2010 09-14 presentation to the market(2-q10)


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2010 09-14 presentation to the market(2-q10)

  1. 1. Presentation to the Market<br />September, 2010<br />1<br />
  2. 2. Agenda<br />2<br />Page<br />Overview of the Group 03<br />Copper Division 10<br />Fertilizer Division 16<br />Economic and Financial Data 20<br />Risk Management Policy 28<br />Outlook 34<br />Restructurings in 2008 and 2009 37<br />Tax Restructuring 42<br />
  3. 3. Presenting Paranapanema<br />3<br />
  4. 4. 4<br />Presenting Paranapanema<br />Contribution of each sub-division for the consolidated net revenues (2Q10)<br />The largest refined copper producer and the largest copper and its alloys <br />semi-manufactured producer in Brazil<br />Paranapanema was established in 1961 and listed as a publicly held company at São Paulo Stock Exchange since 1971<br />Coppersmelting & refining<br />Coppersemi-manufactured<br /><ul><li>Semi-manufactured products of copper and its alloys (brass and bronze)
  5. 5. Location: 2 industrial plants in the state of São Paulo and 1 in the State of Espirito Santo
  6. 6. 1st largest producer of semi- manufactured products of copper and its alloys in Brazil by revenue since 2009
  7. 7. Installed capacity: 72,000 ton/year
  8. 8. Market share volume in Brazil: 36%
  9. 9. Products:rollings, seamless tubes and fittings, bars and profiles and wires
  10. 10. Raw material: cathode and scrap
  11. 11. Brand:
  12. 12. Fertilizer production integrated with CaraíbaMetais
  13. 13. Location: 1 plant at Camaçari Industrial Complex (State of Bahia)
  14. 14. Integration: acid pipeline of sulphuric acid through Caraíba and Cibrafértil
  15. 15. Installed capacity: 300,000 t/year
  16. 16. Products:superphosphate, complexfertilizersand NPK
  17. 17. Raw material: sulphuricacidandimportedphosphaterock
  18. 18. Brand:
  19. 19. Copper smelting and refining resulting in cathode of 99.99% purity
  20. 20. Location: 1 plant at Camaçari Industrial Complex (State of Bahia)
  21. 21. Major producer of refined primary copper in Brazil
  22. 22. Installedcapacity: 240,000 t/ year
  23. 23. Market share volume in Brazil: 35%
  24. 24. Products: anodes, cathodes, rods and drawn copper wire
  25. 25. Byproducts:sulphuric acid, oleum and anodic mud (precious metals)
  26. 26. Raw material: domestic and imported copper concentrate
  27. 27. Brand:</li></ul>FertilizerDivision<br />75%<br />23%<br />2%<br />Significant presence in the Copper Division: 98% of total revenues<br />Integration in smelting, refining, casting and production of semi-manufactured of copper <br />Integration of the copper business with the fertilizer business via byproducts<br />
  28. 28. 99<br />.<br />84<br />%<br />100<br />.<br />00<br />%<br />100<br />.<br />00<br />%<br />100<br />.<br />00<br />%<br />CARAÍBA <br />CARAÍBA ENERGIA <br />INCORPORATED LTD<br />. <br />LTDA<br />. <br />OrganizationalStructure<br />BrandsofCopperDivision<br />
  29. 29. 6<br />Commonshares<br />319,176,942<br />100%<br />Total ofshares<br />319,176,942<br />100%<br />Free Float<br />317,615,334<br />99.51%<br />ShareholdingStructure<br />CurrentShareholdingStructure<br />Major Shareholders<br />Market<br />EWZ LLC<br />23.96% 17.23% 11.81% 8.48% 38.52% <br />Previ, BndesparandPetros are stated-ownedpensionfunds<br />*Positionon August 31,2010<br />
  30. 30. <ul><li>Share Trading Policy implemented
  31. 31. Information Policies
  32. 32. Voting Manual for shareholders at General Meetings
  33. 33. Management Committees:</li></ul>Finance<br />Taxation<br />Risks<br />HR<br />Budget <br /><ul><li>Financial Risk Management Policy on 08/11/2009
  34. 34. 100% Tag Along on common shares
  35. 35. Joined the arbitration chamber contemplated in the bylaws
  36. 36. Dividends of 25% of adjusted net income
  37. 37. Company joins Novo Mercado of the BM&FBovespa in 2010
  38. 38. 100% of voting shares</li></ul>7<br />Corporate Governance<br />
  39. 39. 8<br />Brief Retrospect<br />
  40. 40. 9<br />SubsequentEvents<br />
  41. 41. Copper Division<br />Brands: Caraíba and Eluma<br />10<br />
  42. 42. 11<br />CopperProductionChain<br />Principal Players<br />
  43. 43. Paranapanema is a foundry and refiner capable of operating in the entire copper production chain using copper concentrate from Chile<br />12<br />Production Process and Factors affecting the Result <br />
  44. 44. 13<br />Copper Consumption <br /><ul><li>Industries requiring copper worldwide :</li></ul>Civil construction<br /> Transportation (air, sea and land)<br /> Automotive (hybrid cars, trucks) <br /> Infrastructure (electricity and telecommunications)<br /> Electroelectronics<br /> Cooling and heating<br /> Clean energy (solar, biodiesel, ethanol)<br /> Apparel<br /><ul><li>Industries requiring copper in Brazil: the same, boosted by already approved government economic stimulus measures and others still in the pipeline, which are driving consumption and demand for copper in several industries such as: </li></ul> (i) consumption: popular refrigerator substitution program; <br /> (ii) solar energy: new municipal legislation determies the use of clean (solar) energy and the popular housing program; <br /> (iii) electrical energy: “Luz Para Todos” (“Light for Everyone”) is also likely to encourage the industry; <br /> (iv) civil construction: “Minha Casa Minha Vida” (“My Home, My Life”) foresees construction of 1 million homes;<br /> (v) extension to the IPI tax exemption or reduction period: <br />electroelectronics: extended IPI benefits on certain white goods until 10/31/09; <br /> automotive: benefits for cars were extended to 09/30/09; and <br />  for trucks: exemption until 12/31/09, with the gradual return of taxation after these periods; <br /> (vi) Reduction in IPI: <br /> capital goods: machinery and equipment intended for industry and special funding facilities for small and mid-size companies via BNDES and Banco do Brasil; and<br /> some civil construction items; and<br /> (vii) Reduction of PIS and COFINS taxes: motorcycles up to 12/31/09, with the industry agreeing to retain jobs.<br />
  45. 45. 14<br />Refined Copper Supply and Demand in Brazil<br />Strategic actions by Paranapanema:<br /><ul><li>Expand the domestic market, taking up the slack left by imports;
  46. 46. Expand sales of higher value-added products, like bars and drawn wire;
  47. 47. Offer clients more logistics services, reducing time frames, quantities and transport management risk by creating the CDPC.</li></li></ul><li>15<br />Eluma: Revenue Distribution per Segment<br /><ul><li> Significant sector diversification in different transformation industries
  48. 48. Competitive advantage and good thermometer of economic activity
  49. 49. Entry into the copper wire and bar segments with the Bus Bar project
  50. 50. Launch of new products like flexible cables (insulated electric wiring)</li></li></ul><li>Fertilizer Division<br />Cibrafértil<br />16<br />
  51. 51. 17<br />Fertilizer Division<br />Strategic role in integratingwith Paranapanema, to takeadvantageofthesulphuricacidgeneratedbythemetallurgyprocess<br />
  52. 52. 18<br />Simple Superphosphate Production in Brazil<br />
  53. 53. 19<br />Estimated Growth of SSP Production<br />
  54. 54. 20<br />Economicand Financial Data2Q10<br />
  55. 55. 21<br />ConsolidatedEconomic-Financial Data<br />Revenuesandconsolidated volume growup in 1H10<br />
  56. 56. 22<br />Volume by operating subsidiary<br />Consolidated volume in 1H10 vs 1H09 up to 5.4%<br />
  57. 57. 23<br />Contribution of each segment<br />Consolidatedmainindicatorsandfertilizerssegment in 2Q10 and 1H10<br />
  58. 58. Gradual and consistent recovery on after crisis period<br /><ul><li>Positive evolutionofgrossrevenuesduring 1H10
  59. 59. Consolidated gross revenue of R$774 million in 2Q10
  60. 60. Consolidated sales volume grows by 5.4% in 1H10, reaching 181.8 thousand tons
  61. 61. Sales volume in the Copper Division in 1H10 was the same over 1H09
  62. 62. An expressive increase in domestic market share given a growth of 15% in gross revenue</li></ul>24<br />
  63. 63. 25<br />Gross Profit<br /><ul><li>R$ 62 millionofgrossprofitand 10% ofmargin in 2Q10 versus R$ 12 millionofloss in 2Q09;
  64. 64. In 2Q10, grossprofitwasup to 26% in 1Q10 whenwas R$ 49 million, showingthattheCorporate Hedge Policyhavebeensatisfatory.</li></li></ul><li>26<br />Net Income<br /><ul><li>R$ 51 millionof net incomeand 8% of net margin in 2Q10 versus R$ 3 millionofloss in 2Q09.</li></li></ul><li>27<br />EBITDA – Evolution quarter to quarter<br /><ul><li>Adjusted Ebitda of R$59 millionand 9% net revenuesmargin in 2Q10, decreasingthevolatility in earningsafterrestructuringconclusion.</li></li></ul><li>28<br />Risk Management Policy<br />
  65. 65. 29<br />Aims of the Risk management Policy<br />
  66. 66. 30<br />Identifying Exposures<br />
  67. 67. 31<br />Business Model...<br />
  68. 68. 32<br />Neutralizingtherisks.... <br />
  69. 69. 33<br />Neutralizingtherisks<br />
  70. 70. 34<br />Outlook<br />
  71. 71. Organic growth at Paranapanema<br />In the 1H10,consolidated investments in PARANAPANEMA were R$29.2 <br />million, distributed in: <br /><ul><li>Paranapanema- Branch Bahia ( formerly CaraíbaMetais) R$15.0 million</li></ul> In 1H10, channeled to (i) capacity expansion; (ii) boiler refurbishment; <br />(iii) technical stoppage to refurbish furnace tiles; and (iv) reactivation of <br />the plant for producing oxy-freebars concluded, whose major client is <br />Eluma. <br /><ul><li>Branch Eluma R$10.0 million in 1H10, channeled to the following programs: (i) conclusion of expansion projects; (ii) improvements in distribution and logistics, quality, informatics and others; (iii) environment, by segregating effluents from the Utinga lake; and (iv) maintenance.
  72. 72. Investments (CAPEX) for the 2010-2013 period:</li></ul>With the approval of the project for expanding the installed capacity of Paranapanema’s BA Branch ( formerly Caraíba) from 220 to 276 mil t /year, the investments for the period 2010-2013 will be around R$329 million. <br />Eluma estimates R$175 million between maintenance and future expansion of capacity, the MBD of 08/Feb/10 having approved organic growth, with expansion of installed capacity, from72,000 t/year to approximately 130,000 t/year by 2013, with higher added-value products. <br /> Cibrafértil: investments in the 1H10 were R$4.2 million, intended for improvements and maintenance, with investments of the order of R$2 million a year for the 2010-2012 period. <br />35<br />Investments – CAPEX<br />
  73. 73. <ul><li>For 2010, following conclusion of the financial, corporate and tax restructurings of the last two years, management will now face new and interesting challenges, but in a much more comfortable situation given the current capital structure and the improved adaptation of the balance sheet to international accounting standards, enabling us to establish more ambitious goals, such as:</li></ul>(i) focus on organic growth by expanding the installed capacity in Bahia (up to 276,000 t/year in primary copper and 30,000 t/year in laminates) and in São Paulo (up to 90,000 t/year in semi-manufactured goods) which will imply investments of R$510 million between 2010 and 2013; <br /> (ii) analysis of the opportunities for strategic partnerships and alliances, in order to maximize the Company’s profitability;<br /> (iii) strategic measures to conquer local and international marketsand adding greater value to products, improving margins and competitiveness through economies of scale and permanent reductions in costs; <br />(iv) listing on Novo Mercado of BM&F Bovespa, change from Level 1 to the highest level of Corporate Governance in 2010;<br />(v) adapting the organizational structure to the new operating structure of the copper chain within a single company, Paranapanema, while creating a corporate culture intended to maximize shareholder returns. <br />36<br />Outlook for Paranapanema<br />
  74. 74. Restructurings in 2008 and 2009<br /><ul><li>Financial
  75. 75. Corporate
  76. 76. Tax</li></ul>37<br />
  77. 77. 38<br />Financial Restructuring<br /><ul><li>06/13 to 11/13/08: Paranapanema’s non operating debt resolved with payment of R$1.5 billion to creditors/shareholders, 50% settled in cash and 50% by converting debt to common shares in a record time of only 5 months.
  78. 78. Funds raised: </li></ul>  06/13/08: Private capital increase of R$ 514 million<br />  08/20/08: 6th Convertible Debenture Issue of R$ 920 million for 30 months, 1st series and 11 years, 2nd series<br />  08/22/08: 1st Debenture Conversion, liquidating the 1st series<br />  08/26/08: 2nd Debenture Conversion, with partial liquidation of the 2nd series<br />  08/28/08: 3rd Debenture Conversion, with partial liquidation of 2nd series<br />  11/13/08: 4th and final Debenture Conversion, with total liquidation<br />  11/13/08: divestment of Tin Division, with the sale of Taboca/Mamoré to Peruvian group, Minsur, for R$850 million, R$415 million net, after contingencies and debt<br />
  79. 79. 39<br />Corporate Restructuring – Conversion of Preferred Shares to Common<br />
  80. 80. 40<br />Corporate Restructuring – Merger of CaraíbaMetais S.A. <br />
  81. 81. 41<br />Corporate Restructuring Merges of Paranapanema S.A.<br />Justification for merges of CaraíbaMetais and Eluma<br /><ul><li>simplification of the equity structure of the companies controlled by Paranapanema;
  82. 82. reduction in administrative costs;
  83. 83. substantial synergy gains, given the complementary nature of the product ranges offered and the location of the manufacturing units;
  84. 84. higher investment capacity in new product research and development;
  85. 85. productivity gains arising from larger-scale production and distribution of the products offered by the companies;
  86. 86. more efficient corporate structure;
  87. 87. greater speed of response in executing strategic, administrative and commercial decisions;
  88. 88. Caraíba shareholders will remain shareholders of a publicly quoted company; and
  89. 89. greater liquidity for the shares issued by Paranapanema.</li></li></ul><li>42<br />Taxation Restructuring<br />Joining the Tax Debit Installment Payment Program<br />Law 11.941/09 and PM 470/09<br />
  90. 90. 43<br />Taxation Restructuring<br /><ul><li> Search for solutions for tax contingencies estimated at around R$1.58 billion for Paranapanema and its subsidiaries;
  91. 91. 10/28/09:BDM resolves to irrevocably join the tax debit liquidation and installment payment program in the case of Paranapanema S.A and Eluma S.A., as permitted by Law 11.941/09 and PM 470/09;
  92. 92. 09/30/09: in view of this subsequent event, the impact of joining was already factored in for the 3rd quarter of 2009;
  93. 93. 11/30/09: cut-off date for companies to formally join the tax debit installment program;
  94. 94. The decision regarding tax debit installments and settlement took into account the probability of losses estimated by tax experts: (i) IPI – Presumed Credit on the Purchase by Eluma of untaxed or zero tax-rated Raw Materials, considered as a probable loss; and (ii) IOF tax in the case of Paranapanema, as a possible loss, but with no jurisprudence on the subject matter. </li></li></ul><li>44<br />Joining the Tax Debit Installment Program<br /><ul><li>The total amount of the adhesion shown below is distributed as follows:</li></ul> R$91.6 million will be paid in cash, of which R$18.2 million in 12 installments and the remainder at sight;<br /> The remaining balance will be paid by fiscal losses and negative social contribution tax base. <br /><ul><li>The tax restructuring has placed the financial statements in a new and solid situation, reducing the costs of managing these tax liabilities, while providing a solution for all fiscal contingencies and radically changing the perception of Paranapanema’s consolidated risk and market value</li>