NLMK.L Regulatory News (NLMK)

27 Nov 2006 07:02

OJSC Novolipetsk Steel27 November 2006 NLMK and Duferco to create a joint venture acquiring steel production facilities in Europe and USA November 27, 2006 - Novolipetsk Steel (LSE: NLMK) ("NLMK") and Duferco Group ("Duferco") have reached a definitive agreement to create a joint venture companyto acquire certain steel production and distribution facilities currently ownedby Duferco in Europe and the United States. The principal terms of the transaction are: • NLMK and Duferco will form a joint venture through SteelInvest & Finance S.A. (Luxembourg), a limited liability company (societeanonyme) established under the laws of Luxembourg in which they both will hold a50% interest. NLMK will acquire its 50% interest for approximately USD 805million, subject to a purchase price adjustment based on the results of theaudited financial statements of the joint venture group for the fiscal yearended 30 September, 2006. NLMK will finance the transaction out of existingcash funds. • The joint venture will hold 100% or (in cases where there isan existing minority party) majority interests in 22 companies currently ownedby Duferco. This includes one steel making plant and five steel rollingfacilities with total finished steel output of 4.5 million tonnes in 2006 aswell as a network of steel service centres. • The joint venture companies will be managed by Duferco,subject to a shareholders agreement between the parties. Duferco management willremain responsible for operational, financial and technical issues as well asrelations with employees, trade unions and local communities. • The parties have agreed to embark on an ambitious technicalupgrade and expansion programme for the joint venture companies providing fortotal investments of approximately EUR 375 million. The programme which will beoverseen by Duferco management will draw on the financial support and expertiseof NLMK and is intended to boost production while increasing supply ofsemi-finished steel products from NLMK. • The transaction agreements provide for put optionarrangements for each party in the event of future major corporate events,including future disagreements. • The parties received clearance for the transaction from theEuropean Commission on 20 November, 2006. The Hart-Scott-Rodino1 waiting periodexpired on 6 November, 2006 completing the process of obtaining US antitrustclearances for the transaction. The strategies of NLMK and Duferco are complimentary. According to the recentlyannounced Sustainable Growth Strategy 2007-2011, NLMK aims to expand itsupstream platform, to increase production of low cost, high quality slabs and toconvert them into value-added finished steel products in its core markets byacquiring re-rolling facilities. The increase in slab production by NLMK isenvisaged at 3.4 million tonnes while Duferco plans to increase the productionof high value-added and specialty steel grades. However, Duferco lackssemi-finished steel products capacity and has excess rolling capacity. Thismakes both companies natural partners in this joint venture. The growing supply of high quality slabs from NLMK to the joint venture rollingfacilities is expected to create substantial synergies. With the planned volumeof slab supply increasing from 0.5 million tonnes in 2006 to 3.6 million tonnesby 2012, the total cumulative synergy effect including industrial, commercial,and R&D synergies is estimated at around USD 330 million. The creation of thisjoint venture perfectly fits the strategies of both NLMK and Duferco andprovides for substantial industrial benefits, increased sustainability ofearnings, stronger market positions and technological advancements. Commenting on the agreement reached between NLMK and Duferco Vladimir Lisin,Chairman of the NLMK Board of Directors, said, "This transaction is another stepof NLMK's strategy of developing high value-added product portfolio whileenhancing its presence in the international markets. The creation of the jointventure will allow maximum utilization of NLMK's core competitive advantage inlow cost steel production and will ensure sustainable growth of the company'searnings. Continued Duferco management will ensure smooth implementation of thejoint venture business plan and quick ramp-up of synergies. We are confidentthat NLMK and Duferco will develop a value-creating partnership bringing strongbenefits to all their shareholders." Bruno Bolfo, Chairman of the Duferco Board of Directors, said, "We welcome thecreation of a joint venture with NLMK, a lowest cost Russian-based steelproducer, representing an opportunity to increase capacity and production ofhigh value-added steel products by the joint venture companies. The Duferco-NLMKpartnership is an excellent example of the global steel industry consolidation.The joint venture transforms successful long-term business cooperation into asolid partnership with high growth potential. The joint venture companies andtheir employees will fully benefit from a tie-up with one of the most efficientsteel producers in the world." The parties expect to complete the transaction by the end of this year. The transaction presentation is available on NLMK's website, www.nlmksteel.com.Novolipetsk SteelAnton Bazulev +7 495 915 1575Financial DynamicsJon Simmons +44 207 831 3113DufercoAntonio Gozzi, Director +39 030 21691 About the joint venture companies The joint venture will include a number of companies within the steel productiongroup currently owned by Duferco: Carsid S.A. (Marcinelle, Belgium), a semi-finished steel producer with annualslab production capacity of 2.1 million tonnes. Slab production in the yearended 30 September, 2006 was 1.85 million tones. Duferco La Louviere S.A. (La Louviere, Belgium), a rolled steel producer, withannual hot-rolling capacity of 2.0 million tonnes, cold-rolling capacity of 1.6million tonnes, and wire rod capacity of 0.36 million tonnes. Finished steelproduction in the year ended 30 September, 2006 was 2.1 million tonnes. Duferco Clabecq S.A. (Ittre, Belgium), a thick plates producer, with annualrolling capacity of 0.8 million tonnes. Plate production in the year ended 30September, 2006 was 0.6 million tonnes. Duferco Coating S.A.S. (Strasbourg and Beautor, France), a coated steel producercomprising two production units: Sorral (with annual hot dip galvanized steelcapacity of 0.32 million tonnes and pre-painted steel capacity of 0.12 milliontonnes) and Beautor (with annual cold-rolling capacity of 0.35 million tonnesand electrogalvanized steel capacity of 0.33 million tonnes). Production in theyear ended September 30, 2006 was 0.27 million and 0.24 million tonnes in Sorral and Beautor respectively. Duferco Farrell Corp. (Farrell, Pennsylvania, USA), a flat rolled steel producerwith annual hot-rolling capacity of 1.8 million tonnes and cold-rolling capacityof 0.8 million tonnes. Finished steel production the year ended 30 September,2006 was 1.6 million tonnes. Acciaierie Grigoli S.p.a. (Verona, Italy), a heavy plates and forging ingotsproducer in Italy with annual heavy plates production capacity of 0.6 milliontonnes. Finished steel production in the year ended 30 September, 2006 was 0.15million tonnes. The companies within the distribution group include 9 service centres engaged inthe distribution of products manufactured by Duferco companies and thirdparties. The service centres are located in France, Belgium and the CzechRepublic. Total product flow inside the service companies in the year ended 30September, 2006 was approximately 1.0 million tonnes, of which 85% wasattributed to Duferco group products and 15% to third parties products. In the year ended 30 September, 2006 the joint venture companies produced 4.5million tonnes of finished steel products including 2.05 million tonnes ofhot-rolled coils, 0.7 million tonnes of plate, 0.77 million tonnes ofcold-rolled coils, 0.4 million tonnes of galvanized steel, 0.1 million tonnesof pre-painted steel and 0.47 million tonnes of long products.2 Combined pro-forma revenues for the year ended 30 September, 2005 for the jointventure companies were approximately USD 2.6 billion and combined pro-formanormalized EBITDA for the year ended 30 September, 2005 was approximately USD346 million. The combined pro-forma revenues and combined pro-forma normalizedEBITDA were calculated on the basis of unaudited pro-forma financial statementsof the joint venture companies prepared by Duferco management. These financialstatements were prepared on the basis of accounting principles, which may differfrom U.S. GAAP or IFRS.3 About Novolipetsk Steel Novolipetsk Steel (NLMK) is one of the world's leading steel companies and oneof the three largest flat steel producers in Russia, producing 9 million tonnesof crude steel annually. NLMK's production facilities are among the mosttechnologically advanced in Russia, producing flat steel products in a varietyof grades and sizes. NLMK is one of the world's most profitable steel companieswith EBITDA margin over 40%. The traditional strengths of the Company are: vertical integration into rawmaterials, world class assets with a competitive cost production, proximity tomature and developing markets where the company has strong positions, soundfinancial performance, professional and experienced management team. For further information visit www.nlmksteel.com About Duferco Duferco is an international steel production, processing and trading group withheadquarters in Lugano, Switzerland. Duferco had revenues in excess of USD 7billion in 2005, and is one of the world's largest companies engaged in theworldwide production, distribution and trade of all types of steel products,including raw materials used in steel making processes. Duferco has trading andproduction activities in more then 40 countries. It operates steel making andprocessing plants in Western and Eastern Europe, USA, South Africa and CentralAmerica. For further information visit www.duferco.com This announcement may include forward-looking statements. These forward-lookingstatements include matters that are not historical facts or statements regardingNLMK's intentions, beliefs or current expectations concerning, among otherthings, expected synergies from the transaction, NLMK's results of operations,financial condition, liquidity, prospects, growth, strategies, and the industryin which NLMK operates. By their nature, forwarding-looking statements involverisks and uncertainties because they relate to events and depend oncircumstances that may or may not occur in the future. Forward-lookingstatements are not guarantees of future performance and the expected synergies,and NLMK's actual results of operations, financial condition and liquidity andthe development of the industry in which NLMK operates, may differ materiallyfrom those made in or suggested by the forward-looking statements contained inthis announcement. In addition, even if the synergies or NLMK's results ofoperations, financial condition and liquidity and the development of theindustry in which NLMK operates are consistent with the forward-lookingstatements contained in this announcement, those synergies, results ordevelopments may not be indicative of synergies, results or developments infuture periods. NLMK does not undertake any obligation to update anyforward-looking statements to reflect events that occur or circumstances thatarise after the date of this announcement. Notes: 1 Hart-Scott-Rodino Antitrust Improvements Act of 1976. 2 Ingots, billets, wire rod. 3 The unaudited financial information of the joint venture companies containedin this announcement was derived from financial statements that were prepared onthe basis of accounting principles, which may differ from U.S. GAAP or IFRS and,accordingly, may not represent the financial condition or results of operationshad the financial statements been prepared on the basis of U.S. GAAP or IFRS.Such financial information does not reflect certain adjustments that may berequired in order to present the financing statements of the joint venturecompanies on a consolidated basis. EBITDA is a non-GAAP measure and should notbe used as a substitute for an analysis of the financial results of the jointventure companies under U.S. GAAP or IFRS. For these and other reasons, thefinancial information presented herein may not be indicative of the financialresults of the joint venture companies following the entry into the jointventure described in this announcement and investors are cautioned not to placeundue reliance on such financial information. This information is provided by RNS The company news service from the London Stock Exchange