1. business and industrial

NLMK
Capital Markets Day
London
30 March 2015
TODAY’S SPEAKERS
HELMUT WIESER
Independent
Director
OLEG BAGRIN
President and
Chief Executive Officer
GRIGORY FEDORISHIN
Chief Financial Officer
3
DISCLAIMER
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.
2
AGENDA
8:30
DELIVERING ON STRATEGY 2017
OLEG BAGRIN
President and
Chief Executive Officer
9:00
FINANCIAL HIGHLIGHTS
GRIGORY FEDORISHIN
Chief Financial Officer
9:20
CORPORATE GOVERNANCE &
CONCLUDING REMARKS
HELMUT WIESER
Independent Director
9:30
Q&A
4
DELIVERING ON STRATEGY 2017
Oleg Bagrin
President and Chief Executive Officer
STRATEGY 2017: KEY TARGETS
TARGETED ANNUAL NET GAINS IN 2018 VS 2013: $1,000 M
1
Leadership in
operational
efficiency
100
$330 m
230
$280 m
2
3
World-class
resource base
Leading positions
in strategic
markets
430
$480 m
50
40
$190 m
Vladimir Lisin
150
Capital Markets Day,
February 2014
4
Leadership in
sustainability &
safety
Note: all numbers include NBH unless otherwise stated
o Minimize environmental footprint
o Promote safe operating practices
o Develop motivated and engaged
workforce
Management initiatives
Investment projects
6
STRATEGY 2017: 40% OF TARGETED GAINS REALIZED IN 2014
TARGETED ANNUAL NET GAINS 2018 VS 2013: $1,000 M
1
Leadership in
operational
efficiency
GAINS ACHIEVED IN 2014: $400 M
6
• Management
initiatives
100
$204 m
$330 m
 Operational efficiency
target achieved
230
198
$288 m
$280 m
$•
7
2
World-class
resource base
o Main effects to be
realized in 2017-2018
430
$97 m
$480 m
Investment projects
50
90
• Management initiatives
3
4
Leading positions
in strategic
markets
Leadership in
sustainability &
safety
Note: all numbers include NBH unless otherwise stated
LTIFR for Russian assets
40
o Utilization and sales
improved in US and Europe
28
$190 m
150
$100 m
71
$•
Investment projects
 NLMK Kaluga fully
ramped up
LTIFR
-36%
• Major safety improvement
Labor productivity
+8%
• Growth in productivity
Management initiatives
Investment projects
7
TARGETED OPERATIONAL
EFFICIENCY GAINS ACHIEVED
• Flat Products division is a home to NLMK
Production System
o Productivity gains: +200 k t of pig iron, +150 k t of steel,
+150 k t of HRC production
1
Leadership in operational efficiency
2
World-class resource base
2014 STRUCTURAL GAINS BY PROCESS*
$m
Process technology
35
o Record steel output of 12.5 m t pa
10
o -20 kg/t drop in coking coal consumption
49
Energy efficiency
$288 m
o +40% increase of recycled slag consumption
178
Procurement
16
o -50% drop in non-prime HRC
Logistics
• Long products division gains momentum after the
new facilities ramp up
Labor productivity
o +30 k t of rebar production through productivity gains
• Mining division delivers best ever operational results
o +1 m tpa of iron ore concentrate through productivity gains
• European and US divisions follow suit
o -8% personnel optimization at NBH companies
o -70% drop in non-prime HRC in the US division
2014 STRUCTURAL GAINS BY DIVISIONS*
$m
Russian Flat Products
36
25
28
14
Russian Long Products
$288 m
Mining division
185
Foreign rolled products
NBH
* Compared to 2013 cost base, net of investment projects effects
Material structural impact of operational efficiency on company’s profitability
8
OPERATIONAL EFFICIENCY
IS MANAGED AS A PROCESS
1
Leadership in operational efficiency
2
World-class resource base
NUMBER OF LIVE OPERATIONAL
EFFICIENCY PROJECTS, 2013-2014
• NLMK Production System is being rolled out
across all divisions and production sites
1 310
• Efficiency programs structure has changed
1 011
898
o Quick gains achieved
o Number of projects increased to 1,300
o 2014 new gains comparable to 2013 level
• Further gains targeted
o More than $100 m budgeted for 2015
o Active management of efficiency projects pipeline by
regular review of all production sites and processes
IMPACT ON SLAB PRODUCTION COST*
500
450
Q1'13
Q2'13
Q3'13
Q4'13
339
Q1'14
Q2'14
Q3'14
Q4'14
CUMULATIVE OPERATIONAL EFFICIENCY GAINS
Operational efficiency
programs impact, $/t
$/t
128
29
236
182
Strategy
$m
Execution
>100
>$100
16
14
400
350
280
288
Target 2017
2014A
300
192
250
244
200
150
0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750
2013
Cumulative capacities, m t/y
* World Steel Dynamics (WSD). For NLMK – consolidated slab cash cost Dec.2014
2014 Dec.2014
2013A
Photo October, 2014
Strategy 2017 target
2013 net gains
Continuous improvement culture should unlock further cost cutting potential
2015E
9
RATIONALIZATION OF THE
EUROPEAN DIVISION CONTINUES
1
EU FLAT PRODUCTS:
FIXED COSTS EVOLUTION
• Restructuring in Europe in progress since 2009
o Full transition to re-rolling model, cost reduction
through operational efficiency programs
Leadership in operational efficiency
€m
o 2013: setup of NBH* and a participation of the Belgium
state company SOGEPA in the capital of NBH (20.5%)
• Next step of NBH rationalization has started
121
o SOGEPA’s equity stake up to 49% from 20.5%,
SOGEPA’s put options cancelled
- 18
100
102
83
78
58
o NLMK and SOGEPA made equity injection of €40 m
o 50% reduction of NLMK guarantees in favour of NBH
under existing €500 m working capital line
2008
o Further restructuring of EU Flat Products operations
2010
2011
2013
2014
2015-16Е
EU FLAT PRODUCTS:
HEADCOUNT EVOLUTION
• Positive impact on NLMK European operations
o Structural EBITDA effect of €20 m
o EU Plate Products: zero or positive
EBITDA 2015 expected
o EU Flat Products: clear path to breakeven in 2017
1 584
- 350
1 206
1 126
726
2012
2013
2014
2015-16Е
* NLMK Belgium Holdings (NBH) comprises NLMK La Louvière (Belgium), NLMK Coating (France),
NLMK Strasbourg (France), NLMK Clabecq (Belgium), NLMK Verona (Italy) and and a network of service
centres. SOGEPA stands for Societe Wallonne de Gestion et de Participations S.A.
Further restructuring in Europe to reduce costs and optimize debt financing structure
10
IRON ORE PROJECTS ENVIRONMENT
• Major episode of global iron ore market
oversupply, leading to 50% price drop
IRON ORE PRICES
64%
64%
60%
70%
60%
15
50%
10
14.0
13.9
15.0
5
0
2012
2013
Iron ore concentrate production
2014
Mar.15
Jan.15
Nov.14
Sep.14
Jul.14
May.14
Mar.14
Jan.14
IRON ORE COST CURVE*
MINING DIVISION HIGHLIGHTS
mt
Nov.13
Iron ore fines (62% Fe), China CFR
Jan.13
o Low maintenance capex ($54 m in 2014)
Sep.13
o Productivity gains (+1.0 m tpa in 2014) drive down costs
Jul.13
o 90% of costs in rubles
$/t
May.13
o One of the lowest cost mining operations globally
180
160
140
120
100
80
60
40
20
0
Mar.13
• Stoilensky mine competitiveness remains intact
20
World-class resource base
2
160
$/t
140
120
Stoilensky mine: $12/t EXW + $4/t
transport cost to NLMK steelmaking
100
40%
80
30%
60
20%
40
10%
20
0%
0
Cumulative capacity: 1.4 bn t
0%
25%
50%
75%
100%
EBITDA margin (mining segment)
* Bloomberg industries. Iron ore concentrate cash cost
* Bloomberg industries. Iron ore concentrate cash cost. Jan. 2015
Stoilensky mine remains a platform for long term value creation
11
IRON ORE EXPANSION PLAN REVISED
• Iron ore concentrate: more efficient growth
IRON ORE CONCENTRATE CAPACITY, M TPA
Revised Target
Initial Target
19.5
o EBITDA impact (at $60/t IO CFR China): $110 m pa
o Launch: 2017-18
1.0
0.4
17.2
Investment
Efficiency
o Capex scaled down to $120 m from $570 m initially
14.0
Efficiency
2015-16
0.5
Efficiency
2014
14.0
1.8
5.0
95% self-sufficiency
o Operational efficiency: +1.0 m tpa in 2014, +0.4 m tpa
further potential
o Expansion project scaled down: debottlenecking of 1.8 m
tpa vs. new 5.0 m tpa beneficiation facility
World-class resource base
2
Investment
$
• Pelletizing project well on track…
o Capacity: 6 m tpa with an option to grow to 7.2 m tpa
Output '13
Capacity'17Е
Output '13
Capacity '17Е
o Updated 2014-17 capex: $520 m (incl. $160 m in 2014)
o Launch: mid-2016
• …and remains efficient even in current pricing
environment
o Targeted EBITDA impact: $130 m pa
• New targets for iron ore expansion
CAPEX AND NET GAINS UPDATE (2014-17)
Capex Plan
$1 330
110
570
o Self-sufficiency: 95%
o 2014-17 capex: down from $1,330 m to $720 m
($550 m in 2015-2017)
Expected Net Annual Gains
(investment + operational
efficiency program)
$m
$380
$720
120
80
$240
230
110
650
520
150
130
Strategy 2017
(Feb'14)
Updated gains
estimate
o Net gains of $240 m at current prices
Initial capex target
Revised capex
Photo October, 2014target
Pelletizing plant
Iron ore expansion
Tailings development
Large scale capacity expansion replaced with more efficient low capex growth
12
STRATEGIC MARKETS ENVIRONMENT
• International markets: global steel demand
will grow by 0.6% in 2015
GLOBAL MARKET: APPARENT STEEL USE
mt
o NLMK core markets in the EU, MENA and the US
continue to grow showing stable demand
• Russian market outlook
o Steel demand to soften by 7% in 2015, imports will
fall by up to 50%
o Steel output is expected to decline 2% yoy, minor and
long products producers most affected
o Sustainable demand in selected sectors:
◦
Pipes consumption to grow +10-15%
◦
Other infrastructure growth
◦
Construction industry fundaments are in place,
decline is cyclical, not structural
Leading positions in strategic markets
3
1 528
+0.6%
1 537
+0.6%
1 546
557
+2.8%
573
+1.7%
583
96
140
+11.7%
+4.5%
107
147
-0.4%
+2.1%
107
150
735
-3.3%
711
-0.5%
707
2013
2014
China
EU-28
2015Е
USA
Other world
Source: World Steel Association
RUSSIAN MARKET: SUPPLY AND DEMAND
50%
40%
20%
12.9%
2.9%
3.1%
20%
10%
10%
5.8%
30% 9.1%
3.0%
2.3%
-2.0%
-1.4%
18%
18%
17%
13%
0%
-7.0%
0%
-10%
2011
2012
2013
Share of imports in consumption
Supply growth, y-o-y
2014
2015E
ASU growth, y-o-y
Source: WSA, NLMK estimates
Recovery in developed markets, low growth in developing markets
13
DIVERSIFIED SALES AND
BALANCED PRODUCT PORTFOLIO
Leading positions in strategic markets
3
SALES STRUCTURE BY MARKETS, 2014
• Flexible sales structure
o Actively managed sales with exports share of 50-70%
Russia
o Wide exports geography of more than 70 countries
3%
10%
Europe
o In Q1’15 exports increased to 65% from 53% in 2014
18%
• Diversified product mix
o Russian market is strategic for downstream products
43%
M. East (incl. Turkey)
N. America
7%
o Up to 75% of export sales are semi-finished steel not
exposed to trade barriers
19%
Asia and Oceania
o Half of export sales are to captive re-rolling operations
ROW
EXPORTS SHARE IN SALES
EXPORTS FROM RUSSIAN ASSETS, 2014
Pig iron
3%
14%
11%
2%
8.3 m t
100%
Slabs to subsidiaries and
NBH
90%
Slabs to third parties
80%
70%
49%
73%
70% 69%
HRC
63%
68% 67% 68%
55% 53%
60%
21%
HVA flat steel
65%
61% 60%
59%
50%
2006 2007 2008 2009 2010 2011 2012 2013
Long steel
Export share, %
Q1 Q2 Q3 Q4 Q1'
'14 '14 '14 '14 15E
Utilization rate (NLMK steelmaking)
Flexible sales and balanced product mix ensures 100% run-rates through the cycle
14
IMPROVED UTILIZATION AND
PRODUCT MIX IN STRATEGIC MARKETS
Leading positions in strategic markets
3
SALES IN RUSSIA
• Benefiting from strong domestic demand in 2014
o Russian sales up 14% yoy capturing local price premium
43%
mt
39%
o NLMK Kaluga reached 100% capacity utilization
Pipes and tubes
6.6
5.8
• Building exposure to attractive niches in Russia
Processing, incl. white
goods
0.9
0.7
o Growing sales to pipe sector, including 800 kt of slabs
supplied for LDP production in 2014
0.4
o HDG facility upgrade in 2015: +0.12 m t
4.4
0.6
Construction &
infrastructure
4.8
Machinery
• European market: HVA products growth
Russian market
share in sales
o EU Plate Products: 40% growth in Q&T plates sales
2013
2014
o EU Flat Products: 10% growth in sales to automotive
• Improved utilization in the growing US market
o US Flat Products sales up +11% yoy to 2.0 m t
o NLMK US division benefits from increased protectionism
• Net gains from market strategy in 2014: $100 m
US AND EU DIVISIONS SALES
US Flat Products
EU Plate Products
EU Flat Products
1.2
mt
1.8
2.0
1.0
1.05
1.05
36%
39%
64%
61%
2013
2014
14%
86%
2013
18%
2014
Flat steel
2013
82%
2014
Q&T / niche thick plates
Ordinary grades
Delivering growth in strategic markets and segments
Automotive
Other industries
15
STRONG PROGRESS IN SAFETY
AND SUSTAINABILITY
4
• Relentless focus on safe operating practices
o Russian operations LTIFR* down by 36% to global best
practice level
Leadership in sustainability
and safety
LTIFR*, RUSSIAN ASSETS
0.86
0.87
• Further reduction of environmental footprint
0.83
-36%
o Specific air emissions reduced by 7% yoy to 20.3 kg/t
0.55
0.60
0.60
Target
2017
Best practice
(global)
o Off-gas treatment improved to a record 98.7%
• Labor productivity grew 8% across the Group
o Reengineering of business processes, implementing
best practices in HR
2011
2012
2013
2014
o Outsourcing of maintenance and auxiliary processes
* LTIFR – Lost Time Injury Frequency Rate (per 1 mln man-hours worked). Russian assets
include Russian Flat Products, Russian Long Products, Russian Mining
LABOR PRODUCTIVITY GROWTH VS 2013**
AIR EMISSIONS, RUSSIAN ASSETS
kg/t of steel
-7%
13%
23.00
22.00
8%
2014
21.90
20.30
2015E
2007
2010
2013
2014
19.40
Target
2020
**Productivity calculated as steel output divided by the number of employees
Sustainability and safety remains a priority
16
STRATEGY 2017: STRONG PROGRESS IN 2014
CAPEX REDUCTION
NET ANNUAL GAINS VS. 2013
$ bn
$ bn
Strategy 2017
target of $1.0 bn pa
Strategy 2017
target of $0.9 bn pa
1.5
40%
1 000
400
Strategy 2017
(by 2018)
2014A
2011-13
Average
CONSERVATIVE LEVERAGE
0.56
0.55
2014
2015-18E Target
STABLE POSITIVE FCF*
1.6
$ bn
HIGHER DIVIDEND PAYOUT
14%
16%
14%
1.1
0.7
NLMK
Russian
peer 1
1.2
FCF yield
Strategy 2017
target of 1.0x
0.7
Free cash flow (FCF)
2.7
3.1
0.4
0.6
1.3
3%
-0.2
0.1
Russian
peer 2
Global
average*
Russian
peer 3
10%
35%*
40%
8%
0.4
31%
6%
4%
4%
21%
20%
Strategy 2017
target of 30%
2012
2013 6M 2014
28%
2%
0%
-0.4
-1%
2011
Source: Latest reported financials
* Based on Bloomberg Intelligence global steel producers index
12%
2009
2010
2011
-2%
2012
2013
2014
*Free cash flow (available to shareholders and creditors) =
operational cash flow minus capex minus net interest payments
FCF yield = Free cash flow / market cap
* In 2013 US GAAP consolidated net profit adjusted for one-off
non-monetary factors (creation of reserves), and for expenses
related to previous periods
Delivering solid returns to all NLMK shareholders remains a priority
17
CEO REMARKS
• Management delivered good progress on strategy
execution with $400 m gains realized in 2014
• Future net gains target of $1bn unchanged
• Increased contribution to come from operational
efficiency projects as continuous improvement
culture strengthens
• Iron ore expansion capex cut by c.50%, selfsufficiency target remains
• Balanced product mix and flexible sales to support
utilization and top line
• Leading positions in sustainability and safety
ensure long-term responsible growth
18
FINANCIAL POLICY
Grigory Fedorishin
Chief Financial Officer
KEY 2014 NUMBERS
EBITDA MARGIN 2012-2014
• All time record steel output in 2014:
15.9 m t (+3% yoy)
27% 27%
30%
o NLMK Kaluga ramp up
25%
o >100% utilization of steelmaking at Lipetsk site
• Steel sales up 2% yoy to 15.1 m t
21%
18%
20%
15%
14%
16%
14% 14%
14%
16%
18%
11%
10%
2 600
• Deleveraging target achieved
2 200
$1.6 bn (-41% yoy)
o Gross debt
$2.8 bn (-34% yoy)
o Net debt / LTM EBITDA
0.67х
Q4'14
EBITDA BRIDGE, 2014/2013 *
• Consecutive growth of EBITDA margin
o Net debt
Q3'14
$562 m (-26% yoy)
Q2'14
o Capex
Q1'14
$1.2 bn (+112% yoy)
Q4'13
o FCF
Q3'13
23% (+9 p.p. yoy)
Q2'13
o EBITDA margin
0%
Q1'13
$2.4 bn (+57% yoy)
Q4'12
o EBITDA
5%
Q3'12
$10.4 bn (-5% yoy)
Q2'12
o Revenue
Q1'12
• FY’14 financial results
$m
125
149
230
121
1 800
2 383
252
1 400
1 505
1 000
2013
Efficiency
program
Volumes
& product
mix
Price
FX
spreads &
cost inflation
2014
NBH
deconsolidation
* Does not include NBH results and $36 m efficiency gains at NBH
Strong 2014 results
20
FREE CASH FLOW GROWTH
• Structural growth in business profitability
o >$500 m of annual net gains from operational
efficiency programs generated in 2013-2014
o Forthcoming gains from investment projects
• Deleveraging completed
o Net Debt / EBITDA of 0.67x below target of 1.0x
CASH FLOW TREND, 2011-2014
4
$ bn
14%
3
2
1
1.8
1.8
o 2014 capex: $0.56 bn
0.4
1.2
0.4
1.2
1.7
0
-1
-0.2
-1%
-0.8
-0.6
2013
2014
-1.5
-2
• Lower capital intensity of the business
4%
3%
-2.0
-3
2011
2012
Operational cash flow
Capex
Free cash flow*
16%
13%
11%
8%
6%
3%
1%
-2%
-5%
-7%
-10%
-12%
FCF Yield*
o 2015-2018E average capex: $0.55 bn
• Free cash flow becomes available to
shareholders: capability to sustainably
increase dividends
EBITDA TO FREE CASH FLOW BRIDGE, 2014
$ bn
2.4
-0,1
-0,1
1.7
-0,4
-0,1
EBITDA
2014
* Free cash flow (available to shareholders and creditors) = operational cash flow minus capex minus
net interest payments. FCF yield = Free cash flow / market cap
W/C
Non-cash Income
changes
& FX
tax
Net
Net
interest operating
CF
Free cash flow growth due to higher profitability and lower capex
-0,6
1.2
Capex
Free cash
flow*
21
UPDATED CAPEX TARGET
STRATEGY 2017 TOTAL REQUIRED CAPEX
• Strategy 2017 development capex scaled down
Initial Target
o -$0.6 bn: iron ore capex reduction
Revised Target
$m
o +$0.1 bn: new projects (IRR>35%) offset by ruble
devaluation effect on capex
o $0.8 bn to invested in 2015-2018
200
1 600
• Mid-term total average annual capex of
$0.55 bn (down from $0.9 bn)
1 000
770
800
Capex 2014
Total capex
2015-18
o $0.2 bn pa. – Strategy 2017 projects capex
Strategy 2017
(Feb.'14)
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
ANNUAL CAPEX HISTORY AND PROJECTIONS
$ bn
• Capex 2015E of $600-700 m
o $0.25 bn – active phase of pelletizing project
o 2014 capex carryovers
Total capex
2014-18
0.1
2.0
2.02
1.94
1.5
0.2
1.46
1.0
0.5
1.45
2015-2018
average
1.11
$0.55 bn
0.25
0.76
0.56 0.55
0.0
2008 2009 2010 2011 2012 2013 2014
*Required capex does not include capitalized interest
Lower capital intensity of the business
Maintenance & environmental capex
Strategy 2017
BFs and converters capital repairs
22 22
DELEVERAGING TARGET ACHIEVED
•
•
•
FINANCIAL DEBT, YEAR END
Maintaining leverage at comfortable level
$ bn
o Strategic target of Net debt / EBITDA of 1.0x achieved
8
o No plans for further deleveraging
6
Efficient debt structure
2
Strong liquidity position
0.67
4.4
4.6
3.4
4.2
3.6
0
2.7
2.8
1.6
0
-1
2011
Financial debt
2012
Net Debt
2013
2014
Net Debt/EBITDA ratio
FINANCIAL DEBT STRUCTURE, 2014
o Liquidity comfortably covers short-term debt
10%
28%
20%
63%
10%
o $0.25 bn of refinanced/rolled over debt
64%
23%
Modest level of short-term debt
90%
72%
57%
36%
27%
o $0.5 bn to be covered by operational cash flow or
refinanced
Secured debt
Unsecured debt
Bonds
Short-term debt
Long term debt
Bank lines
Syndicated facilities
Commitment to investment grade rating
USD
EUR
RUR
Fixed rate
Floating rate
DEBT STRUCTURE AND MATURITY, 2014
o Sovereign rating pressure
o In constant dialogue with major credit
ratings agencies
Strategy 2017 2
target of 1.0
1
o $1.9 bn of committed credit lines, >50% from
Russian state-owned banks
•
1.80
4
o $1.1 bn of cash, 90% $ or € denominated
•
1.88
1.49
3.0
Committed
credit lines
Cash
1.9
0.77
0.29
0.28
2016
2017
0.82
0.57
2018
2019 and
further
1,1
Liquidity
2015
Eurobonds (USD)
Strong financial position
RUR bonds
Bank loans
23
NEW DIVIDEND POLICY
NEW DIVIDEND POLICY EXAMPLE
• Quarterly dividend payments
• Based on Net income (non-cash) and
Free cash flow (cash) indicators
$m
Dividend yield
range*
• Adjusts for leverage (Net debt/EBITDA)
5.8%
• Net debt/EBITDA of 1.0x or less
7.1%
1 155
934
o Dividend payout in the range of 50% of
Net income and 50% of Free cash flow
578
467
Net income 2014
• Net debt/EBITDA exceeding 1.0x
FCF 2014
50% of NI
50% of FCF
*Dividend yield calculation is based on the average 2014 market cap
o Dividend payout in the range of 30% of
Net income and 30% of Free cash flow
DIVIDEND HISTORY
800
$m
700
600
500
400
Minimum payout
level of 20%
738
300
471
200
379
43
100
376
116
115
134
0
2007
2008
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2009
2010
2011
2012
2013 H1 2014
Declared dividends for the year
Dividend payout ratio ** (dividend/net income), rhs
** In 2013 dividend payout amounted 35% of US GAAP consolidated net profit adjusted for one-off nonmonetary factors (creation of reserves), and for expenses related to previous periods
Targeting higher dividend payout going forward
24 24
24
CFO REMARKS
• Cost control and operational efficiency to
support profitability
• Conservative capex with high return hurdles
• No need for further deleveraging
• Structurally higher free cash flow available for
shareholders
• New dividend policy to improve visibility of
payments and to increase payout
• Generating superior shareholder returns
remains top priority
25
CORPORATE GOVERNANCE
Helmut Wieser
Independent Director
COMMITMENT TO SOLID CORPORATE GOVERNANCE
•
•
•
Experienced and involved Board
DIRECTORS' EXPERIENCE IN METAL & MINING
Three independent directors
2
Board committees meet on a regular basis
Over 30 years
o Strategic Planning Committee
o Audit Committee
o HR, Remuneration and Social Policies Committee
•
•
Corporate governance is based on best practices
16-30 years
2
4
10-15 years
Management is focused on governance
o Internal controls and risk management set as a group
function reporting to the Audit Committee
o Corporate Secretary set as a group function
•
ENGAGING WITH SHAREHOLDERS
One of the industry’s most transparent
companies
o Top 10 in Best Financial Disclosure and Best Investor
Relations in Europe and Russia
o 2008-2014 awards include Institutional Investor and
Extel Survey Awards for Best IR (Equity and Debt)
•
New dividend policy demonstrates commitment
to all shareholders
27
LEADING POSITIONS TO TRANSLATE INTO SHAREHOLDERS RETURNS
IMPRESSIVE GROWTH STORY
LARGEST STEELMAKER IN RUSSIA
1ST QUARTILE COST POSITION
2014 Steel output, m t
Global cost curve, Dec’14
2010-2014 Steel output growth
50%
40%
38%
$/t
600
15.9
15.5
0.7
3.7
30%
13.8
500
13.0
400
2.5
300
20%
14%
15.3
11.8
10%
$192/t - NLMK Russia
200
13.0
11.3
100
2%
0%
0
(10%)
NLMK
21%
(5%)
(6%)
Russian Global Russian Russian
peer 1 average peer 3 peer 2
NLMK
Russian
peer 3
Russian assets
0
Russian
Russian
peer 2
peer 1
International assets
100
200
300
400
500
600
700
Cumulative capacities, m t/y
Source: WSD Dec’14 cost curve; consolidated slab cash cost
at NLMK Russian Flat Products as of Dec’14
TOP TIER PROFITABILITY
CONSISTENTLY LOW LEVERAGE
2010-2014 EBITDA margin*
12M 2014 Net debt / LTM EBITDA
19%
16%
14%
13%
BBВ- (Fitch)
Ba1 (Moody’s)
BB+ (S&P)
2.7
3.1
1.3
Russian
peer 2
NLMK
Russian
peer 1
Source: Latest reported financials
Russian
peer 3
Global
average
0.7
0.7
NLMK
Russian
peer 2
Russian Global Russian
peer 1 average peer 3
Source: Latest reported financials
28
LEADING POSITIONS TO TRANSLATE INTO SHAREHOLDERS RETURNS
GROWTH RATES 2014/2012
Crude steel output
EBITDA
Free cash flow
249%
137%
25%
18%
10%
7%
(0%)
(9%)
50%
8%
5%
(2%)
NLMK
Russian peer 1
Russian peer 2
Russian peer 3
Source: Companies’ data, Bloomberg as of March’15
EV/ EBITDA, MARCH 2015
MARKET CAPITALIZATION
2.0
Index, base=Jan’14
7.6
1.6
1.2
4.0
NLMK
Russian peer 1
Russian peer 2
Russian peer 3
Jan-14
Jan-14
Feb-14
Mar-14
Mar-14
Apr-14
May-14
May-14
Jun-14
Jul-14
Jul-14
Aug-14
Sep-14
Sep-14
Oct-14
Oct-14
Nov-14
Dec-14
Dec-14
Jan-15
Feb-15
Mar-15
Mar-15
0.0
4.7
3.0
0.8
0.4
4.6
Source: Bloomberg as of March’15
Russian peer 1
NLMK
Russian peer 3 Russian peer 2 Global average
Source: Companies’ data, Bloomberg as of March’15
Global average based on Bloomberg Intelligence index
29
APPENDIX
BALANCED ASSET PORTFOLIO
NLMK USA
1 mini-mill & 2 rolling mills
Steel: 0.8 m tpa
Flats: 2.9 m tpa
Novolipetsk
NLMK Kaluga
NLMK Dansteel
Altai-Koks
Coke: 2.6 m tpa
Steel: 12.5 m tpa
Flats: 5.9 m tpa
Steel (EAF): 1.5 m tpa
Longs: 0.9 m tpa
Plates: 0.55 m tpa
Coke: 4.7 m tpa
RUSSIA
Slabs
1.7 m t
Moscow
VIZ-Stal
Denmark
USA
GO steel flats:
0.2 m tpa
Belgium
NLMK Belgium Holdings (NBH)
Strips: 1.7 m tpa
Plates: 1.1 m tpa
France
NLMK Long Products
Stoilensky (open pit)
Steel : 2.2 m tpa
Longs: 1.9 m tpa
Metalware: 0.5 m tpa
Italy Iron ore concentrate:
15 m tpa
Sinter ore: 1.8 m tpa
Reserves: 5 bn t
- Raw materials producing assets
- BF/BOF steelmaking
- EAF mini-mill
- Rolling assets
- Licenses to develop coal deposits
NLMK crude steel capacity
Share of “domestic” sales of finished steel
5%
92%
100%
Production capacity, m t pa.
17.0
12.2
71%
17 m t
95%
Russia
International
2.8
NLMK Russia
NLMK Europe
NLMK USA
Crude steel
Flat steel
Long steel
31
NLMK CORE COMPETITIVE ADVANTAGES
• The largest steelmaker in Russia with 1st quartile
costs and one of the highest profitability globally
• Balanced and diversified production chain
DECEMBER 2014 SLAB PRODUCTION COST*
500
o All upstream assets and 95% of steelmaking capacity
(75% BOF, 25% EAF) located in Russia
400
o Self-sufficiency in raw materials: iron ore 100%,
coke >100%, scrap 85%, energy 60%
200
o 15 mln t pa. downstream facilities in Russia, EU and the
US source crude steel from Russia
• One of the most diversified steelmakers globally
$/t
600
300
$192/t
100
0
0
50 100 150 200 250 300 350 400 450 500 550 600 650 700 750
Cumulative capacities, m t/y
* World Steel Dynamics (WSD)
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
over 35% of high value added
o Diversified customer base (from infrastructure to autos
and energy) in more than 70 countries
DIVERSIFIED BUSINESS
%
18
25
69
57
• 100% utilization, 25 p.p. above industry average
o Scalable value chain: growth options in upstream,
steelmaking and downstream
o Low capex due to organic/brownfield growth options
82
75
• Low risk growth opportunities across the existing
production platform
31
Production route
BOF
EAF
Product type
Flat
Long
Product mix
Commercial grade
HVA
43
Sales
Russia
International
Note: 2014 sales, tonnes, excluding NBH
32
Investor Relations
Sergey Takhiev
+7 985 760 55 74
[email protected]