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United States Steel Corporation Building Value

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The level of income from operations is the primary factor affecting payments ... Bullish on North America. Steady to moderate steel and economic growth ... – PowerPoint PPT presentation

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Title: United States Steel Corporation Building Value


1
United States Steel Corporation Building
Value September 2007
2
Forward-Looking Statements
This presentation contains forward-looking
statements with respect to market conditions,
operating costs, shipments, prices and
profit-based compensation payments. Some
factors, among others, that could affect 2007
market conditions, costs, shipments and prices
for both domestic operations and USSE include
global product demand, prices and mix global and
company steel production levels raw materials'
availability and prices plant operating
performance the timing and completion of
facility projects natural gas prices and usage
and availability changes in environmental, tax
and other laws the resumption of operation of
steel facilities sold under the bankruptcy laws
employee strikes power outages and U.S. and
global economic performance and political
developments. Domestic steel shipments and
prices could be affected by import levels and
actions taken by the U.S. Government and its
agencies. Political factors in Europe that may
affect USSEs results include, but are not
limited to, taxation, nationalization, inflation,
currency fluctuations, increased regulation,
export quotas, tariffs, and other protectionist
measures. The level of income from operations is
the primary factor affecting payments under the
USWA profit-based plans. In accordance with
safe harbor provisions of the Private
Securities Litigation Reform Act of 1995,
cautionary statements identifying important
factors, but not necessarily all factors, that
could cause actual results to differ materially
from those set forth in the forward-looking
statements have been included in the Form 10-K of
U. S. Steel for the year ended December 31, 2006,
and in subsequent filings for U. S. Steel.
3
United States Steel Corporation
To grow responsibly while generating a
competitive return on capital and meeting our
financial and stakeholder obligations
  • 5th largest global producer
  • 2nd largest North American flat-rolled producer
  • 2nd largest Central European flat-rolled
    producer
  • Largest North American seamless pipe producer
  • Domestic raw materials balance
  • 2006 ROCE 29

Pro-Forma for Stelco acquisition ROCE
IFO/average(PPE AR Inventory AP)
4
Flat-rolled segment
Leading producer of high quality product
  • LTM 2Q07 shipments 13.6 million tons
  • Approximately 50/50 contract versus spot
  • Typical contract term 1-3 years
  • Contract industries include auto, appliance,
    tin and electrical
  • Demands sophisticated metallurgical applications
    with specialized customer service and technical
    support
  • Contract business lessens impact of spot price
    fluctuations
  • Some spot deals based on CRU index

5
Business Case for Acquisition
  • Complementary assets attributes
  • Stelco is long slabs, intend to ship
    approximately 900,000 tons to U.S. Steel
    facilities
  • Improve U. S. Steels finishing facility
    utilization
  • Strong product mix
  • Creates 5th largest global steel company
  • Annual synergies estimated to be in excess of
    100 million
  • Sourcing semi-finished product
  • Procurement, best practices and SGA

6
Stelco Company Overview
Raw Steel Capability Million Net Tons Hamilton
2.6Lake Erie 2.9
British Columbia
Alberta
Labrador
Manitoba
Ontario
Saskatchewan
Quebec
7/07 Employees 3,600 2006 Raw Steel (Million Net
Tons) 4.2 Raw Materials Ownership Iron
Ore Minority shares of Hibbing Taconite Tilden
Mining Wabush Mining Seignelay Reserve
Wabush
Hibbing
Minntac/ Keetac
Tilden
Hamilton
Lake Erie
Great Lakes
Gary
Mon Valley
Granite City
Stelco Integrated Steel Mill
Stelco Iron Ore Mining
U. S. Steel Flat Rolled Tubular
U. S. Steel Iron Ore Mining
Fairfield
East Texas
7
European segment
Plants in both Slovakia (5.0 mmt) and Serbia (2.4
mmt)
  • LTM 2Q07 shipments 6.4 million tons
  • Approximately 70 spot versus 30 contracts
  • Key industries construction, service center,
    packaging and conversion
  • Commissioning auto quality galvanize line
    350,000 tonnes

8
Tubular segment
Oil country and standard and line pipe
  • LTM 2Q07 shipments 1.9 million tons
  • Seamless 1 million
  • ERW 900,000 tons
  • Primarily spot sales
  • Oil Country 65 - Standard Line 35
  • Size ranges (outside diameter)
  • Seamless -1 to 20
  • ERW 1.5 to 36
  • Shipments
  • NAFTA 85
  • International 15

Pro-forma for Lone Star
9
Global Days Away From Work Injury Rate
Continuous Improvement

Relentless focus on safety has resulted in
operating excellence and driven strong financial
performance
88 Improvement 2003 to 2007
10
Improving Industry Why invest in Steel?
  • Steel is a good product, provides excellent
    value
  • Major regions with increasing consumption rates
  • Governments mostly out of industry (ex China)
  • Metallics are tight, flatter cost curve
  • Low Valuation

2007 P/E
Source Bloomberg
11
Bullish on North America
Optimistic outlook for North American integrated
producers
  • Steady to moderate steel and economic growth
  • Melt capacity relatively constrained
  • High metallic costs
  • High import transportation costs
  • Relatively weak US Dollar

12
Strong business climate
Selected Price Trends Through August 2007
Shredded scrap composite /Gross ton
Hot rolled /Net Ton
Source Purchasing Magazine, CRU and SBB.
Source D.J. Joseph Company
13
Global Raw Materials Integration

Control over key raw materials
Percent controlled
  • Strong global raw material position
  • Significant portion of coal requirements under
    long-term contract thru 08
  • Second largest NA iron ore producer
  • produced 22 mmnt in 2006
  • reserves 786 mmnt
  • Iron ore/coal mines and coke production located
    close to steel operations or supported by cost
    competitive transportation facilities
  • Produced 7.5 mmnt of coke in 2006
  • Exploring additional raw material integration
    opportunities

Represents contracts
14
MSCI Flat Rolled Inventory
January 2004 July 2007
P-Mag HRC price
600
660
513
756
635
557
460
350
Sheet Inventory 000 tons
Sheet Imports 000 tons
580
535
Source MSCI, U.S. Dept of Customs and Purchasing
Magazine
15
Raw Material Cost - Impact on hot rolled band
costs

Raw material cost inflation has leveled the
playing field HRB cash cost /ton
405
401
387
11
13
22
15
16
270
10
204
41
190
24
19
15
8
24
66
72
52
51
68
73
China other low-labor cost steel Producing
countries
US flat-rolled mini-mill steel producers
U.S. integrated steel producers
Source J.P. Morgan and company estimate
16
Capital Allocation Building Value
To grow responsibly while generating a
competitive return on capital and meeting our
financial and stakeholder obligations
  • Maintain strong capital structure
  • Focused capital spending plan
  • Responsible capital allocation
  • Remain shareholder focused
  • Designed to improve shareholder value

17
Assess global markets growth opportunities
remain
Evaluate Growth Opportunities Building Value
  • Flat Rolled and USSE
  • Organic
  • Strategic
  • Stelco acquisition
  • Additional acquisitions
  • Alliances
  • Partnerships
  • Tubular
  • Lone Star acquisition
  • Global opportunities

18
Maintain strong capital structure Building
Value
Balanced approach to capital allocation
LTM 6/30/07
Since 1/1/04
As of ( in millions)
  • Cash Provided by Operations
  • Capital Spending
  • Debt Reduction
  • Voluntary Pension OPEB Funding
  • Dividends Paid
  • Quadrupled since 01/05
  • Stock Repurchases
  • Millions of shares repurchased

1,908 611 (709) 210 89 381
5.9
4,094 2,182 (241) 630 224
758 13.7
  • 7.0 million shares remaining under current
    repurchase authorization

Repurchase program initially authorized 7/05
19
Maintain strong capital structure Building Value
6/30/07
12/31/03
As of ( in millions)
Cash Net working capital Total debt Employee
benefits Total liabilities Stockholder
equity Total Capitalization
316 821 1,933 2,328 6,742
1,093 7,837
1,103 1,345 2,174 2,152 7,919
4,960 12,913
20
Maintain strong capital structure Building Value
EBITDA (millions)
Total and Net Debt (millions)
LTM EBITDA/LTM Net Interest
Total Debt/LTM EBITDA
Source Company filings
Excludes 683 million of restructuring charges
Includes Lone Star for the LTM period ending
1Q07
21
Maintain strong capital structure Building Value
Manageable legacy obligations 2007
  • Key considerations
  • Pension
  • Defined benefit plan closed in 2003
  • OPEB
  • Co-pays
  • Inflation cap
  • Voluntary pension VEBA contributions totaling
    765 million since 1/1/03
  • Additional 200 million funding authorization

Excludes any voluntary contributions
22
Capital Spending Building Value
U.S. Steel has spent less than global peers in
recent years Will likely incur higher capex
during next few years concentrated on
infrastructure, but will likely remain below the
global average.
2004 2006 Average CapEx per ton shipped
Capex per ton
Estimated, pending 2006 final data
Source Accenture
23
Making Steel - World Competitive - Building Value
Investment considerations
  • Strong business climate
  • Improving industry and relatively low valuation
  • Favorable North American environment
  • Building value
  • Maintain strong capital structure
  • Evaluate growth opportunities
  • Improving infrastructure and product mix
  • Responsible capital allocation
  • Remain shareholder focused
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