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- 1. EVRAZ GROUP S.A. FY 2006 01 Preliminary Results EVRAZ GROUP Lehman Brothers Conference Leaders in Energy and Commodities 3-5 June 2008
- 2. Disclaimer 02 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.
- 3. Evraz at a Glance 03 ◦ World class steel and mining company with the strategy to be one of the top five most profitable steelmakers globally by ROCE and EBITDA* margin ◦ Leader in the construction and railway steel product markets in Russia and CIS ◦ Global player with strong position in flat product markets of Europe and the US ◦ One of the lowest cost producers of crude steel in Russia and CIS ◦ Vertically integrated business with 87% self-coverage of iron-ore and 100% self- coverage in coking coal in 2007 ◦ Leading global vanadium producer ◦ Production of 16.4 million tonnes of crude steel in 2007 ◦ Consolidated revenues of US$12.8 billion in 2007 and US$8.3 billion in 2006 ◦ EBITDA* of US$4.3 billion in 2007 and US$2.6 billion in 2006 ◦ Multiple upgrades from S&P, Fitch and Moody’s * Adjusted EBITDA represents profit from operations plus depreciation and amortisation, impairment of assets and loss (gain) on disposal of PP&E
- 4. Evraz Strategy 04 Our Vision is to be a world class steel and mining company and one of the Top 5 most profitable steelmakers globally by ROCE and EBITDA margin Advance long product leadership in 2007 EBITDA per Tonne of Steel Sales Russia and CIS US$ 600 514 Enhance cost leadership position 500 387 400 Expand presence in international 325 300 plate markets 260 216 214 197 190 200 180 178 167 144 139 Complete vertical integration and 88 100 63 competitive mining platform 0 Nucor Achieve world leadership in vanadium POSCO Baoshan Steel ArcelorMittal Mechel Steel Maanshan Steel NLMK China Steel MMK US Steel Gerdau Usiminas Nippon Steel Evraz CSN business Sources: IISI, Renaissance Capital estimates
- 5. Leveraging Presence in Attractive Markets 05 ◦ Russia remains key market with 46% share in FY07 Steel Segment Revenue by Products revenue US$ mln ◦ European sales advanced by 43% driven by 496 583 837 2,480 Semi-finished products Construction products higher prices, a 9% steel volume increase and 702 Railw ay products vanadium sales Flat-rolled products ◦ Strong growth in sales in North America to 1,968 Tubular products Other steel products US$2,140 mln or 17% of total revenues due to 3,670 Vanadium Evraz OSM acquisition Other revenues 1,697 ◦ Asian sales almost flat y-o-y at US$1,882 mln Revenues by Region Steel Product Sales Volumes US$ mln ‘000 tonnes 15,960 14,000 12,808 18,000 16,476 365 950 778 12,000 575 664 15,000 14 1,894 1,612 2,165 10,000 8,292 1,630 2,140 12,000 2,290 36 8,000 344 4,153 1,410 1,882 9,000 6,000 340 5,122 1,945 6,000 4,000 5,952 7,601 2,000 4,217 3,000 5,457 0 0 2006 2007 2006 2007 Russia A sia A mericas Europe CIS A f rica & RoW Semi-f inished products Construction products Railw ay products Flat-rolled products Tubular products Other steel products
- 6. Steel: Yielding on Russian Demand Growth 06 ◦ Russian steel revenue grew by 41% fuelled by a domestic construction boom and strong pricing ◦ Steel sales volumes increased by 7.7% to 7.6 mln tonnes and selling price averaged US$664/tonne ◦ Russian construction sales: revenues expanded by 71% on the back of 23% increase in sales volumes ◦ Railway products: revenues grew by 37% with sales volumes increasing by 13% Russia: Composition of Steel Revenue by Products Russian Steel Sales Volumes 5,590 US$ mln ‘000 tonnes 7,602 5,500 398 8,000 7,056 574 145 5,000 348 7,000 763 404 4,500 3,943 268 6,000 359 4,000 1,576 303 1,111 146 1,399 3,500 5,000 359 3,000 195 4,000 2,500 811 2,962 3,636 2,000 2,646 3,000 1,500 2,000 1,548 1,000 1,000 500 1,573 1,412 580 675 0 0 2006 2007 2006 2007 Semi-f inished Construction Railw ay Flat Other steel V anadium Other Semi-f inished Construction Railw ay Plates Other
- 7. 2007 Construction Steel Market in Russia 07 ◦ Russian and CIS steel consumption per capita remains below global benchmarks ◦ Rebar market increased by 30% in 2006 and by 23% in 2007 ◦ Sections market grew by 32% in 2007 due to increased investments in industrial and infrastructure constructions with strong demand for H-beams and channels, Evraz leadership products ◦ Steel usage in construction is expected to increase from 75 kg per m2 to 93 kg per m2 due to higher volumes of monolithic buildings Rebar Market in Russia Sections Market in Russia ‘000 tonnes ‘000 tonnes 7,000 4,000 3,800 5,886 6,000 3,500 2,886 5,000 4,860 3,000 2,715 2,516 2,500 4,000 3,730 3,276 2,000 3,000 1,500 2,000 1,709 912 1,357 800 1,000 1,000 500 0 0 2004 2005 2006 2007 1 Q 2 0 0 7 1 Q2 0 0 8 2004 2005 2006 2007 1 Q 2 0 0 7 1 Q2 0 0 8 Source: Evraz market estimates
- 8. Strong Pricing Environment to Continue 08 Average Prices in Moscow Region US$/tonne 1,600 1,450 1,300 1,150 1,000 850 700 550 400 250 100 6 06 06 06 06 06 06 06 6 06 6 0 6 0 7 0 7 0 7 0 7 07 0 7 0 7 0 7 0 7 0 7 0 7 0 7 0 8 8 08 8 08 -0 - - - - - l- - -0 - -0 - - - - r- - - l- - - - - - - -0 - r -0 - J an F eb ar Ap r ay J un J u Au g S ep O ct N ov D ec J an Feb M ar Ap M ay J un J u Au g S ep O ct N ov D ec J an Feb M ar Ap M ay M M H-beams Rebars (CPT, Moscow) Channel 10-16 (CPT, Moscow) Turkey Rebars, export (FOB) Source: Evraz market estimates
- 9. Steel: Non-Russian Business Overview 09 ◦ European revenue grew by 38% to US$1,894 mln on the back of strong pricing environment and contribution from vanadium products sales ◦ North American sales increased strongly from US$340 mln to US$2,140 mln on Evraz OSM acquisition with steel sales increased by 162% to 1.86 mln tonnes of higher margin products ◦ Asian sales volumes decreased by 32% in FY07 with revenues almost flat y-o-y at US$1,882 mln ◦ CIS revenues expanded by 67% to US$577 mln in FY07 Composition of Revenue by Products Steel Sales Volumes by Region US$ mln ‘000 tonnes 3,813 2,500 4,000 2,279 3,500 2,000 1,806 1,698 3,000 1,500 2,500 2,017 1,860 1,020 2,000 1,000 881 695 1,500 579 582 1,000 739 500 394 147 96 133 500 1 0 0 Semi- Construction Railw ay Flat-rolled Tubular Other steel CIS Europe A mericas A sia A f rica f inished products products products products products products Semi-f inished Construction Railw ay 2006 2007 Flat-rolled Tubular Other
- 10. Au 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 950 1,000 1,050 1,100 g-0 3 Oc t-0 De 3 c- 0 US$/tonne Fe 3 b- 04 Ap r- 0 Ju 4 n- 0 Au 4 g-0 4 Oc t-0 De 4 c- 0 Fe 4 b- 05 Ap r- 0 5 Ju n- 0 Billet Au 5 g-0 5 Oc t-0 De 5 c- 0 *Prices has shown on Far East FOB basis except Jan-Jul 07 (Black Sea FOB) Fe 5 b- 06 Ap r- 0 Ju 6 n- Slab 06 Au g-0 6 Oc t-0 Semi-products prices spike De 6 c- 0 Fe 6 b- 07 Ap r- 0 Ju 7 n- 07 Au g-0 7 Oc t-0 De 7 c- 0 Fe 7 b- 08 Ap r- 0 8 010
- 11. Vanadium: Capturing Market Momentum 011 ◦ Vanadium business contributed US$583 mln to revenues ◦ Russian vanadium slag sales volumes increased by 9% to 10,840 tonnes* ◦ Volumes of vanadium in alloys & chemicals sold amounted to 11,290 tonnes* ◦ Recent spike in prices will further drive business growth Vanadium Sales by Products Vanadium Market Price** US$/tonne 100,000 US$ mln 90,000 167 80,000 70,000 60,000 50,000 40,000 30,000 416 20,000 Vanadium in slag 10,000 Vanadium in alloys & chemicals 0 Jan- Mar- May- Jul- Sep- Nov- Jan- Mar- May- Jul- Sep- Nov- Jan- Mar- May- 06 06 06 06 06 06 07 07 07 07 07 07 08 08 08 Source: Metal Bulletin * Metric tonnes of vanadium equivalent ** Per tonne of Vanadium in Ferro-vanadium products at major European destinations
- 12. Mining: Hedging Steel Segment Costs 012 Mining Segment Performance US$ mln ◦ EBITDA increased by 52% to US$633 mln 2,000 ◦ 18.8 mln tonnes iron ore output covered 1,500 1,901 87% of total ore consumption ◦ Coking coal production fully covered* steel 1,000 1,147 segment requirements for coal 500 415 633 0 2006 2007 Revenues EBITDA Coking Coal Production Iron Ore Production ‘000 tonnes 453 ‘000 tonnes 20,000 1,350 2,415 2,737 4,049 15,000 5,683 5,506 10,000 5,000 8,949 9,257 4,517 0 2006 2007 Raspadskaya Yuzhkuzbassugol Mine 12 Kachkanarsky GOK Evrazruda Vysokogorsky GOK Highveld * 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
- 13. Ukraine: Diversifying into One of the Lowest 013 Cost Producing Regions ◦ Integrated steel mill, located in the proximity to iron ore resources and key markets ◦ 3 blast furnaces with annual capacity of 1.8 mln tonnes of hot iron ◦ 3 converters with 2007 crude steel production of 1.3 mln tonnes ◦ Total sales in 2007 amounted to 1.4 mln tonnes of products Dnepropetrovsk Coke Bagley Coke ◦ Sukha Balka iron ore mining and processing complex Dneprodzerzhinsk Coke ◦ 2 underground iron ore mines with 30 years of estimated reserve Dnepropetrovsk life Metal Works ◦ 2007 sales of 2.85 mln tonnes of lumpy ore (57.7% of Fe) Sukha Balka ◦ FY08 expected cash cost is US$32 per tonne of lumpy ore ◦ 3 coking plants (Bagley Coke, Dnepro Coke, Dneprodzerzhinsk Coke ) ◦ total annual capacity of 3.52mln tonnes of metallurgical coke ◦ built and reconstructed in 1985-1992 ◦ 2007 production of 2.0 mln tonnes of coke Dnepropetrovsk Metal Works Sales Mix Sukha Balka Iron Ore Sales ‘000 tonnes ‘000 tonnes 1,500 3,500 509 3,000 1,200 335 328 2,500 900 2,000 3,400 600 844 737 1,500 3,028 2,854 878 1,000 300 500 209 249 133 0 0 2006 2007 2008F Pig iron Semis Construction 2006 2007 2008F
- 14. North American Operations: Exposure to 014 Infrastructure and Energy Markets ◦ In January 2008, Evraz acquired shares in Claymont Steel for cash consideration of US$422 mln ◦ Leading integrated producer of custom steel plate on the East Coast of the USA with 450,000 tonnes capacity ◦ In March 2008, Evraz signed an agreement to acquire IPSCO's Canadian plate and pipe business for an anticipated net amount of EOSM US$2.3 bln Red Deer Calgary ◦ 1 mln tonnes of crude steel capacity; own scrap collecting facilities Regina ◦ 3 tubular mills with annual capacity of 1.2 mln tonnes of OCTG and EOSM LD pipes EOSM Claymont ◦ Strong synergies expected from business combination with existing Steel facilities in North America Stratcor ◦ Acquisition remains subject to regulatory approvals IPSCO Canada 2007 Product Mix Announced North American Pipeline Expansions ‘000 tonnes miles 5,000 4,753 4,313 3,974 4,000 3,353 ERW pipe, Plate/Coil, 3,000 303 379 2,410 2,000 1,000 0 LD pipe, 351 2008F 2009F 2010F 2011F 2012F Source: IPSCO Tubulars, Claymont/ market data Source: Canadian Energy Pipeline Association, Interstate Natural Gas Association of America and IPSCO Tubulars management estimates
- 15. Delong Holdings 015 ◦ In February 2008, Evraz signed an agreement to acquire up to 51% of Delong Holdings ◦ 3.0 mln tonnes integrated modern HRC mill located in Hebei province in 400 km from Beijing and from the sea ports ◦ 850 mm and 1,250 mm wide strip coils used mostly in pipemaking ◦ Second lowest cost HRC producer in China in 2006 ◦ 2007 revenue and EBITDA amounted to US$1,021 mln and US$135 mln respectively ◦ The deal is subject to further regulatory approvals Delong Shipments Delong Location in China ‘000 tonnes 3,500 3,000 3,000 2,382 2,500 2,000 1,692 1,420 Delong Holdings 1,500 1,000 500 0 2005 2006 2007 2008F
- 16. Investments in Rolled Capacity Expansion 016 Implementation of US$1.8 billion investment programme in 2008-2012 announced in May 2008 is to result in additional 3 million tonnes of rolled products (+40% to 2007 volumes) supplied to the Russian market Production of railway products: ◦ Wheel-rolling mill reconstruction at NTMK: US$215 million; 580,000 wheels p.a. ◦ Rail production reconstruction at NTMK: €375 million, up to 950,000 t of rails p.a. ◦ Rail production reconstruction at NKMK: €125 million, up to 750,000 t of rails p.a. Production of long products: ◦ Construction of small section rolling mill 320 at the existing production facilities of NKMK: US$80 million, capacity: 400,000 tonnes of rebars and wire rod p.a. ◦ Construction of a section rolling mill in Bratsk, Irkutsk region Zapsib: US$80 million, capacity: 400,000 tonnes of rebars p.a. ◦ Construction of small section mill 350 at the site of the Kostanaisk diesel engine plant in Kazakhstan (approx 200 km from Chelyabinsk): US$160 million, 600,000 tonnes p.a.(rebars, channels, angles) Production of flat-rolled products: ◦ Construction of a heavy plate mill Quarto 3600 at Zapsib: US$500 million, 1st stage – 800,000- 850,000 tonnes p.a.; 2nd stage - 1-1.2 million tonnes p.a.
- 18. World Steel Production and Consumption 018 ◦ In 2007 world crude steel output increased by 7.5% to 1,343.5 mln tonnes ◦ China’s steel production in 2007 grew by 15.7% to 489 mln tonnes. Without China world crude steel production would have only grown at 3.3%. ◦ According to IISI preliminary data, in 2007 China apparent steel use went up by 40.6 mln tonnes or by 11.4%. Brazil, Russia, India and Ukraine (BRIU) increased steel use by 19.4 mln tonnes in total and RoW – by 17 mln tonnes. 2007 World Crude Steel Production 2007 Apparent World Steel Use mln tonnes mln tonnes 1,400 1,250 13.2 1,343.5 19.4 15.8 1 ,1 9 7 9.8 4.0 1.2 1,200 1,300 66.3 40.6 1,250.2 1 ,1 2 0 1,150 1,200 1,100 1,050 1,100 1,000 1,000 950 900 900 850 800 800 2006 China BRIU Japan Others 2007 2006 China BRIU Japan Other 2007 Source: IISI Source: IISI
- 19. Global supply/demand balance 019 ◦ On the 12-month rolling basis, the capacity utilisation is around 87%, representing virtually full capacity utilisation. ◦ World ex China demand has been growing by some 5-6% per year over the past four years Global Steel Operating Rates World Excluding China: Supply and Demand Growth (kt) (%) 1600 30% 20.0% est 1400 25% 15.0% 1200 20% 10.0% 1000 800 15% 5.0% 600 10% 0.0% 400 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 5% -5.0% 200 0 0% -10.0% 1995 1997 1999 2001 2003 2005 2007E -15.0% Surplus effectiv e capacity Global apparent demand ov ercapacity Apparent demand growth ex China Trend growth Source : Credit Suisse estimates Source : Credit Suisse estimates
- 20. Outlook 020 ◦ Consolidated revenues are expected to increase in 1H08 by 60-65% vs. US$6,053 mln in 1H07 EBITDA is expected to grow to apx. US$3,050 mln in 1H08 vs. US$2,050 mln in 1H07 1Q EBITDA amounted to US$1,393 mln ◦ FY08 capital investments are budgeted at US$1,070 mln ◦ Investment capex: US$545 mln Maintenance capex:US$523 mln ◦ Numbers to be revised following completion of IPSCO Canada and Delong Holdings acquisitions FY08 Expected Production 1H08 Expected EBITDA Composition ‘000 tonnes 25,000 US$ mln 346 20,000 369 5,500 768 15,000 23,000 10,000 10,500 329 18,900 18,700 5,000 4,600 1,234 0 Coal Iron ore Vanadium Coal Iron ore Crude steel Steel products Russian steel Non-Russian steel * Coal production includes 10.5 mln tonnes of coking coal, 4.6 mln tonnes of steam coal and 40% of Raspadskaya 2008F output Iron ore output includes Sukha Balka ¾ 2008F production. Crude steel and steel products includes output from existing assets, impact from consolidation of Claymont Steel and ¾ of Dnepropetrovsk Metal Woks 2008F output. Steel products also includes pig iron sales from Russian mills.
- 21. Evraz’s Global Business 021