focus on niche HVA products
• Target investments into high-quality assets and high-margin projects
• Growing integration into raw materials and increasing use of captive iron ore
and coal sources
• Strict cost control – retaining competitiveness through low cost position and
reduction of consumption ratios
• Strong balance to secure further growth
0
500
1 000
1 500
2 000
2 500
3 000
Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11
High value-added (HVA) products Flat hot-rolled products
Long products Slabs and billets
Growth Output Driven by HVA Products
4
MMK key operational indicators • Finished products output in Q1 2011 rose
by 8% q-on-q and amounted to 2.7 mln
tonnes
• Main growth drivers are mill 5000 thick
plates, h/r steel and long products
• Q1 2011 HVA products share output
amounted to 1,080 th. tonnes, which is on
level with Q4 2010
Finished products sales
th. tonnes
Q1 11 Q4 10 +/-
Cast iron 2 471 2 363 4,6%
Crude steel incl. 3 092 2 765 11,8%
EAF steel 641 57 x11,2
BOF steel 2 451 2 708 -9,5%
Finished products output incl. 2 707 2 508 7,9%
Slabs and billets 45 11 -
Long products 335 315 6,2%
Flat hot-rolled products 1 396 1 246 12,0%
High value-added (HVA) products 931 936 -0,5%
Thick plate (Plate Mill 5000) 307 294 4%
Flat cold-rolled products 272 284 -4,2%
Downstream products* 352 358 -1,7%
MMK-Metiz finished products 123 120 2,0%
ММК-Atakas finished products 28 45 -37,8%
Belon coking coal concentrate 766 842 -9,1%
* - galvanized steel products, colour-coated steel products, formed section, band, tin plate,
etc.
400
600
800
1 000
1 200
1 400
1 600
1 800
2 000
Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11
Domestic market, th. tons Export, th. tons
807
809
300
400
500
600
700
800
900
Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11
domestic market export
Strong Exposure to Price Premium Domestic Market
Domestic market price premium, USD Sales by market, th. tonnes
5
HVA products output growth, th. tonnes
1 898
1 110
• While retaining presence in key export markets, MMK
continues to supply end-customers in Russian and theCIS
• Share of domestic sales was 70%, providing 76% of total
revenue
• HVA products satisfy domestic market demand
• Domestic market continues to offer price premium
• Q1 2011 average steel products price per tonne on
domestic market was USD 828, on export markets: USD
601
Q4 2010 - USD 177
Q1 2011 – USD 227
936 931
0
500
1 000
Q4 2010 Q1 2011
Domestic Sales Structure
6
Domestic sales of finished products
Domestic sales by region
Long products
17%
Flat hot-rolled
products 40%
Mill 5000 products
16%
Flat cold-rolled
products 10%
Downstream products
17%
Q1 2011
Domestic sales by industry
HVA
43%
Ural 40%
Volga Region 31%
Central Region 9%
Siberia 6%
Far East 0,4%
South 3%
North-West 2%
CIS 9%
Q1 2011 Hardware and semi-integrated
factories 9,8%
Pipe production
32,9%
Machine building 12,4%
Automobile sector 7,1%
Bridge building 0,3%
Construction sector 10,5%
Food industry 0,5%
Fuel and energy companies
0,5%
Spot sales 16,6%
CIS sales 9,5%
Q1 2011
• Q1 2011 domestic shipments amounted to 1,898 th. tonnes
• HVA products account for 43% of domestic shipments
• Shipments to the highest metal-consuming regions –
the Urals and Volga Region - accounted for 71% of sales
• MMK’s largest clients remain pipe-makers, car
manufactures and heavy machinery companies
Presence on Key Export Markets
Export shipments by product type
Export shipments by region
7
• Q1 2011 ММК export shipments increased by 40% q-o-
q and amounted to 809 th. tonnes
• HR steel continues to prevail in the exports
structure, accounting for 80% of MMK exports
• Middle East and Europe remain the largest export
markets of MMK
• Exports account for 30% of overall shipments in Q1
2011
• Exports accounted for 24% in Q1 2011 revenues
Share of export shipments in revenue
54%59% 61%
66%72%
64%
75% 76%
46%41% 39%
34%28%
36%
25% 24%
0%
50%
100%
2004 2005 2006 2007 2008 2009 2010 1Q2011
Domestic Exports
Asia and Far East 4%
Middle East 64%
Europe 26%
North America
1,2%
Africa 4%
Middle and Latin America
1,1%
Q1 2011
Slabs and billets 5%
Long products
2,1%
Flat hot-rolled
products 80%
Flat cold-rolled
products 11%
Downstream products
2%
Q1 2011
Key P&L Statement Figures
8
MMK Group Q1 2011 revenue equalled USD 2,216 mln – 14% higher
q-on-q
Q1 2011 operating profit grew at faster pace and totalled USD 155
mln – up 45% q-on-q
MMK Group Q1 2011 EBITDA was on level with Q4 2010 and
equalled USD 403 mln
Q1 2011 EBITDA margin – 18.2%
Profit for the period in Q1 2011 has more than tripled q-on-q to USD
134 mln
MMK Group Q1 2011 Financial Highlights
MMK Group revenue, USD mln
9
MMK Group EBITDA, USD mln ММК Group financial highlights, USD mln
• Revenue growth of 14% q-on-q in Q1 2011 was driven
by an 8% increase in output at the beginning of 2011
and 14% growth in average prices
• MMK Q1 2011 operating profit increased by 45% q-on-q
• MMK Group Q1 2011 EBITDA remained on the same
level as Q4 2010 and was 8% higher compared to Q1
2010
• MMK Q1 2011 profit for the period more than tripled q-
on-q
1 652
2 068 2 055 1 944
2 216
0
500
1 000
1 500
2 000
2 500
Q1 Q2 Q3 Q4
2009 2010
374
437
388
407 403
300
350
400
450
Q1 Q2 Q3 Q4
EBITDA 2010 EBITDA 2011
Q1 11 Q4 10 +/- %
Revenue 2 216 1 944 272 14%
Operating profit 155 107 48 45%
EBITDA 403 407 -4 -1%
EBITDA margin 18% 21%
Profit for the period 134 42 92 219%
362 362
427451 451 450
65
24
8
-8
300
350
400
450
500
Slab cash-costQ4 2010
Price growtheffect
Raw materialsstructure
Tariffs growtheffect
Others Slab cash-costQ1 2011
1 944
2 103
2 216
214
-56
151
-38
1 800
1 900
2 000
2 100
2 200
2 300
Q4 2011
Revenue
Price growth
effect
Products
structure
Volumes
growth effect
Other
companies
Q1 2011
Revenue
107155
224
220
7627
0
100
200
300
400
Q4 10 Q1 11
Operating profit Depreciation Other factors
Q4 2010 revenue analysis, USD mln
MMK Key Performance Indicators Analysis
10
MMK Group EBITDA structure, USD mln
Cash-cost of slab evolution, USD
• Q1 2011 revenue increased by USD 272 mln q-on-q
due to higher average prices and output volumes
during the beginning of the year on growing export
demand as well as stable domestic demand, despite
the seasonal factors
• High demand from domestic and export markets
pushed the average price up from USD 664 per tonne
in Q4 2010 to USD 760 in Q1 2011
• Q1 2011 cash-cost of slab increased due to growing
raw materials prices and higher tariffs of natural
monopolies
USD 407 m USD 403 m
Strong Balance to Secure Further Growth
11
• MMK total assets stood at USD 18,082 mln as of March 31, 2011 – 8.0%
growth to December 31, 2010
• Property, Plant & Equipment increased by 8.4% during Q1 2011 and
amounted to USD 13,249 mln at the end of the period
• The balance sheet remains characteristically stable: equity accounted for
61% of total assets at the end of Q1 2011
• MMK has one of the lowest levels of debt among Russian peers. By the end
of Q1 2011 total debt equalled to USD 3,951 mln
• Highly liquid assets stood at USD 1,650 mln
515 460
1182 1190
0
200
400
600
800
1000
1200
1400
1600
1800
31.12.2010 31.03.2011
Cash and cash equivalents Securities
32%
42%
26%
31.03.2011
RUR USD Euro
62%
38%
31.03.2011
Long-term debt
Short-term debt and current portion of long-term debt
MMK Financial Strength
Debt structure breakdown by maturity profile Debt maturity profile, USD mln
MMK Group liquid assets, USD mln
1 697 1 650
12
3,951 USD mln*
* Lease incl.
Debt structure by currency
3,951 USD mln*
1236
594
763
312
778
0
200
400
600
800
1000
1200
1-st 2-nd 3-rd 4-th 5-th and beyond
Сильные позиции на внутреннем рынке MMK Cash Flow, USD mln
13
• The peak period of investments passed in 2010, and capex in Q1 2011 amounted to USD 381 mln,
30% lower than USD 543 mln in Q4 2010
• Investment activities are financed with long-term borrowings
• MMK demonstrates efficient working capital management
515
460
134 5
220
-83-30
-38
312
-379
-243
57
0
500
1 000
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Outlook
14
• In Q2 2011 MMK operated at 80-85% capacity utilization rate
• We expect positive momentum to recover in H2 2011 with respect to both
demand and steel prices
• Overall Russian steel consumption is expected to grow by 10% in 2011,
mostly driven by pipe-makers and machinery builders and to some extent
by the construction sector
• Steel products output for MMK Group is expected to grow by 10-15% in
2011
Future Growth Factors
15
• Key beneficiary of steel market recovery
• Growing volumes and share of HVA products to secure sustainably high
efficiency
• Focus on specialty steel products to replace imports in Russia and to enjoy
domestic market price premium
• Access to lucrative Turkish flat steel market with high-quality steel products
• Direct exposure to growing industry sectors in the domestic market – pipe-
building, automotive and heavy machinery industries
• Strong balance sheet to secure further growth
• Plans for further strengthening in commodities
APPENDICES
ММК Group Revenue Breakdown
Revenue by type of products, USD mln Revenue by type of products
17
MMK Group Revenue MMK Group Revenue , USD mln
Q1 2011 Q4 2010 +/- %
Slabs 6 4 2 50%
Flat products 1 409 1 219 190 16%
Long products 166 159 7 4%
Downstream products 459 398 61 15%
Coal 39 54 -15 -28%
Other products and services 137 110 27 25%
Total revenue 2 216 1 944 272 14%
0%
64%7%
21%
2%6%Q1 2011
Slabs
Flat products
Long products
Downstream products
Coal
Other products andservices
91%
2%
2%5%
Q1 2010
Revenue OJSC MMK
Revenue of Belon
Revenue of ММК-Atakas
Revenue of other Group companies
Q1 2011 Q4 2010 +/- %
Revenue OJSC MMK 2 026 1 768 258 14,6%
Revenue of Belon 38 45 -7 -16,4%
Revenue of ММК-Atakas 35 34 1 2,8%
Revenue of other Group
companies 117 96 20 21,3%
Total revenue 2 216 1 944 272 14,0%
MMK material costs
Other Group Companies
Labour costs
Amortisation Others
Change in uninvoiced
products balance -500
0
500
1 000
1 500
2 000
2 500
1
ММК Group Operating Costs and Cost of Sales Structure
ММК Group operational costs ММК Group operational costs , USD mln
18
ММК material costs structure Cost of sales structure
Q1 2011
Iron ore (sinter) 14%
Iron ore (pellets)
15%
coals 24%
Scrap 14%
Other main materials
14%
Auxiliary materials
8%
Fuel from outside sources
8%
Power from outside sources
3%
Q1 2011
Q1 11 Q4 10 +/- %
Cost of sales 1 775 1 592 183 11%
Selling and distribution expenses 129 116 13 11%
General and administrative expenses 144 135 9 7%
Other operating (expenses)/income, net 13 -6 19
Total operating costs 2 061 1 837 224 12%86%
6%
7% 1%Q1 2011
Cost of sales
Selling and distribution expenses
General and administrative expenses
Other operating (expenses)/income, net
Events and Projects Update
19
ММК
• Intercos-IV, part of the MMK Group, began working on the 1st phase of the 2nd stage of the MMK-Intercos service center
and stamped components plant in St. Petersburg (11.04.2011)
• MMK Group announced operational trading update for Q1 2011 (20.04.2011)
• Chelpipe (ChTPZ) and MMK are creating their joint rolling stock to ensure timely deliveries of steel plate from MMK’s Mill
5000 to ChTPZ’s Vysota 239 production unit (26.04.2011)
• Fitch Ratings upgraded MMK credit ratings. Long-term IDR rating was upgraded to 'BB+' from 'BB' with stable outlook;
national long-term rating was upgraded to 'AA (rus)' from 'AA- (rus)' with stable outlook (19.05.2011)
• The Annual General Shareholder Meeting of MMK was held in Magnitogorsk (20.05.2011)
• MMK’ hot-rolled galvanized steel accepted by Renault
• MMK reported that the company has won an auction held on 21 of June 2011 where the bidders contended for the right to
explore and extract iron ore deposits of Kulmyakovsky field in Chelyabinsk region. As a result, MMK obtained the right to
work at the site for 25 years (21.06.2011)
Mill 2000
• MMK сarried out the tests on the first stage of its Mill 2000 (complex for the production of cold rolled steel including
continuous pickling line connected with tandem mill) (02.06.2011)
MMK-Atakas
• MMK-Atakas produced first 3,000 tons of hot-rolled plate at the plant in Iskenderun. MMK-Atakas launched color coating
line in Istanbul (19.05.2011)
ENRC
Disclaimer
20
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