2015.11.09 - corporative presentation
TRANSCRIPT
1
Corporate Presentation
2
This presentation may contain certain forward-looking statements and information relating to Paranapanema S.A. (the
“Company”) that reflect the current views and/or expectations of the Company and its management with respect to its
performance, business and future events. Forward-looking statements include, without limitation, any statement that may
predict, forecast, indicate or imply future results, performance or achievements, and may contain words and/or any other
phrases of similar meaning. Such statements are subject to a number of risks, uncertainties and assumptions. We caution you
that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations,
estimates and intentions expressed in this presentation.
In no event, neither the Company nor any of its subsidiaries, affiliates, directors, officers, agents or employees shall be liable
before any third party (including investors) for any investment or business decision made or action taken in reliance on the
information and statements contained in this presentation or for any consequential, special or similar damages.
This presentation and all its contents are proprietary information and may not be reproduced or otherwise disseminated in
whole or in part without the prior written consent of the Company. The information contained in this presentation is subject to
change from time to time without notice and the Company is under no obligation to keep you advised of such changes
Disclaimer
3
1
2 5
4
3
Company Overview
Financials
Copper Sector
Agenda
Business Model
PMAM at a glance
6 Attachments
4
1
2 5
4
3
Company Overview
Financials
Copper Sector
Agenda
Business Model
PMAM at a glance
6 Attachments
5
Key Figures
2014 Revenues R$4.7 billion
2014 Adj. EBITDA Margin 7.6%
Number of plants 3
Employees ~2,000
Brazilian market share (refined copper) 100%
Shareholding Structure
PMAM at a Glance
24%
17%
12%9%6%
11%
8%
13%
Individuals
Locals
Foreign
Figures in kt refer to annual capacityYTD September 2015
Cathodes (280 kt) – premium quality (LME certified)
Brands: CbM, CbM P
Destination: Worldwide
Primary Copper(35-45%)
Rods (220 kt) Wires (80 kt)Tubes (35 kt) Rolled (26 kt) Bars (12 kt) Fittings (4 kt)
Destination: Worldwide
Copper Products
(50-55%)
Sulfuric Acid (560 kt) Anodic Slimes (540 kt)Iron Silicate (396 kt)
Destination: Anodic Slimes worldwide and Sulfuric Acid and Iron Silicate Northeast of Brazil
By-Products
(5-15%)
Business Segments*
Largest Brazilian non-integrated producer of refined copper, rods, wires, rolled, bars, tubes and fittings
2015 YTD Revenues R$2.9 billion
2015 YTD Adj. EBITDA Margin 7.0%
6
2013- 2018
PMA Transformation – Time LineFocus on transformation of copper and increased industrial availability
Number of initiatives to ensure greater industrial availability, operating leverage, profitability and consequent results stability
2000-20121960 - 2000
Constitution in 1961 – heavy
construction
IPO in 1971
Pension funds become major
shareholders (1996)
Concentration in non-ferrous
(largest copper producer in
Brazil)
Processes reengineering
60% of the leadership replaced, including CEO (commodities sector)
PMA 2018 Project
Construction of tube plant
New Cast&Roll plant launched
Smelter plant recovery (Dias d’Ávila)
Risk and financial management
Commercial strategy in transformation
Assets base reorganization
Entrance to Novo Mercado
(BM&FBOVESPA) (2012)
Investment plan for expansion
and modernization (R$ 702
million)
Foundation and Expansion Focus on Copper Operational Efficiency and Risk Management
7
Scheduled maintenance for recovery of smelter
New Sulfuric Acid Unit (UAS) Maximizing Cast & Roll New straight tube plant Inauguration of Trefila IV Closed Capuava plant (savings of R$9
million/year) Renegotiation of logistic contracts
(eg: transportation of copper concentrate, with economy of US$5 million/year)
CHESF renewal (energy supply assurance)
Redesign of commercial structure Implementation of a market
intelligence cell Developing relationships in foreign
markets ( focus on the Americas) Credit policy review SKUs review (more than 2,000 items) Protection and growth of liquidity Reduction of recurring expenses by
17% (2014 x 2013) Renegotiation of contracts with
suppliers on several fronts
Risk policy Debt qualification Review and better understanding of
legal proceedings (eg: reversal drawback process)
60 % of the management renewed with market professionals
Board of Directors – Independent Chairman
Advisory Committees supporting the Board of Directors: Audit Committee Finance, Risks and
Contingencies Committee Personnel and Sustainability
Management Committee
Operational Commercial and SG&AFinancial Management and
Corporate Governance
Key Action PointsDeep changes in the Company’s structures
Comprehensive view of its markets, operational efficiency, financial management and reduction of costs and expenses
Increased industrial availability and cost control
Intelligence to diversify between customers and clients and
rationalization of resources
Focus on financial management being driven by a high corporate
governance
8
Global Supplier of Refined Copper & ProductsMarket intelligence to expand customer base
Exceptional quality, large production and global supply capacity
Increase in Rods capacity (80 kt): new drawing mill inaugurated in 2015
Close to maximum industrial efficiency, reducing destocking risks:
— capability to import anodes / cathode to guarantee supply
Commercial strategy gaining power, with penetration into new markets growing constantly
Developing relationships in foreign markets
North America
Asia
Australia/Oceania
Europe
Africa
Latin America
Central America
PMA has 3 processing plants:
• Dias D’Ávila – (BA)
• Utinga – Santo André (SP)
• Serra – (ES)
9
Actions on Commercial FrontFocus on Market intelligence
% Revenues
Domestic Market (MI) Export Market (ME)
3Q14
PrimaryCopper
36%
Copper Products
54%
2Q15 3Q15
PrimaryCopper
30%
Copper Products
57%
By-products13%
By-products10%
PrimaryCopper
46%
Copper Products
46%
By-products8%
39%
61%
80%
20%
31%
69%
MI ME MI ME MI ME
12%
88%
68%
32%37%
63%
MI ME MI ME MI ME
9%
91%
68%
32%
48%52%
MI ME MI ME MI ME
Accurate commercial management using Premium Matrix (different margins between products and destinations), maximized result of industrial flexibility
10
Operational efficiency and higher ROIC will position PMA as a dividend play
Risk management
Increasing Marginsand ROIC
Discipline in capital usage
Capacity utilization + costs reduction
Relevant market share in a region with protected premiums
Focus on operational and commercial efficiency
Reduce capital applied to business, especially inventories
Metal and cash flow hedges strongly reducing volatility on results
Equity Story: Copper Fixed Income
11
Committed in working for value creation to shareholders
Why PMAM?
Sole Brazilian smelter and refiner, with strong positioning in the value chain
Diversification between products and markets protects margins
Exceptional quality, large production and global supply capacity
Recent organizational emphasizes corporate governance
New management has shifted focus to increase ROIC
Current focus is to maximize capacity utilization, reduce costs and improve risk management seeking sustainable and improved results
12
Expected Results in Coming Quarters
Maintenance will allow greater volume of industrial production (higher dilution of costs)
Commercial strategy gaining power, with penetration into new markets growing constantly
Reduction of costs and expenses not fully captured yet
Appreciation of the US dollar affecting the coming quarters
Improvement of risk management policy
Monetization of non-operating assets
Lengthening debt profile
Important actions being implemented that bear fruit in the short and long term
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Company Overview
Financials
Copper Sector
Agenda
Business Model
PMAM at a glance
6 Attachments
14
Co
mp
etit
ors
Domestic:- Ibrame - Prysmian
Foreign:- Codelco (Chile)- ILO (Peru)- Aurubis (Germany)- Antofagasta (Chile)- Glencore (UK/Switzerland)
Domestic:- Termomecânica- Cecil- Ibrame- Plasinco
Foreign:- Nacobre and IUSA (Mexico)- Ceper and Indeco (Peru) - Nexans (Canada) - Aurubis (Germany)
Domestic:- Termomecânica
Foreign:- Aurubis (Germany)
Pro
du
cts
Copper Rod WireCathodes
Rolled
Copper Products
Semi-Finished Finished
Primary Copper (smelting and refining)
By-ProductsSemi-Finished
Copper Products
Finished
Industrial Tubes Bars and Profiles
Tubes Connections Wires
Anodic Slime
Sulfuric Acid
Iron Silicate
Domestic:- Galvani- Vale
Foreign:- Aurubis (Germany)- Glencore (UK/Switzerland)
Company OverviewBusiness segments and competition overview
15
49%
27%
9%
4%3%
10%
Argentina
Japan
USA
UKOthers
International Trading
Companies
32%
27%
7%
7%
6%
5%
3%2%
12%
Eletroelectronics
CivilConstruction
Enamelled
Re-sale
Energy
Mecanic andMetallurgy
CoolingFertilizer
Others
2014 Revenue Per Segment and Markets Revenue Per Sector
Exports Per Region
Company OverviewRevenue breakdown per segment
Segment diversification and strong positioning reduces impacts from markets fluctuations
Primary Copper (refining - cathodes)– 100% of refined copper in Brazil
Copper Products – B2B and B2C (semi-finished and finished products)– Different types of sectors and clients
By-products (B2B products)– Very low associated cost
44%
56%
78%
22%
35%
65%
MI ME MI ME MI ME
PrimaryCopper
34%
Copper Products
58%
By-products8%
Domestic Market (MI) Export Market (ME)
16
Production plants
Distribution center
Paranapanema has 3 processing plants and one distribution center
Proximity between facilities and main customers (South and Southeast regions, country’s highest GDPs) is a strategic advantage
Imported copper concentrate arrives at Aratú Port (Bahia), 24 km distant from the plant
Estimated 62% market share in scrap origination all over Brazil
Sulfuric acid sales (by-product) within a 50km radius
Copper Concentrate Origin
Utinga – Santo André (SP)
Production of copper and brass bars, wires, rolled,
tubes and bronze
Serra – (ES)Production of copper and
bronze fittings for civil construction
Dias D’Ávila – (BA)Smelting and refining of
primary copper, cathodes, rods, drawn wire and by-
products
ChileMain supplier
of copper concentrate
PeruSupplier of
copper concentrate
Production Facilities and Raw Materials Supply
Company OverviewWell located facilities: smart logistics and arbitrage between domestic and export sales
Casting
Refining
Electrolysis
Lamination
Stretching
Copper concentrate
(Third-party raw materials)
Estimated time between purchasing concentrate and
delivering products
1 m
on
th1
0
Day
s1
0
Day
s2
2
day
s1
0
Day
s1
0
Day
s
Total cycle: 90 days
Production Timing
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Company Overview
Financials
Copper Sector
Agenda
Business Model
PMAM at a glance
6 Attachments
18
Risk Management
- R$ 5 bi
- R$ 4 bi
Tota
l Re
ven
ues
Met
al R
eve
nu
es
TC/R
C +
P
rem
ium
s +
By-
pro
du
cts
Metal C
ost
Financial + D&ACT* +SG&A
EBTEBITDA
*CT: transformation cost
Risk Management Premium Management Costs Control
Mitigate FX and commodity volatility impact on results— Hedge of metal exposure— Strict dollar-denominated cash flow
hedge Well structured governance, policies and
controls
TC/RC Optimization of premium matrix Price premiums denominated in US
dollars Premiums not linked to LME quotes Arbitrage between products to maximize
premiums
Implementation of Zero Base Budgeting Leveraging on improved technologies Processes/plants consolidation Increasing operational leverage More efficient funding structure Transformation costs mostly in Reais
(95%)
Business ModelPremium management and cost control aligned with efficient risk management
USD
USD USD
BRL
USD
19
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4
3
Company Overview
Financials
Copper Sector
Agenda
Business Model
PMAM at a glance
6 Attachments
20
Sales Volume*(K t)
Production stoppages during 1H14 (maintenance)
5% recovery in production volume during 2H14
* Sales volume net of intra-operating eliminations
Production Volume(K t)
Sustainable trend already clear, despite production and sales impacted by domestic environment and production stoppages
244
366
305
2012 2013 2014
246
330
267
2012 2013 2014
Net Revenues(R$ M)
4,026
5,549
4,734
2012 2013 2014
Better commercial arbitrage opportunity between products and markets than in 2013
Lower sales volume and LME quote in 2014 impacted Revenues
FinancialsProduction, Sales and Revenues
21
Transformation cost down 5% even considering 2014 inflation
Gross Profit and Gross Margin(R$ M)
Margin gain: higher operating efficiency and Transformation Cost reduction
COGS(R$ M)
184
395 384
4.6%
7.1%
8.1%
-01%
00%
01%
02%
03%
04%
05%
06%
07%
08%
,0
50,0
100,0
150,0
200,0
250,0
300,0
350,0
400,0
450,0
2012 2013 2014
Gross Profit Gross Margin
3,361
4,570
3,798
480
584
5533,842
5,154
4,350
2012 2013 2014
Metal Cost Transformation Cost
-5%
Efforts to reduce Transformation Cost resulted in Gross Margin gain, despite decrease in Net Revenues
FinancialsCOGS and Gross Profit
22
Operating efficiency, costs reduction and hedge accounting are reflected in EBITDA and Net Profit
20 times growth
2015: Accumulated Losses could be fully compensated
Adjusted EBITDA (R$ M)
Recurring EBITDA Margin gain
Net Profit(R$ M)
20x higher
(206)
6
124
2012 2013 2014
125
332358
3.1%
6.0%
7.6%
2012 2013 2014
EBITDA EBITDA Margin
FinancialsAdjusted EBITDA and Net Profit
23
Efforts in reducing expenses and risk management policy contributed to results recovery
Financial Result(R$ M)
Hedge Accounting adoption already presented relevant effect in 2014 Efforts in expenses review resulted in 15% decrease in recurring expenses
Zero Base Budgeting has already allowed further reductions
Recurring Expenses(R$ M)
-15%
138
168
143
2012 2013 2014
(71)
(163)
22
2012 2013 2014
FinancialsExpenses and Financial Result
24
-261
-482
604
2012 2013 2014
Free Cash Flow (R$ M)
Debt Maturity Schedule (R$ M) Net Debt/LTM Adjusted EBITDA
Cash & Debt (R$ M)
FinancialsImproving Balance Sheet and Free Cash Flow
1,079 999
1,590
174
304 70 42
Cash 2015 2016 2017 2018 2019 Gross Debt
Cash = ~2 years of amortization
1,362 1,457
1,796
2,095
2,919
325 274
656 869
1,336
133 103 204 280 336
988 1,048 1,079 1,127 1,322
-2.000
-1.500
-1.000
-500
-
500
1.00 0
-
500
1.00 0
1.50 0
2.00 0
2.50 0
3.00 0
3.50 0
3Q14 4Q14 1Q15 2Q15 3Q15
Gross Debt (R$) Net Debt (R$) Net Debt (US$) Cash
1.5x 1.5x1.0x
0.8x
1.6x
2.5x
3.4x
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15
25
FinancialsROIC - PMA vs. Peer Group
PMA’s ROIC greater than peer group, with growth in last 10 quarters
ROIC Peer Group 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15
Paranapanema 3.8% 4.9% 8.9% 8.9% 7.9% 8.3% 7.6% 9.9% 12.7% 9.8% 11.9%
Aurubis 5.8% -2.9% -4.5% -6.7% -9.1% 2.8% 2.4% 5.2% 9.7% 8.0%
Ferbasa 5.1% 4.5% 3.9% 5.1% 6.3% 7.0% 6.1% 4.9% 5.9% 8.2%
Magnesita 8.6% 8.9% 8.1% 9.0% 8.0% 7.0% 7.5% 3.5% 4.1% 4.0%
CSN -0.5% 5.4% 6.7% 8.4% 10.2% 11.9% 11.2% 8.1% 6.3% 3.9%
Usiminas -1.4% -0.8% 0.6% 1.8% 3.0% 3.2% 2.5% 1.8% 0.8% -3.7%
Gerdau 4.6% 4.4% 5.0% 5.7% 6.2% 5.9% 5.3% 5.6% 5.1% 4.9%
Vale 9.2% 8.9% 10.3% 11.5% 10.9% 10.7% 8.5% 5.7% 4.0% 2.9%
Peer Group Average 4.5% 4.0% 4.3% 5.0% 5.1% 6.9% 6.2% 4.9% 5.1% 4.0%
ROIC potential growth :
Operating Result (NOPAT): higher capacity utilization (higher dilution of fixed costs)
Invested Capital:
— Working Capital management
— Cash is King Program: monetization of non-operating assets
Note: Considers 12 last months prior to the measurement date
26
FinancialsQuarterly overview
In R$ thd, except otherwise
stated3Q14 3Q15 ∆ % 2Q15 ∆ %
Sales Volume (ton) 70,784 77,323 9% 65,411 18%
Domestic Market 35,335 27,253 -23% 28,934 -6%
Export Market 21,722 43,878 102% 28,044 56%
Toll 13,727 6,193 -55% 8,433 -27%
Net Revenues 1,238,165 1,537,875 24% 1,167,872 32%
Domestic Market 711,157 588,363 -17% 530,523 11%
Export Market 491,960 932,035 89% 616,334 51%
Toll 35,047 17,477 -50% 21,016 -17%
Cost of Goods Sold (COGS) 1,132,930 1,354,821 20% 1,162,660 17%
Gross Profit 105,235 183,054 74% 5,212 3412%
% Revenues 8.5% 11.9% 3.4 p.p. 0.4% 11.5 p.p.
Operating Expenses (41,159) (81,377) 98% (41,872) 94%
Financial Result 112,047 151,270 35% (96,928) -256%
Taxes (45,210) (66,567) 47% 25,448 -362%
Net Result 130,913 186,380 42% (108,140) -272%
% Revenues 10.6% 12.1% 1.5 p.p. -9.3% 21.4 p.p.
Adjusted EBITDA 109,204 160,393 47% 4,431 3520%
% Revenues 8.8% 10.4% 1.6 p.p. 0.4% 10.0 p.p.
27
1
2 5
4
3
Company Overview
Financials
Copper Sector
Agenda
Business Model
PMAM at a glance
6 Attachments
28
Copper Market Outlook – Key Factors
0
5
10
15
20
25
30
35
40
1992 1997 2002 2007 2012 2017 2022 2027
Possible Projects
Probable Projects
Highly Probable Projects
Base Case Production Capability
Primary Demand
Global copper imbalance to sustain high TC/RCs that together with efficient risk management should continue to benefit margins
Global Copper Production and Primary Demand (Mt)1
TC/RCs (US$/t and R$/t) 2 – Quoted Benchmark
1 Source: Wood Mackenzie March 2015 2TC/RC = Treatment Charge/Refining Charge (discount miners give to smelters to transform concentrate in refined copper)3 Bloomberg, Company data
Replacement cost
Comparable smelter valuations Year Country Capacity (Kt) Costs (US$ M) Cost/t
Jinjian (Tongling) 2008 China 40,8 66 1,618
Nchanga (Konkola) 2010 Zambia 300 450 1,500
Yunnan 2010 China 100 155 1,550
Tuticorin (Sterlite) 2012 India 400 500 1,250
Jinchuan Copper (phase 1) 2014 China 400 2,000 5,000
First Quantum Sentinel Smelter 2015 Zambia 300 690 2,300
Freeport / PT Aneka Tambang(estimate)
2015 Indonesia 300 2,200 7,333
Average (in US$) 866 2,936
Country Capacity (Kt)Market Cap
(US$ M)* Cost/t
Paranapanema Brazil 280 165 591
-
5.000
10.000
15.000
20.000
25.000
30.000
35.000
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
20
20
20
22
20
24
20
26
20
28
20
30
20
32
20
34
OthersZambiaSpainMexicoGermanyPeruSouth KoreaKazakhstanAustraliaPolandCanadaRussiaUnited StatesChinaJapanChile
Evolution of Smelter Capacity by Country (kt)1
* Market Cap on 09/30/2015
254 310 352 388 510610
447 519 688
838
1,199
2,373
2010 2011 2012 2013 2014 2015 YTD
US$/t R$/t
29
Copper Market Outlook – Key Factors
0
5
10
15
20
25
30
35
40
1992 1997 2002 2007 2012 2017 2022 2027
Possible Projects
Probable Projects
Highly Probable Projects
Base Case Production Capability
Primary Demand
Global copper imbalance to sustain high TC/RCs that together with efficient risk management should continue to benefit margins
Global Copper Production and Primary Demand (Mt)1
TC/RCs (US$/t and R$/t) 2 – Quoted Benchmark
1 Source: Wood Mackenzie March 2015 2TC/RC = Treatment Charge/Refining Charge (discount miners give to smelters to transform concentrate in refined copper)3 Bloomberg, Company data
Replacement cost
Comparable smelter valuations Year Country Capacity (Kt) Costs (US$ M) Cost/t
Jinjian (Tongling) 2008 China 40,8 66 1,618
Nchanga (Konkola) 2010 Zambia 300 450 1,500
Yunnan 2010 China 100 155 1,550
Tuticorin (Sterlite) 2012 India 400 500 1,250
Jinchuan Copper (phase 1) 2014 China 400 2,000 5,000
First Quantum Sentinel Smelter 2015 Zambia 300 690 2,300
Freeport / PT Aneka Tambang(estimate)
2015 Indonesia 300 2,200 7,333
Average (in US$) 866 2,936
Country Capacity (Kt)Market Cap
(US$ M)* Cost/t
Paranapanema Brazil 280 165 591
-
5.000
10.000
15.000
20.000
25.000
30.000
35.000
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
20
20
20
22
20
24
20
26
20
28
20
30
20
32
20
34
OthersZambiaSpainMexicoGermanyPeruSouth KoreaKazakhstanAustraliaPolandCanadaRussiaUnited StatesChinaJapanChile
Evolution of Smelter Capacity by Country (kt)1
* Market Cap on 09/30/2015
254 310 352 388 510610
447 519 688
838
1,199
2,373
2010 2011 2012 2013 2014 2015 YTD
US$/t R$/t
30
Malleable & Ductile
Corrosion Resistant,
Machinable & Formable
Excellent Conductor &
Heat Transferer
Copper Key Physical Properties
Copper’s benefits extend beyond mechanical characteristics:
- Essential to the health of plants, animal and humans. Deficiencies, as well as excesses, can be detrimental to health
- Recycling: copper is one of the most recycled off all metals. Virtually all products made from copper can be recycled and recycled copper loses none of its chemical or physical properties
- Energy Efficiency: copper can improve the efficiency of energy production and distribution systems
- Antimicrobial Properties: copper and copper alloy products can be used to eliminate pathogens and reduce the spread of diseases
Copper SectorCopper is the base of society’s infrastructure and is present everywhere
31
Tubes and accessories, gas heating, bars,
switch, sockets, electric energy
wires and cables
Civil Construction
Electric vehicles,
brake pads, radiators and heat diffusors
Automotive Sector
Copper-nickel alloys to prevent corrosion
Naval Construction
Water and gas tubes, electronic connectors, heat diffusors, electric
engines and cables
Industry
Wires and connectors
Telecommunications
Circuits, wires and
connectors
Eletroelectronics
Copper alloys used in buttons, zipper, buckle,
jewelry, surgical instruments and
military applications
Dressing, Decoration and Specialties
Wires and energy cables, solar panels,
wind turbine and ethanol production
Energy
Copper SectorCopper is widely used in all sectors
32
1.0
2.5
0.3
1.4
2.2
2.72.9
3.1
2012 2013 2014 2015E 2016E 2017E 2018E 2019E
7.7 7.77.4
7.1 6.8 6.6 6.4 6.3
2012 2013 2014 2015E 2016E 2017E 2018E 2019E
3.4 3.3 3.33.5
3.7
4.1 4.0 4.0
2012 2013 2014 2015E 2016E 2017E 2018E 2019E
Global GDP Growth (%) China GDP Growth (%) Brazil GDP Growth (%)
Global economy with sustainable growth in coming years will support copper demand
Despite Chinese deceleration, growth rates are still very high, while Brazil presents a high potential growing market
Source: IMF
Copper SectorGlobal GDP drives copper demand
33
Concentrate Production (Mt) Smelter Production (Mt) Refined Consumption (Mt)
China is the most important player accounting for 44% of global consumption
China also holds a disproportionate amount of global stocks
Strong growth of copper mining supply in 2013/2014 puts award pressure leading to higher TC/RC (large discount to
smelters)
Expected growth in refined consumption will surpass growth in production, supporting higher premiums
Refined copper prices to come under downward pressure over the next few years
Source: WoodMackenzie, December 2014
11.1 10.9 11.0 11.4 11.2 11.6
4.3 4.7 5.3 6.0 7.1 7.7
2011 2012 2013 2014 2015E 2016E
15.4 15.6 16.317.5 18.3
19.3
14.8 15.2 16.5 17.0 17.7 18.7
1.4 1.51.6 1.7 1.7
1.8
2011 2012 2013 2014 2015E 2016E
16.2 16.818.1
18.7 19.520.5
11.8 11.4 11.4 11.9 12.3 12.6
7.8 8.2 9.2 9.9 10.3 10.7
2011 2012 2013 2014 2015E 2016E
19.6 19.620.6 21.8 22.6
23.3
RoW China RoW China RoW China
Copper SectorProduction, refining and consumption drive copper price
34Source: WoodMackenzie, LME
Copper SectorRecent drop in copper prices caused by macro scenario and oil prices
5.000
5.500
6.000
6.500
7.000
7.500
Improving economic sentiment and declining LME stocks boost prices
Sharp price fall leads to
scrap vacuum
Weak manufacturing data and credit issues
in China
SRB buying
Quingdao warehouse
fraud uncovered
Generally positive macro-indicators and falling
stocks supports prices
Prices slides as global
growth fears escalate as oil price tumbles
Strong USD pressuring
commodities
LME
US$
/t
Increasing concerns over US and China
economies
35
0
5
10
15
20
25
30
35
2000 2005 2010 2015E 2020E 2025E 2030E 2035E
mill
ion
to
nes
North America Europe China Other Asia Row
0
5
10
15
20
25
30
35
40
45
2000 2005 2010 2015E 2020E 2025E 2030E 2035E
mill
ion
to
nn
es
Construction Electrical Network Industrial Machinery Transport Consumer & general
Wire rod74%
Billet13%
Cake/Slab13%
Electrical conductivity
59%
Heat transfer
9%
Aesthetics/malleable
28%
Signal transfer
4%
Refined Consumption by Region Total Consumption by Industry Sector
By First Use By Market Sector By Property
Construction30%
Electrical Network
19%Industrial
Machinery11%
Transport12%
Consumer & general
28%
Source: WoodMackenzie, December 2014
Copper SectorSustainable global copper consumption growth
36
China (kt) Brazil (kt)
0
5000
10000
15000
20000
25000
30000
35000
1960 1970 1980 1990 2000 2010 2020 2030
1970 - 19793.4% growth p.a.
1960 - 19694.7% growth p.a.
1980 - 19891.8% growth p.a.
1990 - 19993% growth p.a.
2000 - 20091.5% growth p.a.
2010 - 20193% growth p.a.
2020 - 20351.5% growth p.a.
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
1960 1970 1980 1990 2000 2010 2020 2030
1970 - 19798% growth p.a.
1960 - 19693.5% growth p.a.
1980 - 19895.9% growth p.a.
1990 - 19999.6% growth p.a.
2000 - 200915% growth p.a.
2010 - 20195.7% growth p.a.
2020 - 20352% growth p.a.
0
100
200
300
400
500
600
700
800
900
1960 1970 1980 1990 2000 2010 2020 2030
1970 - 197913.1% growth p.a.
1960 - 19698.7% growth p.a.
1980 - 1989-3% contraction p.a.
1990 - 19999.2% growth p.a.
2000 - 2009-0.5% contraction p.a.
2010 - 20192.2% growth p.a.
2020 - 20352.4% growth p.a.
Global (kt)
Global refined copper demand still driven by China (44% of global demand in 2013 – expected 48% in 2020, a 7% CAGR)
Main drivers:— Global GDP growth— Emerging markets growth— Infrastructure and consumer goods sectors— Use of new technologies
Source: WoodMackenzie, December 2014
Copper SectorChina still is the main driver of global copper consumption
37
19.7 20.2 20.822.1
23.024.0 24.3 24.4
2011 2012 2013 2014 2015E 2016E 2017E 2018E
Global Refined Production (Mt) Global Refined Consumption (Mt)
19.6 19.620.6
21.822.6 23.3 23.9 24.4
2011 2012 2013 2014 2015E 2016E 2017E 2018E
Consumption to outpace production in next years, supporting current premium levels
Source: WoodMackenzie, December 2014
Copper SectorRefined copper imbalance continues to benefit smelters
38Source: WoodMackenzie, December 2014
0.6
2.3
0.7
3.6
0.2
13.6
0.7
0.1+2.7
-0.4-0.6
+1.1
-0.4
+0.6
-2.9
+0.4
Demand
Surplus
Deficit
Cathode deficit in China and other regions create exports opportunities, also benefited by USD appreciation
Global Cathode Demand per Region - Mt
2014e demand: 21.8 million t2014e output: 22.1 million t
Copper SectorRegional imbalance creates interesting export opportunities
39
212
175
257
238
280 280
2011 2012 2013 2014 2015E 2016E
214221
269
294
356377
2011 2012 2013 2014 2015E 2016E
452
395419
442 453474
2011 2012 2013 2014 2015E 2016E
Concentrate Production (Kt) Smelter Production (Kt) Refined Consumption (Kt)
Refined consumption still expected to increase despite economic slowdown
Copper consumption growth in Brazil is expected to resume by:
— recovery in domestic industrial production (end of “Port War”)
— growth in primary consumption and Real Estate sectors
— investments in ground transportation, electricity and infrastructure
Paranapanema is the only Brazilian smelter with 100% refined copper domestic production
Source: WoodMackenzie, December 2014
Copper SectorBrazilian copper industry follows the global path, despite consumption affected by economic slowdown
40
1
2
4
3
Company Overview
Financials
Copper Sector
Agenda
Business Model
PMAM at a glance
6 Attachments
5
41
Attachment I – Income Statement
[BRL thousand] 3Q14 3Q15 Change % 2Q15 Change %
Net Revenues 1,238,165 1,537,875 24% 1,167,872 32%
Domestic Market 711,157 588,363 -17% 530,523 11%
Export Market 491,960 932,035 89% 616,334 51%
Transformation/Toll 35,047 17,477 -50% 21,016 -17%
Cost of Goods Sold (1,132,930) (1,354,821) 20% (1,162,660) 17%
Gross Profit 105,235 183,054 74% 5,212 3412%
% of Revenues 8.5% 11.9% 3.4 p.p. 0.4% 11.5 p.p.
Sales Expenses (7,201) (11,010) 53% (8,003) 38%
General and Administrative (5,149) (18,523) 260% (23,624) -22%
Management Compensation (1,562) (1,852) 19% (1,661) 11%
Employee Profit Sharing (5,316) (13,761) 159% (2,412) 471%
Other Operating, net (21,931) (36,231) 65% (6,172) 487%
EBIT 64,076 101,677 59% (36,660) -377%
% of Revenues 5.2% 6.6% 1.4 p.p. -3.1% 9.7 p.p.
Financial Result 112,047 151,270 35% (96,928) -256%
Financial Income 245,879 840,273 242% 120,087 600%
Financial Expenses (133,832) (689,003) 415% (217,015) 217%
Taxes (45,210) (66,567) 47% 25,448 -362%
IR and CSLL – Current 327 (5,570) -1803% 15,666 -136%
IR and CSLL – Deferred (45,537) (60,997) 34% 9,782 -724%
Net Result 130,913 186,380 42% (108,140) -272%
% of Revenues 10.6% 12.1% 1.5 p.p. -9.3% 21.4 p.p.
Adjusted EBITDA 109,204 160,393 47% 4,431 3520%
% of Revenues 8.8% 10.4% 1.6 p.p. 0.4% 10.0 p.p.
42
Attachment II – Balance Sheet
[BRL thousand] 3Q14 3Q15 ∆ % 2Q15
Assets 4,755,386 5,724,574 20% 5,209,975
Current 2,938,173 3,847,263 31% 3,251,451
Cash and cash equivalents 176,975 687,814 289% 438,508
Financial Investments 741,946 609,309 -18% 612,328
Accounts receivable 391,966 655,795 67% 479,281
Inventories 1,386,153 1,464,696 6% 1,433,048
Tax recoverable 171,277 142,769 -17% 150,942
Anticipated expenses 6,129 11,696 91% 10,965
Derivatives 48,121 260,980 442% 99,831
Other current assets 15,606 14,204 -9% 26,548
Non-current 1,817,213 1,877,311 3% 1,958,524
Financial investments at fair value 69,553 24,446 -65% 75,701
Accounts receivable 1,966 3,077 57% 3,373
Deferred taxes 93,545 47,933 -49% 108,929
Tax recoverable 177,417 260,621 47% 282,720
Legal deposits 58,336 49,367 -15% 49,708
Assets for sale 9,535 112,195 1077% 102,248
Other non-current assets 65,489 109,550 67% 80,842
Other investments 10,548 646 -94% 10,548
Fixed assets 1,326,315 1,260,597 -5% 1,235,467
Intangible 4,509 8,879 97% 8,988
[BRL thousand] 3Q14 3Q15 ∆ % 2Q15
Liabilities 3,466,022 5,483,068 58% 4,164,343
Current 2,710,824 4,133,386 52% 3,271,930
Local suppliers 97,391 73,935 -24% 77,753
Foreign suppliers 1,646,712 1,822,806 11% 1,487,480
Salaries and social charges 43,035 54,706 27% 36,668
Tax payable 15,196 30,571 101% 8,588
Loans and financings 678,522 1,423,864 110% 1,302,987
Derivatives 116,275 355,869 206% 100,230
Other accounts payable 113,693 371,635 227% 258,224
Non-current 755,198 1,349,682 79% 892,413
Suppliers 3,731 1,142 -69% 1,429
Loans and financings 567,096 1,138,951 101% 691,839
Contingencies provisions 183,956 208,766 13% 199,091
Tax payable 415 823 98% 54
Shareholders’ equity 1,289,364 241,506 -81% 1,045,632
Paid in capital 1,382,990 1,382,990 0% 1,382,990
Capital reserves 26,452 (741) -103% (741)
Revaluation reserves 250,700 238,895 -5% 241,762
Profit reserves 14,294 0 n.a. 0
Accumulated profit (losses) (168,956) 116,423 -169% (72,824)
Equity valuation adjustments (216,116) (1,496,061) 592% (505,555)
Total Liabilities + Shareholders’ Equity 4,755,386 5,724,574 20% 5,209,975
43
Attachment I – Cash Flow
[BRL thousand] 2Q15 3Q15 ∆ %
Cash flow from operating activities (393,847) (133,082) -66%
Profit before taxes (133,588) 252,947 -289%
Adjustments to reconcile net income to cash flow from operating activities
Residual value of asset write-off 2,104 289 -86%
Depreciation and amortization 28,957 29,742 3%
Provision for judicial losses 1,239 17,953 1349%
(Reversion)/Provision recoverable value estimated loss (2,294) 3,031 -232%
Residual value of asset write-off (158) (44) -72%
Long term financial expenses (57,839) (131,199) 127%
Present value adjustment - receivables and suppliers 3,393 814 -76%
Change in operating assets and liabilities 72,857 (180,475) -348%
Accounts receivable (29,617) (31,648) 7%
Inventories (45,426) 30,272 -167%
Tax recoverable 1,580 (731) -146%
Prepaid expenses (602) 385 -164%
Legal deposits 5,265 (425,735) -8186%
Derivatives 32,124 (16,310) -151%
Other assets (195,721) (78,318) -60%
Accounts payable (4,912) 10,160 -307%
Current income tax and social contribution - 7,022 n.a.
Legal deposits additions and reductions (7,562) (8,278) 9%
Payroll and social charges (6,203) 18,038 -391%
Derivatives (105,875) 255,639 -341%
Other liabilities 48,431 113,409 134%
[BRL thousand] 2Q15 3Q15 ∆ %
Cash flow from investing activities Financial investments 188,565 (1,200) -101%
Resources from the incorporation of subsidiaries 244,937 54,274 -78%
Fixed assets and intangible additions (56,372) (55,474) -2%
Cash flow from financing activities 497,704 383,588 -23%
Raise of loans and financing 807,130 806,897 0%
Payment of loans and financing (309,426) (423,309) 37%
Increase (decrease) of cash and cash equivalents 292,422 249,306 -15%
Cash and cash equivalents at the beginning of the period 146,086 438,508 200%
Cash and cash equivalents at the end of the period 438,508 687,814 57%
44
IR Contacts:
[email protected]+55 11 2199-7914/7945
http://ri.paranapanema.com.br
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