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Votorantim: sales up in Brazil, down in North America

World Cement,

Votorantim Participacoes S.A. has released its 1H 2011 results. Operational and financial information, except where otherwise stated, is presented on a consolidated basis for the industrial segment, in Brazilian Reais, according to International Financial Reporting Standards (IFRS). All comparisons take into consideration the same period of 2010, except where otherwise stated.

Business performance

Votorantim presented robust revenue growth, supported by a diversified portfolio that includes business focused on the Brazilian market, mainly driven by housing and infrastructure. Sales volume increased in steel and zinc, while it remained stable in cement, nickel and pulp. Aluminium sales volume decreased by 4% as a result of technical maintenance. Consolidated net revenues and EBITDA amounted to R$11 506 million and R$2575 million, an increase of 6% and a decrease of 7%, respectively. EBITDA margin declined from 25.5% to 22.4%, impacted by the cement, aluminium and steel businesses. Cement business accounted for 41% of industrial EBITDA, metals 40%, steel 7% and pulp 12%.

  • Cement: Sales volume decreased by 2% in North America and increased by 1% in Brazil, which accounted for 89% of the total sales volume. Net revenues went up 3% and totalled R$4002 million, supported by a price increase in Brazil. EBITDA decreased by 14%, from R$1318 million to R$1125 million, due to higher electricity and petcoke costs in Brazil and inventory changes in North America. The Company is investing in nine new plants to increase production capacity by more than 10 million tpa by 2013. During the first semester of 2011, four new facilities started up; additional two are expected by year end. Together, these six facilities will increase the production capacity by more than 5 million tpa.
  • Metals: Zinc sales volume increased by 28%, while aluminium and nickel sales volume decreased by 4% and 1%, respectively. Milpo's full consolidation coupled with LME prices recovery led EBITDA to increase by 84%, from R$508 million to R$1084 million. Aluminium production and sales volume decreased as a result of technical maintenance, which also negatively affected EBITDA margin.
  • Steel: Sales volume went up 11%, supported by consistent demand in Brazil. Net revenues, including Usiminas participation, increased by 1%, from R$1834 million to R$1849 million. EBITDA totalled R$196 million, a 48% decrease from R$377 million, mainly due to lower sales prices and also to higher scrap costs.
  • Pulp: Higher exports to Europe temporarily offset lower demand in Asia. Sales volume was flat at 2.6 million t. Despite higher pulp prices in the international market, revenues and EBITDA decreased by 4% and 19%, respectively, as a result of the appreciation of the Brazilian Real. Fibria has signed a term sheet to sell the Piracicaba mill in order to focus on the core business and for further leverage improvement.

Indebtedness and liquidity

Total debt decreased by 7%, from R$22.4 billion to R$20.9 billion. Average debt maturity was extended to 7.2 years compared to 5.5 years in December 2010. Cash balance at the end of the semester was R$6.9 billion, enough to cover 4.2 years of principal amortization.

In August 2011, Votorantim entered into a Revolver Credit Facility (RCF) with a five-year term amounting to US$1500 million, which is available for immediate use and may be drawn down by certain subsidiaries in Brazil and offshore. RCF brings strategic access to liquidity, decreases opportunity cost of maintaining cash and it is supportive of investment grade credit metrics. Also in August, an Export Pre-Payment facility (EPP) of US$1150 million was contracted by Votorantim GMBH. EPP is divided into two tranches, one maturing in seven years and another in eight years, bearing interest of LIBOR + 1.35% to LIBOR+ 1.50% pa respectively. In addition to existing cash in balance, proceeds will be used to pay approximately US$1800 million debt with shorter average maturity, reducing total debt and lengthening the average tenor.

Capex in the period totalled R$2.5 billion, mainly for expansion projects in the cement business. Investment in cement accounted for 47% of total Capex, metals 31%, steel 11% and pulp 9%. In response to the current market condition, the company will decrease 2H11 Capex for certain business units in line with its commitment to financial discipline.

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