usiminas: challenges and outlook brazil day 2003

1

USIMINAS: CHALLENGES AND OUTLOOK

Brazil Day 2003

New York,

November 17th, 2003

Rinaldo Campos Soares

CEO

2

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

3

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

4

Usiminas Investment DynamicsUsiminas Investment Dynamics

5

0.5 million t/year0.5 million t/year0.5 million t/year0.5 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

6

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

7

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

8

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

9

Today, Usiminas System has

a Solid Market Position

Today, Usiminas System has

a Solid Market Position

10

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

11

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

12

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

13

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

14

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

16

-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

17

LOOKING AHEADLOOKING AHEAD

18

The Steel Industry is Undergoing a Transformation, Creating New Challenges and Opportunities

The Steel Industry is Undergoing a Transformation, Creating New Challenges and Opportunities

19

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

20

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

21

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

22

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


improvement sourcing, SCM



To develop new markets

To upgrade distribution

system


To rationalize

fixed assets



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

24

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

25

Major Commercial Goals and InitiativesMajor Commercial Goals and Initiatives


Integrar gestãoUsiminas/ Cosipa

Strategic alliances/

acquisitions

To Optimize Model for

Commercial Operation

To reduce debt


To Enhance IRRelationship

To Update Commercial

Strategy

Re

lati

ve

Dif

fic

ult

y

Low

High

Smaller GreaterImpact on Value Creation Over Medium Term







system


To rationalize

fixed assets


alliances

26

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

27

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


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







system

To rationalize

fixed assets


alliances


To Enhance IRRelationship

28

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

29

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)

30

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

31

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

32

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

33

FINAL MESSAGESFINAL MESSAGES

34

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 . . .

35

. . . 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

36

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 . . .

37

. . . 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

38

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

39

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.”

usiminas: challenges and outlook brazil day 2003

Documents

millioncrude steel production9

usiminas consolidated

leading flat steel producer

coatedusiminas system

small diameter pipes24e1

tyear1999 modernization

household appliancesgrfico80

line pipes88