Mmk · RUS:MAGN
Mmk — Investor Presentation (November 2007)
64 slides from Mmk's investor presentation, Nov 22, 2007
Slide 1: Analyst Presentation
Analyst Presentation 22/11/2007
Slide 2: 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 3: MMK is a company focusing on value added products
MMK is a company focusing on value added products Russia’s only company concentrating exclusively on steel production 1 2 Focus on value added products 3 Strong positions on the attractive domestic market Strong positions in Russia’s fast growing pipe making sector 4 5 Modern, low-costs production c
Slide 4: MMK at a Glance
MMK at a Glance Geographic Location Financial & Operational Indicators - MMK Group 2004 2005 2006 1H2006 1H2007 Steel, tonnes produced mln (1) 11,3 11,4 12,5 5,9 6,5 Steel products produced, tonnes 10,1 10,2 11,3 5,4 6,0 mln (1) Moscow Sales, US$ mln 4 829 5 380 6 424 2 780 4 000 EBITDA, US$ mln 1 7
Slide 5: Focus on value added products
Focus on value added products The largest share of the value added products (1) The largest share in Russian rolled flat products in 1H2007 Value Added Products (2) Others ММК 8,5% Nosta 3,4% (2) Severstal MMK 37,6% NLMK 18,1% (3) NLMK (4) Mechel Severstal (5) 32,4% Evraz 0% 25% 50% 75% 100% Further
Slide 6: Share Capital Structure
(1) Share Capital Structure Mintha Fulnek Казначейские Free-float Holding Enterprises акции Limited (2) Limited (2) 44,28% 39,26% 4,27% 12,19% 1. Data upon register closing as of July 16, 2007 2. Mr.V.F.Rashnikov, Head of Board of Directors, MMK, is the beneficiary owner of MMK’s ordinary shares, wh
Slide 7: Production
Production Sales Procurement Costs Structure Group Structure Financing Development Prospects Financial Results 6
Slide 8: Characteristics of the main production facilities
Characteristics of the main production facilities Key assets Production Actual production, capacities(1), million tons million tons(2) Coke/chemical 9 Coke Batteries 5,7 4,05 by- by-products and Blast 3 Sinter Plants 10,8 7,59 Furnace Divisions 8 Blast Furnaces 9,5 7,20 Three 370t BOFs 10,3 7,57 Ste
Slide 9: Finished downstream products
OJSC MMK’s process flow chart in 2007 Blast Furnace Rolled products production Steel making Production of (9,5 mtpy) sinter EAF Shop: EAF+TBS C/R products Tinplate Long products (10,8 mtpy) (3,0 mtpy) (0,302 mtpy) 100% (4,6 млн. mtpy) (2,0 mtpy) 100% 100% 100% Scrap – 800 kg/t 100% 100% Tin – 80% 10
Slide 10: Key Production Indicators
Key Production Indicators OJSC MMK’s Commercial Products Growth Production dynamics ‘000 tonnes ‘000 tonnes 2004 2005 2006 1H2006 1H2007 12 000 11 346 Sinter 10 361 10 343 10 750 5 453 4 949 11 000 10 201 1579 Coke 5 872 5 576 5 496 2 780 2 619 10 137 10 000 1647 1542 Pig iron 9 645 9 655 9 733 4 92
Slide 11: Sales
Production Sales Procurement Costs Structure Group Structure Financing Development Prospects Financial Results 10
Slide 12: Sales Geography, 1H2007
Sales Geography, 1H2007 S. Petersburg R/w frontier points to non-CIS states 2,6% 2,2% Belarus NW region 1,4% Moscow 1,2% 7,9% Eysk Central region Far East 9,6% Volga region Urals Siberia Novorossiysk South of Russia 14,5% 24,7% 2,1% Astrakhan 16,7% 3,3% 1,6% 4,6% Port Olya CIS % Russia1 7,4% 0,2% %
Slide 13: Regional Sales Structure
Regional Sales Structure Growth of downstream products sales Domestic market, 1H2007 (1) in Russia and CIS, 2002-2006 and 1H2007 ’000 tons in % of tons shipped 1 219 1 200 1 122 79 73 166 1 000 51 Long product 229 178 800 694 24,4% 129 610 627 135 158 Flat h/r 600 39 38 75 91 products 56 421 438 82
Slide 14: Way to the Customer
Way to the Customer Domestic market Direct sales to end users (66%) Major clients Dealers Minor clients Regional sales network: sport market (34%) Export Direct sales to end users (60%) MMK Steel Trade AG MMK Trading AG 94% End users Independent traders 6% Traders Regional sales network: sport marke
Slide 15: Distribution and logistics
Distribution and logistics OAO MMK sales network and main ports of export Transportation and logistics Railway transportation Saint- Petersburg • Russian Railways ensure about 41% of export shipments inside the country (1st half of 2007) at the basic tariff rate • MMK-Trans (an associated company) t
Slide 16: Diversified customer base
Diversified customer base • MMK has a diversified customer base comprising leading • OAO MMK has long-term and mutually beneficial relations with its main Russian companies customers. In the first half of 2007 ten largest customers accounted for 15,58% of proceeds and 14,9% of MMK shipments (in tons
Slide 17: Price development for OAO MMK steel products
Price development for OAO MMK steel products Price development for long products, USD/t Price development for plates, USD/t 700 900 600 700 500 400 500 300 300 200 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1
Slide 18: Price Development for MMK's Commercial Products compared to CRU index
Price Development for MMK’s Commercial Products compared to CRU index Price development for long products, % Price development for plates, % 250 250 200 200 150 150 100 100 50 50 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2
Slide 19: Procurement
Production Sales Procurement Costs Structure Group Structure Financing Development Prospects Financial Results 18
Slide 20: Security for Raw Materials Supply
Security for Raw Materials Supply Deliveries in H1 Principal Suppliers Comments 2007 • The main supplier of the iron ore raw materials to MMK is SSGPO by reason of the close proximity (about 330 km) • At the present time the Company has entered into a 10-year Agreement on the delivery Others; 5,8% o
Slide 21: Security for Electric Power Supply
Security for Electric Power Supply Comparison of Electric Power Cost Average Energy Wholesale Price Increase produced by ММК with the Purchase Price US$ / MW*h 20% 18% 70 16% 57,29 16% 60 14% 49,84 50 43,25 12% 151% 40 153% 8% 160% 8% 30 22,81 19,68 16,6 20 3% 4% 10 0% 0 2007П 2008П 2009П 2010П 2011
Slide 22: Costs Structure
Production Sales Procurement Costs Structure Group Structure Financing Development Prospects Financial Results 21
Slide 23: Cost Composition of Output
Cost Composition of Output (1) OJSC MMK Production Costs in USD Cost of Goods Sold Breakdown MMK Group Power from Fuel from outside outside suppliers H1 2007 100% H1 2007 Sinter Overheads: 4,9% suppliers 2,4% 8,9% 90% 6,1% 80% Salaries: 10,1% Pellets Auxiliary 70% 10,0% materials 60% 13,4% 50% 40% R
Slide 24: Costs Structure Analysis: Administrative, Commercial and Other Expenses
Costs Structure Analysis: Administrative, Commercial and Other Expenses Expenses (US$ m) (1) % of Sales Administrative 4,4% 4,9% 4,4% 4,8% 3,0% Commercial: 2,7% 4,4% 6,5% 6,9% 6,4% Transport charges 1,8% 3,6% 5,2% 5,9% 5,7% Other 0,8% 0,8% 1,2% 1,0% 0,7% 800 700 600 285 500 400 262 121 300 337 134 2
Slide 25: OJSC MMK's Materials Costs Structure Analysis
OJSC MMK’s Materials Costs Structure Analysis Consumption and cost of primary raw materials 2004 2005 2006 1H2006 1H2007 Consumption (thousand tons) Iron Ore (sinter) 7,725 7,452 8,215 4,253 3,853 Iron Ore (pellets) 6,384 6,378 5,834 2,942 2,891 Coking Coal 7,900 7,440 7,324 3,688 3,520 Scrap 2,051
Slide 26: Group Structure
Production Sales Procurement Costs Structure Group Structure Financing Development Prospects Financial Results 25
Slide 27: The Group's Structure as of 30.06.07
The Group’s Structure as of 30.06.07. Share in the Group’s Participation in Description of Activities of the Group’s Companies Revenues % ³ the Group’s total OJSC Magnitogorsk Iron and manpower, % Steel Works (parent company) Steel products’ manufacturing and sales 91.0 46.1 Trading companies OJSC M
Slide 28: MMK-METIZ: high added value products and a highroad to customers
MMK-METIZ: high added value products and a highroad to customers En-to-end technology Metae Companies’ Output, 1H2007 of OJSC MMK and MMK-METIZ , 1H2007 ’000 tons Share in OJSC MMK’s total shipments in kind 500 • Long products (26,1%) 400 • Hot rolled sheets (4,0%) 300 • Cold rolled sheets (0,1%) 20
Slide 29: Financing
Production Sales Procurement Costs Structure Group Structure Financing Development Prospects Financial Results 28
Slide 30: Financial Reliability
Financial Reliability • OJSC MMK has historically MMK been notable for its strong liquidity and creditworthiness – Positive money balance and low borrowings – Positive and stable rating assigned by S&P, Moody’s and Fitch • Debt schedules feature no major disbursements before 2008 • Dividend rate is
Slide 31: Financing
Financing Debt Structure as of the end of the period (short-term / long- Debt Repayment on loans and credits since June, 30, 2007, . term), USD mln. USD mln. 100% 171 500 438 80% 400 498 400 847 60% 300 40% 468 200 155 606 578 20% 100 53 36 388 20 0% 0 2004 2005 2006 1st half 2007 1st year 2nd year
Slide 32: Development Prospects
Production Sales Procurement Costs Structure Group Structure Financing Development Prospects Financial Results 31
Slide 33: MMK: Domestic Markets Trends
ММК: Domestic Markets Trends • High economic growth rates in Russia Increased consumption • Goods with highest value added are sold in the Russian market of downstream products • Growing demand for hogh quality galvanized and polymer coated rolled products • Favourable situation on energy markets Gr
Slide 34: The Goal and Strategies in the Domestic Sales Market
The Goal and Strategies in the Domestic Sales Market Goal: Strengthening of MMK leading position in the domestic sales market and increase of domestic sales up to 10 mt by 2013. Strategies Increase share of high-value- Establish a service center Vertical integration with steel Increase shipments to
Slide 35: MMK: Overview of Key Export Markets
ММК: Overview of Key Export Markets • High rate of growth in metal consumption; large net importer • Expansion of steel product mix consumed • Geographic proximity to the market produces a favorable effect on MMK’s positions Middle East – Turkey is a perspective market and the main destination for M
Slide 36: Goal and Strategies of International Sales
Goal and Strategies of International Sales Goal: Maintaining MMK’s Competitive Edge on the International Markets Strategies Expansion of MMK’s presence on the fast growing markets, Securing export sales of up to 5 Mtpy from the including Middle East, and high-end industrialized markets Magnitogorsk
Slide 37: Targeted Investments Geared to Creating the Most Efficient Steel Production in Russia
Targeted Investments Geared to Creating the Most Efficient Steel Production in Russia : Stages of Growth 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
Slide 38: Production: Integrated Investments 2007-2013
Production: Integrated Investments 2007-2013 1. Stabilization sites construction for agglomerate stabilization at sintering plants # 2 and 3 and installation of Belless Top Charging Systems at Blast Furnace Shop: - Coke consumption decrease by 15 kg/tone of iron, on average Sintering Coke Production
Slide 39: Downstream finished products
Perspective Process Layout of OJSC ММК, 2013 Blast Furnace Steelmaking Rolling Production Production of Sinter (mtpy) EAF+TBS C/R products Tin-plate (10,6 mtpy) Long Products (4,7 mtpy) (0,35 mtpy) 100% (4,07 mtpy) (2 mtpy) 100% 100% 100% Scrap – 850 kg/t 100% 100% Tin – 80% 10,2 g/m2 Iron Ore 80% 6
Slide 40: 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 Project Period Length of Tonnage 8 000 pipeline (km) (mn. % R 10 ,1 tn) CAG 6 000 Projects 2006-2015 30 879 23,8 JSC Gasprom 4 000 Projects 2006-2015 5 539
Slide 41: Investments to Raise Production Efficiency: Mill 5000 Start-up
Investments to Raise Production Efficiency: Mill 5000 Start-up Considerable profit growth Sales growth Only 8 worldwide producers (located in Germany, France and Japan) are capable of producing comparable heavy plates Unique type of production for Russia Summary Mill 5000: MMK and Severstal Current
Slide 42: Investments to Raise Production Efficiency: Automotive Sheet Production
Investments to Raise Production Efficiency: Automotive Sheet Production Considerable profit growth Implementation of the project will ensure the production of high-quality automotive steel sheets meeting the requirements of the world leading Sales growth car-making companies (GM, Ford, Toyota and ot
Slide 43: Contracts signed as part of the Investment Program
Contracts signed as part of the Investment Program Project / Equipment Project goal Commissioning/ Design cap. Design capacity Supplier reached 5,000 mm Plate Mill Expansion of plate mill production capacity by 1.5 Mtpy, of which SMS - Demag 2009 / 2010 1.5 Mtpy 1 Mtpy will be supplied to pipe maker
Slide 44: Project on Advanced Processing of Intercos-4
Project on Advanced Processing of Intercos - 4 Project location Cars output in Russia, 2005-13 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
Slide 45: Construction of Industrial Complex – access to the high-growth market of Turkey
Construction of Industrial Complex – access to the high- growth market of Turkey Geographical position, Turkey Consumption steel products per capita in 2006, kg 600 543 Istanbul 372 372 400 257 213 200 0 Turkey New member or ЕС15 USA Japan candidates of EC Consumption of all kinds of products, thous
Slide 46: Strategy of Uninterrupted Raw Materials Supply
Strategy of Uninterrupted Raw Materials Supply • 10-year contract for supply of agreed volumes of ore materials from Sokolovsko-Sarbaisky Mine Iron ore • Development of the local iron ore base, including Bakal Mine Administration and captive mine in Magnitogorsk which will allow to cover over 20% of
Slide 47: Financial Results
Production Sales Procurement Costs Structure Group Structure Financing Development Prospects Financial Results 46
Slide 48: Key Financials
Key Financials Financial Highlights Dynamics of Sales & EBITDA US$ mln 2003 2004 2005 2006 1П2006 1П2007 US$ mln 7 000 40% Sales 3 047 4 829 5 380 6 424 2780 4000 6 424 % growth 48,3 58,5 11,4 19,4 3,2 43,9 6 000 EBITDA 1 003 1 735 1 511 2 005 785 1205 5 380 30% % margin 32,9 35,9 28,0 31,2 28,2 30,
Slide 49: Annexes
IA MAGNITOGORSK IRON & STEEL WORKS OPEN JOINT STOCK COMPANY Annexes 48
Slide 50: Unique Managing Team
Unique Managing Team Victor F. Rashnikov Chairman of the OJSC MMK Board of Directors President of ММК Managing Company LLC Work experience at MMK – 39 years Andrey A. Morozov Gennady S. Senichev Marina А. Zhemchueva Sergey V. Krivoschekov Deputy Chairman of OJSC MMK Chairman of the OJSC MMK Manageme
Slide 51: MMK Group Operations and Income Statement
MMK Group Operations and Income Statement 1st Year Half, Change compared to same period of USD m previous year 2007 год 2006 год USD m % Revenue 4,000 2,780 1,220 43.9% Operating income 1,077 690 387 56.1% Revenue margin 26.9% 24.8% Income before income tax and minority interest 1.119 779 340 43.6%
Slide 52: MMK Group Key Performance Indicators
MMK Group Key Performance Indicators Sales proceeds, UCD m Operating income, USD m 7000 2000 35% 6000 5000 1500 30% 4000 1000 3000 25% 2000 500 1000 0 20% 0 2004 2005 2006 1H2006 1H2007 2004 2005 2006 1H2006 1H2007 Operating income / Proceeds EBITDA, USD m Net income, USD m 2500 1500 30% 2000 35% 15
Slide 53: MMK Group's Key Financial Indicators
MMK Group’s Key Financial Indicators MMK Group’s Sales MMK Group’s Sales in USD 1st Year Half, Change compared to 1H2007 г. USD m same period of 9% previous year 2007 2006 USD m % 31% OJSC MMK’s 60% 2 383 1 618 765 47.3% proceeds Group’s steel 1 252 955 297 31.1% traders’ proceeds OJSC MMK Group’s o
Slide 54: MMK Group's Key Financial Indicators (continued)
MMK Group’s Key Financial Indicators (continued) Proceeds by type of product Proceeds by type of product in USD 6% 3% 1H2007 г. st 1 Year Half, Change compared to same period of 23% USD m previous year 2007 2006 USD m % 10% Billets and slabs 131 1 130 х131 58% Flat products 2,293 1,547 746 48.2% Bil
Slide 55: MMK Group's Operating Costs' Structure
MMK Group’s Operating Costs’ Structure MMK Group’s operating costs MMK Group’s operating costs in USD 1,6% 1,4% 1st Year Half, Change 1H2007 г. 4,1% 0,4% USD m compared to 8,8% same period of previous year 3,4% 2007 2006 USD % m Cost of products sold 2 348 1 631 717 44.0% (excl. of amortization and
Slide 56: MMK Group's Balance Sheet, USD m
MMK Group’s Balance Sheet, USD m 30.06.2007 31.12.2006 Change % Current assets, including 3,895 2,480 1,415 57.1% Cash and cash equivalents 548 338 210 62.1% Short-term bank deposits 1,278 228 1,050 460.5% Short-term investments 306 325 -19 -5.8% Accounts receivable less allowance for doubtful accou
Slide 57: MMK Group's Cash Flows
Balance at begin. of period 338 Net income 866 Financing activities 653 Adjustments for non-cash 133 operations Change in -6 working capital MMK Group’s Cash Flows Change of cash balance during the 1Н2007, USD m Investing activities -1436 Balance at end of period 548 56
Slide 58: MMK Group's Financial Position Indicators
MMK Group’s Financial Position Indicators Current liquidity Debt / EBITDA 3000 0,8 4 3000 2500 3 0,6 2000 2000 1500 0,4 2 1000 1000 1 0,2 500 0 0 0 0 2004 2005 2006 1H2006 1H2007 2004 2005 2006 1H2006* 1H2007* Current assets Current liabilities Debt EBITDA Debt/EBITDA Current assets /Current liabili
Slide 59: OJSC MMK's Key Production Indicators
OJSC MMK’s Key Production Indicators thousand tons Description 2004 2005 2006 9М2006 9М2007 Change 6% humidity coke 5 872 5 576 5 496 4 194 4 048 -3,5% Pig iron 9 645 9 655 9 733 7 427 7 198 -3,1% Crude steel 11 281 11 385 12 455 9 187 9 934 8,1% Incl. EAF steel 1 461 1 319 2 206 1 425 2 361 65,7% B
Slide 60: Historical Structure of OJSC MMK's Commercial Products' Mix
Historical Structure of OJSC MMK’s Commercial Products’ Mix thousand tons Description 2004 2005 2006 9М2006 9М2007 Change Billets and slabs 722 425 332 121 588 386,0% Long products 1 174 1 098 1 707 1 248 1 384 10,9% Flat products 6 593 7 136 7 729 5 788 5 997 3,6% Downstream products 1 647 1 542 1
Slide 61: OJSC MMK's Historical Commercial Product Mix By Market
OJSC MMK’s Historical Commercial Product Mix By Market Domestic sales’ growth in kind Trend in export shipments 9М2006 7% 3% 3% 5% 100% 9М2007 17% 15% 38% 0% 51% 50% 46% 47% 22% 50% 62% 65% 63% 49% 50% 54% 53% Billets and slabs Long products HRC 0% CRC Downstream products 2004 2005 2006 9М2006 9М200
Slide 62: The Best Information Control System among Russian Peers
The Best Information Control System among Russian Peers Unique Oracle applications as compared to Prompt Acquisition of Financial and Production Data other Russian steel-makers • Plant Control System with the complete function Maintenance Production package • On-line data on the operating activity H
Slide 63: Labour and Environmental Protection Issues
Labour and Environmental Protection Issues Quantity of Industrial Accidents Environmental Facilities of OJSC MMK 40 35 398 gas 32 handling and 30 27 dust collecting units 21 19 20 6 production 10 48 local waste- wastes recovery water treatment units plants 0 2002 2003 2004 2005 2006 Source: MMK Sour
Slide 64: The End
MAGNITOGORSK IRON & STEEL | nA WORKS OPEN JOINT STOCK COMPANY €)p The End
MMK (Magnitogorsk Iron & Steel Works) — Investor Presentation (November 2007) on 6ix