ural sib russia emerging opportunities & outlook conference
TRANSCRIPT
01
EVRAZ GROUP S.A.
Opportunities & Outlook”Conference
2 September 2007
“Russia: Emerging
02Disclaimer
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 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.
03Evraz Highlights
Vertically integrated steel and mining business, one of the largest steel producers in the world
US$8,292 mln revenue in 2006 with EBITDA margin of 32%
Total steel sales volumes up by 25% to 16.0 mln tonnes in 2006
Robust level of self-coverage - 80% in iron ore and 100% in coking coal
Leader in Russian long products market with 30-100% market share. Strong international presence on emerging South African and mature European and North American markets. Leader on the world vanadium market
*Excluding Oregon Steel Mills operations
04Evraz Group’s Main Locations
052006 Strategic DeliverablesAdvance long product leadership in Russia and CIS
◦ Strong growth in sales to Russia and CIS by 8% and 148%, respectively◦ Growing rail products sales to Russian and CIS customers
Expand presence in international flat product markets
Enhance cost leadership position
◦ Strengthened overseas market position through increased sales volumes of 37% up to 8.9 mln tonnes◦ Non-Russian plate sales up by 2.9x and semi-finished sales up +29%◦ Breakthrough into US market with acquisition of Oregon Steel Mills
◦ Consolidated cash cost per tonne of US$252 versus US$231 in 2005◦ Successfully implemented capex programme of US$660 mln in 2006 to introduce further operational
improvements
Complete vertical integration and competitive mining platform
◦ Development licence obtained for the Sobstvenno-Kachkanarskoye ore deposit with reserves of 3.3 blntonnes
◦ New coal assets with 308 mln tonnes of proven and probable reserves acquired by OAO Raspadskaya ◦ Successful IPO of OAO Raspadskaya in November
Achieve world leadership in vanadium business
◦ Acquisitions of Stratcor and Highveld Steel and Vanadium Corporation◦ Vanadium products (slag and alloys) sales 8% totalled to US$224 mln
06Leveraging Sales EBITDA by Segment
◦ 2006 revenues increased by 27% to US$8,292 mln backed by growth in sales volumes and favourable pricing
◦ Non-Russian revenues expanded by 57% driven by Europe and US
◦ Sales to Asian market declined from 32% to 23%◦ Consolidated steel products sales volume up
25% to 16.0 mln tonnes, including 0.65 mln tonnes of sold stock
4,217
2,0271,945
318
1,410
340
3,905
344139
87
36
32
0
1,500
3,000
4,500
6,000
7,500
9,000
2005 2006
Russia CIS Asia Europe Americas Rest of the World
US$ mln
US$ mln
313
1,5091,859
415
2,232
2,652
0
500
1,000
1,500
2,000
2,500
3,000
Mining segment Steel segment Consolidated
2005 2006
3,973
4,222686
1,6121,646
1,568
5,9517,682
285
270
645
334
0
3,000
6,000
9,000
12,000
15,000
18,000
2005 2006
Semi-finished Construction Plates Railway Mining Other
Steel Product Sales Volumes
000’tonnes
Revenues by Region
07Steel: Capitalising On Russian Growth◦ Russia remains a key market contributing 50% to total steel segment revenues with total
sales volumes increasing by 13% to 7.1 mln tonnes ◦ Construction products sales increased by 9%, fuelled by accelerated construction growth
in Russia◦ Strong pricing environment through 2006 and improved mix◦ Average revenue per tonne is up 11% to US$493 from US$444 in 2005
Segment Revenues: Russia Segment Sales Volumes: Russia
1,548
616
249
195
105
580
817
Construction Railway Semi-finished MiningPlates Other Other sales
2,974
1,451 1,341
1,277 1,656
2,716
259222255
359295541
0
1,500
3,000
4,500
6,000
7,500
2005 2006
Construction Railway Semi-finished Mining Plates Ot
US$ mln 000’tonnes
08
◦ In 2006 Russian steel consumption increased 16% y-o-y to 36 mln tonnes and expected to continue to expand
◦ Construction growth in Russia and CIS outperforms GDP growth
◦ Robust Russian pricing environment supports strong earnings
◦ Recently announced Russian railways investment programme of US$400 bln till 2030
29 29 3136
3942
0
10
20
30
40
50
2003 2004 2005 2006 2007F 2008F
4143.6
50.2
61 60.3 62.3
55
0
10
20
30
40
50
60
70
2 00 4 2 00 5 20 06 20 07F 20 08F 2 009 F 2 010 F
Russian Steel Consumption Growth
New Housing Construction
0.82.1
3.0 3.0 3.5 4.00.9
1.92.1
2.5 2.02.0
2.0
1.0
2.4
3.3
3.6 4.04.4
4.8
1.40
2
4
6
8
10
12
2004 2005 2006 2007F 2008F 2009F 2010F
Office Retail W arehousing
Commercial Real Estate
Sources: Goskomstat RF data and forecasts Sources: Goskomstat RF data and forecasts
mln tonnes
mln m2mln m2
Steel: Best Positioned For Construction Boom In Russia
Sources: IISI
092007 Accelerated Growth in Russian Market
Rebars Market , Russia Sections Market ,Russia
◦ Favourable situation on the Russian market fueled by:◦ Increased activity in the construction market◦ Continuously growing demand◦ High prices for long products
◦ Considerable shift from export to internal sales◦ Rebar consumption up 55% and sections up 34 % in 1H07 vs. 1H06
‘000 tonnes
171 181
215
245259
281
242
284 274
319
351 347
0
100
200
300
400
January February March April May June
2006 2007
‘000 tonnes
286 271298
317353
441481
439 437
524
585 583
0
100
200
300
400
500
600
January February March April May June
2006 2007
010Steel: Optimising Non-Russian Product Mix◦ Overseas sales in steel segment increased by 56 % to US$4,051 mln including
US$301mln revenues of Palini e Bertoli and US$671 mln of Vitkovice Steel◦ Total overseas steel sales increased by 35% to 8.9 mln tonnes◦ Semi-finished products sales volumes grew by 29% driven by organic growth◦ Strong plates sales growth by 2.9x due to acquisitions of Vitkovice Steel and Palini e
Bertoli plate mills
Segment Revenues: Non-Russian Segment Sales Volumes: Non-Russian
578
874
2280
75244
Semi-finished Construction Plates Other products Other sales
US$ mln 000’tonnes
4,6806,026
1,252
1,248
1,254
431
393
245
0
1,500
3,000
4,500
6,000
7,500
9,000
10,500
2005 2006
Semi-finished Construction Plates Other
011Oregon Steel Mills, Inc.◦ Leading plate and rails producer on the West Coast with total capacity of 2.1 mln tonnes ◦ In January 2007 Evraz successfully acquired Oregon Steel for US$2.3 bln◦ The acquisition of Oregon Steel represents a solid platform for Evraz in North America
and secures an important place on the attractive plate and pipe market ◦ Combined company is the leading rail producer globally
Portland
Pueblo
Camrose
2006 Sales by Product
‘000 tonnes2667
231
61
210
408
443
Plate Rail Welded Pipe
Seamless Tube Rod and Bar Structural Tubing
Coil
012Expanding Coal Business ◦ In 2006 coal affiliates – Raspadskaya and Yuzhkuzbassugol produced 25 mln tonnes of
coal ◦ In June 2007 Evraz acquired outstanding 50% interest in Yuzhkuzbassugol and approved a
plan to combine businesses of Yuzhkuzbassugol and Raspadskaya coal companies. Upon completion of the transaction, Raspadskaya will own 100% of shares in Yuzhkuzbassugol.
◦ As a post-transaction result, Evraz will exercise management and shareholder control in Raspadskaya and secure more than 100% self-coverage in coking coal
Coal Affiliates ProductionCoal Affiliated Companies Financial Results 2006
17,085
9,160
16,137
6,395
0
4,000
8,000
12,000
16,000
20,000
Raspadskaya Yuzhkuzbassugol
2005 2006
472
595
8539
-57 -28
-150
0
150
300
450
600
750
Raspadskaya Yuzhkuzbassugol
Revenue Net profit Evraz's share
US$ mln ‘000 tonnes
1
013Highveld Steel and Vanadium Corporation ◦ World’s largest vanadium producer and the 2nd
largest steel producer in South Africa with 803,000 tonnes of steel sold in 2006
◦ In 2006 Evraz acquired an initial 24.9% stake from Anglo American and increased it to 56% in May-August 2007
◦ Evraz gains access to expanding South African steel and construction sectors and becomes the leading vanadium player globally
Rm‘
7, 155 6, 901
3, 248
1, 6820
1,500
3,000
4,500
6,000
7,500
2005 2006
Revenues EBITDA
Revenue and EBITDA*
*R/$=6.69
Rm
15, 094
1, 342
7, 342
3, 484Vanadium pentoxide, V2O5
(Vanchem)
Ferrovanadium and Ferrovanadium
nitride, V
Vanadium chemicals, V2O5
Vanadium slag, V2O5
2006 Vanadium Products Sales tonnes
2006 Rolled Steel Production
‘000 tonnes
185
243
339
Plate Coils Sections
1 Highveld 2006 Results starting from July 13, 2006
0141H2007 Production Growth
◦ In 1H07 vs 1H06 the rolled products output increased by 8.3% to 7.7 mln tonnes driven by strong demand for construction and railway products in Russia and additional volumes as a result of acquisitions in the US and South Africa.
◦ Production growth was supplemented by shifting from semis to the higher value added products.
1H07 Source of Growth1H2007 Rolled Products Output
3,198
2,377
1,082 1,029
224
671
412
1,929
820763
4
2,338
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Semi-finishedproducts
Constructionproducts
Railwayproducts
Flat-rolledproducts
Tubularproducts
Other steelproducts
1H 2006 1H 2007
400
100
219175 217
127215
(858)-1,000
-800
-600
-400
-200
0
200
400
600
Sem
is
RU
cons
truc
tion
RU
railw
ay
NA
railw
ay
NA
flat
NA
tubu
lar
SA to
tal
Oth
er
‘000 tonnes‘000 tonnes
015Average Prices for Evraz’s Products◦ In Russia, prices for construction and oil & gas industries related products (rebars,
sections, pipe blanks etc.) grew up 30% in Russia in 2Q07 vs 1Q07 driven by surging demand.
◦ In Europe and North America, the market shows high demand for heavy plates (+9% in average prices) and stable demand for long products.
398452
504 538578
749
552 574 591 598657
697
0
150
300
450
600
750
900
1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007
Construction Railw ay
Russian prices
$/t ex works
257361
441 395 397 453
601678
767 807 827894
1,0881,192
0
200
400
600
800
1000
1200
1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007
Semis,Russia Flat products, Europe Flat products, North America
Prices by region
$/t ex works
