73923080 ds strategic position and business planning 1
TRANSCRIPT
P.44260.001.01.72 1
Support in business planning and company valuation Strategic position and business projections
Final presentation
Catania, April 24, 2007
P.44260.001.01.72 2
Roland Berger has supported Sider Sipe in building of a business plan as well as valuating the viability of the planned activities
Executive summary• Sider Sipe SpA as one of the shareholders of Ductil Steel S.A. intends to acquire the remaining
50% of the Ductil Steel shares and hence approached Roland Berger Strategy Consultants to assist in the preparation of a business plan and valuating the entire company
• The business plan projections are build upon expected production and sales volumes of the planned product portfolio taking into account the projected cost structure
• More than 900 kt of liquid steel will be transformed into 872 kt of finished products with a total of 1,238 employees in 2012
• In order to achieve the planned figures an investment package of more than EUR 100m is envisaged until 2012, with the largest investments in 2007 and 2008 for the meltshop (almost EUR 50 m) and rolling mill revamp in Otelu Rosu as well as highly efficient welding and fencing machines in Buzau
• The market analyses in the defined target region on production and consumption of long products revealed available overcapacities for selected products. Apparent overcapacities result often from a statistical availability of production assets which are obsolete and able to commence production solely under substantial investments (almost unrealistic)
P.44260.001.01.72 3
Revenues and cost factors have been challenged in order to depict expectable levels in the future
Executive summary
• Prices of finished products and scrap in the period under scrutiny have been set at the average level effectively realized in 2006 and the future profit margins have thus been calculated. Due tothe strong affinity of both prices this calculation method leads to reliable profit statements
• The cost of energy (electricity and gas) has been modeled at a continuously increasing level by 5% on y/y basis starting from an effectively achieved price level in 2006
• All other important cost factors (ferroalloys, electrodes, water etc.) have been calculated on the basis of benchmark data, expert interviews or information provided by the supplier of technology in his technical documentation
• With predicted sales revenues growing from EUR 198 m in 2007 to EUR 450 m in 2012 the business model shows a positive EBITDA development over the entire period; net profits exceeding EUR 25m in the third year of the projection period, namely in 2009
• Positive and increasing cash flow from operating activities is a good basis for investment success
• For the entire projection period the return on equity (ROE) is estimated to approximate 20%
P.44260.001.01.72 4
A. Project scope and timing
P.44260.001.01.72 5
Roland Berger supported Sider Sipe in analyzing the markets, verifying the business plan and evaluating the 2 operations
Project phases – 4 weeks period
Analysis of the markets and volumes
Production technology and quality
• Analysis of requirements for technological equipment
• Review of specifications provided by potential supplier of key equipment
• Summary of investment volumes for the specified equipment
• Quality specifications of final products for the outlined machinery
Production site aspects
• Analysis of scrap supplies and exploring of different options
• Evaluation of scrap options according to risk (supply stability) and return (costs)
• Evaluation of available arrangements for energy supplies
• Evaluation of logistic concepts and transportation related to end price for final products
• Review of market potential for planned long products portfolio
• Analysis of long products production (status and trends)
• Overview on long products consumption (with a special focus on rebar, wire rod, profiles and welded mesh)
• Identification of price development and key specifications for trading of long products
• Possible risks in the business with long products
A B C
Business plan and company valuationSynthesis of sales volumes/prices, investments, operating and fixed costsEvaluating the operations in Buzau (and Otelu Rosu)
D
P.44260.001.01.72 6
Beside data provided by Ductil Steel we used public and market information and conducted a range of interviews
Documents
• Business Plan 2007-2012
• 2006 Income Statement• 2006 Balance Sheet• Sales plan• Profitability data by product
groups• Production plans and
material flows at Buzau• Organization structures of
Otelu Rosu and Buzau
Documents from Ductil Steel
• Uniromsider• The Ministry of Economy and
Commerce (ROM)• National Statistical offices• IISI, World steel dynamics
and other steel associations• National Steel Producers
Associations• Press articles and other
publications• Market information• United Nations Commodity
Trade Statistics Database
Public and other sources
Interviews
Steel Traders• Voestalpine Intertrading, Stemcor,
Konstam Metal, Kaproni, Rustrans, GI Motor, Ferona
Steel producers• Mechel, Laminorul, Laminate, Otelinox,
Dan Steel, Metalicplas, Trefo, Procema(ROM)
• Trinecke zelezarny, Mittal Steel Ostrava (CZ),
• Kremikovtsi, Promet (BUL)• Cebitas, Cemtas, Ege Celik, Icdas,
Isdemil, Kaptan DC, Kardemir (TUR)Scrap suppliers• Romrecycling, Rec Prod Imp Exp (ROM)
Private subjects along the steelproduction value chain
Analysis approach
P.44260.001.01.72 7
B. Strategic positioning of Ductil Steel
P.44260.001.01.72 8
More than 800 employees in Ductil Steel in Buzau with almost 85% of them in the production business unit
Organization structure of Ductil Steel in Buzau [03/2007]
Board and general director
HR
13
Economic dpt.
19
Sales dpt.
75
Quality dpt.
33
Procurement and warehouse 12
IT
4
Internal audit, environment, work protection 4
Production dpt.
669
Blue collars:Foreman:AdminTotal:
7033393
829
Source: Ductil Steel
P.44260.001.01.72 9
Out of 327 employees at Otelu Rosu the maintenance units contain 120 persons
Organization structure of Ductil Steel in Otelu Rosu [03/2007]
Technical Director
Maintenance &General Services
39
Administration
37
Maintenance dpt.
81
Rolling mill 550
31
Electric ArcFurnace
134
Blue collars:Foreman:AdminTotal:
2713
53327
Source: Ductil Steel
Furnace dpt.
55
Casting dpt.
56
Administration,Laboratory
12
MechanicalShop
44
ElectricalShop
22
Air pumps,Engineers
14
Procurement
10
HR, Sales, QualityInvestment,Financial 26
Mechanical dpt.
17
Electrical dpt.
6
Administration,Laminor 550,Lathe 8
Mechanical &Electrical Shops 19
Electrical & Hidro-electricalStations 17
Administrative dpt.
2
Other admin. 4
P.44260.001.01.72 10
Ductil Steel is well positioned in the Romanian long products market; improvements planned in the manufacturing background
Strategic positioning of Ductil Steel
Competitive positionKey success factors Position
A Market positioning • Market leader in long products (especially in welded mesh and annealed wire)
B Product portfolio • Broad range of products serving a wide client base
C Manufacturing capability • Production equipment especially in the "warm part of production" (rolling mill-Buzau and EAF-Otelu Rosu) outdated
• Investments planned in high efficiency machines (EAF in Otelu Rosu, welding, rolling mill etc.)
D Manufacturing footprint • High logistics requirements for transporting billets from Otelu Rosu to Buzau (but rebar and wire derivatives near to the consumption focus –Bucharest)
Excellent Poor
Source: Roland Berger Strategy Consultants analysis
P.44260.001.01.72 11
Leading position of Ductil Steel in welded mesh and annealed wire, strong standing also in other products
Market share according to production volume (‘000 t)
Material group Market share (%) Largest competitor Others Import
Rebars 13,0%
9,8%
20,5%
19,8%
15,1%
17,4%
120
50
45
25
14
6
Reinf. steel in coils
Welded mesh
Annealed wire
Galvanized wire
Nails
21,7%
19,6%
12,8%
19,8%
19,4%
23,6%
200
100
28
25
18
9
Mechel Targoviste
Mechel Campia Turzi
Metalicplas
Mechel Campia Turzi
Mechel Campia Turzi
Dan Steel
54,3%
60,8%
66,4%
60,3%
65,2%
59,0%
500
310
145
76
61
21
10,9%
9,8%
0,3%
0,2%
0,3%
100
50
0.6
0.2
0.3
Source: Ductil Steel, Market analysis
A
P.44260.001.01.72 12
Continuous growth of domestic demand reflected in the decrease of export share
0,1
0,2
1,5
0,1
1,0
1,0
6,8
2,5
1,7
9,3
0,1
0,1
0,3
1,7BilletsWire rods & Reinf steelRebars
Drawn wireBlack annealedwireWhite annealed wireCable
Galvanized wireBlack welded meshFences & galvwelded meshBars
Nails
Chain link mesh
Other products
26.4Total
0,2
0,6
2,5
0,1
5,3
1,8
0,0
0,0
2,9
1,1
3,3
13.7
24.9
13.0
69.5
2005Ductil‘s sales breakdown, 2005-2006 [EUR m]
0,1
0,2
1,4
0,1
1,0
2,4
5,7
1,9
0,9
6,8
0,0
2,0
0,1
5,7BilletsWire rods & Reinf steelRebars
Drawn wire
Other products
28.2Total
Black annealedwireWhite annealed wireCable
Galvanized wireBlack welded meshFences & galv welded meshBars
Nails
Chain link mesh
0,2
0,5
2,2
0,1
6,9
1,7
0,0
0,0
3,1
1,0
2,0
20.0
48.5
15.4
101.6
2006
Domestic DomesticExport ExportPRODUCT PRODUCT
Source: Ductil Steel
A
P.44260.001.01.72 13
Steel production at Otelu Rosu tripling until 2012 with a strong focus on profiles and billets/blooms for sales and processing
183 157242 295 292 292 292 292 292
106 105
97106 129 129 129 129 129
2004 2005 2006 2007 2008 2009 2010 2011 2012
Production dynamics of Ductil Steel [2004 – 2012] [‘000 t]
130 149181244
270 292
307307307307305308264190
29310 18
1619
1418857120110
32200
00
1151100
0
848295 368 461208 90970 655 759
0 0 0 11107
168226 250 270
B
Billets for Buzau
Billets/Blooms for sale
Blooms for profiles
Profiles
Blooms for processing
Plan
Derivatives
Buz
auO
telu
Ros
u
70
Rolling Mill
Total semis
Source: Ductil Steel
P.44260.001.01.72 14
Wire rod capacities will be used for rebars production; welded mesh will become another principal product
62
26
30
10850
2392392392189490
00017
8640
43
53535360
49
20
26
18 101010
1111
7
6 5 5 5
848460
35
84
28
18181810
14
14136
6666
7
6
6666
15
2217
384
2007
421199
2008
421
2009
207
2005
254
20062004 2012
421
Rebars
Wire rod
Reinforced steelin coils
Black annealed wireOthers
Black Welded MeshOthers
Nails
Galvanized Wirechain link and other
Production dynamics at Buzau – detail [2004 – 2012] [‘000t]Total finished products
B
Plan
Welded Mesh
DrawnProfiles
RollingMill
Source: Ductil Steel
P.44260.001.01.72 15
Almost 300 kt fully used rolling mill capacity in Buzau in 2007 –major bottlenecks in drawing, annealing and galvanizing
C
Production flow at Buzau [2007]
Billets warehouse[100 x 100 x 1200 mm]
Rolling Mill
• Discharge heating furnace 100t/h
• 6+8+8 rolling stands• Cooling line• Coiling
Source: Ductil Steel, Roland Berger analysis
Capacity 35 – 50 t/h
Rebars
Reinforced steel in coils / [smooth/ ribbed]
Capacity 40– 50 t/h
Straightening and cutting
[6, 8, 10, 12 mm]
Capacity 40 – 50 t/h
Wire rod
• SKEAT• TEAM• HB
Drawing plant
[5.5 - 11 mm]
[1.18 - 6mm]
Nails
HeatTreatment
Wire products
5.2 kt/m/ 10.61)
• Drawing and straightening
• Welding
Welded mesh plant (Beta + DS)
Blackannealed wire
Long Furnace
[0.8 - 10mm]
White annealed wire
Vacuum
[0.8 – 1.5mm]
Wire products
Horseshoe nails
Cable
Soft galvanized wire
Hard galvanized wire
Welded mesh panels
Chain link fences/ mesh Barbed wire
1.9 kt/m/3.7[0.8 - 6mm]
Galvanizing plant
BETA: 4.0 kt/ month/ 8.0DS: 0.4 kt/ month
[10 – 28mm]
2.0kt/m/5.0
Sales25.7kt/m
1) Capacity utilization: planned/available
P.44260.001.01.72 16
Deficiencies in logistics between Otelu Rosu and Buzau are being balanced by an advantageous proximity to consuming markets
D
Manufacturing and distribution footprintComments
• Counterbalance of logistic requirements for transporting billets to Buzau by an excellent positioning of the Buzau plant
• Adding value to blooms and billets in Otelu Rosu (rolling profiles or other products at Lamdro) improves the manufacturing footprint
Bucharest
Otelu RosuBuzau
Blooms/ Billets for sale
Billets for BuzauBillets for
processing
Profiles
Export (~70% in 2012)
Export (~90% in 2012)
Transport ( costs ~ 20EUR )
Derivates
Rebars
• Low export volumes• Serving the local
consumers predominantly • Exploiting the vicinity to
Bucharest/hub for construction activities
Lamdro plant
P.44260.001.01.72 17
C. Market situation for long products
P.44260.001.01.72 18Source: Roland Berger Strategy Consultants analysis
1) 300km being defined as a threshold distance from transportation costs’ point of view
Romania and partly Bulgaria, Hungary and Serbia define the geographical market for Ductil Steel products
HU
SK
SRBG
MO
TU
300 km
600 km
Buzau
RO
UA
OteluRosu
Current consumption of the proposed products
Localization of the competitors and current trade balance
Future development of the key industry of construction, being the main consumers of rebar, wire rod, profiles and welded mesh
Prices for the products as wire rod and rebarstreated as commodities (geographical premium reflected in transportation costs)
Distance from Buzau/Otelu Rosu (market perimeter for products = 300km1) and competitive market reach of 300+300km)
Geographical market has been defined as: Romania, partly Bulgaria, Hungary and Serbia
Key considerationsGeographical market definition
P.44260.001.01.72 19
C.1 Market analysis for long products - summary
P.44260.001.01.72 20
Rebar Wire rod
• Rapid current and predicted growth of the target rebar market and market in Europe as a whole
• Turkish rebar already present on the Romanian market, imported production offers low price but also represents inconsistent quality factor
• Large new rolling capacities have been recently installed in Turkey
• Almost the entire Ductil Steel current wire rod production is being processed into welded mesh, wires, nails and other derivatives
• Romania is exposed to massive inflow of high quality wire rod from the Ukraine and China
• Ductil identified by other producers as highly competitive on the wire derivatives market
Profiles
Within the scope of the market analysis, Roland Berger focused on the four representative product groups
Welded mesh
• Large increase in construction translates into high demand in the heavy sections segment
• Ductil Steel has ideal position to fill in the market gap in neighboring markets of Bulgaria, Hungary and Serbia, where the profiles production is absent
• Further markets (Italy, Spain etc.) able to absorbnew production volumes
• No production footprint at Buzau in the past years
• Ductil Steel is one of the top three welded mesh producers in the country
• Regional capacity extensions and innovations have been already realized or announced for the near future
• Welded mesh is currently replacing some traditional reinforcing materials
P.44260.001.01.72 21
Unused capacities in the target region account for over 30% of total capacities
Current situation on the rebar market, 2006 [kt]
Capacities within
600 km2)
1,618 595
1,223 71 1,294
Unused capacities
within 600 km
Produc-tion
20062)
Balance deficit
Consump-tion 2006
Production beyond target market
Comments
• There are unused capacities amounting to almost 600 kt in the range of 600 km
• Production in 2006 in the whole region was slightly lower than consumption 1) which resultedinto balance deficit1,023
200
1) Including production beyond target market2) Including capacity/production of Ductil SteelSource: Roland Berger analysis, Company data
P.44260.001.01.72 22
Despite future growth of demand still more than 200kt of overcapacities available on the market
Future situation on the target rebar market, 2009E [kt]
1,818
218 1,600
Production capacities
Over-capacities
2009E
Estimated consumption
2009E
Comments
• Estimated rebar consumption in 2009 will reach approximately 1,600 kt
• Despite the rapid growth in demand, overcapacities in the region will reach more than 200 kt in 20092,250
1,2941,023
Consump-tion in 2006
200
595
Production of rebar beyond 600 km range
Consump-tion growth
Productionin 2006∑ 1,223
Unused capacities within 600 km
306
Source: Roland Berger analysis, Company data
P.44260.001.01.72 23
643
13
Assessing target wire rod market, current unused capacities in the region amount to over 800 kt
Current situation on the target wire rod market, 2006 [kt]
Capacities within
600 km2)
1,458 815
656 79 735
Unused capacities
within 600 km
Produc-tion
20062)
Balance deficit
Consump-tion 2006
Comments
• Current unused capacities within 600 km from Buzau slightly exceed 800 kt
• Similar to rebar, total production was slightly lower (by almost 80 kt1)) than local consumption
Production beyond target market
1) Including production beyond target market2) Including capacity/production of Ductil SteelSource: Roland Berger analysis, Company data
P.44260.001.01.72 24
Mild increase of wire rod consumption won‘t have serious influence on deploying of some so far unused capacities
Future situation on the target wire rod market, 2009E [kt]
1,471 657
814
Production capacities
Over-capacities
2009E
Estimated consumption
2009E
Comments
• There are no significant investments in production capacities announced
• Despite mere consumption growth of wire rod consumption till 2009 the overcapacities in the region will still almost reach over650 kt
422
643Consumptionin 2006
13
815
Production of wire rod beyond 600 km range
Additional consumption
Productionin 2006∑ 656
Unused capacities on the target market
735
79
Source: Roland Berger analysis, Company data
P.44260.001.01.72 25
Some of currently unused welded mesh capacities are ready to be deployed in the future
Current situation on the target welded mesh market, 2006 [kt]
Capacities within 600 km
222 92
14116
Unused capacities
within 600 km
Production 2006
Balance surplus
Consumption 2006
Comments
• Current unused production capacities within 600 km from Buzau amount to approximately 100 kt
• Total production is slightly bigger than local consumption
130
1) 1)
1) Including capacity/production of Ductil Steel
Source: Roland Berger analysis, Company data
P.44260.001.01.72 26
If some of announced investments into production are realized, overcapacities in the region could count up to 100 kt in 2009
Future situation on the target welded mesh market, 2009E [kt]
252
102
150
Production capacities
Over-capacities
2009E
Estimated consumption
2009E
Comments
• Some of the investments were already realized recently, more capacity extensions announced for following years
• In 2009 overcapacities in welded mesh production could count to mote than 100kt2,250
34
116130 Consumptionin 2006
Additional consumption
Productionin 2006∑ 130
New investments
92
30
Unused capacities on the target market
Source: Roland Berger analysis, Company data
P.44260.001.01.72 27
C.1.1 Detailed overview of the current situation on the regional long products market from Ductil Steel perspective
P.44260.001.01.72 28
Rebar, wire rod and profiles markets are characterized by risingcompetition and growing demand in the key CEE markets
1 Rebar market from Buzau's perspective• Positive development of the construction industry
incurred increasing consumption of rebars
2 Wire rod market from Buzau's perspective• Continuously increasing consumption across the
target market in last years
3 Profiles market from Otelu Rosu's perspective• Growing production capacities and competition in
higher margin profile segment (heavy profiles)
4 Welded mesh market from Buzau's perspective• Strong competition in Romania, ongoing extension of
regional production capacities
6 Trade balance of Romania• Rapid increase in domestic demand for long products
changes traditional export position of Romania
5 Competitive Landscape of Ductil Steel• Close insight on competitors and production
capacities in the target region
Source: Roland Berger analyses
Rebar market from Buzau's perspective Wire rod
market from Buzau's
perspective
Profiles market from Otelu Rosu'sperspective
Competitivelandscape ofDuctil Steel
Welded mesh market from
Buzau's perspective
Trade balance
of Romania
Current situation
on relevant markets
12
3
4
5
6
P.44260.001.01.72 29
424 403 465765
278 353 269
301199 205 208
228
725 725 657
711207
265241
252
87109
95
100
2003 2004 2005 2006
Hungary
Poland
SlovakiaCzech Rep.
1,9202,060
2,357
Romania
Rebar consumption powered by a flourishing demand for construction steel is growing rapidly over the last years
Source: EUROSTAT, Czech Steel Association (HZ), IISI, Roland Berger analyses, expert interviews
Consumption of rebar in the target region and extended region [kt]
Comments
• Year 2004 was extremely successful for the whole steel industry therefore it is necessary to eliminate this year from the analysis of the middle and long term trends
• Strong consumption increase of rebars has been noticed in case of Romania, with further predictions continuity of rapid upward trend
• Rebar consumption in Poland, after slight decrease in 2005, is growing again
CAGR 7.0%
81.0%
8.4%
14.9%
2.0%
21.7%
Change 2006/2003
Bulgaria
1,935
14.6%901 961
1,294
942
1
P.44260.001.01.72 30
Rising domestic consumption changes traditional Romanianexport position
Consumption of rebars in Romania [kt]
Rebar market situation in Romania, 2006
ROMANIA
Source: Steel Statistical Yearbook 2005, 2006, Ministry of Economy and Commerce, Roland Berger analyses
765 kt
Consumption
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
65 61 765769
10623 465
548
1
P.44260.001.01.72 31
Thanks to improved financial performance of both rebar producersin 2005, rebar production increased in 2006
Consumption of rebars in Hungary [kt]
Rebar market situation in Hungary, 2006
HUNGARY
Source: Steel Statistical Yearbook 2005, 2006, EUROSTAT, Roland Berger analyses
301 kt
Consumption
Mittal Steel OstravaTřinec
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
4185 301
257
23 105 269189
1
P.44260.001.01.72 32
Rebar market situation in Bulgaria, 2006
Romanian and Turkish imports of rebars are of crucial importance for Bulgaria
Consumption of rebars in Bulgaria [kt]
BULGARIA
Source: Steel Statistical Yearbook 2005, 2006, EUROSTAT, Roland Berger analyses
228 kt
Consumption
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
50124 228
154
52119
151208
1
P.44260.001.01.72 33
Imports are the sole source of rebars for the construction industry in Slovakia
Consumption of rebars in Slovakia [kt]
701
Rebar market situation in Slovakia, 2006
Production1) Exports Import ConsumptionConsumption
1) There are no Slovak producers of rebar, yet there is an insignificant volume of rebar that Slovak dealers buy abroad and then resell abroad again
100 kt
Consumption
Source: EUROSTAT, HZ, Roland Berger analyses
SLOVAKIA
Production1) Exports Import Consumption
Mittal Steel OstravaTřinec
Celsa Ostrowiec
-5
105 100
0
-7
102 95
0
2006
2005
1)
1)
1
P.44260.001.01.72 34
External transfers have significant impact on Polish rebar market
Consumption of rebars in Poland [kt]
Source: IISI, CIBEH, Roland Berger analyses
Mittal Steel Ostrawa a.s. [Nova Hut]
JSC Liepajas
Riva Stahl GmbH
711 kt
Rebar market situation in Poland, 2006
Consumption
POLAND
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
353
38 711
1,026
265
64 657
858
1
P.44260.001.01.72 35
Czech Republic is traditional rebar exporter with stable domestic consumption
Consumption of rebars in Czech Republic [kt]
Source: Roland Berger analyses, expert interviews, HZ
Rebar market situation in Czech Republic, 2006
CZECH REPUBLIC
252 kt
Consumption
Mittal Steel Sosnowiec
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
345
98 252
499
351
80 241
512
1
P.44260.001.01.72 36
131 278 296 407137141 134
136180
185 189192
831808
793
821939 939
936117
113 83 89
813
2003 2004 2005 2006
Wire rod consumption has experienced a constant growth in the past years
Consumption of wire rod in the target region and extended region [kt]
Source: EUROSTAT, HZ, Roland Berger analyses, IISI, expert interview
Comments
• The biggest consumption of wire rod has been noticed in case of Czech Republic with almost 950kt
• Slovak wire rod market dropped in 2005 after high consumption in 2003 and 2004 - growth in coming years expected
• Polish market has been constantly decreasing over recent years
• Highest wire rod consumption increase between 2003 and 2006 has been reached in case of Romania
Hungary
Poland
Bulgaria
Czech Rep.
2,2172,464 2,454
Romania 210.7%
14.0%
-23.9%
-4.6%
-1.0%
Change 2006/2003
Slovakia
6.7%
2,553
448604 619
735
2
CAGR 4.8%
P.44260.001.01.72 37
Apparent consumption of wire rod increased significantly furtherin 2006 – import becoming even more important
Consumption of wire rod in Romania [kt]
Wire rod market situation in Romania, 2006
ROMANIA
Source: Steel Statistical Yearbook 2005, 2006, EUROSTAT, Roland Berger analyses
407 kt
Consumption
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
4
206 407
205
18
104 296
210
2
P.44260.001.01.72 38
Because of production outages at both major plants, wire rod demand in Hungary is almost solely satisfied by imports
Consumption of wire rod in Hungary [kt]
Wire rod market situation in Hungary, 2006
HUNGARY
Source: Steel Statistical Yearbook 2005, 2006, EUROSTAT, Roland Berger analyses
136 kt
Consumption
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
2
125 136
13
2
113 134
23
Mittal Steel OstravaTřinec
2
P.44260.001.01.72 39
The fact of absence of the major long products supplier in Bulgaria must be covered by imports
Consumption of wire rod in Bulgaria [kt]
Wire rod market situation in Bulgaria, 2006
BULGARIA
Source: Steel Statistical Yearbook 2005, 2006, EUROSTAT, Roland Berger analyses
192 kt
Consumption
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
0
189 189
0
0
192 192
0
2
P.44260.001.01.72 40
Wire rod market situation in Slovakia, 2006
Imports are the only source of wire rod in Slovakia
SLOVAKIA
Consumption of wire rod in Slovakia [kt]
701
Consumption
89 kt
Consumption
Source: EUROSTAT, HZ, Roland Berger analyses
Mittal Steel OstravaTřinec
2006
2005
Production1) Exports Import Consumption
Production1) Exports Import Consumption
-2
91 89
0
0
1) There are no Slovak producers of rebar, yet there is an insignificant volume of rebar that Slovak dealers buy abroad and then resell abroad again
-3
86 83
1)
1)
2
P.44260.001.01.72 41
Increased wire rod production didn‘t translate into higher consumption in 2006
POLAND
Mittal Steel Ostrawa a.s. [Nova Hut]
Riva Stahl GmbH
793 kt
Wire rod market situation in Poland, 2006
Consumption
Consumption of wire rod in Poland [kt]
Source: Steel Statistical Yearbook 2005, 2006, EUROSTAT, Roland Berger analyses
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
339170 793
951
241 242 813812
2
P.44260.001.01.72 42
More than half of Czech wire rod production (53% in 2006) goes for export
Consumption of wire rod in Czech Republic [kt]
Source: Roland Berger analyses, expert interviews, HZ
Wire rod market situation in Czech Rep., 2006
CZECH REPUBLIC
936 kt
Consumption
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
705
316 936
1,325
762
287 939
1,414
2
P.44260.001.01.72 43
The map of profiles production and apparent consumption per country in 2005 [kt]
Belgium
France
C: 706 kt
Great Britain (1.075 kt)
P: 964 ktC: 1.041 kt
Ireland
C: 136 ktNetherlands
Austria
C: 133 kt
Poland (1.750 kt)
P: 1.375 ktC: 657 kt
Portugal
C: 150 ktl
Switzerland
Germany (2.770 kt)
P: 2.304 ktC:1.558 kt
Czech Republic (1.340 kt)
P: 501 ktC: 424 kt
Benelux
P: 1.587ktC: 742 kt
Italy (2.700 kt)
P: 1.000 ktC: 777 kt
Spain (2.500 kt)
P: 2.614 ktC: 1.289 kt
Source: Roland Berger Strategy Consultants
Luxembourg (2.600kt)
Sweden
P: 25 ktC: 107 ktl
3
Country (Nominal Capacities 2006)
Production 2005Apparent consumption 2005
P.44260.001.01.72 44
242 279 352140 136
14563 6768
689 657
434 424452
89 8095
700
2004 2005 2006
Profiles market is recovering from 2005 towards future boom in CEE
Consumption of profiles in the target and extended region [kt]
Source: EUROSTAT, HZ, Roland Berger analyses, IISI, expert interview
Comments
• The consumption of heavy sections is traditional domain of Poland with demand close to 700 kt per year
• As with other product groups, highest increase in profiles consumption was experienced by Romania
• Main profiles producer in CEE is Poland exporting more than a half of its production
Hungary
Poland
Bulgaria
Czech Rep.
1,657 1,643
1,812
Romania
CAGR 4.6%
7.9%
4.1%
3.6%
45.5%
6.7%
Change 2006/2004
Slovakia
1.6%
445 482565
3
P.44260.001.01.72 45
Profiles market situation in Romania, 2006
Romanian export position in heavy sections segment is completelybalanced
Consumption of profiles in Romania [kt]
ROMANIA
Source: Steel Statistical Yearbook 2005, 2006, EUROSTAT, Roland Berger analyses
352 kt
Consumption
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
100 100 352352
9449 207
254
3
P.44260.001.01.72 46
Hungary is dependant on imports of profiles due to its production deficit in heavy sections segment
Consumption of profiles in Hungary [kt]
Profiles market situation in Hungary, 2006
HUNGARY
Source: Steel Statistical Yearbook 2005, 2006, EUROSTAT, Roland Berger analyses
282 kt
Consumption
v
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
5
120 145
30
10
100 136
36
v
3
P.44260.001.01.72 47
Bulgarian consumption of heavy sections is still far below its potential
Consumption of profiles in Bulgaria [kt]
Profiles market situation in Bulgaria, 2006
BULGARIA
Source: Steel Statistical Yearbook 2005, 2006, EUROSTAT, Roland Berger analyses
68 kt
Consumption
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
5 42 6831
6 34 6739
3
P.44260.001.01.72 48
Slovak construction industry is forced to cover all its profilesdemand by imports
Consumption of profiles in Slovakia [kt]
701
Profiles market situation in Slovakia, 2006
Production1) Exports Import ConsumptionConsumption
1) There are no Slovak producers of profiles, yet there is an insignificant volume of rebar that Slovak dealers buy abroad and then resell abroad again
95 kt
Consumption
Source: EUROSTAT, HZ, Roland Berger analyses
SLOVAKIA
Production1) Exports Import Consumption
-7
102 95
0
-14
94 80
0
2006
2005
1)
1)
3
P.44260.001.01.72 49
Poland is by far the top producer and also exporter of profiles in the CEE region
Consumption of profiles in Poland [kt]
Source: IISI, CIBEH, Roland Berger analyses
700 kt
Profiles market situation in Poland, 2006
Consumption
POLAND
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
141 700
1,616
919
201 657
1376
1,057
3
P.44260.001.01.72 50
Decrease of imports was caused by higher production meanwhile consumption remained stable
Consumption of profiles in Czech Republic [kt]
Source: Roland Berger analyses, expert interviews, HZ
Profiles market situation in Czech Republic, 2006
CZECH REPUBLIC
452 kt
Consumption
Mittal Steel ¨Poland
2006
2005
Production Exports Import Consumption
Production Exports Import Consumption
351
141 452
662
234157 424
501
3
P.44260.001.01.72 51
Growing consumption in the region will attract new investments into production capacity
Consumption of welded mesh in Romania [kt]
Welded mesh market situation in Romania, 2006
Source: Ministry of Economy and Commerce, Roland Berger analyses
116 kt
Consumption
2005
Production Exports Import Consumption
Production Exports Import Consumption
17 3 116130
10 4 106112
2006
106 116 127
2005 2006 2007e
19.8%
Change 2007/2005
4
CAGR 9.5%
P.44260.001.01.72 52Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data
There are 2 rebar producers within 300km distance from Buzau. Their joint annual capacity amounts to 330kt
Indicates direct competitors within the market perimeter of buzau/otelu rosuIndicates indirect competitors able to export onto buzau/otelu rosu's market
Capacities∑ = 1,158kt
HU
SK
SRBG
TU
MO
300 km
600 km
Capacities∑ = 330kt
Buzau
RO
UA
OteluRosu
Geographical location of main rebar producers in the competitive region
Total production in 2006: 715 kt(out of which 280 kt within the perimeter of 300 km)
Current production capacities: 1,488 kt
No significant capacities enlargement announced
Key figures for the regionMoldova Steel Works Rybnitsa
SiderurgicaHunedoara
DAM 2004MiskolcOAM
Ózd
MechelTargoviste
Otelinox
Lamdro
1) Within 600km perimeter – Ductil Steel not included
1)
1)
5
P.44260.001.01.72 53
1) Estimate based on the total production of rolled products = 450 kt 2) Estimate based on total production figures for Hungary3) Based on total combined production capacity of rebar and wire rod = 300 kt 4) Estimate based on current capacity
The only foreign rebar producer in the target region is Moldova Steel Works
Steel mill CountryProduction 2006 [kt]
Current capacity [kt]
Distance[km]
Investment plan / Outlook for capacity utilization
..
Details on main rebar producers in the competitive region
BACKUP
Mechel Targoviste Romania 122 270 240
Siderurgica Hunedoara 60Romania 308452
Capacity extensions are being considered in the medium term
DAM 2004120
Hungary200
722 Will need huge amount of investment in order to become competitive
2)
OAM Ltd. 80Hungary 810 Max Aicher plans to modernize the plant and increase the combined capacity to 350 - 400 kt
2)2003)
1)
The plant is lacking continuous caster
Moldova Steel Works 3154)Republic of Moldova 437 Recent investments in technology enlarged the production capacity
600
Lamdro Romania 416 250 60 No new investment in rebar announced
Otelinox Romania 122 60 40 No new investment in rebar announced
Total 1,488 715
Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data
5
P.44260.001.01.72 54
Turkish rebar has already strong presence on Romanian market, characterized by convenient price but also by inconsistent quality
Steel mill CountryProduction 2006 [kt]
Current capacity [kt]
Distance[km] Comments
..
Details on main rebar producers in Turkey
BACKUP
Habas Demir Celik 1,9501)Turkey 2,1001103 Export to Romania and Bulgaria, main competition comes fromChina
Icdas 14701)Turkey 759 Export to Romania and Bulgaria, scrap is purchased globally
1,800
Ege Celik Turkey 923 1,000 8701)
Diler Steel 1,400Turkey 1,800911
Export to Romania and Bulgaria, no investments in rebar in future
1) Estimate based on current capacity and product portfolio
Export to Romania and Bulgaria, no capacity increase is forecasted
Kaptan Demir Celik 9601)Turkey 663 Export to Romania 36 kt/y, will obtain certificate for PC52 in May
1,200
Ekinciler Turkey 1787 1,000 7381) No export to Romania yet, but plans to enter market in near future
Total 8,900 7,388
Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data
5
P.44260.001.01.72 55
Along with direct local competition, regional market is already facing fierce competition from the East
Indicates direct competitors within the market perimeter of Buzau/Otelu RosuIndicates indirect competitors able to export onto Buzau/Otelu Rosu's market
HU
SK
SRBG
300 km
600 km
Buzau
TU
MO
Capacities∑ = 220kt
RO
UA
OteluRosu
Geographical location of main wire rod producers in the competitive region
Total production in 2006: 534 kt(out of which 160 kt within the perimeter of 300 km)
Current production capacities: 1,208 kt
No significant capacities enlargement announced
Key figures for the region
WIRE ROD PRODUCERS IN THE REGION
Laminate
MechelCâmpia Turzii
DAM 2004MiskolcOAM
Ózd
Moldova Steel Works Rybnitsa
SiderurgicaHunedoara
Otelinox
1) Within 600km perimeter – Ductil Steel not included
1)
1)
Capacities∑ = 988kt
Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data
5
P.44260.001.01.72 56
Mechel stopped its EAF in Q1 2006, expected to be restarted after continuous casting is commissioned (not before 2008)
.. .
Details on main wire rod producers in the competitive region
BACKUP
Steel mill CountryProduction 2006 [kt]
Current capacity [kt]
Distance[km]
Investment plan / Outlook for capacity utilization
Mechel Campia Turzii Romania 395
1) Estimate based on the total production of rolled products = 450 kt 2) Estimate based on total production figures for Hungary3) Based on total combined production capacity of rebar and wire rod = 300 kt 4) Estimate based on total production capacity
DAM 2004 8100Will need huge amount of investment in order to become competitive
2)1)Hungary 722
OAM Ltd. 5 Max Aicher plans to modernize the plant
2)Hungary 810 50 3)
65280
Siderurgica Hunedoara 74Romania 408411 Focused on billets for pipes for Petrotub Roman
Five new wire drawing machines in 2005
Laminate Romania 120119 90
70
No new investments in wire rod announced
No new investments in wire rod announced
4)
4)Otelinox Romania 122 100
Total 1,208 534
.2351) Recent investments in technology enlarged the production capacity
.300Moldova Steel Works Republic of Moldova 437
Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data
5
P.44260.001.01.72 57
As with rebar, large rolling capacities have been added recently in Turkey with annual capacity over 3,000 tons
Steel mill CountryProduction 2006 [kt]
Current capacity [kt]
Distance[km] Comments
..
Details on main wire rod producers in Turkey
BACKUP
Habas Demir Celik 5601)Turkey 7001103 Export to Romania and Bulgaria, sees china as main competitor
Isdemir 3801)Turkey 1878 Export to Romania by sea, sees main competition to be Turkish
500
Icdas Turkey 759 1,200 1,0501)
Colakoglu 5901)Turkey 650759
Export to Romania and Bulgaria; sees main competition to be Turkish
1) Estimate based on current capacity and product portfolio
Exporting mainly by ship to Western Europe, but not to Romania
Total 3,050 2,580
Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data
5
P.44260.001.01.72 58
22 major EU 25 profiles producers are proportionally distributedover the continent
Country (capacity 2006)
Belgium
France
Great Britain (1.075)
Ireland
Netherlands
Austria
Poland (1.750)
Portugal
Switzerland
Germany (2.770)
Czech Republic (1.340)
SWT
Arcelor Pallanzeno
Mittal Steel Poland
Inexa Profil AB (sweden)
Arcelor EspañaCelsa
Corus
Arcelor Profil Luxembourg Saarstahl
Salzgitter
Acc. e Ferr. Stefana
Acc. TirrenoDuferdofin SpA
Lucchini SpA
Vitkovice SteelMittal Steel Ostrava
Trinecke ZelezarnyLuxemburg (2.600)
Italy (2.700)
Spain (2.500)
Arcelor
Riva Acciaio SpA
PROFILES PRODUCERS IN THE REGION
Source: Roland Berger Strategy Consultants analysis, IISI
5
P.44260.001.01.72 59
The nominal capacity significantly exceeds the currently realized production of profiles
Total
Czech Republic
Poland
Sweden
Spain
Italy
Great Britain
Luxemburg
Germany
10.263224
52224
1.375
25
1.920694275
725
965
1.480
1.025903376
Production in 2005 (kt)
Mittal Steel OstravaVitkovice SteelTrinecke Zelezarny
Mittal Steel Poland
Inexa Profil ABArcelor EspañaCelsaArcelor PallanzenoRiva Acciaio SpAAcc. E Ferr.StefanaAcc. TirrenoDuferdofin SpALucchini SpA
Corus Construction/ Spec. Profiles
Arcelor Profil Luxembourg
Salzgitter AGSWTSaarstahl AG
Steel Mill Country
Source: VDEh, Factiva, Roland Berger Strategy Consultants
1) Excludes 200 kt utilized for flat products 2) Includes capacity extension realized in20063) Predicted capacity reduction by 330 kt in 2007
15.3656003)140600
1.750
3002.0001.0002)
480500550400500300
1.075
2.4001)
1.3201.000
450
Nominal capacity2006 (kt/y)
Dimensions[mm]
PROFILES PRODUCERS IN THE REGION
130 - 240140 - 600240 - 360
160 - 600
50080 - 600
100 - 45080 - 30080 - 30080 - 300
140 - 600
102 - 1016
100 - 1.100
100 - 1.000100 - 550140 - 450
5
P.44260.001.01.72 60
The four Romanian profile producers compete mainly for domestic and neighboring markets of Bulgaria, Hungary and Serbia
Indicates direct competitors within the market perimeter of Buzau/Otelu RosuIndicates indirect competitors able to export onto Buzau/Otelu Rosu's market
PROFILES PRODUCERS IN CENTRAL EUROPE SOUTH
Geographical location of main profile producers in the competitive region
Total production in 2006: 1,037 kt1)
Current production capacities: 1,676 kt1)
Capacity enlargements announced by Mechel
Key figures for the region
HU
SK
SR BG
TU
MO
Buzau
RO
UA
OteluRosu
MechelTargoviste
SiderurgicaHunedoara
LaminorulHR
Kroman
Ozkan
Kocaer TosyaliGroup
TMK Resita
Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data
1) Analyzed area extended, 600 km perimeter doesn‘t apply on profiles production – producers from Turkey also included
5
P.44260.001.01.72 61
New investments of profile producers focus mostly on efficiency improvement rather than capacity extensions
Mechel Targoviste .. .
Siderurgica Hunedoara
Details on main profiles producers in the competitive region
BACKUP
Steel mill
1) Estimate based on production capacity and product portfolio
Laminorul SA
CSR SA Resita
New continuous caster recently commissioned (expected to be fully up to speed in July 2007)
Investment plan / Outlook for capacity utilization
No new investments planned for the short and medium term
Focused on billets for pipes (Artrom) and heavy profiles
Romania
Romania
Country
Romania
Romania
91
382
Distance[km]
594
42
Total
276
180
Current capacity [kt]
200
200
856
43
121
Production 2006 [kt]
100
88
352
Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data
No new investments planned for the short and medium term
5
P.44260.001.01.72 62
Some of turkish profile producers aim at CEE markets, other major area of interest is the Middle East
Steel mill Country
Details on main profiles producers in Turkey
BACKUP
Kroman
Ozkan
Kocaer
Tosyali Group
1) Estimate based on current capacity and product portfolio
Comments
No investments are planned in thenear future, exports by sea
Export to Romania by sea, just inaugurated new rolling mill
Exports to Romania and plans to double capacity by 2008
Export to Romania and Bulgaria bysea, no investments planned
Turkey
Turkey
Turkey
Turkey
Distance[km]
1127
1311
1311
1969
Total
Current capacity [kt]
.
100
N/A
360
360
820
Production 2006 [kt]
.
861)
N/A1)
3141)
2851)
685
Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data
5
P.44260.001.01.72 63
300 km
600 km
Buzau
Increasing demand for welded mesh evokes significant regional capacities expansion
indicates direct competitors within the market perimeter of Buzau
Capacities∑ = 110kt
HU
SK
SRBG
TU
MOCapacities∑ = 62 ktRO
UA
OteluRosu
Geographical location of main welded mesh producers in the competitive region
Total production in 2006: 85 kt1)
(out of which 38 kt within the perimeter of 300 km)
Current production capacities: 172 kt1)
Key figures for the region
WELDED MESH PRODUCERS IN THE REGION
Procema
Metalicplas
Dan Steel
RomsteelAndami
Demers
Otelinox
Additional capacities have been recently
added above current production levels
1) Within 600km perimeter – Ductil Steel not included
Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data
4
P.44260.001.01.72 64
Ductil, Metalicplas and Dan steel basically represent local welded mesh supply
Metalicplas
Dan Steel
Details on main welded mesh producers in the competitive region
BACKUP
Steel mill
Procema
Demers
Romsteel
1) Estimate based on production in 2006
.
No investments were announcedfor the near future
Investments in new technology in 2006 – increasing capacity
Investment plan / Outlook for capacity utilization
N/A
No investments are planned in the near future
New line to be inaugurated in summer, capacity increase 50%
Further investments are planned in technology and capacity increase
Andami
Romania
Romania
Country
Romania
Romania
Romania
Romania
415
443
Distance[km]
124
287
120
136
Total
.
50
60
Current capacity [kt]
13
24
11 1)
1)
141)
172
.30
17
Production 2006 [kt]
15
8
8 2)
7
85
Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data
4
P.44260.001.01.72 65
Turkish rebar has already strong presence on Romanian market, but still with the label of inconsistent quality
Rebar flows in/out of Romania, 2006 [kt]
xy kt Net trade balance (Romania)1)
1) Net trade balance = Exports - Imports
Source: United Nations Commodity Trade Statistics Database, Eurostat, HZ, Roland Berger analyses
TRADE BALANCE OF ROMANIA
∑ Net trade balance = 16 kt1)
-4 ktMoldova
Serbia
24 kt
Romania
Slovakia
Czech Republic
The Ukraine
Bulgaria
Hungary
Austria
Turkey-31 kt
Other countries27 kt
6
P.44260.001.01.72 66
Ukraine is the main wire rod exporter to Romania, while Czech and Moldovian imports are of high importance, too
Wire rod flows in/out of Romania, 2006 [kt]
Source: United Nations Commodity Trade Statistics Database, Eurostat, HZ, Roland Berger analyses
TRADE BALANCE OF ROMANIA
∑ Net trade balance =-206 kt 1)
-13 kt
2 kt
-32 kt
Moldova
Serbia
Romania
Slovakia
Czech Republic
The Ukraine
Bulgaria
Hungary
Austria
-146 kt
-7 kt
Turkeyxy kt Net trade balance (Romania)1)
1) Net trade balance = Exports - Imports
-10 kt
Other countries
6
P.44260.001.01.72 67
Romania keeps its export position perfectly balanced, Turkey being the main profiles importer onto Romanian market
Profiles flows in/out of Romania, 2006 [kt]
Source: United Nations Commodity Trade Statistics Database, Eurostat, HZ, Roland Berger analyses
TRADE BALANCE OF ROMANIA
∑ Net trade balance = 0 kt1)
3 ktMoldova
Serbia
Romania
Slovakia
Czech Republic
The Ukraine
Bulgaria
Hungary
Austria
Turkey-63 kt
-4 kt
6 kt
xy kt Net trade balance (Romania)1)
1) Net trade balance = Exports - Imports
Other countries59 kt
6
P.44260.001.01.72 68
C.1.2 Consumption outlook – by industries
P.44260.001.01.72 69
Consumption of rebar, wire rod and profiles is expected to reflect the steady growth of key construction industry predicted for the next years
Rebar, wire rod and profiles usageHigh steel consuming segments are expected to record steady growth:
Higher rebar, profiles and wire rod consumption
Key drivers for rebar and wire rod consumption in the target market of Ductil Steel
Source: Roland Berger analyses
Growth of construction market
• Construction is currently the main economic growth lever. Rapid increase in construction volume will continue in the coming years as formerly seen in Hungary, Czech Republic and Poland
Car production boom
• Romanian car production market has a strong predicted growth but won‘t play major role in wire rod consumption
1
1 2
P.44260.001.01.72 70
172
100
182177
198
168
90
140
190
2000 2005 2010 2015
Production of housing appliances and the construction industry in CEE will experience the biggest growth
Growth development in steel-consuming industries in the CEE
• High pace of economic growth is expected together with high domestic demand and growth of foreign investment (+3.7% a year)
• Appliances and home technology: per annum growth of 4.7% expected; interconnected with GDP
• Construction industry: annual increases shall be around 4.7%; growth predominantly in civil engineering and renovations
• Automotive industry: annual increases of +4.1%; growth in output of plants owned by foreign auto makers
• Machinery industry: annual increases of +3,9% as a result of execution of programs aimed at modernization of production equipment
• Pipes: lower growth rates of 3,5% a year resulting from the substitution of steel pipes with other materials
Forecast
Production indices, [2000 = 100%] CommentsAppliances and home technology
GDP
Pipes
Constructionindustry AutomotiveindustryMachinery
Source: Thomson Business Intelligence, Euromonitor, JDPower, Roland Berger Strategy Consultants analysis
P.44260.001.01.72 71
131
101
107100108
118114
117
136
158
104
121
112109
124
139
111
142
125
90
120
150
2000 2005 2010 2015
Machinery will remain to be the main steel consumer in the EU with an annual growth rate of 3%
Development of steel consuming industries in EU-15
• Low pace of the overall economic growth (+2% a year)• Export-driven growth – low level of internal
consumption• Machinery industry: annual growth rate remains at
the level of 3%, connected with a high demand of Asian countries
• Home appliances: growth rate prediction remains at2.5% a year, high demand in Scandinavian countries, Eastern Europe and Turkey
• Pipes: satisfactory growth rate (+3% a year) relative to investment projects in energy and manufacturing
• Construction: low growth rate (ca 1.5% a year) in relation with low investment activity of the state, manufacturing and construction sectors
• Automotive industry: low growth rate (ca 1% a year) as a result of lowering demand
Forecast Machinery
Home appliance
GDP
Pipes
Production indices [2000 = 100%] Comments
ConstructionindustryAutomotiveindustry
Source: Thomson Business Intelligence, Euromonitor, Euroconstruct, JDPower, Roland Berger Strategy Consultants analysis
BACKUP
P.44260.001.01.72 72
465765
1,000 1,150269
301353
393
208
228
247278657
711
877976
241
252
302
336
95
100
113
125
1,935
2,357
2,892
Index 2005 = 100%
A continuous growth in rebar consumption is expected in the future, with Poland remaining to be the largest market by far
Forecasted rebar consumption in the target and extended target region until 2013 [kt]
Source: Roland Berger Strategy Consultants analysis, expert interviews
100.0% 121.8% 149.4% 168.3%
Hungary
Poland
SlovakiaCzech Rep.
Romania
3,258
2005 2006 2009 2013E
CommentsCAGR 5.9%
7.1%
Bulgaria942
1,2941,600
1,821
• Estimation of rebar consumption for 2008-2013 is based on the growth rates of key consumer industries for the period until 2008
• In addition to that GDP growth has served as an indicator for future development of the key industries
P.44260.001.01.72 73
296 407 460 490136 147 162189192 207 229
813 793 857948
939 9361,010
1,11883 8998
109
134
Czech Republic will retain its leading position within the target markets in terms of wire rod consumption
Source: Roland Berger Strategy Consultants analysis, expert interviews
2,4542,553
2,778
Index 2005 = 100%
Forecasted wire rod consumption in the target and extended region until 2013 [kt]100.0% 104.0% 113.2% 124.5%
Hungary
Poland
Slovakia
Czech Rep.
Romania
3,056
2005 2006 2009 2013E E
CAGR 2.7%CAGR 4.2%
Comments
• Estimation of rebar consumption for 2008-2013 is based on the growth rates of key consumer industries for the period until 2008
• In addition to that GDP growth has served as an indicator for future development of the key industries
Bulgaria619 735 814 881
P.44260.001.01.72 74
279 352 380 421
32073 81
657700
755836424
452
488540
8095
103113
145354
13668
67
Poland will remain dominant profiles producer and exporter in the analyzed area
Source: Roland Berger analyses, expert interviews
1,6431,812
2,119
Index 2005 = 100%
Forecasted profiles consumption in the target and extended region until 2013 [kt]100.0% 102.8% 129.0% 142.8%
Hungary
Poland
Slovakia
Czech Rep.
Romania
2,346
2005 2006 2009 2013E E
CAGR 4,6.%
5.4%
Comments
• Estimation of rebar consumption for 2008-2013 is based on the growth rates of key consumer industries for the period until 2008
• In addition to that GDP growth has served as an indicator for future development of the key industries
Bulgaria482
565773 856
P.44260.001.01.72 75
Change of the trend in the construction market will increase theprofiles demand up to 10 million tons in 2010
Development of profiles consumption within EU-25, 2000-2010 [kt]
9,8229,327 8,996 8,939 8,691
7,664
9,504 9,770 10,042 10,3219,248
0
2,000
4,000
6,000
8,000
10,000
12,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source:: ISSB; World Steel Dynamics; Euroconstruct 2005; Roland Berger Strategy Consultants
2005 was an abnormal year caused by speculations with the stocks
+2,8% CAGR 2006-10
P.44260.001.01.72 76
C.1.3 Construction industry in the target market
P.44260.001.01.72 77
3,634
2,073 1,999
1,646
1,092898
691553 481
3,542
1,778 1,849
1,493
1,010770
582433 390
Austria Slovenia Germany CzechRepublic
Hungary Poland Slovakia Bulgaria Romania
2008E 2006
Construction market intensity will be gradually increasing in CEE markets
Source: Roland Berger Strategy Consultants analysis, EUROSTAT
Construction production per capita [EUR]
P.44260.001.01.72 78
Compared with other countries within CEE region, Romania has a solid potential to grow its rebar consumption
28.3
23.5
17.7 18.2 17.5
35.4
25.9
21.318.8 20.0
27.8
20.223.1
18.816.0
47.0 45.7
39.1
Austria Hungary Czech Republic Germany Poland Slovakia
20.818.1 19.0
Romania
2004 20032005
Source: Roland Berger Strategy Consultants analysis, IISI
BACKUP
Rebar consumption per capita [kg]
P.44260.001.01.72 79
Czech Republic has a significant lead in wire rod consumption per capita – Romania’s potential again substantial
73.5
58.2
21.115.3 13.4
75.3
63.7
21.0 20.814.1
70.1
59.6
21.6 21.513.8
93.2 91.7
80.2
Czech Republic Austria Germany Poland Slovakia Hungary
13.3 12.55.9
Romania
BACKUP
Rebar consumption per capita [kg]
2004 20032005
Source: Roland Berger Strategy Consultants analysis, IISI
P.44260.001.01.72 80
3,6 4,2
2006 2008
0,81 0,89
2006 2008
3,6 4,2
2006 2008
3,1 3,5
2006 2008
3,1 3,7
2006 2008
10,1 10,9
2006 2008
Development of construction output [EUR bn]
Growth of the construction output volume in Romania, Bulgaria and Hungary will be much bigger than the average in EU-15
Poland
29,4 34,3
2006 2008
Slovakia CAGR +9%
Germany
2006 2008
Hungary CAGR +4%
Serbia CAGR +5%Croatia CAGR +6%
Slovenia CAGR +8%
165.0152.3
Czech Republic
CAGR +5%CAGR +4%
Austria CAGR +1,3%
2006 2008
30.129.0
CAGR +8%
Source: Roland Berger Strategy Consultants analysis, National Statistical Offices
8,4 10,4
2006 2008
Romania CAGR +11%
3,3 4,3
2006 2008
Bulgaria CAGR +13%
P.44260.001.01.72 81
Romanian construction industry is on the drive, significantly reflects in the growth of national economy.
Comments
1023
35
2115 20
1
-6 -3
3 0 5 6 6
9093
1996-2000
2001 2002 2003 2004 2005 2006 2007
• There is currently a significant surplus of housing demand
• Expected migration into big cities, rising demand for mortgage loans as a result of decreasing interest rates will lead to a growth of housing construction
• There will also be an increase in spending on civil engineering, taking into account its current low level and an expected inflow of the EU reconstruction funds
E
ROMANIA: CONSTRUCTION MARKET – BACKUP
Development of investment in construction [% annual growth]
Investment in construction Investment in construction – average for selected countries1)
1) Selected countries – Czech Republic, Poland, Slovakia, Hungary, Slovenia, Austria, Germany
E = Estimate
Source: The European Commission, NSI, Roland Berger Strategy Consultants analysis
Investment in construction
P.44260.001.01.72 82
82%83%
81%85%
84%79%81%77%
18%
17%
19%15%
16%
21%19%
23%
2001 2002 2003 2004 2005 2006 2007 2008
Newbuildings
Reno-vations
3,1823,621
4,051
5,114
7,0797,552
8,383
9,263
E EE = Estimate
New buildings build-up will continue to be dominant support for increase in construction in following years
Source: NSI, Roland Berger Strategy Consultants analyses
CAGR +10.7%
Construction – development and share of market segments [EUR m]
ROMANIA: CONSTRUCTION MARKET – BACKUP
CAGR +18.9%
P.44260.001.01.72 83
Non residential and government orders in civil construction willlargely contribute to growth in the construction industry
Development and share of construction segments [EUR m]
E = Estimate
Source: NSI, National forecasting institute, Roland Berger Strategy Consultants analysis
ROMANIA: CONSTRUCTION MARKET – BACKUP
12%
37%
24%27%
6.546,6.546
2004
20%
41%
20%
19%
8.109,8.109
2005
20%
40%
21%
20%
9.958,9.958
2006 2007E 2008E
4.267,4.267
2001
16%
38%
19%
27%
4.806,4.806
2002
17%
46%
19%19%
5.416,5.416
2003
15%
44%
22%
20%
ResidentialNon-residential constructionTransportation infrastructureOther
11,053
12,214
20%
40%
21%
20%
20%
40%
21%
20%
P.44260.001.01.72 84
2001 2002 2003 2004 2005 2006 2007E 2008E
Residentialconstruction
506745
899 952
1,632
1,9522,166
2,393
E E
E = Estimate
Middle class housing demand surplus and new means of financing will constantly result into increase of housing construction
Source: NSI, Roland Berger Strategy Consultants analysis
CAGR +10.7%CAGR +25,2%
Construction – development of residential construction [EUR m]
ROMANIA: RESIDENTIAL CONSTRUCTION – BACKUP
P.44260.001.01.72 85
In just two years, dwelling construction doubled in Bucharest and West regions
BACKUP
Source: National Statistics Institute, Census, Roland Berger Strategy Consultants analysis
5.6
4.6 4.4
2.1
6.5
4.4
3.52.9
4.6
2.9
1.4
2.6
6.5
4.7
3.5
4.24.6
2.3
1.2
2.8 2.8
2.0
4.2
6.8
North-East South-East North-West Bucharest South Central West South-West
New dwellings constructed by regions, 2003-2005 [thou units]
2005 2004 2003
27% 31% 49% -9% -3% 53% -21%5%Growth rate 2003-2005
P.44260.001.01.72 86
Significant number of large residential projects will be delivered in the following years, attempting to cover the growing demand
2009
2010
2010
2008
2008
2008
2008
2009
2010
2009
2008
2008
2009
2009
Finishing Date
1800
3400
1200
220
655
788
908
1000
1200
1200
1370
1800
2700
2000
Number of Dwellings
Tiriac Imobiliare + Riofisa
Raicris Construct
Future Group
Enol Grup
Mivan
Colliers
GTC
Adama
River Invest
Euro Habit
Rom Canada Group
Hercesa
Neocity Group Romania
Koch and Partner
Developer
Timisoara
Oradea
Iasi
Cluj
Bucharest
Bucharest
Bucharest
Bucharest
Bucharest
Bucharest
Bucharest
Bucharest
Bucharest
Brasov
City
Riofisa Residential Complex
Cartierul Primaveii (Primaverii Residences)
Green Park
Central Park Residence Cluj
New Town Residences
Asmita Gardens
Rose Garden
Pipera Residences
Sema Parc Residential
Planorama Colentina
West Park
Basarabia Residential Complex
Neopeninsula
Fontana Residences
Project Name
ROMANIA: RESIDENTIAL CONSTRUCTION PROJECTS – BACKUP
Source: CBRE, Colliers, DTZ, Expert Interviews, Roland Berger Strategy Consultants analysis
P.44260.001.01.72 87
2001 2002 2003 2004 2005 2006 2007 2008
Non Residential
Construction
1,5891,825
2,4812,901
3,315
3,9764,413
4,877
E E
E = Estimate
Non residential construction is traditionally the main segment within the construction industry
CAGR +10.7%
Construction – development of non residential construction [EUR m]
ROMANIA: NON RESIDENTIAL CONSTRUCTION – BACKUP
CAGR +16.5%
Source: National Statistics Institute, Census, Roland Berger Strategy Consultants analysis
P.44260.001.01.72 88
Bucharest is the main driver for non-residential projects, but developers are shifting their focus to other cities as well
Developer
Africa-Israel Investments
Baneasa Development
North Real Estate Opportunities Fund
New Century Holdings, Africa Israel
Erste Group, EMCT
Riofisa+Tiriac Investments
Riofisa
TriGranit
Immoeast Austria
Modus Properties
Square Meters
31 000
64 000
50 000
105 000
50 000
53 000
76 000
30 000
47 000
60 000
120 000
140 000
Delivery Date
2009
2008
2009
2008
2008
2009
2009
2008
2009
2009
2009
2009
2009
Cost
30 m
50 m
50 m
50 m
60 m
60 m
100 m
111 m
150 m
150 m
150 m
185 m
400 m
City
Bucharest
Bucharest
Arad
Bucharest
Suceava
Bucharest
Bucharest
Brasov
Brasov
Timisoara
Bucharest
Constanta
Bucharest
Hotel in Bucharest
Ana Tower
Arad Mall
Baneasa Mall
Bucovina Shopping City
Cotroceni Park
Sun Plaza
Brasov Business Park (+ dwellings and hotel)
Riofisa Center
Mall
Esplanada Mall
Polus Center
Coliseum
Project Name
ROMANIA: NON RESIDENTIAL CONSTRUCTION PROJECTS – BACKUP
Source: CBRE, Colliers, DTZ, Expert Interviews, Roland Berger Strategy Consultants analysis
P.44260.001.01.72 89
2001 2002 2003 2004 2005 2006 2007 2008
TransportConstruction
1,041923 1,025
1,4091,657
2,0772,305
2,547
E E
E = Estimate
Infrastructure construction will benefit from massive investments from the Government of Romania as well as the EU
Construction – development of transport construction [EUR m]
ROMANIA: TRANSPORT CONSTRUCTION – BACKUP
CAGR +10.7%CAGR +12,2%
Source: National Statistics Institute, Census, Roland Berger Strategy Consultants analysis
P.44260.001.01.72 90
Romanian Ministry of Transportation, Construction and Tourism launched ambitious plans for highway network construction
1) Price per km includes bridges and tunnels
Source: The Ministry of Transportation, construction and Tourism, Roland Berger analyses
Iasi
Sibiu
Cluj
Arad
Buzau
Constanta
DevaFocşani
Ploieşti
Piteşti
Giurgiu
Bucuresti
Brasov
Piatra NeamtBors
Timisoara
Nadlac 1,199930794
444298 420
6829521,088
264526
1,438
2009 20102008 20112007 2012
• Brasov – Bors: 415 km/2 lanes per direction/ total cost EUR 2.5 bn; cost/km = EUR 5.4 m
• Until 2013 – 1,800 km of highway – cost EUR 12.8 bn, approx EUR 6.6 m/km
PlannedAlready in use
Construction development [km]
ROMANIA: TRANSPORT CONSTRUCTION – BACKUP
Finished Under construction
P.44260.001.01.72 91
C.2 Production technology and quality
P.44260.001.01.72 92
Based on the planned yield factors 1,010 k tons of scrap will betransformed into 872 k tons of long products
Transformation steps with projected losses, 2012
Source: Ductil Steel, Roland Berger analyses
Scrap
1010 kt
Rebar/ reinf. steel in coils
Wire rod
0 kt
239/53 kt
Continuous Casting
908 kt
ElectricArc Furnace
926 kt
Rolling Mill
872 kt
Steel Billets/blooms Finishedlongproducts
2% 0% Billets/blooms for sale or processing
Profiles
310 kt
270 kt9%
4.4/3.7%
8%
Billets/blooms
Rebars/ reinf. steel in coils
Profiles
P.44260.001.01.72 93
The largest part of the EUR 105 m investment over the next 6 years comes from meltshop and rolling mill in Otelu Rosu until 12/2008
1) Including maintenance Capex 2) Schlatter welding machine and fence machine financed through leasing 3) Investment split based on expected needs
Investment break-down1) [EUR m]
Source: Ductil Steel, Roland Berger Strategy Consultants analyses
40.3
13.0
13.0
105.0
19.1
13.0
2007 2008
6.6
2009 2010 2011 2012 Total
Otelu Rosu
Buzau
3.3
3.3
10.03)
3.03)
18.2
0.93.02)
39.7
0.61.02)
10.03)
3.03)
10.03)
3.03)
P.44260.001.01.72 94
More than EUR 56m planned to be invested in Otelu Rosu within the next 2 years to modernize EAF, rolling mill and other assets
1) Continuous casting, meltshop electric system, air compressor, auxiliary equipment2) Building, lighting, environmental and maintenance investments3) as per Techint steel scrap specificationsSource: Ductil Steel, Roland Berger analyses
Revamping rolling mill for profiles
General expenses for rolling mill plant
Revamping furnace #2
Other equipment2)
ROLLING MILL & OTHERSMELTSHOP
Raw materials feedstock
• Steel scrap >0.6 t/m3)
• Additionaly cast iron(2.5-3.0 t/m3
Semi-products
Billets• 100 x 100 x 12,000 mm(Blooms)• (160 - 260 x 12,000 mm)
Final products
• 10 - 28 mm reinforcing bars• 6,8,10,12 mm reinforcing steel
in coils (smooth/ribbed)• 5.5 - 11 mm wire rod• (profiles and beams <200 mm)
Product quality
9,250
1,500
4,950
1,500
1,300
46,850
Electric arcfurnace shop and CONSTEEL system
Other equipment1)
24,250
2,000
Scrap yard modernization
6,300
Water treatment plant
5,300
Smoke treatment
9,000
• Thermo mechanically treated• Drawing• High strength deformed
Total investment break-down in Otelu Rosu [EUR ths]
P.44260.001.01.72 95
Electric arc furnace provided by Techint will offer nominal capacity of 100 t and will reach tap-to-tap time of 43 minutes
Electric arc furnace
COMPONENTS TECHNICAL SPECIFICATIONS
• Steel structure• Hydraulic power station• Lances and burners• Mechanical equipment• Weighing system of the furnace• Casting car• Sample gripper and temperature
• Power supply: 35 kV – 50 Hz @ 66 MVA• Tap-to-tap time: 69 min (stage 1), later 43 min• Transformation yield: 92%• CONSTEEL scrap charging• Bottom tapping iron cutter TBT• 610mm (24”) electrode
PROVIDER PRICE CAPACITIES
EUR 24,250 ths nominal: 100 t
Electric arc furnace characteristics
Source: Ductil Steel, Techint, Roland Berger analyses
P.44260.001.01.72 96
Water treatment plant
Over EUR 14m will be invested into fumes treatment and proper treatment of the water recycling
Smoke treatment plant
DESCRIPTION DESCRIPTION
• New fume system for EAF/CONSTEEL system and the ladle furnace
• Fumes filtration• Dust handling• Flow rate of primary fumes from CONSTEEL –
125,000 Nm3/h (900oC T)• Flow rate of secondary fumes for shed
ventilation – 600,000 Nm3/h (60oC T)• LF fumes flow rate – 35,000 Nm3/h (250oC T)• Gas flow rate to filter – 813,000 Nm3/h (130oC T)
• Flow rate for EAF – 1,400m3/h• Flow rate for CONSTEEL – 1,300m3/h• Flow rate for fume system – 600m3/h
• Water temperature <35oC• pH factor 7.5-8.5
PROVIDER PRICE
EUR 9,000 ths
PROVIDER PRICE
EUR 5,300 ths
Smoke treatment and water treatment plants
Ravagnani
Source: Ductil Steel, Techint, Roland Berger analyses
P.44260.001.01.72 97
D. Prime cost positions of Ductil Steel
P.44260.001.01.72 98
Both scrap and electricity as the main cost drivers for an EAF-based technology should be well available on the Romanian market
• Outlooks for scrap supply in Romania are very positive due to a substantial steel production over the past 35 years and convergence towards the EU standards
• High probability of imports from Russia and Ukraine persisting due to the development of export limitations (lifting them in the future)
• Generally a strong trend towards decreasing scrap exports from the CEE region due to higher local consumption can be observed
• The plant in Otelu Rosu will reach a future scrap consumption of around 1010 kt p.a. for the planned production volume of 872kt final products
• New investments in steel plants in the region will have an impact on scrap and electric energy consumption increase
• The outlook for electric energy is positive due to the well diversified and balanced Romanianelectricity generation assets and the excellent domestic availability of primary energycarriers
Management summary
P.44260.001.01.72 99
Materials and energy costs are the key component of total costs for an EAF technology, with scrap as main cost leverage
13%2%
13%
20%
52%
Other energy
Ferroalloys
Scrap
7%
81%Materials and energy.
External services
Sources: Roland Berger analyses
Typical cost structure of the steel plant based on EAF technology [%]
RenumerationOthers
6%6%
Other materials
Electric energy
100%
P.44260.001.01.72 100
D.1 Scrap availability in Romania and CEE countries
P.44260.001.01.72 101
Romania is expected to maintain its self-sufficiency in scrap generation in the future, too
• Domestic consumption of ferrous scrap is on the rise as an increasing share of the ferrous scrap generated in Romania is delivered to the domestic steel mills –on the export markets Turkey has traditionally been the most important destination
• Romanian scrap generation has been relatively constant, around 4 m tons per year, in the past three years
• Romanian ferrous scrap market is structured into three main levels with a relatively low degree of transparency
• The considerable crude steel production registered in the past 30 to 35 years points towards good availability of scrap iron in the following period
• The geographical distribution of the main steel consuming/ potential scrap generating industrial clusters in Romania is relatively balanced
P.44260.001.01.72 102
Domestic consumption of ferrous scrap is on the rise …
Ferrous scrap consumption in Romania, 1999-2006 ['000 t]
Source: ICEM, Comtrade, Roland Berger analysis
907
1,367 1,4081,125 1,119
1,751
2,256
2,600
1999 2000 2001 2002 2003 2004 2005 2006 E
P.44260.001.01.72 103
… as an increasing share of the ferrous scrap generated in Romania is delivered to the domestic steel mills
Breakdown of ferrous scrap generated by destination market, 1999-2006 ['000 t]
Source: ICEM, UN Comtrade, Roland Berger analysis
1999 2000 2001 2002 2003 2004 2005 2006 E
2,233
3,655
3,083 3,1953,503
Export markets
Domestic market
4,1453,918
4,462
58%58%
42%32%
35%46%
37%
41%
59%
63%54% 65%
68% 58%42% 42%
Note: Imports of ferrous scrap are virtually inexistent ranging from 900 to 10,000 tonnes/ year in the 1999 – 2006 period
P.44260.001.01.72 104
On the export markets Turkey has traditionally been the most important destination for Romanian ferrous scrap
Source: UN Comtrade, Roland Berger analysis
11%
6%
5%3%
8%
65%
2%
Breakdown of ferrous scrap exports by country, 2006 [%] Comments
Turkey
Others
EgyptItaly
Bulgaria
Greece
Hungary
• Turkey is one of the world‘s largest scrap buyers with 13.3 m tonnes imported in 2005, while imports from Romania amounted to 1.2 m tonnes
• Moreover, Turkish scrap traders have longstanding trade relations with Romania, as they also own several domestic scrap dealers
• Due to their insufficient domestic supply but also the relatively low transportation costs, neighboring/ nearby countries (e.g. Greece, Bulgaria, Hungary) are also important export destinations
Total export: 1,874
P.44260.001.01.72 105
Romanian ferrous scrap market is structured on three main levelswith a relatively low degree of transparency
Market structure in Romania
Source: ISI, Metal Bulletin, Roland Berger analysis
• Large number of small C and even B-dealers exists
• Domestic steel industry tries to keep scrap in the market however scrap traders are very flexible and act upon price swings
• The large players (A-dealers) control a significant share of the export (Romrecycling, Romferex, Metal House, etc.)
…………….
Steelmakers
• Several hundreds of companies – performing collection activities
• Companies performing collection/ sorting/ processing activities
• Many of them are former state companies (Remat)
• 5-6 large traders• Main differentiator
compared to B-dealers is size and ability to export (obtain authorizations/ etc.)
B-dealers
C-dealers
…..
Comments
BACKUP
Exports
A-dealers
P.44260.001.01.72 106
The considerable crude steel production registered in the past 35 years points towards good availability of scrap in the future
Source: UN Comtrade, Roland Berger analysis
1) The forecast for 2008 assumes the running of the steel mills at full steam in line with GOR Steel industry Restructuring Strategy
Evolution of crude steel production, 1970-1990 ['000 tons]
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
6,517
14,411
9,761
Evolution of domestic demand for scrap, 2003-20081) ['000 tons]
1,119
3,300
2003 2008
P.44260.001.01.72 107
The geographical distribution of the main potential scrap generating industrial clusters in Romania is relatively balanced
Constructions
Machine building
Chemicals & Oil
Automotive
Appliances
Railways
Shipbuilding
P.44260.001.01.72 108
Scrap market situation in Hungary, 2005
Imports of scrap marginal in Hungary – they cover 5% of its scrap consumption and the rest is covered by domestic scrap supply
Consumption of scrap in Hungary [kt]
822
Consumption
Source: World Steel in Figures 2006
2005
2004
Domestic supply
Exports Import Consumption
761
47 822
1,536
Domesticsupply
Exports Import Consumption
900
100 800
1,600
BACKUP
P.44260.001.01.72 109
Scrap market situation in Slovakia, 2005
Drop in scrap consumption in the year 2005 has resulted in lowernet export from Slovakia
701
Consumption
934
Consumption
Source: World Steel in Figures 2006
2005
2004
Domestic supply
Exports Import Consumption
391198 934
1,127
Domesticsupply
Exports Import Consumption
500300 1,100
1,300
(Italy)
(Germany)
(Russia)
Consumption of scrap in Slovakia [kt]
BACKUP
P.44260.001.01.72 110
Scrap market situation in Czech Republic, 2005
Around 45% of Czech scrap supply is being exported with Germany as a key export target
Consumption of scrap in Czech Republic [kt]
2 621
Consumption
Source: World Steel in Figures 2006
2005
2004
Domestic supply
Exports Import Consumption
1,763
399 2,621
3,985
Domesticsupply
Exports Import Consumption
1,600
500 2,900
4,000
BACKUP
P.44260.001.01.72 111
Scrap market situation in Poland, 2005
Scrap trade balance in Poland is export-driven – import restrictions are limiting this channel of supply
Consumption of scrap in Poland [kt]
5 040
Consumption
Source: World Steel in Figures 2006
2005
2004
Domestic supply
Exports Import Consumption
1,400
240 5,040
6,200
Domesticsupply
Exports Import Consumption
2,000
300 5,800
7,500
BACKUP
P.44260.001.01.72 112
D.2. Scrap supply and consumption outlook in the region
P.44260.001.01.72 113
• It is highly possible that import restrictions for scrap import will be reduced
• Ukraine following its new trade policy towards EU will increase export scrap quotas
• Export from the CEE region is expected to decrease in next years
• After period of industry restructuring some steel mills announcenew investments that will increase steel production
• Higher utilization of existing production capacities will be another factor for the rise of steel production
Increasing demand for scrap, change of sources and trade balanceimprovement will determine future scrap availability in the region
Key drivers for scrap availability in the target regionKey drivers
1SCRAP DEMAND
SCRAP SUPPLY
2
SCRAP EXPORT/ IMPORT
3
Expected consequences
• Change of scrap sources: (e.g. increase of availability from one time sources)
• Domestic demand increase for scrap
• Trade balance improvement, more import and less export
• There are some potential sources that will form the scrap supply level in the future:– car utilization– railways liquidation – army reduction
– modernization expenses– household appliances
Source: Roland Berger Analyses
P.44260.001.01.72 114
The investment plans of major steel plants in the region will increase demand for scrap in the future
Steel plants’ investment plans and influence on scrap demand
Source: Companies, press research
Steel plant Investments announced
Influence on scrap demand
Mittal Steel Galati (RO)In addition to recent USD 50 m investment in modernization of blast furnace no. 3, the company is investing USD 59 m into upgrade of its biggest furnace; will lead to a slight increase in scrap consumption
Dunaferr (HU) A recent reline of blast furnace no. 1 will not have any major influence on scrap consumption even in case of a big production increase
Huta Stali Częstochowa Sp. z o.o. (PL)
Ukraine Donbas will invest PLN 440 m to modernize production line in the next years; production should rise to 1.1-1.2 m t annually, additional new consumption ca. 300kt
Mittal Steel Poland- unit in Dabrowa Gornicza
Construction of the third continuous steel casting line with the capacity of 3 m t annually; additional increase in scrap consumption by ca. 800-900 kt
Arcelor Huta Warszawa. Sp z o.o. (PL)
Arcelor will switch into production of rebars and merchant rebars, a new rolling mill will be finished in 2007; new consumption increase by 250-350 kt
CMC Zawiercie S.A. (PL) Building new hot sheet mill and the second continuous steel casting line
1
New players (SK, PL, H ?) Building new Mini- mills and rolling capacities
P.44260.001.01.72 115
Convergence between target region and EU-15 may provide additional 1,878 kt scrap supply in the future
Scrap supply per inhabitant, 2004 [kg]
Source: UN Comtrade, Roland Berger analyses
2
Western European average 2)
CEE region
Comments252 22
230
1) Calculated as potential gap (22) x cumulative n.of inhabitants in the CEE region (85.4 m) 2) EU 15 countries with highest density of steel plant 4) Gap in terms of various aspects, such as average earnings, consumption etc.
• Gap4) between CEE countries (and thus target region) and EU-15 is not substantial and will be getting smaller
• Electric appliances consumption in target region is rising, average age of car park is decreasing
• Based on these assumptions, the gap in average scrap supply per capita is supposed to diminishbetween CEE and EU-15 region, too
• 1,878 kt of additional scrap supply will be generated due to the convergence of target region and EU-15 countries
1,878 kt potential scrap supply1)
P.44260.001.01.72 116
392
160197
240230241
SK CZ HU RO PL CEEaverage
There are major differences found in scrap supply per capita in the target market region
Scrap supply per inhabitant, 2004 [kg]
Source: UN Comtrade, Roland Berger analyses
2 BACKUP
Comments
WE average (252)
• Scrap supply per capita in Czech Republic exceeds the WE average by ca 50%
• Levels of scrap supply per capita both in Romania & Slovakia are comparable to WE average
• Scrap supply per capita in Hungary & Poland are well below both target market and WE market average
P.44260.001.01.72 117
Car utilization is the future large potential scrap source –decreasing volumes of home scrap
Key drivers for scrap supply in the target region
• Change in production methods
Home scrap
• Higher construction level
• Old industrial sites and plants
Demolition
• Increasing car utilization in the CEE region
Car utilization
• Liquidation of the unused railways
Railways
• Increase of scrap collected quote per person
Household
appliances
• Changes within army and reduction of number of active military bases
Military
• Extraordinary scrap prices incurred clean up effect in 2004
Clean up effect
Source: Roland Berger analyses
2
P.44260.001.01.72 118
Some scrap sources will win on importance in next years
Key drivers for scrap supply in the target region
DriverMilitary
• Reduction of number of soldiers and closure of military bases are a good source of scrap
• For example in Poland, between the years 2001-2005 out of existing 300 military bases 71was assigned for liquidation. There are further to come
Demolition
• Improvement of condition of target region construction industry in 2005 - 2015 will create demand for demolition works which is a source of scrap
Household appliances
• Due to Access Treaty of NMS quote of scrap collected per citizen should increase to4 kg/ person till 2008
Railways
• Railway densityin the target region exceeds the EU-15 ratio. In Poland it amounts to 6.6 km/100km2, , in Slovakia 7.5km, in Hungary 8.5km and in Czech Republic 12.1km,
For „old EU” the ratio amounts to 4.9 km/100km2
Car utilization
• Increasing car utilization in CEE
• From one car ca. 250 kg of good quality scrap can be retrieved
• According to EU regulations In 2006 NMS1 have to scrap 85% ofall cars that will have their registration withdrawn (by 2015 – 95%)
Descrip-tion
Source: Roland Berger analyses
2
1) NMS = New member states
P.44260.001.01.72 119
Railway density in the region exceeds the EU 15 average
BACKUP
7.5
12.1
8.5
6.6
4.8
Slovakia Czech Republic Hungary Romania Poland
EU 15 average 4,9km/100 km2
Railway density in the target region, 2005 [km of rail/km2]
Source: Roland Berger analyses
2
P.44260.001.01.72 120
In the next years import should increase due to restrictions simplification and Ukraine’s policy – export expected to decrease
Source: Expert interviews, Roland Berger analyses
Key drivers for scrap export/import development in the target region
According to expert interviews import restrictionsconnected with license will be changed in short term and scrap will not be treated as a waste – negotiations in Sub-commission for Environment Protection in Polish Parliament at the moment
Ukraine increased its quotas for scrap export and decrease export duties to EU for the year 2006
Export from target regions should decrease. Increasing local consumption along with rising scrap prices (for example, in August 2006 scrap prices in Poland exceeded German prices) will have the largest impact on export decrease. In recent years lack of demand for scrap in target regions and poor financial situation of local mills forced scrap collectors to export. Improvement of financial standing & rising demand should limit the export in next years
Trade balance improvement
A
B
C
Import Export
3
P.44260.001.01.72 121
D.3 Electric energy
P.44260.001.01.72 122
The Romanian electricity market is very close to full liberalization –all industrial customers are already able to freely negotiate their electricity purchases
Key developments in the Romanian power sectorOverview of electricity market opening, 2001-2007 [%]
15%33% 33% 40%
55%
100%84%
2001 2002 2003 2004 2005 2006 2007
`
Minimum annual consumption for eligibility (GWh)
Market opening degree
• Industrial market is fully liberalized – all industrial clients areeligible consumers
• Households are expected to become non-captive customersby July 2007
Generation• Generation assets formerly part of only
one state-owned company(CONEL/RENEL) have been separatedand corporatized according to fuel type
• State seeks private partner involvement(e.g. Privatisation of selected thermal power plants)
Transmission• The only transport operator,
Transelectrica, will remain in state controlDistribution• Out of 8 distribution companies (Electrica),
5 are already privatized with E.ON, CEZ and Enel
• The remaining three companies areintended to be privatized in the near future
Supply• Currently there are 66 licensed suppliers
100 40 40 20 1 1 all
Source: ANRE, Roland Berger analysis
P.44260.001.01.72 123
Electricity production and consumption are set to increase, withthe balance shifting slowly towards nuclear
Comments
• Both production and consumption are on the rise
• Energy efficiency is still poorbut it will improve in time
• Romania is and will remain a net exporter of electricity
Overview of electricity production and consumption, 2001 – 2010 [TWh]
• Production
– Thermal
– Hydro
– Nuclear
• Imports
• Exports
• Total final consumption
2001
53.9
33.5
14.9
5.4
+0.8
-2.1
45.4
2002
54.9
33.1
16.1
5.7
+0.4
-3.3
44.9
2003
56.6
38.4
13.3
4.9
+1.0
-3.0
47.2
...
...
...
...
...
...
...
...
Source: National Institute of Statistics, GOR Energy Roadmap, Roland Berger analysis
2004
56.5
34.4
16.5
5.6
+2.4
-3.6
50.7
2005
59.4
33.7
20.2
5.5
+2.3
-5.2
48.9
2006
61.5
36.3
19.7
5.5
+1.0
-5.3
50.3
2010F
64.9
37.0
17.0
10.7
0
-9.0
56.9
P.44260.001.01.72 124
Electricity supply is quite evenly balanced and the futuredevelopments will ensure a positive trend of this sector
11
1212
6
8
3
89
31
Breakdown of electricity supply by producer, 2006 [%] Expected Developments
Hydro• Hidroelectrica has commited to privatise all
the remaining micro-hydo-powerplants untilthe end of 2007
Thermo• The three intergated energy complexes at
Turceni, Rovinari and Craiova will need to beprivatised until the end of 2007
• There are also several greenfield type of initiatives in development in this sector
Nuclear• Unit 2 will be operational in Sep 2007,
increasing Romania‘s electricity output withup to 10%
• Units 3 and 4 could be operational in 2012, after EUR 2 bn investment
Hidroelectrica
ElcenBucuresti
TurceniRovinari
Deva
Craiova
Termoelectrica
Other
SN Nuclearelectrica
Source: ANRE, Government of Romania, Roland Berger analysis
Hydro Thermal Nuclear
P.44260.001.01.72 125
Romania has sufficient resources to ensure a stable energy supplyin the long term, allowing for strong developments in high energy-consumption industries
31
9 1
3 17
39
Structure of electricity generated by type of energycarrier, 2006 [%] Comments
Coal• Expectations for coal reserves are to last for
50 – 150 years
Natural gas• National natural gas production covers over
50% of the total consumption in energygeneration, making Romania one of the moreindependant countries from this point of view
• Natural gas reserves, although depleting, still richer than in surrounding countries
Oil• At present, approximately 50% of the oil used
in energy production comes from national production
• Oil reserves, although depleting, are still richer than in neighboring countries
Coal
Fuel oil Natural gas
Hydropower
Nuclear powerOther1)
1) Others include renewable energy forms (solar, wind, geothermal, etc.
Source: National Statistics Institute (customized data request), Roland Berger analysis
Thermal Hydro Nuclear Other
P.44260.001.01.72 126
E. Business plan
P.44260.001.01.72 127
The medium-term business plan for Ductil Steel shows a signifi-cant growth potential linked to investments in adding capacity
Executive summary
• With predicted sales revenues growing from EUR 198 m in 2007 to EUR 450 m in 2012 the business model shows a positive EBITDA development over the entire period; net profits exceeding EUR 25m in the third year of the projection period, namely in 2009
• Positive and increasing cash flow from operating activities is a good basis for investment success
• For the entire projection period the return on equity (ROE) is estimated to approximate 20%
P.44260.001.01.72 128
E.1 Technological, market and financial assumptions
P.44260.001.01.72 129
Modernization of facilities in Otelu Rosu and Buzau lead to a sub-stantial increase of capacities – further efficiency potential assumed
Technological assumptions and capacity utilization
Source: Roland Berger Strategy Consultants
Production equipment
Capacity utilization
Otelu Rosu:Modernization of the meltshop by installing a new EAF with a 1mt/a capacity (SOP 10/08). Installation of a smoke treatment facility, revamping of the continuous casting, rolling mill for profiles (300kt capacity) and general modernization of facilitiesBuzau:Installment of high capacity machines for welded mesh (Schlatter), for fencing and the Tempcore technology in the rolling mill (for shifting to ST 37.2 instead of PC 52billets)
Predictions of the production volumes have been derived from a 330 days working cycle – 250 days being utilized for the production of rebars and 80 remaining days for wire rods in Buzau. A 3shifts/7 days model envisaged.
Based on the experience of Roland Berger there is a noticeable potential for increasing capacities at a facility like Ductil Steel and the first assessment of figures provided hints towards this assumption (out of the scope of the actual project)
Comments Category
P.44260.001.01.72 130
Rebars and wire rod destined for the local market, profiles enter the bullish market and billets/blooms complete the portfolio
Market assumptions for finished products
Source: Roland Berger Strategy Consultants
Rebars and wire rod
Profiles1)
Thanks to the currently dynamically growing consuming markets (especially construction) and the expected positive trend in Romania Ductil Steel is very well positioned and perceived as a high-end producer of these products for the local market
Profiles represent a product abandoned for a longer period of time for the company. Taking into account the starting production curve of (medium) profiles at Otelu Rosu and expected demand from the markets Ductil Steel will enter a high-demand market. Markets seem to be eager for a new producer to outstand the invisible pressure of large consolidated producers. Heavy sections will experience a larger demand shortly70% of profiles to be exported (via traders), 30% destined for the local market
Comments Category
Billets/blooms(for sale or processing)
Apart from providing semi-finished products for the rolling facilities at Buzau, the company intends to utilize a substantial part of the production assets for the production of billets/blooms for sale or further re-processing in another plants.90% of billets to be exported, 10% destined for the local market to keep competition under control (to the utmost possible extent)
1) Detailled break-down of production volumes and prices for individual profiles groups has not been taken into account
P.44260.001.01.72 131
No price developments taken into account for scrap and finished products due to their strong correlation
Financial assumptions (1/3)
Source: Roland Berger Strategy Consultants
Cost of materials and utilities
• Scrap has been set at an average price level for 2006 (EUR 181/t), future price development of scrap as the most important cost factor have not been taken into account since there is a strong correlation between its price and the price of finished products
• The energy price (electricity and gas) has been estimated to increase by 5% annually relative to the 2006 actual.
• Consumption of the specified materials and utilities (electric energy, oxygen, natural gas, ferroalloys, electrodes etc) has been set at levels stipulated in the technical specification delivered by equipment suppliers or was calculated based on the best practices
• Other important production costs have been calculated based on the average levels recorded in 2006 while taking into account the expected improvement in efficiency resulting from new investments
• General office expenses are estimated to increase by 10% annually until 2009 and by 5% thereafter
• Import prices for wire rod have been estimated constant at EUR 375/ton• Processing charges for rebar at Lamdro have been maintained constant at
EUR 75/ton
Comments Category
P.44260.001.01.72 132
Tight correlation between billet and long products prices over the decade; favorable price span for producers of finished products
Comparative price chart – long products vs. billets
50
100
150
200
250
300
350
400
450
500
January
-98Ju
ly-98
January
-99Ju
ly-99
January
-00Ju
ly-00
January
-01Ju
ly-01
January
-02Ju
ly-02
January
-03Ju
ly-03
January
-04Ju
ly-04
January
-05Ju
ly-05
January
-06Ju
ly-06
Billet, CIS export (FOB Black Sea Port)
Rebar, CIS export (FOB Black Sea Port)
Wire Rod, CIS export (Fob Black Sea Port)
Scrap-HMS I, Rotterdam export (FOB Rotterdam)
Source: Steel Orbis, IISI, Roland Berger Strategy Consultants analysis
BACKUP
P.44260.001.01.72 133
Financial success of the investment is dependant on the development of sales prices for own products
Financial assumptions (2/3)
Source: Roland Berger Strategy Consultants
Provision expenses No provisions have been made for doubtful clients or damaged inventories
Comments Category
Salaries and number of employees
Cost of salaries will growth (real growth) through 2007-2009 at the level of 10%and 15% between 2010-2012 annually for direct production workers and support functions in Buzau as well as 15% over 2007-2012 in Otelu Rosu. In 2012 the target number of 1,238 employees will be reached for both plants
Sales revenues The value of sales in the financial model results from sales of 16 main productsand 3 main product groups (rebar/reinf.steel in coils, profiles and billets/blooms) and derivatives. Future price development for these products has been set at constant levels of 2006. According to past developments in the steel sector (and linkage of finished product’s prices to the price of scrap) this method can be used for a relatively reliable prediction of profit margins
P.44260.001.01.72 134
Freeing rolling capacities for rebar production and import of wire rod from abroad are another cornerstone of the business planning
Financial assumptions (3/3)
Source: Roland Berger Strategy Consultants
Environmental investment
Import of wire rod
Various investments into environment (besides the CAPEX listed in detail in the document) have been planned in order to meet the upcoming stricter requirements of the Romanian/EU legislation (monitoring water, air, emissions etc.)
Production capacities currently used for wire rod production at Buzau will be freed for the production of higher added-value rebars and wire rod is planned to be imported from abroad (China, Ukraine etc.)
Comments Category
P.44260.001.01.72 135
The business plan is based on common assumptions for key macroeconomic indicators throughout the projection period
Financial assumptions - macroeconomics
General macroeconomic indicators (GDP)
• No major changes expected
Comments Category
Taxes and depreciation standards
Inflation • No inflation adjustments taken into account (except personnel cost, energy and general office expenses)
• The business plan is based on the actual figures for 2006, which have translated from local currency, RON, into EUR at an exchange rate of 3.52 RON/EUR. All projections have been performed directly in EUR and no gains/losses for translation have been taken into account
Exchange rate
• The nominal corporate tax rate is assumed to remain constant, at 16%. Assets are depreciated linearly and no residual value has been taken into account
Source: 2007-2012 Business Plan prepared by Sider Sipe
P.44260.001.01.72 136
Total value of investment in production equipment and buildingsduring the projection period of EUR 105 m
Assumptions concerning the main assets categories in financial model
CommentsCategory
• In 2007 the company plans to start investing, among others, in a new electric arc furnace, new smoke treatment equipment, revamping a profiles rolling mill and a new Schlatter welded mesh machine. The entire capital expenditure over the projection period will amount to EUR 105. In 2007 the company plans to revalue the company’s fixed assets which is expected to increase their value from EUR 45m to EUR 105.5 m
Fixed assets
• The value of the inventories grows in line with the turnover over the projection period. The inventories of scrap and imported wire rod are estimated to amount to 15 days of the following month’s consumption whilst the stocks of auxiliary materials are estimated equal to the consumption of the following two months
Inventories
• The value of the trade receivables will follow the increase in turnover as the company assumes that all export receivables will be collected within the following month after sale whilst 70% of domestic receivables will be collected within the first month following the sale and the remaining 30% within the second month following the sale
Trade receivables
Source: 2007-2012 Business Plan prepared by Sider Sipe
P.44260.001.01.72 137
Profit accumulation and loan pay back during the projection period will significantly improve relation between equity and loans
Assumptions concerning the main captions of equity & liabilities in the financial model
• The company will retain as equity all earnings realized until 2009. During 2011 and 2012 the company plans to distribute dividends equal to 50% of the net profit of the previous financial year
Equity
• To finance the investment in production expansion the company plans to take on an investment loan worth EUR 35 m. To fund the takeover of Ductil Steel’s entire share capital, Sider Sipe plans to take on an additional loan worth EUR 43.5 m. Moreover, the company will recur to bank financing for working capital requirements and to financial leasing agreements. Although during 2007 and 2008 total debt will increase significantly, to reach approx. EUR 95 m as of 31.12.2008, the company estimates that through retained earnings it will achieve to gradually repay a significant amount by 2012
Loans
CommentsCategory
• The company will pay scrap in 15 days after delivery whilst for imported wire rod there is a 90 days credit period
Trade payables
Source: 2007-2012 Business Plan prepared by Sider Sipe
P.44260.001.01.72 138
Equity will increase in the projection period by EUR 152.6 m mainly through retained earnings
Changes in equity during projection period [EUR m]Comments
• In 2007 Sider Sipe plans to acquire and cancel the 50% stake of the company’s shares owned by Feralpi. Moreover, Sider Sipe plans to revalue the company’s fixed assets which should increase the revaluation reserves by EUR 25 m.
• Over the projection period company will generate retained earnings amounting to 128m EUR, which is a result of continuous profits generated between 2007 and 2012
19.2
Equity 2006
25.0
Revaluationreserves
2007
13.3
Retained earnings
2007
0.3
Reduction of share capital
2007
57.2
Equity 2007
114.6
Cumulated retained earnings
2007-2012
171.8
Equity 2012
+152.6
Source: 2007-2012 Business Plan prepared by Sider Sipe
P.44260.001.01.72 139
E.2 Financial projections
P.44260.001.01.72 140
The sensitivity calculations are based on variations of the selling prices for the company’s main products and of the cost of scrap
Price fluctuations for main products and scrap – sensitivity analysis
Price
Rebars
Welded mesh
Scrap
Stress test Business plan Upward sensitivity
2007 2009 2010 2012 2007 2009 2010 2012
• Market prices [EUR] 435 420 435 420 435 435 435 435 435 440 435 440
• Market prices [EUR] 490 470 490 470 490 490 490 490 490 500 490 500
2007 2009 2010 2012
181 205 181 210 181 181 181 181 181 170 181 175• Scrap prices [EUR]
Profiles
• Market prices [EUR] 525 500 525 500 525 525 525 525 525 540 525 540
Billets for sale
• Market prices [EUR] 323 310 323 310 323 323 323 323 323 335 323 335
P.44260.001.01.72 141
Comments
With significant increases in sales, Ductil Steel can achieve stable EBITDA margins and net profits of more than EUR 32 m
Sales, EBITDA and net profits [EUR m]
• A stable EBITDA margin of ~ 15% in the projection period and a growing net profit
2007 2008 2009 2012
62.8
32.2
62.9
32.8
267.4
53.1
31.9
198.1
12.1EBITDAmargin [%]
15.2 15.5 13.9
2010
15.3
23.9
13.3
40.7
17.4
392.1425.7
450.6
BUSINESS PLAN
347.4
25.3
61.0
2011
14.8
Sales EBITDA Net profit
Source: 2007-2012 Business Plan prepared by Sider Sipe
P.44260.001.01.72 142
Despite the projection of potential negative steel cycles in 2009 and 2012, the business model stays viable
Sales, EBITDA and net profits [EUR m]
Comments
• Two fictional negative steel cycle in 2009 and 2012 have a substantial but very short-term impact on the EBITDA development but does not threaten the company’s sustainability
EBITDA margin [%]
STRESS TEST
267.4
198.1
392.1425.7
434.3
335.7
17.2
62.9
23.823.9
40.761
(6.4)
32.831.9
13.3 17.40.1
12.1 15.2 15.5 4.07.1 14.8
2007 2008 2009 20122010 2011
Sales EBITDA Net profit
Source: 2007-2012 Business Plan prepared by Sider Sipe
P.44260.001.01.72 143
With potential positive steel cycles in 2009 and 2012 the sales and profitability figures increase substantially
Sales, EBITDA and net profits [EUR m]
Comments
• Two fictional positive steel cycles in 2009 and 2012 boost the financial figures substantially
Sales EBITDA Net profit
EBITDA margin[%]
UPWARD SENSITIVITY
12.1 15.2 15.5 16.919.0 14.8
2007 2008 2009 20122010 2011
267.4
198.1
392.1425.7
459.3
353.2
77.6
62.966.9
23.940.7
61.0
44.532.831.9
13.317.4
37.0
Source: 2007-2012 Business Plan prepared by Sider Sipe
P.44260.001.01.72 144
Due to the higher volume and higher sales prices rebar and profiles represent ~67% of sales over the entire projection period
Margin on sales %
Sales structure by products, 2009-2013 [EUR m]
198.1
347.4392.1
425.7450.6
2007 2008 2009 20122010 2011Rebar Derivatives Reinforcing steel in coils Billets for sale Profiles
267.4
13.3 16.2 16.3 14.716.1 15.5
Source: 2007-2012 Business Plan prepared by Sider Sipe
P.44260.001.01.72 145
88%
7%5%
Ductil Steel
Materials and energy
External servicesRemunerations
Others
Materials and energy costs are the key component of total costs of investment, with scrap as main cost leverages
Sources: Roland Berger Analyses, 2007-2012 Business Plan prepared by Sider Sipe
81%
7%6%6%
Industry benchmark
Structure of operating costs
1
1) For comparable steel plants based on EAF technology
Comments
• Material and energy costs (including scrap and electricity costs) are the most significant parts of the operating costs structure
• Insignificance of the remunerations costs reflect rather low salaries costs in Romania – especially blue collar personal costs
P.44260.001.01.72 146
788823
673709745765
510510510487341
447
2007 2008 2009 2010 2011 2012
The total workforce remains constant as the reduction in headcount in Buzau in offset by an increase in Otelu Rosu
Development of personnel costs and employees, 2007 – 2012 [EUR ‘000 ]
Comments
• The reduction in headcount in Buzau is linked to productivity gains and will be done through natural staff attrition
• In Otelu Rosu the increase in production capacity will require additional personnel
1,1831,2191,2551,252
Personnel costsØ Salary 7.9
9,232 14,384
11.5
12,480
10.0
11,002
8.9 13.2
16,072
15.2
17,942
Buzau Otelu Rosu
1,1641,235
Source: 2007-2012 Business Plan prepared by Sider Sipe
Ø personnel
P.44260.001.01.72 147
Stable EBITDA margin and net profits exceeding EUR 30m after 2009
Income statement [EUR]2007 2008 2009 2010 2011 2012
Net Sales 198,060,296 267,411,020 347,446,520 392,111,570 425,741,920 450,551,770Raw materials incl bought out wire rods (32,882,006) (50,349,089) (50,483,550) (50,483,550) (50,483,550) (50,483,550)Zinc (1,287,196) (2,020,014) (2,020,014) (2,020,014) (2,020,014) (2,020,014)Raw materials-Scrap Otelu Rosu (71,977,399) (89,804,107) (127,919,368) (148,222,077) (165,475,182) (177,355,361)Auxillary materials-Buzau (1,184,470) (1,502,980) (1,630,285) (1,750,345) (1,800,025) (1,841,425)Auxilary materials-Otelu Rosu (12,202,863) (15,225,157) (21,687,120) (25,129,189) (28,054,236) (30,068,371)Inward trasport-Buzau (5,765,856) (5,705,699) (5,740,415) (5,740,415) (5,740,415) (5,740,415)Energy-Buzau (7,849,164) (10,355,975) (11,933,852) (13,580,280) (14,715,386) (15,850,235)Energy-Otelu Rosu (14,322,696) (18,763,511) (28,063,608) (34,143,607) (40,023,832) (45,042,182)Personnel costs-Otelu Rosu and Buzau (9,231,785) (11,001,558) (12,479,763) (14,384,218) (16,071,768) (17,941,939)Other manufacturing expenses-Buzau (6,237,645) (7,850,068) (8,196,928) (8,524,048) (8,659,408) (8,772,208)Other manufacturing expenses-Otelu Rosu (7,373,331) (9,199,491) (13,104,000) (15,183,800) (16,951,200) (18,168,200)Processing charges (1,500,000) (2,362,500) (8,250,000) (9,000,000) (9,750,000) (11,175,000)
Total production costs (171,814,410) (224,140,149) (291,508,903) (328,161,543) (359,745,017) (384,458,902)Gross Margin 26,245,886 43,270,871 55,937,617 63,950,027 65,996,903 66,092,868as % of net sales 13.3% 16.2% 16.1% 16.3% 15.5% 14.7%General office expenses (2,320,332) (2,543,020) (2,798,183) (2,999,543) (3,146,732) (3,301,142)EBITDA 23,925,553 40,727,851 53,139,434 60,950,484 62,850,172 62,791,726as % of net sales 12.1% 15.2% 15.3% 15.5% 14.8% 13.9%Depreciation (3,526,563) (10,583,382) (13,697,666) (14,401,832) (15,701,832) (17,001,832)EBIT 20,398,991 30,144,469 39,441,768 46,548,651 47,148,339 45,789,893Financing expenses (4,590,430) (9,474,416) (9,343,950) (8,610,195) (8,156,643) (7,514,250)EBT 15,808,561 20,670,053 30,097,818 37,938,456 38,991,696 38,275,643Tax on profit (2,529,370) (3,307,209) (4,815,651) (6,070,153) (6,238,671) (6,124,103)Net Profit 13,279,191 17,362,845 25,282,167 31,868,303 32,753,025 32,151,541as % of net sales 6.7% 6.5% 7.3% 8.1% 7.7% 7.1%
Source: 2007-2012 Business Plan prepared by Sider Sipe
P.44260.001.01.72 148
After 2008 the company‘s asset base will remain constant
2007 2008 2009 2010 2011 2012
Land 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000Buildings 35,000,000 35,000,000 35,000,000 35,000,000 35,000,000 35,000,000Plant & machinery 62,500,000 103,100,000 110,100,000 112,500,000 114,900,000 117,300,000Others Incl Licenses 550,052 550,052 550,052 550,052 550,052 550,052Capital expenditure in progress 9,166,797 8,849,297 8,449,297 19,049,297 29,649,297 40,249,297Gross 115,216,849 155,499,349 162,099,349 175,099,349 188,099,349 201,099,349Less Accumulated depreciation (11,326,743) (21,910,124) (35,607,790) (50,009,622) (65,711,455) (82,713,287)Net PP&E 103,890,106 133,589,225 126,491,559 125,089,727 122,387,894 118,386,062Participation in Subsidiary Companies 8,072 8,072 8,072 8,072 8,072 8,072Net Fixed assets 103,898,179 133,597,297 126,499,631 125,097,799 122,395,966 118,394,134
Raw materials 3,467,107 4,204,642 5,331,160 6,293,680 6,781,772 6,600,428Auxillary and other materials 2,081,738 5,107,947 5,107,947 4,374,316 4,706,477 4,707,485Semi finished goods 3,857,853 4,908,108 7,625,138 7,374,858 7,910,898 7,803,411Finished goods 4,286,503 5,453,453 8,472,376 8,194,287 8,789,887 8,670,457
Total inventory 13,693,201 19,674,150 26,536,622 26,237,141 28,189,034 27,781,781Receivables-Export customers 1,306,908 4,416,588 3,497,838 3,239,878 3,335,338 3,335,338Receivables-Domestic customers 19,590,177 24,230,104 25,014,409 27,658,488 29,050,018 31,651,869Non trade receivables 285,032 285,032 285,032 285,032 285,032 285,032Other financial assets, Prepaid exp 1,246,950 1,246,950 1,246,950 1,246,950 1,246,950 1,246,950
Total current assets 36,122,267 49,852,824 56,580,850 58,667,488 62,106,372 64,300,970Total assets 140,020,446 183,450,121 183,080,481 183,765,287 184,502,338 182,695,104
Balance sheet- Assets items [EUR]
Source: 2007-2012 Business Plan prepared by Sider Sipe
P.44260.001.01.72 149
Long-term liabilities will be gradually reduced by 2012
2007 2008 2009 2010 2011 2012Share capital 255,355 255,355 255,355 255,355 255,355 255,355Share Premium 6,520 6,520 6,520 6,520 6,520 6,520Revaluation reserve- old 4,274,093 4,274,093 4,274,093 4,274,093 4,274,093 4,274,093Revaluation reserve-2007 25,011,545 25,011,545 25,011,545 25,011,545 25,011,545 25,011,545Other reserves, past profits net of IAS adj 14,405,487 14,405,487 14,405,487 14,405,487 14,405,487 14,405,487Profit & Loss cumulative 13,279,191 30,642,036 55,924,203 87,792,506 112,122,035 127,897,063Shareholders' equity 57,232,192 74,595,037 99,877,204 131,745,508 156,075,036 171,850,065Shareholder's loans 7,510,656 7,510,656 7,510,656 7,510,656 0 0Working cap loans net of cash eq. 20,639,699 5,306,706 (21,912,092) (49,773,768) (58,392,404) (70,395,351)New investment loan from Italy 0 35,000,000 32,365,472 29,568,453 26,598,919 23,446,231Bridge loan taken over from Newco 43,500,000 43,500,000 40,220,818 36,740,414 33,046,440 29,125,790Long term leases with accruing interest 5,041,661 3,575,605 2,384,761 1,453,942 273,127 0Long term liabilities 76,692,017 94,892,967 60,569,615 25,499,697 1,526,081 (17,823,329)Trade Payables 1,964,147 7,937,468 15,153,332 17,345,951 19,297,845 19,243,985Nontrade payables 4,132,089 6,024,648 7,480,330 9,174,131 7,603,376 9,424,384Total current liabilities 6,096,237 13,962,116 22,633,662 26,520,082 26,901,220 28,668,368Total Liabilities 140,020,445 183,450,120 183,080,481 183,765,286 184,502,338 182,695,104
Balance sheet-liabilities items [EUR]
Source: 2007-2012 Business Plan prepared by Sider Sipe
P.44260.001.01.72 150
Positive and increasing cash flow from operating activities - good basis for investment success
2007 2008 2009 2010 2011 2012Net profit after tax 13,279,191 17,362,845 25,282,167 31,868,303 32,753,025 32,151,541Adjustments for:
Depreciation 3,526,563 10,583,382 13,697,666 14,401,832 15,701,832 17,001,832Financing charges payable 4,590,430 9,474,416 9,343,950 8,610,195 8,156,643 7,514,250Profit tax 2,529,370 3,307,209 4,815,651 6,070,153 6,238,671 6,124,103
Operating profit before working capital changes 23,925,553 40,727,851 53,139,434 60,950,484 62,850,172 62,791,726Decrease / (Increase) in Inventories 9,437,956 (5,980,950) (6,862,471) 299,481 (1,951,894) 407,254Decrease / (Increase) in receivables (8,899,571) (7,749,607) 134,445 (2,386,119) (1,486,990) (2,601,852)Increase / (Decrease) in payables (4,130,438) 7,350,394 8,805,719 3,494,036 295,848 1,819,170Increase / (Decrease) in short term borrowings 0 0 0 0 0 0Financing charges paid (4,590,430) (9,474,416) (9,343,950) (8,610,195) (8,156,643) (7,514,250)Profit tax paid (2,760,260) (2,791,723) (4,949,824) (5,677,769) (6,153,382) (6,176,125)Operating cash flow 12,982,811 22,081,550 40,923,352 48,069,918 45,397,111 48,725,923
Purchase of tangible and intangible fixed assets (19,117,500) (40,282,500) (6,600,000) (13,000,000) (13,000,000) (13,000,000)Sale of tangible and intangible fixed assets 0 0 0 0 0 0Net cash used in investment activities (19,117,500) (40,282,500) (6,600,000) (13,000,000) (13,000,000) (13,000,000)
Proceeds from long term borrowings 0 35,000,000 0 0 0 0Repayment of borrowings (1,082,310) (1,466,056) (7,104,554) (7,208,243) (15,354,979) (7,346,464)Dividends paid 0 0 0 0 (8,423,496) (16,376,512)Net cash from Financing activities (1,082,310) 33,533,944 (7,104,554) (7,208,243) (23,778,474) (23,722,976)
Net increase / (Decrease) in cash and cash equivalents (7,216,999) 15,332,993 27,218,798 27,861,676 8,618,637 12,002,947
Cash and cash equivalents at 1 January (13,422,700) (20,639,699) (5,306,706) 21,912,092 49,773,768 58,392,404Cash and cash equivalents at 31 December (20,639,699) (5,306,706) 21,912,092 49,773,768 58,392,404 70,395,351
Forecast cash flow Statement [EUR]
Source: 2007-2012 Business Plan prepared by Sider Sipe
P.44260.001.01.72 151
The average return on equity is above 21% for most of period andthe asset turnover increases once the investments are completed
2007 2008 2009 2010 2011 2012Net income/Net sales 6.7% 6.5% 7.3% 8.1% 7.7% 7.1%EBITDA/Net sales 12.1% 15.2% 15.3% 15.5% 14.8% 13.9%Interest coverage (EBIT/financing expenses) 4.44 3.18 4.22 5.41 5.78 6.09 Sales/Total Assets 1.41 1.46 1.90 2.13 2.31 2.47 Total Assets/Equity 2.45 2.46 1.83 1.39 1.18 1.06 ROE 23.2% 23.3% 25.3% 24.2% 21.0% 18.7%
Average receivable collection period 39.04 39.49 30.25 29.03 28.01 28.57 Average inventory processing period 29.09 32.04 33.23 29.18 28.60 26.38 Average payable payment period 12.95 22.74 28.34 29.50 27.29 27.22
Total asset turnover 1.81 1.65 1.90 2.14 2.31 2.45
Key financial indicators
Source: 2007-2012 Business Plan prepared by Sider Sipe, Roland Berger analysis