214 ACHIEVEMENTS 1 Record > 1.6 bln USD EBITDA MMK MC Dynamics, mln USD 2 577 2 5 2 Net debt down 1 bln USD -2% 2 63 2 3 FCF yield 37% 1 5 4 Lost opportunity of FMG stake sale in early 214 1 5 Social life: Won Gagarin Cup in ice hockey 5 1.1.213 1.1.214 2
KEY HIGHLIGHTS FOR MMK GROUP FY 214 Financial results Revenue USD 7,952 mln down 2.9% y-o-y Cost of sales USD 6,212 mln down 1.8% y-o-y EBITDA USD 1,67 mln up 31.4% y-o-y EBITDA margin 2.2% up 5.3 p.p. y-o-y Net debt USD 2,38 mln down USD 988 mln compared to the end of 213 Cash-cost of slab USD 33 per tonne down 19.8% or USD 74 y-o-y Free cash flow USD 759 mln 2.5x growth y-o-y HVA products share 45.1% down 3.1 p.p. y-o-y Q4 214 Financial results Revenue USD 1,727 mln down 19.1% q-o-q Cost of sales USD 1,35 mln down 19.1% q-o-q EBITDA USD 392 mln down 24.9% q-o-q EBITDA margin 22.7% down 1.7 p.p. q-o-q Free cash flow USD 294 mln up 41.3% q-o-q HVA products share 46.1% up.7 p.p. q-o-q 3
HISTORICAL EBITDA DYNAMICS 214 saw a record EBITDA, the highest since 29. Following a drop in 213 early 214, quarterly EBITDA for the last three quarters was consistently higher than 212-214 average. The process of adding new steel making capacities globally is slowing, which should result in the metal industry s recovery and growth in capacity utilisation. EBITDA annual performance, mln USD EBITDA quarterly performance, mln USD 29 139 Q1 212 Q2 212 293 369 21 166 Q3 212 Q4 212 33 398 211 1336 Q1 213 Q2 213 297 381 212 1363 Q3 213 Q4 213 233 312 213 1223 Q1 214 Q2 214 294 399 214 167 Q3 214 Q4 214 392 522 5 1 15 2 1 2 3 4 5 6 4
HIGH CAPACITY UTILISATION Key production indicators, ths tonnes Q4 '14 Q3 '14 % FY '14 FY '13 % Cast iron 2 476 2 629-6% 1 28 9 586 7% Crude steel incl. 3 72 3 381-9,1% 13 31 11 941 9% MMK 3 72 3 381-9,1% 13 31 11 941 9,1% MMK Metalurji - - Finished products 2 914 3 131-7% 12 158 11 6 1% MMK 2 776 2 996-7,3% 11 65 1 667 9,2% MMK-Metiz* 11 142-29% 58 535-5% ММК Metalurji* 172 184-6,5% 69 664 4% HVA products 1 344 1 42-5,4% 5 48 5 336 3% MMK Group finished steel products output in FY 214 was up 9.9% y-o-y. This growth was driven by import substitution on the Russian market. MMK Group High Value Added (HVA) steel products output in FY 214 was up 3% y-o-y. The share of HVA products in total output volume decreased to 45.1% due to significant growth in HRC sales to export markets. MMK Group s total capacity utilisation rate was 88%. The main underutilised capacities were EAFs and the few remaining un-modernised HRC and CRC rolling mills Lower crude steel output in Q4 214 by 9,1% q-o-q related to a scheduled maintenance of BF #8 (December 214) and oxygen converter (November-December 214), and seasonal slowdown of the demand. Belon coking coal concentrate 886 672 32% 2 942 2 858 3% * - incl. made from MMK steel MMK Group steel dynamics, ths tonnes Key capacities utilisation rates in 214, % 3 5 3 2 5 2 1 5 1 5 43,9% 2 919 44,4% 45,4% 46,1% 3 227 3 131 2 914 Q1 14 Q2 14 Q3 14 Q4 14 Steel products HVA Products Share 5,% 4,% 3,% 2,% 1,%,% Blast Furnace 1% Steel BOF 1% Steel EAF 58% Long Steel 1% HRC 93% CRC 77% Galv. products 98% Total by products 88% % 25% 5% 75% 1% 5
MMK GROUP SALES STRUCTURE ON THE RUSSIAN AND CIS MARKET Total sales volume on the Russian and CIS market in Q4 214 was 2,342 ths tonnes, while sales to the most metal-intensive locations of the Urals and the Volga regions amounted to 61% of total domestic sales. The biggest consumers of MMK steel in the CIS region are Kazakhstan (at 3%), Uzbekistan (at 28%) and Azerbaijan (at 19%) (of the total sales to the region). Sales structure on the Russian and CIS market, ths tonnes 2 521 2 342 Downstream products 2% 21% 11% 13% Flat cold-rolled products Larger share of better quality, but less productive products lead to the decline in sales of thick plate from mill 5 in Q4 214 and lower share of these products in total domestic sales. In Q4 214, the share of hot-rolled products in domestic sales decreased, while the share of cold-rolled products and long products increased. 11% 1% 4% 37% 18% 19% Q3 214 Q4 214 Mill 5 products Flat hot-rolled products Long products Slabs and billets Russia and CIS market sales by region, ths tonnes 2 521 2 342 13% 13% 7% 8% 8% 8% 1% 1% 22% 22% 4% 39% 3Q 214 4Q 214 CIS Other Siberia Central Region Volga Region Ural Russia and CIS market sales by sector, ths tonnes 2 521 2 342 13% 13% 1% 2% 9% 9% 3% 3% 3% 4% 6% 6% 31% 31% 9% 7% 24% 25% 3Q 214 4Q 214 CIS sales Other Construction sector Railway build. Automobile sector Machine building Pipe production Hardware and semiintegrated factories Service metal service 6
MMK GROUP POSITION ON KEY INTERNATIONAL MARKETS Sales on international markets in Q4 214 decreased to 572 ths tonnes. Hot-rolled products continued to account for more than 6% of exports. The proportion of sales to Middle East market decreased to 69%, while the that to Europe significantly increased to 27%. These changes were mainly related to the difficult situation in the Middle East and growth of steel products exports from China. HVA 37% Sales structure on the international markets, ths tonnes 61 572 26,8% HVA 28,% 38%,2%,% 9,% 9,6% 62,9% 6,3% Downstream products Mill 5 products Flat cold-rolled products Flat hot-rolled products 1,1% 2,1% Q3 214 Q4 214 Long products International sales structure by region, ths tonnes 61 572 4,4% 3,2% 15,4% Africa 27,4% Sales share by market, ths tonnes 1% 26% 22% 22% 23% 2% 13% 12% 18% 21% 18% 16% 16% 75% 78,2% 69,3% Europe Middle East 5% 25% 74% 78% 78% 77% 8% 87% 88% 82% 79% 82% 84% 84% 2,%,1% 3Q 214 4Q 214 North America % Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Domestic market (Russia + CIS) Export 7
KEY FINANCIAL HIGHLIGHTS OF MMK GROUP Revenue for Q4 214 decreased by 19.1% q-o-q to USD 1,727 million. The key factors were seasonal decline in sales volume and decrease in prices in dollar terms. Revenue for FY 214 decreased by 2.9% y-o-y. This was due to lower steel prices in 214, which are under pressure from the continuing global excess steel capacity and decrease in iron ore prices. Quarterly revenue dynamics, mln USD Annual revenue dynamics, mln USD 2 3 2 13 7 4 7 744 7 48 1 8 1 3 1 574 MMK Group revenue for Q4 214 amounted to USD 1,727 mln 6 4 5 4 4 4 MMK Group revenue for FY 214 amounted to USD 7,952 mln 8 3 4 2 4 3 165 173 65 65-18 -85 1 4 4 636 643 341 271-531 -37-2 Steel (Russia) Steel (Turkey) Coal Eliminations -6 Steel (Russia) Steel (Turkey) Coal Eliminations Q3 214 Q4 214 FY 213 FY 214 8
KEY FINANCIAL HIGHLIGHTS OF MMK GROUP MMK Group s EBITDA for Q4 214 amounted to USD 392 mln, with margin of 2.7%. The margin decreased by 1.7 p.p. q-o-q. MMK Group s EBITDA for FY 214 increased by 31.4% y-o-y to USD 1,67 mln EBITDA margin for FY 214 amounted to 2.2%. EBITDA/t vs metal sale price, USD/t Quarterly EBITDA dynamics, mln USD 49 39 29 19 9-1 522 378 8 5-3 7 2-5 Steel (Russia) Steel (Turkey) Coal Mining Eliminations Annual EBITDA dynamics, mln USD MMK Group s EBITDA for Q4 214 amounted to USD 392 mln Q3 14 Q4 14 7 6 5 4 3 64 516 633 573 149 99 119 157 EBITDA Группы ММК за 12 мес. 214 г составила 1 67 mln долларов США 2 1 169 131 94 131 Q3 14 Q4 14 FY 13 FY 14 EBITDA/tonne MMK Steel Price 49-1 25 28 48 11 131-2 Steel (Russia) Steel (Turkey) Coal Mining Eliminations FY 13 FY 14 9
Q3 214 Revenue Price change effect Products volumes FX Other factors MMK Metalurji + Coal Mining Q4 214 Revenue FY 213 Revenue Price change effect Products volumes FX Other factors MMK Metalurji + Coal Mining FY 214 Revenue ANALYSIS OF KEY FINANCIAL HIGHLIGHTS The key factor affecting revenue in both Q4 214 and FY 214 was the rouble rate fluctuation vs the US dollar The cash-cost of slab decreased by 21.1% in Q4 214 due to the decrease in prices for key raw materials as well as materials structure optimisation MMK Group s revenue, 214 vs 213, mln USD 8 42 622-957 -341 36 6 4 8 19 8 257 7 916 7 952 2 Cash-cost of slab dynamics, USD/t MMK Group s revenue, Q4 214 vs Q3 214, mln USD 35 3 25-44 -1-11 2 1 5 1-138 -329 51 7 2 15 38-21,1% 243 1 5 2 135 1 669 1 72 1 727 1 Slab cash-cost Q3 214 Raw materials price Raw materialsother factors*slab cash-cost structure Q4 214 1
DECREASING DEPRECIATION AND CAPEX SUPPORT THE GROUP S PROFITABILITY Deprecation costs in FY 214 amounted to USD 746 mln, down by more than 23% y-o-y Lower depreciation costs decreases pressure on profit, mln USD 25 It is expected that depreciation costs in dollar terms will continue to decrease in 215, due to the rouble devaluation vs the dollar MMK Group s CAPEX in 214 amounted to USD 497 mln (down 2.1% y-o-y) 2 15 1 5 246 242 237 244 184 22 28 152 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Depreciation Average level for 213 Quarterly CAPEX dynamics, mln USD CAPEX decrease following the end of investment cycle, mln USD 3 2 497 mln USD 2 5 2 2 112 1 613 2 29 1 13 91 13 27 131 15 112 14 1 5 1 5 1 216 1 154 674 622 497 4 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 27 28 29 21 211 212 213 214 215F 11
MMK BENEFITS FROM ONE OF THE HIGHEST FREE CASH FLOW YIELD IN THE SECTOR, mln USD 1 5-47 -34 Free cash flow 759 Market capitalisation as of 31.12.214 2,63 Free cash flow yield 36.8% 1-497 1 67 1 256 5 759 EBITDA WoC Net financial cost, tax, etc. FFO PPE FCF 12m '14 12
LOWER CAPEX FOR HIGHER EFFICIENCY CAPEX structure in 214, mln USD Planned CAPEX structure for 215, mln USD MMK Metalurji 2% Service 3% Others 7% MMK Metalurji 2% Service 3% Others 8% Belon 9% 497 mln Belon 8% 4 mln MMK 79% MMK 79% Due to the absence of major investment projects in the investment programme for the upcoming 2-3 years, more than 8% of CAPEX is denominated in roubles. The rouble devaluation will result in a decrease of that amount, in USD terms, as compared to the planned sum. 13
HIGH OPERATIONAL PERFORMANCE SUPPORTS EFFICIENT DECREASE OF THE DEBT LOAD, mln USD MMK Group s net debt as of the end of 214 decreased by USD 988 mln compared to 31.12.213. At the end of 214, net debt / EBITDA decreased to 1.27x, which the company sees as a comfortable level In 215, the company plans to further decrease the debt load by using cash funds and cash flow from operations 2,99 3, 4 2,59 2,47 2,5 3 2, 2 4 416 3 992 3 88 3 518 3 18 3 26 1,27 1,5 1, 1 2 587 2 38,5 31.12.211 31.12.212 31.12.213 31.12.214, Total Debt Net Debt Net Debt/EBITDA (RHS) 14
ММК GROUP S DEBT PROFILE Significant rouble devaluation in December 214 resulted in further growth of the debt share denominated in USD 59%. Volume of liquid funds in the MMK Group s balance sheet significantly exceeds the short-term debt. Debt maturity schedule does not presume any significant onetime payments. High level of liquidity, mln USD Debt and cash funds structure by currency, mln USD 35 3 25 2 15 1 5 3 18 112 Debt 554 741 518 1427 1515 31.12.213 31.12.214 USD EUR RUB 2 587 Debt maturity schedule, mln USD 6 5 4 3 2 1 C&CE + Bank deposit 154 4 3 46 74 549 3 156 46 344 31.12.213 31.12.214 USD EUR RUB TYR 2 2 11 348 1 5 1 1 114 863 5 222 327 Liquidity sources Short-term Debt Cash Sort-term deposit Credit lines FMG Stake 1 75 5 25 863 19 267 67 849 211 273 62 338 33 643 11 32 55 184 143 215 216 217 218 219 and beyond Q1 Q2 Q3 Q4 87 15
STRUCTURE OF OPERATING COSTS AND CASH COSTS In Q4 214, the share of iron ore and key materials (ferroalloys, zinc, etc.) increased in the structure of OJSC MMK s material costs. At the same time, the share of pellets and metal scrap decreased The decrease in operating costs in Q4 214 by 18% q-o-q was due to the continued cost optimisation programme, decreasing sales volume, as well as the rouble devaluation Higher share of sinter and lower share of pellets in MMK s Q4 214 material costs resulted from completion of general maintenance of sintering facilities in late Q3 214 followed by increased sinter output replacing pellets in the blast furnace charge. OJSC MMK material costs, USD/t 4,% 2,9% 9,% 1,4% 9,4% 9,8% 17,3% 18,3% Power from outside sources Fuel from outside sources Auxiliary materials MMK Group operating costs, mln USD Q4 14 Q3 14 +/- % Cost of sales 1 35 1 614-39 -19% 17,4% 15,% 17,5% 18,1% 13,6% 12,4% 11,8% 13,1% Q3 214 Q4 214 Other main materials Scrap Сoals Iron ore (pellets) Iron ore (sinter) Selling and distribution expenses 112 127-15 -12% General and administrative expenses 74 88-14 -16% Other operating (expenses)/income, net 5 1 4 4% Total operating costs 1 496 1 83-334 -18% 16
COMMENT ON MARKET SITUATION In Q1 215, demand for the company s products remains high, giving a forecast growth in sales of up to 3-4% q-o-q during the quarter. The rouble price on the domestic market has been growing since November 214, and has now reached export parity level. Low global prices for ore, surplus steel capacities in the world (at least 77% capacity utilisation rate) and growing steel exports from China continue to put pressure on steel prices, resulting in a decline in export prices during Q1 215. Q1 215 sees rising rouble prices for coal (by 25-3%). This rise in the company s costs is balanced out by iron ore prices (currently, Platts index is below USD 6 per tonne). 17
DISCLAIMER THIS PRESENTATION IS FOR INFORMATION ONLY. THIS PRESENTATION IS FOR DISTRIBUTION IN UK ONLY AMONG THE PEOPLE HAVING PROFESSIONAL SKILL IN THE ISSUES RELATED TO INVESTMENTS WITHIN THE MEANING OF ARTICLE 19(5) OF DIRECTIVE ON FINANCIAL ADVERTISEMENT APPROVED IN 25 ON THE BASIS OF LAW ON FINANCIAL SERVICES AND MARKETS 2, OR THOSE PEOPLE, AMONG WHICH IT MAY BE LAWFULLY DISTRIBUTED. THIS INFORMATION IS CONFIDENTIAL AND PROVIDED TO YOU EXCLUSIVELY FOR YOUR REFERENCE. BY ACCEPTANCE OF THIS INFORMATION THE RECIPIENT HEREOF CONFIRMS THAT HE OR SHE IS A SPECIALIST IN THE SPHERE OF INVESTMENTS WITHIN THE MEANING OF ARTICLE 19(5) OF DIRECTIVE ON FINANCIAL ADVERTISEMENT APPROVED IN 25 ON THE BASIS OF LAW ON FINANCIAL SERVICES AND MARKETS 2, ACTING IN HIS OR HER NATURE. THIS PRESENTATION DOES NOT CONSTITUTE AN OFFER OR A PART THEREOF, OR INVITATION TO SELL OR TO ISSUE, OR TO SUBSCRIBE FOR OR OTHERWISE PURCHASE ANY SHARES IN THE COMPANY OR ANY OTHER SECURITIES AND NOTHING CONTAINED HEREIN SHALL FORM THE BASIS OF ANY CONTRACT OR COMMITMENT WHATSOEVER. THE INFORMATION CONTAINED HEREIN IS SUBJECT TO VERIFICATION, COMPLETION AND MAY BE SIGNIFICANTLY CHANGED. NONE OF THE PERSONS IS LIABLE TO UPDATE OR MAINTAIN TOPICALITY OF THE INFORMATION CONTAINED HEREIN, AND THIS INFORMATION AND OPINIONS REFLECTED THEREIN COULD BE CHANGED WITHOUT ANY NOTIFICATION THEREABOUT. THIS INFORMATION DOES NOT CONSTITUTE AN OFFER OF THE SECURITIES TO BE SOLD IN RUSSIA, THE UNITED STATES OR ANY OTHER JURISDICTION. THE SECURITIES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933,AS AMENDED, AND MAY NOT BE OFFERED OR SOLD INTO THE UNITED STATES EXCEPT IN A TRANSACTION REGISTERED UNDER SUCH ACT, OR NOT REQUIRED TO BE REGISTERED THERE UNDER, OR PURSUANT TO AND EXEMPTION FROM REGISTRATION REQUIREMENTS THEREOF. NO OFFERING OF SECURITIES IS BEING MADE INTO THE UNITED STATES. NO SECURITIES WILL BE REGISTERED UNDER THE APPLICABLE SECURITIES ACT OF ANY STATE OR TERRITORIAL ENTITY OF CANADA AND JAPAN. THIS PRESENTATION IS NOT SUBJECT TO MAILING, TRANSFERRING OR OTHER TYPE OF DISTRIBUTION IN THE UNITED STATES OF AMERICA, CANADA, AUSTRALIA AND JAPAN, OR TO THE TERRITORY OR FROM THE TERRITORY OF THE SPECIFIED COUNTRIES TO THE NAME OF ANY ANALYST IN THE SPHERE OF SECURITIES OR OTHER PERSON IN ANY OF THE SPECIFIED JURISDICTIONS. YOU AGREE TO AVOID FROM DISTRIBUTION OF ANY REPORT RESULTING FROM THE SURVEY OR SIMILAR DOCUMENTS ON THE TERRITORY OF THE UNITED STATES OF AMERICA, CANADA, AUSTRALIA AND JAPAN, SAVE AS IN ACCORDANCE WITH THE FEDERAL LAWS OF THE UNITED STATES ON SECURITIES INCLUDING SECURITIES ACT, AS WELL AS THE APPLICABLE LAWS OF CANADA, AUSTRALIA AND JAPAN, ACCORDINGLY. THIS PRESENTATION INCLUDES THE STATEMENTS RELATED TO THE FUTURE, WHICH REPRODUCE THE INTENTIONS, OPINIONS AND CURRENT EXPECTATIONS OF THE COMPANY. THE STATEMENTS FOR THE FUTURE INCLUDE ANYTHING, WHICH IS NOT A FACT OCCURED. THE COMPANY TRIED TO HIGHLIGHT SUCH STATEMENTS RELATED TO THE FUTURE BY MEANS OF THE WORDS, SUCH AS MAY, WILL, SHOULD, EXPECT, INTEND, EVALUATE, ASSUME, PLAN, TO HAVE AN OPINION, TRY, FORECAST, CONTINUE AND SIMILAR WORDS OR THEIR NEGATIVE FORMS. SUCH STATEMENTS HAD BEEN DONE BASING ON THE ASSUMPTIONS AND ASSESSMENTS, WHICH MAY OCCUR FAULTY, THOUGH THE COMPANY CONSIDERS THEM REASONABLE AT THE CURRENT MOMENT. SUCH STATEMENTS RELATED TO THE FUTURE ARE LINKED TO THE RISKS, UNCERTAINTIES AND ASSUMPTIONS, AS WELL AS TO OTHER FACTORS, WHICH MAY LEAD TO THE EVENT THAT ACTUAL RESULTS OF THE COMPANY S ACTIVITY AND ACTIVITY OF THE MARKETS, ON WHICH IT OPERATES OR INTENDS TO OPERATE IN, THEIR FINANCIAL STATUS, LIQUIDITY, CHARACTERISTICS, PROSPECTS AND ABILITIES COUILD MATERIALLY DIFFER FROM THOSE, WHICH ARE EXPRESSED WITH THE HELP OF SUCH STATEMENTS RELATED TO THE FUTURE. THE IMPORTANT FACTORS, WHICH MAY RESULT IN SUCH DIFFERENCES, INCLUDE, INTER ALIA, CHANGING BUSINESS CONDITIONS AND OTHER MARKET CONDITIONS, COMMON ECONOMIC CONDITIONS IN RUSSIA, EU COUNTRIES, THE UNITED STATES OF AMERICA OR ANYWHERE ELSE, AS WELL AS THE ABILITY OF THE COMPANY TO MEET THE TRENDS IN THE INDUSTRY. THE MATERIAL DIFFERENCE OF THE ACTUAL RESULTS, FEATURES AND ACHIEVEMENTS MAY BE THE RESULT OF ADDITIONAL FACTORS. THE COMPANY AND ALL ITS DIRECTORS, OFFICERS, EMPLOYEES AND ADVISORS HEREWITH STATE THAT THEY ARE NOT OBLIGED TO ISSUE ANY UPDATE OF OR REVISE ANY STATEMENTS RELATED TO THE FUTURE CONTAINED HEREIN, OR DISCLOSE ANY CHANGES IN THE FORECASTS OF THE COMPANY OR EVENTS, CONDITIONS AND CIRCUMSTANCES, WHICH SUCH STATEMENTS RELATED TO THE FUTURE ARE BASED ON, SAVE AS IN THE CASES PROVIDED FOR BY THE APPLICABLE LAWS. RECEIPT OF ANY COPY OF THIS INFORMATION TESTIFIES THE ACCEPTANCE OF THE ABOVE LIMITATIONS. 18