2. Table of Contents
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
Page 2
3. Today’s Agenda
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
Page 3
4. Christopher Alexey Thomas Alexey Vadim Alexander Vadim Sergei
Clark Mordashov Veraszto Kulichenko Saveliev Grubman Larin Kuznetsov
Chairman of the Chief Executive SVP – Strategy Chief Financial SVP – Corporate CEO CEO CEO
Board Officer and Corporate Officer Communications Severstal Severstal Severstal
of Directors Development and IR Russian Steel Resources International
Today’s Presenting Team
5. Introduction from Chairman of the Board Page 5
Christopher Clark
Chairman of the Board
of Directors
Page 5
6. Today’s Themes
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
7. Corporate Governance
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
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
Page 10
Note: US$2.8bn - Nordgold valuation at the split-off
11. Strategic Priorities
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
12. Strong, Global, Integrated
Karelsky Okatysh Vorkutaugol (Russia) Usinskoye (Russia)
Olkon (Russia) Cherepovets (Russia)
(Russia) 7.6mt Potential: 2-4mt
4.7mt 11.6mt
10.1mt Coking and Coking coal Concentrate
Iron Ore Concentrate Crude Steel Capacity
Iron Ore Pellets Thermal Coal Starting 2018
PBS Coal (US)
3.3mt
Coking and
Thermal Coal Dearborn (US)
Moscow
2.1mt
Crude Steel Capacity
Columbus (US)
Tyva (Russia)
3.1mt
Potential: 5.0-7.5mt
Crude Steel Capacity
Coking Coal Concentrate
Starting 2018-2020
Amapa (Brazil)
Potential: 10–20mt
Iron Ore Concentrate
Starting 2018–2020
Putu Range (Liberia) IMBS (South Africa)
Potential: 20–30mt Potential: 0.05-1.5 mt
Iron Ore Concentrate Briquetted Iron
Coking/Thermal Coal Starting 2017 Starting 2015
Iron Ore
Steel Mill/DRI Plant
Note: Numbers are presented for 2011 sales volumes, for steel – total capacity. Page 12
13. Our Stated Strategic Targets
To be the Efficiency Leader in Emerging Markets
Industrial Targets Financial Targets
Vertical Integration TOP 5 by EBITDA Globally
EBITDA Margin >20% Over
the Cycle
Business System
HVA Product Mix
of Severstal
In Top 10 Global Steel
Companies by ROCE
Consolidated & Net Debt/ EBITDA between
Growing Markets 0.5x and 1.5x
Page 13
14. Executing Our Strategy
Key Achievements 2011–2012
Separation of Nordgold
Asset Structure Aligned Disposal of a 22% stake in Intex Resources nickel company
with Strategic Priorities
SNA portfolio optimization completed
Implementation of $248m of EBITDA contribution in 2011
Business System of 1,800 mid-level managers across the company passed through a
Severstal comprehensive development program
Completed modernization and expansion of SNA
Organic Growth
Launch of 0.2 mtpa color-coating line #2 in Cherepovets
Through Targeted
Investments Strong mining production in 2011 on the back of multiple initiatives: iron ore
output +1.0 mt, coking coal concentrate +0.3 mt
Leadership in profitability and efficiency
Reached Financial Strongest financial position among Russian peers
Targets
Financial Strength confirmed by rating upgrade from S&P, Moody’s and Fitch
Page 14
15. Strong Cost Position
Vertical Integration Efficiency in Steelmaking Global Cost Competitiveness
Leading Position in Iron Ore Gradual Optimisation: Russian Steel HRC Global Cost Curve LTM, US$/t
Integration, % Division Headcount 2008–1H12
Evraz 109% -7% CAGR 800
58,730
Severstal 97% 50,213
48,013 47,054 45,483 750
NLMK 92%
Usiminas 76%
700
SAIL 70%
ArcelorMittal 59% 650
POSCO 33%
600
MMK 30%
2008 2009 2010 2011 1H12
550
Leading Position in Share of Substandard Product at CherMK,
Coking Coal Integration, % % of Total Production
500
Severstal 119%
-12% CAGR
Evraz 82% 3,37% 450
MMK 43% 2,88%
CherMK
2,39% 400
POSCO 33%
1,96% 1,82%
1,81% 1,69%
ArcelorMittal 22% 350
SAIL 7%
Usiminas 0% 300
0 100 200 300 400 500
NLMK 0% Cumulative Capacity, mt
2006 2007 2008 2009 2010 2011 1H12
Source: Companies’ data Source: WSD, Severstal analysis Page 15
16. Vertical Integration Must Be Efficient
Successful Steps to Reduce Production Costs in Mining
Coking Coal Cash Cost Dynamics Among Russian Producers, Efficient Brownfield Expansion to Reduce Costs:
2007–2011 CAGR, % Vorkuta vs. Usinskoye Cash Cost, US$/t
92
50-60
Vorkutaugol Usinskoye
Note: Vorkutaugoal coking coal concentrate cash cost for 2011
Usinskoye Brownfield: Another Milestone in Vorkuta Efficiency
Key Benefits of the Project Usinskoye and Vorkuta Location
Premium quality of coal (HCC)
Potential to produce 2-4 mtpa of coking coal Vorkuta
concentrate
Proximity to Vorkuta – established coal
mining region Usinskoe
• Existing railway infrastructure Coal Deposit Existing Railway Station
• Skilled workforce Block 1
• Access to established water and electricity suppliers
Full scale drilling not required
Source: Companies’ data Page 16
17. Focus on Right Products and Markets
The Largest Share of HVA Highly Consolidated Russian Market Average EBITDA per Tonne Excluding
Products Among Russian Peers 2011, % Top-5 Share, % Mining 2011 , US$/t
23% 133
35% 32%
45% Others
9%
80
32% 55%
46% 66%
33%
22% 1%
9%
Top-5
Severstal NLMK Evraz MMK 91% Severstal Russian Peers
Russian Steel
HVA HR Product Semi-finished
SNA: Focus on HVA and Auto Highly Consolidated NA Market 130
Products 2011, % Top-5 Share1
Others
30% 48
HVA
46% 23
Other
54%
TOP-5
70% US minimills SNA US integrators
Notes:
Russian peers: Evraz, Mechel, MMK, NLMK
1. US and Canada HRC capacities. US peers – minimills: average of Nucor , SDI
US peers – integrators: average of AK Steel, US Steel
Source: Companies’ data Page 17
18. Leading Profitability, Margin and ROCE
Improved Ranking in All Metrics Versus Prior Year
EBITDA FY2011, US$m EBITDA Margin FY2011, % ROCE FY2011, %
1st 1st 1st
2nd 2nd 2nd
3rd 3rd 3rd
4th 4th 4th
5th 5th 5th
6th 6th 6th
7th 7th 7th
8th 8th 8th
9th 9th 9th
10th 10th 10th
EBITDA for Severstal represents profit/(loss) from operations plus DDA of productive assets, adjusted for gain/(loss) on disposals of PPE and intangible assets
For the Russian, European and Latin American companies EBITDA calculation companies data is used and converted in US$ 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. Page 18
19. Robust Financial Position
Steady Deleveraging of our Balance Sheet since 2008 Advantageous Position by Leverage
Net Debt/EBITDA vs. Key Peers, 1Q12
3.1
3.0
2.8
1.1
Developed Markets Emerging Markets Russian Peers Severstal
Peers Peers
Notes: Notes:
1. 2011–1H12 data are excl. Nordgold. DM peers include 10 companies from Top-30.
2. 2010 data are excl. USW, Lucchini, incl. Nordgold, as reported in corresponding years. EM peers include 13 companies from Top-30.
3. 2008–2009 data are incl. USW, Lucchini, Nordgold, as reported in corresponding years. 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
Source: Companies’ data, Bloomberg. Page 19
20. Strong Business Model
Resilient to Cyclical Downturns
Fundamental Industry Outlook
Volatile and Uncertain Overcapacity in Fundamental Strength in OPEX and
Environment Global Steel Raw Materials CAPEX Inflation
Strong Business Model Resilient to Cyclical Downturns
Efficient Vertical Integration
Principles of
Business Model
Strong Downstream, Focus on HVA and Customer Focus
Business System Organic Growth Limited cash-based M&A
Growth Drivers Efficiency Limited growth in steel
Customer Service Low-cost mining brownfields
Greenfields optionality
Superior return to shareholders
Page 20
21. 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$520m to EBITDA in 2012
Cost reduction
Production growth
Continuous
Quality improvement
Improvement
Optimisation of personnel
Safety
Business
System of
Severstal
Cumulative Expected EBITDA Effect of BSS in 2012–2015,
Customer US$m 1,270
Focus 1,009
799
520
People of
Severstal 248
2011A 2012E 2013E 2014E 2015E
Page 21
22. Investment Policy: Looking Ahead
Key management focus is on Business System deployment and Balakovo Construction
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
Putu Iron Ore Project
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
Page 22
23. Efficiency, Growth and Value-creation through the
Cycle
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
26. Mixed Economic Outlook
US – Slow 2% Growth Subdued by Fiscal Austerity Europe – Stagnation Due to Debt Crisis
3.0% 2.8%
1.7%
GDP Growth, % Y-o-Y
GDP Growth, % Y-o-Y
1.9% 1.9% 1.8%
1.7% 1.5%
0.2% 0.3%
-4.1%
-0.3% -0.2%
-3.5%
2007 2008 2009 2010 2011 2012E 2013F 2007 2008 2009 2010 2011 2012E 2013F
China – Slower Pace, but Still Substantial Growth Russia – Moderate Growth
8.5%
14.2% 5.2%
4.0% 4.3% 3.6%
GDP Growth, % Y-o-Y 3.5%
GDP Growth, % Y-o-Y
10.3%
9.6% 9.2% 9.2%
7.8% 8.0%
2007 2008 2009 2010 2011 2012E 2013F -7.9%
2007 2008 2009 2010 2011 2012E 2013F
Source: Broker research. Page 26
27. Steel Prices have Bottomed Out in USA/Europe, but
still Declining in China
Global HRC Prices, US$/t Global Capacity Utilisation and Steel Production
$1 000 (Annualised)
Russia Black Sea export FOB
USA domestic FOB Midwest mill 1 800 100%
$900 China domestic Shanghai (incl. 17% vat)
S.Europe domestic EXW 1 500 90%
1 200 80%
$800
mt, annualized
900 70%
$700
600 60%
$600 300 50%
0 40%
$500 J F M A M J J A S O N D J F M A M J J
J F M A M J J A S O N D J F M A M J J A 2011 2012
2011 2012 China Ex-China Utilization rate (rhs)
PMI is Falling in the Key Regions
Economic slowdown in mature and emerging markets
65
60
Overcapacity has put pressure on the steel market
55 Demand has been restrained by destocking
50
Potential for a short-term price rebound:
45
• High-cost steelmakers start to become loss-making
40 • Production cuts in high cost regions
J F M A M J J A S O N D J F M A M J J A
2011 2012 • Inventories are at cyclical lows in many regions
USA Eurozone China
Source: OECD, CEIC, Worldsteel, CRU, SBB, Severstal analysis.
Note: Prices will be updated up to August; CU will be updated up to July. Page 27
28. Developing World’s Appetite for Steel Continues
Cumulative ASU per Capita, Finished Steel, Urbanisation Rate, % of Population
Tonnes per Capita
25 100%
Japan
Сотни
90% USA
20
80%
China
70% Indonesia
tonnes per Capita
15
60%
50% India
10
40%
30%
5
20%
10%
0
1950 1960 1970 1980 1990 2000 2010 0%
1950 1960 1970 1980 1990 2000 2010 2015 2025 2035 2045
USA Russia China India
Cumulative steel stock per capita is relatively low in Urbanisation trend in developing countries set to
China and India remain intact until 2050
Source: United Nations, Worldsteel. Page 28
29. China has Huge Potential for Growth in the Major
Steel Consuming Industries
Automobile Industry, Motor Vehicles per 1000 People Rail Lines, km per 1000 People
900 0,8 USA
USA 14.9x
11.5х
800 0,7
700
0,6
Japan
600 EU
0,5
EU
500
0,4
400
0,3
300
0,2 Japan
200
100 China 0,1 China
0 0,0
Electricity Production, kWh per 1000 People Floor Space, m2 per Capita
14 USA 100 Japan
3.9x 4.9х
90
12
80
USA
10 70
Japan 60
8 EU
EU 50
6 40
4 China 30
China
20
2 10
0 0
2x Leader vs China
China data is for 2011; other regions data is for 2009, except for GDP, which is 2011 for all regions
Sources: World Bank , CEIC, Severstal analysis. Page 29
30. Growth Drivers for Raw Materials Prices
Steel production
growth by 4% per Sound steel consumption growth in developing regions will push up demand
annum in the next for iron ore and coking coal
5 years
New projects are pushed back: 3 year average delay for mining projects
Raw materials supply is Lack of new high quality deposits, especially in met coal
lagging behind
Resource depletion: 3-4% annually
CAPEX & OPEX inflation: global cost curve is constantly moving up by over
Increasing costs 10% per annum (in US dollar terms)
Permission from 54 governmental bodies is required to start mining in Australia
Regulation tightening Widening environmental restrictions
Tax pressure
Page 30
31. Iron Ore: Support from China and Project Delays
Iron Ore Fines Supply Curve to China, 2012 Incremental Iron Ore Seaborne Market Supply, mtpa
$180 800
Production in China
$160
700
$140
600
$120
Spot price, Aug 27 500
$100
400
$80 39%
300
$60 46%
$40 200
41%
Peer 4
Peer 2
Peer 3
Peer 1
$20 100 15%
$0 0
0 250 500 750 1000 1250 1500 2008 2009 2010 2011
Cumulative supply, mmt Total supply announced Supply realised
Iron Ore CAPEX and Price Growth, US$/t Chinese high cost domestic supply supports iron
$200 ore prices
• Rapid mining costs inflation outperforming CPI
(over 10% y/y in 2010–2011)
$100 • RMB appreciation (+8% since June 2010)
• Decreasing Fe grades (already below 20%)
Chinese high cost production will not be displaced
$0 due to project implementation delays
2005 2006 2007 2008 2009 2010 2011
CAPEX/t Spot price 62% Fe CFR China
Sources: Platts, CRU, Brokers reports, Severstal analysis. Page 31
32. Robust Import Demand to Support Coking Coal Prices
Met Coal International Demand from Key Importers
160
Robust demand for imported coking coal in China,
140
India and Brazil – 12% yoy growth on average in
120
2013–2017
100
80
High cost coking coal exports from USA will support
60
the market price
40
20 Modern large-scale blast furnaces (>3,000 m3) in
0 China require high-quality hard coking coal
2007 2008 2009 2010 2011 2012e 2017f
China India Brazil
Hard Coking Coal Costs Growth, 2002=100 Index
300
200
100
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Hyundai Steel’s New Blast Furnace
Sources: CRU, BHP Billiton, Severstal analysis. Page 32
33. Responding to Major Market Trends
Key Trends Severstal Strategy
Fully vertically integrated
Higher raw materials prices
Invest in upstream operations
due to supply constraints
Portfolio of attractive greenfields
Organic improvements
Overcapacity & volatility in steel Efficient & flexible facilities
markets Focus on HVA products
Customer relationships
High margins
High macro risks environment Maintain strong balance sheet
& uncertainty Flexible phased CAPEX
Limited cash-based M&A
Page 33
36. Severstal Financial Policy
Our Targets Our Achievements Our Principles
0.5–1.5x Net 1.2x Net Debt/EBITDA as of M&A, Dividends, CAPEX capped by
Debt/EBITDA Q2 12 leverage target; monthly scrutiny of
compliance with 1.5x Net debt/EBITDA
Liquidity (Cash on Liquidity c.US$2.8bn as of Strong liquidity: cash cushion, sizable
balance + committed Q2 12 committed facilities, and access to
facilities) >US$1bn financing even in adverse market
conditions.
Dividend policy at 25% Stable dividend payments at c. Subject to prevailing market conditions and
of net income 25% payout strategic financial targets
ROCE >20% ROCE – 23% in FY11 Constant monitoring of all projects’ return
NWC – c.18% of revenues NWC – 15% of revenues Expected to remain at a similar level and
in FY11 move with the business cycle; focus on
inventory and accounts payable
management
Page 36
37. Solid Balance Sheet
Liquidity and Debt Position , US$m Strong Liquidity Position
Solid cash cushion of around US$2bn, covering
838 FY12 and almost all of FY13 repayments
Committed unused credit lines of US$838m
1,943 Well-Managed Debt Profile
1,581
1,121
579 567 737 657 71
Smooth repayment schedule focusing on long-
164 169
term maturities
Liquidity 3Q 12 4Q 12 1Q 13 2Q 13 H2 2013 2014 2015 2016 2017 &
as of Q2
2012
after Full access to diverse range of funding sources
Cash Short-term Debt to be Repaid
Unused Committed Credit Lines Long-term Debt to be Repaid
at any time
• Eurobond programme for US$1,500m
Changes in Debt* • Exchange Bond programmes for RUB95bn:
7000 х 3,0 new programmes of RUB80bn were
6,142 5,976 6,043
6000 5,692 registered in July-August 2012
5000 4,112
4,116 х 2,0 Reasonable Leverage
3,799 3,749
4000
х 1.3
3000 х 1.2 Net debt/EBITDA of 1.2x as of H1 2012 which is
х 1.1 х 1.1 х 1,0 below the target level of 1.5x
2000
1000
Strict control over net working capital –
0 х 0,0 NWC/revenue ratio 15% in 2011, below target
EOY 2010 EOY 2011 Q1 2012 Q2 2012
of 18%
Gross debt Net debt Net debt/EBITDA
Page 37
*For 2010 the data exclude USW, Lucchini, include Nordgold
38. Shareholder Returns
Recent Dividend History
0,7 40%
0,6
Dividend Play
30%
0,5
Severstal resumed dividend payments in 3Q10
0,4
20%
0,3 Over the last quarters Severstal has paid no less
0,2 10%
than 25% of net income and expects to continue
0,1 to do so if the market allows
0 0%
Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Severstal is the only company in its peers group
EPS, $ dividend per share, $ payout ratio, % to pay dividends on a quarterly basis
Note: The dividends in US dollars are taken on the date of their recommendation by the Board
Severstal’s Market Beta vs. Peers: The Lowest
Volatility Stock Among the Peers
2,3
2,0 Low Volatility
1,7
Stable high earnings, conservative capital
1,4
structure and improved asset portfolio
1,1
contribute to low volatility
0,8
0,5
2007 2008 2009 2010 2011
SVST peers high peers low
Page 38
Source: Bloomberg. Peers include Evraz, Mechel, MMK, NLMK
39. Investment KPIs
Target
Our key metrics to assess Profitability
projects Index above
1.5
Target EBITDA
Target ROCE
Margin above Success above 20%
20%
Target IRR
above 20%
Page 39
40. CAPEX 2012
Selected 2012 CAPEX Projects FY2012 Target CAPEX Structure
Segment Project Effect Launch
Severstal Russian Balakovo mini-mill +1 mtpa of long 2013
Steel products capacity Maintenance
Development
US$820m
US$849m
SAP implementation Efficiency 2012 49%
51%
Full reconstruction Higher coke output, 2013
of coke battery #7 efficiency
Severstal Resources Construction of Higher coal output, 2012–15
incline shafts at the efficiency
Vorgashorskaya and Average Maintenance for Steel Divisions
Zapolyarnaya mines Russian Steel US$37/t
Equipment Higher iron ore 2012 Severstal International US$16/t
modernisation at output, efficiency
Karelsky Okatysh Group’s FY2012 Target CAPEX
and Olkon
Preparation of the Pre-feasibility study 2012–2013
pre-feasibility study
at the Putu Range
project
Severstal Environmental, Efficiency 2012 Total
International health & safety, IT- US$1,669m
infrastructure and
customer care
projects
Page 40
41. CAPEX Flexibility
Base Case US$1,669m Low Case US$1,005m
US$74m
US$400m US$531m
Severstal Russian Steel Severstal Resources Severstal International
Base Case: reflects current market conditions and Low Case: takes into account further deceleration of
corresponds to the forecasted inflows from Chinese growth and continuing European financial
operating activity problems leading to overall stagnation of GDP growth
Page 41
42. Flexible Leverage Position
Well-balanced, Manageable Debt Structure (1) Crisis-tested Debt Portfolio Structure
Source Currency Mix Diversification across instruments, products
and lenders
Private Keeping access to domestic and international
32%
debt markets
Public
Focus on long-term financing
68%
Maximising unsecured debt (c.70%)
US$ denominated funding is naturally hedged with
Fixed/Float Security steady export flows
PXF
7%
Secured
22%
Unsecured
71%
Proven access to domestic & international debt markets
Comfortable debt level: Net debt/LTM EBITDA level below the targeted 1.5x through the cycle
(1) As of 30.06.2012. Page 42
43. Ratings History
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
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
S&P Moody's Fitch
Page 43
Note: Fitch ratings for Severstal are unsolicited.
46. Commitment to Sustainability
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
Page 46
47. Health & Safety
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
1.92 1.91
1.56
2009 2010 2011
Page 47
48. Environmental Protection
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
41 40 65 65
36 58
33 53
31 31 50 49
30
2000 2002 2004 2006 2008 2010 2011 2006 2007 2008 2009 2010 2011
Page 48
49. Energy Efficiency
20% energy consumption reduction at Cherepovets Steel Mill from 2000 to 2011
Employee rewards for the best energy saving idea
3
68 mln m of gas and 33 kt of coal saving per annum
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
7.02 100% 100%
6.70 -20% 94% 94%
90% 88% 88%
86% 86% 84%
6.26 80% 79%
6.05 76% 75%
5.88
5.70 5.62
2000 2002 2004 2006 2008 2010 2011 2000 2002 2004 2006 2008 2010 2011
electricity/t of steel natural gas/t of steel Page 49
50. Converter Shop Upgrade
We are complying with the existing regulation. The projects mentioned on that and the
next slides are our additional commitment in this area
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
4,636
-78%
1,011
Before After (as of 2015) Page 50
51. Radical Reduction of Emissions at Sinter
Production and Electric Arc Furnace Shop
Sinter Production Units in Cherepovets
Expected air Emissions Reduction
In 2012, Severstal launched a at Sinter Production Units, tpa
c.US$30m modernisation project
1,679
of six dust exhausters of the sinter
production units at the
Cherepovets Steel Mill -90%
Following completion dust
171
pollution will decrease by 90%
Before After (as of 2015)
Electric Arc Furnace #1 in Cherepovets
Expected Air Emissions Reduction
In 2012, Severstal launched a at Electric Arc Furnace #1, tpa
c.US$30m upgrading of the gas 3,808
treatment unit of the EAF at the
Cherepovets Steel Mill
-97%
Following completion dust
pollution will decrease by 97%
123
Before After (as of 2013)
Page 51
52. Personnel Development and Community Support
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
Social Investment
Signed Communities development agreements with local
governments
The “Road Home” program against child neglect and support
orphans has achieved national recognition Page 52
55. Overview
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
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
#3 by crude steel production The highest share of high value-added #1-2 by steel supply to the
in Russia (2011) products among Russian peers (2011) domestic market (2011- H1 2012)
Imports Severstal
23% 14%
35% 32% 16%
45%
Other Evraz
Imports Severstal
16.3% 18.0%
18% 16%
Mechel 32% 55%
ММК ММК
7.6%
46% 67% Others Others 15% 18%
Metallo MMK
invest 17.0% 20% 20%
33% NLMK
8.4% ОМК
22% 1% Evraz 11%
9% 5%
NLMK Mechel 8%
Severstal 7%
16.3% Severstal NLMK Evraz MMK ОМК NLMK
16.4% Russian Steel
HVA HR Product Semi-finished 5% Mechel 12%
Evraz
7% 8%
FY2011 – internal ring,
H1 2012 – external ring
Source: Metal Courier, companies data. Page 56
57. Russia is a Strong Market For Steel Products
Steel Consumption in Russia, mt
Russia’s steel demand potential:
CAGR 4.7% • 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
Growth Forecast by Industry (CAGR 2011-2017) • 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
58. Focus on the Domestic Market
Severstal Russian Steel’s Sales by Market Key Competitive Advantages
2010 2011
Self-sufficiency in raw materials
Favorable geographic position
Exports
• Proximity to major steel-consuming regions,
Exports 10.8 Domestic 41%
11.0 Domestic (North-West and Central Russia)
46%
mt market mt market
54% 59%
• Proximity to the Baltic sea ports
Saint Petersburg
Broad product range
Kolpino Extensive distribution network
Cherepovets
Moscow
High-tech production facilities
R ≈ 600 km
c. 70% of the Cherepovets Steel
Mill sales to the domestic market
are sold in 600 km proximity
from Cherepovets
Page 58
59. Achievements in Production and Sales
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
Severstal’s Domestic Market Share
32%
29%
26% 26%
18% 17%
15% 15% 14%
13%
8% 7%
Hot Rolled Products Cold Rolled Products Long Products Coated Products Structural Tubes Large Diameter Pipes
2010 2011
Source: Metal Courier
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 Page 59
60. Current Status of Business System Projects:
Continuous Improvement
Continuous improvement Bigger number of initiatives allowed to beat the 2011 plan
$m 190
Ways of optimization in 2011 Net effect, US$m
160
Raw materials mix 77 114
Conversion rate of resources 56
50
Cost of scrap 13
Other 14
2011 plan 2011 actual 2012 plan H1 2012 actual
Parameter Before project After project
Steelmaking
Melting cycle from
Converter steel Average - 56.2 min Average - 55.3 min
charge to charge, min
Steelmaking Number of heats
Average - 75 Average - 80
Converter steel per day
Services Downtime for core
87 hours 37 hours
(Sheet rolling-shop HSM-1) process equipment
Blast furnace process Coke consumption 463.7 kg/t 453.5 kg/t
Page 60
61. Business System: Health & Safety, Customer Care,
Business Standard
Lost Time Injury Frequency Rate (LTIFR)
Health & Safety
Securing operational safety conditions, -69%
prevention of fatal accidents
Customer Care Achievements in 2011 - H1 2012
Client orientation in all processes allows Greater customer satisfaction compared with peers
additional synergies via intimate understanding (2011 questionnaires)
and satisfaction of client’s requirements Expected effect in 2012 – US$41m
US$19.2m in H1 2012
Business Standard Achievements in 2011 - H1 2012
ERP system implementation, unification, Launch of SAP ERP across Severstal Russian Steel
efficiency increase and leaner business Launch of Unified Service Center HR and Unified
processes Service Center Finance
Page 61
62. Long-term Objectives of the Business System
Additional EBITDA gain from realization of
Continuous improvement
the Business System projects ($m)
• Improvement of equipment and personnel
performance, production quality and procurement
process
+US$640m
• Cost reduction
Customer care
• Price premium +1.5% vs. peers 800
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% 350
− Equipment down-time period down 3%
− Warehouse storage expenditures down 10% 186
160
− HR personnel headcount reduction down 22%
Health&Safety
• Zero fatal accidents
• Significantly reduced number of accidents that lead 2011 actual 2012 plan H1 2012 actual 2015
to disability
Page 62
63. Sales Objectives
Geography of Severstal Russian Steel Sales Breakdown by Destination, mt
Sales 2011 2015
CIS & Baltics Other Exports
10% 16%
CIS & Baltics
10%
Other Exports Russia
31% 59%
Russia
74%
Consuming Severstal Russian Steel’s Share in the Key Domestic Consuming Industries, mt
Industries
29%
23% 22%
21% 20%
18% 18%
14% 15%
10%
Automotive Large Diameter Pipes Strip for Pipe Industry Machine Building Construction and
Metal Distribution
2011 2015
Page 63
64. Key Investment Projects
Launch Date
Balakovo Mini-Mill to produce Long Products for construction, 1 mtpa 2013
capacity
Service metal center in Vsevolozhsk to process rolled steel products for
2013
automotive sector, household appliances and regional distribution, up to
170 ktpa capacity
Reconstruction of the 4-strand cold rolling mill at Cherepovets to improve
2015
quality of CRC products and add 30 ktpa
Electric welded pipe units (TESAs) at the Cherepovets Steel Mill to add 120
2014-15
ktpa of longitudinal welded structural tubes
Distribution network development in core regional markets 2013-17
Severstal Steel Solutions: 2014-19
• 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
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 • Access to water- and railways
• Cheap electricity (Balakovo Nuclear Power Plant) • 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 65
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
Timeframe: 2012-2014 Launch: 2014 to 2019
Capacity: +1.35 mtpa
EBITDA: +US$465m pa
ROCE 26%
Products: Products:
Steel structures for construction purposes Construction materials and steel structures
Pre-engineered buildings Polygon supports
Construction materials Road fences
Engineering center and Research and Development Center Galvanizing service
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 Page 66
69. Overview
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
Page 69
70. Severstal Resources at a Glance
Severstal Resources today
Olkon
Vorkutaugol
Usinskoe 4 established business
Karelsky Okatysh Coalfield units with stable
Centralny (Tyva)
production
PBS Coals
Continuous focus on
safety, operational
efficiency and volumes
Amapa Putu
Portfolio of new
prospective projects
with prudent approach
Assets by Mineral
towards development
Producing Prospective IMBS
projects
Iron ore
Coal
Metalized
iron
Page 70
