2010 09-14 presentation to the market(2-q10)
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Transcript of 2010 09-14 presentation to the market(2-q10)
11
Presentation to the Market
September, 2010
Agenda
2
Page
Overview of the Group 03Copper Division 10Fertilizer Division 16Economic and Financial Data 20Risk Management Policy 28Outlook 34Restructurings in 2008 and 2009 37Tax Restructuring 42
DIAS D’ÁVILA - BA SANTO ANDRÉ – SP(UTINGA)
SERRA - ESSANTO ANDRÉ – SP(CAPUAVA)
Presenting Paranapanema
3
44
Presenting Paranapanema
The largest refined copper producer and the largest copper and its alloys semi-manufactured producer in Brazil
Paranapanema was established in 1961 and listed as a publicly held company at São Paulo Stock Exchange since 1971Paranapanema was established in 1961 and listed as a publicly held company at São Paulo Stock Exchange since 1971
Integration of the copper business with the fertilizer business via byproductsIntegration of the copper business with the fertilizer business via byproductsIntegration in smelting, refining, casting and production of semi-manufactured of copper
Copper smelting and refining resulting in cathode of 99.99% purity
Location: 1 plant at Camaçari Industrial Complex (State of Bahia)
Major producer of refined primary copper in Brazil
Installed capacity: 240,000 t/ year Market share volume in Brazil: 35% Products: anodes, cathodes, rods and
drawn copper wire Byproducts: sulphuric acid, oleum and
anodic mud (precious metals) Raw material: domestic and imported
copper concentrate Brand:
Semi-manufactured products of copper and its alloys (brass and bronze)
Location: 2 industrial plants in the state of São Paulo and 1 in the State of Espirito Santo
1st largest producer of semi- manufactured products of copper and its alloys in Brazil by revenue since 2009
Installed capacity: 72,000 ton/year Market share volume in Brazil: 36% Products: rollings, seamless tubes and
fittings, bars and profiles and wires Raw material: cathode and scrap Brand:
Fertilizer production integrated with Caraíba Metais
Location: 1 plant at Camaçari Industrial Complex (State of Bahia)
Integration: acid pipeline of sulphuric acid through Caraíba and Cibrafértil
Installed capacity: 300,000 t/year Products: superphosphate, complex
fertilizers and NPK Raw material: sulphuric acid and
imported phosphate rock Brand:
Significant presence in the Copper Division: 98% of total revenuesSignificant presence in the Copper Division: 98% of total revenues
Contribution of each sub-division for the consolidated net revenues (2Q10)
75% 23% 2%
Copper smelting & refining Copper semi-manufactured Fertilizer Division
5
Organizational Structure
CARAÍBA INCORPORATED LTD.
CARAÍBA ENERGIA LTDA.
99.84% 100.00% 100.00% 100.00%
Brands of Copper Division
66
Shareholding Structure
Current Shareholding Structure
Market
23.96% 17.23% 11.81% 8.48% 38.52%
Major Shareholders
Common shares 319,176,942
100%
Total of shares 319,176,942 100%
Free Float 317,615,334 99.51% Previ, Bndespar and Petros are stated-owned pension funds
*Position on August 31,2010
77
Share Trading Policy implemented Information Policies Voting Manual for shareholders at General Meetings Management Committees:
– Finance– Taxation– Risks– HR– Budget
Financial Risk Management Policy on 08/11/2009 100% Tag Along on common shares Joined the arbitration chamber contemplated in the bylaws Dividends of 25% of adjusted net income Company joins Novo Mercado of the BM&FBovespa in 2010 100% of voting shares
Corporate Governance
88
Brief Retrospect
•Paranapanema founded to operate in the heavy construction sector
1961
•Diversification of activities by entering mining.
1965•P
aranapanema lists on the São Paulo Stock Exchange
1971
•Operations verticalized, now covering cassiterite, from mining to processing and commercialization of the final product.
1978 and 1979
•Pitinga Mine reserves incorporated into our activities.
1982
•Cibrafértil founded, coming on stream in 1995.
1994
•Pension funds take control of Paranapanema with over 65 companies.
1996
•Total divestment of Paranapanema’s equity interest in Companhia Paraibuna de Metais.
2002
•Financial restructuring agreement with the pension funds Previ, BNDESPar, Petros and Sistel.
2006
•Paranapanema joins Level 1 of BM&FBOVESPA on December 3, 2008.
2007
•Financial restructuring - Capital increase in June, convertible debentures issued in August and sale of Mineração Taboca S.A. and Mamoré Mineração e Metalurgia LTDA., non operating debt liquidated.
2008
•Corporate and Tax Restructuring: Takeover of Caraíba; joined the tax debit installment payment program
2009
99
Subsequent Events
•January/April: Paranapanema joins the IBRx 100 and SmallCap Indexes of the BM&FBovespa.
2010
•January: CSFB hired as Market Maker.
2010
•10/Mar: BDM approves takeover of Eluma by Paranapanema, be ratified at the EGM OF 03/31/10 in the exchange ratio of 1: 6.71, with a capital increase of 1,476,678 common shares and R$7,413 million in PMA.
2010
•10/Mar: BDM approves management’s proposal to reduce capital without change in equity.
2010
•11/Mar: 1s
t
SPGM on converting preferred shares to common.
2010
•22/Mar: 2n
d
SPGM and 3r
d
SPGM on converting preferred shares to common, with a quorum of the majority present at the 3r
d
(plus 30 days of right to withdraw).
2010
•31/Mar: EGM approves takeover of Eluma (plus 30 days of right to withdraw).
2010
Copper Division
Brands: Caraíba and Eluma
10
1111
Copper Production ChainMINING
•Extraction of copper from mines;
•Copper ore content between (0.5% and 4%);
•Processed at the mine, it becomes copper concentrate with about 30% copper content per ton;
•75% acquired on the overseas market (Chile).
FOUNDRY AND REFINING
•The copper concentrate is processed in the foundry, resulting in 99.5% pure anode
•The electrolytic refinement process transforms the anode into 99,99% cathode (a high level of copper concentrate)
PRODUCTION OF SEMI-FINISHED AND FINISHED COPPER PRODUCTS
• SEMI-FINISHED• Continuous rolling process; • Products: copper and
copper alloy laminates, bars, wires, seamless piping and drawn wire (fed by cathodes and scrap);
• Copper alloys + zinc = brass; • Copper alloys + tin = bronze.
• FINISHED• Production in the higher
added –value segment• Piping and connections and
“hidrolar” for civil construction.
LOGISTICS
•Distribution of Paranapanema and Eluma products by the CDPC(Copper Products Distribution Center) – Itatiaia – State of Rio de Janeiro for the southeastern southern and mid-western regions;
•Proximity to major clients;
•Fast delivery in up to 12 hours by sea and land.
Min
ing DM: Vale do Rio Doce,
Mineração Caraíba and Yamana FM: Codelco, Rio Tinto, BHP Billiton, Xtrata, P.T. Freeport, Anglo American, Antofogasta Minerals
Foun
dry
and
refin
ing DM: (imported) cathodes
and in bars and stretched wires, Plasinco, Ibrame and PrysmianFM: Codelco (Chile), ILO (Peru)Aurubis AG (Germany)
Sem
i-Fin
ishe
d an
d Fi
nish
ed G
oods
s DM: Termomecânica, Cecil, Ibrame, PlasincoFM: Madeco (Chile), Nacobre and IUSA (Mexico), Ceper and Indeco (Peru) and Nexans (Canada)
Principal Players
12
Paranapanema is a foundry and refiner capable of operating in the entire copper production chain using copper concentrate from Chile
12
Production Process and Factors affecting the Result
Description of the Process Description of the Business
Smelting
Refining
Electrolysis
Rolling
Drawing
Copper concentrate
(Third-party raw materials)
Estimated time between purchasing and taking delivery of raw material
1 m
on
th[1
0]
Da
ys
Primary business drivers at Caraiba:
TC/RC (Treatment Charge/Refining Charge): LME –transformation cost (Copper smelting and refining rates)
Premium: LME + premium on revenues from sales of finished products
Exchange rate
Supply and demand for metal commodities
RevenuesSales of cathodes + Rods + Wire
LME + Premium
CostPurchase of copper concentrate
LME – TC/RC
Operating
costsOperating expenses= OPEX
+
-
-
Profit drivers
Premium + TC/RC + By-products – OPEX=
Total cycle: 90 days
1313
Copper Consumption
• Industries requiring copper worldwide :
Civil construction
Transportation (air, sea and land)
Automotive (hybrid cars, trucks)
Infrastructure (electricity and telecommunications)
Electroelectronics
Cooling and heating
Clean energy (solar, biodiesel, ethanol)
Apparel• 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: (i) consumption: popular refrigerator substitution program; (ii) solar energy: new municipal legislation determies the use of clean (solar) energy and the popular housing program; (iii) electrical energy: “Luz Para Todos” (“Light for Everyone”) is also likely to encourage the industry; (iv) civil construction: “Minha Casa Minha Vida” (“My Home, My Life”) foresees construction of 1 million homes; (v) extension to the IPI tax exemption or reduction period: electroelectronics: extended IPI benefits on certain white goods until 10/31/09; automotive: benefits for cars were extended to 09/30/09; and for trucks: exemption until 12/31/09, with the gradual return of taxation after these periods; (vi) Reduction in IPI: 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 some civil construction items; and (vii) Reduction of PIS and COFINS taxes: motorcycles up to 12/31/09, with the industry agreeing to retain jobs.
1414
Refined Copper Supply and Demand in Brazil
Strategic actions by Paranapanema:Expand the domestic market, taking up the slack left by imports;Expand sales of higher value-added products, like bars and drawn wire; Offer clients more logistics services, reducing time frames, quantities and
transport management risk by creating the CDPC.
Apparent Consumption of Refined Copper in Brazil
Products (thousand t) 2004 2005 2006 2007 2008C¹ 2009¹Change
2009/2008CAGR
2004-09
Refined copper production 208.0 199.0 219.7 218.4 227.8 208.4 -8.5% 0.0%Variation in inventories -7.8 1.4 0.1 -4.0 3.3 1.7 -49.5% NSRefined copper imports 154.1 167.4 175.4 217.9 251.0 203.5 -18.9% 5.7%Refined copper exports -21.9 -32.9 -56.0 -102.0 -93.1 -88.6 -4.8% 32.3%Apparent consumption in Brazil 332.4 334.9 339.2 330.3 389.0 325.0 -16.5% -0.4%Population (in million) 180.7 186.4 186.4 186.5 189.6 191.9 1.2% 1.2%Per capita consumption (kg per inhab.) 1.84 1.80 1.82 1.77 2.05 1.69 -17.5% -1.6%Sources: Sindicel - Sindicato da Indústria de Condutores Elétricos, Trefilação e Laminação de Metais Não Ferrosos do Estado de São Paulo;
ABC - Associação Brasileira do Cobre; MDIC/Secex; IBGE e Brook Hunt
¹ Estimated population /4 Kt of refined copper from Vale and Mineração Caraíba.
C=Changed
1515
Eluma: Revenue Distribution per Segment
• Significant sector diversification in different transformation industries• Competitive advantage and good thermometer of economic activity• Entry into the copper wire and bar segments with the Bus Bar project• Launch of new products like flexible cables (insulated electric wiring)
Civil Construction28%
On-Selling15%
Eletrical-Eletronics11%
Machanics and Metallurgy
8%
Automotive11%
Clothing5%
Refrigeration16%
Others2%
Military Material4%
Net Revenues by Segment 2009
Civil Construction26%
On-Selling22%
Eletrical-Eletronics10%
Machanics and Metallurgy
6%
Automotive13%
Clothing4%
Refrigeration14%
Others2%
Military Material3%
Net Revenues by Segment 2008
Fertilizer Division
Cibrafértil
16
1717
Fertilizer Division
Fertilizer manufacturing company (SSP in powder and in grains and NPK)
BusinessProduction of fertilizersLocation: 1 plant at the Camaçari Petrochemical Complex (BA) Logistics advances (distances)Salvador: 45 KmParanapanema: 5 KmPort of Aratu (BA): 25 KmPetrobrás Fafen: 2 KmMajor Clients: 20 KmTotal land area: 108,336 m²Total built area: 17,834 m²
ProductionSuperphosphate PlantInstalled capacity: 50 t / hour ~300.000 t / yearProduct: SIMPLE SUPERPHOSPHATE (SSP) 18% P2O5 and NPK/NPRaw materials Phosphatic rock with 30 to 32% of
P2O5, imported through the Port of Aratu, from countries like Israel, Togo, Egypt and Algeria
Sulphuric acid 98%: Paranapanema via the acid pipeline
CommercializationCommercialization policyIndustrial sale of the products for use as raw materials in mixing fertilizers and for re-sale via mixing companiesMajor client: Fertipar - 34%Yara - 22%Bunge - 16%Heringer - 12%Mosaic - 3%Exports (Mercosur) - 9%Others - 4%
Strategic role in integrating with Paranapanema, to take advantage of the sulphuric acid generated by the metallurgy process
1818
Simple Superphosphate Production in Brazil
0
1,000
2,000
3,000
4,000
5,000
6,000
0
100
200
300
400
500
600
2003 2004 2005 2006 2007 2008 2009
thou
sand
of
ton.
Cibr
afér
til/
Nor
thea
st R
egio
nth
ousa
nd o
f to
n.PRODUCTION OF SIMPLE SUPERPHOSFATE
CIBRAFERTIL NORTHEAST REGION BRAZILSources: Ministry of Agriculture and Cibrafértil.
1919
Estimated Growth of SSP Production
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0
100
200
300
400
500
600
700
800
thou
sand
of t
on.
Cibr
afér
til/N
orth
east
Reg
ion
thou
sand
of t
on.
CIBRAFERTIL NORTHEAST REGION BRAZILSources: Ministry of Agriculture and Cibrafértil.
FORECAST PRODUCTION OF SIMPLE SUPERPHOSPHATE
20
Economic and Financial Data2Q10
2121
Consolidated Economic-Financial DataRevenues and consolidated volume grow up in 1H10
Paranapanema S/A - Consolidated
Result in R$ thousand 2Q09 1Q10 2Q10Change
2Q10/2Q09Change
2Q10/1Q101H09 1H10
Change 1H10/1H09
Gross revenues 726,189 849,376 773,486 6.5% -8.9% 1,324,561 1,622,862 22.5%Domestic market 360,706 521,770 584,937 62.2% 12.1% 689,609 1,106,707 60.5%Foreign market 365,483 327,606 188,549 -48.4% -42.4% 634,952 516,155 -18.7%
Net revenues 597,707 733,242 632,408 5.8% -13.8% 1,091,048 1,365,650 25.2%COGS (610,029) (684,411) (569,999) -6.6% -16.7% (1,159,627) (1,254,410) 8.2%
Gross profit (12,322) 48,831 62,409 NS 27.8% (68,579) 111,240 NSOperating expenses (27,160) (31,072) (23,365) -14.0% -24.8% (53,380) (54,437) 2.0%Other operating revenues (expenses), net (24,729) (6,636) 1,342 -105.4% NS (4,538) (5,294) 16.7%
EBIT (Result of activity) (64,211) 11,123 40,386 NS 263.1% (126,497) 51,509 NSFinancial revenues (expenses), net 84,485 (5,967) 13,315 -84.2% NS 99,142 7,348 -92.6%Income (loss) before income and social contribution taxes 20,274 5,156 53,701 164.9% NS (27,355) 58,857 NS
Net income (loss) (3,353) 24,835 50,690 NS 104.1% (65,833) 75,525 NSNumber of shares outstanding ex-treasury (in thousand) 313,796 319,153 319,153 1.7% 0.0% 313,796 319,153 1.7%Earnings per share (0.0107) 0.0778 0.1588 NS 104.1% (0.2098) 0.2366 NSDepreciation and amortization 20,911 20,730 19,095 -8.7% -7.9% 41,856 39,825 -4.9%EBITDA (43,300) 31,853 59,481 NS 86.7% (84,641) 91,334 NSShareholders' equity 1,126,815 1,439,753 1,490,693 32.3% 3.5% 1,126,815 1,490,693 32.3%Total assets 2,816,696 2,796,296 2,740,545 -2.7% -2.0% 2,816,696 2,740,545 -2.7%Margins - % of net revenues Change bp Change bp Change bpGross Profit margin -2.1% 6.7% 9.9% 1,200 320 -6.3% 8.1% 1,440EBIT margin -10.7% 1.5% 6.4% 1,710 490 -11.6% 3.8% 1,540EBITDA margin -7.2% 4.3% 9.4% 1,660 510 -7.8% 6.7% 1,450Net income margin -0.6% 3.4% 8.0% 860 460 -6.0% 5.5% 1,150
% Share 2Q09 1Q10 2Q10 Change 2Q10/2Q09
Change 2Q10/1Q10
1H09 1H10 Change 1H10/1H09
Gross revenues 100.0% 100.0% 100.0% 0.0% 0.0% 100.0% 100.0% 0Domestic market 49.7% 61.4% 75.6% 52.1% 23.1% 52.1% 68.2% 1,610Foreign market 50.3% 38.6% 24.4% -51.5% -36.8% 47.9% 31.8% (1,610)
2222
Volume by operating subsidiary
Consolidated volume in 1H10 vs 1H09 up to 5.4%
Sales volume by product (tons) 2Q09 1Q10 2Q10Change
2Q10/2Q09Change
2Q10/1Q101H09 1H10
Change 1H10/1H09
Paranapanema(Branch Bahia)¹ 45,903 46,334 34,386 -25.1% -25.8% 87,741 80,720 -8.0%Anode/Cathode 23,303 23,317 9,920 -57.4% -57.5% 44,677 33,237 -25.6%Wire rod/Drawn wire 21,865 22,185 23,784 8.8% 7.2% 41,491 45,969 10.8%Other copper products 735 832 682 -7.2% -18.0% 1,573 1,514 -3.8%
Byproducts² 198,816 239,386 185,106 -6.9% -22.7% 360,994 424,492 17.6%Sulphuric acid 116,827 132,980 98,873 -15.4% -25.6% 195,827 231,853 18.4%Other³ 81,989 106,406 86,233 5.2% -19.0% 165,167 192,639 16.6%
Paranapanema(Branches São Paulo and Espírito Santo) 14,143 15,939 17,842 26.2% 11.9% 26,727 33,781 26.4%Semi-manufactered copper products 14,143 15,939 17,842 26.2% 11.9% 26,727 33,781 26.4%
Sales volume of Copper Division(less Byproducts) 60,046 62,273 52,228 -13.0% -16.1% 114,468 114,501 0.0%Cibrafértil 42,621 24,777 42,552 -0.2% 71.7% 58,064 67,329 16.0%
SSP Fertilizers (powder and granulated) 33,713 23,043 42,539 26.2% 84.6% 44,025 65,582 49.0%NPK fertilizers 8,908 1,734 13 -99.9% -99.3% 14,039 1,747 -87.6%
Consolidated Paranapanema 102,667 87,050 94,780 -7.7% 8.9% 172,532 181,830 5.4%¹There is no intercompany effect into volume of copper products .
²Byproducts are not counted in the total volume of Caraíba.
³Includes anode sludge, oleum and slag.
2323
Contribution of each segment
Consolidated main indicators and fertilizers segment in 2Q10 and 1H10
Result in R$ thousand Paranapanema Cibrafértil Paranapanema CibrafértilGross revenues 773,486 16,960 1,622,862 25,060
Domestic market 584,937 16,960 1,106,707 25,060 Foreign market 188,549 - 516,155 -
Net revenues 632,408 15,712 1,365,650 23,371 COGS (569,999) (15,965) (1,254,410) (23,849)
Gross profit 62,409 (253) 111,240 (478) Operating expenses (23,365) (672) (54,437) (1,438) Other operating revenues (expenses), net 1,342 (2,299) (5,294) (2,485)
EBIT (Result of activity) 40,386 (3,224) 51,509 (4,401) Financial revenues (expenses), net 13,315 (2,433) 7,348 (4,751) Income (loss) before income and social contribution taxes 53,701 (5,657) 58,857 (9,152)
Net income (loss) 50,690 (5,565) 75,525 (9,043)Number of shares outstanding ex-treasury (in thousand) 319,153 2,443 319,153 2,443 Earnings per share 0.16 (2,277.94) 0.24 (3.70) Depreciation and amortization 19,095 696 39,825 1,393 EBITDA 59,481 (2,528) 91,334 (3,008)Shareholders' equity 1,490,693 8,376 1,490,693 8,376 Total assets 2,740,545 68,535 2,740,545 68,535 Margins - % of net revenuesGross Profit margin 9.9% -1.6% 8.1% -2.0%EBIT margin 6.4% -20.5% 3.8% -18.8%EBITDA margin 9.4% -16.1% 6.7% -12.9%Net income margin 8.0% -35.4% 5.5% -38.7%
% ShareGross revenues 100.0% 100.0% 100.0% 100.0%Domestic market 75.6% 100.0% 68.2% 100.0%Foreign market 24.4% 0.0% 31.8% 0.0%
2Q10 1H10
2424
• Positive evolution of gross revenues during 1H10
• Consolidated gross revenue of R$774 million in 2Q10
• Consolidated sales volume grows by 5.4% in 1H10, reaching 181.8 thousand tons
• Sales volume in the Copper Division in 1H10 was the same over 1H09
• An expressive increase in domestic market share given a growth of 15% in gross revenue
Gradual and consistent recovery on after crisis period59
9
727 78
5
885
849
774
329 36
1 420
425
522 58
5
270
366
365
460
328
189
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Paranapanema S/AConsolidated Gross Revenues by Market(R$ million)
Gross revenues Domestic market Foreign market
55% 50% 53% 48%61%
76%
45% 50% 47% 52%39%
24%
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Paranapanema S/AGross Revenues by Market (%)
Foreign market Domestic market
2525
Gross Profit
• R$ 62 million of gross profit and 10% of margin in 2Q10 versus R$ 12 million of loss in 2Q09;
• In 2Q10, gross profit was up to 26% in 1Q10 when was R$ 49 million, showing that the Corporate Hedge Policy have been satisfatory.
(56)
(12)
27
27 49
62
-11%-2% 4% 4% 7% 10%
-2.00
-1.50
-1.00
-0.50
0.00
0.50
-80.00
-60.00
-40.00
-20.00
0.00
20.00
40.00
60.00
80.00
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Milh
ares
Paranapanema S/A Gross Profit (R$ million)
Gross Profit Gross Margin(% Net Revenue)
2626
Net Income
• R$ 51 million of net income and 8% of net margin in 2Q10 versus R$ 3 million of loss in 2Q09.
(62
)
(3)
(44
)
30
4
25
51
-13%-1% -7%
40%
3% 8%
-2.00
-1.50
-1.00
-0.50
0.00
0.50
-100.00
-50.00
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Paranapanema S/A Net Income (R$ million)
Net Income(Loss) Net Margin(% Net Revenue)
2727
EBITDA – Evolution quarter to quarter
• Adjusted Ebitda of R$59 million and 9% net revenues margin in 2Q10, decreasing the volatility in earnings after restructuring conclusion.
(62)
(19)
21
18 38
59
-12%-3% 3% 2% 5%
9%
-2.00
-1.50
-1.00
-0.50
0.00
0.50
-80.00
-60.00
-40.00
-20.00
0.00
20.00
40.00
60.00
80.00
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Paranapanema S/A - Adjusted EBITDA R$ million
Adjusted EBITDA R$ million Adjusted EBITDA Margin- % Net Revenue
28
Risk Management PolicyRisk Management Policy
2929
Aims of the Risk management Policy
Cash flow hedge
Stable resultsMinimize
exposure to risk
3030
Identifying Exposures
Commodities Price Risk (copper)• Stocks• Accounts Receivable – clients (built-in derivative)• Accounts payable– suppliers (built-in derivative)
Exchange Rate Risk (USDBRL)• Cash and Investments - overseas• Stocks• Accounts Receivable - clients• Accounts Payable - suppliers• Funding
3131
Business Model...
LME Copper Price TC/RC (USD)
Transf. Cost(R$)
Cost of Product
LME Copper Price
Cathode Premium
(USD)
ProductPremium
(USD)
Revenue from Product
3232
Neutralizing the risks....
Assets Liabilities
Accounts
receivable– clients
(200 tons)
Stocks
(1000 tons)
Accounts payable –
suppliers (700 tons)
3333
Neutralizing the risks
Assets Liabilities
Accounts payable – suppliers (700
tons)
Future Sale of Copper on the
exchange(500 tons)
Accounts Receivable – clients
(200 tons)
Stocks(1000 tons)
34
Outlook
35
Organic growth at ParanapanemaIn the 1H10, consolidated investments in PARANAPANEMA were R$29.2 million, distributed in:
• Paranapanema - Branch Bahia ( formerly Caraíba Metais) R$15.0 millionIn 1H10, channeled to (i) capacity expansion; (ii) boiler refurbishment; (iii) technical stoppage to refurbish furnace tiles; and (iv) reactivation of the plant for producing oxy-free bars concluded, whose major client is Eluma.
• 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.
• Investments (CAPEX) for the 2010-2013 period: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. 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.
Cibrafértil: investments in the 1H10 were R$4.2 million, intended for improvements and maintenance, with investments of the order of R$2 million a year for the 2010-2012 period.
35
Investments – CAPEX
Paranapanema S/ACAPEX
R$ thousand 1H09 1H10Change
1H10/1H09Branch Bahia(Caraíba's brand products) 23,001 15,050 -35%Branches SP and ES (Eluma's brand products) 8,765 9,937 13%Cibrafertil 172 4,229 NS
TOTAL 31,938 29,216 -9%
3636
• 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:
(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$510 million between 2010 and 2013;
(ii) analysis of the opportunities for strategic partnerships and alliances, in order to maximize the Company’s profitability;
(iii) strategic measures to conquer local and international markets and adding greater value to products, improving margins and competitiveness through economies of scale and permanent reductions in costs;
(iv) listing on Novo Mercado of BM&F Bovespa, change from Level 1 to the highest level of Corporate Governance in 2010;
(v) adapting the organizational structure to the new operating structure of the copper chain within a single company, Paranapanema, while creating a corporate culture intended to maximize shareholder returns.
Outlook for Paranapanema
Restructurings in 2008 and 2009
•Financial• Corporate• Tax
37
3838
Financial Restructuring
R$ million 12/31/07 12/31/08 12/31/09
Total debtCash and equivalents
2,031866
668685
486668
Net Debt (Cash) 1,165 (18) (181)
Capital StockShareholders Equity
967(56)
2,0671,193
2,0891,408
• 06/13 to 11/13/08: Paranapanema’s non operating debt resolved with payment of R$1.5 billion to creditors/shareholders, 50% settled in cash and 50% by converting debt to common shares in a record time of only 5 months.
• Funds raised:
06/13/08: Private capital increase of R$ 514 million
08/20/08: 6th Convertible Debenture Issue of R$ 920 million for 30 months, 1 st series and 11 years, 2nd series
08/22/08: 1st Debenture Conversion, liquidating the 1st series
08/26/08: 2nd Debenture Conversion, with partial liquidation of the 2nd series
08/28/08: 3rd Debenture Conversion, with partial liquidation of 2nd series
11/13/08: 4th and final Debenture Conversion, with total liquidation
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
3939
Corporate Restructuring – Conversion of Preferred Shares to Common
•BDM approves 1st
voluntary conversion of preferred shares to common, with a view to registering on Novo Mercado
Sept/07
•BDM approves 2n
d
voluntary conversion of preferred shares to, with a view to registering on Novo Mercado, with 99.7% of common shares in free float
Nov/07•R
egistration on Level 1 of BM&F Bovespa
12/03/07
•Several capital increases in common shares arising from capitalizing debt, taking shares issued from 72 million to 313. 8 million
06/13 to 11/13/08
•BDM resolves to convert 0.3% of preferred shares to common, with the aim of migrating from Level 1 to Novo Mercado
07/08/09
•EGM approves conversion of 0,3% of preferred shares to common
07/27/09
•3 SPGM held, with two 2n
d
calls to approve conversion of preferred shares to common, without obtaining the quorum required by law, of 50% plus one vote (maximum was 27.5%)
07/27/09 to 09/29/09
•Filing with CVM of request for waiver of qualified quorum on account of the high degree of pulverization of the preferred shareholders
10/13/09
•CVM approves waiver request, stating that Company must hold 3 SPGM in order to approve the share conversion, of which the 3r
d
and last with an approval quorum of the majority of the shareholders present.
01/14/10
•1st SPGM held for converting preferred shares to common, which although installed did not obtain the approval quorum.
03/11/10
•2n
d SPGM to be held for converting preferred shares to common. In the event of an insufficient quorum, the 3r
d SPGM on the same date and will resolve on the conversion.
03/22/10
4040
Corporate Restructuring – Merger of Caraíba Metais S.A.
•BDM approves management proposal for technical studies on the corporate restructuring of Paranapanema and its subsidiaries, having hired the surveyors for the 3 reports required by legislation
10/07/09
•Disclosure of Relevant Fact about Board authorization for management to deepen the studies, and to focus primarily on merging Caraíba with Paranapanema, establishing the cut-off date for Caraíba shareholders with right of withdrawal at the book value of R$26.73 per share
10/07/09
•Disclosure of Relevant Fact about protocol of justification and takeover and the call notice for the takeover EGM, with the swap amount of 1 Caraíba share for 6.94 Paranapanema shares, rounded upwards, informing the swap amounts per report, the largest one having been chosen, being at economic value:•Economic
value report prepared by Deloitte
•Market price shareholders’ equity value report prepared by Deloitte
•Shareholders’ equity book value report prepared by E&Y
10/28/09
•Paranapanema moves its head office from Santo André (State of São Paulo) to Dias D´Ávila (State of Bahia) at the Camaçari industrial complex, maintaining the situation regarding federal taxes and funding for production and investment available to all companies located in the SUDENE region
11/13/09
•Notice to Shareholders about the takeover disclosed, with commencement of the 30–day right of withdrawal period, with a capital increase of R$21 million, rising to 317.7 million shares
11/13/09
4141
Corporate Restructuring Merges of Paranapanema S.A.
Justification for merges of Caraíba Metais and Eluma simplification of the equity structure of the companies controlled by
Paranapanema; reduction in administrative costs; substantial synergy gains, given the complementary nature of the product
ranges offered and the location of the manufacturing units; higher investment capacity in new product research and development; productivity gains arising from larger-scale production and distribution of
the products offered by the companies; more efficient corporate structure; greater speed of response in executing strategic, administrative and
commercial decisions; Caraíba shareholders will remain shareholders of a publicly quoted
company; and greater liquidity for the shares issued by Paranapanema.
42
Taxation Restructuring
Joining the Tax Debit Installment Payment Program
Law 11.941/09 and PM 470/09
4343
Taxation Restructuring
• Search for solutions for tax contingencies estimated at around R$1.58 billion for Paranapanema and its subsidiaries;
• 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;
• 09/30/09: in view of this subsequent event, the impact of joining was already factored in for the 3rd quarter of 2009;
• 11/30/09: cut-off date for companies to formally join the tax debit installment program;• 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.
4444
Joining the Tax Debit Installment Program
• The total amount of the adhesion shown below is distributed as follows: R$91.6 million will be paid in cash, of which R$18.2 million in 12 installments and
the remainder at sight;
The remaining balance will be paid by fiscal losses and negative social contribution tax base.
• The tax restructuring has placed the financial statements in a new and solid situation, reducing the costs of managing these tax liabilities, while providing a solution for all fiscal contingencies and radically changing the perception of Paranapanema’s consolidated risk and market value
Statement of Operations - R$ thousand Paranapanema Eluma Consolidated
Income tax and social contribution payable (638,445) (66,328) (704,773) Reversion of original provision 566,594 94,947 661,541 Deferred income tax and social contrubution 358,964 (11,557) 347,407
287,113 17,062 304,175
2009