3q14 earnings realease
TRANSCRIPT
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3Q14 Results 1
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Release of the 3Q14 Results
Release of the 3Q14 Results
The main operational and financial indicators were:
Total steel sales volume of 1.4 million tons;
Consolidated net revenue of R$2.9 billion;
Consolidated Adjusted EBITDA of R$356.5 million;
Cash position on 09/30/14 of R$3.1 billion;
Investments in Capex of R$268.3 million;
Net debt / EBITDA ratio of 1.8x.
Public Disclosure - Belo Horizonte, October 29th, 2014. Usinas Siderrgicas de Minas Gerais S.A. - Usiminas (BM&FBOVESPA:USIM3, USIM5 e USIM6; OTC: USDMY and USNZY; LATIBEX: XUSIO and XUSI) today releases its third quarter results of fiscal year2014 (3Q14). Operational and financial information of the Company, except where otherwise stated, are presented based onconsolidated figures, in Brazilian Real, according to International Financial Reporting Standards (IFRS). All comparisons made in thisrelease take into consideration the second quarter of 2014 (2Q14), except where stated otherwise.
BM&FBOVESPA: USIM5 R$6.37/shareUSIM3 R$6.64/share
USA/OTC: USNZY US$2.59/ADR
LATIBEX: XUSI 2.11/shareXUSIO 2.16/share
Market Date 09/30/14 Index
Consolidated Results
Performance of the Business Units:- Mining- Steel- Steel Processing- Capital Goods
ConsolidatedHighlights Capital Markets
Balance Sheet, Income, Cash Flow Statements
R$ million - Consolidated 3Q14 2Q14 3Q13Chg.
3Q14/2Q149M14 9M13
Var.
9M14/9M13
Steel Sales Volume (000 t) 1,401 1,456 1,565 -4% 4,294 4,728 -9%
Iron Ore Sales Volume (000 t) 1,238 1,457 1,830 -15% 4,462 4,542 -2%
Net Revenue 2,908 3,106 3,198 -6% 9,156 9,637 -5%
COGS (2,783) (2,772) (2,742) 0% (8,178) (8,598) -5%
Gross Profit (Loss) 125 334 455 -63% 979 1,039 -6%
Net Income (Loss) (24) 129 115 - 326 (30) -
EBITDA (Instruction CVM 527) 344 538 534 -36% 1,530 1,259 22%
EBITDA Margin (Instruction CVM 527) 12% 17% 17% - 500 bps 17% 13% + 400bps
Adjusted EBITDA 357 549 538 -35% 1,561 1,292 21%
Adjusted EBITDA Margin 12% 18% 17% - 600 bps 17% 13% + 400bps
Investments (CAPEX) 268 261 238 3% 767 673 14%
Cash Position 3,057 2,894 3,990 6% 3,057 3,990 -23%
Main Highlights
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3Q14 Results 2
Economic Scenario
The global economy is growing at a slower pace than what was expected for 2014. TheInternational Monetary Fund, IMF, expects that global economic growth reach 3.3% in 2014,stable if compared with 2013. The weaker growth is due to the worst performance of the leadingcountries in the Eurozone, Japan and some emerging countries, such as Brazil.
The potential average growth of developing countries in 2014 is 4.4%, highlighting China with7.4% and Brazil with 0.3 %, according to IMF forecasts.
Economic activity in Brazil has shown a weak growth since early 2014, due to structural factorssuch as inefficient infrastructure, high interest rates and low competitiveness in the industry, whichcontribute to lower investments. The Brazilian industry has been facing a difficult scenario due toweaker consumption, low investment, high inventories and low consumer and business confidence.According to the Focus Report, from Brazilian Central Bank, the Industrial GDP is forecast torecede 1.3% this year.
Steel Industry
According to the World Steel Association, WSA, global crude steel production reached 1,231 milliontons until September, 2.0% higher than the same period of the previous year, with Chineseproduction, which has a 50% share of global production, advancing 1.9%. The global capacityutilization rate reached 76.1%, 260 basis points lower than September, 2013. Therefore, excesscapacity persists, negatively affecting profitability conditions in the global steel industry.
In Brazil, crude steel production reached 25.5 million tons until September, a decrease of 1.3%when compared with the same period of 2013. According to the Brazilian Steel Institute, IABr, flatsteel production decreased 5.1% in that period.
The flat steel market in Brazil consumed 3.3 million tons in the 3Q14, of which 18.8% of thevolume was supplied by imports. Comparing the 3Q14 with the 2Q14, apparent consumptiondeclined 5.0%, representing a retraction in all products lines.
Among the industrial sectors, those that are intensive in steel consumption had an even moresignificant decline. In the first 8 months of the year, the production of capital goods and durablegoods decreased 8.8% and 10.3%, respectively. Among them, the production of vehicles is one ofthe negative results. According to the Brazilian Automotive Manufacturers Entity (ANFAVEA), theproduction decreased 16.8% until September, if compared with the same period of last year. Thedecrease in exports, mainly of vehicles and autoparts, reached 15.1% in the same period. Thus,according to the IABr and the Ministry of Development, Industry and Foreign Trade (MDIC), theindirect steel trade balance accounted for was 1.9 million tons in the first 9 months of the year, the
highest deficit in history.The Steel Distributors National Association (INDA) estimates that flat steel sales in the distributionnetwork increased 3.4% in the 3Q14, in comparison with the 2Q14 and decreased 11.2% incomparison with the same quarter of previous year. Inventories were stable at around 1.1 milliontons and the inventory turnover rate decreased to 2.9 months.
Mining
The reduction in the Chinese demand and abundant supply of iron ore pressured its pricesstrongly, which reached, on average, of US$90.2/t in the 3Q14, against US$102.6/t in the 2Q14(62% Fe, CFR China). The iron ore price reached even lower levels, quoted at US$77.80/t on09/30/14.
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3Q14 Results 3
Economic and Financial Performance
Comments on Consolidated Results
Net Revenue
Net revenue in the 3Q14 was R$2.9 billion, 6.4% lower than in the 2Q14, mainly due to lowersteel and iron ore sales volume and lower iron ore market prices. Domestic marketrepresented 82.3% of the total consolidated net revenue.
Cost of Goods Sold (COGS)
In the 3Q14, COGS totaled R$2.8 billion.
Gross margin was 4.3% in the 3Q14, 650 basis points lower than in the 2Q14, which was10.8%, as per the chart below:
Operating Expenses and Revenues
In the 3Q14, sales expenses were 10.5% lower than in the 2Q14, mainly due to lower iron oreexports volume. General and administrative expenses were 12.6% lower in function of a reductionin expenses with third party services. Net operating expenses totaled R$95.7 million in the 3Q14against R$133.8 million in the 2Q14, mainly due to higher sale revenue of surplus electrical energyin R$35.4 million.
Thus, the Companys operating margin showed the following performance:
3Q14 2Q14 3Q13 9M14 9M13
Domestic Market 82% 88% 94% 86% 90%
Exports 18% 12% 6% 14% 10%
Total 100% 100% 100% 100% 100%
Net Revenue Breakdown
3Q14 2Q14 3Q13 9M14 9M13
4.3% 10.8% 14.2% 10.7% 10.8%
Gross Margin
3Q14 2Q14 3Q13 9M14 9M13
1.0% 6.5% 7.0% 6.2% 3.7%
EBIT Margin
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3Q14 Results 4
Adjusted EBITDA
Adjusted EBITDA is calculated from net income (loss), reversing profit (loss) from discontinuedoperations, income tax and social contribution, financial result, depreciation, amortization anddepletion, and equity in the results of Associate, Joint Subsidiary and Subsidiary Companies.The adjusted EBITDA includes the proportional participation of 70% of Unigal and others jointsubsidiary companies.
Adjusted EBITDA in the 3Q14 reached R$356.5 million, 35.1% lower than in the 2Q14, whichwas R$549.4 million, mainly due to the lower performance in the Mining and Steel Units. TheAdjusted EBITDA margin in the 3Q14 declined 540 basis points in comparison with the 2Q14,reaching 12.3%. The adjusted EBITDA margins are shown below:
Financial Result
In the 3Q14, financial result was negative in R$232.5 million, against R$58.6 million in the2Q14, representing an increase of 296.9%. This result can mainly be attributed to highercurrency exchange variation and financial expenses of R$205.8 million and R$64.0 million,respectively, as a result of the devaluation of 11.3% of the Real against the Dollar in theperiod.
Equity in the Results of Associate and Subsidiary Companies
Equity in the results of associate and subsidiary companies was R$35.1 million in the 3Q14,
against R$60.2 million in the 2Q14, a reduction of 41.7%, due to the lower contribution ofUnigal in the period.
3Q14 2Q14 9M14 9M13
Net Income (Loss) (24,430) 128,611 325,809 (30,211)
Income Tax / Social Contribution (143,742) 73,356 70,701 (121,523)
Financial Result 232,452 58,561 309,070 630,027
Depreciation, Amortization 280,209 277,527 824,824 780,397
344,489 538,055 1,530,404 1,258,690
Joint Subsidiary Companies proportional EBITDA 47,128 71,567 170,504 160,014
356,516 549,374 1,561,275 1,292,313
(139,633)
EBITDA
(126,391)
Adjusted EBITDA
Consolidated (R$ thousand)
Equity in the Results of Associate and Subsidiary
Companies(35,101) (60,248)
EBITDA -Instruction CVM 527
3Q14 2Q14 3Q13 9M14 9M13
12.3% 17.7% 16.8% 17.1% 13.4%
Adjusted EBITDA Margin
R$ thousand 3Q14 2Q14 3Q13
Chg.
3Q14/2Q14 9M14 9M13
Var.
9M14/9M13
Currency Exchange Variation (163,986) 41,856 (1,703) - (57,300) (135,537) -58%
Swap Operations Market Cap. 25,532 (23,602) (884) - 971 18,320 -95%
Inflationary Variation (16,720) (46,246) (14,011) -64% (107,114) (73,754) 45%
Financial Income 74,353 57,015 74,399 30% 170,420 156,566 9%
Financial Expenses (151,631) (87,584) (175,367) 73% (316,047) (595,622) -47%
FINANCIAL RESULT (232,452) (58,561) (117,566) 297% (309,070) (630,027) -51%
Financial Result - Consolidated
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3Q14 Results 5
Net Profit (Loss)
The Company presented net loss of R$24.4 million in the 3Q14, against a profit of R$128.6million in the 2Q14, mainly due to the currency exchange variation, which negatively impactedthe financial result in R$164.0 million in the 3Q14, in function of the devaluation of the Realagainst the Dollar and to the lower contribution of the Steel and Mining Units.
Investments (CAPEX)
Investments totaled R$268.3 million in the 3Q14, a 2.9% increase in relation to the 2Q14. Outof the total investments in the period, 90% were applied to the Steel Unit, 6% to the MiningUnit, 3% to the Steel Transformation Unit and 1% to the Capital Goods Unit.
Indebtedness
Total consolidated debt was R$6.8 billion on 09/30/14, stable in relation to that on 06/30/14.Net consolidated debt remained stable at R$3.8 billion at the end of September, comparing tothe end of June, in spite of the devaluation of the Real against the Dollar in the period.
On 09/30/14, debt composition by maturity was 25.4% in the short term and 74.6% in the
long term. Composition by currency represented 64.3% in local currency and 35.7% in foreigncurrency. The net debt / EBITDA ratio was 1.8 times on 09/30/14, considering EBITDAaccumulated for the last 12 months. The following chart shows the consolidated debt by index:
The graph below shows the consolidated debt profile and cash position in R$ million on09/30/14:
1,805
201
1,019838
1,082
393
752
10012
1,251
56
535
139
400
1,25552
30
Cash 2014 2015 2016 2017 2018 2019 2020 2021 on
Local Currency Foreign Currency
3,057
257
1,554 1,481
1,648
804
12102
976
Duration: R$: 41 monthsUS$: 38 months
30-Jun-14 31-Dec-13
Short Term Long Term TOTAL TOTAL TOTAL
Local Currency 1,168,664 3,226,762 4,395,426 64% 4,329,981 2% 4,537,975 -3%
TJLP 216,681 456,549 673,230 - 729,037 -8% 836,348 -20%
CDI 892,122 2,699,025 3,591,147 - 3,496,651 3% 3,591,129 0%
Others 59,861 71,188 131,049 - 104,293 26% 110,498 19%
Foreign Currency (*) 570,514 1,868,864 2,439,378 36% 2,378,108 3% 2,364,859 3%Gross Debt 1,739,178 5,095,626 6,834,804 100% 6,708,089 2% 6,902,834 -1%
Cash and Cash Equivalents - - 3,056,598 - 2,894,449 6% 3,468,816 -12%
Net Debt - - 3,778,206 - 3,813,640 -1% 3,434,018 10%
(*) 99% of total foreign currency is US dollars denominated
Total Indebtedness by Index - Consolidated
R$ thousand30-Sep-14
%Change
Sep14/Jun14Change
Sep14/Dec13
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3Q14 Results 6
Performance of the Business Units
Intercompany transactions are on arms-length basis (market prices and conditions).
R$ million
3Q14 2Q14 3Q14 2Q14 3Q14 2Q14 3Q14 2Q14 3Q14 2Q14 3Q14 2Q14
Net Revenue 107 202 2,677 2,918 609 596 214 221 (699) (831) 2,908 3,106
Domestic Market 117 179 2,153 2,566 608 595 214 213 (699) (831) 2,392 2,723
Exports (9) 23 524 352 1 1 0 8 - - 515 383
COGS (119) (131) (2,535) (2,639) (599) (570) (193) (196) 663 764 (2,783) (2,772)
Gross Profit (Loss) (11) 71 142 278 10 26 21 25 (37) (67) 125 334
Operating Income
(Expenses)(12) (35) (36) (61) (33) (32) (16) (6) 1 1 (96) (134)
EBIT (23) 36 106 218 (23) (7) 6 19 (36) (66) 29 200
Adjusted EBITDA 11 67 343 457 (13) 3 12 25 3 (2) 357 549
Adj.EBITDA Margin 11% 33% 13% 16% -2% 1% 5% 11% - - 12% 18%
*Consolidates 70% of Unigal
Income Statement per Business Units - Non Audited - Quarterly
ConsolidatedMining Steel*Steel
ProcessingCapital Goods Adjustment
R$ million
9M14 9M13 9M14 9M13 9M14 9M13 9M14 9M13 9M14 9M13 9M14 9M13
Net Revenue 656 754 8,472 8,512 1,767 1,852 604 770 (2,342) (2,251) 9,156 9,637
Domestic Market 530 680 7,294 7,664 1,760 1,835 596 770 (2,342) (2,251) 7,838 8,698
Export Market 126 74 1,177 848 7 18 8 - - - 1,319 939
COGS (403) (303) (7,713) (7,970) (1,698) (1,670) (540) (734) 2,176 2,079 (8,178) (8,598)
Gross Profit (Loss) 252 451 759 542 69 182 64 36 (166) (172) 979 1,039
Operating Income
(Expenses)(88) (83) (194) (409) (96) (146) (38) (53) 3 3 (413) 687
EBIT 164 368 565 133 (27) 36 27 (17) (163) (169) 566 352
Adjusted EBITDA 254 402 1,277 843 2 77 45 3 (17) (33) 1,561 1,292
Adj.EBITDA Margin 39% 53% 15% 10% 0% 4% 8% 0% - - 17% 13%
*Consolidates 70% of Unigal
Income Statement per Business Units - Non Audited - Accumulated
Mining Steel*Steel
ProcessingCapital Goods ConsolidatedAdjustment
Minerao SiderurgiaTransformao do
AoBens de Capital
Minerao Usiminas Usina de Ipatinga Solues Usiminas Usiminas Mecnica
Usina de Cubato
Unigal
Usiminas - Unidades de Negcios
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3Q14 Results 7
I) M I N I N G
Operational and Sales Performance
In the 3Q14, production volume was 1.4 million tons, 8.3% lower than that in the 2Q14, in line
with the Companys strategy of balancing production with sales.
Sales volume in the 3Q14 was 1.2 million tons, a decline of 15.1% in comparison with the2Q14, in function of not having exports volume and of the weak third party demand in thedomestic market. Iron ore volume destined to the Ipatinga and Cubato plants was 1.0 milliontons, 5.1% higher than in the 2Q14.
Production and sales volumes are shown in the following chart:
Comments on the Business Unit Results Mining
Net revenue in the Mining Unit accounted for in the 3Q14 was R$107.4 million, a 47.0% decreasewhen compared with the 2Q14, which was R$202.7 million, due to lower sales volume and lower
iron ore prices in the market. The Platts price reference, adjusted for the period of sales pricingregarding the Mining Unit, (CFR China 62% Fe), reached an average price of US$94/t in the 3Q14compared with US$110/t in the 2Q14, representing a decline of 14.5%.
In the 3Q14, cost of goods sold (COGS) totaled R$118.8 million, 9.4% lower in relation to the2Q14, mainly due a decrease in sales volume. COGS per ton increased R$6.0/t due a reduction inthe dilution of fixed cost, as a result of the ramp up of the flotation plant, which has not reachedfull capacity due to the current logistic restrictions to exporting iron ore. Fixed costs of the MiningUnit represented approximately 60% of total COGS.
Thus, in the 3Q14, there was a gross loss of R$11.5 million against gross profit of R$71.6 million inthe 2Q14. Gross margin was negative in 10.7% against a positive margin of 35.3% in the previousquarter.
In the 3Q14, sales expenses totaled R$10.9 million, against R$20.2 million in the 2Q14,representing a decrease of 46.0%, in function of not having exports volume in the period.General and administrative expenses in the 3Q14 totaled R$9.3 million, 26.4% lower than thosein the 2Q14, due to a reduction in administrative and labor expenses. Net operating expenses inthe 3Q14 were R$11.8 million, while in the 2Q14, they were R$35.2 million, representing adecrease of 66.6%. In the 3Q14, sales revenue of surplus electrical energy totaled R$9.4 million,against R$8.3 million in the 2Q14.
Thus, in the 3Q14, Adjusted EBITDA was R$11.4 million, 83.0% lower than in the 2Q14, whichwas R$67.0 million, corresponding to a 10.6% EBITDA margin.
Thousand tons 3Q14 2Q14 3Q13Chg.
3Q14/2Q149M14 9M13
Chg.9M14/9M13
Production 1,434 1,564 1,213 -8% 4,616 4,483 3%
Sales - Third Parties - Domestic Market 199 297 787 -33% 794 1,040 -24%
Sales - Exports 0 171 0 - 680 331 105%
Sales to Usiminas 1,039 989 1,043 5% 2,988 3,170 -6%
Total Sales 1,238 1,457 1,830 -15% 4,462 4,542 -2%
Iron Ore
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3Q14 Results 8
Investments (CAPEX)
Investments in the 3Q14 reached R$16.2 million, 41.8% below the invested amount in the2Q14, which was R$27.8 million, mainly in function of lower expenses in the final phase of theFriables Project.
Stake in MRS Logstica
Minerao Usiminas holds a stake in the MRS Logstica through its subsidiary UPL UsiminasParticipaes e Logstica S.A.
MRS Logstica is a concession that controls, operates and monitors the Brazilian SoutheasternFederal Railroad Network (Malha Sudeste da Rede Ferroviria Federal). The Company operatesin the railway transportation segment, connecting the states of Rio de Janeiro, Minas Geraisand So Paulo, and its core business is integrated logistics of cargo in general, such as ironore, steel products, cement, bauxite, agricultural products, green pet coke and containers.
MRS transported a total volume of 43.1 million tons in the 3Q14, a 4.2% increase in relation tothe 2Q14, which represented a record volume for one quarter.
II) S T E E L
Production - Ipatinga and Cubato Plants
In the 3Q14, crude steel production at the Ipatinga and Cubato plants was 1.4 million tons, a
12,0% decrease in relation to the 2Q14, in line with the Companys strategy of balancingproduction with sales.
Sales
Total sales in the 3Q14 were 1.4 million tons of steel, 3.8% lower than in the 2Q14. Exportsincreased 52.9% in comparison to those recorded in the 2Q14, with a growth of slab and heavyplate sales in 98.7 thousand tons and 18.5 thousand tons respectively. The main exportdestinations were the United States and Mexico. On the other hand, the domestic marketretracted 13.9% in relation to the 2Q14, due to the relevant decrease in the Brazilian demand.Sales mix accounted for was 76.0% in the domestic market and 24.0% in exports.
Thousand tons 3Q14 2Q14 3Q13Chg.
3Q14/2Q149M14 9M13
Chg.9M14/9M13
Ipatinga Mill 799 894 998 -11% 2,627 2,929 -10%
Cubato Mill 608 705 784 -14% 2,031 2,264 -10%
Total 1,407 1,599 1,782 -12% 4,658 5,193 -10%
Production (Crude Steel)
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3Q14 Results 9
Steel Sales (thousand tons)
The main export destinations are listed in the graphs below:
35%
28%
11%
9%
6%
4%3%
2% 7%
3Q14
USA
Mexico
Argentina
Taiwan
Sigapore
Panama
Colombia
Venezuela
Others
39%
14%
14%
10%
5%
10%
2%
2%5%
9M14
USA
Mexico
Argentina
Taiwan
Sigapore
Colombia
Panama
Venezuela
Others
93% 87% 88% 85% 76%
7% 13% 12% 15% 24%
1,565 1,492 1,437 1,456 1,401
3Q13 4Q13 1Q14 2Q14 3Q14
Domestic Market Exports Total
Thousand tonsChange
3Q14/2Q14
Total Sales 1,401 100% 1,456 100% 1,565 100% -4% 4,294 100% 4,728 100%
Heavy Plates 323 23% 334 23% 354 23% -3% 937 22% 981 21%
Hot Rolled 434 31% 512 35% 531 34% -15% 1,463 34% 1,647 35%
Cold Rolled 297 21% 341 23% 377 24% -13% 1,015 24% 1,095 23%
Galvanized 217 15% 243 17% 231 15% -11% 675 16% 687 15%
Processed Products 9 1% 13 1% 30 2% -27% 48 1% 112 2%
Slabs 120 9% 12 1% 41 3% 860% 156 4% 206 4%
Domestic Market 1,064 76% 1,236 85% 1,453 93% -14% 3,567 83% 4,108 87%
Heavy Plates 239 17% 269 18% 331 21% -11% 736 17% 895 19%
Hot Coils 345 25% 429 29% 502 32% -20% 1,239 29% 1,441 30%
Cold Coils 259 18% 302 21% 366 23% -14% 896 21% 1,003 21%
Galvanized 192 14% 211 15% 202 13% -9% 602 14% 604 13%
Processed Products 7 1% 12 1% 27 2% -39% 44 1% 99 2%
Slabs 21 2% 12 1% 27 2% 70% 50 1% 66 1%
Exports 337 24% 220 15% 112 7% 53% 726 13% 620 13%
Heavy Plates 84 6% 66 5% 23 1% 28% 201 5% 86 2%
Hot Rolled 89 6% 82 6% 30 2% 8% 223 2% 206 4%
Cold Rolled 38 3% 40 3% 12 1% -3% 119 3% 92 2%
Galvanized 25 2% 32 2% 30 2% -23% 73 2% 82 2%
Processed Products 2 0% 1 0% 2 0% 122% 4 0% 13 0%
Slabs 99 7% - 0% 14 1% - 105 2% 140 3%
Sales Volume Breakdown
-25%
-56%
-24%
17%
134%
30%
-11%
-67%
8%
0%
-7%
-2%
-57%
-9%
-4%
-14%
-11%
2Q143Q14 3Q13
-11%
-13%
-18%
-24%
9M14 9M13Change
9M14/9M13
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3Q14 Results 10
Comments on the Business Unit Results - Steel
In the 3Q14, the Steel Unit registered net revenue of R$2.7 billion, 8.3% lower than in the2Q14, mainly in function of the sales mix with higher exports share and of the sale of lowervalue-added products.
In the 3Q14, cost of goods sold (COGS) was R$2.5 billion, stable in relation to the 2Q14. Cashcost per ton reduced 3.4% due to the decrease in the main raw materials prices, coal and iron
ore. COGS per ton was stable in comparison with the previous quarter.
In the 3Q14, sales expenses were 5.8% higher than in the 2Q14, in function of higher exportvolume. General and administrative expenses were 11.4% lower, mainly impacted by areduction in third party services. Net operating expenses in the 3Q14 were R$36.3 million,against R$60.8 million in the 2Q14, a decrease of 40.4%, mainly due to the highercontribution of sale revenue of surplus electrical energy in R$34.3 million.
Adjusted EBITDA was R$343.3 million in the 3Q14, 24.8% lower than in the 2Q14, mainly infunction of the sales mix with higher exports share and of the sale of lower value-addedproducts. Adjusted EBITDA margin was 12.8%, 290 basis points lower than those registered in2Q14.
Investments (CAPEX)
Investments in the 3Q14 totaled R$242.4 million, mainly due to maintenance and the Coke PlantII revamp in Ipatinga. The Coke Plant will increase coke self-generation and is forecasted to startup in the 1Q15.
III) S T E E L P R O C E S S I N G
Solues Usiminas - SU
Solues Usiminas operates in the distribution, services and small-diameter tubes marketsnationwide, offering its customers high value-added products and services. It serves severaleconomic segments, such as automotive, autoparts, civil construction, distribution, electro-electronic, machinery and equipments and household appliances, among others.
Sales of the Distribution, Just in Time Services and Tubes Business Units were responsible for
57%, 34% and 9% of the volume sold in the 3Q14, respectively.
Comments on the Business Unit Results Steel Processing
Net revenue in the 3Q14 was R$609.0 million, 2.2% higher than in the 2Q14, due to thehigher sales volume in 1.9% and higher average prices in 0.4% by Solues Usiminas.
In the 3Q14, cost of goods sold (COGS) was R$599.0 million, 5.1% higher when comparedwith the 2Q14, in function of higher sales volume and higher unit costs.
Total operating expenses in the 3Q14 were R$33.0 million, 2.5% higher than those in the2Q14.
In the 3Q14, Adjusted EBITDA was negative in R$13.4 million, against R$3.1 million positive inthe 2Q14. Adjusted EBITDA margin was negative in 2.2%, against 0.5% positive in theprevious quarter.
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3Q14 Results 11
IV) C A P I T A L G O O D S
Usiminas Mecnica S.A.
Usiminas Mecnica is a capital goods company in Brazil, which operates in the followingbusiness areas: steel structures, shipbuilding and offshore, oil and gas, industrial assemblyand equipment and foundry and railcars.
Main Signed Contracts
In the 3Q14, the main contracts signed were for the construction of bridges to theTransnordestina Logstica, for the supply of blanks to the shipbuilding industry and railcars toMRS Logstica.
Comments of the Business Unit Results Capital Goods
Net revenue in the 3Q14 was R$214.2 million, 3.0% lower than in the 2Q14, in function oflower profitability of its project portfolio.
Gross profit in the 3Q14 was R$21.2 million, against R$25.1 million in the 2Q14.
Adjusted EBITDA in the 3Q14 was R$11.8 million, against R$24.9 million in the 2Q14, whichhad been positively impacted by the sale of non-operating assets in the amount of R$12.2million. Adjusted EBITDA margin was 5.5% in the 3Q14, against 11.3% in the 2Q14.
Consolidated Highlights
2014 Transparency Trophy: The National Association of Finance, Administration and
Accounting Executives (ANEFAC), distinguished Usiminas, for the 12th consecutive year, asone of the most transparent companies in Brazil, among ten public companies with netrevenues above R$5 billion. The judging panel evaluated the 2013 financial statements intechnical criteria, such as compliance to accounting principles, Opinion of the external auditors,general presentation and disclosure of relevant issues in addition to what is required by law.
IR Award: Usiminas was recognized in the Metals and Mining Sector in Latin America as the3rd Best Investor Relations Program, by the Institutional Investor Magazine, an internationalpublication specialized in Capital Markets.
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3Q14 Results 12
Performance on the BM&F BOVESPA
Usiminas Common shares (USIM3) closed the 3Q14 quoted at R$6.64 and its Preferred shares(USIM5) at R$6.37. In the quarter, USIM3 depreciated 5.0% in value and USIM5, 17.8%. Inthe same period, the IBOVESPA index appreciated 2.2%.
Foreign Stock Markets
OTC New York
Usiminas has American Depositary Receipts (ADRs) traded on the over-the-counter market:USDMY is backed by common shares and USNZY backed by Class A preferred shares. On09/30/14, greater liquidity USNZY ADRs were quoted at US$2.59 and depreciated by 19.1% invalue in the quarter.
LATIBEX Madrid
Usiminas shares are traded on the LATIBEX a section on the Madrid Stock Market: XUSI aspreferred shares and XUSIO as common shares. On 09/30/14, XUSI closed quoted at 2.11,depreciating 17.6% in the period. XUSIO shares closed quoted at 2.16, representing adepreciation of 6.5% in the quarter.
3Q14 2Q14Change
3Q14/2Q143Q13
Change
3Q14/3Q13Number of Deals 811,778 752,556 8% 941,702 -14%Daily Average 12,489 12,138 3% 14,488 -14%
Traded - thousand shares 442,550 366,019 21% 546,249 -19%Daily Average 6,808 5,904 15% 8,404 -19%
Financial Volume - R$ million 3,566 3,228 10% 5,021 -29%Daily Average 55 52 5% 77 -29%
Maximum 9.00 10.52 -14% 10.96 -18%Minimum 6.37 7.58 -16% 6.55 -3%Closing 6.37 7.58 -16% 10.52 -39%Market Capitalization - R$ million 6,458 7,684 -16% 10,665 -39%
Usiminas Performance Summary - BM&FBOVESPA (USIM5)
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3Q14 Results 13
For further information:
Visit the Investor Relations site:www.usiminas.com/ri
or access on your mobile phone: m.usiminas.com/ri
Cristina Morgan C. Drumond [email protected] 55 31 3499-8772
Leonardo Karam Rosa [email protected] 55 31 3499-8550
Diogo Dias Gonalves [email protected] 55 31 3499-8710
Renata Costa Couto [email protected] 55 31 3499-8619
INVESTOR RELATIONS DEPARTMENT
For press, please contact us at [email protected]
Braslia time: at 11:00 a.m.
Dial-in Numbers:
Brazil: (55 11) 3193-1001 / 2820-4001
Pincode for replay: 1989808# - Portuguese
Audio of the conference call will be transmitted live via Internet
See the slide presentation on our website: www.usiminas.com/ri
3Q14 Conference Call - Date 10/29/2014
New York time: at 09:00 a.m.
Dial-in Numbers:
In Portuguese - Simultaneous Translation into English
Audio replay available at (55 11) 3193-1012USA: (1 786) 924-6977
Pincode for replay: 9502219# - English
Statements contained in this release, relative to the business outlook of the Company, forecasts of operating and financial incomeand references to growth prospects are mere forecasts and were based on the expectations of Management in relation to futureperformance. These expectations are highly dependent on market conduct, the economic situation in Brazil, its industry andinternational markets and, therefore, are subject to change.
http://www.usiminas.com/rihttp://www.usiminas.com/rihttp://www.usiminas.com/rihttp://www.usiminas.com/ri -
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3Q14 Results 14
Assets 30-Sep-14 30-Jun-14
Current Assets 8,847,521 9,267,312
Cash and Cash Equivalents 3,056,598 2,894,449
Trade Accounts Receivable 1,505,040 1,624,755
Taxes Recoverable 254,906 305,701Inventories 3,690,850 4,156,923
Advances to suppliers 14,380 12,457
Financial Instruments 50,017 40,437
Other Securities Receivables 275,730 232,590
Non-Current Assets 21,926,162 21,781,498
Long-Term Receivable 2,888,090 2,778,120
Deferred Income Tax & Social Contribution 1,955,105 1,809,383
Deposits at Law 560,270 594,924
Accounts Receiv. Affiliated Companies 21,946 21,594
Taxes Recoverable 100,628 107,286Financial Instruments 100,679 97,226
Others 149,462 147,707
Investments 1,187,252 1,152,991
Property, Plant and Equipment 15,463,182 15,459,740
Intangible 2,387,638 2,390,647
Total Assets 30,773,683 31,048,810
Balance Sheet - Assets - Consolidated | IFRS - R$ thousand
30-Sep-14 30-Jun-14
4,790,453 4,928,200
Loans and Financing and Taxes Payable in Installments 1,739,178 1,581,409
Suppliers, Subcontractors and Freight 1,987,409 2,312,290
Wages and Social Charges 316,975 294,903
Taxes and Taxes Payables 136,022 104,311
Related Companies 140,848 156,680
Financial Instruments 97,104 81,741
Dividends Payable 169 169
Customers Advances 179,026 106,853
Others 193,722 289,844
6,948,744 7,059,113Loans and Financing and Taxes Payable in Installments 5,095,626 5,126,680
Actuarial Liability 1,201,689 1,233,787
Provision for Legal Liabilities 477,672 490,404
Financial Instruments 54,720 91,748
Environmental Protection Provision 82,919 80,753
Others 36,118 35,741
19,034,486 19,061,497
Capital 12,150,000 12,150,000
Reserves & Revenues from Fiscal Year 4,788,218 4,816,894
Non-controlling shareholders participation 2,096,268 2,094,603
30,773,683 31,048,810
Long-Term Liabilities
Total Liabilities and Shareholders' Equity
Shareholders' Equity
Current Liabilities
Balance Sheet - Liabilities and Shareholders' Equity - Consolidated | IFRS - R$ thousandLiabilities and Shareholders' Equity
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3Q14 Results 15
R$ thousand 3Q14 2Q14 3Q13Chg.
3Q14/2Q14
Net Revenues 2,907,816 3,106,300 3,197,724 -6%
Domestic Market 2,392,386 2,722,578 3,002,073 -12%
Exports 515,430 383,722 195,651 34%
COGS (2,782,955) (2,772,242) (2,742,261) 0%
Gross Profit 124,861 334,058 455,463 -63%
Gross Margin 4.3% 10.8% 14.2% -650bps
Operating Income (Expenses) (95,682) (133,778) (229,123) -28% Selling Expenses (63,821) (71,280) (71,005) -10%
General and Administrative (111,565) (127,582) (136,018) -13%
Other Operating Income (expenses) 79,704 65,084 (22,100) 22%
Reintegra Program (Braz ilian Government Export Benefit) - - 4,073 -
Net Cos t of Actuarial Obligations (1,289) (1,303) (10,578) -1%
Provision for Legal Liabilities (22,380) (19,721) (26,950) 13%
Result of the Non Operating Asset Sale/Write-Off 2,148 23,562 1,066 -91%
Result of the Sale of the Surplus Electric Energy 124,401 89,007 (1,065) 40%
Other Operating Income (Expenses), Net (23,176) (26,461) 11,354 -12%
EBIT 29,179 200,280 226,340 -85%
EBIT Margin 1.0% 6.5% 7.0% -550bps
Financial Result (232,452) (58,561) (117,566) 297%
Financial Income 247,318 48,915 124,212 406%
Financial Expenses (479,770) (107,476) (241,778) 346%
Equity in the Results of Associate and Subsidiary Companies 35,101 60,248 48,075 -42%
Operating Profit (Loss) (168,172) 201,967 156,849 -
Income Tax / Social Contribution 143,742 (73,356) (42,241) -
Net Income (Loss) (24,430) 128,611 114,608 -
Net Margin -0.8% 4.1% 3.5% -490bps
Attributable:
Shareholders (26,095) 114,415 70,540 -123%
Minority Shareholders 1,665 14,196 44,068 -88%
EBITDA (Instruction CVM 527) 344,489 538,055 534,482 -36%
EBITDA Margin (Instruction CVM 527) 11.8% 17.3% 16.7% -550bps
Adjusted EBITDA - Joint Subsidiary Companies proportional EBITDA 356,516 549,374 537,551 -35%
Adjusted EBITDA Margin 12.3% 17.7% 16.8% -540bps
Depreciation and Amortization 280,209 277,527 260,067 1%
Income Statement - Consolidated | IFRS
R$ thousand 9M14 9M13Chg.
9M14/9M13
Net Revenues 9,156,434 9,636,874 -5% Domestic Market 7,837,779 8,697,856 -10%
Exports 1,318,655 939,018 40%
COGS (8,177,820) (8,598,009) -5%
Gross Profit 978,614 1,038,865 -6%
Gross Margin 10.7% 10.8% -10bps
Operating Income (Expenses) (412,667) (686,963) -40%
Selling Expenses (218,695) (252,765) -13%
General and Administrative (367,308) (424,790) -14%
Other Operating Income (Expenses ) 173,336 (9,408) -
Reintegra Program (Braz ilian Government Export Benefit) - 20,843 -
Net Cost of Actuarial Obligations (3,881) (31,734) -88%
Prov ision for Legal Liabilities (70,939) (45,358) 56%
Result of the Non Operating Assets Sale/Write-Off 29,359 27,109 8%
Result of the Sale of the Surplus Electric Energy 288,381 13,571 2025%
Other Operating Income (Expenses), Net (69,584) 6,161 -
EBIT 565,947 351,902 61%EBIT Margin 6.2% 3.7% +250bps
Financial Result (309,070) (630,027) -51%
Financial Income 343,411 442,072 -22%
Financial Expenses (652,481) (1,072,099) -39%
Equity in the Results of Associate and Subsidiary Companies 139,633 126,391 10%
Operating Profit (Loss) 396,510 (151,734) -
Income Tax / Social Contribution (70,701) 121,523 -
Net Income (Loss) 325,809 (30,211) -
Net Margin 3.6% -0.2% +380bps
Attributable:Shareholders 272,934 (142,550) -
Minority Shareholders 52,875 112,339 -53%
EBITDA (Instruction CVM 527) 1,530,404 1,258,690 22%
EBITDA Margin (Instruction CVM 527) 16.7% 13.1% +370bps
Adjusted EBITDA - Joint Subsidiary Companies proportional EBITDA 1,561,275 1,292,313 21%
Adjusted EBITDA Margin 17.1% 13.4% +360bps
Depreciation and Amortization 824,824 780,397 6%
Income Statement - Consolidated | IFRS
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3Q14 Results 16
R$ thousand 3Q14 2Q14
Operating Activities Cash Flow
Net Income (Loss) in the Period (24,430) 128,611Financial Expenses and Monetary Var. / Net Exchge Var. 265,184 52,842Interest Expenses 95,717 39,938Depreciation and Amortization 280,209 277,527Losses/(gains) on Sale of Property, Plant and Equipment (2,148) (23,562)
Equity in the Results of Subsidiaries/Associated Companies (35,101) (60,248) Difered Income Tax and Social Contribution (139,499) 55,108
Constitution (reversal) of Provisions 10,580 40,475Actuarial Gains and losses 1,289 1,303Stock Option Plan 1,741 3,376Total 453,542 515,370
Increase/Decrease of Assets
Accounts Receivables Customer 119,918 110,928Inventories 470,135 (90,967)
Recovery of Taxes 62,928 9,504Judicial Deposits 34,534 (29,724)
Accounts Receiv. Affiliated Companies (352) (326) Others (22,664) (30,295) Total 664,499 (30,880)
Increase (Decrease) of Liabilities Suppliers, Contractors and Freights (324,881) (18,450) Amounts Owed to Affiliated Companies (15,832) 12,160
Customers Advances 72,173 (26,846) Tax Payable 32,954 (47,878)
Actuarial Liability Payments (45,793) (46,137)
Others (54,406) (36,511)
Total (335,785) (163,662)
Cash Generated from Operating Activities 782,256 320,828
Interest Paid (111,752) (133,948) Income Tax and Social Contribution (2,475) (36,670)
Net Cash Generated from Operating Activities 668,029 150,210
Investments activities cash flow
Marketable Securities (126,522) 22,134Amount Received on Disposal (Acquisition) of Investments 0 0Amount Paid on the Acquisition of Investments (53,666) (53,914)
Fixed Asset Acquisition (261,088) (256,940) Fixed Asset Sale Receipt 4,691 34,287
Additions to / Payments of Intangible Assets (14,826) (15,149) Dividends Received 13,640 96,073
Purchase of Software (7,222) (3,932)
Net Cash Employed on Investments Activities (444,993) (177,441)
Financial Activities Cash Flow
Inflow of Loans, Financing and Debentures 106,839 706,490Payment of Loans, Financ. & Debent. (273,754) (589,194)
Payment of Taxes Installments (3,993) (2,355) Swap Operations Liquidations (9,167) (5,141)
Dividends and Interest on Capital 0 (79,771)
Net Cash Generated from (Employed on) Financial Activities (180,075) 30,029
Exchange Variation on Cash and Cash Equivalents (7,334) (194)
Net Increase (Decrease) of Cash and Cash Equivalents 35,627 2,604
Cash and Cash Equivalents at the Beginning of the Period 2,081,437 2,078,833
Cash and Cash Equivalents at the End of The Period 2,117,064 2,081,437
RECONCILIATION WITH BALANCE SHEET
Cash and Cash Equivalents at the Beginning of the Period 2,081,437 2,078,833Marketable Securities at the Beginning of the Period 813,012 835,146Cash and Cash Equivalents at the Beginning of the Period 2,894,449 2,913,979
Net Increase (Decrease) of Cash and Cash Equivalentes 35,627 2,604Net Increase (Decrease) of Marketable Securities 126,522 (22,134)
Cash and Cash Equivalents at the End of the Period 2,117,064 2,081,437Marketable Securities at the End of the Period 939,534 813,012Cash and Cash Equivalents at the End of the Period 3,056,598 2,894,449
Cash Flow - Consolidated | IFRS
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3Q14 Results 17
R$ thousand 9M14 9M13
Operating Activities Cash Flow
Net Income (Loss) in the Period 325,809 (30,211) Financial Expenses and Monetary Var. / Net Exchge Var. 343,082 641,333
Interest Expenses 162,422 208,765Depreciation and Amortization 824,824 780,397Losses/(gains) on sale of property, plant and equipment (29,359) (33,275)
Equity in the Results of Subsidiaries/Associated Companies (139,633) (126,391) Difered Income Tax and Social Contribution (258) (207,749)
Constitution (reversal) of Provisions 53,521 52,961Actuarial Gains and losses 3,881 31,734Stock Option Plan 8,515 7,151Total 1,552,804 1,324,715
Increase/Decrease of Assets Accounts Receivables Customer 137,252 (198,058) Inventories 161,173 (148,554) Recovery of Taxes 75,698 181,364
Judicial Deposits 5,015 (12,838) Accounts Receiv. Affiliated Companies (1,115) (815) Others (97,642) 65,807
Total 280,381 (113,094)
Increase (Decrease) of Liabilities Suppliers, contractors and freights (434,615) 164,738
Amounts Owed to Affiliated Companies 806 (71,503) Customers Advances 717 (112,243) Tax Payable (2,634) 47,232
Actuarial Liability payments (136,478) (127,662)
Others (99,855) 178,775
Total (672,059) 79,337
Cash Generated from Operating Activities 1,161,126 1,290,958
Interest Paid (357,988) (463,391) Income Tax and Social Contribution (61,819) (129,792)
Net Cash Generated from Operating Activities 741,319 697,775
Investments activities cash flow
Marketable Securities (103,905) (149,355) Amount received on disposal (acquisition) of investments 16,486 - Amount paid on the acquisition of investments (164,685) (152,144) Fixed asset acquisition (750,006) (665,521) Fixed asset sale receipt 43,707 35,207
Additions to / payments of Intangible Assets (45,882) (42,212) Dividends Received 110,238 16,009
Software Purchase (16,907) (7,714)
Net Cash Employed on Investments Activities (910,954) (965,730)
Financial Activities Cash Flow Inflow of Loans, Financing and Debentures 909,335 1,338,283
Payment of Loans, Financ. & Debent. (1,138,145) (2,024,260) Capital Contribution 0 220,972
Payment of Taxes Installments (8,682) (12,645)
Swap Operations Liquidations (18,011) 3,402Dividends and Interest on Capital (79,772) (63,250)
Net Cash Generated from (Employed on) Financial Activities (335,275) (537,498)
Exchange Variation on Cash and Cash Equivalents (11,213) (15,077)
Net Increase (Decrease) of Cash and Cash Equivalents (516,123) (820,530)
Cash and Cash Equivalents at the Beginning of the Period 2,633,187 3,123,318
Cash and Cash Equivalents at the End of The Period 2,117,064 2,302,788
RECONCILIATION WITH BALANCE SHEET
Cash and cash equivalents at the beginning of the period 2,633,187 3,123,318Marketable securities at the beginning of the period 835,629 1,537,558Cash and cash equivalents at the beginning of the period 3,468,816 4,660,876
Net increase (decrease) of cash and cash equivalentes (516,123) (820,530)
Net increase (decrease) of marketable securities 103,905 149,355
Cash and cash equivalents at the end of the period 2,117,064 2,302,788Marketable securities at the end of the period 939,534 1,686,913Cash and cash equivalents at the end of the period 3,056,598 3,989,701
Cash Flow - Consolidated | IFRS