ARACRUZ CELLULOSE S A 6-K 2008
Documents found in this filing:
Aracruz Celulose S.A.
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)
(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1))
(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7))
(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)
(If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b). 82- .)
1 See page 19 for discussion of non-GAAP measurements used in this press release. 2 Aracruz sales plus 50% of Veracel's sales to non-affiliated parties (see breakdown on page 5). 3 ADR = American Depositary Receipts.Aracruz Celulose S.A. (NYSE: ARA) presents its consolidated third quarter 2008 results, according to US GAAP and stated in US dollars. The Company uses the equity method of accounting for Veracel Celulose S.A., in which it owns a 50% stake.
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The pulp production volume in the third quarter was 7% higher when compared to of the same period of 2007 and 3% higher compared to the 2Q08. The 10-day annual maintenance downtime at the Guaíba unit was successfully completed in the 3Q08. The Company decided to reschedule the annual maintenance downtime at Fiberlines "A" and "C", bringing it forward to the 4Q08.
As predicted in the 2Q08, Veracel's cash production cost was at normal levels during the quarter, as the problem with the turbo generator was solved. Pulp production volume at Veracel in the last twelve months totaled 1,097,000 tons.
As the Company has decided to reschedule the annual downtime of the Fiberlines "A" and "C", at the Barra do Riacho unit, and due to some lost production loss in the 1Q08, our production target for 2008 has been revised to 3.1 -3.2 million MT, compared to the 3.3 million MT predicted in the 1Q08. During the third quarter of 2008, the global economic slowdown and the seasonal paper production stoppages in Europe, led to reduced economic activity for the sector, with the pulp price decreasing in September, for all regions - for more information see the "Global Pulp Market Update" section. The sales volume in the 3Q08, at 679,000 tons, was 12% lower than in the 2Q08 and 10% below that of same period of last year.
The net pulp price for the 3Q08 increased by 2%, or $13/ton, mainly due to lower provisions for performance rebates to long term customers, since sales volumes were lower than expected, as well as the effect of the late list price implementation on the net pulp price.
The cash production cost for the 3Q08, at $287/ton, was 1.8% higher than that of the previous quarter, mainly due to the higher provision for the annual maintenance downtime at Barra do Riacho. Looking ahead, the cash production cost in US$ terms tends to benefit from a more devaluated local currency, since about 75% of Aracruz's cash production cost is linked to the Real. The cash production cost of $273/ton in September reflects the benefit of the US$ appreciation of the US dollar. The adjusted EBITDA for the 3Q08 was $ 189 million (39% margin), $35.9 million below that of the previous quarter, mainly due to the lower sales volume, which is largely explained by the demand slowdown, and the higher cost of goods sold, on a per ton basis, largely due to the increase in pulp cash production and freight costs, partially offset by the higher net pulp price. On a year-to-date basis, the adjusted EBITDA totaled $630 million, equivalent to a 42% margin.
The negative "fair value" of the derivative transactions will be recorded in the income statement under financial income (expenses). The negative accounting effect of derivative transactions in the quarter was the main reason for the tax credit provision of $479 million, which reduces the impact of the derivative losses on net income.
Due to the factors described above, the net income for the third quarter showed a loss of $546 million, or $5,30/ADR. For the year to date, the net income shows a total loss of $358 million, or $3.47/ADR"
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Aracruz commercial strategy is focused on eliminating as much risk as possible from our commercial transactions. The Company's target has always been those paper producers which demand high quality and uniform pulp, along with guaranteed supplies. The Company-customer relationship is strongly based on long-term contracts with paper producers that are leaders in their segments. Among the segments, Aracruz has always had a strong focus on tissue, which accounts for at least 50% of total sales, since BEKP has advantages over other fibers. Also competes in the P&W segment, as well as in Specialty Paper grades as in house R&D has improved the Company's BEKP pulp to the point where it is as competitive as any other.
The present market situation has unbalanced the supply and demand relationship in the short term. With the objective of re-establishing this equilibrium over the next few months, the Company has decided to introduce market related downtime equivalent to 64,000 tons at the end of October. It is expected that this attitude will be followed by other major players in the industry.
The current financial crisis has ushered in a new reality wherein the availability of funding will be more restricted. This will impose more discipline on investments all around the world, including the pulp and paper industry. With less credit available, many of the already announced projects may be postponed in the near future.
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Net pulp operating revenue during the quarter amounted to $460.3 million, compared to $437.0 million in the same period of last year. This revenue increased mainly as a result of 17% higher net pulp prices, partially offset by a 10% lower sales volume. When compared to the 2Q08 revenue, of $514.4 million, the $54.1 million decrease was the result of 12% lower sales volume, partially offset by the 2% higher net pulp prices.
The total cost of sales in the third quarter of 2008 was $322.2 million, compared to $290.9 million in the same period of the previous year, mainly due to an 24% higher cost of pulp sold, on a per ton basis, partially offset by a 10% lower pulp sales volume. When compared to the total of $348.5 million in the second quarter of 2008, the decrease was mainly due to a lower sales volume (12%).
Note: "Pulp purchased" refers to pulp produced by Veracel, transferred to Aracruz and subsequently resold by Aracruz to the final customer.
Note: Does not include gains from transactions carried out for the purpose of cash flow currency protection.
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Approximately 75% of the Company's cash production cost is presently correlated to the local currency (real - R$).
Sales and distribution expenses came to $21.0 million, $1.5 million higher than in the 3Q07, mainly due to the geographical sales mix and higher pulp loading expenses, partially offset by the 10% lower sales volume. The figure was down $3.6 million compared to that of the 2Q08, mainly due to a 12% lower sales volume.
Administrative expenses came to $20.3 million, compared to $14.2 million and $18.5 million in the 3Q07 and 2Q08, respectively. When compared to the 3Q07, there was the negative impact of the 13.6% appreciation of the real against the dollar (average exchange rate) and higher expenses with social demands, partially offset by the lower expenses with advertising. Compared to the 2Q08, there were higher expenses with social demands despite the positive impact of the 1% devaluation of the real against the dollar (average exchange rate) and the lower expenses relating advertising.
The other net operating income (expenses) result was an expense of $52.6 million in the 3Q08, compared to net expense of $5.0 million and $3.4 million in the 2Q08 and the 3Q07, respectively, mainly due to the higher provision for losses on ICMS tax credits.
The sum of the financial and currency re-measurement results in the quarter showed an expense of $1,111.0 million, compared to a net credit of $46.7 million in the same period of last year and a net credit of $71.0 million in the second quarter of 2008 (see table below).
The "Financial expenses" in the 3Q08 registered a total of $27.3 million, compared to net expenses of $18.7 million and a net credit of $5.8 million in the 2Q08 and 3Q07, respectively, since both periods had the benefit of partial reversals of interest on fiscal contingencies.
The "Financial income" in the quarter registered a net expense of $1,097.7 million, compared to net incomes of $100.8 million and $36.6 million in the 2Q08 and 3Q07, respectively, mainly due to the
loss on derivative transactions, which amounted to $1,116.5 million in the 3Q08 (gains - 2Q08: $84.1 million and 3Q07: $19.8 million). - See details in the Derivative transactions section
The equity result showed a gain of $31.8 million from Veracel (see the Veracel Information section for more details).
Income tax and social contribution accruals in the third quarter amounted to a credit that was $583.9 million and $ 526.2 million higher, respectively, than those of the 2Q08 and 3Q07, mainly due to the negative impact of the derivative losses and other effects of the Brazilian currencys devaluation against the US$ on our debt in local currency (3Q08: +20.3%, 2Q08: -9.0%, 3Q07: -4.5%) .
A statement of the deferred income tax, broken down to show the Brazilian GAAP currency variation impact, and current taxes, is provided below.
At the end of the third quarter, the net balance of deferred taxes payable, deriving from the BR GAAP exchange rate impact, amounted to $106 million (2Q08: $281 million). These should become payable in accordance with foreign debt repayments up to 2016, if not reversed by future BR GAAP foreign currency variations.
The net income (loss) for the period was a loss of $546 million, compared to a net income of $71 million in the 2Q08 and $105.3 million in the 3Q07.
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The local currency debt corresponds basically to long-term BNDES (Brazilian Development Bank) loans. The debt maturity profile, as of September 30, 2008, was as follows:
Cash, cash equivalent and short-term investments, at the end of the quarter, totaled $597.0 million, of which $516.2 million were invested in Brazilian currency instruments and $80.8 million were invested in US dollar instruments. Of the total amount at the end of the quarter, 84% were invested locally and 16% were invested abroad.
Net debt (total debt less cash holdings) amounted to $1,398.3 million at the end of the quarter, $311.9 million higher than at the end of the previous quarter, mainly due to $291.1 million of capital expenditure, $39.0 million of capital increase in affiliated companies, $46.0 million in relation to the Boise Cascade do Brasil acquisition (net of cash received) and $53.3 million of Interest on Stockholders Equity and dividends, partially offset by positive operational cash generation.
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Note: Forecast investments do not include the industrial capital expenditure on expansion projects, such as for Veracel II and the Minas Gerais project.
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Aracruz is a several guarantor of 50% of the indebtedness incurred by Veracel, and Stora Enso is the several guarantor of the other 50% of such indebtedness.
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Veracel, located in the state of Bahia (Brazil), is jointly-controlled by Aracruz (50%) and Stora Enso OYJ (50%) and both shareholders must together approve all significant ordinary course of business actions, in accordance with contractual arrangements.
For information on Veracel's financial results, please access the following link: http://www.aracruz.com/show_inv.do?menu=true&id=1560&lastRoot=222&act=stcNews&lang=1
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NON-GAAP INFORMATION - DISCLOSURE AND RECONCILIATION TO GAAP NUMBERS
The Company believes that, in addition to the reported GAAP financial figures, the inclusion and discussion of certain financial statistics, such as Adjusted EBITDA, cash production cost and net debt, will allow the management, investors, and analysts to compare and fully evaluate the unaudited consolidated results of its operations.
"Cash production cost"
Cash production cost expresses the Company's production costs adjusted for non-cash items, such as depreciation and amortization. Cash production cost is not a financial measurement under U.S. GAAP, does not represent cash flow for the periods indicated and should not be considered as an indicator of operating performance or as a substitute for cash flow as a measurement of liquidity. Cash production cost does not have a standardized definition and our cash production cost calculation may not be comparable to the cash production cost of other companies. Even though cash production cost does not provide a measurement of operating cash flow in accordance with U.S. GAAP, the Company uses cash production cost as an approximation of actual production cost for the period. Moreover, the Company understands that certain investors and financial analysts use cash production cost as an indicator of operating performance.
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Net debt reflects the Companys total debt minus cash, cash equivalents and short-term investments. Net debt is not a financial measurement under U. S. GAAP, does not represent cash flows for the periods indicated and should not be considered as a substitute for cash flow as a measurement of liquidity or as an indicator of ability to fund operations. Net debt does not have a standardized definition and our net debt calculation may not be comparable to the net debt of other companies. Even though net debt does not provide a measurement of cash flow in accordance with U. S. GAAP, the Company uses net debt as an accurate measurement of financial leverage, since the Company keeps cash in excess of its working capital requirement. Furthermore, the Company understands that certain investors and financial analysts use net debt as an indicator of financial leverage and liquidity.
"Adjusted EBITDA, including 50% of Veracel"
The inclusion of adjusted EBITDA information is to provide a measure for assessing our ability to generate cash from our operations. Adjusted EBITDA is equal to operating income adjusted for depreciation and depletion and non-cash charges. In managing our business, we rely on adjusted EBITDA as a means of assessing our operating performance. Because adjusted EBITDA excludes interest, income taxes, depreciation, currency re-measurement, equity accounting for associates, depletion and amortization, it provides an indicator of general economic performance that is not affected by debt restructuring, fluctuations in interest rates or effective tax rates, or levels of depreciation and amortization. We also adjust for non-cash items, to emphasize our current ability to generate cash from our operations. Accordingly, we believe that this type of measurement is useful for comparing general operating performance from period to period and making certain related management decisions. We also calculate adjusted EBITDA in connection with our credit ratios. We believe that adjusted EBITDA enhances the understanding of our financial performance and our ability to meet principal and interest obligations with respect to our indebtedness, as well as to fund capital expenditure and working capital requirements. Adjusted EBITDA is not a measure of financial performance under U. S. GAAP. Adjusted EBITDA should not be considered in isolation, or as a substitute for net income, as a measure of operating performance, as a substitute for cash flows from operations or as a measure of liquidity. Adjusted EBITDA has material limitations that impair its value as a measure of a Company's overall profitability, since it does not address certain ongoing costs of our business that could significantly affect profitability, such as financial expenses and income taxes, depreciation or capital expenditure and related charges. An adjusted EBITDA calculation is tolerated by the Brazilian regulators with respect to disclosures published in Brazil.
New accounting pronouncements applicable to our statutory financial statements:
On December 28, 2007, Law 11,638 was enacted. Such Law introduced changes in the Brazilian Corporate Law, mainly related to accounting matters (Chapter XV). On January 29, 2008, CVM (Brazilian Stock and Exchange Commission) issued Deliberation 534, which approved CPC 02 (Accounting Pronouncement # 02) that, among other issues, introduced the concept of functional currency into Brazilian accounting. For U.S. GAAP purposes, the Company has already defined the U.S. dollar as its functional currency. Both the new law and the CPC 02 are applicable for the fiscal year ending December 31, 2008, but application for financial reporting of interim periods during the year is not required.
Those pronouncements are part of a package of new rules to be issued, the objective of which is to implement a migration from accounting practices adopted in Brazil to the International Financial Reporting Standards (IFRS). Such migration is expected to be complete by the year ended 31 December 2010, although earlier application is allowed. The Company is in process of evaluating the impact of such new rules, including the full implementation of IFRS, on its statutory financial position. Preliminary analyses indicate that non-monetary assets and the related depreciation, amortization and depletion will be recognized based on their historical cost, determined in U.S. dollars, as well as the net income and shareholders equity. However, full implementation of IFRS would require the Company, among other measures, (i) to report its biological assets, consisting of forests, at their fair value, (ii) to proportionally consolidate Veracel and (iii) to recognize the deferred income tax effect on the translation into U.S. dollar functional currency.
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This press release contains statements which constitute forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and that may not be possible to realize. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward-looking statements, due to a variety of factors. The Company does not undertake, and specifically disclaims any obligation to update any forward-looking statements, which speak only for the date they are made.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.