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Ripasa in the limelight again*.

According to the Hollywood formula, successful films should have a sequel. In this case, what works for the film studios can also be used in the pulp and paper industry. Ripasa has taken this to heart; just months after launching their ambitious expansion project, they've already begun to hint that there's more to come.

The next installment--involving the optimizing of the pulp plant's capacity--is budgeted at US$ 50 million. This move is in keeping with the bright outlook for the international pulp market. It is also an indication of the company's commitment to evolution, based on their own efforts.

Although this is the company's preference, it doesn't reject other possibilities in its pursuit of competitiveness. "The path for Brazilian pulp and paper companies is to grow, increasing in scale and production, and economic and financial capacity. If it is possible to achieve all this using one's own resources then fine, but if this process has to take place through mergers, partnerships, acquisitions, or even by going to the Brazilian capital markets, this possibility should not be discarded," says Romeu Alberti Sobrinho, financial and investor relations director of Ripasa.

Ripasa will sell its pulp on the international market, thus further expanding its overseas business. Below, Sobrinho explains the next steps and the company's vision of the pulp market.

O Papel: How is this US$ 50 million investment allocated and what is the principal focus?

Romeu Alberti Sobrinho: The approval of this investment by the Ripasa Board of Directors, in the amount of US$ 50 million, applies to the pulp plant in the Ripasa I unit, located in Limeira, Sao Paulo. It is an optimization. Although the practical effect is an increase in pulp production by around 105,000 metric tons/year, this capacity has already existed since the unit's last expansion. Thus, it doesn't involve any new investment in the pulp production line, but rather increased capacity in raw material extraction. The pulp market is promising at this time, with rising prices and expectations for growth continuing for at least the next two or three years. As a result, we decided to propose this optimization, which will mean a total surplus of up to 200,000 metric tons/year of pulp, with dry volume, including the current surplus and the increase resulting from this optimization. We expect to complete this investment by around mid-2005. Because we will dry our pulp, we will, of course, export it. The difference is that we can export only this increase of 105,000 metric tons/year or, to be precise, up to the entire surplus, which could reach between 180,000 and 200,000 metric ton/year.


O Papel: How will the new investment influence the marketing of Ripasa's pulp on domestic and international markets?

Sobrinho: By early 2003, our installed capacity was 310,000 metric tons/year. Today, it is 455,000 metric tons/year. In terms of market pulp, we sell 80,000 to 100,000 metric tons/year entirely to the domestic market. With the optimization completed, its installed production capacity will jump to 560,000 metric tons/year. Of this amount 180,000 to 200,000 metric tons/year will be sold to domestic and international markets, with the option of all of this being dry pulp. This investment is exclusively to enable the drying of pulp, with the purchase of a dewaterer and dryer for Ripasa unit 1, located in Limeira. But Ripasa doesn't intend to be considered a player in pulp, seeing as this is comparatively a very small volume. But for us it is a good business, because we will have an additional volume with a relatively small investment, around US$ 476 per metric ton/year in a very short time--around 12 months--with a very satisfactory return. The experience will provide us with greater knowledge of the international pulp market. However, our focus remains the second phase of the production chain--papers and board. For Ripasa, pulp is still an input, but now it is turning into a commercial product, which will also be exported.

O Papel: Although the sector has always thought about the long term, what are Ripasa's goals in 2004?

Sobrinho: Our goals, like other Brazilian pulp and paper companies, are closely linked to what happens to the economy. For us, the last two years were not great in terms of economic growth. Now, in early 2004, averages for our products on domestic markets are lower than last year in the same period, which was also lower than in 2002. But we have various objectives for this year. In the context of a more healthy economic climate, our objective will be to increase our market share in specific markets, especially in those where we invested last year, such as off-set and coated papers. We still have debts to amortize, resulting from loans taken out for our expansion project. The year 2004 is very important for reducing our debt load. We are also allocating resources to increase our forest base, to prepare for a greater pulp production growth in a few years. We have some new management mechanisms in the company, based on creating shareholder value, and we will prepare our strategic planning in a participatory manner, outlining what the company will be in the next five to 10 years. So Ripasa is going through a phase of investments that goes beyond production, to the market and management.

O Papel: And what's behind these conceptual changes in Ripasa's management?

Sobrinho: In this kind of transformation, the initial stage is usually one of investments in product, production, quality, and environmental control, which strengthens the company by giving it greater scale and weight. The second stage is generally a degree of "financial vulnerability," as a sort of collateral effect of the first, because the company has invested heavily in the first stage. Ripasa already went through that in the late 1990s and we are now entering a new phase, which involves an increase in scale and expansion of the mix of products. We have successfully passed this stage and now, having reached a suitable scale, it is the right time to invest in management, to make the most of the company's assets through productivity, efficiency, increased economic value, etc.

O Papel: For Ripasa, what were the steps taken leading up to this period of changes in the company's management approach?

Sobrinho: We started some years ago, but this type of change always follows its own priorities. We first invested heavily in production process controls, such as technologies for information and the factory floor, and production processes for pulp and paper, couche, etc. The capital was invested, in order to obtain complete control over production, the processes involved, and quality. Subsequently, we invested in software aimed at the market, which allows us to serve our clients with greater quality and flexibility, and which allows clients to enter our system to monitor their order and the status of the invoice, credit, and other information. Later, we improved our system of warehousing, stocks, software, and maintenance. We are now starting to invest in tools that will drive us to a strategic approach to improving our management, to truly increase the value of the company.

O Papel: While different companies in the sector are pursuing mergers and other forms of strategic partnerships in Brazil and the world, Ripasa for now continues to buck this trend and to "walk on its own two feet." What are the advantages of this path for the company, and in the context of increasing competitiveness, how far can one go this way?

Sobrinho: This is a very difficult question to answer, because growing in this way requires certain actions, such as reinvestment of profits, raising resources for growth, or issuing shares on the financial markets. But this is all subject to the decisions of an assembly, which has voting power. Thus, it is difficult for the executives to speak for the shareholders. Until now, our growth was supported by reinvestment of profits, financing, and at some points in the past, by issuing shares. Whether or not to continue on this path is a decision that must be made by the company's controlling shareholder.

O Papel: Some executives from BNDES [the Brazilian Development Bank] have stated that the way forward for Brazilian pulp and paper companies is to become more "globalized." In this context, how would you describe Ripasa currently?

Sobrinho: The way forward is to grow, increasing scale, size, and economic and financial capacity. If it is possible to achieve all this using one's own resources, fine. If this process has to take place through mergers, partnerships, acquisitions, or even by going to the Brazilian capital markets, this possibility should not be discarded. The greater objective has to be growth. If Brazilian companies don't pursue this strategy, for sure foreign companies will. At Ripasa we have to solidify our position and try to generate sufficient resources to support our new growth, because we don't have policies or guidance from a controlling shareholder, stating that the next step should be a merger, acquisition, etc. Thus, we have to do the best we can, at least for now, with our own resources, to continue growing. No country is able to have five or six number-one companies. This is not at all important. However, each of these companies needs to be doing well in whatever position they find themselves.

O Papel: Many Brazilian pulp and paper companies already have shares traded in stock markets overseas. What are Ripasa's plans in this regard?

Sobrinho: I am sure that the future has this in store for us as well. However, even to trade on the Sao Paulo Stock Exchange, for example, one must meet a range of criteria, such as having a given size and revenue. There must be something attractive to the local or international investors who invest in the Brazilian stock exchange. We have been listed on the domestic stock exchange since the 1980s, but to become attractive to the international markets, such as New York, Madrid, or Frankfurt, you must be a larger and more robust company. This is where we are moving to, but we are not yet ready, and we need to grow a little more. What is important is that this consideration is part of Ripasa's growth plans. This year, for example, we will move our systems to an international accounting standard, which is a virtual necessity to participate in the international stock markets. The development of the company's business and its size is what determines this route.

O Papel: We could say that among the largest companies in the Brazilian sector, Ripasa was one of the last to announce its investments in modernization and expansion. This is related to the option of not joining forces with another large company of the sector.

Sobrinho: We could put it like this: you have a site, which offers you the possibility of expanding to a certain limit, but no further. In the past we had and still have the potential for expansion, particularly in the Ripasa 1 unit in Limeira. That unit currently has the capacity to produce 455,000 metric tons/year of pulp. In 2005, this will reach 560,000 metric tons/year of pulp, with the potential to reach close to 900,000 metric tons/year of raw material, along with having space for another large paper machine. There are big steps yet to be taken, but when we translate these steps into resources, we see that it means a lot of money. The limitation is in the economic-financial area, while technology, for example, is no longer a limiting factor.


* Ripasa's plans for capital investment will affect pulp production.

* How Ripasa's management approach has changed.

* Constraints faced by Brazil's pulp and paper companies.


* Learn more about Ripasa at the company's web site:

* Also visit ABTCP/O Papel's web site:

* This interview is adapted from the April 2004 edition of O Papel.
COPYRIGHT 2004 Paper Industry Management Association
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:Brazil
Author:Saraiva, Fabio
Publication:Solutions - for People, Processes and Paper
Date:Oct 1, 2004
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