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- 1. 11 Presentation to Investors Presentationto Investors – 4Q09 Results
- 2. Contents • Company History •Highlights • Refractory Products • Group Profile • Mineral Reserves 2 • Mineral Reserves • Production Process and Capacities • Competition • Key Figures • Competitive Advantages vs. Risks • Stock Performance
- 3. Company History 1939 • Foundation– Magnesita Ltda. was established after the discovery of a large amount of magnesite in the Brumado mines 1969 1990 2007 2008 2009 • Listing – In 1969, Magnesita S.A. was listed on the São Paulo Stock Exchange (BOVESPA). • CPP – Following the collapse of import tariffs for refractories in Brazil, Magnesita created a revolutionary • Control Change – GP and Gávea acquired Magnesita S.A.’s control, held two tender bids and purchased • April. Novo Mercado – After the merger of the controlled companies Magnesita S.A. and Partimag, there was a reverse split of Magnesita • Oct. Capital Increase – The controlling shareholders and BNDES approve a R$350 million capital 3 Brumado mines (Bahia State). • Industrial operations began in 1944 revolutionary business model, CPP - “Cost per Performance” and purchased shares in the market. Magnesita Refratários S.A.’s (formerly Rpar Holding) shares, which have been traded under Novo Mercado rules since then. • September. LWB Acquisition - On 09.08.08, Magnesita Refratários S.A. announced the acquisition of LWB Refractories and became the third largest refractory company worldwide. capital increase. 3
- 4. Highlights Leading Market Position Worldwide VerticallyIntegrated Business Model 1 3 Strong & Experienced Management Team 8 Long Standing Relationships with Blue-Chip Customer Base 2 4 Long-Life of Mineral Reserves with High Quality Solution Based Business Model 4 5 Attractive Industry Dynamics with Significant Potential to Export the CPP model 6 Up-to-date Technology 7
- 5. Group Profile York Valenciennes Flaumont Hilden Oberhausen Hagen Kruft Chizhou Kaohsiung Taiyuan • Theonly fully integrated magnesian and dolomitic refractory producer worldwide, offering refractory solutions for steel, cement and glass production, among others; • 28 manufacturing and mining facilities in four continents, with 7,000 people and over 300 clients worldwide; • Two decades of expertise in the Cost per Performance model, in partnership with the top steel companies worldwide. 5 Brumado Coronel Fabriciano Contagem Ramalho (Arg) - RASA
- 6. Shareholders Composition Profile– 03/31/10 Controlling group GP 38.5% INVESTMENT FUNDS AND CLUBS 12.4% BROKERS/BANKS/ DISTRIBUTORS/ INSURANCE 4.7% OTHERS 1.4% Controlling group = 50.4% RHONE 8.3% GAVEA 3.6% FOREIGNERS 18.2% INDIVIDUAL 12.9%
- 7. Refractory Products • Refractoriesare heat-resistant materials manufactured in a wide variety of compositions and shapes according to their application. Main Refractory Consumers Worldwide 77 Processes above 1,200º C Steel 70% Cement 7% Ceramic 5% Glass 4% Chemical 4% Non-ferrous 5% Others 5% 7
- 8. 1 tonne ofcement = ~ 0.6 kg1 tonne of steel = ~ 12 kg 1 car = ~ 10 kg 1 aircraft = ~ 1.1 tonnes How much refractory is needed to produce: Refractory Products 8 1 tonne of cement = ~ 0.6 kg 8 1 tonne of steel = ~ 12 kg 1 car = ~ 10 kg 1 aircraft = ~ 1.1 tonnes 9,000 tonnes of steel 70,000 m³ of concrete 103,000 m² of glass 2,700 tonnes of aluminium + others Burj Al Arab Hotel = ~200 tonnes 463,000 tonnes of steel 27 millions m³ of concrete Three Gorges Dam Hydroletric= ~11,000 tonnes
- 9. Magnesian Dolomitic Steel production (FBI2001=100) • 34% of the net revenues in 2009 • Composition: 63% of magnesite sinter • Main use: steel production Carbon Steel Specialty Steel 90 190 290 390 490 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 China World (Ex-China) World 200 Refractory – Main Families and Uses Stainless steel production (FBI 2001=100) 99 Aluminous • 35% of the net revenues in 2009 • Composition: 60% of dolomite sinter • Main use: specialty steel production • 21% of the net revenues in 2009 • Composition: 54% of alumina • Main use: cement production Cement 100 125 150 175 200 2001 2002 2003 2004 2005 2006 2007 2008 World Asia 100 150 200 250 300 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 China World (Ex-China) World 9 Cement production (FBI 2001=100)
- 10. 75% 36% After the LWBacquisition The Cost per Performance Model Before the LWB acquisition Opportunity 25% 75% Magnesita + LWB 64% 100% Magnesita LWB 10 Opportunity CPP Volume
- 11. Rationale of TheCost per Performance Model Raw Material Monitoring Costumer Process R&D Center • High-grade raw material M30 Magnesite sinter Dolomite Sinter • Equipment maintenance • Engineering and process management • Logistics & Inventory Handling • Product tests • Continuous improvement • Innovation • Solutions for market demands • High productivity Profitability demands Final Price = Base Price + (∆ x steel produced) • High productivity • Cost reduction • High refractory performance 11
- 12. Refractory – LifeExpectancy (LE) Blast Furnace Torpedo Car Ladle Casting • Amount of refractory: 900 tonnes • LE: 15 years • Amount of refractory: 200 tonnes • Amount of refractory: 70 tonnes • LE: 150 runs (1 month) • Amount of refractory: 25 tonnes 12 Converter Rotary Kiln • Amount of refractory: 200 tonnes • LE: 1,500 runs (2 years) • Amount of refractory: 800 tonnes • LE: 5,500 runs (6 months) • Amount of refractory: 25 tonnes • LE: 10 hours • Amount of refractory: Burning: 250 tonnes Heating: 350 tonnes • LE: Burning: 10 months Heating: 5 years Note: Average values 12
- 13. Mineral Reserves Magnesite 831- - - Dolomite 51 25 31 18 Talc (Magnesite) 2 - - - Chromite 2 - - - Clays 20 - - - Pyrophilite 1 - - - Graphite 36 - - - Mineral reserves (million tonnes) • On average, 3 tonnes of magnesite are needed to produce 1 tonne of M-30 sinter and 4 tonnes of magnesite are needed to produce 1 tonne of M-10 sinter; • On average, 4 tonnes of dolomite are needed to produce 1 tonne of dolomite sinter. Life (years) 55 64 150 8 7 59 185 13 Production Capacity (thousand tonnes/year) sinter. 475 320 60 48 Dolomite Sinter Magnesite Sinter Magnesia Oxide Talc
- 14. Production Process –Magnesite Sinter 14
- 15. RAW MATERIAL’S SILO MIXER PRESS PILE IN BURNCARS SINTER’S BAY CRUSHER Production Process – Burned Refractory WEIGHING HOT AIR DRYER TUNNER KILN UNLOAD PILE TO PLATE CUT AND MILLING MACHINE SELECTION AND PACKING MILL 15
- 16. Production Capacity (1,000tonnes/year) 200 256 USA BELGIUM FRANCE GERMANY CHINA Dolomite Sinter Refractories 127 180 337 Refractories Dolomite Sinter Refractories 65 120 CAPACITY Refractories:1.43 million tonnes Magnesite Sinter: 320 thousand tonnes Dolomite Sinter: 475 thousand tonnes30 320 590 SOUTH AMERICA CHINA Dolomite Sinter Refractories Dolomite Sinter RefractoriesMagnesite Sinter 16
- 17. Steel Production (milliontonnes) 133 125 81 2007 2008 2009E 240 229 168 2007 2008 2009E 749 782 842 North America Europe Asia 17 2007 2008 2009E 861 829 629 490 500 575 2007 2008 2009E World (Ex-China) China 48 48 38 2007 2008 2009E Source: World Steel Association 1,351 1,329 1,204 South America World
- 18. Cement Production (milliontonnes) 93 84 75 2007 2008 2009E 372 350 324 2007 2008 2009E 2,047 2,119 2,207 North America Europe + CIS Asia Source: Marketing Intelligence - Magnesita 2007 2008 2009E 1,563 1,571 1,551 1,360 1,400 1,470 2007 2008 2009E World (Ex-China) China 93 100 100 2007 2008 2009E 18 2,923 2,971 3,021 South America World
- 19. 390 580 594 896 1,597 ANH Shinagawa Krosaki Magnesita RHI Competition Net Revenues 2008(€ million) - Generalists Global Asia/Japan North America Global Asia/Japan Vesuvius 12% RHI 12% Others 53% Market Share Based on Revenues 19 Net Revenues 2008 (€ million) - Specialists 300 300 575 1,730 Minteq Refratechnic Saint-Gobain Vesuvius Note: Revenue figures, except those for Magnesita and RHI, were estimated by Industrial Minerals Global Global Global Global Magnesita 7% Shinagawa+ JFE 7% KROSAKI 6% ANH 3% Others 53%
- 20. Revenue by: Operating Locationvs. Costumer Location Revenue by Product Key figures – 4Q09 58.0% 23.9% 54.8% 20.9% Services 5.6% Other Minerals 3.4% Sinter 3.7% 2020 R$ 537.7 million 14.5% 23.9% 3.7% 11.0% 20.9% 11.1% 2.1% South America North America Europe Asia Others Production Destination Refractories 87.4%
- 21. 41% 39% 40%46% 47% 59% 61% 60% 54% 53% 4Q08* 1Q09 2Q09 3Q09 4Q09 Domestic Market Export Market Key Figures – Last 12 Months 203.8 180.7 190.9 219.9 238.7 4Q08* 1Q09 2Q09 3Q09 4Q09 Net Revenues (R$ million) 565.0 451.0 454.2 483.6 537.7 Refractories Sales (1,000 tonnes) Domestic Market Export Market 6.2% 9.9% 15.8% 22.8% 25.8% 35.1 44.4 71.6 110.1 138.8 -0,1 0 0,1 0,2 0,3 0 50 100 150 200 250 300 4Q08* 1Q09 2Q09 3Q09 4Q09 R$ million Margin % 21 2,059 2,104 1,918 1,434 1,414 12.31.08 03.31.09 06.30.09 09.30.09 12.31.09 * Note: Pro-forma data include the figures for the subsidiary LWB, for the purpose of comparison EBITDA Net Debt (R$ million)
- 22. -132.2 -61.9 -12.2 24.4 20.1 4Q08* 1Q092Q09 3Q09 4Q09 Key Figures Net Income 2009 (R$ million)Net Income (R$ millions) 35.1 - 64.8 South America Other Units 22 • Due to changes in accounting practices in late 2008, the goodwill paid on the purchase of shares for expected future profitability was reclassified to Intangible Assets. Thus, expenses on goodwill amortization are no longer recorded on the Income Statement. • Increased sales volume and anti-crisis measures and adjustments improved performance and indicate a positive trend. * Note: Pro-forma data include the figures for the subsidiary LWB, for the purpose of comparison
- 23. Key Figures –By Region 1,048.0 878.6 South America Other Units 2009 Net Revenues (R$ million) 38,6% 25,3% 404.8 222.1 -1,3% 3,7% 8,7% 13,7% 18,7% 23,7% 28,7% 33,7% 38,7% 100,0 150,0 200,0 250,0 300,0 350,0 400,0 450,0 500,0 South America Other Units R$ million Margin % 2009 Gross Profit South America 81% Asia 6% North America 6% Europe 7% 23 Workforce in 12.31.09 299.8 65.2 28.6% 7,.% -10,0%-9,2%-8,4%-7,6%-6,8%-6,0%-5,2%-4,4%-3,6%-2,8%-2,0%-1,2%-0,4%0,4%1,2%2,0%2,8%3,6%4,4%5,2%6,0%6,8%7,6%8,4%9,2%10,0%10,8%11,6%12,4%13,2%14,0%14,8%15,6%16,4%17,2%18,0%18,8%19,6%20,4%21,2%22,0%22,8%23,6%24,4%25,2%26,0%26,8%27,6%28,4%29,2%30,0% 0,0 30,0 60,0 90,0 120,0 150,0 180,0 210,0 240,0 270,0 300,0 330,0 360,0 390,0 420,0 450,0 South America Other Units R$ million Margin % 2009 EBITDA TOTAL = 6,938
- 24. COGS Breakdown –2009 31.7% 28.7% 31.8% 35.1% 34.1% 385.7 321.6 309.9 313.9 354.1 0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% 35,0% 40,0% 200 250 300 350 400 450 500 550 4Q08* 1Q09 2Q09 3Q09 4Q09 R$ million Gross Margin COGS vs. Gross Margin Key Figures - Costs 24 R$ million Gross Margin 60.3 52.1 47.6 49.1 50.5 72.3 63.1 50.4 47.3 52.0 4Q08* 1Q09 2Q09 3Q09 4Q09 Selling expenses General and administrative expenses SG&A Expenses (R$ million) Direct Costs (Estimated**) 102.5 132.6 115.2 98.0 96.4 Fixed 33% Variable 67% By Type ** Considering the historical data of the product mix and capacity use Local 35% Foreign 65% By Currency * Note: Pro-forma data include the figures for the subsidiary LWB, for the purpose of comparison
- 25. 227 16 5 315 315315 696 Net Debt Amortization schedule after the bond issue (R$ million) 2010 2011 2012 2013 2014 2015 2020 2525 • With the US$ 400 million bond issue, Magnesita is in a more comfortable position regarding debt; • Apart from advanced contract exports (ACC’s), there is no significant disbursements until 2013 . Local 48%Foreign 52% By Currency
- 26. Competitive Advantage vs.Business Risks • Global Presence; • Fully integrated in dolomite and magnesite sinter; • Great availability of high-grade raw materials; • Solution-based business model; • Strategic partnerships with technology providers; • Global Presence; • Fully integrated in dolomite and magnesite sinter; • Great availability of high-grade raw materials; • Solution-based business model; • Strategic partnerships with technology providers; • High concentration of costumers: o Steel: 10 groups account for 50% of revenues o Cement: 7 groups account for 55% of revenues • Heavy dependence on the steel market. • High concentration of costumers: o Steel: 10 groups account for 50% of revenues o Cement: 7 groups account for 55% of revenues • Heavy dependence on the steel market. Advantages Risks 26 • Strategic partnerships with technology providers; • Development of technologies through a modern Research & Development Center; • Aggressive cost management model. • Strategic partnerships with technology providers; • Development of technologies through a modern Research & Development Center; • Aggressive cost management model. 0 20 40 60 80 100 0 2.000 4.000 6.000 8.000 10.000 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 Steel Production - Brazil Refractory Sales - SA
- 27. StockPerformance 01/02/09 = 100 R$million 20 25 30 35 150 200 250 2727 01/02/09 = 100 R$ 0 5 10 15 0 50 100 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 FinancialVolume(inR$million)MAGG3IBOVESPA
- 28. Flavio Rezende Barbosa ChiefFinancial and Investor Relations Officer Adriana Fernandes Lana Investor Relations Manager 2828 Investor Relations Manager Phone: (+55 31) 3368-1069 Lucas Lima Ferreira Investor Relations Analyst Phone: (+55 31) 3368-1068 ri@magnesita.com.br www.magnesita.com.br
- 29. Thanks for yourAttention