presentation us gaap (q2 2014) +
TRANSCRIPT
1Moscow, 07 August 2014
Q2 AND H1’14 US GAAP CONSOLIDATED FINANCIAL RESULTS
This document is confidential and has been prepared by NLMK (the “Company”) solely for use at the 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 areconsistent 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
DISCLAIMER
CONTENT
1. Strategy implementation
2. Key results
3. Financial highlights
4. Segment results
3
STRATEGY 2017: SECURING FUTURE LEADERSHIP
o Increase market share in Russia/CIS
o Improve utilization rates at the US and European facilities
o Scale up efficient iron ore mining platform
o Reduce consumption of expensive resources
o Minimize environmental footprint
o Promote safe operating practices
o Develop motivated and engaged workforce
Leading positions in strategic markets
World-class resource base
Leadership in sustainability & safety
o Achieve best-in-class operational efficiency standards across production chain
Leadership in operational efficiency
1
2
3
4
[4]
65%9%
16%
10%Process technology
Energy efficiency
Procurement
Labor productivity andheadcount
$133 m
• OPERATIONAL EFFICIENCY PROGRAMS
o 6M’14 cost saving reached $133 m - over 50% of the Strategy 2017 target
o Q2’14 effect totaled $63 m (compared to 2013)
• STEEL SEGMENT
o Decrease in c/coal costs while maintaining coke quality and lower coal yields for coke production
o Higher blast furnace productivity – up to 10%
o Reduction of conversion yields and lower share of non-conforming product output at BOF operations
o Technological materials substitution with cheaper ones
• MINING SEGMENT
o Iron ore concentrate capacity at Stoilensky was increased by 0.5 m tpa through enhanced productivity of the equipment
• FOREIGN ROLLED PRODUCTS SEGMENT
o Personnel optimization by 2%
o Change in salary schemes
• INVESTMENT AIMED AT LEADERSHIP IN EFFICIENCY
o In June 2014 - launch of new generator at the Lipetsk site increased captive generating capacity by 50 MW to 482 MW
o Self-sufficiency in electricity went up from 52% to 58%. Effect on EBITDA of $15 m pa
5
LEADERSHIP IN OPERATIONAL EFFICIENCY
6M’14 OPERATIONAL EFFICIENCY GAINS BY SEGMENT
62%
5%
13%
8%
12% Steel segment
Long products segment
Mining segment
Foreign rolled productssegment
NLMK Belgium Holdings
$133 m
* Including operational efficiency programs at NBH assets. Not including effect from new generator launch at Lipetsk site
6М’14 OPERATIONAL EFFICIENCY GAINS BY FUNCTIONAL AREA
1
0%
8%31%
40%
100%
2012 2013 2014 2015E 2018E
0%
20%
40%
60%
80%
100%
Share of blast furnace operations with PCI Share of blast furnace operations without PCI
• STOILENSKIY MINE DEVELOPMENT: PELLETIZING PLANT
o Contractor selection and beginning of active construction stage – May 2014
o Project status at the end of Q2’14:
◦ Zero cycle activities completed – 100%
◦ Building steelwork erection – 13%
◦ Invested into the project as at June 2014: $185 m
o Commissioning – September 2016
• PULVERISED COAL INJECTION TECHNOLOGY (PCI)
o Apr-14: PCI installed at BF#4 drove total BF capacity equipped with PCI technology from 8% to 31%
o PCI integration at BF#6-7 in 2016-2017
o Technology effects:
◦ Reduction of coke consumption by 20%
◦ Reduction of natural gas consumption by 60%
• OPTIMIZATION OF COKING TECHNOLOGY
o Reduction of coal imports down to zero in 2014 (0.3 m t of imported coal in 2013)
6
WORLD CLASS RESOURCE BASE
PELLETIZING PLANT CONSTRUCTION AT STOILENSKY
PCI TECHNOLOGY AT LIPETSK SITE
Photo July 2014
0 m t 0.9 m t 3.9 m t 4.7 m t 12.4 m t
2
0,74 0,74 0,81 0,84 0,74 0,77 0,90 0,77 0,77 0,870,36 0,45 0,43 0,39 0,42 0,45
0,520,52 0,52
0,621,10 1,20 1,26 1,32 1,32 1,411,60
1,46 1,551,74
0%
10%
20%
30%
40%
50%
0,0
0,5
1,0
1,5
2,0
2,5
3,0
Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Semi-finished products Flat products
Long products TOTAL
Russian market share (r.h.)
• STRENGTHENING OF MARKET POSTIONS IN RUSSIA
o Record sales in Russia in Q2’14: 1.74 m t
o Share of sales to the domestic market: 45%
o Increased sales across all products:
◦ Flat steel, including HVA* products (+8.3% H1’14/H1’13)
◦ Long products driven by NLMK Kaluga (+31.2% H1’14/H1’13)
◦ Semi-finished products (+45% H1’14/H1’13) on the back of the significant increase in slab sales to the Russian market
• INTERNATIONAL MARKETS DEVELOPMENTS
o International assets sales growth by 204,000 t in H1’14 (+10.7% H1’14/H1’13)
o Targeted segment sales development in accordance with the Strategy 2017
◦ NLMK EU Strip: sales of flat products for automotive in Europe went up to 0.234 m t (+33% H1’14/H1’13, 46% of sales in H1’14)
◦ NLMK EU Plates: sales of niche plates went up to 97,000 t (+39% H1’14/H1’13, 17% of sales in H1’14)
7
LEADERSHIP IN STRATEGIC MARKETS
FOREIGN ASSETS SALES **
m t
NLMK SALES IN RUSSIA
Total sales
37%
45%
*HVA - high value added products. HVA includes cold-rolled, galvanized, pre-painted and electrical steel** Sales of foreign assets include sales of NBH companies
905999
0
200
400
600
800
1000
1200
H1'13 H1'14
Flat steel
65% 54%
35% 46%
500 524
0
100
200
300
400
500
600
H1'13 H1'14
AutomotiveOther industries
NLMK EU STRIP
000’ t
NLMK USA
000’ t
86%83%
14%
17%497
583
0
100
200
300
400
500
600
H1'13 H1'14
Q&T / niche thick platesOrdinary gradesИтого
NLMK EU PLATE
000’ t
3
• PROGRESS IN OCCUPATIONAL HEALTH & SAFETY
o LTIFR* reduced by 37% compared to 2013
o Current LTIFR is below the industry average and at best practice level
• NEW STAGE OF ENVIRONMENTAL PROGRAM
o Reduction of atmospheric emissions by 4% compared to 2013
o Large-scale environmental projects implemented at the Lipetsk site ($87 mln capex invested as at the end of Q2’14 – 70% completion)
◦ Biological treatment of waste water at coke-chemical operations
◦ Infrastructure facility upgrade in the refractory workshop
◦ Upgrade of central aspiration system at sintering operations
8
LEADERSHIP IN SUSTAINABILITY AND SAFETY
LOST TIME INJURY FREQUENCY RATE (LTIFR)
* LTIFR – Lost Time Injury Frequency Rate
0,86 0,870,83
0,520,60 0,60
0,0
0,2
0,4
0,6
0,8
1,0
2011 2012 2013 H1'14 Target for2017
Best practice(globally)
AIR EMISSIONS, KG/T OF STEEL
37,0
28,521,9 21,0
19,4
2007 2010 2013 H1'14 Target2020
4
-37%
-4%
CONTENT
1. Strategy implementation
2. Key results
3. Financial highlights
4. Segment results
9
Average world rate
0%
20%
40%
60%
80%
100%
120%
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Q3
13
Q4
13
Q1
14
Q2
14
Lipetsk site
PRODUCTION RESULTS
• Q2’14 STEEL OUTPUT:
o 3.8 m t, -3% qoq due to repairs at the Lipetsk site
• Q2’14 UTILIZATION RATES:
o NLMK Group: 94% (+2 p.p. qoq)
o Steel segment: 98% (adjusting to repairs)
o NLMK Long Products segment: 92% at NSMMZ and77% of EAF and 100% of rolling capacity at NLMK Kaluga
o NLMK Indiana: 81%
• H1’14 STEEL OUTPUT:
o 7.7 m t, +3% yoy (driven by increased run rates at NLMK Kaluga)
10
3,0 3,1 3,1 3,2 3,1 2,9
0,5 0,5 0,6 0,7 0,7 0,70,2 0,2 0,2
0,2 0,2 0,2
3,7 3,8 3,9 4,1 3,9 3,8
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Steel segment Long products segment Foreign rolled product segment
* NLMK Verona production volumes excluded from total since Q4’13
STEEL OUTPUT*
m t
88%
73%
98%
92%
81%86%
98%94%
50%
60%
70%
80%
90%
100%
NLMK USA NLMK Longproducts
Lipetsk site NLMK Group
Q1'14 Q2'14
UTILIZATION RATES BY SITE
Sources: utilization rates as per WSA data
STEELMAKING CAPACITIES UTILIZATION RATES
SALES STRUCTURE
11
• Q2’14: SHARE OF ROLLED STEEL 72% (+8 P.P.)
o Rolled steel sales increased to 2.8 m t (+12% qoq)
o Higher long product and metalware sales +15% qoq
o Higher electrical steel sales +22% qoq
• SLAB SALES +10% YOY – SLAB SALES TO NBH RECOGNIZED AS EXTERNAL SALES SINCE Q4’13
• LONG PRODUCT SALES +41% YOY DRIVEN BYNLMK KALUGA LAUNCH
SALES STRUCTURE BY PRODUCT
REVENUE BY PRODUCTSALES MIX CHANGE BY PRODUCT
13% 13% 15%
6% 6% 6%14% 13%
14%
19% 22%25%
34% 34%25%
Q4'13 Q1'14 Q2'14
Pig iron
Slabs
Billets
HRC
Thick plates
CRC
Galvanised
Pre-painted
Electrical
Long products
Metalware
3,57 3,87m t
3,84
11% 10% 12%
7% 7% 7%14% 13%
14%
16% 19%21%
26% 27% 20%
10% 9% 9%
Q4'13 Q1'14 Q2'14
0%
20%
40%
60%
80%
100%
Other products*
Pig iron
Slabs
Billets
HRC
Thick plates
CRC
Galvanized
Pre-painted
Electrical
Long products
Metalware
$2.64 bn$2.50 bn $2.81 bn
-25%
-6%
-3%
4%
9%
11%
12%
13%
16%
22%
-30% -20% -10% 0% 10% 20% 30%
Slabs
Pre-painted
Billets
Thick plates
Galvanized
CRC
Metallware
HRC
Long products
Electrical Sales changeq/q
KEY HIGHLIGHTS
12
• Q2’14 FINANCIAL RESULTS
o Revenue $2,808 m (+6% qoq)
o EBITDA $594 m (+27% qoq)
o EBITDA margin 21.2% (+3.5 p.p.)
o Net debt $2,103 m (-9% qoq)
o Net debt/12M EBITDA 1.14х
• ONGOING PROFITABILITY GROWTH
• H1’14 FINANCIAL RESULTS
o Revenue $5,446 m (-4% yoy)
o EBITDA $1,063 m (+48% yoy)
o EBITDA margin 19.5% (+6.9 p.p. yoy)
REVENUE AND EBITDA
$ bn
2,9 2,8 2,72,5
2,6 2,8
0,3 0,4 0,4 0,4 0,5 0,6
-
0,5
1,0
1,5
2,0
2,5
3,0
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Revenue EBITDA
EBITDA MARGIN, %
11%14% 14%
16%18%
21%
0%
5%
10%
15%
20%
25%
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
CONTENT
1. Strategy implementation
2. Key results
3. Financial highlights
4. Segment results
13
PROFITABILITY
14
• EBITDA Q2’14: $594 M (+27% QOQ)
• EBITDA MARGIN 21.2%
o (+) Efficiency improvement programs
o (+) Sales structure optimization
o (-) Insignificant reduction in sales
o (+) Increase in prices in the domestic market
o (-) Insignificant reduction in export prices
o (+) Lower prices for iron ore
o (-) Higher prices for scrap
EBITDA CHANGE BY SEGMENT (QOQ)
SEGMENT CONTRIBUTION TO Q2’14 EBITDA
353
1952
18514
594
0
100
200
300
400
500
600
700
Stee
l seg
men
t
Fore
ign
ro
lled
pro
du
cts
segm
ent
Lon
g p
rod
uct
sse
gmen
t
Min
ing
segm
ent
Oth
er o
per
atio
ns
and
inte
rseg
men
tal
Q2
'14
468
904
45
23
19
594
300
400
500
600
700
Q1
'14
Stee
l seg
men
t
Fore
ign
ro
lled
pro
du
cts
segm
ent
Lon
g p
rod
uct
sse
gmen
t
Min
ing
segm
ent
Oth
er o
per
atio
ns
and
inte
rseg
men
tal
Q2
'14
$ m
$ m
EBITDA
Working capital changes
Other non-cash operations
Income tax
Net interest *
NET OPERATING CASH FLOW
Capital expenditures **
FREE CASH FLOW TO THE FIRM
Net repayments of borrowings/attraction of funds
FREE CASH FLOW TO EQUITY
Change in deposits and financial investment
Dividends
FX rate change
CHANGE IN CASH
CASH FLOW
15
Q2‘14 CASH FLOW BRIDGE• FREE CASH FLOW TO THE FIRM: $467 M IN Q2’14 (+72% QOQ)
o EBITDA $594 m (+27% qoq)
o Investment $151 m (+15% qoq)
o Cash release from working capital +$144 m driven by inventory reduction
$ m
109
18
111
131
333
135
467
151
618
12
66
43
144
594
107 99
151
92
271
467
0
100
200
300
400
500
Q1'13 Q2'13 Q3'13*** Q4'13 Q1'14 Q2'13
$ m
FREE CASH FLOW TO THE FIRM CHANGE
* Including interest paid (w/o capitalized interest) of $19 m and interest received of $9 m** Including capitalized interest of $18 m*** 3Q 2013 cash flow does not Include $123 m, received for sale of 20.5% NBH stake
2,74 2,68
1,14 0,13
0,08
1,16
0
1
2
3
4
5
31 Mar '14 Net settlements ofdebt
FX rate changeimpact
30 Jun '14
ST debt LT debt
DEBT POSITION
16
• CONSISTENT REDUCTION OF NET DEBT AND LIQUIDITY GROWTH
o Net debt $2.10 bn (-9% qoq)
o Gross debt $3.83 bn (-1% qoq)
o Cash and equivalents* $1.73 bn (+9% qoq)
o Net debt / 12M EBITDA 1.14х (-0.25 p.p.)
CHANGE IN DEBT POSITION IN Q2’14
NET DEBT CHANGE IN Q2’14MATURITY AND NET DEBT/EBITDA
$ bn
Weighted average maturity
1,93
2,15
1,87
1,80
1,39
1,14
0,0
0,5
1,0
1,5
2,0
2,5
3,0
Q1'13
Q2'13
Q3'13
Q4'13
Q1'14
Q2'14
Net debt/EBITDA
3,33,4
3,6
3,33,2
3,0
2,4
2,8
3,2
3,6
4,0
Q1'13
Q2'13
Q3'13
Q4'13
Q1'14
Q2'14
* Cash and equivalents and short term investments
2,30
0,62
0,150,11
0,16
2,10
1,0
1,5
2,0
2,5
31 Mar '14 Operatingcash flow
Capex Dividends FX rate andother factors
30 Jun '14
$ bn
$0
$200
$400
$600
$800
$1 000
2014 2015 2016 2017 2018 2019 andonward
Other debtRevolving credit lines for working capital financingEurobonds (USD)ECA financing and investment creditsRuble bonds
792
685
421362
917
594
LIQUIDITY AND DEBT SETTLEMENT
17
• STRONG LIQUIDITY POSITION
• COMFORTABLE MATURITY SCHEDULE
o Short term deb $1.16 bn
◦ Ruble bonds
◦ Revolving credit lines for working capital financing
◦ ECA financing
o Long term debt $2.68 bn
◦ Eurobonds and ruble bonds
◦ Long term part of ECA financing
TOTAL DEBT MATURITY CHEDULE***INTEREST EXPENSES**
$ m
1 731
1 108
2 911
199593
199 118
$0
$1 000
$2 000
$3 000
$4 000
$5 000
Liquid assets Q3 '14 Q4 '14 Q1 '15 Q2 '15 12M
$ mUndrawn committed
credit lines
Cash and equivalents
LIQUID ASSETS AND SHORT-TERM DEBT MATURITY*
31 27 22 33 32 33
33
35 35
22 21 17
0%
5%
10%
15%
20%
25%
0
10
20
30
40
50
60
70
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Non-capitalized interest expense (lhs) Capitalized interest expense (lhs)
Interest expense to EBITDA (rhs)
* ST maturity payments without interest accrued** Quarterly figures are derived by computational method on the basis of quarterly reports*** Maturity payments do not include interest payments
$ m
INVESTMENT PROGRAM 2014
922
1126
810
643
375 380281
~570
0
200
400
600
800
1000
1200
H12011
H22011
H12012
H22012
H12013
H22013
H12014
H22014P
18
INVESTMENT DYNAMICS
INVESTMENT STRUCTURE IN 2014
$ m
~$850 m in2014
• OVERALL INVESTMENTS IN 2014 – $850 M
o Investments into Strategy 2017 projects: 35% of total investments
◦ Active phase of pelletizing plant construction at Stoilensky to start in H2 2014
◦ Steel segment – PCI integration, steelmaking capacities development
o Payments for projects realized in 2007-2012: 30% of total investments
◦ NLMK Kaluga
◦ All payments for projects 2007-2012 to be made in 2014
o Maintenance capex – 35%
• SOURCE OF INVESTMENT FINANCING –OPERATING CASH FLOW
35%
30%
35%
Столбец1
Maintenancecapex
2007 - 2012projects
Strategy 2017
$850 m
49%
37%
Столбец1
Foreign rolledproductssegment
Mining segment
Long productssegment
Steel segment
$850 m
Q3’14 OUTLOOK
• MARKET
o Russia and the USA – relatively stable demand and prices for steel products
o Europe – seasonal slowdown in demand
• STEEL PRODUCTION
o Group crude steel production to grow by 5% q-o-q to 4.0 m t
• FINANCIAL RESULTS
o Financial results are expected at a level comparable to or marginally better than Q2
19
CONTENT
1. Strategy implementation
2. Key results
3. Financial highlights
4. Segment results
20
83 214 187 153
262 353
20
23 40 12
7
52
215
227 190 228
209
185
26
-2 -2 -14 -33 -14-26
-62 -35
30 23
19
-$100
$100
$300
$500
$700
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Foreign rolled product segment Other operations including intersegmental
Mining segment Long products segment
Steel segment
SEGMENT RESULTS OVERVIEW
21
• STEEL SEGMENTo Strong market environment in the domestic marketo Maintained spreads between prices for steel and
raw materialso Efficiency improvement programs
• LONG PRODUCTS SEGMENTo Seasonal growth in demand and prices for steel
• MINING SEGMENTo Decline in iron ore prices
• FOREIGN ROLLED PRODUCTS SEGMENTo Narrower spreads between prices
for finished products and slabso Higher sales volumes
REVENUE FROM THIRD PARTIES BY SEGMENTSEGMENT RESULTS CHANGE
$ m
$ m
409379
400318
594
468
EBITDA BY SEGMENT 2013-2014
1 742 1 728
337 43088 117
471533
0
500
1 000
1 500
2 000
2 500
3 000
Q1'14 Q2'14
Steel segment Long products segment
Mining segment Foreign rolled products segment
8%
-3%
17%
13%
24%
35%
-7%
-2%Steel segment
Mining segment
Revenue
Production expenses
Revenue
Revenue
Revenue
Production expenses
Production expenses
Production expenses
Long productssegment
Foreign rolled products segment
1,66 1,68
1,53 1,60
1,74 1,73
0,35 0,37 0,47 0,21
0,30 0,27
0,080,21 0,19 0,15
0,26 0,35
0,0
0,5
1,0
1,5
2,0
2,5
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Revenue from intercompany sales Revenue from sales to third parties
EBITDA
4,2%
10,4% 9,3%
8,5%
12,9%17,6%
EBITDA margin
23%
17%
6%5%5%5%
5%
9%
15%
10%
Iron ore materials
Coke and coal
Scrap
Ferroalloys
Other raw materials
Electricity
Natural gas
Other energy resources
Personnel costs
Other expenses and changes in inventories
Depreciation
STEEL SEGMENT
• INSIGNIFICANT Q2’14 TOTAL REVENUE DECLINE QOQ
o Seasonal recovery in demand and price improvementin the domestic market
o Lower sales volumes (-8% qoq) on the back of lower slab sales (-25% qoq)
o Sales structure improvement: sales of rolled products increased by 9% qoq to 1.49 m t
• EBITDA MARGIN INCREASED TO 18%
o Widened spreads between prices for steel and raw materials
o Efficiency improvement programs
COST OF SALES, Q2’14SEGMENT REVENUE AND EBITDA
SALES AND REVENUE FROM THIRD PARTIES
$ bn
22
8% 7%7% 5%8% 6%
16% 14%
15%13%
26%22%
21%18%
39%49% 33%
40%
6% 6%
0%
20%
40%
60%
80%
100%
SalesQ2'14
SalesQ1' 14
RevenueQ2' 14
RevenueQ1' 14
Income from otheroperations*Pig iron
Slabs
HRC
CRC
Galvanized
Pre-painted
Dynamo
Transformer
2.459 m t $1,728 m
* Revenue from other products sales
2.665 m t $1,742 m
288 314 355
371 337
430
59
113 114102
57
101
20 2340
12 7 52
0
70
140
210
280
350
420
490
560
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Revenue from intra-group sales Revenue from third parties EBITDA
6%
5%
8%
3%2%
10%
EBITDA margin
62%
2%
1%
7%
8%
13%
6%
Scrap
Ferroalloys
Other raw materials
Electricity
Personnel
Other expenses
Depreciation
LONG PRODUCTS SEGMENT
• SALES GROWTH BY 13%o Seasonal demand growth in the domestic market
• EXTERNAL REVENUE GROWTH BY 28%o Sales volume growth
o Favorable pricing environment
• INTERSEGMENT REVENUE GROWTHo Intragroup scrap sales: increase in volumes and prices
• EBITDA MARGIN UP TO 10%o Higher capacity utilization rates
o Widened spreads between finished steel and scrap
SEGMENT REVENUE AND EBITDA
THIRD PARTIES SALES AND REVENUE STRUCTURE
$ m
23
COST OF SALES IN Q2 ‘14
* Revenue from intra-group sales is represented mostly by ferrous scrap deliveries to the Lipetsk site
12% 12% 13% 14%11% 12% 8% 10%
78% 76% 76% 75%
0%
20%
40%
60%
80%
100%
Sales volumeQ2'14
Sales volumeQ1'14
RevenueQ2'14
RevenueQ1'14
Other operations*
Long products
Billets
Metalware
644 k t $337 m
* Revenue from other products
$430 m732 k t
64%
65%61%
65%
66%
60%
EBITDA margin
92 100 86 94 88 117
245 249 226
259 229 189
215 227190
228 209185
0
100
200
300
400
500
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14Revenue from intersegmental salesRevenue from third partiesEBITDA
7%
21%
5%
26%
23%
17%
Raw materials
Electricity
Natural gas
Other energy resources
Personnel
Other expenses
Depreciation
MINING SEGMENT
• REVENUE DECLINE BY 3% QOQ
o Decline in iron ore prices (3-10% qoq)
o Iron ore sales growth (3% qoq) to 4 m t
◦ 2.7 m t (-8% qoq) – to the Lipetsk site
◦ 1.3 m t (+39% qoq) – to third parties(63% to Russia and 37% to international markets)
• EBITDA MARGIN DECLINE TO 60%
o (-) Lower global iron ore prices
o (+) Efficiency improvement program
SALES AND REVENUE STRUCTURE
24
COST OF SALES IN Q2‘14
68% 76%60% 69%
32% 24%36% 25%
0%
20%
40%
60%
80%
100%
Salesvolumes
Q2'14
Sales volumesQ1'14
RevenueQ2'14
RevenueQ1'14
Otheroperations*
Iron ore salesto third parties
Iron ore salesto Lipetsk site
3,871 kt $317 m$306 m4,004 kt
* Other operations include limestone and dolomite sales
SEGMENT REVENUE AND EBITDA
$ m
817730 750
445 471533
-26 -62 -35 30 23 19
-3%
-9%
-5%
7%5%
4%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
-200
0
200
400
600
800
1 000
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Revenue EBITDA EBITDA margin (r.h.)
FOREIGN ROLLED PRODUCTS SEGMENT
• SEGMENT SALES UP BY 16% QOQ
o NLMK USA sales growth (+18% qoq) driven by favorable market conditions
o NLMK Dansteel thick plate sales went up by 4% qoq
• REVENUE UP BY 13% QOQ
• PROFITABILITY DECLINE
o Narrowed spreads between prices for slabs and rolled products
NLMK USA SALES AND REVENUE STRUCTURE
25
$ m
SEGMENT REVENUE AND EBITDA
56% 55% 48% 47%
29% 29%30% 29%
14% 16%16% 17%
6% 7%
0%
20%
40%
60%
80%
100%
SalesQ2'14
SalesQ1'14
RevenueQ2'14
RevenueQ1'14
Other operations
Pre-painted
CRC
HRC
Semi-finished
458 k t $390 m$449 m540 k t
SALES GEOGRAPHY
27
• SALES IN Q2’14: 3.8 M T (0% QOQ)
o Higher sales to the Russian market to 1.74 m t (+12% qoq)
◦ Flat steel sales 0.866 m t (+13% qoq)
◦ Long products sales 0.697 m t (+18% qoq)
o Sales to export markets 2.10 m t (-9% qoq)
◦ Sales to Asia increased
◦ Insignificant reduction of sales to Europe and USA
• IN H1’14 SALES: 7.70 M T (+2% YOY)
o Sales to Russia increased to 3.29 m t (+20% yoy)
o Sales to Europe (+14% yoy) and USA (+51% yoy)
1,46 1,55 1,74
0,66 0,740,71
0,250,24
0,240,67 0,75
0,640,25
0,07 0,160,280,52 0,36
0
1
2
3
4
Q4'13 Q1'14 Q2'14
Others SE Asia S.America M. East* EU Russia
1,05 1,04 1,20
0,40 0,450,490,15 0,150,150,48 0,510,640,15
0,27 0,450,28
0
1
2
3
Q4'13 Q1'14 Q2'14
Others
SE Asia
N. America
M. East*
EU
Russia
2.50
$ bn2.64
2.81
m t3,57
3,87
Share in Q2’14
10%
2%
23%
5%
17%
43%
* Incl. Turkey
3,84
STEEL PRODUCT SALES BY REGION
REVENUE BY REGIONNLMK SALES TO THE RUSSIAN MARKET
74%
14%
12%
0%
20%
40%
60%
80%
100%
Sales by industriesin Q2'14
Pipe producers
Machine building
Construction andinfrastructure
36%
50%
14%
0%
20%
40%
60%
80%
100%
Sales by producttype in Q2'14
Semi-finished
Flat steel
Long products andmetalware
by sector by product type
421
-8
450
-26
370
-28
-100
0
100
200
300
400
500
RevenueQ4'13
EBITDAQ4'13
RevenueQ1'14
EBITDAQ1'14
RevenueQ2'14
EBITDAQ2'14
FOREIGN ASSETS PERFORMANCE
28
NBH FINANCIAL RESULTS
$ m
NLMK USA AND NLMK DANSTEEL ROLLED PRODUCT SALES
0,25 0,25 0,30
0,12 0,13 0,16
0,08 0,07 0,08 0,09 0,10 0,10
0,54 0,560,64
0,00
0,10
0,20
0,30
0,40
0,50
0,60
0,70
0
0,1
0,2
0,3
0,4
0,5
Q4'13 Q1'14 Q2'14
HRC CRC Galvanized Thick plates(NLMK Dansteel)
NBH ROLLED PRODUCT SALES
0,20
0,17 0,15
0,02 0,02 0,02
0,09 0,09 0,08
0,15 0,18
0,16
0,46 0,450,41
0,00
0,10
0,20
0,30
0,40
0,50
0
0,1
0,2
0,3
Q4'13 Q1'14 Q2'14
HRC CRC Coated Thick plates
m t
SLAB SALES BY THE STEEL SEGMENT
0,78 0,81
0,54 0,45 0,48 0,43
0,13 0,11 0,12 0,21
0,37 0,32
1,561,77
1,41
0,00
0,50
1,00
1,50
2,00
-
0,2
0,4
0,6
0,8
1,0
1,2
1,4
Q4'13 Q1'14 Q2'14
To third parties NBH NLMK Dansteel NLMK USA
m t
m t
29
CASH COST OF SLABS
SLAB CONSOLIDATED CASH COST STRUCTURE (AT LIPETSK SITE)
Cost item Q2’14 Q1’14 ∆,$/t
Coke and coking coal $79 $78 -$1
Iron ore $56 $62 -$6
Scrap $32 $29 +$3
Other materials $30 $27 +$3
Electricity $19 $19 $0
Natural gas $20 $22 -$2
Personnel $28 $29 +$1
Other expenses $43 $43 $0
Total $308 $310 -$2
CASH COST OF SLABS (AT LIPETSK SITE), 2012-2014
Period $/t
Q1’12 $395
Q2’12 $411
Q3'12 $383
Q4'12 $361
2012 $388
Q1'13 $364
Q2'13 $348
Q3'13 $329
Q4'13 $349
2013 $348
Q1'14 $310
Q2'14 $308
301 as of 30.06.2014
2 as of 31.03.2014
SEGMENT INFORMATION
Q2 2014
(million USD)
Revenue from external customers 1 728 533 430 117 0 2 808 2 808
Intersegment revenue 271 101 189 561 (561)
Gross profit 466 24 74 208 (0) 771 (44) 727
Operating income/(loss) 207 (1) 23 168 (1) 396 (14) 382
as % of net sales 10% (0%) 4% 55% 12% 0% 14%
Income / (loss) from continuing operations
before minority interest469 (13) (2) 99 0 555 (336) 219
as % of net sales 23% (2%) (0%) 32% 16% 0% 8%
Segment assets including goodwill1 12 737 1 867 2 661 2 337 121 19 724 (3 860) 15 863
Q1 2014
(million USD)
Revenue from external customers 1 742 471 337 88 0 2 638 2 638
Intersegment revenue 296 57 229 582 (582)
Gross profit 406 32 21 226 (0) 684 (70) 614
Operating income/(loss) 128 3 (22) 193 (1) 301 (32) 269
as % of net sales 6% 1% (5%) 61% 9% 0% 10%
Income / (loss) from continuing operations
before minority interest101 (7) (58) 204 (0) 241 (24) 217
as % of net sales 5% (1%) (15%) 65% 7% 0% 8%
Segment assets including goodwill2 12 194 1 969 2 508 2 402 115 19 187 (3 981) 15 206
Totals
Intersegmental
operations and
balances
Consolidated
Steel
Foreign
rolled
products
Long
productsMining All other Totals
Intersegmental
operations and
balances
Consolidated
Steel
Foreign
rolled
products
Long
productsMining All other
QUARTERLY DATA: CONSOLIDATED STATEMENT OF INCOME
31Consolidated financial results are prepared based on US GAAP. Reporting periods of the Company are 3M, 6M, 9M and 12M. Quarterly figures (with the exception of Q1) are derived by computational method.
Q2 2014 Q1 2014 H1 2014 H1 2013
(mln USD) + / - % + / - %
Sales revenue 2 808 2 638 170 6% 5 446 5 685 (239) (4%)
Production cost (1 869) (1 825) (44) 2% (3 694) (4 183) 488 (12%)
Depreciation and amortization (212) (199) (13) 7% (411) (427) 16 (4%)
Gross profit 727 614 113 18% 1 341 1 076 265 25%
General and administrative expenses (84) (92) 8 (9%) (177) (231) 55 (24%)
Selling expenses (225) (212) (13) 6% (437) (484) 47 (10%)
Taxes other than income tax (35) (40) 5 (13%) (75) (69) (6) 9%
Operating income 382 269 113 42% 651 291 360 124%
Gain / (loss) on disposals of property, plant and equipment (3) (0) (3) 595% (4) (6) 2 (33%)
Gains / (losses) on investments 4 (0) 4 4 (4) 7 (203%)
Interest income 9 7 2 25% 16 22 (6) (29%)
Interest expense (33) (32) (1) 3% (65) (58) (7) 12%
Foreign currency exchange loss, net (62) 46 (108) (234%) (16) (32) 16 (50%)
Other expense, net (11) (7) (5) 70% (18) (18) 0 (2%)
Income from continuing operations before income tax 285 283 2 1% 567 195 372 190%
Income tax (66) (65) (1) 1% (131) (127) (4) 3%
Equity in net earnings/(losses) of associate (60) (44) (16) (105) 0 (105)
Net income 159 173 (14) (8%) 331 68 263 384%
Less: Net loss / (income) attributable to the non-controlling interest (0) 1 (1) 1 3 (2) (72%)
Net (loss) / income attributable to OJSC Novolipetsk Steel stockholders 158 174 (15) (9%) 332 72 261 364%
EBITDA 594 468 126 27% 1 063 718 345 48%
Q2 2014/Q1 2014 H1 2014/H1 2013
CONSOLIDATED CASH FLOW STATEMENT
Consolidated financial results are prepared based on US GAAP. Reporting periods of the Company are 3M, 6M, 9M and 12M 2013. Quarterly figures (with the exception of Q1) are derived by computational method.
28
Q2 2014 Q1 2014 H1 2014 H1 2013
(mln. USD) + / - % + / - %
Cash flow from operating activities
Net income 159 173 (14) (8%) 331 68 263 384%
Adjustments to reconcile net income to net cash provided by operating Depreciation and amortization 212 199 13 7% 411 427 (16) (4%)Loss on disposals of property, plant and equipment 3 0 3 595% 4 6 (2) (33%)(Gain)/loss on investments (4) 0 (4) (4) 4 (7) (203%)Interest income (9) (7) (2) 25% (16) (22) 6 (29%)Interest expense 33 32 1 3% 65 58 7 12%Equity in net ernings of associate 60 44 16 36% 105 (0) 105Defferd income tax (benefit)/expense 27 (8) 36 (442%) 19 1 19Loss / (income) on forward contracts (4) 6 (10) (165%) 2 8 (6) (74%)Other movements 7 (6) 13 (216%) 1 62 (61) (98%)
Changes in operating assets and liabilitiesIncrease in accounts receivables 72 (228) 300 (132%) (156) (122) (34) 28%Increase in inventories 102 230 (128) (56%) 332 101 231 229%Decrease/(increase) in other current assets 3 (11) 13 (126%) (8) 2 (10) (517%)Increase in accounts payable and oher l iabilities (23) (3) (20) 686% (26) (35) 9 (26%)Increase/(decrease) in current income tax payable (10) 13 (23) (172%) 4 24 (20) (85%)
Cash provided from operating activities 630 1 066 581 485 83%Interest received 9 5 3 60% 14 14Interest paid (20) (40) 20 (50%) (61) (61)
Net cash provided from operating activities* 618 401 217 54% 1 019 581 438 75%
Cash flow from investing activities Proceeds from sale of property, plant and equipment 3 4 (1) (21%) 6 1 5 390%Purchases and construction of property, plant and equipment (151) (131) (20) 15% (281) (375) 94 (25%)
Proceeds from sale / (purchases) of investments, net 11 (69) 81 (116%) (58) 9 (67)(Placement) / withdrawal of bank deposits, net (139) (183) 44 (24%) (323) 0 (323)Acquisition of additional stake in existing subsidiary (10) 10 (100%)
Net cash used in investing activities (276) (380) 104 (27%) (655) (374) (281) 75%0
Cash flow from financing activities
Proceeds from borrowings and notes payable 9 2 7 366% 11 1 214 (1 203) (99%)
Repayments of borrowings and notes payable (144) (149) 5 (3%) (293) (1 065) 772 (73%)
Capital lease payments (6) (6) 0 (2%) (11) (13) 1 (9%)Dividends to shareholders (111) (0) (111) (111) (111) (0) 0%
Net cash used in financing activities (252) (152) (99) 65% (404) 26 (430)
Net increase / (decrease) in cash and cash equivalents 91 (131) 222 (169%) (40) 232 (273) (117%)
Effect of exchange rate changes on cash and cash equivalents 18 (9) 28 (303%) 9 58 (48) (84%)
Cash and cash equivalents at the beginning of the period 830 970 (140) (14%) 970 951 19 2%
Cash and cash equivalents at the end of the period 939 830 109 13% 939 1 241 (302) (24%)
Q2 2014/Q1 2014 H1 2014/H1 2013
33
CONSOLIDATED BALANCE SHEETas at
30.06.2014as at
31.03.2014as at
31.12.2013as at
30.09.2013as at
30.06.2013as at
31.03.2013as at
31.12.2012
(mln. USD)
ASSETS
Current assets 5 138 4 966 5 102 4 918 5 537 5 834 5 469Cash and cash equivalents 939 830 970 835 1 241 1 220 951Short-term investments 792 753 485 516 121 271 107Accounts receivable, net 1 561 1 544 1 438 1 540 1 497 1 557 1 491Inventories, net 1 735 1 731 2 124 1 897 2 530 2 689 2 827Deferred income tax assets 96 90 78 120 121 71 63Other current assets, net 16 17 8 9 27 25 30
Non-current assets 10 725 10 241 11 182 11 388 12 101 12 677 12 988Long-term investments, net 466 443 501 552 17 20 19Property, plant and equipment, net 9 610 9 162 10 003 10 163 10 981 11 442 11 753Intangible assets 93 110 116 121 129 136 142Goodwill 452 428 463 468 753 776 786Other non-current assets, net 62 39 40 32 31 36 38Deferred income tax assets 43 58 59 50 189 266 250
Total assets 15 863 15 206 16 284 16 305 17 638 18 510 18 458
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities 2 307 2 242 2 317 1 760 2 647 2 940 3 302Accounts payable and other l iabilities 1 125 1 068 1 176 1 104 1 609 1 412 1 462Short-term borrowings 1 157 1 141 1 119 616 994 1 484 1 816Current income tax liability 25 33 22 40 44 45 24
Non-current liabilities 3 329 3 361 3 693 4 147 4 695 4 678 4 065Long-term borrowings 2 676 2 743 3 038 3 508 3 792 3 459 2 816Deferred income tax liability 602 566 599 578 746 765 792Other long-term liabilities 51 52 55 61 157 454 457
Total liabilities 5 635 5 603 6 009 5 906 7 342 7 619 7 367
Stockholders’ equityCommon stock 221 221 221 221 221 221 221Statutory reserve 10 10 10 10 10 10 10Additional paid-in capital 257 257 257 257 257 257 306Other comprehensive income (2 159) (2 739) (1 897) (1 772) (1 736) (1 224) (997)Retained earnings 11 873 11 829 11 655 11 676 11 538 11 620 11 582
NLMK stockholders’ equity 10 202 9 579 10 247 10 392 10 290 10 885 11 123Non-controlling interest 26 25 28 7 6 7 (33)Total stockholders’ equity 10 228 9 603 10 275 10 399 10 296 10 892 11 090
Total liabilities and stockholders’ equity 15 863 15 206 16 284 16 305 17 638 18 510 18 458
NLMK
Investor Relations
Russia, 115054, Moscow
18, Bakhrushina str, bldg 1
t. +7 495 915 15 75
f. +7 495 915 79 04
www.nlmk.com