Klabin's Q1 net income grows more than three-fold over year-ago period to 140M Brazilian reias assisted by currency appreciation, sales up 13% to 957M Brazilian reias reflecting higher sales volume
April 29, 2011
– 1Q11 Highlights
• Sales volume: 438 thousand tonnes, up 1% from 1Q10;
• Net revenue: R$ 957 million, up 13% from 1Q10;
• Net revenue from domestic sales: R$ 711 million, up 13% from 1Q10;
• Net revenue from exports: R$ 246 million, up 14% over 1Q10;
• Solid cash position: investments reach R$ 2.6 billion;
• Net debt down R$ 125 million from December 2010, ending the period at R$ 2.0 billion;
• Net debt/EBITDA ratio falls from 3.1x in March 2010 to 2.1x in March 2011;
• Net income: R$ 140 million in 1Q11, versus R$ 42 million in 1Q10.
Klabin, Brazil’s largest paper producer, exporter and recycler and the leader in the paper, coated board for packaging, corrugated boxes, industrial bags and logs for sawmills and planer mills markets, closed 1Q11 with EBITDA (earnings before interest, tax, depreciation and amortization) of R$ 249 million, accompanied by EBITDA margin of 26%, for EBITDA growth of 3% and 8% from 1Q10 and 4Q10, respectively.
In the first quarter, Klabin’s net income totaled R$ 140 million, boosted by the financial income in the period, given the appreciation in the Brazilian real, compared to a R$ 42 million result in first quarter of 2010,.
Sales volume, excluding wood, reached 438 thousand tonnes in the first quarter, up 1% from 1Q10 and 5% from 4Q10, mainly reflecting the higher volumes from sales of kraftliner and coated boards, which jointly accounted for 64% of 1Q11 total sales.
At the close of March 2011, the Company’s net revenue amounted to R$ 957 million, up 13% and 3% from 1Q10 and 4Q10, respectively. The domestic market accounted for 74% of total net revenue, corresponding to R$ 711 million. This figure represents growth of 13% from 1Q10 and a reduction of 3% from 4Q10. Exports, on the other hand, grew significantly in the first three months of 2011, accounting for R$ 246 million of the period’s consolidated net revenue, up 15% from 1Q10 and 23% from 4Q10.
Klabin’s ended the period with a strong cash position, with cash and cash equivalents totaling R$ 2.6 billion on March 31, 2011, for growth of approximately R$ 300 million from 1Q10 and a reduction of R$ 91 million from December 2010. This amount is equivalent to 3.1x the volume of short-term gross debt.
Net debt stood at R$ 2,003 million on March 31, 2011, for a reduction of R$ 125 million from December 2010. The net debt/EBITDA ratio fell from 3.1x in March 2010 to 2.1x at the close of 1Q11.
In the first quarter, Klabin’s Board of Directors elected Mr. Fabio Schvartsman as the Company’s new CEO, due to the retirement of Mr. Reinoldo Poernbacher.
Markets and Exchange Rate
Inflation has once again become a cause for concern in recent months, fueled by the hikes in oil prices, which were partially due to the recent restrictions of a geopolitical nature. The price pressures were especially intense in emerging economies, whose main challenge at the moment is to moderate the pace of economic growth. In response to inflationary pressures, some countries have initiated monetary tightening cycles, with hikes in basic interest rates and the adoption of macroprudential measures.
In developed economies, factors such weak job markets, high public-sector debt and the effects of the earthquake and tsunami in Japan have imposed greater restrictions on sustainable economic growth. In general, the international scenario continues to be marked by abundant liquidity, low risk aversion and high commodity prices.
Similar to the scenario in other countries around the world, Brazil’s economy was equally marked by higher inflation in the first quarter, pressured mainly by food and commodity prices. The move by Brazil's central bank to hike the basic interest rate contributed to the appreciation in the Brazilian real against the U.S. dollar, reducing the competitiveness of Brazilian goods abroad.
Brazilian demand for paper, which traditionally is weaker in the first quarter, contributed to the higher exports.
International sales of kraftliner remained at high levels. In Europe, according to data published by FOEX, the list price of kraftliner brown 175 g/m2 was above € 600/t in January. In 1Q11, the average price of kraftliner increased by 39% from 1Q10 and by 2% from 4Q10.
Domestic sales of coated board declined in the first three months of 2011, in line with the low seasonality of the quarter. According to the Brazilian Association of Pulp and Paper Producers (Bracelpa), Brazilian shipments of coated board, excluding liquid packaging board, reached 119 thousand tonnes in 1Q11, down 13% from the same period in 2010, when the market posted significant growth, due to the recovery following the financial crisis. Klabin’s share of the coated board domestic market remained flat at 27%. However, the increase in sales of coated board for liquid packaging partially offset the reduction in folding box and carrier boards.
Old corrugated container (O.C.C.) prices declined from the previous quarter, recovering to 1Q10 levels. The Brazilian corrugated boxes market remained stable in the first quarter of 2011. According to data from the Brazilian Corrugated boxes Association (ABPO), Brazilian shipments of boxes and sheets reached 605 thousand tonnes from January through March, up 1% on the previous year. In March, daily shipments averaged 10 thousand tonnes, up 3% from the daily average per business day in February 2011 and March 2010.
Preliminary data from the National Cement Industry Trade Union (SNIC), which include bulk and bags cement, indicate that consolidated cement sales in the quarter grew by 7% in relation to 1Q10. In 1Q11, the strongest growth in relation to 1Q10 was observed in the country's North and South regions, which registered increases of 19% and 12%, respectively. The two regions together accounted for 21% of Brazil’s cement consumption.
Brazil's construction industry was also robust in early 2011 and helped fuel domestic wood sales. Klabin's domestic wood sales volume grew by 8% from 1Q10.
The foreign exchange rate (sell, end of period), which closed at R$ 1.67/US$ on December 31, 2010, fell by 2% in the year to R$ 1.63/US$ at the end of March 2011. The average foreign exchange rate was R$ 1.67/US$ in 1Q11, down 7% and 2% from 1Q10 and 4Q10, respectively.
Operating and financial performance
Sales volume, excluding wood, was 438 thousand tonnes in 1Q11, increasing by 1% from 1Q10 and by 5% from 4Q10, driven by the higher sales of kraftliner and boards.
Domestic sales volume came to 269 thousand tonnes, remaining stable from 1Q10 and declining by 5% from 4Q10, reflecting the lower domestic demand that affected the coated boards, corrugated boxes and from deconcentration in industrial bags sales in order to meet better margin segments.
Export sales volume in the quarter totaled 169 thousand tonnes, growing by 3% from 1Q10 and 27% from 4Q10, due to the higher export volume of coated boards.
Net revenue in 1Q11, including wood, totaled R$ 957 million, up 13% from 1Q10 and 3% from 4Q10, reflecting the higher sales volume.
Net revenue in the domestic market was R$ 711 million, 13% higher than in 1Q10 and 3% lower than in 4Q10.
Export revenue in 1Q11 totaled R$ 246 million, for growth of 14% from 1Q10 and 23% from 4Q10, driven by the higher sales volume in the period.
Despite the lower exchange rate in the period, Klabin’s export revenue grew in comparison with the first quarter of 2010, due to higher prices in the foreign market and the product mix.
In view of the stability in domestic demand already expected for the first quarter of the year, the Company increased the volume of sales allocated to exports, concentrating volumes in regions that are closer to Brazil.
Latin America continues to be Klabin’s most important export market, accounting for 44% and 43% of the Company’s 1Q11 sales volume and net revenue, respectively, followed by Asia, which concentrates its exports of board for liquid packaging.
Operational Costs and Expenses
Cost of goods sold (COGS) totaled R$ 711 million in the first quarter, up 7% from 1Q10 and 20% from 4Q10, due to depletion of the biological assets in the quarter. Excluding the depletion effects on the fair value of biological assets, COGS reached R$ 626 million in 1Q11, remaining flat in relation to 4Q10 and increasing by 15% from 1Q10.
Selling expenses totaled R$ 86 million in 1Q11, expanding by 18% and 11% from 1Q10 and 4Q10, respectively. The increase is explained by the increase in freight charges due to the higher export volumes and non-recurring expenses. In the first quarter of the year, freight costs reached R$ 47 million, equivalent to 54% of total selling expenses.
General and administrative expenses totaled R$ 55 million, up 21% from 1Q10, influenced mainly by the non-recurring items and collective payment agreement, and contracted by 2% from 4Q10.
Unit cash cost in the quarter was R$ 1,595 per ton, including fixed and variable costs and selling and administrative expenses, for an increase of 15% from 1Q10 and remaining flat from the previous quarter. The increase in relation to 1Q10 was influenced by the wage increase, the harvesting of timber and chemical products.
Other operating revenue (expenses) was an expense of R$ 9 million due to non-recurring items, versus revenue of R$ 0.5 million in 1Q10 and an expense of R$ 38 million in 4Q10.
Operating income before the financial result (EBIT) was R$ 203 million in the quarter, up 37% from 1Q10, and down 36 from 4Q10.
Operating cash flow (EBITDA)
Operating cash flow (EBITDA) was R$ 249 million in the first quarter, increasing by 3% and 8% from 1Q10 and 4Q10, respectively. EBITDA margin stood at 26%, versus 29% in 1Q10 and 25% in 4Q10.
Indebtedness and financial investments
Gross debt stood at R$ 4,641 million on March 31, 2011, compared with R$ 4,857 million on December 31, 2010, of which R$ 2,714 million (58%) was denominated in foreign currency (primarily extrude finance).
The average debt term stood at 39 months, or 32 months for debt denominated in local currency and 44 months for debt denominated in foreign currency. At the end of March, short-term debt accounted for 18% of total debt.
The average debt cost stood at 8.1% p.a. in local currency and 3.6% p.a. in foreign currency.
At the close of March, cash and cash equivalents totaled R$ 2,638 million, representing a reduction of R$ 91 million from December 2010 and corresponding to 3.1x the volume of short-term gross debt.
Net debt stood at R$ 2,003 million on March 31, 2011, a reduction of R$ 125 million from the R$ 2,128 million on December 2010. The net debt/EBITDA ratio, which stood at 2.2x at the end of December 2010, ended March 2011 at 2.1x.
The net financial result was financial income of R$ 34 million, versus R$ 33 million in 41Q10. The result is explained by the financial expenses of R$ 94 million, which were more than offset by the financial income of R$ 69 million and exchange translation gain of R$ 59 million, given the 2% drop in the exchange rate.
Net income was R$ 140 million in 1Q11, versus R$ 42 million in 1Q10 and R$ 225 million in 4Q10. In addition to the factors mentioned earlier, 1Q11 net income was positively impacted by the variation of R$ 108 million in biological assets and negatively impacted by the depletion at fair value of biological assets of R$ 85 million.
In 1Q11, the volume of wood sales to third parties totaled 737 thousand tonnes, up 8% from 1Q10 and down 3% from 4Q10. The lower sales in relation to 4Q10 were basically due to the heavy rains in the period.
Net revenue from log sales to third parties in 1Q11 came to R$ 68 million, up 27% and 3% from 1Q10 and 4Q10, respectively.
In March, own and third-party planted areas totaled 211,000 hectares, of which 133,000 hectares were planted with pine and 78,000 hectares with eucalyptus. In addition to its planted areas, Klabin has 193,000 hectares of permanent preservation and legal reserve areas.
The volume of paper and coated board sales to third parties totaled 279 thousand tonnes in 1Q11, up 13% and 2% from 1Q10 and 4Q10, respectively.
Exports in the quarter totaled 162 thousand tonnes, growing by 29% and 4% in relation to 1Q10 and 4Q10, respectively.
Net revenue from paper and board sales totaled R$ 473 million in 1Q11, up 10% from 1Q10 and 12% from 4Q10.
Kraftliner sales volume was 111 thousand tonnes in 1Q11, increasing by 1% and 26% from 1Q10 and 4Q10, respectively.
Kraftliner exports stood at 79 thousand tonnes in the quarter, representing 71% of total sales of this product. Domestic kraftliner sales reached 32 thousand tonnes in 1Q11, increasing by 12% and 10% in relation to 1Q10 and 4Q10, respectively.
Kraftliner net revenue amounted to R$ 141 million in the first quarter, up 20% and 14% from 1Q10 and 4Q10, respectively.
According to FOEX, the average list price in USD of kraftliner brown 175g/m2 in Europe rose 2% in both euro and dollar terms in 1Q11, reaching US$824 per metric ton.
In 1Q11, coated board sales volume totaled 168 thousand tonnes, growing by 3% from 1Q10 and 7% from 4Q10.
Domestic sales volume stood at 84 thousand tonnes, contracting by 3% and 7% from 1Q10 and 4Q10, respectively.
Coated board exports totaled 79 thousand tonnes in 1Q11, 3% lower than in 1Q10 and 33% higher than in 4Q10.
According to data from the Brazilian Association of Pulp and Paper Producers (Bracelpa), coated board sales volume in the domestic market, excluding liquid packaging board, totaled 119 thousand tonnes in 1Q11, down 13% from 1Q10. However, the increase in sales of coated board for liquid packaging partially offset the reduction in folding box and carrier boards.
Sales volume from converted products was 153 thousand tonnes in 1Q11, up 1% from 1Q10 and down 4% from 4Q10.
Net revenue from converted products totaled R$ 404 million, up 13% from 1Q10 and down 4% from 4Q10.
Shipments of corrugated boxes totaled 121 thousand tonnes in 1Q11, up 1% from 1Q10 and down 4% from 4Q10.
Net revenue totaled R$ 288 million in 1Q11, up 16% from 1Q10 and down 5% from 4Q10.
According to the Brazilian Corrugated Boxes Association (ABPO), corrugated box and sheets shipments in the quarter totaled 605 thousand tonnes, expanding 1% from 1Q10.
Domestic and international sales volume of industrial bags in Brazil and Argentina totaled 33 thousand tonnes in 1Q11, down 2% from 1Q10 and 3% from 4Q10.
Net revenue from industrial bags sales was R$ 116 million in 1Q11, increasing 7% from 1Q10 and remaining stable in relation to 4Q10.
Preliminary data from the National Cement Industry Union (SNIC) and market estimates indicate that domestic cement sales totaled 14 million metric tons in 1Q11, an increase of 7% from 1Q10 and a reduction of 4% from 4Q10.
During the first quarter the Company was selective in industrial bags sales, aiming better mix and better margin segments.
Capex came to R$ 115 million in 1Q11, of which 64% was allocated to the Paper Business Unit, 32% to the Forestry Business Unit and 4% to the Conversion Unit.
Klabin continues to invest to improve its energy matrix. In January 2011, the biomass boilers at the Otacílio Costa plant in Santa Catarina began operations, with satisfactory initial results in terms of the reduction in fuel oil consumption. The evaporation system of this industrial unit is currently being refurbished.
The new biomass boiler at the plant in Correia Pinto, Santa Catarina continues to be expected to start operations in early 2Q12.
The Company’s corrugated boxes units received investments of approximately R$ 100 million, which was allocated to the installation of new corrugators at the plants in Goiana, Pernambuco and in Jundiaí- DI, São Paulo.
The industrial bags unit received a complete new line for the production of valve bags, which will be installed at the plant in Lages, Santa Catarina.
In 1Q11, the price of Klabin's preferred shares (KLBN4) gained 13%, while the Bovespa index declined by 1%. In the last 12 months, Klabin’s preferred shares (KLBN4) gained 37%, compared to 2% increase of the Bovespa index.
Klabin stock was traded in all sessions on the BM&FBovespa, registering 146,553 transactions that involved 135 million shares, for average daily trading volume of R$ 13 million, 46% higher than in the previous quarter.
Klabin stock also trades in the U.S. market through Level I ADRs, which are listed on the over-the- counter market under the ticker KLBAY.
Klabin’s capital is represented by 917.7 million shares, composed of 316.8 million common shares and 600.9 million preferred shares. Until March 31st, 2011, Klabin had 27.2 million preferred shares in treasury.
The Annual Shareholders’ Meeting held on April 4, 2011 approved the payment of complementary dividends for fiscal year 2010 of R$ 73.85 per lot of thousand common shares and R$ 81.24 per lot of thousand preferred shares. As a result, the dividends distributed relative to fiscal year 2010 will total R$ 190 million.
Sale of preferred shares by BNDESPAR
During the second half of 2010, BNDESPAR began selling in the market the Klabin preferred shares (KLBN4) it held. By January 11, 2011, BNDESPAR had sold 80 million preferred shares in Klabin, which led its interest in the Company’s preferred shares to fall from 31% to 18%.
Change in executive board
In a meeting of the Board of Directors held on February 2, 2011, Mr. Fábio Schvartsman was elected the chief executive officer of Klabin, replacing Mr. Reinoldo Poernbacher, who had stepped down to retire.