Ubs russian equities conference


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Ubs russian equities conference

  1. 1. UBS Russian Equities Conference Alexander Frolov Chairman of the Board September 14, 2006 Moscow
  2. 2. DisclaimerThis 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 part ofthis document, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investmentdecision 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 orrepresentatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or itscontents 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 professionalsfalling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worthcompanies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons togetherbeing 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, 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 to obtainnecessary regulatory approvals and licenses, the impact of developments in the Russian economic, political and legal environment, volatility in stockmarkets 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 inwhich Evraz Group S.A. will operate in the future. By their nature, forward-looking statements involve risks and uncertainties because they relate toevents 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 whichthey are made, and Evraz expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statementscontained herein to reflect any change in Evraz’s expectations with regard thereto or any change in events, conditions or circumstances on which anysuch 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. 1
  3. 3. Top Russian Steel ProducerEvraz Group’s main locations Top Russian steel producers Output of Russian assets Russian (mt) Main ranking Company 2003 2004 2005 products Vitkovice Steel 1 Evraz Group 13.9 13.7 13.8 Long Palini e Bertoli 2 MMK 11.5 11.3 11.3 Flat/long Stratcor 3 Severstal 9.9 10.4 10.8 Flat/long 4 NLMK 8.9 9.1 8.4 Flat 5 Mechel 4.6 5.5 4.6 Long/flat Source: Chermet, Evraz Note: Crude steel output Highveld (24.9%) Stratcor St. Petersburg Moscow N.Novgorod Kiev Lipetsk KGOK VGOK SurgutSteel mills Perm Stary Oskol Neryungriugol Samara NTMKIron ore mining Yekaterinburg Penza Tomsk OmskCoal mining Chelyabinsk Bratsk Kemerovo Mine Krasnoyarsk 12 NovosibirskSea ports Novokuznetsk Raspadskaya Nakhodka Yuzhkuzbassugol Sea Port ZapSib IrkutskService Centres NKMK EvrazRudaVanadium 2
  4. 4. Vision and Strategic GoalsEvraz Group’s Vision is to be a world class steel and miningcompany and one of the Top 5 most profitable steelmakers globally by ROCE and EBITDA margin through: Leadership in CIS construction and railway steel product markets Strengthened positions in global flat product markets Lowest costs secured by superior efficiency and 100% self- sufficiency in raw materials Growing vanadium business 3
  5. 5. Well-positioned in High Growth Domestic Market Russian market share by volume, 2005 Construction growth in Russia and CIS continues to outperform GDP growth 100% 100% 84% Russian sales remain high with #1 contribution of more than 60% in revenue 75% #1 Stable and favorable Russian pricing 50% 49% environment supports sustainability of #1 30% 28% earnings 25% #1 #2 Evraz’s market share remains strong and 0% growing Rails H- C hannels Rebars Wheels Beams Source: Evraz estimates Steel Consumption Growth Structure Russian Sales Product Mix 2005, 000 tonnes 39.9 37.3 mln t 33.4 35.1 31.6 18% 30.5 295 Pipes 259 255 1,277 20% 43% 42% Long Products 2,716 1,537 39% 38% Flat Products Semi-finished steel Railway sector Construction sector Mining sector 2005 2006F 2007F 2008F 2009F Plates Other 2010FSource: Evraz estimates 4
  6. 6. Growing Overseas BusinessOne of the world largest players on commercial slab market with 5.2 mln tonnes productioncapacitySecure customer base for low-cost slab produced in RussiaStrong position in growing premium and standard plate markets in Central and South Europedue to successful integration of Vitkovice Steel (Y2005 - 853,000 tonnes) and Palini e Bertoli(Y2005-350,000 tonnes) Non-Russian Sales Product Mix 2005 Slab pricing vs. plate pricing‘000 tonnes 1000 900 4,680 800 700 600 50 500 400 109 431 300 1,252 200 Semi-finished steel Railway sector 100 Construction sector Plates O ther 0 3 4 5 6 03 04 05 06 3 4 5 6 03 04 05 l0 l0 l0 l0 r0 r0 r0 r0 n n n n Ju Ju Ju Ju ct ct ct Ap Ap Ap Ap Ja Ja Ja Ja O O O EU export fob plate Black Sea slab Source: SBB 5
  7. 7. Integrated Business Model One of the lowest cost producers of steel in Russia and CIS High level of vertical integration and self-sufficiency in iron ore and coal Vertically integrated business model of Evraz ensured that feedstock costs rose only by 13% against 33% rise in steel sector in Y2005 Feedstock Coverage Benefit of Vertical Integration 160% 300 $/t + 33% 19 140% 29 External 9 1 120% 200 12 149% Internal 100% + 13% 14% 1) 1) 220 277 80% 100 208 195 60% 40% 86% 0 2004 2005 20% Benefit from vanadium slag sales 3) 0% Benefit from integration into mining 4) Pro forma benefit from YuKU consolidation 5) Iron ore Coal Consolidated steel products cost per tonne 2)1) Steel segment cost per tonne estimated as (Revenue from steel products only – (Steel segment EBITDA - Vanadium slag sales) - Transport expense in Steel segment COS (export) - Steel segment Selling and Distribution costs) / Total steel products shipments2) Consolidated steel products cost per tonne estimated as steel segment cost per tonne less benefits from vanadium slag sales, integration into mining and YuKU consolidation3) Estimated as vanadium slag sales over total steel products shipments4) Estimated as (Mining segment EBITDA + Profit from associates (coal assets)) / Total steel products shipments5) Assumed additional profit from associates due to pro forma consolidation of YuKU from January 1, 2005, actual consolidation effective December 30, 2005* Calculated as of December 31, 2005. Data do not include recent acquisitions Source: Evraz 6
  8. 8. Growing Vanadium BusinessBest strength-to-weight ratio of common engineering materials With 0.1% addition of vanadium in structured steel, strength can be increased by 10 to 20%; structures’ weight can be reduced by 15 to 25%Steel industry (90%) World Vanadium Market High strength low alloy (HSLA) Steels Full Alloy Steels Chemicals, Tool Steels / Stainless Steel 3% Alloys, 7% Carbon Steels Sheet, 27%Airspace industry (7%) Bars, 9% Titanium alloys for jet engine parts, airframes, rockets, nuclear New alloys for modern aircrafts Sections, 14% and jets totals 20% of the weight (A380 and B787)Chemicals and Batteries (3%) Catalyst for sulphuric acid and plastics Dietary, glasses, pigments Plate, 40% Source: CRU 7
  9. 9. Building Global Vanadium BusinessIn August, Y2006 Evraz acquired 72.8% in Strategic Minerals Corporation (Stratcor)The acquisition gave access to finished vanadium market, brought significant technical know-how allowing Evraz to capitalise on strong trends in vanadium marketIn July, Y2006 Evraz acquired 24.9% in Highveld from Anglo American Stratcor Highveld Strategic Minerals Corporation, one of the Highveld Steel and Vanadium, a leading worlds leading producers of vanadium alloys vanadium and long steel products, as well as and chemicals for the steel, chemical, and ferroalloys and carbonaceous products titanium industries producer Y2005: Y2005: Revenues – $258 mln Revenues – $1,124 mln EBITDA - $108 mln EBITDA - $510 mln Plant in Arkansas, USA with total capacity of In 2005 Highveld sold: 5,400 tonnes of V2O5 equivalent per year. 0.7 mln tonnes of steel products, Main products are Vanadium Chemicals and FeV 4,407 tonnes of V2O5, Plant in South Africa with total capacity of 1,750 tonnes of FeV and FeV Nitride (in V), 6,350 tonnes of V2O5 equivalent per year. 1,117 tonnes (in V2O5) of Vanadium Main product is Nitrovan® Chemicals 8
  10. 10. Expanding Interest in CoalEvraz owns 49% beneficial interest in OAO Raspadskaya, the second-largest coking coalcompany in RussiaIn June 2006, OAO Raspadskaya completed acquisition of two mining assets:Mezhdurechenskaya Coal Company-96 and Razrez Raspadsky with fair value of $769 mlnEvraz provided $225 mln in cash plus $300 mln in short-term financial guarantees forOAO RaspadskayaProved and Probable Reserves, mln tonnes Target Output, mln tonnes 18 16 14 CAGR = 12% 6.0 M UK-96 and 12 10 Razre z 8 3.3 304 Old 6 Raspadskaya 11.0 4 478 6.4 2 0 2005 2010 Raspadskaya MUK-96 & Razrez Source: IMC Reserve Audit Report 2006 Source: OAO Raspadskaya 9
  11. 11. 1H 2006 Trading Update Pig Iron Crude Steel Rolled Products, ‘000 tonnes ‘000 tonnes ‘000 tonnes 459 447 217 organic +14% Vitkovice 7,999 P&B +7% 7,008 7,126 6,381 6,003 +19% 5,951 1H2005 1H2006 1H2005 1H2006 1H2005 1H2006Average Russian Market Prices for Long Products Non-Russian Prices for Slabs & Billets 600950 500800 400650 300500 200350 100200 0 Aug-03 Nov-03 Fe b-04 May-04 Aug-04 Nov-04 Fe b-05 May-05 Aug-05 Nov-05 Fe b-06 Ma y-06 Aug-03 De c-03 Apr-04 Aug-04 De c-04 Apr-05 Aug-05 De c-05 Apr-06 H-beams (50B) Channels Angles Rebars Bille t (FOB, Fa r Ea st) Sla b (FOB, Fa r Ea st) Source: Evraz market estimates Source: Metal Courier 10
  12. 12. +7 495 232-1370