Investor Presentation. June 2018

Transcription

1 Investor Presentation As of June 1, 2018

2 Forward-Looking Statements This presentation contains certain forward-looking statements and information relating to S.A. and its subsidiaries (collectively, ) that are based on the current beliefs of its management as well as assumptions made by and information currently available to. Such statements reflect the current views of with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements of to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, changes in general economic, political conditions in the countries in which does business or other countries which have an impact on s business activities and investments, changes in interest rates, changes in inflation rates, changes in exchange rates, the degree of growth and the number of consumers in the markets in which operates and sells its products, changes in steel demand and prices, changes in raw material and energy prices or difficulties in acquiring raw materials or energy supply cut-offs, changes in business strategy and various other factors. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or targeted. does not intend, and does not assume any obligation, to update these forward-looking statements. Investor Presentation 2

3 Profile and Performance Investor Presentation 3

4 s Profile A leading steel company in Latin America Net sales of USD 9.7 billion in 2017 Crude steel capacity of 12.4 million tons Industrial facilities in Mexico, Argentina, Brazil, Colombia, USA and Central America Vertically integrated, from iron ore mines to service centers Focus on high value-added products Participation in Usiminas 1 control group Steel Shipments 1Q18 Argentina 17% USA 15% Mexico 50% Brazil 9% 1 Usiminas: a leading company in the Brazilian flat steel market Colombia 4% Other 5% Investor Presentation 4

5 s Profile Consistently superior results Focus on high margin value-added products Flexible production configuration Diversified cost structure Upstream and downstream integration 14% Average 15% 17% 17% 6% EBITDA Margin (% of net sales) 14% 21% 20% 22% 14% 8% Best practices Broad distribution network Recruitment and retention of talent Q18 Peers range 1 1 Long steel Americas, global player, U.S. minimill and U.S. integrated (Source: Bloomberg) Innovative culture, industrial expertise and long-term view Investor Presentation 5

6 Performance Sustainable growth and resilient profitability Steel shipments (million tons) Mexico Southern Region Other Markets EBITDA (USD million) 1,487 1,471 1,073 1,549 1, Free cash flow (USD million) Capital Expenditures (USD million) (26) Investor Presentation 6

7 Performance Solid financial position Strong balance sheet Net debt to EBITDA ratio of 1.2x at the end of March 2018 USD1.5 billion five-year syndicated term loan facility to finance CSA acquisition in September 2017 Net debt (USD billion) x 1.1x 0.6x x 1.2x Mar-18 Growing dividend payments Annual dividends (USD per ADS) USD1.1 per ADS for 2017, 69% increase since % dividend yield in Net Debt/EBITDA Ratio (last 12 months EBITDA) 2 Dividend yield: Dividend / Average stock price (Source: Bloomberg) Investor Presentation 7

8 Performance Quarterly EBITDA and net income EBITDA (USD million) 665 EBITDA Margin (% of net sales) % 21% 18% 18% 22% 1Q17 2Q17 3Q17 4Q17 1Q18 EBITDA per ton 1 (USD) Q17 2Q17 3Q17 4Q17 1Q18 Net Income and Earnings per ADS Net Income (USD million) Earnings per ADS Q17 2Q17 3Q17 4Q17 1Q18 1 Consolidated EBITDA divided by steel shipments. 1Q17 2Q17 3Q17 4Q17 1Q18 Investor Presentation 8

9 Performance Continuous focus on profitability Breakthrough initiatives to increase differentiation and reduce costs Customer integration Labor productivity Exiros Working capital optimization Logistics management Contractors management Energy efficiency Continuous improvement Investor Presentation 9

10 Latin American Steel Markets Investor Presentation 10

11 Latin American Steel Markets Mexico became the largest steel market in the region Mexico, Brazil, Argentina and Colombia account for approximately 80% of Latin America s steel consumption Mexico s steel consumption CAGR of 6.6% in the last decade, among the highest in the region, driven by a dynamic manufacturing industry Apparent steel use (million tons) Brasil Mexico 27.3 Argentina Colombia f f Source: Canacero, Aço Brasil, Cámara Argentina del Acero, ANDI Investor Presentation 11 11

12 Mexico Investor Presentation 12

13 s Markets - Mexico Shipments to industrial customers growing consistently Most attractive steel market in Latin America 50% increase in flat steel consumption since 2011 Opportunity to substitute imports of high-end products Apparent flat steel use Mexico (million tons) Local 11.5 Imports Industrial market increasing relevance 55% 62% NAFTA: renegotiation progressing Section 232: exemptions under negotiation Safeguard in Mexico: Renewal under analysis by the Mexican government Apparent flat steel use Mexico (% share) Industrial Commercial 44% 42% 41% 36% 56% 58% 59% 64% Source: Alacero / estimates Investor Presentation 13 13

14 s Markets - Mexico Strong industrial steel demand Light vehicle production is expected to continue growing Production in 2017 increased by 12% reaching 3.9 million units 2.9 Light vehicle production (million units) New OEM capacity added during 2017 Production expected to reach 4.1 million units by 2020 Construction: Weak environment as a result of decreasing government spending Private activity offset decrease in government investment over the last years Source: AMIA/Global Insights Private Construction spending (billion of constant MXN) Government Source: INEGI Investor Presentation 14 14

15 s Markets - Mexico Strong growth of s shipments shipments in Mexico consistently growing 200,000-ton shipment increase in 2017 Broader product range enabled by upgrading of re-rolling facility in 2017 Differentiation in the commercial market through value-added products and services Increasing customer digital connectivity Nationwide coverage through distribution centers and regional distributors steel shipments in Mexico (million tons) +4% Industrial % 42% Commercial s steel shipments by industry (2017) Automotive 27% % 55% Other manufacturing industries 24% Construction 45% Other 4% Investor Presentation 15 15

16 Southern Region - Argentina Investor Presentation 16

17 s Markets - Argentina Recovery in 2017 and positive outlook for 2018 Economic reforms to improve Argentina s performance in following years: GDP ASU % -20% % +17% %/+2% +9% Apparent flat steel use Argentina (million tons) +16% -19% % f Source: Alacero / estimates Economy gradually recovering driven by: Construction Automotive industry Household appliances Non-conventional oil & gas Investor Presentation 17 17

18 Steel Market Trends Investor Presentation 18

19 Steel Market Trends US steel market Steel price (hot rolled coils) Scrap price (shredded USA Midwest) 1,000 Europe domestic (USD/ton) US domestic (USD/ton) 450 USD/long ton Q15 4Q15 2Q16 4Q16 2Q17 4Q17 May Q15 2Q16 4Q16 2Q17 4Q17 May-18 US steel imports Million tons Q15 4Q15 2Q16 4Q16 2Q17 4Q17 Apr-18 US service center inventory Million tons Months of supply Q15 4Q15 2Q16 4Q16 2Q17 4Q17 Apr-18 Source: Platts / MSCI / US Census Bureau / Investor Presentation 19 19

20 Steel Market Trends Input costs Iron ore price (IODEX CFR China) Slab price (Brazil Export) 105 USD/ton 600 USD/ton Q15 4Q15 2Q16 4Q16 2Q17 4Q17 May Q15 4Q15 2Q16 4Q16 2Q17 4Q17 May-18 Hard met coal price (FOB Australia) 350 USD/ton Natural gas price (Henry Hub) 4 USD/MMBtu Q15 4Q15 2Q16 4Q16 2Q17 4Q17 May Q15 4Q15 2Q16 4Q16 2Q17 4Q17 May-18 Source: Platts / Bloomberg / Investor Presentation 20 20

21 Developing s industrial system Investor Presentation 21

22 CSA Acquisition Strong foundation to continue growing New 5 mtpy high-end slab facility in Brazil Further integrate CSA into to take it to its full potential Increase competitiveness in the high-end Mexican steel market vis-à-vis imports Improve customer service supported by higher operational flexibility Customized steel products Coordinated product development Enhanced logistics Realize cost reduction opportunities in CSA Coordinated procurement effort (Exiros) IT integration Inventory optimization Benchmarking Investor Presentation 22 22

23 New Hot Rolling Mill at Pesquería Industrial Center A logical step after the addition of CSA Significant technological upgrade to expand TX s product range in Mexico Aimed at replacing high value-added steel imports and improving customer service Targeting the automotive industry, as well as the home appliance, machinery, energy and construction sectors Annual production capacity of 4.1 million tons (option to increase capacity to 4.8 million tons) Expected start up in second half of 2020 Total investment of USD1.1 billion Investor Presentation 23 23

24 New Coating Lines at Pesquería Industrial Center Opportunity to grow in the high-end Mexican market New hot-dipped galvanizing and painting lines High-end value-added products for the home-appliance, heating-ventilation-air conditioning (HVAC) and automotive industries Most advanced painting technology in Mexico Annual production capacity: Galvanizing: 350,000 tons Painting: 120,000 tons Expected start up: Galvanizing: 2H 2019 Painting: 1H 2019 Total investment of USD280 million Investor Presentation 24 24

25 New Reinforcing Bar Production Facility in Colombia Expanding TX s share in the country s construction sector Colombian long steel market growing significantly over the last years Apparent steel use Colombia (million tons) Fourth largest steel market in Latin America Targeting the dynamic construction sector to expand market share by substituting imports % Investment to enable upstream integration by replacing purchases of reinforcing bars from third parties f Annual production capacity of 520,000 tons Expected start up in second half of 2019 Total investment of USD90 million Investor Presentation 25 25

26 Conclusion Investor Presentation 26

27 Conclusion Opportunities for in the next five years Strategic agenda Expansion in Mexico Increase in high-end product offering Operational excellence Develop market value potential relative to peers Next five years Continue growing in the Mexican market Capitalize on the integration of CSA into s industrial system Continue development of new high-end steel products (Investment program and R&D) Intensive use of new technologies to achieve breakthroughs in operational excellence Investor Presentation 27 27

28 Conclusion Consistently superior results in attractive steel markets in Latin America Solid financial position and strong dividend payments Successful implementation of business strategy geared toward sustainable profitable growth CSA acquisition and new investment program provide opportunity to grow and strengthen business in the region Continued focus on generating longterm shareholder value Investor Presentation 28 28

29 Investor Presentation 29 29

30 Appendix Corporate Structure Production Capacity CSA Acquisition Shipments and Net Sales Income Statement Cash Flow Statement Balance Sheet Webcast Presentation First Quarter 2018 Investor Presentation 30 30

31 Corporate Structure Techint Group: 62% Tenaris: 11% (treasury shares): 2% Public: 24% Subsidiaries Joint operations Non-consolidated companies 71% 61% México 29% Argentina 4 39% Other 100% Las Encinas 50% Peña Colorada 50% 28% 1 100% 100% 50% 6% 1 Usiminas Colombia Exiros 50% CEU: 5% 1 Nippon Steel & Sumitomo Metal: 32% 1 TenarisConfab: 5% 1 Other (ordinary shares): 23% 1 51% 49% Nippon Steel & Tenigal Sumitomo Metal 100% 100% 48% Brasil 5 USA Int. Guatemala Techgen 30% 22% Tecpetrol Tenaris Economic participation 1 Participation based on ordinary shares distributed 2 Participation based on total shares distributed 3 Net of non-controlling interest in TX Argentina 4 Formerly known as Siderar 5 Formerly known as CSA ArcelorMittal Direct Indirect 3 Total Mexico 71% 17% 89% Argentina 4 61% 61% Brasil 5 100% 100% Usiminas 2 17% 2% 19% Tenigal 51% 51% Colombia 100% 100% TX Int. Guatemala 100% 100% TX USA 100% 100% Las Encinas 71% 17% 89% Peña Colorada 36% 9% 45% Investor Presentation 31 31

32 Production Capacity Production Capacity as of year-end 2017 (million metric tons per year) (2) Slabs (1) Brazil, Southern US, Colombia and Central America (2) Corresponds to Brasil Mexico Argentina Other (1) Total Billets Crude steel Hot rolled coils Rebars & wire rods Cold rolled coils Tinplated products Galvanized products Pre-painted products Service center Investor Presentation 32 32

33 CSA Acquisition The Transaction On Sep 7, 2017 acquired thyssenkrupp Slab International B.V. (tksi) and its wholly-owned subsidiary CSA Siderúrgica do Atlântico Ltda. from thyssenkrupp AG (tkag) In addition, tkag assigned to an agreement to supply slabs to thyssenkrupp s former Calvert re-rolling facility in the U.S. (amended in Dec17) disbursed EUR1.4 billion on a cash-free, debt-free basis, for the acquisition of both the tksi shares and the slab supply agreement The transaction was financed with a five-year syndicated term loan facility in a principal amount of USD1.5 billion began consolidating tksi s balance sheet and results of operations in its consolidated financial statements in Sep17 Upon closing, CSA name was changed to Brasil Investor Presentation 33 33

34 CSA Acquisition The Assets CSA is a Brazilian state-of-the-art steel slab producer 5 mtpy capacity of high-grade steel slabs 490 MW combined cycle power plant Deep-water harbor Compact, efficient and environmentally friendly facility Just-in-time iron ore supply (railroad) Daniel Novegil, s CEO at the time said: This acquisition brings another state-ofthe-art facility into s industrial system, along with CSA s highly-skilled personnel and know-how, thereby enhancing our differentiation and value-added capabilities in the steel production supply chain. Upon integration, customers will not only benefit from our expanded high-end steel slabs capacity, but also see the results of an enhanced product development and supply chain management effort that will increase our high-end steel specialization in Mexico and Argentina. We move forward as a strengthened organization across our strategic industrial sectors in Latin America. Investor Presentation 34 34

35 Shipments and Net Sales First Quarter 2018 and full year Q Q 2017 Dif. 1Q Q 2017 Dif. 1Q Q 2017 Dif. Mexico 1, , % 1, , % % Southern Region % % % Other Markets % 1, % % Total steel products 2, , % 3, , % % Other products (1) % Total steel segment net sales 2, , % Total mining segment % % % Total intersegment eliminations (69.6) (62.6) 11% (928.5) (863.4) 8% % Total steel and mining segments 2, , % (1) The item "Other products" primarily includes the sale of energy of Mexico and Brazil. Net Sales (million USD) Shipments (thousand tons) Revenue / ton (USD/ton) Dif Dif Dif. Mexico 5, , % 6, , % % Southern Region 2, , % 2, , % % Other Markets 1, % 2, , % % Total steel products 9, , % 11, , % % Other products (1) % Total steel segment net sales 9, , % Total mining segment % 3, , % % Total intersegment eliminations (271.4) (202.7) 34% (3,550.9) (3,299.6) 8% % Total steel and mining segments 9, , % (1) The item "Other products" primarily includes the sale of energy of Mexico and Brazil. Net Sales (million USD) Shipments (thousand tons) Revenue / ton (USD/ton) Investor Presentation 35 35

36 Income Statement USD million 1Q Q (Unaudited) Net sales 2, , , ,224.0 Cost of sales (2,203.5) (1,531.5) (7,403.0) (5,384.4) Gross profit , ,839.6 Selling, general and administrative expenses (240.5) (172.3) (824.2) (687.9) Other operating income (expenses), net 5.8 (7.2) (16.2) (9.9) Operating income , ,141.7 Finance expense (33.8) (21.4) (114.6) (90.0) Finance income Other financial (expenses) income, net (51.1) (23.2) (69.9) 38.0 Equity in earnings of non-consolidated companies Profit before income tax expense , ,118.5 Income tax expense (41.2) (35.2) (336.9) (411.5) Profit for the period , Attributable to: Owners of the parent Non-controlling interest Profit for the period , Investor Presentation 36 36

37 Cash Flow Statement USD million 1Q Q (Unaudited) Profit for the period , Adjustments for: Depreciation and amortization Equity in earnings of non-consolidated companies (20.0) (21.4) (68.1) (14.6) Changes in provisions Net foreign exchange results and others (33.9) Interest accruals less payments (12.6) (1.0) Income tax accruals less payments (99.5) (31.6) (273.4) Changes in working capital (266.1) (317.8) (865.0) (162.4) Net cash provided by operating activities ,099.6 Capital expenditures (102.4) (83.9) (409.4) (435.5) Proceeds from the sale of property, plant and equipment Purchase consideration - - (1,891.0) - Cash acquired Investment in non-consolidated companies - Usiminas (114.4) Dividends received from non-consolidated companies Loans to non-consolidated companies (4.8) (23.9) (23.9) (92.5) (Increase) Decrease in Other Investments (7.4) (5.5) Net cash used in investing activities (114.4) (113.2) (2,030.0) (554.7) Dividends paid in cash to company's shareholders - - (196.3) (176.7) Dividends paid in cash to non-controlling interest - - (30.6) (50.8) Finance Lease payments (1.3) (1.1) (4.2) - Proceeds from borrowings , Repayments of borrowings (407.7) (208.3) (1,205.8) (1,191.8) Net cash (used in) provided by financing activities (181.9) ,802.3 (508.7) (Decrease) Increase in cash and cash equivalents (104.2) Investor Presentation 37 37

38 Balance Sheet USD million March 31, 2018 December 31, 2017 USD million March 31, 2018 December 31, 2017 (Unaudited) Capital and reserves attributable to 5, ,010.4 Property, plant and equipment, net 5, ,349.8 Non-controlling interest Intangible assets, net 1, ,092.6 Total Equity 6, ,852.8 Investments in non-consolidated companies Provisions Deferred tax assets Deferred tax liabilities Receivables, net Other liabilities Trade receivables, net Trade payables Other investments Financial Lease Liabilities Total non-current assets 7, ,727.3 Borrowings 1, ,716.3 Total non-current liabilities 3, ,442.5 Receivables Current income tax liabilities Derivative financial instruments Other liabilities Inventories, net 2, ,550.9 Trade payables 1, Trade receivables, net 1, ,006.6 Derivative financial instruments Other investments Financial Lease Liabilities Cash and cash equivalents Borrowings 1, ,505.6 Total current assets 4, ,392.5 Total current liabilities 2, ,827.3 Non-current assets classified as held for sale Total liabilities 6, ,269.8 Total assets 12, ,122.6 Total equity and liabilities 12, ,122.6 Investor Presentation 38 38

39 1Q18 Results Webcast Presentation Consolidated Net Sales 2,075 2,323 Net Sales (USD million) 2,535 2,767 7% 2,961 2,475 Steel Shipments (thousand tons) 3,411 3,070 2,641 3% 3,523 1Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q Revenue per Ton (USD/ton) 822 6% Q17 2Q17 3Q17 4Q17 1Q18 Mexico 50.4% 1 Southern Region 18.3% Steel Shipments 1Q18 USA Brazil Other Colombia Other Markets 31.3% 1 Southern Region: Argentina, Bolivia, Chile, Paraguay and Uruguay. Investor Presentation 39 39

40 1Q18 Results Webcast Presentation Mexico Net Sales Net Sales Steel Shipments 1,300 1,424 (USD million) 1,349 1,306 16% 1,515 1,663 1,720 (thousand tons) 1,625 1,614 10% 1,775 1Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 Revenue per Ton (USD/ton) 809 6% Q17 2Q17 3Q17 4Q17 1Q18 Investor Presentation 40 40

41 1Q18 Results Webcast Presentation Southern Region Net Sales Net Sales Steel Shipments (USD million) 3% (thousand tons) Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 Revenue per Ton 1,030 1, (USD/ton) 961 3% Q17 2Q17 3Q17 4Q17 1Q18 Investor Presentation 41 41

42 1Q18 Results Webcast Presentation Other Markets Net Sales Net Sales (USD million) 2% TX Brasil Steel Shipments (thousand tons) 1,151-4% 1, Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 Revenue per Ton (USD/ton) % Q17 2Q17 3Q17 4Q17 1Q18 Investor Presentation 42 42

43 USD Million 1Q18 Results Webcast Presentation EBITDA (60) EBITDA 4Q17 Shipments Price/Mix Cost Other EBITDA 1Q18 Investor Presentation 43 43

44 USD Million 1Q18 Results Webcast Presentation Net Results (50) Net Income 4Q17 Operating Income Net Financial Results Equity in Earnings of nonconsolidated Companies Income Tax Net Income 1Q18 Investor Presentation 44 44

45 1Q18 Results Webcast Presentation Free Cash Flow Investor Presentation 45 45

46 1Q18 Results Webcast Presentation Free Cash Flow and Net Financial Debt Cash from Operations (USD million) Capital Expenditures (USD million) Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 Free Cash Flow (USD million) 145 Net Debt (USD billion) (78) (94) 1Q17 2Q17 3Q17 4Q17 1Q18 0.5x 0.7x 1.5x 1.4x 1.2x 1Q17 2Q17 3Q17 4Q17 1Q18 1 Net Debt/EBITDA Ratio (last 12 months EBITDA) 1 Investor Presentation 46 46

47 Investor Presentation 47 47