Investor Presentation. March 2018

Transcription

1 Investor Presentation As of March 7, 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. 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 12.3 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 Other Markets 22% Mexico 57% 1 Usiminas: a leading company in the Brazilian flat steel market Southern Region 21% 2 Brasil (ex-csa) started consolidating in September

5 s Profile Consistently superior results Focus on high margin value-added products Flexible production configuration Diversified cost structure Upstream and downstream integration Best practices Broad distribution network Recruitment and retention of talent 14% Average 15% EBITDA Margin (% of net sales) 17% 17% 14% 21% 14% 6% 9% Peers range 1 1 Long steel Americas, global player, U.S. minimill and U.S. integrated (Source: Bloomberg) 20% Innovative culture, industrial expertise and long-term view 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)

7 Performance Solid financial position Strong balance sheet Net debt to EBITDA ratio of 1.4x in 2017 USD1.5 billion five-year syndicated term loan facility to finance CSA acquisition in September 2017 Net debt (USD billion) x 1.2x 1.1x x 1.4x Growing dividend payments Proposed USD1.1 per ADS for 2017, 69% increase since % dividend yield in Annual dividends (USD per ADS) Dividend yield: Proposed dividend / Average stock price (Source: Bloomberg) 2 Net Debt/EBITDA Ratio (last 12 months EBITDA) 3 Dividend subject to shareholder s approval on May 2,

8 Performance Quarterly EBITDA and net income EBITDA EBITDA Margin 465 (USD million) (% of net sales) % 22% 21% 18% 18% 4Q16 1Q17 2Q17 3Q17 4Q17 EBITDA per ton 1 (USD) Q16 1Q17 2Q17 3Q17 4Q17 Net Income and Earnings per ADS Net Income (Loss) (USD million) Earnings (Losses) per ADS Q16 1Q17 2Q17 3Q17 4Q17 1 Consolidated EBITDA divided by steel shipments. 4Q16 1Q17 2Q17 3Q17 4Q17 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 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 3.9% in the last decade, among the highest in the region, driven by a dynamic manufacturing industry Apparent steel use (million tons) Brasil Mexico 26.8 Argentina Colombia e e Source: Canacero, Aço Brasil, Cámara Argentina del Acero, ANDI 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 in progress Section 232 introducing an element of uncertainty in the steel market China with dumping cases in most of the steel products Renewal of 15% import tariff in Mexico (for countries with no trade agreements) e Apparent flat steel use Mexico (% share) Industrial Commercial 44% 42% 41% 38% 56% 58% 59% 62% e Source: Alacero / estimates 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 was added during 2017 Production expected to reach 4.5 million units by 2020 Construction: Private activity growth stabilized in 2017 Private activity offset decrease in government investment over the last years Infrastructure investment expected should improve in Source: AMIA/MarkLines Private Government e Source: INEGI Construction spending (billion of constant MXN) 14

15 s Markets - Mexico Strong growth of s shipments shipments in Mexico to continue growing with new investment program 200,000-ton shipment increase in 2017 Broader product range enabled by upgrading of re-rolling facility Differentiation in the commercial market through value-added products and services Increasing customer digital connectivity Nationwide coverage through regional distributors and distributors centers 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% 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 % -18.6% Apparent flat steel use Argentina (million tons) % % % % +18.0% % +8.5% Source: BCRA REM Feb f Source: Alacero / estimates Economy gaining momentum driven by: Agriculture Construction Non-conventional oil & gas Gradually improving: household appliance and automotive industries 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) 900 Europe domestic (USD/ton) US domestic (USD/ton) 450 USD/long ton Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Feb Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Feb-18 US steel imports Million tons Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Jan-18 US service center inventory Million tons Months of supply Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Jan-18 Source: Platts / MSCI / US Census Bureau / 19

20 Steel Market Trends Input costs Iron ore price (IODEX CFR China) Slab price (Brazil Export) 105 USD/ton 600 USD/ton Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Feb Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Jan-18e Hard met coal price (FOB Australia) USD/ton Natural gas price (Henry Hub) USD/MMBtu Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Feb Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Feb-18 Source: Platts / Bloomberg / 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 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 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 with a broader dimensional offering and the most advanced steel grades Aimed at replacing high value-added steel imports, improving customer service and reducing lead-times in the value chain Targeting the demanding and innovative 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 with small additional investment) Expected start up in second half of 2020 Total investment of USD1.1 billion 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 USD260 million 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 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 Apparent steel use Colombia (million tons) % Annual production capacity of 520,000 tons Expected start up in second half of 2019 Total investment of USD90 million 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 IT/IS to achieve breakthroughs in operational excellence 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 28

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30 Appendix Corporate Structure Production Capacity CSA Acquisition Shipments and Net Sales Income Statement Cash Flow Statement Balance Sheet Webcast Presentation Fourth Quarter and Full Year

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% Usiminas Colombia Exiros 6% 1 50% CEU: 5% 1 Nippon Steel & Sumitomo Metal: 32% 1 TenarisConfab: 5% 1 Other (ordinary shares): 23% 1 51% 49% Tenigal Nippon Steel & Sumitomo Metal 100% 100% 48% Brasil 5 USA 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 Guatemala 100% 100% TX USA 100% 100% Las Encinas 71% 17% 89% Peña Colorada 36% 9% 45% 31

32 Production Capacity Production Capacity (*) (million metric tons per year) (1) Mexico Argentina Other Total Slabs (2) 10.6 Billets Crude steel Coils Rebars & wire rods Hot rolled Cold rolled coils Tinplated products Galvanized products Pre-painted products Service center (1) Brazil, Southern US, Colombia and Central America (2) Corresponds to Brasil (ex-csa) (*) As of year-end

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 Dec. 17) 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 September 2017 Upon closing, CSA name was changed to Brasil 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 said: This acquisition brings another state-of-the-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. 34

35 Shipments and Net Sales Fourth Quarter Q Q 2016 Dif. 4Q Q 2016 Dif. 4Q Q 2016 Dif. Mexico 1, , % 1, , % % Southern Region % % % Other Markets % 1, % % Total steel products 2, , % 3, , % % Other products (1) % Total steel segment net sales 2, , % Net Sales (million USD) Shipments (thousand tons) Revenue / ton (USD/ton) Total mining segment % % % Intersegment eliminations (69.0) (54.0) 28% (874.8) (852.8) 3% % Total steel and mining segments 2, , % 3, , % % (1) The item "Other products" primarily includes the sale of energy of Mexico and Brazil. 35

36 Shipments and Net Sales Full Year 2017 and 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, , % Net Sales (million USD) Shipments (thousand tons) Revenue / ton (USD/ton) Total mining segment % 3, , % % Intersegment eliminations (271.4) (202.7) 34% (3,550.9) (3,299.6) 8% % Total steel and mining segments 9, , % 11, , % % (1) The item "Other products" primarily includes the sale of energy of Mexico and Brazil. 36

37 Income Statement USD million 4Q Q Dif. Net sales 2, , , , ,476.3 Cost of sales (2,170.9) (1,416.6) (7,403.0) (5,384.4) (2,018.6) Gross profit , , Selling, general and administrative expenses (251.7) (175.5) (824.2) (687.9) (136.3) Other operating income (expenses), net 5.1 (10.8) (16.2) (9.9) (6.3) Operating income , , Finance expense (39.9) (24.7) (114.6) (90.0) (24.6) Finance income Other financial income (expenses), net (69.9) 38.0 (107.9) Equity in earnings of non-consolidated companies Profit before income tax expense , , Income tax expense (138.7) (104.8) (336.9) (411.5) 74.6 Profit for the period , Attributable to: Owners of the parent Non-controlling interest Profit for the period ,

38 Cash Flow Statement USD million 4Q Q Dif. (Unaudited) (Unaudited) Profit for the period , Adjustments for: Depreciation and amortization Equity in earnings of non-consolidated companies (16.0) (6.5) (68.1) (14.6) (53.5) Changes in provisions Net foreign exchange results and others (48.6) (23.7) 70.9 (33.9) Interest accruals less payments Income tax accruals less payments (273.4) (455.8) Changes in working capital (309.7) 0.6 (865.0) (162.4) (702.6) Net cash provided by operating activities ,099.6 (715.7) Capital expenditures (126.5) (100.4) (409.4) (435.5) 26.1 Proceeds from the sale of property, plant and equipment (0.1) Purchase consideration - - (1,891.0) - (1,891.0) Cash acquired Investment in non-consolidated companies - Usiminas (114.4) Dividends received from non-consolidated companies (0.1) Loans to non-consolidated companies - (15.3) (23.9) (92.5) 68.6 Decrease (Increase) in Other Investments (71.4) Net cash used in investing activities (101.7) (69.3) (2,030.0) (554.7) (1,475.3) Dividends paid in cash to company's shareholders - - (196.3) (176.7) (19.6) Dividends paid in cash to non-controlling interest - - (30.6) (50.8) 20.3 Finance Lease payments (3.1) - (4.2) - (4.2) Proceeds from borrowings , ,328.5 Repayments of borrowings (399.6) (290.8) (1,205.8) (1,191.8) (14.1) Net cash provided by (used in) financing activities 24.3 (173.8) 1,802.3 (508.7) 2,311.0 (Decrease) Increase in cash and cash equivalents (45.3)

39 Balance Sheet USD million December 31, 2017 December 31, 2016 Property, plant and equipment, net 5, ,136.0 USD million December 31, 2017 December 31, 2016 Capital and reserves attributable to the owners of the parent 5, ,391.3 Intangible assets, net 1, Non-controlling interest Investments in non-consolidated Total Equity 5, ,166.6 companies Deferred tax assets Provisions Receivables, net Deferred tax liabilities Trade receivables, net Other liabilities Other investments Trade payables Total non-current assets 7, ,622.6 Financial Lease Liabilities Borrowings 1, Receivables Total non-current liabilities 3, ,324.8 Derivative financial instruments Provisions (0.0) (0.0) Inventories, net 2, ,647.9 Current income tax liabilities Trade receivables, net 1, Other liabilities Other investments Trade payables Cash and cash equivalents Derivative financial instruments Total current assets 4, ,690.1 Financial Lease Liabilities Borrowings 1, Non-current assets classified as Total current liabilities 2, ,831.5 held for sale Total liabilities 6, ,156.3 Total assets 12, ,322.9 Total equity and liabilities 12, ,

40 4Q17 Results Webcast Presentation Consolidated Net Sales 1,850 2,075 Net Sales (USD million) 2,323 2,535 9% 2,767 2,378 Steel Shipments (thousand tons) 3,070 2,641 2,475 11% 3,411 4Q16 1Q17 2Q17 3Q17 4Q17 4Q16 1Q17 2Q17 3Q17 4Q Revenue per Ton (USD/ton) 802-4% Q16 1Q17 2Q17 3Q17 4Q17 Mexico 47% 1 Southern Region 19% Steel Shipments 4Q17 USA Brazil Colombia Other Markets 34% 1 Southern Region encompasses the steel markets of Argentina, Bolivia, Chile, Paraguay and Uruguay. Other 40

41 4Q17 Results Webcast Presentation Mexico Net Sales 1,128 1,300 Net Sales (USD million) -3% 1,424 1,349 1,306 1,525 Steel Shipments (thousand tons) -1% 1,663 1,720 1,625 1,614 4Q16 1Q17 2Q17 3Q17 4Q17 4Q16 1Q17 2Q17 3Q17 4Q17 Revenue per Ton (USD/ton) 830-3% Q16 1Q17 2Q17 3Q17 4Q17 41

42 4Q17 Results Webcast Presentation Southern Region Net Sales Net Sales Steel Shipments (USD million) (thousand tons) % 645 4Q16 1Q17 2Q17 3Q17 4Q17 4Q16 1Q17 2Q17 3Q17 4Q17 Revenue per Ton 1, (USD/ton) 929 3% Q16 1Q17 2Q17 3Q17 4Q17 42

43 4Q17 Results Webcast Presentation Other Markets Net Sales Net Sales Steel Shipments (USD million) (thousand tons) 43% % 1, TX Brasil TX Brasil 4Q16 1Q17 2Q17 3Q17 4Q17 4Q16 1Q17 2Q17 3Q17 4Q17 Revenue per Ton (USD/ton) % 616 4Q16 1Q17 2Q17 3Q17 4Q17 43

44 USD Million USD Million 4Q17 and Full Year 2017 Results EBITDA 600 2, (38) 1, ,000 1, , EBITDA 3Q17 Steel Shipments Steel Segment EBITDA Margin Other EBITDA 4Q17 0 EBITDA 2016 Steel Shipments Steel Segment EBITDA Margin Other EBITDA

45 USD Million 4Q17 Results Webcast Presentation Net Results (0) 200 (35) Net Income 3Q17 Operating Income Net Financial Results Equity in Earnings of nonconsolidated Companies Income Tax Net Income 4Q17 45

46 USD Million Full Year 2017 Results Webcast Presentation Net Results 1,100 1, (127) , Net Income 2016 Operating Income Net Financial Results Equity in Earnings of nonconsolidated Companies Income Tax Net Income

47 USD Million 4Q17 Results Webcast Presentation Free Cash Flow (23) 350 (95) (310) (42) -50 (94) -150 EBITDA 4Q17 Cash Financial Results Cash Income Tax Changes in Working Capital (127) Other Capex Free Cash Flow 4Q17 47

48 USD Million 4Q17 Results Webcast Presentation Change in Working Capital (29) steel price +USD49 million steel volume +USD98 million raw materials and other (price/volume) +USD70 million 0 Inventory Trade Receivables Accounts Payable Other 48

49 USD Million Full Year 2017 Results Webcast Presentation Free Cash Flow 2,100 1,900 1,700 (76) 1,500 1,300 1,100 (610) 900 1, (865) EBITDA 2017 Cash Financial Results Cash Income Tax Changes in Working Capital (409) (26) Other Capex Free Cash Flow

50 USD Million Full Year 2017 Results Webcast Presentation Change in Working Capital (46) steel price +USD258 million steel volume +USD129 million raw materials and other (price/volume) +USD153 million 0 Inventory Trade Receivables Accounts Payable Other 50

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