Fibria announces its 1Q18 Earnings

The year 2018 began on a positive note, with buoyant demand and limited supply in 1Q18, due to the unexpected withdrawal of volumes during the quarter as a result of technical issues and lack of wood availability. The mix of unscheduled downtimes and the concentration of scheduled downtimes in the quarter, in addition to the expansion of the spread between long and short fibers in Europe and the maintenance of this high spread in Asia, played a key role in minimizing the impact of seasonally weaker demand in the Chinese New Year period. These factors fostered a more favorable market environment for the implementation of the price increase announced in January, valid as of February. Lower sales volume and higher COGS, partially offset by the higher average net price in dollars, account for most of the 8% quarter-on-quarter reduction in adjusted EBITDA and the EBITDA margin of 55%, excluding sales from Klabin. The quarter was also marked by leverage reduction to 2.02x in dollars and the steeper-than-expected learning curve of the new Horizonte 2 pulp production line.

In 1Q18, pulp production volume was 1,588 thousand tons, 4% lower than 4Q17, mainly due to scheduled maintenance and inspection downtimes, fewer production days (partially offset by a lower output from the planned reduction of production at the Aracruz Unit) and the evolution of the production curve of the new Horizonte 2 line, with an output of 449 thousand tons in the period. The 32% year-on-year increase was mainly due to the new Horizonte 2 line start up, partially offset by the greater impact of scheduled downtimes, in addition to the lower output from the planned reduction of production at the Aracruz Unit in 1Q18. Sales volume totaled 1,591 thousand tons, 16% down on 4Q17, due to the typical first-quarter seasonality from the recovery of inventories and lower production volume in the period. Sales volume rose 22%, thanks to the the new Horizonte 2 line start up, supported by excellent demand, specially in Asia. Sales volume resulting from the agreement with Klabin totaled 160 thousand tons in 1Q18 (4Q17: 254 thousand tons). Pulp inventories closed the quarter at 1,234 thousand tons, equivalent to 55 days (4Q17: 1,045 thousand tons, 48 days).

The production cash cost was R$708/t, up 27% on 4Q17, chiefly due to the impact of scheduled maintenance and inspection downtimes, the lower utilities result and higher wood costs. The increase in cash cost in 1Q18 was partially offset by the ramp up of the new Horizonte 2 line at the Três Lagoas Unit. Compared to 1Q17, the cash cost fell 6%, mainly due to lower wood costs, reduced fixed costs and the higher utilities result (energy sales), thanks to the new Horizon 2 line start up, partially offset by higher chemical and energy prices (see page 7 for details). Excluding the effect of the scheduled downtimes, the production cash cost came to R$626/t in 1Q18, 15% higher than in 4Q17 and 8% lower than in 1Q17. It is also important to note that, due to the overhauls at Três Lagoas (Line 1) and Jacareí Units, the utilities result (energy sales) presented an additional reduction of R$9/t, which means that ex-downtime cash cost excluding this effect would have been R$617/t. Inflation in the last twelve months, as measured by the IPCA consumer price index, stood at 2.6%.

Adjusted EBITDA totaled R$1,824 million in 1Q18, 8% less than in 4Q17, due to lower sales volume, to the higher cash COGS effect, in turn impacted by the higher production cash cost, partially offset by the higher average net price of pulp in dollars. The EBITDA margin stood at 55% excluding the sale of pulp from Klabin and 49% including this effect. Compared to 1Q17, adjusted EBITDA moved up 183%, mainly driven by the 42% increase in the average net price in dollars, higher sales volume from Horizonte 2 and the 3% average dollar appreciation against the real, partially offset by the rise in cash COGS. Free Cash Flow before Horizonte 2 expansion capex, logistics projects and dividends reached was negative by R$57 million, versus a positive R$791 million in 4Q17 and a positive R$426 million in 1Q17, due to lower Adjusted Ebitda and the negative variation in working capital (see page 15 for details).

The 1Q18 net financial result was negative by R$270 million, versus a negative R$781 million in 4Q17 and a positive R$331 million in 1Q17. The variation from 4Q17 and 1Q17 was chiefly due to the lower exchange rate effect on the debt position and the hedge result. Gross debt in dollars was US$5,693 million, 2% less than in 4Q17, mainly due to early debt settlements in the period. Fibria closed the quarter with a cash position of US$1,850 million, including the mark-to-market of derivatives and net debt of US$3,843 million, 3% and 7% more than in 4Q17 and 1Q17, respectively. As Fibria continued the deleveraging process, the net debt/EBITDA ratio closed 1Q17 at 2.02x in dollars and 2.08x in reais.

As a result of all the above, Fibria reported 1Q18 net income of R$615 million, versus net income of R$280 million in 4Q17 and R$329 million in 1Q17.
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