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RUSAL
Turning Consolidation into Global Opportunity
Investing in Russia and CIS, 7th 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 90s, 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
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
Americas
11%
Asia
32%
2001
2002
Americas
23%
Europe
49%
Europe
57%
Asia
28%
9
Financing
• Over $600 mln from international institutions
Investment loans
4%
Capital markets
20%
• Access to long-term financing
- $150 mln investment loans by Sberbank for 5
Trade and preexport finance
41%
years
- seven-year loan under Hermes’ guarantee
• Capital markets
- three-year Rb3 bln domestic bond issue
- $200 mln from private investors
Corporate loans
35%
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
3,100
'000 MT
2,700
Domestic
2,300
International
1,900
1,500
2003F
12
2004F
2005F
2006F
2007F
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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