severstal - rns · pdf fileseverstal wishes to caution you that these statements are ......

Severstal

Investor Presentation

10 September 2008

Table of Contents

Introduction and Market Update – Alexey Mordashov

Overview of Severstal – Sergei Kuznetsov

Corporate Strategy – Alexey Mordashov

Disclaimer

These materials may contain projections and other forward-looking statements regarding future events or the future financial performance of OAO Severstal (Severstal). You can identify forward looking statements by terms such as “expect,” “believe,” “anticipate,” “estimate,” “intend,” “will,” “could,” “may” or “might”, the negative of such terms, or other similar expressions. Severstal wishes to caution you that these statements are only predictions and that actual events or results may differ materially. Severstal does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Factors that could cause the actual results to differ materially from those contained in projections or forward-looking statements of Severstal may include, among others, general economic conditions in the markets in which Severstal operates, the competitive environment in, and risks associated with operating in, such markets, market change in the steel and mining industries, as well as many other risks affecting Severstal and its operations.

1

Principal Speakers

Alexey MordashovCEO Severstal

Sergei KuznetsovCFO Severstal

Gregory MasonCOO Severstal

CEO Severstal International

Roman DeniskinCEO Severstal Resources

2

Today’s Agenda

Overview of Severstal– Alexey Mordashov and Sergei Kuznetsov

Severstal International– Gregory Mason

Severstal Resources– Roman Deniskin

Conclusion– Alexey Mordashov

3

1. Introduction and Update

Alexey Mordashov

An International, Vertically Integrated Steel Player

Leading crude steel producer– 23m tonnes of crude steel production

in 2008 – 25m tonnes of capacity by end of 2008

2nd largest producer of steel andsteel products, iron ore pellets and coking coal in Russia

4th largest integrated steel producer in the US

Record 1H08 – revenue up over 36% to $10.5 billion and EBITDA up over 34% to $2.8 billion with strong outlook for the full year

4 Introduction and Update

Steadily Improving Safety Record

0

1

2

3

4

5

6

7

8

9

10

2004 2005 2006 2007 1H 2008

LTIF

R/1

m h

rs w

orke

d

0

5

10

15

20

25

30

35

40

45

50

No. of Fatalities

LTIFR per 1m Hours Worked No. of Fatalities

Source: Company


New Corporate Structure

Severstal

Severstal Russian Steel(2007 Revenue: $8.9bn)

Severstal International(2007 Revenue $5.4bn)

Russian Steel Mining Severstal North America

Metalware European Operations

Izhora Pipe Mill

Severstal Resources(2007 Revenue $2.2bn)

Transparency, accountability and best practice transferSource: CompanyNote: Pro forma, non-audited, for illustrative purposes


Robust Corporate Governance

International recognition of governance standards – awarded ‘The Best Progress in Corporate Governance’ by the Investor Protection Association in December 2007

5 out of 10 Directors, including the Chairman of the BoD, are independent as defined by the UK Combined Code– Uncommon for Russian companies

Separate committees for Audit, Remuneration/Nomination and Strategy

(1) Independent Directors.

Shareholders

Chief Executive OfficerAlexey Mordashov

Severstal Russian SteelAnatoly Kruchinin

Severstal ResourcesRoman Deniskin

Severstal InternationalGregory Mason

Audit CommitteeMartin Angle (1) (Chairman)

Ronald Freeman (1)

Peter Kraljic (1)

Remuneration and Nomination Committee

Rolf Stomberg (1) (Chairman)Christopher Clark (1)

Alexey Mordashov

Strategy CommitteeVadim Makhov (Chairman)

Gregory Mason Peter Kraljic (1)

Board of Directors

Christopher Clark (1)

Peter Kraljic (1) Anatoly Kruchinin

Rolf Stomberg (1) Vadim Makhov

Martin Angle (1) Alexey Mordashov

Ronald Freeman (1) Mikhail Noskov

Gregory Mason


Strong Growth in Global Steel Demand …

Strong growth in recent years driven by BRIC markets– Infrastructure projects– Urbanization trends

Record capacity utilization– Capacity expansions limited by rising construction

costs and availability of financing

Robust global demand expected in 2009 and beyond

Source: IISI April 2008 Short Range Outlook

1,031

1,125

1,2081,282

1,363

977

829777

886

0

200

400

600

800

1,000

1,200

1,400

1,600

2001 2002 2003 2004 2005 2006 2007 2008E 2009E

2001–2007 CAGR +7.7%

Finished Steel Products(m tonnes)


… With Strongly Rising Raw Material Prices …

Unprecedented increases in iron ore, coking coal and scrap prices in 2008

Continuing tight supply/demand situation

Capacity constraints and high global consolidation to drive markets in 2009

Further increases in value of vertical integration and mining competences

Iron Ore Prices($/tonne)

1526

57

73

58

77

92

106

12 18

8976

65

504742

0

20

40

60

80

100

120

2002 2003 2004 2005 2006 2007 Jan.08 Jun.08

Iron Ore Concentrate, FCA Iron Ore Pellets, FCA

+37%

1526

57

73

58

77

92

106

12 18

8976

65

504742

0

20

40

60

80

100

120

2002 2003 2004 2005 2006 2007 Jan.08 Jun.08

Iron Ore Concentrate, FCA Iron Ore Pellets, FCA

+37%+37%

Source: Severstal Resources


… And Substantial Step-up in 2008 Steel Prices

Substantial price increases in all regions in 2008– Based on high capacity utilisation and

sustained demand– Full pass-through of raw material cost increases– More consolidated markets – Russia, US and

Europe – demonstrate better price discipline

Positive 1H results and outlook statements by Russian and international peers

Recent dip in Asian pricing reflects seasonal and one-off effects– Need to await removal of “Olympics” factor for more

clarity on regional price trends– Underlying demand in emerging markets

remains robust

0

200

400

600

800

1,000

1,200

1,400

Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08

Flat Products / HRC / N.Europe domestic Ex-Works $/t

Flat Products / HRC / N.America domestic FOB US Midw est mill $/t

Flat Products / HRC / Russia Black Sea export FOB $/t

Flat Products / HRC / East Asia import CFR $/t

Source: SBB


2. Overview of Severstal

Sergei Kuznetsov

Strongly Positioned in Our Markets

Geographically diversified across four continents. Facilities in over 20 locations

Strong market shares in Russia and the US

Attractive niche markets in Europe

2007 Revenue by Geography

Rest of World

9%

Russia44%

Europe35%

North America

12%

Source: Company

11 Overview of Severstal

Long Products20%

Galvanised and Other Metallic Coated Sheet

9%

Other15%

Semi-f inished Products

7%

Metalw are Products

7%

Pipes (1)

6%

Iron Ore & Coal (2)

4%

Hot-rolled Strip and Plate

24%

Cold-rolled Sheet8%

2007 Revenue by Product

(1) Includes: ‘Large diameter pipes’ and ‘Other tubes, pipes, formed shapes’(2) Includes ‘Coal and coking coal concentrate’ and ‘Pellets and iron ore’

Balanced Mix and Value-added Products

Balanced products mix with focus on high value-added products in attractive niche markets

Vertically integrated business model

Iron ore and coal mines

Integrated and EAF steel mills and rolled product plants

Downstream production anddistribution businesses

Source: Company


Strong Revenue Growth

10.5

12.5

15.2

7.7

10.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2005 2006 2007 H107 H108

$bn

CAGR +21%

+36%, Y-o-Y

Source: Company


Strong EBITDA Growth, Low Gearing

Despite active M&A strategy and expansion capex, we maintain a conservative balance sheet

Diversified, proactive financing policy

2.83.0

3.7

2.1

2.8

0.30.3

0.1

0.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2005 2006 2007 H107 H108

$bn

0.0

0.5

1.0

1.5

2.0

Multiple

EBITDA Net Debt/EBITDA (right axis)

CAGR +14%

+34.4%, Y-o-Y

Note: 1H07 Net Debt / EBITDA is n.m. due to positive cash balanceSource: Company


Dividend Policy

Policy is to pay out at least 25% of earnings

Declared and paid quarterly

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08EPS ($) 0.39 0.60 0.32 0.34 0.44 1.49

Payout Ratio (%) 25.6 65.0 31.3

DPS ($)

50.0 50.0 50.3

0.220.10 0.750.170.100.39

Source: Company


3. Corporate Strategy

Alexey Mordashov

Severstal Strategy

Integrated steel and mining business model worldwide

Target critical mass in key regions and markets– Focus on high-growth steel products responding to regional demand – Technology-intensive products in selected niches and regions

Regional diversification with emphasis on structural attractiveness– Growing long-term demand– High consolidation and market discipline– Availability of local raw materials

Low-cost business model to address cost inflation pressures– Vertical integration globally– On-going investments in operational efficiency– Further capture of energy and labour efficiencies

16 Corporate Strategy

Target: Sustainable Margins and High Returns on Investments

Acquisitions of undervalued assets with visible turnaround potential and greenfields in low-cost areas

Vertical Integration

Regional Diversification

Critical Mass

Higher Margins

Lower Volatility

Stability of cash flows in consolidated markets

+

High Return on Investments


Severstal Market Overview

Russia– High growth market– Construction and infrastructure boom in early stages– Local raw materials and abundant scrap generation

North America– Structural trend for reindustrialization to support consumption growth– High consolidation and market discipline– Globally competitive raw materials

Europe– Sophisticated end-markets for niche and technology-intensive products– High consolidation

Frontier markets – Abundant steelmaking raw materials– Opportunities to develop low-cost production


Development Focus

Russia and North America – critical mass in flats, one of the market leaders– Russia: No.2 flat steel producer, 30–50% market share in flat market segments– Development in Russia – build a strong position in longs to address infrastructure and construction

boom – become one of the market leaders (like in flats)– US: No.3 flat steel producer, continuing ramp-up of capacity

Vertical integration– Done in Russia – task is mine extension, cost control– No.1 priority for the US

Europe – niche and high-value player in consolidated markets– Look for opportunities to realise assets’ potential in the local market

Frontier markets– Low-cost raw materials production through greenfields and brownfields– Assess opportunities for steel production


Strategy in Action: Russia

Critical mass and leadership in the domestic market– High share in the key flat steel product markets– Expansion in high-demand long products to target

infrastructure growthRebar greenfield mini-mill in the Volga regionHeavy beams mini-millTubes and sections greenfield mill in Sheksna

Improving value-chain in downstream and distribution– Kolpino service center to be launched in 4Q08

Full raw materials self-sufficiency– Focus on mines optimisation and life extension


Strategy in Action: North America

Target critical mass in key regions where we can build an integrated low-cost business model

Critical mass delivered with recent acquisitions and investments– Severstal Sparrows Point in Baltimore, Maryland– Severstal Columbus, a greenfield plant in Columbus,

Mississippi – Severstal Warren with major production facility in

Warren, Ohio– Severstal Wheeling

High returns on investment through low acquisition cost and subsequent improvement

Raw materials integration in progress– Agreement to acquire PBS Coals to rise self-sufficiency

in metallurgical coal by 50%– Acquisition of the remaining 50% of Mount State Carbon

Coke JV with the Esmark acquisition


Western European Leader in selected high value-added customised products– Strong position in engineering steels (SBQ) and rails

Strategic opportunities to strengthen position in the Italian market– Value-chain reinforcement via acquisition of

downstream: Redaelli– Strategic investment in Piombino to substitute slabs

for premium flat steel products1.5m tonnes hot-strip mill to be launched in 2010

Emerging markets with substantial demand potential– Abundant steelmaking raw materials– Opportunities to develop low-cost production– Promising demand growth

Strategy in Action: EU and Other Markets


Strategy in Action: Mining

Essential part of Severstal is integrated business model

Unique expertise of mining management in challenging environments

Focus on global expansion to secure raw materials self-sufficiency and leverage mining expertise– Value-driven acquisitions– Greenfield development securing future growth needs– Utilisation of full potential for existing assets– Selected high-return projects in non-ferrous mining

Recent Activity– PBS Coals acquisition to secure 50% of North American

coal needs– Mano River license acquisition to enter African mining

opportunities with a potential to supply low-cost iron ore to US and Italy

– Mine life extension and capacity maximization in Russian iron ore


Summary

An international, vertically-integrated steel player

Leading crude steel producer– 23m tonnes of crude steel production

in 2008 – 25m tonnes of capacity by end of 2008

2nd largest producer of steel andsteel products, iron ore pellets and coking coal in Russia

4th largest integrated steel producer in the US

Record 1H08 – Revenue up over 36% to $10.5 billion and EBITDA up over 34% to $2.8 billion with strong outlook for the full year


severstal - rns · pdf fileseverstal wishes to caution you that these statements are ......

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