Algoma Steel Group Inc. · NASDAQ:ASTL
Algoma Steel — Shareholder Meeting (June 2006)
27 slides from Algoma Steel's shareholder meeting presentation, Jun 29, 2006
Slide 1: Positioned for the Future
Positioned for the Future Annual Meeting: June 29, 2006
Slide 2: Disclaimer
Disclaimer Certain statements made in this presentation are forward-looking statements that involve risks and uncertainties. These forward-looking statements reflect the Company’s best judgment based on current information, and although we base these statements on circumstances that we believed to b
Slide 3: Business Review
Business Review Presented by: Denis Turcotte President & Chief Executive Officer Positioned for the Future 3
Slide 4: Topics For Discussion
Topics For Discussion Ø Reviewing Our Successes ØIndustry Fundamentals ØEstablishing a Profitable Position ØThe Core Business and Strategic Pathway ØPriorities for 2006 Positioned for the Future 4
Slide 5: Strong Financial Performance
Strong Financial Performance Integrated Producers $150 131 $125 $100 2005 US$ per ton (000's) Highest Profit Per Ton $75 73 70 ØMarket positioning $50 ØCost structure 35 $25 22 18 $0 -11 ($25) AK * A (1) lco S WP MA lN US Ste * GO tta co fa s Mi AL * 2005 converted to US$ at an average Do rate of 82
Slide 6: Outstanding Productivity
Outstanding Productivity 200 Direct Strip Complex (DSPC) Production 175 150 000 Tons / Month 125 100 75 50 25 0 1997 2000 2003 2006 Positioned for the Future 6
Slide 7: Margin Improvement
Margin Improvement $155 MM Trendline $ Millions Improvements $175 Accrued Annualized $150 $125 Savings $100 $75 $50 $25 $0 Q1' 03 Q2' 03 Q3' 03 Q4' 03 Q1' 04 Q2' 04 Q3' 04 Q4' 04 Q1' 05 Q2'05 Q3'05 Q4'05 Q1'06 EMPLOYMENT ENERGY VOLUME & MIX PROCESS IMPROVEMENT PURCHASING & DISTRIBUTION OVERHEAD Posi
Slide 8: Environmental Commitment
Environmental Commitment Process Effluent Discharge per Tonne Shipped Steel 60 28.5% Reduction of Cubic metres / Tonne Shipped 55 Discharge /Tonne 50 Shipped 45 40 35 30 25 20 15 10 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Reduction in Waste Disposal to Landfill Tonnes Waste
Slide 9: Environmental Commitment
Environmental Commitment Total Energy Intensity-Shipped Steel 2,100,000 30 2,000,000 G ig ajou les p er To nn e (G J/T .) Shipp ed Steel 25 1,900,000 (To nn es) 1,800,000 20 1,700,000 15 1,600,000 1,500,000 10 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Shipped Tonnes Steel GJ E
Slide 10: Workplace & Community
Workplace & Community • Developing a new culture - entrepreneurial, action-oriented, responsive • Continued organizational development and recruiting • Consecutively lower first treatment frequency levels • Employees shared in the success - $31.5 million profit sharing • Donations commitment of $6 m
Slide 11: Industry Fundamentals
Industry Fundamentals Major Drivers: • Stronger global and regional steel demand • Imports less competitive • Global and NA consolidation U.S.$/ton • Higher costs (minis & integrated) $800 $750 $700 Upper $650 Level? $600 New $550 Trend $500 Line $450 $400 Lower Numerous bankruptcies in NA Level ? $
Slide 12: Steel Intensity Utilization
Steel Intensity Utilization 60 Korea 2005 KT/$BLN GDP (Real 2005 $) 50 Steel Intensity 40 China USA 1930-2005 30 Japan 20 Russia Germany Brazil USA 10 India 0 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 Economic Development GDP per Capita (Real 2005$) Source: First Rive
Slide 13: Industry Consolidation
Industry Consolidation Top 75 Steel makers 2005 production ( adjusted for major 2006 mergers) 120 2005 1997 100 Largest Company (MT): 114.0 28.1 Crude Steel Production Top 10 Average (MT): 32.0 17.5 (Million Tonnes) 80 Top 10 Share of World Total: 28% 22% 60 40 AGA 20 0 * Assumes Arcelor/Mittal merg
Slide 14: Establishing a Profitable Position
Establishing a Profitable Position Where and how to succeed • Economies of scale Large Market Leaders • Supply leverage • Critical mass • Cost of capital Mid-Market Competitors • Focused and action-oriented • Operational excellence Niche & Regional Players • Entrepreneurial • “Supply chain opportuni
Slide 15: The Core Business & Strategic Pathway
The Core Business & Strategic Pathway Primary Manufacturing Maximize Value from the Primary Focus Strategy “Base Case” Scenario • “Lock in orders” for 35-50% of capacity – optimize the mill Processing & Distribution • Supply highest value products to most demanding buyers • Slitting • Apply steelmak
Slide 16: Priorities For 2006
Priorities For 2006 • Corporate-wide safety initiative • Driving results from the Margin Improvement Plan • Further development of corporate culture and capability • Studying and executing strategic options • Continue to maintain financial strength and flexibility and a focus on maximizing sharehold
Slide 17: Financial Review
Financial Review Presented by: Dan Ardila Vice President & Chief Financial Officer Positioned for the Future 17
Slide 18: Topics For Discussion
Topics For Discussion ØFactors Impacting Financial Performance ØShareholder Distributions ØFree Cash Flow, Financial Position and Capital Structure ØShare Valuation Assessment Positioned for the Future 18
Slide 19: Factors Impacting Financial Performance
Factors Impacting Financial Performance Quarterly EBITDA 250 200 Millions of $ 150 100 50 0 2002 2003 2004 2005 2006 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Margin Improvement Program ØHot Roll Coil pricing increases Øemployment levels ØRaw material cost increases Øproduct mix ØEnergy cos
Slide 20: Margin Improvement Plan Potential
Margin Improvement Plan Potential ($ Millions) • Focus on continuous improvement to trendline earnings $180 $155 $161 $160 • Incremental potential exceeds $160 MM $140 $120 (expect 40% - target 50%-60% success) $100 $80 • Over 45 individual initiatives, including: $60 $40 – Increase shipments $20 $0
Slide 21: Shareholder Distributions
Shareholder Distributions August 2005 October 2005 May 2006 June 2006 July 2006 NCIB** NCIB** $38 million $40 million Substantial Special Issuer Bid dividend Total Shareholder $200 million $240 million Distributions Over 12 Months $518 million (represents 66% of free Capital investment $175mm *Defin
Slide 22: Substantial Issuer Bid – Rationale & Details
Substantial Issuer Bid – Rationale & Details Rationale ØManagement and Board believe Algoma stock is undervalued – transaction is accretive ØOption that provides the most flexibility for all shareholders in managing tax implications of the distribution Details Amount: $200 million Pricing: Auction r
Slide 23: Free Cash Flow & Financial Position
Free Cash Flow & Financial Position Net Cash (Debt) - Cdn$ $302.1 Target Debt:Total $400.0 $302.9 $289.4 Capitalization is $300.0 $200.0 25% $100.0 $0.0 therefore -$100.0 -$200.0 Funds available for -$184.6 -$300.0 -$319.0 capital deployment -$400.0 2002 2003 2004 2005 Q1 2006 2002 2003 2004 2005 Q1
Slide 24: Shareholder Value – How Does AGA Compare?
Shareholder Value – How Does AGA Compare? EV Excl. Legacy / EV Incl. Legacy / LTM 2006E 2007E LTM 2006E 2007E EV EV EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA US $ (Excl. (Incl. legacy) legacy) AGA $904 $1,469 2.9 3.1 3.9 3.9 4.1 4.9 Comparable * - 6.2 7.3 6.7 8.9 9.2 9.0 High Comparable * - 4.8 4.2
Slide 25: Multiple Expansion – Closing the Gap
Multiple Expansion – “Closing the Gap” • Algoma’s earnings multiple is one of the lowest in North America. We are acting to address this issue. • margin improvement program Øconsistent and • execute growth strategy predictable earnings • expand production capabilities and capacity • Enterprise risk
Slide 26: Positioned For The Future
Positioned For The Future • Increasing output • Effective industry pricing • Improving product mix • Strong balance sheet & optimum capital goal • Low cost structure supported by • Experienced & dedicated management team highly competitive assets • A board focused on shareholder value Algoma Share P
Slide 27: Positioned for the Future
Positioned for the Future Positioned for the Future 27