Q3 2016 Business and Financial Performance November 16, 2016 1
Content 1. Introduction 2. Business Overview 3. Financials 4. Q4 2016 Outlook 2
Introduction Speaker Krzysztof Zoła CFO Age – 44 14 years with the Company 3
Introduction Q3 2016 Highlights • Lower prices of scrap metal, billets and finished products. Stabilization of billet spreads and slight compression of product spreads. Fair demand for finished products. Increase of billet and product and lower scrap metal prices as compared to Q2 2016. • 9.4% increase in revenues; overall shipments down by 4.3% • Increase of gross profit, EBIT, EBITDA and net result • Higher capacities’ utilization : ANNUAL CAPACITY UTYLIZATION RATE Tonnes Q3 2016 Q3 2015 FERR 375 000 113% 82% HSJ 261 000 62% 73% COMBINED 636 000 92% 78% • Polish GDP growth at 2.5% (yoy), down from Q3 2015 – 3.4% and from Q2 2016 – 3.3%. 1.6% (yoy) growth in the euro area [Germany 1.5%] and 1.8% in the EU(28) • Polish steel production fell by 14% and in the EU(28) by 2% 4
Business Overview Environment WORLD STEEL PRODUCTION (1) Q3 2016 % YoY Q3 2015 2015 % YoY 2014 mln tonnes Europe 73 0% 73 301 -3% 311 Poland’s production plummeting Poland 1.9 -14% 2.3 8.6 0% 8.6 UE (28) 38 -2% 39 166 -2% 169 CIS 25 -1% 26 101 -4% 105 North America 28 -4% 29 111 -9% 121 USA 20 -4% 21 79 -10% 88 South America 10 -7% 11 44 -2% 45 Africa / Middle East 10 3% 10 41 -6% 44 Asia 279 3% 270 1096 -2% 1121 China 204 3% 197 804 -2% 823 Japan 26 0% 26 105 -5% 111 Oceania 2 3% 2 6 -5% 5 TOTAL 401 2% 394 1 599 -3% 1 648 World’s production increasing AVERAGE EXCHANGE RATES (2) Q3 2016 Q3 2015 EXCHANGE RATES (2) 30-Sep-2016 30-Jun-2016 30-Sep-2015 PLN PLN EUR/PLN 4.34 4.19 EUR/PLN 4.31 4.43 4.24 % change 3.6% % change -2.7% USD/PLN 3.89 3.77 USD/PLN 3.86 3.98 3.78 % change 3.2% % change -3.0% (1) Source: World Steel Association (2) Polish National Bank 5
Business Overview BOF v EAF cost model comparison BOF EAF 2015 price (usd/t) factor (t) cost (usd/t) factor (t) cost (usd/t) iron ore 55 1,60 88 0 coking coal 98 0,60 59 0 scrap 229 0,21 48 1,12 257 feedstock total 195 257 Feedstock Cost BOF EAF Q1 2016 price (usd/t) factor (t) cost (usd/t) factor (t) cost (usd/t) BOF EAF iron ore 48 1,60 76 0 450 coking coal 75 0,60 45 0 scrap 171 0,21 36 1,12 192 feedstock total 157 192 usd / tonne BOF EAF 350 Q2 2016 price (usd/t) factor (t) cost (usd/t) factor (t) cost (usd/t) iron ore 55 1,60 88 0 coking coal 84 0,60 50 0 250 scrap 223 0,21 47 1,12 250 feedstock total 186 250 BOF EAF Q3 2016 150 price (usd/t) factor (t) cost (usd/t) factor (t) cost (usd/t) 2011 2012 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016 iron ore 65 1,60 104 0 coking coal 200 0,60 120 0 scrap 230 0,21 48 1,12 258 feedstock total 272 258 Sources: • cost model: OECD, Steelonthenet, Cognor • Prices: iron ore – IMF, coking coal - EIA, scrap metal - Feedstock Cost 2011 2012 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016 Cognor USD / Tonne Notes: • BOF 473 385 366 287 195 157 178 186 BOF cost model includes own coke and sinter plant • BOF and EAF cost models and other cost estimates do not EAF 436 423 388 352 257 192 233 208 represent any particular plant nor Cognor cost structure difference 37 -38 -23 -65 -62 -34 -55 -23 • Q3 2016 coking coal prices - an estimate by Cognor 6
Business Overview Prices PRICES AND SPREADS Q3 2016 Q2 2016 Q1 2016 Q4 2015 Q3 2015 (pln/ tonne) FERROSTAL SCRAP METAL - all purchases 752 805 676 667 861 scrap metal price down by 109 BILLETS - sales to external customers 1 582 1 516 1 337 1 442 1 677 billet price down by 95 vol 20 401 21 596 30 895 30 630 26 014 billet spread up by 14 BILLET SPREAD 830 710 661 775 816 finished product price down by 95 FINISHED PRODUCTS - sales to external customers 1 753 1 720 1 609 1 682 1 848 - plain bars 1 890 1 927 1 828 1 887 1 950 vol 6 343 7 467 7 767 7 527 7 736 - flat bars 1 924 1 950 1 864 1 899 1 965 vol 13 406 16 386 16 133 12 240 16 789 - squares 1 906 1 919 1 832 1 886 1 951 vol 2 021 2 011 1 868 2 034 3 127 - rebars 1 629 1 588 1 408 1 439 1 657 vol 43 562 58 311 43 880 27 948 23 190 - angles 1 949 1 954 1 860 1 905 1 963 vol 5 437 5 787 6 752 7 153 8 036 - other 2 521 2 119 1 954 2 079 2 094 vol 1 157 1 589 2 477 1 381 1 689 product spread up by 15 PRODUCT SPREADS 1 001 915 932 1 014 986 - plain bars 1 138 1 122 1 152 1 220 1 089 - flat bars 1 172 1 145 1 188 1 232 1 104 - squares 1 154 1 113 1 156 1 219 1 090 - rebars 877 783 732 772 796 - angles 1 197 1 149 1 183 1 237 1 102 - other 1 769 1 314 1 278 1 412 1 233 7
Business Overview Prices PRICES AND SPREADS Q3 2016 Q2 2016 Q1 2016 Q4 2015 Q3 2015 (pln/ tonne) HSJ SCRAP METAL - all purchases 772 841 722 712 881 scrap metal price down by 109 BILLETS - sales to external customers 1 759 1 712 1 712 1 677 2 079 billet price down by 320 vol 10 461 9 611 7 781 10 164 4 860 billet spread down by 211 BILLET SPREAD 987 871 990 965 1 198 finished product price down by 133 FINISHED PRODUCTS - sales to external customers 2 555 2 426 2 433 2 647 2 688 - big rounds 2 410 2 298 2 294 2 438 2 576 vol 33 326 43 322 44 540 30 427 35 423 - thick sheets 2 606 2 663 2 765 2 765 2 218 vol 627 2 234 2 556 1 201 4 381 - thin sheets 11 718 11 318 10 728 11 190 10 540 vol 64 243 252 201 265 - other 34 203 15 567 17 557 26 841 20 052 vol 133 218 215 185 227 product spread down by 24 PRODUCT SPREADS 1 783 1 585 1 711 1 935 1 807 - SQ bars 1 638 1 457 1 572 1 726 1 695 - thick sheets 1 834 1 822 2 043 2 053 1 337 - thin sheets 10 946 10 477 10 006 10 478 9 659 - other 33 431 14 726 16 835 26 129 19 171 8
Business Overview Estimated FIFO contribution 12.2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Y 2015 result of scrap scrap opening scrap opening scrap opening scrap opening scrap metal cost in result result result result result cost volume cost volume cost volume cost volume cost inventories PLN/T T PLN/T 000 PLN T PLN/T 000 PLN T PLN/T 000 PLN T PLN/T 000 PLN 000 PLN HSJ billets & products 1 032 35 257 998 -1 204 27 720 1 035 1 041 32 103 901 -4 301 29 051 757 -4 191 -8 655 FERR billets & products 944 59 540 909 -2 057 69 779 916 452 93 223 895 -1 959 78 990 720 -13 767 -17 330 TOTAL -3 261 1 493 -6 260 -17 958 -25 985 Q4 2015 Q1 2016 Q2 2016 Q3 2016 result related to opening scrap opening scrap opening scrap scrap metal cost scrap result result result volume cost volume cost volume cost in inventories PLN/T T PLN/T 000 PLN T PLN/T 000 PLN T PLN/T 000 PLN HSJ billets & products 757 31 059 724 -1 034 25 755 898 4 490 29 694 795 -3 063 FERR billets & products 720 77 246 664 -4 344 64 542 816 9 785 55 583 736 -4 413 TOTAL -5 378 14 275 -7 476 Notes: • Scrap cost is an average price of scrap metal used in production of billets and finished products and contained in inventories as of the end of a period • As compared to the disclosure in the 2015 Annual Report MD&A, Cognor decided to alter the way of establishing the scrap metal cost which results in the change of the previously reported 2015 FIFO contribution amount. The 2015 FIFO estimation contained herein represents the calculation based on the new formula. The calculation methodology of FIFO result remains unchanged - the difference between the actual and the preceding scrap cost is multiplied by the inventories volume as of the beginning of a period 9
Business Overview Segments SCRAP METAL Q3 2016 Q2 2016 Q3 2015 PURCHASES FROM EXTERNAL SUPPLIERS Tonnes FERR 77 169 98 486 56 167 ZLMET 69 354 83 673 73 509 ZLMET purchases down by 5.7% HSJ 26 561 38 194 29 129 INTERNAL USE Tonnes FERR 117 926 118 723 85 865 HSJ 46 178 72 532 54 683 SALES TO EXTERNAL CUSTOMERS Tonnes shipments down by 37.7% ZLMET 20 319 24 019 32 615 SALES '000 PLN CONSOLIDATED 14 678 18 621 27 604 sales down by 46.8% TOTAL PURCHASES in TONNES 173 084 220 353 158 805 internal use up by 16.8% TOTAL INTERNAL USE in TONNES 164 104 191 255 140 548 TOTAL SALES in TONNES 20 319 24 019 32 615 TOTAL SALES in '000 PLN 14 678 18 621 27 604 10
Business Overview Segments BILLETS Q3 2016 Q2 2016 Q3 2015 PURCHASES Tonnes FERR 0 0 26 production up by 17.2% PRODUCTION Tonnes FERR 105 457 105 683 76 640 HSJ 40 203 63 786 47 639 INTERNAL USE Tonnes FERR 78 748 95 059 64 837 HSJ 29 742 54 175 42 805 shipments down by 0.1% SALES TO EXTERNAL CUSTOMERS Tonnes FERR 20 401 21 596 26 014 HSJ 10 461 9 611 4 860 SALES '000 PLN sales down by 5.7% CONSOLIDATED 50 672 49 188 53 738 TOTAL PURCHASES in TONNES 0 0 26 TOTAL PRODUCTION in TONNES 145 660 169 469 124 279 TOTAL INTERNAL USE in TONNES 108 490 149 234 107 642 internal use up by 0.8% TOTAL SALES in TONNES 30 832 31 207 30 874 TOTAL SALES in '000 PLN 50 672 49 188 53 738 11
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