Magnesita Refratários S.A.Magnesita Refratários S.A.
NovemberNovember, 2013, 2013
MFRSY
DisclaimerThe material that follows is a presentation of general background information about Magnesita Refratários S.A. and its consolidated subsidiaries (“Magnesita" or the
"Company") as of the date of the presentation. It is information in summary form and does not purport to be complete and is not intended to be relied upon as advice to
potential investors.
No representations or warranties, express or implied, are made as to, and no reliance should be placed on, the accuracy, fairness or completeness of the information
presented or contained in this presentation. Neither the Company nor any of its affiliates, advisers or representatives, accepts any responsibility whatsoever for any loss or
damage arising from any information presented or contained in this presentation. The information presented or contained in this presentation is current as of the date hereof
and is subject to change without notice and its accuracy is not guaranteed. Neither the Company nor any of its affiliates, advisers or representatives make any undertaking to
update any such information subsequent to the date hereof. This presentation should not be construed as legal, tax, investment or other advice.update any such information subsequent to the date hereof. This presentation should not be construed as legal, tax, investment or other advice.
Data in this presentation was obtained from various external data sources, and the Company has not verified such data with independent sources. Accordingly, the Company
makes no representations as to the accuracy or completeness of such data, and such data involves risks and uncertainties and is subject to change based on various factors. All
statements related to minerals reserves and recovery estimates are projections based on available geological information and statistical geological models. Actual future
production of minerals may differs substantially from those estimates.
This presentation contains forward-looking statements. Such statements are not statements of historical facts, and reflect the beliefs and expectations of Magnesita’s
management. The words "anticipates", "wishes", "expects", "estimates", "intends", "forecasts", "plans", "predicts", "projects", "targets" and similar words are intended to
identify these statements. Although the Company believes that expectations and assumptions reflected in the forward-looking statements are reasonable based on
information currently available to the Company's management, the Company cannot guarantee future results or events. You are cautioned not to rely on forward-looking
statements as actual results could differ materially from those expressed or implied in the forward-looking statements.
This presentation does not constitute an offer, or invitation, or solicitation of an offer, to subscribe for or purchase any securities, and neither any part of this presentation nor
any information or statement contained therein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever.
Changes to Historical NumbersIn 3Q13, Magnesita adjusted its historical numbers due to the IFRS11 changes to the consolidation of KMR (Joint Venture) with retroactive effect to 1Q12 for thepurpose of comparison with the numbers in 2013.
Other changes in the information by segmentIn line with the new strategic plan, the Company has revised a few accounting processes and systems. As a result, in 3Q13 the Company made a fewadjustments in the segmentation of a few clients. Consequently, there were marginal changes in the historical data per segment.
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Summary
Industry and company overview
Magnesita’s strategy
Financial HighlightsFinancial Highlights
3
Refractory industry overview
Industry overview
Refractories are fireproof materials consumed within
various production processes, providing heat, chemical
and mechanical resistance in industrial furnaces
Their raw material are minerals with high melting point,
including magnesite, dolomite and alumina. Bricks
Monolithic
Types of refractories Main consumers worldwide
Refractories are crucial consumables for manufacturing processes with high temperatures
Source: Freedonia.estimates 2011
SteelNon-ferrous
(aluminum, copper, nickel, silver, zinc)
Nonmetallic(cement, glass, lime)
~15%
~15%
Refractories are continuously consumed during steel production… …and other industrial processes
Crucial, but represents ~3% of COGS in steel
manufacturing and less than 1% in cement
Refractories are consumables: ~10Kg per ton of steel;
~0.6Kg per ton of cement
Pre castables, valves and slide gates
Steel (aluminum, copper, nickel, silver, zinc)
Other (pulp&paper,
petrochemical, ceramic, other)
~60%~10%
Integrated mill
Iron Ore
Blast Furnace Torpedo car BOF
1 ton of steel demands
~10-15 Kg of refractories
1 ton of cement demands
~1 Kg of refractories
4
Mini-mill
900 tonnes
~15 years
200 tonnes
~2 years
Steel ladles
800 tonnes
~6 months
70 tonnes
~1 month
Continuous casting
25 tonnes
~10 hours
Scrap120 tonnes
~1 month
EAF
1 ton of glass demands
~4 Kg of refractories
1 ton of aluminum demands
~6 Kg of refractories
1 ton of copper demands
~3 Kg of refractories
Company overview
More than 100 years of expertise in refractories and industrial minerals
3rd largest player in the refractory sector worldwide, present in the main steel markets
#1 in the steel and cement industries in Brazil and South America
Magnesita is a global leader in refractories solutions and industrial minerals
#1 in the stainless steel industries in North America and Europe
Highest vertical integration level in the industry (~80%), fully self-sufficient in high-grade magnesite
Best, largest and lowest-cost magnesite mine in the world outside China
Significant number of unexplored mineral rights in Brazil
Solid financial fundamentals
Magnesita in numbers
Revenues of R$ 2.46 billion in 2012
Production in 4 continents, supplying globally to more than 850 clients worldwide, in +70 countries
6,500 employees
28 industrial facilities with more than 1 million tons/year of refractories produced in 2012
5
Technology
Key drivers
ManufacturingOnly
Mining Refractorymanufacturing
Services Full performance based solution
Refractory business models
Magnesita’s unparalleled business model reaps value across the chain
Global scale, local presence
Products and services breadth and depth
Access to high-quality materials
Global scale, local presence
Fully Integrated
CPP-Integrated
Access to high-quality materialsIntegratedManufacturing
Technology, local presenceIntegratedServices
Products and services breadth and depth
Relationship with clients
CPP-Integrated
+-
*Source: Bloomberg (Krosaki and Shinagawa refer to 1Q13. Fiscal Year ends in march)
Gross Margin in 1H13* (%)
27,2%
Vesuvius
33,6%
23,6%
RHI Shinagawa
16,5%
Magnesita
16,3%
Krosaki
6
More than just a contract, but a true value creation partnership
Increased business process performance
Improved focus on core capabilities
Improved visibility and transparency
Enhanced reporting and decision making
Methodology
Global leader in cost per performance (CPP) solutions
Refractory consumption reduction
Improved conversion efficiency
Reduced downtime
Reduced consumption of other consumables
Cost
Increased asset availability
Refractory inventory reduction
Working Capital
Source: Magnesita
Refractory inventory reduction
Improved use of working capital
Improved quality
Enhanced safety of operations and personnel
Risk mitigation
Safety, Quality, Environment
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Sinterco Dolomite JV (BEL)Hagen-Halden, Oberhausen andKruft Production Units (DEU)
Valenciennes and FlaumontProduction Units (FRA)
Global scale, with local presence in key markets, with an integrated supply chain
Unique global footprint
Aratu Port
York Dolomite Mine (USA)
Talc Mine (Brumado - BRA)
Magnesite Mine(Brumado – BRA)
Qingyang Dolomite Mine (CHN)
Contagem Production Unit (BRA)
Coronel Fabriciano Production Unit(BRA)
York Production Unit (USA)
Dalian Production Unit (CHN)
Chizhou Production Unit (CHN)
Taiwan JV’sProduction Unit (CHN)
Chromite Mine (Santa Luz - BRA)
Clay Mine (Uberaba – BRA)
Sales Offices and Sales Representative
Production Units
Mines
Headquarters
Aratu Port
(BRA)
San Nicolás Production Unit
Revenues per region - 9M13 (BRL)
19%
22% 10%
36%
13%
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Europe
North America
South America ex-Brazil
Brazil
Other
Experienced management team
Octavio Pereira Lopes - CEO
Functional Team
� Successful as CEO of Equatorial. Previous
Managing Director at GP Investments
Previous
experience
Joined Magnesita in 2007 as board
member and became CEO in 2012
Industry experience
Unique combination of solid financial & strategic background with tenured industry experience
Otto Levy Reis – COO
Pedro Gutemberg - VP Minerals (interim)
José Roberto Beraldo - CFO
Felipe Sommer- VP People and Mngmt
Luis Rodolfo Bittencourt - VP R&D
Operational Team
� Solid financial background
� Senior roles and extensive
experience in global companies
� Over 100 years of
combined experience in the
industry
Industry Experience: +11 years
Joined Magnesita in 2008
Industry Experience: +27 years
27 years in Magnesita
Industry Experience: +10 years
Joined Magnesita in 2013
Joined Magnesita in 2012
Joined Magnesita in 2012
Martin Bartmann - Global Supply Chain
industry
� Close relationships with
key players and clients in the
industry
Industry Experience: +17 years
Joined Magnesita in 2011
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Rick Gladfelter – Head of Operations
Jim Pirano – Commercial Head of Industrial
Industry Experience: +36 years
36 years in Magnesita
Industry Experience: +6 years
7 years in Magnesita
Summary
Industry and company overview
Magnesita’s strategy
Financial HighlightsFinancial Highlights
10
Vision:Be the best provider of refractoriessolutions and industrial minerals,
leveraging and developing our minerals base
III-Expand industrial I-Ensure leadership II-Grow selectively
New strategic visionO
ne
glo
ba
l o
rga
niz
ati
on
III-Expand industrial minerals base
I-Ensure leadership in our core markets
IV-Maintain a global low cost production base
II-Grow selectivelyand aggressively
Continue to develop high quality, low cost raw material sources to support our current
businesses as well as new businesses where
we can have a sustainable competitive
advantage
Strive to keep offering high quality and
innovative products, unrivaled services and
cost performance
Optimize production globally to improve
efficiency and support growth
Develop global supply chain management
Pursue long term growth opportunities in selected
markets where we can deliver superior value to
our customers and shareholders
▪Meritocracy▪Ethics
▪Profit▪Management and Method
▪Agility and Transparency▪Respect for Safety, Environment and Communities
▪Customer▪People
Our values
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I – Ensure leadership in our core markets
Dolomitics in North America
Dolomitics in Western Europe
Our differentiated competitive position and leadership in core markets support our growth as they recover
~50% in stainless steel
Magnesita’s share* in core marketsMagnesita’s share* in core marketsMagnesita’s competitive advantages in its core marketsMagnesita’s competitive advantages in its core markets
~60% in stainless steel
Vertically integrated low-cost producer
Continuous investments in R&D and technology
Specialized technical assistance
South America
Long standing relationship with blue-chip customers
~50% in stainless steel
~20% in mini-mills
~25% in cement
~60% in stainless steel
~15% in mini-mills
~65% in steel
~60% in cement
*Company estimates
Specialized technical assistance
Logistic advantages in strategic locations
Captive CPP contracts with long-term alignment of interests
Brand recognition and historical leadeship
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Opportunities for growth in a fragmented global industry
II – Grow selectively and aggressively
Global market share (in USD)
9%
5%
10%
Regional players
Segment players
Global players
~10%
Chineseplayers
~35%
Pursue long term growth opportunities in select markets where we can deliver superior value
Magnesita is poised to grow at above market rates
Market growth where penetration is at sustainable levels
Low exposure in several important markets and industrial sectors
Opportunities for share gains in attractive markets where
underrepresented and competitive advantage exists
Source: Company estimates
~10%~35%
~13%
Small local players
~16%
Opportunities for diversification into industrial segmentsOpportunities for diversification into new geographies
% of refractory sales (in BRL) per region
9M12 9M13
20%
Refractory sales (BRL mln) to industrial
sectors and % of refractory business
CAGR
Global Refractories
consumption²
underrepresented and competitive advantage exists
Increasing reach of our refractory solutions through investments
in sales force and technical assistance
14%
21%
23%
42%
14%
20%
22%
44%276
17.3%
9M11
212
13.9%
20%
9M13
306
18.0%
9M12
40%
Industrial
60%Steel
2 Freedonia
Europe
OtherNorth America
South America
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III – Expand industrial minerals base
� Initial portfolio of attractive mineral rights
� 70 years of mining experience in Brazil (DBM, CCM, talc, etc)
� Expertise in geology, research and environmental requirements
� Knowledge of local stakeholders management
Magnesita’s
strategic
positioning
Unlocking our internal expertise and the industrial minerals opportunity in Brazil
� Knowledge of local stakeholders management
� Dedicated team to prospect, analyze and develop business
� Brazil is fertile and has very favorable geography
� Historically unexplored
� Viewed as a reliable source (vs China)
� Attractive due to global unbalance of supply and demand
� Minerals out of big players’ radar
� Logistic is not predominant
The Brazilian
opportunity
Focused
Opportunity � Logistic is not predominant
� Commercial development is necessary
� US$2bi - US$10bi global markets
Magnesita is very well positioned to occupy the “white space” in Brazil
Opportunity
set
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III – Expand industrial minerals baseOur goal is to have at least one project moving to the next phase every 12 – 18 months
1.Preliminary5 to 10 analysis
per year
2.DevelopmentGraphite
3.InstallationTalc expansion
4.OperationalDBM, Talc, CCM
�Complete geological work
and reserve certification
�Environmental license
� Industrial project
�Commercial development
�Medium capex; medium risk
per year
�Preliminary geological
work
�Market analyses
�Low capex; high risk
�Investment in the
industrial plant
�High capex; low risk
� Cash flow generation
� Maintenance capex
Graphite project Talc expansion
Become self sufficient supplying our refractory business
Surplus to supply third parties, focusing on high end users
Growing demand from new applications
Restrictions from Chinese exports (~80% of global production)
Environmental license granted in March 2013
Increase capacity from 44k ton/year to 60kton/year in 2015
Capex of up to R$ 20 million
Plans to double the talc business in the next 3 to 5 years
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IV - Maintain a global low cost production baseA sustainable low cost production base is key to support growth and value creation
Opportunities for further industrial and supply chain optimization
York OberhausenValenciennes
Flaumont
KruftHagen
Sinterco (JV)
Dalian
QingyangChizhou
Finished product flow
Magnesita mine – Brumado, Brazil (+200 years of reserve)
Cost control through vertical integration in raw materials
With ~80% of its raw material needs coming from its own mines, Magnesita is the most integrated company in the industry
BrumadoContagem
MinesProduction unit
Finished product flow
Raw material flow
Magnesita mine – Brumado, Brazil (+200 years of reserve)
Open pit
Best quality in the world (+98.5% DBM grade)
Dolomite mine – York, USA (+45 years of reserve)
Open pit; intergrated with the refractory plant
Only refractory grade dolomite mine in the US
Dolomite mine (JV) – Belgium (+30 years of reserve)
Dolomite mine – Qingyang, China (+50 years of reserve)
Chromite mine – Bahia, Brazil (+28 years of reserve)
Other reserves in Brazil: dolomite, clays, pyrophyllite, kyanite
Graphite project in Brazil will increase vertical integration level
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Summary
Industry and company overview
Magnesita’s strategy
Financial HighlightsFinancial Highlights
17
Net RevenuesNet Revenues EBITDA and EBITDA margin (excl. non-recurring)EBITDA and EBITDA margin (excl. non-recurring)
Financial highlights (BRL mln)
+4%
+9%
1,899
2,4642,3192,2761,927
15.5%15.5%15.1%14.5%18.7%17.7%
Steady organic growth and proven resilience in adverse market conditions
45%
36%38%
49%
Magnesita¹CSNGerdauUsiminas
CAPEXCAPEX Gross margin Magnesita vs clientsGross margin Magnesita vs clients
9M13
1,899
9M12
1,829
2012201120102009
1,927
+4%+3%
9M13
294
9M12
283
2012
373
2011
337
2010
425
2009
340
257
CAPEXBrumado expansion
26%
11%
13%
31%
30%
24%
12%
-3%
30%
33%
14%
1%
34%
18%
14%
33%
36%
17%
11%
38%
26%
34%
2008 2009 2010 2011 2012 9M13
Source: Companies report (only parent company for Usiminas and CSN)¹Magnesita in 2011 was adjusted due to accounting reallocation
18
2012
257
88
165
179
2011
171
120
9M12
92
91
12151
9M132010
78
2009
37
Debt and Leverage
LeverageLeverage Leverage excluding Perpetual BondLeverage excluding Perpetual Bond
3.6x3.0x2.8x2.9x
Net debt / EbitdaEBITDA* LTMNet Debt
2.1x1.6x1.4x1.4x
Net debt / EbitdaEBITDA* LTMNet Debt
Solid balance sheet with no refinancing risk
Amortization Schedule (R$ million)Amortization Schedule (R$ million) Net Debt per currencyNet Debt per currency
3Q13
382
1,369
2Q13
397
1,205
4Q12
373
1,058
2Q12
352
1,002
*EBITDA excluding non recurring *EBITDA excluding non recurring
3Q13
382
803
2Q13
397
639
4Q12
373536
1.4x
2Q12
352490
1.4x
1.454Cash positionPerpetual bond-14% Dec-12
2020+
1.454
884
570
2017
80
2016
82
2015
128
2014
37
2013
20
Sep-13
456
2018
12
2019
12
Amortization
Others0%
-3%
EUR20%
13%
USD52%
104%
BRL28%
-14%
Sep-13¹
Dec-12
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¹ Considering swap contracted in October, 2013
Key messages
Global vertical integrated player with unique geographic position
Opportunities for growth and diversification into selected markets and industries
Focused on delivering superior returns to shareholders
markets and industries
Unique solution-based model (CPP) and performance-based applied R&D
Significant value of mineral reserves with opportunities to expand industrial minerals base
Strong management team and corporate governance practices
Solid financial fundamentals
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Annex
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Strong support from shareholders
Only common shares
2 independent board members
High free float: 58.6% (minimum required is 25%)
Listed in the Novo Mercado segment which corresponds to the best practices of corporate governance
Ownership structure Corporate Governance
34,2%GP
Controlling GroupHigh free float: 58.6% (minimum required is 25%)
Tag-along rights to all shareholders
Quarterly results in English in accordance with
International Financing Report Standards (IFRS)
Shares included in the IGC (Index of Differentiated
Corporate Governance) and ITAG (Index of Tag Along)
Latin America and worldwide leadership in Private Equity
Active management
58,6%
7,2%
Free Float
Rhône
Controlling Group
ADR Level I (Ticker: MFRSY)Active management
Culture of promotion by merit
Proven track record in the Brazilian and global capital markets,
with various success cases
OTC: Over- the-counter market
Program established in 2010
1 ADR = 2 ordinary shares
MFRSY
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Results 9M13
In spite of the poor performance of its core markets…
-5%
124130
-4%
8993-1%
3535
+2%
5251
Steel production¹ (M ton)South America
Steel production¹ (M ton)South America
Steel production¹ (M ton)North America
Steel production¹ (M ton)North America
Steel production¹ (M ton)EU-27
Steel production¹ (M ton)EU-27
Cement sales² (M ton)Brazil
Cement sales² (M ton)Brazil
9M139M129M139M129M139M12
33.1%31.9%
9M139M12
Volume* (Kton)Volume* (Kton) Revenues (R$ M)Revenues (R$ M) Gross Profit (R$ M)Gross Profit (R$ M) EBITDA(R$ M)EBITDA(R$ M)
…Magnesita has presented stable volumes and increasing gross margin
Sources: ¹ World Steel Association; ² Sindicato Nacional da Indústria de Cimento
9M13
562
9M12
509
31.9%
+10%
6%
9M13
1,698
9M12
1,597
9M13
294
15.5%
9M12
283
15.5%
+4%
*Refractory volume without LTR both in 2012 and 2013
23
-1%
9M13
758
9M12
762
Crude steel production¹ (mln ton) and Magnesita’s market share² (%)
+3%
138118120
+2%
227206208
168
+2%
125112111
+3% +7% 237
+4%
363308300
North America Europe CISSouth & Central America
Middle East Asia ex-China
Market growth forecast and Magnesita’s share %
%
Magnesita’s share
Mkt growth (CAGR)
+5%
Africa
Source: ¹CRU (Report Sep/2013) and ²Company estimates
2017(f)
2013(f)
118
2012(e)
120
2009
82
16%
2017(f)
2013(f)
2012(e)
2009
168
2017(f)
125
2013(f)
112
2012(e)
111
2009
98
9.6% <1%
2017(f)
56
2013(f)
48
2012(e)
48
2009
38
2017(f)
38
2013(f)
28
2012(e)
26
2009
20
237
2017(f)
2013(f)
2012(e)
2009
65% ~1% <1%
+5%
North America Europe Asia Others
Cement production¹ (mln ton) and Magnesita’s market share² (%)
South & Central America
+5%
2017(f)
20
2013(f)
16
2012(e)
16
2009
15
~1%
+7%
2014(f)
140
2013(f)
130
2012(e)
123
2011
115
+4%
2014(f)
345
2013(f)
328
2012(e)
317
2011
327
+5%
2014(f)
3.093
2013(f)
2.947
2012(e)
2.781
2011
2.618
2011
108
+7%
2014(f)
133
2013(f)
124
2012(e)
116
+7%
2014(f)
338
2013(f)
315
2012(e)
295
2011
270
25% <5% <1%60% <1%
Source: ¹CW Group (Report Feb/2013) and ²Company estimates
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Investor Relations contacts:Investor Relations contacts:
Octavio Pereira Lopes CEO
Eduardo Gotilla Global Finance & IRO
Daniel Domiciano SilvaInvestor Relations
Phone: 55 11 3152-3203/[email protected]
www.magnesita.com/riwww.magnesita.com/ir
MFRSY
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