Investor presentation may 2013


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Investor presentation may 2013

  1. 1. Corporate PresentationMay 2013
  2. 2. 1DisclaimerInvestor Presentation, May 2013This 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 ofEVRAZ plc (“EVRAZ”) or any of its subsidiaries in any jurisdiction (including, without limitation, EVRAZ Group S.A.) (collectively, the “Group”) or an inducement toenter 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 orcommitment 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, the Group or any of its affiliates, advisorsor representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents orotherwise 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, anystatements preceded by, followed by or that include the words “targets”, “believes”, “expects”, “aims”, “intends”, “will”, “may”, “anticipates”, “would”, “could” or similarexpressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond theGroup’s control that could cause the actual results, performance or achievements of the Group to be materially different from future results, performance orachievements expressed or implied by such forward-looking, including, among others, the achievement of anticipated levels of profitability, growth, cost and synergyof recent acquisitions, the impact of competitive pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Russianeconomic, political and legal environment, volatility in stock markets or in the price of the Group’s shares or GDRs, financial risk management and the impact ofgeneral business and global economic conditions.Such forward-looking statements are based on numerous assumptions regarding the Group’s present and future business strategies and the environment in whichthe Group will operate in the future. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend oncircumstances 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 each of EVRAZand the Group expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein toreflect any change in EVRAZ’s or the Group’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statementsare based.Neither the Group, 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.
  3. 3. 2EVRAZ in brief One of the largest vertically integrated steel and mining companies in the world Leader in the Russian and CIS construction and railway product markets No 1 producer of rails and large diameter pipes in North America One of the leading producers in the global vanadium market 15.9 million tonnes of crude steel produced in 2012, 15.3 million tonnes of steelproducts sold 2012 consolidated revenue of US$14.7 billion, EBITDA of US$2.0 billion Net debt as of 31 December 2012 of US$6.2 billion Capex of US$1,261 million in 2012 Constituent of FTSE 100 index since December 2011 and the only steel stock in UKFTSE All-Share index; part of MSCI UK and MSCI World IndicesInvestor Presentation, May 2013
  4. 4. 3Russia &CIS48%Americas18%Asia21%Europe9%Africa/Other4%by GeographySteel Sales Volume Breakdown (2012)Global Vertically Integrated Steel, Mining and Vanadium Business with Strong Positions in Highly Attractive MarketsEVRAZ’s global businessInvestor Presentation, May 2013North AmericaSouth America AfricaEuropeRussia/CISAsia3943,185986426346211 6607,3702,680Sea portsVanadiumCoal miningIron ore miningSteel millsMezhegey coal mine in developmentThird party steel products sales 2012 (Kt)*#Internal supply of slabs and billets fromRussian steel mills 2012 (Kt)#15.3 Mt* Excluding routes with sales volumes below 100 kt each, together totalling 252 ktSemi-finished24%Construction37%Railway12%Flat-rolled18%Tubular6%Other3%by Product15.3 Mt
  5. 5. 4EVRAZ average selling prices, $/t (ex works)Q1 2013 steel productionInvestor Presentation, May 2013 Output of total steel products increased by 11% in Q12013 vs. Q4 2012 mainly due to lower downtime atsteelmaking facilities Consolidated production of finished steel goods waslargely flat quarter-on-quarter, while output of semi-finished products increased primarily at Russianoperations Production at EVRAZ ZSMK rail mill recommenced inJanuary 2013 following the successful completion ofthe modernisation project EVRAZ NTMK completed the implementation of thePCI projectProduction of steel products, Kt Share of finished products in product mix02004006008001,0001,2001,400Semi-finishedproductsConstructionproductsRailwayproductsFlat-rolledproductsTubularproductsOther steelproductsQ1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 201326%74%Semi-finished productsFinished productsProduct groupQ1 2013 Q4 2012 Q1 2012Semi-finished (Russia) 419 396 480Construction (Russia) 674 667 675Flat-rolled (North America) 876 906 1,068Tubular (North America) 1,387 1,422 1,565
  6. 6. 5Mining: CoalInvestor Presentation, May 2013 In Q1 2013, raw coking coal production at Yuzhkuzbassugol increased by 14% compared to Q42012 due to increased production at the Alardinskaya and the Yesaulskaya mines, launch of a newlongwall at the Osinnikovskaya mine and commissioning of the Yerunakovskaya VIII mine Output of Raspadskaya was 3% higher as the flagship mine continued operating with twolongwalls Production of raw steam coal decreased due to suspension of mining at the Gramoteinskaya mineand longwall repositioning at the Kusheyakovskaya mine that started in December 2012 andcontinued throughout Q1 2013EVRAZ’s raw coking coal production volumes, Kt (mined)Q1 2013 Q4 2012 Q1 2012Raw coking coal 61 63 85Raw steam coal 12 25 29Coking coal concentrate 100 116 159Steam coal concentrate - 49 70EVRAZ average selling prices, $/t (ex works)1,5912,191 2,2612,0782,181 2,4903,6694,372 4,751Q1 2012 Q4 2012 Q1 2013YuzhkuzbassugolRaspadskaya
  7. 7. 6Mining: Iron oreInvestor Presentation, May 2013 Overall production of saleable iron ore products by the Company remained largely flat in Q12013 compared to Q4 2012. In Q1 2013, production of saleable concentrate in Russia decreased by 8% as a result of lowerFe grades in the ore mined at EVRAZ VGOK and preparation for the closure of Irba mine ofEvrazruda, which is expected in mid-2013 Volumes of sinter and pellets produced at the Russian operations in Q1 2013 were marginallylower due to a number of unscheduled minor repairs Prices for pellets and saleable concentrate in Russia demonstrated positive dynamics in Q12013, while selling prices for sinter remained unchangedIron ore production volumes, Kt EVRAZ average selling prices, $/t (ex works)Q1 2013 Q4 2012 Q1 2012Concentrate, saleable (Russia) 91 70 91Sinter (Russia) 70 70 105Pellets (Russia) 79 74 104Lumpy ore (Ukraine) 63 50 66734 580 6911,555 1,572 1,5441,209 1,230 1,1981,288 1,331 1,2305,204 5,132 5,203Q1 2012 Q4 2012 Q1 2013Concentrate, saleable(Russia)Sinter (Russia)Pellets (Russia)Lumpy ore (Ukraine)
  8. 8. 7VanadiumInvestor Presentation, May 2013 In Q1 2013, total production of primaryvanadium (slag) increased by 4% mainly as aresult of higher crude steel production atEVRAZ Highveld Steel and Vanadium Total ferrovanadium production increased by15% due to better slag availability in SouthAfrica and record production at EVRAZVanady TulaSource: LMBFerrovanadium prices (FeV), $/kg contained V30.231.130.930.430.029.528.928.628.127.5 25.724.223.025.326.025.626.125.624.523.724.624.324.226.831.231.631.0Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13Production of Vanadium products, t of V** Calculated in pure vanadium equivalentQ1 2013 Q4 2012 Q1 2012Vanadium in final productsFerrovanadium 28,814 23,579 23,109Nitrovan® 30,690 26,912 26,521Oxides, vanadium aluminumand chemicals33,266 36,094 31,241EVRAZ average selling prices, $/t (ex works)f372 186 491412 7667154,5422,7733,188Q1 2012 Q4 2012 Q1 2013FerrovanadiumNitrovan®Oxides, vanadiumaluminium and chemicals
  9. 9. 8Capex historic performance and outlook, $m 2012 capital expenditures breakdown by projects, $mCapex excluding RaspadskayaInvestor Presentation, May 2013* 2013 estimate CAPEX is ~10% less than budgeted capex 2012 capex was $1,261m in line with budget and Company’s guidance 2013 capex estimate is $1.1bn. Organic expansion of Raspadskaya can contribute up to $150m ofadditional capex Growth in mining capex will be driven by the development of Mezhegey hard coking coal deposit andconstruction of Yerunakovskaya VIII coking coal mine Steel segment capex is mostly a continuation of upgrade projects Depending on prevailing market environment, development capex might be postponed or reduced if necessary8321,281 1,261~1,1002010 2011 2012 2013 estimate*Investment projects,MiningInvestment projects,Steel, Vanadium andOther operationsMaintenance includingsome support of miningcapacity1431355851413115130657EVRAZ ZSMK rail mill modernisationYerunakovskaya VIII minePCI at EVRAZ NTMKPCI at EVRAZ ZSMKVostochniy millYuzhniy millMezhegey (Phase I) coal projectOther investment projectsMaintenance
  10. 10. 9Key investment projectsInvestor Presentation, May 2013ProjectTotalcapex*,$mRemainingcapex at1/01/2013*, $m2013 capexBudgeted*, $m Project targetsSteel 248Rail mill modernisation atEVRAZ ZSMK490 63 63 Increase of production capacity to 950 ktpa, including 450 ktpa of 100metre rails Launched in January 2013. Ramp-up to be completed by Q1 2014Pulverised coal injection (PCI) atEVRAZ ZSMK152 51 42 Coke consumption to be reduced by ca. 20% and natural gas by ca.50%, with additional 140kg PCI coal per tonne of pig iron Launch in Q1 2014Construction ofVostochniy rolling mill(Kazakhstan)124 67 49 New capacity: 450 ktpa of construction products Hot tests to start in Q3 2013Construction ofYuzhniy rolling mill (SouthernRussia)142 65 26 New capacity: 450 ktpa of construction products Hot tests to start in H2 2014Rail mill expansionat EVRAZ North America32 18 18 Increase of rail mill capacity from 525 ktpa to 580 ktpa and improvementin product quality To be completed in Q3 2013Heat treatment expansion atCalgary mill of EVRAZ NorthAmerica64 64 50 Shift to higher margin for heat treated pipes To be completed in Q4 2013Coal & iron ore 248Yerunakovskaya VIII mineconstruction310 132 108 Production of up to 2.5 Mtpa of coking coal Ramp-up to be completed by Q1 2014Development of Mezhegey coaldeposit222 176 111 Production of up to 1.5 Mtpa of hard coking coal; Ramp-up to be completed in H2 2014Expansion ofSheregesh mine90 48 29 Increase iron ore production to 4.8 Mtpa, replace depleting mines Decrease of cash cost per tonne Ramp-up to be completed in H2 2013TOTAL 496* Excluding VAT
  11. 11. 10Update on rail and beam mill and PCI projects Rail and beam mill at ZSMK Launched in January 2013, first 100 metre rails produced in March 2013 Current production rate 40 kt/month, plan to reach design capacity of 100 kt/month in Q1 2014(including 79 kt/month of rails) Certification for 100 metre rails expected in Q1 2014, after which commercial sales can begin PCI at NTMK Launched in January 2013 Currently working in the consumption mode of 95 kg PCI coal/t of pig iron, whilst expecting toincrease PCI coal consumption to 140 kg/t of pig iron from April 2013 Planned reduction in coke consumption is 23% (310 kg/t vs. 405 kg/t) and in natural gasconsumption – 58% (55 m3/t vs.130 m3/t) Cost saving effect is expected to be approximately $10/t of crude steel PCI at ZSMK Delayed to optimise design solutions Launch expected in Q1 2014Investor Presentation, May 2013
  12. 12. 11Key market developments and outlookInvestor Presentation, May 2013 Global markets remain volatile resulting in ongoinguncertainty and low visibility in EVRAZ’s keymarkets Full utilisation of Russian steel makingcapacities continues High level of North American steelmakingcapacity utilisation Finished goods inventories at our mills and salesnetwork remain at normal levels EVRAZ order book (Russian export sales) currentlyrepresents over 1.1 month’s production on average Iron ore prices have grown slightly since the endof 2012 while coking coal prices remain largely flat Ferrovanadium prices in Q1 2013 are at the level of$31/kg of contained Vanadium, higher than in 2012Raw material prices (domestic markets), $/tSource: Metal ExpertSteel product prices (domestic markets), $/t050100150200250300350400450Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13Scrap, Russia, CPT Scrap, USA, CPTIron ore concentrate, Russia, ExW Coking coal concentrate, Russia, FCA300400500600700800900Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13Slabs, Russia, FOB Far East Billets, FOB Black SeaPlate, USA, domestic, ExW Plate, Italy, import C&F
  13. 13. Appendix
  14. 14. 13 Safety remains a key priority Growth of LTIFR partially reflects morecomprehensive and accurate statistics and zerotolerance approach to concealment of accidents Falls and equipment related injuries contribute to42.5% of all LTI’s recorded in 2012 25 fatalities recorded in 2012 Company-wide programmes have been intensifiedin 2013: actions to ensure walkways at all facilities aresafe and do not create risks for employeesusing them on daily basis focus on working at heights’ safety measuresfor employees and contractorsHSE PerformanceFatalities* Calculated as the total number of work-related injuries (which resulted in the loss of work time)Lost Time Injury Frequency Rate (LTIFR)*1.862.232011 201213252011 2012Investor Presentation, May 2013
  15. 15. 142012 summaryInvestor Presentation, May 2013US$ million unless otherwise stated* EBITDA represents profit from operations plus depreciation, depletion and amortisation, impairment of assets, foreign exchange loss gain) and loss (gain) on disposal of property, plant and equipmentand intangible assets** As at 31 December 2012 and 2011 respectively; short-term debt includes short-term and current portion of long-term liabilities, comprising loans and finance lease, including those directly associatedwith disposal groups classified as held for sale*** Here and throughout this presentation segment sales data refer to external sales unless otherwise stated2012 2011 ChangeRevenue 14,726 16,400 (10)%EBITDA* 2,012 2,898 (31)%EBITDA margin 13.7% 17.7% (4)%Net profit/(loss) (335) 453 n.a.Operating cash flow 2,143 2,647 (19)%Capex 1,261 1,281 (2)%Net debt** 6,184 6,442 (4)%Short-term debt** 1,862 626 197%Steel sales volumes*** (‘000 t) 15,292 15,492 (1)%
  16. 16. 15Revenue drivers, $m Consolidated EBITDA by segment, $mConsolidated revenue by segment, $m2012 financial highlightsInvestor Presentation, May 2013 Decrease in revenue driven by a combination oflower steel and raw materials (iron ore andcoking coal) prices as well as by lower miningsales volumes 2012 EBITDA affected by weak performance ofmining segment as a result of lower volumes andlower average sales prices for iron ore andcoking coal1,262 1,3261,62862222(19)197189(211)(106)2,8982,0122011 2012Eliminations andunallocatedOther operationsVanadiumMiningSteel16,400(171)(933)(273) (168)(139)10 14,72612,00013,00014,00015,00016,00017,000Revenue2011Volumes,steelPrices,steelVolumes,miningPrices,miningVanadium OtherrevenueRevenue201214,717 13,5433,7842,6506655209661,046(3,732) (3,033)16,40014,7262011 2012EliminationsOther operationsVanadiumMiningSteel
  17. 17. 16Steel products: sales by marketInvestor Presentation, May 2013kt $m6,7222,7663,0201,5628495736,5702,7463,2491,450802475Russia Americas Asia Europe CIS Africa & RoW201120125,4433,2761,9881,3487164865,1263,0931,9091,006645357Russia Americas Asia Europe CIS Africa & RoW20112012
  18. 18. 17Cash cost**, slabs & billets, $/tConsolidated cost of revenues by cost elementsFocus on cost efficienciesInvestor Presentation, May 2013 Lower raw material costs (-20%) due to lower purchase prices of iron ore, coking coal and scrap Growth of intragroup re-rolling of slabs led to 39% decrease of cost of purchased semi-products Cost of goods for resale increased by 55%, as third party products were purchased to meet the demand Savings of $49m on the back of increased proprietary power generation. Currently 42% of electricityconsumption in Russia and Ukraine are self-covered Growth in depreciation due to revaluation of mineral reserve base at Yuzhkuzbassugol Increase in other costs was driven by destocking at 2012 year-endSource: Management accountsItem 2012 2011 ChangeRelativechangeCost of revenue (11,797) 100% (12,473) 100% 676 (5)%Raw materials, incl. (4,091) 35% (5,137) 42% 1,046 (20)%Iron ore (681) 6% (873) 7% 192 (22)%Coking coal (1,050) 9% (1,389) 11% 339 (24)%Scrap (1,570) 13% (1,943) 16% 373 (19)%Other raw materials (790) 7% (932) 8% 142 (15)%Semi-finished products (483) 4% (788) 6% 305 (39)%Auxiliary materials (1,006) 9% (947) 8% (59) 6 %Services (665) 6% (674) 5% 9 (1)%Goods for resale (632) 5% (407) 3% (225) 55 %Transportation (740) 6% (694) 6% (46) 7 %Staff costs (1,765) 15% (1,628) 13% (137) 8 %Depreciation (1,100) 9% (1,015) 8% (85) 8 %Electricity (551) 5% (600) 5% 49 (8)%Natural gas (416) 3% (427) 3% 11 (3)%Other costs* (348) 3% (156) 1% (192) 123 %* Includes auxiliary materials, services, goods for resale, taxes, change in WIP and FG** Average for Russian steel mills, integrated cash cost of production, EXWThe data in this chart is derived from the unaudited monthly management accounts of EVRAZ in respect of the periods indicated above416 408375 374458437406427H1 2011 H2 2011 H1 2012 H2 2012SlabsBillets
  19. 19. 18Cost structure of Vanadium segment, $mCost structure of Mining segment, $mCost structure of Steel segment, $mCost Structure by SegmentInvestor Presentation, May 201321% 18%16%14%16%14%7%6%6%4%4%5%8%10%4%4%8%9%10%16%12,37511,1542011 2012OtherEnergyDepreciationStaff costsTransportationSemi-finished productsOther raw materialsScrapCoking coalIron ore52%40%12%13%5%5%12%14%19%28%6104942011 2012OtherEnergyDepreciationStaff costsRaw materials12% 6%12%12%22%24%22% 26%11% 11%21% 21%2,363 2,3062011 2012OtherEnergyDepreciationStaff costsTransportationRaw materials
  20. 20. 19Performance by RegionsInvestor Presentation, May 2013EBITDA, EVRAZ South Africa, $m* Consolidated EVRAZ plc EBITDA also includes Unallocated EBITDA of $(243)m in 2011 and $(199)m and $(1)m other regions in 2012** EVRAZ North America includes EVRAZ Inc. NA, EVRAZ Inc. NA Canada, Stratcor; EVRAZ Ukraine includes EVRAZ DMZP, Sukha Balka and coking plants; EVRAZ Europe includes EVRAZPalini e Bertoli, EVRAZ Vitkovice Steel, Nikom and attributable trading marginEBITDA, EVRAZ Europe, $mEBITDA, EVRAZ Ukraine, $mEBITDA, EVRAZ Russia, $m EBITDA, EVRAZ North America, $m2,4581,9522011 20124653402011 2012114(2)2011 201278(11)2011 201226(67)2011 2012
  21. 21. 202012 FCF generation Positive cash flow despite market weakness Working capital release of $441m (excluding income tax) due to falling cost of inventory, improved recoverabilityof taxes and related party receivables 2012 cash flow generation supported by proceeds from EvrazTrans sale ($306m) and disposal of other smallnon-core businesses No final dividend payment for 2012 to retain financial flexibility in an uncertain environmentInvestor Presentation, May 2013* In 2012, includes interest paid, covenant reset charges, realised gain on swaps and interest income2,012 (12) 2,000441 (298)2,143 (478)(1,261)306 60 10 780EBITDA 2012 Non-cash items EBITDA (excl.non-cash items)Changes inworking capital(excl. incometax)Income tax paid Cash flows fromoperatingactivitiesInterest andsimilarpayments*Capex Proceeds fromsale ofEvrazTransCF from otherinvestingactivities (excl.term bankdeposits andinterestreceived)Collateral underswapsFree cash flowFree cash flow generation in 2012, $m
  22. 22. 21Liquidity and debt maturity profile Major 2013 maturities are already paid-out and $950 million PXF facility pre-paid in full Successful placement of $1 billion Eurobond issue in April 2012 maturing in 2020 and bearing 6.5% p.a. Continuous focus on debt portfolio optimisation: RUB bond proceeds are swapped into USD to decrease overall debt service costs average weighted interest (including effect of cross currency swaps) decreased from 7.4% in 2010 to 6.2% in 2012 successful consent solicitation exercise in 2012 generally harmonised covenant packages in the outstandingEurobonds Public debt is 68% (40% - Eurobonds, 28% - Rouble bonds) and bank loans are 32% of total debt Debt composition: USD – 66%, synthetic USD – 28%, EUR – 5%, other – 1% Deleveraging continues to be the key target for the medium termInvestor Presentation, May 2013* Weighted average cost of debt** Principal debt (excl. interest payments)Debt** maturities schedule (as at 31 December 2012), $mDebt cost* and average maturity2. 31/03/11 30/06/11 30/09/11 31/12/11 31/03/12 30/06/12 30/09/12 31/12/12%(LHS)Years(RHS)
  23. 23. 22EBITDAInvestor Presentation, May 2013US$ million31 December201231 December2011Consolidated EBITDA reconciliationProfit from operations 243 1,860Add:Depreciation, depletion and amortisation 1,259 1,153Impairment of assets 413 104Loss on disposal of property, plant & equipment 56 50Foreign exchange (gain) loss 41 (269)Consolidated EBITDA 2,012 2,898
  24. 24. 23Net debtInvestor Presentation, May 2013US$ million31 December201231 December2011Net debt calculationAdd:Long-term loans, net of current portion 6,373 6,593Short-term loans and current portion of long-term loans 1,783 613Finance lease liabilities, including current portion 13 39Loans of disposal groups classified as held for sale 79 -Less:Short-term bank deposit (674) (2)Cash and cash equivalents (1,320) (801)Cash of disposal groups classified as held for sale (70) -Net debt 6,184 6,442
  25. 25. 24Quarterly steel products output by assetsInvestor Presentation, May 2013Russia, Kt North America, KtEurope, Kt South Africa, Kt1,050 949 1,122 970 1,1731,069 1,0371,1271,049993435356269250261104 84 747164150 1381201321492,807 2,564 2,713 2,472 2,64005001,0001,5002,0002,5003,0003,5004,0004,500Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013Semi-finished products Construction products Railway productsFlat-rolled products Other steel83 79 79 90 82117 134 114 126 122261 254 239 214 281206 211 210 245231666 678 642 676 71702004006008001,0001,200Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013Construction products Railway products Flat-rolled products Tubular products17 26 26 14269243 207 200 2288234 45294267 237 230247050100150200250300350400450500Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013Construction products Flat-rolled products Other steel products12 3564127 45 4170663571 74101446 914812466123 124050100150200250300Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013Semi-finished products Construction products Flat-rolled products Other steel
  26. 26. London +44 207 832 8990Moscow +7 495 232