United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant To Rule 13a-16 or 15d-16
of the
Securities Exchange Act of 1934
For the month of
August 2003
Valley of the Rio Doce Company
(Translation of Registrant's name into English)
Avenida Graca Aranha, No. 26
20005-900 Rio de Janeiro, RJ, Brazil
(Address of principal executive office)
(Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.)
(Check One) Form 20-F X Form 40-F
--- ---
(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing information to the Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)
(Check One) Yes No X
--- ---
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b). 82-__.)
Table of Contents
--------------------------------------------------------------------------------
Brazilian GAAP Press Release Second Quarter 2003
US GAAP Press Release Second Quarter 2003
BR GAAP
BOVESPA: VALE3, VALE5
NYSE: RIO, RIOPR
LATIBEX: XVALO, XVALP
www.cvrd.com.br
rio@cvrd.com.br
Investor Relations
Department
Roberto Castello Branco
Barbara Geluda
Daniela Tinoco
Eduardo Mello Franco
Rafael Azevedo
Rafael Campos
Tel: (5521)3814-4540
[CVRD LOGO]
PERFORMANCE OF COMPANHIA VALE DO RIO DOCE IN THE SECOND QUARTER OF 2003
================================================================================
The financial and operational information contained in this press release,
except otherwise indicated, refers to the Parent Company and was calculated in
accordance with generally accepted Brazilian accounting procedures (Brazilian
GAAP). This information, with the exception of that referring to investment and
market behaviour, is based on the quarterly financial statements, which have
been reviewed by independent auditors.
Rio de Janeiro, 13 August 2003 - Companhia Vale do Rio Doce (CVRD) has reported
net earnings of R$ 1.275 billion for the second quarter of 2003 (2Q03),
corresponding to R$ 3.32 per share, the second highest quarterly profit in the
history of CVRD, only surpassed by the results posted in 4Q02, of R$ 1.541
billion. Return on shareholders' equity (ROE) amounted to an annualized 35.9%.
Earnings in the first half of 2003 (1H03) amounted to R$ 2.439 billion, higher
than the earnings recorded in the same period a year earlier (1H02), of R$ 718
million.
Gross operating revenues in the second quarter amounted to R$ 2.206 billion, up
19.7% compared to 2Q02. In 1H03 revenues amounted to R$ 4.724 billion, 37.2%
higher than in the same period last year of R$ 3.444 billion.
CVRD's consolidated exports in the second quarter amounted to US$ 947 million,
totalling US$ 1.747 billion for the first half of the year. Exports thus showed
an increase of 9.9% compared to 1H02. CVRD's net consolidated exports (exports
minus imports) in 1H03 amounted to US$ 1.551 billion, which corresponded to
14.9% of Brazil's trade surplus in this period, of US$ 10.397 billion.
Equity income amounted to R$ 151 million compared to R$ 406.7 million in 2Q02.
Most of this was from aluminum operations, which contributed R$ 266.9 million.
Cash generation, as measured by EBITDA (earnings before interest, tax,
depreciation and amortization), amounted to R$ 983 million, up 28.2% compared to
2Q02. The increase in revenues generated by higher sales volumes and the impact
of the depreciation of the USD against the BRL and dividends received from
subsidiaries and affiliates were the main factors behind the growth in cash
generation.
EBITDA accumulated in 1H03 amounted to R$ 2.131 billion, up 42.9% on 1H02.
2Q03
1
BR GAAP
Sales of iron ore and pellets amounted to 36.428 million tons, practically the
same as that posted in 2Q02, of 36.330 million. In 1H03 shipments amounted to
72,819 million tons, up 4% in relation to those in 1H02.
CVRD has been operating at full capacity, at the same time carrying out various
investments in mining and logistics, which will permit faster expansion in
shipment capacity from 2004. To this end, in the first quarter of next year Pier
III at the maritime terminal of Ponta da Madeira should begin operations, while
at the same time production from the iron ore mines at Carajas should be up to
70 million tons a year, an increase of 14 million tons on its current nominal
capacity. Given the much faster growth in demand for iron ore than expected, the
Company is aiming to bringing forward the completion of the expansion project at
Carajas by almost a year.
The Gongo Soco mine, part of the Southern System, resumed operations after the
problems that occurred in 1Q03, producing iron ore at an annual rate of 3.6
million tons.
The volume of general cargo (cargo except iron ore and pellets) transported in
2Q03 constituted a quarterly record, despite the fact that only part of the
Company's locomotive and railcar orders have been met until now. CVRD's
railroads - Vitoria a Minas and Carajas -transported in 2Q03 4.298 billion net
ton kilometers (ntk) of general cargo, up 17.6% in relation to 2Q02. In 1H03
CVRD's railroads transported 7.687 billion ntk, against 7.056 billiob in 1H02.
The Centro - Atlantica Railroad (FCA), operated by CVRD, also set a new
quarterly record, with the transport of 2.602 billion ntk of general cargo, up
15.5% on the figure obtained in 2Q02, of 2.253 billion. In 1S03 FCA transported
4.835 billion ntk, up 18.4% yoy.
The Company's ports and maritime terminals shipped 7.411 million tons in 2Q03,
compared to 7.007 million in 2Q02. In 1H03 cargo transported for clients reached
13 million tons, growth of 4.1% in relation to the first half of 2002.
Investments by the Parent Company in 2Q03 amounted to US$ 389.7 million,
bringing total investments in the first half of the year to US$ 587.6 million.
Around half of this amount was spent in the development of new mines (iron ore
and copper), in the expansion of capacity of existing mines (iron ore and
potash), in the expansion of logistics capacity and in the construction of
hydroelectric power plants.
The Company's performance in 2Q03 showed itself to be extremely solid and
consistent with the aim of maximizing value over the long term and also
reflected the quality with which strategies were implemented in all areas of the
business.
--------------------------------------------------------------------------------
SELECTED FINANCIAL INDICATORS
--------------------------------------------------------------------------------
million R$
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Gross Operating Revenues 1,843 2,518 2,206
--------------------------------------------------------------------------------
Gross Margin (%) 45.2 48.4 42.9
--------------------------------------------------------------------------------
EBITDA 766 1,148 983
--------------------------------------------------------------------------------
EBITDA Margin (%) 43.5 47.5 46.4
--------------------------------------------------------------------------------
Net Earnings 85 1,164 1,275
--------------------------------------------------------------------------------
ROE (annualized) (%) 2.8 35.0 35.9
--------------------------------------------------------------------------------
Investments (US$ million) * 216 198 390
--------------------------------------------------------------------------------
*including acquisitions
--------------------------------------------------------------------------------
ROE = return on equity = net earnings / equity
2Q03
2
BR GAAP
MATERIAL EVENTS
Iron ore and pellet prices
During May, negotiations with clients were completed for the setting of iron ore
and pellet reference prices for the year 2003. Due to the extraordinary growth
in demand, an average price increase was obtained of approximately 9.0% for the
various types of iron ore and 9.8% for blast furnace pellets.
The reference prices for iron ore are at their highest levels in nominal terms
since 1992. At the same time, there was a recovery in the premium commanded in
the price of blast furnace pellets relative to iron ore fines, which returned to
the level seen in 2001, of around US$20 cents per iron unit.
Strategic focus, profitable growth and value creation
Investments
At the beginning of July, Rio Doce Manganese Norway (RDMN), CVRD's wholly owned
subsidiary located in Mo I Rana, Norway, began operations. After the investment
in the overhaul of its electric furnaces, environmental protection and
improvements to its safety systems in the workplace, RDMN began production of
manganese ferro-alloys, with an annual capacity of 110,000 tons. The plant is
supplied with ultra-fine manganese ore from the Azul mine located in Carajas,
and benefits from relatively low electricity costs.
Expansion of bauxite and alumina production capacity represents important
leveraging in the generation of value for CVRD's shareholders, bearing in mind
the Company's sustainable competitive advantages. These advantages are due to
the Company's considerable reserves of high-quality bauxite, its efficient
logistics system and an alumina refinery with low conversion and capacity
expansion costs.
The construction of stage 3 at the alumina refinery of Alunorte, increasing
annual capacity from 1.6 million to 2.4 million tons, and an increase in bauxite
production capacity at Mineracao Rio do Norte from 11.0 to 16.3 million tons per
year were concluded this year.
At the end of July the Board of Directors of Alunorte, a subsidiary of CVRD,
approved the construction of stages 4 and 5, which will increase capacity from
2.4 million to 4.2 million tons a year with an estimated investment of US$ 583
million. The new modules will use bauxite produced in Paragominas, a wholly
owned CVRD mine in the state of Para, currently under development. Both the mine
and the expansion of the refinery are expected to begin operations in the first
quarter of 2006.
The European Commission has authorized CVRD's proposal to acquire control of
CAEMI, the world's fourth largest producer of iron ore. After the conclusion of
the transaction to buy 50% of the ordinary shares and 40% of the preferred
shares of CAEMI for US$ 426.4 million, CVRD will hold 60.2% of this company's
total capital, consolidating the group's global leadership in the iron ore
market. CAEMI's results will be consolidated into the Company's financial
statements in US GAAP (generally accepted accounting principles in the United
States) starting in 3Q03.
2Q03
3
BR GAAP
Another important step in the ferrous mining business will be the consolidation
of Ferteco into CVRD in 3Q03, allowing the extraction of further synergies
between the two companies.
Divestiture
As part of the strategic directive for the divestment of assets that have no
synergies with the Company's core businesses, the sale of two Docenave ships for
US$ 36 million was finalised, resulting in an accounting profit of R$ 8 million.
With the completion of this transaction, just three ships from Docenave's long
haul fleet remain to be sold.
An agreement was signed with Yamana Resources Inc. for the purchase and sale of
the Fazenda Brasileiro gold mine for US$ 20.9 million. CVRD continues to invest
in mineral exploration aimed at discovering new gold deposits. On the other
hand, with the exception of 118, all the Company's copper projects will produce
gold as a by-product.
Financial Management
The Company successfully concluded two transactions in the international capital
markets, raising a total of US$ 550 million.
The first involved the issue of notes backed by export receivables of iron ore
and pellets amounting to US$ 250 million with a term of 10 years, a duration of
5.38 years, a grace period of two years, bearing a coupon of 4.43% p.a. payable
quarterly and yield to maturity of 4.48% p.a. The issue received a guarantee
from MBIA Insurance Corporation and obtained ratings of Aaa from Moody's, AAA
from Standard & Poors and AAA from Fitch Ratings.
The second operation involved the issuance of a US$ 300 million unsecured bond
for a term of 10 years, a duration of 6.77 years, carrying a coupon of 9.00%
p.a. paid semi-annually, with an yield to maturity of 9.25% p.a. This issue had
various characteristics that gave it all the hallmarks of success.
Firstly, it obtained a rating of Ba2 from Moody's, 3 notches higher than that
awarded to Brazil's sovereign debt, B2. For the first time, a private-sector
Brazilian company obtained a higher credit rating than the country itself.
Secondly, it had the longest term of any unsecured bond issued by a
private-sector Brazilian company.
Thirdly, it is also the first time ever that a private-sector Brazilian company
placed a bond issue offering a lower yield than the comparable securities issued
by the sovereign. CVRD 2013 was placed with investors at a yield of 9.250% p.a.,
while the Brazil Global 2013 was trading at a yield of 12.582%.
The terms obtained for the two issues reflect the recognition by the global
capital markets of CVRD's excellent credit quality. At the same time, the
transactions are consistent with the Company's financial objective: lengthening
the duration of its debt, and reducing refinancing risk, at the lowest cost
available given the prevailing market conditions.
The operations were concluded in July and August 2003, and, therefore, will only
be reflected in the 3Q03 financial statements.
2Q03
4
BR GAAP
SHORT-TERM OUTLOOK
Demand for iron ore has been extraordinary, greatly exceeding the expectations
that prevailed at the beginning of this year. There are indications that the
global seaborne iron ore market is facing its strongest demand pressure in the
last 20 years.
In the first half of 2003, Chinese imports grew 42% in relation to the same
period last year, reaching 72.5 million tons. This figure is already higher than
the Chinese imports for the whole of 2000, which totalled 70 million tons. China
has surpassed Japan as the world's largest importer of iron ore, given that
imports to that country, although up by 5.4%, amounted to 66.4 million tons in
1H03.
Global production of crude steel, according to statistics from the International
Iron and Steel Institute (IISI), increased by 8.2% in 1H03 compared to 1H02,
with growth of 1.9% in the European Union, 3% in the United States, 5.2% in
Japan, 2% in South Korea and 21% in China - which consequently has been the main
driving force in the demand for iron ore. According to industry specialists, it
is likely that global steel production in 2003 will reach around 950 million
tons, which would mean a jump of 100 million tons from the level two years ago.
This expansion in production has obviously translated into a substantial
increase in demand for iron ore.
After a brief period of decline, between February and June this year, steel
prices, according to the CRU steel price index, picked up in July. The
differential in seaborne freight rates between Brazil-Asia and Australia-Asia
has shown a modest increase of about US$ 8.50 per ton, indicating the strength
of demand for iron ore and pellets, given that Asian countries - basically
China, Japan, Taiwan and South Korea - account for approximately 65% of global
seaborne imports.
The performance of the Chinese economy has been directly influenced by
investments in infrastructure, foreign direct investment flows, exports of
manufactured products and an increase in consumer spending on durable goods,
especially cars. The growth in these various components explains why China is
currently responsible for around 17% of the world's copper and aluminium
consumption, 21% of global steel consumption and 23.3% of global seaborne
imports of iron ore, and why growth in the Chinese economy causes a considerable
impact on ore and metal markets.
The epidemic of Severe Acute Respiratory Syndrome (SARS) has been overcome and
its impact on the performance of the Chinese economy seems to have been
relatively small, with GDP growth slowing from 9.9% in 1Q03 to 6.7% in 2Q03.
Therefore, GDP in that country is expected to continue to grow in the second
half of this year at a similar rate to that seen in 1H03, of 8.2%, with a
gradual convergence to 7% a year, with favourable repercussions on demand for
minerals and metals.
Recent statistics on the behaviour of leading indicators are showing encouraging
signs of a recovery in the global economy. GDP in the USA, which has led global
economic growth since the mid Nineties, recorded growth rate of 2.4% a year in
2Q03, compared to estimates of 1.5% and annualised expansion rates of only 1.4%
in each of the two previous quarters. This provoked an immediate reaction in the
commodity markets: the price of copper rose to its highest level in the last 24
months and aluminium prices returned to levels last seen in March 2002. More
vigorous global economic growth is expected in the next few quarters, which
without doubt improves the outlook for the mining and metals markets.
2Q03
5
BR GAAP
Bearing in mind the plans to significantly expand steel production in China, it
is likely that the current imbalance between the demand and supply of iron ore
will persist for the next 18 months, despite capacity expansion projects in
Brazil and Australia.
The alumina market has also been experiencing an imbalance between demand and
supply, given that global consumption has been growing faster than production
since the beginning of 2002. This process, principally due to a significant
growth in imports into China, which in 1H03 amounted to 2.56 million tons
compared to 1.9 million for the year 2000 as a whole, has caused a sharp rise in
prices. On the spot market the alumina price has reached approximately 21% of
the aluminium price on the London Metal Exchange (LME), compared to 11% on
average for 2002.
The expected trend in global demand for alumina over the next few years is
likely to mean continued supply pressure, which will tend to benefit players
such as CVRD, which are investing in capacity expansion projects at an extremely
competitive cost.
The rise in Brazil's exports, the increase in the Company's fleet of locomotives
and wagons and the launching of new services for clients, are factors which lead
us to be optimistic with regard to the cash generation capacity of CVRD's
logistics businesses over the next 18 to 24 months.
FOCUS ON COST REDUCTION
In parallel to its routine controls and investments in power generation, CVRD
has been developing various specific cost reduction initiatives. Among these,
are the efforts to shorten the wagon turnaround cycle, reduce the consumption of
fuel on the railroads, restructuring in the procurement department, the
replacement of fuel oil by natural gas in the pellet plants, and the use of
electricity and other fuels in the generation of steam in the alumina refinery.
One aim, for example, is to shorten the average time taken for an iron ore wagon
for the journey to and from the mine and the port. Achieving this target would
generate significant productivity gains, permitting the transportation of larger
volumes of iron ore with less investment in equipment.
Alunorte is achieving the flexibility to, at any time, choose the cheapest
energy source to generate the steam and to calcinate alumina.
The company is making greater use of auctions for the purchase of equipment via
Quadrem, the global portal for the mining and metals industry. Processes and
procedures are being revised, the register of suppliers is being reorganised and
a ERP system (Enterprise Resource Planning) is being introduced, measures which
will permit a cut in costs and make procurement more efficient.
The effects of these initiatives should materialize over the next few quarters..
REVENUES AND SALES VOLUME
Shipments of iron ore and pellets in 2Q03, of 36.428 million tons, did not show
any increase in relation to 2Q02 and 1Q03. Sales in 1H03 amounted to 72.819
million tons compared to 69.993 million in 1H02, an increase of 4%.
CVRD has been operating at full capacity, expecting only modest sales growth
this year. The pattern seen in rising demurrage costs mirrors the pressure of
demand on production capacity and the Company's iron ore shipments: in 2Q03 this
item amounted to of R$ 37 million, compared to R$ 19 million in 2Q02.
2Q03
6
BR GAAP
By the same token, during 2Q03 1.792 million tons of iron ore were purchased
from smaller mining companies located at the iron ore quadrangle, in the State
of Minas Gerais, bringing the total amount bought in 1H03 to 3.261 million tons.
However, as we have previously mentioned, the capacity expansion at Carajas is
scheduled to come on stream in 1Q04. This, combined with the completion of Pier
III at the maritime terminal of Ponta da Madeira due in the same quarter, the
investments in locomotives and wagons, as well as the investment in decreasing
ship loading time at the port of Tubarao, will place CVRD in a better position
to exploit the increased global demand for iron ore of and pellets.
Iron ore fines accounted for 79.6% of shipments in 2Q03, lumps 8.5% and pellets
11.9%. The drop in pellet sales, from 5.084 million tons in 1Q03 to 4.326
million tons in 2Q03, is only due to temporary shipment scheduling.
Export markets accounted for approximately 74% of iron ore and pellet shipments
in 2Q03, while 13% went to pelletizing joint ventures and 13% to customers in
the domestic market. China, with 4.8 million tons, was the main export market
for iron ore and pellets, accounting for 17.8% of the volume sold in the
external markets. Japan was the next largest importer, with 4.1 million tons,
followed by Germany with 2.8 million, France with 2.3 million and South Korea
with 1.7 million. Asia accounted for 43.5% of exports, and Europe 39.4%.
Sales of potash totalled 149,000 tons, down 22.4% in relation to 2Q02. The
Taquari-Vassouras mine operated slightly above its nominal capacity of 600,000
tons a year. In 2002 the sale of 731,000 tons was made possible by significantly
drawing down on inventory. Potash is another area where the Company is facing
excess demand, however CVRD is undertaking an investment to increase production
capacity at the mine to 850,000 tons which has expected start up for the middle
of 2005.
General cargo transported by the railroads - EFVM and EFC - amounted to 4.298
billion ntk, which set a new quarterly record, being an increase of 17.6% on
2Q02 and up 26.8% compared to 1Q03. Cargo handling for clients in CVRD's ports
and maritime terminals amounted to 7.411 million tons, an increase of 5.8% on
2Q02 and up 31.8% on 1Q03.
A large part of the performance in logistics services can be explained by the
Company's exploitation of opportunities provided by agricultural production,
specially grains, a segment in which CVRD ships approximately 15% of the harvest
destined for the export market, and by increased Brazilian steel production, up
8.4% in 1H03. Various initiatives in the process of being introduced, or already
implemented, are enabling the Company to take advantage of growth potential in
this line of business. Of particular note are contracts for the transport of
soya, sugar for export, the launching of express train services, the development
of new services for the transport of steel products and the fact that the
Company has started to provide logistics management services for the industrial
installations of various large Brazilian companies and multinationals.
All these initiatives, combined with the larger number of locomotives and
wagons, mean that we can look forward to continuing expansion in CVRD's
logistics activities.
2Q03
7
BR GAAP
--------------------------------------------------------------------------------
SALES VOLUME
--------------------------------------------------------------------------------
'000 tons
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Iron ore and pellets 36,330 36,391 36,428
--------------------------------------------------------------------------------
Iron Ore 32,289 31,307 32,102
--------------------------------------------------------------------------------
Fines 28,648 28,157 29,001
--------------------------------------------------------------------------------
Lumps 3,641 3,150 3,101
--------------------------------------------------------------------------------
Pellets 4,041 5,084 4,326
--------------------------------------------------------------------------------
Gold (troy ounce) 111,854 25,753 19,773
--------------------------------------------------------------------------------
Potash 192 158 149
--------------------------------------------------------------------------------
Port Services 7,007 5,624 7,411
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
RAILROAD TRANSPORTATION OF GENERAL CARGO
--------------------------------------------------------------------------------
million ntk
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Vitoria a Minas Railroad 2,807 2,727 3,311
--------------------------------------------------------------------------------
Carajas Railroad 848 662 987
--------------------------------------------------------------------------------
Total 3,655 3,389 4,298
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
IRON ORE AND PELLET SALES - PARENT COMPANY
--------------------------------------------------------------------------------
million tons
--------------------------------------------------------------------------------
DESTINATION 2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
ASIA
--------------------------------------------------------------------------------
China 5.0 5.4 4.8
--------------------------------------------------------------------------------
South Korea 1.1 1.6 1.7
--------------------------------------------------------------------------------
Philippines 0.5 0.4 0.6
--------------------------------------------------------------------------------
Japan 4.3 3.9 4.1
--------------------------------------------------------------------------------
Taiwan 0.4 0.4 0.5
--------------------------------------------------------------------------------
Total 11.3 11.7 11.7
--------------------------------------------------------------------------------
EUROPE
--------------------------------------------------------------------------------
Germany 3.4 3.5 2.8
--------------------------------------------------------------------------------
Spain 0.7 0.8 0.9
--------------------------------------------------------------------------------
France 1.5 1.4 2.3
--------------------------------------------------------------------------------
Italy 2.2 1.2 1.2
--------------------------------------------------------------------------------
United Kingdom 0.4 0.5 0.6
--------------------------------------------------------------------------------
Others 3.2 3.2 2.8
--------------------------------------------------------------------------------
Total 11.4 10.6 10.6
--------------------------------------------------------------------------------
THE AMERICAS
--------------------------------------------------------------------------------
Argentina 0.6 0.8 0.8
--------------------------------------------------------------------------------
United States 1.0 1.0 0.8
--------------------------------------------------------------------------------
Other 0.5 0.8 0.6
--------------------------------------------------------------------------------
Total 2.1 2.6 2.2
--------------------------------------------------------------------------------
Others
--------------------------------------------------------------------------------
Bahrein 0.5 0.5 0.4
--------------------------------------------------------------------------------
Others 0.7 1.0 2.0
--------------------------------------------------------------------------------
Total 1.2 1.5 2.4
--------------------------------------------------------------------------------
TOTAL 26.0 26.4 26.9
--------------------------------------------------------------------------------
DOMESTIC MARKET 2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Steel mills 5.7 5.1 4.6
--------------------------------------------------------------------------------
Pelletizing joint ventures 4.6 5.0 4.8
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total 10.3 10.1 9.4
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL 36.3 36.5 36.3
--------------------------------------------------------------------------------
2Q03
8
BR GAAP
The Company's gross operating revenues amounted to R$ 2.206 billion in 2Q03, 83%
of which was either denominated in, or indexed to, the US dollar. This was 19.7%
higher than in 2Q02, but represented a drop of 12.4% in relation to 1Q03 due to
the 16.9% appreciation of the Real.
Revenues obtained from sale of iron ore amounted to R$ 1.355 billion - 61.4% of
the total - an increase of 21.3% compared to 2Q02, but down 12.8% in relation to
1Q03. Pellet sales generated revenues of R$ 375 million in 2Q03 - 17.0% of total
revenue - an increase of 40.5% in relation to 2Q02 but down 24.4% on 1Q03, which
was caused by volatility in the exchange rate and a drop in the volume shipped.
In addition, revenues from services provided in the operation of the five
pelletizing plants of the joint ventures at Tubarao amounted to R$ 32 million
compared to R$ 23 million in 2Q02 and R$ 29 million in 1Q03.
Gross revenue from logistics services, of R$ 354 million, showed an increase of
30.1% on 2Q03 and were up 8.3% on 1Q03. The largest sources of revenue
generation were the steel industry, representing 40% and agriculture with 30%.
Intermodal transport, although accounting for a very small percentage of the
total - less than 5% of revenues generated by the transportation of general
cargo - is the most dynamic segment, having seen a sixfold increase in revenue
generation between 2Q02 and 2Q03. The focus of intermodal transport is on the
shipmenet of cargo between industrial plants and distribution centres, using
express trains and coastal shipping.
As a consequence of the drop in production, with the closure of the Igarape
Bahia mine and the Fazenda Brasileiro mine nearing exhaustion, revenues from
gold sales amounted to just R$ 20 million, compared to R$ 89 million in 2Q02 and
R$ 32 million in 1Q03. Potash sales, of R$ 63 million in 2Q03, were lower than
those in 1Q03, of R$ 73 million as a result of exchange rate effects and a small
drop in volume shipped from 158,000 to 149,000 tons.
--------------------------------------------------------------------------------------------------------------------
GROSS REVENUES BY PRODUCT
--------------------------------------------------------------------------------------------------------------------
million R$
--------------------------------------------------------------------------------------------------------------------
2Q02 % 1Q03 % 2Q03 %
--------------------------------------------------------------------------------------------------------------------
Iron Ore 1,118 60.6 1,553 61.7 1,355 61.4
--------------------------------------------------------------------------------------------------------------------
Domestic Market 294 26.3 411 26.5 364 26.9
--------------------------------------------------------------------------------------------------------------------
Export Market 824 73.7 1,142 73.5 991 73.1
--------------------------------------------------------------------------------------------------------------------
Pellets 267 14.5 496 19.7 375 17.0
--------------------------------------------------------------------------------------------------------------------
Domestic Market 48 17.9 90 18.1 64 17.0
--------------------------------------------------------------------------------------------------------------------
Export Market 219 82.1 406 81.9 311 83.0
--------------------------------------------------------------------------------------------------------------------
Railroad Transport 204 11.1 259 10.3 270 12.2
--------------------------------------------------------------------------------------------------------------------
Port Services 67 3.7 68 2.7 84 3.8
--------------------------------------------------------------------------------------------------------------------
Potash 62 3.4 73 2.9 63 2.9
--------------------------------------------------------------------------------------------------------------------
Gold 89 4.8 32 1.3 20 0.9
--------------------------------------------------------------------------------------------------------------------
Pelletizing Plants Operation Services 23 1.2 29 1.1 32 1.5
--------------------------------------------------------------------------------------------------------------------
Others 13 0.7 8 0.3 8 0.3
--------------------------------------------------------------------------------------------------------------------
Total 1,843 100 2,518 100 2,206 100
--------------------------------------------------------------------------------------------------------------------
EARNINGS OF R$ 1.275 BILLION
Net earnings in 2Q03 amounted to R$ 1.275 billion, compared to the figure of R$
85 million posted in 2Q02 and R$ 1.164 billion in 1Q03.
2Q03
9
BR GAAP
Factors behind the increase in earnings in relation to 2Q02
The significant growth in earnings in relation to 2Q02's result is due in large
part to the significant impact of the exchange rate on the Company's net debt
denominated in foreign currency. In 2Q02, due to the 22.4% appreciation of the
US dollar against the Real, monetary variation caused a drop in profit of R$
1.013 billion. In 2Q03, with the depreciation of the US dollar, these variations
combined to boost profits by R$ 885 million. Furthermore, the increase of R$ 357
million in net operating revenues contributed to the good result in 2Q03.
The most significant factors that negatively affected net earnings in 2Q03 were:
the increase of R$245 million in the cost of goods sold (COGS), the drop of
R$256 million in the results from shareholdings, and the increase of R$532
million in the provision for the payment of income tax and social contribution.
The increase in COGS was caused by a rise in the cost of material of R$ 91
million, an increase of R$ 66 million in the cost of fuel oil and gases due to
the increase in oil product prices, and greater spending on contracted services,
up R$ 51 million. It should be pointed out that the rise in material costs is
the result of changes in maintenance provision criteria adopted from 2H02.
The result from shareholdings amounted to R$ 151 million in 2Q03, compared to R$
407 million in 2Q02. Subsidiaries and affiliates in the aluminum segment
contributed with R$ 267 million, while logistics companies produced a negative
result of R$ 178 million.
Albras posted profit of R$ 246.7 million in 2Q03, Alunorte R$ 151.4 million and
MRN, R$ 75.2 million. In 2Q03 Alunorte's sales amounted to 537,000 tons of
alumina, already reflecting the production ramp-up in module 3.
Companies in the ferrous minerals segment - iron ore, pellets, manganese and
ferro-alloys - generated earnings of only R$ 7 million for the Parent Company.
Monetary losses of R$239 million, due to the appreciation in the Real,
experienced by subsidiaries abroad, partially offset the good performance of
companies such as Samarco, which posted earnings of R$ 71 million, Ferteco with
R$ 68 million, Kobrasco, R$ 18 million and GIIC, R$ 10 million. RDMN posted
earnings of R$ 9 million, obtained through the sale of unconsumed electricity
during the period when it was adapting its plant for the production of manganese
alloys.
In the logistics area, the negative result was influenced by accounting
adjustments made at FCA. As well as the amortization of goodwill of R$ 115
million and provision for losses of R$ 96 million.
Bearing in mind the future consolidation of FCA in CVRD's financial statements,
it has sought to adapt its accounting procedures to those used by the Company
and in line with the best international practices. In this way, there was a
change in the way leasing and railway concessions were accounted for, which
resulted in a negative accounting affect of some R$ 211 million, without any
effect on cash flow.
In 2Q03 a provision of R$ 259 million for the payment of income tax and social
was made, compared to the figure of R$ 200 million in 1Q03. The significant
increase in taxation is a consequence of growth in taxable earnings being out of
phase with the capacity for generating tax credits through the payment of
interest on shareholder's equity.
2Q03
10
BR GAAP
--------------------------------------------------------------------------------
RESULT FROM SHAREHOLDINGS BY BUSINESS AREA
--------------------------------------------------------------------------------
million R$
--------------------------------------------------------------------------------
Business Area 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Ferrous Minerals
--------------------------------------------------------------------------------
Iron Ore and pellets 532 34 (3)
--------------------------------------------------------------------------------
Manganese and Ferro-alloys 41 16 10
--------------------------------------------------------------------------------
Non-ferrous Minerals (40) 24 27
--------------------------------------------------------------------------------
Logistics (58) (40) (178)
--------------------------------------------------------------------------------
Steel 57 65 15
--------------------------------------------------------------------------------
Aluminum (127) 221 267
--------------------------------------------------------------------------------
Others 1 15 12
--------------------------------------------------------------------------------
Total 407 335 151
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
COGS BREAKDOWN
--------------------------------------------------------------------------------
million R$
--------------------------------------------------------------------------------
2Q 02 % 1Q 03 % 2Q 03 %
--------------------------------------------------------------------------------
Personnel 130 13.5 120 9.6 124 10.2
--------------------------------------------------------------------------------
Material 115 11.9 211 16.9 206 17.0
--------------------------------------------------------------------------------
Fuel Oil and Gases 90 9.3 139 11.2 156 12.9
--------------------------------------------------------------------------------
Energy 30 3.1 24 1.9 33 2.7
--------------------------------------------------------------------------------
Contracted Services 118 12.2 123 9.9 169 14.0
--------------------------------------------------------------------------------
Acquisition of products 250 25.9 386 31.0 263 21.7
--------------------------------------------------------------------------------
Depreciation and Exhaustion 160 16.6 150 12.0 155 12.8
--------------------------------------------------------------------------------
Others 73 7.5 93 7.5 106 8.7
--------------------------------------------------------------------------------
Total 966 100.0 1,248 100.0 1,211 100.0
--------------------------------------------------------------------------------
BEHAVIOR OF EBITDA
EBITDA generation amounted to R$983 million in 2Q03, an increase of 28.3% in
relation to 2Q02, but lower than the figure of R$ 1.148 billion recorded in
1Q03. EBITDA margin amounted to 46.4%, higher than that posted in 2Q02, of 43.5%
and slightly less than the 47.5% recorded in 1Q03.
EBITDA growth in relation to 2Q02
The main factors behind the increase in EBITDA in 2Q03 compared to 2Q02 were:
(a) growth in net operating revenues of R$ 357 million; (b) an increase in
dividends received from subsidiaries and affiliates of around R$ 133 million,
which totalled R$ 185 million in 2Q03; (c) an adjustment for non-recurring items
of R$ 36 million; and (d) a drop in administrative expenses of R$ 9 million.
In 2Q03, CVRD (Parent Company) received dividends from Samarco, of R$ 64.2
million, R$ 38.2 million from Florestas Rio Doce, R$ 26.4 million from Docenave,
R$ 26.3 million from Aluvale, R$ 14.5 million from Urucum Mineracao, R$ 5.6
million from Fosfertil, and R$ 9.9 million from various other companies.
An amount of R$36 million of pre-operational expenses for the Sao Luis
pelletizing plant was booked as other operational expenses, being of a
non-recurring nature. As this expense is a one time event, it is characterised
as non-recurring. Consequently, the EBITDA was adjusted in this amount.
2Q03
11
BR GAAP
Factors adversely affecting EBITDA growth were: a R$ 245 million increase in
COGS and a rise of R$ 56 million in other operational expenses. This latter was
determined principally by an increase of R$ 37 million in the provision for
employee profit-sharing.
--------------------------------------------------------------------------------
EBITDA CALCULATION
--------------------------------------------------------------------------------
R$ million
--------------------------------------------------------------------------------
2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Net Operating Revenues 1,762 2,417 2,119
--------------------------------------------------------------------------------
COGS (966) (1,248) (1,211)
--------------------------------------------------------------------------------
Sales Expenses (35) (52) (45)
--------------------------------------------------------------------------------
Administrative Expenses (106) (89) (97)
--------------------------------------------------------------------------------
Research & Development (31) (38) (36)
--------------------------------------------------------------------------------
Other Operational Expenses (75) (106) (131)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EBIT 548 884 600
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Depreciation and Amortization 166 161 163
--------------------------------------------------------------------------------
Dividends Received 52 102 185
--------------------------------------------------------------------------------
Adjustments for Non-recurring Items
(asset write-off) - - 36
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EBITDA 766 1,148 983
--------------------------------------------------------------------------------
2Q03
12
BR GAAP
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
million R$
--------------------------------------------------------------------------------
2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Gross Operating Revenues 1,843 2,518 2,206
--------------------------------------------------------------------------------
Taxes (82) (101) (87)
--------------------------------------------------------------------------------
Net Operating Revenues 1,762 2,417 2,119
--------------------------------------------------------------------------------
Cost of Goods Sold (966) (1,248) (1.211)
--------------------------------------------------------------------------------
Gross Earnings 796 1,169 908
--------------------------------------------------------------------------------
Gross Margin (%) 45.2 48.4 42.9
--------------------------------------------------------------------------------
Result from Shareholdings 407 335 151
--------------------------------------------------------------------------------
Equity Income 626 419 370
--------------------------------------------------------------------------------
Goodwill Amortization (104) (93) (185)
--------------------------------------------------------------------------------
Provision for Losses (115) 10 (35)
--------------------------------------------------------------------------------
Operating Expenses (247) (285) (308)
--------------------------------------------------------------------------------
Selling (35) (52) (45)
--------------------------------------------------------------------------------
Administrative (106) (89) (97)
--------------------------------------------------------------------------------
Research and Development (31) (38) (36)
--------------------------------------------------------------------------------
Other Operational Expenses (75) (106) (131)
--------------------------------------------------------------------------------
Financial Result (1,143) 145 783
--------------------------------------------------------------------------------
Financial Expenses (190) (185) (164)
--------------------------------------------------------------------------------
Financial Revenues 60 50 61
--------------------------------------------------------------------------------
Monetary Variation (1,013) 280 885
--------------------------------------------------------------------------------
Operating Profit (187) 1,364 1,534
--------------------------------------------------------------------------------
Income Tax and Social Contribution 272 (200) (259)
--------------------------------------------------------------------------------
Net Earnings 85 1,164 1,275
--------------------------------------------------------------------------------
Earnings per share (R$) 0.22 3.03 3.32
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BALANCE SHEET
--------------------------------------------------------------------------------
million R$
--------------------------------------------------------------------------------
2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Asset
--------------------------------------------------------------------------------
Current 4,552 4,787 4,127
--------------------------------------------------------------------------------
Realisable Long Term 3,241 3,045 2,894
--------------------------------------------------------------------------------
Fixed 17,032 20,080 20,774
--------------------------------------------------------------------------------
Total 24,825 27,913 27,796
--------------------------------------------------------------------------------
Liabilities
--------------------------------------------------------------------------------
Current 4,167 4,629 5,297
--------------------------------------------------------------------------------
Demandable Long Term 8,532 9,991 8,310
--------------------------------------------------------------------------------
Shareholders' Equity 12,126 13,293 14,188
--------------------------------------------------------------------------------
Paid-up Capital 5,000 5,000 6,300
--------------------------------------------------------------------------------
Reserves 7,126 8,293 7,888
--------------------------------------------------------------------------------
Total 24,825 27,913 27,796
--------------------------------------------------------------------------------
INVESTMENTS
Capital expenditure by CVRD in 2Q03 amounted to US$ 389.7 million, totalling US$
587.6 million for the first half of the year.
US$ 189.3 million were spent on projects - 48.6% of the capital expenditure
total - US$ 9.4 million being on iron ore mining in the Southern System, US$
23.8 million on iron ore mining in the Northern System and US$ 41.5 million on
logistics. US$ 87.5 million were allocated to the Sossego copper project and US$
6.9 million to expanding the Taquari - Vassouras potash mine.
2Q03
13
BR GAAP
The main projects are detailed below:
---------------------------------------------------------------------------------------------------------------------
Area Project Investment Investment Status
carried out in carried out in
1Q03 2Q03
---------------------------------------------------------------------------------------------------------------------
Enlarging US$ 6.1 million US$ 7.7 million It is expected that the Northern System will be
iron ore operating with a production capacity of 70
production million tons in 1Q04, therefore managing to
Ferrous capacity in accelerate the expansion in production by
Minerals the Northern approximately 12 months. Investment in the
System project is estimated at US$ 144.4 million,
involving expenditure on the mine, railroad and
port.
-------------- ------------------ ------------------ --------------------------------------------------
Pier III of US$ 2.1 million US$ 2.8 million Completion expected for January 2004. Project
the Ponta da implementation is proceeding according to
Madeira schedule and capex is estimated at US$ 33.3
Maritime million. Pier III will have a loading capacity
Terminal of 18 million tons a year, enlarging the
(PMMT) capacity of PMMT to 74 million tons a year.
-------------- ------------------ ------------------ --------------------------------------------------
Brucutu iron US$ 146,000 US$ 296,000 First phase due for completion by 2006, when the
ore mine - mine will have a production capacity of 12
Southern million tons a year. Works are proceeding
System according to schedule. Total investment is
estimated at US$ 219.9 million, of which US$ 19.7
million is programmed for 2003.
-------------- ------------------ ------------------ --------------------------------------------------
Fabrica Nova US$ 637,000 US$ 2.5 million Completion estimated for 2005. 3.7% of the
iron ore mine investment has already been carried out, and
- Southern work is proceeding according to schedule. The
System Fabrica Nova mine is likely to have a capacity
of 10 million tons a year by 2005, reaching 15
million by 2009. Total capital expenditure is
budgeted at US$ 84.4 million, with programmed
spending of US$ 39.6 million for 2003.
------------- -------------- ------------------ ------------------ --------------------------------------------------
Sossego US$ 40.5 million US$ 87.5 million Completion estimated for first half 2004. 55%
copper mine of the total investment in the project has
already been carried out, 78% of the undertaking
Non Ferrous having been completed. The first tests should
Minerals begin in 3Q03. The project is slightly ahead of
schedule.
-------------- ------------------ ------------------ --------------------------------------------------
Expansion of US$ 4.0 million US$ 6.9 million Completion estimated for mid 2005. 26% of the
Taquari investment total for the project has been
-Vassouras carried out. The project is on schedule. After
Potash Mine the expansion, the mine's capacity will have
been enlarged to 850,000 tons a year.
------------- -------------- ------------------ ------------------ --------------------------------------------------
Purchase of US$ 18.9 million US$ 35.3 million Of the 2,010 wagons and 77 locomotives which
locomotives will be purchased by the end of 2003, the
and wagons Company has already received 950 wagons and 44
locomotives. Part of this equipment will be for the
transport of general cargo and part for iron ore.
Logistics 33.3% of the total investment estimated at US$
162.9 million has already been made.
-------------- ------------------ ------------------ --------------------------------------------------
Praia Mole US$ 707,000 US$ 1.5 million Phase I was completed in April 2003. After the
MaritimeTerminal completion of Phase II (scheduled for 2Q04) the
(Phases I & terminal's handling capacity will be 14.5
II) million tons a year. Total investment is
budgeted at US$ 20.9 million.
------------- -------------- ------------------ ------------------ --------------------------------------------------
Aimores US$ 6.4 million US$ 7.6 million Full operation postponed to October 2004, in
Hydroelectric view of the delay in the relocation of a local
Plant community, due to questions of legal nature. The
Power construction of the plant is proceeding on
Generation schedule. The plant itself will be completed within
the original timetable, but will not be able to
generate electricity as the water reservoir will
not be full.
-------------- ------------------ ------------------ --------------------------------------------------
Candonga US$ 6.7 million US$ 5.4 million Completion scheduled for November 2003. 90% of
Hydroelectric the project's total estimated investment of US$
plant 40.1 million, has already been carried out.
Implementation of the project is proceeding as
scheduled.
-------------- ------------------ ------------------ --------------------------------------------------
2Q03
14
BR GAAP
Expenditure on maintenance and environmental protection in 2Q03 amounted to
US$47.4 million, representing 12.1% of the total.
Capital infusions amounted to US$ 79.9 million - 20.5% of the total invested -
for CFN, FCA, Celmar, Compania Minera Andino Brasileira (CMAB) and Compania
Minera Latino Americana (CMLA). CMAB and CMLA being mineral exploration
companies located in Chile and Peru, respectively. The injection into Celmar
went to pay off loans.
The purchase of shares issued by CST, amounting to US$ 58 million, accounted for
14.9% of the investment made in the quarter.
Expenditure on mineral exploration and technological research amounted to US$
8.6 million. US$ 6.5 million were spent on information technology, US$ 3 million
of which was on the implementation of the ERP system.
Of the total invested in 2Q03, the non-ferrous mineral area accounted for 26.8%,
logistics 20.3% and the ferrous minerals division, 18.1%.
------------------------------------------------------------------------------------------------------------------
INVESTMENTS - 2Q03
------------------------------------------------------------------------------------------------------------------
By business area US$ million % By category US$ million %
------------------------------------------------------------------------------------------------------------------
Ferrous Minerals 70.7 18.1% Capital infusions 79.9 20.5%
------------------------------------------------------------------------------------------------------------------
Logistics 79.1 20.3% Maintenance & Environmental 47.4 12.1%
Protection
------------------------------------------------------------------------------------------------------------------
Non-ferrous Minerals 104.4 26.8% Projects 189.3 48.6%
------------------------------------------------------------------------------------------------------------------
Power Generation 16.0 4.1% Mineral Exploration and 8.6 2.2%
Technological Research
------------------------------------------------------------------------------------------------------------------
Others 119.4 30.7% Information Technology 6.5 1.7%
------------------------------------------------------------------------------------------------------------------
Acquisitions 58.0 14.9%
------------------------------------------------------------------------------------------------------------------
Total 389.7 100% Total 389.7 100%
------------------------------------------------------------------------------------------------------------------
2Q03
15
BR GAAP
-----------------------------------------------------------------------------
IRON ORE AND PELLETS - FINANCIAL INDICATORS - NOT REVIEWED
-----------------------------------------------------------------------------
million R$
-----------------------------------------------------------------------------
HISPANOBRAS 2Q 02 1Q 03 2Q 03
-----------------------------------------------------------------------------
Quantity Sold ('000 tons) 836 905 890
-----------------------------------------------------------------------------
Export Markets 356 268 625
-----------------------------------------------------------------------------
Domestic Market 480 637 265
-----------------------------------------------------------------------------
Average Price (US$/ton) 31.56 29.75 36.33
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Net Revenues 59 94 93
-----------------------------------------------------------------------------
Cost of Goods Sold (56) (81) (85)
-----------------------------------------------------------------------------
Net Financial Result 6 (4) (7)
-----------------------------------------------------------------------------
Net Earnings 2 4 8
-----------------------------------------------------------------------------
Gross Margin (%) 5.1 13.8 8.6
-----------------------------------------------------------------------------
EBITDA - 14 17
-----------------------------------------------------------------------------
EBITDA Margin (%) - 14.9 18.3
-----------------------------------------------------------------------------
NIBRASCO 2Q 02 1Q 03 2Q 03
-----------------------------------------------------------------------------
Quantity Sold ('000 tons) 2,257 1,800 1,847
-----------------------------------------------------------------------------
Export Markets 686 469 513
-----------------------------------------------------------------------------
Domestic Market 1,571 1,331 1,334
-----------------------------------------------------------------------------
Average Price (US$/ton) 31.36 27.75 27.03
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Net Revenues 164 175 147
-----------------------------------------------------------------------------
Cost of Goods Sold (144) (167) (153)
-----------------------------------------------------------------------------
Net Financial Result (4) 1 2
-----------------------------------------------------------------------------
Net Earnings 6 3 (5)
-----------------------------------------------------------------------------
Gross Margin (%) 12.2 4.6 (4.1)
-----------------------------------------------------------------------------
EBITDA 19 10 (3)
-----------------------------------------------------------------------------
EBITDA Margin (%) 11.6 5.7 (2.0)
-----------------------------------------------------------------------------
Gross Debt (US$ million) 4 3 2
-----------------------------------------------------------------------------
- Short Term 2 2 2
-----------------------------------------------------------------------------
- Long Term 2 1 -
-----------------------------------------------------------------------------
ITABRASCO 2Q 02 1Q 03 2Q 03
-----------------------------------------------------------------------------
Quantity Sold ('000 tons) 702 813 843
-----------------------------------------------------------------------------
Export Markets 533 306 778
-----------------------------------------------------------------------------
Domestic Market 169 507 65
-----------------------------------------------------------------------------
Average Price (US$/ton) 28.30 29.54 35.25
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Net Revenues 50 86 91
-----------------------------------------------------------------------------
Cost of Goods Sold (48) (73) (76)
-----------------------------------------------------------------------------
Net Financial Result 9 (3) (5)
-----------------------------------------------------------------------------
Net Earnings 5 3 6
-----------------------------------------------------------------------------
Gross Margin (%) 4.0 15.1 16.5
-----------------------------------------------------------------------------
EBITDA - 10 13
-----------------------------------------------------------------------------
EBITDA Margin (%) - 11.6 14.3
-----------------------------------------------------------------------------
Gross Debt (US$ million)
-----------------------------------------------------------------------------
- Short Term 17 5 -
-----------------------------------------------------------------------------
2Q03
16
BR GAAP
--------------------------------------------------------------------------------
IRON ORE AND PELLETS - FINANCIAL INDICATORS - NOT REVIEWED
--------------------------------------------------------------------------------
million R$
--------------------------------------------------------------------------------
KOBRASCO 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Quantity Sold ('000 tons) 1,012 1,134 1,128
--------------------------------------------------------------------------------
Export Markets 534 453 667
--------------------------------------------------------------------------------
Domestic Market 478 681 461
--------------------------------------------------------------------------------
Average Price (US$/ton) 29.30 30.39 30.35
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net Revenues 72 117 102
--------------------------------------------------------------------------------
Cost of Goods Sold (67) (94) (88)
--------------------------------------------------------------------------------
Net Financial Result (78) 18 50
--------------------------------------------------------------------------------
Net Earnings (49) 18 35
--------------------------------------------------------------------------------
Gross Margin (%) 6.9 19.7 13.7
--------------------------------------------------------------------------------
EBITDA 5 16 8
--------------------------------------------------------------------------------
EBITDA Margin (%) 6.9 13.7 7.8
--------------------------------------------------------------------------------
Gross Debt (US$ million)
--------------------------------------------------------------------------------
- Long Term 143 124 102
--------------------------------------------------------------------------------
SAMARCO 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Quantity Sold ('000 tons) 3,436 3,988 4,277
--------------------------------------------------------------------------------
Average Price (US$/ton) 28.78 27.59 30.98
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net Revenues 239 361 371
--------------------------------------------------------------------------------
Cost of Goods Sold (115) (163) (166)
--------------------------------------------------------------------------------
Net Financial Result (95) - 25
--------------------------------------------------------------------------------
Net Earnings (19) 139 142
--------------------------------------------------------------------------------
Gross Margin (%) 51.9 54.8 55.3
--------------------------------------------------------------------------------
EBITDA 105 197 131
--------------------------------------------------------------------------------
EBITDA Margin (%) 43.9 54.6 35.3
--------------------------------------------------------------------------------
Gross Debt (US$ million) 267 179 188
--------------------------------------------------------------------------------
- Short Term 180 123 138
--------------------------------------------------------------------------------
- Long Term 87 56 50
--------------------------------------------------------------------------------
2Q03
17
BR GAAP
--------------------------------------------------------------------------------
IRON ORE AND PELLETS - FINANCIAL INDICATORS - NOT REVIEWED
--------------------------------------------------------------------------------
million R$
--------------------------------------------------------------------------------
FERTECO 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Quantity Sold ('000 tons) 3,545 4,879 4,426
--------------------------------------------------------------------------------
Export Market - Iron Ore 2,713 3,503 2,917
--------------------------------------------------------------------------------
Domestic Market - Iron Ore 832 1.376 1.509
--------------------------------------------------------------------------------
Average Price (US$/ton) 14.70 13.87 13.67
--------------------------------------------------------------------------------
- - -
--------------------------------------------------------------------------------
Quantity Sold ('000 tons) 1,234 856 1,175
--------------------------------------------------------------------------------
Export Market - Pellets 736 358 514
--------------------------------------------------------------------------------
Domestic Market - Pellets 498 498 661
--------------------------------------------------------------------------------
Average Price (US$/ton) 27.05 29.62 31.82
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net Revenues 195 311 299
--------------------------------------------------------------------------------
Cost of Goods Sold (128) (181) (150)
--------------------------------------------------------------------------------
Net Financial Result (44) (8) 7
--------------------------------------------------------------------------------
Net Earnings (10) 89 111
--------------------------------------------------------------------------------
Gross Margin (%) 34.4 41.8 49.8
--------------------------------------------------------------------------------
EBITDA 63 123 158
--------------------------------------------------------------------------------
EBITDA Margin (%) 32.3 39.5 52.8
--------------------------------------------------------------------------------
Gross Debt (US$ million) 146 92 77
--------------------------------------------------------------------------------
- Short Term 58 10 -
--------------------------------------------------------------------------------
- Long Term 88 82 77
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
GIIC* (US$ '000) 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Quantity Sold ('000 tons) 676 772 1,178
--------------------------------------------------------------------------------
Export Market 676 772 1,178
--------------------------------------------------------------------------------
Average Price (US$/ton) 40.30 41.00 43.30
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net Revenues 77 100 140
--------------------------------------------------------------------------------
Cost of Goods Sold (67) (78) (106)
--------------------------------------------------------------------------------
Net Financial Result - (1) (1)
--------------------------------------------------------------------------------
Net Earnings 6 12 20
--------------------------------------------------------------------------------
Gross Margin (%) 13.0 22.0 24.3
--------------------------------------------------------------------------------
EBITDA 8 16 24
--------------------------------------------------------------------------------
EBITDA Margin (%) 10.4 16.0 17.1
--------------------------------------------------------------------------------
Gross Debt (US$ million)
--------------------------------------------------------------------------------
- Long Term 40 35 35
--------------------------------------------------------------------------------
* Financial indicators calculated according to the standards of the IASC
(International Accounting Standards Committee)
--------------------------------------------------------------------------------
2Q03
18
BR GAAP
--------------------------------------------------------------------------------
MANGANESE AND FERRO-ALLOYS - FINANCIAL INDICATORS - NOT REVIEWED
--------------------------------------------------------------------------------
million R$
--------------------------------------------------------------------------------
SIBRA (Consolidated) 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Quantity Sold - Ferro Alloys ('000 tons) 78 67 79
--------------------------------------------------------------------------------
Export Market 39 30 40
--------------------------------------------------------------------------------
Domestic Market 39 37 38
--------------------------------------------------------------------------------
Average Price (US$/ton) 445.72 536.68 606.47
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Quantity Sold - Manganese ('000 tons) 247 241 382
--------------------------------------------------------------------------------
Export Market 212 147 306
--------------------------------------------------------------------------------
Domestic Market 35 94 76
--------------------------------------------------------------------------------
Average Price (US$/ton) 46.32 42.65 42.93
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net Revenues 106 142 171
--------------------------------------------------------------------------------
Cost of Goods Sold (69) (84) (93)
--------------------------------------------------------------------------------
Net Financial Result (4) (11) (19)
--------------------------------------------------------------------------------
Net Earnings 22 18 25
--------------------------------------------------------------------------------
Gross Margin (%) 34.9 40.8 45.6
--------------------------------------------------------------------------------
EBITDA 34 41 57
--------------------------------------------------------------------------------
EBITDA Margin (%) 32.1 28.9 33.3
--------------------------------------------------------------------------------
Gross Debt (US$ million) 46 57 64
--------------------------------------------------------------------------------
- Short Term 28 37 25
--------------------------------------------------------------------------------
- Long Term 18 20 39
--------------------------------------------------------------------------------
2Q03
19
BR GAAP
------------------------------------------------------------------------------
ALUMINUM - FINANCIAL INDICATORS - ADJUSTED AND NOT REVIEWED
------------------------------------------------------------------------------
million R$
------------------------------------------------------------------------------
MRN 2Q 02 1Q 03 2Q 03
------------------------------------------------------------------------------
Quantity Sold ('000 tons) 2,611 2,196 3,512
------------------------------------------------------------------------------
Export Markets 790 711 958
------------------------------------------------------------------------------
Domestic Market 1,821 1,485 2,554
------------------------------------------------------------------------------
Average Price (US$/ton) 18.34 19.23 18.98
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Net Revenues 111 140 184
------------------------------------------------------------------------------
Cost of Goods Sold (61) (69) (89)
------------------------------------------------------------------------------
Net Financial Result (32) - (11)
------------------------------------------------------------------------------
Net Earnings 8 59 75
------------------------------------------------------------------------------
Gross Margin (%) 45.0 50.7 51.6
------------------------------------------------------------------------------
EBITDA 59 80 124
------------------------------------------------------------------------------
EBITDA Margin (%) 53.2 57.1 67.4
------------------------------------------------------------------------------
Gross Debt (US$ million) 109 113 199
------------------------------------------------------------------------------
- Short Term 19 44 134
------------------------------------------------------------------------------
- Long Term 90 69 65
------------------------------------------------------------------------------
ALUNORTE 2Q 02 1Q 03 2Q 03
------------------------------------------------------------------------------
Quantity Sold ('000 tons) 410 490 537
------------------------------------------------------------------------------
Export Market 175 289 303
------------------------------------------------------------------------------
Domestic Market 235 201 234
------------------------------------------------------------------------------
Average Price (US$/ton) 165.72 172.03 173.68
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Net Revenues 174 292 273
------------------------------------------------------------------------------
Cost of Goods Sold (134) (218) (218)
------------------------------------------------------------------------------
Net Financial Result (198) 44 137
------------------------------------------------------------------------------
Net Earnings (142) 102 151
------------------------------------------------------------------------------
Gross Margin (%) 23.0 25.3 20.1
------------------------------------------------------------------------------
EBITDA 49 83 68
------------------------------------------------------------------------------
EBITDA Margin (%) 28.2 28.4 24.9
------------------------------------------------------------------------------
Gross Debt (US$ million)
------------------------------------------------------------------------------
- Long Term 455 482 494
------------------------------------------------------------------------------
ALBRAS 2Q 02 1Q 03 2Q 03
------------------------------------------------------------------------------
Quantity Sold ('000 tons) 110 103 106
------------------------------------------------------------------------------
Export Market 108 99 102
------------------------------------------------------------------------------
Domestic Market 2 4 4
------------------------------------------------------------------------------
Average Price (US$/ton) 1,332.13 1,337.98 1,326.07
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Net Revenues 366 480 423
------------------------------------------------------------------------------
Cost of Goods Sold (223) (285) (271)
------------------------------------------------------------------------------
Net Financial Result (332) 64 176
------------------------------------------------------------------------------
Net Earnings (186) 223 247
------------------------------------------------------------------------------
Gross Margin (%) 39.1 40.6 35.9
------------------------------------------------------------------------------
EBITDA 150 196 157
------------------------------------------------------------------------------
EBITDA Margin (%) 41.0 40.8 37.1
------------------------------------------------------------------------------
Gross Debt (US$ million) 556 451 400
------------------------------------------------------------------------------
- Short Term 49 - -
------------------------------------------------------------------------------
- Long Term 507 451 400
------------------------------------------------------------------------------
2Q03
20
BR GAAP
--------------------------------------------------------------------------------
ALUMINUM - FINANCIAL INDICATORS - ADJUSTED AND NOT REVIEWED
--------------------------------------------------------------------------------
million R$
--------------------------------------------------------------------------------
VALESUL 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Quantity Sold ('000 tons) 24 19 24
--------------------------------------------------------------------------------
Export Market 12 9 15
--------------------------------------------------------------------------------
Domestic Market 12 10 9
--------------------------------------------------------------------------------
Average Price (US$/ton) 1,663.20 1,730.60 1,685.83
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net Revenues 93 108 112
--------------------------------------------------------------------------------
Cost of Goods Sold (72) (69) (89)
--------------------------------------------------------------------------------
Net Financial Result 1 - -
--------------------------------------------------------------------------------
Net Earnings 15 27 3
--------------------------------------------------------------------------------
Gross Margin (%) 22.6 36.1 20.5
--------------------------------------------------------------------------------
EBITDA 23 35 14
--------------------------------------------------------------------------------
EBITDA Margin (%) 24.7 32.4 12.5
--------------------------------------------------------------------------------
Gross Debt (US$ million) 2 2 2
--------------------------------------------------------------------------------
- Short Term 1 1 1
--------------------------------------------------------------------------------
- Long Term 1 1 1
--------------------------------------------------------------------------------
This communication may include declarations which represent the expectations of
the Company's Management about future results or events. All such declarations,
when based on future expectations and not on historical facts, involve various
risks and uncertainties. The Company cannot guarantee that such declarations
turn out to be correct. Such risks and uncertainties include factors relative to
the Brazilian economy and capital markets, which are volatile and may be
affected by developments in other countries; factors relative to the iron ore
business and its dependence on the steel industry, which is cyclical in nature;
and factors relative to the high degree of competitiveness in industries in
which CVRD operates. To obtain additional information on factors which could
cause results to be different from those estimated by the Company, please
consult the reports filed with the Comissao de Valores Mobiliarios (CVM -
Brazilian stock exchange regulatory authority) and the U.S. Securities and
Exchange Commission - SEC, including the most recent Annual Report - CVRD Form
20F."
--------------------------------------------------------------------------------
2Q03
21
US GAAP
BOVESPA: VALE3, VALE5
NYSE: RIO, RIOPR
LATIBEX: XVALO, XVALP
www.cvrd.com.br
rio@cvrd.com.br
Investor Relations
Department
Roberto Castello Branco
Barbara Geluda
Daniela Tinoco
Eduardo Mello Franco
Rafael Azevedo
Rafael Campos
Tel: (5521)3814-4540
[CVRD LOGO]
PERFORMANCE OF COMPANHIA VALE DO RIO DOCE IN THE SECOND QUARTER OF 2003
================================================================================
The financial and operating information contained in this press release, except
whether otherwise indicated, is based on consolidated figures, according to
generally accepted accounting principles in the United States of America ("US
GAAP"). This information, with the exception of that referring to investment and
market behavior, is based on the quarterly financial statements, which have been
reviewed by independent auditors. The main consolidated subsidiaries of CVRD
are: RDME, RDMN, Sibra, Ferteco, Urucum Mineracao, Para Pigmentos, Docenave,
Aluvale, Alunorte, Florestas Rio Doce, Celmar, Rio Doce Europa, Itaco, CVRD
Overseas and Rio Doce Finance International.
Rio de Janeiro, 13 August 2003 - Companhia Vale do Rio Doce (CVRD) has reported
net earnings of US$ 456 million for the second quarter of 2003 (2Q03),
corresponding to US$ 1.19 per share, US$ 470 million higher than that of 2Q02.
The operating ROE, as measured by the ratio of adjusted EBIT (earnings before
interest and taxes) to net worth, and which excludes the impact of F/X gains and
losses, was, in annual terms, 34.0% in the 2Q03 vis-a-vis 33.6% in the same
quarter last year.
Earnings accumulated in 1H03 amounted to US$ 810 million, higher than the US$
261 million obtained in the 1H02.
Gross operating revenues in 2Q03 amounted to US$ 1.219 billion, 14.5% higher
than that of the same period last year. In 1H03 revenues amounted to US$ 2.372
billion, 16.1% higher than that of the 1H02.
Cash generation, as measured by adjusted EBITDA (1) (earnings before interest,
tax, depreciation and amortization), amounted to US$ 490 million, up 15.3%
compared to 2Q02. The adjusted EBITDA of the 1H03 reached US$ 932 million, an
increase of 13.4% vis-a-vis the US$ 822 million obtained in the 1H02.
The adjusted EBITDA margin (2), which is the ratio between adjusted EBITDA and
net revenues, amounted to 41.9%, higher than the figure of 41.6% reported in
2Q02.
CVRD's consolidated exports in 2Q03, according to BRGAAP (generally accepted
accounting principles in Brazil), amounted to US$ 947 million, totalling US$
1.747 billion for the first half of the year. Thus, the company's exports were
up 9.9% in relation to that of the 1H02. CVRD's net consolidated exports
(exports minus imports) in 1H03 amounted to US$ 1.551 billion, which
corresponded to 14.9% of Brazil's trade surplus of US$ 10.397 billion during the
same period.
2Q03
1
US GAAP
Shipments of iron ore and pellets reached 41.496 million tons in 2Q03, an
increase of 1% in relation to that of 2Q02. In 1H03 sales volume of these
products amounted to 84.015 million tons, 8% higher than that sold in the same
period last year.
CVRD has been operating at full capacity, and at the same time carrying out
various investments in mining and logistics, which will permit faster expansion
in iron ore shipments from 2004 onwards. To this end, in the first quarter of
next year Pier III at the Ponta da Madeira maritime terminal should be
operating, while production capacity from the iron ore mines at Carajas should
be 70 million tons a year, an increase of 14 million tons on its current nominal
capacity. Given the much faster than expected growth in demand for iron ore, the
Company is aiming at anticipating the completion of the expansion project at
Carajas by almost a year.
The Gongo Soco mine, part of the Southern System, resumed operations after the
problems that occurred in 1Q03, producing iron ore at an annual capacity of 3.6
million tons.
With the ramp-up of stage 3 at Alunorte, CVRD's alumina sales amounted to
604,000 tons in 2Q03. Shipments of primary aluminum, which represents CVRD's
take of Albras' production, amounted to 51,000 tons, slightly less than the
figure recorded in 2Q02 of 53,000 tons.
The volume of general cargo (cargo excluding iron ore and pellets) transported
for clients in 2Q03 constituted a quarterly record, despite the fact that less
than half of the Company's locomotive and wagon purchase orders have been met
until now. CVRD's railroads - Vitoria a Minas (EFVM) and Carajas (EFC) - in 2Q03
transported 4.298 billion net ton kilometers (ntk) of general cargo for clients,
up 17.6% in relation to that of 2Q02 . The amount of ntKs transported in the
1H03 was 7.687 billion vis-a-vis 7.056 billion in the same period last year.
The Centro - Atlantica Railroad (FCA) also set a new quarterly record, with the
transportation of 2.602 billion ntk, compared to 2.253 billion in 2Q02. During
1H03, FCA transported 4.835 billion ntK, an increase of 18.4% relative to 1H02.
Investments made in the quarter amounted to US$ 407.3 million, bringing the
total for the first half 2003 to US$ 647.6 million. A little over half the
capital expenditure was dedicated to expanding mining and logistics capacity,
and to the construction of hydroelectric plants.
The Company's total debt as of June 30, 2003 amounted to US$ 3.282 billion, down
US$ 632 million in relation to the end of 2Q02.
The Company's performance in 2Q03 was very solid and consistent with the aim of
maximizing value over the long term and also reflected the quality with which
strategies were executed in all areas of the business.
2Q03
2
US GAAP
--------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL INDICATORS
--------------------------------------------------------------------------------------------------------------------
US$ million
--------------------------------------------------------------------------------------------------------------------
2Q 02 1Q 03 2Q 03 (change in)% (change in)%
(A) (B) (C) (C/A) (C/B)
--------------------------------------------------------------------------------------------------------------------
Gross Revenues 1,065 1,153 1,219 14.5 5.7
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Gross Margin (%) 42.4 42.3 42.7 - -
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Adjusted EBITDA 425 442 490 15.3 10.9
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Adjusted EBITDA margin (%) 41.6 39.8 41.9 - -
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Adjusted EBIT 334 363 388 16.2 6.9
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Adjusted EBIT Margin (%) 32.7 32.7 33.2 - -
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Net Earnings (14) 354 456 NM 28.8
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Net Margin (%) (1.4) 31.9 39.0 - -
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Total Debt/ Adjusted EBITDA (LTM) (3) 2.5 1.8 1.7 - -
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Annualized Operational ROE (%) (*) 33.6 39.9 34.0 - -
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Investments (**) 266 240 407 53.0 69.6
--------------------------------------------------------------------------------------------------------------------
(*) Adjusted EBIT/net worth, Adjusted EBIT = earnings before interest and
taxes = operating income
(**) including acquisitions
MATERIAL EVENTS
Iron ore and pellet prices
During May, negotiations with clients were completed for the setting of iron ore
and pellet reference prices for the year 2003. Due to the extraordinary growth
in demand, an average price increase was obtained of approximately 9.0% for the
various types of iron ore and 9.8% for blast furnace pellets.
The reference prices for iron ore are at their highest levels in nominal terms
since 1992. At the same time, there was a recovery in the premium commanded in
the price of blast furnace pellets relative to iron ore fines, which returned to
the level seen in 2001, of around US$20 cents per iron unit.
Strategic focus, profitable growth and value creation
Investments
At the beginning of July, Rio Doce Manganese Norway (RDMN), CVRD's wholly owned
subsidiary located in Mo I Rana, Norway, began operations. After the investment
in the overhaul of its electric furnaces, environmental protection and
improvements to its safety systems in the workplace, RDMN began production of
manganese ferro-alloys, with an annual capacity of 110,000 tons. The plant is
supplied with ultra-fine manganese ore from the Azul mine located in Carajas,
and benefits from relatively low electricity costs.
Expansion of bauxite and alumina production capacity represents important
leveraging in the generation of value for CVRD's shareholders, given mind the
Company's sustainable competitive advantages in this business segment. These
advantages are due to the Company's considerable reserves of high-quality
bauxite, its efficient logistics system and an alumina refinery with low
conversion and capacity expansion costs.
2Q03
3
US GAAP
The construction of module 3 at the alumina refinery of Alunorte, increasing
annual capacity from 1.6 million to 2.4 million tons, and the increase in
bauxite production capacity at Mineracao Rio do Norte from 11.0 to 16.3 million
tons per year were concluded this year.
At the end of July the Board of Directors of Alunorte, a subsidiary of CVRD,
approved the construction of stages 4 and 5, which will increase capacity from
2.4 million to 4.2 million tons a year with an estimated investment of US$ 583
million. The new modules will use bauxite produced in Paragominas, a wholly
owned CVRD mine in the state of Para, currently under development. Both the mine
and the expansion of the refinery are expected to begin operations in the first
quarter of 2006.
The European Commission has authorized CVRD's proposal to acquire control of
CAEMI, the world's fourth largest producer of iron ore. After the conclusion of
the transaction to buy 50% of the ordinary shares and 40% of the preferred
shares of CAEMI for US$ 426.4 million, CVRD will hold 60.2% of this company's
total capital, consolidating the group's global leadership in the iron ore
market. CAEMI's results will be consolidated into the Company's financial
statements in US GAAP (generally accepted accounting principles in the United
States) starting in 3Q03.
Another important step in the ferrous mining business will be the consolidation
of Ferteco into CVRD in 3Q03, allowing the extraction of further synergies
between the two companies.
Divestiture
As part of the strategic directive for the divestment of assets that have no
synergies with the Company's core businesses, the sale of two Docenave ships for
US$ 36 million was finalised, resulting in an accounting profit of US$ 3.7
million. With the completion of this transaction, just three ships from
Docenave's long haul fleet remain to be sold.
An agreement was signed with Yamana Resources Inc. for the purchase and sale of
the Fazenda Brasileiro gold mine for US$ 20.9 million. CVRD continues to invest
in mineral exploration aimed at discovering new gold deposits. On the other
hand, with the exception of 118, all the Company's copper projects will produce
gold as a by-product.
Financial Management
The Company successfully concluded two transactions in the international capital
markets, raising a total of US$ 550 million.
The first involved the issue of notes backed by export receivables of iron ore
and pellets amounting to US$ 250 million with a term of 10 years, a duration of
5.38 years, a grace period of two years, bearing a coupon of 4.43% p.a. payable
quarterly and a yield to maturity of 4.48% p.a. The issue received a guarantee
from MBIA Insurance Corporation and obtained ratings of Aaa from Moody's, AAA
from Standard & Poors and AAA from Fitch Ratings.
The second operation involved the issuance of a US$ 300 million unsecured bond
for a term of 10 years, a duration of 6.77 years, carrying a coupon of 9.00%
p.a. paid semi-annually, with an yield to maturity of 9.25% p.a. This issue had
various characteristics that gave it all the hallmarks of success.
2Q03
4
US GAAP
Firstly, it obtained a rating of Ba2 from Moody's, 3 notches higher than that
awarded to Brazil's sovereign debt, B2. For the first time, a private-sector
Brazilian company obtained a higher credit rating than the country itself.
Secondly, it had the longest term of any unsecured bond issued by a
private-sector Brazilian company.
Thirdly, it is also the first time ever that a private-sector Brazilian company
placed a bond issue offering a lower yield than the comparable securities issued
by the sovereign. CVRD 2013 was placed with investors at a yield of 9.250% p.a.,
while the Brazil Global 2013 was trading at a yield of 12.582%.
The terms obtained for the two issues reflect the recognition by the global
capital markets of CVRD's excellent credit quality. At the same time, the
transactions are consistent with the Company's financial objective: lengthening
the duration of its debt, and reducing refinancing risk, at the lowest cost
available given the prevailing market conditions.
The operations were concluded in July and August 2003, and, therefore, will only
be reflected in the 3Q03 financial statements.
2Q03
5
US GAAP
SHORT-TERM OUTLOOK
Demand for iron ore has been extraordinary, greatly exceeding the expectations
that prevailed at the beginning of this year. There are indications that the
global seaborne iron ore market is facing its strongest demand pressure in the
last 20 years.
In the first half of 2003, Chinese imports grew 42% in relation to the same
period last year, reaching 72.5 million tons. This figure is already higher than
the Chinese imports for the whole of 2000, which totalled 70 million tons. China
has surpassed Japan as the world's largest importer of iron ore, given that
imports to that country, although up by 5.4%, amounted to 66.4 million tons in
1H03.
Global production of crude steel, according to statistics from the International
Iron and Steel Institute (IISI), increased by 8.2% in 1H03 compared to 1H02,
with growth of 1.9% in the European Union, 3% in the United States, 5.2% in
Japan, 2% in South Korea and 21% in China - which consequently has been the main
driving force in the demand for iron ore. According to industry specialists, it
is likely that global steel production in 2003 will reach around 950 million
tons, which would mean a jump of 100 million tons from the level two years ago.
This expansion in production has obviously translated into a substantial
increase in demand for iron ore.
After a brief period of decline, between February and June this year, steel
prices, according to the CRU steel price index, picked up in July. The
differential in seaborne freight rates between Brazil-Asia and Australia-Asia
has shown an increase of about US$ 8.50 per ton, indicating the strength of
demand for iron ore and pellets, given that Asian countries - basically China,
Japan, Taiwan and South Korea - account for approximately 65% of global seaborne
imports.
The performance of the Chinese economy has been directly influenced by
investments in infrastructure, foreign direct investment flows, exports of
manufactured products and an increase in consumer spending on durable goods,
especially cars. The growth in these various components explains why China is
currently responsible for around 17% of the world's copper and aluminum
consumption, 21% of global steel consumption and 23.3% of global seaborne
imports of iron ore, and why growth in the Chinese economy causes a considerable
impact on ore and metal markets.
The epidemic of Severe Acute Respiratory Syndrome (SARS) has been overcome and
its impact on the performance of the Chinese economy seems to have been
relatively small, with GDP growth slowing from 9.9% in 1Q03 to 6.7% in 2Q03.
Therefore, GDP in that country is expected to continue to grow in the second
half of this year at a similar rate to that seen in 1H03, of 8.2%, with a
gradual convergence to 7% a year, with favourable repercussions on demand for
minerals and metals.
Recent statistics on the behavior of leading indicators are showing encouraging
signs of a recovery in the global economy. GDP in the USA, which has led global
economic growth since the mid 90s, recorded growth rate of 2.4% a year in 2Q03,
compared to estimates of 1.5% and annualised expansion rates of only 1.4% in
each of the two previous quarters. This provoked an immediate reaction in the
commodity markets: the price of copper rose to its highest level in the last 24
months and aluminum prices returned to levels last seen in March 2002. More
vigorous global economic growth is expected in the next few quarters, which
without a doubt, improves the outlook for the mining and metals markets.
2Q03
6
US GAAP
Bearing in mind the plans to significantly expand steel production in China, it
is likely that the current imbalance between the demand and supply of iron ore
will persist for the next 18 months, despite the capacity expansion projects in
Brazil and Australia.
The alumina market has also been experiencing an imbalance between demand and
supply, given that global consumption has been growing faster than production
since the beginning of 2002. This process, principally due to a significant
growth in imports into China, which in 1H03 amounted to 2.56 million tons
compared to 1.9 million for the year 2000 as a whole, has caused a sharp rise in
prices. On the spot market the alumina price has reached approximately 21% of
the aluminum price on the London Metal Exchange (LME), compared to 11% on
average for 2002.
The expected trend in global demand for alumina over the next few years is
likely to mean continued supply pressure, which will tend to benefit players
such as CVRD, which are investing in capacity expansion projects at an extremely
competitive cost.
The rise in Brazil's exports, the increase in the Company's fleet of locomotives
and wagons and the launching of new services for clients, are factors which lead
us to be optimistic with regard to the cash generation capacity of CVRD's
logistics businesses over the next 18 to 24 months.
FOCUS ON COST REDUCTION
In parallel to its routine controls and investments in power generation, CVRD
has been developing various specific cost reduction initiatives. Among these,
are the efforts to shorten the wagon turnaround cycle, reduce the consumption of
fuel on the railroads, restructure the procurement department, replace fuel oil
by natural gas in the pellet plants, and use electricity and other fuels in the
generation of steam in the alumina refinery.
One aim, for example, is to shorten the average time taken for an iron ore wagon
for the journey to and from the mine and the port. Achieving this target would
generate significant productivity gains, permitting the transportation of larger
volumes of iron ore with lower investment in equipment.
Alunorte is achieving the flexibility to, at any time, choose the cheapest
energy source to generate the steam and to calcinate alumina.
The company is making greater use of auctions to purchase equipment via Quadrem,
the global portal for the mining and metals industry. Processes and procedures
are being revised, the register of suppliers is being reorganised and an ERP
system (Enterprise Resource Planning) is being introduced, measures which will
permit a cut in costs and make procurement more efficient.
The effects of these initiatives should materialize over the next few quarters.
REVENUES AND SALES VOLUME
Shipments of iron ore and pellets in 2Q03 amounted to 41.496 million tons
compared to 41.089 million tons in 2Q02 and 42.519 million tons in 1Q03. Sales
of iron ore were practically constant, while pellet sales, of 5.175 million tons
in 2Q03, were down slightly compared to the figure for the previous quarter of
6.139 million. This was due entirely to shipment scheduling and was not the
result of demand problems.
2Q03
7
US GAAP
CVRD has been operating at full capacity, expecting only modest growth in the
sales of iron ore and pellets this year. Shipments should accelerate in the
second half of 2003, as a result of investments made.
In 2Q03, 2.3 million tons of iron ore were acquired from mines located in the
Iron Quadrangle region in the State of Minas Gerais in order to fulfil client
commitments, given the excess demand prevailing in the seaborne market. In 1H03,
CVRD purchased 5.1 million tons of iron ore from third parties.
As a reflection of the considerable demand expansion, demurrage expenditures
reached US$ 12 million in 2Q03 relative to US$ 8 million 2Q02. These
expenditures totalled US$ 21 million in 1H03, showing an increase of 75% when
compared to 1H02, which amounted to US$ 12 million.
CVRD purchased 2.1 million tons of pellets from the pelletizing joint ventures
(Nibrasco, Kobrasco, Itabrasco and Hispanobras) in the 2Q03 to resell to its
clients as it happens in the normal course of business. There was a reduction
vis-a-vis the purchases executed during 1Q03, of 3.3 million tons.
China continued to be the main export market for the Parent Company's iron ore
in 2Q03, importing 4.8 million tons, followed by Japan with 4.1 million tons and
Germany with 2.8 million tons. Sales to China in 1H03, totalling 10.2 million
tons, were up 8.5% in relation to the same period last year.
As we have previously mentioned, with the capacity expansion at Carajas coming
on stream, combined with the completion of Pier III at the Ponta da Madeira
maritime terminal, the investments in locomotives and wagons, as well as faster
ship loading rates at the port of Tubarao, CVRD will be in a better position to
further benefit from the increase in global demand in 2004.
--------------------------------------------------------------------------------
VOLUME SOLD - IRON ORE AND PELLETS
--------------------------------------------------------------------------------
'000 tons
--------------------------------------------------------------------------------
2Q02 % 1Q03 % 2Q03 %
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Iron ore 36,142 88.0% 36,380 85.6% 36,321 87.5%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Pellets 4,947 12.0% 6,139 14.4% 5,175 12.5%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total 41,089 100.0% 42,519 100.0% 41,496 100.0%
--------------------------------------------------------------------------------
Sales of manganese, of 337,000 tons, were up 180.8% in relation to 2Q02, while
sales of ferro-alloys amounted to 103,000 tons in 2Q03, compared to 93,000 in
2Q02. The substantial increase in the sales volume is due to manganese sinter
feed sales to China.
Alumina sales, with Alunorte's module 3 coming online, continue to grow,
amounting to 604,000 tons in 2Q03, which represents an increase of 10.6% in
relation to the previous quarter. The company has been maintaining the same
level of shipment of primary aluminum, having sold 51,000 tons in 2Q03, compared
to 53,000 tons in 2Q02.
Sales of potash totalled 149,000 tons, down 22.4% in relation to 2Q02. The
Taquari-Vassouras mine operated slightly above its nominal capacity of 600,000
tons a year. In 2002, the sale of 731,000 tons was made possible by
significantly drawing down on inventory. Potash is another area which has
excellent growth potential: the Company is facing excess demand, and the
expansion project to increase production capacity at the mine to 850,000 tons is
due for completion by the middle of 2005.
2Q03
8
US GAAP
Reflecting the falling production, due to the closure of Igarape Bahia and the
fact that Fazenda Brasileiro is nearing exhaustion, sales of gold in 2Q03
amounted to 19,800 troy ounces, compared to 111,800 in 2Q02.
Kaolin sales reached 84,000 tons against 74,000 tons in the 2Q02. In 1H03,
shipments of this industrial mineral totalled 192,000 tons, up 31.5% compared to
that of 1H02. Therefore, as a result of changes in the marketing policies,
including the launch of a new product, the Paraprint, it is expected that sales
volumes will amount to 400,000 tons this year. This will allow CVRD to increase
the use of its installed capacity.
-------------------------------------------------------------------------------
VOLUME SOLD - OTHER PRODUCTS
-------------------------------------------------------------------------------
'000 tons
-------------------------------------------------------------------------------
2Q02 1Q03 2Q03
-------------------------------------------------------------------------------
Gold (ounces) 111,854 25,753 19,773
-------------------------------------------------------------------------------
Manganese 120 206 337
-------------------------------------------------------------------------------
Ferro-alloys 93 113 103
-------------------------------------------------------------------------------
Alumina 106 546 604
-------------------------------------------------------------------------------
Aluminum 53 49 51
-------------------------------------------------------------------------------
Bauxite 407 189 262
-------------------------------------------------------------------------------
Potash 192 158 149
-------------------------------------------------------------------------------
Kaolin 74 108 84
-------------------------------------------------------------------------------
General cargo transported by the railroads - EFVM and EFC - amounted to 4.298
billion ntk, which set a new quarterly record, showing an increase of 17.6% on
2Q02.
Cargo handling for clients in CVRD's ports and maritime terminals amounted to
7.227 million tons, an increase of 16.4% on 2Q02.
A large part of the performance in logistics services can be explained by the
Company's exploitation of opportunities provided by agricultural production,
especially grains, in which segment CVRD transports approximately 15% of the
harvest destined for the export market, and by the increase in the Brazilian
steel production of 8.4% in 1H03. Various initiatives are in the process of
being introduced, or have already been implemented, enabling the Company to take
advantage of potential growth in this business segment. Of particular note are
contracts for the transportation of soybeans, sugar for export, the launching of
express train services, the development of new services for the transportation
of steel products and the fact that the Company has started to provide logistics
solution services for the industrial installations of various large Brazilian
companies and multinationals.
-------------------------------------------------------------------------------
VOLUME SOLD - LOGISTICS SERVICES
-------------------------------------------------------------------------------
'000 tons
-------------------------------------------------------------------------------
2Q02 1Q03 2Q03
-------------------------------------------------------------------------------
Railroads (million ntk) 3,655 3,389 4,298
-------------------------------------------------------------------------------
Ports 6,211 5,575 7,227
-------------------------------------------------------------------------------
Gross revenues generated in 2Q03 amounted to US$ 1.219 billion, an increase of
14.5% in relation to 2Q02.
2Q03
9
US GAAP
Revenues from the sale of iron ore, of US$ 591 million, accounted for 48.5% of
total revenue, up 8.2% on the figure in 2Q02, of US$ 546 million.
The average iron ore sale price in 2Q03 amounted to US$ 16.26 per ton, an
increase of 7.6% on the prices prevailing in 2Q02, of US$ 15.11 per ton.
Revenues in 2Q03 incorporated only a small percentage of the retrospective price
adjustments for sales completed during 1H03.
Sales of pellets generated US$ 159 million in 2Q03, compared to US$ 149 million
in 2Q02.
Pellet plants operation services of the five pellet joint ventures at Tubarao
were responsible for revenues of US$ 11 million in 2Q03.
Shipments of manganese and ferro-alloys generated revenues of US$ 89 million in
2Q03, an increase of 50.8% compared to 2Q02. This increase resulted from the
volume and price expansion of the alloys sold.
Sales of products in the aluminum chain (bauxite, alumina and primary aluminum),
also recorded an increase in revenues, which amounted to US$ 188 million in 2Q03
compared to US$ 98 million in 2Q02. The consolidation of Alunorte, which only
occurred in 3Q02, explains this increase, as well as the actual improvement in
alumina sales and the rise in prices.
Sales of gold reached in 2Q02 only US$ 7 million against US$ 35 million in 2Q02,
due to factors already mentioned. However, revenues from kaolin are increasing
having totalled US$ 14 million in 2Q03, a growth of 55.6% yoy. Such evolution is
explained not only by higher volumes but also by higher average prices.
Revenue generation from logistics services, of US$ 138 million in 2Q03,
increased 5.3% in relation to that of 2Q02. In the 2Q03, railroad transportation
was responsible for US$ 79 million of such revenues, port services accounted for
US$ 33 million, shipping accounted for US$ 21 million and port services support
accounted for US$ 5 million.
The rise in logistics revenues can be explained by the increase in the volumes
handled by railroads and ports and by the appreciation of 19.5% of the Real
against the US dollar, given that these revenues are almost 90% denominated in
local Brazilian currency.
Total CVRD sales to the domestic market amounted to US$ 405 million, accounting
for 33.2% of total revenues in 2Q03. Revenues from sales to Europe and Asia,
respectively, amounted to US$ 375 million and US$ 265 million, representing
30.8% and 21.7% of the total revenue.
2Q03
10
US GAAP
--------------------------------------------------------------------------------
GROSS REVENUE BY PRODUCT
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Iron Ore 546 549 591
--------------------------------------------------------------------------------
Pellet plant operation services 9 8 11
--------------------------------------------------------------------------------
Pellets 149 189 159
--------------------------------------------------------------------------------
Gold 35 9 7
--------------------------------------------------------------------------------
Logistics services 131 115 138
--------------------------------------------------------------------------------
Aluminum, alumina and bauxite 98 167 188
--------------------------------------------------------------------------------
Manganese and ferro-alloys 59 75 89
--------------------------------------------------------------------------------
Potash 24 21 21
--------------------------------------------------------------------------------
Kaolin 9 16 14
--------------------------------------------------------------------------------
Others 5 4 1
--------------------------------------------------------------------------------
Total 1,065 1,153 1,219
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
GROSS REVENUE BY DESTINATION
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Domestic market 345 356 405
--------------------------------------------------------------------------------
External market 720 797 814
--------------------------------------------------------------------------------
USA 30 57 42
--------------------------------------------------------------------------------
Europe 378 378 375
--------------------------------------------------------------------------------
Japan 69 86 122
--------------------------------------------------------------------------------
Asian emerging economies 142 149 143
--------------------------------------------------------------------------------
Rest of World 101 127 132
--------------------------------------------------------------------------------
Total 1,065 1,153 1,219
--------------------------------------------------------------------------------
NET EARNINGS OF US$ 456 MILLION
Net earnings in 2Q03 amounted to US$ 456 million, an increase of US$ 470 million
vis-a-vis the loss of US$ 14 million posted in 2Q02. In 1H03 the Company
generated net earnings of US$ 810 million.
The increases in net operating revenue of US$ 149 million and equity income of
US$ 117 million contributed to the improvement in the result relative to 2Q02.
At the same time, the 16.9% appreciation of the Real against the US dollar,
which occurred between March and June 2003 caused, due to the impact on net
liabilities in US dollars, an exchange rate gain of US$ 257 million in 2Q03,
making a significant contribution to profits in this quarter.
The growth in sales of the majority of the products and the logistics services
explains the revenue increase which took place in 2Q03 vis-a-vis 2Q02.
2Q03
11
US GAAP
The companies from the aluminum division generated, via equity participation,
additions to the bottom line in the amount of US$ 47 million and iron ore and
pellet companies, US$ 45 million. Both divisions delivered a good contribution
to the net income of 2Q03. Albras generated equity participation income of US$
40 million, Samarco US$ 23 million, Caemi US$ 7 million, Kobrasco US$ 6 million,
GIIC US$ 4 million. The Logistics division contributed a negative US$ 72 million
to net income due to a US$ 73 million loss in FCA. This result is due to changes
in the accounting treatment of the appropriation of leasing and concessions
expenditures. Such changes were undertaken in order to put into practice at FCA
the best accounting practices enabling the future consolidation of FCA into
CVRD.
2Q03
12
US GAAP
--------------------------------------------------------------------------------
RESULT FROM SHAREHOLDINGS
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Steel (2) 19 16
--------------------------------------------------------------------------------
Aluminum, Alumina and bauxite (37) 48 47
--------------------------------------------------------------------------------
Logistics (40) (11) (72)
--------------------------------------------------------------------------------
Pellets (5) 26 35
--------------------------------------------------------------------------------
Iron ore 1 7 10
--------------------------------------------------------------------------------
Others 1 5 (1)
--------------------------------------------------------------------------------
Total (82) 94 35
--------------------------------------------------------------------------------
The positive effect of exchange rate variation on profits, the increase in
revenues and the improved equity income result, were partially offset by an
increase, compared to 2Q02, of US$ 289 million in provisions for the payment of
income tax and social contribution and a rise of US$ 82 million in the cost of
goods sold (COGS).
The different timing of the increase in the pre-tax profits and the capacity to
generate fiscal credits via the payment of interest on shareholders equity
contributed for the increase of the effective tax rate. Therefore, in the 2Q03,
there were provisions of US$ 160 million in addition to the provision of US$ 71
million taken in the 1Q03.
Part of the increase in COGS was due to the consolidation of Alunorte, whose
COGS amounted to US$ 73 million. This produced an impact which is spread over
the several components of the overall COGS, except for the expenses related to
the acquisition of iron ore and pellets and to demurrage.
The acquisition of iron ore and pellets was reduced by US$ 18 million due to the
decrease in the purchase of pellets from the joint ventures, of 3.1 million tons
in 2Q02 against 2.1 million tons in 2Q03. Concerning the demurrage expenditures,
the increase amounted to US$ 4 million in 2Q03 vis-a-vis 2Q02.
The growth experienced in the cost of materials is, in good part, a consequence
of the increase in production and maintenance expenses.
2Q03
13
US GAAP
--------------------------------------------------------------------------------
COGS BREAKDOWN
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Personnel 72 54 63
--------------------------------------------------------------------------------
Material 112 154 180
--------------------------------------------------------------------------------
Fuel Oil and Gases 87 81 99
--------------------------------------------------------------------------------
Energy 101 120 83
--------------------------------------------------------------------------------
Contracted Services 111 135 125
--------------------------------------------------------------------------------
Product Purchases 58 41 47
--------------------------------------------------------------------------------
Depreciation and Exhaustion 22 21 28
--------------------------------------------------------------------------------
Others 25 35 45
--------------------------------------------------------------------------------
Total 588 641 670
--------------------------------------------------------------------------------
CASH GENERATION
Adjusted EBITDA in 2Q03 amounted to US$ 490 million, an increase of 15.3%
relative to 2Q02.
Of this total, US$ 36 million corresponds to dividends received from affiliates
and joint ventures, where Samarco contributed the largest portion, of US$ 25
million. In addition to this contributions, an adjustment of US$ 12 million was
made due to the write-off of assets at the Sao Luis pellet plant, which was a
non-recurring event.
Adjusted accumulated EBITDA in the 12-month period ending June 2003 amounted to
US$ 1.890 billion compared to US$ 1.587 billion for the same period ended June
2002, showing an increase of 19.1%.
Adjusted EBITDA in 2Q03 registered an increase of US$ 65 million in comparison
to that of 2Q02. The main factors behind this difference were the US$ 149
million increase in net operating revenues and the drop of US$ 15 million in
sales, general and administrative expenses. On the other hand, COGS suffered an
increase of US$ 82 million and other operating expenses were US$ 16 million
higher than the same period last year, partially offset by the US$ 12 million
adjustment related non-recurring items within this line.
The ferrous mineral businesses produced adjusted EBITDA of US$ 397 million in
2Q03, maintaining its percentage share of total adjusted EBITDA almost constant
at 81.0%. Logistics services contributed US$ 58 million, with this area's
percentage of the Company's adjusted total EBITDA rising from 8.7% in 1Q03 to
11.8% in 2Q03. The aluminum businesses contributed US$ 27 million to adjusted
Ebitda, 5.5% of the total.
The adjusted EBITDA for non-ferrous minerals (gold, potash and kaolin) totalled
zero in 2Q03 due to losses in the gold operations. Given the relative weight of
the fixed costs in the total cost structure, the operation of the Fazenda
Brasileiro mine at current production levels became unprofitable for CVRD.
2Q03
14
US GAAP
--------------------------------------------------------------------------------
QUARTERLY ADJUSTED EBITDA
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Net Operating Revenues 1,021 1,110 1,170
--------------------------------------------------------------------------------
COGS (588) (641) (670)
--------------------------------------------------------------------------------
S,G &A Expenses (60) (49) (45)
--------------------------------------------------------------------------------
Research and Development (12) (11) (12)
--------------------------------------------------------------------------------
Other Operational Expenses (27) (46) (55)
--------------------------------------------------------------------------------
ADJUSTED EBIT 334 363 388
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Depreciation, amortization & 61 43 54
exhaustion
--------------------------------------------------------------------------------
Dividends Received 30 36 36
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Adjustment for non-recurring 0 0 12
items (asset impairment)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ADJUSTED EBITDA 425 442 490
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ADJUSTED EBITDA BY BUSINESS AREA
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
2Q02 % 1Q03 % 2Q03 %
--------------------------------------------------------------------------------
Ferrous Minerals 360 84.7 357 80.8 397 81.0
--------------------------------------------------------------------------------
Non- ferrous Minerals 22 5.2 9 2.0 - -
--------------------------------------------------------------------------------
Logistics 37 8.7 38 8.6 58 11.8
--------------------------------------------------------------------------------
Aluminum 6 1.4 32 7.2 27 5.5
--------------------------------------------------------------------------------
Others - - 6 1.4 8 1.7
--------------------------------------------------------------------------------
Total 425 100 442 100 490 100
--------------------------------------------------------------------------------
DEBT
The Company's total debt as of June 30, 2003 amounted to US$ 3.282 billion, down
US$ 632 million relative to June 30, 2002. Net debt, of US$ 2.316 billion, was
reduced by only US$ 26 million compared to the balance one year ago.
Total debt was equivalent to 1.74 times adjusted EBITDA accumulated in the 12
months ending June 30, 2003 and the ratio of adjusted EBITDA /interest paid was
12 times.
Interest expenses included only a small portion of financial expenses related to
the Company's debt, as shown in the table below:
2Q03
15
US GAAP
--------------------------------------------------------------------------------
FINANCIAL EXPENSES
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
Financial Expenses on: 1Q03 2Q03
--------------------------------------------------------------------------------
Local Debt (5) (4)
--------------------------------------------------------------------------------
External Debt (39) (35)
--------------------------------------------------------------------------------
Debt with Related Parties (5) (2)
--------------------------------------------------------------------------------
Total Debt-related Financial Expenses (49) (41)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Gross Interest on:
--------------------------------------------------------------------------------
Tax and Labour Contingencies (6) (6)
--------------------------------------------------------------------------------
Tax on Financial Transactions (CPMF) (4) (5)
--------------------------------------------------------------------------------
Derivatives (8) 4
--------------------------------------------------------------------------------
Others (15) (16)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total (82) (64)
--------------------------------------------------------------------------------
Guarantees provided to affiliates and joint ventures amounted to US$ 484 million
as of June 30, 2003, lower than the balance on June 30, 2002 when it amounted to
US$ 531 million. Guarantees and loans contracted by Albras constitute
approximately 64% of this total. The total debt of this company as of June 30,
2003 amounted to US $400 million, with a total debt/LTM adjusted EBITDA ratio of
1.8 times.
--------------------------------------------------------------------------------
DEBT INDICATORS
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Gross Debt 3,914 3,314 3,282
--------------------------------------------------------------------------------
Net Debt (5) 2,342 2,030 2,316
--------------------------------------------------------------------------------
Gross Debt / LTM adjusted EBITDA (x) 2.47 1.82 1.74
--------------------------------------------------------------------------------
Adjusted EBITDA / Interest expenses (4) (x) 6.85 9.02 11.95
--------------------------------------------------------------------------------
Gross Debt / Total assets (x) 0.27 0.24 0.23
--------------------------------------------------------------------------------
CAPEX
The following are operational data related to investments. For aggregate GAAP
information on capital expenditures, see the cash flow statement at the end of
this document.
Investments carried out in 2Q03 amounted to US$ 407.3 million, totalling US$
647.6 million in the first half of 2003.
US$ 215.4 million were spent on projects - 52.9% of the total capital
expenditure - US$ 9.4 million on iron ore mining in the Southern System, US$
23.8 million on iron ore mining in the Northern System, US$ 3.4 million on the
conversion of RDMN into a producer of manganese ferro-alloys and US$ 41.5
million on logistics. An amount of US$ 87.5 million was allocated to the Sossego
copper project, US$ 21 million to conclude Alunorte's capacity expansion and
US$ 6.9 million to the Taquari - Vassouras potash mine production capacity
expansion.
2Q03
16
US GAAP
The main ongoing projects are displayed below:
---------------------------------------------------------------------------------------------------------------------
Area Project Investment Investment Status
carried out carried out
in 1Q03 in 2Q03
------------- ------------ ----------------- ------------------ -----------------------------------------------------
Increasing US$ 6.1 million US$ 7.7 million It is expected that the Northern System will be
iron ore operating with an annual production capacity of 70
production million tons in 1Q04, therefore managing to
Ferrous capacity in accelerate the expansion in production by
Minerals the approximately 12 months. Investment in the project
Northern is estimated at US$ 144.4 million, involving
System expenditure on the mine, railroad and port.
------------ ----------------- ------------------ -----------------------------------------------------
Pier III of US$ 2.1 million US$ 2.8 million Completion expected for January 2004. Project
the Ponta implementation is proceeding according to schedule
da Madeira and capex is estimated at US$ 33.3 million. Pier
Maritime III will have a loading capacity of 18 million tons
Terminal a year, enhancing the capacity of TMPM to 74
(TMPM) million tons a year.
------------ ----------------- ------------------ -----------------------------------------------------
Iron ore US$ 146,000 US$ 296,000 First phase due for completion by 2006, when the
mine at mine will have a production capacity of 12 million
Brucutu - tons a year. The project is proceeding according to
Southern schedule. Total investment is estimated at US$
System 219.9 million, of which US$ 19.7 million is
programmed for 2003.
------------ ----------------- ------------------ -----------------------------------------------------
Iron ore US$ 637,000 US$ 2.5 million Completion estimated for 2005. 3.7% of the
mine at investment has already been carried out, and
Fabrica project development is proceeding according to
Nova - schedule. The Fabrica Nova mine is likely to have
Southern a capacity of 10 million tons a year by 2005,
System reaching 15 million by 2009. Total capital
expenditure is budgeted at US$ 84.4 million, with
programmed spending of US$ 39.6 million for 2003.
------------ ----------------- ------------------ -----------------------------------------------------
Conversion US$ 3.6 million US$ 3.4 million Capital expenditure on the conversion of RDMN
of RDMN (which should be completed by the end of 2003) is
budgeted at US$ 15 million and will enable the plant
to produce 110,000 tons a year of manganese
ferro-alloys.
------------- ------------ ----------------- ------------------ -----------------------------------------------------
Sossego US$ 40.5 million US$ 87.5 million Completion estimated for first half 2004. 55% of
copper mine the total investment in the project has already
Non Ferrous been carried out, 78% of the undertaking has been
Minerals completed. The first tests should begin in 3Q03.
The project is slightly ahead of schedule.
------------ ----------------- ------------------ -----------------------------------------------------
Expansion US$ 4.0 million US$ 6.9 million Completion estimated for mid 2005. 26% of the
of total investment for the project has been carried
Taquari out. The project is on schedule. After the
-Vassouras expansion, the mine's capacity will have been
Potassium augmented to 850,000 tons a year.
Mine
------------- ------------ ----------------- ------------------ -----------------------------------------------------
Aluminum Expansion US$ 32.1 million US$ 21 million Project concluded in 1Q03, with the inauguration of
of Alunorte the third line at Alunorte, increasing the nominal
capacity of the refinery to 2.4 million tons a year of
alumina. Around US$300 million has been invested in
this project.
------------- ------------ ----------------- ------------------ -----------------------------------------------------
Logistics Purchase of US$ 18.9 million US$ 35.3 million Of the 2,010 wagons and 77 locomotives which will
locomotives be purchased by the end of 2003, the Company has
and wagons already received 950 wagons and 44 locomotives.
Part of this equipment will be for the transportation
of general cargo and part for iron ore. 33.3% of the
total investment estimated at US$ 162.9 million has
already been made.
------------ ----------------- ------------------ -----------------------------------------------------
Praia Mole US$ 707,000 US$ 1.5 million Phase I was completed in April 2003. After the
Terminal completion of Phase II (scheduled for 2Q04) the
(Phases I & terminal's handling capacity will be 14.5 million
II) tons a year. Total investment is budgeted at US$
20.9 million.
2Q03
17
US GAAP
------------- ------------ ----------------- ------------------ -----------------------------------------------------
Aimores US$ 6.4 million US$ 7.6 million Full operation postponed to October 2004, in view
Hydro- of the delay in the relocation of a local
electric community, due to legal issues. The construction of
Plant the plant is proceeding on schedule. The plant
itself will be completed within the original
Power timetable, but will not be able to generate
Generation electricity as the water reservoir will not be full.
------------ ----------------- ------------------ -----------------------------------------------------
Candonga US$ 6.7 million US$ 5.4 million Completion scheduled for November 2003. 90% of the
Hydro- project's total estimated investment of US$ 40.1
electric million, has already been carried out.
plant Implementation of the project is proceeding as
scheduled.
---------------------------------------------------------------------------------------------------------------------
Of the total amount invested in 2Q03, US$56 million, or 13.6%, was spent on
maintenance and the environment. Capital infusions amounted to US$62.8 million
(15.4% of the total invested), in CFN, FCA, Compania Minera Andino Brasileira
(CMAB) and Compania Minera Latino Americana (CMLA). CMAB and CMLA are both
mineral exploration companies located in Chile and Peru, respectively.
The purchase of CST shares, for US$ 58 million, accounted for 14.2% of the total
spent this quarter.
Expenditure on mineral prospecting and technological research amounted to US$
8.6 million. US$ 6.5 million were spent on information technology, US$ 3 million
of which was allocated to the introduction of the ERP (Enterprise Resource
Planning) system.
Of the total invested in 2Q03, the non-ferrous mineral area accounted for 25.6%,
ferrous minerals, 20.4%, logistics, 19.4% while aluminum accounted for 5.4%.
------------------------------------------------------------------------------------------------------------------
INVESTMENTS - 2Q03
------------------------------------------------------------------------------------------------------------------
By business area US$ million % By category US$ million %
------------------------------------------------------------------------------------------------------------------
Ferrous Minerals 83.3 20.4% Capital infusions 62.8 15.4%
------------------------------------------------------------------------------------------------------------------
Logistics 79.1 19.4% Maintenance &Environment 56.0 13.7%
------------------------------------------------------------------------------------------------------------------
Non-ferrous Minerals 104.4 25.6% Projects 215.4 52.9%
------------------------------------------------------------------------------------------------------------------
Aluminum 22.2 5.4% Mineral Prospecting 8.6 2.2%
------------------------------------------------------------------------------------------------------------------
Power Generation 16.0 3.9% Information Technology 6.5 1.6%
------------------------------------------------------------------------------------------------------------------
Others 102.4 25.1% Technological Research 58.0 14.2%
------------------------------------------------------------------------------------------------------------------
Total 407.3 100% Total 407.3 100.0%
------------------------------------------------------------------------------------------------------------------
2Q03
18
US GAAP
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Gross operating revenues 1,065 1,153 1,219
--------------------------------------------------------------------------------
Taxes (44) (43) (49)
--------------------------------------------------------------------------------
Net Operating Revenue 1,021 1,110 1,170
--------------------------------------------------------------------------------
Cost of Goods Sold (588) (641) (670)
--------------------------------------------------------------------------------
Gross Profit 433 469 500
--------------------------------------------------------------------------------
Gross Margin (%) 42.4 42.3 42.7
--------------------------------------------------------------------------------
Selling, General and Administrative Expenses (60) (49) (45)
--------------------------------------------------------------------------------
Research and Development Expenses (12) (11) (12)
--------------------------------------------------------------------------------
Employee Profit-Sharing 3 (12) (9)
--------------------------------------------------------------------------------
Others (30) (34) (46)
--------------------------------------------------------------------------------
Operating Profit 334 363 388
--------------------------------------------------------------------------------
Financial Revenues 44 28 29
--------------------------------------------------------------------------------
Financial Expenses (117) (82) (64)
--------------------------------------------------------------------------------
Monetary Variation (326) 50 257
--------------------------------------------------------------------------------
Tax and Social Contribution (Current) 3 (6) (135)
--------------------------------------------------------------------------------
Tax and Social Contribution (Deferred) 126 (65) (25)
--------------------------------------------------------------------------------
Equity Income (82) 94 35
--------------------------------------------------------------------------------
Accounting Changes for Asset Write-offs - (10) -
--------------------------------------------------------------------------------
Minority Shareholding Participation 4 (18) (29)
--------------------------------------------------------------------------------
Net Earnings (14) 354 456
--------------------------------------------------------------------------------
Earnings per Share (US$) (0.04) 0.92 1.19
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BALANCE SHEET
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Assets
--------------------------------------------------------------------------------
Current 3,069 2,696 2,482
--------------------------------------------------------------------------------
Long-term 1,459 1,407 1,727
--------------------------------------------------------------------------------
Fixed 4,733 4,485 5,574
--------------------------------------------------------------------------------
Total 9,261 8,588 9,783
--------------------------------------------------------------------------------
Liabilities
--------------------------------------------------------------------------------
Current 1,915 1,638 2,044
--------------------------------------------------------------------------------
Long Term 3,374 3,310 3,177
--------------------------------------------------------------------------------
Shareholders' Equity 3,972 3,640 4,562
--------------------------------------------------------------------------------
Paid-up Capital 2,944 2,944 3,367
--------------------------------------------------------------------------------
Reserves 1,028 696 1,195
--------------------------------------------------------------------------------
Total 9,261 8,588 9,783
--------------------------------------------------------------------------------
2Q03
19
US GAAP
------------------------------------------------------------------------------------------------------------------------
CASH FLOW STATEMENT
------------------------------------------------------------------------------------------------------------------------
US$ milhoes
------------------------------------------------------------------------------------------------------------------------
2Q 02 1Q 03 2Q 03
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
------------------------------------------------------------------------------------------------------------------------
Net income (14) 354 456
------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income with cash provided by operating activities:
------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortization 61 43 54
------------------------------------------------------------------------------------------------------------------------
Dividends received 30 36 36
------------------------------------------------------------------------------------------------------------------------
Equity in results of affiliates and joint ventures and change in provision
for losses on equity investments 82 (94) (35)
------------------------------------------------------------------------------------------------------------------------
Deferred income taxes (126) 65 133
------------------------------------------------------------------------------------------------------------------------
Provisions for contingencies 46 9 -
------------------------------------------------------------------------------------------------------------------------
Impairment of property, plant and equipment 49 - 12
------------------------------------------------------------------------------------------------------------------------
Gain in accounting practice for asset retirement obligations - 10 -
------------------------------------------------------------------------------------------------------------------------
Pension plan 3 3 2
------------------------------------------------------------------------------------------------------------------------
Foreign exchange and monetary losses 467 (142) (258)
------------------------------------------------------------------------------------------------------------------------
Net unrealized derivative losses 7 3 1
------------------------------------------------------------------------------------------------------------------------
Minority interest (4) 18 29
------------------------------------------------------------------------------------------------------------------------
Others 68 6 (9)
------------------------------------------------------------------------------------------------------------------------
Decrease (increase) in assets:
------------------------------------------------------------------------------------------------------------------------
Accounts receivable (16) 64 65
------------------------------------------------------------------------------------------------------------------------
Inventories (26) 24 (25)
------------------------------------------------------------------------------------------------------------------------
Others (39) (1) (26)
------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in liabilities:
------------------------------------------------------------------------------------------------------------------------
Suppliers (5) (93) 18
------------------------------------------------------------------------------------------------------------------------
Payroll and related charges 7 (6) 13
------------------------------------------------------------------------------------------------------------------------
Others 22 57 (14)
------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 612 356 452
---- ---- ----
------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
------------------------------------------------------------------------------------------------------------------------
Loans and advances receivable 21 22 (53)
------------------------------------------------------------------------------------------------------------------------
Guarantees and deposits (29) (12) (152)
------------------------------------------------------------------------------------------------------------------------
Additions to investments - - (61)
------------------------------------------------------------------------------------------------------------------------
Additions to property, plant and equipment (172) (198) (308)
------------------------------------------------------------------------------------------------------------------------
Proceeds from disposals of property, plant and equipment 1 - 37
------------------------------------------------------------------------------------------------------------------------
Net cash used to acquire subsidiaries (45) - -
------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (224) (188) (537)
----- ----- -----
------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
------------------------------------------------------------------------------------------------------------------------
Short-term debt, net issuances (repayments) (166) (93) 60
------------------------------------------------------------------------------------------------------------------------
Loans (4) (16) (6)
------------------------------------------------------------------------------------------------------------------------
Long-term debt 72 179 40
------------------------------------------------------------------------------------------------------------------------
Repayments of long-term debt (79) (101) (179)
------------------------------------------------------------------------------------------------------------------------
Interest attributed to stockholders (329) - (215)
------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (506) (31) (300)
----- ---- -----
------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (118) 137 (385)
------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (318) 56 67
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of period 2.008 1.091 1.284
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 1,572 1,284 966
------ ------ ---
------------------------------------------------------------------------------------------------------------------------
Cash paid during the period for:
------------------------------------------------------------------------------------------------------------------------
Interest on short-term debt (10) (6) (1)
------------------------------------------------------------------------------------------------------------------------
Interest on long-term debt, net of interest capitalized of $4 in 1Q03, $5 in
1Q02 and $4 in 4Q02 (33) (49) (28)
------------------------------------------------------------------------------------------------------------------------
Interest capitalized 5 4 5
------------------------------------------------------------------------------------------------------------------------
Income tax (4) (6) (27)
------------------------------------------------------------------------------------------------------------------------
Non-cash transactions
------------------------------------------------------------------------------------------------------------------------
Conversion of loans receivable to investments - 11 76
------------------------------------------------------------------------------------------------------------------------
2Q03
20
US GAAP
Ferrous Minerals Companies
--------------------------------------------------------------------------------
FINANCIAL INDICATORS - UNAUDITED
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
HISPANOBRAS 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Volume Sold ('000 tons) 836 905 890
--------------------------------------------------------------------------------
Export Markets 356 268 625
--------------------------------------------------------------------------------
Domestic Market 480 637 265
--------------------------------------------------------------------------------
Average Price (US$/ton) 31.56 29.75 36.33
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Operating Profit 2 3 6
--------------------------------------------------------------------------------
Net Financial Result 3 (1) (2)
--------------------------------------------------------------------------------
Net Earnings 3 1 4
--------------------------------------------------------------------------------
NIBRASCO 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Volume Sold ('000 tons) 2,257 1,800 1,847
--------------------------------------------------------------------------------
Export Markets 686 469 513
--------------------------------------------------------------------------------
Domestic Market 1,571 1,331 1,334
--------------------------------------------------------------------------------
Average Price (US$/ton) 31.36 27.75 27.03
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Operating Profit 6 2 (1)
--------------------------------------------------------------------------------
Net Financial Result (1) - -
--------------------------------------------------------------------------------
Net Earnings 3 1 (1)
--------------------------------------------------------------------------------
Total Debt 4 3 2
--------------------------------------------------------------------------------
- Short Term 2 2 2
--------------------------------------------------------------------------------
- Long Term 2 1 -
--------------------------------------------------------------------------------
ITABRASCO 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Volume Sold ('000 tons) 702 813 843
--------------------------------------------------------------------------------
Export Markets 533 306 778
--------------------------------------------------------------------------------
Domestic Market 169 507 65
--------------------------------------------------------------------------------
Average Price (US$/ton) 28.30 29.54 35.25
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Operating Profit 1 2 7
--------------------------------------------------------------------------------
Net Financial Result 3 (1) (2)
--------------------------------------------------------------------------------
Net Earnings 2 - 3
--------------------------------------------------------------------------------
Total Debt 17 5 -
--------------------------------------------------------------------------------
- Short Term - - -
--------------------------------------------------------------------------------
- Long Term 17 5 -
--------------------------------------------------------------------------------
KOBRASCO 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Volume Sold ('000 tons) 1,012 1,134 1,128
--------------------------------------------------------------------------------
Export Markets 534 453 667
--------------------------------------------------------------------------------
Domestic Market 478 681 461
--------------------------------------------------------------------------------
Average Price (US$/ton) 29.30 30.39 30.35
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Operating Profit 1 5 2
--------------------------------------------------------------------------------
Net Financial Result (27) 5 16
--------------------------------------------------------------------------------
Net Earnings (17) 6 11
--------------------------------------------------------------------------------
Total Debt 143 124 102
--------------------------------------------------------------------------------
- Short Term - - -
--------------------------------------------------------------------------------
- Long Term 143 124 102
--------------------------------------------------------------------------------
2Q03
21
US GAAP
--------------------------------------------------------------------------------
FINANCIAL INDICATORS - UNAUDITED
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
SAMARCO 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Volume Sold - Export Markets ('000 tons) 3,436 3,988 4,277
--------------------------------------------------------------------------------
Average Price (US$/ton) 28.78 27.59 30.98
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Adjusted EBITDA 41 56 45
--------------------------------------------------------------------------------
Depreciation, Amortization and depletion (6) (5) (6)
--------------------------------------------------------------------------------
Operating Income 35 51 39
--------------------------------------------------------------------------------
Impairment / Gain on Sale - (1) 6
--------------------------------------------------------------------------------
Net Financial Result (37) - 8
--------------------------------------------------------------------------------
Income before Income Tax and Social Contribution (2) 50 53
--------------------------------------------------------------------------------
Income Tax and Social Contribution (3) (12) (7)
--------------------------------------------------------------------------------
Net Income (5) 38 46
--------------------------------------------------------------------------------
Total Debt 268 179 188
--------------------------------------------------------------------------------
- Short Term 181 123 138
--------------------------------------------------------------------------------
- Long Term 87 56 50
--------------------------------------------------------------------------------
GIIC* 2Q 02 1Q 03 2Q 03
--------------------------------------------------------------------------------
Volume Sold - ('000 tons) 676 772 1,178
--------------------------------------------------------------------------------
Export Markets 676 772 1,178
--------------------------------------------------------------------------------
Average Price (US$/ton) 40.30 41.00 43.30
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Operating Income 1 4 8
--------------------------------------------------------------------------------
Net Income 1 4 8
--------------------------------------------------------------------------------
Total Debt 40 35 35
--------------------------------------------------------------------------------
- Long Term 40 35 35
--------------------------------------------------------------------------------
*Financial indicators calculated according to standards set down by the
International Accounting Standards Committee
2Q03
22
US GAAP
Aluminum Companies
--------------------------------------------------------------------------------
FINANCIAL INDICATORS - UNAUDITED
--------------------------------------------------------------------------------
million US$
--------------------------------------------------------------------------------
MRN 2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Volume Sold ('000 tons) 2,611 2,196 3,512
--------------------------------------------------------------------------------
Export Markets 790 711 958
--------------------------------------------------------------------------------
Domestic Market 1,821 1,485 2,554
--------------------------------------------------------------------------------
Average Price (US$/ton) 18.34 19.23 18.98
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Operating Profit 37 14 29
--------------------------------------------------------------------------------
Net Financial Result 13 (2) (12)
--------------------------------------------------------------------------------
Net Earnings 38 10 15
--------------------------------------------------------------------------------
Total Debt 109 113 200
--------------------------------------------------------------------------------
- Short Term 19 44 134
--------------------------------------------------------------------------------
- Long Term 90 69 66
--------------------------------------------------------------------------------
ALBRAS 2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Volume Sold ('000 tons) 110 103 106
--------------------------------------------------------------------------------
Export Markets 108 99 102
--------------------------------------------------------------------------------
Domestic Market 2 4 4
--------------------------------------------------------------------------------
Average Price (US$/ton) 1,332.13 1,337.98 1,326.07
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Adjusted EBITDA 58 56 50
--------------------------------------------------------------------------------
Depreciation, Amortization and depletion (4) (3) (4)
--------------------------------------------------------------------------------
Impairment / Gain on Sale - - (3)
--------------------------------------------------------------------------------
Operating Income 54 53 43
--------------------------------------------------------------------------------
Net Financial Result (125) 30 58
--------------------------------------------------------------------------------
Income before Income Tax and Social Contribution (71) 83 101
--------------------------------------------------------------------------------
Income Tax and Social Contribution 2 (4) (24)
--------------------------------------------------------------------------------
Net Income (69) 79 77
--------------------------------------------------------------------------------
Total Debt 556 451 400
--------------------------------------------------------------------------------
- Short Term 49 - -
--------------------------------------------------------------------------------
- Long Term 507 451 400
--------------------------------------------------------------------------------
VALESUL 2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Volume Sold ('000 tons) 24 19 24
--------------------------------------------------------------------------------
Export Markets 12 9 15
--------------------------------------------------------------------------------
Domestic Market 12 10 9
--------------------------------------------------------------------------------
Average Price (US$/ton) 1,663.20 1,730.60 1,685.82
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Operating Profit 8 9 3
--------------------------------------------------------------------------------
Net Financial Result - - -
--------------------------------------------------------------------------------
Net Earnings 6 8 1
--------------------------------------------------------------------------------
Total Debt 2 2 2
--------------------------------------------------------------------------------
- Short Term 1 1 1
--------------------------------------------------------------------------------
- Long Term 1 1 1
--------------------------------------------------------------------------------
2Q03
23
US GAAP
APPENDIX
Reconciliation of non-GAAP information and comparable GAAP information
(1) Adjusted EBITDA
The term "EBITDA" refers to a financial measure that is defined as earnings
(losses) before interest, taxes, depreciation and amortisation; we use the term
"Adjusted EBITDA" to reflect that our financial measure also excludes monetary
gains/losses, equity in results of affiliates and joint ventures less dividends
received from those companies, changes in provision for losses on equity
investments, adjustments for changes in accounting practices, minority interests
and non-recurring expenses. However, Adjusted EBITDA is not a measure determined
under GAAP in the United States of America and may not be comparable to
similarly titled measures reported by other companies. Adjusted EBITDA should
not be construed as a substitute for operating income or as a better measure of
liquidity than cash flow from operating activities, which are determined in
accordance with GAAP. We have presented Adjusted EBITDA to provide additional
information with respect to our ability to meet future debt service, capital
expenditure and working capital requirements. The following schedule reconciles
Adjusted EBITDA to net cash provided by (used in) operating activities reported
on our Consolidated Statements of Cash Flows, which we believe is the most
directly comparable GAAP measure:
--------------------------------------------------------------------------------
RECONCILIATION BETWEEN ADJUSTED EBITDA VS. OPERATING CASH FLOW
--------------------------------------------------------------------------------
US$ million
--------------------------------------------------------------------------------
1Q03 2Q03
--------------------------------------------------------------------------------
Operating Cash Flow 356 452
--------------------------------------------------------------------------------
Income tax paid 6 27
--------------------------------------------------------------------------------
Monetary and Foreign Exchange Losses 92 1
--------------------------------------------------------------------------------
Financial Expenses 41 32
--------------------------------------------------------------------------------
Net Working Capital (45) (31)
--------------------------------------------------------------------------------
Others (8) 9
--------------------------------------------------------------------------------
Adjusted EBITDA 442 490
--------------------------------------------------------------------------------
(2) Adjusted EBITDA Margin
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Adjusted EBITDA Margin (Adjusted EBITDA/Net Revenues) 41.6 39.8 41.9
--------------------------------------------------------------------------------
Operating Income / Net Revenues 32.7 32.7 33.2
--------------------------------------------------------------------------------
(3) Gross Debt / Adjusted LTM EBITDA
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Gross debt / adjusted LTM EBITDA (x)
2.47 1.82 1.74
--------------------------------------------------------------------------------
Gross Debt/Operating Cash Flow (x) 1.60 2.32 1.82
--------------------------------------------------------------------------------
(4) Adjusted EBITDA/ Interest Expense
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Adjusted EBITDA/ Interest Expense Adjusted (x) 6.9 9.0 12.0
--------------------------------------------------------------------------------
Operating Income/Financial Expense (x) 2.9 4.4 6.1
--------------------------------------------------------------------------------
(5) Net Debt
--------------------------------------------------------------------------------
RECONCILIATION BETWEEN ADJUSTED EBITDA VS. OPERATING CASH FLOW
--------------------------------------------------------------------------------
US$ million
--------------------------------------------------------------------------------
2Q02 1Q03 2Q03
--------------------------------------------------------------------------------
Gross Debt 3,914 3,314 3,282
--------------------------------------------------------------------------------
Cash and Equivalents 531 499 484
--------------------------------------------------------------------------------
Net Debt 2,342 2,030 2,316
--------------------------------------------------------------------------------
2Q03
24
US GAAP
--------------------------------------------------------------------------------
This communication may include declarations which represent the expectations of
the Company's Management about future results or events. All such declarations,
when based on future expectations and not on historical facts, involve various
risks and uncertainties. The Company cannot guarantee that such declarations
turn out to be correct. Such risks and uncertainties include factors relative to
the Brazilian economy and capital markets, which are volatile and may be
affected by developments in other countries; factors relative to the iron ore
business and its dependence on the steel industry, which is cyclical in nature;
and factors relative to to the high degree of competitiveness in industries in
which CVRD operates. To obtain additional information on factors which could
cause results to be different from those estimated by the Company, please
consult the reports filed with the Comissao de Valores Mobiliarios (CVM -
Brazilian stock exchange regulatory authority) and the U.S. Securities and
Exchange Commission - SEC, including the most recent Annual Report - CVRD Form
20F."
2Q03
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPANHIA VALE DO RIO DOCE
(Registrant)
Date: August 18, 2003
By: /s/ Fabio de Oliveira Barbosa
-------------------------------
Fabio de Oliveira Barbosa
Chief Financial Officer