CMPC's Q1 net income up 78.8% year-over-year to US$143M on 32.4% increase in net sales to US$1.2B; company also sees increased prices, sale volumes in forestry, paper products, tissue from Q4

SANTIAGO, Chile , May 5, 2011 (press release) – 1Q11 in Brief

During the quarter, CMPC registered an increase in its sales and EBITDA, when compared with those reached in the fourth quarter of the previous year. This was mainly explained by higher sale volumes in all business divisions, especially in those of Paper Products and Forestry. Moreover, hardwood volumes also showed an increase due to the start up of the first stage of Santa Fe II's expansion project, which reversed the decrease registered in softwood exports. Pulp prices increased by 3% and 1% for softwood and hardwood respectively.

On the other hand, CMPC registered a 5% increment in its EBITDA, when compared to that reached in the fourth quarter of 2010. This was basically explained by an increase in consolidated sales. Nevertheless, this was partially reversed by higher prices of certain raw materials, chemicals and freights, in addition to the negative effect that has being caused by the depreciation of the US dollar over all the costs denominated in local currencies.

  • CMPC’s consolidated sales for 1Q11 reached US$1,242 million, registering an 8% increase when compared to those of 4Q10. During the quarter, there were higher sale prices in all divisions, except from Forestry and Paper Products. On the other hand, sale volumes increased in all business areas.
  • Consolidated EBITDA reached US$317 million during 1Q11, showing a 5% increase when compared to that of 4Q10. This was mainly explained by the higher level of sales, which was partially reversed by higher Operating costs. The EBITDA margin reached 26%, remaining at the same level than the previous quarter.
  • CMPC registered a Net Income of US$143 million during 1Q11; showing a 22% decrement when compared to that of 4Q10. This was mainly explained by the higher Income taxes recorded during the quarter, as well as the lower Other non operational items, especially because during the quarter there were not recognized any insurance compensations from insurance companies due to the earthquake (events that were recorded during 3Q10 and 4Q10).
  • CMPC’s net debt as of the end of 1Q11 stood at US$2,158 million, presenting a US$27 million decrease when compared to that as of December 31st, 2010. Total debt stood at US$3,333 million, presenting an approximally US$500 million increment, as a consequence of the issuance of an international bond in January 2011. All the above let CMPC to close the quarter with US$1,176 million of cash* (*defined as: cash and cash equivalents + term deposits within 90 to 360 days of maturity).
  • CMPC issued a US$500 million international bond in January 2011: Inversiones CMPC S.A. with the guaranty of Empresas CMPC S.A. issued a US$500 million international bond under the 144A-S regulation of the United States Securities Act. This bullet bond has a maturity term of 7 years, and an effective rate of 4.83%.

Income Statement Analysis

Total revenues reached US$1,242 million during the quarter, an 8% higher when compared to those of 4Q10. During the quarter, there were higher sale prices in all business areas, except from Forestry, Paper Products and Pulp (when considering P&W sales). The Tissue business showed a rise in prices (measured in US dollars), mainly explained by the appreciation of local currencies. On the other hand, sale volumes increased in all business divisions. Forestry volumes were positively affected by the higher construction activity registered in the northern hemisphere, as well as the superior productivity reached in the handling of wood. Pulp volumes were up due to the higher hardwood exports, where in the Paper Products division, volumes increased due to the seasonality of the fruit export business in Chile. Finally, the additional tissue volumes were mainly explained by the advance in the learning curve of the Mexican and Colombian new machines, as well as the superior sanitary products sale volumes.

CMPC’s consolidated EBITDA reached US$317 million, 5% higher than 4Q10’s EBITDA. This growth is mainly explained by the higher EBITDA of the Pulp, Paper Products and Tissue divisions. Nevertheless, this was partly offset by a decrease in the EBITDA of the Forestry and Paper businesses.

Net Income during the quarter reached US$143 million, a 22% inferior than that of 4Q10. This decrease was mainly explained by the three points rise in the Chilean tax rate, as well as the exchange rate effects in Income Taxes registered during the quarter. In addition, there were lower Other non operational items, especially because during the quarter there were not recognized any insurance compensations from insurance companies due to the earthquake (events that were recorded during 3Q10 and 4Q10). All the above could not be reversed by the higher EBITDA generation, the superior Net biological assets income, as well as the higher FX differences and Indexation unit results recorded during the quarter.

Sales to Third Parties Breakdown by Destination

A breakdown of CMPC’s sales to third parties by destination during 1Q11 shows that 50% of the sales correspond to exports, 25% to the domestic market in Chile and 25% to domestic markets of foreign subsidiaries.

It is important to highlight that foreign subsidiaries sales have been increasing its participation in total sales during the last quarters.    This    is    mainly    explained    by    the    strong internationalization process undertaken by the Company through Latinamerica.

CMPC’s sales breakdown to third parties by business for 1Q11 shows that the Pulp and Tissue businesses contributed with 34% and 30% of total revenues, followed by Paper contributing with 16% of total sales. Finally, the Forestry and Paper Products divisions represented 10% of total revenues each. It is important to note that this is the third consecutive quarter were Pulp sales exceed those of Tissue. This had not happened since 2Q08.

CMPC’s EBITDA breakdown by business for 1Q11 shows that the Pulp, Tissue and Paper Products divisions increased their EBITDA when compared to that of the previous quarter. This was mainly explained by an increase in its sales, in response to the higher volumes achieved in the quarter. On the other hand, the Forestry and Paper businesses showed a decrement on its EBITDA during the first quarter of the year. In the Forestry case, the decrement was mainly explained by the higher harvesting and freight costs as a consequence of the superior prices reached by oil. Paper’s total EBITDA decreased during 1Q11 due to higher raw materials costs, especially those of pulp and recycled paper.

The Forestry and solid wood business registered a 14% increase in sales (+US$15 million) during this period when compared to those of 4Q10, driven by a 21% increase in sale volumes. This was mainly explained by the end of a seasonality effect due to the northern hemisphere winter, a better demand from China, as well as a higher productivity strategy undertaken in sawmills, remanufacturing and plywood mills. All the above explained the increase in the volumes sold of pulpwood (+20%), sawnwood (+19%), plywood (+15%), sawing logs (+12%) and remanufactured wood (+8%).

Average sale price registered a 6% decrement when compared to that of 4Q10.

Pulp sales increased by 5% (+US$20 million) during 1Q11 when compared to those of 4Q10. This was mainly explained by a 13% increase in hardwood volumes, due to the start up of the first stage of the Santa Fe II mill expansion project, which added 160 th. tons of additional capacity per year. This was slightly offset by a 9% reduction in softwood volumes. It is important to highlight that during the quarter export volumes destinated to China of both hardwood and softwood increased by 5% and 21% respectively.

On the other hand, pulp average effective price (including the sales of P&W integrated papers) registered a 0.2% reduction. Average effective price reached CIF 829 US$/ton and CIF 741 US$/ton for softwood and hardwood respectively. During this period, the spread between both fibers reached CIF 88 US$/ton.

Paper business during 1Q11 registered a 5% increase (+US$10 million) in consolidated sales, when compared to those of 4Q10.

A breakdown of the different paper grades in this business shows that newsprint volumes registered a 4% decrease when compared to those of 4Q10. However, prices remained stable, following the trend registered in foreign markets during the last months. On the other hand, boxboard prices increased 2% when compared with those of 4Q10, mainly driven from the higher demand coming from certain markets such as Brazil. Moreover, sale volumes were up by 2%. Finally, packaging paper sale volumes increased by 30% compared to those of the previous quarter, due to the proper seasonality of the fruit boxes production, as well as the higher industrial activity. However, there was a 6% decrement in sale prices.

Tissue business, including operations in Chile, Argentina, Peru, Uruguay, Mexico, Colombia, Ecuador and Brazil, registered a 6% increase in its sales (+US$22 million) during 1Q11, when compared to those of 4Q10.

Tissue paper volumes showed a 2% increment mainly due to the advance in the learning curve of the Colombian and Mexican expansion projects. Moreover, sanitary products increased their volumes in 11% due to the growth strategy undertaken by the Company for this category at a regional level. For example, this is the case of Melhoramentos in Brazil, which started to sell sanitary products since 2H10.
Finally, average sale price (measured in US Dollars) decreased 6% in the case of diapers & feminine care products; whereas those of tissue paper increased by 4% when compared to those of 4Q10. The latter was mainly explained by local currencies appreciation, which benefited tissue prices when measured in US Dollars.

Paper products business during 1Q11 registered a 26% increase (+US$25 million) in sales compared to those of 4Q10. This increment is mainly attributable to the proper seasonality of the fruit export season in Chile, which meant an increased demand for fruit boxes during the quarter. Moreover, it is important to highlight the effect of the later fruit maturation due to climate conditions, which benefited 1Q11 sale volumes at the expense of 4Q10 volumes. Because of this, demand for fruit boxes increased by 77% when compared to that of 4Q10. All the above resulted in a 30% rise in corrugated boxes volumes when compared to those of the previous quarter. Moreover, molded pulp trays volumes almost tripled because of the seasonality of the fruit export business. On the other hand, paper bags volumes fell 4%. Average selling price recorded a drop of 1%, when compared to that of the previous quarter.

Operating costs excluding depreciation, stumpage and decrease due to harvest amounted to US$787 million, 11% higher than those of 4Q10. At a consolidated level, Operating costs in 1Q11 were 63% of total sales, two points higher than that of 4Q10.

Other operating expenses reached US$138 million, 4% lower than that of 4Q10. This was mainly explained by the decrease in Administration costs and Other operational expenses. This account represented 11% of total sales, one point lower than that of 4Q10.

Financial expenses increased 11% during 1Q11 when compared with those of 4Q10, which was attributable to the higher level of debt. On the other hand, CMPC’s Financial Income registered a 20% increment when compared to that of 4Q10, mainly explained by the higher amount of cash handled by the Company. Moreover, during this period there were lower Share results in associated companies, amounting US$4 million.

Regarding Foreign Exchange differences, the appreciation of the closing dollar against the Chilean peso had positive results during 1Q11, registering a US$30 million gain. This income has an opposite effect in Deferred tax, due to the fact that CMPC’s Chilean subsidiaries have their tax accounting in Chilean pesos.

Indexation Unit Results is caused by the variation experienced by the balance sheet accounts registered in UF (or Unidades de Fomento). The US$4 million loss recorded during the quarter was primarily due to the positive variation of the UF (price inflation), applied to UF debts held by the company.

Other gains (losses) includes sales of products that are not purely of the company business and other items such as losses not covered by insurance companies, donations, and the relative effects of changes in the fair value of financial instruments including forwards, forwards investments related to synthetic swaps, cross currency swaps and swaps, different from those under hedge accounting, among others. During this quarter, a US$24 million loss was recognized under this account.

Income taxes for the period implied a US$63 million expense, registering an US$50 million decrement when compared with that of the previous quarter.

Balance Sheet Analysis

As of March 31st 2011, Current assets registered a 19% increase when compared with those as of December 31st, 2010. It is important to note that the Cash and cash equivalents account showed a 15% decrement, as a consequence of the higher investment in term deposits within 90 to 360 days of maturity, which are recognized under the Other financial assets account. Cash resulted benefitted from the higher operational cash flow, as well as from the issuance of a US$500 million international bond. On the other hand, Non current assets increased 1% when compared to those as of December 31st, 2010.

Current liabilities were up by 5% when compared with those as of December 31st, 2010. On the other hand, Non current liabilities presented a 14% increase when compared with those as of December 31st, 2010, due to the issuance of the international bond mentioned above.

CMPC’s financial debt stood at US$3,333 million as of March 31st 2011, showing almost a US$500 million increment when compared to that as of December 31st, 2010. This was mainly explained by the US$500 million loan issuance mentioned earlier. On the other hand, CMPC’s net financial debt reached US$2,158 million as of March 31st 2011, registering a reduction of US$27 million when compared to that as of December 31st, 2010. It is important to highlight that CMPC closed the quarter with US$1,176 million of cash.

On the other hand, the Net financial debt/EBITDA ratio registered a QoQ variation from 1.9 to 1.8 times, mainly explained by the higher EBITDA generation. Moreover, the financial coverage ratio also showed a favorable financial evolution during the quarter, when compared to that observed in 4Q10. However, the Financial debt / Tangible net worth ratio showed an increase from 0.37 to 0.44 times, as a consequence of the US$500 million loan issuance mentioned earlier.

As of the end of 1Q11, 75% of CMPC’s debt was denominated in US$, 19% was denominated in Chilean pesos (or Unidades de Fomento) and the balance in other local currencies. On the other hand, 79% of CMPC’s total financial debt has a fixed interest rate, whereas the balance has a floating interest rate.

Relevant Events
  • A new corrugated boxes plant started operations in Osorno, Chile: in April, CMPC’s fourth corrugated boxes plant started its productive operations. This facility, which implied a total investment of US$24 million, has a total production capacity of 35 thousand tons of boxes per year. This plant will be focused in supplying corrugated boxes to the salmon, milk, berries and other local Chilean companies. As a result, CMPC’s corrugating capacity will reach more than 290 thousand tons per year.
  • CMPC issued a US$500 million International benchmark bond: on January 13th, 2011, Inversiones CMPC S.A. issued a US$500 million international benchmark bond under the 144A-S regulation of the United States Securities Act. The transaction was under the guaranty of Empresas CMPC, acting through its Cayman Island Agency. This bullet bond has a maturity term of 7 years, with semiannual interest payments. Issue effective rate was 4.83%, which was equivalent to CT7 + 220 Bps of spread. The funds should be used for general corporate purposes. JPMorgan, Citi/Banchile and Itaú acted as joint book-running managers.
  • On January 6th, 2011, the Board of Directors appointed Mr. Hernán Rodríguez (47) as the new Corporate Chief Executive Officer of Empresas CMPC, effective April 29th, 2011: CMPC’s current CEO, Mr. Arturo Mackenna (64), will continue to serve on the board of directors of Empresas CMPC, as well as in the board of its subsidiaries CMPC Tissue and CMPC Pulp.

Mr. Hernán Rodriguez graduated as industrial engineer at the Pontificia Universidad Católica de Chile and received an MBA from the University of California, Los Angeles (UCLA). He joined CMPC in 1987, serving in several positions such as Deputy Chief Financial Officer, Chief Financial Officer and Chief Executive Officer of CMPC Forestry, among other functions.

  • A CLP$200 (US$0.43) cash dividend was announced: CMPC’s board approved in April a CLP$200 dividend to be paid on each outstanding share. This dividend will be distributed on May 11th, 2011.
  • Empresas CMPC modifies its dividend policy for 2011: CMPC’s shareholders’ meeting celebrated on April 29th, 2011, approved unanimously a raise in the dividend policy for year 2011 from 30% to 40% of CMPC’s net distributable income.
  • Empresas CMPC appointed a new board of directors: CMPC’s shareholders’ meeting celebrated on April 29th, 2011, approved unanimously the appointment of a new board chaired by Mr. Eliodoro Matte, and integrated by other six directors, Messrs. Martín Costabal, Erwin Hahn, Jorge Gabriel Larraín, Arturo Mackenna, Bernardo Matte and Jorge Marín.
  • CMPC’s board of directors proposed a merger between Empresas CMPC and its subsidiary Inforsa: on March 4th, 2011, CMPC’s board of directors proposed the merger by absorption between Empresas CMPC and its subsidiary Inforsa, with the purpose of consolidating the operational integration between both firms. In addition, is it important to note that having Inforsa as a separate entity, trading its shares in the Santiago Stock Exchange, generates several transaction costs which does not have correlative value neither for the company nor for its shareholders, particularly considering the fact the Inforsa has not and do not have the intention to issue new equity nor public debt.

The transaction will be executed through a stock split in CMPC’s shares from 1 existing share into 10 new shares. As a result, CMPC will have outstanding 2,200 million of shares, from the 220 million of shares that maintains today. Following the split, CMPC will issue 26,773,533 new shares to be exchanged by Inforsa’s minority shareholders stocks. The exchange will be executed at a ratio of 15 shares of Inforsa per 1 new share of CMPC.

Empresas CMPC’s extraordinary shareholders’ meeting celebrated on April 29th, 2011 approved the merger and other related proposals. Inforsa’s extraordinary shareholders’ meeting celebrated on April 29th, 2011 also approved the merger. If the transaction is not revoked by a new extraordinary shareholders’ meeting, the merger and all the changes mentioned above will be implemented on October 30th, 2011.
 

Forestweb Editor's Note:  In an omitted table, CMPC recorded 2010 net income of US$80 million and 2010 net sales of US$938 million.

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