Evraz PLC · LSE:EVR
Evraz — Investor Day (October 2017)
45 slides from Evraz's investor day presentation, Oct 18, 2017
Slide 1: EVRAZ Investor Day
EVRAZ Investor Day London. 18 October 2017
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 Alexey Ivanov Senior Independent Chief Executive Officer Senior Vice President, Non-Executive Director Commerce and Business development Sergey Stepanov Conrad Winkler Nikolay Ivanov Vice President, Chief Executive Officer Chief Financial Officer He
Slide 4: Agenda
Agenda 9:05 am Corporate governance Sir Michael Peat, Senior Independent Non-Executive Director 9:10 am Strategic overview Alexander Frolov, CEO 9:30 am Steel, Russia Alexey Ivanov, Senior Vice President, Commerce and Business development 9:50 am Coal, Russia Sergey Stepanov, Vice President, Head of
Slide 5: Corporate governance
Corporate governance Sir Michael Peat Senior Independent Non-Executive Director
Slide 6: Solid corporate governance
Solid corporate governance EVRAZ approach to corporate governance is primarily based on the UK Corporate Governance Code published by the Financial Reporting Council in April 2016 and the Listing Rules of the UK Listing Authority EVRAZ complies with all of the provisions of the 2016 UK Corporate
Slide 7: Current Board composition and performance evaluation
Current Board composition and performance evaluation Current Board composition Performance evaluation under supervision of Nom. Committee An internally facilitated annual Board evaluation was Sir Michael Peat Alexander Abramov Senior INED, chairman of conducted in December 2016 Chairman, the Nomin
Slide 8: Strategic overview
Strategic overview Alexander Frolov Chief Executive Officer
Slide 9: EVRAZ highlights
EVRAZ highlights EVRAZ is a global steel and mining company, the leading producer of infrastructure steel products with the lowest costs along the value chain The leader in the Russian construction and rail markets The largest coking coal producer in Russia № 1 producer of rails and large di
Slide 10: Global steel industry is facing structural improvement
Global steel industry is facing structural improvement Global steel demand is fairly strong in 2017 with China and other Asia being the major drivers Utilisation ratio is up by 4p.p. due to the capacities reduction programme in China Healthy steel demand growth rates are forecasted to continue
Slide 11: Stronger demand for coking coal
Stronger demand for coking coal In 2017, Chinese coking coal imports increased driven by domestic coal capacity shutdowns Despite high prices, supply response was limited and was mainly represented by high-cost US producers Going forward, demand for coal in global markets is expected to increa
Slide 12: Consolidation in global iron ore market is growing
Consolidation in global iron ore market is growing In 2017, the market share of the top 4 iron ore producers (Rio Tinto, Vale, BHP and Fortescue) reached 75% versus 68% in 2012 In the next five years, Chinese iron ore producers will decrease production by 120 mtpa due to depletion of reserves an
Slide 13: EVRAZ strategy continuity
EVRAZ strategy continuity EVRAZ strategic priorities were redefined as a result of positive market trends Market trends EVRAZ strategic priorities Development Retention Improvements in global steel market have structural of product of low-cost reasons portfolio and position customer base Iron
Slide 14: EVRAZ strategy achievements
EVRAZ strategy achievements EVRAZ strategic priorities Achievements in 2017 Development of product portfolio and customer base Efficiency improvement programme effect of c.$220m incl. Customer focus initiatives - $62m Cost-cutting initiatives - $158m Retention of low-cost position Prudent BF
Slide 15: Safety as a base for business sustainability
Safety as a base for business sustainability Safety remains a key priority for EVRAZ In 2017, EVRAZ was able to reduce YTD LTIFR to 2.0x vs 2.4x in 2016 with major initiatives focused on behavioural safety conversations and developing the standard operating procedures for the key risk areas in e
Slide 16: Ambitious product portfolio improvement goals
Ambitious product portfolio improvement goals Segment Key long-term goals EVRAZ sales of H-beam in Russia, kt +35% Domestic market demand improvement through Steel promotion of steel construction and substitution of 650 welded beams 480 2017e 5 years Internal consumption*, % +40p.p. Development
Slide 17: Continuous focus on efficiency improvements
Continuous focus on efficiency improvements In 2017, the effect from efficiency improvements programme is expected to reach c.$220m EVRAZ plans to maintain the pace of improvements of at least 2-3% of COGS per annum This goal will be achieved via a combination of bottom-up and top-down approac
Slide 18: Selective investments in development
Selective investments in development In 2017, EVRAZ will see an increase in CAPEX due to Blast Furnace #7 construction at ENTMK and rouble appreciation In 2018, EVRAZ expects CAPEX to be close to $700m Future investments projects are most likely to be focused on the development of the steel pr
Slide 19: Debt reduction target achieved
Debt reduction target achieved EVRAZ has reached the target Net Leverage metric of 2.0x and intends to retain this level in the future As a result, EVRAZ resumed dividend payments with a view to stabilise payouts going forward EVRAZ Net Leverage EVRAZ dividend payments, 2017e Net Debt, $m x Net
Slide 20: Key takeaways
Key takeaways Improvements in the global steel market have structural reasons Iron ore and coking coal prices will most likely stabilise at higher levels than previously expected EVRAZ is on track to deliver on its strategic priorities in 2017 EVRAZ long-term goals are the following: 1. Impr
Slide 21: Steel, Russia
Steel, Russia Alexey Ivanov Senior Vice President, Commerce and Business development
Slide 22: Russian steel demand is on a positive track
Russian steel demand is on a positive track Russian GDP and fixed asset investments are expected to demonstrate growth in 2017, supporting the domestic steel demand Russian GDP and gross fixed investments growth, % Demand for key EVRAZ products in Russia, kt Rebar Structural shapes GDP Gross fixed
Slide 23: Development of the rail portfolio
Development of the rail portfolio In 2017, Russian Railways (“RZhD”) reached a multi-year record of rail consumption (more than 1mt), with EVRAZ maintaining an c.70% market share EVRAZ ZSMK (“EZSMK”) rail mill is to retain 100% utilisation rate We are currently considering various options to i
Slide 24: Strong upside in Russian H-beam market
Strong upside in Russian H-beam market EVRAZ is executing a number of initiatives to increase its sales and total demand for beams in Russia Beam demand increased by 10% in 2017 and is expected to reach 1.2mt by 2022 Beam market development initiatives Impact on the H-beam market 1 Domestic hot-
Slide 25: Optimum CAPEX for maintenance and growth
Optimum CAPEX for maintenance and growth CAPEX in 2017-2018 will be above the 2015-2016 level due to planned Blast Furnace #7 construction Future investment projects will be focused on efficiency improvement and selective product portfolio development Major investment projects Effect driver CAPE
Slide 26: EVRAZ Business System as a new source of improvements
EVRAZ Business System as a new source of improvements The main idea is to engage all employees in the improvement process By 2020 EVRAZ Business System (“EBS”) will become a major source of new ideas for the efficiency improvement programme Number of EBS transformations Initiatives generated by
Slide 27: EVRAZ is a leading player in global vanadium market
EVRAZ is a leading player in global vanadium market Ferrovanadium (FeV) is an alloy used in steel production in order to increase toughness of rebar, rails, H-beam and LDP 90 - 95% of vanadium is used in steelmaking industry Vanadium usage in steel production Vanadium applications breakdown, % H
Slide 28: Vanadium business in detail
Vanadium business in detail EVRAZ share of the global Ferrovanadium market is c.22% Global Ferrovanadium supply, 2016, % EVRAZ sales average c.12 kmtV* (thousand metric tons of vanadium) per annum EVRAZ EVRAZ produces FeV from slag (by-product of steel Others 22% 39% production at ENTMK), whic
Slide 29: Vanadium business contribution to the financial performance
Vanadium business contribution to the financial performance FeV price increased from $26k/mtV in H1 2017 to $45k/mtV in September 2017 due to Chinese production halt during environmental inspections EVRAZ expects to generate $200m of additional revenue in 2017 versus 2016 Going forward, the pr
Slide 30: Key takeaways
Key takeaways Russian steel consumption is recovering on the back of the economic rebound EVRAZ is focused on rails and H-beam development Selective investments in the steel product portfolio development and cost reduction EBS to become a major source of new ideas for the efficiency improvem
Slide 31: Coal, Russia
Coal, Russia Sergey Stepanov Vice President, Head of the Coal Division
Slide 32: Coal sales overview
Coal sales overview In 2017, EVRAZ coal sales are expected to increase by 1.1mt while average realised price could reach $102/t (+57% versus 2016) EVRAZ international client base is expanding and becoming more geographically diverse Coal sales breakdown by type, mt Coal sales breakdown by region
Slide 33: Efficiency increase along the value chain
Efficiency increase along the value chain In 2017, EVRAZ coal business increased its operational efficiency in mine development (+22%) and coal mining (+8%) Cash cost moved up due to rouble appreciation, higher maintenance and HSE expenses on the back of favorable market conditions Further ope
Slide 34: Coal division is expected to increase volumes
Coal division is expected to increase volumes EVRAZ can increase sales by 2.3mtpa in three years through the brownfield expansion of existing mines Coal sales growth breakdown, mt Increase the mining volumes at Raspadsky open-pit with additional equipment + 0.3 + 0.6 + 0.7 + 0.6 18.9 Mining of HCC
Slide 35: Coal segment strategic priorities
Coal segment strategic priorities Priorities Achievements in 2017 Aims for 2018 1 Degas drilling intensification, launch of the Full scale implementation of directional drilling pilot project for directional drilling and new ventilation system Safety Installation of highly effective ventilator
Slide 36: EVRAZ North America
EVRAZ North America Conrad Winkler CEO, EVRAZ North America
Slide 37: ENA at a glance
ENA at a glance Division overview ENA product mix in H1 2017, % EVRAZ North America is the leading producer of engineered Construction steel products in Western North America Tubular products products 14% The Division has 6 production sites in the US and Canada 36% with total 2.1 mtpa steelmakin
Slide 38: North American steel markets
North American steel markets North American steel markets are expected to have positive dynamics, however competition remains high EVRAZ has leading positions in US & Canada LDP and Rails markets Product EVRAZ shipments*, mt Long-term goals EVRAZ shipments, mt X% Market share 29% 31% Maintain
Slide 39: ENA investment projects
ENA investment projects EVRAZ has a pipeline of investment projects aimed to regain market leading positions in key infrastructure steel products Major investment projects Effect driver CAPEX Launch 2017 2018 Quality ↑ Regina Steelmaking Cash cost ↓ $57m - 2017 Expansion +110kt of casting Quality
Slide 40: Financial overview
Financial overview Nikolay Ivanov CFO
Slide 41: Strong financial results in any market conditions
Strong financial results in any market conditions EBITDA margin in H1 2017 reached 23% - the highest level for the last five years Annual FCF* generation was c.$730m on average since 2013 EBITDA, $m FCF, $m EBITDA, $m FCF*, $m EBITDA margin, % FCF* / EBITDA, % 56% 23% 20% 48% 18% 16% 43% 43% 13%
Slide 42: Debt management
Debt management Total debt reduced by c.$0.4bn to c.$5.56bn in 9m2017 Debt maturity profile, as of 30.09.2017*, $m Trade lines EVRAZ announced the full redemption via make whole of Swap effect on RUB bond principal $271m Eurobonds maturing in 2018, using cash on hand RUB bonds principal Eurobond
Slide 43: Cash-flow priorities
Cash-flow priorities 1 Debt management 2 Reinvestment Continuous debt management activities aimed at lower cost of 3 borrowings Dividends Prudent CAPEX Target Net debt/EBITDA level - 2.0x New investment opportunities An interim dividend of $429.6m are most likely to be focused on the ($0.3
Slide 44: Q&A
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Slide 45: Contact details
London +44 207 832 8990 Moscow +7 495 232 1370 IR@evraz.com www.evraz.com