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Q4 and FY 2011 Financial Results Presentation 19 April 2012
Table of Contents
3 Q4 2011 Results Overview
7 Divisional Performance and Market Outlook
11 Financial Position
18 Appendices
Q4 and FY 2011 Results Overview
Page 4
Summary
» Following the decision to separate Nordgold from Severstal, Nordgold’s results are shown as discontinued operations in Severstal’s Q3, Q4 and FY2011, as well as FY2010 financial results;
» FY 2011 revenue (ex Nordgold) increased 23.3% y/y to $15,812m due to higher prices and sales volumes across the portfolio, while Q4 Group revenue was 17.5% lower q/q to $3,727m due lower prices and volumes;
» Annual 2011 EBITDA* (ex Nordgold) went up 25.1% y/y to $3,584m with Q4 EBITDA reducing 24.7% q/q to $767m. The Q4 2011 EBITDA includes $52m one-off provisions related to accounts receivables and derivative liability. Net of the one-off, EBITDA would be approximately $819m;
» FY 2011 EBITDA margin was up 0.4 ppts, while Q4 EBITDA margin decreased by 1.9 ppts, but still remained one of the highest in the industry – above 20%;
» Q4 net profit** up 7.9% to $463m (Q3 2011: $429m). FY 2011 bottom line turned around to positive $2,035m from a loss of $575m with EPS of $2.02 per share;
» Recommended dividend payment of 3.56 rubles per share (approximately $0.12) for the 12 months ended 31 December 2011. This represents approximately 25% of the Q4 2011 net profit. The dividend is to be approved at the AGM on 28 June 2012. If approved, the dividend amount for all the quarters of 2011 will total 15.19 rubles, which is more than two times higher than the respective figure for the whole 2010;
» Key strategic developments in FY 2011 (sale of 3 underperforming US assets; decision to separate Nordgold; completion of CAPEX program in the US with the doubling capacities at Columbus and modernization of Dearborn; streamline of greenfield projects) have focused Severstal as a pure steel and steel related bulks producer, focusing more on mining and emerging markets.
Q4 and FY 2011 highlights***
*EBITDA represents profit /(loss) from operations plus depreciation and amortization of productive assets adjusted for gain/(loss) on disposals of property, plant, equipment and intangible assets; ** Attributable to shareholders of OAO Severstal; *** These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits”.
REVENUE Dynamics and Breakdown
Q4 2011 Revenue: $3,727m (Q3 2011: $4,519m; -17.5%)
Lower revenue driven by lower sales volumes as well as weaker pricing environment across the portfolio
FY 2011 Revenue: $15,812m (FY 2010: $12,819m; +23.3%)
Marked growth in selling volumes and realized prices led to overall annual increase in the top line
Page 5
(391)
886
891
2 341
(489)
1 057
962
2 989
(600) - 600 1 200 1 800 2 400 3 000
Intersegment, etc.
Steel Resources
Severstal NorthAmerica
Russian Steel
Q3 2011* Q4 2011*
(1 868)
3 711
3 422
10 547
(1 640)
2 732
2 912
8 815
(2 000) 1 500 5 000 8 500 12 000
Intersegment, etc.
Steel Resources
Severstal NorthAmerica
Russian Steel
FY 2010* FY 2011
* These amounts reflect adjustments made in connection with the presentation of discontinued operations and the early adoption of the revised IAS 19 “Employee benefits”.
10
344
18
395
17
460
42
499
- 100 200 300 400 500 600
Intersegment, etc.
Steel Resources
Severstal North America
Russian Steel
Q3 2011* Q4 2011*
EBITDA Dynamics and Breakdown
Q4 2011 EBITDA: $767m (Q3 2011: $1,018m; -24.7%)
Weaker earnings due to deteriorating global economic environment and a $52 million one-off related to accounts receivables and derivatives liability
FY 2011 EBITDA: $3,584m (FY 2010: $2,864m; +25.1%)
Annual earnings growth across the divisions with SNA more than doubling its EBITDA
Page 6
* These amounts reflect adjustments made in connection with the presentation of discontinued operations and the early adoption of the revised IAS 19 “Employee benefits”.
15
1 604
181
1 784
(53)
1 154
89
1 674
(500) - 500 1 000 1 500 2 000
Intersegment, etc.
Steel Resources
Severstal North America
Russian Steel
FY 2010* FY 2011
Divisional Performance and Market Outlook
162 155 154 162
885 826
723
867
00
100
200
300
400
Q3 2011 Q4 2011 FY 2010 FY 2011
EBITDA per tonne (US$/t) Average Selling Price (US$/t)*
Severstal Russian Steel
» Q4 2011 EBITDA down 20.8% to $395m (Q3 2011: $499m) with EBITDA margin up 0.2 ppts to 16.9% on declining input costs;
» Q4 revenue down 21.7% q/q to $2,341m on lower sales volumes (15.8% down q/q) and prices. Decrease in volumes was expected and driven by lower demand in Q4, exceptionally strong demand in Q3, sale of inventories in Q3 and some inventory build-up by the division’s traders in Q4 on anticipation of higher prices in Q1 2012. These accumulated stocks were sold in Jan-Feb’12 at higher prices;
» Share of high-value-added products of 46% in Q4 was up from 44% in Q3 on more resilient demand of HVA products. Share of sales volumes on the domestic market went up to 59% in 2011 from 54% in 2010.
Share of high-value-added products* in total steel shipments, %
EBITDA per tonne and average selling price
*All steel products, incl. pipes, etc.; Ex Works price terms.
Steel sales volumes by destination, %
* High-value-added comprises: plate; cold-rolled , galvanized and metallic coated, color coated sheet; metalware; large-diameter and other pipes.
EBITDA drivers in Q4 2011, $m
Page 8 ** Excluding foreign exchange effect
54% 61% 55%
60% 57%
46% 39% 45% 40% 43%
0%
20%
40%
60%
80%
100%
Q4 10 Q1 11 Q2 11 Q3 11 Q4 11
Russia Export
0%
20%
40%
60%
80%
100%
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11
Total finished steel, mt (lhs) share of HVA, %
376
395 71
(27)
499 (458)
(66)
-100
0
100
200
300
400
500
600
EBITDAQ3 2011
SalesVolume
SalesPrice**
COGSVolume
COGSPrice
Other EBITDAQ4 2011
Steel Resources
» Q4 2011 revenue contracted by 16.2% to $886m on overall lower coking coal and iron ore prices, as well as lower sales volumes of iron ore and coking coal;
» Q4 2011 EBITDA of $344m was down 25.2% from Q3 as a result of lower revenues and rising costs at our units. The division’s Q4 2011 EBITDA was also impacted by the $52m one-off provisions related to accounts receivables and derivative liability;
» At the same time Vorkuta’s unit cash costs were down from $127/t in Q3 to $72/t on commissioning a new huge longwall at the Vorgashorskaya mine and boost of semi-soft concentrate output.
EBITDA per tonne and average selling price
Vo
rku
tau
gol (
RU
) (c
oki
ng
coal
co
nce
ntr
ate)
Ka
rels
ky O
katy
sh (
RU
) (p
elle
ts)
PB
S C
oal
s (U
SA)
(co
kin
g co
al c
on
cen
trat
e)
*Free carrier price terms.
EBITDA drivers in Q4 2011, $m
Page 9
84
(7)
49 51
182 162
124
163
(15)
185
(10)
10
30
50
70
90
Q3 2011 Q4 2011 2010 2011
EBITDA per tonne (US$/t) Average Selling Price (US$/t)*
77 65
56
72
135 133
103
134
0(10)
10
30
50
70
90
110
Q3 2011 Q4 2011 2010 2011
EBITDA per tonne (US$/t) Average Selling Price (US$/t)*
83 95
69
101
210
167 142
193
(30)
220
0
20
40
60
80
100
120
140
160
Q3 2011 Q4 2011 2010 2011
EBITDA per tonne (US$/t) Average Selling Price (US$/t)*
344
37
(46) (27)
460
(55) (25)
0
100
200
300
400
500
600
EBITDA Q32011
SalesVolume
Sales Price COGSVolume
COGS Price Other EBITDA Q42011
39
18 24
48
857 820
765
862
0 -
20
40
60
80
100
Q3 2011 Q4 2011 FY 2010 FY 2011
EBITDA per tonne (US$/t) Average Selling Price (US$/t*)
Severstal International (North America) » 2011 was a turning point for our North American division which saw its
EBITDA per tonne ratio double y/y from $24 to $48;
» Q4 2011 EBITDA of $18m (Q3 2011: $42m) and EBITDA margin of 2.0% (Q3 2011: 4.4%) as a result of bottomed prices and lower end demand, while still remaining in positive territory;
» During Q4 Severstal North America successfully completed its expansion program at Columbus by launching the new Push Pull Pickle Line, commissioned in Dec’11;
» Q4 sales volumes were 5% down due to softening demand, primarily in the auto and construction industries;
» Steel demand prospects remain solid for FY12, supported by auto, agricultural, container and machinery industries. Decline in natural gas prices could provoke softening of investments in oil & gas sector. Pick-up in the construction industry remains modest.
EBITDA per tonne and average selling price
EBITDA drivers in Q4 2011, $m
*All steel products, mixed price terms, resulting ex works.
SNA FY2011 revenue by plant
Page 10
SNA FY2011 steel revenue by product 42
18
(44)
(39) 40
17 2
-50
-40
-30
-20
-10
0
10
20
30
40
50
EBITDA Q32011
SalesVolume
Sales Price COGSVolume
COGS Price Other EBITDA Q42011
Dearborn $2,002m
59%
Columbus $1,419
41%
HRC 49%
CRC 14%
Galvanized 37%
Financial Position
Cash Flow and Net Working Capital
» Strong cash position of $1,864m in cash and short-term deposits
» Doubled operating cash-flow in FY2011 as compared to FY2010 ($2,579m vs $1,259m)
» Strict and efficient control over net working capital: modest growth comparing to the previous year, despite increase in revenue and costs. NWC/revenues ratio decreased y/y to 15.2% by EOY2011 (17.0% as of Dec 31, 2010)
Net working capital, $m*
December 31, 2011 December 31, 2010 Change, %
2,402 2,176 10.4%
Net working capital as % of revenues*
December 31, 2011 December 31, 2010 Change, ppts
15.2% 17.0% (1.8 ppts)
Net Working Capital ** for FY2010-11, $m
* Figures exclude Lucchini, North America disposal groups, Gold segment (as of December 31, 2011, Gold segment’s balances have been classified as assets held for sale and its transactions have been accounted as discontinued operations).
** Calculation NWC excl. dividends and assets held for sale.
Highlights:
Page 12
2,026
2 579
(1,915)
(609) (217)
1 864
-
1 000
2 000
3 000
4 000
5 000
Dec 2010 cash& ST deposits
Operating CF Investing CF Financing CF Cash ofdiscontinuedoperations
Dec 2011 cash& ST deposits
1,864
154 198 569
166
393
0
500
1 000
1 500
2 000
2 500
Liquidity 1Q 2012 2Q 2012 3Q 2012 4Q 2012
Cash Short-term Debt to be Repaid Unused Committed Credit Lines
Robust Liquidity and Sustainable Leverage
» Maintaining strong liquidity position:
» Cash and short-term deposits of $1,864m
» Committed unused credit lines of $393m
» Upcoming short-term debt maturities serviced with available liquidity – $2,257m.
» Q1 2012 repayments of $154m
» FY2012 maturities amounted to $1,087m
» Net Debt/EBITDA of 1.1x
* Excluding accrued interest and unamortised balance of transactional costs.
Page 13
Total Short-term Debt to be Repaid of US$1,087m*
** On this charts figures exclude Gold segment’s balances.
6 025 5 976
4 212 4 112
х 1.5
х 1,1
х 0,0
х 1,0
х 2,0
х 3,0
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
EOY 2010 EOY 2011
Gross debt Net debt Net debt/EBITDA
Debt Structure
•On this chart the total debt excludes accrued interest and unamortised balance of transactional costs .
» As of 31.12.2011 no considerable changes in current debt structure, 65% of which is represented by public debt and 72% is denominated in USD
Page 14
1,087
1,486
662
72
1,047 1,047 537
2012 2013 2014 2015 2016 2017 2018+
Debt Maturity Schedule, $m
Maturity
Russian Steel
$712m
Steel Resources
$491m
Severstal North
America $574m
CAPEX highlights
Page 15
Group’s FY2011 CAPEX (ex Nordgold)
Group’s FY2012 target CAPEX
Russian Steel
$905m
Steel Resources
$659m
Severstal North
America $105m
Total $1,777m
Total $1,669m
Segment Project Effect Launch
RUSSIAN STEEL Balakovo mini-mill +1 mtpa of long products capacity
2013
SAP implementation Efficiency 2012
Full reconstruction of coke battery #7
Higher coke output, efficiency
2013
STEEL RESOURCES Construction of incline shafts at the Vorgashorskaya and Zapolyarnaya mines
Higher coal output, efficiency
2012-15
Equipment modernization at Karelsky Okatysh and Olkon
Higher iron ore output, efficiency
2012
Preparation of the pre-feasibility study at the Putu Range project
Pre-feasibility study 2012-13
SEVERSTAL NORTH AMERICA
Environmental, health & safety, IT-infrastructure and customer care projects
Efficiency 2012
Selected 2012 CAPEX projects
2012 Market Outlook
Global: » We expect global prices to increase in Q1-Q2, then some correction is expected due to steel production ramp-
up and real demand deceleration during summer. Some price upturn is then anticipated due to demand revival.
» Improving lead economic indicators suggest the global economy could pick up from the low levels seen in Q1.
» Supply to rise relatively quickly due to plentiful spare capacity.
» China’s economic growth could decelerate due to residential property market slowdown, although additional monetary easing is expected which would improve the economic situation.
» Uncertainty over European sovereign debt and the Eurozone’s banking system remain major risks.
Russia: » Increasing global oil prices are a key supporting factor for the Russian economy, which can boost investments in
oil & gas sector and the construction industry.
» Apparent steel demand in Russia is expected to slightly exceed GDP growth as the share of investments in GDP is set to grow.
» Increasing car market volume and the process of production localization to support steel consumption by the automotive industry.
USA: » Demand remains steady with strong automotive sector and also construction activity increasing from low levels.
» Import pressure to continue while import price arbitrage exists.
» HRC demand is stable driven by oil & gas tubes and pipes, machinery and agriculture, while HDG market is gaining strength on restoring construction activity.
Page 16
Thank you. Q&A
Appendices
Summary Income Statement
$ million, unless otherwise stated Q4 2011*** Q3 2011*** FY 2011 FY 2010***
Revenue 3,727 4,519 15,812 12,819
EBITDA* 767 1,018 3,584 2,864
EBITDA margin, % 20.6% 22.5% 22.7% 22.3%
Profit from operations 598 848 2,917 2,205
Operating margin, % 16.0% 18.8% 18.4% 17.2%
Net profit/(loss)** 463 429 2,035 (575)
EPS, $ 0.46 0.43 2.02 (0.57)
Dividend per share, $**** 0.11 0.22
* EBITDA represents profit /(loss) from operations plus depreciation and amortization of productive assets adjusted for gain/(loss) on disposals of property, plant, equipment and intangible assets;
** Attributable to shareholders of OAO Severstal;
*** These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits”;
**** Dividends announced on the basis of respective period results, translated at the exchange rate as of the date of recommendation by Board of Directors Page 19
Q4 2011 REVENUE Breakdown by Region
Q4 and FY 2011 Highlights:
» Annual growth in revenues from all the major destinations – Russia, North America and Europe
» Drop in Q4 revenues from Russia and Europe on lower demand
» Less significant decrease in sales in North America due to resilience of the domestic market
Q4 2011/Q3 2011, $m FY 2011/FY 2010, $m
Page 20
1 658
1 026
482
96
96
291
49
29
2 146
1 089
669
105
190
218
52
50
0 500 1 000 1 500 2 000 2 500
Russian Federation
North America
Europe
Central and South America
Middle East
China and Central Asia
South-East Asia
Africa
Q3 2011 Q4 2011
7 476
3 912
2 506
335
447
736
273
127
5 812
3 132
1 980
422
438
469
455
111
0 2 000 4 000 6 000 8 000
Russian Federation
North America
Europe
Central and South America
Middle East
China and Central Asia
South-East Asia
Africa
FY 2010 FY 2011
Q4 2011 Division Results
Q4 2011*** Q3 2011*** Change, % FY 2011 FY 2010*** Change, %
Revenue ($m) 2,341 2,989 (21.7%) 10,547 8,815 19.6%
Cost of sales ($m) (1,699) (2,245) (24.3%) (7,749) (6,006) 29.0%
G&A and distribution ($m) (308) (309) (0.3%) (1,272) (1,205) 5.6%
G&A and distribution as % of Revenue
13.2% 10.3% 2.9 ppts 12.1% 13.7% (1.6 ppts)
EBITDA ($m) 395 499 (20.8%) 1,784 1,674 6.6%
Operating Profit ($m) 315 416 (24.3%) 1,450 1,367 6.1%
EBITDA Margin, % 16.9% 16.7% 0.2 ppts 16.9% 19.0% (2.1 ppts)
EBITDA per tonne ($/t) 155 162 (4.3%) 162 154 5.2%
Average Selling Price (US$/t*) 826 885 (6.7%) 867 723 19.9%
Severstal Russian Steel
Q4 2011*** Q3 2011*** Change, % FY 2011 FY 2010*** Change, %
Revenue ($m) 891 962 (7.4%) 3,422 2,912 17.5%
Cost of sales ($m) (895) (936) (4.4%) (3,292) (2,909) 13.2%
G&A and distribution ($m) (21) (19) 10.5% (83) (78) 6.4%
G&A and distribution as % of Revenue
2.4% 2.0% 0.4 ppts 2.4% 2.7% (0.3 ppts)
EBITDA ($m) 18 42 (57.1%) 181 89 103.4%
Operating (Loss) / Profit ($m) (17) 12 n.a. 62 (59) n.a.
EBITDA Margin, % 2.0% 4.4% (2.4 ppts) 5.3% 3.1% 2.2 ppts
EBITDA per tonne ($/t) 18 39 (53.8%) 48 24 100.0%
Average Selling Price (US$/t**) 820 857 (4.3%) 862 765 12.7%
Severstal International (North America) *All steel products, incl. pipes, etc.; Ex Works price terms
**All steel products; mixed price terms, mostly Ex Works. ***These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits”.
Page 21
Q4 2011 Division Results (Continued)
Q4 2011* Q3 2011* Change, % FY 2011 FY 2010* Change, %
Revenue ($m) 886 1,057 (16.2%) 3,711 2,732 35.8%
Cost of sales ($m) (420) (490) (14.3%) (1,746) (1,387) 25.9%
G&A and distribution ($m) (144) (143) 0.7% (487) (295) 65.1%
G&A and distribution as % of Revenue
16.3% 13.5% 2.8 ppts 13.1% 10.8% 2.3 ppts
EBITDA ($m) 344 460 (25.2%) 1,604 1,154 39.0%
Operating Profit ($m) 289 408 (29.2%) 1,394 951 46.6%
EBITDA Margin, % 38.8% 43.5% (4.7 ppts) 43.2% 42.2% 1.0 ppts
Steel Resources
Page 22 * These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits”.
Summary Balance Sheet
$ million As at 31 December 2011 As at 31 December 2010*
Cash and Cash Equivalents 1,864 2,013
Total Assets: 17,910 19,408
Current Assets 8,930 9,571
Non-current Assets 8,980 9,837
Total Liabilities: 10,843 12,058
Current Liabilities 5,370 6,379
Non-current Liabilities 5,473 5,679
Total Equity 7,067 7,350
Total Equity and Liabilities 17,910 19,408
Page 23 *These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits” .
Summary Cash Flow Statement
$ million Q4 2011* Q3 2011* FY 2011 FY 2010*
Profit before Financing and Taxation 580 821 2,852 2,082
Cash Generated from Operations 931 1,176 3,132 2,401
Interest Paid (83) (138) (441) (552)
Income Tax Paid (116) (145) (514) (310)
Net cash from operating activities – continuing operations
732 893 2,177 1,539
Net cash from/(used in) operating activities – discontinued operations
196 38 402 (280)
Net cash from Operating Activities 928 931 2,579 1,259
Cash used in investing activities – continuing operations
(394) (553) (1,550) (950)
Cash used in investing activites – discountinued operations
(133) (84) (352) (549)
Cash used in Investing Activites , incl. (527) (637) (1,902) (1,499)
Additions to PP&E and IA (508) (493) (1,716) (1,075)
Cash (used in)/from financing activities – continuing operations
(284) 201 (387) 18
Cash used in financing activitis – discontinued operations
(11) (77) (152) (306)
Cash (used in)/from Financing Activities (295) 124 (539) (288)
Effect of Exchange Rate on Cash and Cash Equivalents (20) (137) (70) (104)
Net increase/(decrease) in Cash and Cash Equivalents 86 281 68 (632)
Less Cash and CE of discontinued operations and AHFS at end of the period
(217) - (217) (208)
Cash and Cash Eqivalents at Beginning of the Period 1,995 1,714 2,013 2,853
Cash and Cash Eqivalents at End of the Period 1,864 1,995 1,864 2,013
Page 24 *These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits” .
Disclaimer These materials are confidential and have been prepared by OAO Severstal
(Severstal) solely for your information and may not be reproduced, retransmitted
or further distributed to any other person or published, in whole or in part, for
any other purpose.
These materials may contain projections and other forward-looking statements
regarding future events or the future financial performance of Severstal. You can
identify forward-looking statements by terms such as “expect,” “believe,”
“estimate,” “intend,” “will,” “could,” “may” or “might”, or other similar
expressions. Severstal cautions you that these statements are only predictions
and that actual events or results may differ materially. Severstal will not update
these statements to reflect events and circumstances occurring after the date
hereof. Factors that could cause the actual results to differ materially from those
contained in projections or forward-looking statements of Severstal may include,
among others, general economic and competitive environment conditions in the
markets in which Severstal operates, market change in the steel and mining
industries, as well as many other risks affecting Severstal and its operations.
These materials do 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 securities of Severstal in any jurisdiction, nor shall they or any
part of them nor the fact of their presentation, communication or distribution
form the basis of, or be relied on in connection with, any contract or investment
decision.
No representation or warranty, express or implied, is given by Severstal, its
affiliates 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 these materials or their contents.
Page 25
Photos in the presentation:
P. 1 Sheksna tube plant; P. 2 Cherepovets steel mill; P. 3 Dneprometiz plant;
P. 7 Karelskiy Okatysh; P. 11 Cherepovets steel mill; P. 16 Dneprometiz plant;
P. 17 Cherepovets steel mill; P. 24 Redaelli plant