jp morgan annual emea equity conference — london
TRANSCRIPT
InvestorPresentation
January 2006
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Disclaimer
This document does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of Evraz Group S.A. (Evraz) or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No part of this document, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. None of the Evraz or any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with the document.
This document contains “forward-looking statements”, which include all statements other than statements of historical facts, including, without limitation, any statements preceded by, followed by or that include the words “targets”, “believes”, “expects”, “aims”, “intends”, “will”, “may”, “anticipates”, “would”, “could” or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond Evraz’s control that could cause the actual results, performance or achievements of Evraz to be materially different from future results, performance or achievements expressed or implied by such forward-looking, including, among others, the achievement of anticipated levels of profitability, growth, cost and synergy of recent acquisitions, the impact of competitive pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Russian economic, political and legal environment, volatility in stock markets or in the price of our shares or GDRs, financial risk management and the impact of general business and global economic conditions.
Such forward-looking statements are based on numerous assumptions regarding Evraz’s present and future business strategies and the environment in which Evraz will operate in the future. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These forward-looking statements speak only as at the date as of which they are made, and Evraz expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Evraz’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based.
Neither Evraz, nor any of its agents, employees or advisors intend or have any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained in this document.
The information contained in this document is provided as at the date of this document and is subject to change without notice.
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Evraz Highlights
n Among the 15 largest steel producers in the world
n Russia’s largest producer of steel and steel products
n Vertically integrated steel and mining business
n Recent acquisitions of Palini e Bertoli and Vitkovice Steel
n Produced 13.9mn t of crude steel in 2005
n Consolidated revenues of US$5.9bn in 2004 and US$3.6bn in 1H05
n EBITDA of US$2.0bn in 2004 and US$1.1bn in 1H05
n Successful IPO on LSE in June 2005 placing 8.3% stake for US$422mn
n Multiple upgrades in the last six months from Fitch and Moody's
n Ba3 by Moody's, BB- by Fitch and B+/Positive Outlook by S&P
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Top Russian steel producer
Evraz’s main locations Top Russian steel producers
Output1 (million tons) Russian
ranking Company 2003 2004 1H05 Main products
1 Evraz Group 13.9 13.7 7.0 Long
2 MMK 11.5 11.3 5.5 Flat/long 3 Severstal 9.9 10.4 5.1 Flat/long 4 NLMK 8.9 9.1 4.1 Flat 5 Mechel 4.6 5.5 2.7 Long/flat
Source: Chermet, Evraz Note: Crude steel output
NTMKVGOK
KGOK
NKMK ZapSib
Evrazruda
Mine 12
Moscow
NakhodkaSea Port
Lipetsk
Stary OskolPerm
St. Petersburg
Penza
Nizhny Novgorod
SamaraChelyabinsk Omsk
Novosibirsk
TomskKemerovo
Novokuznetsk
Bratsk
Irkutsk
Surgut
Yekaterinburg
Krasnoyarsk
Yuzhkuzbassugol Raspadskaya
NeryungriUgol
Iron ore mining Coal miningService Centres Sea portsSteel mills
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An integrated steel and mining platform
NTMK92.4%
NakhodkaSea Port
93.0%
Yuzhkuzbassugol50%(2)
Ferrotrade100%
Dis
trib
uti
on
Note:1. Actual ownership interests representing Evraz’s control2. Accounted for on the equity basis.
Raspadskaya47.8%(2)
THEvrazHolding
100%
Evraztrans76%
NeryungriUgol100%
Mastercroft 100%
KGOK97.6%
Evrazruda100%
VGOK87.4%
(1)
Iron
Ore
Coal
Ste
el
Zapsib95.4%
NKMK100%
Palini e Bertoli75%+1
Vitkovice Steel99%
Mine 12100%
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Mechel
NLMK
Severstal
MMK
Evraz
Russia’s leading steel producer
Diversified production mix, 1H05
84%
51%
30% 29%
100%
0%
25%
50%
75%
100%
Rails H-Beams Channels Rebars Wheels
Domestic market share by volume, 1H05
Top Russian steel producers in 1H05 (mn t)
2.7
4.1
5.1
5.5
7.0
Long Products (inc. billets)
Total steel output
Source: Chermet, Companies’ data, Evraz
#1
#1#1
#1
#2
8.7%
38.3%
12.6%
21.0%19.4%
Construction products Railway productsSemi-finished product Other steel productsOther products
Source: Chermet, Metall Expert
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561485
959
338
198
390 404
0
200
400
600
800
1000
Russ
ia
Germ
any
EU
-15
Avera
ge
US
Cze
chR
epublic
Japan
S.
Kore
a
Indexed to 100 as of 1 January 1999
Growth Gap
’04-’08F Construction Output CAGR: 6.7%’04-’08F GDP CAGR: 5.0%
50
100
150
200
250
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
GDP Growth Construction Growth
Russia’s growing construction industry
Uniquely positioned to benefit from rapid Russian economic growth
n Russian steel consumption remains below global benchmarks
n Construction sector output is forecasted to exceed GDP growth by 37% between 2004 and 2008
n Significant downstream capacity flexibility to capture migration to higher margin products for domestic market
2004 Steel Consumption per Capita (kg)
Source: CRU, Metal Expert, Global Insight (steel consumption), Global Insight (population)
Construction Output Forecast to Exceed GDP Growth
Source: Global Insight
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457
600
717 717
0
200
400
600
800
Evraz Italy Poland Germany Austria
Notes: 1. Rail prices as of 1H05
2.5
3.4
4.5 4.6
0.71.0
2.52.0
1.11.00.90.8
0
1
2
3
4
5
2004 2005 2006 2007
Infrastucture capex Rolling stock capexOther capex
Unique position in rail products
Uniquely positioned to benefit from RZD asset modernisation programme
n Railway products contributed 13% to Evraz’s revenues in 1H05
n RZD, Evraz’s major customer, is among the biggest railway operators globally
n Evraz accounted for nearly 100% of sales of rails in Russia
n Significant RZD capex required and planned
n Large backlog in rail replacement due to under-investment in 1990s
n Approximately US$21bn in capex planned for 2005-2007 period
The Russian Railways (RZD) opportunity
Source: RZD, S&P (October 2004)
RZD infrastructure & rolling stock capex (US$ bn)
Source: RZD
Evraz Prices vs. international export benchmarks (US$/t)(1)
Source: Company data, UN Statistics Division
849
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Growing self-sufficiency in raw materials
Security of supply and reduced exposure to price fluctuations
Global iron ore and coking coal prices ($/t)(2)
0
20
40
60
80
100
120
140
2000 2002 2004 2006F 2008F 2010FIron ore fines Iron ore pelletsCoking coal
Notes:1. Including supplies from Yuzhkuzbassugol2. CVRD – FOB for iron ore, Australian HCC – FOB for coking coal
Source: World Steel Dynamics, April 2005
100
64
22
787586
6170
0%
20%
40%
60%
80%
100%
Evra
z
Mech
el
NLM
K
Severs
tal
MM
K
CSN
Arc
elo
r
PO
SCO
Iron ore Coking coal
Internal raw materials sourcing(3)
3. Including related parties. Evraz data for 1H05, data for the peer group for 2004
Source: Evraz, Rudprom, OOO Rasmin, FGUP VUKhIN
n Approximately 75% of iron ore and 70%(1) of coking coal are sourced internallyn Evraz has access to a large proportion of its raw materials supplyn Limited exposure to high and variable raw material prices
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Taiwan22%
Thailand24%
Philippines7%
Korea7%
Vietnam7%
Iran8%
Hong Kong5%
Other19%
0%
2%
4%
6%
8%
10%
Chin
a
Vie
tnam
India
Russ
ia
Thai
land
S.
Kor
ea
Phili
ppin
es
Tai
wan US
W.
Euro
pe
Japan
Ger
man
y
Attractive export markets – Asia
n Robust GDP growth expected to continue in all of Evraz’s key export markets, significantly outperforming expected economic expansion in developed nations
n Steel exports accounted for 43% of Evraz’s total 1H05 revenues, with the majority delivered as semi-finished products to high-growth Asian re-rolling markets
Source: Global Insight
Selling to a diverse set of high-growth markets
1H05 export revenue structure
Source: Company data
Key Evraz Markets
2004-2008E average annual GDP growth
Export43%
Domestic57%
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0%
20%
40%
60%
80%
100%
1H04 2004 1H05
Steel segment Mining segment Other
Magnitude and quality of transformation
Growing profitable business Increasingly diversified EBITDA
Note: 1. Evraz have not prepared audited or reviewed financial statements for the 12 month period ended 30 June 2005. Financial indicators
presented under LTM (last twelve months) are calculated as a sum of 1H05 financial results and FYE 2004 less 1H04 financial results.
1,413
2,168
6,709
22%
34%
14%
32%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2002 2003 2004 LTM¹
(US$m
)
0%
10%
20%
30%
40%
Net income EBITDASales EBITDA margin (rhs)
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Summary financials
Notes:1. Adjusted EBITDA represents profit from operations plus depreciation and amortisation, impairment of assets and loss (gain) on dispositions of
property plant and equipment2. Net debt equals total debt less cash & equivalents
(280)(524)(217)(75)Capex
2,857 1,609 367 (4 )Equity
Cashflow statement72794643117Cashflow from operations
(657)(817)(359)(117)Cashflow from investing
316(36)4627Cashflow from financing
Income statement3,6325,9332,1681,540Revenues1,3812,447559205Gross Profit
38.0%41.2%25.8%13.3%Margin (%)1,1192,017476209Adjusted EBITDA (1)
30.8%34.0%22.0%13.6%Margin (%)7291,3452531Net income
Balance sheet
358
1,025 4,253
2004
299193223Minority interest
736 479 128 Net debt (2)
5,504 2,232 1,222 Total assets
1H0520032002US$mn
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Cost Structure
Steel division costs Mining division costs
Note: Breakdown based on consolidated cost of revenues.
58%
8%
10%
7%10%
3%5%
6% 8%
8% 10%
67%
0%
20%
40%
60%
80%
100%
1H05 1H04
Raw materials TransportationStaff costs Depreciation
Energy Other
76%18%
10%
8%
3%
27%
6%12%5%
35%
0%
20%
40%
60%
80%
100%
1H05 1H04
US$2,566m US$1,683m US$325m US$192m
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Price dynamics: iron ore
100
200
300
400
500
600
700
Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05
Stoilensky GOK (53 % Fe) Mikhailovsky GOK (52,3 % Fe)
0
500
1,000
1,500
2,000
2,500
Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05Lebedinsky GOK (68% Fe) Stoilensky GOK (66,7% Fe)Mikhailovsky GOK (66% Fe)
400
800
1,200
1,600
2,000
2,400
2,800
3,200
Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05Karelsky Okatysh (65% Fe) Mikhailovsky GOK (62% Fe)
Lebedinsky GOK (65,5% Fe) Kachkanarsky GOK (60,3% Fe)
Ore (RUR/tonne)
Pellets (RUR/tonne)
Concentrate (RUR/tonne)
0
500
1,000
1,500
2,000
2,500
3,000
Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05Vysokogorsky GOK (53,5% Fe) Kachkanarsky GOK (52,3% Fe)
Sinter (RUR/tonne)
Source: Evraz, Metall Kurier
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Price dynamics: coal
Note: Price for average quality coking coal concentrateSource: OOO Rasmin, VGUP Vukhin, Evraz
Coking coal concentrate (RUR/tonne)
0
500
1000
1500
2000
2500
3000
Jan March May July Sept Nov
Average price in Russia for coking coalconcentrate, FCA
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Price dynamics: steel products
Source: Evraz, Metalltorg (domestic prices), Metal Bulletin (export prices).
Rebars (RUR/tonne) H-beams (RUR/tonne)
0
4000
8000
12000
16000
Jan March May July Sept Nov
Export price, FOB
Russian price index, FCA
0
4,000
8,000
12,000
16,000
20,000
24,000
Jan March May July Sept Nov
Export price, FOB
Russian price index, FCA
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Recent Corporate Developments
n Palini e Bertoli is a rolling mill operator in northern Italy producing steel plate products
n Target markets - Southern Europe and the Mediterranean
n 2004 output - 356,000 tonnes of rolled products, revenues - €183mn under Italian GAAP
n Evraz acquired 75% interest in Palini on 12 August 2005
n The deal is in line with Evraz’s strategy of acquiring high-quality re-rolling facilities worldwide
2000
2004
003 - Present
Integrated Structure and Expansion into
Mining
198 - 2002
Palini e Bertoli
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Recent Corporate Developments
n Vitkovice Steel in the north-east of the Czech Republic is a leading European producer of hot-rolled steel products
n Target markets – the Czech Republic and Central Europe
n Total sales in 2004 - 870,000 tonnes of rolled products, revenues - €425mn
n Evraz acquired 98.96% of Vitkovice Steel for c. €240mn on 15 November 2005
2004
003 - Present
Vitkovice Steel
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Yuzhkuzbassugol Acquisition
n Highlights
n Leading coal producer in Russia, operating 10 mines, 2 washing plants, 3 machinery plants, 3 transportation companies and a number of support companies
n Annual output exceeded 17mn t of coal in 2005
n Wide and complementary range of coal brands, permitting Evraz tocircumvent purchase of coal from third parties
n Transaction details
n 50% stake acquired from Evraz shareholders to simplify corporatestructure and improve transparency regarding related parties
n Independent appraiser valuation of Yuzhkuzbassugol of $1.35bn, implying acquisition price of $675mn for the 50% stake
n Transaction voted on by Evraz non-executive directors only
n Financial consolidation on equity basis
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Neryungri Ugol – Project on track
n Highlights
n 2.4mn tpy coking coal mine
n Extractable reserves are estimated at 70-85mn t of high grade hard coking coal
n Production to start in 2H06, expected to reach full production during 2008
n Current stage
n Evraz – Mitsui JV agreement signed, Mitsui becomes a co-investor with 30%
n Parties are in talks with financing institutions (JBIC, ECAs)
n Underground mine development is ongoing, 7500mn developed
n Mining equipment for Phase 1 ordered and major personnel hired
n Surface construction is in the active phase
n Project presented to prospective customers and preliminary coal tests successfully completed (JSM, Posco, NTMK)
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Corporate Governance
n Management
n Board of Directors decision on management changes based on necessity to separate the roles of chief executive officer and of chairman of the Board:
n New structure effective since January 1, 2006:
– Mr. Valery Khoroshkovsky, Managing Director Operations, appointed new CEO with effect from January 1, 2006
– Mr. Alexander Frolov, Managing Director Corporate, appointed new Chairman of the Board, effective May 1, 2006
n Dividends
n Interim dividends for 1H2005 in line with the company’s dividend policy
n Total payout of c.$193mn, or $1.65 per share ($0.55 per GDR) payable to shareholders of record as of November 24, 2005
n 31.5% of net profit and more than 6% annualised dividend yield
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Contacts
Corporate Affairs and Investor Relations:
Irina Kibina
Vice President
Nikolay Arutyunov
Director
Irina Dubitskaya
Senior Manager
Tel. +7-095-2321370
Fax +7-095-2321359
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