Chile's Empresas Copec reports Q1 net income up 141.9% to US$325.2M on 75.7% increase in net revenues to US$4.76B; higher income in fuels, fishing, forestry sectors included sales jump in pulp, panels, lumber
Kendall Sinclair
SANTIAGO, Chile
,
May 27, 2011
(press release)
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HIGHLIGHTS OF THE QUARTER
Abastible enters LPG market in Colombia
The affiliate Abastible acquired 51% of the company Inversiones del Nordeste (IN), which is a leading company in the liquefied petroleum gas (LPG) market in Colombia with around a 34% market share. This deal entailed an investment of US$76.5 million, which will mainly be used to capitalize IN, giving it the resources needed for its future development plans.
IN has various regional LPG distribution companies that operate in virtually all the departments in Colombia, and it owns a company that makes gas bottles and storage tanks and another bottled and bulk gas trucking company.
This operation will be completed after the 30-day due diligence has been carried out, and the deal is therefore expected to be finalized in June. Abastible and IN will enter into a strategic partnership to leverage their LPG experience in their respective countries and jointly address the Colombian market and its future growth.
Colombia gives Abastible the opportunity to grow in an attractive market with a new regulatory framework, characterized by price freedom and brand ownership of the bottles used to distribute and consume liquefied gas. This market is evolving to similar conditions to those in Chile, which will allow Abastible to develop its successful experience with service quality and expanding the uses of liquefied gas.
Arauco gives go-ahead to the Jaguariaíva mill expansion project in Brazil
In late April, the affiliate Arauco do Brasil approved the Jaguariaíva mill expansion project in the state of Paraná in southern Brazil.
The project entails building and operating a line that will produce medium density fiberboard (MDF) with an estimated production capacity of 500,000 m3 of finished product a year, a decorative paper impregnation line and a melamine press. This project will require an estimated investment of US$170 million that will be financed with own resources. Start-up of the new facilities is scheduled for the first half of 2012.
Montes del Plata starts civil works
On May 17, Montes del Plata announced it will start preparatory works to build a wood pulp mill in Uruguay. The production and equipping technology supply for the mill works was awarded to the Andritz group. It will also be in charge of designing and building the mill and assembling all the stages of the production process. The construction phase will generate an average of 3,200 jobs with a peak of 6,000 jobs.
The works were inaugurated on May 25.
Board of Directors of Empresas Copec elected
An Ordinary Shareholders’ Meeting of Empresas Copec S.A. was held on April 27, 2011. Roberto Angelini Rossi, Chairman of the Board, reported on the highlights of last year and the Company’s performance.
A Board was also elected for the next three years, comprising Jorge Andueza Fouque, Roberto Angelini Rossi, Andrés Bianchi Larre, Juan Edgardo Goldenberg Peñafiel, Arnaldo Gorziglia Balbi, José Tomás Guzmán Dumas, Carlos Hurtado Ruiz Tagle, Bernardo Matte Larraín and Juan Obach González, the latter as an independent director and replacing Nicolás Majluf Sapag, who completed his second period as a Company director.
CONSOLIDATED RESULTS
Q1 11 vs. Q110.
Net income in the quarter, net of minority participation, was 126.9% up on that in the first quarter of 2010 and amounted to US$295 million.
The Company’s gross margin was up 57.1% amounting to US$782 million, which mainly came from the affiliates Arauco accounting for US$403 million; Copec for US$319 million; Abastible for US$36 million; Igemar for US$12 million and Sonacol for US$11 million.
The increase in the Company’s gross margin was largely due to the better performance of the forestry business, which had price increases in the wood pulp, panels and sawn lumber businesses compared to the first quarter of 2010. In regard to the pulp business, there was a large increase in demand from China in the quarter, driving up prices. It should be noted that the industry has had high prices for more than twelve months. Sales volumes increased due to the recovery of production levels after being severely affected by the stoppage of production caused by the earthquake that hit the center and south of Chile on February 27, 2010. The panels business also had higher sales volumes because of much higher demand than last year.
The fuels business also had an increase in sales volumes. This was mainly because of higher demand in the industrial and service station channels, related to a more dynamic Chilean economy. Margins also improved. Moreover, income expressed in US dollars rose because of the lower exchange rate in 2011 compared to the average of the first three months of 2010. In addition to all this, there was the consolidation of Terpel’s results.
Non-operating income rose in the other revenue account, mainly because of a higher valuation of biological assets and increased income from exchange rate differences in the forestry business. That was partly offset by higher financial costs because of greater debt in the fuels business, particularly the affiliate Copec, arising from the consolidation of Terpel. There was higher income from related companies and joint ventures, mainly due to the greater contribution of Metrogas and Guacolda.
Q1 11 vs. Q4 10.
Net income was 13.3% down on that in the previous quarter, mainly because non-operating income decreased 102.7%, largely due to higher other revenue in the fourth quarter of 2010 from earthquake indemnities, a higher valuation of biological assets and greater financial costs.
Operating income surged 48.7%, mainly because of the better performance in the forestry, fuels and fishing businesses. The forestry business had price increases across all product lines. In the fuels business the affiliate Copec had higher volumes and margins. The fishing business increased its catches and had higher sales volumes of all its products.
CELULOSA ARAUCOY CONSTITUCION (CONSOLIDATED)
Q1 11 vs. Q1 10.
Celulosa Arauco y Constitución had net income of US$172 million in the first quarter of 2011 that was up on the US$62 million in the same quarter of 2010. This is explained by operating income increasing 49.1% because of higher sales in the wood pulp, panels and sawn lumber businesses. Non-operating income surged 125.9% due to higher income from exchange rate differences, increased other revenue by function, related to the higher valuation of biological assets, and lower other expenses by function. The company’s EBITDA rose 53.4% and amounted to US$336 million, due to higher sales because of strong global demand and the recovery of productive capacity.
Consolidated revenues were up 33.4%, partly because of a 37.3% increase in wood pulp sales, driven by higher prices and volumes of 15.6% and 16.0%, respectively. Volume was hit by the stoppage of operations due to the earthquake in February 2010. Regarding this, in late January 2011 Arauco’s line II started a trial run and all the productive units are now therefore operating.
Markets were quite active in the first quarter of 2011, which led to prices continuing to rise but moderately, reflecting paper producers’ difficulties of being able to transfer raw material costs to final products. There was generally strong demand across most markets, as was the case with Asia- and particularly China- Europe and Latin America.
The sales increase in the quarter was also because of panel revenues rising 18.2% on account of prices increasing 20.0%, which was partly offset by a 1.5% drop in volume. There is a good price and volume outlook for plywood in the second half of the year, mainly due to greater demand from Asia because of the earthquake in Japan. Prices are also showing signs of recovery in the United States. MDF volumes fell, mainly because of a drop in Brazil. It has been difficult to raise prices in general due to aggressive competitor pricing in Latin America.
Sawn lumber sales surged 57.1% as a result of prices and volumes increasing 15.3% and 36.2%, respectively. Demand for forestry products improved across most markets, especially Asia, in the first quarter of this year. This led to higher sales prices, especially in China, Korea, Japan and Taiwan. Domestic market sales were higher than in the same quarter of the previous year, particularly driven by demand arising from the country’s reconstruction.
Q1 11 vs. Q4 10 .
Arauco had lower net income than the US$259 million in the fourth quarter of 2010. That was principally due to lower non-operating income, which was boosted in the fourth quarter of 2010 by earthquake indemnities. Operating income was up 7.1%.
Operating revenue was similar to that in the fourth quarter of 2010. Wood pulp sales were down 0.6%, arising from volumes dropping 4.2%, which was partly offset by a 3.0% price increase. Good levels of activity and demand continued in the first quarter of 2011. Long and short fiber inventories remained stable, rising in January and February, but this trend changed again in March reaching the same levels as those in the fourth quarter of 2010. Global inventory days as of December 2010 were 25 days and 39 days for long and short fiber, respectively, and 24 and 40 days in late March.
Sawn lumber revenues rose 1.9% due to a 3.2% price increase. Volumes, however, fell 1.3%. The US real estate and construction market showed no signs of recovery in the first quarter of 2011. The start of house construction reached 594,000 units in March. Current levels are still low compared to the average in the last 10 years. Molding and timber sales prices recovered compared to the fourth quarter of 2010 due to lower market supply.
Panel revenues were up 0.9%, mainly because of a 12.9% price increase, which was offset by volumes dropping 10.6%.
COPEC (CONSOLIDATED)
Q111vs.Q110.
CopechadnetincomeofCh$47,583million in the first quarter of 2011 against Ch$32,474 million in the same period in 2010. This is explained by a higher gross margin, mainly related to the greater physical sales, to Terpel’s consolidation, to higher average margins and the positive effect of the first in first out (FIFO) costing system in a scenario of higher fuel prices. All this was partly offset by sales and administration expenses increasing Ch$13,241 million. EBITDA soared 109.1% and amounted to Ch$98,199 million.
The higher operating income was offset by lower non-operating income, mainly due to the increase in the other expenses by function account and higher financial costs, associated to a higher level of debt and the consolidation of Terpel.
Physical fuel sales increased 3.4% because of greater demand from the dealer and industrial channels. The latter had an increase in volume for the first time since demand started to drop from electric power generating companies due to greater supply of natural gas and the start-up of coal-fired thermal power plants. Market share dropped from 61.2% to 58.4%.
Q1 11 vs. Q4 10.
Net income in the quarter was Ch$20,770 million up on the previous quarter. That difference is mainly explained by higher operating income of Ch$53,233 million, which was largely due to physical sales increasing 5.7%, higher margins, the consolidation of Terpel and the positive effect of the FIFO costing system in a scenario of higher fuel prices. EBITDA soared 160.0%.
ABASTIBLE (CONSOLIDATED)
Q1 11 vs. Q1 10.
Abastible had a net income increase of 26.4% in the first quarter of 2011 amounting to Ch$6,727 million. This is explained by operating income rising 14.0% due to higher physical sales. Non-operating income rose Ch$731 million because of higher income from other gains (losses) and expenses, and these accounting items were hit by the earthquake effects the previous year. The company’s EBITDA was up 16.5% amounting to Ch$11,085 million.
The company had sales of 81 thousand tons of liquefied gas in the quarter, which was 6.4% up on sales in the first quarter of 2010. There were increases in both the bottled and bulk distribution channels, giving it a market share of 35.0%
Q1 11 vs. Q4 10.
Abastible’s net income rose 14.1%, largely due to non-operating income increasing Ch$1.087 billion on account of higher income from the other gains (losses) account which was hit by the earthquake the previous year. Abastible had lower sales in the bottled channel, driven by the seasonality of the summer months in the first quarter. Sales in the bulk channel rose because of a more dynamic economy and the recovery of some important industries for Abastible. EBITDA was 11.0% up on that in the fourth quarter of 2010.
PESQUERA IQUIQUE-GUANAYE (IGEMAR CONSOLIDATED)
Q1 11 vs. Q1 10.
Igemar had net income of US$0.9 million in the first quarter of 2011 against the US$0.1 million loss in the same period in 2010. Higher operating income was partly due to greater catches in 2011, mainly because of the establishment of Orizon from the merger of SPK and San José. There was also the fact that in the first quarter of 2010 income was hit by the production stoppage because of the earthquake in February 2010. The decrease in non- operating income is explained by lower income from the other expenditure account, a less favorable exchange rate difference and lower income in the related company Corpesca.
Operating income was US$3.1 million against the US$0.02 million loss in 2010. EBITDA soared 175.8% and amounted to US$9.0 million. Physical fishmeal sales were 10.5 thousand tons, which was a 253.4% increase on those the previous year. Physical fish oil sales surged 555.3% on last year amounting to 1.5 thousand tons and 627 thousand boxes of canned seafood were sold, increasing 273.2% on the previous year. Frozen seafood sales were 57.4% up on the previous year and amounted to 3.8 thousand tons. The fish processed reached 134 thousand tons, soaring 248.4%.
Fishmeal prices dropped 9.5%, fish oil prices rose 108.5% and canned and frozen seafood products had price increases of 52.3% and 44.8%, respectively.
Q1 11 vs. Q4 10.
Net income was US$7.6 million up in the quarter against a loss of US$6.7 million in the previous quarter. This was driven by operating income increasing US$8.0 million, because of a higher gross margin on account of greater fishmeal, canned and frozen seafood product sales. Non-operating income rose US$1.3 million because of higher net income in the related company Corpesca. That latter was partially offset by a less favorable exchange rate difference.
OTHER AFFILIATES
Sonacol
Sonacol had net income of Ch$3,808 million in the first quarter of 2011, which was a Ch$550 million increase on the previous year. This was essentially due to higher operating income related to the 8.8% higher volumes pipelined and lower financial costs.
OTHER RELATED COMPANIES
Metrogas
Metrogas had net income of Ch$10,372 million in the first quarter of 2011 against the Ch$379 million in the same quarter of 2010. In operating terms, the gross margin surged 125.5%. Physical sales rose 18.7%, mainly related to increased supply to industrial customers because of the availability of liquefied natural gas (LNG) from the start-up of the terminal at Quintero. There was also higher residential consumption and greater gas sales for electric power generation. There was a lower non-operating income loss of Ch$837 million, essentially explained by higher income from earnings of related companies and joint ventures, related to the participation in GNL Quintero.
Corpesca
Guacolda had net income of US$15.3 million in the first quarter of 2011, which was an increase on the US$13.6 million in the first quarter of 2010. The gross margin was US$32.1 million and was US$3.5 million higher than that in the same quarter in 2010. Energy sales climbed 17.2% due to the start-up of Unit 4 as of March 2010.
In regard to non-operating income, there were higher financial costs from the start-up of the new power plants, partly offset by more favorable exchange rate differences.
Guacolda
Corpesca had net income of US$5.4 million in the first quarter of 2011 against the US$8.4 million in the same quarter of 2010. Operating income rose US$3.2 million because of fishmeal prices rising 5.8%. Fish oil prices increased 34.6%. The fishmeal volume surged 60.9% on the same quarter in 2010 and fish oil sales fell 6.1%. There was a 2.2% increase in the fish processed. In non- operating terms, there were higher other expenses of US$4.4 million.
CONSOLIDATED BALANCE SHEET ANALYSIS
Consolidated current assets rose 6.8% as of March 31, 2011, compared with those for the year ended December 31, 2010. The higher trade receivables and inventories, mostly from the fuels and forestry businesses and related to the greater commercial activity, mainly accounted for such increase. There was, however, a decrease in cash and cash equivalents, arising from the investments made in the quarter.
Non-current assets were up 1.3% as of March 31, 2011, against those at the 2010 year-end. There was an increase in the property, plant and equipment account and intangibles rose, both related to the investments made.
Current liabilities were up 17.9%, mainly because of an increase in accounts payable and other current financial liabilities, and both increases were mainly due to the fuels business. Non-current liabilities remained at very similar levels to those at the close of the previous year, and there was only a slight drop in financial liabilities.
The Company’s equity attributable to owners ended the quarter 1.7% up on that at December 2010, highlighting the increase in withheld profits generated by accumulated income.
CASH FLOW STATEMENT ANALYSIS
The operating cash flow in the first quarter of 2011 was 58.0% down on the previous year, basically due to higher supplier payments and other payments, mainly in the fuels business.
Regarding the investing cash flow, in the first quarter of 2011 there was a 120.1% increase in disbursements against the first quarter of 2010. The incorporation of property, plant and equipment increased by US$63 million, mainly in the forestry business, and there was a large disbursement to buy intangible assets, principally related to the affiliate Can-Can acquiring mining claims. Loans to related companies also rose US$57 million.
The financing cash flow amounted to revenue of US$113 million against expenditure of US$147 million in 2010. That difference is explained by higher net securing of loans this year, essentially related to the affiliate Copec.
Industry Intelligence Editor's Note: In an omitted table, the Empresas Copec reported Q1 net income of US$325.2 million. For the same period a year ago, the company recorded net income of US$134.4 million.
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