Evraz PLC · LSE:EVR
Evraz — Investor Day (October 2016)
46 slides from Evraz's investor day presentation, Oct 18, 2016
Slide 1: EVRAZ Investor Day
EVRAZ Investor Day 18 October 2016, 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 Sir Michael Peat Alexander Frolov Senior Independent Chief Executive Officer Non-Executive Director Sergey Stepanov Alexey Ivanov Giacomo Baizini Vice-President, Senior Vice-President, Interim Chief Financial Head of the Coal Division Commerce and Officer Business development EVRAZ
Slide 4: Agenda
Agenda 9:00 am Sir Michael Peat, Senior Independent Non-Executive Director Corporate governance 9:05 am Alexander Frolov, CEO Strategic overview Strategic progress and strategic priorities. Market overview 9:35 am Sergey Stepanov, Vice-President, Head of the Coal Division Coal, Russia Market positio
Slide 5: Corporate governance
Corporate governance Sir Michael Peat Senior Independent Non-Executive Director
Slide 6: Changes in the composition of the board and committees
Changes in the composition of the board and committees Directors Alexander Abramov Alexander Frolov Eugene Shvidler Eugene Tenenbaum Olga Pokrovskaya Chairman Chief Executive Officer Independent Non-Executive Directors Sir Michael Peat Deborah Gudgeon Alexander Izosimov Karl Gruber Duncan Baxter Sen
Slide 7: Solid corporate governance
Solid corporate governance EVRAZ, as a UK premium listed company, adheres to the FCA Listing, Disclosure and Transparency Rules as well as EU Market Abuse Regulation EVRAZ complies with most provisions of the UK Corporate Governance Code The Board and Board committees meet on a regular basis a
Slide 8: Strategic overview
Strategic overview Alexander Frolov Chief Executive Officer
Slide 9: EVRAZ highlights
EVRAZ highlights One of the largest vertically integrated steel and mining companies in the world Among the top steel producers in the world based on crude steel production of 14.3mt in 2015 Revenue of $3.5bn, EBITDA of $0.6bn in H1 2016 Leader in the Russian construction and railway product
Slide 10: EVRAZ strategy continuity
EVRAZ strategy continuity EVRAZ is a leader in infrastructure steel products globally and in the Russian coking coal market Success factors What are we doing? 2016 expected deliverables Health, Safety & Environment Encouraging 100% safe working conditions and 100% environmental compliance Multi-
Slide 11: Global steel industry capacity utilisation is expected to improve
Global steel industry capacity utilisation is expected to improve Long-term trend in global urbanisation will support steel consumption growth over the medium term China is expected to face consumption decline over the next five years, which will be offset by growth in India and other developing
Slide 12: Iron ore market is expected to stabilise over the next 2-3 years
Iron ore market is expected to stabilise over the next 2-3 years Iron ore capacity growth cycle is expected to be over after Vale reaches full capacity of S11D project by 2020/21 with no new big projects currently under construction c.270mt of iron ore volumes left the market during the last fou
Slide 13: Supply limitations provides opportunities in coking coal market
Supply limitations provides opportunities in coking coal market Three years of low coking coal prices led to a substantial capacities shutdowns in the United States In 2016 Chinese government introduced 276-day mine operations policy as one of the measures to restructure its coal industry Supp
Slide 14: EVRAZ strategic priorities
EVRAZ strategic priorities Global trends EVRAZ strategic priorities 1 Development of product portfolio and customer Global steel industry capacity base utilisation is expected to gradually improve over the medium term 2 Retention of low-cost position Iron ore market is expected to stabilise over
Slide 15: Safety as a base for business sustainability
Safety as a base for business sustainability Safety remains a key priority for EVRAZ Significant improvements over the last five years EVRAZ substantially reduced number of fatalities LTIFR demonstrated mixed dynamics due to ongoing efforts on safety improvement and a better reporting system
Slide 16: 1. Development of product portfolio and customer base
1. Development of product portfolio and customer base Strong market positions is a base for value creation across EVRAZ key product groups Product Market position, 2015 Priorities Russian rails, mt #1 N.A. rails, mt #1 0.8 Secure position in domestic markets and increase Rails 0.5 export shipmen
Slide 17: 2. Retention of low-cost positions
2. Retention of low-cost positions EVRAZ assets are in the first quantile of global cost EVRAZ position on global cost curves, 2016e curves Global slab, FOB Global coking coal, FOB Significant accomplishments over the last five years 500 $/t 160 $/t Average annual EBITDA effect from cost-cutti
Slide 18: 3. Prudent CAPEX strategy
3. Prudent CAPEX strategy Significant CAPEX reduction over the last five years (both in development and maintenance) Over the last five years EVRAZ completed a substantial investment programme Currently, two major projects under completion are steelmaking upgrade and a new LDP mill constructio
Slide 19: 4. Debt reduction
4. Debt reduction Debt repayment remains a priority over dividends and excessive CAPEX EVRAZ was able to reduce net debt by $1.1bn since 2012 and reach $5.3bn in H1’16, however leverage ratio remains high Long-term target to reach 2.0x Net Debt/EBITDA level EVRAZ Net Leverage 3.1x 3.6x 2.5x 3.
Slide 20: Summary
Summary EVRAZ is a leader in infrastructure steel products globally and in the Russian coking coal market. Global steel utilisation is forecasted to improve gradually due to urbanisation and optimisation of steel capacities Iron ore market is facing the last mega-projects coming online after w
Slide 21: Coal, Russia
Coal, Russia Sergey Stepanov Vice-President, Head of the Coal Division
Slide 22: EVRAZ coal assets at a glance
EVRAZ coal assets at a glance EVRAZ coal assets are located mainly in Kemerovo region and one mine is located in Tyva republic EVRAZ assets consist of: Kemerovo region 8 underground mines – average production > 2mtpa of raw coal Legend: 1 open-pit mine – c.4mtpa of raw coal production Kemero
Slide 23: EVRAZ strong strategic positions to benefit from the market upside
EVRAZ strong strategic positions to benefit from the market upside Competitive cost position to serve local and global Domestic coking coal cost curve, CPT Urals, 2016e, $/t market profitably $/t High-quality product portfolio with >80% of hard coking 80 coal (HCC) and semi-hard coking coal (SHC
Slide 24: Coal segment strategic priorities
Coal segment strategic priorities Corporate priorities Segment strategic priorities 1 a. Secure position of a major high-volatile HCC and SHCC supplier in Russia Development of product portfolio and customer b. Growth of sales to Ukrainian market base c. Growth of export portfolio 2 d. Efficiency in
Slide 25: a. Secure position of a major high-volatile HCC and SHCC supplier in Russia
a. Secure position of a major high-volatile HCC and SHCC supplier in Russia Sales to the Russian market have the highest profitability EVRAZ profitability in the domestic market, Q1’-Q3’16, $/t Domestic market sales maximisation remains our priority Example for semi-hard coking coal shipments 15
Slide 26: b. Growth of sales to Ukrainian market
b. Growth of sales to Ukrainian market Ukrainian coking coal market demonstrates high EVRAZ profitability in Ukrainian market, Q1’-Q3’16, $/t profitability with average EBITDA margin of $27/t Example for semi-hard coking coal shipments EVRAZ has substantially increased shipments to Ukrainian mar
Slide 27: c. Growth of export portfolio
c. Growth of export portfolio Low cash cost position allows to execute export sales EVRAZ profitability in export markets, Q1’-Q3’16, $/t with good margins Example for semi-hard coking coal shipments Over the last few years EVRAZ consistently increased export shipments 35 Key overseas export s
Slide 28: d. Efficiency increase along the value chain
d. Efficiency increase along the value chain Continuous focus on operational excellence helped us to increase coking coal concentrate production volumes by 1.5mt since 2012 Coal cash cost decreased by more than 50% over the last four years EVRAZ anticipates further cost-cutting initiatives and
Slide 29: e. Flexibility of our coal production model
e. Flexibility of our coal production model c.20% of coal mined by EVRAZ comes from Raspadsky open-pit Open-pit coal mining operations are much safer compared to underground mining due to lack of methane concentration and rock pressure Open-pit allows to adjust production volumes promptly in a
Slide 30: f. Ramp-up of Mezhegeyugol
f. Ramp-up of Mezhegeyugol World class coking coal deposit in the largest undeveloped coal region in Russia 213mt of semi-hard coking coal reserves (A+B+C1) Low raw coal ash content of 15% Coal mining cash cost is $20/t EXW at full capacity Raw coking coal production outlook, mt CAPEX, $m 45
Slide 31: g. Volumes growth with minimal CAPEX requirements
g. Volumes growth with minimal CAPEX requirements The necessary CAPEX to maintain current production Coal assets CAPEX*, $m volumes estimated at $90m Hard coking coal price has increased by more than 80% 243 Maintenance Development since the beginning of the year 181 EVRAZ is able to expand co
Slide 32: Steel, Russia
Steel, Russia Alexey Ivanov Senior Vice-President, Commerce and Business development
Slide 33: Russian steel demand is set for a gradual recovery
Russian steel demand is set for a gradual recovery Russian GDP is expected to recover by 2017 and grow thereafter by 1.5% per annum until 2020 Russian mortgage market has high potential for development The share of steel-frame buildings in Russia is much lower than in developed countries Con
Slide 34: EVRAZ is a leading player in Russian long steel market
EVRAZ is a leading player in Russian long steel market EVRAZ has leading positions in rails, beams, structural ENTMK and EZSMK sales breakdown, 2016e shapes and rebar in Russian market Rebars EVRAZ Russian steel assets are located on the left side Other 12% 20% of cost curve Rails 9% Product Sal
Slide 35: Steel segment strategic priorities
Steel segment strategic priorities Corporate priorities Segment strategic priorities 1 a. Further development of rail portfolio Increase share of value b. Development of H-beam consumption added products c. Development of customer base for value added semis 2 d. Continuous focus on efficiency improv
Slide 36: a. Further development of rail portfolio
a.Further development of rail portfolio Sales to Russian Railways are expected to reach c.730kt Rails sales to Russian Railways, kt per annum in 2017-18 680 c.730 EVRAZ efforts to increase overseas rails presence 619 650 629 resulted in volumes growth from zero to 104kt in 2016 536 We target t
Slide 37: b. Development of H-beam consumption
b. Development of H-beam consumption EVRAZ aims to increase beam consumption in Russia New multistorey civil construction projects with beams by 300kt through two main initiatives: Design stage Construction stage Beam consumption 000’m2 000’m2 impact 1 Enhance the consumption in multistorey civi
Slide 38: c. Development of customer base for value added semis
c. Development of customer base for value added semis EVRAZ has increased additional margin from value added semis sales from c.$9m in 2014 to c.$17m in 2016 The target is to reach c.$20m of margin over commodity semis by developing complex steel grades and expanding the client base Value added
Slide 39: d. Continuous focus on efficiency improvement
d. Continuous focus on efficiency improvement EVRAZ Russian steel assets managed to reduce costs at an average pace of c.$70m EBITDA effect per annum over the last three years Our target going forward is to maintain a similar pace of efficiency improvement 1 2 3 Conversion cost Productivity Head
Slide 40: e. Competitive iron ore production cash cost
e. Competitive iron ore production cash cost EVRAZ was able to reduce iron ore cash cost by more than by 65% in the last five years as a result of operational improvements, assets optimisation, investment projects and currency devaluation EVRAZ benefits from stable iron ore production volumes, w
Slide 41: f. Optimum CAPEX for maintenance and growth
f. Optimum CAPEX for maintenance and growth Russian steel assets are well-invested Russian steel mills CAPEX, $m Maintenance CAPEX in 2017-2018 will be above the 378 2015-2016 level due to planned blast furnace №7 Maintenance Development construction at EVRAZ NTMK 250-300 Current investment pr
Slide 42: Financial overview
Financial overview Giacomo Baizini Interim CFO
Slide 43: Update on debt refinancing
Update on debt refinancing $197m across 2017-2018 EVRAZ Eurobonds were Debt maturity profile, as of 30.09.2016*, $m repurchased in Q3 2016, including $177m of EVRAZ’17 Swap effect on RUB bond principal called at make whole RUB bonds principal High Yield bonds $564m of bank maturities due in 2017
Slide 44: Debt covenants compliance
Debt covenants compliance EVRAZ is in compliance with all debt covenants Maintenance covenants* Indicator Required level As of 30.06.2016 EVRAZ monitors the covenants compliance and takes Net Debt < $6bn $5.3bn proactive steps to keep a comfortable covenant Total Debt < $8.3bn $6.2bn headroom in
Slide 45: Key capital deployment initiatives
Key capital deployment initiatives 1 Deleveraging 2 Reinvestment Deleveraging remains management’s focus with a 3 long-term target of 2.0x Net Dividends leverage level (Net Well-invested assets debt/EBITDA) Prudent approach to new Restriction on dividends Proactive extension or investments
Slide 46: Contact
London +44 207 832 8990 Moscow +7 495 232 1370 IR@evraz.com www.evraz.com