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Severstal's Capital Markets Day 2013

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  • 1. Severstal Capital Markets Day 14 November 2013
  • 2. Today’s Agenda 1.15pm Presentations  Christopher Clark, Chairman of the Board  Alexey Mordashov, Chief Executive Officer  Vadim Larin, Chief Operating Officer  Alexey Kulichenko, Chief Financial Officer  Q&A 3.00pm Coffee Reception
  • 3. Christopher Clark Chairman of the Board of Directors Alexey Kulichenko Chief Financial Officer Today’s Presenting Team Alexey Mordashov Chief Executive Officer Vadim Larin Chief Operating Officer
  • 4. Introduction from Chairman of the Board Page 4 Christopher Clark Chairman of the Board of Directors
  • 5. Corporate Governance
  • 6. The Board  Balance of Executive and Non-Executive / Independent Directors Board composition:  We aim for full compliance with the UK Corporate Governance Code  Three committees with an Independent Director chairing each: Executive* 40% Non-Executive 60%  Audit: Financial and operational performance, monitor risk  Health and Safety: ensure appropriate systems in place to manage all health/safety/environmental risks  Nomination and Remuneration: reviewing Board composition/effectiveness and policies for senior executives’ remuneration  Quarterly formal Board meetings plus year end Budget Review meetings; committees meet quarterly Independent** 50% Non-Independent 50% The roles of the company’s Chairman and CEO are separate and their responsibilities clearly defined Note: * Board constituents include a Non-Executive Chairman, 5 NonExecutive Directors and 4 Executive Directors ** Board constituents include an Independent Chairman, 4 Independent Directors and 5 Non-Independent Directors Page 6
  • 7. Further Governance Enhancements  In 2012, the Board commissioned its second independently facilitated audit of its effectiveness by Heidrick & Struggles:  High-performing with particular strengths identified overall composition, stability and process  Good engagement and healthy dynamic between Non-Executive Directors and management  Continued focus on Board development:  Review of training for new and existing directors  Increased frequency of ‘deep-dives’ on key projects and topics  Commitment to regular performance reviews  Continue to ensure good governance translates into superior investor recognition  Continue to support initiatives to develop Russian corporate governance Page 7
  • 8. Alexey Mordashov Chief Executive Officer
  • 9. Severstal’s Position and Strategy
  • 10. Our Strategic Priorities  Our mission remains intact: We strive to be a leader in value creation  In this market environment building a healthy and high-quality business generating positive FCF enables stable dividends  How do we intend to achieve that?  Key focus is efficiencies and low-cost position at existing operations  Smart CAPEX: further optimized maintenance, highly selective development  Higher customer satisfaction via services, quality, and better product mix Page 10
  • 11. Our Targets Cost Position Middle-to-the-left position of all our assets on the cost curve Margins Targeting cycle-average EBITDA margin of c. 20% CAPEX Medium-term target of $1.0bn Net debt Striving to keep Net debt/EBITDA below 1.5x Dividends Payout of not less than 25% of Net Income FCF Stable positive free cash flow Page 11
  • 12. Demand to Grow Across All Our Key Markets, but… Russian ASU (mt): good fundamentals CAGR 41 42 44 11 12 13E EU-27 ASU (mt): on the way of recovery CAGR 4.1% 14F 47 46 49 51 145 155 1.8% 140 135 138 139 141 145 12 13E 14F 15F 16F 17F 120 36 25 09 10 15F 16F 17F 09 US ASU (mt): growth in non-res. construction CAGR 80 89 96 CAGR 2.5% 97 100 103 105 3.1% 107 551 10 11 12 11 Chinese ASU (mt): slower but stable growth 59 09 10 13E 14F Source: Worldsteel, Goldman Sachs, Macquarie, Severstal analysis 15F 16F 17F 588 09 10 641 660 700 11 12 13E 721 747 770 792 14F 15F 16F 17F Page 12
  • 13. …Industry Overcapacity Challenge is Still There, Coupled With… Global steel overcapacity is expected to remain in medium term despite the following positive factors:  Decelerating CAPEX spending across the global steel industry  Stable global steel demand growth – CAGR 3%+ (2012-2018E) Potential for margin expansion in the future will depend on capacity discipline and progress in the industry consolidation Global crude steel overcapacity 35% 1000 Overcapacity, mmt (r.h.s.) 30% 900 Overcapacities, % of total capacities 25% 25% 800 700 537 20% 600 500 15% 400 300 10% 200 5% 100 0% 0 00 01 Source: OECD, Worldsteel, Severstal estimates 02 03 04 05 06 07 08 09 10 11 12 13E Page 13
  • 14. …Volatility of Commodity Prices High volatility without any clear trend Mines depletion would compensate negative impact from the new supply Iron ore price, 62%, CFR China, $/t  Chinese steel production still remains high in absolute volumes $180 $160  High market concentration $140 $120  Sizable announced pipeline of new supply $100 $80 $60 1 3 5 7 2012 9 11 1 3 5 7 9  Delays in projects realization 2013  Depletion of mining assets Prepared for price volatility and downside scenarios Source: Severstal analysis Page 14
  • 15. Coking Coal Prices have Upside Potential Prices are on the floor Consensus expects price growth Supply constraints will drive HCC prices up Hard coking coal price, FOB Australia, $/t  Steel production growth in coal-deficit countries: India, Brazil, South Korea $260 $210  Depletion of mining assets $160 $110  Closure of inefficient mines $60 1 3 5 7 2012 9 11 1 3 5 2013 7 9  Cost cutting initiatives by mining companies Potential for mid-term price upside Source: Severstal analysis Page 15
  • 16. How Do We Achieve Those Targets?  Proceed from “Investment Stage” to “Harvesting Stage”  G&A optimization: target is 20% by Q4 2013 to the level of 2012  New leadership across all levels Business System of Severstal Costs reduction initiatives Raising customer satisfaction  Operational improvement at all divisions Smart CAPEX  Development of services and customer care projects  Medium term CAPEX target of $1bn  Product mix and quality improvement  Prudent approach to greenfields Page 16
  • 17. Business System: Time to Deliver Focused to embed competitive advantage through creating a continuous improvement culture Since August 2013 April 2010 – July 2013 “HARVESTING STAGE” “INVESTMENT STAGE” Pilot projects at the key sites  Rising tangible contribution to the top-line and cost reduction Extensive training at all levels Lean tools Customer Care Leadership skills  Growing engagement from all levels  The priority is to ensure that our strong performance is sustainable Page 17
  • 18. Our CAPEX Priorities Optimization of Maintenance CAPEX:  Prudent control over repair costs  Medium term CAPEX target is $1.0bn Higher efficiency of Development CAPEX:  Focus on projects with the highest return Severstal’s CAPEX evolution, $bn  Targeting over 20% IRR for all projects $1.7  No additions in crude capacities after the Balakovo Mini-Mill launch $1.4 $1.3 $1.0  Investments limited to low-risk, quality/efficiencies raising projects Prudent approach to greenfields within our strategic framework 2011 2012 2013E 2014E Page 18
  • 19. Achievements in Challenging Market Among Top-10 by EBITDA One of the highest EBITDA margin FY2012 EBITDA margin, % FY2012 EBITDA, $m ArcelorMittal POSCO 2nd Nippon Steel & Sumitomo 3rd ThyssenKrupp 4th JFE 5th Baoshan 6th CSN 7th Tata Steel Severstal 7,080 1st Gerdau 5,522 Jindal SP 1st CSN 2nd One of the lowest debt leverage globally Consistently in Top-3 by ROCE ROCE* FY2012, % 26.8% Jindal SP 1st Nucor 34.1% 2nd 14.2% 11.8% Net debt/EBITDA FY2012, x Ternium 1st Nucor 2nd 1.3 x 1.5 x NLMK 3rd 15.6% Severstal 3rd 11.1% Severstal 3rd 1.8 x Severstal 4th 15.3% Voestalpine 4th 10.6% NLMK 4th 1.9 x 2,831 Ternium 5th 15.0% Ternium 5th 10.5% Voestalpine 5th 2.5 x 2,676 MMK 6th 14.5% NLMK 6th Jindal SP 6th 2.7 x 2,324 Evraz 7th 13.7% Tata Steel 7th 6.7% Gerdau 7th 8th 2,266 Voestalpine 8th 12.6% ThyssenKrupp 8th 6.4% MMK 8th 2.9 x 9th 2,158 Mechel 9th 11.8% POSCO 9th 6.1% Baoshan 9th 2.9 x 10th 2,142 Hyundai Steel 10th 11.3% Hyundai Steel 10th Evraz 10th 3,811 3,099 7.7% 5.3% Source: Companies’ data, Bloomberg. * Hereafter ROCE is calculated using the financial year basis by the following formula: LTM profit from operations/total assets minus current liabilities (average for the period) 2.8 x 3.1 x Page 19
  • 20. Recent Financial Results: Path of Growth 17% 14% 13% 12% $543m $430m $479m $368m Q4 2012 Q1 2013 Q2 2013 EBITDA, $m Q3 2013 EBITDA margin, % Page 20
  • 21. Severstal is Well-Placed for Investment Returns WHY SEVERSTAL? Consistent dividend payments  Consistent quarterly payments throughout the cycle Highest EBITDA margin among the Russian peers (H1 2013) Dividends paid by Severstal and the Russian peers in 2007-1H’13, $m 2007-08 2009-12 2,083 971 133 Russian peer 1 2,192 956 0 Russian peer 2 1,546 800 111 Russian peer 3 786 627 Russian peer 4 860 335 High liquidity 1H’13 Severstal Russian efficiency leader Free float, % 21% Russian peer 1 33% 7,135 96 Russian peer 2 25% 3,781 Russian peer 3 13% 7,241 Russian peer 4 13% 1,842 12.6% 10,187 n/a 12.8% Total equity turnover in 2012 in Russia, UK and US, $m Severstal 13.5% 12.3% Severstal Peer 1 Peer 2 Peer 3 Highest ROCE among the Russian peers (H1 2013) 8.5% The only steel stock in MSCI Russia (0.8% weight) Source: Companies’ data, Bloomberg. Peer group includes Evraz, Mechel, MMK, NLMK Rising credit ratings: BB+/Stable at S&P Ba1/Positive at Moody’s 5.2% 1.3% 0.0% Severstal Peer 1 Peer 2 Peer 3 Page 21
  • 22. Photo: Methane gas power station at Vorkutaugol Photo: Converter shop modernization at the Cherepovets Steel Mill Photo: Wind energy generation at Vorkutaugol Photo: Methane gas power station at Vorkutaugol Sustainability
  • 23. Safety Safe Working Culture is a Key Lost Time Injury Frequency Rate (LTIFR)  Single HSE policies for all assets  Thorough investigation of the Vorkutinskaya mine tragedy 1.76 1.54 1.41  Strategic objective to eliminate all fatal accidents 2010 2011 2012 Page 23
  • 24. Leadership and Talent Development Personnel Development and Ethical Standards  Corporate Code of Conduct and Ethical Committee in Place  Annual 360° feedback including the Company CEO  In 2012, 43% of our staff passed through training courses, and 100% of top three management levels passed through special development exercises  Management development programme “Achieve More Together” in place to develop leaders of the future  Employee rewards for the best saving ideas Page 24
  • 25. Reducing Resources Consumption and Emissions  ISO 14001 Environmental Management Systems at 9 key assets in Russia and the USA Raising efficiency of the Cherepovets Steel Mill: 2012 consumption vs 2000:  River water consumption, m3/ t of rolled products - down by 44%  Energy consumption, Gcal/t of steel – down by 17%  Natural gas consumption, m3/t of steel – down by 19% Cherepovets Steel Mill tomorrow – projects to be completed in 2013-2015:  Radical reduction of air emissions at Converter Shop, EAF#1, Sinter Production Severstal Columbus achieves 25 million kilowatt hours in energy savings:  On 8 Oct 2013, the Tennessee Valley Authority awarded $2.5m to Severstal Columbus for achieving significant energy efficiencies Page 25
  • 26. Conclusions  Focus on FCF generation and stable dividend payments  Momentum in raising efficiency of operations  Target to reduce capital intensity  Business System embedding operational excellence  Continuing focus on more attractive markets  Maintaining high margins and low debt profile Page 26
  • 27. Vadim Larin Chief Operating Officer
  • 28. Focus on Cost Performance
  • 29. Key Priorities  Low costs  Increased share in high-margin segments  Low CAPEX Page 29
  • 30. Q3 2013 EBITDA Margin Improvement EBITDA, $m 2012 1H 2013 3Q 2013 Severstal Russian Steel 957 421 298 Severstal Resources 985 402 185 Severstal International 185 94 58 Intercompany 31 -8 2 2,158 909 543 Group EBITDA Margin, % 2012 1H 2013 3Q 2013 Severstal Russian Steel 11% 10% 16% Severstal Resources 33% 29% 31% Severstal International 5% 5% 6% Group 15% 14% 17% Page 30
  • 31. Vorkutaugol (Coking Coal) Completed to date In progress  Declining cash costs  Further production growth  Constant production growth  Inclined shaft at Zapolyarnaya in 2014  Headcount reduced from 14,000 to 8,000 people over last 5 years  Inclined shaft at Vorgashorskaya in 2014  First Russian power station on coal methane launched in 2013 (16MW)  Internal and external benchmarking  Evaluation of further upgrade of the washing plant  Pechorskaya washing plant upgraded from 7 to 9 mtpa throughput in 2013  EBITDA margin in Q3 2013 = 22% Vorkutaugol is a unique Russian coal miner that has decreased its cash costs in the recent 4 years Costs decline continue in 2013-2014 2012 2013E 2014E Cash costs CAGR 2008-2012, RUB % 14% -1% Vorkuta Peer 1 Peer 2 Peer 3 Peer 4 13.1 14.0 Hard coking coal (2Zh grade) concentrate production, mt 4.0 4.5 4.8 Hard coking coal (2Zh grade) concentrate total cash cost, $/t 17% 13.0 102 92 89 Semi-hard coking coal concentrate blend (Zh+GZhO grades) total cash cost, $/t 11% 13% Raw coal output, mt 76 71 67 Page 31
  • 32. Karelsky Okatysh (Iron Ore Pellets) Completed to date In progress  Volume reached 10.6 mt (annualized volume run rate) and will remain at this level  Stripping ratio passed peak in 2012 and will be further declining  Headcount reduced by 10% to 4,700 people in 2013  5 mt of higher quality pellets after separate milling of Korpanga ore: fluxed pellets Fe goes up from 63.7% to 66.0%  All 4 grinders replaced in 2013  Costs of drilling & blasting, excavation, hauling will get down to Olkon levels in 2014  $20m CAPEX focused on cost improvements with IRR 25-60% Costs set on a declining trend 2012 2013E 2014E Pellet output, mt 10.3 10.5 10.6 Stripping ratio, m3/t 1.22 1.18 1.10 Pellet cash cost, $/t 58 55 53 Page 32
  • 33. Olkon (Iron Ore Concentrate) Completed to date In progress  Latest JORC audit confirmed 261 mt reserves: 16 years at the current production rate  Stripping ratio passed its peak in 2013 and will be further declining  High-angle conveyor and the new dryer will be launched in 2014 for further cost reduction  Quality more stable after Derrick screens installation Olkon is now on the stable path 2012 2013E 2014E Iron ore concentrate production, mt 4.78 4.73 4.73 Stripping ratio, m3/t 1.26 1.48 1.26 Iron ore concentrate cash cost, $/t 50 48 47 Page 33
  • 34. Strategic Priorities for Russian Steel Sales 1. Increase market share in the high-margin segments  Increase the share in the highmargin segments: Automotive, Machinery, Large Diameter Pipes  It will require better client service: ‒ Advanced quality ‒ Just-in-time delivery Sales to the automotive sector (Russia), kt +9% 187 1H 12 Sales via JVs, % 204 1H 13 4% 11% 2. Focus on Home Markets  Redirect export sales to the domestic market  In the domestic markets focus on the regions with logistics advantage: ‒ North-West ‒ Center  It will require improvements of our sales and distribution system The Russian Steel Divisions' Sales Volume Structure , % Forecast 56% 61% 44% 39% 1H 12 1H 13 80% Domestic Export 20% … 2017 Page 34
  • 35. Recent Achievements in Automotive International Brands  Steel shipments for production of new models in 2013: Renault Logan, Nissan Almera, Skoda Octavia  Launch of a surface quality control system for HDG steel Severstal’s share in procurement of localized international brands in Russia, % 44% 33% 2012 2013E Local Brands: KAMAZ example  5 new steel grades introduced Sales to KAMAZ increased from 14 kt in 2012 to 62 kt in 2013  Delivery time decreased by 2.2x through the joint project with Russian Railways 62 14 2012 2013E Page 35
  • 36. Production priorities for Russian Steel Top-level production priorities include:  Continue cost-cutting effort  Increase the “first-time through” (FTT) ratio at each stage of production  Increase best practice sharing with industry leaders Area Priorities  Iron Making  Steel Making     Replace sinter with cheaper Fe-containing additions Synchronize maintenance between the sinter plant and the BF to reduce sinter fines formation Increase sinter plant productivity by 10%+ Align melting temperature regimes of sinter and pellets mix to increase BF productivity    Further increase share of pig iron Reduce the amount of breakouts Increase steel making process stability: stable temperature regimes, alloy consumption modeling    Increase Mill 2000 productivity to 6.5 mtpa Increase efficiency of pre-heat ovens: reduce gas pressure, close ovens, optimize gas-oxygen mix Implement best practices in greasing and grinding (higher precision, better materials and automation)    Upgrade the 4-stands mill Improve quality to better match client requirements Increase FTT ratio  Hot Rolling  Cold Rolling  Long Products  Launch Balakovo Mini-Mill  Maintenance    Introduce reliability maintenance approach Continue headcount reduction Delegate responsibility for equipment condition to production personnel and specialize maintenance force on larger or more specialized repair tasks Page 36
  • 37. Russian Steel: Examples of Continuous Improvement Majority of our efforts are continuous Selected examples Effect, $m 2013 2014  Substitution of purchased iron ore with metallic from recycled slag 14 7  Increased share of pig iron in BOF 15 10  Labor productivity improvement 60 37 Page 37
  • 38. Balakovo: Major Capacity Expansion Project Favorable Market Environment  Favorable market  Scrap surplus of about 3 mtpa in the Volga region  Excess electricity capacity in the region  Environment-friendly technology: 99.5% gas cleaning system and closed-loop water recirculation  Well-developed transport infrastructure Balakovo Electric Arc Furnace Balakovo Mini-Mill  First production  Rolling in December 2013  EAF in April 2014  Location: Balakovo, Saratov region, Volga district  Capacity: 1 mt of crude steel and long products: rebar, angles, channels  Equipment: EAF (Siemens VAI), rolling mills (Danieli) Scrap yard in place and functioning Page 38
  • 39. Severstal North America: Resilient Assets on a Healthy Market The North American market is expected to demonstrate sound growth. SNA is well-positioned to capture this growth Favorable Factors US Finished Steel Consumption, mt  US steel demand is growing 120  SNA assets are best in class in the USA 100 In progress 100 103 2015F 97 2014F 96 2013F 105 107 110 20 2018F 2017F 0 2016F  Ongoing operational improvements despite expensive raw materials 80 89 59 2010  Procurement savings: scrap and energy 40 98 2009 Has been completed to date 112 2007 SNA efficiency improvements 2012 60 2011 80 2008  We know how to run those assets properly SNA key financial dynamics  Non-prime reduction at Dearborn 2012 9M 2013 41 44 (107) 10  Scrap mix optimisation/copper scheduling  Further optimisation of logistics  Revisiting the sales and marketing strategy EBITDA per tonne, $/t Free cash flow, $m* * Excluding intercompany interest paid Page 39
  • 40. Example: Scrap Purchasing in SNA  Scrap purchasing brought savings of $16/t in Columbus and $10/t in Dearborn in 2 years Spread to national market ($/t, normalized for mill mix) 54 49 43 44 43 32 29 22 51 40 28 26 22 28 27 24 26 22 21 5 2011: $37 8 5 Dearborn 2 4 6 2 4 8 4 3 14 7 4 1 (4) 2011: $6 17 2013: $21 8 (1) Average 22 22 22 20 14 12 10 2 26 2012: $27 13 8 22 2 Columbus Average 27 27 21 (6) (4) 2012: $2 (3) (1) (4) (3) (4) (4) (7) (9) 2013: ($4) Page 40
  • 41. Smart CAPEX Continuous reduction of CAPEX  Development projects in mining to be completed in 2014  Only reconstruction of the 4-stand mill remains among the large-scale development projects in Steel  Prudent control over maintenance costs  Greenfields investments into concept development/feasibility study only Total Capital Expenditures, $bn $1.4 $1.3 $1.0 $0.8 $0.7 $0.4 $0.6 $0.6 $0.6 2012 2013E 2014E Maintenance CAPEX Development CAPEX Page 41
  • 42. Greenfields  Our greenfield projects do not require significant CAPEX at the moment  Going forward we will not jeopardize our balance sheet under any conditions Greenfield Status Iron Ore  Putu Range, Liberia  Feasibility Study in progress  Amapa, Brazil  Divestment Coal  Tyva, Russia  Pre-Feasibility Study completed  Usinskoye, Russia  Pre-Feasibility Study completed Metallics  IMBS/IIBG, South Africa  First production at a trial plant by year end Page 42
  • 43. Conclusions  Low costs  Increased share in high-margin segments Strong FCF  Low CAPEX Page 43
  • 44. Page 44 Alexey Kulichenko Chief Financial Officer
  • 45. Prudent Financial Policy
  • 46. Financial Priorities Remain Intact Decreasing production costs in steel and mining 20% G&A expenses cut program Net debt/EBITDA of 2.2x – above the target of 1.5x, but still in the comfort zone. With lower CAPEX next year we will try to return to 1.5x Mitigating the challenges High level of liquidity maintained with growing share of committed credit lines with cash decreasing to c. $1bn Cash at hand 1.4x times covers short-term debt High interest coverage – close to 7.0x EBITDA/Interest (Q3 2013) Ratings – one notch from Investment Grade at S&P and Moody’s Recent placements with a record low interest rate for the company Page 46
  • 47. Efficiency Initiatives  Working capital optimized over the recent years…  Target G&A cut by 20% to the level of FY 2012…  … with the turnover markedly reduced since beginning of 2011…  … which should fully materialize by FY 2014 and have a positive EBITDA effect of c. $150m, as compared to FY 2012  … as well as average NWC/Revenue ratio, constantly since 2011 well below the target level of 18%  Major areas for cost cutting have been personnel number, consultancy services, travel expenses, etc. G&A expenses developments at Severstal, $m 100 25,0% 23.4% 80 60 20,0% 15.2% 85 55 40 Decrease 410 of 13% 14.9% 14.5% 54 53 14.3% 15.0% 55 52 347 372 357 Decrease 339 of 17% 298 15,0% 10,0% 20 5,0% 0 0,0% H1 11 H2 11 H1 12 H2 12 Net working capital turnover, days (lhs) H1 13 Target level NWC/Revenue, % H1 11 H2 11 H1 12 H2 12 H1 13 H2 13 Page 47
  • 48. FCF is a Key Focus  Over the recent years Severstal has consistently delivered a meaningful positive FCF*  Focus on FCF is key priority going forward  CAPEX is traditionally covered by operational cash flow  Free cash flow will be used for further deleveraging and dividend payments Cash flows in FY 2012 Cash flows in FY 2011 Cash flows in 9M 2013 Positive FCF of $953m Positive FCF of $431m 2,579 Positive FCF of $141m 1,750 89 930 2,013 128 (1,716) 1,864 (1,101) 55 1,726 (1,448) (568) (844) 1,014 (853) Cash & CE Operating EOY 2010 CF 2011 CAPEX 2011 Other adj Other Cash & CE Operating to FCF investing & EOY 2011 CF 2012 financing CF CAPEX 2012 Other adj Other Cash & CE Operating CAPEX 9M Other adj Other Cash & CE to FCF investing & EOY 2012 CF 9M 2013 to FCF investing & end of 9M financing 2013 financing 2013 CF CF * Free cash flow is determined as an aggregate amount of the following lines: Net cash from operating activities, CAPEX, proceeds from disposal of PPE, interest received and dividends received Page 48
  • 49. Decreasing Cost of Debt Significantly better terms of refinancing on the public markets… …due to stable financial position, streamlined strategy and investor recognition WHAT WAS WHAT’S NOW EUROBOND 2013 EUROBOND 2014 EUROBOND 2017 EUROBOND 2018 EUROBOND 2022 CONVERTIBLE BOND Year of issuance 2008 2004 2010 Year of issuance 2013 2012 2012 Maturity 5 years 10 years 7 years Maturity 5 years 10 years 5 years Amount $544m $375m $1,000m Amount $600m $750m $475m Rate 9.75% 9.25% 6.70% Rate 4.45% 5.90% 2.00% Page 49
  • 50. Comfortable Payment Schedule  Total debt to be paid in 2014-15 is only $572m, of which the only bond bullet is 2014 Eurobond of $375m  Cash at hand of c. $1,000m 1.4 times covers debt payments until 2016  Available liquidity of $2,706m, of which 63% represented by committed credit lines  Cash at hand to be maintained around $1bn going forward, supported by a large amount of credit lines 1,692 1,513 Total 2014 debt repayments of $530m 1,129 860 1,014 447 166 $m Liquidity as of Q3 2013 756 4Q 13 Cash & CE 5 6 1Q 14 2Q 14 72 42 3Q 14 4Q 14 2015 Short-term Debt to be Repaid 2016 Unused Committed Credit Lines 2017 2018 2019+ Long-term Debt to be Repaid Page 50
  • 51. Deleveraging on Track Rising available liquidity by increasing committed credit lines 3000 2,706 2500 2000 2,758 2,257 393 922 1,112 1,264 1,864 2,261 248 2,664 1,726 1,552 1,494 Q1 2013 Q2 2013  Available liquidity up 19% since EOY 2010 to $2,706m… 1,692 2,648  … with committed credit lines up almost 7x times to $1,692m… 1500 1000 2,013 500  … and cash on balance decreasing by 50% to $1,014m 1,014 0 EOY 2010 EOY 2011 EOY 2012  Cash on balance to hover around $1bn going forward as a comfort cushion, supported by significant amount of committed credit lines Q3 2013 Unused committed credit lines, $m Cash and cash equivalents, $m Steadily decreasing debt, stabilizing net debt/EBITDA 6 500 6,025 6 000 5,710 5 500 5 000 4 500 2,5 2.2x 5,976 1.8x 1.4x 2.2x 5,454 4,977 1.1x 4,212 4,112 4 000 3,983 3,960 3,963 2 1,5 3 000  Gross debt down 17% since EOY2010 1 0,5 3 500  Higher net debt/EBITDA due to lower LTM EBITDA, although already stabilized and set to decrease  Net debt down 6% since EOY2010 0 FY 2010 FY 2011 Gross debt, $m FY 2012 Net debt, $m 1H 2013 9M 2013 Net debt/EBITDA, x Page 51
  • 52. Key Debt Elements Key debt parameters: preference for public, USD, fixed and unsecured EUR RUB 7% 2% Float 15% Private 15% Secured 17% Fixed 85% Public 85% USD 91% Unsecured 83% Severstal’s interest coverage dynamics 700 600 Average interest coverage in 2012-13 is 5.1x 681 568 541 500 430 8,0 543 7,0 479 6,0 5,0 368 400 4,0 300 200 Interest coverage as of Q3 2013 was 6.9x 3,0 111 110 105 100 115 100 99 79 0 2,0 1,0 0,0 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Interest payments have been decreasing post the lower-cost bond placements Q3 2013 EBITDA, $m Interest, $m Coverage, x (rhs) Average coverage, x (rhs) Page 52
  • 53. Conclusions
  • 54. Conclusions  Resilient business model combining low cost production and strong market positions  Focus to ensure building healthy and high-quality business  Further improve cost positions via G&A reduction and operating efficiency initiatives  Target reduce a capital intensity of operations  Committed to prudent debt management and gradual deleveraging  Improved FCF profile to target higher dividend payments Page 54
  • 55. Q&A
  • 56. Disclaimer These materials are confidential and have been prepared by OAO Severstal (Severstal) solely for your information and may not be reproduced, retransmitted or further distributed to any other person or published, in whole or in part, for any other purpose. These materials may contain projections and other forward-looking statements regarding future events or the future financial performance of Severstal. You can identify forward-looking statements by terms such as “expect,” “believe,” “estimate,” “intend,” “will,” “could,” “may” or “might”, or other similar expressions. Severstal cautions you that these statements are only predictions and that actual events or results may differ materially. Severstal will not update these statements to reflect events and circumstances occurring after the date hereof. Factors that could cause the actual results to differ materially from those contained in projections or forward-looking statements of Severstal may include, among others, general economic and competitive environment conditions in the markets in which Severstal operates, market change in the steel and mining industries, as well as many other risks affecting Severstal and its operations. These materials do 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 securities of Severstal in any jurisdiction, nor shall they or any part of them nor the fact of their presentation, communication or distribution form the basis of, or be relied on in connection with, any contract or investment decision. No representation or warranty, express or implied, is given by Severstal, its affiliates 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 these materials or their contents.