non deal roadshow — europe & usa
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2006 Interim Results 2006 Interim Results RoadRoad--showshow
October, 2006October, 2006
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DisclaimerDisclaimer
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 Group S.A. 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 HighlightsEvraz Highlights
n Vertically integrated steel and mining business, among the 15 largest steel producers in the world
n 2005 Production of 13.9 million tonnes of crude steel and 12.1 million tonnes of rolled products
n 1H06 Revenue grew 5.3% to $3,825 mln reflecting 23% increase in sales volumes to 8.3 million tonnes
n 1H06 EBITDA flat at $1.1 bn, EBITDA margin remains strong at 29%
n Leader in Russian long products market with 30-100% market share
n High level of vertical integration and self-sufficiency in iron ore and coal
n One of the lowest cost producers of steel in Russia and CIS with mines located close to steel production sites
n Strong commitment to high standards of corporate governance
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EVRAZ GROUPEVRAZ GROUP’’S MAIN LOCATIONSS MAIN LOCATIONS
NakhodkaSea Port
Neryungriugol
ZapSib
Mine 12
Raspadskaya
NKMK
YKU
EvrazRudaNTMK
VGOKKGOK
Moscow
Stratcor
Stratcor
Vitkovice Steel
Palini e Bertoli
Highveld (24.9%)
Luxembourg
Iron ore mining
Coal mining
Sea ports
Steel mills
Vanadium
Export countries
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Our Vision is to be a world class steel and mining company
and one of the Top 5 most profitable steelmakers globally by
ROCE and EBITDA margin through:
n Leadership in CIS construction and railway steel product markets
n Strengthened positions in global flat product markets
n Lowest costs secured by superior efficiency and 100% self-sufficiency in raw materials
n Growing vanadium business
VISION AND STRATEGIC GOALSVISION AND STRATEGIC GOALS
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1H 2006 HIGHLIGHTS1H 2006 HIGHLIGHTS
n Revenue grew 5.3% to $3,825 mln backed by sales volumes increase of 23%
n 23% growth in Russian construction products sales volumes
n Favourable domestic steel pricing environment
n 5.0x increase in non-Russian sales to mature European and US markets to $714 mln
n EBITDA flat at $1.1 bn, EBITDA margin remains strong at 29%
n Consolidated cash cost per tonne increased by 6.8% to $235
n $262 mln capital investment to improve efficiency
n Continued focus on developing mining segment with additional $225 mln investments in OAO Raspadskaya
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8,300 +23%Volumes (‘000 tonnes)
1H 2006 SUMMARY PERFORMANCE1H 2006 SUMMARY PERFORMANCE
Revenue ($ mln) 3,825 +5%
(2)%
(7)%
EBITDA ($ mln)
Net Profit* ($ mln) 571
1,096
*Net profit attributable to equity holders of Evraz Group S.A.
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1H 2006 RESULTS OVERVIEW1H 2006 RESULTS OVERVIEW
1.5%(334)(339)SG&A
(2)%1,1191,096EBITDA*
30.8%28.7%EBITDA margin
(6.7)%612571Net Profit**
16.9%14.9%Net Profit margin
(13.8)%1.881.63EPS (USD per GDR)
23%6,7508,300Sales volumes*** (‘000 tonnes)
11.9%(2,251)(2,520)Cost of revenue
5.3%3,6323,825Revenue
1H 20051H 2006 Change,%$ mln unless otherwise stated
*EBITDA represents profit from operations plus depreciation and amortisation, impairment of assets and loss (gain) on disposal of PP&E** Net profit attributable to equity holders of Evraz Group S.A. *** Steel Segment sales volumes
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CASH FLOW GENERATIONCASH FLOW GENERATION
n Record net cash flow from operating activities of $904 mln
n Strong conversion of EBITDA to Net Operating Cash Flow at 82.4%
n Cash balance, including $287 mln in short-term deposits, grew 17% to $769 mln
1H 2006 Cash Flow
$ mln
482641
611
190103
772
264 45 18
28716
0
200
400
600
800
1000
1200
1400
1600
1800
Cash atbeginning of
period
Net Profit Adj. toreconcile
OpCF beforeWC
Changes inWC
CF used ininvestingactivities
Short-termdeposits at
banks
C F fromfinancingactivities
Effect ofexchange
rate changes
C ash at endof period
769657
Short-termdeposits at banks
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STRONG BALANCE SHEETSTRONG BALANCE SHEET
n Total Debt-to-EBITDA remains comfortably within stated target of 1.5x, while Net Debt1/EBITDA equals 1.0x
n Current credit ratings: BB by Fitch; Ba3 by Moody’s; BB-/Stable Outlook by S&P
n Well-capitalised balance sheet to fund future growth
1Net debt equals total debt less cash & cash equivalents and short-term bank deposits
1,374
2,394 2,652
1,094
1,736
1,883
1.0
0.5
0.9
0
500
1,000
1,500
2,000
2,500
3,000
2004 2005 LTM0
0.2
0.4
0.6
0.8
1
1.2
Total Debt Net Debt Net Debt/EBITDA
2Evraz have not prepared audited or reviewed financial statements for the 12 month period ended 30 June 2006. Financial indicators presented under LTM (last twelve months) are calculated as a sum of 1H06 financial results and FY05 less 1H05 financial results3ROCE represents profit from operations plus profit from equity investments less income tax over total equity plus interest bearing loans and lease average for the period
Net Debt-to-EBITDA Ratio Total Assets
4,253
6,663
7,317
20%
27%
67%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2004 2005 LTM0%
10%
20%
30%
40%
50%
60%
70%
80%
Total Assets ROCE
$ mln $ mln
2
13
2
11
BALANCE SHEET HIGHLIGHTSBALANCE SHEET HIGHLIGHTS
6,6637,317Total equity and liabilities
2,7073,373Equity
835860Incl. ST loans & current portion of LT loans
1,8961,625Total current liabilities
1,5151,742Incl. LT loans
1,8702,102Total non-current liabilities
6,6637,317Total assets
641482Incl. Cash & cash equivalents
2,6442,682Total current assets
2,9603,278Incl. PP&E
4,0194,635Total non-current assets
31 December 2005
30 June 2006$ millions
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EBITDAEBITDA
133
253
1H05 1H06
854
957
1H05 1H06
Steel Segment EBITDA
Mining Segment EBITDA
+12.1%
(47.4)%
n EBITDA margin remains strong at 29% fuelled by steel segment performance
n Steel segment EBITDA growth driven by volume increase and cost management
n Mining segment EBITDA slipped on the back of softer pricing in the Russian market
$ mln
$ mln
611
137
241
99
1,096
(3)
1011
(10)
Net Profit DD&A Income taxexpense
Net interestexpense
Profits fromassoc iates
Loss ondisposal of
PPE
Impairment ofassets
Other non-operat ingincome
EBITDA
Consolidated EBITDA
$ mln
13
0
100
200
300
400
500
600
Rebars Sections Rails Billets Slabs
1H042H041H052H051H06
STEEL SEGMENTSTEEL SEGMENT
Russia50%
Asia28%
Europe16%
CIS3%
North and South
America3%
Prices for Main Steel ProductsSteel Segment Sales by Regions
n Consolidated steel products sales volume up 23% to 8.3 mln tonnes
n Excellent performance of the Russian construction market (+23%)
n Sales into attractive European and US markets increased by a factor of 5
Non-Russia
$/tonne
Russia
14
STEEL SALES BY PRODUCTSTEEL SALES BY PRODUCT
8,300
181
139
789
830
2,197
4,164
1H 2006
23%6,750Total
223%56Other*
13%123Mining
(5)%828Railway
328%194Plates
4%2,106Construction
21%3,443Semi-finished
%1H 2005Products (‘000 tonnes)
n 21% increase in semi-finished sales volumes driven by organic growth and world steel market demand
n Strong plates sales growth due to acquisitions of premium Vitkovice Steel and Palini e Bertoli plate mills
(in volume terms)
*Includes rounds, cut shapes, strips and other products
15
744573
784
663
541
499
871
879
714
597
1H05 1H06
Rebars Sections Rails Other finished Semis
+30%
+18%
+8%
-1%
+20%
RUSSIAN AND CIS MARKETSRUSSIAN AND CIS MARKETS
200
350
500
650
800
950
Aug-03
Nov-03
Feb-04
May-04
Aug-04
Nov-04
Feb-05
May-05
Aug-05
Nov-05
Feb-06
May-06
H-beams (50B) Channels Angles Rebars
Sales Mix Average Market Prices
$/tonne
n Russia remains key market contributing 50% to total steel segment revenue
n Total sales volumes increased by 13.8% to 3.65 million tonnes
n Favourable pricing environment set to continue in 2H 2006 and beyond
‘000 tonnes
Source: Metall Courier
16
2002 =100%
GDPConstruction:Rebar consumption
100
150
200
250
300
350
2002
2003
2004
2005
2006
2007
2008
2009
2010
400
Source: Evraz, EIU, Chermet, Metall Expert
Construction Output Forecast to Exceed GDP Growth
Russian market share by volume, 2005
Steel Consumption Growth Structure
39,9
30,5 31,6 33,4 35,137,3
2005 2006 2007 2008 2009 2010
Pipes
Long Products
Flat Products0
20
40
60
80
100%
21%
42%
38%
18%
43%
39%
n Construction growth in Russia and CIS continues to outperform GDP
n Russian and CIS steel consumption remains below global benchmarks
n Enhanced leadership position in the rapidly growing construction market with estimated market share of 38%
WELLWELL--POSITIONED POSITIONED IN DOMESTIC MARKETIN DOMESTIC MARKET
100%
84%
49%
30% 28%
0%
20%
40%
60%
80%
100%
Rails H-beams Chanels Rebars Rail-wheels
#1#1
#1
#1 #2
17
1,4911,412
1,342
1,053
617
380
416
580
669
71
110
42
1H05 1H06
Billets Slabs Other semisConstruction Plates Other finished
6%
27%
62%
-28%
NONNON--RUSSIAN SALESRUSSIAN SALES
Non-Russian Sales Product Mix
0
100
200
300
400
500
600
Aug-03 Dec-03 Apr-04 Aug-04 Dec-04 Apr-05 Aug-05 Dec-05 Apr-06
Billet (FOB, Far East) Slab (FOB, Far East)
Non-Russian Prices for Slabs & Billets
‘000 tonnes $/tonne
n Steel sales volumes increased by 31.8% to 4.65 million tonnes
n Continued diversification of sales in favour of European and US markets
n Construction steel export volumes shifted to attractive Russian market
n Strong price recovery in 2Q 2006
Source: SBB
18
EUROPEAN ASSETSEUROPEAN ASSETS
399
135
455
212
Vitkovice Steel Palini e Bertoli
1H05* 1H06
+14%
+57%
European Assets Revenues and Costs European Assets Production Growth
n European assets (Vitkovice Steel and Palini e Bertoli) successfully integrated and contributed $454 mln to consolidated revenue
n Production volumes increased by 25% in 1H 2006
$ mln ‘000 tonnes
228
322
96
132
Revenue Costs
Vitkovice Steel Palini e Bertoli
* 1H05 not included in Evraz Group S.A. consolidated Financial Statement
19
Attractive Plate/SlabAttractive Plate/Slab MarginMargin
US$
Source: SBB 06
n Semis export markets remain volatile
n Flat product market presence provides exposure to the benefits and a possible platform for regional consolidation process
0
200
400
600
800
1000
Jan
03
Mar
03
May
03
Jul 0
3
Sep
03
Nov
03
Jan
04
Mar
04
May
04
Jul 0
4
Sep
04
Nov
04
Jan
05
Mar
05
May
05
Jul 0
5
Sep
05
Nov
05
Jan
06
Mar
06
May
06
Jul 0
6
Sep
06
EU export fob plate Black Sea slab
Prices for Flat products and Semis in Europe
20
4110
594
480
253
133
1H05 1H06Revenues EBITDA Profit from assoc iates
MINING SEGMENTMINING SEGMENT
Mining Segment Performance
$ mln
4,198 4,418
2,898 2,794
1,397 1,181
1H05 1H06
Kachkanarsky GOK Evrazruda Vysokogorsky GOK
Iron Ore Production
n Mining segment revenues decreased by 19.2% to $480 mln
n Iron ore sales volumes flat at 8.4 mln tonnes
n Decline in average prices of iron ore and coal
n Iron ore self-sufficiency remains strong at 78%
‘000 tonnes
21
MUK-96 and Razrez
304 OldRaspadskaya
478
EXPANDING INTEREST INEXPANDING INTEREST IN COALCOAL
11.06.4
6.0
3.3
0
4
8
12
16
20
2005 2010
Raspadskaya MUK-96 & Razrez
CAGR = 12%
Source: IMC Reserve Audit Report 2006
Proved and Probable Reserves Target Output
n Evraz owns 49% beneficial interest in OAO Raspadskaya, the second-largest coking coal company in Russia
n In June 2006, OAO Raspadskaya completed acquisition of two mining assets:Mezhdurechenskaya Coal Company-96 and Razrez Raspadsky with fair value of $769 mln
n Evraz provided $225 mln in cash plus $300 mln in short-term financial guarantees for OAO Raspadskaya
Source: OAO Raspadskaya
mln tonnes mln tonnes
22
Sheet, 27%
Plate, 40%
Sections, 14%
Bars, 9%
Alloys, 7%
Chemicals, 3%
NATURE OF VANADIUM MARKET
n Steel industry (90%)n High strength low alloy (HSLA) Steels
n Full Alloy Steels
n Tool Steels / Stainless Steel
n Carbon Steels
n Airspace industry (7%)n Titanium alloys for jet engine parts,
airframes, rockets, nuclear
n New alloys for modern aircrafts
and jets totals 20% of the weight(A380 and B787)
n Chemicals and Batteries (3%)n Catalyst for sulphuric acid and plastics
n Dietary, glasses, pigments
n Best strength to weight ratio of common engineering materialsn With 0.1% addition of vanadium in structured steel, strength can be increased by 10 to 20%;
structures’ weight can be reduced by 15 to 25%
Source: CRU
World Vanadium Market
23
GROWING VANADIUM BUSINESSGROWING VANADIUM BUSINESS
Source: CRU, Evraz
Steel production
Vanadium consumption
650
750
850
950
1050
1150
1250
1350
1450
1550
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
20
30
40
50
60
70
80
Steel production
Vanadium consumption
m tonnes ‘000 tonnes
Vanadium consumption growth rate
* European hot rolled coil price
V as proportion of steel prices
n 1H06 Vanadium slag sales totaled $83 mln
n In June Evraz acquired 24.9% in Highveld
n In August Evraz acquired 72.84% in Strategic Minerals Corporation (Stratcor)
n Diversified processing base allows Evraz to capture more value from vanadium slag
10
20
30
40
50
60
70
80
1995 2004 2005 2006f0.0%
5.0%
10.0%
15.0%
20.0%
Cost of V ($/t steel) V as % of product value
FeV, $/kg
24
COST STRUCTURECOST STRUCTURE
Steel Segment Costs Mining Segment Costs
Raw materials20%
Staff20%
Depreciation7%
SG&A11%
Other18%
Energy24%Transport
10%
SG&A10%
Raw materials54%
Other8%
Staff8%
Energy7%
Depreciation3%
n Cost of revenues up 11.9% to $2,520 mln as a result of higher steel sales volumes, lower raw material prices and acquisitions impact
n Consolidation of volumes of European assets contributed $253 mln to cost increase
n SG&A expenses remain flat due to strict cost management
n Risk of further cost increase concentrated in energy and labour expenses
25
COST MANAGEMENTCOST MANAGEMENT
36.6
28.024.4
36.1
26.924.9
Transportation Staff Energy
1H05 1H06
Consolidated Costs
1) Steel segment cost per tonne estimated as (Revenue from steel products only – (Steel segment EBITDA - Vanadium slag sales) - Transport expense in Steel segment COS (export) -Steel segment Selling and Distribution costs) / Total steel products shipments
2) Consolidated steel products cost per tonne estimated as steel segment cost per tonne less benefits from vanadium slag sales and integration into mining3) Estimated as vanadium slag sales over total steel products shipments4) Estimated as (Mining segment EBITDA + Profit from associates (coal assets)) / Total steel products shipments
Steel Cost Items
$/tonne $/tonne
n Consolidated cash cost per tonne increased by 6.8% to $235 t reflecting mainly impact of European mills consolidation
n Benefits from integration in mining and vanadium slag sales were lower due to softer raw materials pricing
n Transportation, staff and energy costs per tonne remain flat
220 235
20 1043 16
1H05 1H06
Benefit from integrat ion into mining 4)Benefit from vanadium slag sales 3)Consolidated steel produc ts cost per tonne 2)
283261
1)
1)
26
CAPEXCAPEX
On-goingRevamp of EAF at NKMK
On-goingInstallation of ISSM at Vitkovice Steel
On-goingRevamp of BF3 at ZapSib
On-going Reconstruction of converter shop at NTMK
CompleteRevamp of CB5 at NTMK
CompleteRevamp of BF5 at NTMK
StatusProject
n Key focus on efficiency improvement at the front end of steel production
n Implementation of major projects on track
n Capital spending of $262 mln in 1H06 vs. $280 mln in 1H05
n FY2006 capex annual budget estimated at $550 mln
27
9 MONTHS 2006 TRADING UPDATE9 MONTHS 2006 TRADING UPDATE
2,865
3,721987
992
3,205
4,013
3Q
1H
385
4,747
12,354
636
6,210
11,562
Mine 12 Raspadskaya Yuzhkuzbassugol
9M05
9M06
IRON ORE ‘000 tonnes
* Mine 12 operational results are consolidated into the Group since April 2005. Operational results of Yuzhkuzbassugol are consolidated into the Group since December 31, 2005.
Steel, ‘000 tonnes
COAL, ‘000 tonnes
+65.2%
+30.8%
(6.4)%
+17.6%
Rolled Products, ‘000 tonnes
2,5463,288
3 Q
1 H
Pig Iron, ‘000 tonnes
4,3783,932
3Q1H
9M 2005 9M 2006 9M 2005 9M 2006 9M 2005 9M 2006
9M 2005 9M 2006
+13.8%
+22.3%
12,612 12,715
8,4989,669 8,868
10,84710,213
12,013
PeB+VSorganic
28
Average Russian Market Prices for Long Products
Source: Evraz market estimates
US$
0
100
200
300
400
500
600
700
800
900
1,000
1,100
Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06
H-beams Channels Angles Rebars
29
Non-Russian Prices for Slabs & Billets
Source: Metall-courier
0
100
200
300
400
500
600
Aug-03
Nov-03
Feb-04
May-04
Aug-04
Nov-04
Feb-05
May-05
Aug-05
Nov-05
Feb-06
May-06
Aug-06
Billet (FOB, Far East) Slab (FOB, Far East)
US$