2009 Business and financial performance May 11, 2010 Content 1. - - PowerPoint PPT Presentation

ZŁOMREX S.A.

2009 Business and financial performance

May 11, 2010

2

Content

• 1. Introduction
• 2. Business overview
• 3. 2010 outlook
• 4. Q&A

ZŁOMREX S.A.

Introduction

Section 1

4

Krzysztof Walarowski Commercial Director Member of the Board Age – 53 6 yrs with Złomrex Krzysztof Zola CFO

Member of the Board

Age – 38 8 yrs with Złomrex

Introduction

Speakers

5

Introduction

2009 Highlights

• Very difficult market conditions with price declining and demand falling throughout H1 then

stabilization on low levels in Q3 and further demand drop in Q4.

• Broad cost cutting and restructuring programs
• Completion of restructuring within Polish part of the Distribution Division;
• Unsuccessful divestiture of Zeljezara Split. Sales process still going on.
• Limited capital expenditures, sales of certain non-core or non-operational assets
• Management of short-term financing

6

Introduction

2009 Highlights – P&L

180 349 227 363 209 648

• 205 395

EBITDA

• 34 622
• 59 654
• 69 811
• 73 051

Depreciation and amortization 97 100 214 100

• 199 788
• 289 240

Profit for the period

• 193 755
• 60 178

Profit/loss for the period from discontinued operations

• 22 009
• 20 457
• 9 105

35 723 Income tax expense 119 109 234 557 3 072

• 264 785

Profit before tax 5 894 125 795 Excess in the net fair value of acquired assets over cost 2 121 739

• 2 170

Share of profits of associates

• 32 512
• 61 068
• 137 504

15 831 Net financing costs

• 32 662
• 94 523
• 177 397
• 84 891

Financial expenses 150 33 455 39 893 100 722 Financial income 145 727 167 709 139 837

• 278 446

EBIT

• 5 618
• 19 138
• 26 310
• 44 000

Other expenses

• 2 572
• 206
• 21 465

Other gains/(losses) - net

• 79 528
• 115 311
• 142 139
• 112 398

Administrative expenses

• 31 650
• 148 703
• 194 534
• 161 392

Distribution expenses 11 166 18 221 17 547 24 186 Other income 251 357 430 068 485 479 36 623 Gross profit

• 1 691 157
• 2 935 936
• 3 542 471
• 1 933 190

Cost of sales 1 942 514 3 366 004 4 027 950 1 969 813 Revenue '000 PLN Y 2006 Y 2007 Y 2008 Y 2009 INCOME STATEMENT

7

Introduction

2009 Highlights – balance sheet

592 381 1 132 862 2 693 515 2 267 333 1 573 242 TOTAL ASSETS 579 5 996 256 423 239 053

• IV. Assets classified as held for sale

14 623 27 626 263 416 99 505 32 496

• III. Cash and cash equivalents

33 248 62 217 88 025 74 134 42 749

• 2. Other receivables

122 526 232 067 424 423 295 226 171 343

• 1. Trade receivables

155 774 294 284 512 448 369 360 214 092

• II. Receivables

103 632 284 519 692 210 565 726 256 901

• I. Inventories

274 029 607 008 1 474 070 1 291 014 742 542

• B. TOTAL CURRENT ASSETS

10 845 12 149 22 472 31 334 57 198

• V. Deferred tax assets

4 111 5 308 22 292 41 472 14 044

• IV. Investment property and other investments

2 473 1 947 2 979 1 533 3 295

• III. Other receivables

280 970 479 956 1 125 729 855 713 713 988

• II. Property, plant and equipment

19 953 26 494 45 973 46 267 42 175

• I. Intangible assets

318 352 525 854 1 219 445 976 319 830 700

• A. TOTAL NON-CURRENT ASSETS

'000 PLN Y 2005 Y 2006 Y 2007 Y 2008 Y 2009 ASSETS

8

Introduction

2009 Highlights - balance sheet

592 381 1 132 862 2 693 515 2 267 333 1 573 242 TOTAL EQUITY AND LIABILITIES

• 149 326

154 932

• IV. Liabilities of disposal group

305 280 386 1 195 1 145

• III. Deferred income

708

• 3 955

171 834

• 9. Provisions for payables

5 719 21 656 66 851 87 707

• 8. Other

1 853 5 405 3 656 3 039 2 338

• 7. Employee benefits

1065 843 17 858 3 591 323

• 6. Income tax payable
• 9 168

6 741

• 5. Bills of exchange payables
• 12239

151 569 40 527

• 4. Defered payment for acquired entities

73 405 202 715 350 604 381 299 271 030

• 3. Trade payables

1 320 1 063 7 858 5 257

• 2. Other financial liabilities

158 335 353 910 543 031 358 676 299 599

• 1. Interest-bearing loans and borrowings

242 405 606 999 1 152 123 753 228 575 269

• II. Current liabilities

2 038 51 203 186 919 126 821 57 776

• 3. Other

52 653 65 302 71 399 73 744 26 576

• 2. Interest-bearing loans and borrowings

584 479 625 635 507 691

• 1. Debt securities

54 691 116 505 842 797 826 200 592 043

• I. Non-current liabilities

297 401 723 784 1 994 920 1 728 754 1 322 244

• B. LIABILITIES

15 821 35 871 158 280 145 188 91 952

• III. Minority interest

231 468 325 516 492 624 345 700 111 355

• II. Reserves and retained earnings

47 691 47 691 47 691 47 691 47 691

• I. Issued share capital

294 980 409 078 698 595 538 579 250 998

• A. EQUITY

'000 PLN Y 2005 Y 2006 Y 2007 Y 2008 Y 2009 EQUITY AND LIABILITIES

9

Introduction

2009 Highlights – Cash flow & main metrics

2,2 4,1 4,6 n/a Net debt / EBITDA 392 649 943 351 963 807 801 370 Net debt 409 078 698 595 538 579 250 998 Equity 5,0% 6,4%

• 5,0%
• 14,7%

Nett profit margin 9,3% 6,8% 5,2%

• 10,4%

EBITDA margin 55 56 33 40 Receivables turnover (days) 61 86 58 49 Inventories turnover (days) 0,53 0,68 0,62 0,43 Quick ratio 1,00 1,28 1,37 0,88 Liquidity ratio Y 2006 Y 2007 Y 2008 Y 2009 MAIN METRICS

• 13 781
• 344 062
• 118 043
• 82 152

NET INCREASE IN CASH 102 198

• 246 766
• 276 427
• 224 774
• C. FROM FINANCING ACTIVITIES
• 223 292
• 248 205
• 252 800

11 876

• B. FROM INVESTING ACTIVITIES

107 313 150 909 411 184 130 746

• A. FROM OPERATING ACTIVITIES

'000 PLN Y 2006 Y 2007 Y 2008 Y 2009 CASH FLOW

10

Introduction

Financial performance by divisions

30 275

• 98 331
• 23 165
• 34 750

1 569

• 18 638
• 56 626

6 714 EBITDA

• 62 634
• 71 821
• 9 421
• 48 790

577

• 26 781
• 56 626
• 207

Profit for the period

• 64 261
• 82 950
• 10 530
• 48 790

762

• 30 604
• 67 633
• 826

Profit before tax

• 90 338

32 388 19 423

• 14 040
• 228

8 010 13 537 1 947 Net financing costs 26 077

• 113 168
• 29 953
• 34 750

990

• 38 614
• 81 170
• 2 773

EBIT 28 279 39 574 22 767

• 8 904

3 708

• 19 190
• 34 958

15 707 Gross profit 46 500 861 207 345 835 20 501 32 452 242 644 412 882 339 553 Revenues '000 PLN COGAUT COGPL ZELJ OMS HSJ + HSJTL FERR + ZW-WB ZLMET OTHER DISTRIBUTION PRODUCTION SCRAP P&L ACCOUNT

11

Introduction

Financial performance summary

• Gross profit from continued operations was down by PLN 448,9 million – 92,5% less then in 2008. Zejezara

Split (ZJEL) contributed negatively to our net result by PLN 60,2 million bringing our consolidated net loss down to PLN 289,4 million. The negative results were partially offset by financial income at PLN 97,2 million resulting in repurchase of our senior secured notes from an open market and further cancellation of those

• Interest bearing loans and borrowings net of cash adjusted for liabilities related to the acquisition of

subsidiaries and employee benefits have gone down by PLN 179,6 million and 16,8% primarily as a result of the debt reduction, including the Bonds’ repurchase.

• The Company generated positive cash flow form operating activities primarily due to release of working

capital by PLN 372,8 milion. This was however much offset by a loss from operations.

• Investing activities cash flow was positive primarily due to proceeds from sale of subsidiaries at PLN 23,2

million and sales of tangible and intangible assets at PLN 18,6 million. This was however offset by capital expenditures PLN 36,8.

• Negative financing cash flow resulted from repayment of principal at PLN 149,5 million and interest at PLN

71,1 million related to the Company’s indebtedness.

12

Introduction

Strategy

• Emphasis on distribution of steel products – further development and integration of

retail division

• Strengthening the position in production of special application and niche products
• Reduction of indebtedness.

ZŁOMREX S.A.

Business overview

Section 2

14

Business overview

Market environment – steel production

1 244,0 1 344,0 1 329,7

• 8%

1 220,0 World 422,7 489,2 500,5 13% 567,8 China 207,6 210,2 198,6

• 30%

139,0 EU (27) 10,0 10,6 9,7

• 26%

7,2 Poland ‘000 000 tons Y 2006 Y 2007 Y 2008 % YoY Y 2009 CRUDE STEEL PRODUCTION

15

Business overview

Market environment – production and consumption of finished products

5,6 5,8 5,7

• 28%

4,1 long products 4,4 4,5 4,0

• 22%

3,1 flat products 10,0 10,3 9,7

• 26%

7,2 Poland, thereof: ‘000 000 tons Y 2006 Y 2007 Y 2008 % YoY Y 2009 PRODUCTION OF FINISHED PRODUCTS 4,8 5,9 5,3

• 28%

3,8 long products 5,0 6,1 6,1

• 31%

4,2 flat products 9,7 12,0 11,4

• 30%

8,0 Poland, thereof: ‘000 000 tons Y 2006 Y 2007 Y 2008 % YoY Y 2009 STEEL USE

16

Business overview

Market environment - prices

Prices 2009 - FERR

(pln/tone)

783 704 593 550 629 593 620 690 722 641 608 609 1 363 1 419 1 402 1 413 1 402 1 369 1 159 1 274 1 433 1 217 1 220 1 304 1 939 1 909 1 794 1 625 1 714 1 674 1 646 1 697 1 724 1 660 1 489 1 642 500 1 000 1 500 2 000 2 500 Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec

scrap metal billets merchant bars Prices 2009 - HSJ

(pln/tone)

2 784 2 893 2 963 2 550 2 464 2 348 2 116 2 299 2 406 2 381 2 431 2 333 3 048 3 104 3 576 2 895 2 514 1 916 2 114 2 095 2 086 2 410 2 482 2 650 1 500 2 000 2 500 3 000 3 500 4 000 Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec

long products flat products

17

Business overview

Market environment – prices and spreads

• 9 060

28 368 2 512 11 488 6 905 7 463 HSJ flat products

• 9 100

57 161 15 358 13 448 12 838 15 517 HSJ long products 396 2 345 205 279 791 1 070 HSJ billets

• 2 615

108 419 11 530 28 322 37 151 31 416 FERR long products

• 20 221

133 657 45 903 33 495 38 025 16 234 FERR billets SALES ‘000 pln

• 319

1 927 1 895 1 421 1 851 2 550 2 247 HSJ flat products

• 159

1 850 1 763 1 597 1 863 2 187 2 010 HSJ long products 169 1 515 1 527 1 543 1 561 1 435 1 346 HSJ billets

• 24

1 063 1 005 985 1 080 1 188 1 087 FERR long products

• 151

684 628 612 804 702 836 FERR billets SPREADS pln 2 574 2 514 2 098 2 442 3 243 3 220 HSJ flat products 2 497 2 382 2 274 2 454 2 880 2 983 HSJ long products 2 161 2 146 2 220 2 152 2 128 2 319 HSJ billets 1 709 1 624 1 662 1 671 1 881 2 060 FERR long products 1 331 1 247 1 289 1 395 1 395 1 809 FERR billets PRODUCT PRICES pln 647 619 677 591 693 973 SCRAP PRICE pln Spread loss 2009 Delta 2008/2009 2009 Q4 2009 Q3 2009 Q2 2009 Q1 2009 2008 PRICES AND SPREADS

18

Business overview

Market environment – inventory losses

• 18 487

1 143

• 8 355
• 2 201
• 9 074

Inventory gain/loss

(‘000 PLN)

20 928 29 341 32 976 39 885 44 162 Stock level (tons) 45

• 268
• 60
• 216

Pervious quarter difference (PLN) 2 014 1 922 2 237 2 297 2 513 Average sales price

(PLN)

TOTAL Q4 2009 Q3 2009 Q2 2009 Q1 2009 Q4 2008 COGPL - PRICES & STOCKS

• 19 814

564 358

• 11 552
• 9 183

Inventory gain/loss

(‘000 EUR)

40 410 50 298 76 942 79 951 73 747 Stock level (tons) 12 6

• 147
• 119

Pervious quarter difference (EUR) 635 623 617 765 884 Average sales price

(EUR)

TOTAL Q4 2009 Q3 2009 Q2 2009 Q1 2009 Q4 2008 COGAUT - PRICES & STOCKS

19

Business overview

Market environment – exchange rates

• 11%
• 16%

22%

• 4%

% change 2,91 2,44 2,96 2,85 USD/PLN

• 1%
• 7%

16%

• 1%

% change 3,83 3,58 4,17 4,11 EUR/PLN PLN Dec-2006 Dec-2007 Dec-2008 Dec-2009 EXCHANGE RATES

20

Business overview

Conclusions

• Decrease in demand by approximately 30% in the EU. Heavy vehicles manufacturing (in

the EU) and shipbuilding (in Poland) suffered most. This has put particular pressure on Złomrex products resulting in 42% decrease in crude steel production in Polish plants. Similar drops were recorded in our sales. Scrap sales dropped by 47%, semi-products by 36%, retail products by 39% and bulk product by 54% (all tonnage-wise).

• Huge overcapacities and fierce competition put pressure on prices and production margins.

Our scrap – product per ton spreads decreased by PLN 151 with respect to FERR semi- products, by PLN 23 with respect to FERR products, by PLN 159 in terms of HSJ long products and by PLN 319 for HSJ flat products. We estimate the total loss resulting form the narrowed spreads at PLN 40.6 million.

• We are a significant stockholder. Declining prices have an adverse effect on our margins

because we sell products purchased earlier in a higher prices environment. We estimate the total loss resulting form the depreciation of inventories at PLN 104,5 million.

• As a producer we are also exposed to the risk of inventories depreciation. We estimate the

total loss resulting form the depreciation of inventories within our production division at PLN 25,0 million.

• The put on sale entity - ZELJ – had a negative EBITDA of PLN 34,8 million
• EUR/PLN and EUR/USD exchange rates had little impact on costs and prices in 2009

though increased volatility made it difficult for us to forecast short term price movements.

21

Business overview

2009 performance drivers - scrap

213 974 150 302 171 024 56 309 TOTAL SALES in '000 PLN 297 484 194 989 177 338 94 357 TOTAL SALES in TONNES 606 116 712 398 769 675 407 736 TOTAL INTERNAL USE in TONNES 882 420 880 465 916 669 524 606 TOTAL PURCHASES in TONNES 213 974 150 302 171 024 56 309 CONSOLIDATED SALES '000 PLN 2 747 1 841 OTHER N/C 57 772 174 589 92 516 ZLMET 297 484 137 217 2 ZLOM SALES - EXTERNAL CUSTOMERS tons N/C N/C 106 366 9 187 ZJEL 216 520 279 892 247 955 111 849 HSJ 415 354 286 700 FERR 389 596 432 506 ZLOM INTERNAL USE tons 3 421 1 106 OTHER N/C N/C 108 665 7 898 ZJEL 170 267 194 786 195 866 77 474 HSJ N/C 235 780 608 717 351 289 ZLMET 86 839 FERR 712 153 449 899 ZLOM EXTERNAL SUPPLIERS tons Y 2006 Y 2007 Y 2008 Y 2009 SCRAP METAL

22

Business overview

2009 performance drivers - billets

307 290 349 537 430 505 178 520 TOTAL SALES in '000 PLN 207 168 209 106 214 080 136 119 TOTAL SALES in TONNES 444 739 446 558 488 176 212 235 TOTAL INTERNAL USE in TONNES 521 977 622 311 684 361 346 288 TOTAL PRODUCTION in TONNES 307 290 349 537 430 505 178 520 CONSOLIDATED SALES 000 PLN N/C N/C 54 24 OTHER (ZJEL + COG) N/C 4 587 19 034 STX 8 666 22 757 17 035 2 309 HSJ 40 966 133 657 FERR 198 502 181 762 136 991 129 ZLOM SALES - EXTERNAL CUSTOMERS tons N/C N/C 89 056 1 421 ZJEL 162 809 221 168 195 642 95 648 HSJ 115 166 FERR 281 930 225 390 203 478 ZLOM INTERNAL USE tons N/C N/C 89 110 1 430 ZJEL 171 475 243 925 212 677 96 035 HSJ 350 502 378 386 382 574 248 823 FERR PRODUCTION tons 129 930 33 353 17 895 1 922 EXTERNAL SUPPLIERS PURCHASES tons Y 2006 Y 2007 Y 2008 Y 2009 BILLETS

23

Business overview

2009 performance drivers – finished products

N/C N/C 92 587 10 109 ZJEL 146 701 174 030 161 719 85 529 HSJ 49 640 108 419 FERR 236 657 175 856 108 915 24 ZLOM SALES - EXTERNAL CUSTOMERS tons N/C N/C 809 ZJEL 24 688 31 188 FERR 8 894 12 281 10 380 7 425 HSJ 21 832 44 532 44 306 62 ZLOM SALES TO DISTIBUTION tons N/C N/C 95 411 1 475 ZJEL 158 277 197 598 179 251 97 546 HSJ 92 156 76 228 69 510 33 472 FERR 136 673 119 692 128 478 66 549 ZWWB PRODUCTION tons Y 2006 Y 2007 Y 2008 Y 2009 FINISHED PRODUCTS

24

Business overview

2009 performance drivers - finished products continued

1 063 269 2 472 435 3 326 242 1 618 626 TOTAL SALES in '000 PLN 395 247 515 385 615 341 285 851 TOTAL BULK PRODUCT SALES in TONNES 101 820 396 571 598 861 363 240 TOTAL RETAIL SALES in TONNES 387 106 393 518 472 650 199 042 TOTAL PRODUCTION in TONNES 1 063 269 2 472 435 3 326 242 1 618 626 CONSOLIDATED SALES '000 PLN 3 085 22 008 23 365 9 194

• retail

OTHER N/C 119 453 139 771 72 597

• bulk product

N/C 211 032 346 872 227 890

• retail

COGAT N/C 19 421 46 051 2 320

• bulk product

N/C 19 195 109 246 30 184

• retail

STX 10 500 23 830 12 651 N/C

• bulk product

5 600 19 325 11 714 N/C

• retail

COPO 800 1 700 2 278 N/C

• bulk product

53 530 61 565 51 944 N/C

• retail

CGOR 589 1 095 1 729 6 853

• bulk product

39 605 63 446 55 720 95 972

• retail

COG tons

25

Business overview

2009 performance drivers – capacities utilization

tons 0,8% 1 430 185 000 ZJEL 36,8% 96 035 261 000 HSJ 66,4% 248 823 375 000 FERR UTYLISATION PRODUCTION CAPACITY 2009 48,2% 89 110 185 000 ZJEL 81,5% 212 677 261 000 HSJ 102,0% 382 574 375 000 FERR UTYLISATION PRODUCTION CAPACITY 2008 BILLETS - CAPACITIES & PRODUCTION

26

Business overview

2009 performance drivers - capacities utilization

0,7% 1 475 200 000

• rebars an plain bars

ZJEL 38,7% 38 982 100 800

• sheets

32,9% 58 564 178 000

• bars

HSJ 35,2% 33 472 95 000

• rebars and plain bars

FERR 33,6% 66 549 198 000

• flat bars

ZWWB tons UTYLISATION PRODUCTION CAPACITY CAPACITIES & PRODUCTION 2009 47,7% 95 411 200 000

• rebars an plain bars

ZJEL 61,3% 61 763 100 800

• sheets

66,0% 117 488 178 000

• bars

HSJ 73,2% 69 510 95 000

• rebars and plain bars

FERR 64,9% 128 478 198 000

• flat bars

ZWWB tons UTYLISATION PRODUCTION CAPACITY CAPACITIES & PRODUCTION 2008 FINISHED PRODUCTS

27

Business overview

2009 Quarterly Performance

107 146 172 174 RETAIL SALES 140 140 186 149 BULK SALES 37 76 44 57 BILLETS 24 50 59 44 SCRAP ‘000 tons Q 4 Q 3 Q 2 Q 1 SALES

• 86 550
• 12 123
• 61 496
• 45 226

EBITDA 396 256 503 361 508 953 561 243 SALES 000 PLN Q 4 Q 3 Q 2 Q 1 SALES AND EBITDA

28

Business overview

Summary

• In 2009 the Group suffered from extremely difficult market conditions. Drastic drop in

demand led to the decrease in revenues which resulted in lower profitability. Our production units were operating much below its capacities which resulted in lower production margins due to relatively higher fixed costs’ component. Production margins were further put under pressure by shrinking scrap – product spreads. In addition to that falling price environment caused depreciation of our inventories, particularly within the Distribution Division.

• The Group has undergone deep restructuring and cost cutting process resulting in

significant reduction of both flexible and fixed costs. Our Polish part of Distribution Division has been successfully integrated.

ZŁOMREX S.A.

2010 outlook

Section 3

30

2010 outlook

Market & Company

MARKET

• Sustainable rebound in demand and prices. Sovereign debt undermining pace of recovery

in the EU.

• Relatively strong Polish market; positive GDP growth above 3%, absorption of EU

subsidies, EURO 2012

• Increase in capacities utilization; stabilization of prices going forward

COMPANY

• Recovering business indicates improvement of ZŁOMREX performance in all 2010
• We expect positive EBITDA. The scale of recovery will be subject of progress in short term

liquidity management.

• Possible significant transactions related to further Company’s assets’ sale to be used

primarily for debt repayment and refinancing risk reduction.

ZŁOMREX S.A.

Q&A

Section 4