ubs annual conference
TRANSCRIPT
October 30, 2008
EVRAZ GROUPUBS Annual ConferenceRussia/CIS: To Prosperity Through Partnership
02DisclaimerThis 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.
03
Advance long product leadership in Russia and CIS
Expand presence in international plate markets
Enhance cost leadership position
Complete vertical integration and competitive mining platform
Achieve world leadership in vanadium business
Evraz Strategy
514
387
325
260216 214 197 190 180 178 167
144 139
8863
0
100
200
300
400
500
600
CSN
NLM
K
Usim
inas
Evra
z
POSC
O
Nip
pon
Stee
l
Gerd
au
Chin
a St
eel
MM
K
Baos
han
Stee
l
Arce
lorM
ittal
Nuc
or
Mec
hel S
teel
US S
teel
Maa
nsha
n St
eel
Sources: IISI, Renaissance Capital estimates
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
2007 EBITDA per Tonne of Steel SalesUS$
04
2,987
2,618 3,148
1,0791,195
3,090
1,0531,331195
404431319
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1H2007 1H2008
Semi-finished products Construction productsRailway products Flat-rolled productsTubular products Other steel products
◦ Revenue increased by 78% to US$10.7 million driven by stronger pricing and successful acquisitions
◦ EBITDA soared by 82% to US$3,700 million
◦ Share of Russian revenues decreased to 40% and sales in European and American markets generated 31% of revenue
◦ Mining segment EBITDA hedged US$84 per tonne of crude steel
2,705
796
185 14
Steel Mining Vanadium Other and unallocated
4,280
788
961
1,763
1,543
2,786
1,911
1,068277
820
441
106
-
2,000
4,000
6,000
8,000
10,000
12,000
1H07 1H08Russia Asia CIS Americas Europe Africa & RoW
1H08 Revenue by Region
1H08 EBITDAUS$ mln
US$ mlnSteel Sales Volumes* 1H08 vs 1H07
‘000 tonnes
1H08 Financial Highlights
05
463
1,792 2,134
733 810
753
214 185338 262
-
1,000
2,000
3,000
4,000
1H07 1H08
Semi-finished products Construction productsRailway products Flat-rolled productsOther steel products
‘000 tonnesEvraz Russian Market Sales Volumes
◦ Russian steel revenue grew by 44% in 1H08 fuelled by domestic construction growth and strong pricing
◦ Sales volumes of 3.8 million tonnes in 1H08 were almost flat y-o-y with a shift in sales mix to higher margin products
◦ In 3Q08 prices for construction products started to decline reflecting seasonal decline in demand and freeze of construction projects caused by uncertainty on financial markets
Russian Operations
200
400
600
800
1,000
1,200
1,400
1,600
01-07 04-07 07-07 10-07 01-08 04-08 07-08 10-08H-beams Rebars (CPT, Moscow)Channel 10-16 (CPT, Moscow) Turkey Rebars, export (FOB)
Price EnvironmentUS$/t
Source: Metal-Courier
0
1000
2000
3000
4000
5000
6000
7000
2003 2004 2005 2006 2007 2008F 2009F 2010F0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Rebars Angles, channels, sections GDP growth
Construction Products Consumption and Russia’s GDP Growth*‘000 tonnes
*2008-2010 Evraz estimates
06
‘000 tonnes
North American Market Sales Volumes
◦ North America:◦ In 1H08, average steel price grew by 22% to US$1,155/t◦ Substantial growth of flat products sales volumes due to Claymont Steel consolidation (+182 thousand tonnes)◦ Revenues from rail sales increased by 15%◦ IPSCO Canada operations consolidated since June 12, 2008, contributed US$85.6 million to revenues and 59
thousand tonnes to the sales volumes◦ Evraz Inc. Canada’s pipe-making capacity is fully booked until 2010◦ All North American operations were integrated into joint company Evraz Inc. NA with HQ in Portland (Oregon)
◦ Europe:◦ In 1H08, sales of flat-rolled products were down by 20% in volumes but up 34% in revenues due to high prices for
plate
North American and European Operations
415
248
229
401
Construction products Railway productsFlat-rolled products Tubular products
36
404
111
Construction products Flat-rolled productsOther steel products
European Market Sales Volumes‘000 tonnes
07
10,040
1,5641,3351,083771
8,624
01,5003,0004,5006,0007,5009,000
10,50012,00013,500
Production Consumption
Russia Ukraine S.Africa
◦ 1H08 EBITDA increased by 134% to US$796 million ◦ 11.3 million tonnes 1H08 iron ore output, increasing self-coverage to 93%◦ Iron ore production cost of US$60/t in Russia and US$25/t in Ukraine◦ Coking coal production almost fully covered* steel making requirements for coal in Russia and
Ukraine in 1H08◦ Coking coal cash cost amounted to US$36 per tonne◦ 1H08 revenue from steam coal sales amounted to US$160 million with 2.2 million tonnes of
shipments
Mining
1H08 Iron Ore Balance‘000 tonnes
1H08 Coking Coal Balance‘000 tonnes
* 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
5,402
1,012
4,390
3,397
1,392 788
604
1,5180
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Gross Consumption Coke sales Steel MakingNeeds
Evraz production 40% ofRaspadskaya
productionRussia Ukraine
083Q08 Operational Results3Q08 Crude Steel and Rolled Products Output
3,695
4,743 4,8864,4914,324
3,460
0
1,500
3,000
4,500
6,000
3Q07 2Q08 3Q08Crude steel Rolled products
3,578
264
219
607
218
Russia Ukraine Europe North America South Africa
3Q08 Rolled Products Production by Region3Q08 Crude Steel Production by Region‘000 tonnes
0
250
500
750
1,000
1,250
1,500
3Q07
2Q08
3Q08
3Q07
2Q08
3Q08
3Q07
2Q08
3Q08
3Q07
2Q08
3Q08
3Q07
2Q08
3Q08
3Q07
2Q08
3Q08
Semi-finished
Construction Railway Flat Tubular Others
Russia Ukraine Europe North America South Africa
◦ Production of crude steel increased by 32% and of rolled products – by 30% y-o-y
◦ Group’s production growth is attributable to acquisitions in North America and Ukraine
◦ Production of construction products declined as a consequence of shrinking demand globally
◦ Production volumes of flat-rolled and tubular goods in North America increased as a result of IPSCO and Claymont Steel consolidation
‘000 tonnes
‘000 tonnes
093Q08 Price Dynamics
Construction Products Flat-Rolled & Tubular non-Russian
500
700
900
1,100
1,300
1,500
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08
Russia Europe North America South Africa
500
700
900
1,100
1,300
1,500
1,700
1,900
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08
Flat, Europe Flat, NA Tubular, NA Flat, SA
◦ The overall pricing environment for the majority of steel products was favourable in 3Q08◦ The price for construction products remained strong in Russia, Europe and South Africa ◦ The prices for plate and tubular goods in North America levelled out after a 1.5-year period of
growth◦ The prices for flat-rolled products in Europe and South Africa continued to increase due to
steady demand
US$/tUS$/t
010Current Debt Portfolio
2,2032,069
1,047801 747
1,796
23
764
12 10
700
0
500
1,000
1,500
2,000
2,500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
276719
800
925
244
201
805
300
0
500
1,000
1,500
2,000
2,500
2008 2009
Eurobond 2009Syndicated $3.2b loan paymentsTerm loansIPSCO bridgeOther revolving debt
◦ As of 30 September 2008, the total debt amounted to US$10.17 billion, including US$4.27 billion of short-term debt
◦ 93.4% of the total debt is denominated in USD, 3.0% in RUR and 3.3% in EUR; for short-term debt it is 89.2% in USD, 7.1% in RUR and 2.9% in EUR
◦ In the next 12 months total interest payments will amount to approximately US$700 million
Debt Maturity Short-Term Debt Structure
US$ mln US$ mln
011Evraz’s Global Business
