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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
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Investor Presentation
September 2013
2
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
3
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
4
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)
5
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
6
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
7
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
8
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
9
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
10
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
11
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
12
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
13
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
14
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)
15
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)
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.
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