Investor Presentation

16
Investor Presentation September 2013

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Investor Presentation. September 2013. Key Credit Highlights. Leading position in the Russian steel market. MMK is the second largest steel producer in Russia by volume of production Moreover, MMK not only managed to maintain its share but also grow it over the recent years. - PowerPoint PPT Presentation

Transcript of Investor Presentation

Page 1: Investor Presentation

Investor Presentation

September 2013

Page 2: Investor Presentation

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Key Credit Highlights

Leading position in the Russian steel market

MMK is the second largest steel producer in Russia by volume of production

Moreover, MMK not only managed to maintain its share but also grow it over the recent years

Dominant portion of sales to domestic market

MMK sales (by volume) to fast growing Russian and CIS market amount to 77% of total sales (as of 2012FY)

MMK benefits from premium pricing with respect to domestic sales - 231 USD/tonne in 2012

Diversified sales mix Low customer concentration

Top ten customers account for only 1/4th of MMK‘s total shipments*

Competitive cost position Slab costs are among the lowest in the industry - USD385 per tonne (as of Q2 2013)

MMK benefits from long-term iron-ore contracts

World class corporate governance

5 out of 10 directors on Board are independent in compliance with the UK Corporate Governance code

The largest single sight facility in Russia

The large size of Magnitogorsk site allows the company to exploit economies of scale and reduce costs in areas, such as logistics through lower transportation costs

Leader among peers Strong positioning among peers is reflected by well-invested, best rolling facilities as well as the highest portion

of HVA products

*Note: Top 10 customers are based on Total MMK shipments, i.e. domestic and exports

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ММК – Global Player with Strong Russian PresenceBenefits from central location with proximity to local and export markets

2.3 mln tpy capacity.Steel making complex and two service centers.900 th tonnes of steel products output in 2012

Metals service center and stamped-product factory with 250 th. tpy capacity.

4 mln tonnes of coking coal mined in 2012. Covered 36% of MMK needs in coal concentrate in 2012

Interkos-IV

MMK Metalurji

Belon

One of Russia’s largest hardware producers.493 th. tonnes produced in 2012.

ММК Metiz

ProfitCovers 100% of MMK scrap needs.

ММК trading house

77%

3%10%

7%

1%

ММК (2012)Leading producer of rolled products in Russia 12.25 mln tonnes of steel 11.03 mln tonnes of finished products in Russia

% Share of MMK shipments, mln tonnes

Profit’s scrap collecting yards

ММК owns 5%оf Fortescue Metals Group, one of Australia's largest iron-ore producers.

Fortescue MG

Source: MMK

ММК Group consist of 3 main segmentsRussian Steel SegmentTurkish Steel SegmentCoal Segments

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Iron Ore Coal Scrap Electricity0%

25%

50%

75%

100%

22%36%

100%

72%

78%64%

28%

Own Purchased

Competitive Cost PositionMMK benefits from relatively low input materials prices

Slab Cash-cost and Raw-material Price, USD/tonne

Source: MMK reports

Limited vertical integration benefits MMK in the current marketSelf-sufficiency Level, 2012

Limited vertical integration levels in raw materials do not pose a weakness to the company

Weak raw materials prices in the current market are beneficial to MMK’s profit margins

MMK holds long-term iron ore off-take contracts with ENRC and Metalloinvest’s subsidiaries until 2017 and 2015 respectively

MMK’s Slab Cash-Cost vs. peer, USD/tonne

Source: MMK and Company reports

Source: MMK

MMKMMK (Belon)

MMK (Profit)

MMK

Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13340

390

440

490

450

495490

459

442

413385

374

399385

361

406 405 405

395 411

383361 364 348

ММК Linear (ММК)

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Long products16%

Flat hot-rolled49%Thick plate (Mill

5000)7%

Flat cold-rolled12%

Downstream15%

Russian Steel SegmentMain revenue contributor – 92% of Group’s revenue*

• All significant assets of the segment are located in Magnitogorsk, Russia

• Magnitogorsk Steel is the major production site: Russia’s second largest integrated plant with more than 14m

tonnes of crude steel production capacity Ranks among country’s most competitive producers with a

diverse mix and strong focus on flat products Enjoys proximity to some of its biggest customers (Chelyabinsk

Pipe and Uralvagonzavod) and main supplier (ENRC – 300km away)

Includes wide-gauge plate Mill 5000 and cold-rolling rolling Mill 2000 with annealing, pickling and galvanising facilities

• MMK-METIZ Metalware and Sizing Plant (Magnitogorsk)• The downstream steel processing plants MMK-Profil-Moscow Region

and Intercos-IV (Spb Region)• Trading companies – wide network all over Russia

Note: * as per 2012 FY results

MMK’s Russian steel segment finished products composition, 2012FY

Source: MMK

MMK's share in Russia Place in Russia

Hot-rolled sheet 36% 1incl. thick plate 26% 2

Cold-rolled sheet 27% 3Galvanized flat products 28% 1Tin plate 100% 1

Colour-coated rolled products 25% 3

Leading Domestic Market Position

Source: MMK, Metal Courier

Total: 11,029 th. tonnes

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Turkish Steel SegmentPoised to become #2 flat steel producer in TurkeyММК Metalurji Located at two sites in Turkey: Iskenderun and Istanbul Favourable geographic position (growing markets of Turkey

and other Middle East countries) Good logistics (own sea port and up-to-date production

logistics in place) Key production site (Iskenderun) – capacity of 2.3 million of

crude/finished tons per year Production start of operation: 2010 Finished products: hot-rolled steel, galvanized and color-coated

steelo Steel-making and manufacturing of hot-rolled products was

suspended in November 2012

MMK will benefit from the structural shortfall of flat steel in Turkey

Istanbul

Iskenderun

Europe

Middle East

Africa

Priority export markets Important export markets

Locations of Key Markets

MMK Metalurji production breakdown, 2012FY

Source: MMK operational results

Total: 900 th. tonnes

Flat hot-rolled34%

Galvanized steel30%

Colour-coated steel36%

Source: MMK

MMK Facilities in Turkey

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2010 2011 2012 2013e1200

1300

1400

1500

1306

13851413

1454

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 5210.012.014.016.018.020.022.024.0

2013 2012 2011 2010

Global Steel Industry Highlights

World Steel Consumption, mln tonnes Chinese Steel Inventory Level vs. Steel Price, mln tonnes

Chinese Average Daly Steel Production, mln tonnes Chinese Historical Steel Inventory Levels 2010 – 2013, mln tonnes

6%

2%3%

World steel consumption continues to grow

After significant hike in early 2013 inventory levels are close to their average historical values

Source: MySteelSource: WSA

06/01/12 06/04/12 06/07/12 06/10/12 06/01/13 06/04/13 06/07/131012141618202224

300350400450500550600650

Inventory (RHS) HRC EXW, $/t Re-bar EXW, $/t

Source: MySteelSource: NBS

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec1.51.61.71.81.92.02.12.22.3

2011 2012 2013

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Strategic Objectives of MMK Group

Focus on organic growth

1

Emphasized direct exposure to niche segments2

Maximising share of domestic sales

3

Maintaining good progress achieved in self-sufficiency

4

Achieving quality balance sheet 5

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2010 2011 2012 2013E2,000

4,000

6,000

8,000

10,000

12,000

20%

30%

40%

50%

60%

70%

MMK HVA products share

2010 2011 2012 2013Е0%

20%

40%

60%

80%

100%

14% 13% 15% 20%11% 10% 12%

17%9%8% 7%

8%

54% 54% 49%39%

10% 14% 16% 15%

Downstream products Flat cold-rolled products Thick plate (Mill 5000)Flat hot-rolled products Long products Slabs and billets

Focus on organic growth…with increasing share of high value added products in MMK production

MMK Steel Output Growth, th. tonnes

Source: MMK

MMK Increasing Share of HVA Products, th. tonnes

Source: MMK

Source: MMK

1

Source MMK

HVA Products

>45 %

MMK Finished Product Output, %

2010 2011 2012 2013E5,000

7,000

9,000

11,000

13,000

HVA

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Q1 Q2100120140160180200220240260 248

195

245 244

2012 2013

2011 2012 2013E 2014E 2015E 2016E 2017E0

1,000

2,000

3,000

4,000

Domestic demand Domestic supply Estimated LDP export

Emphasized direct exposure to niche segmentsMill 5000 - Strong positions in Pipe sectorLDP Demand/Supply in Russia, th. tonnes

Source Metal Expert, Broker reports

Geography of Main Pipelines

Demand for LDP remains strong

* - Incl. Pochinki-Gryazovets and Bovanenkovo-Uhta

2

Mill 5000 Utilization rates, th. tonnes

Source: MMK, Broker Reports

Higher demand for thick plate in H1 2013 supports Mill 5000 utilization rates

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0

2000

4000

6000

8000

10000 9,940

5,496

3,686

2,024 1,919 1,891 1,532 1,058 976 642 623

Emphasized direct exposure to niche segmentsStrengthening position in Auto industry

Key Mill 2,000 specifications Light Vehicle Production in 2012, ‘000 units

Source: IHS Autoinsight

Mill 2000 commercial products output ramp-up, th. tonnes

Russia is on the way to diminish the lag to developed countries

Capacity, th. tpa 2,000Sheet width, mm 850-1,880 Sheet thickness, mm 0.28 – 3.0

Steel grades HSLA, IF, HSS, BH, DP, CP, ТRIP

Production volumes:• 700,000 tpy of galvanized steel annealed• 1,300,000 mln tonnes of cold-rolled steelKey customers:• Car-makers, White goods producers, Construction sector

2

High Strength Steels Use

Source TIPSA

Mild Steel30.8%

UHSS9.1%

HSS44.5%

AHSS15.6%

Janua

ry

Febru

aryMarc

hApri

lMay Jun

eJul

yAug

ust

Septe

mber

Novem

ber

Decem

ber

0

20

40

60

80

2012 2013

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MMK Domestic and Export Sales, mln tonnes

Source MMK

Domestic Sales by Region, 2012

Source MMK

Maximising share of domestic sales... in order to enhance profit margins and reduce exposure to the seaborne market

3

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2

4

6

8

2.1

8.4

3.7

2.6

Domestic market (Russia + CIS) ExportDomestic market (Russia + CIS) Export

MMK organically grows its share in Russian market while demand in export markets remains sustainable

MMK is located in most intensive steel consuming region of Russia

Pipe production26.3%

Spot sales in Russia23.7%

Spot sales in CIS10.9%

Construction sector12.5%

Machine building10.9%

Metalware and semi-integrated factories

9.3%

Automobile sector4.6%

Food industry0.6%

Fuel and energy companies

0.4%Bridge building

0.8%

H/r steel40%

Long steel products20%

Thick plate9%

Coated & Down-stream products

18%

C/r steel13%

Domestic Sales Structure, 2012

Source MMK 2012 reports

Domestic Sales by Sector, 2012

HVA Products,

40%Total: 8,449 kt

Total: 8,449 kt

Source MMK 2012 reports

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MMK has been active in terms of increasing the level of vertical integration, particularly in respect of raw materials, since its IPO• Acquisition of 100% share in “Profit” scrap company in June 2009• Increase of stake in Belon coal company to 82.6% in October 2009• Increase of in-house production of iron ore (mining and tailings processing)• Generation of 71.5% of electricity supplies in 2012

Maintaining good progress achieved in self-sufficiencyLevels remain balanced across all business segments

2007 Self-sufficiency Level, %

Source MMK

Impressive progress has been achieved over the past 5 years

2012 Self-sufficiency Level, %

Source MMK

4

Iron Ore Coal Scrap Electricity0%

25%

50%

75%

100%

22%36%

100%72%

78%64%

28%

Own Purchased

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2011 201259%

60%

61%

62%

63%

62.2%

60.3%Raw

mat

eria

ls co

st /

Reve

nue

Achieving quality balance sheetContinuous deleveraging

5

• The group of focussed on achieving quality balance sheet by continuous deleveraging

• MMK has adopted a debt tolerance principle of Total Debt / EBITDA <=2x at any time through the cycle

• In order to manage its leverage at a comfortable level within the limit, MMK can use the following levers:

Capex revision by almost half y-o-y Limitation of M&A activity Improving operating performance led by cost cutting

initiatives Sustainable cash-flow due to improved operational

performance (including cost effects)

Healthy deleveraging is combined with EBITDA growth

Source MMK annual and semi-annual reports

Portion of raw material costs is falling, USD/tonne

Source MMK

CAPEX has dropped by almost half (Y-o-Y)

Source MMK2005 2006 2007 2008 2009 2010 2011 2012

0.0

0.5

1.0

1.5

2.0

2.5

0.60.7

1.2

2.1

1.6

2.2

1.2

0.6

CAPE

X (U

SDbn

)

31.12.2011 30.06.2012 31.12.2012 30.06.20130

500

1,000

1,500

2.66

2.86

3.06

3.26

3.46

1,3361,215

1,3561,241

3.31

3.04

2.86

2.69

EBITDA Gross Debt/EBITDA (RHS)

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Financial HighlightsDemonstrating relative financial strength

Summary of key results

MMK Group Financials, USD mln

Source MMK

Revenue growth continued into 2012, USD mln

Source MMK

  H1 2013 2012 2011 2010

Crude steel output, kt 6,154 13,037 12,195 11,419

Finished steel, kt 5,686 11,936 11,158 10,409

Revenues, $ mln 4,444 9,328 9,306 7,719

EBITDA*, $ mln 547 1,356 1,336 1,606

EBITDA margin, % 12,3% 14.5% 14.4% 20.8%

Net profit, $ mln -136 -94 -125 232

Net margin, % -3.1% -1.0% -1.3% 3.0%

Assets, $ mln 14,284 16,292 16,295 16,738

Debt**, $ mln 3,343 3,880 4,416 3,548

  short-term 1,450 1,631 1,334 1,087

  long-term 1,883 2,249 3,082 2,461

Shareholder capital, $ mln 8,631 9,665 9,289 10,257

Cash, $ mln 164 362 424 515

Net debt, $ mln 3,179 3 518 3 992 3 033

Debt / EBITDA (x) 2,69 2,86 3,31 2,21* - EBITDA means, for any year, the consolidated profit from operations for that year as would be reflectedon the Consolidated Statement of Comprehensive Group Income prepared in accordance with theInternational Accounting Standards, as consistently applied, adjusted by adding: a) the amount for the Group’s depreciation and amortisation for the relevant year; b) the amount of loss on disposal of property, plant and equipment and amount of impairment of fixed assets; and c) the share in the results and impairment of associates

2009 2010 2011 2012-500

1,500

3,500

5,500

7,500

9,500

11,500

5,081

7,7199,306 9,328

1,309 1,606 1,336 1,356

Revenues EBITDA

** - Debt represents sum of short-term borrowings, long-term borrowings including current portion, obligations and under finance lease and fair value of interest rate swaps.

1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 130

500

1000

1500

2000

2500

5%

9%

13%

17%

21%2425 2516

23192068

2283 2161

293 369 398 296 256 291

12.1%

14.7%

17.2%

14.0%

11.2%

13.5%

Revenues EBITDA EBITDA margin (RHS)

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32% 25% 23% 24%

68% 75% 77% 76%

0%

25%

50%

75%

100%

2010 2011 2012 H1 2013

Secured Unsecured

1336

1215

1356 13191241

3,31

3,04

2,86

2,752,69

2,67

2,87

3,07

3,27

3,47

0

300

600

900

1200

31.12.2011 30.06.2012 31.12.2012 31.03.2013 30.06.2013

EBITDA (LTM) Debt/EBITDA (RHS)

1 449

777

543

262 301

0

400

800

1 200

1 600

1-st year 2-nd year 3-rd year 4-th year 5-th year andbeyond

32%

45%

23%

30.06.2013

RUR USD Euro

Debt structure dynamics by security Debt maturity profile*, USD mln

Effective Debt control, USD mln

16

Debt structure by currency

3,343 USD mln

MMK Group Debt Profile

* Interest rate SWAP not incl.