RUSAL Turning Consolidation into Global Opportunity Investing in
RUSAL Turning Consolidation into Global Opportunity Investing in Russia and CIS, 7 th Annual Conference New York, 13 March 2003
Introduction • Russia’s top companies are consolidating themselves into competitive players at a fast pace • The oil sector was the advance guard… • …but this impulse is spreading throughout the entire Russian industry 2
RUSAL IS… • Second largest primary aluminium producer in the world • Low cost producer • Cash generative: over $4 billion in annual revenues • Growing global asset base • Young, dynamic management team • Ambitious growth strategy – to be the leading aluminium producer 3
Aluminium Consolidation in Russia • In early 90 s, 11 independent smelters accessed the market: - Lack of raw materials - No international marketing expertise - No external financing 1996 4 2003 Herfindal-Hirschman index 1888 6250 Share of key players Bratsk Smelter – 28% Krasnoyarsk Smelter – 26% Sibal – 13% SUAL – 10% RUSAL – 75% SUAL – 25% Vertical integration (raw materials / primary aluminium) SUAL RUSAL SUAL Globalisation None RUSAL: assets in 5 countries
Recent Aluminium Industry Mergers • Global M&A deals in metals and mining industry exceeded $170 bln in past 5 years March 1998 Alcoa (USA) and Alumax (USA) August 1999 Alcoa (USA) and Reynolds (USA) March 2000 RUSAL formed through merger of largest CIS aluminium producers March 2001 BHP (Australia) and Billiton (S. Africa) January 2002 5 Alcan (Canada) and Algroup (Switzerland) Norsk Hydro (Norway) and VAW (Germany)
Key Drivers of Industry Consolidation • Better control over production - in March 1999 aluminium prices slumped to a five-year low of $1, 140 MT • Access to cheaper resources – over 60% of bauxite reserves located in Africa, Australia and Latin America • Customer demands for higher quality products from critical end-user industries – packaging and automotive • Market diversification – penetration to the developed and emerging markets • Lower cost of capital • Improved operating efficiency 6
Cost Management • With 50% cheaper power than that of major peers Natural advantages are not to be wasted • Key achievements to date : - Labour cost optimisation through reducing workforce by 8% and establishing centralised repair and maintenance for all production units - Over 20% reduction in transportation cost due to increased volumes, optimised routes and renegotiated tariffs - 15% reduction in alumina cost mainly through acquisition and contract renegotiation - 14% cut in overhead expenses 7
Investment – Key to Achieving No. 1 • Portfolio worth over $3 bln Bauxite & Alumina Primary Aluminium Semi-finished & Finished Capacity expansion at Nikolayev Refinery Four-year modernisation programs for Krasnoyarsk and Sayanogorsk Smelters New beverage can plant in the Leningrad region Modernisation and capacity expansion at the newly acquired Friguia refinery Participation in privatisation of NALCO (India) Dian-Dian bauxite deposit in Guinea 8 Capacity expansion at Sayanogorsk Smelter Construction of a new smelter in the Irkutsk region
Market Presence • Broadening customer base to end-users: Toyota, Mitsuibishi • Improved production mix: share of value added products increased from 19% to 26% • Higher geographical diversification - North American sales more than doubled in 2002 Sales of primary aluminium and alloys by region 2001 9 2002
Financing • Over $600 mln from international institutions • Access to long-term financing - $150 mln investment loans by Sberbank for 5 years - seven-year loan under Hermes’ guarantee • Capital markets - three-year Rb 3 bln domestic bond issue - $200 mln from private investors Total financial debt: $1. 5 billion • Further debt issuance opportunities considered, with a view to improve the existing debt structure 10
Key Challenges of Consolidation • Corporate culture: learning to listen • Employee communications: robust program being rolled out • Absence of corporate brand: new marketing and communication strategy • Inefficient corporate structure: - Outsourcing service functions - Spinning off non-core businesses - Complete buy-out of minority shareholders to take subsidiaries private 11
RUSAL’s Outlook • Russian economy will continue to grow, fuelling domestic aluminium demand • The low interest rate environment favours investment • The coming structural reform will increase competition in the power and transport sectors to the benefit of all… • … and RUSAL, in particular, as these sectors provide us critical inputs RUSAL’s sales 12
Conclusion • Consolidation has created opportunity for Russian companies to evolve as global players… • … and potential global leaders in their respective sectors 13
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