Nlmk · RUS:NLMK
Nlmk — Investor Day (February 2014)
43 slides from Nlmk's investor day presentation, Feb 10, 2014
Slide 1: NLMK Capital Markets Day
NLMK Capital Markets Day London 10 February 2014
Slide 2: Disclaimer
DISCLAIMER This document is confidential and has been prepared by NLMK (the “Company”) solely for use at the investor 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 documen
Slide 3: Today's Presenters
TODAY’S PRESENTERS VLADIMIR LISIN OLEG BAGRIN GRIGORY FEDORISHIN Chairman of the President and Chief Financial Officer Board of Directors Chief Executive Officer [3]
Slide 4: Agenda
AGENDA 8:30 LEADERSHIP STEP BY STEP VLADIMIR LISIN Chairman of the Board of Directors 8:50 EXECUTION IS KEY OLEG BAGRIN President and Chief Executive Officer 9:30 NUMBERS MATTER GRIGORY FEDORISHIN Chief Financial Officer 9:50 CONCLUDING REMARKS VLADIMIR LISIN Chairman of the Board of Directors 10:00
Slide 5: Leadership Step by Step
LEADERSHIP STEP BY STEP Vladimir Lisin Chairman of the Board of Directors
Slide 6: Leader in Growth, Profitability & Balance Sheet Strength
LEADER IN GROWTH, PROFITABILITY & BALANCE SHEET STRENGTH IMPRESSIVE GROWTH STORY TOP TIER PROFITABILITY CONSISTENTLY LOW LEVERAGE 2010-2013 Steel output growth 2010-9M 2013 EBITDA margin* 9M 2013 Net debt / LTM EBITDA* 40% 34% 19% 19% 20% 5 30% 16% 15% BBВ- (Fitch) 3.9 3.8 15% 4 Baa3 (Moody’s) 12% B
Slide 7: Sustainable Growth Strategy 2007
“SUSTAINABLE GROWTH STRATEGY” 2007 • Low cost steel platform expansion Russian Flat Products: from 9.4 m tpa to 12.4 m tpa (+40%) Russian Long Products: from zero to 3.5 m tpa Russian Flat Products: 100% of liquid steel can go through secondary treatment • Self-sufficiency in key raw materials
Slide 8: NLMK Core Strengths
NLMK CORE STRENGTHS • Low cost position 2013 SLAB PRODUCTION COST o One of the lowest cost steel producers globally $/t • Balanced value chain o High degree of efficient vertical integration: from low 468 470 473 487 cost raw materials and energy to distribution centers 431 382 386 o Low cost steelm
Slide 9: Global Steel Industry
GLOBAL STEEL INDUSTRY INDUSTRY TRENDS: CHANGING PATTERN OF STEEL DEMAND • Demand in developed markets stabilized, 2000 mt CAGR 2008-2013 CAGR 2013-2020 +2% post-crisis recovery on track 1500 CAGR 2002-2008 +4% +7% +1% 750 • Less steel intensive growth in China 1000 +15% 447 +9% 700 • Strong fundamen
Slide 10: Global Steel Industry (cont.)
GLOBAL STEEL INDUSTRY (CONT.) INDUSTRY TRENDS: MARGINS MIGRATED UPSTREAM • Profitability has shifted from steelmaking to 8% 15% 17% mining over the last decade 11% 7% 44% 46% 42% 22% • Current margin distribution over the value 22% chain is the new normal 81% 78% 28% 32% 61% 35% 26% 27% OPPORTUNITIE
Slide 11: Russian Steel Industry
RUSSIAN STEEL INDUSTRY INDUSTRY TRENDS: RUSSIAN STEEL INPUT COSTS* • Russian steel industry cost inflation 2.0 Index, base=2007 1.90 decelerates 1.66 • 1.5 1.43 Freeze of utilities and transportation tariffs 1.40 • Weaker currency 1.0 0.95 OPPORTUNITIES: 0.5 2007 2008 2009 2010 2011 2012 2013 2014Е
Slide 12: Strategy 2017: Securing Future Leadership
STRATEGY 2017: SECURING FUTURE LEADERSHIP Leadership in o Achieve best-in-class operational 1 efficiency standards across production operational efficiency chain o Scale up efficient iron ore mining World-class platform 2 resource base o Reduce consumption of expensive resources o Increase market sh
Slide 13: Chairman Remarks
CHAIRMAN REMARKS • NLMK responds to industry challenges and consistently delivers on its strategy • Changing landscape of the steel industry will widen the gap between leaders and laggards • NLMK has preserved competitive advantages and built a platform for further sustainable growth • NLMK aims to
Slide 14: Execution Is Key
EXECUTION IS KEY Oleg Bagrin Chief Executive Officer
Slide 15: Strategy 2017 Dimensions
STRATEGY 2017 DIMENSIONS Russian Russian Russian Mining Flat Products Long Products Leadership in EU Strip EU Plate US Plate 1 operational efficiency Products Products Products • MANAGEMENT INITIATIVES World-class o Operational efficiency programs initiated in all divisions 2 resource base o Zero or
Slide 16: Management Initiatives Aimed at Operational Excellence
Leadership in MANAGEMENT INITIATIVES AIMED 1 operational efficiency AT OPERATIONAL EXCELLENCE TARGETED COST SAVINGS 2018 VS 2013* • NLMK Production System: single process m $ pa. for all operations 20 Process technology o Roll-out at all divisions, sites and production processes o Affects process te
Slide 17: Investment Projects Aimed at Operational Excellence
Leadership in INVESTMENT PROJECTS AIMED 1 $ operational efficiency AT OPERATIONAL EXCELLENCE REQUIRED CAPEX* • Portfolio of small to medium-size efficiency m$ projects across the production chain 20 o Reducing conversion costs and rework Efficiency projects o Increasing labor productivity (NLMK Euro
Slide 18: NLMK Europe Restructuring
Leadership in NLMK EUROPE 1 operational efficiency RESTRUCTURING • Restructuring program in implementation NLMK EUROPE** FIXED COSTS since 2009 m€ o Change in asset structure and full transition 261 to a re-rolling model 233 250 213 o Consistent cost reduction 90 184 • EU Flat Products 200 83 170 16
Slide 19: Strategy Objectives (Efficiency)
Leadership in STRATEGY OBJECTIVES 1 operational efficiency (EFFICIENCY) TARGETED ANNUAL NET GAINS 2018 VS 2013** By source • 100% rollout of NLMK Production System m $ pa. NLMK Production 20 system • Investment projects in the portfolio: >80 80 Efficiency focused • Required capex: $150 m $330 m inve
Slide 20: Only Efficient Upstream Integration Creates Value
World class ONLY EFFICIENT UPSTREAM 2 resource base INTEGRATION CREATES VALUE 2013 IRON ORE PRODUCTION COSTS • Upstream integration value drivers 180 Position on the global cost curve $/t o Low cost position on the global cost curve 160 o Development capex below industry average 140 120 o Low mainte
Slide 21: Scaling Up Efficient Iron Ore Platform
World class SCALING UP EFFICIENT 2 $ resource base IRON ORE PLATFORM TOTAL REQUIRED CAPEX 2014-2017* • Pelletizing plant construction m$ o Iron ore pellets production of 6 m tpa with expansion potential to 7.2 m tpa Pelletizing plant o 100% of increased output will be consumed internally resulting i
Slide 22: Utilizing Alternative Resources and Technologies
World class UTILIZING ALTERNATIVE 2 resource base RESOURCES AND TECHNOLOGIES $ TOTAL REQUIRED CAPEX 2014-2017* IRON ORE AND SCRAP m$ • Iron briquetting plant 10 o Recycling of accumulated iron-rich waste Briquetting plant o Substitution of pellets feed by 0.5 m tpa o Launch: 2017 $70 m • Substitutin
Slide 23: Strategy Objectives (Resources)
World class STRATEGY OBJECTIVES 2 resource base (RESOURCES) TOTAL REQUIRED CAPEX 2014-2017* • 100% self-sufficiency in iron ore concentrate m$ and pellets with a flexible feed structure 70 o ROM iron ore output: 42 m tpa Iron ore projects o Iron ore concentrate: 19.5 m tpa o Pellets: 6 m tpa $1 400
Slide 24: Gaining Market Share in Russia
Leading positions in GAINING MARKET SHARE IN 3 strategic markets RUSSIA $ SALES TO THE RUSSIAN MARKET • NLMK is well positioned in the Russian market mt o Largest steel producer with 22% market share 7.3 o Exposure to growing sectors: construction (77%), 5.8 CAGR 2.8 pipe and tubes (13%) 1.9 +6% o L
Slide 25: Improving Product Mix and Utilization in US and Europe
Leading positions in IMPROVING PRODUCT MIX AND 3 strategic markets UTILIZATION IN US AND EUROPE NLMK EUROPE SALES • Improving utilization rates at the NLMK Europe Strip NLMK Europe Plate international assets mt 1.7 2 37% 40% o EU Plate Products: ramp-up of newly upgraded 30% 1.0 1.3 rolling capacity
Slide 26: Strategy Objectives (Markets)
Leading positions in STRATEGY OBJECTIVES 3 strategic markets (MARKETS) SALES AND PRODUCTION • Steel production: 16.3 m t mt Sales Steel production 16.3 16.3 vs 15.5 m t in 2013 14.9 0.2 0.8 EU Plate Products • Steel products sales: 16.3 m t 4.3 4.7 2.9 1.3 US Flat Products vs 14.9 m t 2013 0.9 3.8 4
Slide 27: Minimize Environmental Footprint
Leadership in MINIMIZE ENVIRONMENTAL 4 $ FOOTPRINT sustainability & safety AIR EMISSIONS AND WASTE WATER DISCHARGE • NLMK has a track record of 40 kg/t of steel kg/t of steel 1.5 environmental footprint reduction 1.09 • Since 2007: 30 1.0 o Air emissions reduced by 40% 20 37.5 BAT 18.9 o Water consu
Slide 28: Promote Safe Operating Practices
Leadership in PROMOTE SAFE 4 sustainability & safety OPERATING PRACTICES • Full compliance of production processes LTIFR* FOR RUSSIAN FLAT PRODUCTS with the best industry health and safety standards 1.2 o Providing clean, safe and healthy working 1.0 conditions for the employees 0.8 25% o Proactive
Slide 29: Develop Motivated and Engaged Workforce
Leadership in DEVELOP MOTIVATED AND 4 sustainability & safety ENGAGED WORKFORCE • Attraction and retention of talent LABOUR PRODUCTIVITY GROWTH* o Working closely with educational centers: 600 t/employee 2 000 interns per year >30% o Professional training programs for 50% of 500 workforce every year
Slide 30: CEO Remarks
CEO REMARKS • Strategy 2017 has a modular structure combining large number of management initiatives and investment projects across all divisions • Strategy pursues the following key objectives: ① Leadership in operational efficiency: achieving industry best standards in operational efficiency and q
Slide 31: Numbers Matter
NUMBERS MATTER Grigory Fedorishin Chief Financial Officer
Slide 32: Solid Financial Standing
SOLID FINANCIAL STANDING • Maintaining leverage at comfortable level FINANCIAL DEBT $ bn 3.5x Covenant o Net debt/EBITDA of 1.9x one of the lowest in the 9 4.00 8 3.50 industry 7 1.93 2.15 3.00 1.88 1.87 2.50 6 1.84 o Deleveraging remains a priority 2.00 5 1.50 o Targeting positive free cash flow on
Slide 33: Solid Financial Standing (cont.)
SOLID FINANCIAL STANDING (CONT.) • Comfortable debt payments schedule DEBT REPAYMENT SCHEDULE* o Long term financing of 85% of total debt $ bn o Weighted average debt maturity increased to 3.6 years • Efficient debt structure 3.7 0.9 0.9 0.7 0.7 o 85% of unsecured 0.6 0.2 o 70% of fixed rate o Comfo
Slide 34: Capex Schedule and Structure
CAPEX SCHEDULE AND STRUCTURE • Entering less capital intensive stage TOTAL REQUIRED CAPEX 2014-2017* • Projecting average annual capex of $900 m By division $m 50 By objective o Total 2014-2017 capex of $1 600 m 60 190 20 150 o 80% is allocated to iron ore projects o Long-term average level of maint
Slide 35: Strategy Impact on Earnings
STRATEGY IMPACT ON EARNINGS • Total net gains targeted in 2018: + $1.0 bn pa. TARGETED ANNUAL NET GAINS 2018 VS 2013* o Strategy results in improved earnings quality By division m $ pa. By objective and lower costs 180 190 o Full structural effect to be realized by 2018 330 o NLMK Production System
Slide 36: Financial Policy Targets
FINANCIAL POLICY TARGETS • Stronger free cash flow DIVIDEND HISTORY o Strategy results in better cash flow generation $m Minimum payout 800 level of 20% 35% o Investment portfolio can be managed depending on 700 30% market conditions 600 25% • Consistent and conservative financial policy 500 400 20%
Slide 37: CFO Remarks
CFO REMARKS • Strong financial profile with substantial liquidity, low leverage and balanced debt • Strategy 2017 is less capital intensive compared to 2007-2012 • Investment portfolio will be actively managed depending on market conditions • Strategy 2017 is expected to contribute to better free ca
Slide 38: Concluding Remarks
CONCLUDING REMARKS Vladimir Lisin Chairman of the Board of Directors
Slide 39: Enhanced Value Creation Platform
ENHANCED VALUE CREATION PLATFORM NLMK Platform 1 Best-In-Class 2 3 4 History of Stable Financial Consistent Growth & Shareholder Value Position Dividend Policy Profitability Creation Impressive growth story Low leverage >20% dividend payout One of the best total Well invested asset base
Slide 40: Q&A
Q&A
Slide 41: Appendix
Fa as APPENDIX
Slide 42: NLMK Asset Portfolio
NLMK ASSET PORTFOLIO NLMK USA Novolipetsk NLMK Kaluga Altai-Koks 1 mini-mill & 2 rolling mills NLMK Dansteel Coke: 2.6 m tpa Steel (EAF): 1.5 m tpa Steel: 0.8 m tpa Plates: 0.55 m tpa Steel: 12.4 m tpa Coke: 4.7 m tpa Longs: 0.9 m tpa Flats: 2.9 m tpa Flats: 5.7 m tpa RUSSIA Moscow VIZ-Stal Denmark
Slide 43: Commitment to Solid Corporate Governance
COMMITMENT TO SOLID CORPORATE GOVERNANCE • Experienced and involved Board INDEPENDENT DIRECTORS ON THE BOARD • Three independent directors on the Board, four non-Russian persons • Board committees meet regularly Independent Directors o Strategy Committee 3 o Audit Committee 6 Other Directors o HR Co