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 fixed costs.

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.

Forward-looking statements

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.

SOURCE: Suzano Bahia Sul Papel e Celulose S.A.

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