Suzano Papel e Celulose Posts 4Q/2005 Results
Jan. 31, 2006 (Press Release) - Suzano Papel e
Celulose, one of Latin America's largest integrated producers
of pulp and paper, announces its consolidated results for the fourth quarter
of 2005 (4Q05). The operational and financial figures in this release are the
consolidated results, in Reais, by the Brazilian Corporate Law accounting
method, but -- unless stated -- exclude the effect of consolidation of the
23.03% interest in Ripasa S.A. Celulose e Papel.
* Lower average FX rate and higher closing FX rate in 4Q05 affect both
margins and net income.
* Net Sales in US dollars reached US$ 1.05 billion (2004: US$ 902 million)
and Ebitda was US$ 350 million (US$ 355 million in 2004).
* R$ 94 million in net FX losses in 4Q05 was the main reason for a net
loss of R$ 3 million.
* R$ 22.8 million in non-recurring costs and expenses impact Ebitda margin
in 3.3 percentage points in the quarter. Recurring Ebitda margin of
* Record production of 1,368,700 tons and record sales volume of 1,350,700
tons in 2005.
* Start of implementation of the Mucuri Project. Financing structured.
During the 4Q05, the Brazilian currency volatility adversely affected cash
generation (Ebitda) and net income. The lower average FX rate reduced export
prices in reais and R$ 94.5 million was registered as FX net losses due to the
devaluation of the end FX rate in the quarter, decreasing our net income.
During the year, net sales totaled R$ 2.6 billion, 3.3% lower than in
2004. In US dollars net sales reached US$ 1.05 billion, a 16.2% growth against
2004. Ebitda in reais reached R$ 848.9 million, or 18.3% lower than in 2004.
Measured in dollars, Ebitda was at US$ 349.5 million, in comparison with
US$ 354.6 million in 2004. Considering the effect of the acquisition of 23.03%
of Ripasa, the consolidated Ebitda reached US$ 376.7 million, with net sales
of US$ 1.15 billion. In 4Q05, non-recurring costs and expenditures reached
R$ 22.8 million and represented an impact of 3.3 percentage points in Ebitda
margin. The leverage (net debt/Ebitda) pro-forma, not considering the payment
for the control of Ripasa was 1.88 in comparison with 1.56 at the end of 2004.
We set a new production record in 4Q05 of 357.8 thousand tons, of which
149.3 thousand tons was market pulp. Over the whole year we produced
1.369 million tons: 544.0 thousand tons of market pulp, and 824.7 thousand
tons of paper -- higher figures than the nominal capacity of the equipment.
The production cost in 2005 was increased due to: (i) the learning curve
of the newly-optimized pulp plant at Mucuri temporarily expanded the levels of
specific consumption of fuel, wood and chemicals until the peak at 2Q05, when
a downward trend started towards normal levels -- but still affecting the
average for the year; (ii) price increases in chemical inputs and fuel;
(iii) higher volume and price of wood purchased in the LOAP (Land Owner
Assistance Program - "Fomento"); and (iv) higher fixed costs, maintenance, and
indirect industrial expenses, which included non-recurring events. Market pulp
cash production cost, including around R$ 35/ton for wood, was 1% higher -- at
R$ 510/ton -- than in 2004. We expect to reduce costs in 2006, by achieving
lower specific consumption of production inputs and decreasing total and unit
Market pulp cash production cost R$ 515/ton in 4Q05
The cash production cost of market pulp produced at the Mucuri unit in
4Q05, which includes the cost of standing wood, was R$ 515/ton
(US$ 229/ton), which compares with R$ 511/ton (US$ 217/ton) in 3Q05. The
average cost of depletion in 4Q05, including the figures above mentioned, was
R$ 35/ton, equivalent to US$ 15/ton. The increase in Reais from 3Q05 mainly
reflects increased fixed costs of maintenance and indirect manufacturing
costs, which include non-recurring items totaling R$ 3.1 million or
approximately R$ 20 per ton.
Ebitda 2005 compared with 2004
(Gross Profit minus SG&A and other operating expenses, plus depreciation,
depletion and amortization)
The pressures of exchange rate variation, together with the reduction in
domestic market demand and, to a lesser extent - increased production costs,
affected our operational performance adversely, with gross margin falling from
45.1% in 2004 to 37.5%. Ebitda in 2005, at R$ 848.9 million, was 18.3% lower
than in 2004. Ebitda margin was 33.2% (on net sales), compared to 39.4% in the
previous year. In dollars, however, Ebitda was US$349.5 million, only 1.4%
less than in 2004.
There were positive factors within Ebitda:
(i) Growth in volumes sold in both paper and pulp, as described above.
(ii) Reduction in sales and administrative expenses by R$ 25.7 million,
even though they included: (a) non-recurring restructuring
expenses (acquisition of Ripasa, and the new organizational model
for Suzano Papel e Celulose), totaling R$ 14.1 million in 2005;
(b) increase in provision for doubtful accounts, of R$ 3.4
million; (c) greater export logistics expenses.
(iii) A non-recurring reversal of a federal taxes provision (Cofins tax)
in the Mucuri Unit, totaling R$ 16.0 million.
These were offset by:
(i) The reduction in average prices in Reais.
(ii) The increase in unit Cost of Sales from R$ 1,128.50 to R$
1,180.90, resulting from (a) increase in consumption of specific
inputs at Mucuri; and (b) higher logistics expenses due to the
higher volume exported.
EBITDA 4Q05 compared with 4Q04
Our 4Q05 Ebitda, of R$ 190.5 million, was 15.0% less than in 4Q04. Ebitda
margin (on net sales) was 28.1%, compared to 34.1% in 4Q04. The figure for
Ebitda in dollars, not suffering the same exchange rate effect, was
US$ 84.6 million, 5.2% more than in 4Q04.
Thee positive factors that impacted Ebitda were:
(i) Growth in volumes sold in both paper and pulp, as described above.
(ii) Reduction in sales and administrative expenses by R$ 22.4 million,
even though they included:
(a) non-recurring restructuring expenses (acquisition of Ripasa,
and the new organizational model), totaling R$ 4.2 million in
(b) increase in provision for doubtful creditors, of
R$ 4.3 million;
(c) greater export logistics expenses; and
(d) non-recurring recovery of federal taxes (Cofins tax) in the
Mucuri Unit, totaling R$ 16.0 million.
These were offset by:
(i) Average prices in Reais 15.4% lower.
(ii) Higher Cost of Sales, on higher volume sold.
The non-recurring costs and expenditures in 4Q05 reached R$ 22.8 million,
and include: (i) R$ 7.1 million in inventory adjustment and fixed costs; and
(ii) R$15.7 million in commercial expenditures and SG&A.
Net income- 2005 compared with 2004
As well as the operational factors affecting Ebitda, other factors were
instrumental in the lower net income, of R$ 499.6 million in 2005 - compared
with R$ 603.0 million in 2004:
(i) Higher net financial expenses, totaling R$ 137.1 million, 6.3%
more than in 2004.
(ii) Greater appreciation of the Real in 2005 than in 2004, resulting
in net exchange rate-related gains of R$ 169.6 million, compared
to R$ 61.4 million in 2004.
(iii) An actuarial provision of R$ 19.3 million constituted for free
hospital benefits for retirees, after adoption of more restrictive
(iv) Lower payment of income tax and Social Contribution tax, due to
the lower net profit: a provision of R$ 151.0 million in 2005,
compared with R$ 197.8 million in 2004.
Net income for 4Q05 compared with 4Q04
The differences between net income in 4Q04, of R$ 136.3 million, and the
net loss of R$ 3.0 million reported for 4Q05, reflect the following factors:
(v) Depreciation of the Real, which resulted in a net FX-related
expense of R$ 94.2 million, compared with net FX-related revenue
of R$ 75.5 million in 4Q04;
(vi) A provision for actuarial losses of R$ 19.3 million relating to
free hospital benefits for retirees, after adoption of more
restrictive criteria for this variable;
(vii) A credit of R$ 19.5 million in income tax and Social Contribution
Tax, for the loss reported in 4Q05, which compares with a
provision for payment of R$ 57.9 million in 4Q04.
Capital expenditure of R$ 523.7 million in 2005
Capital expenditure by Suzano Papel e Celulose in 2005 totaled
R$ 523.7 million, or US$215.0 million, made up of: (i) R$ 51.8 million in
expansion of the forest base; (ii) R$ 142.9 million in industrial
modernization; (iii) R$ 244.4 million in current investment in forestry and
industrial plant; (iv) R$ 83.4 million in the Capim Branco power plant; and
(v) R$ 1.1 million in other projects. The most important projects were the
expansion at Mucuri and the optimization of the existing Mucuri pulp line,
which increased its production capacity by 60 thousand tons/year.
The Capim Branco hydroelectric power plant will provide self-sufficiency
in electricity when operating at full capacity. Startup of the first phase
will be in 2006, with generation capacity of 250 MW, and the second phase,
adding 200 MW, is planned for startup in March 2007.
Total capex in 4Q05 was R$ 250.6 million, with R$ 76.9 million spent on
the Sao Paulo units and R$ 149.6 million on the Mucuri unit. A further
R$ 23.3 million was disbursed for the Capim Branco hydroelectric project. Of
total capital expenditure in 4Q05, (i) R$ 49.3 million went into forestry for
the expansion project; (ii) R$ 105.7 million into industrial modernization;
and (iii) R$ 102.8 million into current investment in the existing industrial
and forestry areas.
Net debt of US$925.2 million
On December 31, 2005 Suzano's consolidated net debt was R$ 2.335 billion.
Excluding the payment for the purchase of Ripasa, consolidated net debt was
R$ 1.593 billion, compared to R$ 1.616 billion at the end of 2004,
representing 1.88 times 2005 Ebitda - compared to 1.56 times Ebitda for 2004.
This increase reflects the lower Ebitda in 2005, and the volume of capital
expenditure on the expansion projects.
Suzano Papel e Celulose is one of the largest integrated producers of
paper and eucalyptus pulp in Latin America, with pulp production capacity of
1.1 million tons/year and paper production capacity of 820 thousand tons/year.
It offers a broad range of pulp and paper products to the Brazilian and
international markets, and has leadership positions in key segments of the
Brazilian markets. It has four principal product lines: (i) eucalyptus pulp;
(ii) uncoated woodfree printing and writing paper; (iii) coated woodfree
printing and writing paper; and (iv) paperboard. Suzano Papel e Celulose has
50% of the controlling interest in Ripasa S.A Celulose e Papel ("Ripasa"),
which produces pulp, printing and writing paper, specialty papers, paperboard
and cardboards. Ripasa reported net sales of R$ 1.4 billion in 2004 from sales
of 612,000 tons of products. It has four industrial units in São Paulo State
and forest areas totaling 86,400 hectares.
Certain statements in this document may constitute forward-looking
statements -- projections or statements about future expectations. Such
statements are subject to known and unknown risks and uncertainties, which
could cause such expectations not to materialize or actual results to differ
materially from those set forth in the forward-looking statements. These risks
include: changes in future demand for the Company's products, changes in the
factors which affect domestic and international prices of the products,
changes in the cost structure, changes in seasonal market patterns, changes in
prices charged by competitors, exchange rate variations, or changes in the
Brazilian political or economic scenario, or in emerging and international
markets in general.
Suzano Bahia Sul Papel e Celulose S.A.