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Severstal Capital Markets Day 3 September 2012
Introduction from Chairman of the Board 5
Severstal Today: Focus on Internal Improvements and Organic Growth 9
Market Trends and Opportunities 25
Commitment to a Prudent Financial Policy 35
Sustainable Development 45
Severstal Russian Steel – Focus on Value-Added Steel 54
Severstal Resources – In Mining We Trust! 68
Severstal International – Focused on the Future 78
Conclusions 89
Table of Contents
Page 2
Today’s Agenda
Page 3
2.00pm First Session
Christopher Clark, Chairman
Alexey Mordashov, Chief Executive Officer
Thomas Veraszto, SVP Strategy & Corporate Development
Alexey Kulichenko, Chief Financial Officer
Vadim Saveliev, SVP Corporate Communications & IR
Q&A
4.00pm Coffee Break
4.15pm Second Session
Alexander Grubman, CEO Severstal Russian Steel
Vadim Larin, CEO Severstal Resources
Sergei Kuznetsov, CEO Severstal International
Q&A
6.10pm Cocktail Reception
Today’s Presenting Team
Vadim
Saveliev
SVP – Corporate Communications and IR
Alexey
Mordashov
Chief Executive
Officer
Thomas
Veraszto
SVP – Strategy and Corporate Development
Alexey
Kulichenko
Chief Financial Officer
Alexander Grubman
CEO Severstal
Russian Steel
Sergei
Kuznetsov
CEO Severstal International
Vadim
Larin
CEO Severstal
Resources
Christopher
Clark
Chairman of the Board of Directors
Page 5
Christopher Clark Chairman of the Board of Directors
Introduction from Chairman of the Board
Page 5
In good shape to meet the challenges in the steel and commodities markets
On track with execution of our stated focused strategy
Focus on further internal improvements and organic growth
Well-invested assets and flexible CAPEX programme covered by operating cash flow
Commitment to a prudent financial policy
Leading corporate governance standards
Page 6
Today’s Themes
A commitment, since IPO in 2006, to high governance standards
Board includes more independent non-executive directors than executives
• Constitution requires independent director authorisation of certain types of transactions
Full committee system in place
Board as a whole takes responsibility for HSE issues
Regular board meetings
• Non-executives also meet regularly between Board meetings
Continuity in Independent Directors line up since IPO
External evaluation of the Board functioning
Consistent in-depth engagement with shareholders
Page 7
Corporate Governance
Alexey Mordashov Chief Executive Officer
Page 8
Severstal Today: Focus on Internal Improvements and Organic Growth
Page 10
Compelling Investment Case
Unique business model
Leading margins and return on investments
Well-invested assets with low CAPEX requirements
One of the strongest balance sheets in the industry
Low-cost production platform: Full vertical integration in both iron ore and coking coal
Value for shareholders
ROCE 22.8% in 2011FY - #1 in the global steel industry
Share price performance - #1 among global steel peers over last three years
Shareholders return over last five years:
• Cash dividends paid US$2.7bn
• Dividend policy at 25% of net profit
• Distribution of US$2.8bn – worth Nordgold shares
The most liquid stock among the Russian peers: daily trading turnover is US$42m vs.
US$21m of the average peers turnover YTD
Note: US$2.8bn - Nordgold valuation at the split-off
Prudent investment policy
CAPEX focused on efficiency and margin enhancement, not volumes
Limited cash-based M&A
Balance sheet strength and cash generation are top priorities in the current environment
Developing strength of our business model
High value-added product mix and customer care to realize premium margins
Continuing focus on efficiency and low-cost position
Presence in consolidated and growing markets
Page 11
Strategic Priorities
Page 12
Strong, Global, Integrated
Note: Numbers are presented for 2011 sales volumes, for steel – total capacity.
Coking/Thermal Coal
Steel Mill/DRI Plant
Iron Ore
Vorkutaugol (Russia) 7.6mt
Coking and Thermal Coal
Olkon (Russia) 4.7mt
Iron Ore Concentrate
Karelsky Okatysh (Russia) 10.1mt
Iron Ore Pellets
PBS Coal (US) 3.3mt
Coking and Thermal Coal Dearborn (US)
2.1mt Crude Steel Capacity
Columbus (US) 3.1mt
Crude Steel Capacity
Cherepovets (Russia) 11.6mt
Crude Steel Capacity
Amapa (Brazil) Potential: 10–20mt
Iron Ore Concentrate Starting 2018–2020
Putu Range (Liberia) Potential: 20–30mt
Iron Ore Concentrate Starting 2017
Tyva (Russia) Potential: 5.0-7.5mt
Coking Coal Concentrate Starting 2018-2020
Moscow
IMBS (South Africa) Potential: 0.05-1.5 mt
Briquetted Iron Starting 2015
Usinskoye (Russia) Potential: 2-4mt
Coking coal Concentrate Starting 2018
Page 13
Our Stated Strategic Targets
To be the Efficiency Leader in Emerging Markets
Industrial Targets
Vertical Integration
HVA Product Mix
Consolidated & Growing Markets
Financial Targets
TOP 5 by EBITDA Globally
EBITDA Margin >20% Over the Cycle
Net Debt/ EBITDA between 0.5x and 1.5x
In Top 10 Global Steel Companies by ROCE
Business System of Severstal
Page 14
Executing Our Strategy Key Achievements 2011–2012
Separation of Nordgold
Disposal of a 22% stake in Intex Resources nickel company
SNA portfolio optimization completed
Asset Structure Aligned with Strategic Priorities
$248m of EBITDA contribution in 2011
1,800 mid-level managers across the company passed through a comprehensive development program
Implementation of Business System of
Severstal
Completed modernization and expansion of SNA
Launch of 0.2 mtpa color-coating line #2 in Cherepovets
Strong mining production in 2011 on the back of multiple initiatives: iron ore output +1.0 mt, coking coal concentrate +0.3 mt
Organic Growth Through Targeted
Investments
Leadership in profitability and efficiency
Strongest financial position among Russian peers
Financial Strength confirmed by rating upgrade from S&P, Moody’s and Fitch
Reached Financial Targets
Page 15
Strong Cost Position
Vertical Integration Efficiency in Steelmaking Global Cost Competitiveness
Source: Companies’ data
Leading Position in Iron Ore Integration, %
Gradual Optimisation: Russian Steel Division Headcount 2008–1H12
HRC Global Cost Curve LTM, US$/t
Leading Position in Coking Coal Integration, %
Share of Substandard Product at CherMK, % of Total Production
30%
33%
59%
70%
76%
92%
97%
109%
MMK
POSCO
ArcelorMittal
SAIL
Usiminas
NLMK
Severstal
Evraz
0%
0%
7%
22%
33%
43%
82%
119%
NLMK
Usiminas
SAIL
ArcelorMittal
POSCO
MMK
Evraz
Severstal
58,730
48,013 50,21347,054 45,483
2008 2009 2010 2011 1H12
-7% CAGR
-12% CAGR
300
350
400
450
500
550
600
650
700
750
800
0 100 200 300 400 500
Cumulative Capacity, mt
CherMK
Source: WSD, Severstal analysis
3,37%
2,88%
2,39%
1,81% 1,96% 1,82% 1,69%
2006 2007 2008 2009 2010 2011 1H12
Page 16
Vertical Integration Must Be Efficient
Successful Steps to Reduce Production Costs in Mining
Source: Companies’ data
Coking Coal Cash Cost Dynamics Among Russian Producers, 2007–2011 CAGR, %
Efficient Brownfield Expansion to Reduce Costs: Vorkuta vs. Usinskoye Cash Cost, US$/t
Note: Vorkutaugoal coking coal concentrate cash cost for 2011
Usinskoye Brownfield: Another Milestone in Vorkuta Efficiency
Key Benefits of the Project
Premium quality of coal (HCC)
Potential to produce 2-4 mtpa of coking coal concentrate
Proximity to Vorkuta – established coal mining region • Existing railway infrastructure
• Skilled workforce
• Access to established water and electricity suppliers
Full scale drilling not required
Usinskoye and Vorkuta Location
Usinskoe Coal Deposit
Block 1
Existing Railway Station
Vorkuta
92
50-60
Vorkutaugol Usinskoye
9%
33% 22% 1%
46%
32% 55%
66%
45% 35%
23% 32%
SeverstalRussian Steel
NLMK Evraz MMK
HVA HR Product Semi-finished
HVA46%
Other54%
TOP-570%
Others30%
Page 17
Focus on Right Products and Markets
The Largest Share of HVA Products Among Russian Peers 2011, %
Highly Consolidated Russian Market Top-5 Share, %
Average EBITDA per Tonne Excluding Mining 2011 , US$/t
SNA: Focus on HVA and Auto Products 2011, %
Highly Consolidated NA Market Top-5 Share1
Notes: Russian peers: Evraz, Mechel, MMK, NLMK US peers – minimills: average of Nucor , SDI US peers – integrators: average of AK Steel, US Steel
Top-591%
Others
9%
1. US and Canada HRC capacities.
Source: Companies’ data
133
80
Severstal Russian Peers
130
48
23
US minimills SNA US integrators
Page 18
Leading Profitability, Margin and ROCE Improved Ranking in All Metrics Versus Prior Year
EBITDA for Severstal represents profit/(loss) from operations plus DDA of productive assets, adjusted for gain/(loss) on disposals of PPE and intangible assets For the Russian, European and Latin American companies EBITDA calculation companies data is used and converted in US$ at average rate for the period; for others - EBITDA is operating income + DD&A ROCE is calculated by the following formula: LTM profit from operations/total assets minus current liabilities (average for the period), as reported in 2011 FS. Source: Companies’ data, Bloomberg.
EBITDA FY2011, US$m EBITDA Margin FY2011, % ROCE FY2011, %
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
Robust Financial Position
Source: Companies’ data, Bloomberg.
Steady Deleveraging of our Balance Sheet since 2008 Advantageous Position by Leverage Net Debt/EBITDA vs. Key Peers, 1Q12
Notes: 1. 2011–1H12 data are excl. Nordgold. 2. 2010 data are excl. USW, Lucchini, incl. Nordgold, as reported in corresponding years. 3. 2008–2009 data are incl. USW, Lucchini, Nordgold, as reported in corresponding years.
Notes: DM peers include 10 companies from Top-30. EM peers include 13 companies from Top-30. Russian peers include Mechel, MMK, NLMK, Evraz (as of December 2011).
Maintain more than US$1bn cash on hand
Rating upgrades in June 2012
• S&P upgraded Severstal to BB+/Stable
• Moody’s upgraded Severstal to Ba1/Stable
• Fitch upgraded Severstal to BB/Stable
3.1
2.8
1.1
3.0
Developed Markets
Peers
Emerging Markets
Peers
Russian Peers Severstal
Page 19
Page 20
Strong Business Model Resilient to Cyclical Downturns
Superior return to shareholders
Strong Business Model Resilient to Cyclical Downturns
Principles of Business Model
Efficient Vertical Integration
Strong Downstream, Focus on HVA and Customer Focus
Efficiency
Customer Service
Limited cash-based M&A Organic Growth Business System
Limited growth in steel
Low-cost mining brownfields
Greenfields optionality
Growth Drivers
Fundamental Industry Outlook
Volatile and Uncertain Environment
OPEX and CAPEX Inflation
Overcapacity in Global Steel
Fundamental Strength in Raw Materials
Business System of Severstal Emphasis on Efficiency Improvement
Business System of Severstal will be the Main Contributor to EBITDA Growth in Mid-term
BSS is Expected to Contribute US$520m to EBITDA in 2012
Business System of Severstal
Continuous Improvement
People of Severstal
Safety
Customer Focus
Cumulative Expected EBITDA Effect of BSS in 2012–2015, US$m
Cost reduction
Production growth
Quality improvement
Optimisation of personnel
248
799
1,009
1,270
520
2011A 2012E 2013E 2014E 2015E Page 21
Page 22
Investment Policy: Looking Ahead
Key management focus is on Business System deployment and efficiency improvement, not on volumes
We do not plan to add steel capacities after finalization of the ongoing projects: Columbus Phase II and Balakovo mini-mill
Modest organic expansion of mining capacities via low-cost brownfields
Strategic optionality with mining greenfields, however we will limit Severstal cash exposure
Greenfields development principles:
• invest only in low-cost high-quality assets competitive under any price scenario
• phased development approach: proceeds from the first stages to finance large-scale developments
• employ various financing options to limit Severstal cash contribution: Strategic partnerships, IPO, project financing
Balakovo Construction
Putu Iron Ore Project
Robust long-term business model resilient through cyclical downturn
Maintain low-cost position through efficient vertical integration and cost control
Focus on downstream development and client relationships in steel
Conservative approach to mid-term development
Severstal Business System is the major EBITDA driver for the mid-term
Cautious organic growth through efficient brownfield expansion and downstream projects
Prudent and conservative financial policy
Strong balance sheet: target Net Debt/EBITDA below 1.5x through the cycle
Maintain strong cash generation and dividend payout
Limited cash-based M&A
Page 23
Efficiency, Growth and Value-creation through the Cycle
Page 24
Thomas Veraszto SVP – Strategy and Corporate Development
Page 24
Market Trends and Opportunities
Mixed Economic Outlook
Source: Broker research.
US – Slow 2% Growth Subdued by Fiscal Austerity Europe – Stagnation Due to Debt Crisis
China – Slower Pace, but Still Substantial Growth Russia – Moderate Growth
GD
P G
row
th, %
Y-o
-Y
GD
P G
row
th, %
Y-o
-Y
GD
P G
row
th, %
Y-o
-Y
GD
P G
row
th, %
Y-o
-Y
Page 26
1.9%
-0.3%
-3.5%
3.0%
1.7% 1.9% 1.8%
2007 2008 2009 2010 2011 2012E 2013F
2.8%
0.2% -4.1%
1.7%
1.5%
-0.2%
0.3%
2007 2008 2009 2010 2011 2012E 2013F
14.2%
9.6% 9.2% 10.3%
9.2% 7.8% 8.0%
2007 2008 2009 2010 2011 2012E 2013F
8.5%
5.2%
-7.9%
4.0% 4.3% 3.6% 3.5%
2007 2008 2009 2010 2011 2012E 2013F
Steel Prices have Bottomed Out in USA/Europe, but still Declining in China
Source: OECD, CEIC, Worldsteel, CRU, SBB, Severstal analysis. Note: Prices will be updated up to August; CU will be updated up to July.
Global HRC Prices, US$/t Global Capacity Utilisation and Steel Production (Annualised)
PMI is Falling in the Key Regions Economic slowdown in mature and emerging markets
Overcapacity has put pressure on the steel market
Demand has been restrained by destocking
Potential for a short-term price rebound:
• High-cost steelmakers start to become loss-making
• Production cuts in high cost regions
• Inventories are at cyclical lows in many regions
Page 27
$500
$600
$700
$800
$900
$1 000
J F M A M J J A S O N D J F M A M J J A
2011 2012
Russia Black Sea export FOBUSA domestic FOB Midwest millChina domestic Shanghai (incl. 17% vat)S.Europe domestic EXW
40%
50%
60%
70%
80%
90%
100%
0
300
600
900
1 200
1 500
1 800
J F M A M J J A S O N D J F M A M J J
2011 2012
mt,
annualiz
ed
China Ex-China Utilization rate (rhs)
40
45
50
55
60
65
J F M A M J J A S O N D J F M A M J J A
2011 2012
USA Eurozone China
Developing World’s Appetite for Steel Continues
Source: United Nations, Worldsteel.
Cumulative ASU per Capita, Finished Steel, Tonnes per Capita
Urbanisation Rate, % of Population
Urbanisation trend in developing countries set to remain intact until 2050
Cumulative steel stock per capita is relatively low in China and India
Page 28
0
5
10
15
20
25
1950 1960 1970 1980 1990 2000 2010
ton
nes
per
Cap
ita
USA Russia China India
China
India
Indonesia
Japan
USA
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1950 1960 1970 1980 1990 2000 2010 2015 2025 2035 2045
Со
тни
China has Huge Potential for Growth in the Major Steel Consuming Industries
Sources: World Bank , CEIC, Severstal analysis.
Automobile Industry, Motor Vehicles per 1000 People Rail Lines, km per 1000 People
Electricity Production, kWh per 1000 People Floor Space, m2 per Capita
2x Leader vs China
China data is for 2011; other regions data is for 2009, except for GDP, which is 2011 for all regions Page 29
China
EU Japan
USA
0
100
200
300
400
500
600
700
800
900
11.5х
China
Japan
EU
USA
0,0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
0,814.9x
China
EU
Japan
USA
0
2
4
6
8
10
12
143.9x
China
EU
USA
Japan
0
10
20
30
40
50
60
70
80
90
100 4.9х
Growth Drivers for Raw Materials Prices
Page 30
Sound steel consumption growth in developing regions will push up demand for iron ore and coking coal
Steel production growth by 4% per annum in the next
5 years
New projects are pushed back: 3 year average delay for mining projects
Lack of new high quality deposits, especially in met coal
Resource depletion: 3-4% annually
Raw materials supply is lagging behind
CAPEX & OPEX inflation: global cost curve is constantly moving up by over 10% per annum (in US dollar terms) Increasing costs
Permission from 54 governmental bodies is required to start mining in Australia
Widening environmental restrictions
Tax pressure
Regulation tightening
Iron Ore: Support from China and Project Delays
Sources: Platts, CRU, Brokers reports, Severstal analysis.
Iron Ore Fines Supply Curve to China, 2012 Incremental Iron Ore Seaborne Market Supply, mtpa
Iron Ore CAPEX and Price Growth, US$/t Chinese high cost domestic supply supports iron ore prices
• Rapid mining costs inflation outperforming CPI (over 10% y/y in 2010–2011)
• RMB appreciation (+8% since June 2010)
• Decreasing Fe grades (already below 20%)
Chinese high cost production will not be displaced due to project implementation delays
Page 31
0
100
200
300
400
500
600
700
800
2008 2009 2010 2011Total supply announced Supply realised
15%
41%
46%
39%
$0
$100
$200
2005 2006 2007 2008 2009 2010 2011
CAPEX/t Spot price 62% Fe CFR China
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
0 250 500 750 1000 1250 1500Cumulative supply, mmt
Peer
1
Peer
2
Peer
3
Peer
4
Spot price, Aug 27
Production in China
Robust Import Demand to Support Coking Coal Prices
Sources: CRU, BHP Billiton, Severstal analysis.
Met Coal International Demand from Key Importers
Hard Coking Coal Costs Growth, 2002=100 Index
Robust demand for imported coking coal in China, India and Brazil – 12% yoy growth on average in 2013–2017
High cost coking coal exports from USA will support the market price
Modern large-scale blast furnaces (>3,000 m3) in China require high-quality hard coking coal
Hyundai Steel’s New Blast Furnace Page 32
0
20
40
60
80
100
120
140
160
2007 2008 2009 2010 2011 2012e 2017f
China India Brazil
0
100
200
300
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Responding to Major Market Trends
Key Trends Severstal Strategy
Higher raw materials prices due to supply constraints
Fully vertically integrated
Invest in upstream operations
Portfolio of attractive greenfields
Overcapacity & volatility in steel markets
Organic improvements
Efficient & flexible facilities
Focus on HVA products
Customer relationships
High macro risks environment & uncertainty
High margins
Maintain strong balance sheet
Flexible phased CAPEX
Limited cash-based M&A
Page 33
Page 34
Alexey Kulichenko Chief Financial Officer
Page 34
Commitment to a Prudent Financial Policy
Page 36
Severstal Financial Policy
Our Targets Our Achievements Our Principles
0.5–1.5x Net Debt/EBITDA
1.2x Net Debt/EBITDA as of Q2 12
M&A, Dividends, CAPEX capped by leverage target; monthly scrutiny of compliance with 1.5x Net debt/EBITDA
Liquidity (Cash on balance + committed facilities) >US$1bn
Liquidity c.US$2.8bn as of Q2 12
Strong liquidity: cash cushion, sizable committed facilities, and access to financing even in adverse market conditions.
Dividend policy at 25% of net income
Stable dividend payments at c. 25% payout
Subject to prevailing market conditions and strategic financial targets
ROCE >20% ROCE – 23% in FY11 Constant monitoring of all projects’ return
NWC – c.18% of revenues NWC – 15% of revenues in FY11
Expected to remain at a similar level and move with the business cycle; focus on inventory and accounts payable management
Changes in Debt*
Liquidity and Debt Position , US$m Strong Liquidity Position
Solid cash cushion of around US$2bn, covering FY12 and almost all of FY13 repayments
Committed unused credit lines of US$838m
Well-Managed Debt Profile
Smooth repayment schedule focusing on long-term maturities
Full access to diverse range of funding sources at any time
• Eurobond programme for US$1,500m
• Exchange Bond programmes for RUB95bn: new programmes of RUB80bn were registered in July-August 2012
Reasonable Leverage
Net debt/EBITDA of 1.2x as of H1 2012 which is below the target level of 1.5x
Strict control over net working capital – NWC/revenue ratio 15% in 2011, below target of 18%
Page 37
Solid Balance Sheet
*For 2010 the data exclude USW, Lucchini, include Nordgold
6,142 5,976 6,043 5,692
4,116 4,112
3,799 3,749
х 1.3
х 1.1 х 1.1 х 1.2
х 0,0
х 1,0
х 2,0
х 3,0
0
1000
2000
3000
4000
5000
6000
7000
EOY 2010 EOY 2011 Q1 2012 Q2 2012
Gross debt Net debt Net debt/EBITDA
1,943
579 164
567 169
838
737 657 71
1,121 1,581
Liquidityas of Q2
2012
3Q 12 4Q 12 1Q 13 2Q 13 H2 2013 2014 2015 2016 2017 &after
Cash Short-term Debt to be Repaid
Unused Committed Credit Lines Long-term Debt to be Repaid
Severstal’s Market Beta vs. Peers: The Lowest Volatility Stock Among the Peers
Recent Dividend History
Dividend Play
Severstal resumed dividend payments in 3Q10
Over the last quarters Severstal has paid no less than 25% of net income and expects to continue to do so if the market allows
Severstal is the only company in its peers group to pay dividends on a quarterly basis
Low Volatility
Stable high earnings, conservative capital structure and improved asset portfolio contribute to low volatility
Source: Bloomberg. Peers include Evraz, Mechel, MMK, NLMK Page 38
Note: The dividends in US dollars are taken on the date of their recommendation by the Board
Shareholder Returns
0%
10%
20%
30%
40%
0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
Q1 11 Q2 11 Q3 11 Q4 11 Q1 12
EPS, $ dividend per share, $ payout ratio, %
0,5
0,8
1,1
1,4
1,7
2,0
2,3
2007 2008 2009 2010 2011
SVST peers high peers low
Page 39
Target
Profitability
Index above
1.5
Target ROCE
above 20%
Target IRR
above 20%
Target EBITDA
Margin above
20% Success
Investment KPIs
Our key metrics to assess projects
Segment Project Effect Launch
Severstal 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
Severstal Resources Construction of incline shafts at the Vorgashorskaya and Zapolyarnaya mines
Higher coal output, efficiency
2012–15
Equipment modernisation 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 2012–2013
Severstal International
Environmental, health & safety, IT-infrastructure and customer care projects
Efficiency 2012
Selected 2012 CAPEX Projects
Group’s FY2012 Target CAPEX
Total US$1,669m
Average Maintenance for Steel Divisions
Russian Steel US$37/t
Severstal International US$16/t
FY2012 Target CAPEX Structure
Page 40
DevelopmentUS$849m
51%
MaintenanceUS$820m
49%
CAPEX 2012
US$531mUS$400m
US$74m
Page 41
Base Case US$1,669m Low Case US$1,005m
Severstal Russian Steel Severstal Resources Severstal International
CAPEX Flexibility
Base Case: reflects current market conditions and corresponds to the forecasted inflows from
operating activity
Low Case: takes into account further deceleration of Chinese growth and continuing European financial
problems leading to overall stagnation of GDP growth
Page 42 (1) As of 30.06.2012.
Well-balanced, Manageable Debt Structure (1) Crisis-tested Debt Portfolio Structure
Diversification across instruments, products and lenders
Keeping access to domestic and international debt markets
Focus on long-term financing
Maximising unsecured debt (c.70%)
US$ denominated funding is naturally hedged with steady export flows
Source Currency Mix
Fixed/Float Security
Unsecured71%
Secured22%
PXF7%
Private32%
Public68%
Flexible Leverage Position
Proven access to domestic & international debt markets Comfortable debt level: Net debt/LTM EBITDA level below the targeted 1.5x through the cycle
Page 43
Since 2010 Severstal has been regaining ratings agencies’ confidence and seeing consistent upgrade
In 2012 S&P upgraded Severstal’s rating to BB+/Stable, Moody’s – to Ba1/Stable, Fitch – to BB/Stable
Note: Fitch ratings for Severstal are unsolicited.
Ratings History
Feb-04 Dec-04 Oct-05 Aug-06 Jun-07 Apr-08 Feb-09 Dec-09 Oct-10 Aug-11 Jun-12
S&P Moody's Fitch
B+/B1
BB-/Ba3
BB/Ba2
BB+/Ba1
Page 44
Vadim Saveliev SVP – Corporate Communications and Investor Relations
Page 44
Sustainable Development
Page 46
Long-term commitment to sustainability focused on three main areas:
1. Health, safety and development of our people
2. Environment
3. Support for local communities and regions where we operate
Single HSE policies for all assets
Board oversees activity in this area
Transparency: Regular public reporting based on GRI guidelines
Commitment to Sustainability
Page 47
Corporate Health and Safety Policy
In 2011, we spent over US$100m on health and safety
19% decrease in the LTIFR compared to 2009
Strategic objective is to eliminate all fatal accidents by 2015, and we think it’s achievable
Severstal’s Lost Time Injury Frequency Rate (LTIFR) Performance
Health & Safety
1.92 1.91
1.56
2009 2010 2011
Page 48
ISO 14001 Environmental Management Systems at 7 key assets in Russia and the USA
In 2011 we invested c.US$74m in environmental programs
Severstal is a member of the Sustainability Committee of the Worldsteel
Environmental Performance of Cherepovets Steel Mill in 2000–2011
Atmospheric Emissions, kg/ Tonne of Rolled Products River Water Consumption, m3/ Tonne of Rolled Products
Environmental Protection
41 40
36 33
31 31 30
2000 2002 2004 2006 2008 2010 2011
65 65
58
50 53
49
2006 2007 2008 2009 2010 2011
Page 49
Improving Energy Efficiency at Cherepovets Steel Mill
Energy Consumption Dynamics, Gcal/t of Steel Gas and Electricity Consumption per Tonne of Steel in % to 2000 Base
Energy Efficiency
7.02 6.70
6.26 6.05
5.88 5.70 5.62
2000 2002 2004 2006 2008 2010 2011
100% 94%
90% 88% 86% 80% 79%
100% 94%
88% 86% 84%
76% 75%
2000 2002 2004 2006 2008 2010 2011
electricity/t of steel natural gas/t of steel
-20%
20% energy consumption reduction at Cherepovets Steel Mill from 2000 to 2011
Employee rewards for the best energy saving idea
68 mln m of gas and 33 kt of coal saving per annum 3
Page 50
Cherepovets Steel Mill Converter Shop Upgrade:
A 3-year project with investments of approximately US$100m
No idling of converter operations
Growing level of safety
Expected Air Emissions Reduction Effect, tpa
Converter Shop Upgrade
4,636
1,011
Before After (as of 2015)
-78%
We are complying with the existing regulation. The projects mentioned on that and the next slides are our additional commitment in this area
Sinter Production Units in Cherepovets
Page 51
In 2012, Severstal launched a c.US$30m modernisation project of six dust exhausters of the sinter production units at the Cherepovets Steel Mill
Following completion dust pollution will decrease by 90%
Expected Air Emissions Reduction at Electric Arc Furnace #1, tpa
Expected air Emissions Reduction at Sinter Production Units, tpa
Electric Arc Furnace #1 in Cherepovets
In 2012, Severstal launched a c.US$30m upgrading of the gas treatment unit of the EAF at the Cherepovets Steel Mill
Following completion dust pollution will decrease by 97%
Radical Reduction of Emissions at Sinter Production and Electric Arc Furnace Shop
1,679
171
Before After (as of 2015)
-90%
3,808
123
Before After (as of 2013)
-97%
Personnel Development and Ethical Standards
Corporate Code of Conduct and Ethical Committee in Place
Workplace equality: women account for around 30% of our personnel
Annual 360° feedback including the company CEO
Training: in 2011 40% of our staff passed through training courses
Management development programme “Achieve More Together” in place to develop leaders of the future
Page 52
Social Investment
Signed Communities development agreements with local governments
The “Road Home” program against child neglect and support orphans has achieved national recognition
Personnel Development and Community Support
Page 53
Alexander Grubman CEO of Severstal Russian Steel
Page 53
Severstal Russian Steel – Focus on Value-Added Steel
Stated Strategic Priorities
Focus on high value-added products
Increasing share of domestic sales
Efficiency and cost control
• Targeted CAPEX programmes
• Severstal Business System
Main Achievements to date:
Largest share of HVA products among Russian peers
Highest domestic sales volumes among Russian peers
Operational records (in sinter, converter steel, large diameter pipes production)
Business System’s targets exceeded
Successful launch of Customer Care and Business Standard projects
Launch of color-coating line #2 in Cherepovets
Key investment projects delivered on time and within budget
Page 55
Overview
Page 56
Our Positioning in Russia
Severstal Russian Steel is the leading Russian steel producer with a focus on leadership in supplying high value-added products to the domestic market
Source: Metal Courier, companies data.
Evraz 18.0%
MMK 17.0%
Severstal 16.4%
NLMK 16.3%
Metallo invest 8.4%
Mechel 7.6%
Other 16.3%
The highest share of high value-added products among Russian peers (2011)
#3 by crude steel production in Russia (2011)
#1-2 by steel supply to the domestic market (2011- H1 2012)
FY2011 – internal ring, H1 2012 – external ring
Severstal 16%
ММК 15%
NLMK 11% Evraz
8% Mechel 7%
ОМК 5%
Others 20%
Imports 18%
Severstal 14%
ММК 18%
NLMK 12%
Evraz 8%
Mechel 7%
ОМК 5%
Others 20%
Imports 16%
9%
33% 22% 1%
46%
32% 55%
67%
45% 35%
23% 32%
SeverstalRussian Steel
NLMK Evraz MMK
HVA HR Product Semi-finished
Russia’s steel demand potential:
• localization of foreign carmakers, handling and agricultural equipment manufacturers
• realization of national programs to upgrade the railroad truck set and agricultural equipment
• modernization and technological upgrade in ship-building
• large-scale infrastructure projects e.g. 2018 FIFA World Cup
Fuel and energy segment consumption is
to decrease due to major projects
completion by 2016
Further increase in demand for high-
quality rolled steel products and
HVA products
Page 57
Russia is a Strong Market For Steel Products
Steel Consumption in Russia, mt
Growth Forecast by Industry (CAGR 2011-2017)
CAGR 4.7%
Key Competitive Advantages
Self-sufficiency in raw materials
Favorable geographic position
• Proximity to major steel-consuming regions, (North-West and Central Russia)
• Proximity to the Baltic sea ports
Broad product range
Extensive distribution network
High-tech production facilities
Page 58
Focus on the Domestic Market
Severstal Russian Steel’s Sales by Market 2010 2011
R ≈ 600 km c. 70% of the Cherepovets Steel Mill sales to the domestic market are sold in 600 km proximity from Cherepovets
10.8 mt
11.0 mt
Exports 46%
Exports 41% Domestic
market 54%
Domestic market
59%
Kolpino Cherepovets
Saint Petersburg
Moscow
Major Production Achievements in 2011
Sinter production: Over 9 mt
Converter steel output: 9.6 mt
Color-coated sheets: Over 220 kt (from a single line)
Large-diameter pipes at Izhora Pipe Mill: Over 500 kt
Page 59
Achievements in Production and Sales
In 2011 Severstal increased its y/y share in color-coated sheet, structural tubes and large diameter pipes. Key drivers: reconstruction of continuous hot dip galvanizing line, commissioning of color coating line #2 and Sheksna Tube Plant
The decreased share in long steel products is the result of overall market growth, with Severstal's facilities operating at maximum capacity. The launch of the Balakovo Mill in 2013 will enable the company to restore and further improve its market share to 14% in 2014
Higher HVA products sales led to decreased market share in cold-rolled steel
Severstal’s Domestic Market Share
Source: Metal Courier
26%
32%
8%
15% 15% 13%
26% 29%
7%
18% 17% 14%
Hot Rolled Products Cold Rolled Products Long Products Coated Products Structural Tubes Large Diameter Pipes
2010 2011
50
160
190
114
2011 plan 2011 actual 2012 plan H1 2012 actual
Current Status of Business System Projects: Continuous Improvement
Continuous improvement Bigger number of initiatives allowed to beat the 2011 plan
$m Ways of optimization in 2011 Net effect, US$m
Raw materials mix 77
Conversion rate of resources 56
Cost of scrap 13
Other 14
Steelmaking Converter steel
Before project After project
Average - 75
Blast furnace process
Parameter
Number of heats per day
Coke consumption 463.7 kg/t 453.5 kg/t
Steelmaking Converter steel
Melting cycle from charge to charge, min
Average - 56.2 min Average - 55.3 min
Services (Sheet rolling-shop HSM-1)
Downtime for core process equipment
87 hours 37 hours
Average - 80
Page 60
Health & Safety
Securing operational safety conditions, prevention of fatal accidents
Page 61
Business System: Health & Safety, Customer Care, Business Standard
Lost Time Injury Frequency Rate (LTIFR)
Customer Care
Client orientation in all processes allows additional synergies via intimate understanding and satisfaction of client’s requirements
Achievements in 2011 - H1 2012
Greater customer satisfaction compared with peers (2011 questionnaires)
Expected effect in 2012 – US$41m
US$19.2m in H1 2012
Business Standard
ERP system implementation, unification, efficiency increase and leaner business processes
Achievements in 2011 - H1 2012
Launch of SAP ERP across Severstal Russian Steel
Launch of Unified Service Center HR and Unified Service Center Finance
-69%
Continuous improvement
• Improvement of equipment and personnel performance, production quality and procurement process
• Cost reduction
Customer care
• Price premium +1.5% vs. peers
Business standard
• SAP ERP introduction in all business units. Higher efficiency of business processes, incl.
− CAPEX down 3%
− Raw materials inventory turnover ratio down 5%
− Maintenance down 2%
− Equipment down-time period down 3%
− Warehouse storage expenditures down 10%
− HR personnel headcount reduction down 22%
Health&Safety
• Zero fatal accidents
• Significantly reduced number of accidents that lead to disability
Page 62
Long-term Objectives of the Business System
Additional EBITDA gain from realization of the Business System projects ($m)
+US$640m
160
350
186
800
2011 actual 2012 plan H1 2012 actual 2015
Russia 59%
CIS & Baltics 10%
Other Exports 31%
Page 63
Sales Objectives
Severstal Russian Steel Sales Breakdown by Destination, mt
Severstal Russian Steel’s Share in the Key Domestic Consuming Industries, mt Consuming Industries
Geography of Sales
18%
14%
23%
18% 15%
21%
10%
29%
22% 20%
Automotive Large Diameter Pipes Strip for Pipe Industry Machine Building Construction andMetal Distribution
2011 2015
2011 2015
Russia 74%
CIS & Baltics 10%
Other Exports 16%
Balakovo Mini-Mill to produce Long Products for construction, 1 mtpa
capacity
Service metal center in Vsevolozhsk to process rolled steel products for
automotive sector, household appliances and regional distribution, up to
170 ktpa capacity
Reconstruction of the 4-strand cold rolling mill at Cherepovets to improve
quality of CRC products and add 30 ktpa
Electric welded pipe units (TESAs) at the Cherepovets Steel Mill to add 120
ktpa of longitudinal welded structural tubes
Distribution network development in core regional markets
Severstal Steel Solutions:
• Engineering center to design-build solution
• Research and Development Center for development and introduction in
all aspects design, construction and building materials
• Industrial complexes to produce steel structures
Page 64
Key Investment Projects
Launch Date
2013
2015
2014-15
2013
2013-17
2014-19
Page 65
Balakovo Mini-Mill
Rationale
Targeting rapidly growing domestic market
Focus on long products for construction sector
Entering new sales markets
Key Advantages
Cutting-edge equipment and high degree of automation
Favorable geographic position (Povolzhye region)
• Proximity to customers
• No scrap deficit
• Cheap electricity (Balakovo Nuclear Power Plant)
• Access to water- and railways
• Rebar deficit area with growing steel consumption
Capex US$697m
Start-up 2013
Capacity 1.0 mtpa of long products
Average EBITDA, 2013-2017 US$119m
ROCE 12.4%
Page 66
Severstal Steel Solutions
Project Scope
New area of development in the downstream
Entry to the high-margin and continuously growing construction solutions market
HVA steels (plate & coated steel)
Step 1. Entry to the Construction Solutions Market Step 2. New industrial complex
Products:
Steel structures for construction purposes
Pre-engineered buildings
Construction materials
Engineering center and Research and Development Center
Productions Volumes Targeted by 2017
Heavy steel structures: 0.23 mt
Light steel structures: 1 mt
Structural units, power transmission line towers and road fences: 0.12 mt
Launch: 2014 to 2019
Capacity: +1.35 mtpa
EBITDA: +US$465m pa
ROCE 26%
Products:
Construction materials and steel structures
Polygon supports
Road fences
Galvanizing service
Timeframe: 2012-2014
Vadim Larin CEO of Severstal Resources
Page 67
Severstal Resources – In Mining We Trust!
Safety is the highest priority, 2011 LTIFR targets have been achieved
We have good assets with excellent margins and FCF generation in strong markets,
resilient and cost flexible in downturns
Consistent delivery on cost management targets, structural improvement in coking coal
costs; Vorkuta and Karelskiy Okatysh moving to the left of the cost curve
Prudent investment programme geared towards reduction of fixed costs, labour
productivity and low-cost brownfield expansion
Strong potential for further value enhancement through the Business System: US$225m
of anticipated effect by 2015
Solid long-term prospects with greenfield optionality, cash generation and cost
resilience remain the key priorities for the mid-term
Overview
Page 69
Iron ore
Coal
Assets by Mineral
PBS Coals
Karelsky Okatysh
Olkon Vorkutaugol
Severstal Resources at a Glance
Severstal Resources today
4 established business units with stable production
Continuous focus on safety, operational efficiency and volumes
Portfolio of new prospective projects with prudent approach towards development
Page 70
Coalfield Centralny (Tyva)
Putu Amapa
IMBS
Metalized iron
Producing Prospective projects
Usinskoe
EBITDA, US$m 2010 2011 H1 2012
Vorkuta 421 576 160
Karelsky Okatysh 548 723 316
Olkon 120 227 88
PBS Coals 66 87 48
Total 1,155 1,613 612
Strong Financial Performance Amid Volatile Market
EBITDA Margin, % 2010 2011 1H 2012
Vorkuta 43% 48% 33%
Karelsky Okatysh 49% 48% 46%
Olkon 43% 48% 43%
PBS Coals 19% 17% 22%
Severstal Resources 42% 43% 39%
ROCE, % 2010 2011 1H 2012
Severstal Resources 35% 40% 27%
IN WEAKER MARKET
IN GOOD MARKET
IN STRONG MARKET
Page 71
Cost Management Remains Our Priority
Asset 2011 H1 2012 Comment Expected further
cost development
Vorkutaugol, hard coking coal, 2Zh grade
102 113 Longwall moved to
the most productive seam in July
Vorkutaugol, semi-soft coking coal, GZhO grade
59 49 Volumes up 13%
compared to 2010/11 FLAT
Karelsky Okatysh 62 57 Productivity
improvements
Olkon 48 49 Stripping ratio up
10% FLAT
PBS Coals, coking coal 112 104 High-cost mines idled
in July
Cash cost, US$/t
Page 72
How Are We Achieving That? Examples of the Business System Improvements
Vorkuta
• Maintenance shift is every 3 days in most of the longwalls increased volumes by 6-8%, same goal for the development
• Increase of skip productivity in Zapolyarnaya mine by 5% • Further headcount reduction to below 9,000 • Locomotives reduction from 13 to 10 due to higher utilization • Increase of utility rates of open pit dozers by 8%
Total additional EBITDA in 2011 = US$88m Page 73
Karelkiy Okatysh
• “Ideal shift” has added 0.4 mt of pellets annually without CAPEX and remains the lowest scheduled downtime in the industry
• Increase of truck productivity by 6% since 2011 and by 16% compared to 2010 • Further increase of trucks tonnage due to board sides build-up and double side
loading up to 5% to mine productivity or US$20m per annum • +5% in train productivity due to new shift coordination in the train department • Utilization rate of milling (bottleneck) at over 97% in 2012 • Modular GPS for dozers, high-precision drilling • Used of drilling sleeves to decrease explosive use by 5-7%
Olkon
• GPS mine fleet management system installed, fines screens installed, “Ideal shift” is being implemented to cut non productive mining time in half
• Insourcing maintenance workers for domestic equipment to increase its availability rate, insourcing drilling operators to improve productivity by 5%, costs by 10%
• Reduction in plant downtime from 10% to 5% due to better maintenance organization and switching from accidental to planned maintenance
Robust Health & Safety Record
Severstal Resources LTIFR
Figures exclude Nordgold
-64%
1H2012
3.9
2011
3.0
2010
4.8
2009
5.7
2008
4.1
2007
6.3
2006
10.7
Page 74
The Safety Program is being implemented as a part of BSS to provide further safety improvements
4.7
4.9
5.1
2011 2012E 2015F
Olkon, iron ore concentrate, mtpa
Brownfields Growth and Cost Initiatives in Iron Ore
Iron ore volumes expected to grow to 15.8mt in 2015
Page 75
Karelskiy Okatysh: one of the most modern iron ore complexes in Russia with good modern infrastructure in place. Efforts are focused on continuous improvement.
“Ideal Shift” programme delivered +0.4 mt of pellets with no CAPEX.
Huge mining fleet modernization programme close to completion.
Olkon: continuous improvement focus - “Ideal
Shift”, GPS fleet management.
New thermal dryer and high-angle conveyer
are to be commissioned in 2015.
Current JORC reserves 104 mt, however 60mt
will be added in 2012 and another 103mt in
the next 3 years.
10.1
10.3
10.7
2011 2012E 2015F
Karelskiy Okatysh, iron ore pellets, mtpa
Vorkutaugol: Incline shafts at Zapolyarnaya and Vorgashorskaya mines to deliver substantial cost reduction and extra volume by optimizing infrastructure and removing transport bottlenecks.
Adding 4mt of coal beneficiation capacity at a quarter of greenfield capex costs.
More lower-cost volumes with Usinskoye development.
With lower costs and volume growth, Vorkuta expected to move further left on the cost curve.
Methane power plant 16MW is to start in Q4 2012.
Brownfields Growth and Cost Initiatives in Metcoal
Page 76
PBS: Highly flexible volumes well-fit to the volatile market.
Temporal idling of least efficient mines in H1 2012 to reduce costs and preserve cash flow. The mines can be reopened as soon as the market picks up. Supplies to the domestic market remain intact.
Coal (incl. steam coal) volumes expected to grow to 12.7mt in 2015
2.6
2.2
3.2
2011 2012E 2015F
PBS Coals, metcoal, mtpa
5.1
6.0
7.7
2011 2012E 2015F
Vorkutaugol, metcoal, mtpa
Sergei Kuznetsov CEO of Severstal International
Page 77
Severstal International – Focused on the Future
79
Modernization is completed – current investments are low and mostly maintenance-related
Good progress in ramping up of the new facilities to achieve planned targets
Business System of Severstal Development is building on the existing platform
US market is attractive in the long-term:
• Low inflation rates
• Recovery in steel demand
• Scrap availability
• Relatively cheap energy supply
Overview
Page 80
Severstal North America (SNA*) is Present on All Key NAFTA Growing Markets
Projected Steel Shipment to the NAFTA Light Vehicle Industry, mt
Projected Steel Shipment to the US Service Centers, mt
Projected Steel Shipment to the US Construction, mt
Projected Steel Shipment to the US Pipe & Tube, mt
12.7
10.3
7.2
10.4 11.012.3 12.5
13.3 13.6 14.0
0
5
10
15
2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F
4.9%
15.713.9
8.5
12.313.6 13.7 14.1 14.4 15.0 15.3
0
5
10
15
20
2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F
2.4%
19.017.8
11.3
17.719.7 20.3 21.1 22.0 22.2 23.0
0
5
10
15
20
25
2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F
3.1%
11.010.4
7.2
9.610.5
11.2 11.5 11.6 11.9 12.0
0
2
4
6
8
10
12
14
2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F
2.7%
Source: Global Insight, AISI, Severstal. *SNA represents part of Severstal International
In 2012 SNA completed a US$3.1bn, multi-year expansion/modernization program in North America
Combines the advanced product capabilities of integrated operations with the flexibility of mini-mill operations
SNA 2004–2011 Investment Program
Total investment in Dearborn: US$1.67bn
Total investment in Columbus US$1.43bn
Page 81
SNA Today: Well-Invested Steel Assets
Dearborn
Acquired assets of Rouge Industries Inc. ($290m)
Dearborn
Entered into joint venture with Wheeling-Pittsburgh Steel Corporation to secure coke supply ($160m)
Columbus
Completed greenfield construction of phase I ($880m)
Dearborn
Rebuild “C” blast furnace ($344m)
Build secondary BOF emission control ($34m)
Converted caster to straight mold ($22m)
Modernized HSM reheat furnaces ($32m)
Dearborn
Completed new pickle-tandem cold mill ($486m)
Completed new galvanizing line ($305m)
Columbus
Completed phase II expansion ($550m)
Crude Steel Capacity, mtpa 2.4 2.4 2.4 3.2 3.6 3.6 3.6 4.5 5.2
2004 2005 2006 2007 2008 2009 2010 2011 2012
2.1
1.3
0.8
2.1 2.1
1.3
Crude Steel Cold Rolled Sheet HD GL/EG
Before After
1.51.2
0.5
3.1
1.31.0
Crude Steel Cold Rolled Sheet HD GL
Before After
Dearborn – Capacity, mt Columbus – Capacity, mt
Page 82
Competitive Benchmarking – H1 2012
EBITDA Margin H1 2012, %
Revenue per tonne H1 2012, US$
(1) SNA sales excluding sales of steel products previously acquired from the Cherepovets Steel Mill (2) EBITDA of Nucor, US steel and AK was corrected to account the effect of LIFO to FIFO adjustment.
EBITDA per tonne H1 2012, US$
All this should lead to further
increase in profitability by
developing product mix and
maintaining cost leadership.
Revenue per tonne lower due
to differences in product mix…
…which is partially
compensated by better
production efficiency and cost
structure, leading to high
EBITDA margin.
897 908 953
1,262 1,291
SNA USS SDI AK Steel Nucor
49 60 60
99
130
AK Steel USS SNA Nucor SDI
3.9%
6.6% 6.7% 7.7%
13.6%
AK Steel USS SNA Nucor SDI
Page 83
SNA Targets for Market Shares
SNA Products Mix Development SNA Product Mix in 2011 SNA Projected Product Mix in 2016
SNA Market Share Development SNA Market Share in 2011 SNA Projected Market Share in 2016
$93
$35
FY 2011 FY2012F
Columbus – the newest US mini-mill
Total crude steel capacity doubled to 3.1 mt in 2011 at the cost of US$0.55bn
The mill is already among the most cost-effective in the US
Page 84
Low-cost Steel Facilities
New PLTCM in Dearborn: Launched in 2011, CAPEX US$480m
Increases value-added downstream capacity by 0.8 mt
Improved product quality and capabilities
Enables production of advanced high strength steel
Conversion costs competitive with world class facility
Expected to add ~US$75-$125m of EBITDA per annum
Hot Band Cumulative Conversion Cost, US$/t
Dearborn Conversion Costs: Old Cold Mill vs. New PLTCM*
Savings of US$75-125m per annum
$119
$103
H1 2011 Columbus H1 2012 Columbus
Savings of US$40-50m per annum
* PLTCM – Pickle Line Tandem Cold Mill
14%
56%
7%
2% 3%
4%
4% 4%
6% Pig Iron
Scrap
Utilities/Gases
Labour
Maintenance
Overheads
Supplies
Electricity
Other
Page 85
Competitive Input Costs
SNA Supply Sources
Dearborn H1 2012 Production Cost
Columbus H1 2012 Production Cost
Iron Ore
100% secured by long-term pellet contract with Cleveland Cliffs (through
2022)
Coking Coal
Full economic hedge through PBS coals
Labor Force
43% of employees are non-union
57% of workforce governed by UAW labor agreement (through March 2017)
total workforce by 1H’2012: 2,201
employees, best benchmark in NA industry
Coke
63% coke supply from MSC (50% owned by SNA)
37% secured by long-term
contract with DTE (through 2021)
Page 86
Our New Facilities: Produce HVA Products with Low Annual Maintenance
Dearborn: 1st Hot Dipped Galvanizing Line Dearborn: Pickle Line and Tandem Cold Mill
Columbus: 2nd Galvanizing Line Columbus: Push-Pull Pickling Line
Page 87
Development of Severstal Business System in SNA
Business System Implementation Focused on Building People and Processes for Sustainability
Projected Impact (2011 Baseline), US$m per annum
Business System of Severstal Development
Implementation at Dearborn and Columbus is underway
Business system to be fully implemented in 2014
Focus on five Aspects of Company Performance
Safety
Continuous improvement
Customer focus
People
Procurement
Setting Aggressive, but Achievable Targets
Project business improvement of US$54m per annum in 2015 vs 2011
~50% of improvement initiatives are in active implementation
Dearborn Columbus
Continue to explore opportunities for vertical integration
into metallics (DRI off take agreement versus building)
Build scrap purchasing network in scrap-rich regions
Single invoice painted product offering
Expand into automotive and other OEM**
Further development of the industrial park
Achieve product qualifications and ramp up PLTCM and
HDG lines to rated capacity
Develop new products with new equipment capabilities
and expand the value added product offering
Focus on Advanced High Strength Steel capabilities
Continuous Annealing Line under consideration
Improve quality and operational efficiency through
focused investments in steelmaking and hot rolling
SNA
Invest in R&D/Application engineering for auto and pipe & tube industry
New product development for key markets: automotive, pipe & tube, appliances
Enter into painted product market through a strategic agreement with major color coating processor (avoid investment into color
coating line - about US$100m)
Complete Business system rollout and implementation and realize benefits
Pricing office to ensure structural margin improvement over the cycle
Extensive People training and Development program
Page 88
SNA Development Strategy
* OEM – Original Equipment Manufacturers
Conclusions
Unique business model combining low cost production and customer reach
Committed to our established strategy
Focus on internal improvements and organic growth
Balanced mid and long-term growth projects profile
Leading margins and return on investment for shareholders
Strong balance sheet provides stability and flexibility through the cycle
Page 90
Key Highlights
Page 91
Q&A
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 92
Disclaimer
