Presentation on theme: "1. 2 Disclaimer This presentation may contain statements that express managements expectations about future events or results rather than historical facts."— Presentation transcript:
2 Disclaimer This presentation may contain statements that express managements 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 CVRDs actual results to differ from expectations reflected in forward-looking statements, please see CVRDs reports filed with the Brazilian Comissão de Valores Mobiliários and the U.S. Securities and Exchange Commission.
3 Agenda nPerformance highlights nBusiness outlook nPerformance highlights nBusiness outlook
4 Performance highlights
5 The challenge nA dramatic global demand growth for minerals and metals posed a major challenge. nAsset operation at record production levels, maximizing performance. nAt 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 2003 nAn all-time high top line – US$ billion (+29.5%). Growth driven by larger volumes (63.3%) and higher prices (36.7%). nRecord net earnings - US$ billion (+127.6%). nA record operational profit – EBIT equal to US$ billion (+15.1%) – but lower margins (30.7% vs. 34.7% in 2002).
7 A good earnings performance compared to other metals and mining companies Source: Bloomberg LP and companies reports Market Cap as of December 31, 2003 US$ billion 2003 Net Earnings US$ million * 2003 CY
8 Explaining EBIT margin decline Margin reduction Caemi a consolidation 15% FCA consolidation 23% Asset b impairment 16% Tax c provisions 7% Operational Performance 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 A record cash generation in 2003 – adjusted EBITDA equal to US$ billion (+19.7%) LTM adjusted EBITDA US$ million a Caemi contribution to 2003 EBITDA = US$ 88 million b FCA contribution to 2003 EBITDA = -US$ 28 million
10 Sales revenues and adjusted EBITDA By product By market 2003 Adjusted EBITDA US$ billion 2003 Gross Revenues US$ billion
11 Disciplined capital spending nROIC equal to 30.6%, staying above market average and last five years average of 21.2%. nCapex budget for 2004 equal to US$ 1.8 billion. nGrowth 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. nA US$ 78 million multicommodity and global mineral exploration program.
12 Main projects coming on stream in 2004 nCarajás 70 Mtpy Capacity increase: 14 Mtpy of iron ore. Capex cost of US$ per ton – includes investment in mine, plant, railroad equipment and port. Already in operation. nSossego 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 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. 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. Continued improvement in balance sheet – low leverage, high interest coverage, longer debt maturity Total debt / Adjusted EBITDA (x)
15 Sales volumes boomed 2003 vs million tons 26,295 million NTK a a - without CAEMI = million tons b - without CAEMI = 423,000 tons b Record
16 Iron ore and pellets - growth still constrained by capacity million tons Caemi 41.5 All-time high
17 Productivity gains allowed CVRD to maintain its leadership in the global iron ore market 2003 global seaborne iron ore trade million tons Source: CVRD
18 CVRD is also one of the leading players in the global seaborne manganese ore trade 2003 global seaborne manganese ore trade 8.2 million tons Source: CVRD
19 CVRD logistics services decoupled from Brazil´s GDP growth Railroad transportation CAGR = 9.4% billion ntk Brazil GDP CAGR = 1.8%
20 Business outlook
21 A structural disequilibrium nMining industry underinvested since the mid-nineties. nThere is a secular Chinese demand growth. nCombination 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. nCVRD, 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 wont be corrected in the short term.
22 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 =5.8% CAGR 04E-07E =3.6% a IISI mid-case projection a
23 Source: Clarksons 02/04 Brazil-Japan and Australia-Japan freight rates differential Freight rate differentials behavior signals a global excess demand for iron ore 2-digit iron ore price increase 2-digit iron ore price decrease 9% price increase 18% price increase Jan/Feb 04 Chinese iron imports+36.7% yoy World steel output+10.4% yoy
24 Freight rates are expected to remain high for long. However, CVRD iron ore remains highly competitive in Asia. nCVRD has the largest and the highest quality reserves allowing flexibility to increase capacity at a relatively rapid pace. nLowest opex and capex costs. Capex costs are approximately half of the competition. nLong term contracts and capability to customize products. nAs 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 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% Chinas share Source: CVRD million tons
26 World aluminum demand is expected to increase by 7.5 Mt between 2003 and This mean an additional demand for 17 Mt of alumina, making it hard to correct current disequilibrium Source: Metal Bulletin and LME
27 Global IP growth, declining metal inventories, supply constraints and USD weakness help to support copper prices. Source: LME Copper prices and inventories
28 World copper market is expected to remain in deficit until 2007 Source: CRU and CVRD Surplus (+) / Deficit (-) in 1,000 tons
29 Short term outlook for logistics services nPurchase in 2003/2004 of 139 locos and 3,600 wagons for general cargo transportation adds a good deal of capacity to meet existing demand. nSteel output, agricultural crops and Brazilian exports are expected to continue to grow at relatively high rates expanding demand for logistics services. nGood performance of Brazilian agricultural output in 2004 – 8% expected growth – generates a strong demand for potash.