2016 Business and Financial Performance March 23, 2017
Content 1. Introduction 2. Business Overview 3. Financials 4. 2017 Outlook 5. Financing and CAPEX 2
Introduction Speaker Krzysztof Zoła CFO Age – 45 15 years with the Company 3
Introduction 2016 Highlights • Polish GDP growth at 2.9% down from 3.6% in 2015. Combined 1,5% GDP growth in the EU(28) down from 1,9% • Polish steel production fell by 3.3%. In the EU (28) it decreased by 2.3%. • Decrease of prices of scrap metal, billets and finished products. Compression of billet spreads. Imprvement of spreads for most of our products. Good demand; EU protectionist measures starting to work • Rebound of iron ore and coking coal prices. BOF v EAF cost advantage reduced • 0.9% decrease in revenues; shipments up by 8.6% • Significant improvement of gross profit, EBIT and EBITDA • Record capacities’ utilization: ANNUAL CAPACITY UTYLIZATION RATE Tonnes 2016 2015 2014 2013 FERR 375 000 107% 97% 102% 87% HSJ 261 000 87% 84% 77% 70% COMBINED 636 000 99% 92% 92% 80% 4
Business Overview Crude steel production CRUDE STEEL PRODUCTION 2016 % YoY 2015 STEEL DEMAND 2016 % YoY 2015 mln tonnes m tonnes Europe 303 -0.3% 304 Europe 248 1.5% 244 Poland 9.2 8.9 -3.3% UE (28) 156 1.6% 153 Poland with the 3.3% production UE (28) -2.3% 166 166 decrease and 2.5% demand Poland 13.1 2.5% 12.5 increase CIS -0.8% 101 102 CIS 50 -1.8% 51 North America 0.1% 111 111 North America 134 -0.7% 135 USA -0.3% 79 79 USA 99 3.2% 96 South America 39 -10.7% 44 South America 41 -10.1% 45 Africa / Middle East 45 3.5% 43 Africa / Middle East 93 0.5% 92 Asia 1125 1.6% 1108 China’s growing production v. local China 804 1.2% 799 demand mismatch Asia / Oceania 988 0.3% 985 Japan 105 -0.3% 105 China 645 -4.0% 672 Japan 64 2.4% 63 Oceania 6 1.8% 6 0.8% Total 1501 0.6% 1493 Total 1629 1615 source: World Steel Association 5
Business Overview BOF v EAF cost model comparison Feedstock Cost Market Prices iron ore coking coal scrap metal USD / tonne 500 2011 168 200 389 2012 129 145 378 2013 135 122 347 400 2014 97 105 314 USD / Tonne 2015 55 89 229 2016 59 89 193 300 BOF EAF Feedstock Cost Model BOF EAF 200 Tonne / Tonne of crude steel iron ore 1,60 coking coal 0,60 100 Scrap 0,21 1,12 Q1 Q2 Q3 Q4 • BOF cost model includes own coke and sinter plant 2011 2012 2013 2014 2015 2016 • BOF and EAF cost models and other cost estimates do not represent any particular plant nor Cognor cost structure 2016 Feedstock Cost 2011 2012 2013 2014 2015 Y 2016 Q1 Q2 Q3 Q4 USD / Tonne BOF 470 372 363 284 190 159 180 182 231 188 EAF 436 423 388 352 257 192 233 203 237 216 Difference 34 -52 -26 -68 -67 -33 -53 -21 -7 -28 source: IMF. EIA, OECD, Steelonethenet, Cognor 6
Business Overview Prices & Spreads 2016 2015 2014 2013 2012 2011 2010 (pln/ tonne) FERROSTAL scrap metal price down by 109 SCRAP METAL - average purchase price 755 864 989 1 096 1 236 1 152 891 billet price down by 169 BILLETS - average sales price; 1 491 1 660 1 858 2 015 2 121 2 038 1 629 volume 85 337 104 113 169 904 160 898 214 489 252 239 178 857 billet spread down by 60 BILLET SPREADS 736 796 869 919 885 885 738 finished product price down by 128 FINISHED PRODUCTS - average sales price; 1 714 1 842 2 036 2 131 2 337 2 285 1 929 total volume 318 095 224 491 186 571 142 425 75 155 84 291 57 252 - plain bars 1 871 1 945 2 070 2 116 2 310 2 261 1 860 volume 29 304 32 331 35 714 36 557 25 562 33 301 20 209 - flat bars 1 902 1 967 2 073 2 131 2 315 2 303 1 985 volume 61 409 60 155 64 241 57 565 39 894 33 970 24 154 - squares 1 871 1 939 2 057 2 071 2 265 2 238 1 875 volume 7 726 11 029 13 709 16 823 5 724 7 276 4 851 - rebars 1 581 1 629 1 867 2 165 1 795 volume 188 134 82 461 41 642 3 092 2 565 - angles 1 918 1 951 2 111 2 132 2 290 1 977 volume 24 895 32 171 30 107 28 209 4 916 457 - other 2 108 2 180 2 721 2 619 2 906 2 428 2 072 volume 6 627 6 346 1 159 3 271 3 975 1 737 5 017 product spread down by 19 PRODUCT SPREADS 959 978 1 047 1 036 1 101 1 132 1 039 - plain bars 1 116 1 081 1 081 1 020 1 073 1 108 969 - flat bars 1 147 1 104 1 084 1 035 1 078 1 150 1 094 - squares 1 116 1 076 1 068 975 1 029 1 086 984 - rebars 826 766 880 - angles 1 164 1 087 1 122 1 036 - other 1 353 1 317 1 732 1 523 1 670 1 276 1 181 7
Business Overview Prices & Spreads 2016 2015 2014 2013 2012 2011 2010 (pln/ tonne) HSJ SCRAP METAL - average purchase price 823 902 1 041 1 109 1 229 1 183 916 scrap metal price down by 72 billet price down by 200 BILLETS - average sales price; 1 768 1 968 2 472 2 450 volume 40 479 28 148 18 149 9 120 billet spread down by 121 BILLET SPREADS 945 1 066 1 431 1 341 finished product price down by 128 FINISHED PRODUCTS - average sales price; 2 463 2 703 2 920 2 937 3 386 3 535 3 006 total volume 160 708 168 397 151 788 150 099 130 716 147 291 114 901 - SQ bars 2 337 2 584 2 788 2 825 3 201 3 317 2 810 volume 153 736 150 311 144 605 145 236 117 074 135 905 106 698 - thick sheets 2 740 2 427 2 954 3 942 3 503 4 124 3 176 volume 5 696 16 362 5 787 3 672 11 943 9 366 6 730 - thin sheets 11 147 10 820 11 090 11 593 11 177 12 034 9 032 volume 638 1 069 865 935 1 285 1 607 823 - other 21 547 23 529 25 277 20 586 28 412 28 860 25 871 volume 638 655 531 256 414 413 650 product spread down by 161 PRODUCT SPREADS 959 978 1 047 1 036 1 101 1 132 1 039 - plain bars 1 116 1 081 1 081 1 020 1 073 1 108 969 - thick sheets 1 147 1 104 1 084 1 035 1 078 1 150 1 094 - thin sheets 1 116 1 076 1 068 975 1 029 1 086 984 - other 826 766 880 8
Business Overview Segments SCRAP METAL 2016 2015 2014 PURCHASES FROM EXTERNAL SUPPLIERS Tonnes FERR 358 383 269 155 245 487 ZLMET down by 4.8% ZLMET 306 145 321 631 361 078 HSJ 138 704 131 897 106 711 INTERNAL USE Tonnes FERR 412 345 408 941 423 865 HSJ 258 680 252 364 230 046 SALES TO EXTERNAL CUSTOMERS Tonnes Shipments down by 20.1% ZLMET 95 047 118 994 100 059 OTHER 0 0 0 SALES '000 PLN Sales down by 28.4% CONSOLIDATED 71 608 100 051 94 186 TOTAL PURCHASES in TONNES 803 232 722 683 713 276 671 025 661 305 653 911 TOTAL INTERNAL USE in TONNES TOTAL SALES in TONNES 95 047 118 994 100 059 71 608 100 051 94 186 TOTAL SALES in '000 PLN 9
Business Overview Segments BILLETS 2016 2015 2014 PURCHASES Tonnes FERR 0 26 0 PRODUCTION Tonnes Production up by 7.8% FERR 402 676 363 492 381 477 HSJ 226 090 219 962 201 072 INTERNAL USE Tonnes FERR 311 048 259 379 211 573 HSJ 185 611 191 840 182 923 Shipments down by 18.0% SALES TO EXTERNAL CUSTOMERS Tonnes 85 337 104 113 169 904 FERR 40 479 28 148 18 149 HSJ SALES '000 PLN Sales down by 12.9% 198 790 228 178 360 524 CONSOLIDATED 0 26 0 TOTAL PURCHASES in TONNES TOTAL PRODUCTION in TONNES 628 766 583 454 582 549 TOTAL INTERNAL USE in TONNES 496 659 451 219 394 496 125 816 132 261 188 053 TOTAL SALES in TONNES TOTAL SALES in '000 PLN 198 790 228 178 360 524 10
Business Overview Segments FINISHED PRODUCTS 2016 2015 2014 PURCHASES Tonnes FERR 132 582 0 PRODUCTION Tonnes Production up by 14.6% ZWWB 80 480 78 441 79 627 HSJ 156 858 172 937 160 053 PROFIL 223 029 150 402 108 656 SALES TO EXTERNAL CUSTOMERS Tonnes Shipments up by 21.9% 318 095 224 491 186 571 FERR HSJ 160 708 168 397 151 788 SALES '000 PLN Sales up by 8.3% 941 127 868 672 823 098 CONSOLIDATED TOTAL PURCHASES in TONNES 132 582 0 TOTAL PRODUCTION in TONNES 460 367 401 780 348 336 478 803 392 888 338 359 TOTAL SALES TO EXTERNAL CUSTOMERS in TONNES TOTAL SALES in '000 PLN 941 127 868 672 823 098 11
Business Overview Geographical & Industry Breakdowns (bilets and products) Geograpfical Breakdown Industry Breakdown 0% 0% 1% 1% Poland auto 1% 4% 8% 11% 2% Germany construction 4% 23% 4% Czech Republic mechanical Italy mining 7% 12% Hungary railway Austria agriculture 14% 69% Slovakia steel 27% Romania defence 12% other other 12
Financials STATEMENT OF PROFIT OR LOSS 2016 2015 2014 '000 PLN Revenues down by 0.9% Sales revenue 1 352 393 1 364 804 1 422 546 Cost of sales -1 209 687 -1 268 982 -1 275 863 Gross profit 142 706 95 822 146 683 Gross profit up by 48.9% Other income 5 727 4 717 11 383 Distribution expenses -49 970 -47 791 -43 033 Administrative expenses -37 918 -34 640 -38 496 Other gains/(losses) – net 2 697 2 952 647 EBIT up by 329.9% Other expenses -6 724 -7 913 -11 159 EBIT 56 518 13 147 66 025 Financial income 5 216 26 678 1 789 Financial expenses -68 212 -57 009 -69 092 Net financing costs -62 996 -30 331 -67 303 Share of profits of associates 103 -85 -626 Excess in fair value of acquired assets over cost 0 0 5 859 Profit before tax -6 375 -17 269 3 955 Income tax expense 7 901 3 324 5 790 Profit/loss for the period from discontinued operations 0 0 -4 047 Profit for the period 1 526 -13 945 5 698 Adjusted net result: PLN 11.4m Depreciation and amortization -38 320 -35 863 -35 072 EBITDA up by 93.5 % EBITDA 94 838 49 010 101 097 Adjusted EBITDA: PLN 91.4m 13
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