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2Q10 Results Conference Call August 16, 2010
Transcript
Page 1: Magnesita apres tele_eng_2_t10

2Q10 Results Conference CallAugust 16, 2010

Page 2: Magnesita apres tele_eng_2_t10

Magnesite Sinter

2

• China accounts for nearly half of the world’s MgO sinter exports (estimated at 2.3 million

metric tons).

• The Chinese government has altered

its energy policy and imposed sinter and

refractory exports quotas.

• As a result, there is an unsteady sinter

supply worldwide, causing prices to

ramp up.

Source: Industrial Minerals www.indmin.com - For non-commercial purposes only. No parts may be reproduced, sold or quoted for any purposes, pursuant to the terms and conditions of Euromoney Institutional Investor PLC and Institutional Investor Inc.

• This situation is expected to bring forth business opportunities for Magnesita, which is

highly vertically integrated in magnesite sinter, unlike its main competitors.

150

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USD

/ t

MgO Sinter Prices

MgO Sinter 97.5% MgO Sinter 92%

Page 3: Magnesita apres tele_eng_2_t10

Capital Expenditures

3

• 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.

• 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.

• 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.

Page 4: Magnesita apres tele_eng_2_t10

Market Environment - Steel Industry

4

• World’s crude steel production of 364

million metric tons: new record of

quarterly production volume;

• Steel distributors’ inventories on the rise;

• The vehicles production remains heated

despite the discontinuation of tax

incentives.

Source: World Steel Association

Source: ANFAVEASource: Barclays

201.4 188.1 208.5 206.0 220.1 229.3

55.931.4

35.0 40.5 42.5 47.225.512.5

16.4 17.5 19.6 21.48.8

.5.67.9 8.1 8.0 8.4

356.8

284.6319.2 326.9 344.0 364.0

2Q08 2Q09 3Q09 4Q09 1Q10 2Q10

World Crude Steel Productionmillion metric tons

Asia EU-27 USA Brazil World

807,835

851,341861,620

833,979

919,222

2Q09 3Q09 4Q09 1Q10 2Q10

Production of Vehicles in Brazil

0123456789

10

No.

mon

ths

Brazilian distributors' inventories of main steel products

Heavy plates HRC - Hot Rolled Coil Slabs

Page 5: Magnesita apres tele_eng_2_t10

Market Environment - Cement Production

5

• Brazil’s cement production remains

close to its historical record highs, with

good prospects of investments in

capacity expansion by 2011.

• Alumina products accounted for 23.6% of

refractory revenues and the cement

segment for 7.2% of total revenues.

Cement production capacity increase projection - 2009-2011

Source: Magnesita

GroupMM tonnes per year

Votorantim 8.0Cimpor 5.0Camargo Corrêa 3.5Holcim 3.0CSN 3.0Others 4.5Total 27.0

11,75412,580

14,13213,418

11,70912,328

13,697 13,74613,308

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10

Cement Production in Brazilmillion metric tons

Source: SNIC

Page 6: Magnesita apres tele_eng_2_t10

CPP contracts since 2008

6

CPP – Cost per Performance Business Model

331.8370.6

416.4 425.5 423.1

• A 16% rise in 2Q10 revenues from the

steel industry under CPP contracts

quarter-over-quarter, and +73.4% year-

over-year.

• New contracts in 2Q10:

1. ELG Haniel Metals, UK

2. ThyssenKrupp Beeckerwerth, Germany

3. Client under confidentiality, Germany

4. TISCO, China

5. Jiaxing Eastern Special Steel, China

USA/Canada

Ecuador

China

1

2

1UK

2

Germany

2

Brazil

Chile

Peru

14

1

4Mexico

• 23 new CPP contracts have been originated

until jun/10 under the current Management.

• In 3Q10, the Company was chosen by four North American steel mills as a refractory supplier under the CPP model. 6

26% 25% 27% 31% 36%

74% 75%73% 69% 64%

2Q09 3Q09 4Q09 1Q10 2Q10

Revenues from Refractories to the Steel Industry - R$ millions

CPP Volume

Page 7: Magnesita apres tele_eng_2_t10

Financial Performance

7

144.2169.7

183.6 196.2 199.2

31.8

35.134.1 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 and Gross Margin

Gross Profit - R$ million Gross Margin - %

110.5

108.4

19.5

19.7

19,2

19,7

20,2

90

95

100

105

110

115

1Q10 2Q10

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA – R$ million EBITDA Margin %

71.6

110.1

138.8123.1 119.5

15.8

22.825.8

21.8 21.7

10

15

20

25

30

35

40

020406080

100120140160

2Q09 3Q09 4Q09 1Q10 2Q10

EBTIDA and EBITDA Margin

Ebitda - R$ million 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

Revenues – R$ million

Domestic Market Export Market

454.2 483.6537.7 565.9 551.7

Page 8: Magnesita apres tele_eng_2_t10

Refractories Sales

8

191.0219.9

238.7258.2 258.8

57.8 69.8 77.6 80.1 78.4

133.2150.1 161.1 178.1 180.4

2Q09 3Q09 4Q09 1Q10 2Q10

Refractories sales volumethousand metric tons

Domestic market Overseas Market

54.3%

17.5%22.9%

5.3%

53.8%

16.5% 18.0%10.1%

1.6%

South America

North America

Europe Asia Others

Refractories Revenues by Region – 2Q10

Production Destination

Magnesian31.8%

Dolomitic33.4%

Alumina23.6%

Others11.2%

Refractories Revenues by Chemical Composition – 2Q10

Steel87.9%

Cement7.2%

Others4,9%

Integrated Steel Mills36.8%

Specialty Steels30.7%

Others2,5%

Mini mills30.0%

Refractories Revenues by Industry - 2Q10

Page 9: Magnesita apres tele_eng_2_t10

COGS Breakdown

9

Note: As of 2010, labor expenses, both the employed and outsourced labor force, related to the production cost and service centers in the South American units have been recorded as variable expenses.

21%

100%

60%

79%

40%

South America Other Units Total

COGS by Currency – 1H10

Foreign Currency Local Currency

20% 24% 22%

80% 76% 78%

South America Other Units Total

COGS by Type – 1H10

Fixed Variable

Raw Material40.2%

Labor18.7%

Fuel10.5%

Depreciation6.7%

Maintenance4.9%

Electricity3.5%

Others15.5%

Cost breakdown - 1H10

Page 10: Magnesita apres tele_eng_2_t10

INDUSTRIAL MINERALS: “China is imposing restrictions to exports of raw materials high in energy

consumption, due to a possible energy shortage in the medium term. This affects several raw

materials in the refractory industry, since the demand is growing (following the steel production

recovery) and the offer is limited. The verticalized refractory manufacturers (which have their own

raw material sources) suffer less because of the Chinese quotas.”

Costs – Raw material

10

• Though we are a vertically integrated company, higher raw material prices impact our

costs.

Source: Industrial Minerals - www.indmin.com - For non-commercial purposes only. No parts may be reproduced, sold or quoted for any purposes, pursuant to the terms and conditions of Euromoney Institutional Investor PLC and Institutional Investor Inc.

90100110120130140150160170180190200210

Jun-

09

Jul-

09

Aug-

09

Sep-

09

Oct

-09

Nov

-09

Dec

-09

Jan-

10

Feb-

10

Mar

-10

Apr-

10

May

-10

Jun-

10

FBI J

un/0

9 =

100

Average Raw Material Prices

Brown Alumina White Alumina Graphite Zirconia

Page 11: Magnesita apres tele_eng_2_t10

Costs – Freight and Inputs

• Road freight prices have increased by 30%

in Brazil and by 3% in the USA on average

since January 2010.

• In 2010, there have been considerable

price hikes in the main shipping freight

destinations.Source: Magnesita and Bureau Labor of Statistics

Source: www.inflationdata.com and China Coal Resource

• Oil and coal prices affect the prices of

several of Magnesita’s production inputs,

such as 1A oil, natural gas, phenol and

methanol. Phenol and methanol, for

example, increased by 35% and 78% in

prices in L12M, respectively. 11

90

100

110

120

130

140

150

160

FBI J

un/0

9 =

100

Average Freight Prices

By road - USA By road - Brazil

By ship - Baltimore - Germany By ship - Baltimore - China

90

100

110

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130

140

FBI J

un/0

9 =

100

Average Prices of Power Sources

Crude Oil - USA Coal China

Page 12: Magnesita apres tele_eng_2_t10

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

Debt Profile – R$ million

Indebtedness

* EBITDA in the last 12 months 12

1,919

1,434 1,415 1,4131,491

6/30/2009 9/30/2009 12/31/2009 3/31/2010 06/30/10

Net debt - R$ million

223.8

20.9 29.2

331.0 323.1 321.5

701.3

2010 2011 2012 2013 2014 2015 2020

Debt Amortization ScheduleR$ million 5.6 5.5

3.93.2 3.0

4.3

2.61.8

1.41.8

2Q09 3Q09 4Q09 1Q10 2Q10

Financial Indicators

Net debt/EBITDA

EBITDA/Finacial expenses + Monetary/Exchange Variations/Forex Liabilities

2,174.51,950.8

Page 13: Magnesita apres tele_eng_2_t10

Share Performance

13

• Coverage of major banks: Itaú, Credit Suisse, BTG Pactual, Merrill Lynch, Santander,

Barclays, Deutsche Bank and Safra

• Average daily volume of R$ 5.7 million in 2Q10

31%

18%

Source: BM&FBOVESPA

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

FBI 0

6/30

/09

= 10

0

Stock Performance(06/30/2009 thru 06/30/2010)

MAGG3 IBOVESPA

Page 14: Magnesita apres tele_eng_2_t10

Flávio Rezende BarbosaCFO and Investor Relations Officer

Adriana Fernandes LanaInvestor Relations ManagerPhone: +55 31 3368-1069

Lucas Lima FerreiraInvestor Relations AnalystPhone: +55 31 3368-1068

[email protected] www.magnesita.com/ri

14


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