Evraz Plc · LSE:EVR
Evraz — Investor Day (June 2014)
61 slides from Evraz's investor day presentation, Jun 11, 2014
Slide 1: EVRAZ Investor Day
EVRAZ Investor Day 11 June 2014, London
Slide 2: Disclaimer
Disclaimer 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 plc (“EVRAZ”) or any of its subsidiaries in any jurisdiction (including, without limitation, EVRAZ Group S.A.)
Slide 3: Today's speakers
Today’s speakers Alexander Abramov Sir Michael Peat Alexander Frolov Giacomo Baizini Chairman Senior Independent Chief Executive Officer Chief Financial Officer Non-Executive Director Marat Atnashev Sergey Stepanov Ilya Shirokobrod Pavel Tatyanin Vice-President, Vice-President, Vice-President, Senio
Slide 4: Agenda
Agenda EVRAZ highlights Corporate governance EVRAZ strategy Coking coal business Iron ore business Russian steel business Railway products business North American business Capital management Investor Day 2014 3
Slide 5: EVRAZ highlights
EVRAZ highlights Alexander Abramov Chairman of the Board
Slide 6: EVRAZ highlights
EVRAZ highlights One of the largest vertically integrated steel and mining companies in the world Top-20 steel producer in the world based on crude steel production of 16.1 mt in 2013 Revenue of $14.4bn, EBITDA of $1.8bn in 2013 Leader in the Russian and CIS construction and railway product
Slide 7: Corporate governance
Corporate governance Sir Michael Peat Senior Independent Non-Executive Director
Slide 8: Board composition and corporate governance framework
Board composition and corporate governance framework EVRAZ plc Board of Directors Sir Michael Peat The majority of the Board (excluding the Chairman) Alexander Abramov Senior Independent Director, Chairman of is independent Chairman the Nominations Committee All Board committees are chaired by e
Slide 9: Committed to further improve corporate governance practices
Committed to further improve corporate governance practices The Board held 12 scheduled meetings in 2013 and 4 so far in 2014 with the major topics discussed being: Health and safety reports and plans Strategy Main investment projects’ implementation Compliance matters including the UK Bri
Slide 10: EVRAZ strategy
EVRAZ strategy Alexander Frolov CEO
Slide 11: EVRAZ strategic continuity
EVRAZ strategic continuity Our strategy fundamentals remain unchanged despite market challenges over the last 2 years EVRAZ Strategy Selective Growth Search for the most appealing investments to create value for shareholders EVRAZ Ongoing effort to maintain and enhance leadership positions i
Slide 12: Global steel industry outlook
Global steel industry outlook Global steel industry earnings are being driven by: excess steel capacity and low utilisation rates China steel overproduction and exports raw materials prices Reduction in new capacity coming on-line and continuing urbanisation of developing countries includi
Slide 13: Cautious view on raw material prices
Cautious view on raw material prices Iron ore market will be determined by: the rate of commissioning of new low-cost iron ore supply predominantly in Australia and Brazil Chinese marginal costs of domestic iron ore production global steel production growth rate Coking coal market will be
Slide 14: Core EVRAZ markets have growth potential
Core EVRAZ markets have growth potential Russian long steel market: low saturation of the housing market based on square meters per capita investment in infrastructure to modernise and compensate for previous underinvestment North American market of steel products for oil & gas industry: U
Slide 15: Reaction to market trends is based on EVRAZ strengths
Reaction to market trends is based on EVRAZ strengths Market Trends EVRAZ Strengths EVRAZ Response Steel industry Low cost and well invested steelmaking margins are below assets historic averages 1 Selective investments low risk / high return projects IRR > 40% size < $100m Neutral to nega
Slide 16: Delivering results on EVRAZ strategy
Delivering results on EVRAZ strategy EVRAZ Current Status Priorities Response 1 Selective Key development projects Low capex / fast Capex reduction, $m investments realised – investment cycle payback projects is nearly complete (rail mills’ focused on decreasing <900 604 upgrades, PCI projects i
Slide 17: Deleveraging is a priority
Deleveraging is a priority EVRAZ has demonstrated a EBITDA and Net debt, $bn consistent track record of decreasing net debt 3.6x 3.1x 3.1x 3.0x Net debt grew in 2013 due to consolidation of 7.2 2.3x Raspadskaya, while on a 6.8 6.5 6.4 like-for-like basis it 0.4 decreased by $300m to $6.1bn The
Slide 18: Safety and human development ensure sustainability of business
Safety and human development ensure sustainability of business Human capital HSE Development of employees to secure the long-term Safety remains a key strategic priority with target of stability of the business zero fatality incidents Successful productivity improvement Consistent reduction
Slide 19: Summary
Summary Our strategy fundamentals remain unchanged despite market challenges during last 2 years Global steel industry margins are low but have upside potential in the medium term Cautious outlook towards raw material prices Core EVRAZ markets in Russia and North America have growth potentia
Slide 20: Coking coal business
Coking coal business Sergey Stepanov Vice-President, Coal Division
Slide 21: Snapshot on Russian coking coal market
Snapshot on Russian coking coal market Sustainable domestic coking coal consumption at Russian coking coal concentrate consumption and net export, mt ~41 mtpa 63.3 63.6 60.9 58.1 Up to 30% of production is sold to export markets 22.1 22.4 15.5 19.4 (>20 mtpa) EVRAZ is the leader in the Russian
Slide 22: Coking coal business at a glance
Coking coal business at a glance Attractive portfolio of premium hard and semi-hard Map of coking coal operations coking coal grades (Zh+GZh, K, KO) Asset P&P reserves*, mt Yuzhkuzbassugol 504 Raspadskaya 1,365 Strong competitive position on coking coal cost Mezhegey 194 curve of Russian produce
Slide 23: Yuzhkuzbassugol: strong operational profile
Yuzhkuzbassugol: strong operational profile Main achievements Cash cost of coking coal concentrate, $/t EXW Kuzbass Shutdown / divestments of high cost mines 73 70 (Abashevskaya, Tagaryshskaya, Yubileinaya) (3) 55 Growth of mining volumes by 2.6 mt in 2013 (15) vs. 2012 Ramp-up of the Yerunako
Slide 24: Raspadskaya: attractive growth potential
Raspadskaya: attractive growth potential Main achievements Cash cost of coking coal concentrate, $/t EXW Kuzbass Synergies from Raspadskaya integration into EVRAZ 62 yielded $30m in 2013 55 Growth of output: (7) 48 (7) open pit Razrez Raspadsky Raspaskaya-Koksovaya mine new longwalls at Ra
Slide 25: Ramp-up of Raspadskaya underground mine
Ramp-up of Raspadskaya underground mine Gradual growth of production at Raspadskaya underground mine is on track with 2014 target of 4.2 mtpa and 5.5 mtpa in 2015 Main achievements Raspadskaya underground mine raw coking coal production volumes, mt 46 km of roadways built since May 2010 5.5 Lo
Slide 26: Update on Mezhegey project
Update on Mezhegey project The project is being implemented in anticipation of a Raw coking coal production outlook, kt grade Zh coal deficit in the medium term 2,000 2,000 World class coking coal deposit in the largest undeveloped coal region in Russia 194 mt P&P reserves of hard coking coal
Slide 27: Coking coal: new markets and products
Coking coal: new markets and products Increase in Russian market share through EVRAZ current and target markets in Eurasia enhancement of the quality of products (+1.4 mtpa of coking coal concentrate sales in 2014-2015 vs. 2013) Europe & Turkey Other China Asia Shift to the premium & semi-premiu
Slide 28: Summary
Summary Leading market positions in coking coal and good quality assets Cost cutting and optimisation plan to strengthen profitability Raspadskaya is a low cost growth story with capex being flexible and dependent on volumes Reinforced sales and marketing strategy Investor Day 2014 27
Slide 29: Iron ore business
Iron ore business Marat Atnashev Vice-President, Iron Ore Division
Slide 30: Iron ore business at a glance
Iron ore business at a glance EVRAZ KGOK is a large, stable low cost operation Map of iron ore operations organically integrated with EVRAZ NTMK Asset P&P ore reserves*, mt KGOK 8,225 Evrazruda 100 Evrazruda is re-emerging as a compact operation Timir** 682 after a major turnaround programme, fe
Slide 31: EVRAZ KGOK: focus on preserving low cost positions
EVRAZ KGOK: focus on preserving low cost positions Main achievements Cash costs of saleable iron ore products, $/t EXW Successfully delivered debottlenecking programme, 51 50 boosting crude ore production from 50 mtpa to 46 57 mtpa (vs. original target of 55 mtpa) Cost reduction initiatives: 5
Slide 32: Evrazruda: a turnaround story
Evrazruda: a turnaround story Main achievements Cash costs of saleable iron ore products, $/t EXW Asset restructuring programme completed: 102 96 81 2013: 6 mines with span over 600 km, 2 beneficiation plants, 9,962 employees, 4.4 mtpa 1 mine shutdown; 2 mines, a beneficiation plant and non-co
Slide 33: Timir project
Timir project JV between EVRAZ (51%) and Alrosa Project timeline 680 mt reserves @ 42% Fe suitable for open pit 2013 2014 2015 2016 2017 mining JV with Feasibility Start of Start of 3 mtpa run Located within 5 km from the railway, motorway and Alrosa study construction mining of mine power gri
Slide 34: Summary
Summary Iron ore requirements of EVRAZ NTMK are covered by EVRAZ KGOK for the foreseeable future at low costs After a major turnaround programme Evrazruda is re-emerging as a compact operation, ensuring c.40% of EVRAZ ZSMK’s needs at competitive costs Cost cutting and optimisation plans in pla
Slide 35: Russian steel business
Russian steel business Ilya Shirokobrod Vice-President, Railway Products Division
Slide 36: Russian steel business at a glance
Russian steel business at a glance Russian steel operations account for 74% of Map of steel operations in Russia EVRAZ’s total steel and steel products output Russian steelmaking assets are low cost and well invested Cash cost of EVRAZ NTMK’s slabs is one of the EVRAZ NTMK lowest in Russia EVR
Slide 37: Cost reduction initiatives at Russian steel mills
Cost reduction initiatives at Russian steel mills Main achievements Slab cash costs at EVRAZ NTMK, $/t 333 PCI project completed at EVRAZ NTMK (detailed 299 283 description on slide 37) Shutdown of inefficient/unprofitable production assets: Plate mill at EVRAZ ZSMK in 2013: NPV effect $30m 20
Slide 38: Outlook for maintenance and development capex
Outlook for maintenance and development capex Capex on Russian steel assets in the Capex EVRAZ NTMK, $m short-to-medium term will be limited 126 Key investment projects have been completed or nearing completion: 44 39 38 PCI projects at EVRAZ NTMK (completed in 2013) and EVRAZ ZSMK (Q3 2014) 2
Slide 39: Case studies: PCI projects at Russian steel mills
Case studies: PCI projects at Russian steel mills EVRAZ NTMK: Successful implementation of PCI EVRAZ ZSMK: PCI project is on track technology PCI technology is to be launched in Q3 2014 First successfully launched PCI project in Russia Most of $199m of total capex already spent Total cap
Slide 40: Unique proposition in construction long steel products
Unique proposition in construction long steel products EVRAZ benefits from wide proprietary distribution network in Russia 81% clients consider EVRAZ’s service the best in Russia (+6% y-o-y)* Loyalty level of steel traders and end users increased to 85% (+3%)* Share of permanent clients is 8
Slide 41: Potential for growth of steel products share in construction
Potential for growth of steel products share in construction Overall share of steel frame buildings in Russia is Share of buildings using steel frame in 2013* expected to almost double from current 12% to 68% 20% by 2020 65% 65% 48% Potential for growth of the steel beam market by 30% 26% 200 kt
Slide 42: Summary
Summary Low cost assets with further potential for cost position improvements Reduced development capex going forward, selective implementation of investment projects Leading market positions in Russia across construction steel products Further potential for wider usage of steel in construct
Slide 43: Railway products
Railway products Ilya Shirokobrod Vice-President, Railway Products Division
Slide 44: Rails: a high margin business
Rails: a high margin business No 1 position in the Russian and North American Asset Location Capacity, kt Rails rail markets EVRAZ ZSMK Russia 950 Head-hardened rail mill Low-temperature Product portfolio has been expanded through High speed development of new high tech products 100 mete
Slide 45: Rails are a well invested product line across geographies
Rails are a well invested product line across geographies C.$630m invested in EVRAZ’s railway facilities Rail mill CAPEX NPV IRR modernisation projects $m $m % globally to improve quality and increase output of rails EVRAZ ZSMK 520 577 23 Capacity increased by 350 ktpa in Russia and EVRAZ NTMK 7
Slide 46: Opportunities for further development of rail business
Opportunities for further development of rail business Comprehensive range of rail products to meet any EVRAZ rail business across the globe customer requirements: Heavy-haul High speed Public urban traffic Low temperature Current markets For specialised applications (cranes, etc.) Targe
Slide 47: Summary
Summary Russia and North America are home markets for EVRAZ rails Superior product line with high margins and growing volumes High historic investments in modernisation with best in class assets New products launched Loyal customer base: c.70% production covered by long-term contracts Inve
Slide 48: North American business
North American business Pavel Tatyanin Senior Vice-President, International Business Division
Slide 49: North American highlights
North American highlights No 1 producer of rail and large diameter pipe in Map of North American operations North America EVRAZ Red Deer EVRAZ Camrose Well-placed to serve growing oil & gas industry and EVRAZ Calgary infrastructure development supported by unique EVRAZ Regina location and long-t
Slide 50: Leader in the North American rail market
Leader in the North American rail market Successful completion in 2013 – on time and within budget – of the Pueblo rail mill modernisation: expansion of capacity from 476 ktpa to 526 ktpa currently meeting Japanese level of quality and potentially exceeding it with the next generation rail R
Slide 51: Large diameter pipe market poised for growth
Large diameter pipe market poised for growth Largest North American market share in large North American large diameter pipe market, kt diameter (LD) pipes (47%) 2,114 favourable locations 1,785 strong customer relationships “Made in Canada” advantages 993 993 957 pipe leading research & d
Slide 52: Enhanced presence in the growing OCTG market
Enhanced presence in the growing OCTG* market Unique location in Western Canada, Colorado and the Dakotas in the US – supports Canada, Colorado and Bakkens - key areas of oil and gas renaissance in North America Growth in horizontal and unconventional drilling shifted OCTG demand to high-enginee
Slide 53: Summary
Summary Uniquely positioned to benefit from the oil & gas renaissance in North America North America’s leading rail business with strong customer relationships Strong market fundamentals in large diameter business in Canada for the next 4-5 years Repositioning of the OCTG product portfolio t
Slide 54: Capital management
Capital management Giacomo Baizini Chief Financial Officer
Slide 55: A reminder of our financial highlights
A reminder of our financial highlights US$ million 2013 2012 Change Revenue 14,411 14,726 (2)% EBITDA* 1,821 2,027 (10)% EBITDA margin 12.6% 13.8% (1.1)% CAPEX 902 1,261 (28)% Cash and short-term deposits** 1,611 2,064 (22)% Free cash flow 458 750 (39)% Total debt*** 8,166 8,440 (3)% Net debt 6,534
Slide 56: In 2013 leverage increased with Raspadskaya debt consolidation
In 2013 leverage increased with Raspadskaya debt consolidation $ in millions Total debt 8,440 8,166 Cash 2,064 1,632 604 12 (458) 6,376 6,534 Net debt Debt at Free cashflow Exchange differences - Other changes Debt at 31-Dec-12 (sign reversed) effect on total debt and cash in net debt 31-Dec-13 LTM
Slide 57: Deleveraging is a priority
Deleveraging is a priority On 31 December 2013 the Group’s net leverage* was 3.6x, but there is a clear commitment to reduce this to below 3.0x The plan includes the following actions to achieve this target: 1. Cost reduction of $400m in 2014 2. Reduced capex spending in 2014-2015 to no more tha
Slide 58: Comprehensive cost cutting plan: update on progress
Comprehensive cost cutting plan: update on progress Initiative Q1 2014 achievements Q1 2014* vs. Q1 2013 Operating cost actual results, $m savings plan is Restructuring of Shutdown and disposal of inefficient iron ore and coal (45) $350m in 2014 production assets mines in Russia Decrease in coal
Slide 59: Limited capex
Limited capex Capex historic performance and outlook, $m excl. VAT Maintenance capex is sustainable at <$600m 1,400 1,261 Growth in maintenance capex in 2014-2015 vs. 2013 is driven mostly by coal division 1,200 Coal capex can be flexed depending on market 1,000 902 <900 conditions and mining
Slide 60: Managing the debt maturity profile
Managing the debt maturity profile Debt* maturities schedule (as at 31 December 2013), $m Q1 2014 commercial short-term debt covered by cash of >$1.6bn and is rolled over 1,807 Q4 2014 Rouble bond being refinanced through new PXF of $500-700m 1,406 1,276 Q4 2015 maturities to be partially repa
Slide 61: Summary
Summary Committed to reduce net leverage to below 3.0x The current levers include: Cost improvements of $400m in 2014 Limitations on capex spending in 2014-2015 to $0.9bn per annum Further asset portfolio optimisation Limitations on regular dividends Operational savings of $94m in Q1 2