Algoma Steel Group Inc. · NASDAQ:ASTL
Algoma Steel — Investor Presentation (October 2006)
37 slides from Algoma Steel's investor presentation, October 2006
Slide 1: Algoma Steel Inc. Investor Presentation - Fall 2006
ALGOMA STEEL INC. Investor Presentation - Fall 2006
Slide 2: Disclaimer
Disclaimer Certain statements made in this presentation are forward- looking statements that involve risks and uncertainties. These forward- looking statements reflect the Company’s best judgment based on current information, and although we base these statements on circumstances that we believed to
Slide 3: Company Representatives
Company Representatives Denis Turcotte, President and Chief Executive Officer Dan Ardila, Vice President and Chief Financial Officer 3
Slide 4: Algoma at a Glance
Algoma at a Glance • Founded in 1901 with head Office and Steelworks located in Sault Ste. Marie, Ontario, Canada • A significant North American sheet and plate producer shipping approximately 2.3 million tons ($1.9 billion) in 2005 • Consistently one of the most profitable North American steel prod
Slide 5: Commercial Review
Commercial Review 5
Slide 6: Commercial Strategy
Commercial Strategy Product extension and development Optimize mix of Leverage assets and markets, customers products to and product maximize value capability Product Market Strategy focused on differentiation, utilizing Algoma’s distinctive strengths to deliver better value to its customers Achieve
Slide 7: Market Positioning
Market Positioning Customer • Effectively supply Southern Ontario and US NE and MW • Well positioned to server energy markets in Western Canada • Sales offices in Burlington, Ontario and Calgary, Alberta Product • Capability to produce light gauge, wide coil, and high strength • One of 3 major North
Slide 8: Algoma's Products
Algoma’s Products 2005 Sales Distribution Cold Rolled Blanks Plate 7% 3% 20% Pickled 26% Unprocessed Coil 25% Processed Coil 19% 8
Slide 9: Sales Distribution By End Markets
Sales Distribution By End Markets Sheet Products Plate Products Automotive Tubular 29% 19% Fab'n & Const'n 32% MFG. 5% Service Centers 68% Service Centers 47% 9
Slide 10: Historical Shipments
Historical HistoricalShipments Shipments Sheet Plate 1,840 500 453 425 1,830 450 409 1,820 1,820 400 350 Sheet (000's tons) 1,800 Plate (000's tons) 300 316 1,780 250 1,773 200 1,760 1,761 Total Total 150 2.1 2.3 100 1,740 mm/tons mm/tons 50 1,720 0 2002 2003 2004 2005 10
Slide 11: Operations Review
Operations Review 11
Slide 12: Low and Variable Cost Structure
Low and Variable Cost Structure* • DSPC converts ladle steel directly to coil • Ladle steel costs: • self-sufficient in coke • large blast furnace linked to efficient steelmaking assets • proximity to iron ore sources • Ongoing margin improvement plan 2005 Employment Costs ($288M) 22% Raw Materials
Slide 13: Cornerstone Asset
Cornerstone Asset 200 Direct Strip Production Complex (DSPC) Output 175 150 000 Tons / Month 125 100 75 50 25 0 1997 2000 2003 2006 13
Slide 14: Cultural Change
Cultural Change • Approx. 3,100 employees (96% unionized) – compared to 3,700 in 2002 • Building an organization focused on ‘world class performance’ • Using Margin Improvement Plan to drive continuous improvement • Employees committed and getting involved • Managers that are more focused, action-or
Slide 15: Financial Review
Financial Review 15
Slide 16: Financial Highlights
Financial Highlights Cdn$ millions, except YTD 2006 YTD 2005 % Change per ton amounts Sales $ $1,004 $ 997 0.7% Sales (tons) 1,268 1,112 14.0% Avg./Ton $ 744 $ 833 EBITDA EBITDA/Ton Operating Income (EBIT) $ 177 $ 252 (30.0%) Avg./Ton $ 140 $ 227 Net Income $ 112 $ 154 (27.2%) Diluted E.P.S. $ 2.89
Slide 17: EBITDA (US$mm)
EBITDA (US$mm) Q 0 25 50 75 100 125 150 175 (25) 1- Q 00 21 2- Q 00 3- 29 Q 00 4- 15 Q 00 1- 5 Q 01 2- (23) Q 01 3- (17) Q 01 4- 2 Q 01 1- (18) Q 02 2- 5 Q 02 23 3- Q 02 Historical EBITDA (US$mm) 4- 39 Q 02 1- 11 Q 03 2- 14 Q 03 3- 7 Q 03 4- 5 Q 03 1- 22 Q 04 2- 46 Q 04 3- 107 Q 04 4- 159 Q 04 1- 15
Slide 18: Drivers to Internal Improvement
Drivers to Internal Improvement 2003 2006 3,700 Optimization of organizational structure 3,100 employees employees 1.5 mm tons Increased throughput of DCPC 1.8 mm tons 890,000 tons Increased coke production 1,000,000 tons 2.5 mm tons Increased ladle steel production 2.7 mm tons Other Factors: i) Org
Slide 19: Margin Improvement Plan Potential
Margin Improvement Plan Potential • Focus on continuous improvement ($ Millions) • Incremental potential exceeds $135 MM $180 $135 • Over 45 individual initiatives, including: $180 $160 – Increase shipments $140 $120 – Improve DSPC reliability $100 $80 – Optimize product mix $60 – Improve labour pro
Slide 20: Industry Leading Cost Structure
Industry Leading Cost Structure 2005 HOT ROLL BAND COST COMPARISON North American Steel Producers $550 $US Cost Per Ton * 75,000 70,000 $525 Bottom 5 mills = 7 mm tons annually 65,000 $500 60,000 55,000 $475 50,000 000's NT Capacity $450 45,000 436 US$/Ton 40,000 $425 35,000 $400 30,000 379 369 25,0
Slide 21: Operating Income Per Ton
Operating Income Per Ton COMPETITIVE PERFORMANCE OPERATING INCOME - $US PER TON $300 $250 $200 $US/NT $150 $100 $50 $0 A A lco S n I r o AK o P SD co go N M sc sc US W e -$50 O Nu al Ip re fa St G itt Do O AL M 2005 YTD 2006 21
Slide 22: Free Cash Flow & Financial Position
Free Cash Flow & Financial Position Net Cash (Debt) - Cdn$ $302.9 $289.4 $302.1 $341.4 $400.0 $300.0 $141.4 $200.0 $100.0 $0.0 -$100.0 -$200.0 -$184.6 -$300.0 -$319.0 -$400.0 2002 2003 2004 2005 Q1 2006 Q2 2006 Pro-Forma Q2 2006 2002 2003 2004 2005 Q1 Q2 Pro- (11 2006 2006 forma Cdn $ milions mon.)
Slide 23: Industry Overview
Industry Overview 23
Slide 24: Developing World Growing Consumption
Developing World Growing Consumption 2005 60 KT/$BLN GDP (Real 2005 $) Korea 50 Steel Intensity 40 China USA 1930-2005 30 Japan 20 Russia Germany 10 Brazil USA India 0 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 Economic Development GDP per Capita (Real 2005$) Source: F
Slide 25: Industry Consolidation
Industry Consolidation Top 75 steelmakers 2005 (adjusted for major 2006 mergers*) 120 2006 1997 Largest Company (MT): 114.0 28.1 100 Top 10 Average (MT): 32.0 17.5 Crude Steel Production Top 10 Share of World Total: 28% 22% (Million Tonnes) 80 60 40 AGA 20 0 Source: IISI, First River 25
Slide 26: Changing Environment Better Pricing
Changing Environment Better Pricing Industry Dynamics: • Stronger global and regional steel demand • Imports less competitive • Global and NA consolidation U.S.$/ton • Higher costs (minis & integrated) $800 $750 $700 $650 Upper New Level? $600 Trend $550 Line $500 Lower $450 Numerous bankruptcies in
Slide 27: Better Pricing Better Returns
Better Pricing Better Returns 60 1927 50 Years to reach 40 Supply Overhang 30 ROCE < WACC 1951 Supply chasing demand 1997 Returns are 20 improving ROCE > WACC 10 1959 1964 2002 1968 1972 2004 1974 2005 0 0 0 0 0 0 0 0 0 0 0 0 10 20 30 50 80 00 10 40 60 70 90 1, 1, M. Tonnes Liquid Steel Production S
Slide 28: Strategy - Value and Growth
Strategy - Value and Growth 28
Slide 29: Strategic Positioning
Strategic Positioning Where and how to succeed • Economies of scale • Supply leverage Large Market Leaders • Critical mass • Cost of capital Mid-Market Competitors • Focused and action-oriented • Market savvy Small Niche & • Operational excellence Regional Players • Entrepreneurial • “Supply chain o
Slide 30: Driving Value
Driving Value Will stay focused on the core business EBITDA Free Cash Flow Capital Deployment Enterprise Balance Sheet Value Financial Risk Cost Structure Risk Profile Business Risk Markets Products Turning Concept Into Action • Margin improvement process Capability • Capex framework • Balance sheet
Slide 31: Core Strategy
Core Strategy Primary Manufacturing Maximize Value from the Primary Focus Strategy “Base Case” Scenario • “Lock in orders” for 35-50% of capacity – optimize the mill Processing & Distribution • Realize full potential of the assets • Slitting • Supply highest value products • Cut-to-length to most de
Slide 32: Algoma – A Quality Investment
Algoma – A Quality Investment Financial • Solid balance sheet • Low, variable cost structure • Proven ability to execute on margin/continuous improvement • Emphasis on return on capital • Board and management focus on maximizing shareholder value Strategic • Significant organic growth opportunities
Slide 33: Thank You
Thank You 33
Slide 34: Appendix
Appendix & F Algom
Slide 35: Process Flow
Process Flow 35
Slide 36: Blast Furnace Status
Blast Furnace Status • Several major engineering firms retained to assess BF condition • Recent analysis and consideration of alternative remediation options resulted in cancellation of 2006 outage • Finalizing the scope and duration of an outage in 2007 • Operating and maintenance plan developed to
Slide 37: Capital Spending
Capital Spending • Capex philosophy ~ Average $60 million / year on existing assets – Sustaining capital reinvestment ~ $40 million/year – Business improvement projects ~ $20 million/year ¾ Priority on payback projects < 3 years ¾ Focused on productivity, quality and cost reduction ¾ Quality and ser