Annual Report Planned future Profile On the verge of completing 70 years, agrochemicals, among others. With focused on performance excellence since starting its first business in its modern and well-equipped and technological improvement Brazil, Ultrapar Participações has laboratories, it develops products in its products and processes. been well-known for its consistent specially designed for its customers, growth and solid financial situation. a key factor which helps to set the The three businesses employ almost This position has been achieved company apart from its competitors. 7,000 people and participate actively through constant innovation The relationship that the company in the communities in which they in technology and services, enjoys with Brazil’s best-known operate. Several social programs supported by the talent of its universities, as well as both national provide the basis for one of Ultrapar’s people, precise cost control and the and international research centers, central commitments – the constant quest for profitability. together with a team of world class undertaking to grow in a responsible researchers and specialists in the and sustainable manner. Certification Ultrapar is one of Brazil’s largest area of tensoactives, all strengthen in regard to the environment and economic groups and it is in the its leadership in this field. the quality of services provided, process of internationalizing its concern for the health and business – having started three Ultracargo provides outstanding development of employees, as well years ago with an acquisition integrated logistics services, with as the requirement for suppliers in Mexico. The company has a the transport, storage, distribution to meet similar standards, all leadership position in each of and handling of chemical demonstrate company’s responsible segments in which it operates, products and fuels in Brazil. It has attitude in its businesses. through its three subsidiaries: multimodal and terminal operations Ultragaz, Oxiteno and Ultracargo. strategically positioned at Brazil’s The company’s philosophy of main petrochemical complexes transparency is also reflected in Ultragaz, Ultrapar’s oldest business, – Camaçari (BA) and Paulínia (SP), its dealings with the stock market. is the leader in the Brazilian LPG as well as at Brazil’s main ports, With shares listed on the São (liquefied petroleum gas) market, such as Santos (SP), Suape (PE) Paulo Stock Exchange (Bovespa) with a market share of 24%, and the and Aratu (BA). One of its main and the New York Stock Exchange sixth largest independent distributor attributes is its technological (NYSE) since 1999, Ultrapar was in the world. It serves more than 10.5 innovation, which allows the Brazil’s first company to grant tag million homes and approximately company to develop new formats along rights to all its shareholders 30,000 industrial and commercial for logistic operations and processes, in 2000, one year before the new customers in the South, Southeast, including in-house operations. Brazilian Corporate Law came into Northeast and Central West of Brazil. force. Most members of its Board In terms of management tools, the of Directors are independent, while Oxiteno is Mercosur’s sole producer company uses the Economic Value the company complies with the of ethylene oxide and its main Added (EVA®) methodology in all requirements of the Sarbanes- derivatives, with a strategic focus its businesses, while applying the Oxley Act, with a 5-member Fiscal on the production of specialty Balanced Scorecard (BSC) to measure Council, that also performs the chemicals. Its products are used fulfillment not only of the goals duties of the Audit Committee. in the many different industries, established for levels of profitability, such as textiles, paints, cosmetics, cash flow and financial strength, detergents, packaging and but also fulfillment of the strategies Ultragaz – LPG distribution in Brazil Bulk transport truck Imports LPG storage Pipelines Local refinery Bottling facility Bottled delivery truck EntregaHome doméstica delivery Points of sale Bulk transport truck Satellite storage facility Primary storage facility Resellers network Small bulk delivery truck Small bulk client Secondary storage facility Large bulk delivery truck Large bulk client From past to future 1937 to 1960 Foundation of Ultragaz and LPG business expansion – by the end of this period Ultragaz’s client base reaches 1 million consumers. 1960 to 1970 Business diversification – expansion to chemicals and petrochemicals, fertilizers, transport and storage, engineering and agribusiness segments, among others. Incorporation of Oxiteno and Ultracargo. 1970 to 1995 Refocus on businesses in which the company had the strongest expertise (LPG distribution, chemicals and specialized logistics), with the divestment of other businesses. 1995 to 2005 Expansion of activities in LPG distribution, chemicals and specialized logistics, through organic growth and acquisitions. Broadening the scope of corporate governance concepts by going public, simplifying its corporate structure and increasing minority shareholders’ rights. Beginning of the company’s internationalization process. Oxiteno – position in the petrochemical chain... 2nd generation st Refinery 1 generation Oxiteno Petrobras Crackers ✓ ethylene ✓ naphtha ✓ ethylene oxide and its derivatives ...broad coverage of markets and applications of ethylene oxide and derivatives Packaging Food Cosmetics Paints and varnishes Agricultural chemical Hydraulic fluids Resins Detergents Textiles Leather Geographical presence North America Europe Asia Africa Brazil Latin America �������� ������� ���������� Contents Message from the Executive Offi cers Key indicators and highlights Business philosophy and strategy Management fundamentals Innovation Corporate governance Relationship with stakeholders Environment Overview of operations Ultragaz Oxiteno Ultracargo Earnings review and outlook Earnings review Capital markets Investments and outlook Audited fi nancial statements Corporate information Planned future A company which has been in existence for almost 70 years could only have been set up with a vision for the long term. And so Ultrapar has grown, always in tune with different economic environments and committed to the country’s development. In each project, the company stamps its mark with technological and customer service innovations, disciplined capital allocation and respect for people and the environment, principles employed today which ensure the conquests of the future. Solidity, security, effi ciency and quality are refl ected in the synergy with customers and in Ultrapar’s creative profi le, which is focused on achieving its strategic plans, thus gaining new ground and consolidating its leading position in the marketplace. Message from the Executive Offi cers Last year represented a test of the This diffi cult operating environment resilience and solidness of Ultrapar strengthened Ultrapar’s resolve to and its subsidiaries. The operating pursue the strategy of achieving environment was challenging to all growth through increased scale, the our subsidiaries, which had to live with use of outstanding technology and the increase in oil prices, the weaker focus on optimizing expenditure. demand in Brazil, the appreciation in We are reinforcing our efforts to the Real, and the decline in the price capture more value from the sales of petrochemical commodities. of our products and services, while at the same time reducing costs and We reported R$ 299 million in net increasing the company’s profi tability. earnings, 28% below the net earnings achieved in 2004, but 22% above During the year, we have prepared the net earnings posted in 2003, ourselves fi nancially for the expansion a signifi cant result in light of the of our operations, whether through challenging operating environment. organic expansion in Brazil or through At the same time, the strong cash acquisitions abroad. We ended the fl ow in the year led to the distribution year with R$ 1.6 billion in cash, of of R$ 157 million in dividends for which US$ 250 million was raised in the year 2005, representing a 6% the international markets through yield on Ultrapar’s closing share a 10-year bond issue in December, price at the end of the year. which was awarded a credit rating above that of Brazilian sovereign risk. Although we were pleased with the company’s ability to weather such a The company has a major inquietude severe test and manage to keep results for growth. We have a team of highly within historical levels, this situation capable professionals, who constitute is not what we plan for the future. our most important competitive edge. Ultrapar Annual Report | 2005 The investment program approved for consolidated its leadership position this year is substantial. The investment with a 24% share of the market, now budget of R$ 388 million for 2006 far being able to fully concentrate its exceeds the R$ 219 million invested efforts on increasing profi tability. last year. We remain alert to expansion The strategy strives daily for a closer opportunities through acquisitions, at and more effi cient management the same time as continuing to invest of the sales channels, including a in increasing production capacity. program for the review of Ultragaz’s distribution structure, aiming at Oxiteno is to receive investments for rationalizing costs and expenses, as the construction of Latin America’s fi rst well as the optimal use of assets. fatty alcohol plant – comparable to the largest