Corporate Presentation. May 2015

Transcription

1 Corporate Presentation May 2015

2 4 Investment Profile 14 Severstal Russian Steel Table of Contents 22 Severstal Resources 27 Recent Financial Results 37 Recent Operational Results

3 Olkon Vorkutaugol Karelsky Okatysh St. Petersburg Izhora LDP Pipe Mill, SMC Kolpino Cherepovets Steel Mill Sheksna Small Pipe Plant Moscow Balakovo Severstal: In the center of major steel consuming regions and closest to the export routes

4 Severstal s investment profile Highlights: One of the lowest cost producers on the global cost curve (Q slab cost of $214/t) Structural outperformance of lower cost integrated operating model vs. EAFs Proximity to export markets ($20/t), quality certification and strong domestic and export distribution channels on the ground allow flexibility in geo of sales Embedded operational enhancements since 2010 with further potential gains of up to $200 million Well-diversified product mix with a share of HVA in the portfolio of >50% helps to offset seasonality of the steel market and sell products both locally and internationally RUB weakening benefits, plus $/Euro revenue inflow from exports Higher focus on service and HVA investment Industry leading margins and strong FCF Minimal debt and progressive dividend policy High levels of corporate governance, CSR and shareholder engagement Page 4

5 Delivery against strategic targets Cost Position Middle-to-the-left position of all our assets on the cost curve On integrated basis: Achieved Individual assets: Strong progress Margins Targeting cycle-average EBITDA margin of c.20% Delivered FCF Stable positive free cash flow Delivered CAPEX Mid-term target below $1.0bn a year (ca. RUB 30bn in a mid-term) Delivered Net Debt Striving to keep Net debt/ebitda below 1.5x Delivered with the intention to keep the ratio below 1.0x Dividends Quarterly payout of not less than 25% of net Income Delivered and amended to 50% payout Page 5

6 Further progress in efficiency and financial stability EBITDA/tonne 1, $ (FY2014) EBITDA margin, % (FY2014) Net debt/ebitda (EY2014) Kobe Steel 1st 320 Severstal 1st 26.6% Salzgitter 1st -0.3 CSN 2nd 310 CSN 2nd 23.4% Erdemir 2nd 0.5 China Steel 3rd 223 NLMK 3rd 22.9% NLMK 3rd 0.7 ThyssenKrupp 4th 209 Erdemir 4th 21.3% Severstal 4th 0.7 Severstal 5th 208 MMK 5th 20.2% Ternium 5th 1.2 Posco 6th 179 JSW Steel 6th 17.9% MMK 6th 1.3 NLMK 7th 169 China Steel 7th 17.9% US Steel 7th 1.3 Ternium 8th 156 Evraz 8th 17.8% ThyssenKrupp 8th 1.4 Evraz 9th 154 Ternium 9th 16.9% Nucor 9th 1.6 Erdemir 10th 138 Hyundai Steel 10th 10th 16.0% Voestalpine 2.0 Source: Bloomberg, company data For the Russian, European and Latin American companies EBITDA is calculated by the companies themselves and converted in USD at average rate for the period; for others - EBITDA is operating income + D&A 1) Total Company EBITDA per tonne of total steel products shipments in 2014 Page 6

7 Financial priorities remain Key financial goal: Sizable FCF generation for growing dividend payments and proactive debt reduction Financial priorities Continuous improvement at all levels; non-stop benchmarking to best practice Smart capex Working capital optimization Liquidity management Prudent cash allocation The effect Ongoing debt reduction with increased dividend payment (50% payout) Declining interest expense Capex traditionally fully covered by operating cash flow Improved working capital turnover Cash at hand covers almost 3 years of debt maturities; additional availability of committed credit lines Cash in utilization at historically record levels Investment Grade is our next step Page 7

8 FCF is our key focus Free cash flow* generation in FY2012** Free cash flow* generation in FY2013** Free cash flow* generation in FY2014 1,728 1,930 1, Positive FCF of $1,232m 129 Positive FCF of $560m Positive FCF of $381m (779) 88 (1,297) (1,084) OCF 2012 Capex 2012 Other adj. to FCF FCF 2012 OCF 2013 Capex 2013 Other adj. to FCF FCF 2013 OCF 2014 Capex 2014 Other adj. to FCF FCF 2014 Highlights: Over recent years Severstal has consistently delivered meaningful positive FCF* Capex is traditionally covered with operational cash flow FCF being used for dividend payments and further deleveraging * Free cash flow is determined as an aggregate amount of the following lines: Net cash from operating activities continuing operations, CAPEX, proceeds from disposal of PPE, interest received and dividends received ** These amounts reflect adjustments made in connection with the presentation of discontinued operations Page 8

9 Debt Structure As at the debt structure was dominated by public debt (90% of total) and the US dollar (89.9% of total). Debt Maturity Schedule*, $m 137*** 84*** 452 ** Notes: Debt represents the principal amount of debt. Debt for 2015 represents amount of debt as at 31 March 2015 * Figures exclude accrued interest and unamortized balance of transactional costs. ** Repayment of Convertible Bond in line with Put Option in September 2015 assuming Put Option realized *** Redeemed in February 2015 Page 9

10 Robust Liquidity and Sustainable Leverage Strong liquidity position: Severstal gross debt reduced by 15.5% since the end of Q4 14 to $2,899m Total of $221m of bond issues redeemed during a public tender offer to buy back the Company s 2016 and 2017 Eurobonds Committed unused credit lines returned to $688m after $300m of short-term debt raised in Q4 14 via committed facilities was repaid during Q1 15 Solid liquidity position at the end of Q1 15 with $1,522m in cash and cash equivalents and committed unused credit lines of $688m, more than covering short-term debt of $465m* Net Debt/EBITDA ratio further decreased q/q to 0.6x at the end of Q1 15 (Q4 14: 0.7x), one of the lowest amongst steel companies globally 688 1, x 1.3x Total Short-term Debt to be Repaid of $465m* Liquidity 2Q Q Q Q 2016 Cash Short-term Debt to be Repaid Unused Committed Credit Lines * Represents principal amount of debt including repayment of Convertible Bond in line with Put Option in September 2015 assuming Put Option realized Q debt currency mix RUB 9.3% EUR 0.8% Q cash currency mix EUR 7% RUR 25% 3,860 3,080 3,695 2,924 3, x 3, x 2, x USD 89.9% USD 68% 775 1,532 1,376 Q2 14 Q3 14 Q4 14 Q1 15 Total debt, $m Net debt, $m Net debt/ebitda, x Net debt/ebitda ex-sna, x SNA portion, $m Page 10

11 Credit ratings evolution Since 2010 Severstal has been regaining ratings agencies confidence and seeing consistent upgrades at a faster pace compared to its key peers Since February 2015, Moody s has Severstal s rating at Ba1/Negative from Stable (in light of more challenging macroeconomic conditions in Russia), while affirmed its rating (drivers: implemented cost efficiencies and liquidity) Since February 2015, S&P has Severstal s rating at BB+/Negative from Stable (in light of more challenging macroeconomic conditions in Russia), while affirmed its rating (drivers: implemented cost efficiencies and deleveraging) Since May 2015, Fitch has Severstal s rating at BB+/Positive from Stable (drivers: improved profitability; successful deleveraging; enhancing production efficiency; comfortable credit metrics) BB+/Ba1 BB/Ba2 BB-/Ba3 B+/B1 Feb-04 Dec-04 Oct-05 Aug-06 Jun-07 Apr-08 Feb-09 Dec-09 Oct-10 Aug-11 Jun-12 Apr-13 Feb-14 Dec-14 S&P Moody's Fitch Page 11

12 The dividend policy: further enhancing cash returns Severstal is committed to predictable quarterly dividends The Company s robust performance in 2014 and confidence in the outlook prompted the Board of Directors to modify Severstal s existing dividend policy Previous dividend policy assumes quarterly payments of not less than 25% of the net profit for the reporting period Following the Board resolution on 9 October 2014, Severstal is now committed to paying of not less than 50% of the net profit for the reporting period provided that Net debt/ebitda is below 1.0x Should the ratio increase to higher than 1.0x, Severstal would return to its previous dividend payout of 25% of net profit Page 12

13 Three key pillars behind the delivery against the plan 1 Relentless focus on cost-reduction and operational enhancements since Fundamental strengths of our vertically integrated business model Disposal of non-core assets to make the business more focused and streamlined Strong FCF and one of highest EBITDA margins globally throughout the cycle Page 13

14 Severstal Russian Steel

15 Leading steel producer & supplier to local markets 50% 31% 37% 45% 46% 54% 32% 4% 1% Severstal NLMK MMK Semi-finished Hot-rolled HVA Source: Severstal, Brokers reports, Companies data Notes: High value-added products comprise plates, large diameter pipes, cold-rolled sheet, metalware, galvanised sheet, colour coated sheet, tubes and pipes, formed shapes Other 1% Americas 7% Asia 3% Europe 15% CIS 7% Russia 67% Highest Share (by Volume) of HVA Products Among Russian Peers 1 (FY 2014) Sales Breakdown (FY 2014) by Destination Russia by Industry Construction 56% Pipe & tubes 9% Machinery 6% Automotive 4% Oil & gas 7% Other 18% 2014 Highlights Market opportunities: Proximity to export ports allows to maximize steel sales earnings Benefiting from the construction of the Power of Siberia gas pipelines Just launched a new service center near St. Petersburg to supply stampings for the auto and machinery industries Launch of the Balakovo Mini-Mill in Q3 2014: Adding 1 mtpa of long products for the construction market No major competition around, high import substitution opportunities Efficiencies and cost reduction: Scheduled upgrade of the HR mill at the Cherepovets Steel Mill (the Mill-2000) Increasing use of higher-grade pellets from Karelsky Okatysh (66% Fe content) (1) Shares calculated based on companies Russian assets Page 15

16 Vertically integrated, low-cost steelmaker Vertical Integration 1 Global Cost Competitiveness Leading Position in Iron Ore Integration, % Leading Position in Coking Coal Integration, % $ $ $ $ $ $ $0 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 Contribution of Severstal Resources division to the integrated costs Cash cost of slab on an integrated basis Q1 15 nonintegrated cash cost of slab down $41/t q/q Q1 15 integrated cash cost of slab down $34/t q/q *slab BOF non-integrated cash cost for the Q has been restated (1)Vertical integration percent of self-sufficiency in terms of its own generation and consumption (2014 data) Sources: Company reports, Severstal analysis Page 16

17 Room for efficiency improvements Purchasing process redesign Single purchasing organization Category management revision Efficiency of hot metal production With the new pellets quality, upgraded coke battery and increased spread between pig iron and scrap we are returning back coke quality coke hot strength Higher usage of recycled slag in BF, sinter output increase BOF process optimization BOF yield target is 91% (+1%) through improved blowing and slag stopping. FeO content in slag is already declining Total target effect of around $200 mln* in * The actual figure of gains can be either higher or lower depending on the FX fluctuations. Page 17

18 Investments in HVA production Upgrade of HR Mill-2000 Effects: HRC capacity to increase by 290 kt Cost reduction CAPEX: RUB 0.8bn Launch: Q Modernization of the 4-stand CR Mill Effects: CRC capacity to increase by 200 kt Cost reduction and quality improvement CAPEX: RUB 2.5bn Launch: Q New HDG/Coating lines Effects: HDG capacity to increase by 400 kt Coating capacity to increase by 200 kt CAPEX: RUB 6.0 bn Launch: 2017 Current capacity (increase): 8.8mnt per annum (+3%) Current capacity (increase): 2.8mnt per annum (+7%) Current capacity (increase): 1.2mnt per annum (+33%) Color 400kt per annum (+50%) Page 18

19 Balakovo Mini-Mill Favorable Market Environment Rapidly developing steel market (Southern Russia) with proximity to customers and river logistics Scrap surplus of about 3 mtpa in the Volga region Excess electricity capacity in the region Environment-friendly technology: 99.5% gas cleaning system and closed-loop water recirculation Well-developed transport infrastructure Balakovo Electric Arc Furnace Balakovo Mini-Mill Ramping up since Q Total capex in the project is ~ 23 bln RUB (or ~$700 mln) Location: Town of Balakovo, Saratov region, Volga area Full capacity: 1 mtpa of long products: rebar, angles, channels Equipment: EAF (Siemens VAI), rolling mills (Danieli) Scrap yard in place and functioning Page 19

20 Balakovo Mini-Mill: Ramping-up Severstal is not new in the Volga and Southern regions as a steel seller, while before it was selling flat products All sales from Balakovo are being realized via our sales team at the Russian Steel Division in Cherepovets, thus allowing access to federal steel traders and our established clients (rebar, angles, sections are typically sold to steel traders, rather than to end customers directly) Balakovo will prioritize having long-term contracts (annual) with the clients (up to 70% of the portfolio). This allows Balakovo to have stable demand through the year Most of the products from Balakovo will be delivered to customers by auto. Longer distances (beyond 700 km from the mill) will be covered by rail. River transportation options might be considered as well In addition to residential construction, an upside in demand in the region will be coming from construction of new production facilities by large companies Page 20

21 Severstal is a unique Russian producer of largediameter pipes on a fully integrated basis Severstal s Izhora Pipe Plant is located in the Kolpino Industrial Area just 30 km from St. Petersburg (proximity to port). Employs around 1,100 people. Was built from scratch by Severstal and launched in Ongoing modernization to meet tough customers requirements and international certification Producing a wide range of large-diameter pipes (from 813mm to 1420mm) for the oil & gas industry with nominal capacity of 600kt per annum (actual output varies and depends on the product mix) Plate for Izhora comes from Mill-5000 is located in the same Kolpino Area. Slabs for making plate are delivered from the Cherepovets Steel Mill. Having both Izhora Pipe Plant and Mill-5000 allows Severstal to flexibly operate on both markets selling plate to 3 rd party pipe producers and selling large-diameter pipes to oil & gas companies as an end product Key customers: Gazprom, Transneft. Recently Izhora has supplied pipes for the following oil & gas projects: Bovanenkovo-Ukhta (the main supplier), North-European pipeline, Eastern Siberia - Pacific Ocean (ESPO), Ukhta-Torzhok, South Stream, Power of Siberia Page 21

22 Severstal Resources

23 Market positioning #2 by Coking Coal Concentrate Production in Russia (2014) Iron Ore and Coking coal Sales by Customers (2014) Yakutugol 12% Severstal Resources 11% Export market 24,3% Other 29% Yuzhny Kuzbass 8% Raspadskaya 11% Sibuglemet 10% Yuzhkuzbassugol 10% KRU 10% Domestic market 18,1% 22.1 mt Internal consumption 57,5% #2 by Iron Ore Concentrate Production in Russia (2014)* Highlights Mechel 4% Kovdor 6% Evraz 13% NLMK 14% Other 9% Metalloinvest 38% Severstal Resources 16%* Major supplier to Russian Steel feedstock security and a driver behind leading industry cost / margin positions High quality and scarcity of produced coking coal favorable positioning on both local and export markets Portfolio of new prospective projects with prudent approach towards development Continuous focus on safety, operational efficiency and volumes Source: Severstal data, Metal Expert *Iron ore concentrate produced at Karelsky Okatysh is further reprocessed in pellets production cycle Page 23

24 Vorkutaugol (coking coal) Completed to date Production back on the rise since Q The causes for the decline in H2014 have been managed Headcount reduced from 14,000 to 8,000 people over last 5 years Inclined shaft at Vorgashorskaya completed First Russian power station on coal methane launched In progress Further production growth Inclined shaft at Zapolyarnaya in 2015 The 2 nd section upgrade of the Pechorskaya Washing Plant is scheduled for 2015 Coking coal total cash costs (TCC) Vorkutaugol operational highlights F Raw coal output, mt Hard coking coal (2Zh grade) concentrate production, mt Hard coking coal (2Zh grade) concentrate total cash cost, $/t Subject to FX Vorkutaugol coking coal cocentrate blend cash cost, USD/t TCC declined to $33/t (Q4 14: $40/t) on efficiency improvements and RUB devaluation Page 24

25 Karelsky Okatysh (iron ore pellets) Completed to date Volume reached 10.6 mt (annualized volume run rate) and will remain broadly at this level Headcount reduced to 4,700 people in mt of fluxed pellets produced with Fe content increased from 63.7% to 66.0% Production and stripping ratio are constant and according to the mine plan Iron ore pellets total cash costs (TCC) In progress A new stream of projects (total capex of $30 mln) launched in 2014 to yield a $4/t improvement from the beginning of Karelsky Okatysh operational highlights F Pellet output, mt Stripping ratio, m3/t Pellet cash cost, $/t Subject to FX Karelsky Okatysh iron ore pellets cash cost, USD/t TCC further improvement on RUB devaluation and fluxed pellets production share increase Page 25

26 Olkon (iron ore concentrate) Completed to date Quality more stable after Derrick screens installation The mine plan reviewed. At current price levels life of mine is mt production The highest cost open pit was idled in August 2014 Iron ore concentrate total cash costs (TCC) In progress Capex and maintenance optimization to match the new mine plan Stripping ratio passed its peak in 2013 and will be further declining High-angle conveyor will be launched in November 2014 Olkon operational highlights Concentrate production, mt F Stripping ratio, m3/t Concentrate cash cost, $/t Subject to FX Olkon iron ore concentrate cash cost, USD/t TCC declined to $23/t on solid production volumes and RUB devaluation Page 26

27 Recent Financial Results

28 Summary Q Highlights: Primarily reflecting a combination of ongoing efficiency improvements as well as lower input costs with RUB devaluation mitigating the impact of lower selling prices Severstal posted further EBITDA* margin expansion by 6.4 ppts q/q to 38.5% (Q4 14: 32.1%). This represents the highest level in Severstal s history as a public company amidst challenging market conditions Q1 15 Group revenue decreased 18.5% q/q to $1,531m (Q4 14: $1,878m) largely reflecting a decline in global steel prices and steelmaking raw materials price. However, Group EBITDA decreased a negligible 2.0% q/q to $590m (Q4 14: $602m) Free cash flow of $209m (Q4 14: $425m) generated in line with our key strategic focus. Q/q decline of 50.8% primarily reflects an increase in stock to normalized level after divesting inventories during Q against strong demand Q1 15 net profit** of $343m (Q4 14: net loss ** of $795m) was marginally impacted by FX translation losses of continuing operations of $31m. Adjusting for those non-cash items, Severstal would have posted a net profit of $374m (Q4 14: net profit of $534m excluding impairments) Net Debt/EBITDA ratio further decreased q/q to 0.6x at the end of Q1 15 (Q4 14: 0.7x). This represents one of the lowest levels among steel companies globally Q1 15 capex *** of $103 million, 34.4% lower q/q (Q4 14: $157 million) reflecting our prudent approach to investments as well as the completion of most large-scale development projects Recommended dividend payment of roubles per share for the three months ended 31 March 2015 * EBITDA represents profit/(loss) from operations plus depreciation and amortization of productive assets (including the Group s share in depreciation and amortization of associates and joint ventures) adjusted for gain/(loss) on disposals of PPE and intangible assets and for share in associates and joint ventures non-operating income/(expenses) ** Net profit/ (loss) attributable to shareholders of PAO Severstal. *** Represents cash outflow on capex in the period Page 28

29 Revenue Dynamics and Breakdown Q Revenue: $1,531m (Q4 2014: $1,878m; -18.5%) Group revenue decreased q/q despite solid demand and the Company s flexibility to shift its sales between domestic and export markets coupled with number of successful attempts to increase RUB-denominated selling prices in order to mitigate sharp RUB devaluation Q Q Q Revenue: $1,531m (Q1 2014: $1,991m*; -23.1%) Primarily impacted by lower realized prices effect, which has been partially mitigated by sizable increase in sales volumes at the Russian Steel division, Group revenue decreased y/y Q Q Severstal Russian Steel 1,396 1,715** Severstal Russian Steel 1,396 1,729** Severstal Resources 356** 289 Severstal Resources ** -193** Intersegment -305** Intersegment ,200 1,600 2,000 * These amounts reflect adjustments made in connection with the presentation of the discontinued operation ** Divisional results for the respective previous periods were restated following a change in the Group s management structure in January ,200 1,600 2,000 Page 29

30 EBITDA Dynamics and Breakdown Q EBITDA: $590m (Q4 2014: $602m; -2.0%) While Group EBITDA decreased marginally q/q, EBITDA margin* expanded further driven by combination of ongoing efficiency improvements at both Russian Steel and Resources as well as lower input costs and the RUB devaluation mitigating the impact of lower selling prices Q Q Q EBITDA: $590m (Q1 2014: $459m**; +28.5%) EBITDA improvement y/y reflects a strong result at Russian Steel on the back of operational enhancements, lower input costs and RUB devaluation, more than offsetting lower deliveries at Resources Q Q Severstal Russian Steel 465*** 476 Severstal Russian Steel 265*** 476 Severstal Resources *** Severstal Resources *** Intersegment -4 3*** Intersegment -4 2*** * The Group Q EBITDA margin was 38.5% ** These amounts reflect adjustments made in connection with the presentation of the discontinued operation *** Divisional results for the respective previous periods were restated following a change in the Group s management structure in January Page 30

31 Severstal Russian Steel (RSD) Severstal Russian Steel increased its steel output in Q1 2% to 2.96mnt with all its rolling facilities at Cherepovets Steel Mill (CherMK) running at almost full capacity. However, steel products sales decreased 4% q/q to 2.56mnt. This allowed the Company to build up its internal stock of high valueadded (HVA) products to normal levels following the divestment of inventory against strong demand in Q4 14 Severstal s proximity to export markets facilitated a shift from domestic to export deliveries. As a result, in Q exports accounted for 38% of sales (Q4 14: 29%) Increased exports and increased domestic RUB-denominated sales prices in order to catch up with the USD-denominated parity helped to partially mitigate the negative impact of the sharp RUB devaluation on revenue. That said, revenue decreased 18.6% q/q to $1,396m (Q4 14: $1,715m**) RSD has been able to fully mitigate the impact of lower selling prices through lower input prices in conjunction with reductions in production and G&A costs. That said, EBITDA increased 2.4% q/q to $476m (Q4 14: $465m**), while EBITDA margin increased to 34.1% (Q4 14: 27.1%) In Q1 Cherepovets total non-integrated cash cost of slab decreased $41/t q/q due to lower raw materials prices as well as a higher crude steel production volumes and the positive impact of RUB devaluation. Q1 integrated cash cost of slab decreased $34/t q/q to $169/t Share of high-value-added products*** in total steel shipments, % % 43% 46% 46% 43% 45% 50% 49% 47% 47% 52% 52% 46% 100% 80% 60% 40% 20% Steel sales volumes by destination, % 47% 42% 39% 35% 44% 35% 31% 38% 40% 36% 29% 29% 38% 53% 58% 61% 65% 56% 65% 69% 62% 60% 64% 71% 71% 62% EBITDA per tonne and average selling price EBITDA per tonne (US$/t) Average Selling Price (US$/t)* Q Q Q Q *All steel products, incl. pipes, etc.; Ex Works price terms. EBITDA drivers in Q1 2015, $m (19) (29) (85) Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Total finished steel, mt (lhs) share of HVA, % 0% Q1 12 Q2 12 Q3 12 Q4 12 Q1 Q2 Q Russia Q4 13 Q1 14 Q2 14 Export Q3 14 Q4 14 Q1 15 EBITDA Q4 2014** Sales Volume COGS Volume Sales Price**** COGS Price Other EBITDA Q ** Divisional results for the respective previous periods were restated following a change in the Group s management structure in January 2015 *** High-value-added comprises: plate; cold-rolled, galvanized and metallic coated, color coated sheet; metalware; large-diameter and other pipes. **** Excluding foreign exchange effect Page 31

32 Karelsky Okatysh (pellets) Olcon (iron ore concentrate) Vorkutaugol (coking coal concentrate, mix) Severstal Resources Severstal Resources has been able to partially mitigate the impact of a 15% q/q drop in the global iron ore benchmark and negative RUB devaluation effect. USD-denominated prices for iron ore pellets and concentrate decreased 4% q/q and 11% q/q, respectively Coking coal concentrate price decline of 16% q/q is purely a function of ca. 30% q/q RUB devaluation partially offset by another round of RUB-denominated prices upgrades The division s total coking coal concentrate sales down 13% q/q due to severe weather conditions. The Company expects production volumes to recover in Q2 15. Iron ore pellet sales volumes down 6% q/q against strong comparatives in Q4 14 Severstal Resources revenue decreased 18.8% q/q to $289m (Q4 14: $356m*). Nevertheless, Q1 15 EBITDA decreased 11.9% q/q to $118m (Q4 14: $134m*) with EBITDA margin increasing to 40.8% Continuous implementation of efficiency improvement projects to further decrease TCC of production supported by RUB devaluation: TCC at Karelsky Okatysh declined to $22/t ($25/t in Q4 14), while TCC at Vorkutaugol decreased to $33/t ($40/t in Q4 14) TCC at Olcon improved substantially to $23/t ($32/t in Q4 14) on solid production (25) EBITDA drivers in Q1 2015, $m (33) Average selling price and cash cost per tonne 76 Cost per tonne (US$/t) Average Selling Price (US$/t)*** Q Q Q Q Cost per tonne (US$/t) Q Q Q Q Cost per tonne (US$/t) Average Selling Price (US$/t)*** Average Selling Price (US$/t)*** EBITDA Q4 Sales Volume COGS Volume Sales Price** COGS Price Other EBITDA Q1 2014* 2015 * Divisional results for the respective previous periods were restated following a change in the Group s management structure in January 2015 ** Excluding foreign exchange effect *** Free carrier price terms Q Q Q Q Page 32

33 Summary Income Statement $ million, unless otherwise stated Q Q Q Q1 2014* Revenue 1,531 1,878 1,531 1,991 COGS (812) (1,137) (812) (1,357) EBITDA EBITDA margin, % 38.5% 32.1% 38.5% 23.1% Profit from operations Operating margin, % 32.8% 24.1% 32.8% 15.6% Profit/(loss) before income tax 446 (953) 446 (98) Net profit/(loss) 343 (795) 343 (100) Basic EPS, $ 0.42 (0.98) 0.42 (0.12) * These amounts reflect adjustments made in connection with the presentation of the discontinued operation Page 33

34 Summary Balance Sheet $ million As at 31 March 2015 As at 31 December 2014 Cash and Cash Equivalents 1,522 1,897 Total Assets: 7,076 7,561 Current Assets 3,297 3,620 Non-current Assets 3,779 3,941 Total Liabilities: 4,093 4,723 Current Liabilities 1,262 1,734 Non-current Liabilities 2,831 2,989 Total Equity 2,983 2,838 Total Equity and Liabilities 7,076 7,561 Page 34

35 Summary Cash Flow Statement $ million Q Q Q Q1 2014* Profit before Financing and Taxation Cash Generated from Operations Interest Paid (42) (57) (42) (35) Income Tax Paid (4) (9) (4) (8) Net cash from Operating Activities - continuing operations Net cash used in Operating Activities - discontinued operation (14) (15) (14) (7) Net cash from Operating Activities Net cash used in Investing Activities - continuing operations (68) (101) (68) (237) Net cash used in Investing Activities - discontinued operation (14) Total cash used in Investing Activites, incl. (68) (101) (68) (251) Additions to PP&E and IA (103) (157) (103) (251) Free Cash Flow** Cash (used in)/from Financing Activities - continuing operations (554) (1,035) (554) 120 Cash from/(used in) Financing Activities - discontinued operation (478) Cash used in Financing Activities (554) (1,034) (554) (358) Effect of Exchange Rate on Cash and Cash Equivalents (16) (252) (16) (23) Net decrease in Cash and Cash Equivalents (375) (856) (375) (144) Cash and Cash Equivalents at beginning of the Period 1,897 2,753 1,897 1,036 Cash and Cash Equivalents at end of the Period 1,522 1,897 1, * These amounts reflect adjustments made in connection with the presentation of the discontinued operation ** Free cash flow excludes discontinued operation Page 35

36 Sensitivity to currency Position Effect* Revenues All-in cost (COGS and SG&A) CAPEX ~65% ruble denominated ~90% ruble denominated ~75% ruble denominated RUB outflow and inflow broadly match * Excluding Severstal North America. Neutral effect of FX on EBITDA due to high share of export shipments with payment in USD and Euro Generally benefit from the RUB weakening as a result of the export net back parity effect on the local pricing Page 36

37 Recent Operational Results

38 Q Group Highlights* Crude steel production increased 2% q/q to 2.96 mln tonnes (Q4 14: 2.89 mln tonnes) with the prior quarter impacted by scheduled maintenance at one of the BOFs. Lower hot metal production (down 1% q/q to 2.31 mln tonnes) reflects short-term maintenance at BF#5. Consolidated sales of steel products declined 4% q/q as the Company built its internal stock of high value-added (HVA) products to normal levels after divesting inventories against strong demand in Q4. There has been an increase in profitability for hot-rolled coil (HRC) export deliveries almost throughout the entire quarter on the back of RUB devaluation, which resulted in higher HRC sales volumes. The abovementioned factors resulted in a 6 ppts decrease of the share of HVA products in the sales portfolio, to 46% (Q4 14: 52%). Coking coal concentrate sales volumes at Vorkutaugol decreased 13% q/q to 1.27 mln tonnes (Q4 14: 1.47 mln tonnes) due to seasonal severe weather conditions in the region. Whilst the pricing environment remains challenging, the sharp RUB devaluation triggered a round of RUB-nominated price increases in Q1 in order to catch up with export USD-nominated parity. This has partially mitigated the impacts of both the RUB devaluation and the global steel prices decline. Production volumes, t Q Q Change,% Q Q Change,% Crude steel (Total output): % % Hot metal (Total output): (1%) % Sales volumes, t Q Q Change,% Q Q Change,% Coking coal concentrate (13%) (9%) Iron ore pellets (6%) (0%) Iron ore concentrate % (10%) Total steel products (Consolidated) (4%) % Total steel products (Russian Steel) (4%) % * Group volumes for Q reflect adjustments made in connection with the presentation of the discontinued operation. Page 38

39 Severstal Russian Steel Operational Results Sales volumes, t Q Q Change,% Q Q Change,% Total steel products (4%) % Semi-finished products % (11%) Rolled products: (1%) % Hot-rolled coil % (2%) Hot-rolled plate (2%) (17%) Cold-rolled coil (13%) (9%) Galvanised and metallic coated coil (17%) % Color coated coil (24%) % Long products (6%) % Downstream products: (15%) % Metalware products (9%) (5%) Large diameter pipes (19%) % Other tubes, pipes, formed shapes (16%) % Sales price, $/tonne Q Q Change,% Q Q Change,% Semi-finished products (18%) (12%) Hot-rolled coil (12%) (16%) Hot-rolled plate (13%) (34%) Cold-rolled coil (10%) (23%) Galvanised and metallic coated coil (7%) (23%) Color coated coil (11%) (19%) Long products (13%) (24%) Metalware products (10%) (25%) Large diameter pipes (8%) (24%) Other tubes, pipes, formed shapes (28%) (26%) Page 39

40 Severstal Russian Steel (RSD) RSD steel products sales decreased 4% q/q to 2.56 mln tonnes. HRC sales volumes increased 13% q/q reflecting an uptick in profitability for HRC export deliveries. That said, given Severstal proximity to export markets allowing to flexibly shift between domestic and export deliveries RSD increased share of export to 38% in Q1. Notwithstanding decrease in sales volumes of HVA products, all the rolling facilities at CherMK were running at almost full capacity in Q1. The latter facilitated an increase in stock to normalized level after divesting inventories during Q4 against strong demand and temporary maintenance of BOF#3. Sales of LDPs decreased 19% q/q on short-term scheduled maintenance at Izhora Pipe Mill. Nevertheless, in Q1 Severstal continued supplying LDPs for the Southern Corridor and Bovanenkovo-Ukhta pipelines, which resulted in a high utilization rate at Izhora Pipe Mill. In Q1 Severstal has won a tender to supply about 160kt of LDPs for Gazprom's Power of Siberia project. Following global steel prices downward trend average steel prices for steel products at RSD decreased 7-28% q/q. Nevertheless, RSD was able to proactively increase domestic RUB-nominated sales prices compensating for the RUB devaluation effect and catching up with the USD-nominated parity. Share of high-value-added products* in total steel shipments, % Steel sales volumes by destination, % % 43% 46% 46% 43% 45% % 49% 47% 47% % 52% Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Total finished steel, mt (lhs) share of HVA, % 47% 42% 39% 35% 53% 58% 61% 65% * High-value-added comprises: plate; cold-rolled, galvanized and metallic coated, color coated sheet; metalware; large-diameter and other pipes. 46% 100% 80% 60% 40% 20% 0% 44% 56% St. Petersburg 35% 31% 65% 69% Moscow 38% 40% 36% 62% 60% 64% 29% 29% 71% 71% Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Page 40 Russia Export 38% 62%

41 Severstal Resources Operational Results Sales volumes, t Q Q Change,% Q Q Change,% Coal: (9%) (8%) Coking coal concentrate: (13%) (9%) Vorkutaugol (13%) % PBS Coals - - n.a n.a Raw coking coal, Vorkutaugol n.a n.a. Steam coal: % % Vorkutaugol % % PBS Coals - - n.a n.a. Iron ore: (5%) (3%) Iron ore pellets (6%) (0%) Iron ore concentrate % (10%) Sales price, $/tonne Q Q Change,% Q Q Change,% Coking coal concentrate, Vorkutaugol (16%) (33%) Coking coal concentrate, PBS Coals n.a. n.a. n.a. n.a. 111 n.a. Raw coking coal, Vorkutaugol 18 n.a. n.a (68%) Steam coal, Vorkutaugol (25%) (42%) Steam coal, PBS Coals n.a. n.a. n.a. n.a. 78 n.a. Iron ore pellets (4%) (50%) Iron ore concentrate (11%) (54%) Page 41

42 ROM coal production, kt 2,760 2,465 2,327 2,538 3,396 3,302 4,030 3,756 Coking coal price, US$/t Coking coal concentrate sales volumes, kt Vorkutaugol (part of Severstal Resources) Coking coal concentrate sales volumes decreased 13% q/q to 1.27 mln tonnes (Q4 14: 1.47 mln tonnes) primarily as a result of short-term production disruptions due to severe weather conditions during the period. The Company expect more typical production volumes in Q2. Steam coal sales at Vorkutaugol increased 7% q/q reflecting seasonally strong domestic demand. The coking coal concentrate average selling price decline of 16% q/q is purely a function of the ca. 30% q/q RUB devaluation partially offset by another round of RUB-nominated price upgrades by the Company, which took place in the second half of Q1. St. Petersburg Moscow 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, ROM coal production Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q Vorkutaugol average selling price dynamics, US$/t Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Hard coking coal benchmark (FOB Australia) Vorkutaugol ASP Vorkutaugol coking coal concentrate sales volumes 1,600 1,400 1,200 1,000 1, Q4 14 Q1 15 Q1 14 Q1 15 Third party sales Internal consumption Page 42

43 US$/t Iron ore pellets sales volumes, kt Karelsky Okatysh (part of Severstal Resources) Iron ore pellets sales declined 6% q/q to 2.58 mln tonnes (Q4 14: 2.75 mln tonnes). Sales volumes to external customers on the domestic market remained solid on restocking activity. Moreover, inventories of pellets at CherMk were returned to more normal levels on the back of increased internal procurement of pellets q/q. Prices for iron ore pellets at Karelskiy Okatysh decreased only 4% q/q. St. Petersburg Moscow Karelsky Okatysh average selling price (ASP) dynamics, US$/t Karelsky Okatysh pellets export structure, Q % 18% 56% 3,000 2,500 2,000 1,500 1, Iron ore pellets sales volumes 1,195 1,213 1,099 1,213 1,559 1,364 1,483 1,364 0 Q Q Q Q Iron ore fines (CFR China) Q Q Q Q Karelsky Okatysh ASP Europe Middle East Others 0 Q4 14 Q1 15 Q1 14 Q1 15 Third party sales Internal consumption Page 43

44 US$/t Iron ore concentrate sales volumes, kt Olkon (part of Severstal Resources) Iron ore concentrate sales volumes remained broadly flat q/q. At the same time, sharp RUB devaluation supported profitability at Olkon, resulting in higher q/q sales volumes to external customers. As a result of Severstal s successful efforts to increase RUB-nominated prices since the beginning of the year, the Company has been able to partially mitigate the 15% q/q decline in the global iron ore benchmark as well as the negative impact of RUB devaluation. USD-nominated average selling prices for iron ore concentrate decreased 11% q/q. St. Petersburg Moscow Olkon average selling price (ASP) dynamics, US$/t Q Q Q Q Q Q Q Q Iron ore fines (CFR China) Olkon ASP 1,200 1, Iron ore concentrate sales volumes , Q4 14 Q1 15 Q1 14 Q1 15 Third party sales Internal consumption Page 44

45 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 45