Evraz Plc · LSE:EVR

Evraz — Investor Day (June 2015)

44 slides from Evraz's investor day presentation, Jun 17, 2015

  1. Slide 1: EVRAZ Investor Day

    EVRAZ Investor Day 17 June 2015, London

  2. 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.)

  3. Slide 3: Today's Speakers

    Today’s Speakers Alexander Abramov Sir Michael Peat Alexander Frolov Chairman Senior Independent Chief Executive Officer Non-Executive Director Pavel Tatyanin Alexey Ivanov Sergey Stepanov Chief Financial Officer Vice-President, Vice-President, Steel Division Coal Division Investor Day 2015 3

  4. Slide 4: Agenda

    Agenda  EVRAZ highlights  Corporate governance  Strategic progress  Steel segment  Coal segment  Steel, North America  Financial priorities Investor Day 2015 4

  5. Slide 5: EVRAZ Highlights

    EVRAZ Highlights Alexander Abramov Chairman of the Board

  6. Slide 6: EVRAZ Highlights

    EVRAZ Highlights  One of the largest vertically integrated steel and mining companies in the world  Top-25 steel producer in the world based on crude steel production of 15.5 mt in 2014  Revenue of $13.1bn, EBITDA of $2.3bn in 2014  Leader in the Russian construction and railway product markets

  7. Slide 7: Corporate governance

    Corporate governance Sir Michael Peat Senior Independent Non-Executive Director

  8. Slide 8: Changes in the Board & Committees Composition

    Changes in the Board & Committees Composition Sir Michael Peat Senior Independent Director, Chairman of the Nominations Committee To step down from the Audit Committee Alexander Abramov and a member of the Audit Committee Chairman Deborah Gudgeon Appointed to the Board as an independent Member of no

  9. Slide 9: Solid corporate governance

    Solid corporate governance  EVRAZ, as a UK premium listed company, adheres Board composition to the FCA Listing, Disclosure and Transparency Rules 10% Independent non- executive directors  EVRAZ complies with most provisions of the UK Non-executive directors Corporate Governance Code 50% 40% Execu

  10. Slide 10: Strategy Overview

    Strategy Overview Alexander Frolov CEO

  11. Slide 11: Strategy

    Strategy We remain committed to our strategy to efficiently produce steel for the global infrastructure from our low cost raw materials Health, Safety & Reach zero fatalities at our sites Environment Human Capital Development and loyalty of our employees Customer Focus Respond to evolving needs of o

  12. Slide 12: 2014 deliverables

    2014 deliverables Health, Safety & Environment  LTIFR decrease by 18% Human Capital  Productivity increase by 10% Customer Focus  260 ktpa of new products EVRAZ Business System  Ongoing impact of $420m from realised cost cutting initiatives Growth  4 major investment projects completed with ave

  13. Slide 13: Challenging market trends

    Challenging market trends Global market  Raw materials prices continue to fall given commissioning of new low cost capacity  Cheaper iron ore and coking coal combined with weaker Chinese steel demand lead to steel price decrease Russia  Russian economy is slowing down, but GDP dynamics are better

  14. Slide 14: Product line strategies

    Product line strategies Market Product line Strategy Rails  Expand product portfolio and client base Construction  Maintain market share steel Semi-finished Russia  Adjust volumes and mix in response to external factors products Iron ore  Continuous reduction of mining costs Coking coal  Maximi

  15. Slide 15: Rails (Russia)

    Rails Russia  75% of sales are secured by long-term contract EVRAZ rail shipments, kt with Russian Railways (RZD) 892 709 516  2014 sales to RZD – 650 kt 444 376  2015 sales to RZD – 530 kt (expected) 265 H1 2014 H2 2014 H1 2015E H2 2015E  Share of premium rails in our portfolio significantly Ra

  16. Slide 16: Construction steel (Russia)

    Construction steel Russia  EVRAZ shipments to the Russian market declined EVRAZ domestic long steel shipments by product, kt on average by 20% in H1 2015 vs H1 2014 Product H1 2014 H2 2014 H1 2015E H1 15 / H1 14 Rebar 744 706 591 -21% Beam 333 273 197 -41% Channel 234 247 195 -17% Angle 228 237 162

  17. Slide 17: Semi-finished products (Russia)

    Semi-finished products Russia  Although steel prices fell significantly in H1 2015, our Price vs cost in export markets, $/t steel exports were profitable due to low cost of Billet price, CFR SEA Billet cash cost, CFR SEA 600 production 500 400 300 200 100 0 Source: Platts, EVRAZ estimates  EVRAZ

  18. Slide 18: Iron ore (Russia)

    Iron ore Russia  EVRAZ iron ore business is free cash flow positive EVRAZ iron ore cash cost, $/t $50/t – current  EVRAZ iron ore cash cost is expected to reach $30/t, domestic price Peers 2015E well below current market price 69 56 47 30 24  Production of saleable iron ore products is expected 1

  19. Slide 19: Coking coal (Russia)

    Coking coal Russia  Russian coking coal market demonstrates premium Premium in the Russian market compared to exports*, $/t comparing to export parity price 100 80 60 40  Maximisation of sales in the domestic market is our 20 0 priority -20 Premium Domestic prices Export prices * Calculation based

  20. Slide 20: Coking coal (cont'd)

    Coking coal (cont’d) Russia  EVRAZ coking coal cash cost is expected to reach EVRAZ coking coal* cash cost, $/t $70/t – current $31/t in 2015 domestic price Peers 2015E 73 64  Production of raw coal is expected to increase from 46 35 31 19 21.1 mt in 2014 to 21.7 mt in 2015 2012 2013 2014 2015E Se

  21. Slide 21: EVRAZ in North America

    EVRAZ in North America North America  Low cost integrated minimill production, proximity Market size, LD pipe, mt to end users - low delivery cost, deep technical 2.5 relationships with customers 2.0 1.5  Largest producer of Large Diameter pipe (LD pipe) 1.0 and rails in North America, 0.5 0.0  S

  22. Slide 22: Strategic goals 2015

    Strategic goals 2015 Key business priorities  EBITDA effect* from customer focus initiatives of c.$75m in 2015 Creating additional  Expanding our product portfolio: steel grades, international certification in 1 value for our rails, new profiles of construction products customers  Increase produc

  23. Slide 23: Steel Segment

    Steel Segment Alexey Ivanov Vice President, Steel Division

  24. Slide 24: Market initiatives

    Market initiatives Products Market initiative EBITDA effect* 2015E  Rails certification under international standards Railway (60E1/E2, 54E1, Re115) 1 $27m products  Entering markets of Brazil, Malaysia, Cuba  Wheels export to the USA and the UK  Sales of H-beams to UAE, UK and USA Construction

  25. Slide 25: Cost cutting initiatives

    Cost cutting initiatives Cost cutting initiatives Description EBITDA effect 2014 2015E  Slag recycling at ZSMK 1 Production costs reduction  Yields improvement (rail mill and PCI  $64m $59m at ZSMK)  Closure of one coke-making plant at 2 Assets optimisation ZSMK  $25m $10m 3 G&A reduction  Hea

  26. Slide 26: CAPEX outlook

    CAPEX outlook  Russian steel assets are well invested Russian steel investment focus, 2009-2015 Railway Blast furnace Steelmaking products  Maintenance CAPEX in 2016 – 2017 will be above the average level due to planned overhaul of blast furnace №6 at EVRAZ NTMK $350m $275m $650m Investment projec

  27. Slide 27: Coal Segment

    Coal Segment Sergey Stepanov Vice President, Coal Division

  28. Slide 28: Coking coal portfolio

    Coking coal portfolio  Diversified portfolio with a full range of coking coal Coking coal mining by grade, mt, 2015E grades 1.4 2.4 GZh GZh-GZhO 2.8 10.4  Domestic market accounts for 67% of sales Zh KS K, KO 4.8  Number of customers is expected to increase from 35 in 2013 to 50 in 2015 Coking co

  29. Slide 29: Cost cutting initiatives

    Cost cutting initiatives Cost cutting initiatives Description EBITDA effect 2014 2015E  Mining volumes increase 1 Production costs reduction  Auxiliary materials consumption rate  $78m $63m decrease  Closure of Abashevskaya, 2 Assets optimisation Kusheyakovskaya and MUK-96  $28m $6m mines  Eli

  30. Slide 30: Operational excellence

    Operational excellence  EVRAZ managed to reduce total number of Productivity: Drifting operating mines from 12 in 2012 to 8 in 2015 100 Productivity , meter/person 8 8 90 Development volume, km 7 7 80 67.6 6 Peers 2014 70 61.7 6 60 54.7 5 5 50 4  During the same period mining volumes increased 40

  31. Slide 31: CAPEX outlook

    CAPEX outlook  In 2010-2014 substantial investments were made Coal investment focus, 2010-2014 into coking coal assets Raspadskaya mine Yerunakovskaya VIII reconstruction mine construction  Production volumes are projected to be stable starting from 2015 $210m $350m  CAPEX in 2015 is expected to

  32. Slide 32: Steel, North America

    Steel, North America Pavel Tatyanin Senior Vice President, CFO

  33. Slide 33: Leading and highly defensible positions across markets

    Leading and highly defensible positions across markets Large diameter pipe (LD Pipe) EVRAZ LD pipe market share in 2014  Increasing Natural Gas production reshapes pipeline infrastructure in North America  Average 2015 – 2018 LD pipe demand expected to exceed 1.5m tons annually; approximately 47%

  34. Slide 34: Established customer base with scale and financial stability

    Established customer base with scale and financial stability Customer Description Rail products  $23bn in revenue for 2014; approximately 32 thousand miles of track  ~25% of NA’s railroad CAPEX spend for 2015  $24bn in revenue for 2014; approximately 32 thousand miles of track  ~25% of NA’s rail

  35. Slide 35: Market initiatives

    Market initiatives Products Market initiative EBITDA effect* 2015E  Continue operating rail mill at full capacity  Continue shifting mix towards premium rail 1 Rails $2m  Commercialise 6th generation premium rail  In-track testing of welding technology  Continue ramping up of existing capacity

  36. Slide 36: Cost cutting initiatives

    Cost cutting initiatives Cost cutting initiatives Description EBITDA effect 2014 2015E  Improved LD mills operational 1 Production costs reduction performance. OCTG productivity  $60m $27m improvements  Aggressive cost and staffing reductions 2 G&A reduction at curtailed operations  $9m $10m  R

  37. Slide 37: CAPEX outlook

    CAPEX outlook  High quality assets Investment Projects, 2011-2015  2011 – 2015 focus: Pueblo steel making upgrade, rail mill modernisation Pueblo Steel Pueblo Rail  2015 - 2016 focus: increased CAPEX concentrated around upgrade of steel mill and construction of a new LD pipe mill in Regina Saskat

  38. Slide 38: Financial priorities

    Financial priorities Pavel Tatyanin Senior Vice President, CFO

  39. Slide 39: Delivering on commitments in 2014

    Delivering on commitments in 2014 Up 5.2 pp EBITDA margin Cost cutting  17.8%  $420m of savings CAPEX Net Leverage  $654m  2.5x Down 27% Down from 3.6x Up 124% Free Cash Flow Return to shareholders  $1,012m  $336m in a tender offer at US$3.10 per share (10% premium*) *Based on the exchange rat

  40. Slide 40: Sensitivity to currency

    Sensitivity to currency Position Effect Revenues 30-40%* Rouble denominated Costs 50% Rouble denominated CAPEX 55% Rouble denominated  In the current economic situation RUB exchange rate weakening by 10% accounts for ~$175m additional annual EBITDA  Possibility to manage export sales share in the

  41. Slide 41: Maturity profile

    Maturity profile  Total debt $6.8bn as of 31 May 2015  Focus on proactive refinancing of short-term maturities and cost-efficient use of cash for total debt reduction:  $448m Eurobonds due 4Q’15 bought back in December 2014 – January 2015  $136m swapped RUB’15 bonds repurchased in April 2015  $

  42. Slide 42: Debt structure

    Debt structure  Group’s debt is predominantly US dollar- Cost of borrowings denominated* 8 5 7  Long-term debt is mostly fixed rate 6 4 5  Weighted average cost of debt in 2014 was around 4 6.3% 3 3 2  S&P upgraded the LT corporate credit rating of 1 EVRAZ to BB-, stable 0 2 Jun-11 Dec-11 Jun-12

  43. Slide 43: Key capital deployment initiatives

    Key capital deployment initiatives Deleveraging Dividends  Deleveraging remains management’s focus with a long-term target 2.0x Net Reinvestments  The dividend amount is leverage level (Net determined on an annual debt/EBITDA) basis by the Board of  Well invested assets Directors subject to:  Pr

  44. Slide 44: Contact

    London +44 207 832 8990 Moscow +7 495 232 1370 [email protected] www.evraz.com 17 June 2015

EVRAZ — Investor Day (June 2015) on 6ix