Jp morgan annual emea equity conference — london

InvestorPresentation

January 2006

PDF created with pdfFactory Pro trial version www.pdffactory.com

http://www.pdffactory.com

1

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 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 the 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 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 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 intend or have 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.



2

Evraz Highlights

n Among the 15 largest steel producers in the world

n Russia’s largest producer of steel and steel products

n Vertically integrated steel and mining business

n Recent acquisitions of Palini e Bertoli and Vitkovice Steel

n Produced 13.9mn t of crude steel in 2005

n Consolidated revenues of US$5.9bn in 2004 and US$3.6bn in 1H05

n EBITDA of US$2.0bn in 2004 and US$1.1bn in 1H05

n Successful IPO on LSE in June 2005 placing 8.3% stake for US$422mn

n Multiple upgrades in the last six months from Fitch and Moody's

n Ba3 by Moody's, BB- by Fitch and B+/Positive Outlook by S&P



3

Top Russian steel producer

Evraz’s main locations Top Russian steel producers

Output1 (million tons) Russian

ranking Company 2003 2004 1H05 Main products

1 Evraz Group 13.9 13.7 7.0 Long

2 MMK 11.5 11.3 5.5 Flat/long 3 Severstal 9.9 10.4 5.1 Flat/long 4 NLMK 8.9 9.1 4.1 Flat 5 Mechel 4.6 5.5 2.7 Long/flat

Source: Chermet, Evraz Note: Crude steel output

NTMKVGOK

KGOK

NKMK ZapSib

Evrazruda

Mine 12

Moscow

NakhodkaSea Port

Lipetsk

Stary OskolPerm

St. Petersburg

Penza

Nizhny Novgorod

SamaraChelyabinsk Omsk

Novosibirsk

TomskKemerovo

Novokuznetsk

Bratsk

Irkutsk

Surgut

Yekaterinburg

Krasnoyarsk

Yuzhkuzbassugol Raspadskaya

NeryungriUgol

Iron ore mining Coal miningService Centres Sea portsSteel mills



4

An integrated steel and mining platform

NTMK92.4%

NakhodkaSea Port

93.0%

Yuzhkuzbassugol50%(2)

Ferrotrade100%

Dis

trib

uti

on

Note:1. Actual ownership interests representing Evraz’s control2. Accounted for on the equity basis.

Raspadskaya47.8%(2)

THEvrazHolding

100%

Evraztrans76%

NeryungriUgol100%

Mastercroft 100%

KGOK97.6%

Evrazruda100%

VGOK87.4%

(1)

Iron

Ore

Coal

Ste

el

Zapsib95.4%

NKMK100%

Palini e Bertoli75%+1

Vitkovice Steel99%

Mine 12100%



5

Mechel

NLMK

Severstal

MMK

Evraz

Russia’s leading steel producer

Diversified production mix, 1H05

84%

51%

30% 29%

100%

0%

25%

50%

75%

100%

Rails H-Beams Channels Rebars Wheels

Domestic market share by volume, 1H05

Top Russian steel producers in 1H05 (mn t)

2.7

4.1

5.1

5.5

7.0

Long Products (inc. billets)

Total steel output

Source: Chermet, Companies’ data, Evraz

#1

#1#1

#1

#2

8.7%

38.3%

12.6%

21.0%19.4%

Construction products Railway productsSemi-finished product Other steel productsOther products

Source: Chermet, Metall Expert



6

561485

959

338

198

390 404

0

200

400

600

800

1000

Russ

ia

Germ

any

EU

-15

Avera

ge

US

Cze

chR

epublic

Japan

S.

Kore

a

Indexed to 100 as of 1 January 1999

Growth Gap

’04-’08F Construction Output CAGR: 6.7%’04-’08F GDP CAGR: 5.0%

50

100

150

200

250

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

GDP Growth Construction Growth

Russia’s growing construction industry

Uniquely positioned to benefit from rapid Russian economic growth

n Russian steel consumption remains below global benchmarks

n Construction sector output is forecasted to exceed GDP growth by 37% between 2004 and 2008

n Significant downstream capacity flexibility to capture migration to higher margin products for domestic market

2004 Steel Consumption per Capita (kg)

Source: CRU, Metal Expert, Global Insight (steel consumption), Global Insight (population)

Construction Output Forecast to Exceed GDP Growth

Source: Global Insight



7

457

600

717 717

0

200

400

600

800

Evraz Italy Poland Germany Austria

Notes: 1. Rail prices as of 1H05

2.5

3.4

4.5 4.6

0.71.0

2.52.0

1.11.00.90.8

0

1

2

3

4

5

2004 2005 2006 2007

Infrastucture capex Rolling stock capexOther capex

Unique position in rail products

Uniquely positioned to benefit from RZD asset modernisation programme

n Railway products contributed 13% to Evraz’s revenues in 1H05

n RZD, Evraz’s major customer, is among the biggest railway operators globally

n Evraz accounted for nearly 100% of sales of rails in Russia

n Significant RZD capex required and planned

n Large backlog in rail replacement due to under-investment in 1990s

n Approximately US$21bn in capex planned for 2005-2007 period

The Russian Railways (RZD) opportunity

Source: RZD, S&P (October 2004)

RZD infrastructure & rolling stock capex (US$ bn)

Source: RZD

Evraz Prices vs. international export benchmarks (US$/t)(1)

Source: Company data, UN Statistics Division

849



8

Growing self-sufficiency in raw materials

Security of supply and reduced exposure to price fluctuations

Global iron ore and coking coal prices ($/t)(2)

0

20

40

60

80

100

120

140

2000 2002 2004 2006F 2008F 2010FIron ore fines Iron ore pelletsCoking coal

Notes:1. Including supplies from Yuzhkuzbassugol2. CVRD – FOB for iron ore, Australian HCC – FOB for coking coal

Source: World Steel Dynamics, April 2005

100

64

22

787586

6170

0%

20%

40%

60%

80%

100%

Evra

z

Mech

el

NLM

K

Severs

tal

MM

K

CSN

Arc

elo

r

PO

SCO

Iron ore Coking coal

Internal raw materials sourcing(3)

3. Including related parties. Evraz data for 1H05, data for the peer group for 2004

Source: Evraz, Rudprom, OOO Rasmin, FGUP VUKhIN

n Approximately 75% of iron ore and 70%(1) of coking coal are sourced internallyn Evraz has access to a large proportion of its raw materials supplyn Limited exposure to high and variable raw material prices



9

Taiwan22%

Thailand24%

Philippines7%

Korea7%

Vietnam7%

Iran8%

Hong Kong5%

Other19%

0%

2%

4%

6%

8%

10%

Chin

a

Vie

tnam

India

Russ

ia

Thai

land

S.

Kor

ea

Phili

ppin

es

Tai

wan US

W.

Euro

pe

Japan

Ger

man

y

Attractive export markets – Asia

n Robust GDP growth expected to continue in all of Evraz’s key export markets, significantly outperforming expected economic expansion in developed nations

n Steel exports accounted for 43% of Evraz’s total 1H05 revenues, with the majority delivered as semi-finished products to high-growth Asian re-rolling markets

Source: Global Insight

Selling to a diverse set of high-growth markets

1H05 export revenue structure

Source: Company data

Key Evraz Markets

2004-2008E average annual GDP growth

Export43%

Domestic57%



10

0%

20%

40%

60%

80%

100%

1H04 2004 1H05

Steel segment Mining segment Other

Magnitude and quality of transformation

Growing profitable business Increasingly diversified EBITDA

Note: 1. Evraz have not prepared audited or reviewed financial statements for the 12 month period ended 30 June 2005. Financial indicators

presented under LTM (last twelve months) are calculated as a sum of 1H05 financial results and FYE 2004 less 1H04 financial results.

1,413

2,168

6,709

22%

34%

14%

32%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2002 2003 2004 LTM¹

(US$m

)

0%

10%

20%

30%

40%

Net income EBITDASales EBITDA margin (rhs)



11

Summary financials

Notes:1. Adjusted EBITDA represents profit from operations plus depreciation and amortisation, impairment of assets and loss (gain) on dispositions of

property plant and equipment2. Net debt equals total debt less cash & equivalents

(280)(524)(217)(75)Capex

2,857 1,609 367 (4 )Equity

Cashflow statement72794643117Cashflow from operations

(657)(817)(359)(117)Cashflow from investing

316(36)4627Cashflow from financing

Income statement3,6325,9332,1681,540Revenues1,3812,447559205Gross Profit

38.0%41.2%25.8%13.3%Margin (%)1,1192,017476209Adjusted EBITDA (1)

30.8%34.0%22.0%13.6%Margin (%)7291,3452531Net income

Balance sheet

358

1,025 4,253

2004

299193223Minority interest

736 479 128 Net debt (2)

5,504 2,232 1,222 Total assets

1H0520032002US$mn



12

Cost Structure

Steel division costs Mining division costs

Note: Breakdown based on consolidated cost of revenues.

58%

8%

10%

7%10%

3%5%

6% 8%

8% 10%

67%

0%

20%

40%

60%

80%

100%

1H05 1H04

Raw materials TransportationStaff costs Depreciation

Energy Other

76%18%

10%

8%

3%

27%

6%12%5%

35%

0%

20%

40%

60%

80%

100%

1H05 1H04

US$2,566m US$1,683m US$325m US$192m



13

Price dynamics: iron ore

100

200

300

400

500

600

700

Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05

Stoilensky GOK (53 % Fe) Mikhailovsky GOK (52,3 % Fe)

0

500

1,000

1,500

2,000

2,500

Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05Lebedinsky GOK (68% Fe) Stoilensky GOK (66,7% Fe)Mikhailovsky GOK (66% Fe)

400

800

1,200

1,600

2,000

2,400

2,800

3,200

Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05Karelsky Okatysh (65% Fe) Mikhailovsky GOK (62% Fe)

Lebedinsky GOK (65,5% Fe) Kachkanarsky GOK (60,3% Fe)

Ore (RUR/tonne)

Pellets (RUR/tonne)

Concentrate (RUR/tonne)

0

500

1,000

1,500

2,000

2,500

3,000

Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05Vysokogorsky GOK (53,5% Fe) Kachkanarsky GOK (52,3% Fe)

Sinter (RUR/tonne)

Source: Evraz, Metall Kurier



14

Price dynamics: coal

Note: Price for average quality coking coal concentrateSource: OOO Rasmin, VGUP Vukhin, Evraz

Coking coal concentrate (RUR/tonne)

0

500

1000

1500

2000

2500

3000

Jan March May July Sept Nov

Average price in Russia for coking coalconcentrate, FCA



15

Price dynamics: steel products

Source: Evraz, Metalltorg (domestic prices), Metal Bulletin (export prices).

Rebars (RUR/tonne) H-beams (RUR/tonne)

0

4000

8000

12000

16000


Export price, FOB

Russian price index, FCA

0

4,000

8,000

12,000

16,000

20,000

24,000


Export price, FOB

Russian price index, FCA



16

Recent Corporate Developments

n Palini e Bertoli is a rolling mill operator in northern Italy producing steel plate products

n Target markets - Southern Europe and the Mediterranean

n 2004 output - 356,000 tonnes of rolled products, revenues - €183mn under Italian GAAP

n Evraz acquired 75% interest in Palini on 12 August 2005

n The deal is in line with Evraz’s strategy of acquiring high-quality re-rolling facilities worldwide

2000

2004

003 - Present

Integrated Structure and Expansion into

Mining

198 - 2002

Palini e Bertoli



17

Recent Corporate Developments

n Vitkovice Steel in the north-east of the Czech Republic is a leading European producer of hot-rolled steel products

n Target markets – the Czech Republic and Central Europe

n Total sales in 2004 - 870,000 tonnes of rolled products, revenues - €425mn

n Evraz acquired 98.96% of Vitkovice Steel for c. €240mn on 15 November 2005

2004

003 - Present

Vitkovice Steel



18

Yuzhkuzbassugol Acquisition

n Highlights

n Leading coal producer in Russia, operating 10 mines, 2 washing plants, 3 machinery plants, 3 transportation companies and a number of support companies

n Annual output exceeded 17mn t of coal in 2005

n Wide and complementary range of coal brands, permitting Evraz tocircumvent purchase of coal from third parties

n Transaction details

n 50% stake acquired from Evraz shareholders to simplify corporatestructure and improve transparency regarding related parties

n Independent appraiser valuation of Yuzhkuzbassugol of $1.35bn, implying acquisition price of $675mn for the 50% stake

n Transaction voted on by Evraz non-executive directors only

n Financial consolidation on equity basis



19

Neryungri Ugol – Project on track

n Highlights

n 2.4mn tpy coking coal mine

n Extractable reserves are estimated at 70-85mn t of high grade hard coking coal

n Production to start in 2H06, expected to reach full production during 2008

n Current stage

n Evraz – Mitsui JV agreement signed, Mitsui becomes a co-investor with 30%

n Parties are in talks with financing institutions (JBIC, ECAs)

n Underground mine development is ongoing, 7500mn developed

n Mining equipment for Phase 1 ordered and major personnel hired

n Surface construction is in the active phase

n Project presented to prospective customers and preliminary coal tests successfully completed (JSM, Posco, NTMK)



20

Corporate Governance

n Management

n Board of Directors decision on management changes based on necessity to separate the roles of chief executive officer and of chairman of the Board:

n New structure effective since January 1, 2006:

– Mr. Valery Khoroshkovsky, Managing Director Operations, appointed new CEO with effect from January 1, 2006

– Mr. Alexander Frolov, Managing Director Corporate, appointed new Chairman of the Board, effective May 1, 2006

n Dividends

n Interim dividends for 1H2005 in line with the company’s dividend policy

n Total payout of c.$193mn, or $1.65 per share ($0.55 per GDR) payable to shareholders of record as of November 24, 2005

n 31.5% of net profit and more than 6% annualised dividend yield



21

Contacts

Corporate Affairs and Investor Relations:

Irina Kibina

Vice President

Nikolay Arutyunov

Director

Irina Dubitskaya

Senior Manager

Tel. +7-095-2321370

Fax +7-095-2321359

[email protected]


mailto:[email protected]


Documents

Jp morgan annual emea equity conference — london