Fibria reports Q3 loss of 1.1B reais from profit of 303M reais in year-ago period, citing reduced pulp price, economic uncertainties, dollar appreciation against reais; sales down 8.3% to 1.45B reais
October 26, 2011
Highlights of the Quarter
The crisis in Europe and the United States in the third quarter impacted the global demand for commodities and drove a reduction in the pulp price in the period. Economic uncertainties also caused the appreciation of the dollar against the real, mainly in September, increasing Fibria’s leverage as 92% of its debt was dollar-denominated in 3Q11. On the other hand, as an export-oriented company (more than 90% of sales are exports), the dollar’s appreciation will positively affect the operating result.
In May of 2011, Fibria approved its Indebtedness and Liquidity Management Policy that provides financial discipline in any market context. As previously mentioned, external factors impacted the Company’s leverage, exceeding the limit of 3.5x Net Debt/EBITDA but still compliant with debt covenants.
The Company has maintained its focus on the Competitiveness Project through initiatives such as the structural optimization, review and simplification of processes and expense reduction, evidenced by the reduction in production cash costs in 3Q11. A R$201 million reduction was approved for 2011 CAPEX, which is now R$1,440 million. Fibria is planning an additional CAPEX reduction for 2012, to be confirmed after the Budget is approved by the General Shareholders Meeting in early next year. The Company has also focused on actions to promote liquidity events, through the Losango forest asset, and other non-core assets. Other initiatives have focused on the reduction of working capital investments.
Pulp production in 3Q11 was impacted by maintenance downtimes to a lesser extent, as compared to the previous quarter. Maintenance downtimes were carried out at the Jacareí and Três Lagoas units (the latter started at the end of June). Pulp sales remained stable quarter-on-quarter.
Fibria’s cost control initiatives and the operational stability of its units have allowed positive results, demonstrated by the increase in cash cost of production below inflation. In addition, accumulated synergy gains captured since Fibria's creation through 3Q11 suggest that the Company will realize its goal of R$3.4 billion in synergies at net present value by the end of 2011. Pro-forma EBITDA (excluding Conpacel and KSR results in 3Q10) declined quarter-on-quarter and year-on-year, mostly due to the lower pulp price in reais and the higher cash costs of goods sold as a result of a higher cost of production in 2Q11.
The net financial result was negative, chiefly due to the effect of the dollar’s appreciation against the real in the 3Q11, largely an accounting effect (that is, no cash effect) from the conversion of the dollar denominated debt into reais at the end of September. Operational hedge totaled negative financial result of R$558 million, R$541 million of which represented an accounting change between 3Q11 and 2Q11 and, therefore, a cash disbursement of R$17 million.
In August, Fibria received the installation license authorizing the industrial expansion of the Três Lagoas Unit, in Mato Grosso do Sul State. The expansion will be defined, in late 2012, when the Company will evaluate market conditions.
In September, Fibria concluded its repositioning as a pulp producer with the sale of the Piracicaba Unit (the last paper mill) to Oji Paper Co. Ltd., for the price of US$313 million.
Industry Intelligence Editor's Note: In an omitted table, Fibria reported Q3 net sales of 1.45 billion Brazilian reais. For the same period a year ago, the company recorded net income of 303 million reais and net sales of 1.58 reais.