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Page 1: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

CORPORACIÓN DURANGO, S.A. DE C.V.

Sep 27, 2005

The largest papermaker in México…

INVESTOR PRESENTATION

Page 2: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

The CompanyCORPORACIÓN

DURANGO

THE COMPANY

1

Page 3: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

The Company

2

The largest papermaker in México

A competitive company in the international compass, in operations, processes, products and capital cost

Positioned to benefit from the next cycle of recovery of the national economy and of the international paper industry

1 2

3

CORPORACIÓN

DURANGO

Combined sales for $ 1,000 millions of dollarsduring the last twelve months

4

Page 4: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

Corporación Durango:

through Grupo Industrial Durango, is the largest manufacturer of brown papers in Mexico;

is the largest national producer of newsprint through Grupo Pipsamex;

its packaging division, Empresas Titán, is the largest manufacturer of corrugated packaging in Mexico;

is the Mexican paper company with the largest industrial operations in the United States, with Durango-McKinley Paper Company;

and is also one of the largest manufacturers of bleached paper for writing and printing and paper sacks for the national cement and food industry in Mexico.

Corporate ProfileCORPORACIÓN

DURANGO

3

Page 5: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

Operational OrganizationCORPORACIÓN

DURANGO

SALES CONTRIBUTIONPER SEGMENT

RESULTS CONTRIBUTIONPER SEGMENT

BROWNPAPERS

NEWSPRINTBOND

PACKAGING

BROWNPAPERS

NEWSPRINT BOND

PACKAGING

32%

13%42%

13%

14%

20% 19%

47%

BROWNPAPERS

NEWSPRINT

BOND

CORRUGATEDCONTAINERS

PACKAGING AND SACKS

FORMS

NOTEBOOKS

BROWN PAPER

CORRUGATEDCONTAINERS

1st. Half, 2005 1st. Half, 2005

DIVISION

PAPERDIVISION

PAPER PRODUCTSDIVISION

PAPER PRODUCTSDIVISION

PAPER

GRUPOINDUSTRIAL

DURANGO PIPSA-MEXGRUPO

T I T A NEMPRESAS

FORMA-TODO McKINLEYPAPER

McKINLEYCONTAINER

CORPORACIÓN

DURANGO

4

Page 6: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

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The Company / LeadershipCORPORACIÓN

DURANGO

1,075

CORPORACIÓNDURANGO

SMURFITMEXICO

GRUPOCOPAMEX

KIMBERLYCLARK

935

552

354

O E M

309

GRUPOGONDI

220

The Largest Papermakerin México

PACKAGING

BROWNPAPERS

809

354220

GRUPODURANGO

SMURFITMEXICO

GRUPOGONDI

NEWSPRINTand B O N D

266

104

PIPSA OEM

609

430

240

TITAN SMURFITMEXICO

GRUPOGONDI

Thousands Tons

PRODUCTION 2004

Based on Thousands Tons of Manufactured Paper in 2004

-Source: National Camera of Pulp and Paper Industry

Page 7: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

Building a World-Class Company

Operating 40 industrialplants in México andin the South of the United States

6

MONTERREY

DURANGO

CULIACAN

GUADALAJARAQUERETARO

CD. DE MEXICO

TRES VALLES

TUXTEPEC

TAPACHULA

CHIHUAHUA

PREWITT

MEXICALI

NOGALES

ALBUQUERQUE

EL PASO

DALLAS

RIO BRAVO

HOUSTON

REGIONALPRESENCE MARKET

U.S.22%

MEXICO78%

THE COMPANY

PHOENIX

BAJIOParticleboard PlantCellulose PlantPaper MillPackaging PlantWastepaper Collecting Center to RecycleHeadquarter Offices

NAFTA

**

*

*

**

*40 industrial plantsin Mexico and US

**

CORPORACIÓN

DURANGO

Page 8: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

Strategic ReengineeringCORPORACIÓN

DURANGO

STRATEGIC REENGINEERING2002 - 2004

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Page 9: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

Strategic Reengineering

Business Strategic Plan (2002 – 2004)

1-

2-

3-

FINANCIAL REENGINEERING

OPERATIONAL REENGINEERING

ORGANIZATIONAL REENGINEERING

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CORPORACIÓN

DURANGO

HARD TIMES . . . Times of Opportunities

Page 10: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

Financial Reengineering

Provide the company with a more solid and competitive structure of capital, to face in the future any depression like the one we had."

Friendly negotiation with creditors

Significant Reduction of debt

Considerable Reduction of interest rate

Important Reduction of financial cost

Significant Extension of the period of amortization

Substantial Growth of financial flexibility

OBJETIVE:

GOALS:

9

. . . objective achieved

An Efficient

"

CORPORACIÓN

DURANGO

ACHIVEMENTS :

FINANCIAL REENGINEERING

$1’077

$649

11.2%

6.9%

$115

$45

1.0

8.0

DEBT (Million Dollars)

INTEREST RATEANNUAL AVERAGE

FINNANCIAL ANNUAL COST(Million Dollars)

DEBT MATURITY(Years)

BeforeRestructuring

AfterRestructuring

- 40% - 36% - 61%

81%

DEBT/ ASSTS

48%

*

* In this restructuring the Company honored 100% of its obligations with its creditors. One portion of debt has been exchanged for 75% of capital, benefiting in a better financial structure for the Company.

Page 11: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

Financial Reengineering

10

CORPORACIÓN

DURANGO

40% Debt reduction

Reduction of interest rate from 11.2% to 6.9% annual average

61% Annual financial cost reduction

Saving for $560 millons of dollars in financial cost in the following 8 years

8 years new debt matirity profile

An efficient financial reengineering

Wide financial flexibility

CALENDAR OF DEBT AMORTIZATION 2005 - 2012

MainShareholders

80% 20%Invest ors

CONTROLEQUITY

Public

$18

2005

$27$24

2006 2007 2008 2009 2010

DEBT AMORTIZATION

Million Dollars

$23$24 $26

2005 - 2012

$459

2011 2012

$32

Page 12: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

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Operational Reengineering (2002 – 2004)CORPORACIÓN

DURANGO

Optimize the operational platform, divesting those non strategic operations or non viable in the business vision assets of the company, to invest those resources in order to reduce debt and strength the operations"

Rationalize operations

Increase productivity

Increase production

Improve mixture of products and prices

Control production costs below industry costs

OBJECTIVES:

GOALS:

OPERATIONAL REENGINEERING

"

. . . objective achieved

Divestitures of non strategic assets per $ 124 MD

Strengthen of the Financial Structure

Investment in internal projects and reduction of debt

Considerable Increase of productivity

ACHIEVEMENTS:

An Efficient

Page 13: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

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Incorporate advanced technology in systems, operations and processes to optimize and simplify the operational and administrative structure, rationalize operations, improve processes, reduce costs and improve the productivity of the company"

OBJECTIVES

Organizational Reengineering (2002 – 2005)

"

CORPORACIÓN

DURANGO

ORGANIZATIONAL REENGINEERING

. . . objective achieved

Redesign an organizational structure into a flatter, thinner, more balanced and more focused one

Reduction of personnel from 8,174 in 2000 to 7,551 in June 2005, a reduction of 623 persons

Real Increase of 26.0% in the productivity (Production/Personnel) of the human resource

ACHIEVEMENTS:

An Efficient

Page 14: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

OutlookCORPORACIÓN

DURANGO

OUTLOOK2005 - 2010

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Page 15: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

14

Paper IndustryCORPORACIÓN

DURANGO

Highly intensive in Investment (1.5 : 1.0)

Sensitive to economy cycles

Sensitive to the balance global offer-demand

Sensitive to the cost of energy

Sensitive to the volatility of international raw material cost (China)

Cyclical in profitability (1.0 : 2.0)

All of this establishes a high barrier for new participants to enter in the new sector

Today, a new generation of leaders is in charge of the international industry, highly oriented to reach a competitive a return for investment

Recovery of the industry profitability to be expected in the last quarter 2006

Attractive perspective of return of investment in the industry in a middle term, in line with other industrial branches intensive in capital

Page 16: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

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Strengths and Competitive AdvantagesCORPORACIÓN

DURANGO

Market leader

Competitive structure of cost of production

Economy of scale

Latest technology

High vertical integration

International synergies

Competitive products and services

Wide net of production and national distribution

Exposure to markets of high growth

Diversification of products, markets and costumers

Solid business relationship with an important foundation of national and international costumers

Low cost of capital

Financial flexibility

Public Company listed in the Mexican Stock exchange Market (CODUSA) and regulated by the Securities and Exchange Commission (SEC)

The best management practices and corporate governance

Business Transparency

Intellectual capital of high growth, proved in crisis

Ecological company and socially responsible

COMPANYFUNDAMENTALS

LOW PRODUCTIONCOST

LOW COSTOF CAPITAL

MARKETLEADER

CORPORACIÓN

DURANGO

Page 17: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

During the last 20 years, the company has been writing a story of growth and development in the paper

industry, distinguishing itself for its ability to successfully endure recurring crises in the Mexican and international economies, as well as crises in its own industry, emerging from these with improved

competitive advantages in a challenging world where

the only constant is change.

ConclusionsCORPORACIÓN

DURANGO

16

Page 18: CORPORACIÓN DURANGO, S.A. DE C.V. Sep 27, 2005 The largest papermaker in México… INVESTOR PRESENTATION.

CORPORACIÓN DURANGO, S.A. DE C.V.

. . . Building a world class company


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