CMPC's Q3 net income down 57% year-over-year to US$109M, sales up 9% to US$1.23B; company says results influenced by higher sale volumes, lower prices in forestry, pulp, papers and tissue divisions compared with Q2
November 4, 2011
– In the 90’s, CMPC began an internationalization process, which has been accelerating during the recent years.
91 years after its establishment, CMPC operates in 8 countries, generating over 15,000 direct jobs, contributing with the development of the communities where the Company operates, satisfying the needs of more than 20,000 direct customers in 50 countries.
All the above confirms CMPC’s long term business vision, which is focused on generating value through its traditional seal of innovation and prudence in all its business activities.
During the quarter, CMPC registered an increase in its sales and a decrease in EBITDA when compared with those reached in the second quarter of the present year. The increase in sales is mainly explained by higher sale volumes in the Forestry, Pulp, Papers and Tissue business divisions and the decrease in EBITDA was due to the lower prices in the Forestry, Pulp, Papers and Tissue divisions. Moreover, hardwood and softwood volumes showed an increase due to a bigger demand in Asia and Latin America. On the other hand, pulp prices decreased by 8% and 10% for softwood and hardwood respectively.
CMPC’s consolidated sales for 3Q11 reached US$1,228 million, registering a 2% increase when compared to those of 2Q11. During the quarter sale volumes increased in all business areas, except for those of Paper Products. On the other hand, there were lower sale prices in all divisions, except for those of Paper Products.
Consolidated EBITDA reached US$278 million during 3Q11, showing an 8% decrease when compared to that of 2Q11. This is mainly explained by lower prices, especially in softwood and hardwood, and by an increase in operation costs. As a result, the EBITDA margin declined marginally from 25% to 23%.
CMPC registered a Net Income of US$109 million during 3Q11, showing a 36% decrement when compared to that of 2Q11. This is mainly explained by the higher Income taxes recorded during the quarter, as well as the fall in the "Foreign Exchange Difference" acount because of the Dolar apreciation.
CMPC’s net debt as of the end of 3Q11 stood at US$2,354 million, presenting a US$9 million decrease when compared to that as of June 30st, 2011. Total debt stood at US$3,131 million, presenting an US$182 million decrement. All the above let CMPC to close the quarter with US$777 million of cash* (*defined as: cash and cash equivalents + term deposits within 90 to 360 days of maturity).
Income Statement Analysis
Total revenues reached US$1,228 million during the quarter, a 2% higher when compared to those of 2Q11. During the quarter, the sale volumes increased in all business divisions, except those of Paper Products. Forestry volumes increased due to higher sales of sawnwood and pulpwood logs. Pulp volumes were up due to the higher exports to China and Latin America in hardwood and to Asia in softwood. In the Paper business as well as in the Tissue business, the increments in volumes are explained by the higher sales in newsprint, folding boxboard, tissue paper and diapers. Finally, the lower volumes in Paper Products are mainly attributable to the seasonality of fruit and vegetable season in Chile, which makes the demand for boxes of fruit to drop during this period. In terms of prices, they were lower in all business areas, except for those of Paper Products. The bigger decrement was in softwood and hardwood, their prices fell 8% and 10% due to the uncertain global escenary. In the case of Forestry, Papers and Tissue, their prices were down marginally. Finally, Paper Products division showed higher prices principally explained by increments in the Chilean market and in foreign subsidiaries of multiwall bags.
CMPC’s consolidated EBITDA reached US$278 million, 8% lower than 2Q11’s EBITDA. This decrement is mainly explained by the lower EBITDA of the Pulp, Paper Products divisions. Nevertheless, this was partly offset by an increase in the EBITDA of the Forestry and Paper businesses.
Net Income during the quarter reached US$109 million, a 36% inferior than that of 2Q lower EBITDA and by the decrea-1se of the assets in foreign currencies, because of the Dolar appreciation. This implied a decrease in Forex difference from US$16 million in 2Q11 to - US$19 million in 3Q11.
Income Statement Analysis
Sales to Third Parties Breakdown by Destination
A breakdown of CMPC’s sales to third parties by destination during 3Q11 shows that 48% of the sales correspond to exports, 23% to the domestic market in Chile and 29% 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 3Q11 shows that the Tissue and Pulp businesses contributed with 35% and 31% of total revenues, followed by Paper contributing with 17% of total sales. Finally, the Forestry and Paper Products divisions represented 17% of total revenues.
CMPC’s EBITDA breakdown by business for 3Q11 shows that the Pulp and Paper Products divisions decreased their EBITDA when compared to that of the previous quarter. This is mainly explained by a decrement in prices in the Pulp division and lower sales in Chile in Paper Products business. On the other hand, the Forestry and Papers divisions showed an increment on its EBITDA during the third quarter of the year. In Forestry, the increment is mainly explained by the higher volumes of sales and the better sale prices of sawnwood and chips. For Papers, the increment in EBITDA is consequence of the higher sales due to higher volumes and better prices in the export of newsprint and folding boxboard. In the Tissue division, the EBITDA was practically the same that the previous quarter.
Income Statement Analysis
The Forestry and solid wood business registered a 2% increase in sales (US$3 million) during this period when compared to those of 2Q11, driven by a 3% increase in sale volumes. In terms of volumes, we had increments in pulpwood (23%), sawing logs (6%) and plywood (8%). On the other hand, remanufactured wood decreased their volumes by 11% and sawnwood remained the same.
As for the average price, there wasn ́t any change comparing this quarter with the previous one.
Pulp sales increased by 1% (US$3 million) during 3Q11 when compared to those of 2Q11. This is mainly explained by an 11% and 12% increment in hardwood and softwood respectively. Complementing the above, during this quarter, export volumes of hardwood and softwood to China increased by 51% and 24% respectively. On the other hand, in the third quarter of the present year pulp registered a decrement of 8% on the effective average price (including the sales of P&W integrated papers).
Average effective price reached CIF 810 US$/ton for softwood and CIF 674 US$/ton for hardwood. During this period, the spread between both fibers reached CIF 136 US$/ton, 3% more than the previous quarter.
Paper business during 3Q11 registered a 7% increase (US$14 million) in consolidated sales, when compared to those of 2Q11, because all of its products improved their sales.
If we analyze each of the papers business, newsprint volumes registered a 20% increment when compared to those of 2Q11 and prices were up due to better exports rates. On the other hand, boxboard prices increased 1% when compared with those of 2Q11, mainly driven by the higher demand coming from certain markets such as Brazil and Argentina. Sale volumes were up by 2%. Finally, packaging paper sale volumes increased by 19% compared to those of the previous quarter and the average price remained the same than the previous quarter.
Tissue business, including operations in Chile, Argentina, Peru, Uruguay, Mexico, Colombia, Ecuador and Brazil, registered a 6% increment in its sales (US$23 million) during 3Q11, when compared to those of 2Q11. Tissue paper volumes showed a 6% increment mainly due to the advance in the operation learning curve at the Colombian and the Mexican projects and to the initiation of new machines in Brazil and Peru. Moreover, sanitary products increased their volumes in 8% due to the growth strategy undertaken by the Company for this category at a regional level. Finally, average sale price (measured in US Dollars) increased 1% in the case of diapers & feminine care products; whereas those of tissue paper decreased by 1% when compared to those of 2Q11.
Paper products business during 3Q11 registered a 14% decrement (US$14 million) in sales compared to those of 2Q11. This decline is mainly attributable to the seasonality of fruit and vegetable season in Chile, which makes the demand for boxes of fruit to drop during this period. All the above resulted in an 18% and 52% decrease in corrugated boxes and molded pulp trays sale volumes, when compared to those of the previous quarter. In the other hand, paper bags sale volumes increased by 2%.
The average selling price registered an increment of 2%.
3Q11 Income Statement Analysis
Operating costs excluding depreciation, stumpage and decrease due to harvest amounted US$794 million, 7% higher than those of 2Q11. At a consolidated level, Operating costs in 3Q11 were 65% of total sales, three points higher than that of 2Q11.
Other operating expenses reached US$155 million, 2% higher than that of 2Q11. This was mainly explained by the increase in Other Expenses. This account represented 13% of total sales, the same than that of 2Q11.
Financial expenses increased 5% during 3Q11 when compared with those of 2Q11. On the other hand, CMPC’s Financial Income registered a 16% decrement when compared to that of 2Q11, mainly explained by the lower amount of cash handled by the Company. During this period there were lower Share results in associated companies, which decreased 101%.
Regarding Foreign Exchange differences, the appreciation of the closing Dollar against the Chilean peso had negative results during 3Q11, registering a US$14 million loss. These results are generated by the mismatch between assets and liabilities denominated in Chilean pesos and other currencies other than U.S. dollars (functional currency).
Indexation Unit Results is caused by the variation experienced by the balance sheet accounts registered in UF (or Unidades de Fomento). The US$5 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$30 million gain was recognized under this account, due to the profit of operations with financial derivatives.
Income taxes for the period implied a US$65 million expense, US$49 million higher than that of the previous quarter. This is explained by the exchange fluctuation in the accounting conversion of our taxable assets and liabilities to dollars.
Balance Sheet Analysis
As of September 30st 2011, Current assets registered a 5% decrement when compared with those as of June 30st, 2011, as a consequence of the lower investment in term deposits within 90 to 360 days of maturity, which are recognized under the account Other financial assets. On the other hand, Non current assets decreased 3% when compared to those as of June 30st, 2011.
Current liabilities were down by 1% when compared with those as of June 30st, 2011. On the other hand, Non current liabilities presented a 3% decrement when compared with those as of June 30st, 2011.
CMPC’s financial debt stood at US$3,131 million as of September 30st 2011, showing a US$182 million decrement when compared to that as of June 30st, 2011. On the other hand, CMPC’s net financial debt reached US$2,354 million as of September 30st 2011, registering a decrement of US$9 million when compared to that as of June 30st, 2011. It is important to highlight that CMPC closed the quarter with US$777 million of cash.
The Net financial debt/EBITDA ratio registered a QoQ variation from 1.90 to 1.96 times. The interest coverage ratio showed a favorable decrement during the quarter falling from 8.5 times to 8.0 times, when compared to that observed in 2Q11. Moreover, the Financial debt / Tangible net worth ratio showed a decrement from 0.43 to 0.41 times.
At the end of 3Q11, 76% of CMPC’s debt was denominated in US$, 18% was denominated in Chilean pesos (or Unidades de Fomento) and the balance in other local currencies. On the other hand, 78% of CMPC’s total financial debt has a fixed interest rate, whereas the balance has a floating interest rate.
Tissue machine expansion in Peru comes into operation: The expansion project of tissue paper in our tissue mill in Santa Anita, Peru, with a US$ 15 million investment, began operations in August 2011.
New corrugated box mill comes into operation in Chile: The new mill located near Osorno, which involved an investment of US$ 23.2 million, started operating during 3Q11.
Reconstruction of Constitución sawmill finishes and began its operation: The sawmill destroyed by the tsunami last year went into operation in August, with a US$ 11.6 million investment.
CMPC board approved the merger between the subsidiary Inforsa and CMPC: On June 10st, 2011, CMPC board reported that the conditions of the merger established by the extraordinary shareholders meetings of Empresas CMPC and Inforsa were accomplished. Consequently, CMPC began preparatory acts, including a corporate reorganization, so Empresas CMPC S.A. becomes a direct holder of 81.95% of the shares issued by Inforsa that are currently own by CMPC Papeles S.A. Then, on September 16th, 2011, was materialized the split of the shares of the company, where each share was exchanged by 10 new ones, without increasing the social capital.Thus, the capital came to be divided by 2,200 million shares. After that, on October 20th, 2011, Empresas CMPC subscribed 26,773,533 shares to pay Inforsa shareholders. Finally the merger was completed on October 30th, 2011.
CMPC had an extraordinary bondholders meeting in July to adapt Bond contracts: On July 11st, we had a meeting with the bondholders of the Series A and B issued in Chile by Inversiones CMPC and with Empresas CMPC guaranty, registered in the Securities Registry of the Superintendencia de Valores y Seguros to modify and adapt the contracts for each series of Bonds to IFRS accounting standards. The bondholders approved the proposed amendments and on July 21, 2011 the registration of changes to the contract were submitted to the Superintendencia de Valores y Seguros.
Inversiones CMPC sold its participation on Inversiones El Raulí: On July, 2011, CMPC approved the sale of the shares that Inversiones CMPC owns of Inversiones El Raulí, at approximately US$ 43.9 million. This will mean a financial profit of approximately US$ 6.1 million for CMPC.
Inversiones CMPC signed a bank loan for US$600 millions: On October 14th, 2011, Empresas CMPC, through its subsidiary Inversiones CMPC S.A., signed a bank loan of US$ 600 million divided into 2 parts:
US$ 400 million, totally received on October 19th, for a period of five years with 4 semiannual amortizations starting on month 42 acruing an annual interest of Libor + 0.65%. US$ 200 million, that corresponds to a commited line freely available for 3 years and if is used at the end of the period, it will have 4 semiannual amortizations starting on month 42 acruing an annual interest of Libor + 0.70%.
The loan was led by: Bank of Tokyo-Mitsubishi UFJ, Bank of America Merrill Lynch, Export Development Canada, JPMorgan and Scotiabank. And is also integrated: Banco Santander, Citibank, Deutsche Bank, HSBC and Nordea.
Industry Intelligence Editor's Note: In an omitted table, Empresas CMPC reported Q3 2010 net income of US$254.4 million and net sales of US$1.12 billion.