2011 04-05 presentation to the market

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2011 04-05 presentation to the market

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

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