Wermuth asset management investor trip, 20 октября 2010

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Wermuth asset management investor trip, 20 октября 2010

  1. 1. Wermuth Asset Management Investor Trip20 October 2010Giacomo Baizini, CFO
  2. 2. Disclaimer 02This 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 oracquire securities of Evraz Group S.A. (Evraz) or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No partof this document, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment orinvestment decision whatsoever. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placedon, 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 thisdocument 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) investmentprofessionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) highnet worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all suchpersons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this document or anyof its contents.This document contains “forward-looking statements”, which include all statements other than statements of historical facts, including, withoutlimitation, 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 bematerially different from future results, performance or achievements expressed or implied by such forward-looking, including, among others, theachievement of anticipated levels of profitability, growth, cost and synergy of recent acquisitions, the impact of competitive pricing, the ability toobtain necessary regulatory approvals and licenses, the impact of developments in the Russian economic, political and legal environment, volatilityin stock markets or in the price of our shares or GDRs, financial risk management and the impact of general business and global economicconditions.Such forward-looking statements are based on numerous assumptions regarding Evraz’s present and future business strategies and theenvironment in which Evraz Group S.A. will operate in the future. By their nature, forward-looking statements involve risks and uncertaintiesbecause they relate to events and depend on circumstances that may or may not occur in the future. These forward-looking statements speakonly as at the date as of which they are made, and Evraz expressly disclaims any obligation or undertaking to disseminate any updates or revisionsto 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 theforward-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.
  3. 3. Evraz Group in Brief 03◦ World-class steel and mining company, 14-th largest steel company globally in 2009◦ Leader in the Russian and CIS construction and railway products markets◦ A lead player in the European and North American plate and large diameter pipe markets◦ One of the world’s lowest cost steel producers due to production efficiency and high level of vertical integration◦ One of the leading producers in the global vanadium market◦ In 2009, Evraz produced 15.3 million tonnes of crude steel and sold 14.3 million tonnes of rolled products◦ 2009 consolidated revenue amounted to US$9.8 billion; EBITDA was US$1.2 billion◦ GDRs are listed on London Stock Exchange; market capitalisation of approx. US$13.4 billion
  4. 4. Evraz’s Global Business 04
  5. 5. 05 1H 2010 Financial Highlights Consolidated Revenue and EBITDA◦ In 1H10 Group revenue rose by 38% vs. 1H09, largely US$ mln driven by increase in sales volumes of steel products and higher average prices 10,723 9,657 10,000◦ 1H10 Group EBITDA advanced by 147% reflecting 8,000 6,379 revenue expansion and cost control 6,000 4,639 5,133 3,706◦ 1H10 Mining segment EBITDA more than quadrupled, 4,000 2,000 2,509 1,154 largely due to the growth in iron ore and coal prices 468 769 0◦ EBITDA margin improved from 10% in 1H09 to 18% in 1H08 2H08 1H09 2H09 1H10 1H10 Revenue EBITDA Revenue Drivers in 1H10 vs. 1H09 Consolidated Adjusted EBITDA US$ mln US$ mln 7,000 1,121 6,379 1,400 1,154 6,000 619 1,200 85 81 5,000 4,369 1,000 390 4,000 800 468 3,000 600 70 2,000 400 94 738 1,000 200 389 0 0 (34) (51) (140) 1H09 Revenue Volumes Prices 1H10 Revenue -200 1H09 1H10 Steel Mining Vanadium Other operations Unallocated subsidiaries & eliminations
  6. 6. Steel: Product Mix Improvement 06◦ Recovery in demand for construction and railway products in Russian market raised the proportion of finished products in the portfolio◦ Share of construction products increased from 25% to 32%◦ Share of semi-finished products fell from 40% to 29%◦ Share of Group’s sales volumes in the Russian market increased from 29% to 33% following recovery in domestic demand◦ Domestic sales of Russian and Ukrainian operations advanced from 44% to 53% Steel Product Sales Volumes by Operations Steel Product Sales Volumes by Operations Steel Sales Volumes by Product Steel Sales Volumes by Product’000 tonnes ’000 tonnes 6,000 5,532 5,187 3,000 2,704 5,000 2,470 2,500 2,262 export 4,000 1,834 2,000 47% 3,000 56% 1,500 1,304 974 887 2,000 1,000 821 1,276 53% 944 391 436 1,000 44% 603 500 413 279 303 186268 domestic 0 0 Russian & North American European South African Semi- Construction Railway Flat-rolled Tubular Other steel Ukrainian finished 1H09 1H10 1H09 1H10
  7. 7. Recent Market Developments 07 US$/t Evraz Selling Prices◦ Overall growing trend in steel prices is driven by 900 demand recovery and increases in input costs 800◦ International prices for semi-finished steel declined in 700 May-June due to seasonal and regulatory factors but 600 stabilised in July 500◦ Russian domestic demand for construction steel is 400 300 expected to be approx. 10% higher in 2010 than in 2009 200 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10◦ Anticipated steelmaking capacity utilisation in 4Q10: Slabs, Russia, export* Billets, Russia, export* Rebars, Russia, FCA Plate, North America, FCA ◦ Russia – to remain >95% * Weighted average contract prices ◦ North America – >95% ◦ Czech Republic – temporarily closed since July ◦ South Africa – >95% Vanadium Prices, FeV, LMB◦ Russian mining assets are running at 75% capacity in US$/kg V coal and 90% in iron ore 40◦ Vanadium expected to perform better than steel as 35 vanadium usage rates in the emerging markets’ steel 30 production sector approach the levels of industrially 25 developed countries 20 15 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10
  8. 8. Consumption of construction steel in Russia 0812 100 mln.t. mlm sq.m. 9010 1,0 1,1 0,8 1,0 80 0,9 1,6 8 1,6 1,3 1,6 0,8 1,3 70 1,4 1,1 0,6 1,3 1,1 1,3 6 0,5 1,1 60 1,0 0,9 0,9 0,8 0,7 50 4 5,8 6,2 5,8 6,1 40 5,5 4,5 4,9 2 4,1 30 0 20 2007 2008 2009 2010B 2011F 2012F 2013F 2014F Rebar Channels Angles Beams Buildings completion, mln.m2 Recovery of construction steel product consumption began in 2010 Increase of shaped sections demand vs. rebar might be greater in the next years due to infrastructure projects development Sources: Rosstat, Railway statistics, Customer service statistics, Metal Courier, Rusmet 8
  9. 9. Growth Strategy 09 Product mix improvements ◦ Modernisation of rail mills enabling the production of high value-added products ◦ Upgrade of wheel shops ◦ Shift to production of American Petroleum Institute certified slabs and other enhanced quality higher margin steel products ◦ Product mix expansion geared to local market demand (new rebar grades, beams, pipe blanks, sheet) ◦ Exploring opportunities for development of construction steel rolling capacities in regions with high demand Raw material base development ◦ Development of a coal deposit in Yerunakovsky region of Kuzbass ◦ Expansion of resource base and development of the Mezhegey coal deposit ◦ Increase of own iron ore production and supplementary exploration at existing sites Cost-saving measures ◦ Implementation of pulverised coal injection projects at the Russian steel mills to eliminate usage of natural gas in blast furnaces and reduce consumption of coking coal. Added effect will be an increase in pig iron production volumes and, therefore, crude steel production ◦ Cost saving programmes in place, yielding US$20-30m efficiency gains a year at each plant Increase in production volumes ◦ Reconstruction of 4th converter and 3rd slab machine at NTMK should increase crude steel output by up to 0.5 mtpa ◦ Considering construction of a second converter shop at NTMK with additional crude steel capacity of 1.5-2.0 mtpa
  10. 10. Key Investment Projects 10 ◦ CAPEX in 2010 expected to be around US$950m vs. US$441m in 2009 ◦ Approximately US$550m of 2010 CAPEX to be directed to increasing productivity and development projects, key projects being:Project Total CAPEX Cum CAPEX by 2010 CAPEX Project Targets 31.12.09Reconstruction of rail US$440m US$30m US$220m ◦ Capacity of 950k tonnes of high-speed rails, includingmill at NKMK 450k tonnes of 100 metre rails ◦ On-stream by 2013Reconstruction of rail US$55m US$28m US$27m ◦ Production of higher-quality railsmill at NTMK ◦ 550k tonnes capacity ◦ On-stream by 2012Pulverised coal injection US$320m US$0m US$40m ◦ Lower coke consumption from 420 to 320 kg/tonne(PCI) at NTMK andZSMK ◦ No need for gas consumption ◦ On-stream by 2013BOF workshop US$260m US$230m US$20m ◦ Modernisation of productionreconstruction NTMK ◦ Increasing capacity from 3.8 to 4.2 mtpa ◦ On-stream by 2010Reconstruction of CCM US$60m US$5m US$40m ◦ Modernisation of productionSlab №3 NTMK ◦ Further increase in steelmaking capacity from 4.2 to 4.5 mtpa ◦ On-stream by 2010Reconstruction of wheel US$100m US$87m US$13m ◦ Production of higher-quality wheels& tyre mill (heattreatment shop) NTMK ◦ On-stream by 2010Development of TBD US$1m Less than US$90m, ◦ Maintaining self-sufficiency in high-quality hard cokingMezhegey coal deposit including license coal after depletion of existing deposits cost ◦ On-stream by 2015
  11. 11. Summary 11◦ Focus on infrastructure markets and vertical integration into raw materials◦ Gradual recovery in the key markets after the crisis◦ Rapidly rising raw material prices provide support for steel prices and create cost pressure, especially for non-integrated steel producers◦ Increase in the proportion of finished products in the mix reflecting demand improvement in key markets of Russia and North America◦ Strategic focus on operational efficiency, modernisation of existing capacities, development of mining base and integration of international assets◦ Improved demand and stronger pricing environment together with our cost leadership leave us well positioned to fully capitalise on the market recovery
  12. 12. Appendices
  13. 13. Steel Price Dynamics 13 Produsers of construction steel (ExW), RUB/trub./t without VAT Prices prices on structerals (exw), excluding VAT30 000 Rebar Angles25 000 Channels20 00015 00010 000 1Q.07 2Q.07 3Q.07 4Q.07 1Q.08 2Q.08 3Q.08 4Q.08 1Q.09 2Q.09 3Q.09 4Q.09 1Q.10 2Q.10 3Q.10 Price of construction steel achieved the level of 2007 There was a substantial increase of construction steel prices in 2Q 2010 Source: Metal-Expert, Metal Courier, Rosstat, Evraz estimates 13
  14. 14. Cost Dynamics 14◦ Growth in scrap, coking coal and iron ore prices in 1H Cash Cost*, Slabs & Billets 2010 increased steelmakers’ costs US$/t◦ This cost increase was significantly offset by Evraz’s 450 400 402 430 high level of vertical integration into iron ore and coking 394 420 341 350 coal 285 300◦ Consolidated cost, approx. 65% of which is Rouble 250 253 324 denominated, was negatively impacted by 10% Rouble 200 224 268 appreciation vs. US dollar compared to 1H09 150◦ Increase in cash cost of coking coal concentrate 1H08 2H08 1H09 2H09 1H10 resulted from lower production volumes due to Slab Billet postponed longwall repositioning at the Ulyanovskaya mine * Average for Russian steel mills, integrated cash cost of production, EXW Consolidated Cost of Revenue, 1H 2010 Cash Cost, Russian Coking Coal and 7% Iron Ore Products 13% US$/t 10% 75 15% 69 63 12% 65 56 55 55 61 6% 5% 47 5% 43 11% 45 50 7% 47 4% 5% 43 35 Iron ore Coking coal Scrap 1H08 2H08 1H09 2H09 1H10 Ferroalloys Purchased semis Auxilliary materials Electricity Natural gas Staff costs Coal concentrate Iron ore products, 58% Fe Transportation Depreciation Other Source: Management accounts
  15. 15. Cost Structure by Segment 15 Cost Structure of Steel Segment Cost Structure of Steel Segment◦ Rapid rises in coking coal, iron ore and scrap prices caused an increase in the contribution of raw 19% 11% 9% materials to steel segment costs 8% 11%◦ Vertically integrated model largely protects 12% 10% 8% 6% 5% steelmaking segment from escalation in raw material 5% 10% 6% 14% prices 5% 11% 13%◦ Exception is scrap prices, although portion of increase 8% 12% 17% is managed through the scrap-based price formula for certain products 1H09 1H10 Iron ore Coking coal Scrap Other raw materials Semi-finished products Transportation Staff Depreciation Energy Other Cost Structure of Mining Segment Cost Structure of Mining Segment Cost Structure of Vanadium Segment Cost Structure of Vanadium Segment 18% 19% 14% 16% 27% 22% 69% 58% 26% 25% 15% 11% 7% 11% 10% 11% 5% 7% 13% 1% 15% 1H09 1H10 1H09 1H10 Raw materials Transportation Staff costs Transportation Staff costs Depreciation Depreciation Energy Other Energy Other
  16. 16. EBITDA to FCF Reconciliation 16 US$ mln 1600 1,154 (51) 1200 1,103 (258) (101) 744 (308) 800 (397) 400 12 51 0 Adjusted Non-cash EBITDA Changes in Income tax CF from Interest and Capex CF from Free cash EBITDA items (excl. non- working paid operating covenant investing flow* cash items) capital activities reset activities (excl. payments (excl. income tax) capex)* Free cash flow comprises cash flows from operating activities less interest paid, covenant reset charges, cash flows from investing activities
  17. 17. Capital Market Developments 17◦ RUB15bn (equivalent to US$500 million) 3-year bonds issued in March 2010, swapped into US dollars to minimise Rouble currency exposure◦ In May 2010, Evraz drew down US$950 million 5-year Gazprombank loan and repaid US$1,007million VEB loan◦ In June-July 2010, Evraz refinanced US$357 million Nordea Bank loan due 4Q10 with new 4-year Nordea loan facilities in the amount US$404 million◦ In the process of syndication of 5-year pre-export financing facility for up to US$1 billion◦ In the process of 5-year RUB 15 billion (approx. US$500 million) bond issue Proportion of Short-term Debt to Total Debt Proportion of Short-term Debt to Total Debt US$ mln 10,000 100% 8,482 7,923 7,873 8,000 80% 6,000 46% 60% 4,000 25% 40% 22% 2,000 20% 0 0% 30-Jun-09 31-Dec-09 30-Jun-10 Total Debt Short-term Debt, % of Total Debt
  18. 18. Balanced Debt Maturity Profile 18◦ Total debt of approx. US$7.9bn, net debt of US$7.2bn as of 30 June 2010◦ Consolidated cash balance of not less than US$500 million constantly maintained◦ Liquidity (defined as cash and cash equivalents, amounts available under credit facilities and short-term bank deposits with original maturity of <3 months) totalled approx. US$1,598 million as of 30 June 2010◦ Declining cost of capital (bond yields have decreased from approx. 10% in October 2009 to around 6%) reflects improvements in Evraz’s performance and market conditions and permits further refinancing of short-term debt◦ We intend to further decrease our leverage and extend debt maturities Debt Maturities Schedule (as of 30 June 2010) Debt Maturities Schedule (as of 30 June 2010) Breakdown of Short-term Debt* Breakdown of Short-term Debt* (as at 30 June 2010) (as at 30 June 2010)US$ mln US$ mln2 000 1 778 1 5431 600 1 419 593 7861 200 1 085 996 800 721 509 400 15 11 279 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Syndicated loans Overdrafts Russian bilateral loans Q1 Q2 Q3 Q4 * Principal debt (excl. interest accrued)
  19. 19. Steel Products Sales by Market 19 ’000 tonnes 3,000 2,799 2,518 2,433 2,500 1,950 2,000 1,500 1,307 948 1,000 704 577 442 500 311 310 238 0 Russia CIS Europe Americas Asia Africa & RoW 1H09 1H10
  20. 20. 20 3Q 2010 Operational Results◦ In 3Q10, consolidated crude steel output was 3.9 mt, -9% vs. 3Q09 and -10% vs. 2Q10, mainly due to scheduled repairs and modernisation at Russian production facilities◦ Crude steel volumes to be recovered in 4Q as scheduled works are over◦ Product mix improvement: increase in the finished products volumes ◦ construction products: Russia: +3%, Ukraine: +21% ◦ railway products: Russia: +34%, NA: +20% ◦ flat-rolled products: Europe: +18%, NA: +79% ◦ tubular products: NA: +103%.◦ Volumes of semi-finished products decreased by 43% vs. 3Q09 and -22% vs. 2Q10, because of the temporary decline in crude steel output, increasing demand for higher margin products and increase in intercompany consumption of Russia-produced semis for re-rolling at non-Russian mills‘000 tonnes ‘ Production of Rolled Products1,600 -43% +2%1,4001,2001,000 1,229 -4% 1,208 1,210 +31% 800 1,433 600 +103% +29% 1,046 400 636 589 567 814 525 448 200 216 237 342 173 117 135 174 0 Semi-finished products Construction products Railway products Flat-rolled products Tubular products Other steel products 3Q09 2Q10 3Q10 % - year-on-year comparison
  21. 21. 21 3Q10 Production of Rolled Products by Assets Russia North America‘000 tonnes ‘000 tonnes 3,500 2,896 2,845 2,856 700 3,000 122 2,596 2,648 627 610 79 125 149 600 560 263 76 128 71 146 498 2,500 321 90 430 75 490 193 353 500 216 360 2,000 117 237 936 868 400 139 923 1,500 913 967 300 239 186 206 195 136 1,000 200 1,497 1,455 1,282 79 90 500 1,106 1,107 71 94 94 100 108 92 104 94 93 0 0 3Q09 4Q09 1Q10 2Q10 3Q10 3Q09 4Q09 1Q10 2Q10 3Q10 Semi-finished Construction Railway Flat-rolled Other steel Construction products Railway products Flat-rolled products Tubular products Europe South Africa ‘000 tonnes ‘000 tonnes 350 330 299 300 264 284 7 300 250 4 248 4 250 6 175 6 200 157 200 6 154 149 274 8 141 266 150 5 7 16 150 226 246 205 107 100 98 98 85 90 100 50 50 49 50 62 48 49 43 33 33 36 29 0 0 3Q09 4Q09 1Q10 2Q10 3Q10 3Q09 4Q09 1Q10 2Q10 3Q10 Construction products Flat-rolled products Other steel products Construction products Flat-rolled products Other steel products
  22. 22. Revenue by Geography of Customers 22 1H 2009 1H 2010 Africa & Africa & RoW RoW Other Asian 3% Other Asian 3% 7% Thailand 11% 3% Russia China 28% Thailand Russia 5% 4% 34% ChinaMiddle East 3% 10% Middle East 4% Ukraine 2% Europe Other CIS 9% Europe Ukraine 3% 9% 4% Other CIS Americas Americas 4% 30% 24%
  23. 23. Benefiting from Rising Prices for Iron Ore and Coal 23 Raw Material Prices (Domestic Markets) Raw Material Prices (Domestic Markets)◦ Volumes of coking coal mined decreased due the US$/t 400 repositioning of longwall at Ulyanovskaya mine◦ 300 Mining segment revenue doubled and EBITDA 200 quadrupled reflecting the growth in prices◦ A decline in coking coal supplies, following the 100 Raspadskaya mine explosion, led to lower external 0 Jan- Mar- May- Jul- Sep- Nov- Jan- Mar- May- Jul- Sep- sales of coke and a negative EBITDA effect of approx. 09 09 09 09 09 09 10 10 10 10 10 US$5 million per month Scrap, Russia, CPT Scrap, USA Iron ore concentrate, Russia, ExW Coking coal concentrate, Russia, FCA Iron Ore and Raw Coal Production Mining Segment Revenue* and EBITDA ‘000 tonnes US$ mln 18,000 2,015 15,000 2,131 2,351 1,120 1,200 12,000 4,998 5,301 3,655 1,000 9,000 800 652 600 6,000 390 8,809 9,955 9,608 400 3,000 200 94 0 0 1H09 2H09 1H10 1H09 1H10 Iron ore products Raw coking coal Raw steam coal Revenue EBITDA * Includes intersegment sales
  24. 24. Mining: Vertical Integration 24 ◦ High level of vertical integration into iron ore sustained and continues to mitigate effect of rising raw material prices ◦ Coking coal volumes decreased due to postponement of longwall repositioning at the Ulyanovskaya mine ◦ Third quarter volumes depressed due to temporary safety shutdowns and safety inspections Washed Coking Coal (Concentrate) Self-Coverage* Iron Ore Self-Coverage* ‘000 tonnes ‘000 tonnes 117% 12,0006,000 10,397 10,580 5,288 9,955 9,608 117% 10,000 9,011 8,8095,000 4,504 84% 4,317 4,348 3,679 RASP 3,642 8,0004,000 RASP3,000 6,000 RASP2,000 4,000 73%** 2,000 98% 96% 91%1,000 87%** 50%** 0 0 1H09 2H09 1H10 1H09 2H09 1H10 Consumption Production Consumption Production * Self-coverage, %= total production (for coal, plus 40% of Raspadskaya production) divided by total steel segment consumption ** Coking coal self-coverage excl. 40% Raspadskaya share
  25. 25. +7 495 232-13-70 IR@evraz.com www.evraz.com

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