Magnesita Refratários S.A.
October, 2013
MFRSY
Disclaimer
The material that follows is a confidential 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.
[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].
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.
2
Summary
Industry overview
Company overview
Financial Highlights
3
Refractory industry overview
Refractories are continuously consumed during steel production…
Electric Arc Fumace Steel Refining
Facility
Continuos Casting
Basic Oxygen
Furnace
Recycled Steel
Direct Reduction
Coal Injection
Iron Ore
Coal
Coke Oven
Limestone
Blast Furnace
Natural Gas
ELECTRIC ARC FURNACE
Volume: 120 tonnes
Life Expectancy: 1 month
BLAST FURNACE
Refractory Volume:
900 tonnes
Life Expectancy: 15 years
TORPEDO CAR
Volume: 200 tonnes
Life Expectancy: 2 years
CONVERTER
Volume: 800 tonnes
Life Expectancy: 6 months
CONTINUOUS CASTING
Volume: 25 tonnes
Life Expectancy: 10 hours
STEEL LADLES
Volume: 70 tonnes
Life Expectancy: 1 month
Source: Company
…and cement production
Preheater Tower
CLINKER COOLER
Volume: 500 tonnes
Life Expectancy: 1 - 3 years
PREHEATER TOWER
Volume: 1,000 tonnes
Life Expectancy: 5 - 10 years
ROTARY KILN
Volume: 250 tonnes
Life Expectancy: 10 months
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.
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
Bricks
Pre castables, valves and slide gates
Monolithic
Types of refractories Main consumers worldwide
Refractories are crucial consumables for manufacturing processes with high temperatures
4
Source: Freedonia.estimates 2011
Steel Non-ferrous
(aluminum, copper, nickel, silver, zinc)
Nonmetallic (cement, glass, lime)
Other
~60%
~15%
~15%
~10%
Global scale, local presence
Products and services breadth and depth
Access to high-quality materials
Global scale, local presence
Products and services breadth and depth
Relationship with clients
Technology
Key drivers
Fully Integrated
Manufacturing Only
CPP-Integrated
+ -
Access to high-quality materials Integrated Manufacturing
Technology, local presence Integrated Services
Mining Refractory manufacturing
Services Full TCO (performance -based)
*Source: Bloomberg (Krosaki and Shinagawa refer to 1Q13. Fiscal Year ends in march)
Business highlights
Magnesita’s unparalleled business model
Gross Margin in 1H13* (%)
27,2%
Vesuvius
33,6%
23,6%
RHI Shinagawa
16,5%
Magnesita
16,3%
Krosaki
5
Summary
Industry overview
Company overview
Financial Highlights
6
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
#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 is a global leader in refractories solutions and industrial minerals
Magnesita in numbers
Revenues of R$ 2.46 billion in 2012
Production in 4 continents, supplying globally to more than 850 clients worldwide
6,500 employees
28 industrial facilities with more than 1 million tons/year of refractories produced in 2012
7
Business highlights
Net revenues (2012)
R$ 148 million
(6% of the total revenues)
R$ 130 million
(5% of the total revenues)
Gross margin (2012)
11% 43%
Details/ description
Current: Talc, caustic magnesia (CCM), magnesia sinter (DBM), chromite and byproducts
Development: Graphite and talc expansion
Engineering, assembly and
installation of refractories
Value-added services, including
spot contracts
Refractory Solutions Services
Applications
Talc: Plastic, cosmetics, pharmaceuticals, food, ceramics, pulp and paper, etc CCM: Fertilizers, abrasives, animal nutrition, etc DBM: refractories
Industrial Minerals
Magnesita leverages its competitive advantages throughout the whole value chain
Refractories with tailor made
formulations and shapes as
well as strong technical service
Two commercial models (CPP
and conventional)
R$ 2.186 million
(89% of the total revenues)
31%
Steel
Industrial (cement, non-
ferrous, non-metallic)
Steel
Industrial (cement, non-
ferrous, non-metallic)
Mining
UPSTREAM DOWNSTREAM
8
Global scale, with local presence in key markets, with an integrated supply chain
Unique global footprint
York production unit (USA)
Contagem production units (BRA)
Coronel Fabriciano production unit (BRA)
San Nicolás production unit (ARG)
Valenciennes and Flaumont production units (FRA)
Hagen-Halden, Oberhausen and Kruft production units (DEU)
Chizhou production unit (CHN)
York Dolomite Mine (USA)
Qingyang dolomite mine (CHN)
Sinterco Dolomite JV (BEL)
Magnesite mine (Brumado - BRA)
Chromite mine (BRA)
Talc mine (BRA)
Sales per region 1H13
Taiwan JV’s production unit (CHN)
DMR production unit (CHN)
Sales Office Mines Refractory production
9
. . 22%
13% 19%
8%
39%
Europe
Brazil
North America
South America
Other
Experienced management team
Octavio Pereira Lopes - CEO
Otto Levy Reis – COO
Vinícius Silva - VP Minerals
Martin Bartmann - Global Supply Chain
José Roberto Beraldo - CFO
Felipe Sommer- VP People and Mngmt
Luis Rodolfo Bittencourt - VP R&D
Functional Team
Operational Team
Successful as CEO of Equatorial. Previous
Managing Director at GP Investments
Solid financial background
Senior roles and extensive
experience in global companies
Over 100 years of
combined experience in the
industry
Close relationships with
key players and clients in the
industry
Industry Experience: +11 years Joined Magnesita in 2008
Industry Experience: +27 years 27 years in Magnesita
Industry Experience: +17 years Joined Magnesita in 2011
Industry Experience: +3 years Joined Magnesita in 2010
Previous experience
Joined Magnesita in 2007 as board member and became CEO in 2012
Joined Magnesita in 2012
Joined Magnesita in 2012
Industry experience
Over 100 years of combined experience in the industry
10
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
On
e g
lob
al o
rgan
izat
ion
Vision: Be the best provider of refractories solutions and industrial minerals,
leveraging and developing our minerals base
III-Expand industrial minerals base
I-Ensure leadership in our core markets
IV-Maintain a global low cost production base
II-Grow selectively and 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
11
New strategic vision
I – Ensure leadership in our core markets
12
South America
Dolomitics in North America
Dolomitics in Western Europe
Long standing relationship with blue-chip customers
Our differentiated competitive position and leadership in core markets support our growth as they recover
~50% in stainless steel ~20% in mini-mills
Magnesita’s share* in core markets Magnesita’s competitive advantages in its core markets
~60% in stainless steel ~15% in mini-mills
~65% in steel ~60% in cement
*Company estimates
Vertically integrated low-cost producer
Continuous investments in R&D and technology
Specialized technical assistance
Logistic advantages due to privileged locations
Captive CPP contracts with long-term alignment of interests
Brand recognition and historical leadeship
Access to high quality and low cost raw materials, specially good for industrial customers
Global footprint, global scale with an integrated supply chain
Best-in-class technical and R&D capabilities with brand recognition
Increasing reach of our sales force with a new commercial structure
Historically low exposure in several important markets
Magnesita refractory sales (1H13)¹
Refractories consumption Global Market²
Opportunities for growth in a fragmented global industry Opportunities for diversification into non steel industries
Industrial
40%
Steel 60%
Industrial 17%
Steel
83%
II – Grow selectively and aggressively
13
Source: Company estimates .
Global market share (in USD)
RHI ~ 9%
Regional players
Segment players
Global players
Vesuvius-~10%
Magnesita ~ 5%
~10%
Shinagawa Krosaki ANH Qinghua Magnezit
~13%
Chinese players
~37% Refratechnik Saint Gobain Calderys Minteq
Small local players
~16%
Source: ¹Company figures and ²Freedonia.
Pursue long term growth opportunities in select markets where we can deliver superior value
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
Dedicated team to prospect, analyze and develop business
Brazil is fertile; very favorable geography
It has been 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
Commercial development is necessary
US$2bi - US$10bi global markets
Magnesita is very well positioned to occupy the “white space” in Brazil
Magnesita’s strategic
positioning
The Brazilian opportunity
Focused Opportunity
set
14
Unlocking our internal expertise and the industrial minerals opportunity in Brazil
Complete geological work and reserve certification
Environmental license
Industrial project
Commercial development
Medium capex; medium risk
1.Preliminary 5 to 10 analysis
per year
2.Development Graphite
Talc expansion
3.Installation
Preliminary geological work
Market analyses
Low capex; high risk
Investment in the industrial plant
High capex; low risk
Cash flow generation
Maintenance capex
III – Expand industrial minerals base
Graphite project Talc expansion
Become self sufficient supplying our refractory business
Surplus to supply third parties, focusing on high end users
Positive outlook and growing demand from new applications
Restrictions from Chinese exports (~80% of global production)
Environmental license granted in March 2013
Leader in Brazil, producing ~40kton/y
~50% gross margin
Low environmental license and geological risk
Commercial development underway
Project should double capacity over next 2 years
4.Operational DBM, Talc, CCM
15
Our goal is to have at least one project moving to the next phase every 12 – 18 months
IV - Maintain a global low cost production base
Sinterco Dolomite JV (Belgium) 31 million tonnes of reserves Expected life: 30 years
Brumado (Bahia-Brazil)
830 million estimated tonnes of reserves (549 million measured)
Only mine to allow the economical production of 98.3%-grade DBM
Expected life: ~200 years
The mine is connected to the port of Aratu by the FCA railway
York Dolomite Mine (PA-USA)
25 million tonnes of reserves
Expected life: 45 years
Qingyang Dolomite Mine (China)
18 million tonnes of reserves
Expected life: 50 years
North American facility (PA-USA)
European facilities (3 in Germany and 2 in France)
South American facilities (MG-Brazil and Argentina)
Asian facility (Chizhou-China)
Raw material flow
Finished product flow
DMR facility (Dalian-China)
Brumado has the highest quality of raw material in the world with more than 200 years of reserves
16
Opportunities for further industrial and supply chain optimization
Summary
Industry overview
Company overview
Financial Highlights
17
Net Revenues EBITDA and EBITDA margin (excl. non-recurring)
Steady organic growth
Proven resilience in adverse market conditions
CAPEX funded comfortably with operational cash flow
25%
3%
12%
34%
30%
24%
12%
-3%
30%
33%
14%
1%
34%
45%
18%
14%
33%
36%
17%
11%
38%
49%
26%
34%
2008 2009 2010 2011 2012 1H13
Magnesita¹ CSN Gerdau Usiminas
CAPEX
Source: Companies report (only parent company for Usiminas and CSN) ¹Magnesita in 2011 was adjusted due to accounting reallocation
Financial highlights (BRL mln)
18
Gross margin Magnesita vs clients
+1,3%
+8,5%
1H13
1.261
1H12
1.244
2012
2.464
2011
2.319
2010
2.276
2009
1.927
+12,7%
+3,1%
1H13
217
17,2%
1H12
193
15,5%
2012
373
15,1%
2011
337
14,5%
2010
425
18,7%
2009
340
17,7%
2012
257
74 165
118
2011
171
120
1H12
92
44
60
51
1H13 2010
78
2009
37
CAPEX Brumado expansion
Debt and Leverage
Amortization Schedule (R$ million) Net Debt per currency
Total Excluding Perpetual Bond
2Q13
397
1.205
3,0x
4Q12
373
1.058
2,8x
2Q12
352
1.002
2,9x
4Q11
338
971
2,9x
Net debt / Ebitda EBITDA* LTM Net Debt
19
*EBITDA excluding non recurring *EBITDA excluding non recurring
2Q13
397
639
1,6x
4Q12
373 536
1,4x
2Q12
352 490
1,4x
4Q11
338
971
2,9x
Net debt / Ebitda EBITDA* LTM Net Debt
Solid balance with no refinancing risk
2020+
1.485
931
554
2017
77
2016
78
2015
112
2014
33
2013
38
Jun-13
633
2018
8
2019
8
Cash position
Amortization
Perpetual bond
Others -4% -3%
EUR 19%
13%
-14%
USD 73%
104%
BRL 12%
Jun-13
Dec-12
Key messages
Strong management team and corporate governance practices
Global vertical integrated player with unique geographic position
Opportunities for growth and diversification into selected markets and industries
Unique solution-based model (CPP) and performance-based applied R&D
Focused on delivering superior returns to shareholders
Significant value of mineral reserves with opportunities to expand industrial minerals base
Solid financial fundamentals
20
21
Annex
Strong support from shareholders
Only common shares
2 independent board members
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)
Listed in the Novo Mercado segment (Ticker: MAGG3), which correspond to the best practices of corporate governance
Ownership structure Corporate Governance
Latin America and worldwide leadership in Private Equity
Active management
Culture of promotion by merit
Proven track record in the Brazilian and global capital markets,
with various success cases
58,6%
34,2%
7,2%
Free Float
Rhône
GP
Controlling Group
22
ADR Level I (Ticker: MFRSY)
OTC: Over- the-counter market
Program established in 2010
1 ADR = 2 ordinary shares
MFRSY
Results 1H13
In spite of the poor performance of its core markets, Magnesita has improved its results in 2013
-5%
1H13
84
1H12
89 -6%
1H13
43
1H12
46 -5%
1H13
23
1H12
24
Performance of Magnesita’s core markets (mln tonnes)
1H13
424
33,6%
1H12
383
30,8%
1.244
+1,3%
1H13
1.261
1H12 1H13
217
17,2%
1H12
193
15,5%
Net revenues (R$ mln)
Steel production EU-27
Steel production USA
Steel production South America
Gross profit (R$ mln) EBITDA (R$ mln)
Cement sales Brazil
+2%
1H13
34
1H12
33
23
557
-2,6%
1H13
542
1H12
Volume* (Kton)
*Refractory volume (do not include industrial minerals)
Source: ¹CRU (Report May/2013) and ²Company estimates
Crude steel production¹ (mln ton) and Magnesita’s market share² (%)
+3%
2017(f)
138
2013(f)
118
2012(e)
120
2009
82
16%
2013(f)
206
2012(e)
209
2009
162
+2%
2017(f)
229 +3%
2017(f)
128
2013(f)
114
2012(e)
111
2009
98
9.6% 0.3%
+4%
2017(f)
59
2013(f)
50
2012(e)
48
2009
38
2012(e)
42
2009
35
+7%
2017(f)
58
2013(f)
45
+4%
2017(f)
365
2013(f)
308
2012(e)
300
2009
238
65% 2.1% 1%
North America Europe CIS
140130123115
+7%
2014(f) 2013(f) 2012(e)
2011
345328317327
+4%
2014(f) 2013(f) 2012(e)
2011
South & Central America MEA Asia ex-China
+5%
2014(f)
3.093
2013(f)
2.947
2012(e)
2.781
2011
2.618
133124116108
+7%
2014(f) 2013(f) 2012(e)
2011
338315295270
+7%
2014(f) 2013(f) 2012(e)
2011
25% <5% <1% 60% <1%
North America Europe Asia Others
Source: ¹CW Group (Report Feb/2013) and ²Company estimates
Market growth forecast and Magnesita’s share
24
Cement production¹ (mln ton) and Magnesita’s market share² (%)
South & Central America
%
%
Magnesita’s share
Mkt growth (CAGR)
25
DMR (manufacturing unit in China)
Low cost production base: The plant is located in the city of Dalian, northeast China, region which owns around 20% of world’s reserves of magnesite, making it a highly strategic location for refractory production
New markets: This new plant will allow us to better serve geographies and segments where Magnesita has a marginal presence today and where we want to expand sales in a selective way
Location: Dalian is an important export hub in China with excellent logistics
Capacity: 50.000 tons/year
The acquisition was concluded on July 31, 2013
Recent aquisitions
DMR external view China
CHINA
Maintain a global low
cost production
base
Grow selectively
and aggressively
26
Refractory assembly in rotary kiln
Reframec (51% of equity)
Ensure leadership in our core markets: The Reframec acquisition reinforces Magnesita's leadership in its core industrial markets in South America, as it expands its services beyond the steel industry
Reframec: Leader in engineering, installation and repair services for refractories used in cement production in Brazil
The acquisition of 51% of Reframec was completed on June 28, 2013
Recent aquisitions Ensure
leadership in our core
markets
27
Investor Relations contacts:
Octavio Pereira Lopes CEO
Eduardo Gotilla
Global Finance & IRO
Daniel Domiciano Silva Investor Relations
Phone: 55 11 3152-3203/3241
[email protected] www.magnesita.com
MFRSY