renaissance capital russian mining day
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1EVRAZ GROUP S.A. FY 2006
Preliminary Results
EVRAZ GROUPRenaissance CapitalRussian Mining Day
April 21, 2008
2DisclaimerThis 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 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 communication is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this document or any of its contents.
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 intends or has 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.
3Evraz at a Glance
◦ World class steel and mining company with the strategy to be one of the top five most profitable steelmakers globally by ROCE and EBITDA* margin
◦ Leader in the construction and railway steel product markets in Russia and CIS
◦ Global player with strong position in flat product markets of Europe and the US
◦ One of the lowest cost producers of crude steel in Russia and CIS
◦ Vertically integrated business with 87% self-coverage of iron-ore and 100% self-coverage in coking coal in 2007
◦ Leading global vanadium producer
◦ Production of 16.4 million tonnes of crude steel in 2007
◦ Consolidated revenues of US$12.8 billion in 2007 and US$8.3 billion in 2006
◦ EBITDA* of US$4.3 billion in 2007 and US$2.6 billion in 2006
* Adjusted EBITDA represents profit from operations plus depreciation and amortisation, impairment of assets and loss (gain) on disposal of PP&E
4Strategy Highlights
Advance long product leadership in Russia and CIS
◦ Strong growth in 2007 by 69% in construction products sales in Russia and CIS◦ 11% increase of volumes of rails shipments in Russia in 2007◦ De-bottlenecking at Russian plants◦ Acquisition of Dnepropetrovsk Metal Works in Ukraine
Expand presence in attractive international markets
◦ Development of strong US plate business through acquisitions of EOSM and Claymont Steel ◦ Acquisition of control in Highveld◦ Acquisition of a stake in Delong Holdings ◦ Agreement to acquire IPSCO Canada
Enhance cost leadership position
◦ Acquisition of Zapsib TETs to increase energy self-sufficiency ◦ Open hearth furnaces shutdown at NKMK◦ Zapsib blast furnace #1 relining in 106 days in line with global best practices ◦ Commencement of NTMK converter shop modernisation
Complete vertical integration and competitive mining platform
◦ Completed the acquisition of Yuzhkuzbassugol in 2007, a leading Russian coal producer ◦ Iron ore production up by 10% in 2007, increasing self coverage to 87%◦ Coking coal pro forma coverage of 100% of iron making needs of Russian operations◦ Acquisition of Sukha Balka iron ore mine and three coke chemical plants in Ukraine
Achieve world leadership in vanadium business
◦ Acquisition of control in Highveld Steel and Vanadium, a global leading vanadium producer
5FY2007 Financial Summary
15.92 3.2%
2007 2006
Cost of revenue (7,875) (5,163) 53%
2,642 61%Adjusted EBITDA* 4,254
1,377 56%Net Profit** 2,144
Sales volumes*** (mln tonnes) 16.43
US$ mln unless otherwise stated
Revenue 12,808 8,292 54%
SG&A (1,220) (737) 66%
Adjusted EBITDA margin 33% 32%
Net Profit margin 17% 17%
Change
Source: Evraz’s Audited IFRS Financial Statements* Adjusted 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 to third parties
62007 Financial Highlights
8,292
1,7791,911
650 176 12,808
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY06Revenue
Organicgrow th
Evraz OSM Highveld YuKU FY07Revenue
2,642
1,034 349192 37 4,254
0
1,000
2,000
3,000
4,000
5,000
06EBITDA
Organicgrow th
EvrazOSM
Highveld Other 07EBITDA
16,426473
(1,586)
15,918
(90)
1,711
0
4,000
8,000
12,000
16,000
20,000
FY06Sales
volumes
Existing facilities
De-stocking
EvrazOSM
Highveld FY07Sales
volumes
◦ Favourable pricing and improved sales mix delivered strong growth on marginally higher sales volumes
◦ Last year acquisitions (Evraz OSM, Highveld, Yuzhkuzbassugol and other) contributed US$2,737 mln to total revenue and US$578 mln to EBITDA*
◦ US$632 mln in EBITDA* of Mining segment provided US$55** vertical integration benefits per tonne of steel products produced in Russia
EBITDA, FY07 vs. FY06US$ mln US$ mln
‘000 tonnes
Source: Evraz’s Audited IFRS Financial Statements* Adjusted EBITDA represents profit from operations plus depreciation and amortisation, impairment of assets and loss (gain) on disposal of PP&E** Evraz’s estimate
Sales Volumes, FY07 vs. FY06
Revenue, FY07 vs. FY06
7Prudent Balance Sheet Management◦ Net Debt (1)/EBITDA stays within the long-term stated target◦ Current credit ratings reaffirmed: BB by Fitch; Ba2 by Moody’s; BB- by S&P ◦ Growing leverage in line with general business growth ◦ Consistently solid ROCE (2) at 35% and RoA (3) at 18% ◦ Short-term debt refinancing issues successfully solved despite turbulent market conditions
Net Debt-to-EBITDA Ratio Total Assets and Return on Assets
US$ mln US$ mln
16,380
8,5106,754
37% 38% 35%
0
2,000
4,0006,000
8,000
10,000
12,00014,000
16,000
18,000
2005 2006 20070%
15%
30%
45%
60%
75%
90%
Total Assets ROCE² RoA³
2,350 2,596
6,632
1,693 1,728
6,280
1.5
0.9
0.7
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2005 2006 20070.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Total Debt Net Debt Net Debt/EBITDA
Source: Evraz’s Audited IFRS Financial Statements(1) Net Debt equals total debt less cash & cash equivalents, short-term bank deposits and loans from related parties(2) ROCE represents profit from operations over total equity plus interest bearing loans and finance lease liabilities average for the period(3) RoA represents net income over total assets average for the periods
8FY2007 Cash Flow Generation
◦ Record high net cash flow from operating activities of US$2,957 mln
◦ Cash balance* amounted to US$352 mln
◦ EBITDA** to Net Operating Cash Flow conversion at 70%
◦ US$740 mln used to finance capital investment programme including US$417 mln spent on maintenance
2007 Cash Flow
868
352(29)(5,636)
2,135
740
2,217
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Cash* at beginning ofperiod
Net Profit Adj. to reconcileOpCF
CF from financingactivities
CF used in investingactivities
FX effect Cash* at end ofperiod
US$ mln
Source: Evraz’s Audited IFRS Financial Statements* Cash at beginning and end of period includes short-term deposits amounted to US$26 mln and US$25 mln respectively** Adjusted EBITDA represents profit from operations plus depreciation and amortisation, impairment of assets and loss (gain) on disposal of PP&E
US$ 2,957 mln (Net Cash Flow from operating activities)
9Leveraging Presence in Attractive Markets
◦ Russia remains key market with 46% share in revenue
◦ European sales advanced by 43% driven by higher prices, a 9% steel volume increase and vanadium sales
◦ Strong growth in sales in North America to US$2,140 mln or 17% of total revenues due to Evraz OSM acquisition
◦ Asian sales almost flat y-o-y at US$1,882 mln
FY07 Steel Segment Revenue by Products
8372,480
3,670
1,697
1,968
702
496583 Semi-f inished products
Construction products
Railw ay products
Flat-rolled products
Tubular products
Other steel products
Vanadium
Other revenues
US$ mln
‘000 tonnes
Revenues by Region Steel Product Sales Volumes
Source: Evraz’s data
5,457
4,1535,122
1,6302,290
7,601
1,612 2,16514 664950 778
0
3,000
6,000
9,000
12,000
15,000
18,000
2006 2007Semi-f inished products Construction products Railw ay products
Flat-rolled products Tubular products Other steel products
15,960 16,476
4,2175,952
1,882
1,945340
2,140
1,410
1,894
344
575365
36
0
2,000
4,000
6,000
8,000
10,000
12,000
2006 2007Russia Asia Americas Europe
8,292
12,808US$ mln
10Steel: Yielding on Russian Demand Growth◦ Russian steel revenue grew by 41% fuelled by a domestic construction boom and strong pricing
◦ Steel sales volumes increased by 7.7% to 7.6 mln tonnes and selling price averaged 664$/tonne
◦ Russian construction sales: revenues expanded by 71% on the back of 23% increase in sales volumes
◦ Railway products: revenues grew by 37% with sales volumes increasing by 13%
1,573 1,412
3,636
1,3991,576
2,962
359
404763574
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2006 2007
Semi-f inished Construction Railw ay Plates Other
7,0567,602
675
1,548
2,646
811
1,111
580
195
268
359
348
146
145398
303
0
500
1,0001,500
2,000
2,500
3,0003,500
4,000
4,500
5,0005,500
2006 2007
Semi-f inished Construction Railw ay Flat
Other steel Vanadium Other
3,943
5,590
‘000 tonnes
Russian Steel Sales Volumes
Source: Evraz’s data
US$ mln
Russia: Composition of Steel Revenue by Products
11Steel: Non-Russian Business Overview
◦ European revenue grew by 38% to US$1,894 mln on the back of strong pricing environment and contribution from vanadium products sales
◦ North American sales increased strongly from US$340 mln to US$2,140 mln on Evraz OSM acquisition with steel sales increased by 162% to 1.86 mln tonnes of higher margin products
◦ Asian sales volumes decreased by 32% in FY07 with revenues almost flat y-o-y at US$1,882 mln
◦ CIS revenues expanded by 67% to US$577 mln in FY07
Composition of Revenue by ProductsUS$ mln
Source: Evraz’s data
2,279
579
147
881
196
1,806
1,020
582
1,698
695
133
0
500
1,000
1,500
2,000
2,500
Semi-f inishedproducts
Constructionproducts
Railw ayproducts
Flat-rolledproducts
Tubularproducts
Other steelproducts
2006 2007
Steel Sales Volumes by Region‘000 tonnes
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
CIS Europe Americas Asia Africa
Semi-f inished Construction Railw ayFlat-rolled Tubular Other
739
2,0171,860
3,813
394
12Vanadium: Capturing Market Momentum
◦ Vanadium business contributed US$583 mln to revenues in 2007
◦ Russian vanadium slag sales volumes increased by 9% to 10,810 tonnes*
◦ Volumes of vanadium in alloys & chemicals sold amounted to 11,290 tonnes*
◦ Recent spike in prices will further drive business growth
Vanadium Sales by Products Vanadium Market Price**US$ mln US$/tonne
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
416
167
Vanadium in slag
Vanadium in alloys & chemicals
Source: Evraz’s data Source: Metal Bulletin * Metric tonnes of vanadium equivalent** Per tonne of Vanadium in Ferro-vanadium products
at major European destinations
13
4,049
453
4,517
Raspadskaya Yuzhkuzbassugol Mine 12
◦ EBITDA* increased by 53% to US$632 mln over last year
◦ 18.8 mln tonnes iron ore output covered 87% of total ore consumption
◦ Coking coal production fully covered** steel segment requirements for coal
Mining: Hedging Steel Segment Costs
1,147
1,901
415633
0
500
1,000
1,500
2,000
2006 2007Revenues EBITDA
9,257
5,683 5,506
2,415 2,737
8,949
1,350
0
5,000
10,000
15,000
20,000
2006 2007
Kachkanarsky GOK Evrazruda Vysokogorsky GOK Highveld
17,04718,850
Mining Segment Performance
Iron Ore ProductionCoking Coal Production‘000 tonnes
US$ mln
Source: Evraz’s data* Adjusted EBITDA represents profit from operations plus depreciation and amortisation, impairment of assets and loss (gain) on disposal of PP&E** Self-coverage is calculated as a sum of coking coal production by Mine 12, pro forma Yuzhkuzbassugol production and pro rata to Evraz’s ownership
production of Raspadskaya, in coal concentrate equivalent, divided by group’s total coking coal consumption excluding coal, used in production of coke for sale to third parties
‘000 tonnes
14Yuzhkuzbassugol
◦ 50% stake acquired in June 2007 for US$871 mln or US$123 per tonne of FY08 production
◦ FY08 production is expected to increase by 18% to 14.2 mln tonnes
◦ 1Q08 average cash cost is estimated at US$33 per tonne of raw coal mined
◦ Detailed development programme in place to ramp up profitability with focus on safety issues
Coal Production Proved and Probable Coal Reserves
mln tonnes
4.15.4 5.2 4.4
13.0 10.7
6.79.8
0.0
5.0
10.0
15.0
20.0
2005 2006 2007 2008F
Steam coal Coking coal
mln tonnes
Coking, 303
Steam, 269
Source: IMC report March 2007
15Ukraine: Diversifying into One of the Lowest Cost Producing Regions
Dnepropetrovsk Metal Works
Sukha Balka
Bagley Coke Dnepropetrovsk Coke
Dneprodzerzhinsk Coke
Steel Mill
Iron Ore Mine
Coke Production
16Sukha Balka◦ 2 underground iron ore mines
◦ 30 years of estimated reserve life:◦ Iron ore reserves (A+B+C) – 107 mln tonnes
◦ Magnetite quartzite reserves (A+B+C) – 215 mln tonnes
◦ 2007 production of 2.85 mln tonnes of lumpy ore (57.7% of Fe)
◦ FY08 expected cash cost is US$32 per tonne of lumpy ore
Sukha Balka Iron Ore Sales FY08 Sukha Balka Sales by Region
2,8543,400
3,028
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2006 2007 2008F
‘000 tonnes
1,660
1,440
Export Ukraine
‘000 tonnes
17Dnepropetrovsk Metal Works◦ Integrated steel mill, located in the proximity to iron ore resources and key markets
◦ 3 blast furnaces with annual capacity of 1.8 mln tonnes of hot iron
◦ 3 converters with 2007 crude steel production of 1.3 mln tonnes
◦ Total sales in 2007 amounted to 1.4 mln tonnes of products
◦ Technological turnaround in 2008-2009 with focus on blast furnace reline and switch to 100% continuous casting
Dnepropetrovsk Metal Works Sales Mix
133 209 249
878844 737
328 335 509
0
300
600
900
1,200
1,500
2006 2007 2008F
Pig iron Semis Construction
‘000 tonnes
200
300
400
500
600
700
800
900
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
Billet Slab
Semi-finished Market Prices, FOB Black Sea
US$ per tonne
Source: Metal-Courier
18Coke Production PlantsBagley Coke
◦ 3 coke ovens with annual capacity of 1.5 mln tonnes reconstructed in 1986-1987 and 2005
Dneprodzerzhinsk Coke ◦ 2 coke ovens with annual capacity of 1.03 mln tonnes, built and reconstructed in 1989-1992
Dnepropetrovsk Coke◦ 4 coke ovens with annual capacity of 1.02 mln tonnes built in 1985
Total 2007 production amounted to 2.0 mln tonnes of coke
Captive supply to Dnepropetrovsk Metal Works
661 634 744
619 696 672850
782 726 652
770
651
0
500
1 000
1 500
2 000
2 500
2005 2006 2007 2008F
Dneprodzerzhinsk Dnepropetrovsk Bagley
Coke production
‘000 tonnes
Coke prices, EXW excl VAT
100
150
200
250
300
350
400
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
Russia Ukraine
US$/tonne
Source: Metal-Courier
19North American Operations: Exposure to Infrastructure and Energy Markets
EOSMRed Deer
CalgaryRegina
EOSM
EOSM
Stratcor
Claymont Steel
Steel Mills
Vanadium Assets
Pipe mills
20IPSCO Canada and Claymont Steel◦ In January 2008, Evraz acquired Claymont Steel for
US$422 mln
◦ Leading integrated producer of custom steel plate on the East Coast of the USA with 450,000 tonnes capacity
◦ In March 2008, Evraz signed an agreement to acquire IPSCO's Canadian plate and pipe business for an anticipated net amount of US$2.3 bln
◦ 1 mln tonnes of crude steel capacity; own scrap collecting facilities
◦ 3 tubular mills with annual capacity of 1.2 mln tonnes of OCTG and LD pipes
◦ Strong synergies expected from business combination with existing facilities in North America
◦ Acquisition remains subject to regulatory approvals
Claymont Steel Sales Volume
‘000 tonnes
312 305
380356
381
0
50
100
150
200
250
300
350
400
2004 2005 2006 2007 2008F
ERW pipe, 303
LD pipe, 351
Plate/Coil, 379
IPSCO Canada 2007 Product Mix‘000 tonnes
2,410
3,9743,353
4,7534,313
0
1,000
2,000
3,000
4,000
5,000
2008F 2009F 2010F 2011F 2012F
Announced North American Pipeline Expansionsmiles
Source: Canadian Energy Pipeline Association, Interstate Natural Gas Association of America and IPSCO Tubulars management estimates
Source: IPSCO Tubulars, Claymont/ market data
21Delong Holdings◦ In February 2008, Evraz signed an agreement to acquire up to 51% of Delong Holdings◦ Approximately 3.0 mln tonnes integrated modern HRC mill located in Hebei province in 400 km
from Beijing and from the sea ports◦ Coils ranging between 520mm and 1,100mm in width used mostly in pipemaking◦ The deal is subject to further regulatory approvals
Delong Shipments Delong Location in China ‘000 tonnes
Delong Holdings1,420
1,692
2,382
3,000
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2005 2006 2007 2008F
Source: Delong Holdings FY2007 financial report
22
FY2008 Outlook
23Outlook◦ Consolidated revenues are expected to increase in 1H08 by 60-65% vs. US$6,053 mln in 1H07
EBITDA is expected to grow to apx. US$3,050 mln in 1H08 vs. US$2,050 mln in 1H07
◦ FY08 capital investments are budgeted at US$1,070 mln
◦ Investment capex: US$545 mln Maintenance capex:US$523 mln
◦ Numbers to be revised following completion of IPSCO Canada and Delong Holdings acquisitions
346
369
329
1,234
768
Coal Iron ore Vanadium
Russian steel Non-Russian steel
1H08 Expected EBITDA Composition
4,600
23,00018,900 18,70010,500
5,500
0
5,000
10,000
15,000
20,000
25,000
Coal Iron ore Crude steel Steel products
FY08 Expected Production
‘000 tonnes
* Coal production includes 10.5 mln tonnes of coking coal, 4.6 mln tonnes of steam coal and 40% of Raspadskaya 2008F outputIron ore output includes Sukha Balka ¾ 2008F production. Crude steel and steel products includes output from existing assets, impact from consolidation of Claymont Steel and ¾ of Dnepropetrovsk Metal Woks 2008F output. Steel products also includes pig iron sales from Russian mills.
US$ mln
24Evraz’s Global Business
