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Krakatau Steel
Krakatau Steel
Management Presentation
October 2016
Table of Contents
1. Company Overview 2
2. Growth Strategies 16
3. Financial Highlights 21
Attachments
1
Section 1
Company Overview
2
Brief Overview
PT Krakatau Steel (Persero) Tbk (“KS” or the “Company”) is the largest steel
producer in Indonesia with over 46 years of experience in the steel industry and total
rolling capacity of 3.15 million tons per annum (mtpa)(1). The Company is 80% owned
by Government of Indonesia and 20% by public
- #1 in hot rolled coil (“HRC”) and cold rolled coil (“CRC”)
- #2 in wire rod (“WR”)
• The Company has planned to increase its total rolling capacity by 47.62% to 4.65
mtpa with an additional capacity of 1.5 mtpa through the construction of Hot Strip Mill
#2 by 2019
• The Company’s integrated upstream and downstream production facilities with VISION
supporting infrastructure are strategically located in Cilegon, Banten province with An integrated steel company with competitive
convenient access to raw materials and customers edges to grow continuously toward a leading global
• The Company has formed strategic partnership with the world’s leading steel enterprise
companies:
MISSION
- Posco (South Korea): joint venture (JV) establishment of PT Krakatau Providing the best quality steel products and related
Posco(2), an integrated steel producer with a capacity of 3.0 mtpa services for the prosperity of the nation
- Nippon Steel Sumitomo Metal Corp. (Japan): JV establishment of PT
Krakatau Nippon Steel Sumikin(3), a steel manufacturer for automotive
industry with a capacity of 500,000 tpa
- Osaka Steel Co., Ltd. (Japan): JV establishment of PT Krakatau Osaka
Steel(3), a producer of steel bars and sections with a capacity of 500,000 tpa
• The Company has grown its asset by over 11% CAGR 2011-2015 with its 11
subsidiaries and 15 associated entities (including JVs) and increased its steel
sales volume significantly by 40% Year-On-Year (YoY) in 1H2016
(1) Existing total rolling capacity of Hot Strip Mill (2.4 million ton), Wire Rod Mill (0.45 million ton), Bar Mill (0.15 million ton), and Section Mill (0.15 million ton), excluding JV’s rolling capacity
(2) KS owns 30% of the JV; (3) KS owns 20% of the JV
The first and largest integrated steel producer in Indonesia with leading
domestic market share
3
Key Milestones
Port Expansion to 25 mtpa
handling capacity
Commercial operation of:
Expansion of - ERW #2: 150,000 tpa
Section Mill to - KDL CCPP 120 MW
150,000 tpa Revitalization
of HSM (2.4 mtpa)
Completed Modernization
expansion of of HSM (2.0 mtpa)
Wire Rod Mill to
0.45 mtpa
2014 2016
Commercial operation of:
- Slab Steel Plant I (1.0 mtpa) 2011 2013
2010
- HSM (1.0 mtpa) 2005
2003
Commercial operation of: 2001
- Bar Mill (150,000 tpa) 1997
Commercial operation
- Section Mill (45,000 tpa) 1993 Optimization of: IPO
of PT Krakatau Posco
- CRM (3.0 mtpa)
1983 Started construction of
- HSM
Expansion of HSM #2 (1.5 mtpa)
PT Krakatau Steel 1978
established - Direct Reduction Plant (1.3 mtpa)
1975 - Slab Steel Plant II (0.8 mtpa)
- HSM (1.8 mtpa)
Integrated Operation of KS
- DR Hyl I (2.0 mtpa)
1970 - Billet Plant (0.5 mtpa)
- Wire Rod Mill (0.22 mtpa)
Note: mtpa: million tons per annum
- Coal-fired Steam Power Plant & Port
4
Business Portfolio
Raw Material Ironmaking Steelmaking Rolling Down Stream
Raw Material Sponge iron Steel Profile & Pipe
Steel Business
1. Flat Product
(Steel Slab, HRC/P, CRC/S)
Electricity Port Service Industrial Water IT Service Health Care Industrial Estate EPC
Provider Provider Provider Provider Service Provider Company
PT Krakatau Posco
Slab Steel Plant Steel Slab Plate Mill
Plate
3.0 mtpy 1.5 mtpy
Hot Rolled
4x130 ton 2xLF 2xCCM Coil/Plate
Blast
Furnace Steel Wire
Billet Rod
Billet Steel Plant Wire Rod Mill
0.65 mtpy 0.45 mtpy
Wire Rod
Bars & Sections
4x60 ton 1xLF 2xCCM
0.2 mtpy Bars &
Undergoing
Sections
2x150.000 ton
6
Leadership in the Indonesian Steel Market
HRC CRC WR
Market share in Indonesia
17% 33%
20%
29% 11%
43% (10%)*
(39%)* (29%)*
#2
(1H2016)
#1 #1
54% 55%
37%
7
Advantageous Pricing over Imports
USD/ton
100 78
Dominant
Economies of scale in production
position and
customer Negotiating power with our suppliers and
0
relationships customers due to our size 2013 2014 2015 1H2016
Note: (1) Defined as KS HRC domestic selling price less Far East import HRC price
and excludes duties and freight
2013: US$681-US$572
Fair trade practices when necessary
2014: US$649-US$520
Re-registration of steel importers 2015: US$493-US$338
1H2016: US$426-US$348
Support for Indonesia National Standard (SNI) certification (2) Breakdown of 2015 imports by region: Japan (39%), South Korea (32%), and
Presidential decree that encourages the Source: CRU Strategies, Company data
KS enjoys favorable pricing due to its competitive advantage and strong Government support
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Integrated Production Facilities Across Value Chain
94 km from
Jakarta via
Toll road
Rail
KS
Product Diverse end-markets Strong sales proportion (1) Low customer concentration
End-markets Proportion of total steel sales in 1H2016 Top 5 customers of total steel
sales in 1H2016
HRC Automotive
Mechanical engineering and
boiler pressure vessels
A
General structure
9%
Oil and gas pipes B
Shipbuilding 5% C
Stockist & Coil 5%
Center D
34% 4%
Automotive Manufacturing All other
CRC E
Company customers
Coil Centers 66%
7%
70%
Drum
Pipes, tube packaging, tin
plates
Home-office appliance
Enamel
Galvanized steel sheet
Wire Automotive
Appliances Sales volume: 1.17 million tons
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
10
Global Steel Price (Hot Rolled Coil)
Hot Rolled Coil; CFR East Asia (USD/ton)
1200
Jul-08; 1090
1000
800
600
Sep-16; 400,5
400
Steel price hit a lowest point at December 2015, but start to increase since beginning of 2016
11
Performance of Chinese Steel Mills
Chongqing (922)
Maanshan (740)
Angang (708)
Xinjiang Ba Yi (387)
Shagang (12)
Lingyuan 7
Baosteel 156
51% of Chinese steel producers suffered losses Chinese HRC export price lower than its
in 2015. Total losses reached USD 12.6 billion production cost (Operating Cost). At August
(WSD, Inside Track 146, 2016). 2015, the difference reached USD 60 per ton.
Low steel prices have an impact on the loss of Chinese steel mills
12
Indonesia’s Steel Demand
Indonesia’s Real GDP (billion USD) Finished steel consumption in Indonesia (mn ton)
Source: World Bank Source: South East Asia Iron & Steel Institute
Consumption Import
Imports 46% 55% 61% 63% 65% 57% 61%
2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015
Demand for infrastructure Infrastructure, including among others, toll-road, airports, seaports, bridges, and ship building
High population density Steel intensive construction, including among others, residential and non-residential buildings, high-rise buildings
Energy sector Power plant, electric transmission and oil & gas development projects
13
Per Capita Steel Consumption
Lower steel consumption per capita compared to other Indonesia set to enter a highly “steel-intensive”
selected ASEAN countries phase of growth
Steel consumption per capita in 2014 (kg)
889,8
Kg per Capita
GDP per Capita
391,9
297,4
181,7
85,9
60,8
Source: World Steel Statistic (2015) Source: World Steel Statistic (2015), World Economic Outlook
Steel consumption per capita typically increases with higher overall economic growth
14
Government Support for Indonesia Steel Industry
Gas Price PP No. 40, 2016 and PM ESDM No. 16, 2016
Policy Steel industry is among industries which benefit from a more favorable gas price policy
Supply of 200,000 tons/year of steel for the construction of 46,000 km power transmission circuits in
5 years (Decree of Minister of Industry No. 15/M-Ind/Per/3/2016). First shipment was made on 26 Oct
2016.
Supply of 250,000 tons/year of steel for the construction 36 km of Jakarta - Cikampek elevated toll
road
SOEs
Supply of corrugated steel for the planned construction of flyovers along 8,000 rail-road intersections
Synergy in several cities in Java island
Steel supply for State-Owned Enterprises (SOEs) projects: Kuala Tanjung Port - Medan (Pelindo I),
Celukan-Bali and Banyuwangi Ports (Pelindo III), and construction of Unloading Port (Pelindo I)
Steel supply for SOEs in heavy industry and shipbuilding sectors in relation to the National
Shipbuilding and Heavy Industry Forum, i.e. PAL, DPS, DKB, IKI, Barata Indonesia, BBI
Capital injection by the government (PMN) of Rp 1.5 trillion as stipulated in Law No. 12/2016
Funding
regarding revision of Law No. 14/2015 regarding 2016 state budget (APBN 2016)
The government provides strong support for the growth of domestic steel industry
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Section 2
Growth Strategies
16
Capacity and Competitiveness Improvement
Completion
Program Additional Capacity Project Cost
Schedule
1 HSM #2(1) 1.5 million ton HRC USD 505 million 2019
Capacity
Improvement 2 Push Pull Pickling Line 0.6 million ton HRPO 2018
USD 52 million
3 Reversing Mill 0.4 million ton CRC 2018
4 PT KOS(2) 0.5 million ton Bar & Section USD 220 million 2016
Completion
Program Lower Production Cost(3) Project Cost
Schedule
1 Blast Furnace 58.2 USD per ton HRC USD 716 million 2016(4)
Competitiveness
2 Coal-fired Boiler 2x80 MW 5.5 USD per ton HRC USD 102 million 2019
Improvement
3 Coal-Fired Steam Power Plant 1x150 MW(1) 5.0 USD per ton HRC USD 175 million 2019
4 HSM #2 7.2 USD per ton HRC USD 505 million 2019
(1) Part of the project cost will be funded by 2016 Rights Issue proceeds
(2) PT Krakatau Osaka Steel, JV with Osaka Steel Co., Ltd. in which KS has a 20% share
(3) PricewaterhouseCoopers report (PwC), 2015
(4) Start operating/first blow-in
Focus on capacity expansion and competitiveness improvement to meet increasing steel demand
and to face increasingly stiff competition
17
Increased Value-Added Products and Non Steel Business
(1) PT Krakatau Nippon Steel Sumikin, JV with Nippon Steel Sumitomo Metal Corporation (NSSMC) in which KS owns a 20% share
(2) PT Krakatau Semen Indonesia, JV with PT Semen Indonesia (Persero) Tbk in which KS owns a 50% share
(3) By PT Krakatau Bandar Samudera, a subsidiary which is 100% owned by KS
(4) By PT Krakatau Tirta Industri, a subsidiary which is 100% owned by KS
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Roadmap of Cost Efficiency
As-is
1 USD 496/ton
HRC Operating Cost Curve *
900 Blast Furnace
Tier I Tier II Tier III Tier IV 2
800 USD 58.2 / ton
700 3. HSM #2 HSM #2
Q1 15 HRC domestic price
USD 597 / ton USD 430/ton 3
600
5. Coal-firedSteam Power Plant USD 7.2 / ton
USD/ton
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Future Project Development
Hot Strip Mill #2 PT Krakatau Osaka Steel PT Krakatau Semen Indonesia Coal-fired Steam Boiler 2x80MW
Product : Hot Rolled Coil Product : Bar & Section Product : Grinded Blast Furnace Slag Product : Electricity
Capacity : 1.5 million ton per year Capacity : 0.5 million ton per year Capacity : 0.75 million ton per year Capacity : 2x80MW
Progress : Groundbreaking August 2016 Progress : 70.9% (July 2016) Progress : 26% (July 2016) Progress : -
Completion : 1H2019 Completion : End of 2016 Completion : 2017 Completion : 2019
Picture is a 3D model
Blast Furnace PT Krakatau Nippon Steel Sumikin Jetty 7.3 Development Coal-fired Steam Power Plant 1x150MW
Product : Hot Metal Product : Galvanized/Annealed CRC Product : Harbor Service Product : Electricity
Capacity : 1.2 million ton per year Capacity : 0.5 million ton per year Capacity : 1.3 million ton Capacity : 1x150MW
Progress : 96.0% (July 2016) Progress : 52.3% (July 2016) Progress : 7.1% (July 2016) Progress : -
Completion : End of 2016 (FBI) Completion : Mid-2017 Completion : Early 2017 Completion : 2019
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Section 3
Performance Highlights
21
Sales Performance
Steel Sales Volume Market Share
(million tons) (%)
2,3
22.25 1H 1H
1,9 2015 2015 2016
%
1,7
1,4
HRC 38.6 33.9 43.5
(71)
993 1.014 982
844 (118)
(184)
2014 2015 M92015 M92016
Gross Profit (Loss) EBITDA*
(million USD) (million USD)
138
97
41
23
Financial Position
Cash & cash equivalents Total Liabilities
(million USD) (million USD)
2.032
Cash and Cash equivalent 1.914
237
Operating Cashflow
133 1.718
102
21
(2) (74)
2.604
886
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Disclaimer
IMPORTANT: The following forms part of, and should be read in conjunction with, this presentation
This presentation contains privileged information and has been prepared solely for the recipient. By accepting a copy (or the contents) of this presentation, you are deemed to have acknowledged
and agreed to the provisions appearing hereinafter. The existence of this presentation and the contents thereof should not be disclosed, reproduced, copied or otherwise disseminated to any other
person or published, in whole or in part, without prior consent of PT Krakatau Steel (Persero) Tbk. (“KS” or the “Company”)
Unless otherwise stated, the Company is the source for all data contained in this presentation. This presentation is not directed to, or intended for distribution to or use by, any person or entity that is
a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, transmission, publication, availability or use would be contrary to law or regulation or which
would require any registration or licensing within such jurisdiction
This presentation is made solely for information purposes and does not constitute or form part of any offer for sale or invitation, or solicitation of an offer, to subscribe for or purchase any securities
and should not be treated as giving investment advice, and neither this document nor anything contained herein shall form the basis of or be relied on in connection with any contract or commitment
whatsoever. This presentation does not constitute a prospectus or other offering circular in whole or in part. Any decision to purchase or subscribe for securities should be made only on the basis of
the information contained in a prospectus or offering circular issued by the Company in connection with any such offering. This presentation has no regard to the specific investment objectives,
financial situation or particular needs of any recipient.
This presentation contains forward-looking statements that involve risks and uncertainties. Actual future performance, outcomes and results may differ materially from those expressed in forward-
looking statements as a result of a number of risks, uncertainties and assumptions. Although the Company believes that such forward-looking statements are based on reasonable assumptions, it
can give no assurance that such expectations will be met. Representative examples of these factors include (without limitation) general industry and economic conditions, interest rate trends, cost
of capital and capital availability, and competition from other companies. You are cautioned not to place undue reliance on these forward looking statements, which are based on current view of the
management on future events
Information and opinions contained in this presentation are provided for reference of the recipients only and are not to be relied upon as authoritative or without the recipient’s own independent
verification or taken in substitution for the exercise of the recipient’s own judgment. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or
reliability of the information contained herein. Any reference to past performance should not be taken as an indication of future performance. The information contained in this presentation is subject
to changes without notice. In furnishing the presentation, the Company has not undertaken to provide the recipient with access to any additional information or updates. None of the Company or the
banks warrant or guarantee whatsoever that this presentation will lead to the successful completion or consummation of any transactions
Accordingly, the Company and the banks disclaim any liability whatsoever in connection therewith and with any decisions that might be taken upon the basis of this presentation, directly or indirectly.
None of the Company, its affiliates, advisers or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this material or
otherwise arising in connection with this presentation. In particular, the Company and the banks owe no duty to the recipient (except as required by applicable laws) to exercise any judgment on its
behalf as to the merits or suitability of any transaction. This document is not intended to provide and should not be relied upon for tax, legal or accounting advice, investment recommendations or a
credit or other evaluation of any transaction. The recipient agrees that the merits or suitability of any such transaction to its particular situation will be independently determined by the recipient
including consideration of the legal, tax, accounting, regulatory, financial and other related aspects thereof
The recipient of this presentation shall only use the information contained herein solely in the context of the evaluation of the proposals set out in this presentation and not for any other purposes,
commercial or otherwise. Subject to the above, this presentation and the contents thereof are strictly confidential and remains at all times the property of the Company
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Attachments
26
Steel Production Process
Gas-based Route
Scrap Hot & Cold
Strip Car - White
Goods
Pellet DRI
Plate
Iron Ore
Pelletizing Plant Electric Arc
Direct Welded pipes
Furnace - Ships
Reduction
Plant
Liquid Coils
Steel
Slab,
Billet,
Bloom
Hot Rolled
Bar Rebar
Ladle
Coal-based Route Metallurgy
Rolling Mill
Cotinuous
Rods Tire Wire –
Casting
Machine Nut bolt
Lump Ore Liquid
Pellet
Scrap Steel
Tube Rounds
Pelletizing Plant Pipelines
Hot
Fine Ore Sinter Metal
Sintering Plant
Coke Basic Oxygen Structural Profile
Blast Furnace Furnace Shape
Coking Coal
Coke Oven Plant
Rails
PCI Coal
Railway
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Solid and Experienced Management Team
Appointed as President Director since 2015, with over 9 years in KS and 18 years in finance industry
Sukandar
Previously Finance Director of KS since 2007, Director of PT Bahana Pembinaan Usaha Indonesia (SOE), Vice
President Director President Head of Corporate Banking Citibank, Surabaya and head of marketing CIMB Niaga Surabaya
Hilman Hasyim Appointed as Director of Production & Technology since 2012, with over 30 years in KS
Director of Production & Previously President Director of PT KHI Pipe Industries and several positions including GM of Rolling Mill, GM of
Technology R&D, Manager of Product Development, Superintendent of Quality Qontrol, and Engineer in Quality Control of KS
Appointed as Director of HR & Business Development since 2015, with over 28 years in KS
Imam Purwanto
Previously Director of Logistics in KS, President Director PT Krakatau Engineering, Director of Business & Operation
Director of HR & Business PT Krakatau Engineering, and several positions including Manager of Engineering & Procurement and Deputy
Development Manager of Engineering & Procurement Division of PT Krakatau Engineering
Appointed as Director of Logistic since 2015, with over 15 years in logistic & infrastructure industry
Ogi Rulino
Previously Director of PT Portco Infranusantara, General Manager Business Development of PT Nusantara
Director of Logistics Infrastructure Tbk, and Regional Process Leader for ASEAN South PT Mitsui OSK Lines
Appointed as Director of Finance since 2016, with over 19 years in finance industry
Tambok P.Setyawati S. Previously worked in PT Bank Negara Indonesia (Persero) Tbk as SEVP Digital Banking, CEO Region Jakarta-
Director of Finance Kemayoran, CEO Region Semarang, Market Intelligence & Business Portfolio Leader, Project Manager BNI
Reformasi, and Indonesian Ministry of National Development Planning (Bappenas)
Our management possess significant expertise and proven track record in steel and related industry
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Solid and Experienced Management Team (cont’d)
Appointed as President Commissioner in 2016
Binsar H. Simanjuntak Currently serving as Deputy PIP BPKP on Politics, Social, and Security since 2013
President Commissioner Previously Commissioner of KS since 2013, Chair of the Audit Committee of PT Dirgantara Indonesia from 2012 to
2013
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