MMK CORPORATE PRESENTATION

Transcription

1 MMK CORPORATE PRESENTATION APRIL 216

2 MMK THE VALUE STORY 9 MMK Fully Renewed Story But Still Undervalued Should Change in Future due to Long Term Sustainability One of TOP-3 global steel players High EBITDA margin Late CAPEX cycle, since major modernization in Sustainable generation of high FCF Significantly improved balance sheet - Net Debt / EBITDA ratio of only x.67 Still history-driven discount to peers in terms of EV/EBITDA multiple, possible reasons: Market perception legacy ( heavy CAPEX / low dividends ) Moderate liquidity of shares (ADTV) Low vertical integration High domestic market dependence Hidden value MMK Metalurji (Turkey) Sustainable margin advantage compared to global peers Anticipated steel demand growth prospects (rebound after decline) in Russia #1 local market share Low cost producer High HVA products share Well positioned in terms of local consolidation No need for large CAPEX in Mln USD Revenue 9,328 8,19 7,925 5,839 EBITDA 1,363 1,223 1,67 1,668 EBITDA margin 14.6% 14.9% 2.2% 28.6% CAPEX FCF Net Debt Company EV/EBITDA, as of 31/12/ ,% 2,% 1,%,% 22,5% 29,4% 2,9% 2,9% 25,8% 11,5% 2,8% 14,4% 14,9% 2,2% 28,6% 14,6% 14,7% 12,9% 12,6% 1,6% 12,3% 1,% MMK EBITDA margin Average margin for Top3 Steel Names, Alfa Bank 2

3 ММК POSITION IN GLOBAL METALS&MINING UNIVERCE, World Steel, Alfa Bank 3

4 TIMELINE: FROM LARGE-SCALE INVESTMENT TO EFFICIENCY AND ENVIRONMENT Transition to continuous casting, substitution of openhearth furnaces with EAFs Reconstruction of rolled steel production (mills 17, 37, 45) Listing of MMK s shares on London Stock Exchange MMK receives controlling stake in Belon MMK acquires 1% of ZAO Profit, Russia s largest scrap collector Commissioning of thick-plate Mill 5 Commissioning of EAF with annual capacity of 2.3 mln tonnes of steel in Turkey; increase of share in the Turkish project to 1% Launch of the first stage of cold-rolling mill 2 Major environmental project - sludge decantation complex of oxygen-converter plant Commissioning of two major environmental facilities: coke gas chilling plant and sulphur capture unit Decrease in Debt Debt/EBITDA ratio to.6x Launch of reversing cold-rolling mill and continuous hot-dip galvanizing unit MMK forms a JV with Atakas (Turkey) to construct a plant with capacity of 2.3 mln tonnes of steel Launch of pressed components mill and service metal centre in St. Petersburg Launch of the second stage of cold-rolling mill 2 Historical record in pig iron production 1.3 mln tonnes per year Launch of new labour efficiency and cost optimisation programmes Mln USD Revenue 1,713 1,733 2,65 3,47 4,829 5,38 6,424 8,197 1,55 5,81 7,719 9,36 9,328 8,19 7,925 5,839 EBITDA ,15 1,735 1,511 2,5 2,47 2,24 1,39 1,66 1,336 1,363 1,223 1,67 1,668 EBITDA margin 25.9% 16.5% 2.2% 33.3% 35.9% 28.1% 31.2% 29.4% 2.1% 25.8% 2.8% 14.4% 14.6% 14.9% 2.2% 28.6% CAPEX ,216 2,112 1,613 2,29 1, FCF , Net Debt Dividends

5 THE MMK BD EXPERTISE IS GUARANTIED BY PROFESSIONAL AND WELL-RECOGNISED DIRECTORS Name Education Experience Victor Rashnikov, 67 Chairman of the MMK BD Magnitogorsk Institute of Mining and Metallurgy Executive Non-executive Zumrud Rustamova, 45 Deputy General Director of Polymetal Valeriy Martsinovich, 42 CEO at Hay Group Eastern Europe Morgan Ralph Tavakolian, 47 Partner at Baring Vostok Capital Partners Ruben Aganbegyan, 44 President of Otkritie Holding Kirill Liovin, 47 Deputy Chairman of the Management Board of Rosselkhozbank Olga Rashnikova, 39 MMK Head of Treasury Pavel Shilyaev, 45 MMK Chief Executive Officer (CEO) Sergey Sulimov, 38 MMK Chief Financial Officer (CFO) Moscow Economic and Statistics Institute Gdańsk University (Poland) Moscow State Law Academy Moscow Aviation Institute named after Ordzhonikidze Chelyabinsk State Technological University, Stockholm School of Economics in Russia (St. Petersburg) Nikolai Lyadov, 59 MMK Chief Sales Officer (CSO) Magnitogorsk Institute of Mining and Metallurgy 5

6 MMK COMPARISON TO GLOBAL STEEL PEERS (BASED ON FY15 RESULTS) Sales, mln tonnes ,4 17. Revenue, mln USD 5,839 6,396 8,8 63,578 25,727 48,78 42,54 16,439 9,436 13,28 EBITDA, mln USD 1,668 2,96 1,948 5,231 2,559 4,976 4,591 1, ,345 EBITDA margin,% 28.6% 32.8% 24.3% 8.2% 1.% 1.2% 1.8% 11.1% 5% 1.1% Net profit, mln USD (7,946) , (5) (245) Net debt/ebitda FCF, mln USD 1,8 1,441 1,56 (1,394) (917) 4,457 1,836 1, ,474 FCF yield, % 35.2% 2.7% 2.7% % 9.6% 13.9% 2% 17% CAPEX, mln USD ,77 3, , CAPEX / Revenue, % 6.% 6.9% 7.4% 4.% 14.9%.4% 5.9% 2.3% 4% 5.3% Slab Cash Cost, USD/t * Steel Capacities Utilization rate, % 85% 92% 9% - 83% 91% 98% 8% 9% 81% Iron ore integration 18% 9% 7% 45% % 4% 25% % % 4% EBITDA/tonne, USD** Market Capitalization, as of 31/12/215, mln USD 2,891 6,953 5,1 7,16 14,161 12,323 19,28 12,82 1,672 1,375 Div. yield, % 3% 9% 12% 6% 3% 6% 2% 4% 1% 8% ATV 6M, mln USD EV/EBITDA (FY16) , Companies data, Alfa Research, Bloomberg * - non-integrated basis ** - average EBITDA/t for TOP3 Global Steel Makers amounted to 77 USD/t 6

7 MMK METALURJI - $ 1 BN+ OF HIDDEN VALUE Iskenderun Full-cycle steel making plant (2.3 mtpa) & rolling facilities Metal service centre Sea port facility Istanbul Metal service centre Main operations of the company Steelmaking/Casting Acid pickling/cold rolling Galvanizing/Color coating Primary processing (cutting and slitting) of coils Steel re-sale/sale of scrap (from cutting operations) Service of cargo Production structure of MMK Metalurji, 215 Color-coated rolled products 34% Hotrolled steel 1% Total: 795 ths tonnes HVA products, 9% Galvanized flat products 56% Key sales markets HRC/Scrap spread recovers in early 216, USD/t Europe Istanbul Iskenderun Middle East 4 Priority markets Important export markets Africa Apr. 216 HRC (SBB) Scrap Source: MMK 7

8 MMK MARGINS SUSTAINABILITY Historical MMK EBITDA Dynamics, mln$ Arguments in Favour of Long-term EBITDA Margin Sustainability ,5% 29,4% 2,9% 25,8% 2,9% Even in adverse market conditions MMK s EBITDA margin never went below 14% 2,8% 2,2% 28,6% 3,% 25,% 2,% For instance: in 215 MMK EBITDA/t was $141, while Top3 Global steel makers had only $77 of EBITDA/t Raw Materials MMK has structural advantage in all stages of business process: Structural surplus of key raw materials on the local market Proximity to suppliers and net-back pricing Low prices for energy resources +4-5 $/t 2 14,7% 14,4% 14,9% 14,6% 12,6% 11,5% 1,% 1,6% 12,9% 12,3% 15,% 1,% Production Process Economy on scale High capacity utilization rates Low energy efficiency (i.e. coking coal) Low productivity -2 $/t ,%,% Sales & Marketing High HVA products share Proximity to end markets Natural hedge due to net-back pricing for local sales +2-3 $/t EBITDA EBITDA margin Average for Top3 Steel Names, Bloomberg Net effect +4-6 $/t 8

9 BENEFITS COMING FROM DOMESTIC MARKET 9 Structural surplus of main raw materials in Russia, mln tonnes 12, 8, 4, 97,6 97,5 84,6 86, , 4,, 55,2 53,9 39,4 39, MMK s focus on Russian market and proximity to end customers in the middle of Russia result in higher average realized price (due to netback pricing mechanism). In 215 this effect amounted to $13-$9 per tonne of steel across the product mix. Iron Ore Supply Iron Ore Demand Coking Coal Supply Coking Coal Demand Total effect on EBITDA $36 mln Due to surplus of main raw materials on local market and netback pricing mechanism MMK has price advantage to main peers from China and EU. Compared to Chinese steel makers MMK s cost advantage amounts to: $8 per tonne of iron ore concentrate; $2 per tonne of pelets; $1 per tonne of coking coal $1 per tonne of scrap Total effect on EBITDA $3 mln 9

10 STRATEGIC PROJECTS PORTFOLIO HAS BEEN DEVELOPED TO ENACT FURTHER OPERATIONAL EFFICIENCY GROWTH, STRATEGY 1. Sales: Just in time (+/-3 days) 187 mln $ 2.Baby Capex and Lean Digital Operations, IoT Focus on core business, sale of non-core assets (FMG, MMK Metalurji) 5. Supply. Delivery just in time 6. Personalisation in resource management (Micro Cost Centre project) 7. Zero tolerance of health and safety violations 8. Employees health promotion Clean city program 1. Solution of the single-industry city issue Total effect - 97 mln $ or 2-3% p.a. 1

11 YANDEX SNIPER PROJECT 9 11

12 OGRANIC GROWTH DUE TO INVESTMENT IN LARGE-SCALE PROJECTS FOR HVA* PRODUCTS OUTPUT OJSC MMK finished goods sales structure, mln tonnes Leading positions on the domestic market ,7,9 1,4 1,3 HVA 2,3 11, 1,2 1,2 1,9 1,5 HVA 1,4 HVA 3, 1,1 3,4 1,3 1,5,9 1, 1,1 1,1 1,7 4,2 5,6 5,5 5,2 HVA 4,1 Downstream products C/r steel Mill 5 Thick plate Long steel H/r steel MMK's share in Russia Place in Russia Hot-rolled sheet 33% 1 Cold-rolled sheet 3% 2 Galvanized flat products 4% 1 Tin plate 99% ,9,4,2, Semifinished steel products Colour-coated rolled products 24% 3 3 MMK share in Russian flat steel production, 215 MMK share in Russian long steel production, 215 Chelyabinsk MK; 2% ММК; 34% ZSMK; 17% Urals Steel; 3% Others; 29% NLMK; 13% Others; 11% NKMK; 1% Chelyabinsk MK; 13% NLMK; 2% Top 3 84% Top 3 43% * HVA High Value Added Severstal; 3% NTMK; 8% Severstal; 1% ММК; 1% 12

13 THIS ENABLED MMK TO SUBSTITUTE IMPORTS AND BENEFIT FROM DOMESTIC DEMAND RECOVERY IN FUTURE MMK Group sales structure, mln tonnes Products balance in Russia, mln tonnes 12 8 mln t 8,7 3,5 11, 1,2 1,2 5,1 6,4 8,4 Changes in 215/ mln Рынок Russia РФ and (с СНГ) CIS ,1 5,1 3,9 2,7-2.4 mln Экспорт Export F F -4 Export Production Import Apparent Steel Use Russian steel consumption significantly declined in 215 but after 216 gradual recovery is expected 5% % Total White Goods Machine Building Construction Metal Hardware Carmaking Pipemaking 1% 16% 12% -5% -1% -15% -9% -25% -15% -14% -12% -11% 8% 4% -2% % -25% -3%, Russian Steel Pipe-making Machnery Car-making Construction 13

14 MMK IS WELL POSITIONED FOR LOCAL CONSOLIDATION 9 Company Major business Capacity management Areas of synergy Sales management Purchasing Estimated value of synergy (on EBITDA level) Steel / Mining 5-7 m $ Steel / Mining 3-5 m $ Steel / Mining 1-3 m $ Pipe making 1-3 m $ Pipe making 1-3 m $ Iron ore / Steel 1-3 m $ Iron ore 1-2 m $ 14

15 APPENDICES 9 (1) Latest financials (2) Supporting documents 15

16 KEY HIGHLIGHTS FOR MMK GROUP Q4 215 Financial results Revenue USD 1,181 mln down 21.4% q-o-q Cost of sales USD 893 mln down 13.8% q-o-q EBITDA USD 275 mln down 36.% q-o-q EBITDA margin 23.3% down 5.3 p.p. q-o-q Net loss USD -125 mln as compared to profit of USD 78 mln in Q3 215 Cash cost of slab USD 191 per tonne down 2.6% q-o-q Free cash flow (FCF) USD 68 mln down 88.1% q-o-q CAPEX USD 18 mln up 27.1% q-o-q FY 215 Financial results Revenue USD 5,839 mln down 26.6% y-o-y Cost of sales USD 4,54 mln down 34.7% y-o-y EBITDA USD 1,668 mln up 3.8% y-o-y EBITDA margin 28.6% up 8.4 p.p. y-o-y Net profit USD 421 mln as compared to loss of USD 44 mln in FY 214 Net debt USD 1,124 mln down by USD 914 mln as compared to Net debt / EBITDA.67x down from 1.27x as of Free cash flow (FCF) USD 1,8 mln up 32.8% y-o-y CAPEX USD 348 mln down 3.% y-o-y 16

17 HIGH CAPACITY UTILISATION Key production indicators, ths tonnes Q4 15 Q3 15 % FY 15 FY 14 % Cast iron 2,541 2, % 1,132 1,28-1.4% Crude steel incl. 2,897 3, % 12,236 13,31-6.1% MMK 2,897 3, % 12,236 13,31-6.1% MMK Metalurji - - Finished products 2,668 2,89-7.7% 11,188 12,158-8.% MMK 2,597 2, % 11,12 11,65-5.5% MMK Group s finished steel products output in FY 215 was down 8% y-o-y. MMK Group High Value Added (HVA) steel products output in FY 215 was 5,224 thousand tonnes. The share of HVA products in total output volume was 46.7% in FY 215. The total steel-making capacity utilization rate at the main production site in Magnitogorsk in FY 215 was approx. 85%. MMK-Metiz* % % ММК Metalurji* % % HVA products 1,214 1, % 5,224 5,48-4.7% Belon coking coal concentrate % 2,822 2, % * - incl. made from ММК steel MMK Group finished products dynamics, ths tonnes Key capacities utilisation rates in FY 215, % ,9% 44,4% 45,4% 46,1% 46,3% 48,3% 46,7% 45,5% 6,% 5,% Blast Furnace Steel BOF 1% 1% ,% 3,% 2,% Steel EAF Long Steel HRC 35% 88% 94% 5 1,% CRC 73% Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Steel products HVA Products Share,% Coated steel products 95% Total by products 88% % 25% 5% 75% 1% 17

18 MMK GROUP SALES STRUCTURE ON THE RUSSIAN AND CIS MARKET Total sales volume on the Russian and CIS market in Q4 215 was 1,957 ths tonnes, down 37 ths tonnes q-o-q. This was primarily due to overall seasonal decline in domestic demand for steel during the quarter. Sales of thick plate produced at Mill 5 in Q4 215 decreased by 119 ths tonnes, or 46.%, q-o-q, which was due to the irregular supply schedule of large-diameter pipes for the construction of major Gazprom projects. This factor also resulted in lower share of shipments to pipe makers in the overall sales structure. Sales structure on the Russian and CIS market, ths tonnes HVA 47% 2,197 1,947 2,327 1,957 22% 19% 22% HVA HVA HVA 23% 13% 47% 13% 43% 1% 44% 14% 12% 15% 11% 7% Downstream products Flat cold-rolled products Mill 5 products The increase in the share of cold-rolled steel in shipments for Q4 215 was due to a recovery in demand following a significant decline in shipments of this product in Q % 35% 37% 37% 18% 18% 2% 19% Q1 215 Q2 215 Q3 215 Q4 215 Flat hot-rolled products Long products Russia and CIS market sales by region, ths tonnes Russia and CIS market sales by sector, ths tonnes 2,197 1,947 13% 13% 11% 13% 7% 6% 6% 8% 9% 8% 1% 9% 9% 9% 9% 12% 25% 2,327 24% 24% 37% 4% 4% 1,957 22% 36% 1Q 215 2Q 215 3Q 215 4Q 215 CIS Other Siberia Central Region Volga Region Ural 13% 13% 11% 13% 3% 2% 2% 1% 8% 2% 1% 1% 11% 2% 11% 4% 3% 1% 5% 4% 7% 6% 7% 7% 8% 9% 23% 24% 28% 31% 18 2,197 29% 1,947 2,327 32% 31% 22% 7% 1,957 9% 1Q 215 2Q 215 3Q 215 4Q 215 CIS sales Other Construction sector Railway build. Automobile sector Machine building Pipe production Hardware and semiintegrated factories Service metal service

19 MMK GROUP POSITION ON KEY INTERNATIONAL MARKETS Sales on international markets in Q4 215 amounted to 71 ths tonnes. This increase was due to a seasonal decline in domestic demand, which was offset by an increase in export sales. The share of hot-rolled products increased to 62% of exports, while the share of HVA products decreased to 37%. The decrease in export sales of HVA products was due to sufficient domestic demand for these products. HVA 32% Sales structure on international markets, ths tonnes ,% HVA 28,1% 39% 7,5% 11,3% HVA 43% 33,9% 9,4% HVA 37% 27,7% 9,2% Downstream products Flat cold-rolled products Flat hot-rolled products In Q4 215, the Company increased its proportion of sales to the Middle East as compared to the previous quarter. Sales to Europe were flat q-o-q. 6,9% 53,5% 54,1% 61,8% Long products 5,% 2,6% 4,4% 2,7% 2,6% 1,3% Q1 215 Q2 215 Q3 215 Q4 215 Slabs and billets International sales structure by region, ths tonnes Sales share by market, ths tonnes % 7% 15% 11% 5% Africa 2% 13% 12% 18% 21% 18% 16% 16% 23% 27% 2% 25% 25% 26% 75% 44% 33% Europe 5% 49% 49% 62% 69% Middle East 25% 8% 87% 88% 82% 79% 82% 84% 84% 77% 73% 8% 75% % 3% 2% % 1Q 215 2Q 215 3Q 215 4Q 215 Asia and Far East % Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Domestic market (Russia + CIS) Export 19

20 KEY FINANCIAL HIGHLIGHTS OF MMK GROUP Revenue for Q4 215 amounted to USD 1,181 mln, down 21.4% q-o-q. The key factors were the seasonal decline in domestic demand and a lower average sales price (down 11.9%). Steel segment revenue (Russia), mln USD Steel segment revenue (Turkey), mln USD % % Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Coal segment revenue, mln USD Consolidation, mln USD Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q

21 KEY FINANCIAL HIGHLIGHTS OF MMK GROUP A decrease in global steel prices and seasonal weakening of the business on the domestic market in Q4 215 contributed to decrease in the average sales price and EBITDA per tonne of metal EBITDA for the steel segment (Russia) in Q4 215 declined q-o-q due to a decrease in sales amid lower prices EBITDA for the steel segment (Turkey) in FY 215 amounted to USD 36 mln, up 28.6% y-o-y. This was mainly due to an increase in sales. Quarterly EBITDA dynamics, mln USD MMK Group s EBITDA for Q4 215 amounted to USD 275 mln, down 36.% q-o-q EBITDA of the coal segment in FY 215 increased more than 6.5x y-o-y driven by an increase in sales prices and a reduction in the company s costs. EBITDA/t vs metal sale price, USD/t Steel (Russia) Steel (Turkey) Coal Mining Eliminations Q3 15 Q4 15 Annual EBITDA dynamics, mln USD MMK Group s EBITDA for FY 215 was USD 1,668 mln, up 3.8% y-o-y Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 COGS EBITDA/tonne Steel (Russia) Steel (Turkey) Coal Mining Eliminations 12M 14 12M 15 21

22 Q3 215 Revenue Price change effect Products volumes FX Other MMK factors Other "Steel Russia" MMK Metalurji + Coal Q4 215 Revenue ANALYSIS OF KEY FINANCIAL HIGHLIGHTS The key factors impacting revenue in Q4 215 were a decrease in sales volumes and steel prices. Analysis of revenue, Q4 215 q-o-q, mln USD In Q4 215, the Company s loss amounted to USD 125 mln. Key factors included an FX loss of USD 53 million and creation of provisions for impairment of raw materials and land recultivation totaling USD 165 mln. Excluding these items, the profit for Q4 215 was USD 93 mln. In FY 215, profit amounted to USD 421 mln, as compared to loss of USD 44 mln in FY 214. The cash cost of slab decreased by 2.6% in Q4 215, mainly due to the decrease in raw material prices Cash-cost of slab dynamics, USD/t Net profit dynamics, mln USD A loss in Q4 215 was due to one-off non-cash factors % Slab cash-cost Q3 215 Raw materials price Raw materials structure Other factors Slab cash-cost Q Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q

23 DEPRECEATION AND CAPEX DYNAMICS MMK Group s capex in Q4 215 amounted to USD 18 mln. The increase on the previous quarter was due to scheduled maintenance at blast furnace no. 9. Quarterly depreciation dynamics, mln USD 25 In FY 215 capex decreased by 3.% y-o-y to USD 348 mln below the level of USD 4 mln announced earlier. Capex volume in 216 will remain between USD.4 bln and USD.5 bln fully in line with the long-term development strategy of the Company Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Quarterly CAPEX dynamics, mln USD CAPEX decrease following the end of the investment cycle, mln USD Q1 '13Q2 '13Q3 '13Q4 '13Q1 '14Q2 '14Q3 '14Q4 '14Q1 '15Q2 '15Q3 '15Q4 '

24 MMK BENEFITS FROM ONE OF THE HIGHEST FREE CASH FLOW YIELDS IN THE SECTOR Net working capital dynamics, mln USD Highest FCF in the Company s history, mln USD As of the end of Q4 215 net working capital / revenue ratio 2 5 amounted to 17.2% FCF 1,8 MC as of , FCF yield 35.2% Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 EBITDA WoC Net financial cost, tax, etc. FFO PPE FCF 12M '15 24

25 HIGH OPERATIONAL PERFORMANCE SUPPORTS EFFICIENT DECREASE OF THE DEBT LOAD, mln USD MMK Group s net debt as of the end of 215 decreased to USD 1,124 mln, down by USD 914 mln compared to At the end of FY 215, net debt/ebitda decreased to.67x, the lowest since 28, but somewhat higher than the debt load level of key peers. The Company plans to further reduce the debt load in 216 by using its cash funds and cash flow from operations. 3,5 4 2,99 3, 2,59 2,47 2, , ,27 1, ,67 1,, Total Debt Net Debt Net Debt/EBITDA (RHS), 25

26 ММК GROUP S DEBT PROFILE Debt and cash funds structure by currency, mln USD The share of debt which is denominated in foreign currencies (USD+EUR) amounted to approx. 85% as of The volume of cash funds and short-term deposits in the MMK Group s balance sheet (USD 723 mln) almost fully covers the short-term debt of MMK Group. The debt maturity schedule does not presume any significant one-time payments Debt 2, , C&CE and Deposits High level of liquidity, mln USD USD EUR RUB Debt maturity schedule, mln USD USD EUR RUB TYR 1, Liquidity sources Short-term Debt Cash Sort-term deposit Credit lines FMG Stake Q1 Q2 Q3 Q

27 STRUCTURE OF OPERATING COSTS AND CASH COSTS In Q4 215, the share of metal scrap (due to a decrease in capacity utilisation of EAFs) decreased in the structure of OJSC MMK s material costs. The share of coal and pellets decreased due to maintenance at blast-furnace No.9 which started in December 215. The 12.7% decrease in operating costs in Q4 215 q-o-q was due to the decline in production volumes, the ruble weakening and cost-optimization efforts. MMK Group operating costs, mln USD 1Q 15 2Q 15 3Q 15 4Q 15 Cost of sales 1,18 1,17 1, Selling expenses General and administrative expenses Other operating expenses Total operating expenses 1,167 1,297 1,26 1,53 Cost of sales, mln USD OJSC MMK material costs, mln USD 1,17 1,36 1,18,8% 893 2,9% 5,% 2,5% 1,3% 5,5% 11,8% 12,6% 11,9% 15,2% 12,5% 13,8% 13,2% 14,7% Other production costs Depreciation ,% 2,5% 2,5% 2,3% 8,5% 8,7% 9,1% 1,4% 8,2% 9,6% 9,8% 1,7% 2,8% 18,8% 17,9% 18,% Power from outside sources Fuel from outside sources Auxiliary materials 78,2% 69,9% 68,6% -5,% 66,1% -1,3% Labour costs Material costs Change in work in progress 8,8% 1,8% 6,8% 19,2% 24,2% 22,6% 23,% 16,5% 11,5% 14,7% 14,2% 14,1% 12,3% 12,7% 13,1% 14,7% Q1 215 Q2 215 Q3 215 Q4 215 Other main materials Scrap Сoals Iron ore (pellets) Iron ore (sinter) Q1 215 Q2 215 Q3 215 Q

28 APPENDICES 9 (1) Latest financials (2) Supporting documents 28

29 KEY ISSUES / TRENDS IN GLOBAL METALS&MINING Key Questions MMK View Iron Ore Price Dynamics? Will be on low levels ($4-$5) in mid term period (2-3 years) but will grow up to $55-$65 in a longer run due to market balancing Global Steel Demand and Overcapacity Forecast? Global demand for steel is expected to grow by.7% y-o-y in 216 and will be influence by demand coming from China. Capacity utilizations will remain weak ( 7%) until excessive steel making capacities are removed, first of all in China. Protectionism Dynamics? Protectionism will be growing in the coming years especially in US and EU regions. Targeted mostly against Chinese steel producers. Worst Case Scenario for Russian Steel? Simultaneous growth of oil price ( 7 $/t) and rouble strengthening against the background of low iron ore price ( 4$/t) will result in margins compression. Likelihood 1%. Political ban on Russian steel exports. 3 mln t of steel under risk (Russian production/consumption is 7 vs. 4 mln t.) Likelihood 1% Sources of Value Creation in Steel in Future? Local consolidation to arrange excessive capacities and increase pricing power. Digital operations to drive costs down. 29

30 MMK HAS ACHIEVED SIGNIFICANT IMPROVEMENTS IN LABOUR PRODUCTIVITY, SAFETY AND ENVIRONMENTAL IMPACT Headcount at OJSC declined by 45% (ths people) LTIFR fell by 47% (incidents per 1, people/y) Emission rate fell by 51 % (kg/t) -45% -47% -51% 33,5 1,4 36,6 18,5,55 18, F F 3

31 INVESTMENT IN WILL BE AIMED AT INCREASING EFFICIENCY AND DECREASING COST OF SALES Investment programme principles: CAPEX of MMK, Rigorous approach to projects selection, based on DCF valuation and with risk assessment 2,5 2,1 2,2 Balanced costs distribution, with no peaks Investment not exceeding operational profit Debt/EBITDA ratio of no more than 2x Dividend payment of no less that 2% IFRS net profit 2, 1,5 1,,5,7 1,2 1,6 1,2 From 216 till 225 MMK Group plan to maintain its CAPEX within the range of.4-.6 bln $ per year (including maintenance CAPEX of bln $), subject to FX.,7,6,5,35, Oxygen unit Reconstruction of Mill Metal desulphurization plant New sintering plant New continuous hot-dip galvanizing unit New coke battery New blast-furnace Modernization at sintering-cokingblast furnace production capacities Infrastructure, energy and environmental projects Modernization and launch of new rolling capacities 31

32 MAXIMISING DOMESTIC SALES SHARE MMK sales by market, mln tonnes MMK domestic sales structure ,7 2,1 MMK has been organically increasing share of domestic sales, while maintaining a significant share of export Domestic market (Russia + CIS) Export 2,6 8,4 Coated & Downstream products 21% C/r steel 12% Thick plate 12% H/r steel 36% HVA products, 44% Total: 8,424 ths tonnes MMK domestic sales by region, 215 MMK domestic sales structure by sector, 215 Long steel products 19% Bridge building 1% Ship building 1% Automobile sector 4% Other 1% Pipe production 29% Metalware and semi-integrated factories 8% Machine / Railcar building 8% Spot sales in Russia 26% Total: 8,424 ths tonnes Source: MMK Construction sector 1% Spot sales in CIS 12% 32

33 DIVERSIFIED DOMESTIC SALES Top eight clients, ths tonnes Share of top eight clients in shipments, % Lysvenski Steel Plant; 199 Metal Profile Company; 16 Naberezhnochel n. Pipe Plant; 164 Uraltrubprom; 219 Domestic sales Stalepromyshle nay Company; 18 Chel Pipe; 471 Severski Pipe Plant (TMK); 284 Total: 2,134 ths tonnes The largest external client accounts for less than 5% Volzhski Pipe Plant (TMK); 458 1% Shipments to end-customers (85%) Dealers Spot sales (15%) 75% 5% 25% % 24% 57% 19% 215 Top eight clients account for just 19% in MMK sales Top 8 Customers Rest of the Domestic Market Export Market Key clients Minor clients Export sales MMK Steel Trade AG MMK Trading 1% Regional distribution network Source: MMK 33

34 MAINTAINING GOOD PROGRESS ACHIEVED IN SELF-SUFFICIENCY 27 Self-sufficiency Level, % 215 Self-sufficiency Level, % 1% 15% 1% 27% 75% 5% 9% 1% 1% 85% 75% 5% 81% 63% 1% 73% 25% % 1% Iron Ore Coal Scrap Electricity Own Purchased 25% % 37% 19% Iron Ore Coal Scrap Electricity Own Purchased Impressive progress has been achieved over the past 5 years MMK has been active in terms of increasing the level of vertical integration, particularly in respect of raw materials, since its IPO Acquisition of 1% share in Profit scrap company in June 29 Increase of stake in Belon coal company to 82.6% in October 29 and to 95% in September 213 Increase of in-house production of iron ore to 19% (mining and tailings processing) but the majority of iron ore needs are covered by supplies from Metalloinvest and ERG (former ENRC) under long-term contracts Generation of c. 73% of electricity supplies in 215 Source: MMK 34

35 EMPHASIZED DIRECT EXPOSURE TO NICHE SEGMENTS LDP & MDP Demand in Russia, m tonnes Mill 5 Production Dynamics, th. tonnes ,1 4,8 4,5 Demand for LDP remains strong 2,6 1,8 1,7 3,3 4,6 2,5 4, ,5% ,6% ,1% 953 Healthy demand for thick plate supports Mill 5 utilization rates E Demand for LDP Demand for MDP MMK Share in Supplies to Russian Pipe Industry in 215 Import; 6% Product Mix Supplied to Pipe Industry in , th. tonnes MMK was the biggest supplier to Russian pipe industry in MMK; 36% Others; 58% HRC Thick Plate (m. 5) H/r Plate CRC Source: MMK

36 DOMESTIC MARKET PRICE PREMIUM DYNAMICS HRC FOB Black Sea vs. HRC Domestic Price Dynamics, $/t Historically local producers enjoyed domestic market premium which recovered shortly after being compressed due to strong domestic competition (213) or rouble devaluation (214) In spite of significant domestic market premium prices for the clients in Russia were lower, compared to prices on international markets Domestic HRC Price, $/t HRC domestic, $/t HRC FOB Black Sea, $/t Domestic Price Premium Performance, $/t Average price premium for the period Q11A 4Q11A 3Q12A 2Q13A 1Q14A 4Q14A 3Q15A Source: MetalExpert, AlfaBank estimates, Russian Steel

37 NORTH AMERICA, EUROPE AND SOUTHEAST ASIA ARE THE MAJOR REGIONS THAT HAVE INTRODUCED TRADE BARRIERS ON RUSSIAN STEEL Country/Region Products Status Start Date End Date Comments Indonesia HRC Import duty 27-Dec Dec-18 SVST- 5.58%; NLMK %, MMK - 2%, others - 2% USA HRC Import duty 19-Dec Jun-16 SVST %; others % Thailand HRC Import duty 25-May May-2 NLMK %; SVST & others % Malaysia HRC Import duty 2-Jul-15 1-Jul-18 Jul-15 - July %; July-16 - July %, July-17 - July % Canada HRC Import duty 7-Dec-15 n.a. SVST %; others % USA CRC Import duty 22-Dec-15 n.a. SVST excluded; NLMK & others % Morocco CRC Import duty 31-Dec Dec-18 Jan-16 - Dec-16-2%; Jan-17 - Dec-17-18%, Jan 18 - Dec 18-16% Turkey HRC Investigation 28-Jan-15 n.a. Potential import duty - 14% India HRC Investigation 7-Sep-15 n.a. Temporarily import duty implemented from 14-Sep-15 EU CRC Preliminary duty 28-Jan Jun-21 6-month period before the duties become final (assuming no objections from Russia) USA Thick plates Review 1-Oct-14 n.a. Mexico Flat products Review 7-Sep-15 n.a. Import duty was charged from 22-Sep-1 to 21-Sep-15. Import duties on coiled steel products are steel active Source: ved. gov.ru, Goldman Sachs Global Investment Research 37

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