Nlmk · RUS:NLMK
Nlmk — Investor Day (March 2017)
35 slides from Nlmk's investor day presentation, Mar 6, 2017
Slide 1: NLMK Capital Markets Day 2017
NLMK Capital Markets Day 2017 6 March 2017
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: Today's Speakers
TODAY’S SPEAKERS Stanislav Shekshnya Oleg Bagrin Grigory Fedorishin Independent Director President and Senior Vice-president Chief Executive Officer 3
Slide 4: Agenda
AGENDA 8:30 CORPORATE GOVERNANCE AND STANISLAV SHEKSHNYA LEADERSHIP DEVELOPMENT Independent Director DELIVERING ON STRATEGY 2017 OLEG BAGRIN 8:40 $547 m gains achieved, $1 bn target net gains reconfirmed President and Chief Executive Officer 9:00 FINANCIAL RESULTS OF 2016 GRIGORY FEDORISHIN Strategy
Slide 5: Corporate governance & leadership development
CONTENTS Corporate governance & leadership development Delivering on Strategy 2017 Financial results of 2016 Developing Strategy 2022 5
Slide 6: World Class Corporate Governance Practices
WORLD CLASS CORPORATE GOVERNANCE PRACTICES Growing involvement of independent directors Board: % of independent directors Number of Independent Directors increased Audit Committee; HR, Remunerations and Social Policy Committee to be chaired by Independent Directors 38% 30% 50% Independent Directors
Slide 7: Continuous Improvement in Corporate Governance
CONTINUOUS IMPROVEMENT IN CORPORATE GOVERNANCE In 2016 we conducted a thorough review of the Board and committees and outlined a plan to further improve effectiveness of corporate governance in key areas: Board mission Board process Defined: working for the institution, Annual evaluation – 360-degre
Slide 8: Bringing Employees Development to the Board Level
BRINGING EMPLOYEES DEVELOPMENT TO THE BOARD LEVEL Strategy 2022 will be more human capital intensive comparing to the previous phases Greater focus on people and culture to drive company’s development Key challenges: Solutions: New generation of leaders required Talent identification across the Grou
Slide 9: Delivering on Strategy 2017
CONTENTS Corporate governance & leadership development Delivering on Strategy 2017 Financial results of 2016 Developing Strategy 2022 9
Slide 10: Strategy 2017 Targets Recap
STRATEGY 2017 TARGETS RECAP Strategy 2017 targets announced by Vladimir Lisin, Chairman of the Board of Directors, at Capital Markets Day in 2014 10
Slide 11: Steel Market Conditions Deteriorated in 2014-2016
STEEL MARKET CONDITIONS DETERIORATED IN 2014-2016 Since 2013 steel prices fell by $150-200/t driven by weak Steel prices lost over $150/t since 2013 demand and steel and raw materials overcapacity $/t 60 0 30 0 550 Chinese steel exports doubled triggering massive wave of 50 0 protectionism across th
Slide 12: 2017 Steel Demand to Remain Weak and Prices Volatile
2017 STEEL DEMAND TO REMAIN WEAK AND PRICES VOLATILE Global demand to remain anemic but markets where we operate NLMK home markets show better-than-average growth will outperform %, yoy Russian steel demand reverses to positive trend (+0,9%) after 3 years of decline EU steel demand continues to reco
Slide 13: NLMK Outperforms Despite Market Headwinds
NLMK OUTPERFORMS DESPITE MARKET HEADWINDS NLMK delivers another year of record sales Record operating results in 2016 Mt 18 Crude steel output 16.6 m t (+4% yoy) 15,8 15,9 17 Sales 15.9 mt (+1% yoy) driven by sales growth in home markets 14,8 15,1 16 15 Operational efficiency drives profitability im
Slide 14: NLMK Strategy Drives Financial Performance
NLMK STRATEGY DRIVES FINANCIAL PERFORMANCE In 2014-2016 Strategy execution delivered $741 m of gross savings, including $107 m in 2016 Market factors – prices and FX – eroded Strategy gains by almost $200 m or 25% Total net gains for 2014-2016 (marked to market) reached $547 m or >50% of Strategy 20
Slide 15: Operational Efficiency Is a Foundation of Our Strategy
❶ OPERATIONAL EFFICIENCY IS A FOUNDATION OF OUR STRATEGY Operational efficiency contribution in 2014-16: $364 m pa Efficiency gains by division, 2014-2016 $M Number of efficiency projects grew to 2,500 as NLMK Russian Flat Production System rolls out 56 Products 30 Russian Long Cost savings lead to
Slide 16: Resource Base: Lower Consumption, Better Integration
❷ RESOURCE BASE: LOWER CONSUMPTION, BETTER INTEGRATION Earnings impact in 2014-16: $97 m pa mainly from better resource use Structural reduction in resource consumption Upcoming gains will be driven by upstream investment projects Energy Fe materials Coal Coke Natural gas Iron ore: sufficiency up fr
Slide 17: We Grow Faster Than Our Markets
❸ WE GROW FASTER THAN OUR MARKETS NLMK sales structure improved Earnings impact in 2014-16: $86 m pa Mt By products By markets 7% volume growth and growing share of finished steel sales 15,9 15,9 +7% 14,9 14,9 8% sales growth in home markets 3,7 -7% +6% sales in 3,9 Semis sales 5,3 5,7 external mark
Slide 18: People and Sustainability Remain Our Priority
❹ PEOPLE AND SUSTAINABILITY REMAIN OUR PRIORITY Long-term focus on safe operating practices Significant improvement in safety metrics - LTIFR* LTIFR of Russian operations down by 60% to 0,34x – among lowest globally 2,03 Group-wide safety metrics significantly improved as common safety practices rol
Slide 19: Strategy 2017 Progress: Interim Overview
STRATEGY 2017 PROGRESS: INTERIM OVERVIEW Annual gains vs. 2013 Structural profitability growth Capex below target level 12 00 $ bn EBITDA margin (%) $ bn 40 % 10 00 80 0 25% 60 0 -194 55% 1 000 14% 20 % 1,5 741 40 0 547 0,9 0,6 0,6 0,6 20 0 0 0% Cumulative Market factors Net gains, Strategy 2017 201
Slide 20: We Remain Committed to $1 bn Strategy 2017 Target
WE REMAIN COMMITTED TO $1 BN STRATEGY 2017 TARGET Strategy ‘17 net gains $M Efficiency gains Gains from investments $547 m in 2014-16: efficiency gains (~70% of total) were front-loaded 2014-’161 500 47 547 gains c. $260 m in 2017, including gains from 2014-16 investment projects: $150 m: pellet pla
Slide 21: CEO Concluding Remarks
CEO CONCLUDING REMARKS Management has delivered substantial progress in strategy execution with $547 m net gains achieved in 2014-2016 Strategy implementation translated into stronger results and better shareholders returns Operational efficiency projects continue to bring sizable effects at minimal
Slide 22: Financial results of 2016
Corporate governance & leadership development Delivering on Strategy 2017 Financial results of 2016 Developing Strategy 2022 22
Slide 23: Improved Profitability Across All Businesses
IMPROVED PROFITABILITY ACROSS ALL BUSINESSES 2016 EBITDA $1,941 m, flat yoy, margin +1 p.p. EBITDA 2016 by divisions $M Russian Flat Products solid performance 1 948 1 941 2015 Narrowed flat steel to raw materials price spreads partly offset by 1 583 2016 improved sales portfolio and gains from effi
Slide 24: Free Cash Flow Growth
FREE CASH FLOW GROWTH 2016 cash flow bridge $M Net operating cash flow increased by 3% yoy 1 941 EBITDA Stable working capital Net working capital change +34 2016 Capex below guidance: $559 m, -6% yoy -44 Payments for some of the projects rescheduled to 2017, including Other non-cash items* payments
Slide 25: Continuing Debt Portfolio Optimization
CONTINUING DEBT PORTFOLIO OPTIMIZATION Net debt / 12M EBITDA: 0.36x Liquidity and short-term debt* Net debt: $0.69 bn (-37% yoy) $M Total debt: $2.27 bn (-15% yoy) Active debt management: maturity extended 1 223 Available credit lines $700 m Eurobonds issue and $571 m Eurobonds buyback – June 2016 R
Slide 26: Capex Outlook
CAPEX OUTLOOK 2017 capex estimate of $0.7 bn Total annual capex $ Bn $300 m: structural (core) maintenance capex 14 00 1.3 Development 12 00 $150 m: large-scale repairs of Lipetsk BF/BOFs capex 10 00 0.7 $200 m: Strategy 2017 development capex, including final payments 0.6 80 0 60 0 Large-scale repa
Slide 27: 2016 Dividends to Exceed Policy Targets
2016 DIVIDENDS TO EXCEED POLICY TARGETS Dividends and payout Accumulated liquidity used as a source for higher dividends $M 2016 dividends of $908 m, or 83% of FCF 97% 10 00 90 0 83% Q4’16 dividends of $347 m 80 0 67% 65% 31% 70 0 Dividend yield of 8.1%* 20% 60 0 908 50 0 40 0 Company to stick to th
Slide 28: Developing Strategy 2022
Corporate governance & leadership development Delivering on Strategy 2017 Financial results of 2016 Developing Strategy 2022 28
Slide 29: Strategy 2022: Building on the Strong Foundation
STRATEGY 2022: BUILDING ON THE STRONG FOUNDATION NLMK competitive position and business model provide base for value-creative growth Competitive advantages Opportunities Cost leadership and sustaining operating efficiency Growth options available across the entire value chain Diversified asset base
Slide 30: Strategy 2022: Focus Areas
STRATEGY 2022: FOCUS AREAS Combination of efficiency, growth and innovations backed by sustainability and safety Innovations New B2B channels and digital interfaces Digital technologies in operations Value-creative growth Human capital development to support innovative growth Brownfield development
Slide 31: 'No-Regret' Growth: Unlocking Capacity Along the Chain
‘NO-REGRET’ GROWTH: UNLOCKING CAPACITY ALONG THE CHAIN Target: to reach 14 m t pa of crude steel (+ 1 m t pa) Debottlenecking of steel capacity at Russian Flat M t pa How: debottlenecking of steel-making… Pig iron Steelmaking Unutilized pig iron capacity at Russian Flat Upgrade of continuous-casting
Slide 32: Further Growth: Careful Consideration Required
FURTHER GROWTH: CAREFUL CONSIDERATION REQUIRED Further growth is possible: integrated expansion along the value chain Possible steel capacity growth at Russian Flat to bring Russian flat capacity to over 15 m t pa M t pa 1,2 1,0 15,2 Our upstream production can be expanded to bring required resource
Slide 33: Strategy 2022: Capital Allocation Targets
STRATEGY 2022: CAPITAL ALLOCATION TARGETS New strategy will target a balance between growth projects, financial stability and dividend payout STRATEGY 2022 FINANCIAL CONSTRAINTS New projects should be value accretive for shareholders Margins not to be diluted by new investments Conservative leverage
Slide 34: Senior Vice-President Concluding Remarks
SENIOR VICE-PRESIDENT CONCLUDING REMARKS Management delivers strong growth in shareholder returns Competitive position and business model provide base for long-term value-creative growth Strategy targeting operational efficiency & commercial excellence, value-creative growth, and innovations Balance
Slide 35: Company IR Contacts
COMPANY IR CONTACTS Sergey Takhiev Valentina Bogomolova Investor Relations Investor Relations Address 40, Bolshaya Ordynka Str., Bldg. 3 Moscow, 119017, Russia . IR E-mail Address [email protected] Phone Number Office: +7 495 504 05 04; Mobile: +7 985 760 55 74 nlmkonair nlmk_group nlmk group 35