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Apres padrao mrsa_2_q10_eng

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  • 1. Presentation to Investors Second Quarter, 2010
  • 2. Industry Overview 2 Refractories are heat-resistant materials manufactured in a wide variety of compositions and shapes according to their application. Raw Material Products Application Main Consumers Worldwide Steel 70% Cement 7% Ceramic 5% Non-ferrous 5% Glass 4% Chemical 4% Others 5%
  • 3. Steel industry: represents 85% of Magnesita s revenues Industry Overview BLAST FURNACE Refractories: Alumina and Alumina-silicon Refractory Volume: 900 tonnes Life Expectancy: 15 years CONVERTER Refractories: Magnesia-carbon and Magnesia Volume: 800 tonnes Life Expectancy: 6 months CONTINUOUS CASTING Refractories: Alumina graphite tubes and Magnesia Volume: 25 tonnes Life Expectancy: 10 hours ELETRIC ARC FURNACE Refractories: Magnesia and Dolomitic Volume: 120 tonnes Life Expectancy: 1 month TORPEDO CAR Refractories: Alumina-carbide-carbon Volume: 200 tonnes Life Expectancy: 2 years STEEL LADLES Refractories: Dolomitic, Magnesia-carbon and Magnesia Volume: 70 tonnes Life Expectancy: 1 month
  • 4. 4 Cement industry: represents 10% of Magnesita s revenues Industry Overview Rotary Kiln Clinker Cooler Preheater Tower ROTARY KILN Refractories: Magnesia-sipnel, Alumina and Alumina-silicon Volume: 250 tonnes Life Expectancy: 10 months PREHEATER TOWER Refractories: Alumina and Alumina-silicon Volume: 1,000 tonnes Life Expectancy: 5 - 10 years CLINKER COOLER Refractories: Alumina and Alumina-silicon Volume: 500 tonnes Life Expectancy: 1 - 3 years
  • 5. Industry Overview Consumer Market 5 Source: Magnesita s Marketing Intelligence and World Steel Association Steel Production Cement Production World Refractories Market: 23 MM tpy Refractories for Steel Market: US$ 15.7 billion Refractories for Cement Market: US$ 2.2 billion 1 tonne of Steel = 12 kg of Refractories 1 tonne of Cement = 0.6 kg of Refractories Global Production Total China World (Ex-China) Crude Steel & Cement Production (million tonnes) 365 344 267 372 350 324 2007 2008 2009 Europe + CIS 761 771 776 2,047 2,119 2,207 2007 2008 2009 Asia 490 500 568 861 829 652 1,351 1,329 1,220 2007 2008 2009 Global Steel Production
  • 6. Company Overview Company s Highlights Largest and purest magnesite reserves in the world; High level of self-suficiency in raw materials; One of the lowest cost producer in the world; 3rd largest player in the refractory sector worldwide with a 5.4% market share; Exclusive and innovative cost per performance business model (CPP); International state of the art technology; Strong management team and corporate governance practices. EBITDA Margin 18.9% 2009 Financial Highlights EBITDA R$ 365.0 million Net Revenues Net Debt R$ 1,414.8 million R$ 1,926.6 million Shareholding Structure as of June 30, 2010 GP 38.5% RHONE 8.1% GAVEA 3.6% FOREIGNERS 18.5% INDIVIDUALS 13.1% INVESTMENTS FUNDS AND CLUBS 11.9% BROKERS/BANKS/ DISTRIBUTORS 4.6% OTHERS 1.7% Controlling Group = 50.2% TOTAL SHARES = 258,211,934 Others = 49.8% Market Cap. R$ 3.7 billion (as of Dec 31th, 2009) 6
  • 7. Company Overview Management Team Strong Corporate Governance Practices 7 Board of Directors Recent Management Achievements Fersen Lamas Lambranho - President Marcio Tabatchnik Trigueiro Director Octavio Pereira Lopes Director Robert Frank Agostinelli - Director Thiago Emanuel Rodrigues - Director Nelson Rozental - Director Fabio Alperowitch - Independent Director Bernardo Guimarães Rodarte - Independent Director Reduction in workforce; Aggressive reduction in fixed costs; Accelaration of synergy processes; Reduction in working capital; Adoption of a meritocratic remuneration model. Listed at Bovespa s Novo Mercado Two independent board members Independent board of auditors High Disclosure Standards Arbitration Panel for Corporate Conflicts VP Finance Flávio Barbosa VP Commercial Mauricio Pinho VP Operations David Gregory Global Director People & Target Management Otto Levy VP Finance Flavio Barbosa VP Commercial Mauricio Pinho VP Operations David Gregory COO South America Wagner Sampaio COO North America Jim Piraino COO Europe Peter Estermann COO Asia Deilson Tibo Global Director People & Target Management Otto Levy Global Director R & D Luis Rodolfo CEO Ronaldo Iabrudi
  • 8. 8 Company Overview Magnesita has a global presence, with plants in four continents and a strong presence in high-growth markets such as China and Latin America. Magnesita International Footprint 28 industrial facilities; 8,093 employees and contributors worldwide; It owns one of the largest reserves of magnesite and dolomite with the highest grade worldwide. Production Capacity ( 000 tonnes per year) Magnesite Sinter Dolomite Sinter Refractories Brazil 320 30 550 Argentina - - 40 USA - 200 256 Belgium - 180 - France - - 127 Germany - - 337 China - 65 108 Taiwan (**) - - 16 TOTAL 320 475 1,434 ** considering JV with Envoy
  • 9. Company History 9 Over 70 years of experience in the refractories business * Note: Novo Mercado is a listing segment of the São Paulo Stock Exchange designed for companies that voluntarily undertake to abide by corporate governance and disclosure practices in addition to those already required by Brazilian Law and the CVM. 1939 Foundation: Magnesita Ltda. was established after the discovery of a large amount of magnesite in Brumado (Bahia State) 1944 The beginning of industrial operations 1969 Listing: Company IPO on the São Paulo Stock Exchange (BOVESPA) 1990 CPP: following the collapse of import tarriffs for refractories in Brazil, Magnesita created a revolutionary business model, CPP Cost per Performance 2007 Control Change: GP and Gavea acquired control of Magnesita S.A., held two tender offers and purchased shares in the market 2008 April: Novo Mercado* listing September: LWB acquisition at a value of 657 MM 2009 Capital Increase: In October, the controlling shareholdres approved a R$ 350 million-capital increase, of which BNDES took part 2010 March: bond issue of US$ 400 MM denominated notes with semiannually payble fixed interest of 7.875% per annum and maturity date in 2020
  • 10. Company s Strategy 10 Leverage solution-based model Maximize economic value of mineral reserves Seek to further cost reduction Pursue global growth opportunities
  • 11. Maximize Economic Value of Mineral Reserves 11 BRUMADO MAGNESITE MINE Magnesite Reserves Dolomite Reserves YORK DOLOMITE MINE 25 million tonnes of reserves; Expected life: 50 years SINTERCO DOLOMITE JV 31 million tonnes of reserves; Expected life: 50 years QINGYANG DOLOMITE MINE 18 million tonnes of reserves; Expected life: 50 years. Port of Aratu RAW MATERIALS HIGHLIGHTS High quality reserves; Geographically diversified locations, with presence in 3 continents; High level of self-suficiency in raw materials; Efficient infrastructure for export to U.S. and European markets; Low raw material cash costs. 560 km 920 km 830 million tonnes of reserves; Brumado s mine is the only one in the world that allows the economical production of98.3%-grade DBM; Expected life: 200 years; The mine is connected to the port of Aratu by the FCA railway.
  • 12. Leverage Solution Based Model (CPP) The concept of the solution based model is that customers are not charged per tonne of refractory consumed but by tonne of output in each equipment, aligning Magnesita s and customers interests. Initial Issues CPP Activities Customers Results Low equipment productivity due to frequent stoppage for refractory replacement; High energy consumption; High refractory costs. Process monitoring, process engineering, chemical and thermodynamics analysis Post mortem analysis in the lab, technical research, experiments, simulations, product development Projects, inventory management, instalation, refractory recycling Improvement in the equipment productivity: ü Increase refractory life ü Increase asset availability and therefore the final output Reduce energy loss: ü Less equipment stoppages for cooling and reheating Reduce CapEx by reducing the need to invest in new equipment and inventory; Magnesita s Benefits Revenue growth: (i) revenues linked to customers productivity. (ii) full product portfolio; High EBITDA margin: (i) longer refractory life. (ii) less refractory use; Stronger barrier to competitors: ties with key customers. 12
  • 13. Leverage Solution Based Model (CPP) 13 6 USA/Canada Ecuador China 1 2 1 UK 2 Germany 2 Brazil Chile Peru 1 4 1 4 Mexico New contracts in 2Q10: 1.ELG Haniel Metals, UK 2.ThyssenKrupp Beeckerwerth, Germany 3.Customer´s name under confidentiality, Germany 4.TISCO, China 5.Jiaxing Eastern Special Steel, China In 3Q10, the Company was chosen by four North American steel mills as a refractory supplier under the CPP model. 23 new CPP contracts have been originated until June 2010 under the current Management. CPP Contracts since 2008
  • 14. Fragmented market; High value creation in raw material synergies in consolidation opportunity; Leverage its mineral reserves; Replicate its unique and innovate solutions based model into new markets; Diversification into other industrials segments: glass, non-ferrous, petrochemical, paper, etc. Pursue Global Growth Opportunities 14 Magnesita s Market Share by Region (based on revenues) Refractory Market Share (based on 2009 revenues) Source: Magnesita Estimates. Growing Organically Consolidation Opportunities Expose to high growth markets (China and Brazil); Gain market share in mature markets (North America and Europe): ü Compete with a different business model ü Leverage its low raw material cost ü Joint ventures with strategic players 67% 13% 7% 0.3% 56% 19% 6% 0.5% South America North America Europe + Middle East Asia Steel Cement Source: Magnesita Estimates RHI 9.5% Vesuvius 9.4% Magnesita 5.4% Shinagawa 5.0% Krosaki 3.7% Saint-Gobain 3.4% Others 63.6%
  • 15. Seek to Further Cost Reduction Reduce SG&A Costs Achieve 90% of self- sufficiency in raw materials (alumina and graphite); Management model with high cost discipline; Variable remunerations linked to the goals of cost reduction. Reduce Manufacture Costs Peers Revenues and EBITDA Margin Reduction in workforce; Streamline corporate structure; Agressive reduction in fixed costs; 2009 REVENUES USD MM 2009 EBITDA Margin % MARKET CAP. (as of 12/31/09) USD BI RHI 1,717 9.3 0.9 Vesuvius 1,687 8.7 1.9 Magnesita 966 18.9 2.1 Krosaki 664 7.6 0.4 15 * The size of the balls indicate Market Cap. as of Dec 31, 2009 0 500 1000 1500 2000 2500 3000 0% 5% 10% 15% 20% 25% 2009Revenues-USDmillion 2009 EBITDA Margin % RHI Vesuvius Magnesita Krosaki
  • 16. 71.6 110.1 138.8 123.1 119.5 15.8 22.8 25.8 21.8 21.7 10 15 20 25 30 35 40 0 20 40 60 80 100 120 140 160 2Q09 3Q09 4Q09 1Q10 2Q10 EBITDA - R$ million EBITDA Margin % Financial Performance Gross Profit and Gross MarginRevenues R$ million EBITDA and EBITDA Margin 39.7% 45.8% 41.3% 45.9% 47.6% 60.3% 54.2% 58.7% 54.1% 52.4% 2Q09 3Q09 4Q09 1Q10 2Q10 Domestic Market Export Market 454.2 483.6 537.7 565.9 551.7 144.2 169.7 183.6 196.2 199.2 31.8 35.1 34.1 34.7 36.1 30 32 34 36 38 40 42 44 0 50 100 150 200 250 2Q09 3Q09 4Q09 1Q10 2Q10 Gross Profit - R$ million Gross Margin % 16 110.5 108.4 19.5 19.7 19,2 19,7 20,2 90 95 100 105 110 115 1Q10 2Q10 Adjusted EBITDA R$ million EBITDA Margin % Adjusted EBITDA and Adjusted EBITDA Margin
  • 17. Indebtedness Net Debt R$ millionDebt Profile R$ million Debt Amortization Schedule R$ million Financial Indicators ST 15.3% ST 11.8% LT 84.7% LT 88.5% 1,491.0 459.8 Gross Debt 06-30-2009 Gross Debt 06-30-2010 Cash Net Debt 2,174.5 1,950.8 1,919 1,434 1,415 1,413 1,491 6/30/2009 9/30/2009 12/31/2009 3/31/2010 06/30/10 223.8 20.9 29.2 331.0 323.1 321.5 701.3 2010 2011 2012 2013 2014 2015 2020 5.6 5.5 3.9 3.2 3.0 4.3 2.6 1.8 1.4 1.8 2Q09 3Q09 4Q09 1Q10 2Q10 Net debt/EBITDA EBITDA/Finacial expenses + Monetary/Exchange Variations/Forex Liabilities * EBITDA in the last 12 months 17
  • 18. 18 Investments in Brumado Investments of R$ 220 million are planned to increase capacity in the Brumado mines over the next 3 years, aimed at securing the Company's future demand for magnesite sinter. This project is part of a multi-annual investment plan designed to increase the magnesite sinter (M30) production capacity in two phases of 60,000 metric tons/year, totaling 120,000 metric tons/year in 3 years. Our current M30 sinter production capacity is 180,000 metric tons per year. This investment will allow the Company to grow along with the Brazilian market, while keeping high service levels. Capital Expenditures
  • 19. Stock Performance 19 Coverage of major banks: Itau, Credit Suisse, BTG Pactual, Merrill Lynch, Santander, Barclays, Deutsche Bank and Safra. Share Performance (Last 12 months) 31% 18% 95 115 135 155 175 195 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Mar-10 Apr-10 May-10 Jun-10 June30th,2009=100 MAGG3 IBOVESPA
  • 20. Strategic Highlights 20 Strong management team and corporate governance practices Fast global growth platform Low cost producer - High level of self- sufficiency in raw materials High margin integrated business model Unique innovate solution based model
  • 21. Flávio Rezende Barbosa Chief Financial and Investor Relations Officer Adriana Fernandes Lana Investor Relations Manager Phone: (+55 31) 3368-1069 Lucas Lima Ferreira Investor Relations Analyst Phone: (+55 31) 3368-1068 ri@magnesita.com www.magnesita.com/ri 21
  • 22. Appendix A: Production Process
  • 23. Production Process
  • 24. Production Process RAW MATERIAL S SILO WEIGHING MIXER PRESS PILE IN BURN CARS HOT AIR DRYER TUNNER KILN UNLOAD PILE TO PLATE CUT AND MILLING MACHINE SELECTION AND PACKING MILL SINTER S BAY CRUSHER

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