Nlmk Corporate Presentation 02.02.2011

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Nlmk Corporate Presentation 02.02.2011

  1. 1. NLMKTROIKA DIALOG CONFERENCE THE RUSSIA FORUM 2011 Moscow, 3 February 2011
  2. 2. DisclaimerThis document is confidential and has been prepared by NLMK (the “Company”) solely for use at the investor presentation of the Company and may not bereproduced, 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 purchaseor 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 thebasis 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. Norepresentation or warranty, express or implied, is given by the Company, its subsidiaries or any of their respective advisers, officers, employees or agents, as to theaccuracy 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 informthemselves 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 regardingthe 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 uncertaintiesbecause they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward-looking statementsare not guarantees of future performance and that the Company’s actual results of operations, financial condition and liquidity and the development of theindustry in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this document. Inaddition, even if the Company’s results of operations, financial condition and liquidity and the development of the industry in which the Company operates areconsistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments infuture periods. The Company does not undertake any obligation to review or confirm analysts’ expectations or estimates or to update any forward-lookingstatements 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
  3. 3. 1. Company overview2. Market trends and performance3. Sustainable growth strategy4. Outlook5. Appendixes 3
  4. 4. NLMK: Business profileProfitability leadership maintained Balanced portfolio of assets EBITDA per tonne, NLMK vs Russian peers 500 USD 375 400 Favorable geographic locations 302 268 269 300 243 234 183 180 168 166 200 Efficient vertical integration 70 117 84 102 100 35 0 Diversified sales and products mix -100 2001 2002 2003 2004 2005 2006 2007 2008 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2009 2009 2009 2009 2010 2010 2010 -200 Peers range NLMK Russian peer group av. Experienced management team Source: Companies‘ reports, NLMK estimates EBITDA margin vs ROE, H1 2010 15% POSCO 10% ROE Usiminas NLMK Baoshan 5% Thyssen Arcelor Nucor EVRAZ 0% 0% 5% 10% 15% 20% 25% 30% 35% -5% US Steel Nippon MMK EBITDA -10% margin Severstal -15% Source: Companies‘ data, Bloomberg Circle size corresponds to sales revenue. ROE calculated as profit from operations after income tax/Shareholder equity 4
  5. 5. NLMK: balanced and favorably located assetsRussian production platform enhanced with international assets Usinskoe-3 Coking coal deposit Sharon Coating Dan Steel Kaluga mini-mill NLMK Long products Zhernovskoe (under Novolipetsk HDG Thick plate: (under Steel : 1.7 m t construction) Steel: 8.4 m t 0.2 m t construction) Longs: 1.5 m t Coking coal deposit Slabs: 3.6 m t Farrell Projected capacity Flats: 4.3 m t HRC, CRC Steel: 1.5 m t Longs: 1.55 m t RUSSIA NLMK Indiana Moscow Altai-koks HRC: 0.37 m t** Coke: 3.0 m t Denmark USA VIZ-Stal Belgium Transformer steel: Czech Rep. 0.1 m t Stoilensky France Carsid Iron ore concentrate: Italy Slabs 13.9 m t La Louviere Verona Steel HRC, CRC, Long product Heavy plate, - NLMK Group production and Forged ingots Coating (Beautor, Sorral) trading assets Clabecq CRC, EG, HDG, Pre-painted - NLMK - Duferco JV facilities Thin plates - NLMK - Duferco JV service centres - Assets under construction Crude steel production Steel products sales NLMK Group* 10.6 m t 10.6 m t * 2009 production includes Lipetsk production site, Long steel division, VIZ-Stal, DanSteel and NLMK Indiana ** CY2009 production results 5
  6. 6. Efficient vertical integrationEnsures cost advantage in raw materials supply Iron ore: 100% for 190 years Vertical integration cash cost reduction effect, Q3 2010 500 USD/t Coke: over 100% with modern facilities 450 417 Iron ore 400 Coke Other raw Scrap: becoming the largest collector in Russia 350 Scrap materials 330 -63 -22 -1 -1 300 Energy: 40% to 56% self-sufficiency investment on- 250 stream 200 Non-consolidated Consolidated Lipetsk site NLMK Group Coal: target to get at least 90% self-sufficiency NLMK self-sufficiency 100% >100% 80% 50% >40% Iron ore Coke Scrap Energy Logistics support 6
  7. 7. Production costsConstantly one of the best Q2 2010 cost position Average steel cash cost by region o Coking coal dynamics impacted on slab cost increase 550 USD/tonne 500 to $325/t (+13.6% q-o-q) 450 o Billet cost remained largely flat (q-o-q) 400 350 300 Q3 2010 cost position 250 200 o Strict cost control allowed to maintain nearly flat slab 150 cost (+1,5% q-o-q) 100 o Billet production cost followed scrap price increase Source: World Steel Dynamics, NLMK estimates 2010 cash cost evolution Q2 2010 cash cost per tonne of slab 600 USD /t Coal and coke 35% 500 408 386 395 49 Iron ore 10% 400 330 325 Scrap 11% 300 286 115 226 213 30 165 Other materials 9% 200 14 Total $330/t 100 Electric energy 7% 18 18 18 24 0 Natural gas 4% Q3 2010 Q2 2010 Q1 2010 28 33 Labour 9% Slabs Billets Coke Iron ore concentrate 37 Othe expenses 15% 7
  8. 8. 1. Company overview2. Market trends and performance3. Sustainable growth strategy4. Outlook5. Appendixes 8
  9. 9. Diversified sales and product mixTimely response to improved market environment Wide product mix with strong value-added share Q3’10: Diversified sales structure Pig iron Flexible export/domestic markets balance 5% 13% Slabs and billets 2% 2% Hot rolled Dynamic export market strategy 3% 30% Cold rolled 5% Galvanised Slabs sales benefit from Duferco JV demand Value 11% Pre-painted Transformer steel added products supported Russian sales 22% Dynamo steel Long products and metalware Transformer steel sales recovering 2008-2010 sales by region (tonnes) Q3 ‘10: Increasing sales of long products 100% Q2 2010 Q3 2010 80% 2,912 million tonnes 3,021 million tonnes Export 60% market Long products 54% Dynamo steel 16% 40% Transformer steel 14% Local Metallware 9% 20% market Galvanised steel 6% 0% Pre-painted steel 3% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 HRC inc. thick plates 0% Pig iron, slabs and billets 1% Russia EU countries Middle East CRC -16% North America Asia and Pacific Other 9
  10. 10. NLMK in the global market environmentResilience to challenging market through the last 10 years Market diversification ensures higher sales Steel prices are supported by costs of raw materials… 600 Av. HRC price in 2009 Group can gain from low markets as a low cost 550 500 producer 450 400 Slab sales partially hedged by Duferco JV and 350 300 2009 Iron Coal Other Q2 10 Ore Q3 10 Ore Q4 10 Ore Q111 DanSteel steel ore cost and cost and cost 2 and Cost cash coal coal coal cost (Q4) Able to change output and markets * Source: WSD, SBB, Company estimates … but capped by low utilization rates 95% 85% 75% 65% 55% * Source: WSA working papers 10
  11. 11. Steel outlookChina’s continuous growth is a support factor Global steel demand 1600 1496 Million t 1431Low inventories reflecting concerns over price 1400 1272 1340 1199volatility 1200 1125 1000Steel demand is growing driven by developing 800nations 600 400Raw materials play today much more important 200role 0 2008 2009 2010 2011 2012 2013 Source: World Steel Association working group; research agencies. World HRC cost curve, 2010 Apparent steel use per capita 800 USD 663 600 581 616 Kg/capita 600 473 500 400 200 400 0 300 1st quadrant 2nd quadrant 3rd quadrant 4th quadrant 200 100% 35% 100 65% 50% 0 1995 1999 1991 1992 1993 1994 1996 1997 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 65% 35% 0% 2003 2010 World Europian Union Russia Other costs Raw materials United States China 11
  12. 12. Financial highlightsExceptional performance and confident outlookRobust performance in Q3 2010 Debt maturities pay-off as of the end of Q3 2010 o Revenue USD2.232 billion, +4% q-o-q $ million 900 o EBITDA USD695 million, -10% q-o-q o EBITDA margin 31% 600Strong financial position o USD1.148 billion of net debt 300 o Cash and ST investments of USD1.51 billion 0 2010 2011 2012 2013 and onwardHighest credit ratings among Russian peers PXF Bonds ECA EBRD Others Short term debt payment* 0.6 $ bn 0.16 0.59 0.4 0.14 ** 0.2 0.15 0.14 0 Q4 10 - Q4 10 Q1 11 Q2 11 Q3 11 Q3 11 12
  13. 13. 1. Company overview2. Market trends and performance3. Sustainable growth strategy4. Outlook5. Appendixes 13
  14. 14. Sustainable growth strategyA leading producer in Russia in terms of organic developmentStrategic goals CAPEX* vs reinvestment rate ** o Expanding low cost steel production platform 2.00 1.93 4.5 USD, billion o Improving quality and product mix 1.60 4 o Developing upstream assets 1.50 3.5 3 1.12 0.96 2.5 1.00Main capex projects for 2010 2 0.58 0.62 1.5 o BF#7 (70% completed) and new steelmaking 0.50 1 0.27 o Color-coating line to be finished in 2010 0.17 0.14 0.15 0.24 0.5 o EAF mini-mill of 1.5 million t in 2012 0.00 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010EMain objectives 2012-2014 NLMK Capex (lhs) Reinvestment rate (rhs) o Crude steel +5.0 million tpa to 17.5 million tpa o Flats +0.5 million tpa to 7 million tpa Crude steel capacity growth in 2010-2012 – 40% o Longs +1.5 million tpa to 4 million tpa BF: 3.4 m tpa EAF: 1.5 m tpa m tpa Since 2012 o Pelletizing plant Since mid-2011 1.5 16 o 50% of gas and 20% of coke use decrease 3.4 3.4 o Launch of high grade transformer steel production 12 8 12.5 12.5 12.5 4 0 2010 2011 2012 Existing BF#7 EAF (Kaluga) * From 2000 to 2009, Lipetsk production site. US GAAP financials data ** Reinvestment ratio = Capex/depreciation 14
  15. 15. M&A approachPursuing strategic objectives through prudent M&A approachDownstream vertical integration Iron ore price vs cash cost* 100 o Securing slab processing USD/t o Improving earnings quality 75 o Technology transfer 50 o Market expansion 25Niche market share gains 0 o Commercial synergies due to market share expansion 2003 2004 2005 2006 2007 2008 2009 2010E Spread o Optimization of the product mix and logistics o Cost savings on R&D Coal price vs cash cost (Russia)*Upstream expansion 200 175 USD/t o Ensuring secure raw materials supply 150 o Value-creation as a primary goal 125 100 75 50 25 0 2003 2004 2005 2006 2007 2008 2009 2010E Spread* Preliminary data (annualized) 15
  16. 16. Duferco JV… A solid part of downstream integration strategyJV rationale Slab supply flows to JV o Increase presence in the key company markets o Diversify product and market portfolioOperating and financial performance o Break-even in 2010 with further improvement in 2011 o Sales in 2009 – 2.8 mln t, 2010 budget – 3.8 mln tFuture strategy o Growth of rolled products output and quality improvement Sales by product (2010F) HR steel 15% Semifineshed 15% 24% Coated steel Longs 3.8 mln t Plate 15% 5% Pickled steel 3% 23% CR steel 16
  17. 17. Project: BF ProductionBLAST FURNACE Iron production capacity (Lipetsk) o Location: Lipetsk 14.0 Установка 12.4 12.0 «печь- o Status: over 80% complete 9.4 BF #7 launch in 10.0 ковш» mid-2011 o Capacity: 3.4 m t pa 8.0 6.0PCI TECHNOLOGY INTEGRATION* 4.0 2.0 o Launch date: Q4 2011 – Q1 2012 0.0 o Total investments: about $200 m 2010 2012 o Coke consumption reduced by 20% o Gas consumption reduced by 70% * Pulverized coal injection 17
  18. 18. Project: SteelmakingLADLE FURNACES and VACUUM DEGASSER o Location and installation date: Lipetsk site, 2010-11 Ladle Furnace o Improved quality o New grades of steel, incl. for machinery and automotiveGAS EXHAUST DUCTS o Lipetsk site, 2010 o Reduced environmental impact o Higher equipment reliability o Use of waste gas for power generation Gas Exhaust Ducts 18
  19. 19. Project: Rolling CapacitiesEXPANSION OF HRC PRODUCTION Flat steel for the Russian market o Location: Lipetsk 60% Установка o Capacity growth: +400,000 tonnes by 2014 50% «печь- Completed 40% ковш»EXPANSION OF PLATE PRODUCTION 30% 55% o Location: DanSteel (Denmark) 20% 40% o Capacity growth: +70,000 tonnes 10% 14% 12% 8% 0%NEW COLD-ROLLING MILL HRC Thick plates CRC Pre-painted Galvanized o Location: Lipetsk o Capacity growth: +350,000 tonnesNEW COLOUR-COATING LINE o Location: Lipetsk o Capacity growth: +200,000 tonnes 19
  20. 20. Project: High Grade Transformer SteelPRODUCTION UPGRADES AT NOVOLIPETSK Transformer steel upgrade 400 ‘000 High-permeability transformer o Status: 80% complete tonnes steel production 350 60 Possible o 60,000 t pa of high-permeability transformer steel 300 further 250 expansion of o Total investments: above $300 m 200 high- 340 permeability 150 o Improved quality and stronger market positions transformer 100 steel 50 production 0 2010 2011 2012-14PRODUCTION UPGRADES AT VIZ-STAL o Improved quality of products o In the long term: considering launching high- permeability transformer steel production 20
  21. 21. Project: Long ProductsKALUGA MINI-MILL (EAF) Steel and Finished product capacity 4.0 mt 3.8 o Location: Kaluga region (80 km from Moscow) o Capacity: 1.55 m t pa 3.0 2.2 100% o Total investments: c. $1.2 bn 2.0 finished 80% products o Extended output of construction steel 1.0 finished products 0.0 2010 2012-13NEW ROLLING MILL IN BEREZOVSKY o Completed o Capacity: 1 m t pa o Total investments: c. $140 m o Improved market positions 21
  22. 22. Project: Iron Ore ProductionOPEN PIT EXPANSION Iron ore concentrate production capacity 15.0 mt o Location: Stoilensky (Stary Oskol) o +30% growth in iron ore raw extraction 14.0 +2mt o Goal: maintain 100% self-sufficiency in low cost 13.0 iron ore 12.0BENEFICIATION PLANT, 4th SECTION 11.0 o Location: Stoilensky (Stary Oskol) 2010 Mid - 2011 o Capacity: +4 m t pa (since 2006) o Goal: maintain 100% self-sufficiency in low cost iron ore concentrate PELLETIZING PLANT (to be approved) o Location: Stoilensky (Stary Oskol) o Capacity: 6 m t pa o Goal: increase self-sufficiency in pellets from 0% up to 100% o Status: the project awaits approval from the BoD 22
  23. 23. 1. Company overview2. Market trends and performance3. Sustainable growth strategy4. Outlook5. Appendixes 23
  24. 24. OutlookQ4 10 Outlook o Crude steel production and steel products sales to reach 3 m t o Average sales prices to reflect seasonality trends o Production cost to increase due to the seasonal restocking of scrap inventories and growing prices for coking coal o EBITDA margin will be in the range of 20-25%Market trends o In Q4 the prices reached the bottom and in the second half of the quarter we see the upward trend in prices on the back of growing prices for the raw materials o …these factors may support steel prices In the end of Q4 2010 and early Q1 2011 24
  25. 25. 1. Company overview2. Market trends and performance3. Sustainable growth strategy4. Outlook5. Appendixes 25
  26. 26. Sales trendsDomestic market recoveredSales to the domestic market recovering HRC price cycle: China FOB vs Russia export FOB o Q3 ‘10: Domestic sales of 35% (+3.p.p. q-o-q) 800 700Sales growth to developed markets 600 Russia FOB 500 o 22% and 17% of overall sales goes to Europe and USA China FOB 400 o About ½ of slabs in 9M2010 sold to NLMK - Duferco JV 300 Below break even area 200Drivers of further growth 100 0 o High raw materials costs globally drives the competitiveness of our sales o Synergies with subsidiaries and JV facilities Steel price expectations, November 2010 (TSI - SBB)Trends to be monitored 70% o Traders activity on restocking cycle 60% 50% o Developing countries‘ economic trends 40% o Developed countries steel inventories 30% o Cash cost in Russia and China 20% 10% o Capacity utilization of the marginal producers 0% Decrease No change Increase N.America Europe Asia & M.East Source: SBB, Bloomberg, CRU Source: The Steel Index (TSI), owned by Steel Business Briefing (SBB) 26
  27. 27. Global market environment: ChinaSteel production and exports in China are capped by Steel inventories in China o High cost of production 10000 ,000 t USD/t 1000 o Government successful efforts to restructure steel 9000 YTD11% growth industry 8000 850 • Banning construction/expansion of steel capacities 7000 700 6000 • Closure of small inefficient capacities STEEL STOCK 5000 550 (c.100 m tpa of capacities to be shut down in 2010-11) 4000 • Further consolidation of industry 1.5 mths of 400 3000 consumptionSteel demand in China still remains high 2000 250 Jul-08 Jul-09 Jul-10 Jun-08 Jun-09 Jun-10 Apr-08 May-08 Apr-09 May-09 Apr-10 May-10 Jan-08 Jan-09 Jan-10 Feb-08 Mar-08 Aug-08 Sep-08 Nov-08 Dec-08 Feb-09 Mar-09 Aug-09 Sep-09 Nov-09 Dec-09 Feb-10 Mar-10 Aug-10 Sep-10 Nov-10 Dec-10 Oct-08 Oct-09 Oct-10 o 9M ‘10 FAI up 24.5% y-o-y o ASU (Sept’ 10) was – 8.7% y-o-y (to 605 m t ann’d) Steel inventory at traders (5 provinces) lhs HRC price China export FOB (rhs) * Source: Bloomberg, SBB Net imports from China China: steel production vs FAI in steel sector ,000 t million t %, y-o-y 100% 3000 600 Growth in net exports short-lived due to 2000 orders execution delay and VAT rebates 80% removal since July 15 500 1000 August 2009 utilization 60% 0 400 rate was over 90% Jul-10 May-09 Nov-09 May-10 Nov-10 Sep-09 Sep-09 Jan-10 Mar-10 Sep-10 40% Jan-08 Mar-08 Nov-08 Jan-09 Mar-09 May-09 Jul-08 Jul-09 -1000 300 -2000 20% 200 -3000 100 0% -4000 -5000 2008 -41 m 0 -20% -6000 -7000 * Source: CRU, Morgan Stanley, MacQuarie, WSA Crude steel production Finished steel consumption Steel FAI (r.h.) * Source: CRU, Morgan Stanley, NLMK estimates 27
  28. 28. Global market environment: EuropeInventory low EU: HRC and slab price dynamics o Lean inventory management to cap substantial 800 inventory rebuilding 700 USD$/t o ...current European stock level is well below historical 600 average 500Demand mixed 400 300 o Prices are about to increase driven by the restocking of inventories globally 200 o … however stockholders in Europe require more evidence of strong end-user demand Slab, import EU, CFR HRC, EU domestic market (GB exc.), EXW Source: Metal Bulletin, Metal-Courier o Improved demand in Northern Europe driven by auto and capital goods producers Europe steel stock and production o Flat steel sales supported by manufacturing sector 25000 140 o EU construction in 6M ‘10 decreased -6% ‘000 tonnes STEEL STOCK - DAYS 120 20000 o EU industry in 6M ‘10 grew +17% 100 15000 80 2006 average stockSupply challenged 10000 60 o Low supply discipline may put pressure on prices 40 5000 STEEL PRODUCTION 20 o Limited arbitrage for Asian material deliveries 0 0 o Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jan-06 Apr-06 Jan-07 Apr-07 Jan-08 Apr-08 Jan-09 Apr-09 Jan-10 Apr-10 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Steelmakers are yet to adapt to new raw materials pricing mechanisms production, l.h. stock, r.h. Source: IISI, World Bank, IMF, Company estimates, etc. The change is YoY for all Indicators (except Libor rate). Source: Worldsteel, Eurometal 28
  29. 29. Global market environment: USAStocks: restocking is almost complete USA: HRC and slab price dynamics o Stock levels are growing but still below historical 800 USD$/t 700 average 600Supply balancing 500 o July ‘10 utilization rate grew to 75% (up from 44% in 400 H1 ’09) with the decline in the first week of October to 300 200 69.7% o Market relatively “shielded” from imports Slabs, import USA, CFR GOM HRC, USA domestic market, EXWDemand struggling US steel stock and production 16,000 o Demand still remains cautious and the recent prices ‘000 tonnes 14,000 increases face hurdles from clients 12,000 Steel production 10,000 o Long steel demand lags behind the flat supported by 8,000 2.6 mths of supply auto sector 6,000 4,000 2,000 STEEL STOCK Stocks +30% y-o-y 0 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 May-06 May-07 May-08 May-09 May-10 Jan-06 Mar-06 Sep-06 Nov-06 Jan-07 Mar-07 Jan-08 Sep-07 Nov-07 Mar-08 Sep-08 Nov-08 Jan-09 Mar-09 Sep-09 Nov-09 Jan-10 Mar-10 Sep-10 Nov-10 Source: IISI, World Bank, IMF, Company estimates, etc. The change is YoY for all Indicators (except Libor rate). * Source: MCSI, WSA steel stock output Source: CRU , Metal-Courier
  30. 30. Russian economyStabilization continuesInflation remains low Russia: PMI, monthly o Annualized 2010 inflation is expected to be c7%* 55.0 Driven by, mainly, domestic demand 50.0Interest rates are stable 45.0 40.0 o RR unchanged at 7.75% (-4.7 p.p. lower y-o-y) 35.0 o Growth in mortgage loans up to R166bn in 7M’10 30.0 Manufacturing PMI (x2.5 to y-o-y) 25.0 20.0 o Actual mortgage market recovery (mortgage loans increase up to R166.3bn in 7M’10, x2.5 to 7M’09; * - source: Research reports, Company estimates 120-140% y-o-y growth is expected) Trade balance vs M2Real disposable income 60 20000 o In H1’10 +5,1% y-o-y 50 18000 40 16000 30 14000 20 12000 10 10000 0 8000 Q1 08Q2 08Q3 08Q4 08Q1 09Q2 09Q3 09Q4 09Q1 10Q2 10Q3 10 M2 (money agregate), RUR bln r.h. Net export, USD bln Source: Bloomberg, Goskomstat 30

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