1. 2 disclaimer this presentation may contain statements that express managements expectations about...
TRANSCRIPT
1
2
DisclaimerDisclaimer
”This presentation may contain statements that express management’s
expectations about future events or results rather than historical facts.
These forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially from those projected in forward-
looking statements, and CVRD cannot give assurance that such statements
will prove correct. These risks and uncertainties include factors: relating to
the Brazilian economy and securities markets, which exhibit volatility and
can be adversely affected by developments in other countries; relating to
the iron ore business and its dependence on the global steel industry, which
is cyclical in nature; and relating to the highly competitive industries in
which CVRD operates. For additional information on factors that could cause
CVRD’s actual results to differ from expectations reflected in forward-looking
statements, please see CVRD’s reports filed with the Brazilian Comissão de
Valores Mobiliários and the U.S. Securities and Exchange Commission.”
3
AgendaAgenda
Performance highlights
Business outlook
Performance highlights
Business outlook
4
Performance highlightsPerformance highlights
5
The challengeThe challenge
A dramatic global demand growth for minerals and metals
posed a major challenge.
Asset operation at record production levels, maximizing
performance.
At the same time, CVRD managed to anticipate the low cost
Carajás expansion jointly with the building of Pier III of PDM
maritime terminal.
6
An excellent performance in 2003An excellent performance in 2003
An all-time high top line – US$ 5.545 billion (+29.5%).
Growth driven by larger volumes (63.3%) and higher prices
(36.7%).
Record net earnings - US$ 1.548 billion (+127.6%).
A record operational profit – EBIT equal to US$ 1.644 billion
(+15.1%) – but lower margins (30.7% vs. 34.7% in 2002).
7
A good earnings performance compared to other metals and mining companiesA good earnings performance compared to other metals and mining companies
Source: Bloomberg LP and companies reports
12.1
17.218.921.8
32.532.9
38.4
55.8
BHPB
Rio T
into
Alcoa
Anglo A
mer
ican
CVRD
Newm
ont
Alcan
Barric
k
Market Capas of December 31, 2003
US$ billion
2003 Net Earnings
US$ million
476
200 167
1,034
1,3821,548
1,694
2,202*
BHPB
Anglo A
mer
ican
CVRD
Rio T
into
Alcoa
Newm
ont
Barric
k
Alcan
* 2003 CY
8
Explaining EBIT margin declineExplaining EBIT margin decline
400 bps
59 bps
66 bps
28 bps
92 bps
155 bps
Margin reduction2002-2003
Caemi a
consolidation15%
FCAconsolidation
23%
Asset b
impairment16%
Tax c
provisions7%
OperationalPerformance
39%
a non-recurring, non-cash asset impairment contributed to a 630 bps reduction in Caemi´s EBIT margin, 25.8% to 19.5%.
b non-recurring non-cash events.c without any contemporaneous cash effect.
9
2,0001,8901,8251,780
1,6861,587
1,515
2,130
1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03
A record cash generation in 2003 – adjusted EBITDA equal to US$ 2.130 billion (+19.7%)A record cash generation in 2003 – adjusted EBITDA equal to US$ 2.130 billion (+19.7%)
LTM adjusted EBITDA
US$ million
a Caemi contribution to 2003 EBITDA = US$ 88 millionb FCA contribution to 2003 EBITDA = -US$ 28 million
10
Kaolin, Potash and
Other4.7%
Manganese and Ferro-
Alloys6.3%
Aluminum, Alumina
and Bauxite15.4%
Logistics10.9%
Gold0.4%
Pellets14.3%
Iron Ore48.0%
Sales revenues and adjusted EBITDASales revenues and adjusted EBITDA
By productBy product By marketBy market
2003 Adjusted EBITDA 2003 Adjusted EBITDA
US$ 2.130 billionUS$ 2.130 billion
2003 Gross Revenues US$ 5.545 billion2003 Gross Revenues US$ 5.545 billion
USA3.4%
Domestic Market30.7%
RoW11.1%
J apan7.6%
China10.5%
Europe32.2% Emerging
Asia4.5% Other
3.4%
Aluminum9.3%
Logistics8.5%
Non Ferrous Minerals
1.5%
Ferrous Minerals77.3%
11
Disciplined capital spendingDisciplined capital spending
ROIC equal to 30.6%, staying above market average and
last five years average of 21.2%.
Capex budget for 2004 equal to US$ 1.8 billion.
Growth capex of US$ 1.2 billion focused on iron ore,
bauxite, alumina, copper, potash and port capacity
expansions besides purchases of 88 locos and 3,178
railcars.
A US$ 78 million multicommodity and global mineral
exploration program.
12
Main projects coming on stream in 2004Main projects coming on stream in 2004
Carajás 70 Mtpy
Capacity increase: 14 Mtpy of iron ore.
Capex cost of US$ 10.28 per ton – includes investment
in mine, plant, railroad equipment and port.
Already in operation.
Sossego
Capacity: 140,000 ktpy of copper, 3 tpy of gold.
Capex cost: US$ 2,760 per ton.
Cash cost: US$ 0.30/ lb approximately.
The only greenfield copper project to come on stream in
the world in 2004 and the largest up to 2007.
Ramping up, full commercial production starts in July.
13
Average debt life rose from 2.98 years in Dec 2002 to 6.47 years in Jan 2004 without an increase in average debt cost.
15.98
26.01
28.71
25.14
22.91
11.51
8.77
8.77
7.587.53
14
18
22
26
30
1999 2000 2001 2002 2003
%
6
8
10
12
X
Total Debt / EV (% ) Adjusted EBITDA / Interest coverage (x)
Continued improvement in balance sheet – low leverage, high interest coverage, longer debt maturity
Continued improvement in balance sheet – low leverage, high interest coverage, longer debt maturity
14
Average debt life rose from 2.98 years in Dec 2002 to 6.47 years in Jan 2004 without an increase in average debt cost.
1.891.87
2.05
1.78
2.01
1
2
3
1999 2000 2001 2002 2003
Continued improvement in balance sheet – low leverage, high interest coverage, longer debt maturity
Continued improvement in balance sheet – low leverage, high interest coverage, longer debt maturity
Total debt / Adjusted EBITDA (x)
15
Sales volumes boomedSales volumes boomed
2003 vs 2002
16.4%
5.1%
98.2%
-7.8%
30.8%
7.1%
168.3%
5.5%
33.1%
14.8%
13.3%
-81.4%
I ron Ore
Pellets
Gold
Manganese ore
Ferro Alloys
Alumina
Primary Aluminum
Bauxite
Potash
Kaolin
Railroads
Ports
186.3 million tons
26,295 million NTK
a
a - without CAEMI = 172.4 million tonsb - without CAEMI = 423,000 tons
b
Record
16
Iron ore and pellets - growth still constrained by capacityIron ore and pellets - growth still constrained by capacity
38.437.736.336.437.137.536.232.8
3.4
10.5
3.9
4.9 4.8 6.9 6.1 5.2
5.5
6.8
1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03 4Q 03
I ron Ore Pellets
million tons
36.7
41.142.3 44.0 42.5
46.6
55.7
Caemi41.5
All-time high
17
Productivity gains allowed CVRD to maintain its leadership in the global iron ore marketProductivity gains allowed CVRD to maintain its leadership in the global iron ore market
2003 global seaborne iron ore trade537.1 million tons
BHPB16.3%Rio Tinto
19.9%
Others22.3%
CVRD32.9%
Kumba3.8%
SNIM1.8%
LKAB3.0%Source: CVRD
18
CVRD is also one of the leading players in the global seaborne manganese ore tradeCVRD is also one of the leading players in the global seaborne manganese ore trade
2003 global seaborne manganese ore trade8.2 million tons
BHPB23%
CVRD11% Eramet
10%
Ore & Metals8%
Ghana Mining5%
Autlan3%
Others40%
Source: CVRD
19
26.325.021.320.1
2000 2001 2002 2003
CVRD logistics services decoupled from Brazil´s GDP growthCVRD logistics services decoupled from Brazil´s GDP growth
Railroad transportationCAGR = 9.4%
billion ntkBrazil GDPCAGR = 1.8%
20
Business outlookBusiness outlook
21
A structural disequilibrium A structural disequilibrium
Mining industry underinvested since the mid-nineties.
There is a secular Chinese demand growth.
Combination of Chinese growth, a synchronized global
recovery and a weak USD contributes to extend the length
of the current price cycle, making it similar to the late
eighties.
CVRD, with large mineral deposits, is one of the main
beneficiaries of the current disequilibrium.
There is a structural disequilibrium between demand and
supply for several minerals and metals, that won’t be corrected
in the short term.
22
706 759 780 831 884 9361,041
0
200
400
600
800
1000
1200
1999 2000 2001 2002 2003 2004E 2007E
mill
ion t
ons
Global steel consumption
Global steel consumption is growing fast, generating strong demand for iron and manganese ores
Global steel consumption is growing fast, generating strong demand for iron and manganese ores
Source: IISI
Global consumption is expected to increase 5.8% in 2004, China will be
responsible for 64%
CAGR 99-03 =5.8%CAGR 04E-07E =3.6%
a
IISI mid-case projectiona
23
0
5
10
15
20
25
01/89 01/90 01/91 01/92 01/93 01/94 01/95 01/96 01/97 01/98 01/99 01/00 01/01 01/02 01/03 01/04
US
$ /
ton
Source: Clarksons
02/04
Brazil-Japan and Australia-Japan freight rates differential
Freight rate differentials behavior signals a global excess demand for iron oreFreight rate differentials behavior signals a global excess demand for iron ore
2-digit iron ore price
increase
iron ore price increase
iron ore price increase
2-digit iron ore price
decrease
9% price increase
18% price increase
Jan/Feb 04Chinese iron imports +36.7% yoyWorld steel output +10.4% yoy
24
Freight rates are expected to remain high for long. However, CVRD iron ore remains highly competitive in Asia.
Freight rates are expected to remain high for long. However, CVRD iron ore remains highly competitive in Asia.
CVRD has the largest and the highest quality reserves
allowing flexibility to increase capacity at a relatively
rapid pace.
Lowest opex and capex costs. Capex costs are
approximately half of the competition.
Long term contracts and capability to customize products.
As it modernizes, value-in-use is becoming more
important to the Chinese steel industry, meaning further
demand growth for the high Fe low silica CVRD iron ore.
25
We expect global iron ore seaborne trade to grow 7.1% in 2004
We expect global iron ore seaborne trade to grow 7.1% in 2004
55 70 92 112148
175
411454 450
487537
575
660
1999 2000 2001 2002 2003 2004E 2007E
Chinese imports
Global imports
World: CAGR 99-03=6.9% - CAGR 04E-07E=4.7%
China: CAGR 99-03=26.8%
World: CAGR 99-03=6.9% - CAGR 04E-07E=4.7%
China: CAGR 99-03=26.8%
13.4% 15.4% 20.4% 23.0% 27.6% 30.4%China’s share
Source: CVRD
million tons
26
World aluminum demand is expected to increase by 7.5 Mt between 2003 and 2008. This mean an additional demand for 17 Mt of alumina, making it hard to correct current disequilibrium
World aluminum demand is expected to increase by 7.5 Mt between 2003 and 2008. This mean an additional demand for 17 Mt of alumina, making it hard to correct current disequilibrium
0
100
200
300
400
500
jan/ 9
8
apr/
98
jul/
98
oct/
98
jan/ 9
9
apr/
99
jul/
99
oct/
99
jan/ 0
0
apr/
00
jul/
00
oct/
00
jan/ 0
1
apr/
01
jul/
01
oct/
01
jan/ 0
2
apr/
02
jul/
02
oct/
02
jan/ 0
3
apr/
03
jul/
03
oct/
03
jan/ 0
4
US$ p
er
ton
0%
5%
10%
15%
20%
25%
30%
%
Alumina spot prices % of LME 3 month aluminum price
Source: Metal Bulletin and LME
27
Global IP growth, declining metal inventories, supply constraints and USD weakness help to support copper prices.
Global IP growth, declining metal inventories, supply constraints and USD weakness help to support copper prices.
0
200
400
600
800
1000
1200
1400
1600
1999 2000 2001 2002 2003 2004
00
0 t
on
s
1000
1500
2000
2500
3000
3500
USD/ton
LME+SFE+COMEX inventories Copper prices LME-3 month
Source: LME
Copper prices and inventories
28
World copper market is expected to remain in deficit until 2007World copper market is expected to remain in deficit until 2007
Source: CRU and CVRD
69
-290
-559
-250 -210
-100
-800
-600
-400
-200
0
200
400
2002 2003 2004E 2005E 2006E 2007E
1.0
00 t
ons
Surplus (+) / Deficit (-) in 1,000 tons
29
Short term outlook for logistics servicesShort term outlook for logistics services
Purchase in 2003/2004 of 139 locos and 3,600 wagons for
general cargo transportation adds a good deal of capacity
to meet existing demand.
Steel output, agricultural crops and Brazilian exports are
expected to continue to grow at relatively high rates
expanding demand for logistics services.
Good performance of Brazilian agricultural output in 2004
– 8% expected growth – generates a strong demand for
potash.
30
www.cvrd.com.bre-mail: [email protected]
www.cvrd.com.bre-mail: [email protected]
CVRD - The Best of Brazil