Nlmk · RUS:NLMK
Nlmk — Q3 2016 Earnings Presentation
28 slides from Nlmk's earnings presentation, Oct 31, 2016
Slide 1: Q3 2016 and 9M 2016 IFRS Results
Q3 2016 AND 9M 2016 IFRS RESULTS 31 OCTOBER 2016
Slide 2: Disclaimer
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 no
Slide 3: Contents
CONTENTS Performance and strategy overview Results and outlook Segmental information Annex 3
Slide 4: NLMK delivered superior results
NLMK DELIVERED SUPERIOR RESULTS • All-time record sales Highest profitability in 6 years EBITDA margin o 9M’16 sales 12.3 mt, up 2% yoy 0 30% 0 o Q3’16 sales 4.22 mt, up 7% yoy 0 0 25% 18% 0 • Improved profitability and cash flow 0 11% o Q3 revenue: $2,225 m (+19% qoq; +10% yoy) 0 o Q3 EBITDA: $673
Slide 5: Strategy execution drives strong performance
STRATEGY EXECUTION DRIVES STRONG PERFORMANCE Strategic initiatives behind solid results: ❶ Market leadership (p.6) Sales volumes, mt p.a. 16.0 o Continuing sales growth driven by the exposure to strategic home 15.8 markets: Russia, EU, and USA 15.1 14.9 o Strong positions in the niche markets o Grow
Slide 6: Local markets secure stronger shipments
❶ LOCAL MARKETS SECURE STRONGER SHIPMENTS… • Exposure to local customers in home markets NLMK shipments by markets, 9M’16 o Through downstream assets in Russia, EU, and USA Mt o 2/3 of steel sold where it is produced o Leading positions in the local markets and niche segments Home markets 4.3 66% In
Slide 7: With better pricing and product mix
❶ … WITH BETTER PRICING AND PRODUCT MIX • NLMK’s home markets offer price premiums to Prices at NLMK’s home markets the benchmark 750 $/t • Ongoing sales growth and product mix 650 638 USA improvement contribute to higher profitability 583 550 across all divisions 475 EU 465 450 468 Russia 397 387 C
Slide 8: Productivity gains unlock additional capacity
❷ PRODUCTIVITY GAINS UNLOCK ADDITIONAL CAPACITY • Group operations are running at high rates Utilization rates, average 2013-9M’16 % • Ongoing efficiency programs targeting productivity growth at zero capex • Output growth is balanced across the entire production chain 95% 100% 68% 78% Global CIS pe
Slide 9: Efficiency projects structurally reduce costs
❷ EFFICIENCY PROJECTS STRUCTURALLY REDUCE COSTS • Consistent cost leadership through the cycle Steel production costs $/t o 40% cost advantage over average global steel producers 600 500 • Lower consumption of energy and raw materials 400 • Slab cash costs fell almost 50% since 2013 300 200 100 Peer
Slide 10: World-class resource base secures cost leadership
❸ WORLD-CLASS RESOURCE BASE SECURES COST LEADERSHIP • Vertical integration in the lowest cost iron ore Iron ore fines production cost, 9М’16 $/t • 100% utilization rate at the core upstream asset 70 60 • Ongoing efficiency and capex projects increase iron 50 ore supply… 40 o +1.2 mt pa – efficiency
Slide 11: Pellet plant: pushing costs further down
❸ PELLET PLANT: PUSHING COSTS FURTHER DOWN • New 6 mt p.a. pellet plant will be launched in NLMK pelletizing plant economics, 2017E* November 2016 $M 6 m t @ $50/t • Integration in pellets rises from 0% to 100% $49 1.6 m t • 2017 EBITDA impact c.$150m 4.9 m t $65 @ $25/t @ $10/t cost • Production wi
Slide 12: Contents
CONTENTS Performance and strategy overview Results and outlook Segmental information Annex 12
Slide 13: Q3'16 profitability: EBITDA rises 46% qoq
Q3’16 PROFITABILITY: EBITDA RISES 46% QOQ • EBITDA up by 46% qoq to $673 m Q3’16 / Q2’16 EBITDA analysis o (+) Sales volumes growth $M 800 .0 o (+) Product mix improvement 700 .0 17 18 17 - 7 o (+) Higher average realized prices 600 .0 500 .0 168 • (+) Russian Flat Products 400 .0 300 .0 673 o (+) W
Slide 14: Free cash flow: 3x growth qoq
FREE CASH FLOW: 3X GROWTH QOQ • Q3’16 Net Operating Cash Flow: $562M Q3’16 cash flow bridge, $m • Working capital flat: EBITDA 673 o - $61 m - increase of receivables (higher sales & prices) Net working capital change -1 o + $62 m - inventories reduction across the Group Other non-cash items* -12 •
Slide 15: Debt position: net debt down by 41% qoq
DEBT POSITION: NET DEBT DOWN BY 41% QOQ • Liquidity position of $1.8 bn Liquidity and ST-debt payments* $M • Comfortable debt maturity profile o ST debt $0.36 bn o LT debt $2.11 bn 1,186 Available credit lines • Net Debt / 12M EBITDA: 0.39x o Net Debt: $0.69 bn (-41% qoq, -37% yoy) 1,811 9 91 184 80
Slide 16: Strategy execution drives shareholder returns
STRATEGY EXECUTION DRIVES SHAREHOLDER RETURNS • Structural growth in profitability and NLMK EBITDA Margin & CAPEX reduction in capex $ bn 0.3 2.0 24% 25% 23% • Sustainable free cash flow generation 1.80 1.5 0.2 • Strong balance sheet 14% 16% 1.0 • Higher dividend payout 0.1 0.5 0.8 0.56 0.59 0.38 0.
Slide 17: Q4'16 outlook
Q4’16 OUTLOOK • MARKETS o Russia: seasonally slower buying activity and fairly stable local prices due to low imports o Europe: demand recovery on the back of supportive regional fundamentals and restocking after summer lull o USA: cost push, supply discipline and ongoing trade actions to support pr
Slide 18: Contents
CONTENTS Performance and strategy overview Results and outlook Segmental information Annex 18
Slide 19: Russian flat products
RUSSIAN FLAT PRODUCTS • SALES TO 3RD PARTIES UP BY 16% QoQ Sales & revenue from 3rd parties o (+) Sales up due to seasonally high demand in Russia +16 % +26% Other operations** o (+) 3rd party sales of HVA products in Russia +13% qoq 1.979 m t 2.287 m t $992 m $1.254 m Transformer 6% 6% 6% Dynamo •
Slide 20: Russian long products
RUSSIAN LONG PRODUCTS • SALES TO 3RD PARTIES UP BY 37% QoQ Sales & revenue from 3rd parties o (+) Higher exports of billets and long products +37% +34% o (+) Seasonally strong demand in Russia 635 k t 869 k t $250 m $334 m • EXTERNAL REVENUE UP BY 34% QoQ 27% 22% 19% 19% Scrap and other** 8% 10% o (
Slide 21: Mining
MINING • SALES VOLUMES UP BY 16% QoQ Sales revenue and EBITDA from 3rd parties o 3rd party sales up 24% qoq to 1.19 m t +16 % +17% o Sales to Novolipetsk grew 13% qoq to 3.04 m t 3.989 m t 4.636 m t $145 m $170 m 7% 7% 25% 27% Other • REVENUE UP BY 17% QoQ 23% 29% operations* o (+) Uptick in sales p
Slide 22: Foreign rolled products
FOREIGN ROLLED PRODUCTS • Q3 SEGMENT SALES DOWN BY 18% QoQ Sales & Revenue from 3rd parties o (-) Seasonal drop in demand for plates in the EU -18 % -1% o (-) Softer demand in USA 663 k t 541 k t $400 m $398 m 14% 16% Other operations* 16% 18% • SEGMENT’S PROFITABILITY IMPROVED 22% 26% Galvanized 24
Slide 23: Contents
CONTENTS Performance and strategy overview Results and outlook Segmental information Annex 23
Slide 24: Q3'16 NLMK sales and output
Q3’16 NLMK SALES AND OUTPUT • Sales grew to 4.2 m t (+7% qoq) driven by: Group sales structure o Finished products up by 8% qoq due to strong Russian Mt demand and better exports of longs 4.12 4.22 3.94 o Growth in semis driven by strong demand for billets 1.50 1.42 1.47 • Uptick in sales driven by
Slide 25: Sales structure
SALES STRUCTURE • Q3’16: SALES UP BY 7% QoQ TO 4.22 MT Sales structure by product M tonnes o +8% qoq finished steel 4.12 3.94 4.22 Pig iron Slabs o +6% qoq of semi-finished 1.11 1.14 Billets 1.10 o +45% qoq Longs HRC Plates o -1% qoq Flats 0.99 0.90 0.94 CRC Galvanized o -4% qoq HVA products 0.54 0.
Slide 26: Sales geography
SALES GEOGRAPHY • GROUP SALES UP BY 7% QoQ Steel product sales by region • SALES TO LOCAL MARKETS INCREASED 4% QOQ Mt 4.12 3.94 4.22 5 o +29% qoq in Russian market 4 0.40 0.59 Others 0.06 0.44 0.15 o -9 % qoq in North America 0.20 SE Asia 4 0.77 0.57 3 0.62 0.34 0.32 N.America o -9% qoq in European
Slide 27: Foreign assets performance
FOREIGN ASSETS PERFORMANCE Slabs sales from Russian Flat Division NBH Rolled product sales Kt Kt 614 1,637 1,705 1,632 QoQ 644.92 643.63 642.34 641.05 639.76 638.47 637.18 635.89 634.60 633.31 632.02 630.73 629.44 628.15 626.86 625.57 QoQ 10 624.28 622.99 621.70 620.41 619.12 1,800.0 1,8 00 617.83 6
Slide 28: NLMK Investor Relations
Sergey Takhiev NLMK Investor Relations 40, Bolshaya Ordynka Str., Bldg. 3 Moscow, 119017, Russia t. +7 495 504 05 04 m.+7 985 760 55 74 [email protected]