NLMK Q2 2013 eng

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NLMK Q2 2013 Financials

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NLMK Q2 2013 eng

  1. 1. 1 NLMK Moscow, 12 August 2013 Q2 2013 US GAAP CONSOLIDATED RESULTS
  2. 2. 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 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. This document is for distribution only in the United Kingdom and the presentation is being made only in the United Kingdom to persons having professional experience in matters relating to investments falling within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or high net worth entities, and other persons to whom it may otherwise lawfully be communicated, falling within Article 49(2) of the Order (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this presentation or any of 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. DISCLAIMER 2
  3. 3. 0,6 0,7 0,8 0,9 1 1,1 1,2 1,3 1,4 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Germany China USA 200 300 400 500 600 700 800 900 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 HRC USA, EXW HRC Europe, EXW HRC China, EXW HRC Russia, EXW 55% 65% 75% 85% Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Global average China North America EU (27) INTERNATIONAL STEEL MARKET DEMAND AND SUPPLY • Q2’13 steel supply continued to grow o Global steel production was up by 1.6% qoq* o Traders and consumers started to destock (in China and USA steel stocks down by 3% and 6% qoq) • Seasonal pick up in demand did not fully offset the oversupply PRICES • Q2’13 steel prices in China, the USA and Europe down by 6-8% PRICES FOR HOT ROLLED FLAT STEEL $/t Quarterly global price trends adjusted for the production / sales cycle Sources: Metal Bulletin * - average daily output growth Index, January 2012=1 STEEL INVENTORIES Sources: CRU, Bloomberg (China statistic, Metals Service Center Inst.) Inventory change qoq/ during the quarter China: -3%/, -16% USA: -6%, -6% Germany: +4%, +4% 3 STEELMAKING CAPACITY UTILIZATION Sources: World Steel Association 79.6% (+0.7 p.p qoq) – steelmaking capacities utilization rates in Q2’13 Jun13
  4. 4. RUSSIAN STEEL MARKET 0% 10% 20% 30% 40% 50% 60% 2,0 2,5 3,0 3,5 4,0 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Apparent consumption of rolled steel Share of imports STEEL DEMAND IN RUSSIA, MONTHLY m t Sources: Metal Expert DEMAND AND SUPPLY • Q2’13 seasonal growth in demand of 14% qoq* to 11 m t o Demand from construction up by 16% qoq o Demand from pipe producers, machinery and other industries up 12% qoq • In 6M 2013 demand grew by 3% yoy to 20.4 m t with construction (+9% yoy) as the key driver • Imports represent a significant portion of ASU (or 20% of total) o Imports contributed about 40% of the extra steel consumption PRICES • Steel prices denominated in Rubles remained flat Seasonal demand growth: +14% qoq Import share in consumption – ab. 20% STEEL DEMAND BY SECTOR IN RUSSIA NLMK’S SHARE IN RUSSIAN STEEL PRODUCT OUTPUT 4 6,4 7,5 1,0 1,20,7 0,81,4 1,5 0 2 4 6 8 10 12 Q1 '13 Q2 '13 Pipe producers Steel constructions and shaping Machinery, incl. automotive Construction and infrastructure m t Jun-13 12,6 13,8 2,6 2,2 1,6 1,5 3,0 2,9 0 2 4 6 8 10 12 14 16 18 20 6M '12 6M '13 m t Sources: Metal Expert. * - computation for HVA share in the products where NLMK has presence +16%* +12%* Sources: Metal Expert. * - daily average +9% -8% +14%* +3%11.0 9.5 19.8 20.4 20% 30% 24% 33% 19% 20% 30% 0% 5% 10% 15% 20% 25% 30% 35% HR coils CR coils HDG Pre-painted Rebar Crude steel HVA*
  5. 5. 40 50 60 70 80 90 100 110 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 RAW MATERIALS MARKET PRICES AND DEMAND IN INTERNATIONAL MARKETS • Correlation between raw material and steel price trends o Global prices for iron ore, coking coal and scrap declined by 15%, 6% and 7%, respectively o Iron ore and scrap prices improved in July • Raw materials demand remains solid as steel output expands o Chinese imports of iron ore were up by 5% yoy o Iron ore inventories at Chinese ports hit bottom in March’13 and started to recover RUSSIAN RAW MATERIALS MARKET REMAINS OVERSUPPLIED GLOBAL RAW MATERIAL PRICES Sources: Metal Bulletin 5 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1,0 1,1 1,2 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Iron ore fines (Fe 62%) import China, CFR Coking coal, export Australia, FOB Scrap export Europe, FOB HRC China export, FOB CHINA: IRON ORE IMPORT AND INVENTORIES m t Sources: Bloomberg Jul-13 -27% yoy +5% in Q2 367 385 100 150 200 250 300 350 400 Импорт ЖРС 6М '12 6М '13 +5% IRON ORE IMPORT IRON ORE INVENTORIES AT CHINA PORTS -4,1 -3,7 11,6 11,3 1,5 1,3 -11 -1 9 19 Import Sales to domestic market Export m t RUSSIA: RAW MATERIALS MARKET BALANCE Sources: Metal Expert PELLET MARKET BALANCE -7,7 -10,0 20,1 19,5 1,2 1,1 -11 -1 9 19 Import Sales to domestic market Export COKING COAL MARKET BALANCE m t 6M ‘12 6M ‘13 6M ’12 6M ‘13 m t Jan 2012 index 1.0
  6. 6. Global average 0% 20% 40% 60% 80% 100% 120% Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Main production plant, Novolipetsk PRODUCTION RESULTS HIGH CAPACITY UTILIZATION RATES • Growth in crude steel production in Q2’13 to 3.785 m t (+2% qoq) • Average capacity utilization rate: 94% o Novolipetsk -96% o NLMK Russia Long - 90% o NLMK Indiana - 87% OUTLOOK • Q3 crude steel production to grow up to 3.9 m t (+4% qoq) o 100k t will be produced at the newly launched NLMK Kaluga mini-mill 6 88% 83% 97% 94% 87% 90% 96% 94% 70% 80% 90% 100% NLMK USA NLMK Long products Novolipetsk NLMK Group Q1 '13 Q2 '13 NLMK: STEELMAKING CAPACITY UTILIZATIONSTEELMAKING CAPACITY UTILIZATION Sources: global capacity utilization rate according to WSA NLMK: STEEL PRODUCTION m t 3,0 3,1 3,1 3,0 3,0 3,1 0,4 0,5 0,5 0,4 0,5 0,5 0,3 0,2 0,2 0,2 0,2 0,2 3,6 3,8 3,8 3,7 3,7 3,8 0 1 2 3 4 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Steel segment Long products segment Foreign rolled products segment
  7. 7. 77% 9% 14% 0% 20% 40% 60% 80% 100% Sales by segment Pipe producers Machinery Construction and infrastructure SALES GEOGRAPHY SALES IN RUSSIA CONTINUE TO GROW • Flat total sales volumes in Q2 – 3.77 m t • Russian sales +7% qoq and +17% yoy o Long product sales +8% qoq and flat yoy o Flat product sales +4% qoq and +4% yoy o Slab sales to pipe producers grew to 0.18 m t INTERNATIONAL SALES DOWN 3% QOQ • Sales to external markets: 2.36 m t o Europe: -6% to 0.61 m t o N. America: -9% to 0.44 m t o Higher sales to M. East +16% supported by stable demand 7 NLMK SALES IN RUSSIA BY INDUSTRY and BY PRODUCT 32% 54% 13% 0% 20% 40% 60% 80% 100% Sales by product Semi-finished products Flat products Long products REVENUE BY REGION 1,20 1,06 1,13 0,74 0,57 0,56 0,19 0,22 0,25 0,49 0,37 0,32 0,33 0,28 0,24 0,30 0,35 0,32 0 1 2 3 Q2 '12 Q1 '13 Q2 '13 Other regions S.E.Asia North America Middle East, incl. Turkey EU Russia 3.26$ m 2.86 2.83 1,20 1,32 1,41 0,75 0,65 0,61 0,33 0,36 0,42 0,61 0,48 0,44 0,55 0,52 0,46 0,37 0,43 0,43 0 1 2 3 Q2 '12 Q1 '13 Q2 '13 Other regions S.E. Asia North America Middle East (incl. Turkey) EU Russia STEEL SALES BY REGION 3.82m t 3.76 3.77
  8. 8. SALES STRUCTURE SALES STRUCTURE IMPROVED • Share of finished steel 73% (+4 p.p. qoq) GROWTH IN SALES OF VALUE ADDED : 1.38 M T, +4% QOQ • Demand for galvanized steel in Russia increased • Lower sales of pre-painted steel as sales of more profitable galvanized steel increased • Growth in thick plates sales driven by ramp up of the new rolling capacity in Europe • Metalware sales were strong supported by the seasonal uptick in demand 8 SALES BY PRODUCT * High value added products ** Note: Revenue from other operations include revenues from sales of iron ore, coke, scrap and others -17% -10% 2% 5% 6% 7% 8% 8% 11% -20% -10% 0% 10% 20% Slabs Pre-painted Electrical steel Thick plates CRC HDG HRC Long products Metallware Q2/Q1 CHANGE IN SALES BY PRODUCT REVENUE BY PRODUCTS 6% 6% 6% 6% 8% 9% 11% 12% 6% 7%2% 2%8% 8% 20% 21% 21% 19% 1% 1% 11% 9% Q1' 13 Q2' 13 0% 20% 40% 60% 80% 100% Revenue from other operations** Pig iron Slabs HRC Long products Metalware Plate CRC Galvanized Pre-painted Electrical steel 4% 4% 4% 4% 7% 8% 12% 13% 6% 6% 2% 2%10% 10% 24% 26% 30% 25% 1% 2% Q1' 13 Q2' 13 0% 20% 40% 60% 80% 100% Pig iron Slabs HRC Long products Metalware Plate CRC Galvanized Pre-painted Electrical steel 3.763 m t 3.774 m t $2.86 bn $2.83 bn HVA products* HVA products*
  9. 9. 1 934 1 121 1 463 2 048 1 453 375 1 000 0 500 1000 1500 2000 08 09 10 11 12 6M '13 13E 31% 69% Столбец1Development Maintenance 2013 INVESTMENTS 9 CAPEX TRENDS $ m CAPEX PROGRAMME • Investments decrease as the Company enters into a less capital intensive growth phase • Focus on efficiency improvements and niche product development • Conservative investment approach • Capex flexibility under various market scenarios NOVOLIPETSK DEVELOPMENT PROGRAMME • Installation of equipment for pulverized coal injection into blast furnaces (hot testing at BF#5) • Construction of a new turbine-generator (to increase self- sufficiency in electricity) STRENGTHENING OF VERTICAL INTEGRATION • Pelletizing plant construction at Stoilensky • Development of the scrap collecting network PROTECTION OF THE ENVIRONMENT • Biochemical cleaning of waste water at Novolipetsk coke production (2nd stage) MAINTENANCE CAPEX PER TONNE OF STEEL 24 17 30 24 21 0 5 10 15 20 25 30 35 40 45 09 10 11 12 13E NLMK maintenance capex Industry maintenance capex* $/t * Data for European producers that account for over 10% of the global crude steel production
  10. 10. 0% 5% 10% 15% 20% 25% 0,0 0,5 1,0 1,5 2,0 2,5 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Import Rebar produced by Russian companies Import share, rhs NLMK KALUGA: RUSSIAN REBAR & SCRAP MARKETS REBAR MARKET IN H1 ‘13 • Consumption of long products used in construction +11% • Rebar consumption +14% yoy and x1.9 to H1’10 • Rebar Import jumped 60% yoy, x3 to H1’10 • Regional supply/demand imbalance RUSSIAN SCRAP MARKET: REGIONAL IMBALANCE • Central region accounts for 25% of total scrap collection and for 50% of exports • Shortage in long product supply to Central region was 3.8 m t in 2012 10 LONG STEEL PRODUCTION/CONSUMPTION BALANCE BY REGIONS Sources: Metal Expert. Data for 2012. REBAR MARKET, CONSUMPTION IN RUSSIA Sources: Metal Expert m t record 2008 level Q2’13 import share is 24% 46% 21% 8% 9% 8% 6% 1% 0% 17% 12% 31% 18% 11% 7% 2% 1% 0% 10% 20% 30% 40% 50% Ural Siberian Central Volga North Western Southern Far Eastern North Caucasian Share in long steel production Share in long steel consumption Long steel shortage – 3.8 m tpy 5,2 2,2 1,3 1,7 0 1 2 3 4 5 6 7 8 Srap generation Consumption in the region Sales to other regions of Russia Export 20,6 14,8 0 5 10 15 20 25 2012 Scrap collection Scrap consumption m tpa ~6 m t is exported m tpaRussia Central region 2012 ~3 m t - surplus SCRAP MARKET BALANCE IN RUSSIA AND THE CENTRAL REGION Sources: Metal Expert, Russian Railways, NLMK estimates
  11. 11. 0 1000 2000 3000 4000 ZSMK Mechel MMK NSMMZ Abinsky EMZ Rostovsky EMZ Severstal - Balakovo Severstal - Vologda Revyakinskiy MZ NLMK Kaluga NLMK KALUGA: PROJECT OVERVIEW 11 250 950 1 000 0 200 400 600 800 1000 1200 2013 2014 2015 NLMK KALUGA PRODUCTION PLAN 000’ t MODERN EAF MINI-MILL WITH A CAPACITY OF 1.5 M TPA • Product mix in high demand by the construction industry: rebar and sections • Favorable geographic location: 70 km from Moscow – region with a highly concentrated level of consumption • Total investments: $1.2 billion (80% spent till 2013) • Cost advantage (logistics, modern equipment, scrap collecting network) 70 km from Moscow 100% 100% 90% 82% 80% 85% 90% 95% 100% 105% Specific electricity consumption Specific natural gas consumption Average Russian steel producer NLMK-Kaluga NLMK KALUGA COMPETITIVE ADVANTAGES
  12. 12. KEY HIGHLIGHTS FINANCIAL RESULTS • Revenue $2,829 m (-1% qoq) • EBITDA $400 m (+26%) • EBITDA margin 14% (+3 p.p.) • Net income $34 m • Operating cash flow $330 m (+32%) • Investments $221 m (+44%) • Net debt $3,424 m (-1%) • Net debt/EBITDA 2.15 3,26 3,00 2,80 2,86 2,83 0,60 0,48 0,39 0,32 0,40 18% 16% 14% 11% 14% 0% 5% 10% 15% 20% $0,0 $0,5 $1,0 $1,5 $2,0 $2,5 $3,0 $3,5 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Revenue EBITDA EBITDA margin, rhs REVENUE AND EBITDA MARGIN $ bn 12 OPERATING CASH FLOW AND INVESTMENTS* 304 684 333 251 330 453 347 296 154 221 0 200 400 600 800 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Operating cash flow Capex $ m *to ensure comparability, Q1'13 operating cash flow is adjusted to the classification used in H1'13. Interest income from placing cash in depostis in H1'13 is included into cash flow from investing activities. In the statements published in Q1'13, this interest income was included into operating cash flow.
  13. 13. GROUP PROFITABILITY Q2 EBITDA WENT UP BY 26% TO $400 MILLION EBITDA MARGIN GREW BY 3 P.P. TO 14% • Revenue was stable qoq (-1%) o Improved product mix partially offset lower prices • Production costs down by 3% to $2,058 m, despite higher value added product sales o Lower expenses for feedstock materials o Cost optimization programs effect o FX rate effect as RUB softened vs. US$ by 4% qoq • SG&A down by 10% to $372 m driven by, among other factors, the change in sales geography 13 EBITDA CHANGE BY SEGMENT 318 +130 -36 +4 +12 -28 400 200 300 400 500 Q1'13 Steelsegment Foreignrolled products Longproducts Mining Othersand intersegmental operations impact Q2'13 $ m 18% 16% 14% 11% 14% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 EBITDA MARGIN EBITDA: FACTOR ANALYSIS 318 +29 +32 +21 400 200 250 300 350 400 Q1 '13 Sales structure Steel and raw materials spreads Cost optimization programs, FX effect, other Q2 '13 $ m
  14. 14. EBITDA Working capital change Other and non cash operations Income tax OPERATING CASH FLOW Capital expenditures Financial debt settlement (net) Deposits movement (net) FREE CASH FLOW TO EQUITY Dividends FX rate change CHANGE IN CASH CASH FLOW POSITIVE FREE CASH FLOW • Working capital remains stable • Investments down x2 yoy to $221 m o Major investment projects completed • Net cash outflow related to financial debt settlement was $150 m o Settlement of RUB bonds o Full settlement of PXF, attracted in 2008 • Positive free cash flow to equity DIVIDEND PAYMENTS FOR 2012 • 2012 dividends are $116 m, or 20 % of net income o In compliance with NLMK dividend policy • Q2 dividend cash payments were $111 m 14 $ m Q2’13 CASH FLOW 21 19 -111 113 +154 -150 -221 330 -110 +53 -13 400
  15. 15. 3,0 2,5 2,7 3,1 3,3 3,4 2,0 2,2 2,4 2,6 2,8 3,0 3,2 3,4 3,6 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 DEBT LEVERAGE TRENDS FINANCIAL DEBT • Net debt $3.42 bn (-1%) • Total financial debt $4.79 bn (-3%) • Cash and equivalents1 $1.36 bn (-9%) • Net debt / 12M EBITDA 2.15 DEBT PORTFOLIO OPTIMIZATION • Short term debt reduced to $0.99 bn (-33%) • Average debt maturity increased to 3.4 RATING • Investment credit rating (Moody’s, Fitch) 151. Cash and equivalents and ST deposits MATURITY AND NET DEBT/EBITDA Weighted average maturity Years to maturity 1,69 1,90 1,84 1,88 1,93 2,15 0,0 0,5 1,0 1,5 2,0 2,5 3,0 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Net debt/EBITDA 3,4 3,8 1,5 +0,4 -0,5 1,0 $0 $1 $2 $3 $4 $5 $6 31 Mar '13 Debt raising Debt settlements incl interests 30 Jun '13 ST debt LT debt $ bn CHANGE IN DEBT POSITION NET DEBT CHANGE 3,45 +0,33 -0,22 -0,11 -0,03 3,42 2,0 3,0 4,0 31 Mar '13 Operating cash flow Capital expenditures Dividends FX rate and other factors 30 Jun '13 $ bn
  16. 16. 790 724 1044 2180 $0 $500 $1 000 $1 500 $2 000 $2 500 2013 2014 2015 2016 and beyond RUB bonds ECA EBRD NLMK Europe Others Europbonds (USD) 1362 994 2 331 385 443 132 34 $0 $500 $1 000 $1 500 $2 000 $2 500 $3 000 $3 500 $4 000 Liquid assets Q3 '13 Q4 '13 Q1 '14 Q2 '14 SETTLEMENT OF FINANCIAL LIABILITIES MATURITY SCHEDULE • Substantial liquidity cushion and instruments available for debt portfolio restructuring • Short term debt $0.99 bn (-33% qoq) o ECA financing o Credit lines for working capital financing • Long term debt $3.79 bn (+10% qoq) o Eurobonds and ruble bonds o Long term part of ECA o European operations’ long term debt 16 LIQUIDITY AND ST DEBT MATURITY1 TOTAL DEBT MATURITY2 $ m INTEREST EXPENSES3 67 62 65 68 64 62 0% 5% 10% 15% 20% 25% 0 10 20 30 40 50 60 70 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Interest expenses, lhs Interest expenses to EBITDA, rhs 1. ST maturity payments include interests accrued and bond coupon payments 2. Maturity payments do not include interest 3. Quarterly figures are derived by computational method. Reporting periods are 12M, 9M, 6M and Q1 2012 and Q1, 6M 2013. Including capitalized interest. $ m Undrawn committed credit lines Cash and equivalents $ m
  17. 17. OUTLOOK – Q3’13 17 MARKET OVERVIEW • Globally run rates remain high aggravating the supply/demand imbalance while the market continues to be soft • End user demand continues to be anemic due to lower activity in a number of regions. In Russia we expect stable demand from the construction sector • Pricing environment for steel products and raw materials remains volatile STEEL PRODUCTION • NLMK steel output in Q3 is expected to exceed Q2’13 level with 3.9 m t (+4%) driven by the NLMK Kaluga ramp-up FINANCIALS • Q3 ‘13 revenue is expected to remain sequentially flat • Profitability will be driven by steel/raw material price spreads that continue to be volatile • The Company will continue to optimize its cost base through the entire value chain to offset the weaker pricing environment and cost inflation
  18. 18. 18 SEGMENTS
  19. 19. -6% -11% 3% 4% 30% 23% -3% 3% SEGMENT FINANCIAL INDICATORS Steel segment Foreign rolled products segment Long products segment Mining segment Revenue Production costs 214 23 227 -62 2 400 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 Steel segment Long products segment Mining segment Foreign rolled products segment Otherfactors Q2'13 $ m 318 286 197 83 214 -5 -62 -72 -26 -62 50 61 31 20 23 247 190 207 215 227 -14 7 27 26 -2-$90 $110 $310 $510 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Steel segment Foreign rolled products segment Long products segment Mining segment Others SEGMENT EBITDA $ m 19 STEEL SEGMENT • Two-fold profit growth on the back of the widened steel products/raw materials spread and cost optimization programmes LONG PRODUCTS SEGMENT • Stable conditions in the long products market • Outpacing growth in expenses due to the seasonal increase in scrap prices MINING SEGMENT • High level of profitability maintained FOREIGN ROLLED PRODUCTS SEGMENT • Segment losses increased due to deteriorated market conditions in Europe and USA and one-off factors, incl. inventory impairment to market value SEGMENT CONTRIBUTION – Q2 ‘13 SEGMENT CONTRIBUTION TO Q2 EBITDA Revenue Production costs Revenue Production costs Revenue Production costs
  20. 20. 26% 18% 7%5% 5% 4% 4% 1% 9% 14% 8% Iron ore Coke and coking coal Scrap Ferroalloys Other raw materials Electricity Natural gas Other energy resources Personnel Other expenses incl change in inventory Depreciation 1,79 1,82 1,84 1,70 1,66 1,68 0,42 0,46 0,30 0,35 0,35 0,37 0,17 0,32 0,29 0,20 0,08 0,21 0,0 0,5 1,0 1,5 2,0 2,5 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Revenue from intersegment sales Revenue from third parties EBITDA 8% 14% 13% 10% 4% 10% EBITDA margin STEEL SEGMENT STABLE SALES VOLUMES • Domestic steel sales growth, including higher slab sales • HVA sales growth PROFITABILITY INCREASE • Steel products/raw materials spread recovery • The delay in export revenue recognition partially reflects Q1 `13 results • Q2’13 cash cost of slab decreased by 4% to $348/t FX RATES IMPACT • Average RUB/USD FX rate decreased by 4% qoq • 90% of the Segment’s expenses are nominated in RUB 3% 6%3% 4%5% 8%7% 8% 15% 14% 24% 19% 39% 31% 4% 2% 0% 8% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sales Revenue Other revenue* Pig iron Slab HRC CRC Galvanized Pre-painted Dynamo Transformer 2,364,000 t $1,685 m * Revenue from the Segment's sales of other products Sales and revenue from third parties $ bn SALES AND REVENUE STRUCTURE IN Q2 ’13 Value added products Ordinary grades REVENUE AND EBITDA COST OF SALES STRUCTURE IN Q2 `13 20
  21. 21. 275 329 314 281 288 314 73 162 122 88 59 113 28 50 61 31 20 23 0 70 140 210 280 350 420 490 560 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Revenue from intersegment sales Revenue from third parties EBITDA 8% 10% 14% 8% 6% 5% EBITDA margin REVENUE AND SALES GROWTH • Sales volumes up by 9% • Segment revenue from third parties increased by 9% • Significant intersegment revenue growth by 92% - due to increased demand for scrap from the Steel segment EBITDA MARGIN 5% • Long products/scrap spread narrowed PRODUCTION EXPENSE GROWTH • Long product sales growth lead to higher purchases of scrap to secure growing production volumes 17% 22% 83% 76% 1% 0% 20% 40% 60% 80% 100% Sales Revenue Other revenue* Long products Metalware 469,000 t $314 m $ m 21 64% 2% 3% 6% 8% 11% 5% Scrap Ferroalloys Other materials Electricity Personnel costs Other expenses Depreciation LONG PRODUCTS SEGMENT Q2 ‘13 SALES AND REVENUE STRUCTURE Value added grades Revenue from ordinary products * Revenue from other product sales REVENUE AND EBITDA COST OF SALES STRUCTURE IN Q2 `13
  22. 22. 36 86 93 127 92 100 281 274 222 220 245 249 217 247 190 207 215 227 0 100 200 300 400 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Revenue from intersegment sales Revenue from third parties EBITDA 69% 69% 60% 60% 64% 65% EBITDA margin SEGMENT REVENUE INCREASED • Intersegment sales went up - higher Novolipetsk purchases of iron ore concentrate PROFIT AND MARGIN GROWTH • EBITDA margin up to 65% by 1 p.p. • Iron ore concentrate cash cost was $21.8/t (-$0.7/t qoq) – due to lower amount of repairs and RUB depreciation against USD 22 2,86 2,57 3,00 2,62 2,74 0,63 0,74 1,22 0,77 0,75 0,0 1,0 2,0 3,0 4,0 5,0 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Sales to third parties Sales to Novolipetsk mt $ m 8% 25% 0,3%5% 25% 21% 17% Raw and other materials Energy Natural gas Other energy Labour costs Other costs Depreciation MINING SEGMENT IRON ORE CONCENTRATE SALES REVENUE AND EBITDA COST OF SALES STRUCTURE IN Q2 `13
  23. 23. 59 1 92 88 105 100 17 14 21 16 134 94 128 91 224 182 235 192 19 18 19 17 486 454 509 417 0 200 400 600 Sales Revenue Sales Revenue Semi-finished Thick plates HRC CRC Pre-painted Other revenue 274 187 268 175 116 94 110 84 82 68 51 40 12 15 473 362 432 314 0 200 400 600 Sales Revenue Sales Revenue Other revenue Pre-painted CRC HRC SALES DECREASED BY 2% • Lower demand from the USA construction sector • Plate shipments from NLMK DanSteel increased following the completion of rolling mill reconstruction • Higher demand for coated steel in the EU NEGATIVE FINANCIAL INDICATORS • Finished products/semi-finished steel spreads narrowed • One-off factor: semi-finished and finished product inventory impairment to current market prices (-$15 m) – will positively contribute to H2 ‘13 results. 000` t $ m 989 1 026 759 692 817 730 -10 -5 -62 -72 -26 -62 -1% 0% -8% -10% -3% -9% -15% -10% -5% 0% 5% 10% -200 0 200 400 600 800 1 000 1 200 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Revenue from third parties EBITDA EBITDA margin, rhs $ m 000` t $ m $ mln$ m000` t 000` t $ m 23 FOREIGN ROLLED PRODUCTS SEGMENT NLMK EUROPE SALES AND REVENUE NLMK USA SALES AND REVENUE REVENUE AND EBITDA Q1 ‘13 Q2 ‘13Q1 ‘13 Q2 ‘13
  24. 24. 24 APPENDICES
  25. 25. 25 APPENDIX Q2 ’13 CONSOLIDATED CASH COST OF SLABS (AT LIPETSK SITE), $/T Coke and coking coal $91 Iron ore $64 Scrap $37 Other materials $31 Electricity $21 Natural gas $18 Personnel $33 Other expenses $53 Total $348 CASH COST OF SLABS (AT LIPETSK SITE), 2012-2013, $/T Q1'12 $395 Q2'12 $411 Q3'12 $383 Q4'12 $361 Q1'13 $364 Q2'13 $348
  26. 26. 26 1 as at 30.06.2013 2 as at 31.03.2013 SEGMENTAL INFORMATION Q2 2013 (million USD) Revenue from external customers 1 685 730 314 100 0 2 829 2 829 Intersegment revenue 371 1 113 249 734 (734) Gross profit 352 (44) 43 242 0 592 (40) 552 Operating income/(loss) 81 (110) 2 209 (0) 182 (2) 180 as % of net sales 4% (15%) 1% 60% 6% Income / (loss) from continuing operations before minority interest 253 (182) (42) 211 0 241 (208) 33 as % of net sales 12% (25%) (10%) 60% 1% Segment assets including goodwill1 13 419 3 662 2 721 2 292 54 22 148 (4 510) 17 638 Q1 2013 (million USD) Revenue from external customers 1 659 816 288 92 0 2 856 2 856 Intersegment revenue 346 1 59 245 650 (650) Gross profit 260 (6) 46 232 0 531 (8) 524 Operating income/(loss) (36) (74) (2) 197 (0) 84 26 111 as % of net sales (2%) (9%) (1%) 58% 4% Income / (loss) from continuing operations before minority interest (39) (91) (36) 164 0 (2) 37 35 as % of net sales (2%) (11%) (10%) 49% 1% Segment assets including goodwill2 13 987 3 753 2 791 2 408 56 22 995 (4 485) 18 510 Totals Intersegmental operations and balances Consolidated Steel Foreign rolled products Long products Mining All other Totals Intersegmental operations and balances Consolidated Steel Foreign rolled products Long products Mining All other
  27. 27. 27 QUARTERLY DATA: CONSOLIDATED STATEMENT OF INCOME Q1 2013, 6M 2013 and 6M 2012 are official reporting periods. Q2 2013 figures are derived by computational method. Q2 2013 Q1 2013 6M 2013 6M 2012 (mln USD) + / - % + / - % Sales revenue 2 829 2 856 (27) (1%) 5 685 6 351 (666) (10%) Production cost (2 058) (2 125) 67 (3%) (4 183) (4 415) 232 (5%) Depreciation and amortization (220) (207) (12) 6% (427) (348) (79) 23% Gross profit 552 524 28 5% 1 076 1 589 (513) (32%) General and administrative expenses (112) (120) 8 (7%) (231) (237) 5 (2%) Selling expenses (227) (257) 30 (12%) (484) (592) 107 (18%) Taxes other than income tax (33) (36) 3 (10%) (69) (81) 12 (14%) Operating income 180 111 69 62% 291 680 (389) (57%) Gain / (loss) on disposals of property, plant and equipment (4) (2) (3) 171% (6) (37) 32 (85%) Gains / (losses) on investments (3) (1) (2) 281% (4) (1) (3) 274% Interest income 12 10 2 19% 22 12 10 78% Interest expense (27) (31) 3 (11%) (58) (14) (44) 306% Foreign currency exchange loss, net (5) (27) 22 (81%) (32) 2 (34) 0% Other expense, net (10) (8) (2) 23% (18) (32) 14 (43%) Income from continuing operations before income tax 143 53 90 169% 195 610 (414) (68%) Income tax (110) (18) (92) 523% (127) (161) 34 (21%) Equity in net earnings/(losses) of associate 0 0 (0) (4%) 0 0 (0) (57%) Net income 33 35 (2) (7%) 68 449 (381) (85%) Less: Net loss / (income) attributable to the non-controlling interest 1 2 (2) 3 1 2 135%#ДЕЛ/0! 0% Net (loss) / income attributable to OJSC Novolipetsk Steel stockholders 34 38 (4) (11%) 72 451 (379) (84%) EBITDA 400 318 82 26% 718 1 028 (310) (30%) Q2 2013/Q1 2013 6M 2013/6M 2012
  28. 28. 28 Q1 2013, 6M 2013 and 6M 2012 are official reporting periods. Q2 2013 figures are derived by computational method. CONSOLIDATED CASH FLOW STATEMENT *to ensure comparability, Q1'13 operating cash flow is adjusted to the classification used in H1'13. Interest income from placing cash in deposits in H1'13 is included into cash flow from investing activities. In the statements published in Q1'13, this interest income was included into operating cash flow. Q2 2013 Q1 2013 6M 2013 6M 2012 (mln. USD) + / - % + / - % Cash flow from operating activities Net income 33 35 (2) (7%) 68 449 (381) (85%) Adjustments to reconcile net income to net cash provided by operating Depreciation and amortization 220 207 12 6% 427 348 79 23% Loss on disposals of property, plant and equipment 4 2 3 171% 6 37 (32) (85%) (Gain)/loss on investments 3 1 2 281% 4 1 3 274% Interest income (12) (10) (2) 19% (22) (22) Interest expense 27 31 (3) (11%) 58 58 Equity in net ernings of associate (0) (0) 0 (4%) (0) (0) 0 (57%) Defferd income tax (benefit)/expense 41 (40) 81 (202%) 1 (5) 6 Loss / (income) on forward contracts 15 (6) 21 8 (0) 9 Other movements 12 49 (37) (75%) 61 (20) 82 Changes in operating assets and liabilities Increase in accounts receivables (20) (102) 82 (81%) (122) (106) (16) 15% Increase in inventories 26 75 (49) (65%) 101 49 52 105% Decrease/(increase) in other current assets (3) 5 (8) 2 12 (10) (84%) Increase in accounts payable and oher liabilities (18) (17) (2) 11% (35) 26 (61) Increase/(decrease) in current income tax payable 2 22 (20) (91%) 24 16 7 44% Net cash provided from operating activities* 330 251 79 32% 581 807 (226) (28%) Cash flow from investing activities Proceeds from sale of property, plant and equipment (0) 1 (2) 1 10 (9) (87%) Purchases and construction of property, plant and equipment (221) (154) (67) 44% (375) (810) 435 (54%) Proceeds from sale / (purchases) of investments, net 0 9 (8) (99%) 9 (0) 9 (Placement) / withdrawal of bank deposits, net 160 (160) 320 0 231 (231) Prepayment for acquisition of interests in new subsidiaries (157) 157 Acquisition of additional stake in existing subsidiary (10) 10 (10) (10) Net cash used in investing activities (61) (313) 252 (80%) (374) (726) 352 (48%) Cash flow from financing activities Proceeds from borrowings and notes payable 362 852 (491) (58%) 1 214 437 777 178% Repayments of borrowings and notes payable (512) (553) 41 (7%) (1 065) (384) (681) 177% Capital lease payments (6) (7) 1 (21%) (13) (11) (2) 17% Dividends to shareholders (111) (0) (111) (111) (114) 3 (3%) Net cash used in financing activities (266) 292 (559) (191%) 26 (72) 98 Net increase / (decrease) in cash and cash equivalents 2 230 (227) (99%) 232 8 223 Effect of exchange rate changes on cash and cash equivalents 19 39 (20) (52%) 58 (36) 94 Cash and cash equivalents at the beginning of the period 1 220 951 269 28% 951 797 154 19% Cash and cash equivalents at the end of the period 1 241 1 220 21 2% 1 241 769 472 61% Q2 2013/Q1 2013 6M 2013/6M 2012
  29. 29. 29 CONSOLIDATED BALANCE SHEET as at 30.06.2013 as at 31.03.2013 as at 31.12.2012 as at 30.09.2012 as at 30.06.2012 as at 31.03.2012 as at 31.12.2011 (mln. USD) ASSETS Current assets 5 537 5 834 5 469 6 287 5 230 5 714 5 504 Cash and cash equivalents 1 241 1 220 951 1 803 769 926 797 Short-term investments 121 271 107 11 10 11 227 Accounts receivable, net 1 497 1 557 1 491 1 559 1 642 1 786 1 573 Inventories, net 2 530 2 689 2 827 2 819 2 733 2 904 2 828 Deferred income tax assets 121 71 63 54 28 24 19 Other current assets, net 27 25 30 42 47 63 59 Non-current assets 12 101 12 677 12 988 12 661 11 873 12 895 11 753 Long-term investments, net 17 20 19 13 9 9 8 Property, plant and equipment, net 10 981 11 442 11 753 11 458 10 716 11 664 10 570 Intangible assets 129 136 142 146 148 159 159 Goodwill 753 776 786 778 752 802 760 Other non-current assets, net 31 36 38 25 17 17 19 Deferred income tax assets 189 266 250 240 230 244 237 Total assets 17 638 18 510 18 458 18 949 17 103 18 609 17 257 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities 2 647 2 940 3 302 4 155 3 579 3 577 2 940 Accounts payable and other liabilities 1 609 1 412 1 462 1 713 1 582 1 783 1 623 Short-term borrowings 994 1 484 1 816 2 434 1 971 1 781 1 306 Current income tax liability 44 45 24 9 26 12 11 Non-current liabilities 4 695 4 678 4 065 3 875 3 329 3 880 4 212 Long-term borrowings 3 792 3 459 2 816 2 850 2 373 2 693 3 074 Deferred income tax liability 746 765 792 752 690 762 714 Other long-term liabilities 157 454 457 273 266 425 425 Total liabilities 7 342 7 619 7 367 8 030 6 908 7 457 7 152 Stockholders’ equity Common stock 221 221 221 221 221 221 221 Statutory reserve 10 10 10 10 10 10 10 Additional paid-in capital 257 257 306 306 306 306 306 Other comprehensive income (1 736) (1 224) (997) (1 178) (1 738) (613) (1 489) Retained earnings 11 538 11 620 11 582 11 604 11 437 11 272 11 099 NLMK stockholders’ equity 10 290 10 885 11 123 10 964 10 237 11 196 10 147 Non-controlling interest 6 7 (33) (45) (42) (45) (42) Total stockholders’ equity 10 296 10 892 11 090 10 919 10 195 11 151 10 105 Total liabilities and stockholders’ equity 17 638 18 510 18 458 18 949 17 103 18 609 17 257
  30. 30. www.nlmk.com NLMK Investor relations Russia, 115054, Moscow Bakhrushina str, 18, bldg 1 t. +7 495 915 15 75 f. +7 495 915 79 04 ir@nlmk.com

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