Investor Presentation October 2016

Transcription

1 Investor Presentation

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 3

4 s Profile A leading steel company in Latin America Net sales of USD 7.9 billion Finished products capacity of 11.0 million tons Industrial facilities in Mexico, Argentina, USA, Colombia and Central America Vertically integrated, from iron ore mines to service centers Focus on high value-added products Participation in Usiminas 1 control group Net sales of BRL 10.2 billion Steel production capacity of 9.5 million tons 1 Usiminas: a leading company in the Brazilian flat steel market Steel Shipments - 1H 2016 USA 4% Argentina 21% Mexico 66% Colombia 6% Other 3% 4

5 s Profile Consistently superior results Focus on high margin valueadded products EBITDA Margin (% of net sales) Flexible production configuration Diversified cost structure Upstream and downstream integration Best practices Broad distribution network Average Peers range 1 1H16 1 Long steel Americas, global player, U.S. minimill and U.S. integrated (Source: Bloomberg) Innovative culture, industrial expertise and long-term view 5

6 Performance EBITDA and net income EBITDA (USD million) 393 EBITDA Margin (% of net sales) % 13% 16% 18% 21% 2Q15 3Q15 4Q15 1Q16 2Q16 2Q15 3Q15 4Q15 1Q16 2Q16 EBITDA per ton 1 (USD) Net Income and Earnings per ADS 0.78 Net Income (Loss) (USD million) Earnings (Losses) per ADS Q15 3Q15 4Q15 1Q16 2Q16 (127) 2Q15 3Q15 4Q15 1Q16 2Q16 1 Consolidated EBITDA divided by steel shipments. (0.64) 6

7 Performance Strong cash generation and solid financial position Declining net debt to EBITDA ratio (0.9x as of June 2016) Sustained cash generation High free cash flow yield Net debt and net debt to EBITDA ratio (USD billion) Attractive dividend payments 1.2x 1.2x 1.1x 1.0x 0.9x 2Q15 3Q15 4Q15 1Q16 2Q16 Annual dividends (USD per ADS) Free cash flow (USD million) Q15 3Q15 4Q15 1Q16 2Q16 1 Last 12 months EBITDA 7

8 Performance Record steel shipments in 2Q16 Shipments of 2.6 million tons in 2Q16, up 7% versus 1Q16 and a new record Shipments in Mexico up 10% versus 1Q, on strong activity and inventory buildup Shipments in Southern Region down 2% versus 1Q, reflecting economic transition in Argentina and a recession in Brazil Steel shipments in Mexico (million tons) % Consolidated steel shipments (million tons) 7% Steel shipments in Southern Region ( 000 tons) Q15 3Q15 4Q15 1Q16 2Q16 Argentina -2% Other Q15 3Q15 4Q15 1Q16 2Q16 2Q15 3Q15 4Q15 1Q16 2Q16 8

9 Performance Continuous focus on profitability Comprehensive approach to increasing differentiation and reducing costs Customer integration Labor productivity (white and blue collar) Working capital optimization Logistics management Contractors management Energy efficiency Continuous improvement 9

10 A Level Playing Field World dealing with unfair trade Cases against steel unfair trade growing strongly worldwide China is the main target of unfair trade cases in more than 20 countries World reacting against unfair Chinese steel trade conditions G7 expressed concern regarding excess global steelmaking capacity European Parliament opposes China s market economy status Up to 266% AD duty in the USA Complaint on intellectual property infringement (U.S. section 337) Claims initiated against China for unfair steel trade in the world (# per year) Standing duties for Chinese steel imports in U.S. and Mexico Hot-rolled Cold-rolled Corrosionresistant U.S. Mexico U.S. Mexico U.S. Mexico Note: AD: anti-dumping; CV: countervailing up to 91% AD up to USD355/ton AD 256% CV 266% AD up to 103% AD 210% AD up to 241% CV up to USD438/ton AD 10

11 Latin American Steel Markets 11

12 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 5.1% in the last decade, among the highest in the region, driven by a dynamic manufacturing industry Apparent steel use (million tons) Brasil Mexico 25.0 Argentina Colombia Source: Canacero, Aço Brasil, Cámara Argentina del Acero, ANDI 12

13 Mexico 13

14 s Markets - Mexico Largest steel market in Latin America is the leader of the Mexican flat steel market s steel shipments in Mexico reached 5.9 million tons in 2015, more than 60% of total steel shipments Mexico has the highest per capita apparent steel use in Latin America (approximately 200 kilograms/year) Steel shipments in Mexico (million tons) ASU per capita Mexico (kg/year) % % CAGR 2.8% Source: Canacero 14

15 s Markets - Mexico Shipments to industrial customers growing consistently Mexican industrial market provides growth opportunities Automotive industry Home appliance manufacturers The industrial market entails increased customer requirements Full product range Customized products (service centers) Product development (early involvement) Value chain inventory management s shipments to industrial customers (million tons) s shipments growth in 1H 2016 (year-over-year) 20% 10% 8% Automotive Construction Home appliance 9% Other sectors 15

16 s Markets - Mexico Largest vehicle manufacturer in Latin America Strong production growth in the last five years Record 3.4 million units light vehicle production in 2015 (+6% vs 2014) Light vehicle production in Mexico (million units) +50% Record local vehicle sales in 2015 (+19% vs 2014) Production expected to reach 4.9 million units by 2020 Tenigal s current line fully devoted to automotive products following a demanding certification process Second galvanizing line in Pesquería for the automotive industry under development f Source: IHS automotive certifications Number of product certification by process and customer (accumulated) 16

17 s Markets - Mexico Increasing high-end product range Broader product range enabled by upgrading of re-rolling facility New production capabilities for advanced high-strength steel (AHSS) for the automotive industry AHSS includes: dual phase; ferrite-bainite; martensitic; complex phase Next steps: 200,000 tons per year expansion of the re-rolling facility (start-up Nov 16) Other expansions under analysis New galvanizing and painting line for industrial customers New service center for automotive industry Ultrahigh-strength High-strength Die-cut capability 17

18 s Markets - Mexico Commercial market: branding, customization and service s distribution network in Mexico High-margin market resulting from customization and service Value coming from branding, local presence and logistics management High entry barrier against imports Full product range Nationwide coverage through regional distributors Enhancing service through IT developments s distribution network Shipments (million tons) Active customers (#) +17% +26%

19 Southern Region - Argentina 19

20 s Markets - Argentina Economic transition toward medium-term growth Steel consumption adjusting in 2016 High-base comparison (2015 national elections) New infrastructure plans to materialize gradually Decrease in Brazilian demand for manufactured products Apparent steel use - Argentina (million tons) f 2017f Source: Alacero -18% +6% Improving fundamentals Easing of FX restrictions Return to international credit markets Normalization of international trade Better investment environment 20

21 s Markets - Argentina Managing the transition Adapting to new economic conditions Production configuration Argentina Operations rebalancing (1 blast furnace, 1 continuous caster, coking production) Renegotiation of supply and service contracts Iron Ore (Corumba, Atlantic) Blast Furnaces Pet Coke Coking Coal Raising awareness about unfair trade China: non-market economy Updating of AD and CV regulations Legal support to value chain Continuous Casting Coking Facilities Strengthening customer relationship Focus on quality and customer support Webservice+B2B Wide product range Customer inventory management Note: AD: anti-dumping; CV: countervailing Downstream Domestic Market Regional Markets Slabs 21

22 s Markets - Argentina Growth opportunities expected in the medium-term Direct and indirect steel demand growth coming from: s Argentine operations production growth opportunities Agricultural sector Agro-machinery, warehousing, infrastructure, silos Infrastructure projects Roads, water supply, railways, ports Energy and mining Renewable energy, gas lines & distribution systems Gold, copper, silver and lithium mining Industrial goods Automotive & home appliances Technology and services Software, tourism, education Increased utilization rates Steelmaking Hot and cold-rolling Capacity expansion options Hot strip mill debottlenecking (production capacity and broader product range) New hot-dipped galvanizing line (under analysis) New pre-painted line (under analysis) 22

23 Steel Market Trends 23

24 Steel Market Trends US steel market Steel price benchmarks (hot rolled coils) Scrap price benchmark (shredded USA Midwest) 800 Europe domestic (USD/ton) US domestic (USD/ton) 450 USD/long ton Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 US steel imports Million tons Months of supply Million tons Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Source: Metal Bulletin / Steel Business Briefing / MSCI / US Census Bureau / US service center inventory 24

25 Steel Market Trends Input costs Iron ore price benchmark (IODEX CFR China) 150 USD/ton Slab price benchmark (FOB Black Sea) 600 USD/ton Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Hard met coal price benchmark (FOB contract) 250 USD/ton Natural gas price benchmark (Henry Hub) 6 USD/ton 200 Spot Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 1 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Source: Metal Bulletin / Steel Business Briefing / Bloomberg 25

26 Conclusion 26

27 Conclusion Outperforming peers in a challenging industry environment Opportunity to increase profitability through continuous differentiation and cost reduction initiatives Market regionalization following broad reaction against unfair trade Competitive positioning in Mexico to serve demanding industrial market Attractive prospects in Argentina following economic reform Continued focus on generating longterm shareholder value 27

28 Conclusion s Strategic Agenda Our Focus Our Objectives Leader in attractive markets, high market share Expansion in North America, mainly Mexico Focus on value-added products Increase high-end product offering Differentiation Profit sustainability Growth Slabs supply strategy Operational excellence Shareholder value 28

29 29

30 Appendix Performance Corporate Structure Production Capacity Production Configuration Techgen Shipments and Net Sales Income Statement Cash Flow Statement Balance Sheet 30

31 Performance Sustainable growth and resilient profitability Steel shipments (million tons) EBITDA 19% 18% 1,648 1,418 15% 1,287 USD million EBITDA Margin 17% 17% 14% 1,487 1,471 1, Free cash flow (USD million) Capital Expenditures (USD million) 577 1, High-end investment plan f 1 1 Source: s 20F 2015, issued April 29,

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

33 Production Capacity s main steel production facilities are located in Mexico and Argentina Mexico Argentina Other (1) Total Production Capacity (*) (million metric tons per year) slabs billets Crude steel coils rebars & wire rods Hot rolled Cold rolled coils Tinplated products Galvanized products Pre-painted products Service center (1) Southern US, Colombia and Central America (*) As of year-end

34 Production Configuration Flexible configuration and diversified cost structure s mix of technologies provides flexibility to adapt to changing market environments Diversified cost structure supports margin s low volatility Purchased Slabs Iron ore DRI EAF CC Scrap Natural gas Electricity Iron ore Coking coal BF BOF CC Slab processing (Mexico) DRI/EAF EAF (scrap only) BF/BOF Notes: DRI: Direct reduced iron EAF: Electric arc furnace 36% (Argentina) 29% 35% (Mexico) BF: Blast furnace BOF: Basic oxygen furnace CC: Continuous caster 34

35 Production Configuration Mexico Argentina Natural Gas Proprietary Iron Ore Mines Pellet Iron Ore (Corumba, Atlantic) Coking Coal Pet Coke Scrap Direct Reduction (2.7 mtpy) Market Concentrate Sales Continuous Casting 1 (3.9 mtpy) Round Bar / Billet Sales Blast Furnaces (3.2 mtpy) Slab Purchases Continuous Casting (5.6 mtpy) Flat/Long Hot Rolling (3.4 mtpy) Hot Strip Mills (3.7 mtpy) Slab Sales Hot Strip Mill (2.9 mtpy) Value Adding Processes Value Adding Processes Domestic & Regional Market Domestic & Regional Market 1 Includes a scrap-only long steel manufacturing facility with capacity of 0.7 mtpy 35

36 Techgen Successful project management New 900 MW combined cycle power plant in Pesquería Joint venture among, Tenaris and Tecpetrol Project completed on time and on budget Competitive and reliable supply of electricity Best available environmental care technology Techgen facility at Pesquería, Nuevo León, Mexico 36

37 Shipments and Net Sales Second quarter 2016 and first half Q Q 2015 Dif. 2Q Q 2015 Dif. 2Q Q 2015 Dif. Mexico 1, , % 1, , % % Southern Region % % % Other Markets % % % Total steel products 1, , % 2, , % % Other products (1) % Total steel segment 1, , % Total mining segment % % % Total intersegment eliminations (47.7) (48.9) Total steel and mining segments 1, , % Net Sales (million USD) Shipments (thousand tons) Revenue / ton (USD/ton) Net Sales (million USD) Shipments (thousand tons) Revenue / ton (USD/ton) 1H H 2015 Dif. 1H H 2015 Dif. 1H H 2015 Dif. Mexico 2, , % 3, , % % Southern Region , % 1, , % 826 1,001-18% Other Markets % % % Total steel products 3, , % 5, , % % Other products (1) % Total steel segment 3, , % Total mining segment % 1, , % % Total intersegment eliminations (91.1) (105.3) Total steel and mining segments 3, , % (1) The item "Other products" primarily includes pig iron. 37

38 Shipments and Net Sales Full year 2015 and 2014 Net Sales (million USD) Shipments (thousand tons) Revenue / ton (USD/ton) Dif Dif Dif. Mexico 4, , % 5, , % % Southern Region 2, , % 2, , % 1,006 1,052-4% Other Markets , % 1, , % % Total steel products 7, , % 9, , % % Other products (1) % Total steel segment 7, , % Total mining segment % 3, , % % Total intersegment eliminations (200.8) (287.6) Total steel and mining segments 7, , % (1) The item "Other products" primarily includes pig iron. 38

39 Income Statement USD million 2Q Q H H (Unaudited) (Unaudited) Net sales 1, , , , , ,726.1 Cost of sales (1,389.7) (1,689.8) (2,676.5) (3,418.1) (6,477.3) (6,925.2) Gross profit , ,800.9 Selling, general and administrative expenses (180.0) (204.8) (344.0) (402.2) (770.3) (816.5) Other operating income, net (1.9) Operating income ,056.2 Finance expense (23.9) (24.4) (36.5) (48.5) (89.5) (117.9) Finance income Other financial (expenses) income, net (17.9) 40.7 Equity in earnings (losses) of non-consolidated companies 4.9 (1.1) 7.3 (10.6) (272.8) (751.8) Profit before income tax expense Income tax expense (124.0) (31.3) (183.3) (124.4) (207.3) (339.1) Profit (Loss) for the period (104.2) Attributable to: Owners of the parent (198.8) Non-controlling interest Profit (Loss) for the period (104.2) 39

40 Cash Flow Statement USD million 2Q Q H H (Unaudited) (Unaudited) Profit for the period (104.2) Adjustments for: Depreciation and amortization Equity in (earnings) losses of non-consolidated companies (4.9) 1.1 (7.3) Changes in provisions Net foreign exchange results and others (17.2) Interest accruals less payments Income tax accruals less payments 57.6 (54.8) 54.6 (23.4) (23.9) (39.5) Results on the sale of participation in subsidiary company Changes in working capital (551.0) Net cash provided by operating activities , Capital expenditures (132.4) (143.6) (230.2) (227.5) (466.6) (443.5) Proceeds from the sale of property, plant & equipment Sale of participation in subsidiary company, net of cash disposed (0.7) (0.7) - Acquisition of business/stake - Purchase consideration Usiminas (249.0) Investment in non-consolidated companies - Usiminas (114.4) - (114.4) Investment in non-consolidated companies - Techgen (9.6) (3.0) Dividends received from non-consolidated companies Loans granted to non-consolidated companies - Techgen (29.4) - (52.0) - (10.4) - Decrease (increase) in Other Investments (16.9) (85.9) 18.3 Net cash used in investing activities (244.2) (132.6) (362.0) (244.4) (572.1) (675.8) Dividends paid in cash to company's shareholders (176.7) (176.7) (176.7) (176.7) (176.7) (147.2) Dividends paid in cash to non-controlling interest (50.8) (32.7) (50.8) (32.7) (32.7) (33.6) Acquisition of non-controlling interest - (74.0) - (74.0) (74.0) - Contributions from non-controlling shareholders in consolidated subsidiaries Proceeds from borrowings ,038.8 Repayments of borrowings (299.7) (294.0) (592.5) (612.3) (1,379.7) (773.4) Net cash (used in) provided financing activities (124.0) (303.4) (209.5) (462.9) (809.6) 84.6 (Decrease) Increase in cash and cash equivalents (4.5) (1.3) (58.2) (85.4) 40

41 Balance Sheet USD million June 30, 2016 December 31, 2015 USD million June 30, 2016 December 31, 2015 Property, plant and equipment, net 4, ,207.6 Capital and reserves attributable to the owners of the parent 4, ,033.1 Intangible assets, net Non-controlling interest Investments in non-consolidated companies Total Equity 4, ,803.0 Derivative financial instruments - - Provisions Deferred tax assets Deferred tax liabilities Receivables, net Other liabilities Trade receivables, net - - Trade payables Total non- current assets 5, ,480.4 Borrowings Total non-current liabilities 1, ,559.0 Receivables Derivative financial instruments Current income tax liabilities Inventories, net 1, ,579.1 Other liabilities Trade receivables, net Trade payables Other investments Derivative financial instruments Cash and cash equivalents Borrowings 1, Total current assets 2, ,570.5 Total current liabilities 1, ,700.6 Non-current assets classified as held for sale Total liabilities 3, ,259.6 Total assets 8, ,062.6 Total equity and liabilities 8, ,

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