Transcript 1. Market Pulp - Investor relations | SKF

Sustainable growth with value
creation and solid returns
Jan - Mar 2005
1
Integrated Businesses: Overview
Focus on two main businesses:
Market Pulp and Paper (P&W and Specialty)
Production Capacities (per product)
( x1000 tons)
Paper production capacityIQ05
(x1000 tons)
1400
1400
1150(1)
Uncoated
70%
445kt
850
655
2002
Eucalyptus Pulp
655
2003
610
2004
635
Coated
16%
100kt
2005
3%
Specialty
Papers
3%
20kt
Chemical
11%
70kt
P&W and Specialty Papers
* Not including 75kt off-machine coater
(1) Learning curve
2
Integrated Businesses: Overview
Product Mix (Sales Volume)
Value Mix (Revenue)
IQ05 - (US$251M)
IQ05 - (350k tons)
5%
54%
3%
14%
17%
37%
27%
14%
15%
13%
2004 (1,459k tons)
2004 - (US$1,010M)
5%
3%
20%
Uncoated Paper - Domestic
16%
35%
Coated/chemical paper - Domestic
53%
Uncoated / coated paper - Exports
14%
28%
14%
12%
Pulp - Exports
Pulp - Domestic
3
Integrated Businesses: Overview
Vertically-integrated operations
Forestry Data (Dec 04)
Total Area: 258,000ha
Planted:
134,000ha
Luiz Antonio
Wood
Mogi
Pulp
Specialty Papers
20k tpa
Pulp
Wood
Uncoated Papers
340k tpa
Jacareí
Chemical Papers 70k tpa
Coated Papers 100k tpa
Piracicaba
Uncoated Papers 105k tpa
Market Pulp
900k tpa
KSR Distribution
Direct Sales
Branches
Private Terminal
Santos Port
Warehouse
Sales Office
4
Pulp Business: Global Player
• Global scale production - 1.4 million tons
• Sales volume grew 81% in 2003 and another 39% in 2004
• Average pulp prices increased 1% in 2004 vs. 2003 and 11% in IQ05 vs. 1Q04
• Production cost competitiveness
• Growth opportunities, both organically and through M&A
• 2020 Outlook: 4 million tons of market pulp over the next 15 years (CAGR
11% p.a.)
Pulp price and sales evolution
$650
$489
$495
$457
$507
$518
$550
316
341
343
334
607
844
826*
1999
2000
2001
2002
2003
2004
IQ05
Pulp sales ktons
Source: VCP
Pulp list price BEKP (CIF Europe) US$/ton
* Annualized
5
Pulp Business: Global Player
• Exporter profile (lower exposure to macroeconomic fluctuations)
• Commercial alliances with strategic customers
• Approximately 95% of sales volume is linked to long-term contracts at market prices
• China accounts for 2/3 of sales to Asia and is expected to continue to be a an important
pulp purchaser
Pulp Sales Volume
(IQ05 – 206,4 ktons)
Pulp Sales Volume (IQ05 - 206,4 ktons)
Europe
59%
US$600
Domestic
Market
9%
9%
91%
Exports
91%
North A mer ica
11%
US$635
A sia
30%
US$570
Source: VCP
Prices BEKP list US$/ton in April 2005
6
Pulp Business: Cost Competitiveness
• Natural and technological wood cost
advantages
Breakdown of pulp cash cost (VCP IQ05)
Maintenance
6%
• Global scale
Packaging/Other
4%
• Low energy costs
Other
4%
Labor
7%
Wood
40%
Energy/Fuel oil
6%
Raw materials
33%
Pulp production cash cost - VCP
166
137
1999
2000
134
127
2001
2002
154
157
2003
2004
171
IQ05
7
Pulp Business: Market trends
Market in recovery - 2004/2005
• Pulp price increases in April/05 to US$600 in Europe, US$635 N. America and US$570 in Asia
• Paper demand, inventory rebuilding and capacity shutdowns reinforce the positive momentum
• Price gap between NBSK and BEKP at US$100/t sustained by greater hardwood supply and by higher
production costs for softwood (Canada), partially offset by the effect of substitution
• Weak US$ increases costs in US$ for Europeans and Canadians, raising minimum price levels
$1.000
$950
Price vs. operating costs BEKP x NBSK
$900
$850
$800
$750
NBSK
$700
$650
$650
$600
$550
$550
$500
BEKP
$450
$400
Supply Cost curve
Softwood
$350
$300
$250
Supply Cost curve
Hardwood
jan/95
abr/95
jul/95
out/95
jan/96
abr/96
jul/96
out/96
jan/97
abr/97
jul/97
out/97
jan/98
abr/98
jul/98
out/98
jan/99
abr/99
jul/99
out/99
jan/00
abr/00
jul/00
out/00
jan/01
abr/01
jul/01
out/01
jan/02
abr/02
jul/02
out/02
jan/03
abr/03
jul/03
out/03
jan/04
abr/04
jul/04
out/04
jan/05
$200
Supply costs del W. Europe
Source: VCP, Hawkings Wright
8
Paper Business: Regional and Global Presence
• Strong regional market share
• Efficient distribution and integrated logistics
• Value added product mix
• “Client Focus” – Relationship and loyalty program for strategic local and international customers
• Growth in cut-size exports
• Operating margin stability
• Cost competitiveness with paper / pulp integration
• 2020 Outlook: 2 million tons over the next 15 years (CAGR 8% p.a.)
Paper prices and sales evolution
R$ 3.255
R$ 3.287
R$ 3.091
R$ 2.587
R$ 2.103
Value
added
R$ 2.251
R$ 1.834
R$ 2.206
R$ 1.563
R$ 2.402
R$ 2.363
R$ 2.254
R$ 1.802
R$ 1.281
519
530
569
571
568
615
574*
1999
2000
2001
2002
2003
2004
IQ05
Paper sales ktons
Avg domestic price - R$/t
Source: VCP
Avg. export price - R$/t
* Annualized
9
Paper Business: Regional and Global Presence
Domestic Market
• 1Q05 X 4Q04: 11% reduction in sales volume due to decrease in demand
• 1Q05 X 4Q04: average paper prices declined 4% due to increase in ten rates
Paper Volum e - IQ05
Domestic Mark et
Paper sales - local vs. exports
68%
Tons
Ex por t Mar ket
150.000
40%
100.000
30%
50.000
20%
10%
Paper Exports
1Q05
4Q04
3Q04
2Q04
1Q04
3Q03
4Q03
2Q03
1Q03
4Q02
3Q02
2Q02
1Q02
4Q01
3Q01
2Q00
2Q01
1Q00
4Q99
3Q99
2Q99
Paper Domestic sales
Source: VCP
Paper Revenue
0%
1Q99
0
32%
Domestic
Market
74%
% Export / Total
Export
Market
26%
10
Paper Business: Regional and Global Presence
Market Share Brazil – 2004
Uncoated Paper
(rolls/sheets)
Others
12%
Cut Size
International
Paper
33%
VCP
19%
Ripasa
22%
Ripasa
14%
International
Paper
21%
Suzano Bahia
Sul
34%
Coated paper
Imports
20%
VCP
Suzano Bahia
Sul
23%
VCP
33%
Chemical (carbonless/thermal)
Imports
VCP
Others
5%
22%
5%
77%
Others
Ripasa
21%
Source: Bracelpa
18%
Suzano
21%
11
Wood
Forestry objective: Produce and supply wood for pulp and energy needs with quality adjusted to usage, competitive
costs in a socially and environmentally responsible manner.
Brazil
Uberlândia-MG
Paraíso-MG
Altinopolis-SP
Amazon Rainforest
3,500km
Luiz Antônio-SP
Bauru-SP
Piracicaba-SP
197,000 ha in SP
Capão Bonito-SP
São Paulo-SP
Jacareí-SP
Mogi das Cruzes-SP
Private Terminal in
Santos Port - SP
61,000 ha in RS
Forestry Area
Pulp and Paper Plant
New Forestry Base
Paper Plant
12
Planting the Future
 Strategic goal to guarantee wood supply and ensure VCP’s long-term growth
 ongoing investments in land purchases and development of planted
Eucalyptus areas in the state of São Paulo
 creation of a new forest area in the state of Rio Grande do Sul with 62,000 ha
currently. Growth in this region is driven by the following factors:
 Availability of land at attractive costs (land substitution for cattle raising)
 Proximity to Northern Uruguay (wood availability)
 Proximity to Rio Grande port (export platform)
 Forestry productivity similar to São Paulo forests
 Inter-modal transportation options (ex. Wood transport by railway)
 Qualified labor force
 Politically, socially and environmentally favorable (ex. Agro-silviculture,
supply program, 35% preserved areas versus 20% required by law)
13
Wood
High productivity and a combination of
technology and natural advantages
Today
1970s
• Favorable climate and soil conditions, mechanized forest
operations and investments in technology have yielded
among the highest productivity levels in the world
• Eucalyptus genome mapping projects are expected to
continue to improve productivity
Yield
20m3/ha/year
Wood costs and % of third-party wood purchases
Country
70
41%
39%
65
37%
60
US$/ton
Yield
50m3/ha/year
35%
55
33%
31%
50
29%
45
27%
40
Brazil
Argentina
Chile
Indonesia
Australia
Iberia
Sweden
Finland
USA
Canada
Harvest
(yrs)
Yield
(m3/ha/yr)
7
7-12
10-12
7
7
12-15
35-40
35-40
25
45
45-50
25
20
20-25
20-25
10-12
5,5
4
10
7
25%
4Q03
Source: VCP
1Q04
2Q04
Wood cost (US$ ton)
3Q04
4Q04
% Third-party wood
14
R&D / Technology: Forestry
Genetic Improvements
1970
Species/Origin
Selection
1980
Population
Selection
1990
Tree and Family
Selection
Vegetative
Propagation
1995
Clone planting
Selection as per end
use
2000 and beyond
Molecular Markers
Genome Project: Trees with
specific traits tailored to end use
15
Integrated Logistics
VCP’s logistics expenses - US$/ton
Logistic expenses
Crude Oil US$/barrel
68
58
50
55
55
54
30
2Q03
54
29
3Q03
33
4Q03
50
57
36
37
1Q04
2Q04
53
44
3Q04
4Q04
1Q05
Breakdown of logistic costs
Raw materials
3%
Paper
25%
Wood
38%
Pulp
34%
Source: VCP
16
Integrated Logistics
Initiatives to reduce logistics costs in the forestry, pulp and paper areas
are offsetting higher freight costs associated with exports to keep VCP’s
logistics costs under control
• Contract 2 logistics operators (Wilson Sons and TNT) to assume all of the
operational activities associated with material flow from the raw materials receiving up to
delivery to end customers. The benefits have translated into lower costs, scale gains,
lower asset, asset divesting, and specialization of customer services
• MRS – Pulp shipping from the plant to Santos port by train – A 25% reduction in logistics
costs with the substitution of truck shipping to rail transport
• Rail shipping for wood eliminates direct relationship between cost and average radius
• Break Bulk: paper loading on boats outside of containers. The objective is to reduce
logistics costs related to paper exports, which increased drastically with the competition
for containers that came about with the increase in Brazilian exports
• With this new form of loading, VCP frees itself of its dependence on container ships and
avoids problems associated with partial loading of shipments on time, which results in
loss of sales abroad.
• For this project, VCP is loading its paper directly on top of its pulp, taking advantage of
pre-established pulp transport contracts (competitive market advantage).
17
Solid Financial Position
Consistent earnings growth and strong cash generation
• Net profit has grown at an average of 25% p.a. over past 5 years
• Stable EBITDA margin of over 40% (significantly higher than European peers) and net margin of approximately 30% in the
same period
EBITDA (US$m) and EBITDA Margin (%)
60%
450
414
50%
41%
376
340
41%
38%
40%
20%
42%
382*
32%
350
38%
26%
25%
17%
229
26%
22%
20%
30%
300
250
239
30%
29%
41%
269
30%
Earnings per ADR (US$) and Net Margin (%)
400
49%
200
20%
20%
18%
$1,31
150
14%
14%
100
$1,01
$0,53
$1,27
$1,58
$1,27
$0,83
10%
50
0%
0
1999
2000
2001
EBITDA margin Europe (%)
Source: VCP, Company Reports
2002
2003
VCP EBITDA (%)
2004
1999
2000
2001
2002
2003
2004
2005
2005
EBITDA US$ million
* Annualized
18
Solid Financial Position
Consistent value creation and return for shareholders
• VCP applies GVA (value added management) and has created value even during cycle troughs
28%
30%
28%
25%
23%
20%
18%
15%
13%
10%
8%
5%
19%
19%
ROIC
16%
16%
15%
13%
RoEV
w acc
11%
1999
11%
2000
11%
2001
9%
2002*
10%
2003
9%
10%
2004
IQ05
Source: VCP
19
Solid Financial Position
Consistent value creation and return for shareholders
• New dividend policy offers greater transparency and yield visibility
• Considered a combination of 3 factors: cash returns for shareholders, future growth opportunities and requirements for
“investment grade” status
• Dividends will be calculated from a base of 60% free cash flow as per the following formula:
FCF = EBITDA – Working capital variation – Taxes – Investments
Dividends (US$m) and yield
(2)
%
ROE (1) %
Dividends US$m and yield (2) %
25%
23%
17%
$85
23%
18%
17%
$45
8%
$32
$23
4,2%
1,5%
1999
2000
2001
2002*
ROE %
$107
2003
2004
IQ05
1999
2000
$38
2,4%
2,8%
3,5%
3,4%
2001
2002*
2003
2004
(1) B ased o n average shareho lders' equity fo r perio d
Source: VCP / Note: (1) Based on average shareholders’ equity for period / (2) Based on stock price at end of period / (3) Proposed dividend distribution
based on FX rate of R$2.70/USD
20
Solid Financial Position
Strong balance sheet, competitive financing costs
713
679
465
536
502
531E*
469
317
133
84
218
165
125
*
-22
1999
2000
2001
2002
Net Debt (USGAAP)
2003
Capex
2004
IQ05
* Includes Ripasa acquisition
70%
9,8%
8,7%
46%
42%
42%
31%
13%
6,6%
5,9%
5,5%
5,5%
2001
2002
2003
5,5%
-2%
1999
2000
Net Debt/Shareholders' Equity
Source: VCP
2004
IQ05
Average cost gross debt
21
1Q2005 Highlights
CAPEX
(US$ Million)
IQ05
Expected for 2005
Expansion Projects
Modernization
Forestry
Maintenance, IT, Others
3
6
20
7
68
24
106
58
Total
36
256
Debt
(US$ Million)
- Short term
In Reais
In Dollars
- Long Term
In Reais
In Dollars
Total Debt
(-) Cash
Net Debt
Debt
Dec 31,2004
Mar 31,2005
Cost(%)
%
Total
TJLP* + 3%
US$ + 3.2%
376
30
346
326
29
296
27 %
2%
25 %
TJLP* + 3%
US$ + 5.5%
569
102
467
868
96
773
73 %
8%
65 %
945
(476)
469
1194
(481)
713
100 %
*TJLP = 9.75% p.a. in Mar, 2005
22
Acquisition of Ripasa
 Transaction (50/50 VCP/Suzano Bahia Sul)
Acquisition of 66.67% of the common shares and 17.68% of the preferred shares
US$ 480 million, up to march 31, 2005
Acquisition of 33.33% of the common shares and of 8.57% of the preferred shares
US$ 240 million, up to 6 years
Total transaction - 59.5% of total capital
US$ 720 million
 Transaction Schedule
Purchase agreement - November 10, 2004
Step I - Up to the conclusion of the transaction - Keep Ripasa running “as is”.
Step II – After conclusion of the transaction
Stockholding restructuring
De-list Ripasa from Bovespa
Transform Ripasa into a production unit
Capture of potential synergies
Independently commercialize each company’s share of the production
23
Acquisition of Ripasa
Ripasa adds 24% to VCP’s capacity
Consolidated figures 3M05
Description
Tons
R$ (000)
Sales volume
153
326
Domestic Market
110
235
Pulp
34
34
Paper
76
201
Export (paper)
43
91
Total Assets
2,087
Equity
1,041
Net debt
573
EBITDA
46
EBITDA margin
•
•
•
•
Foundation October 22, 1959
2,822 employees
4 production units
Annual capacity:
– Total pulp 455,000 ton
– Paper 525,000 ton
• Forest – 86,400 ha
(76% for plantation)
14%
24
Shareholder Structure
% of Total Capital Stock
March 31, 2005
BNDESPAR
4%
Votorantim Group
55%
Free Float
41%
VCP
VCP Trading
100%
Aracruz
12.4%
Listed on
Bovespa and
NYSE
Preferred Shares
Local
Investors
14%
BNDESPar
8%
ADRs
63%
Foreign
Investors
78%
Bovespa
15%
25
VCP – Evolution of Best Practices Results
R$ 250
R$ 225
R$ 200
R$ 175
1999
2000
Organizational
Restructuring
ADR III
NYSE
Incorporation of
Celpav
Sale of Papel
Salto
USGAAP
And BRGAAP
Quarterly
Reporting
IBF Project
Eurobond
Ethics Committee
CVM 358/02
New dividend
policy
Continuous revision
Of ethics policies
Edgar Filing
Secondary
Share offering
US$285 mln
Apr 2004 Issue
(electronic info)
Corporate
Governance
Bovespa
US$350m
7 years
Libor + 2%
SarbanesOxley
7.7%
R$ 100
2004
2001
Level I
8.8%
2003
US$125m 2a
Audit Committee 5.85%aa
R$ 150
R$ 125
2002
R$ 75
R$ 50
4.2%
3.8%
R$ 25
3.6%
3.2%
Jan-04
Jan-03
Jan-02
Jan-01
Debt cost linked to Libor
Jan-00
Jan-99
R$ 0
3.0%
26