Organic Growth Strategy March – April 2008
MMK at a Glance Geographic Location Financial & Operational Indicators - MMK Group 2004 2005 2006 2007 %, 06/07 Steel produced, mt (1) 11,3 11,4 12,5 13,3 6,4 Steel products output, mt (1) 10,1 10,2 11,3 12,2 8,0 Revenue, US$ mln 4 829 5 380 6 424 8 197 27,6 EBITDA, US$ mln 1 735 1 511 2 005 2 342 16,8 Moscow Moscow EBITDA margin, % 35,9 28,1 31,2 28,6 Net income, US$ mln. 1 232 947 1 426 1 772 24,3 MMK MMK Suppliers from Kuznetsk Coal Suppliers from Kuznetsk Coal Net income margin,% 25,5 17,6 22,2 21,6 SSGPO SSGPO Basin Basin Comprehensive income, US$ mln 1 232 947 1 444 2 368 64,0 Kazakhstan Kazakhstan Earnings per share, US$ 0,125 0,095 0,140 0,164 17,1 Source: US GAAP accounting statements 1.Only MMK’s steel production and the steel products output Growth of the Steel Products Output Share Equity Structure (1) CAGR 6.9% ‘000 tons Fulnek 12 203 Mintha 12 000 11 346 Enterprises Free-float Holding 1483 10 201 10 137 1579 Limited (2) Limited (2) 1563 1542 1647 9 000 1634 1331 1698 46.26% 41.01% 12.73% 5 863 6 000 6391 843 6095 897 5262 5438 3 000 2521 1788 1174 1707 1043 1098 976 559 722 425 332 0 1. Data upon register closing as of 07.03.2008 1996 2004 2005 2006 2007 2. Mr.V.F.Rashnikov, Chairman of the Board of Directors, MMK, is the beneficiary owner of MMK’s Slabs and billets Long products HRC CRC Downstream ordinary shares, which belongs to Mintha Holding Limited and Fulnek Enterprises Limited. 1 Source: ММК
Declared strategy of MMK: performance in 2007 � Expansion of downstream production – Sellable products output keeps on growing according to our estimates – Crude steel and slabs output growth to meet the demand from plate mill coming on stream – Significant product changes are bound in 2008 – Preparation for new plate mill commissioning moves on according to schedule Start-up – July 2009 – Realization of the high quality CR rolled steel goes according to schedule Start-up - 2010 � Expansion on fast growing markets – Entry to the strong Turkish market to organically grow in flat rolled steel – This expansion is in line with MMK growth strategy in the fast-growing markets � Target investments to boost profitability – Heavy plate and CR automotive rolled steel – Acquisition of Intercos-4 to start a project for downstream processing in order to meet the demand from the booming automotive industry and home appliances production � Secured raw material supplies – Long-term contracts with key raw material suppliers are in place and prove effective – The decision has been made to develop Prioskol iron ore deposit. This will allow to be 100% self-sufficient in iron ore in the long term. – Strategic alliance with Belon company. Supplies of high quality coal to MMK triple. Up to 80% requirement coverage by 2012. 2 DECLARED STRATEGY OF MMK: PERFORMANCE IN 2007
Key Investment Factors Broad Product Mix Strong Positions on Target investments the Fast Growing to boost profitability Russian Market Footprint on Experienced Promising Export Management Markets Competitive Edge in Costs Annexes 2007 financial results 3
Broad Product Mix MMK is the largest producer of steel and rolled products in Russia MMK produces the broadest range of products in Russia, from slabs to downstream, high added value products Diversified product mix allows flexibility to respond to demand changes With main focus flat products, MMK commissioned in 2006 state-of-the-art facilities to produce of 2 mtpy of long products Product mix is evolving with focus on downstream high value added products “ We view MMK’s competitive advantages as production excellence, supported by world-class facilities and a unique product mix with a high degree of high value-added products ” Analyst of Credit Suisse 4 BROAD PRODUCT MIX
Market Position One of the Largest Steel Producers in the World, mt Arcelor Mittal 120 100 80 Jiangsu Shagang Group Nippon Steel 60 ThyssenKrupp POSCO Corus Group Evraz Group Riva Group U.S. Steel Tangshan Baosteel JFE Severstal 40 Sumitomo Nucor Gerdau Anshan uhan Techint SAIL ММК 20 W 0 Source: IISI Leader of Rolled Steel Output in Russia, 2007 Leader of Flat Steel Output in Russia, 2007 ММК Other Uralskaya Other 9% 20% Stal 16% 4% NKMK 3% ММК 37% Uralskaya Stal NLMK 5% 18% Chelyabinsk Iron and Steel Works Severstal 6% 18% NTMK 9% ZMSK NLMK Severstal 9% 14% Source: Metal Expert 32% 5 BROAD PRODUCT MIX
Broad Product Mix Leading Position in High Added Value Production Output of Main Products in 2007 Market Products % of MMK’s MMK’s share in Hot rolled sheet position Picture production Russia’s total 6.39 m tons (52.4%) HR flat products 1 52% 42% Cold rolled sheet Picture 13% CR flat products 2 35% 1.56 m tons (12.8%) 3% Galvanized flat products 24% 2 Picture Long products 1.79 m tons (14.7%) 3% 53% 1 CR narrow strip 2% 100% 1 Tinplate Picture Downstream products 1.49 m tons (12.2%) 2% Special sections 54% 1 Polymer (colour) coated rolled 1% 23% 3 products Billets and slabs 0.98 m tons (8.0%) Source: MMK, Chermet 6 BROAD PRODUCT MIX
Strong Positions on the Russian Market MMK’s geographic position is the key factor to determine its orientation towards satisfying the demand of the fast growing Russian market MMK is strategically placed in the highest steel consumption region of Russia The share of domestic sales is constantly growing and will reach at least 65% The product mix will allow MMK to meet the demand of Russia’s various industrial sectors The Russian market absorbs all of MMK’s long products and downstream products The entire gain in production level due to modernization (apprx.3 m tons) will be shipped to the domestic market “ Thanks to its diversified product mix, MMK is exposed to all of the domestic market’s major segments.. MMK also enjoys strong links to the construction market, which accounts for over 20% of its domestic sales, as well as the mechanical engineering and automotive industries, which we think could come alive in the future” Analyst of Troika Dialog 7 STRONG POSITIONS ON THE RUSSIAN MARKET
Sales Structure Growth of Downstream Products Sales (1) Domestic Market, 2007 in Russia and CIS, 2002-2007 ’000 tons 1,266 % of supplies, tons 1,219 74 1 200 79 1,122 179 73 166 51 Long Products 1 000 209 230 178 24,2% 800 694 HRC 129 161 135 158 46,4% 600 56 438 426 422 150 400 133 Dow nstream 200 229 17,3% 197 209 218 0 2002 2004 2006 2007 CRC 12,1% Tinplate Galvanized Flat Products Steel Strip Formed Sections Colour coated flat products Other Total: 7,327 kt Source: MMK, data on ОАО ММК 1. Domestic market includes Russia and CIS Source: MMK Export, 2007 Growth of Domestic Sales in Physical Terms % of supplies, tons 100% Slabs and Long Products 40% Billets 0,2% 46% 50% 51% 20,0% 50% Dow nstream 4,5% 60% 54% 49% 50% HRC CRC 61,3% 13,9% 0% 2004 2005 2006 2007 Total: 4,876 kt Source: ММК Domestic Market Export Source: MMK 8 STRONG POSITIONS ON THE RUSSIAN MARKET
ММК : Domestic Market Trends Russian Oil & Gas Pipe Consumption, th.t Goal and Strategy of Domestic Sales CAGR 8,8% 6000 Growing demand from 3449 3550 3700 4000 pipe manufacturers 3600 • Building a network of metal service centers 3017 2329 2000 • Growing shipments to large consumers 2531 2550 2300 2052 2100 1612 • Vertical integration with steel products 0 2005 2006 2007F 2008F 2009F 2010F consumers Large diameter pipes Others Source: ТМК Forecast • Increasing share of downstream products in 2 Real Estate Construction Volume, min m the product mix 100 CAGR 13,1% 80 67,6 59,5 53,2 60 Construction industry 47,3 41,9 36,5 40 growth 20 MMK Shipments breakdown by Industries, 2007 0 2005 2006 2007 2008 2009 2010 Power and f uel Source: RenCap 0,95% Car Consumption in Russia, th. units Bridge building 6000 Construction Food 0,44% CAGR 21,3% 4,05% 2,60% Expected growth of 4000 demand from other Spot market 4 926 4 238 (1) 3 551 29,02% 2 879 Automotiv e industries 2000 2 257 1 650 1 020 10,11% 614 832 752 756 736 729 719 703 676 0 2005 2006 2007 2008 2009 2010 2011 2012 Metalware producers Russian Foreign Source: Avtostat 16,25% • High economic growth rates in Russia • Increased consumption Goods with highest value added are sold in the Russian market of downstream Pipe production Machine building 19,71% products • Growing demand for high quality galvanized and 16,87% Source: MMK polymer coated rolled products 1. Up to 60% of spot market’s products in used in the construction sector 9 STRONG POSITIONS ON THE RUSSIAN MARKET
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