4Q16 Results Target pulp cash cost of R$570/ton for 2018 met in 4Q16 São Paulo, February 8, 2017. Suzano Pulp and Paper (Bovespa: SUZB5), one of the largest integrated pulp and paper producers in Latin America, announces today its consolidated results for the fourth quarter of 2016 (4Q16) and for the fiscal year (2016). 2016 HIGHLIGHTS Strong operating cash flow 1 of R$ 2.7 billion and ROIC of 12%. Strong operating results: record high pulp production and sales. Target cash cost for 2018 (R$ 570/ton 2 ) met in 4Q16: lower wood costs and benefits from investments in retrofitting mills. Cost discipline: COGS/ton performance (+1.7%) lags inflation in the period (+6.3%). Expense discipline: reduction of 7.6% in SG&A/ton compared to 2015. Higher profitability of paper business in a scenario of contracting Brazilian demand through the consolidation of the Go to Market program (“Suzano Mais”), which aims to strengthen relations with end consumers. Financial discipline: lower net debt, net debt/adjusted EBITDA ratio of 2.6 times, lower debt cost and upgrade in credit rating. Liability management: issues in the domestic and international capital markets. Capital discipline: investments below initial budget and dividend distribution based on operating cash flow. Advances in the industrial project to debottleneck Imperatriz Unit, to be concluded in 2017, and acquisition of forestry assets to supply the expansion in pulp production and to reduce cost in Maranhão. Fluff: higher production during the year and launch of exports. Lignin and Tissue: startup of production slated for this year. Financial Data (R$ million) 4Q16 4Q15 Δ Y-o-Y 3Q16 Δ Q-o-Q 2016 2015 Δ Y-o-Y Net Revenue 2,498 2,709 (7.8%) 2,173 15.0% 9,882 10,224 (3.3%) Adjusted EBITDA 3 902 1,226 (26.5%) 768 17.4% 3,906 4,594 (15.0%) Adjusted EBITDA Margin 3 36.1% 45.3% (9.2 p.p.) 35.3% 0.8 p.p. 39.5% 44.9% (5.4 p.p. ) Net Financial Result (159) (135) 17.9% (236) (32.5%) 1,101 (4,429) (124.9%) Net Income (440) 341 (229.1%) 53 (932.6%) 1,692 (925) (282.8%) Operating Cash Generation 615 954 (35.5%) 507 21.3% 2,748 3,485 (21.2%) Variation in Working Capital 498 (144) (445.2%) 53 832.6% 751 (849) (188.4%) Cash Generation 1,113 810 37.5% 560 98.7% 3,499 2,635 32.8% Net Debt /Adjusted EBITDA 3 (x) 2.6 x 2.7 x (0.1 x) 2.4 x 0.2 x 2.6 x 2.7 x (0.1 x) Operational Data ('000 tons) 4Q16 4Q15 Δ Y-o-Y 3Q16 Δ Q-o-Q 2016 2015 Δ Y-o-Y Sales 1,274 1,068 19.4% 1.066 19.6% 4,726 4,521 4.5% Pulp 957 740 29.3% 756 26.6% 3,530 3,291 7.3% Paper 317 327 (3.1%) 310 2.4% 1,196 1,230 (2.8%) Production 1,231 1,127 9.2% 1.101 11.8% 4,655 4,582 1.6% Pulp 935 843 10.9% 809 15.6% 3,473 3,373 3.0% Paper 295 283 4.3% 292 1.2% 1,182 1,209 (2.2%) 1 Operating cash flow corresponds to Adjusted EBITDA less sustaining CAPEX. | 2 Value in 2016 BRL. | 3 Excluding non-recurring and/or non-cash items.
Transcript
4Q16 Results
Target pulp cash cost of R$570/ton for 2018 met in 4Q16 São Paulo, February 8, 2017. Suzano Pulp and Paper (Bovespa: SUZB5), one of the largest integrated pulp and paper producers in Latin America, announces today its consolidated results for the fourth quarter of 2016 (4Q16) and for the fiscal year (2016).
2016 HIGHLIGHTS
Strong operating cash flow1 of R$ 2.7 billion and ROIC of 12%.
Strong operating results: record high pulp production and sales.
Target cash cost for 2018 (R$ 570/ton2) met in 4Q16: lower wood costs and benefits from investments in retrofitting mills.
Cost discipline: COGS/ton performance (+1.7%) lags inflation in the period (+6.3%).
Expense discipline: reduction of 7.6% in SG&A/ton compared to 2015.
Higher profitability of paper business in a scenario of contracting Brazilian demand through the consolidation of the Go to Market program (“Suzano Mais”), which aims to strengthen relations with end consumers.
Financial discipline: lower net debt, net debt/adjusted EBITDA ratio of 2.6 times, lower debt cost and upgrade in credit rating.
Liability management: issues in the domestic and international capital markets.
Capital discipline: investments below initial budget and dividend distribution based on operating cash flow.
Advances in the industrial project to debottleneck Imperatriz Unit, to be concluded in 2017, and acquisition of forestry assets to supply the expansion in pulp production and to reduce cost in Maranhão.
Fluff: higher production during the year and launch of exports.
Lignin and Tissue: startup of production slated for this year.
Production 1,231 1,127 9.2% 1.101 11.8% 4,655 4,582 1.6%
Pulp 935 843 10.9% 809 15.6% 3,473 3,373 3.0%
Paper 295 283 4.3% 292 1.2% 1,182 1,209 (2.2%)
1 Operating cash flow corresponds to Adjusted EBITDA less sustaining CAPEX. | 2 Value in 2016 BRL. | 3 Excluding non-recurring and/or non-cash items.
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4Q16 EARNINGS RELEASE
The consolidated interim financial statements were prepared in accordance with the standards of the Securities and Exchange Commission of Brazil (CVM) and the Accounting Pronouncements Committee (CPC) and comply with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB). The financial statements for the fiscal year ended December 31, 2015 contain reclassifications to improve presentation and comparisons with the information for the period ended December 31, 2016, as described in Note 3 "Main Accounting Practices." The operational and financial information is presented based on a consolidated basis and in Brazilian real (R$). Note that figures may present discrepancies due to rounding. Non-financial data, such as volume, quantity, average price and average quotes in Brazilian real and U.S. dollar, were not reviewed by our independent auditors.
CONTENTS Message from Management .................................................................................................................................... 3 Pulp Business Performance ................................................................................................................................... 4
Paper Business Performance ................................................................................................................................. 7
Paper Sales Volume and Revenue ................................................................................................................. 7 Paper EBITDA ................................................................................................................................................. 8 Paper Operating Cash Flow and ROIC ........................................................................................................... 8
Net Revenue ................................................................................................................................................... 9 Production ....................................................................................................................................................... 9 Cost of Goods Sold ....................................................................................................................................... 10 Operating Expenses ...................................................................................................................................... 10 EBITDA ......................................................................................................................................................... 10 Financial Result ............................................................................................................................................. 11 Net Income (Loss) ......................................................................................................................................... 12 Debt ............................................................................................................................................................... 12 Capital Expenditure ....................................................................................................................................... 14 Cash Flow and ROIC .................................................................................................................................... 14 Dividends....................................................................................................................................................... 15
Awards and Recognition ....................................................................................................................................... 15 Capital Markets ...................................................................................................................................................... 16 Fixed Income .......................................................................................................................................................... 17 Credit Rating .......................................................................................................................................................... 17 Events ..................................................................................................................................................................... 18
Events in the Period ...................................................................................................................................... 18 Subsequent Events ....................................................................................................................................... 18 Upcoming Events .......................................................................................................................................... 19
IR Contacts ............................................................................................................................................................. 19 Appendices ............................................................................................................................................................. 20
Appendix 1 – Operational Data ..................................................................................................................... 20 Appendix 2 – Consolidated Statement of Income ......................................................................................... 21 Appendix 3 – Consolidated Balance Sheet ................................................................................................... 22 Appendix 4 – Consolidated Statement of Cash Flow .................................................................................... 23 Appendix 5 – EBITDA ................................................................................................................................... 24 Appendix 6 – Segmented Statement of Income ............................................................................................ 25
Corporate Information ........................................................................................................................................... 27 Forward-looking Statements ................................................................................................................................ 27
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4Q16 EARNINGS RELEASE
MESSAGE FROM MANAGEMENT The year 2016 was challenging for the pulp industry, despite the resilient growth in global demand. The pulp list price was pressured by additional supply from new plants that launched operations in the year, which on average was US$100/ton lower than in 2015. In the last quarter of the year, market fundamentals improved, which supported an initial rebuilding in pulp prices. A recovery in demand from China, inventories at healthy levels and the expectation of weaker supply volume from the new capacities coming online supported announcements of price increases in 4Q16 and 1Q17. In this adverse scenario for pulp, Suzano proved ready to overcome challenges, with its efforts focused on manageable factors, which led its pulp production cash cost to register, in 4Q16, its lowest level of the year, of R$ 570/ton. In the year, cash cost was R$ 623/ton, down 3% from R$ 642/ton in 2015. This downward trend will continue until reaching the target cash cost. For the paper business, the Brazilian market continued to be affected by a caustic macroeconomic scenario, with demand for paper contracting. However, the Company’s margin in the business expanded, given its continued discipline in production costs and its successful implementation of price increases for all product lines at rates above inflation. The Company also continued to benefit from the impact of the Go to Market program (“Suzano Mais”), which works to strengthen relations with the end of the value chain. The focus on cost discipline kept the variations in Suzano's costs and expenses below inflation. Our financial discipline, meanwhile, resulted in lower expenses with debt service and deleveraging. The liability management operations worked to lengthen the average debt term and to reduce debt cost, with the highlight the capital markets issuances: Green Bond (US$ 500 million), Green CRA (R$ 1.0 billion) and other CRA placements (R$ 900 million). Our capital discipline is demonstrated by the flexibility to reduce capex for the year by negotiating with suppliers and postponing certain projects without affecting the pace of our operations. Note that the Company's main management metric is return on invested capital (ROIC) based on operating cash flow1, which stood at 12% and R$ 2.7 billion, respectively, in 2016. We achieved this result by breaking down silos, shifting paradigms and strengthening the culture of integrated work, which stimulates ideas, creativity, initiatives and empowerment. In this way, we made progress on our three strategic pillars (Structural Competitiveness, Adjacent Businesses and Reshaping of the Industry) and laid the foundations for various projects to be delivered in 2017, which continue to promote value accretion for shareholders through the capture of profitability gains for the Company. 1 Operating cash flow corresponds to Adjusted EBITDA less sustaining CAPEX.
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4Q16 EARNINGS RELEASE
PULP BUSINESS PERFORMANCE PULP SALES VOLUME AND REVENUE
Data from the Pulp and Paper Products Council (PPPC) show that pulp shipments in 4Q16 increased 6.5% compared to the same period last year, while eucalyptus pulp shipments increased 13.9%. Suzano sold a record 957.4 thousand tons of market pulp in 4Q16, which was 29.3% higher than in 4Q15 (+217 thousand tons) and 26.6% higher than the sales volume recorded in 3Q16 (+201 thousand tons). In 2016, pulp shipments amounted to 48.7 million tons, increasing 3.8% from 2015, while eucalyptus shipments amounted to 19.9 million tons (+6.8% vs. 2015). Suzano’s pulp sales in the year came to 3.5 million tons, expanding 7.3% from 2015 (+239 thousand tons). The level of pulp inventories reported by the PPPC ended December at 35 days.
The average net pulp price in USD in 4Q16 was US$ 482/ton, decreasing US$ 12/ton (-2.4%) from 3Q16 and US$ 117/ton (-19.6%) from 4Q15. In 2016, the average price stood at US$ 499/ton, down US$ 104/ton (-17.2%) from 2015. The net average price in Brazilian real was R$ 1,586/ton in 4Q16, relatively stable (-1.0%) in relation to 3Q16. Compared to 4Q15, the average net pulp price decreased 31.0%, reflecting the deterioration in the pulp list price and the stronger BRL against the USD. In 2016, the average net price was R$ 1,740/ton, down 13.3% from 2015, reflecting the adverse effect from the lower list price.
99 103 97 456 413641 653
860
2,835 3,117
740 756 957
3,291 3,530
4Q15 3Q16 4Q16 2015 2016
Pulp Sales Volume ('000 ton)
Domestic Market Exports
223 157 140 822 7061,480 1,055 1,378
5,781 5,4351,703
1,211 1,519
6,603 6,142
4Q15 3Q16 4Q16 2015 2016
Pulp Revenues (R$ million)
Domestic Market Exports
Europe29%
Asia47%
Brazil9%
North America
13%
South/Central America
1%
Pulp Sales Revenue (4Q16)
+29.3%
+7.3%
+26.6%
+25.4%
-7.0%
-10.8%
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4Q16 EARNINGS RELEASE
PULP CASH COST
The consolidated cash cost of market pulp production in 4Q16 was R$ 570/ton excluding downtimes and R$ 582/ton including downtimes. In 2016, the consolidated cash cost of market pulp production was R$ 623/ton excluding downtimes (vs. R$ 642/ton in 2015) and R$ 642/ton including downtimes (vs. R$ 665/ton in 2015).
Cash cost in 4Q16 decreased R$ 136/ton versus 4Q15 (-19.3%), reflecting primarily the reduction in wood costs resulting from the lower share of third-party wood and the shorter average distance in the supply mix at the Mucuri Unit in Bahia state.
Compared to 2015, the R$ 19/ton decrease in cash cost is explained by the lower wood cost, which was partially offset by the lower volume of surplus energy (retrofitting of mills), the higher price of inputs linked to the USD (despite the lower consumption of these inputs) and the lower dilution of fixed costs.
The performance of adjusted EBITDA from pulp in the above periods reflects the deterioration in the pulp list price, exchange variation and cost and expense discipline.
PULP OPERATING CASH FLOW AND ROIC1
The profitability of the pulp business was adversely affected by external factors (pulp price and exchange rate), despite the significant operational improvement, with reductions in costs and expenses.
Pulp Adjusted EBITDA (R$ million) and Adjusted EBITDA Margin (%)
1,027
350440
833
506
4Q15 3Q16 4Q16 2015 2016
Pulp Operational Cash Flow (R$/ton)
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4Q16 EARNINGS RELEASE
PAPER BUSINESS PERFORMANCE PAPER SALES VOLUME AND REVENUE
According to the Forestry Industry Association (Ibá), Brazilian demand for Printing & Writing Paper and Paperboard (domestic industry sales + imports) contracted 0.5% in 4Q16 compared to 4Q15 and grew 2.9% compared to 3Q16. In 2016, domestic demand for these papers decreased 2.8% from 2015, while sales by local manufacturers remained virtually stable (-0.5%) and imports decreased 15.1%. Suzano’s paper sales in 4Q16 amounted to 317 thousand tons, down 3.1% compared to 4Q15, due to the lower volume of paper exports in the period. Compared to 3Q16, we observed an increase of 2.4% in sales volume, which is explained by the growth in export volume. In 2016, sales amounted to 1.2 million tons, which represents a stable performance given the divestment of the Embu Unit.
The average net paper price in the domestic market in 4Q16 was R$ 3,160/ton, increasing 10.8% and decreasing 0.6% from 4Q15 and 3Q16, respectively. In 2016, the average net price stood at R$ 3,140/ton, 12.5% higher than in 2015. The average net price in USD of paper exports in 4Q16 was US$ 884/ton, decreasing 5.0% and 1.0% from 4Q15 and 3Q16, respectively. In Brazilian real, the price of paper exports in 4Q16 decreased 18.6% from 4Q15 and increased 0.4% from 3Q16, which is explained by exchange variation in the period. In the year, the average net price of paper exports stood at US$ 889/ton, down 9.1% from 2015.
226 228 226
827 834101 81 91
403 362
327 310 317
1,230 1,196
4Q15 3Q16 4Q16 2015 2016
Paper Sales Volume ('000 ton)
Domestic Market Exports
644 726 716
2,309 2,618362 236 264
1,312 1,123
1,006 962 979
3,621 3,740
4Q15 3Q16 4Q16 2015 2016
Paper Revenues (R$ million)
Domestic Market Exports
Others, 4%
Brazil, 73%
North America,
8%
South/Central America, 15%
Paper Sales Revenue (4Q16)
-2.8%
-3.1%
+2.4%
+1.8%
-2.7%
+3.3%
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4Q16 EARNINGS RELEASE
PAPER EBITDA
Paper Business 4Q16 4Q15 Δ Y-o-Y 3Q16 Δ Q-o-Q 2016 2015 Δ Y-o-Y
Paper business adjusted EBITDA performance in the periods above mainly reflects the price increases implemented over the year in the domestic market, as well as the disciplined control of costs and expenses. Note the greater stability of margins in the paper segment.
PAPER OPERATING CASH FLOW AND ROIC¹
The profitability of the paper segment benefitted from the successful implementation of the price increases announced during the year and from cost and expense discipline.
Paper Business (R$ '000) 4Q16 4Q15 Δ Y-o-Y 3Q16 Δ Q-o-Q 2016 2015 Δ Y-o-Y
Paper Adjusted EBITDA (R$ million) and Adjusted EBITDA Margin (%)
592782
613 604
803
4Q15 3Q16 4Q16 2015 2016
Operational Cash Generation of Paper per ton (R$/ton)
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4Q16 EARNINGS RELEASE
ECONOMIC-FINANCIAL PERFORMANCE NET REVENUE
Suzano’s net revenue was R$ 2,497.7 million in 4Q16. Pulp and paper shipments in the quarter amounted to 1,274.4 thousand tons, increasing 19.6% from 3Q16 and 19.4% from 4Q15. In 2016, net revenue amounted to R$ 9,882.3 million, with 4,725.7 thousand tons of pulp and paper sold (vs. 4,521.4 thousand tons in 2015).
The performance of consolidated net revenue compared to 4Q15 is explained mainly by the lower pulp list price in USD, the stronger BRL and the lower paper export price, with these factors partially neutralized by the higher paper price in Brazil. Compared to 3Q16, the increase in net revenue was mainly due to the higher pulp sales volume and the weaker BRL against the USD. In the year, the 3.3% decrease basically reflects the deterioration in the hardwood pulp list price (average FOEX in Europe in 2016 was US$ 696 vs. US$ 784 in 2015), which was partially neutralized by the higher sales volume, weaker BRL and paper price increases in Brazil. PRODUCTION
Total 1,231 1,127 9.2% 1,101 11.8% 4,655 4,582 1.6%
In 4Q16, a scheduled maintenance downtime was carried out at the Limeira Unit in São Paulo state. In the year, pulp production amounted to 3,473 thousand tons, up 3.0% from 2015. Paper production amounted to 1,182 thousand tons in the year, this 2.2% decrease in production volume mainly reflects the conclusion of the association with Ibema following the divestment of the Embu Unit in 2016 (whose volume no longer is considered in the Company's total capacity), as well as the fire at the Suzano Unit in São Paulo state in 2Q16 (non-recurring loss) and the fluff produced by the flex printing and writing paper machine.
Average unit COGS in 4Q16 was R$ 1,368.4/ton, decreasing 8.3% and 6.1% from 4Q15 and 3Q16, respectively. In 2016, average unit COGS was R$ 1,390.6/ton, increasing 1.7% from 2015 and lagging the inflation measured in the period (6.3%). OPERATING EXPENSES
Total selling and administrative expenses stood at R$ 175/ton in 4Q16, decreasing 26.1% from 4Q15 and 9.7% from 3Q16, mainly due to the higher dilution of expenses resulting from the higher sales volume in the period (+19.4% vs. 4Q15 and +19.6% vs. 3Q16) and lower expenses with variable compensation. In the year, selling and administrative expenses in relation to sales volume were R$ 177/ton, down 7.6% from 2015, demonstrating the Company’s capacity to neutralize the effects from inflation on its expenses. EBITDA
Adjusted EBITDA in 4Q16 compared to 4Q15 was affected mainly by the deterioration in the pulp list price and the stronger BRL, with these factors partially neutralized by the higher paper price in the domestic market, the growth in pulp sales volume and the disciplined control of costs and expenses. Compared to 3Q16, adjusted EBITDA benefitted from the weaker BRL, higher pulp sales volume and lower pulp production cost. In the year, the decrease in adjusted EBITDA compared to 2015 was mainly due to the deterioration in the pulp price list and the lower price of paper exports. However, a portion of this impact was offset by the higher paper price in the domestic market, the growth in pulp sales volume, the weaker BRL and cost and expense discipline.
1,226768 902
4,5943,906
45.3%
35.3% 36.1%
44.9%39.5%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
4Q15 3Q16 4Q16 2015 2016
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
Adjusted EBITDA (R$ million) and Adjusted EBITDA Margin (%)
Adjusted EBITDA Adjusted EBITDA Margin
+17.4%
-15.0%
-26.5%
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4Q16 EARNINGS RELEASE
The adjustments resulting from non-recurring and/or non-cash events carried out in EBITDA are shown in Appendix 5. The main impacts were due to (i) the provision for impairment of lands and forests in Piauí state (R$ 277 million), according to the land realization value review and the impacts with forest fires in that region, (ii) the provision for losses and write-offs related to claims with biological and fixed assets and partial loss of the intangible asset identified on the acquisition of FuturaGene (R$ 121 million) and (iii) updating of the biological assets’ fair value, carried out annually by the Company (R$ 781 million ), as shown in the following table:
Adjustment to fair value of the biological asset (R$ million)
Piauí state (231)
Yield effect (Annual Average Increase - “IMA”) (185)
Wood price effect (46)
Bahia state 37
Yield effect (Annual Average Increase - “IMA”) (80)
Wood price effect 117
Maranhão state (184)
Yield effect (Annual Average Increase - “IMA”) (225)
Wood price effect 41
São Paulo state (154)
Yield effect (Annual Average Increase - “IMA”) 99
Wood price effect (254)
Tax effects (246)
Other operational and economic effects (4)
Adjustment to fair value of the biological asset (781)
In Piauí, the adjustment amounted to R$ 231 million due to the region’s lower forestry yield and lower wood price. However, said assets do not comprise the forestry base of the current operations. At the forests in Bahia and Maranhão state, the adjustment reflects the lower forestry yield resulting from the El Niño effect, which was partially offset by the higher wood price in said regions. In São Paulo, the adjustment reflects the region’s lower wood price, which was partially offset by the higher yield of the forests. The lower wood price does not affect the Company's production cost, since operations in the region use primarily own wood. The other operating and economic effects include variations in WACC, inflation and planted area. FINANCIAL RESULT
Net Financial Result (159,418) (135,188) 17.9% (236,110) (32.5%) 1,101,100 (4,428,505) (124.9%)
1 Other includes currency swap operations, LIBOR and commodities.
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4Q16 EARNINGS RELEASE
The performance of net financial expenses in 2016 compared to 2015 is mainly explained by the reduction in net debt and the liability management operations that reduced the debt cost. Monetary and exchange variation generated a negative effect of R$ 24.1 million in the quarter due to foreign exchange variation, with a negative accounting effect from the mark-to-market adjustments of the portion of debt in foreign currency, with cash effects limited to debt maturities or amortizations. At December 31st, 2016, the value of the principal of operations involving forward dollar sales through Zero Cost Collars (ZCC) was US$ 800 million, whose maturities are distributed from April 2017 to April 2018 and were contracted in a range from R$ 3.28 to R$ 4.59. The current volatility in the BRL/USD exchange rate makes this the most adequate strategy for protecting the Company's cash flow. If, upon maturity, the exchange rate is within the contracted range, there are no cash inflows or outflows for Suzano. The positive impact of R$ 47 million in 4Q16 is composed of a cash impact of R$ 99.6 million and a noncash impact of negative R$ 52.6 million related to the pricing of operations using the Black model. Suzano calibrates its debt profile based on its proportion of dollarized cash generation in order to obtain a natural hedge. The currency hedge positions for debt obligations generated a gain of R$ 33.2 million. The Company also uses swap contracts to exchange currency and interest rates and contracts to lock in bunker oil prices to mitigate the effects from these variations on its cash flow. The Company posted a net financial expense of R$ 159 million in 4Q16, compared to net financial expense of R$ 236 million in 3Q16 and net financial expense of R$ 135 million in 4Q15. NET INCOME (LOSS)
The Company posted a net loss of R$ 440 million in 4Q16, compared to the net income of R$ 341 million in 4Q15 and the net income of R$ 53 million in 3Q16, which was mainly affected by the adjustment to fair value of biological assets, lower pulp price and exchange variation in the period. In the year, net income amounted to R$ 1,692 million, compared to the net loss of R$ 925 million in 2015. DEBT
Gross debt on December 31st, 2016 amounted to R$ 14.0 billion, composed of 88.6% long-term maturities and 11.4% short-term maturities and with 66.9% denominated in foreign currency and 33.1% in local currency. The percentage of debt denominated in foreign currency, considering the adjustment for derivatives, was 76.1%. Net debt on December 31st, 2016 was R$ 10.3 billion (US$ 3.2 billion), compared to R$ 10.0 billion (US$ 3.1 billion) on September 30th, 2016. Net debt in foreign currency, considering the adjustment with derivatives, accounted for 96% of total net debt on December 31st, 2016.
Debt (R$ '000) 4Q16 4Q15 Δ Y-o-Y 3Q16 Δ Q-o-Q
Local Currency 4,644,914 5,240,386 (11.4%) 4,597,122 1.0%
Net Debt 10,317,467 12,469,247 (17.3%) 10,016,055 3.0%
Net Debt/Adjusted EBITDA1 (x) 2.6x 2.7x (0.1x) 2.4x 0.2x
1 Excludes nonrecurring and/or noncash items.
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4Q16 EARNINGS RELEASE
Suzano contacts debt in foreign currency as natural hedge, since net operating cash generation is denominated in foreign currency. This structural exposure allows it to contract export financing in USD to match financing payments with receivable flows from sales. Suzano actively and expressly demonstrates its commitment to deleverage sustainably and to adopt adequate and efficient structures and costs for its market positioning and its operational and managerial capacity.
The Company continues to seek alternatives to reduce its debt cost and lengthen its debt maturity profile. In November, the issue of R$ 1.0 billion in Certificates of Agribusiness Receivables (CRA) was concluded. The operation received the "green seal" and was the first issue of green bonds in the Brazilian market. The bonds mature in eight years and may be renegotiated in the fourth year, with semiannual interest payments corresponding to 96% of the CDI rate, which is the lowest rate ever obtained in Brazil from the issue of CRAs in operations with similar terms.
The net debt/Adjusted EBITDA ratio stood at 2.6 times, compared to 2.4 times on September 30th, 2016. The increase in this ratio was due to the lower EBITDA in the period.
14,917
5,666 949
( 1,652 )
( 5,865 ) ( 2 )
14,013
Gross Debt onDec/15
Loans InterestAccrual
ForeignExchangeVariation
Principal andInterestPayment
Others Gross Debt onDec/16
Gross Debt Evolution (R$ million)
759 8851,730 1,523 980
2,5791,658
2,936
710
759 1,046 1,827155
161
3,695
1,595
2,489 2,570 2,807 2,734
1,819
Cash 2017 2018 2019 2020 2021 2022 onward
Amortization Schedule (R$ million)
Foreign Currency Local Currency
12,469 11,237
10,191 10,016 10,317
3,193 3,158 3,175 3,085 3,166
4Q15 1Q16 2Q16 3Q16 4Q16
Net Debt (R$ and US$ million)
R$ US$
2.7 2.3 2.1
2.4 2.6 2.3 2.3 2.4
2.7 2.9
4Q15 1Q16 2Q16 3Q16 4Q16
Net Debt / Adjusted EBITDAin R$ and US$ (x)
R$ US$
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4Q16 EARNINGS RELEASE
In December 2016, the average cost of debt was 11.8% p.a. in BRL, or 86.6% of the CDI (vs. 12.0% p.a., or 85.0% of CDI, in September 2016), and 4.7% p.a. in USD (vs. 4.6% p.a. in September 2016). The average maturity of consolidated debt ended the quarter at 3.5 years, stable in relation to September 2016.
Other 14,527 16,972 (14.4%) 79,342 (81.7%) 251,818 47,710 427.8%
Total 1,206,091 415,374 190.4% 441,723 173.0% 2,636,672 1,741,847 51.4%
Capital expenditure amounted to R$ 2.6 billion in 2016, of which R$ 1.2 billion was invested in industrial and forestry maintenance. Investments in Structural Competitiveness and Adjacent Businesses projects amounted to R$ 437 million and were allocated mainly to the debottlenecking project at the Imperatriz Unit and to the Tissue and Lignin project. Investments in completing the Maranhão Project, retrofitting the Wastewater Treatment Plant at the Mucuri Unit and other projects amounted to R$ 252 million. The payment for acquiring properties and forests in Maranhão state, which was the last milestone for attaining our target pulp cash cost, was concluded in December. Capital discipline is of great importance to Suzano. The recent changes in the macroeconomic scenario led the Company to adopt greater rigor in its investment decisions and consequently to reduce its capex guidance for 2016 from R$ 2.4 billion in early 2016 to R$ 1.8 billion (excluding the payment of lands and forests in Maranhão state), effectively demonstrating its discipline and flexibility in allocating capital for investment. CASH FLOW AND ROIC
Suzano’s operating cash flow (Adjusted EBITDA - Sustaining Capex) amounted to R$ 615.1 million in 4Q16 and R$ 2.7 billion in 2016. The changes in 4Q16 compared to 4Q15 are explained by the lower Adjusted EBITDA in the period. Cash generation, including the variation in working capital, came to R$ 1,113.5 million in 4Q16 and approximately R$ 3.5 billion in 2016.
Libor, 32% Fixed (US$), 31%
CDI, 22%
TJLP, 6%
Fixed (R$), 5%
Basket of Currencies, 3%
Index Exposure on 12/31/2016
Export financing, 33%
Bond, 27%
Agribusiness Receivables
Certificates, 18%
BNDES, 11%
Import financing, 8%
Others, 3%
Type Expousure on 12/31/2016
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Consolidated ROIC stood at 12%, down 2.8 p.p. from 2015, mainly due to the lower profitability of the pulp business, which was affected by external factors (pulp prices and exchange rate), despite the significant improvement in its operations, with reductions in costs and expenses. The paper business partially neutralized the adverse effects from the external factors in the pulp business.
Suzano’s bylaws establish a minimum mandatory dividend of 25% of adjusted net income for the fiscal year. The amount attributed to the class "A" and "B" preferred shares is 10% higher than that attributed to the common shares. In 2016, Suzano distributed R$ 300 million in dividends related to fiscal year 2015. In 2017, the Company's management will propose to the Shareholders' Meeting the distribution of dividends in the amount of R$ 371 million, to be attributed to the results for fiscal year 2016. AWARDS AND RECOGNITION In 2016, Suzano received 15 awards for the technical competencies of the company and its employees. These included Você S/A naming Suzano one of the "Best Companies to Work For" and one of the "Best Companies for Starting a Career."
894
476 483
771
581
4Q15 3Q16 4Q16 2015 2016
Operational Cash Flow (R$/ton)
+1.5%
-24.6% -46.0%
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CAPITAL MARKETS On December 31st, 2016, Suzano preferred stock (SUZB5) was quoted at R$ 14.20/share. The Company’s stock is listed on the Level 1 corporate governance segment.
Source: Bloomberg.
Source: Bloomberg.
On December 31st, 2016, the Company’s capital stock was represented by 371,148,532 common shares (SUZB3) and 736,590,145 preferred shares (SUZB5 and SUZB6), for a total of 1,107,738,677 shares traded on the BM&FBovespa, of which 17,545,658 were treasury shares (6,786,194 common shares and 10,759,464 preferred shares). Suzano’s market capitalization stood at R$ 15.7 billion on December 31st, 2016. In 4Q16, the free-float stood at 42.0% of the total capital.
Avg. Daily Volume (R$ million) Number of Trades (Daily)
Local33%
Foreign67%
Institutional Investors94%
Individual Investors6%
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Free Float Distribution on 12/31/2016
* Latin America excluding Brazil.
FIXED INCOME
Unit Jun/16 Sep/16 Dec/16
Suzano 2021 – Price USD/k 104.4 105.3 103.3
Suzano 2021 - Yield % 4.8 4.5 5.0
Suzano 2026 – Price USD/k N/A 102.5 97.0
Suzano 2026 - Yield % N/A 5.4 6.2
Treasury 10 years % 1.5 1.6 2.4
CREDIT RATING
Agency National Scale Global Scale Outlook
Fitch Ratings AA+ (bra) BB+ Positive
Standard & Poor’s brAA+ BB+ Stable
Moody’s Aaa.br Ba1 Negative
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EVENTS EVENTS IN THE PERIOD
Acquisition of land and forests in Maranhão and Tocantins and of the Mucuri SHPP On October 26th, 2016, the Company announced the acquisition of approximately 75,000 hectares of properties in the states of Maranhão and Tocantins, of which approximately 40,000 hectares comprise planted forests, for a price in local currency corresponding to US$ 245 million. The purpose of the acquisition is to (a) increase the supply of wood at the Imperatriz Unit to meet the demand from the expansion in pulp production at said unit; (b) reduce the average supply radius of the forests supplying the Imperatriz Unit; and (c) guarantee, in the long term, the increased competitiveness of wood prices at the unit. Suzano also acquired 100% of the shares issued by Mucuri Energética S.A., which owns a small hydroelectric power plant (SHPP), for a price in local currency corresponding to US$ 14 million. On December 8th, 2016, the Company concluded the Sale Agreement for Forestry Assets, the Sale Agreement and Sale Commitment for Rural Properties and Other Covenants, through which, among other conditions, the Company purchased, or committed to purchase, from Companhia Siderúrgica Vale do Pindaré and COSIMA – Siderúrgica do Maranhão Ltda., a portion of their real estate and forestry assets. The Company did not conclude the transaction with Queiroz Galvão Energia S.A., which is still subject to certain contractual and legal conditions, including authorization by the National Electric Power Agency (ANEEL). The Material Fact notice and the Notice to the Market are available on the website of the Securities and Exchange Commission of Brazil (CVM) and on the Company’s IR website (www.suzano.com.br/ir). Green CRA Issue On November 28th, 2016, the Company concluded a funding transaction through the first issue of green bonds in the local market, with the issue of Certificates of Agribusiness Receivables (CRA) of the 98 th series of the 1st Issue of Eco Securitizadora de Direitos Creditórios do Agronegócio S.A. in the amount of one billion reais (R$ 1,000,000,000.00), secured by Export Credit Notes (NCE) issued by the Company. The bonds mature in eight (8) years and may be renegotiated in the fourth year, with semiannual interest payments corresponding to 96% of the CDI rate, which is the lowest rate ever obtained in Brazil from the issue of CRAs in operations with similar terms. The Notice to the Market is available on the website of the CVM and on the Company’s IR website (www.suzano.com.br/ir). Relevant interest On November 29th, 2016, the Company was informed that the investment funds and/or companies managed by Mondrian Investment Partners Limited (“Mondrian”) held 72,878,900 class “A" preferred shares ("SUZB5"), or 9.92% of all shares of this class. The Notice to the Market is available on the website of the CVM and on the Company’s IR website (www.suzano.com.br/ir). Granting of guarantees On December 19th, 2016, the Board of Directors of the Company approved the contracting of the following guarantees related to the financial transaction involving the transfer of funds from the Northeast Development Fund (FDNE), approved by the Northeast Development Superintendence (SUDENE), with Banco do Brasil S.A. acting as transaction agent and onlender: (i) security interest on properties owned by the Company (mortgage); (ii) fiduciary assignment of receivables deposited in a reserve liquidity account; and (iii) personal guarantee to be provided by Suzano Holding S.A., parent company of the Company. The Minutes of the Board of Directors Meeting are available on the website of the CVM and on the Company’s IR website (www.suzano.com.br/ir). Contracting of financing On December 19th, 2016, the Board of Directors of the Company approved the contracting of a financing facility granted through the onlending of funds from the Northeast Constitutional Financing Fund ("FNE"), through Banco do Nordeste (“Financing Facility”). The Minutes of the Board of Directors Meeting are available on the website of the CVM and on the Company’s IR website (www.suzano.com.br/ir). SUBSEQUENT EVENTS
Contracting of financing On January 17th, 2017, the Executive Board approved and authorized the execution of a financing agreement with Banco do Brazil through the onlending of funds from the FDNE, with the main characteristics as follows: (i) the proceeds will be allocated to implement and form forests in cities located in the states of Maranhão,
Bahia, Espírito Santo and Minas Gerais; (ii) the amount of the Financing Facility is up to R$260,189,953.00; (iii) amortization in consecutive and subsequent semiannual installments after the expiration of the 12-month grace period as from the start-up of the project financed; (iv) fixed interest rate of eight percent (8%) per annum; and (v) constitution or pledging of guarantees in the total amount of the outstanding balance of the financing facility, comprising a suretyship given by Suzano Holding S.A., the fiduciary assignment of credit rights from the liquidity reserve account and property mortgages, as approved by the Board of Directors of the Company in a meeting held on December 19, 2016. The Minutes of the Executive Board meeting are available on the website of the CVM and on the Company's IR website (www.suzano.com.br/ir). FIDC Operation On January 17th, 2017, the Executive Board approved: (i) the subscription and payment of subordinate interests issued by Fundo de Investimento em Direitos Creditórios Suzano (“FIDC”) in the amount of three percent (3%) of equity of the FIDC; (ii) the execution by the Company of an Assignment Agreement through which it undertakes to grant certain Credit Rights to FIDC; (iii) the assumption by the Company of partial co-obligation, limited to ten percent (10%) of the restated face value of each Credit Right to be granted to FIDC; and (iv) the granting of powers to the Company's Executive Board to execute of all and any documents required to enable due compliance with items "i" to "iii" above. The Minutes of the Executive Board meeting are available on the website of the CVM and on the Company’s IR website (www.suzano.com.br/ir). UPCOMING EVENTS
Earnings Conference Call (4Q16)
Date: February 9, 2017 (Thursday)
Portuguese 10:30 a.m. (Brasília time) 7:30 a.m. (New York time) 12:30 p.m. (London time) Phone: +55 (11) 3193-1001 or (11) 2820-4001
English (simultaneous translation) 10:30 a.m. (Brasilia time) 7:30 a.m. (New York time) 12:30 p.m. (London time) Phone: +1 (786) 924-6977 (access code: Suzano)
Please connect 10 minutes before the conference call is scheduled to begin.
The conference call will feature a slide presentation and be transmitted simultaneously via webcast. The access links will be available on the Company’s Investor Relations website (www.suzano.com.br/ir).
If you are unable to participate, the webcast link will be available for future consultation on the Company’s Investor Relations website. New digital platforms The Company has reformulated its digital platforms. Please visit the new Corporate website (www.suzano.com.br) and the new Investor Relations website (www.suzano.bom.br/ir). It also launched an app for investors called "RI Suzano," which is available for iOS and Android. IR CONTACTS Marcelo Bacci Michelle Corda Danielle Cheade Fernanda Brienza Tatiana Hatanaka Phone: +55 (11) 3503-9061 [email protected] www.suzano.com.br/ir
Corporate Information Suzano Pulp and Paper, which posted net revenue of R$ 9.9 billion in 2016, is one of the largest vertically integrated producers of paper and eucalyptus pulp in Latin America, with annual production capacity of 3.5 million tons of market pulp and 1.2 million tons of paper. Suzano Pulp and Paper offers a broad range of pulp and paper products for the domestic and export markets and is the leader in key market segments in Brazil through its five product lines: (i) eucalyptus pulp; (ii) hardwood fluff pulp; (iii) uncoated printing and writing paper; (iv) coated printing and writing paper; and (v) paperboard. Forward-looking Statements This release may contain forward-looking statements. Such statements are subject to known and unknown risks and uncertainties that could cause the expectations expressed not to materialize or the actual results to differ materially from the expected results. These risks include changes in future demand for the Company’s products, changes in factors affecting domestic and international product prices, changes in the cost structure, changes in the seasonal patterns of markets, changes in prices charged by competitors, foreign exchange variations, changes in the political or economic situation of Brazil, and changes in emerging and international markets. The forward-looking statements were not reviewed by our independent auditors.
