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2011 04-05 presentation to the market Presentation Transcript

  • 1. PRESENTATION TO THE MARKET
    May, 2011
    1
  • 2. AGENDA
    • OPENING
    • 3. SECTOR
    • 4. INDUSTRY
    • 5. CORPORATE
    • 6. RESULTS
    • 7. FINANCIAL AND RISK MANAGEMENT
    • 8. OUTLOOK
    2
  • 9. 3
    • OPENING
  • 4
    New Times and Challenges ...
    • From now on, Paranapanema will experience a new phase given the conclusion of an important financial, tax and corporate restructuring process, the company has achieved:
    • 10. financial strength
    • 11. focus on profitability
    • 12. focus on quality
    • 13. focus on technology
     Strategy:
    Investment focused on: gains of scale and competitiveness
    • Strong organic growth cycle from 2009 (cathod and Bus Bar expansion)
    • 14. Investment Plan approved for the Border of Directors with longer maturity terms
    • 15. Capex 2010-2013 will be of R$702 million assigned to:
     20% expansion in refined copper production capacity
     Expansion of over 50% in the production of semi-manufactured copper products (tubes and rolled products)
    • Copper recycling: improvement of concentrate and scrap mix , aiming at changing from a ratio of 83%/17% in 2010 to 70%/30% by 2012
    • 16. Precious metals plant (gold and silver)
    2. Projects:studies in progress for:
    • Mineral rights: In 2011, studies will be conducted on Paranapanema’s 105 mineral rights registered with DNPM, which includes tin ore, copper, chrome, lead, tin alloy, molybdenum, gold, silver, nickel, titanium and zinc reserves, among others, aiming at checking the size of reserves and exploration possibilities in the States of Amapá, Pará, Roraima, Rondônia and Rio Grande do Sul.
    • 17. Sell off non-operating assets: Grounds, farms and properties, etc.
  • 5
    New Times and Challenges ...
    3. Disposal of assets not related to our core business
    4. Strategy and targets:
    • Successful achievement of market share target in the domestic market: 67%
    • 18. Search for gains of scale and competitiveness , with reduction of fixed costs
    • 19. Focus on profitability.
    5. Strategic partnerships:
    • Strategic partnerships being analyzed for the development of research studies related to:
     Reduction of costs
    Guarantee of long term supplies
    More competitive prices
     6. Organizational restructuring: corporate governance
    • New organizational structure with creation and improvement of management committees approved by the board of directors.
    7. Outlook
    • Period from 2010 to 2016 expected to be extremely promising, especially on the domestic market
    • 20. Expected growth in GDP and sectors demanding copper products, supported by sports events and PAC government project, which will leverage our business.
     
  • 21. 6
    Copper Demand Drivers and per capita consumption
    Correlated to …
    • GDP growth
    • 22. Global consumption
    • 23. Growth of emerging countries
    • 24. The Brazilian economy will grow at an accelerated pace that may exceed 5%, but in a sustainable manner.
    • 25. Copper production chain has reported consumption growth from 1% to 2% above the Brazilian growth average.
    Increase in investment infrastructure
    Real estate and civil construction markets
    Emergent countries ‘ growth
    above the global average
    Increase in the use of clean energy
    (solar, wind and ethanol)
    • Local and foreign direct investment in Brazil, which ceased to be “the country of future” to be “the country of present”.
    Transportation and automotive sectors
  • 26. 7
    • SECTOR – Copper Segment
     Players in the Brazilian copper chain
     Global copper production indicators
     Global indicators of refined copper production
     Refined copper industry in Brazil
     Prospective Demand for Refined Copper
  • 27. 8
    Players in the Brazilian Copper Chain
    Sources: Sindicel and ABC
    • Small number of players at the beginning of the Brazilian copper chain
    • 28. Brazilian copper concentrate production is sufficient to meet demand from refiners
    • 29. Wires and cables sector includes multinational and family companies
    • 30. Only 2 companies are listed on the BM&FBovespa stock exchange (Vale and Paranapanema)
    • 31. “Wires and cables” is the largest sub-sector in Brazil’s copper chain
  • 9
    Players in the Brazilian Copper Chain
    Important national and global companies are present in the country, such as:
    Sources: Sindicel and ABC
  • 32. 10
    Global Copper Indicators
    Source: Brook Hunt Sep/10
    Since 2008 ...
    • The world production of copper concentrate increased at an average rate of 1.7% p.a.;
    • 33. The global demand for copper concentrate by refining companies (smelters) rose 1.8% p.a. on average;
    • 34. The global demand for refined copper grew 2% p.a. on average; and
    • 35. The world consumption of refined copper increased at an average rate of 2.7% p.a.
  • 11
    Global Refined Copper Indicators
    • Recovery of cathode premiums vs. copper prices on LME – London Metal Exchange, expected for 2011, compared with 2010
    • 36. The Treatment Charge (TC) and the Refining Charge (RC) correspond to the deduction of the discount allowed by miners to refiners on the metal prices on LME
    • 37. Average copper prices have been highly volatile
    (offer and demand plus hedge funds), having increased at an average rate of 46% in 2010 against 2009
    • The shutdown/interruption of activities ofsmelters in China and India favored the increase in TC/RC on the sport market in the second half of 2010
    • 38. Prices of refined copper by-products (gold, silver and sulphuric acid) are also relevant indicators
  • 12
    Supply of and Demand for Refined Copper in Brazil
    *Estimated
    Paranapanema’s strategic actions:
    • Domestic market expansion from 42%(2009) to 60% (2010);
    • 39. Expansion in sales of products with higher value added, such as rods and stretched copper wires;
    • 40. Expansion in installed capacity from 240,000 t/year to ~280,000 t/year until 2013 at Bahia’s unit;
    • 41. CAPEX of ~R$ 702 million in refined copper expansion from 2010 to 2013;
    • 42. Logistic services to clients, reducing delivery terms, financial costs and transportation management risks with the creation of CDPC – Copper Products Distribution Center in Itatiaia, State of Rio de Janeiro;
    • 43. Intermodal logistics: cabotage, road and rail transportation.
  • 13
    • SECTOR – Copper Segment
     Importance of Eluma brand in the segment of semi-manufactured products
     Distribution of revenues from semi-manufactured products
     Outlooks on the consumption of semi-manufactured products
  • 44. 14
    Eluma Brand: Breakdown of Revenues by Segment
    • Diversification as competitive advantage
    • 45. Entry in the segment of copper wires and bus bars as from 2009
    • 46. Semi-manufactured products rose 37% in revenues and 21% in volume in 2010 over 2009
    • Favorable Brazilian and global economic outlook for 2009-2016;
    • 47. Estimates on demographic trends in Brazil:
    • 48. Housing investments:
    15
    Outlooks for semi-manufactured copper products
    Source: ABRAMAT / FGV - Dec/09
    *CAGR: Compound average growth rate
    Source: ABRAMAT / FGV - Dec/09
  • 49. 16
    • INDUSTRY – PRIMARY COPPER BUSINESS
     Copper Production Chain
     Production Capacity – State of Bahia
     Production Flow Chart
     Main Production Cost Pointers
     Investments in 2010 and 2011/2013 - Opportunities
  • 50. Copper Production Chain
    17
    Suppliers
    Relevant presence in the Copper Division: 98% of total revenues
  • 51. 18
    Production Capacity – State of Bahia
    Electrolytic Copper ........................ 240,000 t/year
    Wire Rods .......................................220,000 t/year
    Drawn Wire …................................... 18,000 t/year
    Sulphuric Acid .................................570,000 t/year
    Oleum ................................................70,000 t/year
    Oxygen – Free Rods ......................... …6,000 t/year
    Gold*.............................................. 2,000 kg/year 2,400 kg/year
    Silver*.............................................. 32,000 kg/year 33,500 kg/year
    Ferrous Granulated**..................................360,000 t/year
    * Typical values contained in anode slimes
    ** Materials used in the segments of cement production, paving and metal structure blasting.
  • 52. MetallurgyProcessFlowChart
    19
    Chile: 70–75%
    Portugal: 4–6%
    Brazil: 20–25%
    RECEPTION AND STORAGE OF CONCENTRATE
    EXTERNAL SCRAP
    FOUNDRY
    ACID 45 %
    FerrousGranulated
    GASES
    SULPHURIC ACID PLANT
    SULPHURIC ACID
    ANODES
    OLEUM
    NICKEL SULPHATE PLANT
    ELECTROLYTIC REFINING
    IMPURE NICKEL SULPHATE
    DECOPPERIZED SLUDGE
    CATHODES
    DRAWN
    UpCast
    ROLLED
    OxyFree RODS
    COPPER WIRE RODS
    WIRES
  • 53. 20
    Investments – CAPEX
    Investments in 2010: R$51 million
    88% to copper segment:
    • 52% to Bahia’s unit , R$ 26.7 million, focused on the recovery and tool up of principal equipments and small-scale technical stoppage
    • 54. 36% to São Paulo’s units (Tubes expansion project – Cast & Roll) and Espírito Santo’s unit R$18.4 million
    • 55. 12% to the Fertilizers segment
    • 56. Investments from 2011 to 2013
    • 57. Expansion/modernization of refined copper production capacity to 230 kt to 280 kt per year by 2013 – Bahia’s unit amount of R$290 million
    • 58. New precious metals refining plant: R$28 million
    • 59. Increase in external scrap processing capacity.
    • 60. Increasing capacity and technological improvement of semi-manufactured copper
    • 61. Seamless tubes of 18 up to 36 ktp.y.: R$ 72 million of 2010-12
    • 62. Cold rolling of 28 up to 55 ktp.y.: R$ 142 million
    • 63. Hot rolling of 60 up to 200 ktp.y.: R$ 170 million
    • 64. Co-generation installation with capacity for 10 MW (uses the heat from boilers)
  • Capital Budget Proposal for 2011
    21
    Capital Budget Proposal ad referendum of the Annual Shareholders’ Meeting (AGM) of April 29, 2011 in accordance with the provisions of:
    • Article 196 of Law 6404/76, updated by Law 10.303/01;
    • 65. Article 25, item (iii) of its Bylaws; and
    • 66. The guidelines of CVM/SEP Circular No 004/2011 of item 25 (CAPITAL BUDGET).
    I. Investment Plan for the period 2011-2013 and estimated disbursements for 2011:
    Investment and maintenance projects for 2011 R$ thousand
    • Upgrading and expansion of the refined copper plant 120,000
    • 67. Expansion of seamless copper tubes plant 65,192
    • 68. Expansion of rolled products plant (hot and cold rolled) 81,000
    • 69. Precious metals refining plant 9,000
    • 70. Other projects and maintenance 112,242
    Total investments in 2011 387,434
    Of the expenditures proposed above, about R$275 million are part of the total R$702 million reported in a Relevant Fact on February 17, 2011.
    The investment’s strategic goal is organic growth, aiming to change the technological level of the Company, extend the range and mix of products, focus on the domestic market, and add value to the portfolio, for greater competitiveness and profitability for shareholders;
    II. Sources of funds to finance capital expenditure
    Main sources R$ thousand
    • Own funds from operations
    • 71. Funding from third parties
    • 72. Disposal of non-operating assets
    Subtotal - new funds to raise 375,517
    Reinvestment of own funds (Retained earnings) 11,917
    Total source of funds to raise 387,434
    The proposed retention of earnings for 2010, generated from operating activities, aims to provide reserves to cope with future disbursements for investment. 
  • 73.
    • SECTOR – Fertilizers Segment
    CIBRAFERTIL
     Paranapanema’s fertilizers business
     Simple Superphosphate market in the State of Bahia, Northeast Region and Brazil
     Outlook for the Fertilizers sector
  • 74. 23
    Fertilizers Division
    Strategic role in the integration with Paranapanema due to the use of the sulphuric acid generated from the metallurgic process.
  • 75. 24
    SSP Production Growth Estimates
    The Brazilian production of SSP should reach ~ 7 million t /year in 2020;
    The Northeast Region (important agricultural area) will rise from a share of 11% in national production in 2010 to 13.5% in 2020, according to estimates;
    Cibrafértil expands its market share in the Northeast Region, of 30.7% in 2010 to 31.3% in 2020 without assigning large investments.
    Sources: Ministry of Agriculture and Cibrafértil
  • 76. 25
    Outlook for the Fertilizers Sector
    New outlook from 2010 on
    Sector consolidated with the arrival of Vale to the fertilizers sector, with the production of phosphated products through acquisitions, and operating only industrial sales: Fosfertil, Bunge, Mosaic and Yara;
    Repositioning of main market players with Bunge operating just as a mixer, Yara and Mosaic concentrated on reselling imported products;
    Recovery of the sector in 2010, both in volumes and margins, getting closer to the production record reported in 2007;
    Brazilian GDP rose 7.5% and agricultural sector add to it 6.5% in 2010;
    The GDP growth should level off in the next years in 5%;
    Brazil like large exporter and producer of agricultural commodities such as cotton, sugarcane, soybeans, corn, coffee and meat benefited for increase of global demand and population and shortage of farmlands in several countries;
    Estimative fertilizers consumption in Brazil boomed 6% for the 2011 based on harvest grains trends 2010/11 and 2011/12.
  • 77. 26
    • OPENING
    • 78. SECTOR
    • 79. INDUSTRY
    • 80. CORPORATE
    • 81. RESULTS
    • 82. FINANCIAL AND RISK MANAGEMENT
    • 83. OUTLOOK
  • 27
    Recent History
  • 84. 28
    Shareholding Structure
    Shareholding Structure
    Principal Shareholders
    More than 10,000 shareholders
    Consolidated position of Paranapanema S.A. as of October 31, 2010.
  • 85. 29
    Corporate Governance
    Share Trading and Relevant Disclosure Policies
    Review of the Code of Ethics and Conduct
    Creation and restructuring of Advisory Committees to the Board of Directors
     Audit Committee
     Finance, Risk and Contingency Committee
     Compensation and Management Committee
    100% of common shares with 100% Tag Along
    Review of the by-laws, aiming at adjusting to the new regulations of the Novo Mercado of BM&FBovespa
    Engagement of consulting services for implementation of internal controls based on SoX principles.
    Capital Markets
    Engagement of Market Maker since January 2010
    Improved liquidity with the inclusion of the SmallCap and IBRx100 indices since the first 4-month period of 2010
    Growth of 126% in the volume of securities traded until October 31, 2010 against the daily average in 2009
    Increase of 122% in the financial volume in the same period
    Business volume tripled in 2010 against 2009
    Corporate Governance and Capital Market
  • 86. 30
    Sustainability and Recognitions
    Concerns about the quality of products and sustainability...
    Environment, Community, Clients, Suppliers, Employees and Investors
    • Adhesion to the Global Compact of the United Nations in June 2008
    • 87. Sustainability Report based on GRI (Global Reporting Initiative)methodology
    • 88. Awards (2009-2010)
    • 89. Paranapanema was among the five finalists of IR Magazine in the category “Greatest Developments in Investor Relations (RI)”;
    • 90. Bahia’s unit (Caraíba brand) received two Top Social ADVB 2009 awards granted by the Brazilian Association of Sales and Marketing Managers;
    • 91. Eluma brand received the Rui Otake Award granted by Revenda magazine to the best product for the civil construction sector; 4th “Mérito Lojista” Award as one of the best suppliers of civil construction materials; and the ANAMACO award, as best manufacturer of copper tubes and connections.
    • 92. Certifications
    • 93. ISO 9001 – Dias D’Ávila unit (State of Bahia); Utinga and Capuava units (State of São Paulo) and Serra unit (State of Espírito Santo);
    • 94. ISO 14001 – Dias D’Ávila unit (State of Bahia) and Serra unit (State of Espírito Santo);
    • 95. ISO 14001 – implementation in progress at the Santo André unit – UTINGA (State of São Paulo)
    • OPENING
    • 96. SECTOR
    • 97. INDUSTRY
    • 98. CORPORATE
    • 99. RESULTS
    • 100. FINANCIAL AND RISK MANAGEMENT
    • 101. OUTLOOK
  • 32
    Sales Volume by Segment and Net Revenues
    • Copper Segment have 98% of revenues and fertilizers 2% with total growth of 3% in volume sales
    • 102. Revenues have rose 27%, R$680 million addicted with higher added value products in 2010 and 29% up in the 4Q10
    • 103. Copper segment volume increased 5.3% and fertilizers 12.5% up in the 4Q10
  • 33
    Copper Segment Volume
    • New and higher added value products
    • 104. Increase 13.5% in the volume of semi-manufactured copper products in 2010 over 2009 and level off in the 4Q10
    • 105. Refined copper volume remain stable in 2010 and up 9.3% in the 4Q10
    • 106. The highlight was on copper wire and rods sales in 2010 and cathod and by-products(sulphuric acid) in 4Q10
    • Positive evolution over net revenues of foreign market in 2010.
    • 107. Revenues growth of 29% in 4Q10 and 27% in 2010
    • 108. Domestic market revenues increased 94.5% in the 4Q10 and 82.4% in 2010
    • 109. Well-done strategy focused on domestic market with 60% of revenues in 2010 over 42% in 2009
    34
    Share of Revenues by Market
  • 110. 35
    Gross Profit
    • Significant recovery of gross profit increasing 86.9% in 4Q10
    • 111. Net revenues and sales volume overcame level of costs verified
  • 36
    EBITDA
    • Adjusted EBITDA totaled R$131 million with 5% net revenues margin in 2010 and better operating performance, improving the negative situation of 2009
  • 37
    Net Income
    • Sound recovery of R$43 million in net income and net margin of 2% in 9M10 against loss of R$110 million in 9M09.
    • 112. Shareholders’ equity of R$ 1.8 billion, R$ 5.55 per share
    • 113. Total assets of R$ 3.7 billion
  • AGM approveddividendspaymentup to R$70.2 milliononApril 29, 2011;
    Calculusbasis: provides for minimum mandatory dividends of 25% of net income for the year, adjusted by constitution of a legal reserve and supplementary dividends accounted into shareholders’ equity
    Calculusdemonstrationofdividendsproposal:
    Dividendsright: shareholdersenrolled in thecompanyonApril 29, 2011;
    Ex-dividendsshares: May 02/2011;
    Dividendspayment: as ofMay 16, 2011 no paymentormonetaryupdate.
    DividendsPaymentProposal
    38
  • 114. 39
    • OPENING
    • 115. SECTOR
    • 116. INDUSTRY
    • 117. CORPORATE
    • 118. RESULTS
    • 119. FINANCIAL AND RISK MANAGEMENT
    • 120. OUTLOOK
  • 40
    Risk Management Concept
  • 121. 41
    Objectives of Integrated Risk Management – Enterprise Risk Management (ERM)
    • Profitability
    • 122. Default
    • 123. Contractual obligations
    • Cash flow
    • Compliance/
    Regulations
  • 124. 42
    Paranapanema Market Risks
    Foundry and Refining
    (Caraíba)
    Mining/
    Scrap
    Semi-Manufactured
    (Eluma)
    Costs
    (R$)
    Product
    Premium
    (US$)
    EBITDA
    PMA
    EBITDA
    Product
    Chart not in scale
    EBITDA
    Cathodes
    Cathodes
    Premium (US$)
    TC/RC
    (US$)
    Costs
    (R$)
    Copper
    Price
    (LME and
    US$)
    Copper
    Price
    (LME and
    US$)
    Copper
    Price
    (LME e
    US$)
    Sale of Products
    Cathode
    Sales
    MP
    Acquisition
    time
  • 125. Capital andLiquidity management keepingbetter capital structure to suportthe business;
    Greater need for working capital for raw materials acquisitions;
    Small leveregeratioandsound financial situationwithliquiditykeyof 1.6 andloansandfinancingof 0.4
    Liquidity Indicators
    43
  • 126. 44
    • OPENING
    • 127. SECTOR
    • 128. INDUSTRY
    • 129. CORPORATE
    • 130. RESULTS
    • 131. FINANCIAL AND RISK MANAGEMENT
    • 132. OUTLOOK
  • 45
    Potential Growth Accelerators
    2007
    2008
    2009
    2010
    Creation of PAC*1
    Brazil chosen to host the 2014 FIFA World Cup
    Oilfindings in thepre-saltlayer
    Brazil chosen to host the 2016 Olympic Games
    Creation of PAC*2
    *PAC = Growth Acceleration Program of the federal government
    Source: Federal Government website
  • 133. 46
    Growth Acceleration Program
    PAC 1 – Investments of US$179 billion – Strong assignment of funds to the economy
    Source: Federal Government website
    • Investments will stimulate the demand for copper in coming years.
    • 134. CARAÍBA and ELUMA brands are well positioned to compete on the market...
    • 135. ... due to the expansion in the capacity to offer high quality products, with adequate profitability.
  • 47
    Potential Growth Accelerators
    PAC 2 – Investments of US$816 billion
    Source: Federal Government website
    Sectors with increased growth potential regarding copper consumption
  • 136. 48
    Investments related to Sports Events
    Brazil will host four major sports events.
    2011 – The Army Olympics, in Rio de Janeiro
    2014 – FIFA World Cup
    2016 – Olympic Games
    These important events will result in additional investments of US$33.0 billion.
    This requires investments in infrastructure, which will result in copper consumption
    Source: FGV / Abramat – Dec/09
  • 137.
    • Brazilian macroeconomic outlook favorable in 2010-2016, with GDP growth of ~5% p.a.
    • 138. Positive Outlook for the demand of copper products
    • 139. Relevant factors for the Brazilian copper chain due to:
     Investments in infrastructure
     Investments in electricity and clean energy
     Investments in civil construction
     Gap between housing demand and supply
     2014 FIFA World Cup in Brazil
     2016 Olympic Games in Brazil
    • Brazil offers excellent investment opportunities
    • 140. Growth estimates for BRIC countries
    • 141. Demand from Asia and other emerging markets, rising above the global average
    • 142. Strategic actions planned by the Company to increase profitability (strategic partnerships and copper recycling)
    • 143. Opportunity sources: mining rights and sale of non-operating assets
    49
    Final Considerations