Analyst Meeting Presentation FY 2011 Results
1
Analyst Meeting
PT Krakatau Steel (Persero) Tbk.
KANTOR PUSAT
Jl. Industri No. 5 P.O. Box 14 Cilegon, Banten 42435 Telepon : (+62 254) 392159, 392003 (Hunting)
Faksimili : (+62 254) 372246 KANTOR JAKARTA Gedung Krakatau Steel, Lantai 4
Jl. Jend. Gatot Subroto Kav. 54 Jakarta Selatan 12950 Telepon : (+62 21) 5221255 (Hunting) Faksimili : (+62 21) 5200876, 5204208, 5200793
PABRIK
Cilegon – Cigading Plant Site, Banten 42435 Website : www.krakatausteel.com
15 March 2012
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Disclaimer
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This document is for information and convenient reference and does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities of the Company nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. This document does not constitute a recommendation regarding the securities of the Company and should not be treated as giving investment advice. The information in this document is subject to verification, completion and change without notice and the Company is not under any obligation to update or keep current the information contained herein. Accordingly, no representation or warranty, express or implied, is made or given by or on behalf of the Company as to the accuracy, completeness or fairness of the information or opinions contained in this document. The Company does not accept any liability whatsoever for any loss however arising from any use of this document or its contents or otherwise arising in connection therewith.
Certain statements in this document may constitute “forward-looking statements.” These statements reflect the Company’s expectations and are subject to risks and uncertainties that may cause actual results to differ materially and may adversely affect the outcome and financial effects of the plans described herein. You are cautioned not to rely on such forward-looking statements. The Company disclaims any obligation to update their view of such risks and uncertainties or to publicly announce the result of any revisions to the forward-looking statements made herein, except where they would be required to do so under applicable law.
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1. Overview
2. 2011 Results
3. Strategic Projects
4. Indonesian Steel Market
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Unit
FY2010
FY2011
Chg (%)
Highlights
Source: Company
Revenue
14,940
17,915
19.9
Sales volume
Million tons
1.914
2.068
8.0
Production (HRC)
Million tons
1.504
1.761
17.1
EPS
Rp/share
81.2
64.8
20.1
Net profit
EBITDA
Rp bn
1,061
1,023
3.6
1,781
1,152
35.3
Cash
Net debt
4,194
3,594
14.3
2,039
3,718
82.4
Equity
9,426
10,355
9.9
Assets
17,584
21.512
22.3
Cost of revenues
12,672
16,317
28.8
Average selling price (HRC)
Rp/kg
6,938
7,555
8.9
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Iron ore pellets prices increased 41.5%
Year-on-Year (YoY), resulting in higher cost of revenues
by 28.8% YoY. Uncertainties arising from the
pricing of iron ore pellets, which is conducted on
a quarterly basis, have continued to put pressure
on the
company’s
margins.
Key Issues
Iron Ore Pellets and Gas Prices
Net revenue in FY 2011 was Rp 17.9 trillion, up 19.9% YoY as average selling price of HRC rose 8.9% YoY
and steel sales volume grew 8.0% YoY, respectively.
Krakatau Steel completed the revitalization of the Hot Strip Mill in April 2011. The Hot Strip Mill resumed
production in April 2011 after passing the performance test and is currently working at full production
capacity of 2.4 million tons/year. Furthermore, the revitalization of the Direct Reduction Plant and the Slab
Steel Plant has reached 96.7% and 82.1%, respectively, as of February 2012.
The plant construction of Krakatau-POSCO has reached 13.4% as of February 2012 and is scheduled for
completion in December 2013.
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Financial results
Description FY 2010 FY 2011 Change (%) Income Statement
Net Revenues 14,940 17,915 19.9
Cost of Revenues 12,672 16,317 28.8
Gross Profit 2,269 1,599 -29.5
Operating Profit 1,027 359 -65.1
EBITDA 1,781 1,152 -35.3
Net Income 1,061 1,023 -3.6
Earnings per Share 81 65 -20.1
Balance Sheet
Current Assets 12,288 13,213 7.5
Total Assets 17,584 21,512 22.3
Current Liabilities 6,931 9,205 32.8
Total Liabilities 8,159 11,157 36.7
Equity 9,426 10,355 9.9
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Capacity Utilization
Operating results
Production
Production
Product
FY 2010
FY 2011
Change (%)
Sponge Iron
1,274
1,228
-3.6
Slab Steel
1,084
1,014
-6.5
Hot Rolled Coil
1,504
1,761
17.1
Cold Rolled Coil
415
414
-0.2
Wire Rod
201
238
18.4
Steel Bar
114
121
5.9
Steel Section
76
81
7.7
ERW & Spiral Pipes
56
75
34.1
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Marketing results
Sales Volume
Average HRC Price
(1)(1) Currency conversions based on average exchange rates in each respective period
Sales Volume
Hot Rolled Coil
958,041
1,053,784
10.0
Cold Rolled Coil
421,508
405,435
-3.8
Wire Rod
201,318
227,399
13.0
Steel Bar
174,601
186,421
6.8
Steel Section
98,360
100,008
1.7
ERW & Spiral Pipes
60,304
94,531
56.8
Total
1,914,132
2,067,578
8.0
Product
FY 2010
FY 2011
Change (%)
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Progress of strategic projects
No. Project Status Progress
1. Revitalization of Existing Production Facilities
a. Hot Strip Mill (HSM) - Work is conducted by Pomini, Tenova, and Consortium SMS Demag AG, Siemens AG, Siemens Indonesia, Lykmas Jaya.
100.0% - The revitalization project was completed in May 2011.
- Production capacity increases to 2.4 mtpy from 2.0 mtpy. b. Direct Reduction Plant (DRP)
- Work is conducted by HYL Technologiest S.A de C.V,
Krakatau Engineering, and Honeywell Indonesia. 96.7%, completion in March 2012
- Activities include instrument control, pipe installation, and civil works. Shipment of instruments started in October 2011. c. Slab Steel Plant (SSP)
- Work is conducted by Consortium Siemens VAI and PT Weltes Energi Nusantara.
82.1%, completion in first quarter of 2012
- Activities include water treatment plant and dedusting works, civil works, and installation of oxygen, nitrogen, and natural gas pipes.
2. Ironmaking Project – Kalsel (JV KS - Antam)
a. Rotary Kiln - Work is conducted by Krakatau Engineering, Prosys Bangun
Persada, and Outotec. 96.8%, completion in first quarter of 2012
- Construction of rotary kiln is completed.
b. Power Plant - Work is conducted by BTB (China) 74.1%, completion in first quarter of 2012
- Installation of boiler. 3. Blast Furnace Project and
Modernisation of Steel Making Facilities
- Work is conducted by Consortium MCC-CERI. Completion in 2014 - EPS contract was signed on November 15, 2011.
4. Expansion of Hot Strip Mill (2.4 mtpy to 3.5 mtpy)
- Technical review. Completion in 2014
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Progress of strategic projects (cont’d)
No. Project Status Progress
5. Infrastructure Development
a. Port development to support Blast Furnace and JV Krakatau – POSCO
- Technical review. Completion in 2013
b. Power plant development - Work is conduted by Consortium Imeco and PP. 21.5%, completion in 2013 c. Water supply development phase
I (Krenceng Reservoir capacity increase)
- Work is conducted by Consortium PT Krakatau Engineering and PT LMA.
100.0%
- Increase in water reservoir.
6. JV Krakatau POSCO
a. Land preparation - Work is conducted by PT Waskita Karya. 91.8%, completion in 2012
- Land clearing.
b. Plant construction - Work is conducted by Consortium POSCO EC and PT. Krakatau Engineering.
13.4%, completion in December 2013 - Pile driving.
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The ongoing debt crisis in Europe had no significant impact on the Asian steel market but eventually
depressed international prices. Nonetheless, steel demand in Indonesia remained strong last year and is
expected to continue growing in 2012, triggered by the
country’s
economic growth which is estimated to
reach 6.5% this year. The demand growth is derived mainly from significant expansion of steel related
sectors such as construction and automotive industry. Domestic steel prices have been increasing in the first
quarter of 2012 and are expected to remain strong following the pattern of regional prices.
Most Asian economies are likely to pick up and remain on target for reasonable growth rates, after a sluggish
period at the end of last year. Asian producers will try to build on the positive sentiment and seek higher price
levels in the second quarter.
Key producers in Asia appear to be matching real demand, while the sharp production cuts in China at the
end of last year meant that exports into the region were not excessive. Inventories are below usual and may
be rebuilt in the next few months.
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Indonesia’s steel demand
Finished steel consumption in Indonesia
Indonesia’s steel demand drivers
Mining Sector
Local supply shortage
Total finished steel consumption
tonnes (m)
Construction Sector
Transportation &
Manufacturing Sector
Indonesian steel consumption has grown and demand drivers remain strong
Source: SEAISI
Source: SEAISI
47% 56% 46% 54%
% of imports
Domestic supply gap
53%
Mining, oil & gas development which
requires plates, pipes and tubes
Steel intensive infrastructure, housing
and building construction
Manufacturing sector, especially
automotive and shipbuilding idustries
that use steel as the main material.
Growth in transportation sector will spur
further expansion in these industries
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HRC
CRC
Wire rod
Mar
ke
t
shar
e
in
Indo
nesia
(201
1
)
Prod
ucti
on
ca
pacit
y
(201
1
)
(mtpy) (mtpy) (mtpy)
Source: CRU Strategies, Company
Total demand: 3.6 million tons Total demand: 1.7 million tons Total demand: 0.9 million tons
Leader in market position across major steel products in Indonesia
Leadership in the Indonesian market
41%
Others 52%24%
Others 76%25%
Others 75%(18)
18
Strong and diversified customer base
HRC
CRC
Wire
Automotive
Coil Centers
Drum
Pipes, tube packaging, tin plates
Home-office appliance
Enamel
Galvanized steel sheet
Automotive
Mechanical
engineering and boiler pressure vessels
General structure
Oil and gas pipes
Shipbuilding
Diverse end-markets
(1) Direct sales refer to sales made by the company and not through stockists and steel centers
Automotive
Appliances
Bolts and nuts, nails
Construction, welding
Cable wires, wire rope
Spring bed’ electrode
Nails, welding
Our customer and distribution mix provides us with leverage in the market
High proportion of direct sales(1) Low customer concentration Top 5 customers of steel sales
in 2011
A
6% B
5% C 5% D 4% E 4% Other customers 76%
Proportion of direct sales to total steel sales in 2011
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Enhance marketing channel and trade barriers
New Market Focus
Shipbuilding projects
Infrastructure projects
–
port and bridge
construction
More Services
Increase in product sales to
automotive segment through
IndoJapan steel center (JV with
Nippon Steel Trading, Adyawinsa,
Dwijaya)
Increase in product sales to
automotive and projects segments
through establishment of coil
center in Cikarang
Consignment sales (shipbuilding)
Branded plate
Geographical Scope
Establishment of existing
representative in Batam
Establishment of future
representatives in
Banjarmasin, Balikpapan, and
Makassar to strengthen
presence of KS’ products in
shipbuilding and general
construction segments
Branch & warehouse in
Surabaya
Planned Distribution Hub
Construction of warehousing
railway links in Cikarang and
Surabaya
Construction of warehousing
shipping links in Banjarmasin and
Balikpapan
Enhance marketing channel
Trade barriers
Existing barriers
SNI
–
mandatory standard (HRC, CRC, Rebar,
galvanised sheet, galvalume sheet)
HRC antidumping (China, India
Russia,Taiwan,Thailand, Korea and Malaysia)
Import permit (Regulation of Trade Minister No.
8/2012)
Regulation of Energy and Mineral Resources
Minister No. 7/2012 on Improvement of Additional
Value of Mineral through Mineral Processing and
Purifying Process
Future barriers
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(1)
The ongoing debt crisis in Europe had no significant impact on the Asian steel market but eventually
depressed international prices. Nonetheless, steel demand in Indonesia remained strong last year and is
expected to continue growing in 2012, triggered by the
country’s
economic growth which is estimated to
reach 6.5% this year. The demand growth is derived mainly from significant expansion of steel related
sectors such as construction and automotive industry. Domestic steel prices have been increasing in the first
quarter of 2012 and are expected to remain strong following the pattern of regional prices.
Most Asian economies are likely to pick up and remain on target for reasonable growth rates, after a sluggish
period at the end of last year. Asian producers will try to build on the positive sentiment and seek higher price
levels in the second quarter.
Key producers in Asia appear to be matching real demand, while the sharp production cuts in China at the
end of last year meant that exports into the region were not excessive. Inventories are below usual and may
be rebuilt in the next few months.
(2)
Indonesia’s steel demand
Finished steel consumption in Indonesia
Indonesia’s steel demand drivers
Mining SectorLocal supply shortage
Total finished steel consumptiontonnes (m)
Construction Sector
Transportation & Manufacturing Sector
Indonesian steel consumption has grown and demand drivers remain strong
Source: SEAISISource: SEAISI
47% 56% 46% 54%
% of imports
Domestic supply gap
53%
Mining, oil & gas development which requires plates, pipes and tubes
Steel intensive infrastructure, housing and building construction
Manufacturing sector, especially automotive and shipbuilding idustries that use steel as the main material. Growth in transportation sector will spur further expansion in these industries
(3)
HRC
CRC
Wire rod
Mar
ke
t
shar
e
in
Indo
nesia
(201
1
)
Prod
ucti
on
ca
pacit
y
(201
1
)
(mtpy) (mtpy) (mtpy)
Source: CRU Strategies, Company
Total demand: 3.6 million tons Total demand: 1.7 million tons Total demand: 0.9 million tons
Leader in market position across major steel products in Indonesia
Leadership in the Indonesian market
41%
Others52%
24%
Others76%
25%
Others(4)
Strong and diversified customer base
HRC
CRC
Wire
Automotive
Coil Centers
Drum
Pipes, tube packaging, tin plates
Home-office appliance
Enamel
Galvanized steel sheet
Automotive
Mechanical
engineering and boiler pressure vessels
General structure
Oil and gas pipes
Shipbuilding
Diverse end-markets
(1) Direct sales refer to sales made by the company and not through stockists and steel centers
Automotive
Appliances
Bolts and nuts, nails
Construction, welding
Cable wires, wire rope
Spring bed’ electrode
Nails, welding
Our customer and distribution mix provides us with leverage in the market
High proportion of direct sales(1) Low customer concentrationTop 5 customers of steel sales in 2011
A 6% B
5% C 5% D 4% E 4% Other customers 76% Proportion of direct sales to
(5)
Enhance marketing channel and trade barriers
New Market Focus
Shipbuilding projects
Infrastructure projects
– port and bridge construction
More Services
Increase in product sales to automotive segment through IndoJapan steel center (JV with Nippon Steel Trading, Adyawinsa, Dwijaya)
Increase in product sales to
automotive and projects segments through establishment of coil center in Cikarang
Consignment sales (shipbuilding)
Branded plate Geographical Scope
Establishment of existing representative in Batam
Establishment of future representatives in
Banjarmasin, Balikpapan, and Makassar to strengthen
presence of KS’ products in
shipbuilding and general construction segments
Branch & warehouse in Surabaya
Planned Distribution Hub
Construction of warehousing railway links in Cikarang and Surabaya
Construction of warehousing shipping links in Banjarmasin and Balikpapan
Enhance marketing channel
Trade barriers
Existing barriers SNI – mandatory standard (HRC, CRC, Rebar, galvanised sheet, galvalume sheet)
HRC antidumping (China, India
Russia,Taiwan,Thailand, Korea and Malaysia)
Import permit (Regulation of Trade Minister No. 8/2012)
Regulation of Energy and Mineral Resources Minister No. 7/2012 on Improvement of Additional Value of Mineral through Mineral Processing and Purifying Process
Future barriers
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