2. Disclaimer
This document is confidential and has been prepared by NLMK (the “Company”) solely for use at the investor presentation of the Company and may not be
reproduced, retransmitted or further distributed to any other person or published, in whole or in part, for any other purpose.
This 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.
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.
2
3. 1. Company overview
2. Market trends and performance
3. Sustainable growth strategy
4. Outlook
5. Appendixes
3
4. NLMK: Business profile
Profitability 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. NLMK: balanced and favorably located assets
Russian 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. Efficient vertical integration
Ensures 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. Production costs
Constantly 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. 1. Company overview
2. Market trends and performance
3. Sustainable growth strategy
4. Outlook
5. Appendixes
8
9. Diversified sales and product mix
Timely 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. NLMK in the global market environment
Resilience 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 Q1'11
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. Steel outlook
China’s continuous growth is a support factor Global steel demand
1600 1496
Million t 1431
Low inventories reflecting concerns over price 1400 1272
1340
1199
volatility 1200 1125
1000
Steel demand is growing driven by developing 800
nations 600
400
Raw materials play today much more important 200
role 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. Financial highlights
Exceptional performance and confident outlook
Robust 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%
600
Strong 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 onward
Highest 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. 1. Company overview
2. Market trends and performance
3. Sustainable growth strategy
4. Outlook
5. Appendixes
13
14. Sustainable growth strategy
A leading producer in Russia in terms of organic development
Strategic 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
1.00
Main 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 2010E
Main 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. M&A approach
Pursuing strategic objectives through prudent M&A approach
Downstream 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
25
Niche 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. Duferco JV
… A solid part of downstream integration strategy
JV rationale Slab supply flows to JV
o Increase presence in the key company markets
o Diversify product and market portfolio
Operating 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 t
Future 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. Project: BF Production
BLAST 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
6.0
PCI 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. Project: Steelmaking
LADLE 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 automotive
GAS 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. Project: Rolling Capacities
EXPANSION 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 tonnes
NEW COLOUR-COATING LINE
o Location: Lipetsk
o Capacity growth: +200,000 tonnes
19
20. Project: High Grade Transformer Steel
PRODUCTION 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 2012-14
PRODUCTION UPGRADES AT VIZ-STAL
o Improved quality of products
o In the long term: considering launching high-
permeability transformer steel production
20
21. Project: Long Products
KALUGA 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 2012-13
NEW ROLLING MILL IN BEREZOVSKY
o Completed
o Capacity: 1 m t pa
o Total investments: c. $140 m
o Improved market positions
21
22. Project: Iron Ore Production
OPEN 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
12.0
BENEFICIATION 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. 1. Company overview
2. Market trends and performance
3. Sustainable growth strategy
4. Outlook
5. Appendixes
23
24. Outlook
Q4 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. 1. Company overview
2. Market trends and performance
3. Sustainable growth strategy
4. Outlook
5. Appendixes
25
26. Sales trends
Domestic market recovered
Sales 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
700
Sales 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
200
Drivers 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. Global market environment: China
Steel 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 consumption
Steel 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. Global market environment: Europe
Inventory 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 500
Demand 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 stock
Supply 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. Global market environment: USA
Stocks: restocking is almost complete USA: HRC and slab price dynamics
o Stock levels are growing but still below historical 800
USD$/t
700
average
600
Supply 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, EXW
Demand 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. Russian economy
Stabilization continues
Inflation remains low Russia: PMI, monthly
o Annualized 2010 inflation is expected to be c7%* 55.0 Driven by, mainly, domestic demand
50.0
Interest 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 M2
Real 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
