Conference call presentation with ceo and cfo 3 q 2012 us gaap
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NLMK Q3 2012 Financials

NLMK Q3 2012 Financials

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Conference call presentation with ceo and cfo 3 q 2012 us gaap Presentation Transcript

  • 1. NLMK Q3 AND 9M 2012 US GAAP CONSOLIDATED RESULTSOLEG BAGRIN, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF MANAGEMENT BOARDGALINA AGLYAMOVA, CHIEF FINANCIAL OFFICER Moscow, 2012
  • 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.This document is for distribution only in the United Kingdom and the presentation is being made only in the United Kingdom to persons having professionalexperience 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 suchpersons 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 itscontents.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. INTERNATIONAL MARKETSDEMAND STEELMAKING CAPACITIES UTILISTION 100%• Weaker demand on major markets 80%• Global run rates declinedPRICES 60%• Raw materials prices under pressure from lower steel 40% capacity utilization 20%• Steel prices continued to decline across all regions 0% Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 with Russia being less impactedINVENTORIES China North America Europe• Steel stock remain low in developed economies Source: World Steel Association• Sizable decline in Chinese inventories STEEL INVENTORIES FLAT STEEL PRICES BY REGION Index, January 2011 = 1 $1,100 $/ metric tonne Quarterly dynamics1.2 adjusted for1.1 $900 production/ sales cycle 1 $7000.9 $5000.8 Inventories Germany HRC, CIS export, FOB Inventories China $300 HRC U.S. domestic prices, FOB0.7 Inventories U.S. HRC, Europe domestic prices, EXW0.6 $100 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12Sources: CRU, Bloomberg (China statistic, Metals Service Center Inst.) Source: Steel Business Briefing 3
  • 4. RUSSIAN MARKETDEMAND CRUDE STEEL PRODUCTION, STEEL USE AND PRICES• Stable on the back of economic growth. Apparent steel million t/month $/t 1,100 6.0 1,000 use increased by 5% in Q3 900 5.0• Consumption by construction industry surpassed the peak 800 700 of 2008 4.0 600 500PRICES 3.0 400• Flat steel prices for ordinary grades declined in line with 2.0 ASU + 5%, q/q 300 200 global trends, value added remained stable 1.0 100 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12• The demand for long steel improved on the back of the increased activity in the construction sector Crude steel production Apparent steel useNLMK POSITION ON THE DOMESTIC MARKET HRC price (r.h.) Rebar price (r.h.)• Company’s share in steel production achieved 20% Sources: Metal-Expert, Metal Bulletin• Leading positions in industries with sustainable demand STEEL DEMAND IN CONSTRUCTION NLMK POSITIONS IN RUSSIAN MARKET2.5 million t/ month 100%2.0 peak level of 2008 ~70% 39%1.5 29% 20% 24% 19% ~20%1.0 17%0.5 Crude steel HRC CRC Galvanised Pre-painted Transformer Dynamo Rebar Metallware production0.0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 May-10 May-08 May-09 May-11 May-12 Sep-09 Sep-08 Sep-10 Sep-11 Sep-12 Production data for 9M 2012Sources: Rosstat, Company’s data Sources: Chermet, Metal-Expert, Company’s data 4
  • 5. PRODUCTIONSTABLE OUTPUT IN Q3 2012 CRUDE STEEL PRODUCTION, QUARTERLY• Novolipetsk (Steel segment) 3.076 m t 4.5 million t 3,6 3,8 3,8 ~3,7 4.0 (-2% q-o-q) 3.5 3,2 3.0• NLMK Long Steel 0.479 m t 2.5 (+3% q-o-q) 2.0 1.5• Foreign rolled products segment 0.216 m t 1.0 (-13% q-o-q) 0.5 0.0 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012FCAPACITY UTILIZATION 96% Steel segment Long products segment Foreign rolled products segment• Novolipetsk (Steel segment) 100% (+1 p.p.)• NLMK Long Steel 86% (+1 p.p.)• Foreign rolled products segment 91% (-3 p.p.) CAPACITY UTILIZATIONOUTLOOK Novolipetsk 100% 99%• Q4 ’12: 3.7 m t (-2 % q-o-q)• 2012: 15 m t (+25% y-o-y) NLMK Long 86% Steel 85% 91% NLMK USA 94% 0% 20% 40% 60% 80% 100% 120% Q3 2012 Q2 2012 5
  • 6. SALES GEOGRAPHYHIGHER SALES TO RUSSIAN MARKET REVENUE BY REGION $ million• +4% q-o-q beating absolute record level 3,257 3,002 3,053 3,094 300 (-7.8% q/q) $3,000GROWTH OF INTERNATIONAL SALES 353 289 332 340 359 527 494 448• Lower demand from European and USA markets $2,000 364 458 191 -7% q/q 400 269 273 201 offset by increased supplies to S.E. Asia and other 698 740 523 634 $1,000LOWER SLAB SUPPLIES TO OWN ROLLING ASSETS 1,199 -9% q/q 1,091 902 1,021• About 0.5 m t delivered in Q3 (-33% q/q) and 2 m t $0 Q4 2011 Q1 2012 Q2 2012 Q3 2012 in 9M 2012 Russia EU Middle East (incl. Turkey) North America Asia Other regions SLABS SUPPLIES TO OWN ROLLING ASSETS SALES BY REGION1000 million t 60% million t 5.0 50% 3,872 3,816800 3,552 3,818 4.0 107 40% 0.30 0.37 0.43 107 0.26600 0.63 0.55 3.0 0.83 0.73 30% 0.63 0.61 -2% q/q 108 0.49400 2.0 0.50 0.38 0.33 0.27 606 645 20% 0.34 0.83 0.75 0.64 454 0.56200 395 10% 1.0 1.10 1.20 +4% q/q 1.26 1.06 0 0% 0.0 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2011 Q1 2012 Q2 2012 Q3 2012 NLMK Europe NLMK USA Share of total slabs sales Other regions Asia North America Middle East (incl. Turkey) EU Russia 6
  • 7. SALES STRUCTURECHANGE IN SALES MIX SALES AND REVENUE BY PRODUCT 100% Revenue from other• Growth in slabs sales to 3rd parties 5% 9% operations* Pig iron 2%• … as European subsidiaries decreased utilization rates 80% 26% 15% Slabs Ordinary HRC due to seasonality and overall demand weakness products 60% 22% Long products• Thick plates lower q-o-q due to upgrade of rolling 24% Metallware 8% operations at NLMK DanSteel 40% 10% 2% Thick plates 9% 2% 5% CRCVALUE ADDED STEEL SALES AT 35% OF TOTAL Value 13% 20% 14% added Galvanised• Strong domestic demand supported value added sales 7% products 9% Pre-painted 4% 2% 6% 0% 2% 4%2% Dynamo Sales Revenue Transformer *Note: Revenue from other operations include revenues from sales of iron ore, coke, scrap and others STEEL PRODUCTS SALES CHANGE IN SALES STRUCTURE Q3/Q2 4 million t Slabs 14% 1.11 1.00 1.18 Metallware 2% 3 1.15 Pre-painted 2% 0.39 0.47 0.44 CRC 0.33 0% 2 Transformer -5% 1.34 1.37 1.26 1.27 HRC -6% 1 Long products -7% 0.82 1.03 0.97 0.91 Galvanised -13% 0 Dynamo -13% Q4 2011 Q1 2012 Q2 2012 Q3 2012 Thick plates* -20% Semi-finished Longs Flats value added Flats -30% -20% -10% 0% 10% 20% *Lower thick plates sales partially relates to the launch of new mill at NLMK DanSteel 7
  • 8. STRATEGIC DEVELOPMENTSGROWTH IN CRUDE STEEL CAPACITY CAPEX• Blast Furnace #7 / BOF 3.4 m tpa project 100% $ million 2500 completed. Utilisation rates of the new capacities 80% 2000 are at maximum 76% 77% 60% 81% 82% 1500• Improved steel quality, +30 new steel grades 87% 40% 1000• Kaluga mini mill (1.5 m tpa of long steel) to be 20% 500 operation in 2013 24% 19% 13% 18% 23% 0% 0FINISHED PRODUCTS OUTPUT GROWTH 2008 2009 2010 2011 2012E• Growth in rolling capacity for value added products Maintenance capex Development Total investments• Improved quality of the existing (incl niche) products (NLMK DanSteel rolling mill upgrade)VERTICAL INTEGRATION• Iron ore capacity growth with continued expansion CAPEX BY SEGMENTS, 2012E of Stoilensky Steel segment• Coke-chemical projects (PCI, tar pitch, etc.) to 13% Long products reduce energy costs segment• Expansion of scrap capacity 22% 48% Mining segmentIMPROVED EFFICIENCY• Growth of self-sufficiency and efficient use of energy Foreign rolled products segment 16% 8
  • 9. HIGHLIGHTSQ3 ‘12 FINANCIAL RESULTS REVENUE AND EBITDA MARGIN $3.4 $ billion 18% 20%• Revenue $3,002 m (-8% q-o-q), 18% $3.2 14% 16% 12% 16%• EBITDA $483 m (-19%), $3.0 14% 12%• EBITDA margin 16.1% (-2.2 p.p.), $2.8 10% $2.6 3.26 3.09 8%• Net profit: $167 million (-40%), $2.4 3.05 3.00 6% 4%• EPS $0,03, $2.2 2% $2.0 0%• Operating cash flow: $684 m (+125%), Q4 2011 Q1 2012 Q2 2012 Q3 2012• CAPEX: $347 m (-23%), Revenue EBITDA margin (r.h.)• Net debt/EBITDA: 1.84Q3 ‘12 OPERATING RESULTS EPS• Steel output: 3.772 m t (-2%), $0.05 $/share 10% 8.5%• Steel sales: 3.816 m t (0%), $0.04 8% 5.6%• Revenue/t: $787 (-8%), $0.03 5.0% 5.6% 6% 0.05• Slab cash cost at Lipetsk plant : $383 (-7%). $0.02 4% 0.03 0.03 0.03 $0.01 2% $0.00 0% Q4 2011 Q1 2012 Q2 2012 Q3 2012 Net income per share Net income margin (r.h.) 9
  • 10. PRODUCTION COSTSPRODUCTION COSTS DOWN BY 5% COST OF GOODS SOLD $ million• Impacted by lower prices for raw materials $2,500 2,210 2,205 2,163 2,095 Prod.• Strict control over operating expenses and overheads $2,000 expenses -5% q/q• Lower consumption of pellets supplied by 3rd parties $1,500• Slab cash cost decreased by 7% to $383/t. Depreciation $1,000 +29% q/qDEPRECIATION $500 129 177 171 221• Growth by 29% following growth in PPE $0 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Production expenses Depreciation CASH COST FOR BOF STEEL GLOBALLY CONSOLIDATED PRODUCTION COSTS Q3 2012$650 $/t Iron ore 11%$600 11% 12% Coal / coke 18%$550 Scrap 15%$500 13%$450 18% Ferroalloys 4%$400 Materials Novolipetsk 0.8% 16%$350 4% Electric energy 7%$300 7%$250 15% Natural gas 4%$200 16% 4% Other energy 0.8% 106 113 120 127 134 141 8 1 43 15 22 29 36 50 57 64 71 78 85 92 99 100 mtpa 260 mtpa 500 mtpa 550 mtpa Other costs 13% Cumulative BOF capacities Labor 12%Source: World Steel Dynamics. Data as of the end of 9M 2012 10
  • 11. PROFITABILITYEBITDA DYNAMICS EBITDA CHANGE BY SEGMENT• In Q3 overall EBITDA declined mainly due to $ million 600 weakening market environment -32 +11 +22 500• A decline in steel prices outpaces the decline for raw -57 -57 materials negatively contributing to the company’s 400 596 483 profitability 300KEY FACTORS BEHIND EBITDA CHANGE 200• Steel segment Q2 2012 Long products segment Q3 2012 Foreign rolled incl intersegmental Lower steel prices and change in the product mix was Mining Other operations products segment segment partially compensated by the reduced production costs EBITDA: FACTOR ANALYSIS EBITDA MARGIN 20%700 $ million 18%600 15% 16% -46 +81 14%500 12% 10% -8400 596 -140 483 5%300200 0% Others Volumes and Q2 2012 Prices Production Q3 2012 Q4 2011 Q1 2012 Q2 2012 Q3 2012 product mix costs 11
  • 12. CASH FLOWSIGNIFICANT CASH GROWTH Q3’12 CASH BRIDGE• Over $1bn of cash inflow in Q3 $ million CHANGE IN CASH 1 034OPERATING CASH FLOW INCREASED• $684 of cash from operation activities including FX rate change -21 o $483 m EBITDA and o $273 m from working capital changes Dividends -2GROWTH IN CASH FROM FINANCIAL ACTIVITIES FREE CASH FLOW TO THE FIRM 1 057• RUB bond (approximately US$320 million) and Euro Other financial operations bond (US$500 million) placements. +4DECREASE IN CAPEX Net loans +716• -23% q-o-q to US$347 million Purchase of property plant -347 Q3 2012 CASH INFLOW AS A RESULT OF WORKING and equipment CAPITAL MOVEMENTS 684 $ million OPERATING CASH FLOW300250 -11 -63 24 Profit tax 79200150 Other non cash operations -9 273100 181 Working capital change 273 50 0 Decline in Decline in Increase in Other factors Q3 2012 EBITDA 483 Accounts Inventories Accounts receivable payable Cash flow statement data 12
  • 13. DEBTDEBT POSITION CHANGE IN DEBT POSITION• Net debt $3.47 billion (-3%) $6 $ billion +0,9 +0,4 $5• Net debt / 12M EBITDA 1.84 (down from 1.9) -0,2 $4 2.4• Cash and equivalents1 $1.814 billion (+133%) 2.0 $3• Gross debt $5.28 billion (+22%) $2DEBT MANAGEMENT 2.9 $1 2.4 ST Debt LT Debt• In Q3 NLMK placed debut Eurobonds and additional $0 RUR notes totaling $883 million 30 Jun 12 Debt raising Debt FX rates and 30 Sep 12 settlements other factors• Average debt maturity extended to 2.7 yearsRATING• Investment grade rating (S&P, Moody’s, Fitch) AVERAGE MATURITY AND NET DEBT/EBITDA2 CURRENCY OF THE DEBT AND REVENUE Weighted average Debt currency 2 Revenue currency3 2.0 Net debt/EBITDA3.2 maturity period 100% 100% 3.03.0 80% 35% 80% 40% 35% 1.902.8 2.7 1.84 60% 60% 18% 13% 25%2.6 2.5 40% 40% Years 1.692.4 20% 46% 47% 20% 40%2.2 1.5 0% 0% Q1 2012 Q2 2012 Q3 2012 Q1 2012 Q2 2012 Q3 2012 Q2 2012 Q3 2012 Q3 20121. Cash and equivalents and ST deposits RUR USD Euro2. As of 30.09.2012г. 133. Management accounts data
  • 14. MATURITYDEBT MATURITY LIQUID ASSETS AND ST DEBT MATURITY1• Substantial liquidity cushion and portfolio of $3,500 $ Committed million credit lines instruments for debt restructuring $3,000 Cash and• Short-term debt $2.43 billion $2,500 1,070 equivalents 203 $2,000 o Settlement of RUR three year notes in 493 $1,500 Q4 2012 $1,000 816 2,285 1,814 o Short term part of PXF $500 773• Long term debt $2.85b illion $0 Liquid Q4 12 Q1 13 Q2 13 Q3 13 o incl. RUR notes and long term part of PXF, ECA assets and liabilities of SIF INTEREST EXPENSE3 TOTAL DEBT MATURITY2$70 20% $2,500 $ $ million$60 million 15% $2,000$50$40 10% $1,500$30$20 $1,000 5%$10 $500 $0 0% Q4 2011 Q1 2012 Q2 2012 Q3 2012 $0 Interest expense Interest expense to EBITDA (right hand) 2012 2013 2014 2015 and onward PXF Ruble bonds ECA EBRD NLMK Europe Others Eurobonds (USD)1. The ST maturity payments include interests accrued and bond coupon payments in 20122. The maturity payments do not include interests3. Quarterly figures are derived by computational method based on reporting data for the 9M, 12M 2011 and for the 3M, 6M, 9M 2012. 14
  • 15. OUTLOOKPRODUCTION OUTLOOK• Q4 2012: steel output to be at 3.7 m t, -2% q-o-q• 12M 2012: 15 m t, + 25% y-o-yFINANCIALS• Revenue will decline by 1-5% q-o-q mainly due to lower seasonal demandMARKET OUTLOOK• Steel prices hit the bottom in Q4 2012• Lower seasonal activity for the overall steel sector in the end of the year• 2013 steel demand is likely to remain weak with possible anemic growth as compared to 2012 15
  • 16. 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.comwww.nlmk.com 16