Earnings Release
First Quarter 2019
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CONFERENCE CALL TABLE OF CONTENTS
Date: May 10th, 2019 1Q19 HIGHLIGHTS ...... 3 Time: 10:00 AM ET RELEVANT EVENTS ...... 4 Conference ID: 1196598 SUBSEQUENT EVENTS ...... 5 US Toll-Free: REVIEW OF 1Q19 CONSOLIDATED RESULTS ...... 6 +1 (866) 209-2934 International Dial-In: SALES ...... 6 +1 (647) 689-5682 OPERATING COSTS ...... 7 Webcast: click here OTHER OPERATING EXPENSES ...... 7 EBITDA ...... 8 FINANCIAL RESULT ...... 8 IR CONTACTS NET INCOME (LOSS) ...... 9 Colomba Henríquez FREE CASH FLOW ...... 10 colomba.henriquez@cmpc.cl CAPITAL EXPENDITURES ...... 10 + (56) 2 2441 2791 DEBT ...... 10 FINANCIAL RATIOS ...... 12 Petya Miteva REVIEW OF RESULTS BY BUSINESS ...... 13 [email protected] PULP MARKET ...... 13 + (56) 2 2441 2713 PULP SEGMENT ...... 14 SOFTYS ...... 17 Agustina Mussolini PACKAGING ...... 18 [email protected] RISK MANAGEMENT ...... 20 + (56) 2 2441 2616 MARKET RISK ...... 20 FINANCIAL RISK ...... 20 ir.cmpc.cl Risk arising from the conditions of the financial markets ...... 21 Credit risk ...... 23 Liquidity risk ...... 24 OPERATIONAL RISKS ...... 25 Industrial and forestry operations risk ...... 25 Continuity and cost of acquisition of materials and services ...... 26 Environmental factors risk ...... 26 Risk associated with community relations ...... 27 Compliance risk ...... 27 Cyber risk ...... 28 RISK ARISING FROM THE POLITICAL AND ECONOMIC CONDITIONS IN THE COUNTRIES WHERE CMPC OPERATES ...... 28 ABOUT CMPC ...... 30 FORWARD-LOOKING STATEMENTS ...... 30 FINANCIAL TABLES...... 31 GLOSSARY ...... 36
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1Q19 HIGHLIGHTS
Pulp production of 879,000 tons, 15% lower compared to 4Q18 and 9% lower compared to 1Q18, due to the planned maintenance downtime carried out during the quarter. All mills are currently operating at full capacity.
BEKP cash costs of USD209/ton, increasing 7% QoQ and 3% YoY. BSKP cash costs of USD338/ton, 1% lower QoQ and 2% higher YoY.
Market pulp volumes of 823,000 tons, representing a 5% QoQ and 2% YoY decrease.
BEKP prices decreased by 5% QoQ and 6% YoY, BSKP prices decrease 13% QoQ and 16% YoY, reaching CIF USD692/ton and CIF USD703/ton, respectively.
Tissue paper sales volumes of 173,000 tons, a 1% QoQ and 5% YoY increase. Personal Care products sales volumes of 1,506 million units, a 5% QoQ and 16% YoY increase.
Packaging sales volumes of 210,000 tons; reflecting a 3% QoQ and 2% YoY increase.
Consolidated sales of USD1,449 million, reflecting decreases of 6% QoQ and 3% YoY, mainly driven by lower Pulp sales.
Packaging EBITDA of USD29 million, increasing 175% QoQ and 23% YoY.
EBITDA of USD335 million, a 17% QoQ and 16% YoY decrease, as a result of the lower Pulp business operational result.
Net income of USD57 million; a USD55 million QoQ and USD87 million YoY decrease.
Free cash flow negative at USD56 million, compared to positive at USD221 million in 4Q18 and positive at USD70 million in 1Q18.
Net debt to EBITDA ratio of 1.7x, compared to 1.6x in 4Q18 and 2.5x in 1Q18.
USD Million 1Q18 4Q18 1Q19 QoQ YoY Sales 1,495 1,538 1,449 -6% -3% EBITDA 399 403 335 -17% -16% EBITDA Margin 26.7% 26.2% 23.1% -310 bps -360 bps Net Income (Loss) 144 112 57 -49% -60% 0 CAPEX 103 83 77 -7% -25% Free Cash Flow 70 221 (56) N/A N/A 0 Total Assets 15,164 14,983 15,196 1% 0% Net Debt 3,143 2,853 2,925 3% -7% Market Capitalization 9,500 7,938 8,843 11% -7%
Closing Exchange Rate (CLP/USD) 603.39 694.77 678.53 -2% 12% Average Exchange Rate (CLP/USD) 602.08 678.70 667.34 -2% 11%
Closing Exchange Rate (BRL/USD) 3.31 3.87 3.90 1% 18% Average Exchange Rate (BRL/USD) 3.25 3.81 3.77 -1% 16%
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RELEVANT EVENTS
CMPC unifies its tissue business operations and Softys is born – The Company announced on January 11, 2019, the unification of its six different tissue subsidiaries names under the Softys brand, with commercial and productive operations throughout eight countries. The consolidation under a single name, together with the reorganization of this business’ corporate structure, strengthens Softys position within the markets in which it has a presence while affirming its position as the number one player in countries such as Chile, Argentina, Peru and Uruguay and as a regional forerunner.
CMPC Foundation launches the HIPPY program in the south of Chile - The HIPPY (Home Instruction for Parents of Preschool Youngsters) program was launched on January 11, 2019 in the Angol Municipality of Chile’s Araucanía region to empower parents to provide educational enrichment for their preschool children at home through educational activities and games which strengthen language the development, logical thinking and problem solving. The program is expected to encompass the Cañete, Victoria, Colipulli, Angol, Traiguén and Lumaco municipalities, working with three CMPC Foundation coordinators and 24 tutor mothers selected from local communities and benefiting 360 families with three-year-old children.
New production line begins operation at Forsac, Peru - On March 14, 2019, CMPC’s Forsac Peru opened a new production line for all types of sackraft for the cement industry, an important step in implementing its growth strategy. The machine utilizes the latest technology and can operate highly efficiently at great speeds, while offering automatic palletization and online quality control. This will enable a 30% increase in productive capacity.
Inauguration of corporate offices in Los Angeles, Chile – CMPC held an inauguration ceremony for its new corporate office building in Los Angeles, Chile, on March 14, 2019. Chilean state government and local Biobío regional authorities, business leaders, representatives of the architecture branch, and CMPC executives, among others, attended the event. The building has become an icon in modern sustainable architecture and design. Further, it is Chile’s only building boasting FSC and LEED sustainability certifications.
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SUBSEQUENT EVENTS
New CMPC Packaging corporate structure – On April 2, 2019, the Company announced the integration of the activities of its Papeles Cordillera, Envases Impresos, Chimolsa and Sorepa subsidiaries into a single business unit, effective June 1, 2019, consolidating their operations to benefit from different productive and distribution synergies.
Acquisition of Papelera Panamericana – On April 5, 2019, Softys finalized the acquisition of Papelera Panamericana (Activar S.A.C. and Papelera Panamericana S.A.), a Peruvian company with a presence in the Arequipa and Southern Peru markets since 1983. Papelera Panamericana is the local Arequipa market leader, with more than 60% market share. The company’s mill, located in the city of Arequipa, produces tissue paper, which is then converted into paper napkins, paper towels and toilet paper. The acquisition of 100% of the company totaled USD13 million.
CMPC General Shareholders’ Meeting – Empresas CMPC’s 100th General Shareholders’ Meeting took place on April 26, 2019, and agreed on the following items:
a) To renew the Board of Directors, comprised of the following members: Vivianne Blanlot Soza, Rafael Fernández Morandé (independent), Luis Felipe Gazitúa Achondo, Jorge Larraín Matte, Jorge Matte Capdevila, Bernardo Matte Larraín, Jorge Marín Correa (independent), Ramiro Mendoza Zúñiga, Pablo Turner González. b) To approve CMPC’s Balance Sheet, Financial Statements and the Integrated Report of the year ending December 31, 2018. c) To distribute a final dividend of CLP34.00 per share. The payment of this dividend shall be carried out on May 7, 2019 to shareholders of record as of midnight on April 30, 2019. d) To inform CMPC’s 2019 dividend policy, which should consist of the distribution of 40% of the Company’s Distributable Liquid Net Income for the period ending December 31, 2019 through two interim dividends, distributed approximately in September and December 2019 or January 2020, and a final dividend paid out on a date to be determined at the following Annual General Shareholders’ Meeting. e) To appoint KPMG as CMPC’s external auditors for 2019. f) To designate Fitch, Moody’s and S&P as international credit rating agencies and Fitch and Humphreys as local credit rating agencies.
2018-2019 Wildfire season - According to the Company’s records, as of May, 5, 2019, CMPC forest plantations were affected by 918 fires reaching 3,200 hectares. The number of fires stood at 710, affecting 1,200 hectares for the same time last year. During the 1Q19, the Company registered a loss in biological assets of USD12 million related to the forestry plantations affected by forest fires as of March 31, 2019.
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REVIEW OF 1Q19 CONSOLIDATED RESULTS
SALES
Total Sales Revenue reached USD1,449 million for the quarter, a 6% decrease from 4Q18 and a 3% decrease from 1Q18.
QoQ, the decline was due to an Sales by Destination Sales by Business 11% decrease in Pulp sales (USD89 1Q19 1Q19 million) with both lower sales volumes and lower prices, and a 3% 20% decrease in Softys (USD14 million), 28% 34% mainly due to lower tissue paper and personal care products prices. 50% This was partially offset by a 6% increase in Packaging sales (USD14 52% 16% million), primarily due to higher volumes of corrugated boxes and Domestic Sales Chile Export Sales Pulp Packaging Softys higher prices. Foreign Subsidiaries
YoY, revenue decreased as a result of lower sales in Pulp, with lower pulp prices combined with lower pulp volumes (-9%, USD68 million). The 4% increase in Softys sales (USD17 million), was due to higher volumes of tissue paper and personal care products, as well as the 2% increase in Packaging sales (USD6 million), as a result of higher boxboard sales, partially mitigated of the Pulp business decline.
QoQ Revenues Analysis to Third Parties YoY Revenues Analysis to Third Parties
+37 +2 +4 +7 +7 +10 -59 -58 -30 -10 -24 -20
1,538 1,495 1,449 1,449
Sales Pulp Packaging Softys Sales Sales Pulp Packaging Softys Sales 4Q18 -89 + 14 -14 1Q19 1Q18 -68 + 6 +17 1Q19
∆ Prices ∆ Volumes
A slight sequential decrease in sales to Asia and Europe was offset by an increase in Chile, Brazil and US and Canada. Compared to 1Q18, sales increased in Latin America, with a decline in Asia and Europe.
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Sales by Geographic Area 100%
90% 26% 26% 25% Asia 80%
70% 21% 19% 20% Chile 60%
50% 13% 11% Europe 13% 40% 8% 8% Brazil 8% 7% 7% Mexico 30% 6% 7% 7% 6% Peru 20% 5% 7% 7% USA and Canada 5% 10% 7% 6% Argentina 5% 6% 6% Other LATAM 4% Other 0% 3% 3% 1Q18 4Q18 1Q19
OPERATING COSTS
Operating Costs, excluding depreciation and amortization, stumpage and decreases due to harvest, totaled USD919 million, down 2% QoQ and flat YoY. The QoQ result is due to decreased pulp sales volumes and lower Softys operational costs, compensated by higher costs in the Pulp business, related to planned maintenance downtime and the cost of forest fire prevention efforts. The YoY result relates to lower operating costs in all business divisions due to local currency depreciation and lower pulp sales volumes. This was offset by higher maintenance expenses in the Pulp business and higher direct costs in Softys and Packaging, related to higher pulp prices and sales volumes. It is important to note that the implementation of IFRS 16 resulted in lower operating costs during the quarter. 1Q19 Consolidated Operating Costs represented 63% of total revenues, up from 61% in 4Q18 and in 1Q18.
OTHER OPERATING EXPENSES
Other Operating Expenses totaled USD195 million; a 1% decrease QoQ and an 8% increase YoY. The QoQ decline is due to IFRS 16 implementation and lower administrative expenses in Packaging, offset by higher administrative expenses in Softys and Pulp. The YoY increase is also related to higher administrative expenses in Softys and Pulp, partly offset by the positive effect of local currency depreciation. Consolidated Other Operating Expenses in 1Q19 were 13% of total revenues, compared to 13% in 4Q18 and 12% reported in 1Q18.
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EBITDA
EBITDA totaled USD335 million during the quarter, down 17% QoQ and 16% YoY with an EBITDA Margin of 23.1%, a decline from 26.2% reported in 4Q18 and 26.7% reported in 1Q18.
The quarterly EBITDA decrease is related to lower EBITDA EBITDA by Business in the Pulp business (USD86 million), given lower sales and 1Q19 higher operating costs. However, the Packaging business increased its EBITDA by 175% (USD19 million), as a result 9% of higher sales and lower administrative expenses, and the 9% Softys business increased by 27% (USD7 million), benefitted by higher sales volumes and lower operating costs. The YoY result is attributed to the lower Pulp EBITDA (USD50 million), due to decreased volumes and prices, and the lower Softys EBITDA (USD19 million), as a 82% result of higher fiber costs and local currency depreciation. This was partly offset by higher EBITDA in Packaging Pulp Packaging Softys (USD5 million), resulting mainly from higher boxboard sales.
QoQ EBITDA Variation by Business YoY EBITDA Variation by Business
+5 +19 +7 -50 -19 -0 -86 -8
403 399 335 335
EBITDA Pulp Packaging Softys Holding & EBITDA EBITDA Pulp Packaging Tissue Holding & EBITDA 4Q18 Others 1Q19 1Q18 Others 1Q19
FINANCIAL RESULT
Financial Expenses totaled USD52 million in 1Q19, an 8% increase compared to 4Q18 and 1% compared to 1Q18. The QoQ and YoY increase is related to the implementation of IFRS 16. Additionally, Financial Income totaled USD6.7 million, compared to USD7 million in 4Q18 and the USD3.4 million in 1Q18, primarily as a result of the different cash position in the mentioned periods.
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NET INCOME (LOSS)
CMPC reported a Net Income of USD57 million in 1Q19, compared to a Net Income of USD112 million in 4Q18 and USD144 million in 1Q18.
The QoQ decrease is mainly explained by lower EBITDA generation during the quarter, partially offset by a positive effect in Other Gains (Losses). The YoY decrease is also mainly related to the lower operating result.
QoQ Net Income Analysis YoY Net Income Analysis
+ 22.5 144 + 2.7 + 14.6 - 64 112 - 9.4 + 5.7 - 11.5 - 0.5 - 68 - 4.2 - 21.6 - 8.5 57 57
Net EBITDA Dep. & Net Biol. Net Fin. Other FX Diff. & Net Net EBITDA Dep. & Net Biol. Net Fin. Other FX Diff. & Net Income Stumpage Income Costs Non Index. Income Income Stumpage Income Costs Non Index. Income 4Q18 Oper. (1) Results 1Q19 1Q18 Oper. (1) Results 1Q19
(1) Other Non-Operating includes: Share Results in Associated Companies, Other Gains (Losses) and Income Taxes.
Currency Exchange Rate Differences resulted in a USD6.5 million loss in the quarter, compared to a gain of USD8.5 million in 4Q18 and a loss of USD2.2 million in 1Q18, mostly as a result of the implementation of IFRS 16, the depreciation of the Brazilian Real and the appreciation of the Chilean Peso during the quarter. Indexation Unit Results registered a USD9.4 million gain in the quarter, compared to a gain of USD5.9 million in 4Q18 and a loss of USD0.7 million in 1Q18. The result for the quarter includes a USD9.2 million gain related to the hyperinflationary accounting for Argentina. Other Gains (Losses) resulted in a USD16 million loss. This result includes a USD12 million loss related to the provision for the write-off of forestry assets due to forest fires during the last months. Other Gains (Losses) may also include non-core business revenue and other items, such as insurance claims deductibles, donations, and the relative effects of changes in the fair value of financial instruments including forwards and swaps (different from those under hedge accounting), among others. Income Taxes amounted to a USD48 million loss in 1Q19, compared to a USD56 million loss in 4Q18 and USD40 million loss in 1Q18. The result for the quarter is explained by a USD67 million income tax provision, partially offset by a USD19 million gain from a lower deferred tax provision, which includes a USD3.6 million gain related to the effect of currency exchange rate movement on deferred taxes. It is important to note that CMPC’s tax accounting is in local currencies (except in Chile) and when it differs from its functional currency, the depreciation against the US dollar, particularly the Brazilian Real, decreases the tax base of assets measured in dollars, and therefore increases the Deferred Taxes account, which is a non-cash effect.
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FREE CASH FLOW
Free Cash Flow reached negative USD56 million in 1Q19, compared to positive USD221 million in 4Q18 and USD70 million in 1Q18. The lower free cash flow generation QoQ is mainly related to the increase in working capital, lower EBITDA, higher dividends and higher tax disbursements. The YoY decrease is mainly due to the lower EBITDA generation as well as higher dividends and tax disbursements.
USD Million 1Q18 4Q18 1Q19 QoQ YoY EBITDA 399 403 335 -17% -16% (-) Capex (103) (83) (77) -7% -25% (-) Dividends (0) (0) (51) >1000% >1000% (-) Net Financial Expenses (22) (46) (27) -42% 18% (-) Income tax (22) (79) (89) 13% 308% (+/-) Working Capital Variation (182) 26 (147) N/A -19%
Free Cash Flow 70 221 ( 56) N/A N/A
CAPITAL EXPENDITURES Capital Expenditures
Capital Expenditures in 1Q19 totaled USD77 million, down 7% compared to 4Q18 and 25% compared to 1Q18. These capital expenditures are mainly related to 103 83 77 forest maintenance and disbursements related to the Zárate project and the new paper bag line in Forsac Peru. 1Q18 4Q18 1Q19
FINANCIAL DEBT
USD Million 1Q18 4Q18 1Q19 QoQ YoY
(i) Current Interest-Bearing Liabilities 327 430 424 -1% 29% (ii) Non-Current Interest-Bearing Liabilities 3,724 3,379 3,373 0% -9% (iii) Other Obligations (31) (30) (30) -1% -5% (iv) Net Hedging Current Liabilities related to Debt Instruments (5) 6 7 26% N/A (v) Net Hedging Non-Current Liabilities related to Debt Instruments (30) 36 9 -74% N/A
Total Debt ( (i) + (ii) + (iii) + (iv) + (v) ) 3,986 3,821 3,783 -1% -5%
Cash* 843 968 858 -11% 2%
Net Debt 3,143 2,853 2,925 3% -7%
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CMPC’s Financial Debt stood at USD3,783 million as of March 31, 2019, decreasing 1% compared to December 31, 2018 and 5% compared to March 31, 2018. Cash held by the Company at the end of 1Q19 totaled USD858 million, 11% lower QoQ and 2% higher YoY. The QoQ decrease in Cash is explained by the negative free cash flow during the quarter. Net Financial Debt was USD2,925 million as of March 31, 2019, up 3%% compared to December 31, 2018 and decreasing 7% compared to March 31, 2018.
Financial Debt Breakdown
Debt by Currency Debt by Instrument Debt by Interest Rate
3% 2% 7% 1% 4% 4% 8%
91% 81% 99%
USD CLP BRL Other Banks Bonds BNDES ECA Fixed Rate Floating Rate
Amortization Schedule
1,085
619 532 589 406 188 147 195 2019(1) 2020 2021 2022 2023 2024 2025/2031 2032/2041
(1) The 2019 figure includes USD42 million in accrued interest.
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FINANCIAL RATIOS
Net Debt / EBITDA Debt / Tangible Net Worth
4.0x 0.90x 3.5x 0.80x 3.0x 0.70x 2.5x 0.60x 0.49x 2.5x 0.48x 0.47x 0.47x 0.47x 2.0x 0.50x 2.2x
1.5x 1.8x 0.40x 1.6x 1.7x 1.0x 0.30x 1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19
Internal Policy Internal Policy Covenant
The Net Debt/EBITDA ratio in 1Q19 was The Debt/Tangible Net Worth ratio was 1.7x, up from 1.6x in 4Q18 and 2.5x in 0.47x stable compared to 4Q18 and
1Q18. lower compared to 0.49x in 1Q18.
Interest Coverage Ratio Liquidity Ratio
2.17x 9.3x 8.50x 8.35x 2.3x 7.66x 2.1x 1.97x 8.3x 1.80x 7.02x 1.9x 7.3x 5.87x 1.7x 6.3x 1.5x
5.3x 1.14x 1.3x 4.3x 0.98x 1.1x 3.3x 0.9x 2.3x 0.7x 1.3x 0.5x 0.3x 0.3x 1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19
Internal Policy Covenant Internal Policy
The Interest Coverage Ratio was 8.35x, The Liquidity Ratio(1) was 1.8x compared
compared to 8.5x in 4Q18 and 5.87x in 1Q18. to 2.17x in 4Q18 and 1.14x in 1Q18.
(1) Liquidity = Cash and Cash Equivalent / 18m Amortizations and 18m Net Financial
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REVIEW OF RESULTS BY BUSINESS
PULP MARKET
Chemical market pulp shipments declined 0.5% in the first quarter of 2019 according to PPPC W-100. While BHKP decreased 3.5%, softwood rose 3.5%. The decrease in volume is mainly due to the deceleration of paper demand, mainly in China. This led to the accumulation of stocks, reaching a peak in February (more than 2.8 million tons), as Suzano, the largest hardwood player, decided to lower its sales volumes. Paper demand also suffered in Europe, partially due to the region’s macroeconomic challenges (Brexit, France, a cooling German economy, political/economic problems in Italy), which, in turn, affect the construction industry (deco papers) and mass consumption (tissue paper, P&W). Additionally, European paper demand for export has been affected by the recent emergence of Chinese producers exporting and aggressively competing with European producers. This was not the case in 2017-2018, when domestic paper demand in China high enough levels to consume all domestically produced paper while importing additional quantities.
On the supply side, there were only minor unplanned global supply reductions following the 23 day/185k ton market-related shut-down of APP´s OKI mill in Indonesia in January. There are still no confirmed major pulp capacity expansion projects in the pipeline to be launched before or after the planned Q2 2021 start-up of Arauco’s 1.3 million tons MAPA BEKP project in Chile.
In terms of PIX price indexes, the market saw a recovery this quarter, particularly in China, with both softwood and hardwood increasing their prices by USD15-40/ton, respectively. The gap between the two fibers has been reduced to a minimum compared to prior years.
P&W has been the most negatively affected end-use paper segment so far this year, expected to grow only in China (0.9%) and decline more than 2% in the rest of the markets. The main growth driver has been the tissue segment, which is expected to expand by 3.2%, led by China (6.3%). Board is also a segment with expected growth (2.3%), but it uses mostly recycled fiber.
Source: PPPC, World Chemical Market Pulp Global 20 Report – March 2019, Hawkins Wright.
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PULP SEGMENT
During 1Q19, Pulp & Forestry sales totaled USD718 million, down 11% QoQ and 9% YoY.
Pulp Sales & EBITDA USD Million 1Q18 4Q18 1Q19 QoQ YoY Pulp Sales 786 807 718 -11% -9% - Pulp Sales 663 663 589 -11% -11% - Forestry Sales 123 144 129 -11% 5% EBITDA 333 369 283 -23% -15% EBITDA Mg. 42.4% 45.7% 39.5% -620 bps -290 bps
Forestry
Third Party Sales Volumes 1Q18 4Q18 1Q19 QoQ YoY - Pulpwood 23 16 33 111% 46% - Sawing Logs 354 350 341 -3% -3% - Sawn Wood 181 219 170 -22% -6% - Remanufactured Wood 39 45 46 2% 17% - Plywood 99 112 105 -6% 7% - Others 114 55 123 125% 8% 3 Total ( t h. m ) 810 797 819 3% 1%
Forestry sales volumes to third parties increased 3% QoQ due to increased pulpwood sales (+111%) in the local Chilean market as well as remanufactured wood (+2%) given higher exports to the USA and Asia. Lower sawn wood sales volumes (-22%), as a result of a decline in Latin America, Asia and USA, plywood (-6%), due to lower exports to Latin America and Europe, and sawing logs (-3%), as a result of lower sales in Chile, partly offset the positive effect.
YoY, forestry volumes sold to third parties increased by 1%, explained by higher volumes of pulpwood (+46%), with increased sales in Chile, remanufactured wood (+17%), as a result of higher sales in Chile, USA and Asia, and plywood (+7%), benefited from higher sales in Chile and exports to Europe, USA and Latin America. This was partially offset by lower sawn wood sales (-6%) in Chile and China and lower sawing logs sales (-3%) in Argentina.
Forestry average sales prices decreased 13% QoQ, related to a change in the product mix, as well as lower sawing logs, plywood and sawn wood prices, partially offset by higher pulpwood prices. YoY, average prices increased by 3%, also primarily due to a change in the product mix.
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Pulp
Pulp Production 1Q18 4Q18 1Q19 QoQ YoY ( 1) BSKP 186 188 185 -2% 0% BEKP 784 841 694 -17% -12%
Total Pulp ( t h. T o ns) 970 1,029 879 -15% -9% ( 2) Papers 31 21 31 49% 1% (1) Includes UKP (2) Includes Sackraft produced in the Laja mill and P&W paper produced in the Guaiba mill
During 1Q19, CMPC experienced downtime due to scheduled maintenance at Guaíba II (18 days), Pacifico (12 days), Santa Fe I (12 days) and Santa Fe II (14 days). The Company has no scheduled maintenance for 2Q19 and 3Q19, and has scheduled maintenance at Laja (16 days) and Guaíba I (15 days) for 4Q19.
Pulp production in 1Q19 totaled 879,000 tons, decreasing 15% QoQ and 9% YoY. Hardwood production totaled 694,000 tons in 1Q19, down 17% QoQ and 12% YoY. The QoQ change is due to the scheduled maintenance at Guaíba II, Santa Fe I and Santa Fe II. The YoY change is the result of the reschedule of the Santa Fe I and Guaíba II mills to 1Q19. Softwood production reached 185,000 tons, decreasing 2% QoQ, as a result of the Pacifico maintenance downtime during the quarter, and was stable YoY BEKP Cash Cost BEKP cash cost(3) reached USD209/ton during 1Q19, (USD/ton) up 7% QoQ, mainly due to the maintenance downtime at Guaíba II and Santa Fe I and II, as well as higher pulpwood prices in Chile. YoY, costs increased 3% due to the scheduled maintenance at 204 195 209 Santa Fe I and Guaíba II, which was not carried out the same time last year, partly compensated by lower pulpwood costs at Guaíba. 1Q18 4Q18 1Q19
(3) BSKP cash cost reached USD338/ton during 1Q19, BSKP Cash Cost decreasing 1% QoQ and increasing 2% YoY. The (USD/ton) QoQ decrease is mainly explained by the maintenance at the Laja mill in 4Q18, offset by higher pulpwood costs. The YoY increase is also related to higher pulpwood costs, partially offset by lower energy and chemical costs at the Laja mill. 331 340 338
(3) Cash cost = wood + chemicals + energy + materials + labor costs. 1Q18 4Q18 1Q19
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Third Party Sales Volumes 1Q18 4Q18 1Q19 QoQ YoY BSKP 164 147 158 8% -4% BEKP 674 721 665 -8% -1%
Total Market Pulp ( T h. T o ns) 838 868 823 -5% -2%
P&W Guaiba (Th. Tons) 13 8 11 35% -16%
Market pulp sales volumes experienced a 5% decline QoQ, explained by lower hardwood sales (-8%), partially offset by higher softwood (+8%) sales. The QoQ decline in hardwood sales volumes was mainly due to lower exports to Asia and Europe, while the softwood increase is related to higher exports to Asia. YoY, sales volumes decreased by 2% with softwood down 4%, due to higher lower sales in Europe and Asia, and hardwood down 1%, with lower sales to Europe and Latin America.
CMPC Average Net Pulp Export Price Evolution 900 836 854 852 850 806 800 731 742 750 714 712 709 703 677 700 649 737757 761 634 635 630 726 650 600 694 583 586 574 593 692 600 566 625
USD/ton CIF USD/ton 616 616 550 613 595 587 576 582 594 580 500 544 450 507 496 486 480 400
BSKP BEKP
Pulp average sales prices (including a small tonnage of P&W papers and energy sold to the Chilean grid) decreased 6% QoQ and 9% YoY. The average effective net export price for softwood was CIF 703 USD/ton and CIF 692 USD/ton for hardwood. During 1Q19, the price spread between the two fibers was CIF 12 USD/ton, compared with CIF 80 USD/ton in 4Q18.
EBITDA declined 23% QoQ and 15% YoY in 1Q19, reaching USD283 million. The EBITDA margin contracted to 39.5%, compared to 45.7% in 4Q18 and 42.4% in 1Q18.
The QoQ EBITDA decrease resulted primarily from lower hardwood sales volumes as well as lower pulp and forestry products prices. Additionally, there were higher operating costs related to scheduled maintenance downtime in some pulp mills and to forest fire prevention efforts. The YoY decrease is explained mainly by higher operating costs relates to scheduled maintenance and higher administrative expenses. In addition, the Company reported lower sales prices and volumes of both hardwood and softwood pulp.
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SOFTYS
In 1Q19, Softys sales decreased 3% QoQ and increased 4% YoY, reaching USD495 million. Sales during the quarter without the effect of the Argentinean hyperinflation would have been USD494 million, compared to USD486 million in 4Q18.
Softys Sales & EBITDA USD Million 1Q18 4Q18 1Q19 QoQ YoY Sales 479 509 495 -3% 4% EBITDA 51 25 32 27% -38% EBITDA Mg. 10.6% 4.9% 6.4% 150 bps -420 bps
Third Party Sales Volumes 1Q18 4Q18 1Q19 QoQ YoY - Chile 37 40 39 -3% 7% - Brazil 31 34 32 -7% 1% - Mexico 34 35 39 12% 14% - Argentina 24 23 23 4% -1% - Peru 24 25 24 -2% 1% - Uruguay 5 5 5 -3% 5% - Colombia 6 7 7 2% 7% - Ecuador 4 4 4 13% -1%
Total Tissue Paper ( T h. T o ns) 165 172 173 1% 5% - Diapers 770 862 866 0% 12% - Feminine Care 324 322 346 7% 7% - Others 205 248 294 19% 43% Total Personal Care (M . Units) 1,300 1,432 1,506 5% 16%
Tissue Paper sales volumes increased 1% compared to 4Q18 and 5% from 1Q18. The sequential increase is primarily due to higher volumes in Mexico, where the Company’s market share in that segment increased. The year on year increase was due to higher sales volumes in all countries in which CMPC operates, particularly in Mexico and Chile.
Personal Care Products sales volumes grew 5% compared to 4Q18 and 16% compared to 1Q18. The QoQ result was driven by the higher volumes of feminine care products in Argentina, Brazil, Peru, Colombia and Ecuador in addition to an increase in the volume of wet wipes in Chile, Argentina, Peru and Ecuador. YoY, personal care products sales volumes benefited from sales growth in all product categories across the majority of countries where we operate.
Average sales prices (measured in US Dollars) declined 6% for tissue paper and 8% for personal care products compared to 4Q19. Annually, prices decreased by 5% for tissue paper and 8% for personal care products. The QoQ change is due to lower prices in local currencies, particularly in Brazil and Colombia. Compared to the previous year, the higher prices in local
17 currencies did not completely offset the negative effect of local currencies’ depreciation, especially in Argentina.
EBITDA in 1Q19 increased 27% QoQ, but decreased 38% YoY. EBITDA margin was 6.4% in 1Q19, up from 4.9% in 4Q18 and down from 10.6% in 1Q18. The quarterly EBITDA without the effect of Argentine hyperinflation would have been USD34 million and the EBITDA margin 6.9%.
The sequential EBITDA increase is due to higher sales volumes, both in tissue paper and personal care products, and lower operating costs. This was offset by higher administrative expenses mainly in Chile. The YoY decrease is attributed to higher administrative expenses mainly in Chile, higher operating costs due to higher fiber costs caused by high pulp prices, as well as lower dollar prices due to the depreciation of local currencies in countries in which CMPC operates, particularly in Argentina.
PACKAGING
In 1Q19, Packaging sales increased by 6% QoQ and 2% YoY, totaling USD236 million.
Packaging Sales & EBITDA USD Million 1Q18 4Q18 1Q19 QoQ YoY Sales 231 222 236 6% 2% EBITDA 24 11 29 175% 23% EBITDA Mg. 10.4% 4.8% 12.5% 770 bps 210 bps
Third Party Sales Volumes 1Q18 4Q18 1Q19 QoQ YoY - Boxboard 78 96 93 -3% 19% - Paper Bags 21 22 21 -2% 0% - Other Papers 23 22 19 -13% -19% - Corrugated Paper 26 23 23 -1% -12% - Corrugated Boxes 52 38 48 26% -7% - Molded Pulp Trays 6 3 6 79% -3% Total ( T h. T o ns) 207 204 210 3% 2%
Sales volumes to third parties increased 3% sequentially due to the higher volumes of corrugated boxes (+26%) and higher volumes of molded pulp trays (+79%), both related to the fruit season in Chile. This was partially offset by lower volumes of boxboard (-3%) due to lower sales in Chile, paper bags (-2%) due to lower sales in Argentina, partially offset by higher sales in Mexico
The YoY sales volumes sold to third parties grew 2% driven by an increase in boxboard (+19%) due to higher production at the Maule mill. This was mitigated by lower volumes of corrugated paper (-12%) explained by a planned maintenance and consequently lower sales in Chile, and lower volumes of corrugated boxes (-7%) attributed to lower volumes of fruit boxes.
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Average sales prices increased up by 3% QoQ primarily due to higher prices in corrugated boxes and the variation in product mix. YoY, average prices increased 1% mainly driven by a change in the product mix as well as lower prices of corrugated boxes.
EBITDA in 1Q19 experienced an upward trend of 175% compared to 4Q18 and 23% from 1Q18. EBITDA margin was 12.5% in 1Q19, compared to 4.8% in 4Q18 and 10.4% in 1Q18.
The sequential QoQ increase in EBITDA is mainly related to higher revenue from the corrugated boxes sales, driven by the fruit season, with lower administrative expenses. This was partially offset by an increase in operating costs related to the higher volumes. The annual growth results from higher boxboard sales and lower administrative expenses, partly compensated by lower sales of boxboard to the fruit industry and higher operating costs due to increased prices of fiber for the majority of products.
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RISK MANAGEMENT
Empresas CMPC and subsidiaries are exposed to a combination of market, financial and operating risks inherent to their business. CMPC seeks to identify and manage such risks in the most adequate manner to minimize potential adverse effects. CMPC’s Board of Directors establishes the strategy and general framework for the Company’s risk management, which is then implemented on a decentralized basis through the different business units. At a corporate level, there are Board Committees, which are in charge of monitoring the definition of policies and strategies for proper risk management adopted by the Board of Directors. These committees include the Audit, Financial Risk, Ethics and Compliance, and Corporate Affairs committees. In addition, management suites such as the Risk, Finance, Compliance and Internal Audit departments coordinate and control the execution of prevention and mitigation policies of the main risks identified.
MARKET RISK
A considerable share of CMPC’s revenue is derived from products, whose price depends on the prevalent conditions in international markets over which the Company has no significant influence or control. These factors include fluctuations in global demand (mainly driven by economic conditions in China, North America, Europe and Latin America), variations in the industry’s installed capacity, inventory levels, business strategies and competitive advantages of the main players in the forestry industry, availability of substitute products and the stage of the product’s life cycle. One of CMPC’s main product categories is Bleached Kraft Pulp, which represents 41% of consolidated sales and is distributed to approximately 240 customers in 48 countries in Asia, Europe, America and Oceania.
On the other hand, the Company benefits, with certain limitations, from the diversification of its business lines and the vertical integration of its operations to have some flexibility in managing its exposure to fluctuations in pulp prices. The impact of a possible decrease in pulp prices would be offset to a limited extent by the resulting reduced input cost of certain other more elaborate products, especially tissue paper and boxboard.
It should be noted that the ability to redistribute the export of our products to different markets in response to potential adverse circumstances and still achieve our desired price could be limited.
FINANCIAL RISK
The main financial risks identified by CMPC are: risk arising from the conditions of the financial markets (including foreign currency exchange rate and interest rate risks), credit risk and liquidity risk.
The Company follows the policy of concentrating a large portion of its financial debt, funds placement operations, foreign exchange and derivatives trading in its subsidiary, Inversiones CMPC S.A. The purpose of this policy is to optimize resources, achieve an economy of scale, and improve operating control.
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On the other hand, the ability to access loans in local or international capital markets may be restricted because of external reasons at the time when financing is needed, which could have material adverse effects on our flexibility when reacting to various economic and market conditions.
Risk arising from the conditions of the financial markets (i) Foreign currency exchange rate risk: CMPC is affected by currency fluctuations in three ways: a) the Company’s income, costs and expenses, which directly or indirectly are denominated in currencies other than the functional currency; b) exchange rate variations arising from a possible accounting mismatch that exists between assets and liabilities in the Unaudited Consolidated Balance Sheet denominated in currencies other than its respective functional currency; and c) the provision of deferred taxes, particularly in Brazil, for those companies that use a functional currency different from the tax currency. Exports by CMPC and its subsidiaries accounted for approximately 52% of sales in the first quarter of 2019, the primary destinations being the markets of Asia, Europe, Latin America and the United States. Most of these export sales were made in USD.
On the other hand, CMPC’s domestic sales in Chile and those of its subsidiaries in Argentina, Brazil, Colombia, Ecuador, Mexico, Peru and Uruguay, represented 48% of the Company’s total sales. These sales were primarily made in the local currency of the respective country.
Because of the above-mentioned, the cash inflow from sales in US dollars or indexed to this currency amounts to approximately 65% of the Company’s total sales. At the same time, expenses, raw materials, supplies and replacements required for continued operation, such as investing in property, plants and equipment, are also mostly denominated in or indexed to US dollars.
Due to the nature of CMPC’s business, the Company’s subsidiaries makes sales or acquire payment commitments in currencies other than their functional currency. In order to avoid the exchange rate risk of currencies, hedging transactions are carried out through derivatives in order to fix the exchange rates in question. As of March 31, 2019, a significant portion of the estimated sales of cardboard and wood in Europe, in euros and British pounds, was covered up to the current year and to a lesser extent for the year 2020.
Considering that the structure of the Company’s cash flows is highly indexed to the US dollar, most liabilities have been incurred in that currency. In the case of foreign subsidiaries, which collect receivables in local currency, part of their debt is denominated in the same currency to reduce financial and accounting mismatches. Other mechanisms used to reduce accounting mismatches are: managing the currency denomination of the financial investment portfolio, occasional contracting of short-term future operations and, in certain cases, transactions using options, which are subject to limits previously authorized by the Board of Directors and represent a small amount in relation to the Company’s total sales.
From an accounting point of view, fluctuations in the exchange rate of local currencies have an impact on the deferred tax provision. This effect is caused by the difference in value of assets and liabilities in the financial accounting as opposed to the value reflected in the tax
21 accounting when the functional currency (US dollar) is different from the tax currency (local currency of the respective business unit). The main impact is derived from the pulp segment of Brazil. Thus, devaluation in the currencies of those countries with respect to the US dollar implies a higher deferred tax provision. Although these adjustments in the provision do not involve a cash flow, they cause volatility in the reported financial results.
Sensitivity analysis
The Company has a net asset currency risk accounting exposure in relation to currencies other than the US dollar, which is the Company’s functional currency. As of this date, the Company has more assets than liabilities denominated in currencies other than the US dollar, including the underlying rights and obligations of current derivative contracts, in the amount of USD1,214 million as of March 31, 2019 (USD1,167 million as of December 31, 2018). In addition, if the exchange rate of these currencies (mostly Chilean pesos, Mexican pesos and new Peruvian soles) appreciated or depreciated by 10%, it is estimated that the effect on the Company's equity would be an increase or decrease of USD121 million calculated with figures as of March 31, 2019. The same analysis carried out with figures as of December 31, 2018, estimated an effect of USD117 million. The effect described above would have been recorded as credit or charge in the Reserves for Exchange Differences by Conversion and as loss or gain for the year, as shown below:
March 31, 2019 March, 2018 10% 10% 10% 10% appreciation depreciation appreciation depreciation Th USD Th USD Th USD Th USD Effect of foreign currency translation differences on reserves 122.354 (122.354) 115.801 (115.801) Effect on profit (loss) (974) 974 879 (879) Net effect on profit (loss) 121.380 (121.380) 116.680 (116.680)
As of March 31, 2019 and December 31, 2018, the Company has assets in Brazil, whose functional currency for financial purposes is the US Dollar and for tax effects its Brazilian real. This generates temporary differences due to the variation of the mentioned currency. It should be noted that, like the previous sensitivity, this analysis is forward-looking using the closing figures of the corresponding periods. Below is the sensitivity analysis of this concept:
March 31, 2019 December 31, 2017 10% 10% 10% 10% appreciation depreciation appreciation depreciation Th USD Th USD Th USD Th USD Effect on income tax expenses (64,722) 64,722 68,694 (68,694) (ii) Interest rate risk: the Company's financial investments bear interest primarily at fixed interest rates, eliminating the risk of changes in the market interest rate. Financial liabilities are mostly at fixed interest rates. For debt with variable interest rates, CMPC minimizes the risk by using derivative instruments, thereby managing to fix the interest rate for approximately 99% of the debt. It should be noted that the remaining 1% is mainly debt in Brazilian real.
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Credit risk Credit risk arises primarily from the potential insolvency of certain customers of CMPC´s subsidiaries and the consequent inability to collect on outstanding accounts receivable and finalize transactions.
In order to minimize its exposure to credit risk, CMPC through its subsidiaries, has signed credit insurance policies that cover a significant portion of sales, both export and local. The insurance policies that the Company holds are provided by Atradius Credit Insurance NV (rated A2 according to the credit rating agency Moody’s) and Compañía de Seguros de Crédito Continental S.A. (rated AA- according to both Humphreys and Fitch Ratings credit rating agencies). Both policies cover 90% and have a 10% co-pay of the total amount of each invoice, both for preferential and non-preferential clients. Additionally, CMPC also has at its disposal letters of credit and other instruments, which allow to ensure and mitigate the credit risk.
Furthermore, the CMPC Corporate Credit Committee is in charge of supervising and evaluating on a regular basis its clients’ ability to pay, as well as managing the granting, rejection or modification of clients’ lines of credit. For that purpose, CMPC has a Credit Policy applicable to all its subsidiaries, which allows control and management of the credit risk associated with line of credit pay sales terms.
Accounts receivable according to coverage as of March 31, 2019 and December 31, 2018 are detailed as follows:
03/31/2019 12/31/2018 % % Credit Insurance or Letters of Credit 79% 79% Not covered with insurance policies 21% 21% Trade accounts receivable 100% 100%
Effective management of credit risk and wide distribution and diversity of sales has resulted in very low customer portfolio credit losses, which in the current period amount to 0.03% of sales (0.05% of sales as of December 31, 2018).
There is also credit risk in the execution of financial operations (counterpart risk). Counterpart risk arises when there is a likelihood that the counterpart to a financial contract will not be able to fulfill the financial obligations to the Company that it has incurred. To reduce this risk in its financial operations, CMPC establishes individual exposure limits by financial institution, approved periodically by the Board of Directors of Empresas CMPC S.A.
The financial institutions in which CMPC has investments are detailed as follows:
03/31/2019 12/31/2018 Issuer Portfolio % Th USD Portfolio % Th USD Banco Santander - Chile 24.63% 210,159 21.15% 203,213 Banco BCI - Chile 16.73% 142,788 12.19% 117,093 Scotiabank - Chile 13.56% 115,725 12.54% 120,482 Banco Itaú Corpbanca - Chile 12.60% 107,524 22.05% 211,874 BBVA Corredores de Bolsa S.A. - Chile 8.94% 76,310 1.71% 16,452 JP Morgan Chase Bank, N.A. - Estados Unidos 6.83% 58,315 5.82% 55,927 MUFG Bank, Ltd. - Estados Unidos 4.46% 38,061 5.22% 50,147 Banchile Corredores de Bolsa S.A. - Chile 2.92% 24,882 4.13% 39,695 Banco Santander - Brasil 1.47% 12,553 1.39% 13,326 Citibank N.A. N.Y. - Estados Unidos 1.42% 12,150 4.42% 42,492 Banco BCI - Estados Unidos 1.06% 9,066 - - Scotiabank Azul - Chile 1.05% 8,925 0.92% 8,84023 Banco de Chile 0.84% 7,133 0.66% 6,307 Banco Itaú - Brasil 0.61% 5,172 1.06% 10,218 Citibank N.A. N.Y. - Inglaterra 0.53% 4,538 0.64% 6,186 Banco Santander - México 0.51% 4,346 0.66% 6,306 Banco de Crédito del Perú 0.36% 3,032 0.77% 7,361 Banco Banamex - México 0.30% 2,580 - - Banco BBVA - Perú 0.27% 2,290 0.25% 2,359 Scotiabank Inverlat S.A. - México 0.24% 2,022 0.19% 1,806 Galicia Administradora de Fondos S.A. - Argentina 0.14% 1,174 0.09% 863 Scotiabank - Perú 0.13% 1,107 0.10% 954 Banco BBVA - Estados Unidos 0.13% 1,097 - - Banco MUFG Brasil S.A. 0.10% 833 0.03% 334 JP Morgan Chase Bank, N.A. - Inglaterra 0.07% 605 0.04% 414 Banco Bradesco - Brasil 0.04% 367 0.04% 397 Goldman Sachs International - Reino Unido 0.03% 283 0.05% 509 BBH & Co. Money Market Fund - Estados Unidos 0.02% 142 0.01% 142 Banco Banrisul - Brasil 0.01% 66 - - Banco do Brasil 0.00% 42 0.01% 87 Banco Monex, S.A. - México 0.00% 30 0.01% 105 Banco de la Producción S.A. Produbanco - Ecuador 0.00% 25 0.00% 7 Bank of America Merrill Lynch Banco Múltiplo S.A. - Brasil 0.00% 20 0.00% 17 JP Morgan Chase Bank, N.A. - Brasil 0.00% 20 0.00% 13 JP Morgan Chase Bank, N.A. - Sao Paulo Branch - Brasil 0.00% 12 0.01% 92 BancoEstado - Chile - - 2.18% 20,980 Consorcio Corredores de Bolsa S.A. - Chile - - 1.01% 9,659 BancoEstado S.A. Corredores de Bolsa - Chile - - 0.64% 6,112 HSBC Bank - Chile - - 0.01% 50 Citibank - Perú - - 0.00% 3 Subtotal 100.00% 853,394 100.00% 960,822 Plus: cash and bank accounts 41,018 39,244 Total cash and cash equivalents and other financial assets 894,412 1,000,066 03/31/2019 12/31/2018 Issuer Portfolio % Th USD Portfolio % Th USD Banco Santander - Chile 24.63% 210,159 21.15% 203,213 Banco BCI - Chile 16.73% 142,788 12.19% 117,093 Scotiabank - Chile 13.56% 115,725 12.54% 120,482 Banco Itaú Corpbanca - Chile 12.60% 107,524 22.05% 211,874 BBVA Corredores de Bolsa S.A. - Chile 8.94% 76,310 1.71% 16,452 JP Morgan Chase Bank, N.A. - Estados Unidos 6.83% 58,315 5.82% 55,927 MUFG Bank, Ltd. - Estados Unidos 4.46% 38,061 5.22% 50,147 Banchile Corredores de Bolsa S.A. - Chile 2.92% 24,882 4.13% 39,695 Banco Santander - Brasil 1.47% 12,553 1.39% 13,326 Citibank N.A. N.Y. - Estados Unidos 1.42% 12,150 4.42% 42,492 Banco BCI - Estados Unidos 1.06% 9,066 - - Scotiabank Azul - Chile 1.05% 8,925 0.92% 8,840 Banco de Chile 0.84% 7,133 0.66% 6,307 Banco Itaú - Brasil 0.61% 5,172 1.06% 10,218 Citibank N.A. N.Y. - Inglaterra 0.53% 4,538 0.64% 6,186 Banco Santander - México 0.51% 4,346 0.66% 6,306 Banco de Crédito del Perú 0.36% 3,032 0.77% 7,361 Banco Banamex - México 0.30% 2,580 - - Banco BBVA - Perú 0.27% 2,290 0.25% 2,359 Scotiabank Inverlat S.A. - México 0.24% 2,022 0.19% 1,806 Galicia Administradora de Fondos S.A. - Argentina 0.14% 1,174 0.09% 863 Scotiabank - Perú 0.13% 1,107 0.10% 954 Banco BBVA - Estados Unidos 0.13% 1,097 - - Banco MUFG Brasil S.A. 0.10% 833 0.03% 334 JP Morgan Chase Bank, N.A. - Inglaterra 0.07% 605 0.04% 414 Banco Bradesco - Brasil 0.04% 367 0.04% 397 Goldman Sachs International - Reino Unido 0.03% 283 0.05% 509 BBH & Co. Money Market Fund - Estados Unidos 0.02% 142 0.01% 142 Banco Banrisul - Brasil 0.01% 66 - - Banco do Brasil 0.00% 42 0.01% 87 Banco Monex, S.A. - México 0.00% 30 0.01% 105 Banco de la Producción S.A. Produbanco - Ecuador 0.00% 25 0.00% 7 Bank of America Merrill Lynch Banco Múltiplo S.A. - Brasil 0.00% 20 0.00% 17 JP Morgan Chase Bank, N.A. - Brasil 0.00% 20 0.00% 13 JP Morgan Chase Bank, N.A. - Sao Paulo Branch - Brasil 0.00% 12 0.01% 92 BancoEstado - Chile - - 2.18% 20,980 Consorcio Corredores de Bolsa S.A. - Chile - - 1.01% 9,659 BancoEstado S.A. Corredores de Bolsa - Chile - - 0.64% 6,112 HSBC Bank - Chile - - 0.01% 50 Citibank - Perú - - 0.00% 3 Subtotal 100.00% 853,394 100.00% 960,822 Plus: cash and bank accounts 41,018 39,244 Total cash and cash equivalents and other financial assets 894,412 1,000,066 Liquidity risk This risk arises should the Company be unable to fulfill its obligations as a result of insufficient liquidity. CMPC manages this risk through the appropriate distribution, extension of due dates and limits on the amount of its debt, as well as by maintaining a liquidity reserve and management of its operating and investment cash flows.
The Company, as previously mentioned, has a policy of concentrating its financial debt in the subsidiary Inversiones CMPC S.A. which finances the operating subsidiaries. Debt is primarily incurred through bank loans and bonds placed in international markets and in the local Chilean market.
To maintain a liquidity reserve, in addition to the cash and cash equivalents held by the Company, in March 2017, the subsidiary Inversiones CMPC S.A. obtained a Committed Line of credit with Banco Santander, Export Development Canada, Scotiabank & Trust (Cayman) Ltd. and MUFG Bank, Ltd., acting as a structurer. This credit line amounts to USD400 million and is valid for a maximum of 3 years from the date it was obtained. In August 2018, this committed credit line was extended for two additional years (from September 13, 2020 to September 14, 2022) for a total amount of USD200 million with Banco Santander and Scotiabank & Trust (Cayman) Ltd. As of March 31, 2019, the credit line is fully available.
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The financial policy followed by CMPC, contained in its financial objectives policy, along with its strong competitive position and high quality assets, enables Empresas CMPC S.A. to have an international credit rating of BBB- according to Standard & Poor’s (stable outlook), BBB according to Fitch Ratings (stable outlook) and Baa3 according to Moody’s (stable outlook), one of the best in the forestry, pulp and paper industry in the world.
OPERATIONAL RISKS
Industrial and forestry operations risk An event causing an unforeseen shutdown of the Company’s production facilities could prevent us from fulfilling the needs of our customers and reaching production goals and could force unscheduled expenses related to the maintenance of and investment in assets, all of which could adversely affect CMPC’s financial performance. The most significant occurrences that could cause shutdowns include earthquakes, floods, storms and droughts, as well as situations resulting from fires, equipment malfunction, supply interruptions, spills, explosions, malicious acts and terrorism, among others. Shutdowns can also be caused by illegal actions of others, such as occupations, blockades and sabotage.
CMPC’s operational risk management objectives are to efficiently and effectively protect employees, the Company's assets, the environment and the continuity of business operations in general. For that purpose, the Company uses a balanced combination of accident and prevention measures and insurance coverage. Loss prevention work is systematic and carried out in accordance with pre-established guidelines and regular inspections by insurance company specialists.
In addition, CMPC has a continuous improvement plan for its operational risk conditions in order to minimize the probability of occurrence and attenuate the possible effects of losses incurred. Each of the Company's business units manages these plans in accordance with regulations and standards defined and implemented at a corporate level.
CMPC and its subsidiaries maintain insurance coverage to protect themselves against a substantial part of their main risks. These risk transfers are purchased from high quality local and international insurance companies. The risks associated with the operating activities of the business are periodically reviewed to optimize coverage, according to the insurance market´s competitive offers. In general, the conditions on limits and deductibles of insurance policies are established on the basis of maximum estimated losses for each risk category and the coverage conditions offered in the market.
All the Company’s infrastructure assets (buildings, installations, equipment, etc.) are covered for operational risks by insurance policies at their replacement value.
In turn, forest plantations can suffer losses due to fires and other natural risks, which have partial insurance coverage limited by deductibles and compensation maximums, determined in accordance with the historical losses and the levels of prevention and protection implemented. Additionally, losses of forest plantations due to fires or other natural disasters, can generate
25 shortages of lumber and increase the price of lumber, which would negatively impact the operations of the Company. Other risks that are only partially covered, such as biological risks, could adversely affect plantations.
Continuity and cost of acquisition of materials and services CMPC’s businesses involves complex logistics in which timeliness, quality and cost-effective supplies and services are fundamental to operational continuity and competitiveness.
CMPC seeks to maintain close long-term relationships with its contractors, with which CMPC works on an ongoing and systematic basis to develop high operating standards with an emphasis on employee safety and improved working conditions.
With respect to electrical energy, most of CMPC's industrial operations have their own energy supply using biomass and natural gas for energy generation with the remainder supplied through third-party agreements. During the first quarter of 2019, own generation represented 60% of the consumption by operations in Chile. In addition, the mills have contingency plans to address restrictive supply scenarios.
Among CMPC’s many suppliers of products and services, there are companies that provide specialized support and logistics services for its forestry and industrial operations. If these services are not performed at the required quality level or the contractual relationship with the supplier companies is affected by regulations, labor conflicts or other contingencies, the operations of CMPC could be affected.
Environmental factors risk CMPC’s operations are regulated by environmental standards in Chile and in the other countries where it operates. CMPC has been adopting best practices for sustainable development of its businesses, which has meant the voluntary adoption of and compliance with standards stricter than required by legal regulations. This has enabled the Company to adapt to modifications in environmental legislation and meet the new requirements. However, climate change as well as future changes in these environmental regulations or in the interpretation of these laws might have an impact on the Company’s operations. It is important to point out that failing to comply with these or other environmental regulations could cause the Company additional costs, which might affect its profitability.
Since 2012, CMPC's plantations in Chile and Brazil have maintained a certification granted by the Forest Stewardship Council® (FSC®). This accreditation, represents a reaffirmation of CMPC's concern for the environment and sustainable development and complements similar other long-standing certifications that CMPC has held. In addition, CMPC has a PEFC forestry management certification and an ISO 14,001 environmental management system certification covering most of its operations. Since 2015, Empresas CMPC has been included in the Dow Jones Sustainability Index Chile and since 2017 – in the MILA Pacific Alliance Index, which include 21 Chilean companies and 41 Latin American companies respectively that meet the sustainability criteria better than their industry peers. Additionally, CMPC is part of the FTSE4Good index since 2015 acknowledging the Company’s commitment to corporate social responsibility and sustainable development.
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Risk associated with community relations CMPC runs forestry and industrial operations in different geographical locations in Chile and abroad. The Company's community relationship management policy aims to contribute to the environmental and social sustainability of all these communities, generating programs for employment, education and the furthering of productive development, including support for micro-entrepreneurship initiatives by families that live in these areas and places, as well as permanent communication spaces.
The forestry and industrial presence of CMPC in Chile includes municipalities in the regions of Biobío and Araucanía, where attacks and acts of violence have taken place that have been widely reported by the media and investigated by the corresponding institutions. The affected areas have low development levels and various long-standing social problems. Despite the escalation in the amount and violence of the actions indicated, until now the problem has been limited to specific areas and the effects on CMPC have been limited.
More detail on CMPC's community relations activities can be found in the Integrated Report published annually. However, it is worth highlighting the initiatives to safeguard and appreciate the ancestral Mapuche culture, including the protection of 22 sites of cultural interest and the support of productive and artisan enterprises.
In the field of education, the CMPC Foundation, which in 2019 is turning 19, benefits more than 6,746 children from 58 schools, kindergartens and nurseries in 11 municipalities. It provides training and counseling to 235 teachers, 71 school principals and 138 nursery teachers and assistants. Additionally, in March 2019 was launched the HIPPY Program, an international program run in 17 countries which is dedicated to home visits with aiming to empower parents so that they themselves can foster learning from home for their children in pre-school age. The program was kicked off with an initial training carried out by an international consultant, in which participated the national coordinators and tutors from the Metropolitan Region of Santiago. In this first stage, the program aims to build a team of 32 tutors and include 460 families nationwide.
In the cultural sphere, the Jorge Alessandri Park located in Coronel, an eleven hectares park open to the community in the Bío-Bío Region, received approximately 36,788 visits in its cultural and educational areas in the first quarter of 2019 and the Artequín Museum of CMPC in Los Angeles, Chile, received 3,194 visitors over the same period. In July 2016, construction work began on a new Cultural Park of 4.8 hectares called Parque Alessandri in Nacimiento, which will open in 2019.
Compliance risk The compliance risk is associated with the Company’s ability to comply with legal, regulatory, contractual, and any non-contractual obligations and standards which the Company has imposed on itself, in addition to the risks already discussed above. Every business unit at CMPC regularly reviews its operating and administrative processes in order to ensure proper compliance with the laws and regulations applicable to it. In addition, CMPC is renowned for maintaining a proactive attitude in matters of safety, the environment, labor conditions, market operations and community relations.
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The Company has implemented and is taking actions that continue to strengthen a series of processes, controls and systems to prevent the occurrence of acts of corruption, both internal and public. Within the framework of this constant concern, better international practices and modified corporate governance structures have been adopted in order to deepen and the described efforts more efficient. Together with the existence of board committees that oversee the correct identification and mitigation of these risks, there are independent corporate areas that participate in these processes, whose objective is to make the defined controls and preventive actions defined more effective. These areas are the Risk, Finance, Compliance and Internal Audit Management. These structures, standards and controls have been implemented with the support of experts, both domestic and foreign, in order to obtain an expert, independent and objective point of view of the best practices and industry standards.
Cyber risk The increase in cases of a breach of cybersecurity and cybercrime in Chile and the world present a potential risk to the security of our information technology systems, including those of our service providers, as well as the confidentiality, integrity and availability of information stored in these systems, some of which depend on the services provided by third parties.
CMPC and its main IT service providers have contingency plans and have adopted measures to prevent or mitigate the impact of events such as interruptions, failures or breaches, due to causes such as natural calamities, power outages, security breaches, computer viruses or cybersecurity attacks. Despite that, the company remains susceptible to possible information attacks in the countries where it operates.
RISK ARISING FROM THE POLITICAL AND ECONOMIC CONDITIONS IN THE COUNTRIES WHERE CMPC OPERATES
Changes in the political or economic conditions in the countries where CMPC operates could affect the Company's financial and operating performance, as well as the fulfilment of its business plan.
CMPC has industrial operations in 8 countries (Chile, Brazil, Argentina, Colombia, Ecuador, Mexico, Peru and Uruguay). The operations located in Chile account for 61% of total assets and originate 53% of sales. In turn, Brazil represents approximately 27% of CMPC's total assets.
In the countries where CMPC operates, the state has substantial influence over many aspects of the private sector, including changes in tax regulations, monetary policies, the exchange rate and public spending. It can also influence regulatory aspects, such as labor and environmental regulations. In recent years, in countries such as Chile, Mexico, Peru and Colombia, tax reforms have been implemented, while in Brazil a tax reform is currently under discussion. All these legal modifications impact or will impact the economic performance of the Company by decreasing its cash flows destined to pay for the investments made there as well as affecting its savings and future investments.
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In the event that there are restrictions on international trade such as protectionist actions, as announced by economic powers recently, the execution of our commercial strategy could be affected. However, despite the fact that a significant part of our exports are destined for the Asian market, our commercial relations with all countries and the final customers of our products have remained fluid and balanced.
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ABOUT CMPC
Empresas CMPC produces forestry, pulp, paper, and tissue, personal care and packaging products throughout Latin America. The Company aims to deliver world-class products, from forestry to finished products, to its global customer base. Its high quality timber and production facilities are strategically located in countries including Chile, Brazil, Argentina, Mexico, Peru, Colombia, Uruguay and Ecuador, hiring more than 17 thousand direct collaborators, making CMPC a truly regional company with a competitive cost structure. The Company sells more than 25 different product lines in more than 45 countries, always seeking long-term relationships.
FORWARD-LOOKING STATEMENTS
This earnings release may contain forward-looking statements. Such statements are subject to risks and uncertainties that could cause Empresas CMPC’s actual results to differ materially from those set forth in the forward-looking statements. These risks include: market, financial and operational risks. All of them are described in CMPC’s Consolidated Financial Statements, Note 3 (“Risk Management”) as well as in the Risk Analysis section of this document.
In compliance with the applicable rules, Empresas CMPC S.A. publishes this document on its web site (www.cmpc.cl) and sends it to the Comisión para el Mercado Financiero the Financial Statements of the Company and its corresponding notes, which are available for consultation and review on its website (www.cmfchile.cl).
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FINANCIAL TABLES
BALANCE SHEET
USD Thousands 1Q18 4Q18 1Q19 QoQ YoY Current Assets 3,600,484 3,756,383 3,794,249 1% 5% Cash and Cash Equivalents 843,117 967,504 857,993 -11% 2% Accounts Receivable 896,341 970,029 1,066,179 10% 19% Inventory 1,242,276 1,264,442 1,303,086 3% 5% Biological Assets 329,742 326,637 327,816 0% -1% Tax Assets 140,505 71,925 88,299 23% -37% Other Current Assets 148,503 155,846 150,876 -3% 2%
Non Current Assets 11,563,601 11,226,928 11,402,042 2% -1% Intangible Assets, Different from Goodwill 16,768 32,366 32,100 -1% 91% Goodwill 110,963 104,459 104,090 0% -6% Property, Mills and Equipment, Net 7,903,752 7,695,455 7,899,331 3% 0% Biological Assets 3,168,899 3,073,955 3,040,046 -1% -4% Deferred Tax Assets 83,724 83,774 91,995 10% 10% Other Non Current Assets 279,495 236,919 234,480 -1% -16%
TOTAL ASSETS 15,164,085 14,983,311 15,196,2910 1% 0% Current Liabilities 1,540,157 1,650,581 1,628,436 -1% 6% Other Financial Liabilities 333,737 439,007 432,353 -2% 30% Operating Liabilities 764,849 824,252 811,583 -2% 6% Other Current Liabilities 441,571 387,322 384,500 -1% -13%
Non Current Liabilities 5,363,721 5,088,712 5,310,546 4% -1% Other Financial Liabilities 3,743,634 3,436,223 3,406,940 -1% -9% Deferred Tax Liabilities 1,502,207 1,560,891 1,544,026 -1% 3% Other Non Current Liabilities 117,880 91,598 359,580 293% 205%
Non Controlling Participations 2,410 2,183 2,208 - 1% -8%
Equity Attributable to the Owners of the Controller 8,257,797 8,241,835 8,255,101 - 0% 0% TOTAL LIABILITIES & SHAREHOLDERS' EQUITY 15,164,085 14,983,311 15,196,291 1% 0%
Note: Balance sheet numbers are based on the quarterly Consolidated Financial Statements of Empresas CMPC S.A. and its subsidiaries
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INCOME STATEMENT
USD Thousands 1Q18 4Q18 1Q19 QoQ YoY
Sales 1,494,860 1,538,295 1,449,302 -6% -3% ( 1) Operating Costs (915,542) (938,259) (919,400) -2% 0% Operating Margin 579,318 600,035 529,902 -12% -9% ( 2) Other Operating Expenses (180,406) (197,292) (194,922) -1% 8% ( 3 ) EBITDA 398,912 402,743 334,980 -17% -16% EBITDA Margin (%) 26.7% 26.2% 23.1% -310 bps -360 bps Depreciation, Amortizations and Stumpage (142,778) (143,643) (152,178) 6% 7% Increase in Biological Assets due to Forests Growth and 30,178 20,712 27,062 31% -10% Price Effects Decrease in Biological Assets due to Harvest (48,031) (53,657) (45,402) -15% -5%
Operating Income 238,281 226,155 164,462 -27% -31% Financial Expenses (51,797) (48,491) (52,459) 8% 1% Financial Income 3,432 6,978 6,747 -3% 97% Share Results in Associated Companies 3 (21) (2) -90% N/A Foreign Exchange Difference (2,168) 8,513 (6,485) N/A 199% Indexation Unit Results (655) 5,927 9,399 59% N/A Other Gains (Losses) (3,221) (31,015) (16,323) -47% 407% Income Taxes (39,610) (55,858) (48,116) -14% 21%
Net Income (Loss) 144,265 112,188 57,223 -49% -60% Net Income (Loss), attributable to owners of the parent 144,223 112,269 57,187 -49% -60% Net Income (Loss), attributable to non-controlling interest 42 (80) 36 N/A -14%
(1) Operating Costs are calculated as: Costs of Sales minus Stumpage minus Decrease in Biological Assets due to Havest minus Depreciation (2) Other Operating Expenses are calculated as: Distribution Costs plus Administration Expenses plus Other Functional Expenses (3) EBITDA is calculated as: Sales minus Operating Costs minus Other Operating Expenses
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CASH FLOW STATEMENT
USD Thousands 1Q18 4Q18 1Q19 QoQ YoY
Cash Flow from Operating Activities 191,578 225,212 98,213 -56% -49% Cash collection from operating activities Proceeds from sales of goods and services delivered 1,462,669 1,631,212 1,476,482 -9% 1% Proceeds of premiums and services, annuities and other obligations on 16,869 6,289 7,813 24% -54% policies subscribed Other proceeds from operating activities 84,397 39,968 83,928 110% -1% Payments for operating activities Payments to suppliers for goods and services (1,158,636) (1,204,077) (1,199,186) 0% 3% Payments to and on behalf of employees (128,128) (106,772) (116,146) 9% -9% Payments for premiums, benefits, annuities, and other obligations derived (3,581) (4,086) (17,010) 316% 375% from suscribed policies Other payments from operating activities (60,209) (58,387) (48,663) -17% -19% Net cash flows from (used in) operating activities 213,381 304,148 187,218 -38% -12% Income taxes paid (reimbursed) (21,803) (78,936) (89,005) 13% 308% Cash Flow from Investment Activities (98,754) (74,084) (69,695) -6% -29% Amounts obtained from the sale of property, plant and equipment - 22 5 -77% N/A Purchases of property, plant and equipment (83,482) (59,979) (60,528) 1% -27% Purchases of intangible assets - (1,435) (150) -90% N/A Purchases of other long-term assets (19,112) (21,262) (16,452) -23% -14% Interest received 3,840 6,343 6,099 -4% 59% Other cash inflows (outflows) - 2,227 1,331 -40% N/A Cash Flow from Financing Activities (84,196) (86,701) (140,009) 61% 66% Proceeds raised through short-term loans 86,893 18,554 29,534 59% -66% Proceeds raised through long-term loans - 40,650 - N/A N/A Proceeds raised through loans 86,893 59,204 29,534 -50% -66% Loans reimbursements (139,545) (88,318) (80,596) -9% -42% Payments of financing lease liabilities (5,196) (5,398) (4,997) -7% -4% Dividends paid (44) (42) (51,338) >1000% >1000% Interest paid (26,304) (52,146) (32,612) -37% 24% Other cash inflows (outflows) - - - N/A N/A Net increase (decrease) in cash and cash equivalents before 8,628 64,426 (111,491) N/A N/A effect of exchanges rate change Effects of variation in the exchange rate on cash and cash equivalents 1,735 (16,264) 1,980 N/A 14% Net increase (decrease) in cash and cash equivalents 10,363 48,163 (109,511) N/A N/A Cash and cash equivalents at beginning of period 832,754 919,341 967,504 5% 16% Total Cash and Cash Equivalents at the end of the period 843,117 967,504 857,993 -11% 2%
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INCOME STATEMENT DATA BY BUSINESS UNIT
March 2019
Business Areas (Operating Segments) Adjustments Total CMPC In th. USD Pulp Packaging Softys Total Other (3) & Eliminations Operating income from external customers 717,591 236,331 495,380 1,449,302 - - 1,449,302 Operating income between operating segments of the same entity 85,405 7,019 243 92,667 9,258 (101,925) - Income from External and Related Customers 802,996 243,350 495,623 1,541,969 9,258 (101,925) 1,449,302 Cost of Sales (624,536) (207,302) (375,491) (1,207,329) - 90,349 (1,116,980) Distribution Costs (13,898) (6,923) (40,881) (61,702) - 1,464 (60,238) Administrative Costs (29,673) (10,514) (28,428) (68,615) (17,694) 4,078 (82,231) Raw Materials an Supplies Used (419,482) (180,774) (350,913) (951,169) - 86,303 (864,866) Employee Benefit Expenses (48,474) (22,564) (60,350) (131,388) (6,428) - (137,816) Depreciation & Amortization Expense (79,706) (13,524) (23,628) (116,858) (6,321) 1,902 (121,277) Interest Income 6,194 808 573 7,575 32,478 (33,306) 6,747 Interest Expense (31,834) (2,189) (15,750) (49,773) (36,905) 34,219 (52,459) Other Significant Income (Expense) Items (14,310) 1,314 (89) (13,085) (6,623) 3,385 (16,323) Total Other Significant Income (Expense) Itms (39,950) (67) (15,266) (55,283) (11,051) 4,299 (62,035) Share in Income of Associates (2) - - (2) - - (2) Income Tax (Charge) Credit (53,232) (3,737) 18,229 (38,740) (9,618) 242 (48,116) EBITDA Determined by Segment (1) 283,406 29,484 31,662 344,552 (2,115) (7,457) 334,980 Operating Profit (Loss) (2) 154,459 15,960 8,034 178,453 (8,436) (5,555) 164,462 Profit (Loss) Before Taxes 109,574 15,270 (14,000) 110,844 66,805 (72,310) 105,339 Profit (Loss) 56,342 11,533 4,229 72,104 57,187 (72,068) 57,223
March 2018
Business Areas (Operating Segments) Adjustments Total CMPC In th. USD Pulp Packaging Softys Total Other (3) & Eliminations Operating income from external customers 785,626 230,714 478,520 1,494,860 - - 1,494,860 Operating income between operating segments of the same entity 75,900 6,274 - 82,174 6,852 (89,026) - Income from External and Related Customers 861,526 236,988 478,520 1,577,034 6,852 (89,026) 1,494,860 Cost of Sales (636,126) (205,334) (344,817) (1,186,277) 0 79,926 (1,106,351) Distribution Costs (14,687) (7,056) (44,792) (66,535) - 1,263 (65,272) Administrative Costs (23,884) (11,648) (21,337) (56,869) (14,381) 6,266 (64,984) Raw Materials an Supplies Used (437,269) (181,192) (322,463) (940,924) 84 75,120 (865,720) Employee Benefit Expenses (51,143) (24,598) (61,856) (137,597) (6,594) - (144,191) Depreciation & Amortization Expense (75,817) (13,772) (21,781) (111,370) (1,523) 2,043 (110,850) Interest Income 463 701 368 1,532 24,742 (22,842) 3,432 Interest Expense (26,051) (1,220) (9,063) (36,334) (38,305) 22,842 (51,797) Other Significant Income (Expense) Items (2,003) 1,448 (56) (611) (1,600) (1,010) (3,221) Total Other Significant Income (Expense) Itms (27,591) 929 (8,751) (35,413) (15,163) (1,010) (51,586) Share in Income of Associates 3 - - 3 - - 3 Income Tax (Charge) Credit (53,050) (3,840) 7,471 (49,419) 9,809 - (39,610) EBITDA Determined by Segment (1) 333,391 24,010 50,737 408,138 (6,006) (3,220) 398,912 Operating Profit (Loss) (2) 207,793 10,238 28,956 246,987 (7,529) (1,177) 238,281 Profit (Loss) Before Taxes 181,598 13,290 25,591 220,479 134,414 (171,019) 183,875 Profit (Loss) 128,548 9,450 33,062 171,060 144,223 (171,019) 144,265
(1) Corresponds to gross profit plus depreciation and amortization, plus cost of formation of harvested plantations, plus higher cost of the exploited and sold part of the plantations derived from revaluation for their natural growth (Biological Assets), less distribution costs, less administrative expenses and less other expenses, by function. (2) Corresponds to profits (losses) before income tax expense, finance income and costs, foreign currency translation differences, income from indexation units, other profits (losses) and income of associates. (3) Corresponds to the operations of Empresas CMPC S.A., Inversiones CMPC S.A., Servicios Compartidos CMPC S.A. and Portuaria CMPC S.A. not included in the main segments.
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PROFITABILITY RATIOS
Profitability Ratios 1Q18 4Q18 1Q19 Net Profit Margin (annual): Net Income (Loss) / Sales Income 9.65% 8.01% 3.95% Annual Return on Equity (ROE): Net Income (Loss) / Average Total Assets for the period 6.88% 6.15% 2.75% Annual Return on Assets (ROA): Net Income (Loss) / Average Total Assets for the period 3.83% 3.36% 1.52% Return on Operating Assets (annual): Operating Income / Average Operating Assets for the period (1) 7.08% 8.48% 4.88% Dividend yield: Dividends Per Share (rolling year) (2) / Share Market Price (3) 0.05% 1.54% 1.95% Profit per Share (USD): Net Income (Loss), attributable to owners of the parent / # shares (4) 0.058 0.201 0.023
(1) Operating Assets: Accounts Receivable + Inventory + Net Property, Mills and Equipment + Biological Assets (2) Dividends paid, in USD (3) Market stock price at the end of the period (4) Calculated based on the average amount of shares for the period
LIQUIDITY, DEBT AND ACTIVITY RATIOS
Liquidity 1Q18 4Q18 1Q19 Current Liquidity: Current Assets/Current Liabilities 2.34 2.28 2.33 Quick Ratio: Cash and Cash Equivalent/Current Liabilities 1.52 1.50 1.52 Debt 1Q18 4Q18 1Q19 Debt Ratio: Total Debt/Equity 0.84 0.82 0.84 Current Debt Ratio: Current Liabilities/Total Debt 22.3% 24.5% 23.5% Non-Current Debt Ratio: Non-Current Liabilities/Total Debt 77.7% 75.5% 76.5% Financial Cost Coverage: 4.55 5.08 3.01 Book Value per Share: Equity/# Shares USD 3.30 3.30 3.30 Activity 1Q18 4Q18 1Q19 Asset Turnover Ratio: Revenue / Average Total Assets 0.40 0.42 0.38 Inventory Turnover: Cost of Goods Sold / Average Inventory 3.58 3.60 3.48 Days' Sales in Inventory: Average Inventory*360 days / Cost of Goods Sold 100.5 days 100.1 days 103.4 days
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GLOSSARY
Biological assets: Forestry plantations which are supposed to be used as raw materials for pulp production, sawing logs and other solid wood products. Green Bond: Bonds that meet the requirements set forth in the Green Bond Principles of the World Bank. Proceeds are used to finance or refinance projects with sustainable environmental impact. CAPEX (capital expenditures): The amount spent on acquiring or improving productive assets such as buildings, machinery and equipment, or vehicles, with the purpose of increasing the capacity or efficiency of a company. Working capital: Inventory + accounts receivable – accounts payable. Bleached Eucalyptus Kraft Pulp (BEKP): Pulp from eucalyptus wood used as a raw material for a wide range of papers. Bleached Softwood Kraft Pulp (BSKP): Pulp from pine wood used as a raw material for a wide range of papers. Stumpage: An expense recognized at the time of harvesting and selling a forest associated with the formation of the harvested property. Derivative contract: Contract between two or more parties whose value depends on the performance of a certain underlying asset as the payment and price of the contract are directly related to the evolution of the market price of said underlying asset. Financial debt: Bank debt and debt securities, long and short term, issued by the Company. Net financial debt: Financial debt that cannot be settled with cash. In other words, short-term financial debt + long-term financial debt - cash - cash equivalents. Days Sales Outstanding (DSO): (12 rolling months of outstanding accounts receivable)/(sum of 12 rolling months credit sales)*365 EBITDA (Earnings before interest, Taxes, Depreciation and Amortization): Valuation of the operational cash flow. It is obtained by subtracting the fixed expenses from the contribution margin. Contribution margin: Direct income minus direct costs. Functional currency: Currency used by the Company for accounting purposes. Debt ratio: Relationship between the total debt of the Company and its equity. Lease liability: Debt related to long-term lease agreements according to the IFRS 16 norm which came into effect starting January 2019. Quick ratio: Measure of a company's ability to meet its short-term obligations defined as its ability to convert assets into cash. RPP (Receivable Purchase Program): Contracts for the sale of portfolios of accounts receivable, which substantially transfer the risk of default to the counterparty, in this case the financial institutions. Softys: Business unit dedicated to the manufacturing and distribution of tissue paper, personal care products and Away-from-Home products. QoQ: Quarter on quarter, compares current with previous quarter results. YoY: Year on year, compares current quarter with the same quarter in the previous year. Replacement value: The monetary amount that it would cost to replace an asset at the present time, according to its current worth.
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