RUSSIA IN THE CONTEXT OF CURRENT GLOBAL STEEL TRENDS AND CHALLENGES

Andrey Laptev, Head of Corporate Strategy February 12th, 2014

Where the Global Steel Industry is Today

Source: Bloomberg, Severstal estimates

* Top-40 – companies, constituents of Bloomberg Global Steel Producers Index

• Subdued profitability

• Negative FCF

• Excessive leverage

Page 2

Average EBITDA margin, % CAPEX and leverage position

16.7%

9.0%

12.6%

10.7%

7.7% 7.0%

2008 2009 2010 2011 2012 2013E

55.1

45.4

47.4 47.0 46.5 46.0 1.8

3.7

3.2 3.2

4.0

3.2

0

1

2

3

4

5

40

46

52

58

2008 2009 2010 2011 2012 2013E

Total CAPEX, $ bn (LHS) Median Net debt/EBITDA (RHS)

The Steel Overcapacity Challenge

Page 3 Source: Worldsteel, Severstal estimates

Global crude steel nominal excess capacity, mmt

• Healthy post-crisis demand growth was insufficient to offset existing structurally excess capacity and new additions

15%

23%

33%

23% 21%

24% 22%

0%

10%

20%

30%

40%

0

500

1000

1500

2007 2008 2009 2010 2011 2012 2013

Global excess steel capacity, mln tonnes (LHS) Excess capacity as % of total global crude steel capacity (RHS)

Wait for “Invisible Hand” or Search for Solutions?

Page 4

Government measures

Capacity discipline

Local markets consolidation

SSAB / Ruukki merger

Chinese steel capacity regulation plans

Solutions in other industries

$400

$450

$500

$550

$600

$650

$700

$750

$800

20-Dec-12 24-Feb-13 1-May-13 6-Jul-13 10-Sep-13 15-Nov-13 20-Jan-14

US domestic (EXW) EU Southern (EXW) China export (FOB) Russia export (FOB)

US Market: A Healthy Example

Source: Metal Bulletin Page 5

• Capacity eliminations

• Market consolidation

• Healthy long-term demand

HRC prices by region, $/t

Russian Steel Demand Supported in 2013-2014

Page 6 Source: Metal Expert, Severstal estimates

* In Severstal product range

Industry Estimated volume in 2013, mmt

Steel consumption growth, y-o-y, % Main drivers in 2013-2014

2013 2014F

Automotive 1.8 -10.5% • Localization • Households income growth

Machinery 13 -3.5% • White goods • Handling equipment • Agricultural machinery

Tubes and pipes 9 6%

• New pipelines projects (“South Stream”)

• Drilling activity • Construction

Construction 20 5.5% • Mortgage growth • Liquidation of savings

Domestic demand

43.8 3%*

Exports 25 -7.9% • Demand growth in Europe and the

USA • Removing sanctions against Iran

Steel consumption by the main demand segments in Russia

Tougher Competition on Export Markets

Source: Worldsteel, CRU Page 7

Global crude steel production growth by region in 2013, YoY %

-2.7% -1.9% -1.8% -1.5%

-0.8%

1.9%

3.1%

6.8% 7.5%

-4%

-2%

0%

2%

4%

6%

8%

10%

CIS (ex.Russia)

NorthAmerica

EU Russia SouthAmerica

Other Asia Japan Middle East China

Chinese finished steel exports, mln t

Total world: +3.5%

11 7 7 8

20 27

52

66 56

24

43 48

55 59

0

20

40

60

80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Russian Domestic Market Challenge

Page 8

Source: Company data, press releases

Selected pig iron, steel and rolling capacity additions in Russia

Domestic sales, as % of total

Source: Company data

Note: For Peer 2 domestic sales include sales to Russia & CIS

33%

59%

77%

39%

63%

84%

Peer 1 Severstal Peer 2

2012 2013Year Company Project Capacity, mtpa

2011 MMK Cold Rolling Mill-2000 2,0

2012 NLMK BF #7 at Lipetsk plant 3,4

2013 NLMK Kaluga mini-mill 1,5

2013 UMMC Tyumen mini-mill 0,5

2013 Severstal Balakovo mini-mill 1,0

2013 Novorosmetall New EAF at

Abinskiy plant 1,3

Key Players’ CAPEX is Back to Normal

Page 9

Group CAPEX, $mln

Source: Company data, Severstal estimates

Note: For CAPEX/EBITDA ratio guided 2014 CAPEX and 9M2013 annualized EBITDA are used

1134

1460 1400

500

850 976

48%

58% 50%

0%

20%

40%

60%

80%

0

400

800

1200

1600

Peer 2 Peer 1 Severstal

CAPEX Average in 2010-2013 CAPEX 2014E CAPEX/EBITDA, %

CAPEX/EBITDA Average in 2010-2013, %

80% 72%

54%

Russian Steelmakers’ Profitability Stabilized

Page 10

Severstal’s Russian Steel Segment EBITDA per tonne vs Key peers, $/t

Source: Company data, Severstal estimates

117

102

60

82 73

163

93

74 82

115

2011 2012 1Q'13 2Q'13 3Q'13

Average (Peer 1, Peer 2) Severstal

Healthy Long-term Demand Fundamentals in Russia

Page 11 Source: Citigroup, Severstal analysis

Mortgage loan penetration, % of GDP FIFA World Cup 2018: Steel Demand ~2 mmt

Infrastructure projects Growth of automotive production using local steel

Severstal: Responding to the Challenges

Page 12

Dividends

CAPEX

Net debt

Margins

Payout of not less than 25% of Net Income

Medium-term target of $1.0bn per annum

Striving to keep Net debt/EBITDA below 1.5x

Targeting cycle-average EBITDA margin of c. 20%

FCF Stable positive free cash flow

Cost Position Middle-to-the-left position of all our assets on

the cost curve

Thank You!

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