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USIMINAS: CHALLENGES AND OUTLOOK
Brazil Day 2003
New York,
November 17th, 2003
Rinaldo Campos Soares
CEO
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Usiminas System is the Leading Flat Steel Usiminas System is the Leading Flat Steel Producer in Latin AmericaProducer in Latin America
Installed Capacity: 9.5 million tons
2002 Net Sales: R$ 6.6 billion
2002 EBITDA: R$ 2.4 billion
Employees: 18,000
Comprehensive range of flat steel products:from slabs to coated
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Usiminas System Mission is to Create Usiminas System Mission is to Create Value With Social ResponsibilityValue With Social Responsibility
Supplying competitive products andservices to our customers
Promoting the well being anddevelopment of its employees
Generating social value in a responsible manner
Creating Shareholder Value
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Usiminas Investment DynamicsUsiminas Investment Dynamics
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0.5 million t/year0.5 million t/year0.5 million t/year0.5 million t/year
4.5 million t/year4.5 million t/year4.5 million t/year4.5 million t/year
4.2 million t/year4.2 million t/year4.2 million t/year4.2 million t/year
3.5 million t/year3.5 million t/year3.5 million t/year3.5 million t/year
PrivatizationPrivatization
19621962 19801980 19861986 19911991 19961996 20022002
5.0 million t/year5.0 million t/year 5.0 million t/year5.0 million t/year
19991999
Modernization
PlanUS$850 million
PRODUCTION CAPACITYPRODUCTION CAPACITY PRODUCTION CAPACITYPRODUCTION CAPACITY
Optimization Plan
US$827million
Restructuring ofCosipa
US$1.2 billion
Energy Power PlantOptimization
Adjustment to 5.0 million t/year
Usiminas: A History of Continuous EvolutionUsiminas: A History of Continuous EvolutionPrivatizationPrivatization, , Modernization, InvestmentsModernization, Investments
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Maintenance of production capacityMaintenance of production capacity
Quality improvementQuality improvement
Cost reductionCost reduction
Production optimizationProduction optimization
Environmental protectionEnvironmental protection
UsiminasUsiminas
Continuous casting line and converter
Continuous casting line and converter
Environmental protection
Environmental protection
Technological updatingTechnological updating
CosipaCosipa
Over the Past Decade (1992 – 2002) Investments Over the Past Decade (1992 – 2002) Investments in Usiminas and Cosipa Amounted US$ 3.3 Billionin Usiminas and Cosipa Amounted US$ 3.3 Billion
Total2.1
billion
Total2.1
billion
Total1.2
billion
Total1.2
billion
775
290
548304
182 754
226
170
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The Investment Cycle Has Been ConcludedThe Investment Cycle Has Been Concludedand is Already Producing Resultsand is Already Producing Results
0
500
1000
1500
2000
2500
3000
1996 1997 1998 1999 2000 2001 2002 2003E
Trend in Investments and EBITDAR$ million
Crude Steel Production 9.2 million tons
EBITDA
Investments
Source: Usiminas Consolidated Basis - 3rd quarter 2003 annualized
7.1 million tons
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NEW BUSINESSESNEW BUSINESSES
STEEL 80STEEL 80
SIDERAR
UNIGAL
USIPARTS
MRS
SIDOR
DUFER
USICENTRO
New Opportunities ...
USIFAST
COSIPA
USIMINAS MECÂNICA
StrategyStrategy
19911991
2003
FASAL
2020
USIMINAS
This is How We Have Achieved a SystemThis is How We Have Achieved a SystemWith a Solid Market Position With a Solid Market Position
RIO NEGRO
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Today, Usiminas System has
a Solid Market Position
Today, Usiminas System has
a Solid Market Position
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To consolidate its leadership in BrazilTo consolidate its leadership in Brazil
To ensure a comprehensive logistics structureTo ensure a comprehensive logistics structure
To offer higher value-added productsTo offer higher value-added products
To achieve greater presence in South America To achieve greater presence in South America and improve its international profile and improve its international profile
Today, the System is Solid and Today, the System is Solid and Fulfills its Original GoalsFulfills its Original Goals
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Packaging
Small-Diameter Tubes
Distributors
Civil Construction
Electric/Electronic Equipment
Large-Diameter Tubes
Auto-Parts
Car Manufacturers
AVERAGE
Leading Market ShareLeading Market Share
UsiminasUsiminas CosipaCosipa Up to September 2003
8%
24%
24%
33%
43%
49%
54%
62%
88%
36%
6%
34%
45%
13%
16%
9%
7%
8%
10%
24%
0% 20% 40% 60% 80% 100%
Household Appliances
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3.33.13.2
0.91.1
0.8
2001 2003 2005E
4.04.4
25%25%22%22%21%21%
75%78%79%
Note: Including Slabs
Usiminas System: Breakdown by Market
UsiminasUsiminas
The System is an Important Brazilian ExporterThe System is an Important Brazilian Exporter
2.22.12.2
1.51.5
0.3
2001 2003 2005E
2.5
3.6 3.8
41%41%42%42%13%13%
59%58%87%
CosipaCosipa
ExportsExportsExportsExports
Domestic Market
Domestic Market
4.0
million tonsmillion tons million tonsmillion tons
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2.5
1.2
0.40.40.4 1.0
3.5
1.1
2.3
1.0
0
1
2
3
4
5
6
7
Slabs Heavy Plates
Hot Rolled
Cold Rolled
ElectroGalvanized
Hot DipGalvanized
Cosipa
Usiminas
Tons /year(million)
2.0
5.8
3.7
1.5
Our Product Line Ranges FromOur Product Line Ranges FromSlabs to Coated ProductsSlabs to Coated Products
Annual Production Capacity
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Usiminas has Integrated Logistics that Provides Usiminas has Integrated Logistics that Provides the System a High Level of Competitivenessthe System a High Level of Competitiveness
Usiminas System Usiminas System Logistics NetworkLogistics Network
Port
/
Service CenterPORTO ALEGRE
JIT
JIT
JIT
JIT
JIT
JIT
Distribution CenterJIT
Northeast
JIT
JIT
CURITIBA
JIT
Distribution Center under StudyJIT
USIMINAS
COSIPA
Steel Plant
USIMINAS
COSIPA
Steel Plant
Port
/
Service CenterPORTO ALEGRE
JIT
JIT
JIT
JIT
JIT
JIT
Distribution CenterJIT
Northeast
JIT
JIT
CURITIBA
JIT
Distribution Center under StudyJIT
15Source: WSD / 2002Usiminas/Cosipa.................Usiminas/Cosipa.................
9) Riva........................................................9) Riva........................................................
8) ThyssenKrupp.....................8) ThyssenKrupp.....................
7) Corus .................................................
7) Corus .................................................
4) NKK/ Kawasaki...................4) NKK/ Kawasaki...................
1) Arcelor .............................................
1) Arcelor .............................................
10) US Steel....................................10) US Steel....................................
3) Nippon Steel............................
3) Nippon Steel............................
5) Posco..................................................5) Posco..................................................
2) LNM Group................................2) LNM Group................................
6) Baosteel..........................................
6) Baosteel..........................................
16º
Installed Capacity: 9.5 Mt
44
13.0
34.8
29.828.928.1
19.5
16.816.4
15.0
Production in million tons (Crude Steel)Production in million tons (Crude Steel)
Usiminas System is Already Among the Usiminas System is Already Among the 20 Largest World Producers20 Largest World Producers
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-10%
0%
10%
20%
30%
40%
150 200 250 300
EBITDA Margin (%)
Hot Rolled Steel Costs (US$/t)
Note: 2002 data, except for EBITDA margin for Baosteel (2000) and NKK/Kawasaki (2001). Data n/a for Riva and Sail. Gerdau/Co Steel not included (non-flat)
Usiminas/CosipaBaosteel
Sumitomo
Posco
Ispat
Corus
USX
Nippon
Arcelor
Thyssen
NKK/Kawasaki
Production = 5 million tons
Magnitogorsk
Nucor
Usiminas/Cosipa have a Substantial Usiminas/Cosipa have a Substantial Competitive Edge in Costs and Margin Competitive Edge in Costs and Margin
In Relation to the World’s Largest Steel Mills
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LOOKING AHEADLOOKING AHEAD
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The Steel Industry is Undergoing a Transformation, Creating New Challenges and Opportunities
The Steel Industry is Undergoing a Transformation, Creating New Challenges and Opportunities
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Geographic Migration of Production
Globalization
Global Alliances
Regional Consolidation
Consolidation of the Russia-Ukraine Export
Complex
China’s Growth
Global steel Global steel industryindustry
The Global Steel Industry The Global Steel Industry Faces at Least Six Challenges Faces at Least Six Challenges
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Which Has Led Us to Establish a Value Creation AgendaWhich Has Led Us to Establish a Value Creation Agenda R
ela
tiv
e D
iffi
cu
lty
Low
High
Impact on Value Creation Over Medium Term
Smaller Greater
To Update Commercial Strategy
To Optimize Model for Commercial
Operation
To reduce costs: continuous
improvement, sourcing, SCM
To integrate Usiminas/ Cosipa Management
To Reduce Debt
To optimize loans and hedging portfolio
To optimize subsidiaries portfolio/governance
To develop new
marketsTo upgrade distribution
system
Tight Controlon Investments
To developnew products
Rationalize fixed assets
To Enhance IR Relationship
Priority Initiatives
To create commercial
alliances
Strategic Alliances/
Acquisitions
Some Initiatives Stand out as PrioritiesSome Initiatives Stand out as Priorities
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Commitment to the Stockholder
VBM *Metrics Planning Management
Qualified Manpower (More than 500 people trained)
Value Creation Agenda
Our Value Creation Agenda is Supported by a Our Value Creation Agenda is Supported by a Broad-Based Process of Preparing the Broad-Based Process of Preparing the
OrganizationOrganization
*Value Based Management
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Three Financial Management–Related InitiativesThree Financial Management–Related Initiatives R
ela
tiv
e D
iffi
cu
lty
Low
High
Smaller Greater
To optimize model for
commercial operation
To reduce costs: continuous
improvement sourcing, SCM
To optimize loans and hedging portfolio
To optimize subsidiaries portfolio/governance
To develop new markets
To upgrade distribution
system
To developnew products
To rationalize
fixed assets
Priority Initiatives
To create commercial
alliances
Integrar gestãoUsiminas/ Cosipa
Strategic alliances/
acquisitions
Tight Control on Investments
To Enhance IR Relationship
To ReduceDebt
Impact on Value Creation Over Medium Term
23Source: Usiminas
0.30.40.4
2.1
0.7
1.3
0.4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1999 2000 2001 2002 2003 2004 2005
Cap
ex
Investment/EBITDA
Investment/EBITDA 2.2 0.5 0.9 0.2 0.1 0.1 0.1
(R$ billion)
Forecast
Over the Next Few Years, InvestmentsOver the Next Few Years, Investmentsare Expected to Remain Loware Expected to Remain Low
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R$/US$ FX Rate
1.96 2.16 2.30 2.68 2.32 2.84 3.89 3.53 3.35 2.92
Source: Usiminas
7,746 7,9107,465
8,789
7,825 7,869
8,848
7,938
8,693
9,535
10,949
2.42.42.9
3.9
6.25.7
5.1
5.15.65.15.1
6,000
8,000
10,000
12,000
14,000
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03
Total Debt Total Debt/Ebitda
2.87
We Will Continue to Emphasize Debt ReductionWe Will Continue to Emphasize Debt ReductionCONSOLIDATED DEBT CONSOLIDATED DEBT
R$ millionR$ million
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Major Commercial Goals and InitiativesMajor Commercial Goals and Initiatives
Priority Initiatives
Integrar gestãoUsiminas/ Cosipa
Strategic alliances/
acquisitions
To Optimize Model for
Commercial Operation
To reduce debt
Tight Control on Investments
To Enhance IRRelationship
To Update Commercial
Strategy
Re
lati
ve
Dif
fic
ult
y
Low
High
Smaller GreaterImpact on Value Creation Over Medium Term
To reduce costs: continuous
improvement sourcing, SCM
To optimize loans and hedging portfolio
To optimize subsidiaries portfolio/governance
To develop new markets
To upgrade distribution
system
To developnew products
To rationalize
fixed assets
To create commercial
alliances
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3,206 3,074 3,216
2,093 2,046 2,173
3,176 3,231 3,315
2,141 2,175 2,240
0
2,000
4,000
6,000
8,000
10,000
12,000
2001 2002 2003 2004 2005 2006
Th
ou
sa
nd
to
ns
TotalDemand
Cosipa
Usiminas
Usiminas System Expects to Sustain an Important Usiminas System Expects to Sustain an Important Share in the Domestic Flat Steel MarketShare in the Domestic Flat Steel Market
The System tends to maintain sales volume and domestic market leadership, in spite of the arrival of new competitors
New Competitors
Note.: Excludes Slabs
9,8719,3528,768
8,5768,650
10,419
Forecast
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Strategic Alliances, Acquisitions and Cosipa’s Strategic Alliances, Acquisitions and Cosipa’s Integration are Key AreasIntegration are Key Areas
To update commercial strategy
To optimize model for
commercial operations
To reducedebt
Priority Initiatives
To Integrate Usiminas/Cosipa
Management
Strategic Alliances/
Acquisitions
Re
lati
ve
Dif
fic
ult
y
Low
High
Smaller GreaterImpact on Value Creation Over Medium Term
To reduce costs: continuous
improvement sourcing, SCM
To optimize loans and hedging portfolio
To optimize subsidiaries portfolio/governance
To develop new markets
To upgrade distribution
system
To rationalize
fixed assets
To create commercial
alliances
Tight Control on Investments
To Enhance IRRelationship
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Steel Production is Migrating to Steel Production is Migrating to Emerging Market CountriesEmerging Market Countries
15% 19%31%
52%58%
85% 81%69%
48%42%
0%
20%
40%
60%
80%
100%
1970 1980 1990 2000 2010
% Global Production% Global Production
Annual forecasted growth rate in capacity up to 2010 is 1.7% p.a.
• 0.2% p.a. industrialized countries
• 3.3% p.a. emerging countries
Annual forecasted growth rate in capacity up to 2010 is 1.7% p.a.
• 0.2% p.a. industrialized countries
• 3.3% p.a. emerging countries
Industrialized Countries
Emerging Countries
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Brazil has the Advantages to Play a LeadingBrazil has the Advantages to Play a LeadingRole in the Steel Industry FutureRole in the Steel Industry Future
Abundant high-quality iron ore
Favourably located mills with modern technology
Predominantly Brazilian-owned and 100% privatized
Quality in products and environmental management
Competitive costs
Skilled labor force (operation and management)
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The Steel Industry is More Fragmented The Steel Industry is More Fragmented than its Customers and Suppliersthan its Customers and Suppliers
Coal
30%30%
Suppliers
65%65%
94%94%
SteelEquipment
Iron Ore
Consolidation
Sources: IBS/ Usinor - Others Usinor Presentation. New York,
Steel
17%17%
Steel
Fragmentation
Auto-motive
60%60%
Consolidation
Consumers
25%25%36%36%
CivilConstruct.
Packag-ing
25%25%
Shipyards
Participation of the Five Largest Companies
Other Products
50%50% 48%48%
AluminumStain- lessSteel
70%70%
Pulp
Consolidation
80%80%
ChemicalProducts
Gases
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Total Production and Share in the World Market of the 10 Largest Steel Groups
Source: USIMINAS
Production (million tons)
Production (million tons)
211211211211
19991999199919991998199819981998
165165165165195195195195
2001200120012001
27272727
1998199819981998 1999199919991999
2020202024242424
Share in world production(%)
Share in world production(%)
2002200220022002
230230230230
2002200220022002
26262626
2001200120012001
The World Steel Industry is ConsolidatingThe World Steel Industry is Consolidating
The production capacity of the ten largest steel mills is expected to exceed 300 million tons by 2007
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Usiminas Has Led and is Well Positioned toUsiminas Has Led and is Well Positioned toContinue to Lead the Brazilian Steel IndustryContinue to Lead the Brazilian Steel Industry
Restructuring ProcessRestructuring Process
The domestic steel industry should be restructured to be competitive in the world steel industry, which is undergoing a consolidation process.
The restructuring is to be led by domestic groups.The following step could be the globalization of these companies.
Usiminas is prepared and determined to lead this process
- Integration with Cosipa;
- Strategic investments;
- Technological alliance with Nippon Steel,
Are already advances in this direction
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FINAL MESSAGESFINAL MESSAGES
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Usiminas Has a Strong Base to Move Forward Usiminas Has a Strong Base to Move Forward and a Solid Value Creation Agenda and a Solid Value Creation Agenda
Absolute leader in the Latin American flat steel business
Stockholders with an outstanding industrial tradition and long-term focus in the steel sector and in Usiminas
A 41-year history of leadership, culture of quality, and development
Over the past 10 years Usiminas has undertaken major investments . . .
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. . . Building a solid system which has now reached its goals
Leadership of the Brazilian market
Solid cash generation and financial structure
Strong logistics infrastructure
Broad-based portfolio of high quality products
Presence and well-founded position in the international scenario
Usiminas Has a Strong Base to Move Forward Usiminas Has a Strong Base to Move Forward and a Solid Value Creation Agenda and a Solid Value Creation Agenda
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Usiminas has defined and is executing a clear Value Creation Agenda
Controlling investments, reducing debt, enhancing shareholder
value
Developing strategies for domestic commercial activities and
exports
Acting on and moving forward with the opportunities for
consolidation and globalization
Usiminas Has a Strong Base to Move Forward Usiminas Has a Strong Base to Move Forward and a Solid Value Creation Agenda . . . and a Solid Value Creation Agenda . . .
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. . . Usiminas’ Strategy Maximizes the . . . Usiminas’ Strategy Maximizes the Transformation that is Taking Place in the IndustryTransformation that is Taking Place in the Industry
Cosipa has already brought a wealth of know-how and benefits . . .
. . . There are still further opportunities for synergies in the System
Usiminas is prepared and determined to maintain its leadership in the sector’s consolidation – continuously examining the feasibility of new opportunities
CONSOLIDATION, globalization, deconsctruction
Consolidation will continue to be an important source of value
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Taking advantage of the “deconstruction” of the steel chain in some countries
Strategic presence in Sidor and Siderar Development of higher value-added exports Over the medium term, we expect to make further headway in
international alliances and partnerships Over the long term we may pursue opportunities for the
acquisition of overseas assets
Consolidation, GLOBALIZATION, DECONSTRUCTION
Globalization should be “from the inside out” and is expected to continue to go forward
. . . Usiminas’ Strategy Maximizes the . . . Usiminas’ Strategy Maximizes the Transformation that is Taking Place in the IndustryTransformation that is Taking Place in the Industry
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DisclaimerDisclaimer
“Declarations contained in this presentation regarding the business outlook of the
Company, projections of operational and financial results and references to
potential growth of the Company constitute mere forecasts and were based on the
expectations of the Management in relation to its future performance. These
expectations are highly dependent on market behavior, on the economic situation
in Brazil, the industry and international markets, and are therefore subject to
change.”
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