Fibria Reports Third Quarter 2015 was 'Best Operational Performance in its History'
In the third quarter, eucalyptus pulp sales were driven by strong global demand, particularly in mature markets such as Europe and China, due to newly installed paper plants.
October 23, 2015 – Fibria, a Brazilian forestry company and the world's leading eucalyptus pulp producer, closed the third quarter of 2015 with the best operational performance in its history, breaking records for EBITDA, EBITDA margin and free cash flow. This was the result of strict financial discipline and operating excellence, combined with strong global demand for pulp and the appreciation of the U.S. dollar.
In the quarter, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) reached R$1.55 billion, up 683% over the same period in 2014 and 127% over last quarter. EBITDA margin was the highest in Fibria's history at 56%, a gain of six percentage points over the last quarter and 21 percentage points over the same period in 2014. Bolstered by the appreciation of the U.S. dollar against the Brazilian real, free cash flow generation excluding capex on the Horizonte 2 Project came to R$1.12 billion in the quarter, more than double than in the second quarter of 2015 and accounting for nearly 50% of free cash flow in the last 12 months, which came to R$2.297 billion before distribution of dividends in May and capex on the Horizonte 2 Project.
“We did our homework well and are now reaping the rewards. Our strong cash generation enables us to execute the Horizonte 2 Project, which involves expansion of the Tres Lagoas (MS) unit, without compromising Fibria's credit quality. At US$2.5 billion in investments and currently under construction, the project is one of the largest private investments underway in Brazil and is a milestone for competitiveness in the sector,” said Marcelo Castelli, CEO of Fibria.
In the third quarter of 2015, Fibria's net revenue was R$2.79 billion, up 60% from the same period in 2014 and 21% from the previous quarter. Eucalyptus pulp sales in the third quarter were driven by strong global demand, particularly in mature markets such as Europe and China, due to newly installed paper plants. As such, the typical seasonal downturn in pulp demand in the third quarter — weaker months due to shutdowns by paper producers during summer vacation in the Northern Hemisphere — was practically nullified and Fibria sold 1.298 million tons, outpacing the previous quarter and reducing inventories to 53 days.
[On Oct. 22], the meeting of the Board of Directors of Fibria approved its new Dividend Policy. In implementing the approved policy, the Company proposes the distribution of dividends of R$2 billion, subject to approval by shareholders at the Extraordinary Shareholders Meeting called for November 30. Factors behind the Company's decision to submit this proposal include Fibria's low leverage level, strong cash generation, a cash position above the minimum cash requirements, low average cost of debt and the fact that funding for the Horizonte 2 Project has already been settled. With this, Fibria demonstrates its commitment to capital discipline. If the proposal is approved, the dividends should be paid in December 2015.
“With this Dividend Policy, we signal to the market that Fibria's management will base this dividend payment proposal on its capacity to generate cash while respecting its financial policies — particularly the Debt and Liquidity Policies — and upholding its commitment to remain Investment Grade, and also considering its strategic plans,” said Guilherme Cavalcanti, Chief Financial and Investor Relations Officer of Fibria.
Fibria ended September with net debt of US$2.411 billion, down 19% from the third quarter in 2014 and 9% from the balance at the end of June. This debt reduction, coupled with EBITDA growth, led Fibria's leverage, as measured by the net debt/EBITDA ratio, to decline to 1.58 times in dollar terms — the lowest in the Company's history.
Since Fibria is an exporter and since more than 90% of its debt is in U.S. dollar, any depreciation of the Brazilian real favors the Company's financial conditions by increasing its free cash flow. However, it also has a non-cash accounting effect of increasing the balance of dollar debt when the same is translated into real. Thus, the appreciation of the dollar in the quarter had an accounting effect on Fibria's net result, which ended the period with a book loss, with no cash effect, of R$601 million.
“Fibria is living one of the best operational and financial moments of its history. The net result of income or loss is an accounting portrait that does not adequately reflect the Company's capacity to generate value for shareholders, as measured by free cash flow. When the exchange rate stabilizes, the effect of exchange variation will cease to exist in the Company's books and the Company will begin to report a net result that better reflects its economic and financial performance. Excluding the effects of exchange variation, Fibria's net result in the quarter would have been an income of R$873 million," Mr. Cavalcanti explained.
Based in Sao Paulo, Brazil, Fibria is a producer of market pulp (eucalyptus) with an annual production capacity of 5.3 million tons. To learn more, please visit: www.fibria.com.br.