Borusan Mannesmann Boru Roadshow Presentation June 28, 2007

BORUSAN MANNESMANN BORU (BMB)
Investor Conference / June 28-29, 2007 / Paris
To be globally recognized leading steel pipe company
-1-
BMB at a Glance
To be globally recognized leading steel pipe company
-2-
Borusan
Borusan is a highly reputable conglomerate focused in six strategic business units
Steel
Distributorship
BMW / MINI /
Land Rover
$ 394 m
Welded
Steel Pipes
Borusan Mannesmann Boru
BM Vobarno Tubi, Italya
BM Espana, Spain
Logistics
$ 73 m
Borusan Otomotiv
Borusan Oto
Borçelik
Kerim Çelik
Borusan Lojistik*
Caterpillar
$ 502 m
Flat Steel
$ 740 m
Net Sales
Exports
PPE,net
Total Assets
New Businesses
Telekom
$ 61 m
Borusan Makina
Borusan Güç Sistemleri
2000
875
96
423
750
2001
540
51
420
660
2002
691
77
464
801
2003
1.019
105
552
1.020
Borusan Telekom
2004
1.589
186
577
1.306
2005
1.952
143
558
1.343
2006
2.350
225
607
1.618
*Non-Group Company Sales
To be globally recognized leading steel pipe company
-3-
Shareholders
Turkey’s leading industrial group Borusan and Europe’s pioneer in pipe sector
Salzgitter have joined forces in steel pipe production.
77%
23%
BM Pipe Investment
Company
Free Float
Others
Borusan Group
Salzgitter Group
– one of Turkey’s major industry and service
groups, founded in 1958
– one of Europe's leading steel and technology
companies, founded in 1858
– active in four primary business areas of steel,
distributorship, logistics and telecommunications.
– the Group is structured in four divisions Steel, Tubes, Trading and Services .
– 2006 consolidated turnover is 2,4bn$, targeting
5bn$by 2010.
– 2006 consolidated turnover is 8,4bn€ of which
1,5bn€ from tube division.
73%
• BMB quoted on Istanbul Stock Exchange in 1994, ticker: BRSAN
16%
• Current free float rate is 16% with an average daily trading volume of
0,2mn$ in last six months.
• MCap is 225mn$ by June,22 2007
11%
• Achieved 525mn$ turnover and ~700k tons of sales volume in 2006.
LISTED
COMPANY
• Leader with %33 market share in Turkish steel pipe industry.
100%
100%
Simplified shareholding structure
To be globally recognized leading steel pipe company
• Targeting fast growing linepipe demand in Iberian
peninsula. (investment phase)
• Acquired in 2001 to target European automotive industry
with high value added special pipes.
-4-
Management Tools
BMB’s management model is an integral part of its competitive edge.
+
Shareholders & Strategic
Business Partners
Focus on voice of
customer
Our Values
Drive to succeed
Customer Orientation
Integrity
Personal initiative and responsibility
Contribution to community
Kocabıyık Family
Modern HR Management
360° performance evaluation /
competency management
Career Planning
Leader Development Program
High Level of Compliance with
Corporate Governance
Principles
Independent Board Members
IFRS accounts audited since 1984
Dividend distribution policy
To be globally recognized leading steel pipe company
Success-Driven
Management
Dynamic management with
focus on KPI’s.
Average age for top
management is 39.
-5-
Steel Pipe Business
Specialized in welded steel pipe business while serving different customer
segments with a wide range of product portfolio.
PROCURE
PROCURE
PRODUCE
PRODUCE
• Hot Rolled Coil (HRC)
• Electric Resistance Welded
(ERW)
• Import
~80%
• Turkey
~20%
• Spirally Sub-Merged Arc
Welded (SSAW)
• 3 plants in Turkey
=800k tons in 2006
• 1 in Italy (Vobarno)
• 1 in Spain (under constr.)
Capacity
• 625k tons in ERW
• 200k tons in SSAW
• +50k tons in ERW by ‘07Q3
SELL/DISTRIBUTE
SELL/DISTRIBUTE
CUSTOMERS
CUSTOMERS
Sales Breakdown
• Water & Gas Pipes
30%
• Pressure Pipes
14%
• Construction Pipes
12%
• Special Pipes
10%
• Industrial Pipes
5%
• Linepipes-spiral
18%
• Other
11%
• 460k tons domestic (leader with
30% market share)
• 240k tons export (1/3 of total
volume)
=700k tons sales in 2006
• +50k tons in SSAW by ‘08Q3
= 925k tons
• ~150 exclusive/non-exclusive
dealers in domestic market.
• Widespread along the country
~23%
• Projects Segment;
Government Institutions,
pipeline contractors
• Construction Segment;
~62%
Residential &
superstructure (hotel,
shopping mall, airport)
construction companies,
water, heating, firefighting
system installation
companies
• Specialized
~6%
Manufacturers;
Bicycle, furniture, green
house, towel warmer, shelf
manufacturers
• Automotive Segment;
OEMs, component
manufacturers in
European and Turkish
automotive industry
~9%
• Non-exclusive dealers in
export markets
To be globally recognized leading steel pipe company
-6-
Historical Background
Backed by almost 50-years of experience in pipe sector, BMB is to offer future
growth stories, as it was the case in the past.
Turnover (mn$)*
Turnover (mn$)*
‘06
BMB set up its 2010 strategy; started
investments to increase capacity
‘01
Merger of BBF and MB, company name is
amended as Borusan Mannesmann Boru (BMB)
370
Acquisition of Vobarno (Italy)
190
75
115
2002
‘98
106
243
193
151
75
219
264
273
2003
2004
2005
Domestic
Acquisition of Mannesmann Boru (MB)
shares from Privatization Administration.
327
2006
‘68
Halkalı plant started operations
‘58
Borusan Boru (BBF) founded in Halkalı,
Istanbul
488
To be globally recognized leading steel pipe company
304
2002
542
187
272
241
169
152
391
390
432
458
2003
2004
2005
2006
184
*BMB only
>> 11% CAGR
700
619
560
‘74
2007B
806
BBF Quoted on Istanbul Stock Exchange
Gemlik, plant started operations
398
Exports
Volume (ktons)*
Volume (ktons)*
‘94
>> 28% CAGR
520
424
294
‘04
641
Domestic
534
2007B
Export
-7-
Production Plants
Production plants are highly specialized in serving customer requirements in terms
of product development, production quality and delivery time.
TURKEY
TURKEY
EUROPE
EUROPE
Halkalı
Vobarno, Italy
• 100k tons p.a. ERW capacity
• Serves Turkish and European
automotive market.
İzmit
• 100k tons p.a. ERW capacity
• Serves oil & gas market for
linepipe projects
Gemlik
• Water & Gas
pipes
• Pressure Pipes
• OCTG
• Specialized in serving
European automotive market.
BM Espana,Spain
• 200k tons p.a. SSAW capacity
• Spiral Pipes
• Construction
Pipes
• 25k tons p.a. ERW capacity
• Special
Pipes
• 400k tons p.a. ERW capacity
• 50k tons p.a. ERW
capacity
• Spiral
Pipes
UN
CO
D
NS
T R ER
UC
TI
ON
• Special Pipes
• Industrial Pipes
• Specialized in serving
linepipe market in iberian
peninsula.
• Planned to the
commissioned by 2008Q3.
• +50k tons p.a. ERW by
2007Q3
• Serves mainly to construction
industry
• Port facility provide easy
access to supply sources and
export destinations
To be globally recognized leading steel pipe company
BMB pursuits investment
opportunities for being a local
producer in target markets (Europe,
N.Africa, M.East are in scope)
-8-
Financial Figures
Back to upward trend in profit margins after a sluggish performance caused by
unexpectedly sharp price declines in 2005.
EBITDA(mn$) & EBITDA ($/ton)
Key Financial Figures*
2004
2005
2006
81
50
40
Sales Volume (k tons)
–Domestic
–Export
542
390
152
619
432
187
700
458
241
20%
30
20
49
23
10
18
54
48
38
69
17%
65
52
44
30
23
41
431
280
151
525
332
193
EBITDA (mn$)
–Margin
–Per ton
44
12%
81$/t
25
6%
41$/t
48
9%
69$/t
Net Debt (mn$)
38,7
(2,6)
33,3
11
12
28
250
251
329
14%
8%
9%
Capex (mn$)
Capital Employed (mn$)
ROIC %
10%
12%
10%
11%
9%
14%
12%
15%
13%
12%
10%
9%
8%
6%
5%
25
12%
11%
0%
2000
370
264
106
15%
48
0
Turnover (mn$)
–Domestic
–Export
Margins
60
2001
2002
2003
EBITDA
2004
2005
EBITDA/ton
2006
2007B
2000
2001
2002
2003
EBITDA
2004
2005
2006
2007B
GP
• Raw material (HRC) cost constitutes almost
80% of total production costs in pipe business.
• Sales prices are immediately affected by HRC
price trend however cost base adjusts with a
time lag of ~3 months due to order-to-delivery
period of imported HRC.
• Since 2005, HRC steel prices followed a very
different price pattern with short cycles, high
price volatility and upward trend.
*Consolidated IAS financials
To be globally recognized leading steel pipe company
-9-
HRC Price Trend
A new HRC price pattern evolved; short cycle period, high volatility and upward
trend.
HRC Prices
Russian Export FOB Prices Black Sea USD/ton
700
17 Months
Stdev: 80$/ton
600
10 Months
Stdev: 36$/ton
500
480
400
33 Months
Stdev: 31$/ton
300
35 Months
Stdev: 40$/ton
200
340
225
150
100
• Sharp variations
in HRC affect
profit margins in
pipe business.
Rockbottoms
level up after
each cycle
165
Au
g9
D 6
ec
-9
Ap 6
r-9
Au 7
g9
D 7
ec
-9
Ap 7
r-9
Au 8
g9
D 8
ec
-9
Ap 8
r-9
Au 9
g9
D 9
ec
-9
Ap 9
r-0
Au 0
g0
D 0
ec
-0
Ap 0
r-0
Au 1
g0
D 1
ec
-0
Ap 1
r-0
Au 2
g0
D 2
ec
-0
Ap 2
r-0
Au 3
g0
D 3
ec
-0
Ap 3
r-0
Au 4
g0
D 4
ec
-0
Ap 4
r-0
Au 5
g0
D 5
ec
-0
Ap 5
r-0
Au 6
g0
D 6
ec
-0
Ap 6
r-0
7
0
Source: CRUMonitor
• In near future, HRC prices are expected to stay strong but be more stable
– as the control on supply side is increasing through consolidations
– production oriented approach in mills turns into customer orientation
– share of long term contracts in product portfolio is increasing
To be globally recognized leading steel pipe company
-10-
Turkish Steel Pipe Market
To be globally recognized leading steel pipe company
-11-
Turkish Steel Pipe Market
Consistently growing welded steel pipe demand while export is a tool to optimize
capacity utilization
MarketBalance
Balance(kton)
(kton)- -2006
2006
Market
MarketEvaluation
Evaluation(kton)
(kton)
Market
2.500
ERW
100
1.200
SSAW
1.200
960
CAGR: 12%
1.000
1800
1.400
240
800
942
600
700
2002
2003
2004
2005
2006
p.
on
s
um
rts
Ex
po
C
2001
458
Im
po
rt
s
0
Constant
demand for
linepipes
Pr
od
uc
200
tio
n
400
BMB
Rest
Baku-Tiflisi-Ceyhan (BTC) project : ~270k tons
• ERW market consistently grow by 12% p.a. as the
macroeconomic stability achieved after 2001 crisis.
• Local market demand is well below installed capacities.
• SSAW market demand provides a reliable
groundbase at ~0,3mn tons p.a. but outperforms as
international oil&gas projects, like BTC, are realized.
• Exports are critical for capacity optimization.
• Industry’s average capacity utilization ratio (CUR) is ~70%.
• BMB represents
–~28% of production
–~20% of export
–~30% of local market demand
–while CUR is well above industry average at ~80%.
To be globally recognized leading steel pipe company
-12-
Product Positioning
Niche product segments outperform volume driven segments in term of
profitability.
• Fragmentation: Few competitors even though profit
margins are high.
ProductPositioning
Positioning
Product
• Barriers to entry: Production quality, customer
orientation, project management know-how, corporate
identity is a must for customers.
50%
Approx. GP Levels
40%
68%
30%
Special
55%
Pressure
20%
15%
Industrial
10%
20%
Linepipe
• Competition on “Best Solution Provider”
• BMB’s Strategy: To increase its share in high value
added product segments
40%
W&G
20%
Constr.
0%
0
100
200
300
Local Market Volume (ktons)
Bubble size represents #of competitors.
X% represents BMB’s market share
400
500
• Fragmentation: highly fragmented. Competition is
based on price and availability which results low
profit margins.
• Barriers to Entry: easy entry, economies of scale
is important rather than customer orientation and
quality
• Competition on “Lowest Price”
• BMB’s Strategy: To achieve economies of scale in
high volume product segments
To be globally recognized leading steel pipe company
-13-
Market Drivers
To be globally recognized leading steel pipe company
-14-
Turkish Steel Pipe Market - Potential
Moderate but consistent growth in demand is expected with opportunities in high
value add product segments
High End Products
Low End Products
CAGR
2006
1.415
Market
60
Special
Industrial
275
Const.
Pressure
80
W&G
200
400
11%
Special
10%
Industrial
7%
-
300
0
Market
13%
330
Linepipe
8%
8%
370
600
800
1000
1200
1400
1600
BMB Market
Share
2010
1.860
90
400
Const.
~55%
430
Linepipe
k tons
~20%
130
W&G
~40%
300
0
200
400
~68%
~15%
510
Pressure
~33%
~20%
600
800
1000
1200
1400
1600
1800
2000
• Pursuing international linepipe projects, as Turkey being a transit country.
• Increasing demand for pressure pipes in Anatolian cities due to growing natural gas usage
• Investments on airports, railways and superstructures (hotels, shopping malls etc.) drive
demand for construction pipes
• Usage of steel pipes in furniture industry and economic growth drives demand for industrial
pipes.
• BMB well positioned
to cultivate future
growth prospects.
• Upcoming capacity
investments target
high value added
product segments.
• Turkey becomes a production base for automotive industry, positively affects special pipe
sales
To be globally recognized leading steel pipe company
-15-
Oil & Gas Industry (Linepipes)
Main pipelines in Turkey have already been completed. However international
pipeline projects may create sizable opportunities.
• It is expected that the loop lines will
continue to provide stable demand of
~300k tons p.a.
• International projects such as Nabucco
may gear up the local demand significantly.
Nabucco
– Gas pipeline to connect 5 countries;
Turkey, Bulgaria, Romania, Hungary
and Austria.
– Total length of pipeline is ~3,3k km of
which ~2k km in Turkey.
• Main backbone is constructed in Turkey.
– Blue Stream Gas Pipeline
2000
64k tons
– Baku-Tiflisi-Ceyhan Oil Pipeline
2003
268k tons
– Turkey Greece Gas Pipeline
2005
50k tons
– Shah Deniz Gas Pipeline
2005
38k tons
– West Anatolia Gas Pipeline
2005
61k tons
To be globally recognized leading steel pipe company
– 56” diameter pipeline for onshore
sections and 36” for offshore section
across Marmara sea.
– Total budget of the project is ~5bn€.
– Planned construction of 1st phase starts
by 2009
-16-
Oil & Gas Industry (Linepipes)
Opportunity window is wide open especially in North Africa, Middle East and
Europe due to increasing pipeline investments, triggered by high energy prices.
• Crude oil and natural gas will continue to be
the main energy resource of the world.
• In foreseeable future, demand for oil and
natural gas will increase especially in
emerging economies.
• High oil and gas prices favor pipeline
investments since feasibility is a key issue in
deciding such infrastructure investments.
Algeria
– Pipeline projects exist to form an oil and natural gas
pipeline network between country’s natural energy
resource fields and Mediterranean coast.
Spain
– Development plan along the Mediterranean coast,
based on the large gasification plan, construction of
several desalinization plants, connections with water
reservoirs.
Iran
– New pipelines as well as replacement of existing lines
especially for oil & gas network.
CIS
– Transition of newly discovered energy resources to
international markets, to overcome dependence on
Russia, drive international projects, like BTC.
To be globally recognized leading steel pipe company
-17-
Natural Gas Industry (Pressure Pipes)
Increasing usage of natural gas in Turkey drives infrastructure investments
especially in Anatolian cities.
Natural Gas Demand & Supply Forecast
by BOTAS
CAGR
10%
70.000
60.000
CAGR
4%
50.000
• According to current supply and demand
forecasts, natural gas demand in Turkey will
increase by 10% CAGR till 2010 then
expected to slow down to 4%.
40.000
• Most of the Anatolian cities will complete
their infrastructure investments within the
period of 2006-2010.
30.000
20.000
10.000
0
2006
2007
2008
2009
Consumption
2010
2015
2020
Supply
To be globally recognized leading steel pipe company
• According to base case scenario, total of 61
cities will convert their residential heating
system via completing infrastructure
investments, (33 cities in 2007 and 24 cities
in 2009)
-18-
Oil & Gas Industry (Pressure Pipes-OCTG)
High energy prices also drives the demand for OCTG pipes. North America is the
leading market representing ~40% of worldwide demand.
• OCTG pipe demand is highly correlated with the
oil / gas extraction activity and the number of
active oil and gas production installations, or “rigs”,
both offshore and onshore.
• The rig count is historically most closely correlated
with the price of oil. High energy prices will
stimulate investments in rigs and then demand for
OCTG pipes.
• Welded pipes have a disadvantage over seamless since the general perception is “any weld in
casing and tubing would increase the risk of pipe failure”.
• On the other hand, share of welded pipes in total consumption slightly increased over the last
decade with the advantage of lower manufacturing costs.
• Historical data indicate that welded pipes will constitute approx. 1/3 of total OCTG market.
OCTG = Oil Country Tubular Goods
To be globally recognized leading steel pipe company
-19-
Construction Industry (Const. Pipes & Profiles)
Forthcoming projects in housing, building, superstructures will continue to create
demand in Turkey.
• Assuming that the macroeconomic stability will
persist, growth in construction sector will
continue but probably with a diminishing
marginal growth rate.
Const.
GNP
% Change on yoy basis
25%
20%
15%
10%
5%
-10%
-15%
Macroeconomic crisis in
2001 severely affected
the construction industry
and recovery took place
with a time lag of 2
years.
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
95
-5%
19
96
0%
• In scope of the IX. State Development
Programme, expected growth rate for
construction industry is set under 3 scenario for
next decade.
– Optimistic (EU Membership)
10,7% CAGR
– Base Case
7,8%
– Worst Case
5,4%
• Apart from the increasing business activity in
Turkey, considerable amount of projects run
by Turkish constructors in abroad.
• Total project size undertaken by Turkish
constructors has increased 65% CAGR
between 2003 to 2005.
To be globally recognized leading steel pipe company
-20-
Automotive Industry (Special Pipes)
Turkey becomes a production base for automotive industry, positively affects
special pipe sales
• According to OICA, total of 20,8mn units of motor
vehicles was produced in Europe, representing 4%
increase over previous year.
• Germany represents 27% of total production,
followed by France 17% and Spain 14%.
Application Areas
Application Areas
•
Automotive main industry
•
Shock absorber manufacturers
•
Drive shaft manufacturers
•
Car seat manufacturers
•
•
• According to TUIK data, vehicle production is listed
as one of the fastest growing industry in Turkey with
33% CAGR since 2001.
Vehicle Production in Turkey
Other Vehicles
Automobile
140.000
700000
120.000
600000
100.000
500000
80.000
400000
60.000
300000
40.000
200000
20.000
100000
Axle manufacturers
Air cylinder manufacturers
•
Rubber – metal parts manufacturers
•
Hydraulic equipment manufacturers
0
To be globally recognized leading steel pipe company
Pickup
Bus
Minibüs
Tractor
Automobile
0
2001
OICA = Organisation Internationale des Constructeurs D’Automobiles
Truck
2002
2003
2004
2005
TUIK = Turkish Statistical Institute
-21-
BMB’s Response to Market Drivers
To be globally recognized leading steel pipe company
-22-
Strategic Targets
Considering market drivers, BMB identified its 2010 strategic targets
Be a 1bn $ company
2006 :
~525 mn $ company
Be 1 mn ton company
2006 :
~700k ton company
EBITDA > 11%
2006 :
~9%
PBT > 7%
2006 :
~7%
ROIC > 14%
2006 :
~9%
50% of sales outside Turkey
2006 :
~34% (volume based)
20% of production outside Turkey
2006 :
only 20k ton in Vobarno
Market Share: 1/3 of each market segment in Turkey
2006 :
~33% (overall)
Achieve >4 Sigma levels on all key customer processes
Achieve corporate culture enhancement targets
To be globally recognized leading steel pipe company
-23-
Growth Path
BMB’s investment plan is the integral part of its 2010 strategic plan
Vision
To be a globally recognized, leading steel pipe company
Mission
Be a preferred supplier while growing in each segment and provide sustainable profit to
stakeholders
Be A Preferred Supplier
• Improve customer focus and
regional business intelligence in
Turkish steel pipe market
Grow in Each Segment
Provide Sustainable Profit
• New investments in high value add
product lines
• Attract, retain and develop key and high
potential employees
• Diversify and strengthen Oil & Gas
market penetration
• Optimize use of assets and processes for
operational efficiencies
• Keep market shares at target level
• Secure consistent flow of best buy raw
material with minimum cost
• Oil & Gas
Industry
• Spiral Pipes
• Turkey, North Africa,
Middle East, CIS, Europe
• Be a major player in Oil & Gas
market
• Automotive
Industry
• Special Pipes
• Turkey, Europe
• Secure mother pipe supply
• Pressure Pipes
To be globally recognized leading steel pipe company
• Increase market share
-24-
Investment Steps
BMB has already initiated capacity investment plans to cultivate market
opportunities
1. 200
STEP-by-STEP GROWTH PLAN
K Tons
1.000
1. 050
900
750
750
50
50
50
HIGH VALUE ADD
PRODUCT LINES AND
Forthcoming
Investment Plans
MARKET SEGMENTS
600
WILL BE IN-SCOPE FOR
450
FORTHCOMING
300
INVESTMENT PLANS
150
0
Current
Capacity
Start up date
Location
Turkey
Step1
Step2
Step3
2007Q1
2007Q3
2008Q3
Turkey
Turkey
Spain
2010 Target
Achieve over
1mn tons of
sales volume
• INVESTMENT COST IS ~40MN$
• EXPECTED TURNOVER AT
Welding
Spiral 150k ton
ERW 600k ton
Product
Coverage
Line pipe
Line pipe
Water Pipes
Pressure Pipes
Precision pipes
Special Pipes
Construction Pipes
Spiral
ERW
Spiral
Mother pipe
production for
special pipes
Line pipe
FULL CAPACITY IS ~140MN$
• EXPECTED EBITDA
To be globally recognized leading steel pipe company
CONTRIBUTION IS ~25MN$
-25-
1) Spiral Pipe Investment - Izmit Plant
Capacity restriction in Izmit plant eased; more flexibility in tendering linepipe
projects in target markets.
• Major natural gas and oil pipelines in Turkey have
been completed or tendered so far. However,
–A stable demand at ~300k tons/year exists for
the construction of loop lines between cities
and ERW linepipes within the city border limits.
–Sizable demand is located in developing
regions such as North Africa and Middle-East.
New capacity commissioned by
2007Q1.
Follow Up Projects
North Africa
Turkey
Iran
Lybia-Egypt
Jordan
Algeria
Syria
Grand Total
Breakdown of Spiral Pipe Sales (k tons)
Export
Domestic
21
33
57
61
2004
2005
85
106
38
39
2006
2007B
• In line with the business strategy, BMB increased its penetration into export
markets but with a limited spiral pipe production capacity of 100k tons in Izmit
plant.
Potential demand for spiral pipes in
target markets.
PROJECT POOL
Hot Projects
Algeria
Iran
160
140
120
100
80
60
40
20
0
Project size (mn tons)
1.7
0.4
2.1
2.9
0.4
0.3
0.3
0.3
0.1
0.1
4.4
6.5
• Considering the high demand and brand recognition in international markets,
BMB comissioned a spiral pipe production line with a capacity of 50k tons by
2007Q1.
• Sales profile of the additional capacity will be approx. 80% water and gas
linepipes and 20% piling pipes, serving mostly for the potential projects in North
Africa, Middle East and Turkey.
• Total investment cost is ~7mn$ against total contribution to turnover by
~43mn$ and EBITDA contribution by ~9mn$ at full capacity utilization in
2008.
To be globally recognized leading steel pipe company
-26-
2) Special Pipe Upstream Integration - Gemlik Plant
BMB will become one of the top notch mother tube producer in Europe while
increasing pressure pipe sales at the same time.
• The investment is classified as an upstream investment and brings a competitive
advantage to BMB in mother tube production, which is required to produce drawn tubes.
HRC
Mother
Tube
+50k tons
new capacity
Drawn
Tube
Industry
Automotive
(Turkey, Europe)
Customers
• Drawn tubes are high value add “special pipes” with strict dimension tolerances, high
surface quality and special mechanical property requirements.
• Apart from having flexibility and efficiency in mother tube production, new investment
will ease capacity bottleneck in existing lines.
• As the demand in natural gas market is increasing in Turkey, current SRM* capacity is
overbooked in producing natural gas pipes, mother pipes and OCTG pipes. Therefore,
the investment will create more room to grow in high value add natural gas market
where the demand is consistently growing.
OEMs, Component
Manufacturers, Service
Centers
• Production line is expected to be commissioned by 2007Q3
in Gemlik plant and will bring an additional 50k tons p.a. at
full capacity.
Application Areas
Shock absorbers, Drive
shafts, Axle components,
Camshafts, Anti-vibration
parts, Steering systems,
Hydraulic cylinders,
(pneumatic/telescopic),
Airbag components,
Stabilizers, Gas springs
*SRM = Stretch Reduced Mill
A new production hall is
constructed in Gemlik plant
To be globally recognized leading steel pipe company
• Total investment cost is forecasted as ~15 mn$, including
machinery/equipment, building and commissioning costs,
against total contribution to turnover by ~40 mn$ and to
EBITDA by ~6 mn$ as of 2008.
-27-
3) Spiral Pipe Investment - Espana Plant
BMB positioned Iberian peninsula as one of the target markets.
• Large gasification plan being rolled out by Enagas will drive potential demand in
gas line pipes. On the other hand, development plan along the Mediterranean
coast in the next 3-5 years, based on the construction of several desalinization
plants and connections with water reservoirs will create further demand.
• Considering the positive demand outlook in Iberian peninsula, BMB has decided to
be a local producer in Spain to gain competitive advantage.
• A spirally welded pipe mill, having 50k tons of capacity, will be commissioned by
2008Q3 in Hellin, South East of Spain.
• BMB and Socotherm created a strategic alliance where BMB will own a spiral pipe
manufacturing plant next to Socotherm Coating Mill in Hellin which will provide
exclusive coating service to BM Espana SA, newly incorporated subsidiary of
BMB.
Land improvement activity in
Hellin, Spain
• Investment is expected to deliver ~60mn$ turnover at maximum capacity of 50k
tons and 15% EBITDA margin against ~16mn$ of total investment cost.
• The capacity of the greenfield investment in Spain shall be increased to 100k tons
considering the growth potential of line pipe market.
To be globally recognized leading steel pipe company
-28-
Share Performance
To be globally recognized leading steel pipe company
-29-
Market Performance
BRSAN is highly correlated with ISE 100 with average Mcap of 220mn$ in last six
months.
BRSAN MCap vs ISE 100
mn$
Index
40,00
Correlation between BRSAN and ISE 100 = 0,85
300
March-to-June 2007
~25% increase in ISE-100
35,00
250
~11% increase in BRSAN
30,00
200
25,00
150
20,00
15,00
100
10,00
50
To be globally recognized leading steel pipe company
Max. ~240mn$
Average ~220mn$
n07
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Min. ~197mn$
5,00
BRSAN Mcap mn$
ISE 100 $
0
Ju
Mcap in 2007
-30-
http://www.borusan.com
http://www.borusanmannesmann.com
bmb.investor@borusan.com
Investor Relations
• Mr. Kagan ARI
To be globally recognized leading steel pipe company
kari@borusan.com
BMB IR Contact
-31-
Disclaimer
Forward-Looking Statements
Statements in this presentation describing the Company’s objectives, projections, estimates,
expectations may be “forward looking statements” within the meaning of applicable securities laws
and regulations. Forward-looking statements might be identified by the words “believe”, “expect”,
“anticipate”, “target” or similar expressions. Although Company’s management believes that the
expectations reflected in such forward-looking statements are reasonable, investors are cautioned
that forward-looking information and statements are subject to numerous risks and uncertainties.
Actual results could differ materially from those expressed or implied. Important factors that could
make a difference to the Company’s operations include, among others, economic conditions affecting
demand, supply and price conditions in the domestic and overseas markets in which Company
conducts business transactions, changes in Government regulations, tax laws and other incidental
factors.
To be globally recognized leading steel pipe company
-32-