Slide 1: Organic Growth Strategy
Organic Growth Strategy March – April 2008
Slide 2: MMK at a Glance
MMK at a Glance Geographic Location Financial & Operational Indicators - MMK Group 2004 2005 2006 2007 %, 06/07 (1) Steel produced, mt 11,3 11,4 12,5 13,3 6,4 (1) Steel products output, mt 10,1 10,2 11,3 12,2 8,0 Revenue, US$ mln 4 829 5 380 6 424 8 197 27,6 Moscow EBITDA, US$ mln 1 735 1 511 2 005
Slide 3: Declared strategy of MMK: performance in 2007
Declared strategy of MMK: performance in 2007 9 Expansion of downstream production – Sellable products output keeps on growing according to our estimates – Crude steel and slabs output growth to meet the demand from plate mill coming on stream – Significant product changes are bound in 2008 – Prepar
Slide 4: Key Investment Factors
Key Investment Factors Broad Product Mix Strong Positions on Target investments the Fast Growing to boost profitability Russian Market Experienced Footprint on Management Promising Export Markets Competitive Edge in Costs 2007 financial results Annexes 3
Slide 5: Broad Product Mix
Broad Product Mix MMK is the largest producer of steel and rolled products in Russia MMK produces the broadest range of products in Russia, from slabs to downstream, high added value products Diversified product mix allows flexibility to respond to demand changes With main focus flat products, MMK c
Slide 6: Market Position
Market Position One of the Largest Steel Producers in the World, mt Arcelor Mittal 120 100 80 Jiangsu Shagang Group Nippon Steel 60 ThyssenKrupp POSCO Corus Group Evraz Group Riva Group U.S. Steel Tangshan Baosteel JFE Severstal 40 Sumitomo Nucor Gerdau Anshan Wuhan Techint SAIL ММК 20 0 Source: IIS
Slide 7: Broad Product Mix
Broad Product Mix Output of Main Products in 2007 Leading Position in High Added Value Production Products % of MMK’s Market MMK’s share in Hot rolled sheet position Picture 6.39 m tons (52.4%) Russia’s total production HR flat products 52% 1 42% Picture Cold rolled sheet CR flat products 35% 13% 2
Slide 8: Strong Positions on the Russian Market
Strong Positions on the Russian Market MMK’s geographic position is the key factor to determine its orientation towards satisfying the demand of the fast growing Russian market MMK is strategically placed in the highest steel consumption region of Russia The share of domestic sales is constantly gro
Slide 9: Sales Structure
Sales Structure (1) Growth of Downstream Products Sales Domestic Market, 2007 in Russia and CIS, 2002-2007 ’000 tons 1,266 % of supplies, tons 1,219 74 1 200 1,122 79 179 73 166 1 000 51 Long Products 230 178 209 24,2% 800 HRC 694 129 161 135 46,4% 158 600 56 422 438 426 400 150 133 Dow nstream 200
Slide 10: MMK: Domestic Market Trends
ММК: Domestic Market Trends Goal and Strategy of Domestic Sales Russian Oil & Gas Pipe Consumption, th.t CAGR 8,8% 6000 Growing demand from 3449 3550 3700 4000 3600 • Building a network of metal service centers pipe manufacturers 2329 3017 2000 • Growing shipments to large consumers 1612 2052 2531 2
Slide 11: Price Development: MMK vs CRU index
Price Development: MMK vs CRU index Long products, % Plates, % 250 250 200 200 150 150 100 100 50 50 1К04 2К04 3К04 4К04 1К05 2К05 3К05 4К05 1К06 2К06 3К06 4К06 1К07 2К07 3К07 4К07 1К04 2К04 3К04 4К04 1К05 2К05 3К05 4К05 1К06 2К06 3К06 4К06 1К07 2К07 3К07 4К07 Export Domestic Movement of CRU index (
Slide 12: Footprint on Promising Export Markets
Footprint on Promising Export Markets “(ММК) is ideally positioned for work on the growing markets of Russia and the Middle East. MMK’s strong focus on the Middle East promises good income from presence in yet another growth market” Analyst of Morgan Stanley The Company efficiently manages its expor
Slide 13: Goal and Strategy of International Sales
Goal and Strategy of International Sales Goal: Maintain Competitive Position on the International Market – Export shipments of 4.5 m tons from the MMK site in Magnitogorsk – MMK’s presence on the fast growing markets, including the Middle East, and advanced, traditionally high priced markets of the
Slide 14: Access to the Fast Growing Turkish Market
Access to the Fast Growing Turkish Market Location in Turkey Per capita steel consumption in 2006, kg 600 543 Istanbul 400 372 372 257 213 200 0 Turkey New EC members ЕС15 USA Japan and candidates Consumption by product, kt 11 667 12000 Iskenderun 9000 8 245 5 500 5 646 6000 5 040 4 694 ММК – Atakas
Slide 15: Competitive Edge in Costs
Competitive Edge in Costs Low cost position of Russian steelmakers remains the investment appeal MMK’s labour productivity is the highest in the Russian steel sector MMK receives dividends from modernized assets A significant part of the investment program is aimed at costs reduction MMK is practica
Slide 16: Competitive Edge in Costs
Competitive Edge in Costs Average EBITDA Margin in Steel Sector, % MMK Production Costs and Prices, USD/ton Average production cost, USD/t 40% 700 34% Average product price, USD/t 32% 600 30% 27% 500 400 20% 17% 14% 300 10% 200 100 0% 0 Brasil Russia Asia and Far Europe North America East 2001 2002
Slide 17: Outlook for the Raw Materials Markets in 2008
Outlook for the Raw Materials Markets in 2008 Coal Coal concentrate Russia has own strategic coal reserves covering the requirements of Russia 2006 2007 Russian steel producers Production, mt 47.6 49.0 Consumption, mt 38.7 40.1 Despite the growth in coal consumption, the Russian coal market is balan
Slide 18: Consumption and Prices of Major Raw Materials
Consumption and Prices of Major Raw Materials Consumption and price of major raw materials 2004 2005 2006 2007 Quantity (kt) Iron ore (sinter charge) 7,725 7,452 8,215 7,386* Iron ore (pellets) 6,384 6,378 5,834 5,813 Coking Coal 7,900 7,440 7,324 7,189 Scrap 2,051 2,411 3,798 5,046 Price per ton (U
Slide 19: Raw-materials sufficiency
Raw-materials sufficiency Iron-ore Supplies 5,8% 2007 15.4 mt 2009* 21,7% 16.95 mt 2016** 19.57 mt 12,4% 28,4% 4,0% 3,1% 71,6% 74,7% 78,3% SSGPO Mihailovsky GOK Lebedinsky GOK SSGPO Self Sufficiency SSGPO Self Sufficiency Self Sufficiency Others •- Own supplies increase due to increase of shipments
Slide 20: Strategic Alliance of MMK and Belon
Strategic Alliance of MMK and Belon In March 2008 ММК acquired 50% of ONARBAY ENTERPRISES LIMITED holding 82.6% of Belon for $230.4 mln Transaction’s Upsides for MMK • Guaranteed supplies of required volumes of deficit coking coal grades • Improved composition of coal charge Belon Group’s coal reser
Slide 21: Development of Prioskol Iron Ore Deposit
Development of Prioskol Iron Ore Deposit In November, 2006, MMK won a tender to develop Prioskol Iron Ore Deposit. In December of 2007 MMK’s Board of Directors passed a resolution on setting up a branch of MMK in the Belgorod Region to implement the project. Deposit Characteristics Project Parameter
Slide 22: Target investments to boost profitability
Target investments to boost profitability MMK focuses its activity on steel making, investing in quality and technology The implementation of the investment programme will enhance MMK’s competitive ability in the long term The investment programme is perfectly balanced to reduce costs, maintain the
Slide 23: Creating the most efficient steel production in Russia
Creating the most efficient steel production in Russia Crude steel Production 16.1 Mtpy Commercial Products Production 15.1 Mtpy 15.0 Mtpy 14.2 Mtpy 14.2 Mtpy 14.2 Mtpy 14.0 Mtpy • Production in the BOF 13.2 Mtpy 13.2 Mtpy 13.2 Mtpy Shop to reach 12 14.1 Mtpy • Start-up of BOF Mtpy 13.3 Mtpy convert
Slide 24: Key Projects: Plate Mill and Automotive CR Sheet
Key Projects: Plate Mill and Automotive CR Sheet The implementation of the Project will allow to produce high Only 8 companies ( located in Germany, France and Japan) quality auto body sheet meeting the requirements of the leading are able to produce plate with comparable characteristics internation
Slide 25: Investments into Improving Performance
Investments into Improving Performance Production, ktpy 15 000 12 000 $ 265 .5% 9 000 / ton: CA GR – 7 EBITDA 6 000 $ 185 Total EBITDA growth in 2013 against 2008: USD1,575 mln * 3 000 0 Commercial slabs Long products Flat products Downstream products EBITDA /t* * - Calculation made on estimate pric
Slide 26: Higher profitability through organic growth
Higher profitability through organic growth th. t 15 000 14 000 2 797 EBITDA margin* 48% 40% 42% 30% 927 1029 861 12 203 387 221 221 12 000 640 628 927 Color-coated Galvanized High quality CR flat products Plate steel products 2 mtpa 1.5 mtpa products 10 000 2007 2013 Production increase in 2013 com
Slide 27: Intercos-IV Project
Intercos-IV Project Cars output in Russia, 2005-13 Project location St. Petersburg thousand vehicles Interkos -4 4000 CAGR - 8,4% 3000 2000 1000 0 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E Russian brands import localization of f oreign companies production Source: Companies forecast, ASM-H
Slide 28: Experienced Management
Experienced Management MMK is headed by a unique management team with rich production experience. The average work record of MMK top managers is over 24 years “Having invested heavily in sufficient upgrades of its asset base since the beginning of 1990-s the company today boasts to be one of the mos
Slide 29: Exceptional Management Team
Exceptional Management Team Management Team Achievements • Total modernization of production facilities Victor F.Rashnikov Chairman of MMK’s Board of Directors, President of MMK Managing Company Work record with MMK: 40 years • Steel products output nearly doubled in 1996-2006 from 5.9 m to 11.3 m t
Slide 30: 2007 Financial Results
2007 FINANCIAL RESULTS 29
Slide 31: Key EBITDA Drivers
Key EBITDA Drivers Sales and EBITDA Dynamics • Attractive Russian economy driving strong steel demand growth Strong Domestic US$ m • Growing demand for high value-added and 9 000 40% Demand customised products especially from the pipe-making, construction, energy and automobile industries 8197 • Inc
Slide 32: Key Financials
Key Financials Key Financials Debt / EBITDA US$ m 2003 2004 2005 2006 2007 2500 0,8 Sales 3,047 4,829 5,380 6,424 8,197 2000 0,6 % of growth 48.3 58.5 11.4 19.4 27.6 1500 0,4 1000 EBITDA 1,003 1,735 1,511 2,005 2,342 0,2 500 margin, % 32.9 35.9 28.0 31.2 28.6 0 0 2004 2005 2006 2007 Debt EBITDA Debt
Slide 33: Market valuation of MMK growth potential
Market valuation of MMK growth potential MMK Р/Е and EV/EBITDA compared with industry average Analysts TP premium over monthly average MMK MP EMEA 22,00 11 $ Troika HSBC P/E 21,00 Ренессанс 10,5 Капитал ING Merrill Ly nch Uralsib 10 20,00 Morgan Stanley 9,5 19,00 Severstal UniCredit (Атон) Evraz Gol
Slide 34: Annexes
ANNEXES 33
Slide 35: Sales Geography, 2007
Sales Geography, 2007 St. Petersburg R/w frontier points to non-CIS states 1.7% 1.7% Belarus NW Region 1.3% Moscow 1.2% 7.6% Eysk Central Region 8.4% Volga Region Urals Siberia Far East South of Russia 12.7% Novorossiysk 22.9% Astrakhan 1.8% 17.2% 5.1% 3.9% Olya Port 4.3% Makhachkala 0.8% CIS % Russ
Slide 36: Power and Gas Self-Sufficiency
Power and Gas Self-Sufficiency MMK’s Power Production Cost against Power Balance Power Purchase Price MW US$ / MW*h 810 70 800 705 58,87 642 617 627 622 60 49,84 600 50 43,25 144% 40 153% 400 160% 30 24,12 19,68 16,6 200 20 10 0 0 2005 2006 2007 2005 2006 2007 Consumption Pow er generation Price of
Slide 37: A Comprehensive Investment Program for 2007-2013
A Comprehensive Investment Program for 2007-2013 1. Construction of sinter stabilization units at Sintering Plants # 2 and 3 and installation of Bell-less Top Charging Systems at Sintering Coke Production Blast Furnace Shop: - Decrease of coke consumption by 15 kg/ton of iron, on average - A 2-3% in
Slide 38: Strong positions in Russia's fast growing pipe making sector
Strong positions in Russia’s fast growing pipe making sector Pipe Consumption Forecast in Russia Pipeline Projects in Russia up to 2015 ths. tn CAGR 8,8% Projects Period Length of Tonnage 6000 pipeline (km) (mt) 4000 3449 3550 3700 Gazprom projects 2006-2015 30 879 23,8 3600 3017 2329 Transneft proj
Slide 39: Disclaimer
Disclaimer THIS PRESENTATION IS FOR INFORMATION ONLY. THIS PRESENTATION IS FOR DISTRIBUTION IN UK ONLY AMONG THE PEOPLE HAVING PROFESSIONAL SKILL IN THE ISSUES RELATED TO INVESTMENTS WITHIN THE MEANING OF ARTICLE 19(5) OF DIRECTIVE ON FINANCIAL ADVERTISEMENT APPROVED IN 2005 ON THE BASIS OF LAW ON F
Slide 40: End of Presentation
MAGNITOGORSK IRON & STEEL OPEN JOINT STOCK COMPANY €y End of Presentation