November 2017 NLMK. Corporate Presentation

Transcription

1 November 217 NLMK Corporate Presentation

2 DISCLAIMER 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 are consistent 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

3 Market overview About NLMK NLMK Performance Strategy Execution Appendix 3

4 STEEL DEMAND RECOVERS WHILE CHINESE EXPORTS SUBSIDE Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 8.% 6.% 4.% 2.%.% -2.% -4.% -6.% Steel demand recovers across key markets in 217 USA: construction, automotive and energy EU: mechanical engineering, housing and non-residential Russia: machinery and construction China: infrastructure and machinery Capacity cuts in China improve supply and demand balance 15 mt cuts according to long-term capacity reduction plan 35 mt cuts expected going forward due to stricter environmental policies Chinese exports drop reduces imports pressure across NLMK markets %, yoy Growth in steel demand across key markets 6.% 2.8% YTD* 2.6% 7.% 1.3% -4.5% -3.6% USA EU-28 Russia China Source: Bloomberg, national statistics agencies, worldsteel, Metal Expert., Banks reports *9m 17 data 5.% Chinese exports back to historical levels Capacity cuts increase utilization rates in China % 1% 8% 6% 4% 2% % -35% -2% -4% -6% Mt winter output cuts non-ifs IFs* capacity reduction 69% 8% 216 YTD217 Source: Chinese officials, Banks reports *IFs= induction furnaces 4

5 PRICE SPREADS WIDEN ON DEMAND GROWTH Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 % -1% -2% -3% -4% -5% -6% -7% -8% Chinese steel stocks level remains below 5Y average Steel prices react strongly to the better demand EU: prices improved on reduced imports amid low season Russia: prices steadily grew through the quarter however still 5% down qoq Russian and Chinese export prices grew driven by high demand Raw material basket increase lags steel prices growth Steel / raw materials spread +43% qoq Chinese steel stocks levels remain low while supply picks up M t Output (rhs) Stocks (lhr) 5-year average $/t Steel spreads up on higher steel demand HRC (China FOB) Raw materials basket Aug.17, China announces steel output control for winter season (From Nov 17 to Mar 18) Source: Metal Bulletin Raw materials basket is calculated as price for iron ore and coking coal multiplied using production ratios for 1 t of steel Source: Bloomberg (Chinese stocks and production data) $/t +1% +6% -5% 11% +2% +26% 685 Price increases in key markets US exw EU exw RUS exw China exw RUS fob China fob 2Q'17 3Q'17 Source: SBB, Metal Bulletin, excl. VAT, quoted prices can be different from NLMK realized prices %, qoq 5

6 RUSSIAN STEEL MARKET - S/D AND PRICING 2% % -2% -4% -6% -8% -1% -12% -14% May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Supply improves on better export and domestic off-take 216 output was flat at 71 m t, YTD217 up +2. yoy 216 steel demand was 37.7 m t (-4.7% yoy), 9m 17 demand up 7% yoy 217 steel demand is set to grow by 2. m t (+5 yoy) Key drivers construction, machinery building Prices impacted by seasonal slowdown Russia: steel prices catch up with global benchmarks $/t k RUB/tonne HRC in USD Rebar in USD 15 HRC in RUB Rebar in RUB 1 1% Steel demand drop overshoot GDP decline K tonnes GDP - to 213 level Steel demand to 213 level -1% -2% -3% -4% Source: Metal Bulletin, NLMK estimates. Prices excl. 18% VAT Russian steel export prices $/t % -7% -12% E Q'17 2Q'17 Jul'17 Aug'17 Sep'17 Oct'17 Nov'17 Slab, FOB Black Sea HRC, FOB Black Sea Source: Rosstat, Metal Expert Source: Metal Bulletin 6

7 USA STEEL MARKET - S/D AND PRICING Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Jan-14 May-14 Jul-14 Apr-14 Sep-14 Jul-14 Nov-14 Oct-14 Jan-15 Mar-15 Jan-15 May-15 Apr-15 Jul-15 Jul-15 Sep-15 Nov-15 Oct-15 Jan-16 Jan-16 Mar-16 May-16 Apr-16 Jul-16 Jul-16 Sep-16 Oct-16 Nov-16 Jan-17 Jan-17 Mar-17 Apr-17 May-17 Jul-17 Jul-17 Sep-17 Oct-17 Nov-17 Improvement in demand and spreads attracted imports shipments 9m 17 output increased to 61.5 m t (+3.1% yoy) 9m 17 imports surged to 26.9 m t (+19% yoy) however from a low base 9m 17 demand up c. 6% yoy to c. 72 m t 217 steel demand is set to grow by 4.8% Key drivers construction, machinery building and energy sector demand Prices are going up after recent mills hikes and the stocks started to rise K tonnes HRC EXW +4% QTD CRC EXW -3% QTD Spread to China still remains relatively low 3-year average level Steel inventories $/t 1, USA domestic steel prices (EXW) Source: Metal Bulletin USA HRC spread to China FOB prices $/t CRC 684HRC 119 Source: Bloomberg Source: Metal Bulletin 7

8 EU STEEL MARKET - S/D AND PRICING Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Jan-14 May-14 Jul-14 Apr-14 Sep-14 Jul-14 Nov-14 Oct-14 Jan-15 Mar-15 Jan-15 May-15 Apr-15 Jul-15 Jul-15 Sep-15 Nov-15 Oct-15 Jan-16 Jan-16 Mar-16 May-16 Apr-16 Jul-16 Jul-16 Sep-16 Oct-16 Nov-16 Jan-17 Jan-17 Mar-17 Apr-17 May-17 Jul-17 Jul-17 Sep-17 Oct-17 Nov-17 Domestic supply catches up with demand growth EU domestic steel prices (EXW) 9m 17 steel output grew to 126 m t (+4% yoy) 9m 17 imports up to 2 m t (+4% yoy) 217 ASU is anticipated to grow by 2.5% driven by improved demand in construction, engineering, autos and tubes Prospects for 218 are overall positive (1.4% projected growth) Prices in USD marginally down, while in EUR more or less stable $/t CRC 633 HRC EU HRC prices flat QTD EU Plate prices - 3% QTD Inventories remain relatively low Steel inventories (Germany) Inventory/sales ratio, months Source: Metal Bulletin, NLMK estimates. Prices excl. 18% VAT Spreads to FOB BS slabs $/t 3 25 Slab/Plate spreads Slab/HRC spreads 3. 3-year average level Source: CRU Source: Metal Bulletin 8

9 Market overview About NLMK NLMK Performance Strategy Execution Appendix 9

10 NLMK AT A GLANCE Cash cost USD/t #1 producer in Russia* TOP-2 Globally* 6 NLMK is the lowest cost steel producer Sustainable position over the last 15 years Strong positions in local and global markets (i.e. #1 in global slabs trade, TOP5 in electrical steel**) Balanced and diversified production chain Vertical integration Steel production is in Russia Downstream in EU, USA, Russia One of the most diversified steelmakers globally Geography of operations Product portfolio Customers Sales regions (7 countries) One of the most profitable globally Investment grade from S&P and Fitch, rating from S&P above the sovereign (Ba1/BBB-/BBB- from Moody s/s&p/fitch) *in terms of crude steel production ** electrical grain oriented steel % 8 % NLMK Cumulative capacities (M tonnes) Source: World Steel Dynamics, Sep 17 data Diversified business model 17 % 83 % Production route Product type Product mix BOF EAF Flat Long Commercial grade HVA Source: NLMK data, NLMK financial and operating results 7 % 3 % 58 % 42 % Sales International Russia 1

11 GEOGRAPHY & BUSINESS MODEL NLMK USA 1 mini-mill & 2 rolling mills Steel:.8 m tpa Flats: 2.9 m tpa NLMK Dansteel Plates:.55 m tpa NLMK Kaluga Steel (EAF): 1.5 m tpa Longs:.9 m tpa Novolipetsk Coke: 2.6 m tpa Steel: 13 m tpa Flats: 6. m tpa Semis: 7. m tpa VIZ-Steel GO steel flats:.2 m tpa USA NLMK Belgium Holdings (NBH) Steel:.2 m tpa Strips: 1.7 m tpa Plates: 1.3 m tpa - Raw materials producing assets - BF/BOF steelmaking - EAF mini-mill France Belgium Denmark Italy Moscow RUSSIA INDIA Altai-Koks Coke: 4.7 m tpa NLMK Urals Steel : 2.1 m tpa Longs: 2. m tpa Metalware:.6 m tpa - Rolling assets - Licenses to develop coal deposits - Service center Stoilensky (open pit) Iron ore fines: 16.3 m tpa Pellets: 6. m tpa Sinter ore: 1.5 m tpa Reserves: 6 bnt NLMK India Slitting GO: 17.4 k tpa Cutting core laminations: 12.9 k tpa Source: NLMK Annual Report 216, Group websites, NLMK data 9% Raw materials sufficiency 1% 1% 75% 57% 48% Domestic sales, % 93% 1% Capacity steel vs downstream, m tpa* US EU Russia * With NBH Iron ore fines Pellets Coke Scrap Energy NLMK Russia NLMK Europe NLMK USA Crude steel Flat steel Long steel Source: NLMK financial and operating results, as of 1H 17, NLMK Annual Report 216, NLMK data 11 11

12 NLMK BUSINESS MODEL OFFERING SALES RESILIENCE Increased international integration ~65% of sales are made in home markets 68% of NLMK Russia slabs exports delivered to international subsidiaries % Up to 9% of foreign subsidiaries slabs needs covered by NLMK Russia NLMK USA and NLMK Europe produce and sell locally downstream products made of mother-company feedstock 35% 36% Russia Europe Flexibility to relocate shipments within export markets reflecting demand dynamics and trade restrictions 14% 15% N. America International sales Almost no shipments of recently affected products to EU and US Source: NLMK operating results for the 9M 17 NLMK Russia flat exports to 3 rd parties 9M 217 Slabs sales from Russian Flat Division K t mln t HVA 855 HRC 1, To 3rd parties Slabs and pig iron Captive assets M'17 Source: NLMK operating results Source: NLMK operating results as of 1H

13 Market overview About NLMK NLMK Performance Strategy Execution Appendix 13

14 Finished products Home markets.2.4 % 5% 1% 15% 2% 25% 3% 35% 4% 45% Q3 SALES GREW ON STRONGER HOME MARKETS DEMAND Q3 17 Sales increased by 1% qoq to 4.24 Mt Finished steel is 66% of the sales portfolio 3% of the finished steel Q3 17 sales are high value added products Global sales with strong domestic footprint with 67% of Group sales made in our home markets Russian, Europe, USA Business model offers edge over peers leading to strong sales beating the market ~5% of NLMK Russia exports are sales to own assets ~66% of sales are finished steel products Semis 29% LDP feedstock 6% HRC 23% Long products 14% Thick plates 3% CRC 12% 66% Galvanized 8% Pre-painted 3% Electrical* 3% *Transformer and dynamo steel Source: NLMK financial and operating results 3/4 of sales are made in markets where we operate Sales to captive assets Russia 42%.52,18 EU Europe 15% 75% mt.98,9,57 N. America M.East and Turkey 58% N.America M.East & Turkey 12% 18%.49,31 SE Asia Other 12%.2.15,3 Other regions Asia % Source: NLMK financial and operating results Source: NLMK financial and operating results 14

15 SALES IN RUSSIA 5% 4% 3% 2% 1% % 11% 14% 34% 39% 23% 3% 2% 27% 18% 21% 1% 1% 4% 3% 2% 1% % -1% -2% NLMK has leading positions in value added product with demand outpacing supply Exposure to niche products: (LDP feedstock) long term contract till 219 Monopolist at electrical steel market (high value added product with the highest margin) 13% NLMK share in the Russian steel market 3% 27% 26% 8% Diversification to flat / long products % Flexibility to relocate shipments from domestic to export markets and vice versa Sales to the Russian market HRC CRC Galvanized steel Pre-painted Rebar Electrical Share in consumption Share in production Import share in ASU Source: NLMK operating results, Metal Expert NLMK flat steel sales in Russia 1% 8% by sector 25% Pipe producers by product type 14% Pipe-feedstock 3,244 4,243 +3% from 212 6% 4% 2% % 15% 6% Sales by industries in Q3'17 Machine building 62% Construction and infrastructure 24% Sales by product type in Q3'17 Flat steel Long products and metalware 1,165 1, Q3'16 Q3'17 Source: NLMK financial and operating results Source: NLMK financial and operating results 15

16 Q1'13 Q1'14 Q2'13 Q2'14 Q3'13 Q3'14 Q4'13 Q4'14 Q1'14 Q2'14 Q1'15 Q3'14 Q2'15 Q4'14 Q3'15 Q1'15 Q2'15 Q4'15 Q3'15 Q1'16 Q4'15 Q2'16 Q1'16 Q3'16 Q2'16 Q3'16 Q4'16 Q4'16 Q1'17 Q1'17 Q2'17 Q2'17 Q3'17 Q3'17 FINANCIAL HIGHLIGHTS 216 financials: Narrowing price/cost spreads weigh on margins Revenue EBITDA: $7,636 m (-5 % yoy) $1,941 m (flat yoy) EBITDA margin, % 25% 29% 25% EBITDA margin: 25% (+1 pp yoy) Net income**: $935 m (-3% yoy) Capex $559 m (-6% yoy) Free cash flow* $1,89 m (+9% yoy) 11% Q3 17 financials: Revenue EBITDA: EBITDA margin: Net income**: $2,551 m (flat qoq) $648 m (+7% qoq) 25% (+1 pp qoq) $357 m (+4% qoq) Source: NLMK financial results ND/EBITDA Q3 17 leverage remains low Solid FCF generation on strong sales and working capital management 1.5 Working capital release Capex Free cash flow* Net debt / EBITDA***: $19 m (+265% qoq) $12 m (+9% qoq) $533 m (+64% qoq).3x (-29% qoq).3 * Free cash flow = operational cash flow minus capex minus advances for VAT payments on imported equipment minus net interest payments * * Profit for the period, attributable to key shareholders * ** Hereinafter Net Debt / EBITDA ratios are calculated referring to Adjusted LTM EBITDA Source: NLMK financial results 16

17 MARGINS GROWTH ON BETTER PRICES AND COST IMPROVEMENTS 8% 7% 6% 5% 4% 3% 2% 1% % -1% -2% EBITDA expanded on stronger sales and price spreads growth Russian Flat Products: EBITDA up +32% on strong sales (+) Seasonally strong demand drove volumes (+96 kt) and prices up (+) Strategy 217 effects on costs reduction Russian Long Products: profits up on better prices (-) Sales down (-21% qoq) due to high volumes in Q2 and destocking in the supply chain (+) Spreads expanded on better prices during construction season Mining: sales mix improvement offset by softer prices $ M +32% Russian Flat Products 15 5X -34% Russian Long Products EBITDA by divisions NLMK USA & DanSteel -24% % Mining Group NBH 7 Q2'17 Q3'17-21 (+) Volumes stable, better mix with pellets output growth (-) Lower sales prices NLMK USA: expensive feedstock and softer prices eroded profitability EBITDA margin by divisions 7% 64% Q2'17 Q3'17 (+) Sales volumes up on improved offtake from pipes and construction (-) Narrowed price spread on slab and finished products NLMK DanSteel profitability positive on widening price spreads 23% 18% 15% 3% 12% 8% 24% 25% 2% NBH: softer results due to seasonally lower sales and spreads to slabs squeeze Russian Flat Products Russian Long Products NLMK USA & DanSteel Mining Group NBH -6% 17

18 STRONG FREE CASH FLOW WITH 64% QOQ GROWTH Net operating cash flow expanded by 47% qoq to $663 m working capital release of $19 m (+) accounts receivables decreased on higher sales in Russia with better credit terms (-) inventory growth for semis in US and for winter scrap in Russia $ M EBITDA Net working capital change Q3 17 CF bridge Capex increased by 9% qoq to $12 m Other non-cash items* +3 Free cash flow increased by 64% qoq to $533 m Income tax -97 NET OPERATING CASH FLOW 663 $ M Operating CF CAPEX * Net interest Capex** FREE CASH FLOW Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 OCF CAPEX FCF * Excluding NBH Net increase in borrowings FREE CASH FLOW TO EQUITY * Oher income/(expenses) ** Including capitalized interest of $6m

19 Q3 SALES GREW ON STRONGER HOME MARKETS DEMAND Sales* up +3% qoq driven by growth in home markets sales in US (+2%) and in Russia (+21%) Higher HVA sales and increased volumes of semis on better economics HVA** sales grew +2% (+5% yoy) on HDG and PP steel sales increase +16% growth in slabs and pig iron sales M t Shipments growth driven by sales to home markets* % Total sales -5% External markets Group sales growth driven by Russian Flat and NLMK USA Russian Flat Products (+3%): seasonally strong demand USA (+2%): increased demand for HRC Russian Long Products (-21%): sales down on high Q2 sales base and destocking NBH sales down by -2% on seasonal slowdown and steel imports pressure Q3'16 Q2'17 Q3'17 +8% Home markets M t Strong sales driven by Russian Flat and NLMK USA Q3'16 Q2'17 Q3'17 Growth in HVA and semis with focus on better economics M t +1% yoy; +16% qoq % yoy; -11% qoq +5% yoy; +2% qoq Russian Flat Products Russian Long Products NLMK USA NLMK Dansteel NLMK Group (w/o NBH) NBH * Including NBH; ** HVA high value added products Semi-finished Commercial grade HVA Q3'16 Q2'17 Q3'17 19

20 FURTHER IMPROVEMENTS IN DEBT PORTFOLIO AND LIQUIDITY Net debt / 12M EBITDA:.3x (down from.4x qoq) Net debt: $.74 bn (-29 % qoq) Total debt: $2.56bn (+6% qoq) Liquidity: $1.8 bn (+32% qoq) on strong FCF generation Liability management transaction in Sept 17 improved debt portfolio: $317 m repurchase of 18 and 19 Eurobonds with coupon of 4.45% and 4.95% New $5 m 7Y Eurobond issue with 4.% coupon Improved liquidity and debt maturity to support dividend payments Cost of debt gradually declines % 5.1% 4.9% $ M $ M 1,91 1,88 Liquidity and short-term debt* As of Available credit lines Liquid Q3'17 Q4'17 Q1'18 Q2'18 12 months assets *Excluding interest payments, incl. working capital lines Debt maturity As of RUB bonds ECA lines Eurobonds (USD) Revolvers for W/C funding 7 4.4% 4.2% % m'

21 CAPEX OUTLOOK capex estimate of $.6 bn $25 m: structural (core) maintenance capex $ Bn 1.3 Total annual CAPEX (p.a.) $12 m: large-scale repairs of Lipetsk BF/BOFs Development capex $18 m: Strategy 217 development capex, including final payments for the pelletizer and HPGR at Stoilensky.6.6 Large-scale repairs of BF/BOFs maintenance + extra repairs at $.5 bn pa Structural maintenance capex remains unchanged at $32 m pa 21-' Source: NLMK data Structural maintenance Large-scale BF/BOFs repairs on Lipetsk site of $18 m pa on average 21

22 % 14% 12% 1% 8% 6% 4% 2% % DIVIDENDS Accumulated liquidity used as a source for higher dividends Company to stick to the current dividend policy 5% of NI/FCF if NLMK ND/EBITDA is not higher than 1.x Growth in FCF realized in higher dividends Dividend payments, in million USD Approved Q2 17 dividends: c. $328 m, annualized yield of 11.3% Recommended Q3 17 dividends: c. $53 m, annualized yield of 16% Q1'17 Q2'17 Q3'17* * Recommended. Using the FX rate at the date of dividends recommendation Source: NLMK Consolidated financial statement FCF payout ratio (%) NI payout ratio (%) Dividends payout* 148% 12% 79% 39% 84% 77% 99% 31% 2% Q1'17 Q2'17 Q3'17* Source: NLMK financial results 22

23 FOREIGN ASSETS PERFORMANCE ,8 1,6 1,4 1,2 1, ,8. 1,6. 1,4. 1,2. 1, K t Slabs sales from Russian Flat Division 1,632 1,659 1, QoQ Total +3% NLMK Dansteel -13% NLMK USA -18% NBH -34% To 3rd parties +92% K t NBH Rolled product sales QoQ Total -2% CRC -37% Coated -22% Plates & ingots -21% HRC -17% Q3'16 Q2'17 Q3'17 To 3rd parties NBH NLMK USA NLMK Dansteel Q3'16 Q2'17 Q3'17 HRC Plates & ingots Coated CRC NBH financial results NLMK USA and NLMK Dansteel sales $ M K t QoQ Total +1% Plates -5% HDG -3% CRC -9% HRC +9% Revenue Q3'16 EBITDA Q3'16 Revenue Q2'17 EBITDA Q2'17 Revenue Q3'17 EBITDA Q3'17 Q3'16 Q2'17 Q3'17 HRC CRC HDG Plates (NLMK Dansteel) 23

24 Market overview About NLMK NLMK Performance Strategy Execution Appendix 24

25 STRATEGY 217 TARGETS RECAP Strategy 217 targets announced by Vladimir Lisin, Chairman of the Board of Directors, at Capital Markets Day in

26 STRATEGY 217 PROGRESS: INTERIM OVERVIEW % 2% % % 1% 5% % -5% Annual gains vs. 213 Structural profitability growth Capex below target level $ bn EBITDA margin (%) $ bn 25% % % Cumulative gains, Market factors Net gains, Strategy 217 Target Average Strategy 217 Target Leverage below target level Stable positive FCF Improved dividend payout ND/EBITDA ratio $ bn FCF FCF yield FCF payout ratio 83% x - Strategy 217 target 3% 4% 14% 13% 14% Strategy 217 target of 5% 31% 26% 65% Source: NLMK financial and operating results Free cash flow (available to shareholders and creditors) = operational cash flow minus capex minus net interest payments FCF yield = Free cash flow / market cap 26

27 WE REMAIN COMMITTED TO $1 BN STRATEGY 217 TARGET Strategy 17 net gains $ M Efficiency gains Gains from investments $547 m in : efficiency gains (~7% of total) were front-loaded gains c. $26 m in 217, including gains from investment projects: $15 m: pellet plant and iron ore fines production growth $15 m: revamped HDG line #1 in Russia 217 Столбец4 Target gains $15 m: steelmaking slag processing $1 m: PCI technology launch c. $1 m in 218 from investment projects: 218 Столбец3 Target gains from investments 1 c.$25 m: iron ore fines output growth c.$2 m: PCI technology ramp up c.$2 m: slag briquetting plant launch c.$15 m: NLMK Pennsylvania reheating furnace ramp up Столбец3 Targeted efficiency gains in c.$1 m: new energy generator launch c.$1 m in 218 from additional efficiency initiatives in Target gains ~1 Source: NLMK data, financial and operating results 27

28 STRATEGY 217: 13% OF ANNUAL GOAL ACHIEVED IN 9M 17 In 9M 17 NLMK hit 13% of its Strategy 217 target for the year $15 m gains achieved in Q3 17 (vs $16 m in Q2 17) as a result of new projects $84 m gains from operational efficiency projects in 9M 17: 47 new projects launched in 9M 17 $ M 13% of annual target achieved in 9 months Operational efficiency $68 m of savings from technology / energy, including productivity growth with+1 kt of slabs output in 9m217 $16 m of savings from auxiliary processes Gains from investments $185 m gains from investment projects realized in 9M 17 incl.: 12M'17 Target 9M'17 Execution $164 m from new pellet plant and HPGR technology $8 m from steelmaking slag processing Growing number of efficiency projects $6 m from PCI technology in Lipetsk Q1'17 Q2'17 Q3'17 28

29 PELLETIZING PLANT AND FINES OUTPUT GROWTH Pelletizing plant operates at full capacity M T Pelletizer output ramp-up has been achieved May-June 17 average utilization is ~1% with max. daily output of 2 kt 6. Growth in pellet output: 217 production target revised upwards to 6 mt Q2 17 pellets cash costs: $26/t delivered to steel mill Pelletizing plant s profitability (EBITDA) of $45/t in Q2 17 Further production growth to ensure full sufficiency in fines and pellets Phase 2 of high pressure grinders project started in Q2 17 targeting additional capacity of.7 mtpa in 218 (~1% coverage in iron ore concentrate) Launch: Q4 17 Estimated EBITDA contribution: c.$25 m in 218 Q1'17 Q2'17 12M'17E - updated Source: NLMK financial and operating results 1% sufficiency in iron ore to be achieved in 218 M T 1% 9% 9% 85% E 218E Iron ore production Source: NLMK financial and operating results Self-sufficiency 29

30 STRATEGY 222: FOCUS AREAS Combination of efficiency, growth and innovations backed by sustainability and safety Operational efficiency & commercial excellence NLMK Production System development Coke making technology upgrade to reduce consumption of deficit coal grades New investment program aimed to reduce raw materials & energy consumption Supply chain optimization Customer service development Expansion of distribution & service networks Value-creative growth Brownfield development of integrated steel value chain based on low-cost resource base Growth in selected high value added products Downstream integration to protect value and capture extra margin Market share increase in attractive markets Sustainability New health & safety programs New program on environmental footprint reduction Innovations New B2B channels and digital interfaces Digital technologies in operations Human capital development to support innovative growth 3

31 NO-REGRET GROWTH: UNLOCKING CAPACITY ALONG THE CHAIN Target: to reach 14 m t pa of crude steel (+ 1 m t pa) How: debottlenecking of steel-making Unutilized pig iron capacity at Russian Flat Upgrade of continuous-casting machines & infrastructure supplemented by low cost raw materials Economics: Brownfield expansion of iron ore fines output to 19.7 m tpa Pushing pelletizer capacity up to 7.3 m tpa Additional output: 1 m t pa of low cost steel (slabs) Total capex for steelmaking and raw materials: $4-5 m ($4-5/t) Impact on EBITDA: $1-15 m (in 216 prices) Launch date: 219 M t pa 14.2 M t pa Debottlenecking of steel capacity at Russian Flat Total capacity Pig iron 12 Further processed 216 Source: NLMK data Fines 2.2 Excess pig iron capacity 13. Steel, 216 Iron ore production growth Steelmaking 1. Pellets 14. Steel, 219E Markets for new volumes: Growing sales to captive downstream in EU and USA Selling new volumes to merchant slabs market Acquiring efficient re-rolling capacity in growing markets 217E 222E 217E 222E Source: NLMK data 31

32 FURTHER GROWTH: CAREFUL CONSIDERATION REQUIRED Further growth is possible: integrated expansion along the value chain to bring Russian flat capacity to over 15 m t pa Our upstream production can be expanded to bring required resources Additional 1.2 m t pa output can be realized in different products Slabs, billets or hot-rolled coils (via continuous strip production) M t pa 13. Possible steel capacity growth at Russian Flat 1. No-regret growth Further growth 15.2 Markets for new volumes are yet to be found Capex per t is higher comparing to no-regret option Source: NLMK data 32

33 Market overview About NLMK NLMK Performance Strategy Execution Appendix 33

34 NLMK KEY HIGHLIGHTS Steel capacity utilization is well above 9% through the cycle Steel output growth driven by efficiency improvements 44% of the finished steel sales are high value added products Strong domestic footprint with 2/3 of sales made in our home markets Russian, Europe, USA 1% 1% 1% 14% 17% Source: NLMK operating results Sales structure by regions, 213-9M 17 3% 4% 4% 3% 9% 11% 13% 1% 7% 9% 1% 15% 18% 15% 14% 17% 19% 22% 22% 2% 39% 43% 39% 37% 36% M'17 Asia and Oceania Other M.East, incl. Turkey N. America EU Russia Steel production, mln t 96% 93% 96% % 95% * Without NBH Source: NLMK operating results Sales structure by product, 213-9M M'17 Source: NLMK operating results Semis Steel production Capacity utilization rate Long products HRC HVA products 34

35 NLMK STRATEGY DRIVES FINANCIAL PERFORMANCE In Strategy execution delivered $741 m of gross savings, including $17 m in 216 Market factors prices and FX eroded Strategy gains by almost $2 m or 25% Total net gains for (marked to market) reached $547 m or >5% of Strategy 217 target Strategy 217 results are coming from: Operational efficiency: best in class production costs and productivity World class resource base: efficient and growing upstream integration, wider use of cheaper resources Market leadership: improved utilization rates, sales growth in core markets 12 Strategy 217 target net gains Strategy 217 actual results in $ M $1, $ M 1 2 Operational efficiency Resource base % 3 Market leadership % 16% Source: NLMK data Gross gains achieved in Market factors Net gains

36 ❶ OPERATIONAL EFFICIENCY IS A FOUNDATION OF OUR STRATEGY % -1% -2% -3% -4% -5% -6% -7% -8% -9% -1% Operational efficiency contribution in : $364 m pa Efficiency gains by division, Number of efficiency projects grew to 2,5 as NLMK Production System rolls out $ M 56 Russian Flat Products Cost savings lead to widening NLMK s advantage vs the industry Productivity improvement across the entire production chain Russian Long Products NLMK USA NLMK Europe NLMK productivity grew across the production chain Source: NLMK data Costs advantage improved vs the industry M t +15% % %, % $/t 48 29% % 19 Fines Pig iron Incremental BOF steelmaking 213 level HRC Russia Global ave 213 NLMK 213 Global ave 216 NLMK 216 Source: NLMK data Source: World Steel Dynamics, NLMK data 36

37 ❷ RESOURCE BASE: LOWER CONSUMPTION, BETTER INTEGRATION Earnings impact in : $97 m pa mainly from better resource use Structural reduction in resource consumption Upcoming gains will be driven by upstream investment projects Energy Fe materials Coal Coke Natural gas Iron ore: sufficiency up from 8% to 95% with higher steel output (+) 1.7 mt pa in , (+) 1.7 mt pa in % -2% -2% Pellets: sufficiency up to 1% New pellet plant launched in Nov 216, ramp up in H E output ~5.5 mt, to be ramped up to 6. m tpa in 218 Improved fines quality (Fe content) to ensure stable pellets production Iron ore projects are expected to contribute $15 m to EBITDA in 217 Wider use of cheaper alternative resources will save $1 m Pulverized coal injection (PCI) to save 1 mt pa of coking coal by MW energy generator to boost energy self-sufficiency in 217 Slag briquetting plant to replace.6 mt pellets in 219 Fines production grew by 3 mt to feed pellet plant M t Investments 216 Efficiency Investments Iron ore 216* fines quality improvement for pelletizer -6% Note: NLMK Russia feedstock consumption, 216 vs. 213, per 1 t of metal Source: NLMK data -12% Investments Output 213 Output 216 Output 217E** Output 218E * Increase of capacity utilization of HPGR technology (launched in mid-216) ** Output is also impacted by fluctuations in the maintenance cycles and iron ore quality Source: NLMK data 37

38 ❸ WE GROW FASTER THAN OUR MARKETS 2% 15% 1% 5% % -5% -1% -15% Earnings impact in : $86 m pa 7% volume growth and growing share of finished steel sales 8% sales growth in home markets 2/3 of NLMK steel sold in the region where it is manufactured Benefits from local markets premiums and lower logistics costs Integration between businesses grew to 1% M t Intragroup slabs sales grew 1.8x to 4 m t 1% of international divisions slab requirements covered internally External markets 35% NLMK sales*, 216 USA Europe 6. Russia Home markets: 65% M t By products NLMK sales structure improved Finished Source: NLMK data Semis -7% Semis sales +12% Finished steel sales By markets External markets Home markets NLMK sales growth vs. home markets, 216/215 7% -4% -1%-9% 18% 8% 2% 5% -5% Russia Flat Russia Long EU USA +7% +6% sales in external markets +8% sales in home markets * Including NBH sales Sales in home markets Demand growth Long products sales (incl. exports) Source: NLMK financial and operating results Source: NLMK financial and operating results, regional statistic agencies 38 %, yoy

39 ❹ PEOPLE AND SUSTAINABILITY REMAIN OUR PRIORITY Long-term focus on safe operating practices LTIFR of Russian operations down by 6% to,34x among lowest globally Group-wide safety metrics significantly improved as common safety practices roll out to international operations Further reduction in environmental footprint Air emissions down by 5% from 213 De-dusting efficiency reached 98% Significant improvement in safety metrics - LTIFR* Group Russian assets Growing production with improved employee productivity** rates Labor productivity increased by 22% Source: NLMK annual report Air emissions continue to drift down t of steel per employee; % to 213 level 22% Kg/t of steel, Russian operations % % Source: NLMK data ** Productivity calculated as steel output divided by the number of employees Target 22 Source: NLMK annual report *LTIFR Lost Time Injury Frequency Rate (per 1 mln man-hours worked). Russian assets include Russian Flat Products, Russian Long Products, Russian Mining 39

40 WORLD CLASS CORPORATE GOVERNANCE PRACTICES Growing involvement of independent directors Number of Independent Directors increased Audit Committee; HR, Remunerations and Social Policy Committee are chaired by Independent Directors Independent Directors make up the majority in each of the committees 62% Board: % of independent directors 5% 38% 36% 38% One of the industry s most transparent companies Europe 5 Best European Investor Relations Survey by Extel in (ranked in top 1) IR Magazine perception study 217: among leading exponents of investor relations in European steel sector and top-3 Best in country among Russian companies FTSE4Good index constituent according to the latest review (Jun 17) 62% 64% 62% 5% 38% Board 215 Board 216 Board Board Independent directors Committees Source: NLMK annual reports, without Chairman of the BoD % of committees chaired by an independent director Dividend policy provides visibility and predictability for debt- and equity holders 67% 33% 33% 33% 67% 67% Independent directors Source: NLMK annual reports, without Chairman of the BoD 4

41 COMPANY IR CONTACTS Sergey Takhiev Investor Relations Address 4, Bolshaya Ordynka Str., Bldg. 3 Moscow, 11917, Russia. IR Address st@nlmk.com Phone Number Office: ; Mobile: nlmkonair nlmk_group nlmk group 41