"Russia in the context of current global steel trends and challenges" by Andrey Laptev
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Transcript of "Russia in the context of current global steel trends and challenges" by Andrey Laptev
RUSSIA IN THE CONTEXT OF CURRENT GLOBAL STEEL TRENDS AND CHALLENGES
Andrey Laptev, Head of Corporate Strategy February 12th, 2014
Where the Global Steel Industry is Today
Source: Bloomberg, Severstal estimates
* Top-40 – companies, constituents of Bloomberg Global Steel Producers Index
• Subdued profitability
• Negative FCF
• Excessive leverage
Page 2
Average EBITDA margin, % CAPEX and leverage position
16.7%
9.0%
12.6%
10.7%
7.7% 7.0%
2008 2009 2010 2011 2012 2013E
55.1
45.4
47.4 47.0 46.5 46.0 1.8
3.7
3.2 3.2
4.0
3.2
0
1
2
3
4
5
40
46
52
58
2008 2009 2010 2011 2012 2013E
Total CAPEX, $ bn (LHS) Median Net debt/EBITDA (RHS)
The Steel Overcapacity Challenge
Page 3 Source: Worldsteel, Severstal estimates
Global crude steel nominal excess capacity, mmt
• Healthy post-crisis demand growth was insufficient to offset existing structurally excess capacity and new additions
15%
23%
33%
23% 21%
24% 22%
0%
10%
20%
30%
40%
0
500
1000
1500
2007 2008 2009 2010 2011 2012 2013
Global excess steel capacity, mln tonnes (LHS) Excess capacity as % of total global crude steel capacity (RHS)
Wait for “Invisible Hand” or Search for Solutions?
Page 4
Government measures
Capacity discipline
Local markets consolidation
SSAB / Ruukki merger
Chinese steel capacity regulation plans
Solutions in other industries
$400
$450
$500
$550
$600
$650
$700
$750
$800
20-Dec-12 24-Feb-13 1-May-13 6-Jul-13 10-Sep-13 15-Nov-13 20-Jan-14
US domestic (EXW) EU Southern (EXW) China export (FOB) Russia export (FOB)
US Market: A Healthy Example
Source: Metal Bulletin Page 5
• Capacity eliminations
• Market consolidation
• Healthy long-term demand
HRC prices by region, $/t
Russian Steel Demand Supported in 2013-2014
Page 6 Source: Metal Expert, Severstal estimates
* In Severstal product range
Industry Estimated volume in 2013, mmt
Steel consumption growth, y-o-y, % Main drivers in 2013-2014
2013 2014F
Automotive 1.8 -10.5% • Localization • Households income growth
Machinery 13 -3.5% • White goods • Handling equipment • Agricultural machinery
Tubes and pipes 9 6%
• New pipelines projects (“South Stream”)
• Drilling activity • Construction
Construction 20 5.5% • Mortgage growth • Liquidation of savings
Domestic demand
43.8 3%*
Exports 25 -7.9% • Demand growth in Europe and the
USA • Removing sanctions against Iran
Steel consumption by the main demand segments in Russia
Tougher Competition on Export Markets
Source: Worldsteel, CRU Page 7
Global crude steel production growth by region in 2013, YoY %
-2.7% -1.9% -1.8% -1.5%
-0.8%
1.9%
3.1%
6.8% 7.5%
-4%
-2%
0%
2%
4%
6%
8%
10%
CIS (ex.Russia)
NorthAmerica
EU Russia SouthAmerica
Other Asia Japan Middle East China
Chinese finished steel exports, mln t
Total world: +3.5%
11 7 7 8
20 27
52
66 56
24
43 48
55 59
0
20
40
60
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Russian Domestic Market Challenge
Page 8
Source: Company data, press releases
Selected pig iron, steel and rolling capacity additions in Russia
Domestic sales, as % of total
Source: Company data
Note: For Peer 2 domestic sales include sales to Russia & CIS
33%
59%
77%
39%
63%
84%
Peer 1 Severstal Peer 2
2012 2013Year Company Project Capacity, mtpa
2011 MMK Cold Rolling Mill-2000 2,0
2012 NLMK BF #7 at Lipetsk plant 3,4
2013 NLMK Kaluga mini-mill 1,5
2013 UMMC Tyumen mini-mill 0,5
2013 Severstal Balakovo mini-mill 1,0
2013 Novorosmetall New EAF at
Abinskiy plant 1,3
Key Players’ CAPEX is Back to Normal
Page 9
Group CAPEX, $mln
Source: Company data, Severstal estimates
Note: For CAPEX/EBITDA ratio guided 2014 CAPEX and 9M2013 annualized EBITDA are used
1134
1460 1400
500
850 976
48%
58% 50%
0%
20%
40%
60%
80%
0
400
800
1200
1600
Peer 2 Peer 1 Severstal
CAPEX Average in 2010-2013 CAPEX 2014E CAPEX/EBITDA, %
CAPEX/EBITDA Average in 2010-2013, %
80% 72%
54%
Russian Steelmakers’ Profitability Stabilized
Page 10
Severstal’s Russian Steel Segment EBITDA per tonne vs Key peers, $/t
Source: Company data, Severstal estimates
117
102
60
82 73
163
93
74 82
115
2011 2012 1Q'13 2Q'13 3Q'13
Average (Peer 1, Peer 2) Severstal
Healthy Long-term Demand Fundamentals in Russia
Page 11 Source: Citigroup, Severstal analysis
Mortgage loan penetration, % of GDP FIFA World Cup 2018: Steel Demand ~2 mmt
Infrastructure projects Growth of automotive production using local steel
Severstal: Responding to the Challenges
Page 12
Dividends
CAPEX
Net debt
Margins
Payout of not less than 25% of Net Income
Medium-term target of $1.0bn per annum
Striving to keep Net debt/EBITDA below 1.5x
Targeting cycle-average EBITDA margin of c. 20%
FCF Stable positive free cash flow
Cost Position Middle-to-the-left position of all our assets on
the cost curve
Thank You!
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