10 M C10~1

““““LA INFORMACION CONTENIDA EN ESTE DOCUMENTO, PROPIEDAD DE IDM ESPAÑOLA ES ESTRICTAMENTE CONFIDENCIAL, QUEDANDO PROHIBIDA SU REPRODUCCION TOTAL O PARCIAL O LA UTILIZACION INDEBIDA SIN SU CONSENTIMIENTO POR ESCRITO, RESERVANDOSE LAS ACCIONES LEGALES A QUE HUBIERA LUGAR EN FUNCION DE LOS PERJUICIOS OCASIONADOS A IDM ESPAÑOLA, S.A. O A SUS CLIENTES ”””””THE INFORMATION CONTAINED IN THIS DOCUMENT IS PROPERTY OF IDM ESPAÑOLA, S.A. AND IT IS STRICTLY CONFIDENTIAL. NO PART OF IT MAY BE REPRODUCED OR UNDULY USED WITHOUT ITS WRITTEN PERMISSION. ACCORDINGLY ANY DAMAGES INFLICTED TO IDM ESPAÑOLA, S.A. OR ITS CLIENTS WILL BE ADEQUATELY PROSECUTED””””

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DEMO SESSION, BRUSSELS 19TH OCTOBER 2005, JOSE F. VIVANCOS

STRATEGIC EVALUATION OFINVESTMENTS/ACQUISITIONS

MANAGEMENT CENTRE EUROPE (MCE)

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IDM ESPAÑOLA, S.A.

AGENDASTRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS

∗The investment/acquisition process

∗The cash-flow valuation metod

– Introduction

– The strategic evaluation

∗Prosa’s tobic perbate project

∗Conclusions and questions

∗The investment/acquisition process

∗The cash-flow valuation metod

– Introduction

– The strategic evaluation

∗Prosa’s tobic perbate project

∗Conclusions and questions

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EVA COMPANIES

American Saw & Manufacturing, Armstrong World Industries, Inc., Alcan Aluminium, Ball Corp., Bausch & Lomb, Boise Cascade Corp., The Burton Group, California Microwave, Case Corp., The Coca-Cola Co., Crane Co., Diageo, Dun & Bradstreet Corp., Eli Lilly & Co., Equifax, Inc., Federal-Mogul, Guidant Corp., Illinois Power Company, JCPenney, Kao Corporation, LucasVarity, Monsanto, Pirelli, R.R. Donnelley, Rubbermaid Inc., Ryder System, Inc., Siemens A.G., Tate & Lyle PLC, Telecom Italia Group, Toys R Us, U.S. Postal Service, Whirlpool


SOURCE: STERN, STEWART & CO.

STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS

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EVA COMPANIES



They are all EVA companies

They are all EVA companies

Economic Value Added (EVA) is one of the mostly used measures to estimate shareholder’s value

Economic Value Added (EVA) is one of the mostly used measures to estimate shareholder’s value

SOURCE: STERN, STEWART & CO.


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THE INVESTMENT/ACQUISITION PROCESSKEY OBJECTIVE


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∗The end result of an investment/acquisition should be the improvement of shareholders value



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– Investments/acquisitions can create shareholders value when there is excess value to the investor/acquirer over the market value of the specific opportunity

∙Economic value over and above the investment/price required





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– The economic value generated will be determined by the spread between a company's return on capital and its weighted average cost of capital, the level of capital invested and the sustainability of the favourable spread on increasing capital investment

∙Any investments that earn returns above the company's cost of capital create added value (investments with returns below its cost of capital destroy value)

∙The higher the capital invested at greater returns, the greater the value created.

∙The longer a favourable spread can be maintained the higher the value created









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In order to achieve value creation through an investment/acquisition program, you need to evaluate in detail the potential returns from all the different opportunities available

In order to achieve value creation through an investment/acquisition program, you need to evaluate in detail the potential returns from all the different opportunities available


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THE INVESTMENT/ACQUISITION PROCESSPLANNING METHODOLOGY


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IDM ESPAÑOLA, S.A.


∗Development of different strategic options

– Intended to fulfil some corporate objectives




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THE INVESTMENT/ACQUISITION PROCESSCORPORATE GOALS

It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process


POTENTIAL OBJECTIVES



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Strategic


Strategic


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Strategic


Strategic

Support base business

Reduce dependence on base business

Provide long-term growth

Increase capacity utilisation

Strategic defence


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Strategic

Financial


Strategic

Financial





Strategic defence


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Strategic

Financial


Strategic

Financial





Strategic defence

Earnings increase

Take advantage of undervalued assets/companies

Utilise tax losses of acquiree

Use of outstanding cash balances of acquiree


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IDM ESPAÑOLA, S.A.






∗List of potential opportunities generation

– New investments or acquisitions




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MAIN INVESTMENTS/ACQUISITION TYPESBRIEF DESCRIPTION


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IDM ESPAÑOLA, S.A.


RELATED INVESTMENT/ACQUISITION

RELATED INVESTMENT/ACQUISITION


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RELATED INVESTMENT/ACQUISITION (Normally strategic objectives)

The related investment/acquisition normally responds to an objective of competitive situation strengthening, but it could also fulfil a defen-sive strategy against potential competitors

– Its economic value will be generated by synergy effects, mainly through costs advantages/reductions and/or increased revenues

– It requires a solid management team ready and able to materialise the potential added-values






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NON-RELATED INVESTMENT/ACQUISITION





NON-RELATED INVESTMENT/ACQUISITION


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NON-RELATED INVESTMENT/ACQUISITION (Normally financial objectives)

The non-related investments/acquisitions are normally motivated by situations of badly managed industries/companies or imperfect/imma-ture markets

– The economic value will be generated through management improvements or some market development/maturing

– It demands a strong and flexible management team able to improve industry and markets practices/results





NON-RELATED INVESTMENT/ACQUISITION (Normally financial objectives)

The non-related investments/acquisitions are normally motivated by situations of badly managed industries/companies or imperfect/imma-ture markets

– The economic value will be generated through management improvements or some market development/maturing

– It demands a strong and flexible management team able to improve industry and markets practices/results


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IDM ESPAÑOLA, S.A.










∗Preliminary screening and selection of potential alternatives

– Publicly available data and major conflicts with corporate objectives




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IDM ESPAÑOLA, S.A.

ALTERNATIVE COUNTRY PRELIMINARY SCREENINGBEER BUSINESS EXAMPLE

TOTAL PER HEAD

CAGR %

TOTAL % OF CONSUMPTION

CAGR %

TOTAL CAGR %

TOTAL PER HEAD

CAGR %

TOTAL TARGET POPULATION

COUNTRY TARGET POPULATION PER HEAD

CONSUMPTION

PRODUCT CONSUMPTION

IMPORTS SALES OF MAIN SIX COMPETITORS

GDP POPULATION


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∗Valuation of feasible opportunities

– Strategic evaluation

– Ranking of options





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∗Final selection and investment/acquisition implementation

∗Final selection and investment/acquisition implementation


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CASHFLOW VALUATION METHODINTRODUCTION

∗The true economic value of an investment/company to be acquired is the net present value of its future free-cashflows from operations minus its net debt

– Value = – Net debt

– Forces a rigorous analysis and takes into account the time element and year to year variations in the value stream

– The other possible methods (net book value, PE ratio...) are not applicable for new investments and are normally only used to get some quick but not very precise valuation estimates

∗The true economic value of an investment/company to be acquired is the net present value of its future free-cashflows from operations minus its net debt

– Value = – Net debt

– Forces a rigorous analysis and takes into account the time element and year to year variations in the value stream

– The other possible methods (net book value, PE ratio...) are not applicable for new investments and are normally only used to get some quick but not very precise valuation estimates

Σ(Free cashflow)(1 +r)t

t =1


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IDM ESPAÑOLA, S.A.

CASHFLOW VALUATION METHODTHE VALUATION PROCESS

∗You need to make projections on the future free-cashflows from operations for a reasonable period (5 to 10 years) and to discount them in order to calculate its PV

– You have to do it for each one of the different activities and for each one of the countries where the company will be/is present

– Then you will calculate the overall debt-free investment/company value by adding the NPV from all the different activities/coun-tries considered

– By deducting the net value of the debt you will calculate the overall value of the equity for the specific investment/acquisition

∗You need to make projections on the future free-cashflows from operations for a reasonable period (5 to 10 years) and to discount them in order to calculate its PV

– You have to do it for each one of the different activities and for each one of the countries where the company will be/is present

– Then you will calculate the overall debt-free investment/company value by adding the NPV from all the different activities/coun-tries considered

– By deducting the net value of the debt you will calculate the overall value of the equity for the specific investment/acquisition

But what are the main components/determinants of the cashflow valuation method and their degree of influence?

But what are the main components/determinants of the cashflow valuation method and their degree of influence?


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IDM ESPAÑOLA, S.A.

CASHFLOW VALUATION METHODKEY COMPONENTS

Valuation

Net cash flow for investor/acquirer

Business discount rate

Net debt

Terminal growth rate/residual value

Sales

Costs

Taxation

Weighted average cost of capitalInfation Rate

Information Sources/ Basic Methodology

NPV Sensitivity(5 = high, 1 =

low)

Depreciation/Fixed assets Fixed assets/Sales Working capital/Sales

Initial sales

Sales projections

Margin forecasts

Debt implications

Market/financial analysisMarket analysis

Market / Competitor / Financial analysisMarket / Competitor / Financial analysis

Financial analysis

Capital Markets

Economists’ forecastsFinancial analysis

STRATEGIC

EVALUATION

Financial / Market / Competitor analysis

2

4

5

2

4

4

5

1

4


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CASHFLOW VALUATION METHODTHE STRATEGIC EVALUATION

∗This valuation method requires for each specific potential investor an in-depth strategic evaluation, that needs always to include at least the analysis of

– Sales projections, based on the market share/market growth potential




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CASHFLOW VALUATION METHODSALES PROJECTIONS ANALYSIS

MARKET GROWTH

∗Which products?

∗What are the demand determinants?

∗How are they likely to develop?

∗Potential business redefinition?

MARKET GROWTH

∗Which products?




∗Market growth

– Current growth rate?

– Penetration curves

∗Market growth



Demand forecastDemand forecast


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CASHFLOW VALUATION METHODSALES PROJECTIONS: PENETRATION

CURVESFINCOMP'S INVESTMENT OPPORTUNITY IN CERAMICA

SITUATION

Fincomp, an international investment group, had the opportunity of developing a minority equity stake in Ceramica, one of the three Spanish pioneers of the new XYZ technology ceramic-tile. Fincomp's team, realising the strong dependence of Ceramica's value on the success in the introduction of the new ceramic-tile and on the penetration speed of the Spanish market, requested third party strategic advice

BACKGROUND

The new XYZ technology ceramic-tile was developed in Italy. This new tile required at first five years to attain technology and product-design adequacies and three more additional years to succeed market-wise, achieving over 8% of the Italian ceramic floor-coverings market

IDM ESPAÑOLA'S INVOLVEMENT

IDM Española undertook a strategic study on the potential within Spain for the new XYZ technology ceramic-tile, developing thorough comparisons between the Spanish and the Italian ceramic-tiles markets. In particular a linear regression analysis on the evolution overtime of the new tile share of the Italian market was calculated...

CONCLUSIONS

IDM Española developed sales forecasts within Spain for the third year after the completion of the analysis, ranging from 2.9 to 4.0 million sqm of the new XYZ technology ceramic-tile. The forecasts were developed by replicating the penetration curves of the Italian market to the Spanish one...

EVOLUTION OF THE NEW XYZ TECHNOLOGY FOR CERAMIC TILES IN SPAIN

Actual industry sales within Spain during the mentioned future third year, were approximately 3.6 million sqm (only 4% different than IDM Española's most likely scenario)...

FINCOMP'S INVESTMENT OPPORTUNITY IN CERAMICA

SITUATION

Fincomp, an international investment group, had the opportunity of developing a minority equity stake in Ceramica, one of the three Spanish pioneers of the new XYZ technology ceramic-tile. Fincomp's team, realising the strong dependence of Ceramica's value on the success in the introduction of the new ceramic-tile and on the penetration speed of the Spanish market, requested third party strategic advice

BACKGROUND

The new XYZ technology ceramic-tile was developed in Italy. This new tile required at first five years to attain technology and product-design adequacies and three more additional years to succeed market-wise, achieving over 8% of the Italian ceramic floor-coverings market

IDM ESPAÑOLA'S INVOLVEMENT

IDM Española undertook a strategic study on the potential within Spain for the new XYZ technology ceramic-tile, developing thorough comparisons between the Spanish and the Italian ceramic-tiles markets. In particular a linear regression analysis on the evolution overtime of the new tile share of the Italian market was calculated...

CONCLUSIONS

IDM Española developed sales forecasts within Spain for the third year after the completion of the analysis, ranging from 2.9 to 4.0 million sqm of the new XYZ technology ceramic-tile. The forecasts were developed by replicating the penetration curves of the Italian market to the Spanish one...

EVOLUTION OF THE NEW XYZ TECHNOLOGY FOR CERAMIC TILES IN SPAIN

Actual industry sales within Spain during the mentioned future third year, were approximately 3.6 million sqm (only 4% different than IDM Española's most likely scenario)...

(THIS DOCUMENT IS A SELECTION OF INFORMATIONS FROM A REAL BUSINESS SITUATION, IN WHICH IDENTITIES HAVE BEEN DELIBERATELY ALTERED TO PRESERVE CONFIDENTIALITY)


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MARKET GROWTH

∗Which products?




MARKET GROWTH

∗Which products?




∗Market growth



∗Market growth




COMPETITIVE ENVIRONMENT

∗Who are the competitors?

∗What are the determinants of market share?

∗What are the competitors’ relative strengths?

∗What are the competitors’ likely actions?






∗Company market share

– Current share

– Reasons for gain/loss of share


– Current share


Industry market share forecasts Industry market share forecasts


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MARKET GROWTH

∗Which products?




MARKET GROWTH

∗Which products?




Sales projections Sales projections

∗Market growth



∗Market growth















– Current share



– Current share


Industry market share forecasts Industry market share forecasts


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CASHFLOW VALUATION METHODSALES PROJECTIONS: REASONS FOR

GAIN/LOSS OF SHARE

∗A company's growth potential may exceed market growth of its core businesses by

– Increasing market share

– Redefining market for existing products

∙Kitchen units manufacturer moving into fitted kitchens selling directly to households

– Diversifying into related product lines

∙Audio magnetic tape manufacturer moving into video tape production and later into DVD

∗If a company has demonstrated ability to grow at higher rates than market growth, it has implications on its cash generation potential, although not always being necessarily an improvement

– Value of a company growing so fast that needs to reinvest all its cashflows to perpetuity

– It will influence its working capital and capital expenditure requirements

∗A company's growth potential may exceed market growth of its core businesses by

– Increasing market share

– Redefining market for existing products

∙Kitchen units manufacturer moving into fitted kitchens selling directly to households

– Diversifying into related product lines

∙Audio magnetic tape manufacturer moving into video tape production and later into DVD

∗If a company has demonstrated ability to grow at higher rates than market growth, it has implications on its cash generation potential, although not always being necessarily an improvement

– Value of a company growing so fast that needs to reinvest all its cashflows to perpetuity

– It will influence its working capital and capital expenditure requirements


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– Margin forecasts considering market share/ROS relationships





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CASHFLOW VALUATION METHODMARGIN FORECAST ANALYSIS

Historical ROS performance

(company and industry)




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CASHFLOW VALUATION METHODMARGIN FORECAST: HISTORICAL

PERFORMANCE ANALYSIS

∗Industry ROS trends may be published in industry reports, otherwise a weighted average of major participants can normally be calcula-ted

∗Historical performance can be useful in identifying

– Highest ROS achieved by the industry/company

– Recent ROS trends

∗However, historical ROS performance can only set the basis for future ROS forecasts. In order to understand whether the highest historical ROS can be achieved again or whether the improving trend will continue, additional information is needed on

– Industry and competitors' ROS

– Competitors' and company's investments in recent years that might have some impact in future ROS

∗Industry ROS trends may be published in industry reports, otherwise a weighted average of major participants can normally be calcula-ted

∗Historical performance can be useful in identifying

– Highest ROS achieved by the industry/company

– Recent ROS trends

∗However, historical ROS performance can only set the basis for future ROS forecasts. In order to understand whether the highest historical ROS can be achieved again or whether the improving trend will continue, additional information is needed on

– Industry and competitors' ROS

– Competitors' and company's investments in recent years that might have some impact in future ROS


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ROS/RMS analysisROS/RMS analysis


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CASHFLOW VALUATION METHODMARGIN FORECAST: ROS/RMS ANALYSIS

Company X is currently underperforming, considering its relative market share position and competitors’ performance

Company X is currently underperforming, considering its relative market share position and competitors’ performance

Relative Market Share (RMS) 2004

Average ROS

(2002-04)

Potential ROS improvement

Company A

Company B

Company X

20%

15

10

5

0

(5).1

X.5X 1.0

X10

X20

X5X


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Company potential

ROS position

Company potential

ROS position


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Company’s capabilities

to improve ROS


to improve ROS

Company potential

ROS position

Company potential

ROS position


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CASHFLOW VALUATION METHODMARGIN FORECAST: ROS IMPROVEMENT

POTENTIAL

∗Possible capital investments to improve productivity

– How old is the industry or company's productive base?

– Were there recent investments or rationalisation programmes that might improve productivity?

∗Management capabilities

– Appointed or current management track record?

– Possible changes by investing/acquiring company's management know-how?

∗Potential synergy effects

– ROS improvement by scale of operations and market share gain?

– Possible overhead reductions?

∗Possible capital investments to improve productivity

– How old is the industry or company's productive base?

– Were there recent investments or rationalisation programmes that might improve productivity?

∗Management capabilities

– Appointed or current management track record?

– Possible changes by investing/acquiring company's management know-how?

∗Potential synergy effects

– ROS improvement by scale of operations and market share gain?

– Possible overhead reductions?


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to improve ROS


to improve ROS

Company potential

ROS position

Company potential

ROS position

Industry price/cost dynamics



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CASHFLOW VALUATION METHODMARGIN FORECAST: INDUSTRY

PRICE/COSTS DYNAMICS

∗Price and costs experience curves:

– Can such curves be identified?

– How can a new entrant/target company do relative to competitors?

∗Capacity/utilisation trends

– Is capacity being added?

– Is demand likely to meet supply?

∗Exit/entry barriers

– How easy is it to enter/exit the market?

– What will it mean in view of demand/supply projections?

∗Price and costs experience curves:

– Can such curves be identified?

– How can a new entrant/target company do relative to competitors?

∗Capacity/utilisation trends

– Is capacity being added?

– Is demand likely to meet supply?

∗Exit/entry barriers

– How easy is it to enter/exit the market?

– What will it mean in view of demand/supply projections?

What is the likely development of margins in this industry?

What is the likely development of margins in this industry?


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– Residual value, based on the potential for future company growth vs market growth






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CASHFLOW VALUATION METHODCASHFLOW RESIDUAL VALUE

DETERMINATION

∗It values the investment/company as a going concern and it is consistent with the cashflow valuation method

∗The basis for residual value calculation is the annual operational free-cashflow in year t+1

– RV = CF t+1 (r = discount rate, k = growth rate)

– Interest paid should not be taken into account

∗Widely adopted practice to assume no real growth in cashflow after year t+1

– Most businesses mature in 5-10 years

– The uncertainty in projecting casflows over longer planning horizons forcing to be conservative

– Revision of the capital expenditure required, to make it close to depreciation costs

∗If growth is incorporated it must be business specific and based on the level of maturity of the business and the competitive position of the company, but it has to be conservative

– It implies that the growth rate will continue to perpetuity and its determination has to be somehow subjective

∗It values the investment/company as a going concern and it is consistent with the cashflow valuation method

∗The basis for residual value calculation is the annual operational free-cashflow in year t+1

– RV = CF t+1 (r = discount rate, k = growth rate)

– Interest paid should not be taken into account

∗Widely adopted practice to assume no real growth in cashflow after year t+1

– Most businesses mature in 5-10 years

– The uncertainty in projecting casflows over longer planning horizons forcing to be conservative

– Revision of the capital expenditure required, to make it close to depreciation costs

∗If growth is incorporated it must be business specific and based on the level of maturity of the business and the competitive position of the company, but it has to be conservative

– It implies that the growth rate will continue to perpetuity and its determination has to be somehow subjective

1

r-k


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Company ROS forecast over time

– PBIT/Sales

Company ROS forecast over time

– PBIT/Sales







to improve ROS


to improve ROS

Company potential

ROS position

Company potential

ROS position




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∗The development of several likely scenarios based on sensitivity analysis for each one of the key determinants of cashflows

– Investment/acquisition decisions need to allow for the survival under the most pessimistic but reasonable scenarios





∗The development of several likely scenarios based on sensitivity analysis for each one of the key determinants of cashflows

– Investment/acquisition decisions need to allow for the survival under the most pessimistic but reasonable scenarios


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THE SITUATION

Prosa is currently facing two opportunities, which need to be evaluated, that will allow it to enter the tobic perbate segment

The acquisition of the oldest Spanish producer and second in size nowadays. Its parent company, suffering difficult times in its core activity, is forced to divest in order to meet some financial obligations. This option does not seem at first too attractive for Prosa. Its management-team believes that being an underground mining operation, it will always bear a structural cost disadvantage against open-pit competitors.

The development of a new, high-quality deposit discovered by Prosa’s R&D department. This option, that allows for the use of solution min-ing techniques, could achieve operating margins well in excess of the 25% previously mentioned. Preliminary calculations by Prosa’s team based on its pilot-plant results, reliably estimate that margins could even reach 60%. The only two remaining decisions to be taken at pres-ent would be, the approval of the required investment, approximately €11 million, and the selection of the engineering company from the dif-ferent bids received, to begin the construction works of the new mining operation.

THE SITUATION




THE BACKGROUND

Prosa, the European leader in a mining market segment, needs to continuously develop new mining operations in order to ensure its survival in the long-term. The tobic perbate is a mining product extensively used within the chemical industry on a world-wide basis, which allows at pre-sent for operating margins over 25%, making all current producers highly profitable.

THE BACKGROUND


THE PROBLEM

What should be Prosa’s decision in relation to tobic perbate diversification options?

THE PROBLEM

What should be Prosa’s decision in relation to tobic perbate diversification options?

POTENTIAL INVESTMENT IN THE TOBIC PERBATE SEGMENTINTRODUC

TION

PROSA’S TOBIC PERBATE PROJECT

TOBIC PERBATE EXPLOITATION

SPANISH MARKET FEASIBILITY ANALYSIS

INTERNATIONAL DEVELOPMENT MANAGEMENT ESPAÑOLA, S.A.

“““““LA INFORMACION CONTENIDA EN ESTE DOCUMENTO, PROPIEDAD DE IDM ESPAÑOLA ES ESTRICTAMENTE CONFIDENCIAL, QUEDANDO PROHIBIDA SU REPRODUCCION TOTAL O PARCIAL O LA UTILIZACION INDEBIDA SIN SU CONSENTIMIENTO POR ESCRITO, RESERVANDOSE LAS ACCIONES LEGALES A QUE HUBIERA LUGAR EN FUNCION DE LOS PERJUICIOS OCASIONADOS A IDM ESPAÑOLA, S.A. O A SUS CLIENTES ”””””THE INFORMATION CONTAINED IN THIS DOCUMENT IS PROPERTY OF IDM ESPAÑOLA, S.A. AND IT IS STRICTLY CONFIDENTIAL. NO PART OF IT MAY BE REPRODUCED OR UNDULY USED WITHOUT ITS WRITTEN PERMISSION. ACCORDINGLY ANY DAMAGES INFLICTED TO IDM ESPAÑOLA, S.A. OR ITS CLIENTS WILL BE ADEQUATELY PROSECUTED”””””

PADRE DAMIAN, 23 - 28036 MADRID - TEL. (34) 913-533-810 - FAX (34) 913-596-988 - E-MAIL: [email protected] - http://www.infonegocio.com/idmespa

AZ/10/04/AAA/058

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This document is a selected summary on the different materials developed by IDM Española, S.A., in order to solve a real business situation, for which its services were requested. With the only purpose of preserving client’s confidentiality, some identities, products or dates might have been deliberately altered.

This document is a selected summary on the different materials developed by IDM Española, S.A., in order to solve a real business situation, for which its services were requested. With the only purpose of preserving client’s confidentiality, some identities, products or dates might have been deliberately altered.


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THE SITUATION




THE SITUATION




THE BACKGROUND


THE BACKGROUND


THE PROBLEM

Prosa, although publicly quoted, is practically owned by two main partners, who strongly disagree in relation to the possible diversification options into tobic perbate mining.

THE PROBLEM

Prosa, although publicly quoted, is practically owned by two main partners, who strongly disagree in relation to the possible diversification options into tobic perbate mining.

POTENTIAL INVESTMENT IN THE TOBIC PERBATE SEGMENTINTRODUC

TION


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IDM ESPAÑOLA, S.A.

CONTENTS

CONTACTS SUMMARY

PRODUCTION

FOREIGN TRADE

DOMESTIC CONSUMPTION

DETERGENTS SEGMENT

PAPER PULP INDUSTRY

GLASS INDUSTRY

ALTERNATIVE UTILISATIONS

ACHIEVABLE VOLUMES WITHIN SPAIN

PRICE LEVELS ANALYSIS

PROSA’S PROJECT FEASIBILITY ANALYSIS

SUMMARY AND NEXT STEPS

RECENT EVOLUTION


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PRODUCERS/DISTRIBUTORS TOBIC PERBATE CONSUMERS-DETERGENT SEGMENT

COMMERCIAL DEPARTMENT DISTRIBUTOR 1 MR. FELICES (PURCHASING MANAGER) BENCKISERCOMMERCIAL DIRECTOR DISTRIBUTOR 2 MR. EGAÑA (GENERAL AND TECHNICAL DIRECTOR) BILORECOMMERCIAL DIRECTOR PRODUCER 2 MR. BATLLE (PURCHASING DEPT.) CAMPMARKETING DEPARTMENT PRODUCER 5 MR. CAMP (PURCHASING DEPT.) CAMPPLANNING DIRECTOR PRODUCER 5 MR. SALGOT (PURCHASING DEPT.) CAMPCOMMERCIAL DIRECTOR PRODUCER 6 MR. BERAZA (PURCHASING DEPT.) HENKEL IBERICAPROJECT DIRECTOR PRODUCER 1 MR. CASTAÑE (PURCHASING DEPT.) HENKEL IBERICATECHNICAL DIRECTOR PRODUCER 1 MR. CUADRADO (PURCHASING DEPT.) HENKEL IBERICASULPHATE PLANT MANAGER PRODUCER 1 MR. MARTIN (TECHNICAL AND PURCHASING DIRECTOR) KLINER IBERICADEPUTY COMMERCIAL MANAGER PRODUCER 1 MR. FONT (PURCHASING MANAGER) LA SUPER-QUIMICACOMMERCIAL DIRECTOR PRODUCER 1 MR. GARDE (PURCHASING MANAGER) LEVER IBERICACOMMERCIAL DEPARTMENT PRODUCER 7 MR. PEREZ (GENERAL AND TECHNICAL DIRECTOR) LINASACOMMERCIAL DEPARTMENT PRODUCER 8 MR. VALL (PURCHASING MANAGER) LIRESACOMMERCIAL DEPARTMENT PRODUCER 9 MR. YOLDI (PLANT MANAGER) PERSANRAYON PLANT MANAGER PRODUCER 10 MRS. HERVAS (PURCHASING MANAGER) PROCTER & GAMBLEFINANCIAL DIRECTOR PRODUCER 3 MR. CELAYA (PURCHASING MANAGER) QUIMICAMPPROJECT MANAGER NEW PRODUCER 4 MR. MARTINEZ (MANAGER) SERCASATECHNICAL DIRECTOR PRODUCER 11VISCOSA PLANT MANAGER PRODUCER 12COMMERCIAL DIRECTOR PRODUCER 3DEPUTY COMMERCIAL MANAGER PRODUCER 1R&D MANAGER PRODUCER 1 ASSOCIATIONS/PUBLIC BODIES/PUBLICATIONS/OTHER

MR. JANER (EDITOR) ACTUALIDAD ECONOMICA MR. ERICE (SECRETARY GENERAL) ADTA MR. PARRA (PROFESSOR) AID

CONSUMERS-GLASS INDUSTRY MR. MARTIN CANO (SECRETARY) ANFEVI MR. HORMAECHEA (GRAL. SEC.) ASOCIACION

FABRICANTES DE VIDRIO PLANOMR. VINOS (TECHNICAL DIRECTOR) CRISTALERIA ESPAÑOLA (VICASA) MR. RATO (HEAD OF THE INDUSTRIAL MINERALS SERVICE) D.G. MINASMR. IBAÑEZ (PURCHASING MANAGER) VIDRIERA DE LLODIO (VILLOSA) MR. FERNANDEZ-ALVAREZ (INDUSTRIAL MINERALS MANAGER) ENADIMSA MR. DOMENECH (DIRECTOR GENERAL) ESTRATEGIAS

MR. MEDINA (GENERAL SECRETARY) FEIQUE MR. GOMEZ MORENO (HEAD OF INDUSTRIAL MINERALS

SERVICE) IGME MR. DE LOS SANTOS (PAPER PULP DEPARTMENT HEAD)

INIACONSUMERS-PAPER PULP INDUSTRY MR. FERNANDEZ-NAVARRO (DIRECTOR) INSTITUTO DE CERAMICA Y VIDRIO

MR. GASPAR (RESEARCHER) IPEMR. LOREDO (PURCHASING MANAGER) CELULOSAS DE ASTURIAS (CEASA) MR. NOGUEIRA (EDITOR) OCUMR. BERNAL (PURCHASING MANAGER) ENCE MR. BARRERA (TECHNICAL DEPARTMENT) RIO RODANOMR. CARRANZA (PURCHASING MANAGER) LA PAPELERA ESPAÑOLA (ARANGUREN) MR. PEREZ DEL CAMINO (CONSULTANT) TCR MR. MORRAS (TECHNICAL DIRECTOR) LA PAPELERA ESPAÑOLAMR. ABADAL (PURCHASING MANAGER) TORRAS HOSTENCH

PRODUCERS/DISTRIBUTORS TOBIC PERBATE CONSUMERS-DETERGENT SEGMENT

COMMERCIAL DEPARTMENT DISTRIBUTOR 1 MR. FELICES (PURCHASING MANAGER) BENCKISERCOMMERCIAL DIRECTOR DISTRIBUTOR 2 MR. EGAÑA (GENERAL AND TECHNICAL DIRECTOR) BILORECOMMERCIAL DIRECTOR PRODUCER 2 MR. BATLLE (PURCHASING DEPT.) CAMPMARKETING DEPARTMENT PRODUCER 5 MR. CAMP (PURCHASING DEPT.) CAMPPLANNING DIRECTOR PRODUCER 5 MR. SALGOT (PURCHASING DEPT.) CAMPCOMMERCIAL DIRECTOR PRODUCER 6 MR. BERAZA (PURCHASING DEPT.) HENKEL IBERICAPROJECT DIRECTOR PRODUCER 1 MR. CASTAÑE (PURCHASING DEPT.) HENKEL IBERICATECHNICAL DIRECTOR PRODUCER 1 MR. CUADRADO (PURCHASING DEPT.) HENKEL IBERICASULPHATE PLANT MANAGER PRODUCER 1 MR. MARTIN (TECHNICAL AND PURCHASING DIRECTOR) KLINER IBERICADEPUTY COMMERCIAL MANAGER PRODUCER 1 MR. FONT (PURCHASING MANAGER) LA SUPER-QUIMICACOMMERCIAL DIRECTOR PRODUCER 1 MR. GARDE (PURCHASING MANAGER) LEVER IBERICACOMMERCIAL DEPARTMENT PRODUCER 7 MR. PEREZ (GENERAL AND TECHNICAL DIRECTOR) LINASACOMMERCIAL DEPARTMENT PRODUCER 8 MR. VALL (PURCHASING MANAGER) LIRESACOMMERCIAL DEPARTMENT PRODUCER 9 MR. YOLDI (PLANT MANAGER) PERSANRAYON PLANT MANAGER PRODUCER 10 MRS. HERVAS (PURCHASING MANAGER) PROCTER & GAMBLEFINANCIAL DIRECTOR PRODUCER 3 MR. CELAYA (PURCHASING MANAGER) QUIMICAMPPROJECT MANAGER NEW PRODUCER 4 MR. MARTINEZ (MANAGER) SERCASATECHNICAL DIRECTOR PRODUCER 11VISCOSA PLANT MANAGER PRODUCER 12COMMERCIAL DIRECTOR PRODUCER 3DEPUTY COMMERCIAL MANAGER PRODUCER 1R&D MANAGER PRODUCER 1 ASSOCIATIONS/PUBLIC BODIES/PUBLICATIONS/OTHER

MR. JANER (EDITOR) ACTUALIDAD ECONOMICA MR. ERICE (SECRETARY GENERAL) ADTA MR. PARRA (PROFESSOR) AID

CONSUMERS-GLASS INDUSTRY MR. MARTIN CANO (SECRETARY) ANFEVI MR. HORMAECHEA (GRAL. SEC.) ASOCIACION

FABRICANTES DE VIDRIO PLANOMR. VINOS (TECHNICAL DIRECTOR) CRISTALERIA ESPAÑOLA (VICASA) MR. RATO (HEAD OF THE INDUSTRIAL MINERALS SERVICE) D.G. MINASMR. IBAÑEZ (PURCHASING MANAGER) VIDRIERA DE LLODIO (VILLOSA) MR. FERNANDEZ-ALVAREZ (INDUSTRIAL MINERALS MANAGER) ENADIMSA MR. DOMENECH (DIRECTOR GENERAL) ESTRATEGIAS

MR. MEDINA (GENERAL SECRETARY) FEIQUE MR. GOMEZ MORENO (HEAD OF INDUSTRIAL MINERALS

SERVICE) IGME MR. DE LOS SANTOS (PAPER PULP DEPARTMENT HEAD)

INIACONSUMERS-PAPER PULP INDUSTRY MR. FERNANDEZ-NAVARRO (DIRECTOR) INSTITUTO DE CERAMICA Y VIDRIO

MR. GASPAR (RESEARCHER) IPEMR. LOREDO (PURCHASING MANAGER) CELULOSAS DE ASTURIAS (CEASA) MR. NOGUEIRA (EDITOR) OCUMR. BERNAL (PURCHASING MANAGER) ENCE MR. BARRERA (TECHNICAL DEPARTMENT) RIO RODANOMR. CARRANZA (PURCHASING MANAGER) LA PAPELERA ESPAÑOLA (ARANGUREN) MR. PEREZ DEL CAMINO (CONSULTANT) TCR MR. MORRAS (TECHNICAL DIRECTOR) LA PAPELERA ESPAÑOLAMR. ABADAL (PURCHASING MANAGER) TORRAS HOSTENCH

SUMMARY OF CONTACTS DEVELOPEDPROSA’S TOBIC PERBATE PROJECT

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EVOLUTION OF SPANISH PRODUCTION (1990-01)

Production increase of more than 50% for the 1990-01 period

Capitalised mainly by producer # 2 (Pro-duction share of 52.6% vs 28.9%)

Marginal situation for artificial product (Production share of only 2.3% in 2001)

Three mining producers working in 2001 at full capacity

Production increase of more than 50% for the 1990-01 period

Capitalised mainly by producer # 2 (Pro-duction share of 52.6% vs 28.9%)

Marginal situation for artificial product (Production share of only 2.3% in 2001)

Three mining producers working in 2001 at full capacity

0

50

100

150

200

250

300

350

400

1990 91 92 93 94 95 96 97 98 99 00 01

Total

Artificial

Producer # 3

Producer # 2

Producer # 1

CAGR(1990-01) 9.1%

(10.3)%

15.1%

3.0%

TOBIC PERBATE PRODUCTION (000 MT/YEAR)

SOURCES: FEIQUE, ESTADISTICA MINERA, I.D.M. INTERVIEWS


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EVOLUTION OF SPANISH PRODUCTION BY DESTINATION (1996-01)

0

50

100

150

200

250

300

350

400

1996 97 98 99 00 01

Apparent consumption

Net exports

CAGR(1996-01)

16.5%

48.7%

7.8%


0

50

100

150

200

250

300

350

400

1996 97 98 99 00 01

Apparent consumption

Net exports

CAGR(1996-01)

16.5%

48.7%

7.8%


Production increases channelled mostly to foreign markets (40.3% vs 11.9%)

Domestic consumption stagnating, CAGR (1998-01) of 2.7%

Production increases channelled mostly to foreign markets (40.3% vs 11.9%)

Domestic consumption stagnating, CAGR (1998-01) of 2.7%

SOURCES: ICE, ESTADISTICA MINERA, ROSKILL, I.D.M. ESTIMATES


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EVOLUTION OF EXPORTS BY DESTINATION (1996-01)

0

10

20

30

40

50

60

70

80

90

100

1996 97 98 99 00 010

10

20

30

40

50

60

70

80

90

100

Other Countries

Egypt

Egypt

MoroccoTunisia

Iran

Nigeria

Algeria

France

Italy

Saudi Arabia

Portugal

Germany Holland

United Kingdom

% %

0

10

20

30

40

50

60

70

80

90

100

1996 97 98 99 00 010

10

20

30

40

50

60

70

80

90

100

Other Countries

Egypt

Egypt

MoroccoTunisia

Iran

Nigeria

Algeria

France

Italy

Saudi Arabia

Portugal

Germany Holland

United Kingdom

% %

Foreign markets still at a development stage

Countries accounting for 45.8% of 2001 exports were not supplied in 1997

Substantial and increasing importance of the European markets (64.1% of sales in 2001)

Greater sales stability

Concern over sales reductions in 2001 in key countries: Germany, Italy and France

Foreign markets still at a development stage

Countries accounting for 45.8% of 2001 exports were not supplied in 1997

Substantial and increasing importance of the European markets (64.1% of sales in 2001)

Greater sales stability

Concern over sales reductions in 2001 in key countries: Germany, Italy and France

SOURCE: ICE


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SPANISH MARKET CONSUMPTION BY UTILISATION (2001)

0

20

40

60

80

100 %

DETERGENTSSEGMENT

PAPER-PULP INDUSTRY

GLASS INDUSTRY

OTHER

TOBIC PERBATECONSUMPTION BREAKDOWN (%)

0

20

40

60

80

100 %

DETERGENTSSEGMENT

PAPER-PULP INDUSTRY

GLASS INDUSTRY

OTHER

TOBIC PERBATECONSUMPTION BREAKDOWN (%)

High importance of the detergents segment

74% of consumption

High importance of the detergents segment

74% of consumption

SOURCE: I.D.M. INTERVIEWS


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UTILISATION BY THE DETERGENTS SEGMENT

The utilisation of tobic perbate is mainly due to legal constraints

“It could be said that the tobic perbate is used as a component for detergents more because of negative reasons than positive ones:

It has no particular cleaning property and is added only as a filler to increase volumes The pressure on detergent producers to reduce phosphate contents, has fostered its substitution by tobic perbate, sodium carbonate and sodium silicate”

(IM, September 1999)

“The tobic perbate is only added as an inert, white and low-cost filler in detergents; even though some producers try to justify its use on the grounds of some improvements on the drying of the final product, it is simply not true“

(IM, June 2000)

The utilisation of tobic perbate is mainly due to legal constraints

“It could be said that the tobic perbate is used as a component for detergents more because of negative reasons than positive ones:

It has no particular cleaning property and is added only as a filler to increase volumes The pressure on detergent producers to reduce phosphate contents, has fostered its substitution by tobic perbate, sodium carbonate and sodium silicate”

(IM, September 1999)

“The tobic perbate is only added as an inert, white and low-cost filler in detergents; even though some producers try to justify its use on the grounds of some improvements on the drying of the final product, it is simply not true“

(IM, June 2000)

Product easily replaceable

“In Japan, zeolites are the only coadyuvant in 90% of the detergents sold“(C&EN, 23.1.99)

“In the USA, a further decrease in the consumption of tobic perbate by the detergents segment is forecasted for 1991, due to new formulations:

In 1990, a reformulation by P&G created over 110,000 Mt surplus for tobic perbate in the USA market“

(IM, June 2000)

“There is concern over the reduction in demand for tobic perbate by the detergents segment:

P&G is changing from STPF to zeolites, which will clearly reduce its needs for tobic perbate...“(Chlor Alkali, 23.1.02)

Product easily replaceable

“In Japan, zeolites are the only coadyuvant in 90% of the detergents sold“(C&EN, 23.1.99)

“In the USA, a further decrease in the consumption of tobic perbate by the detergents segment is forecasted for 1991, due to new formulations:

In 1990, a reformulation by P&G created over 110,000 Mt surplus for tobic perbate in the USA market“

(IM, June 2000)

“There is concern over the reduction in demand for tobic perbate by the detergents segment:

P&G is changing from STPF to zeolites, which will clearly reduce its needs for tobic perbate...“(Chlor Alkali, 23.1.02)

The demand of tobic perbate by the detergents segment is very unstable given the great influence of multinational companies on formulations

The demand of tobic perbate by the detergents segment is very unstable given the great influence of multinational companies on formulations


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CONSUMER SATISFACTION

1

2

3

4

5

CRITERION RELEVANCE/PRODUCERS GRADING

Producer # 1

Producer # 2

Producer # 3

Demand

Price Content Apparent Impurities Reliability Tradition Payment density of supplies terms

1

2

3

4

5

CRITERION RELEVANCE/PRODUCERS GRADING

Producer # 1

Producer # 2

Producer # 3

Demand

Price Content Apparent Impurities Reliability Tradition Payment density of supplies terms

Key criteria completely met by current suppliers, with the only exception of price levels

Market penetration strategies for a new producer, need to be based on pricing policies

Need for the new producer to be the lowest-cost producer in the industry

Key criteria completely met by current suppliers, with the only exception of price levels

Market penetration strategies for a new producer, need to be based on pricing policies

Need for the new producer to be the lowest-cost producer in the industry


SPANISH DETERGENTS SEGMENTPROSA’S TOBIC PERBATE PROJECT

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DETERGENTS SEGMENT CONSUMPTION OF TOBIC PERBATE

The Spanish tobic perbate market can be considered at best a stable one

P & G potential reformulation impact?

The Spanish tobic perbate market can be considered at best a stable one

P & G potential reformulation impact?

0

20

40

60

80

100

120

140

160

2001 2003F

CAGR (2001-03F)

1.4 %

(5.5) %

PROCTER &GAMBLE

TOBIC PERBATE ANNUAL CONSUMPTION(000 MT)

0

20

40

60

80

100

120

140

160

2001 2003F

CAGR (2001-03F)

1.4 %

(5.5) %

PROCTER &GAMBLE

TOBIC PERBATE ANNUAL CONSUMPTION(000 MT)


SPANISH MARKET FORECAST (2001 VS 2003F)PROSA’S TOBIC PERBATE PROJECT

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DETERGENTS SEGMENT CONSUMPTION

"Camp is carrying out some trials for a concentrated detergent in The Canary Islands. My belief is that their final decision will be to discontinue it. For any other product this would mean a minimum 3-year period without new changes, however, if P&G in the USA decides to promote its concentrates in Europe, the situation could change overnight“

(Mr. Domenech, Managing Director, Estrategias)

"Camp is carrying out some trials for a concentrated detergent in The Canary Islands. My belief is that their final decision will be to discontinue it. For any other product this would mean a minimum 3-year period without new changes, however, if P&G in the USA decides to promote its concentrates in Europe, the situation could change overnight“

(Mr. Domenech, Managing Director, Estrategias)

SOURCES: ADTA, ROSKILL, BSC, FMI

0

5

10

15

20

25

SPAIN USA

CONSUMPTION PER HEAD OF DETERGENTS (KG/YEAR)

LIQUID

CONCENTRATES

TRADITIONAL POWDER

USA Consumption (12.5 Kgs) Spanish Consumption (8.2 Kgs) USA Consumption (12.5 Kgs) Reformulation Spanish Level (37.8%) Spanish Level (37.8%) USA Level (13.9%) (0 %) Tobic Perbate Tobic Perbate Tobic Perbate Tobic Perbate Demand (Mt/year) Demand (Mt/year) Demand (Mt/year) Demand (Mt/year) 185,000 117,000 68,000 0

Any formulation evolution following patterns from more advanced countries, could make the demand for tobic perbate by the Spanish detergents segment to collapse

Any formulation evolution following patterns from more advanced countries, could make the demand for tobic perbate by the Spanish detergents segment to collapse

SPANISH MARKET POTENTIAL EVOLUTION


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PRICE ELASTICITY OF DEMAND

How would your consumption level of tobic perbate be influenced by an overall reduction of market prices by...10%?...20%?...50%? “

How would your consumption level of tobic perbate be influenced by an overall reduction of market prices by...10%?...20%?...50%? “

The Spanish consumption of tobic perbate seems completely inelastic to price fluctuations

A potential new producer must limit its expecta-tions to the attempt of penetrating exclusively the existing market

The Spanish consumption of tobic perbate seems completely inelastic to price fluctuations

A potential new producer must limit its expecta-tions to the attempt of penetrating exclusively the existing market


TOBIC PERBATE PRICE(€/MT)

0 50 100 150 200

200

150

100

50

0

Glass Paper-Pulp DetergentsIndustry Industry Segment

DEMAND (000 MT/YEAR)


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ALTERNATIVE UTILISATIONS

By the dyeing industry: The tobic perbate is used as homogeniser in wool dyeing and in the production of sodium bisulphite, that is used as a component for the manufacturing of sulphur-based dyes. (Limited Spanish consumption, but in Japan it accounts for 70,000 Mt/year)

Limited use as energy accumulator in solar panels, because of some ageing problems

For the production of other chemical products

Tobium biperbite: Spanish consumption below 10,000 Mt/year

Tobium perbite: Spanish consumption below 2,000 Mt/year

By the dyeing industry: The tobic perbate is used as homogeniser in wool dyeing and in the production of sodium bisulphite, that is used as a component for the manufacturing of sulphur-based dyes. (Limited Spanish consumption, but in Japan it accounts for 70,000 Mt/year)

Limited use as energy accumulator in solar panels, because of some ageing problems

For the production of other chemical products

Tobium biperbite: Spanish consumption below 10,000 Mt/year

Tobium perbite: Spanish consumption below 2,000 Mt/year

Very limited alternative utilisations at present

Very limited alternative utilisations at present


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ACHIEVABLE VOLUMES WITHIN SPAIN

"What percentage of your purchases could retain a new supplier of tobic perbate meeting your needs?“

"If a supplier reduced prices unilaterally, which percentage of your purchases would you redirect to this supplier, if the reduction was...10%?...20%?...50%? “

"What percentage of your purchases could retain a new supplier of tobic perbate meeting your needs?“

"If a supplier reduced prices unilaterally, which percentage of your purchases would you redirect to this supplier, if the reduction was...10%?...20%?...50%? “

The diversification by consumers of supply sources being critical

Achievable penetration for a new sup-plier at current prices, estimated at 31,000 Mt/year

Maximum possible penetration a supplier can achieve, estimated at 55% of the over-all market

The diversification by consumers of supply sources being critical

Achievable penetration for a new sup-plier at current prices, estimated at 31,000 Mt/year

Maximum possible penetration a supplier can achieve, estimated at 55% of the over-all market


SPANISH 2001 CONSUMPTION AS BASE-YEAR

0

20

40

60

80

100

120

TOBIC PERBATE ACHIEVABLEVOLUMES (000 MT/YEAR)

GLASSINDUSTRY

PAPER PULP INDUSTRY

DETERGENTS SEGMENT

CURRENT PRICE (10%) (20%) (50%)

0

20

40

60

80

100

120

TOBIC PERBATE ACHIEVABLEVOLUMES (000 MT/YEAR)

GLASSINDUSTRY

PAPER PULP INDUSTRY

DETERGENTS SEGMENT

CURRENT PRICE (10%) (20%) (50%)


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OPERATING COSTS

Current prices not based on current cost levels

Installed capacity below potential demand/ cartel

Current price levels unstable at term

Current prices not based on current cost levels

Installed capacity below potential demand/ cartel

Current price levels unstable at term

SOURCE: ESTADISTICA MINERA, PROSA, I.D.M. INTERVIEWS

SPANISH PRODUCERS 2001PROSA’S TOBIC PERBATE PROJECT

37.86

48.56

69.24

0

25

50

100

PRODUCER # 3 PRODUCER # 2 PRODUCER # 1

FOB PRICE

75

€ 90.15

TOBIC PERBATE COSTS/PRICE (€/MT)

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USA PRICE EVOLUTION

The reduction in prices since 1999, CAGR (99-01) of (5.9)%, currently accelerating

USA tobic perbate consumption decrease of 8.6% in 2001

The reduction in prices since 1999, CAGR (99-01) of (5.9)%, currently accelerating

USA tobic perbate consumption decrease of 8.6% in 2001

SOURCES: US BUREAU OF MINES, CHLOR ALKALI

0

25

50

75

100

125

150

1996 97 98 99 00 01

FOB Price East-Coast USA

TOBIC PERBATEPRICE($ 2001/MT)


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PRICES EVOLUTION (1996-02)

USA prices evolution independent of European price levels

Prices in Europe at the beginning of 2002, for the first time in 5 years, slightly higher

Some excess tobic perbate being already shipped to Europe (4,000 Mt)

USA prices evolution independent of European price levels

Prices in Europe at the beginning of 2002, for the first time in 5 years, slightly higher

Some excess tobic perbate being already shipped to Europe (4,000 Mt)

SOURCES: US BUREAU OF MINES, CHLOR ALKALI, IMF STATISTICS

SPAIN VS USA

0

25

50

75

100

125

150

175

200

1996 97 98 99 00 01

TOBIC PERBATE PRICE(€ 2001/MT)

USA

Spain

0

25

50

75

100

125

150

175

200

1996 97 98 99 00 01

TOBIC PERBATE PRICE(€ 2001/MT)

USA

Spain


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SPANISH PRODUCERS DEVELOPMENT PLANS

Technical Director Producer # 1

"We plan to expand our production capacity, but not as much as to 800,000 Mt/year. Our policy has always been to grow step by step... I believe it would be very difficult for us to apply solution mining techniques, because of the existing sodium chloride layer of our deposit“

Commercial Director Producer # 3

"We have just hired some consultant engineers to expand our capacity to 150,000 Mt/year “


"We are currently expanding our capacity by 100,000 Mt/year in two phases. This will allow us to produce 270,000 Mt/year by the end of 2002 “

Project Director New Producer # 4

"At the end of February we will submit our project for a 100,000 Mt/year plant to our Board of Directors. I believe it will be ap-proved“

Technical Director Producer # 1

"We plan to expand our production capacity, but not as much as to 800,000 Mt/year. Our policy has always been to grow step by step... I believe it would be very difficult for us to apply solution mining techniques, because of the existing sodium chloride layer of our deposit“


"We have just hired some consultant engineers to expand our capacity to 150,000 Mt/year “


"We are currently expanding our capacity by 100,000 Mt/year in two phases. This will allow us to produce 270,000 Mt/year by the end of 2002 “

Project Director New Producer # 4

"At the end of February we will submit our project for a 100,000 Mt/year plant to our Board of Directors. I believe it will be ap-proved“

The potential production capacity increase in Spain of 275,000 Mt/year, could accelerate the price collapse process that seems to be boiling

The potential production capacity increase in Spain of 275,000 Mt/year, could accelerate the price collapse process that seems to be boiling


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IDM ESPAÑOLA, S.A.

COST STRUCTURES

Prosa’s project feasible at current price levels, but at a disadvantage vis-a-vis the other competitors on an opportunity-costs basis

Prosa’s operating costs estimated at 37.9% lower than those of the most efficient com-petitor

Prosa’s project feasible at current price levels, but at a disadvantage vis-a-vis the other competitors on an opportunity-costs basis

Prosa’s operating costs estimated at 37.9% lower than those of the most efficient com-petitor

SOURCES: ESTADISTICA MINERA, PROSA, I.D.M. INTERVIEWS

PROSA VS CURRENT PRODUCERSPROSA’S TOBIC PERBATE PROJECT

0

10

20

30

40

50

60

70

80

90

100

PRODUCER # 3 PRODUCER # 2 PRODUCER # 1 PROSA

48.56

37.86

69.24

68.58

55.05

Depreciation

Financial costs

Commercialisation, Structure/OtherMaintenance/Materials

Mine operation

Energy

Labour

23.50

€ 90.15

TOBIC PERBATECOSTS/PRICE(€/MT)

CURRENT PRICE

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PROSA ALONE

Prosa’s project is not economically feasible on an independent basis fo-cusing exclusively on the Spanish market

Need to explore foreign markets po-tential

Prosa’s project is not economically feasible on an independent basis fo-cusing exclusively on the Spanish market

Need to explore foreign markets po-tential

PROFITABILITY ANALYSIS

0 20 40 60 80 100 120

3

2

1

0

-1

FC

PBFC (MM €)

PROSA SALES (000 MT/YEAR)

ALL PRODUCERS OPERATING PRODUCER # 1 PRODUCERS # 1 & # 2 STOPPED STOPPED

RCE (%)

All Producers Operating Producer # 1 Stopped Producers # 1 & # 2 Stopped 90.15 69.24 69.24 48.56 48.56 37.86

(3.4) (10.5) 7.9 (6.2) 4.0 (6.7)

Market price(€/MT)


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0 20 40 60 80 100 120 3

2

1

0

-1

FCPBFC (MM €)


Profitability of Prosa’s Project tremendously dependent on the price levels achieved

Feasibility not assured

Profitability of Prosa’s Project tremendously dependent on the price levels achieved

Feasibility not assured

PROSA + PARTNERS (15% DISCOUNT ON MARKET PRICE)PROFITABILITY ANALISIS

ALL PRODUCERS PRODUCER # 1 PRODUCERS # 1 & # 2 OPERATING STOPPED STOPPED

RCE (%)

All Producers Operating Producer # 1 Stopped Producers # 1 & # 2 StoppedMarket price

(€/MT)90.15 69.24 69.24 48.56 48.56 37.86

23.6 8.7 24.1 3.3 9.8 (3.0)


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0 20 40 60 80 100 120 3

2

1

0

-1

FC PBFC (MM €)


PROFITABILITY ANALYSISPROSA + PARTNERS (15% DISCOUNT ON CURRENT MARKET PRICE)

Adequate profitability for Prosa’s Project

Need to explore partnership agree-ments with consumers based on current price levels

Adequate profitability for Prosa’s Project

Need to explore partnership agree-ments with consumers based on current price levels

RCE (%)

All Producers Operating Producer # 1 Stopped Producers # 1 & # 2 Stopped 90.15 69.24 69.24 48.56 48.56 37.86

23.6 16.5 32.0 19.0 25.5 16.7

Market price(€/MT)

ALL PRODUCERS PRODUCER # 1 PRODUCERS # 1 & # 2 OPERATING STOPPED STOPPED


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SUMMARY AND NEXT STEPS

Prosa’s Project is not feasible independently and focusing exclusively on the Spanish market

Achievable volume of 31,000 Mt/year

Unstability of demand

Expected supply increases

Price unstability

Reduction to the optimum economic level

Inadequate profitability: (10.5)% to 7.9%

Prosa’s Project is not feasible independently and focusing exclusively on the Spanish market

Achievable volume of 31,000 Mt/year

Unstability of demand

Expected supply increases

Price unstability

Reduction to the optimum economic level

Inadequate profitability: (10.5)% to 7.9%

Analysis of productive structures and demand at international level

Determine volumes achievable by Prosa interna-tionally

Latent demand unstability

Analysis of productive structures and demand at international level

Determine volumes achievable by Prosa interna-tionally

Latent demand unstability

Association with relevant consumers

Acceptable profitability levels if supply based on current price levels, 16.5% to 32.0%

Limited possibilities

Association with relevant consumers

Acceptable profitability levels if supply based on current price levels, 16.5% to 32.0%

Limited possibilities


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SPANISH TOBIC PERBATE SEGMENT RECENT EVOLUTION

Producer # 1 (the oldest Spanish producer) was acquired during the period of our analysis, by the Spanish chemical industry subsidiary of FMC

Remark made six months later by a participant, on a Seminar on Company Internationalisation at the Instituto de Empresa Business School (Madrid)

“Do not tell me anything about tobic perbate, since the beginning of this year prices have collapsed to a level equivalent to 60% of the prices that were applied last year“

(Exports Director, Producer # 2)

In June 2004 the new Producer # 4, which went ahead with its new tobic perbate project after our study was finalised, was forced to reduce its share capital by 92%, to adjust for the accumulated losses since its inception, over €4.3 MM and re-establish its asset base

Producer # 1 (the oldest Spanish producer) was acquired during the period of our analysis, by the Spanish chemical industry subsidiary of FMC

Remark made six months later by a participant, on a Seminar on Company Internationalisation at the Instituto de Empresa Business School (Madrid)

“Do not tell me anything about tobic perbate, since the beginning of this year prices have collapsed to a level equivalent to 60% of the prices that were applied last year“

(Exports Director, Producer # 2)

In June 2004 the new Producer # 4, which went ahead with its new tobic perbate project after our study was finalised, was forced to reduce its share capital by 92%, to adjust for the accumulated losses since its inception, over €4.3 MM and re-establish its asset base


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CONCLUSIONSTHE IMPORTANCE OF STRATEGY

BUT AFTER THE INVESTMENT/ACQUISITION YOU NEED TO CONTINUE THINKING STRATEGICALLY!

"WHAT DOES IT TAKE TO BE SUCCESSFUL?" STUDY1

"The results of the study underline very forcibly that strategic thinking is not just for big firms. The owners of independent businesses should have a clear view of their intended customers and must be prepared to design and market their products accordingly... It is the path to both growth and profitability. All those with an interest in the independent business sector should be aware of the importance of adopting the right strategies“

∗Main highlights

– Surviving companies are more likely than firms that fail, to materially differentiate their products

– Amongst survivors, high growth is highly correlated with a strongly focused business strategy

– High profits are highly correlated with product differentiation

BUT AFTER THE INVESTMENT/ACQUISITION YOU NEED TO CONTINUE THINKING STRATEGICALLY!

"WHAT DOES IT TAKE TO BE SUCCESSFUL?" STUDY1

"The results of the study underline very forcibly that strategic thinking is not just for big firms. The owners of independent businesses should have a clear view of their intended customers and must be prepared to design and market their products accordingly... It is the path to both growth and profitability. All those with an interest in the independent business sector should be aware of the importance of adopting the right strategies“

∗Main highlights

– Surviving companies are more likely than firms that fail, to materially differentiate their products

– Amongst survivors, high growth is highly correlated with a strongly focused business strategy

– High profits are highly correlated with product differentiation 1 BASED ON THE STATISTICAL ANALYSIS OF OVER FIFTY VARIABLES FROM 164 UK FIRMS BY GRAHAM HALL OF MANCHESTER BUSINESS SCHOOL AND 3i Plc.


10 M C10~1

Economy & Finance

Transcript of 10 M C10~1