1 / 20

Some Things to Think About: Growth & Value

Some Things to Think About: Growth & Value. Presentation to Steel Manufacturers Association Washington DC May 15 th , 2007. The industry leadership challenge Find growth – defend value. In a dynamic environment it’s a hard balance to strike Valuations continue to rise – can you keep up?

cardea
Télécharger la présentation

Some Things to Think About: Growth & Value

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Some Things to Think About: Growth & Value Presentation to Steel Manufacturers Association Washington DC May 15th, 2007

  2. The industry leadership challengeFind growth – defend value • In a dynamic environment it’s a hard balance to strike • Valuations continue to rise – can you keep up? • Relative consolidation levels require acceptance of new risks – offshore, union operations, different technologies, etc. • Once protected positions such as niches, divisions of larger companies, even private companies are not so safe • Conventional diversification strategies are strained by the opportunities & demands in steel • Relative strength of producers provides temptation to co-opt different parts of the value chain up and down • And China could – at any time – slow growth &/or ruin value www.first-river.com

  3. More buyers than sellers o/s China?Top 50 steel producers by “strategy” www.first-river.com Source: MB, IISI, First River

  4. Drives valuations…Companies purchased = flat rolled www.first-river.com Source: Company reports, US Steel, Gerdau, UBS, First River

  5. But how to m(c)atch Mittal? Top 15 producers* 2007 Pro-forma, 2006 crude steel, MT *Outside China Source: MB, IISI, First River www.first-river.com

  6. The focus defenseReturns of focus will provide superior performance Diversified Steel Differentiated Steel Product A Consolidation & restructuring moves aim to annex valuable ‘niches’ Digging into niches to avoid consolidators aims to raise the competitive level Product B www.first-river.com

  7. Has the niche lost its cache? • Niches in low growth industries yielding better than average returns are prized • Where “niche” performance is no better than that of broader market positions – the niche has lost its value • Classic niches may only be viable where the owners of the niche occupier provide the defense: • e.g. voestAlpine, Salzgitter, ThyssenKrupp, etc. • But niche strategies not an excuse to indulge fears of the bigger opportunity • And note - close ownership is an important element in an offensive growth posture too: • Mittal, Tenaris, Evraz, Severstal www.first-river.com

  8. Returns of focusNot so special? *Averages calculated in US$ & exclude Mittal; Thyssen/Timken/CMC are steel only www.first-river.com Source: CapitalIQ, FRC

  9. Who let the dogs out?Steel divisions & their corporate owners Macsteel CMC Steel Schnitzer Corp Thyssen Steel Quanex TKR Steel Cascade Thyssen Corp Timken Corp CMC Corp Source: CapitalIQ, FRC www.first-river.com NB. Corporate performance includes steel

  10. Mills include: X, NUE, STLD, CMC, IPS; SSC’s include: RS, RYI, ZEUS, RUS Source: CapitalIQ, First River Mill & SSC gross margin performance Selected companies, 1999-2007, by quarter www.first-river.com

  11. Who claimed what?SSC HR coil price – drivers of increase, estimates +$57 +$17 $730 +$56 +$118 +$124 $360 Mill: $580 Mill: $280 Source: First River estimates www.first-river.com

  12. Combined $ margin & % of sales price Shares of SSC hot roll price increase2003 to 2006, estimates Less about owning SSC’s for control than ensuring the efficiency of the supply chain Source: First River estimates www.first-river.com

  13. Scrap volatility asks for attention Pig iron versus scrap prices $/Ton, monthly Source: Metal Bulletin, AMM, Purchasing Magazine www.first-river.com

  14. China GDP growthReal annual growth rates, 1953-2006 Average since 1978 9.6% p.a. www.first-river.com Source: National Bureau of Statistics

  15. China steel production growthOutpacing GDP? www.first-river.com Source: ABARE, CISA, IISI, National Bureau of Statistics

  16. China steel exportsChina’s rise to net exporter, monthly 2001-2007 (April)* *includes semi-finished Source: UBS www.first-river.com

  17. China development similar to others www.first-river.com

  18. Change & uncertaintyChinese urban employment changes Since 1996 +140M -70M 50% Source: National Bureau of Statistics www.first-river.com

  19. Plenty of concerns to go roundManaging China… • The “4 un’s” • “Unstable, Unbalanced, Uncoordinated & Unsustainable” Wen Jiabao describing macro conditions, March 2007 • Exports, fixed assets, output growth, lending increases • Income disparity, excess resource consumption, environment • Demographics • 30M “surplus” males 15-34 by 2020 • >65’s from 7-8% to 20% by 2025 as working population declines (US 12% to 18%) • 17th Congress & leadership change towards a new model? • Lawyers replacing engineers! www.first-river.com

  20. Finding growth – defending valueWhat to do? • Do not stand still • Extend your view – timeline, breadth, depth • Maintain a growth posture focused on strategic goals • buy, invest, build are choices to the same ends • Actively evaluate acquisitions – real test of valuation perspective www.first-river.com

More Related