56
Severstal Capital Markets Day 14 November 2013
Severstal Capital Markets Day 14 November 2013
Today’s Agenda
1.15pm Presentations
Christopher Clark, Chairman of the Board
Alexey Mordashov, Chief Executive Officer
Vadim Larin, Chief Operating Officer
Alexey Kulichenko, Chief Financial Officer
Q&A
3.00pm Coffee Reception
Today’s Presenting Team
Alexey Mordashov
Chief Executive
Officer
Alexey Kulichenko
Chief Financial
Officer
Christopher Clark
Chairman of the Board of Directors
Vadim Larin
Chief Operating
Officer
Page 4
Christopher Clark Chairman of the Board of Directors
Introduction from Chairman of the Board
Corporate Governance
Balance of Executive and Non-Executive / Independent Directors
We aim for full compliance with the UK Corporate Governance Code
Three committees with an Independent Director chairing each:
Audit: Financial and operational performance, monitor risk
Health and Safety: ensure appropriate systems in place to manage all health/safety/environmental risks
Nomination and Remuneration: reviewing Board composition/effectiveness and policies for senior executives’ remuneration
Quarterly formal Board meetings plus year end Budget Review meetings; committees meet quarterly
The Board
The roles of the company’s Chairman and CEO are separate and their responsibilities clearly defined
Note:
* Board constituents include a Non-Executive Chairman, 5 Non-Executive Directors and 4 Executive Directors
** Board constituents include an Independent Chairman, 4 Independent Directors and 5 Non-Independent Directors
Board composition:
Executive* 40%
Non-Executive 60%
Non-Independent 50%
Independent** 50%
Page 6
In 2012, the Board commissioned its second independently facilitated audit of its effectiveness by Heidrick & Struggles:
High-performing with particular strengths identified overall composition, stability and process
Good engagement and healthy dynamic between Non-Executive Directors and management
Continued focus on Board development:
Review of training for new and existing directors
Increased frequency of ‘deep-dives’ on key projects and topics
Commitment to regular performance reviews
Continue to ensure good governance translates into superior investor recognition
Continue to support initiatives to develop Russian corporate governance
Page 7
Further Governance Enhancements
Alexey Mordashov Chief Executive Officer
Severstal’s Position and Strategy
Our mission remains intact: We strive to be a leader in value creation
In this market environment building a healthy and high-quality business generating positive FCF enables stable dividends
How do we intend to achieve that?
Key focus is efficiencies and low-cost position at existing operations
Smart CAPEX: further optimized maintenance, highly selective development
Higher customer satisfaction via services, quality, and better product mix
Page 10
Our Strategic Priorities
Our Targets
Page 11
Dividends
CAPEX
Net debt
Margins
Payout of not less than 25% of Net Income
Medium-term target of $1.0bn
Striving to keep Net debt/EBITDA below 1.5x
Targeting cycle-average EBITDA margin of c. 20%
FCF Stable positive free cash flow
Cost Position Middle-to-the-left position of all our assets on
the cost curve
551 588 641 660 700 721 747 770 792
09 10 11 12 13E 14F 15F 16F 17F
3.1%
Page 12
Demand to Grow Across All Our Key Markets, but…
Source: Worldsteel, Goldman Sachs, Macquarie, Severstal analysis
Russian ASU (mt): good fundamentals EU-27 ASU (mt): on the way of recovery
US ASU (mt): growth in non-res. construction Chinese ASU (mt): slower but stable growth
CAGR
25
36 41 42 44 46 47 49 51
09 10 11 12 13E 14F 15F 16F 17F
4.1% CAGR
120
145 155
140 135 138 139 141 145
09 10 11 12 13E 14F 15F 16F 17F
1.8%
CAGR
59
80 89
96 97 100 103 105 107
09 10 11 12 13E 14F 15F 16F 17F
2.5% CAGR
…Industry Overcapacity Challenge is Still There, Coupled With…
Source: OECD, Worldsteel, Severstal estimates
Page 13
Global steel overcapacity is expected to remain in medium term despite the following positive factors:
Decelerating CAPEX spending across the global steel industry
Stable global steel demand growth – CAGR 3%+ (2012-2018E)
Global crude steel overcapacity
Potential for margin expansion in the future will depend on capacity discipline and progress in the industry consolidation
537
25%
0
100
200
300
400
500
600
700
800
900
1000
0%
5%
10%
15%
20%
25%
30%
35%
00 01 02 03 04 05 06 07 08 09 10 11 12 13E
Overcapacity, mmt (r.h.s.)
Overcapacities, % of total capacities
…Volatility of Commodity Prices
Page 14
High volatility without any clear trend
Prepared for price volatility and downside scenarios
Source: Severstal analysis
Mines depletion would compensate negative impact from the new supply
Iron ore price, 62%, CFR China, $/t Chinese steel production still remains
high in absolute volumes
High market concentration
Sizable announced pipeline of new supply
Delays in projects realization
Depletion of mining assets
$60
$80
$100
$120
$140
$160
$180
1 3 5 7 9 11 1 3 5 7 9
2012 2013
Coking Coal Prices have Upside Potential
Page 15
Steel production growth in coal-deficit countries: India, Brazil, South Korea
Depletion of mining assets
Closure of inefficient mines
Cost cutting initiatives by mining companies
Prices are on the floor Consensus expects price growth
Potential for mid-term price upside
Source: Severstal analysis
Supply constraints will drive HCC prices up
Hard coking coal price, FOB Australia, $/t
$60
$110
$160
$210
$260
1 3 5 7 9 11 1 3 5 7 9
2012 2013
Costs reduction initiatives
Smart CAPEX
Raising customer
satisfaction
Business System of Severstal
Page 16
How Do We Achieve Those Targets?
G&A optimization: target is -20% by Q4 2013 to the level of 2012
Operational improvement at all divisions
Development of services and customer care projects
Product mix and quality improvement
Medium term CAPEX target of $1bn
Prudent approach to greenfields
Proceed from “Investment Stage” to “Harvesting Stage”
New leadership across all levels
April 2010 – July 2013
“INVESTMENT STAGE”
Since August 2013
“HARVESTING STAGE”
Focused to embed competitive advantage through creating a continuous improvement culture
Business System: Time to Deliver
Pilot projects at the key sites
Extensive training at all levels
Lean tools
Customer Care
Leadership skills
The priority is to ensure that our
strong performance is sustainable
Rising tangible contribution to the top-line and cost reduction
Growing engagement from all levels
Page 17
Our CAPEX Priorities
Page 18
Severstal’s CAPEX evolution, $bn
Medium term CAPEX target is $1.0bn
$1.7
2013E 2012 2011
$1.4
$1.3
$1.0
2014E
Optimization of Maintenance CAPEX:
Prudent control over repair costs
Higher efficiency of Development CAPEX:
Focus on projects with the highest return
Targeting over 20% IRR for all projects
No additions in crude capacities after the Balakovo Mini-Mill launch
Investments limited to low-risk, quality/efficiencies raising projects
Prudent approach to greenfields within our strategic framework
14.2%
11.8%
11.1%
10.6%
10.5%
7.7%
6.7%
6.4%
6.1%
5.3%
Jindal SP
Nucor
Severstal
Voestalpine
Ternium
NLMK
Tata Steel
ThyssenKrupp
POSCO
Hyundai Steel
7,080
5,522
3,811
3,099
2,831
2,676
2,324
2,266
2,158
2,142
ArcelorMittal
POSCO
Nippon Steel& Sumitomo
ThyssenKrupp
JFE
Baoshan
CSN
Tata Steel
Severstal
Gerdau
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
1.3
1.5
1.8
1.9
2.5
2.7
2.8
2.9
2.9
3.1
Ternium
Nucor
Severstal
NLMK
Voestalpine
Jindal SP
Gerdau
MMK
Baoshan
Evraz
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
Page 19
Achievements in Challenging Market
Source: Companies’ data, Bloomberg. * Hereafter ROCE is calculated using the financial year basis by the following formula: LTM profit from operations/total assets minus current liabilities (average for the period)
FY2012 EBITDA, $m ROCE* FY2012, % Net debt/EBITDA FY2012, x
Among Top-10 by EBITDA
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
x
x
x
x
x
x
x
x
x
x
FY2012 EBITDA margin, %
26.8%
15.6%
15.3%
15.0%
14.5%
13.7%
12.6%
11.8%
11.3%
Jindal SP
CSN
NLMK
Severstal
Ternium
MMK
Evraz
Voestalpine
Mechel
Hyundai Steel
34.1%
10th
9th
8th
7th
6th
5th
4th
3rd
2nd
1st
One of the lowest debt leverage
globally
Consistently in Top-3 by ROCE
One of the highest EBITDA margin
Page 20
Recent Financial Results: Path of Growth
$368m
$430m $479m
$543m
12%
13%
14%
17%
Q4 2012 Q1 2013 Q2 2013 Q3 2013
EBITDA, $m EBITDA margin, %
Page 21
Severstal is Well-Placed for Investment Returns
2007-08 2009-12 1H’13
Severstal 2,083 971 133
Russian peer 1 2,192 956 0
Russian peer 2 1,546 800 111
Russian peer 3 786 627 n/a
Russian peer 4 860 335 96
13.5%
12.8% 12.6%
12.3%
Severstal Peer 1 Peer 2 Peer 3
8.5%
5.2%
1.3%
0.0%
Severstal Peer 1 Peer 2 Peer 3
Highest EBITDA margin among the Russian peers (H1 2013)
Highest ROCE among the Russian peers (H1 2013)
Source: Companies’ data, Bloomberg. Peer group includes Evraz, Mechel, MMK, NLMK
WHY SEVERSTAL?
Consistent dividend payments
Consistent quarterly payments
throughout the cycle
The only steel stock in MSCI Russia
(0.8% weight)
Russian efficiency leader
High liquidity
Dividends paid by Severstal and the Russian peers in 2007-1H’13, $m
Free float, %
Total equity turnover in 2012 in Russia, UK
and US, $m
Severstal 21% 10,187
Russian peer 1 33% 7,135
Russian peer 2 25% 3,781
Russian peer 3 13% 7,241
Russian peer 4 13% 1,842
Rising credit ratings: BB+/Stable at S&P
Ba1/Positive at Moody’s
Sustainability
Photo: Converter shop modernization at the Cherepovets Steel Mill Photo: Methane gas power station at Vorkutaugol
Photo: Wind energy generation at Vorkutaugol Photo: Methane gas power station
at Vorkutaugol
1.76 1.54
1.41
2010 2011 2012
Page 23
Safe Working Culture is a Key
Single HSE policies for all assets
Thorough investigation of the Vorkutinskaya mine tragedy
Strategic objective to eliminate all fatal accidents
Lost Time Injury Frequency Rate (LTIFR)
Safety
Page 24
Leadership and Talent Development
Personnel Development and Ethical Standards
Corporate Code of Conduct and Ethical Committee in Place
Annual 360° feedback including the Company CEO
In 2012, 43% of our staff passed through training courses, and 100% of top three management levels passed through special development exercises
Management development programme “Achieve More Together” in place to develop leaders of the future
Employee rewards for the best saving ideas
ISO 14001 Environmental Management Systems at 9 key assets in Russia and the USA
Raising efficiency of the Cherepovets Steel Mill: 2012 consumption vs 2000:
River water consumption, m3/ t of rolled products - down by 44%
Energy consumption, Gcal/t of steel – down by 17%
Natural gas consumption, m3/t of steel – down by 19%
Cherepovets Steel Mill tomorrow – projects to be completed in 2013-2015:
Radical reduction of air emissions at Converter Shop, EAF#1, Sinter Production
Severstal Columbus achieves 25 million kilowatt hours in energy savings:
On 8 Oct 2013, the Tennessee Valley Authority awarded $2.5m to Severstal Columbus for achieving significant energy efficiencies
Reducing Resources Consumption and Emissions
Page 25
Focus on FCF generation and stable dividend payments
Momentum in raising efficiency of operations
Target to reduce capital intensity
Business System embedding operational excellence
Continuing focus on more attractive markets
Maintaining high margins and low debt profile
Page 26
Conclusions
Vadim Larin Chief Operating Officer
Focus on Cost Performance
Low costs
Increased share in high-margin segments
Low CAPEX
Key Priorities
Page 29
Q3 2013 EBITDA Margin Improvement
EBITDA, $m 2012 1H 2013 3Q 2013
Severstal Russian Steel 957 421 298
Severstal Resources 985 402 185
Severstal International 185 94 58
Intercompany 31 -8 2
Group 2,158 909 543
EBITDA Margin, % 2012 1H 2013 3Q 2013
Severstal Russian Steel 11% 10% 16%
Severstal Resources 33% 29% 31%
Severstal International 5% 5% 6%
Group 15% 14% 17%
Page 30
Vorkutaugol (Coking Coal)
Completed to date
Declining cash costs
Constant production growth
Headcount reduced from 14,000 to 8,000 people over last 5 years
First Russian power station on coal methane launched in 2013 (16MW)
Pechorskaya washing plant upgraded from 7 to 9 mtpa throughput in 2013
EBITDA margin in Q3 2013 = 22%
Cash costs CAGR 2008-2012, RUB %
Vorkutaugol is a unique Russian coal miner that has decreased its cash costs in the recent 4 years
Peer 4
17%
Peer 3
14%
Peer 2
13%
Peer 1
11%
Vorkuta
-1%
In progress
Further production growth
Inclined shaft at Zapolyarnaya in 2014
Inclined shaft at Vorgashorskaya in 2014
Internal and external benchmarking
Evaluation of further upgrade of the washing plant
Costs decline continue in 2013-2014
2012 2013E 2014E
Raw coal output, mt 13.0 13.1 14.0
Hard coking coal (2Zh grade) concentrate production, mt 4.0 4.5 4.8
Hard coking coal (2Zh grade) concentrate total cash cost, $/t 102 92 89
Semi-hard coking coal concentrate blend (Zh+GZhO grades) total cash cost, $/t 76 71 67
Page 31
Karelsky Okatysh (Iron Ore Pellets)
Completed to date
Volume reached 10.6 mt (annualized volume run rate) and will remain at this level
Headcount reduced by 10% to 4,700 people in 2013
All 4 grinders replaced in 2013
In progress
Stripping ratio passed peak in 2012 and will be further declining
5 mt of higher quality pellets after separate milling of Korpanga ore: fluxed pellets Fe goes up from 63.7% to 66.0%
Costs of drilling & blasting, excavation, hauling will get down to Olkon levels in 2014
$20m CAPEX focused on cost improvements with IRR 25-60%
Costs set on a declining trend
2012 2013E 2014E
Pellet output, mt 10.3 10.5 10.6
Stripping ratio, m3/t 1.22 1.18 1.10
Pellet cash cost, $/t 58 55 53
Page 32
Olkon (Iron Ore Concentrate)
Completed to date
Latest JORC audit confirmed 261 mt reserves: 16 years at the current production rate
Quality more stable after Derrick screens installation
In progress
Stripping ratio passed its peak in 2013 and will be further declining
High-angle conveyor and the new dryer will be launched in 2014 for further cost reduction
Olkon is now on the stable path
2012 2013E 2014E
Iron ore concentrate production, mt 4.78 4.73 4.73
Stripping ratio, m3/t 1.26 1.48 1.26
Iron ore concentrate cash cost, $/t 50 48 47
Page 33
Redirect export sales to the domestic market
In the domestic markets focus on the regions with logistics advantage:
‒ North-West ‒ Center
It will require improvements of our sales and distribution system
Strategic Priorities for Russian Steel Sales
Increase the share in the high-margin segments: Automotive, Machinery, Large Diameter Pipes
It will require better client service:
‒ Advanced quality ‒ Just-in-time delivery
1. Increase market share in the high-margin segments
The Russian Steel Divisions' Sales Volume Structure , %
2017
20%
80%
… 1H 13
39%
61%
1H 12
44%
56%
Export
Domestic
2. Focus on Home Markets
Sales to the automotive sector (Russia), kt
+9%
1H 13
204
1H 12
187
Sales via JVs, % 4% 11%
Forecast
Page 34
Recent Achievements in Automotive
Steel shipments for production of new models in 2013: Renault Logan, Nissan Almera, Skoda Octavia
Launch of a surface quality control system for HDG steel
International Brands
Severstal’s share in procurement of localized international brands in Russia, %
Local Brands: KAMAZ example
5 new steel grades introduced
Delivery time decreased by 2.2x through the joint project with Russian Railways
Sales to KAMAZ increased from 14 kt in 2012 to 62 kt in 2013
33% 44%
2012 2013E
14
62
2012 2013E Page 35
Iron Making
Steel Making
Hot Rolling
Cold Rolling
Long Products
Maintenance
Area
Top-level production priorities include:
Continue cost-cutting effort Increase the “first-time through” (FTT) ratio at each stage of production Increase best practice sharing with industry leaders
Replace sinter with cheaper Fe-containing additions Synchronize maintenance between the sinter plant and the BF to reduce sinter fines formation Increase sinter plant productivity by 10%+ Align melting temperature regimes of sinter and pellets mix to increase BF productivity
Further increase share of pig iron Reduce the amount of breakouts Increase steel making process stability: stable temperature regimes, alloy consumption modeling
Increase Mill 2000 productivity to 6.5 mtpa Increase efficiency of pre-heat ovens: reduce gas pressure, close ovens, optimize gas-oxygen mix Implement best practices in greasing and grinding (higher precision, better materials and
automation)
Upgrade the 4-stands mill Improve quality to better match client requirements Increase FTT ratio
Launch Balakovo Mini-Mill
Introduce reliability maintenance approach Continue headcount reduction Delegate responsibility for equipment condition to production personnel and specialize
maintenance force on larger or more specialized repair tasks
Priorities
Production priorities for Russian Steel
Page 36
Russian Steel: Examples of Continuous Improvement
Page 37
Substitution of purchased iron ore
with metallic from recycled slag
Increased share of pig iron in BOF
Labor productivity improvement
14 15 60
Selected examples
Effect, $m
2013 2014
7 10 37
Majority of our efforts are continuous
Balakovo: Major Capacity Expansion Project
Scrap yard in place and functioning
Balakovo Electric Arc Furnace
First production
Rolling in December 2013
EAF in April 2014
Location: Balakovo, Saratov region, Volga district
Capacity: 1 mt of crude steel and long products: rebar, angles, channels
Equipment: EAF (Siemens VAI), rolling mills (Danieli)
Balakovo Mini-Mill
Favorable Market Environment
Favorable market
Scrap surplus of about 3 mtpa in the Volga region
Excess electricity capacity in the region
Environment-friendly technology: 99.5% gas cleaning system and closed-loop water recirculation
Well-developed transport infrastructure
Page 38
Page 39
Severstal North America: Resilient Assets on a Healthy Market
Has been completed to date
Procurement savings: scrap and energy
Ongoing operational improvements despite expensive raw materials
In progress
Non-prime reduction at Dearborn
Scrap mix optimisation/copper scheduling
Further optimisation of logistics
Revisiting the sales and marketing strategy
The North American market is expected to demonstrate sound growth. SNA is well-positioned to capture this growth
112 98
59
80 89 96 97 100 103 105 107 110
0
20
40
60
80
100
120
20
07
20
08
20
09
20
10
20
11
20
12
20
13
F
20
14
F
20
15
F
20
16
F
20
17
F
20
18
F
US Finished Steel Consumption, mt
US steel demand is growing
SNA assets are best in class in the USA
We know how to run those assets properly
Favorable Factors
SNA efficiency improvements
2012 9M 2013
EBITDA per tonne, $/t 41 44
Free cash flow, $m (107) 10
SNA key financial dynamics
* Excluding intercompany interest paid
*
Page 40
Scrap purchasing brought savings of $16/t in Columbus and $10/t in Dearborn in 2 years
Example: Scrap Purchasing in SNA
Spread to national market ($/t, normalized for mill mix)
22
29
22
32
49 43
54
43
51
44
28 26
40
21 24 26
22 27
5
21
28
2
27 27 22
26 22 22 22 20
17 14
8 5
2 4
2
8 10
2
13
6
12
4
14
8
3
(1) (4)
(6) (4)
4 4
(3)
8 7
1
(1) (4) (4)
(7) (4) (3)
(9)
Columbus
Dearborn
2011: $37 Average 2012: $27 2013: $21
2011: $6 2012: $2 2013: ($4) Average
$0.6 $0.6 $0.6
$0.8 $0.7 $0.4
2012 2013E 2014E
Maintenance CAPEX Development CAPEX
Smart CAPEX
$1.0
$1.3 $1.4
Total Capital Expenditures, $bn
Development projects in mining to be completed in 2014
Only reconstruction of the 4-stand mill remains among the large-scale development projects in Steel
Prudent control over maintenance costs
Greenfields investments into concept development/feasibility study only
Continuous reduction of CAPEX
Maintenance
Development
Page 41
Greenfields
Iron Ore Putu Range, Liberia
Amapa, Brazil
Coal Tyva, Russia
Usinskoye, Russia
Metallics IMBS/IIBG, South Africa
Greenfield Status Feasibility Study in progress
Divestment
Pre-Feasibility Study completed
Pre-Feasibility Study completed
First production at a trial plant by year end
Our greenfield projects do not require significant CAPEX at the moment Going forward we will not jeopardize our balance sheet under any conditions
Page 42
Page 43
Conclusions
Low costs
Increased share in high-margin segments
Low CAPEX
Strong FCF
Page 44
Alexey Kulichenko Chief Financial Officer
Prudent Financial Policy
Page 46
Financial Priorities Remain Intact
Decreasing production costs in steel and mining
20% G&A expenses cut program
Net debt/EBITDA of 2.2x – above the target of 1.5x, but still in the comfort zone. With lower CAPEX next year we will try to return to 1.5x
High level of liquidity maintained with growing share of committed credit lines with cash decreasing to c. $1bn
Cash at hand 1.4x times covers short-term debt
High interest coverage – close to 7.0x EBITDA/Interest (Q3 2013)
Ratings – one notch from Investment Grade at S&P and Moody’s
Recent placements with a record low interest rate for the company
Mitigating the challenges
347 372
339
410
357
298
H1 11 H2 11 H1 12 H2 12 H1 13 H2 13
Page 47
Efficiency Initiatives
Working capital optimized over the recent years…
… with the turnover markedly reduced since beginning of 2011…
… as well as average NWC/Revenue ratio, constantly since 2011 well below the target level of 18%
Target G&A cut by 20% to the level of FY 2012…
… which should fully materialize by FY 2014 and have a positive EBITDA effect of c. $150m, as compared to FY 2012
Major areas for cost cutting have been personnel number, consultancy services, travel expenses, etc.
Decrease of 13%
Decrease of 17%
G&A expenses developments at Severstal, $m
85
55 54 53 52 55
23.4%
15.2% 14.9% 14.5% 14.3% 15.0%
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
0
20
40
60
80
100
H1 11 H2 11 H1 12 H2 12 H1 13 Targetlevel
Net working capital turnover, days (lhs) NWC/Revenue, %
2,013 1,864
1,750
128
1,726
1,014
2,579
(1,716)
89
(1,101) (1,448)
(568)
930
(844)
55
(853)
Cash & CEEOY 2010
OperatingCF 2011
CAPEX2011
Other adjto FCF
Otherinvesting &financing
CF
Cash & CEEOY 2011
OperatingCF 2012
CAPEX2012
Other adjto FCF
Otherinvesting &financing
CF
Cash & CEEOY 2012
OperatingCF 9M2013
CAPEX 9M2013
Other adjto FCF
Otherinvesting &financing
CF
Cash & CEend of 9M
2013
* Free cash flow is determined as an aggregate amount of the following lines: Net cash from operating activities, CAPEX, proceeds from disposal of PPE, interest received and dividends received
Cash flows in FY 2011
Positive FCF of $953m
Cash flows in FY 2012
Positive FCF of $431m
Cash flows in 9M 2013
Positive FCF of $141m
Page 48
FCF is a Key Focus
Over the recent years Severstal has consistently delivered a meaningful positive FCF*
CAPEX is traditionally covered by operational cash flow
Focus on FCF is key priority going forward
Free cash flow will be used for further deleveraging and dividend payments
Page 49
Decreasing Cost of Debt
WHAT WAS
EUROBOND 2013
EUROBOND 2014
EUROBOND 2017
Year of issuance
2008 2004 2010
Maturity 5 years 10 years 7 years
Amount $544m $375m $1,000m
Rate 9.75% 9.25% 6.70%
WHAT’S NOW
EUROBOND 2018
EUROBOND 2022
CONVERTIBLE BOND
Year of issuance
2013 2012 2012
Maturity 5 years 10 years 5 years
Amount $600m $750m $475m
Rate 4.45% 5.90% 2.00%
Significantly better terms of refinancing on the public markets…
…due to stable financial position, streamlined strategy and investor
recognition
1,014
166 6
447
5 72
1,692
42
860
1,513
1,129
756
Liquidity asof Q3 2013
4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 2015 2016 2017 2018 2019+
Cash & CE Short-term Debt to be Repaid Unused Committed Credit Lines Long-term Debt to be Repaid Page 50
Comfortable Payment Schedule
Total debt to be paid in 2014-15 is only $572m, of which the only bond bullet is 2014 Eurobond of $375m
Cash at hand of c. $1,000m 1.4 times covers debt payments until 2016
Available liquidity of $2,706m, of which 63% represented by committed credit lines
Cash at hand to be maintained around $1bn going forward, supported by a large amount of credit lines
Total 2014 debt repayments of $530m
$m
2,013 1,864 1,726 1,552 1,494 1,014
248 393 922 1,112 1,264 1,692
0
500
1000
1500
2000
2500
3000
EOY 2010 EOY 2011 EOY 2012 Q1 2013 Q2 2013 Q3 2013
Unused committed credit lines, $m
Cash and cash equivalents, $m
Deleveraging on Track
Page 51
Higher net debt/EBITDA due to lower LTM EBITDA, although already stabilized and set to decrease
Gross debt down 17% since EOY2010
Net debt down 6% since EOY2010
Steadily decreasing debt, stabilizing net debt/EBITDA
Rising available liquidity by increasing committed credit lines
2,257
2,648 2,664 2,758 Available liquidity up 19% since EOY 2010 to $2,706m…
… with committed credit lines up almost 7x times to $1,692m…
… and cash on balance decreasing by 50% to $1,014m
Cash on balance to hover around $1bn going forward as a comfort cushion, supported by significant amount of committed credit lines
2,261
6,025 5,976 5,710
5,454
4,977
4,212 4,112 3,983 3,960 3,963
1.4x 1.1x
1.8x
2.2x
2.2x
0
0,5
1
1,5
2
2,5
3 000
3 500
4 000
4 500
5 000
5 500
6 000
6 500
FY 2010 FY 2011 FY 2012 1H 2013 9M 2013
Gross debt, $m Net debt, $m Net debt/EBITDA, x
2,706
568
681
541
368 430
479
543
111 110 105 115 100 99 79
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
0
100
200
300
400
500
600
700
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
EBITDA, $m Interest, $m
Coverage, x (rhs) Average coverage, x (rhs)
Key debt parameters:
preference for public, USD, fixed and unsecured
Page 52
Key Debt Elements
Severstal’s interest coverage dynamics
Average interest coverage in 2012-13 is
5.1x
Interest payments have been decreasing post the lower-cost bond
placements
Public 85%
Fixed 85%
Float 15%
Secured 17%
Unsecured
83%
USD 91%
EUR 7%
RUB 2%
Private
15%
Interest coverage as of Q3 2013 was 6.9x
Conclusions
Resilient business model combining low cost production and strong market positions
Focus to ensure building healthy and high-quality business
Further improve cost positions via G&A reduction and operating efficiency initiatives
Target reduce a capital intensity of operations
Committed to prudent debt management and gradual deleveraging
Improved FCF profile to target higher dividend payments
Page 54
Conclusions
Q&A
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