Merger of PM and UHM as an example of

Document Sample
Merger of PM and UHM as an example of Powered By Docstoc
					Merger of PM and UHM as an example of the
   globalization of the Russian economy

                   London
                  April 2004
                                      Pavel G Skitovich
                                      Deputy General Director
                                Strategy and Corporate Affairs
                                                           1
Merger objective




•   Integration synergies, achieved through the creation of a large
    unified machine building company will enhance the value of
    the company substantially above the simple sum of parts

•   Reason for UHM making the offer
       • a longer history as a public company
       • an existing listing on the London Stock Exchange




                                                                      2
Potential synergies



 •   Improved efficiency of capital expenditures and R&D

 •   Development of new technologies

 •   Improved terms of financing

 •   Optimisation of the use of production sites

 •   Cost reduction




                                                           3
Focus on core business




                               • Nuclear power engineering          • Power-generating equipment
      Non-core assets          • Production of specialty steels



Short-term divestiture
• Shipbuilding
• Drilling equipment
• Oil & gas equipment
• Excess property




Long-term divestiture
• Mining equipment
• Lifting and transportation                         Sales proceeds will be
  equipment                                          directed to the expansion of
                                                     PGE and nuclear businesses



                                                                                               4
Aims of focused strategy




  •   Ability to provide comprehensive solutions for power
      generation plants, hence increasing economic efficiency

  •   Improving product competitiveness and extending the
      existing product portfolio with new competitive offerings

  •   Strengthening key market positions and advancing in new
      product / geographic market segments




                                                                  5
Growth in economic efficiency

  Evidence from around the world shows that higher business
  specialisation as well as the ability to offer comprehensive
  product solutions allow companies to achieve better efficiency
  and higher market valuation*

  1,8                                                     25%
  1,6
  1,4                                                     20%
  1,2
                                                          15%
    1
  0,8                                                     10%
  0,6
  0,4                                                     5%
  0,2
    0                                                     0%
                             P/S                                               EBITDA/Sales

   Low diversity      Medium diversity   High diversity    Low diversity   Medium diversity   High diversity




        * Source: company




                                                                                                               6
Leadership in nuclear power engineering

The merged company will achieve a leading position in the
nuclear energy market
Technological leadership
-   Experience in the construction of a 1500 MW channel-type
    reactor in Lithuania
-   Production of the most powerful steam turbine (1200 MW) in the
    world, with a possibility to increase its capacity up to 1500 MW
-   Development of equipment for a 1500 MW water-cooled power
    reactor

Market outlook
-   The bulk of nuclear reactor construction in the near future will
    take place in Asia (mainly China and India) where the company
    has strong established market positions (45 GW of additional
    nuclear generating capacity will be introduced by 2025)
-   In Russia, a program of constructing nuclear power plants (up to
    54GW) in the remote areas of the country is currently under
    development

                                                                       7
Market potential


    PM-UHM plans to take advantage of the new focused
    strategy and the synergies derived from the merger to
    accelerate growth in the attractive energy market:

•   World PGE market capacity is 120-140 GW annually ($100-120 bn
    per year)
•   Russian PGE market capacity is $4,5 bn per year during 2004-2010
    and $10,5 bn per year during 2011-2020

    Prices charged by PM-UHM are 15-20% lower than those of
    western competitors




                                                                       8
Geographic expansion of the company



   The merger between PM and UHM has initiated the
   development of a plan to set up engineering and production
   capacities in Eastern Europe and South-East Asia

   PM-UHM is becoming a multi-national company with ensuing
   advantages:
   - favourable terms in the competitive environment
   - reduction of currency risks
   - absence of customs barriers




                                                                9
Shareholding structure

Well balanced shareholding structure




                                                              Interros with partners
                                                                       35%
        International
   institutional investors
             34%




                                                     Former UHM
                                                     management
                                                        15%
           Russian institutional   Treasury shares
                investors                8%
                   8%




                                                                                       10
PM-UHM and “blue chips”

PM-UHM will become one of the very few Russian “blue-
chip” companies, where the majority shareholder has a stake
less than 50%


Norilsk Nickel
RAO UES
YUKOS                        Majority shareholder with
                             more than 50% of all shares
Surgutneftegas
MTS




                                                              11