Klabin SA
BOVESPA:KLBN4
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
3.5571
4.4743
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Good morning, and welcome to Klabin's conference call. [Operator Instructions] As a reminder, this conference is being recorded and also broadcast live via webcast and may be accessed at cast.comunique-se.com.br/Klabin/1Q19, where the presentation is also available.
Before we proceed, we would like to clarify that forward-looking statements that might be made during the call related to Klabin's business outlook, projections, operating and financial targets and potential growth should be understood as mere forecast based on the expectations of the company's management in relation to the future of Klabin. Such assumptions are highly dependent on market conditions, on Brazil's overall economic performance, on industry and international market behavior. Therefore, they are subject to change.
With us in São Paulo, we have Mr. Cristiano Teixeira, Mr. Marcos Ivo and other officers of the company. Mr. Teixeira will be making remarks about the operating performance of the company during the first quarter of 2019, and afterward, the officers will be available to answer any questions that you might ask.
Now I would like to give the floor to Mr. Teixeira.
Thank you very much, and welcome to our call regarding the first quarter of '19. The first quarter is where the flexibility of Klabin is more evident, and in the first quarter of '19, things were not different. We delivered more paper in our comparisons. We made a priority our profitability, practically repeating the EBITDA of 40% and 5 percentage points higher than the first quarter of '18. Puma once again showed strength, maintaining a vigorous capacity to generate cash for Klabin. We reduced our leverage. We significantly improved our debt profile, placing Klabin on a safe and sustainable growth for the financial -- thus establishing the necessary basis for another important cycle of growth.
Now I would like to give the floor to Marcos, and he will be talking about our figures. And then we will be back to the Q&A session.
Thank you, Cristiano. Good morning, everybody.
And we'll start the presentation of the results of this quarter. And on Slide #2, we have the highlights. Adjusted EBITDA reached BRL 1,005 billion, a growth of 32% vis-à-vis the same period last year and net liability management already executed but not reflected totally in our provision in March 2019, which led the average tenor to 52 months, making the company's balance sheet targeted for Puma II.
On the next slide, net revenue in the quarter was BRL 2.5 billion, a growth of 14% vis-à-vis the same period last year. And the distribution between domestic market and exports was kept at the same level of the previous year, exports representing 42% of the net revenue -- the total net revenue.
As it was mentioned before, adjusted EBITDA for the period was BRL 1,005 billion. EBITDA margin reached 40% in the first quarter of 2019, which represents an improvement of 5 percentage points year-on-year.
On Slide #4. In the pulp business, the volume of sales in the quarter were 353,000 tonnes, an increase of 13% vis-à-vis the first quarter of 2018. Highlight was the participation of sales to the domestic market, that in the period, represented 28% of the overall volume of pulp sales. Net revenue from pulp was BRL 921 million, growing by 35% vis-à-vis the previous year.
In the paper business and packaging business, the volume of sales in the first quarter reached 432,000 tonnes, a reduction of 4% when compared to the same period in 2018. Net revenue, in spite of the reduction in the sales volume, rose up by 6% on the same comparison basis, reaching BRL 1.5 billion in the first quarter of 2019.
On next slide, details about pulp performance during the first quarter of 2019. Once again, higher than the nominal capacity, reaching a volume of production of 396,000 tonnes. And for comparison purposes, I would like to remind you that in 2018, the programmed -- or the scheduled stoppage occurred in the fourth quarter; and in 2019, the scheduled stoppage would be in July.
Production cash costs for pulp, that includes all the fibers produced by Klabin, net of the effect of the stoppage, was BRL 720 per tonne in the first quarter of 2019, an increase in line with inflation when compared to the same period last year. In U.S. dollar, the cost per tonne was $185, a reduction of 13% comparing on the same basis.
On Slide #6, we can see that in spite of the final exchange rate of the quarter was higher than the final one in the previous quarter, the company was able to maintain a consistent trajectory of deleveraging, closing March with a net debt/EBITDA of the last 12 months of 3x, a reduction of 0.1x vis-à-vis the quarter immediately before, a 0.8 reduction when compared to March 2018.
On Slide #7. Klabin closed March 2019 with a cash of BRL 7.5 billion, and besides the company contract RCF of $500 million, with a liquidity by the end of March 2019 of BRL 9.4 billion. As a result of the liability that is in process, that has already concluded, all the transactions such as you can see in the subsequent events of the quarter but have not been reflected on the profile of debt in March 2019, the average tenor of debt went from 48 months at the end of 2018 to 52 months at the end of March 2019, maintaining the same cost levels.
On the next slide. You can see the free cash flow -- adjusted free cash flow, ex of dividends and discretionary factors, was BRL 100 million in the first quarter of '19. And this result was pressured by one-off non-recurring events, working capital and financial expenses. The working capital includes in the period a BRL 297 million due to the increase in the inventories for the scheduled stoppages, for the maintenance of the Paraná plants and also due to seasonality of suppliers and accounts payable that historically are lower at the beginning of the year. The expectation of the company is that over the year, work will be increased and the working capital that occurred this quarter will be reverted.
Financial expenses were impacted by nonrecurring costs related to liability management repayment of BRL 53 million in the quarter and also due to the seasonality in interest payment, which are now linear between and among the different quarters. The adjusted free cash flow in the last 12 months was 9.6%.
Now going to Slide #9. In April 30, 2019, the Board approved the payment of interim dividends amounting to BRL 201 million. In the last 12 months, shareholders' remuneration via dividend and interest on equity reached BRL 988 million, which represents a dividend yield of 5%.
I'm concluding the presentation. Now Cristiano and the other officers and myself will be available to answer any questions that you might have.
[Operator Instructions] Our first question comes from Mr. Thiago Lofiego from Bradesco BBI.
I have 2 questions. The first one has to do with the kraftliner capacity. We know that there are some companies placing new capacity by 2021 in the market and maybe others also planning additional capacity for the future. How do you see that? Do you have any concerns regarding supply and demand? And what about the global scenario that was different from what was expected until a few months ago?
And the second question has to do with the project. And I would like to understand the announcement of growth that you made. Does it eliminate the possibility of consolidation in other plants here in Brazil or not necessarily so?
Thank you, Thiago. I will answer the part of the kraftliner additional capacity vis-à-vis the market together Flávio Deganutti, and he will be talking about some characteristics of the market. But I would like to first mention that kraftliner has been behaving more and more as a friendly solution regarding this new world of transformation in packaging. And we count not only on the vigorous growth of kraftliner in products that I always mention here during our presentations, like fruit, for instance, because most of fruits in Brazil are transported bulk. But also, all over the world, there is regulation coming on because of sustainable characteristics of the product and candy, et cetera. And because of all that, kraftliner will be the big winner in this new wave of more sustainable packaging. So our belief is very strong in the product.
In order to give you figures regarding market characteristics and organic growth, I would like to ask Flávio to answer.
Hello, Thiago. Good morning, everybody. We have a major structural growth in these markets, and I would like to remind you that Klabin will be making 2 projects in the new machine: the brown kraftliner with 1.2%, including growth in rate and the Klabin projects. And others in the near future will be very well received by the market.
And besides, we have even bigger growth in the kraftliner, the white one that goes on top of the brown one. And this is not produced in this region. And this is one of the things that is a characteristic that Klabin will be producing and connected connection to e-commerce and lighter packaging. We will have lighter products than the average, as we said, regarding the weight of grammage. And then structurally, we see a very important demand for the next 2 years, and for this reason, we will have a very strong future market. And so on the supply side, we have many announcements of capacity, as you well know. However, just a handful of these from the viewpoint of virgin kraft, which is our case of very high competitiveness and 100% eucalyptus.
Now I will give the floor back to Cristiano, and he will talk about consolidation.
Thiago, thank you for the question regarding consolidation. This is an opportunity for us to reinforce the role of consolidators in the packaging market of Klabin. Klabin now and more than ever, with its capacity, Klabin will be looking for a major part of this paper integration. Integration proves, as you can see in the results of the first quarter and I tried to mention this at the beginning of my presentation, integration, in fact, is a major flexibility driver for the company. And Klabin, more than ever, seeks consolidation in this sector.
Could you say a few more words about that? When you say you look at -- for consolidation in the market? Are you going into -- go after that after the craft machine is fully operational? Are we talking about something very big or maybe some smaller capacities?
Thiago, for some reason, I cannot understand your question 100% because the sound is not good. So I'm going to try to answer, but when we talk about looking for consolidation in this sector, this is totally aligned with the demand from the new global brands that work in Brazil, that operate in Brazil, and that require more and more investments in printing and in new types of packaging and packaging systems. And Brazil is the country of continental dimensions, and the consolidation characteristics follow the profile of each one of the regions.
And Klabin has a vision, it's important to say this, has a vision. We seek consolidation in order to better serve the key account, the large clients that operate in Brazil. But details, well, they have to do with strategy of the company, and we will not be able to go into that. But what is important is to say that there is nothing already underway and that might oblige us to make any formal remarks. And what we have is the vision -- Klabin's vision, in terms of seeking consolidation in this sector, which is one of the most fragmented sectors in the world still. Thank you.
Ricardo Monegaglia from Santander.
I have 2 questions. The first one has to do with inventories. Could you talk about this increase and how much of this increase is because of the gap between the Puma production and the sales of pulp in the quarter? And what about potential negotiations for exports of pulp?
And my second question has to do with cash generation. It was a little bit worse than estimated because of the higher inventories. Could you give us some more color about the normal cash generation in the quarter? How much improvement should we see in this next quarter? And what about the leverage level that you've started to reverse for Puma II?
Thank you, Ricardo. Regarding inventories
[Audio Gap]
so we have to prepare for stoppages. And we have another characteristic, that is the end of our contract with the old Fibria. And we've prepared these inventories in order to comply with our commitments so these inventories can -- should get into a normal pace. So there is nothing special for us to tell you besides what I have already shared. That is to say, the preparation for the stoppage, that starts in April.
And the second question before the free cash flow, you asked something about pulp and the sale of pulp. And José Soares is going to answer this. He is our Commercial Director for pulp.
Thank you for the question. Regarding the direct sales by Klabin, as we announced, as of April, we started the process of having a gradual volume of direct sales, and in April, 15,000 tonnes; in May, 30,000; in June, 45,000; in July, 60,000 tonnes. In April, we have already realized this and we have already exceeded the volume a little bit because of the inventory that we've built up in order to make direct sales. And it requires more inventory in the chain. Sales are going well. We are contracting clients that will be sustaining this volume over 2019. And we are preparing ourselves for -- at the end of the year, signing the contracts for 2020. Things are going quite well, and the products and sales clients already knew Klabin's fiber. So through Fibria, the qualification process is very fast. Some clients are not familiar with the product yet. But the main players, most of the clients have already tested our product, and this facilities the process of direct sales. And I think this is all I could say.
Regarding the free cash flow, Marcos will answer you.
Ricardo, in relation to the free cash flow of the quarter, there are 2 factors or line items that had not normal results yet. One was working capital. We have already talked about that. And the expectation of the company is that part of this -- or a major part of this increase in the working capital that we saw in the quarter will be reverted over the year. And the second line item that had this nonrecurring effect was financial expenses. So BRL 53 million in one-off expenses, having to deal with liability management; and the other part, which is a nonlinearity of disbursements between the quarters in our financial expenses line.
You also asked a question about the disbursements for Puma II. Okay, we will start the disbursements for this project by the end of May. And the company's expectation is that still within this year, we will have disbursements of about BRL 2 billion.
Our next question is in English. Carlos De Alba from Morgan Stanley.
My question, is there a -- if you could talk a little bit, Cristiano, as to the average [ distant forestry ] work that the company had in first quarter. And given that, that was one of the reasons -- or call it, the main reason for the increase that we saw in the Puma forecast production cost, how do you see the evolution in the coming months on that metric?
The second question is if you could comment on any further development regarding the negotiations with the minority shareholders on potentially buying the royalty company -- buying the royalty contract or the brand name -- the Klabin brand name from the controlling shareholders.
Thank you, Carlos. Our forestry officer is here. And if you allow me, I would like to have him answer your question. And then I will come back and answer your second question. The first question will be answered by him.
There has been an increase in the average wages because we have been buying more wood than we did before, and we are preparing ourselves for this new project. And most probably, in the next few months or the next few quarters, the average wages will continue to be the same as we had in the first quarter. So it was a strategic move in terms of buying wood from third parties, that it will be maintained.
Now talking about the royalties. And I will once again describe this scenario that we have today. The management, myself and the other officers of the company, we continue with this negotiation in this new period for the acquisition of this contract from the controlling shareholders that owned the brand. And this negotiation came to good terms at a certain point in point in time, and then it was questioned by minority shareholders. The controlling shareholder, the owner of the brand, removed himself from the negotiation and placing us in a situation that we have to cancel the shareholders' meeting that would make a decision about this -- the board meeting that will be deciding on this matter. And we had worked very hard on this matter, and we thought we had reached a good solution. But now we are expecting this is -- may rediscuss, and the discussions will continue in the next 2 to 3 months. And with the help of the new Board members, we expect to once again find a solution for that. And this will be submitted to our Board of Directors for a decision. So on the Executive Board side, we trust that this theme will be solved still within 2019. But I repeat, it had already a solution, and this was interrupted by my counterpart that negotiated this. And therefore, we are expecting to resume this negotiation as soon as it can.
Juan Tavarez of Citi.
I guess my first question, just on pulp. If you can give us some -- an update there on just the current demand environment. And then maybe also if you can confirm what pulp price are you currently selling in China.
And then, my second question is revolving your pulp inventories. Could you give us some clarity on what are your pulp inventories today and what would you consider normal? And how do see the progression of your inventories into the following months? And I know you're taking some downtime, so I'm curious on how you expect that. Do you essentially stay flat during this environment or trending towards what you consider normal? Just to get your sense there on pulp inventories as well?
Thank you, Juan. Soares will answer your question.
Juan, your question regarding prices, right now we see stable prices in the market, and we have been selling something already -- making direct sales. And we have secured $670 to $690 [ in the years with ] China and it seemed to me that this will be price in the market. There is still some pressure on the market. We believe it will continue for some time because the inventories there are still high. But this is our last report, so I think we see these are already coming down and there is more equilibrium there. But the market still has a degree of instability.
Right now, our forecast is something around $670, $690 with the market stabilizing at this level. And in the other fibers, the process is quite similar. Of course the fiber ends up having an impact on the other, one goes up and the other one follows and follow the same movement. For long fiber or softwood, $690 to $700; and fluff around $740, $730 for the Chinese market. This is the environment that we see for May. And the deals are being closed at these levels.
And regarding inventories, we this move in terms of reduction. And it seems to me that demand, it has slow reaction that what we already see, but already with a favorable trend that we have not seen in the last 6 months. So slowly, we expect inventories to go to normal levels again over time.
So talking about inventories, I believe that you're asking about global inventories. In the information that you follow, you can see that there has been a fall that was reflected in March. And as far as I know, these figures have not been published yet. But regarding Klabin, statistically, we have already said that the increase was due to the contract that we referred to and also preparing the company.
[indiscernible] from Bank of America.
A follow-up about China. Too sluggish...
[Audio Gap]
And in spite of a weaker market, we were able to strengthen our margins with price increases and a better mix.
Just a follow-up. How do you see the situation from now on, the market overall?
For the second quarter, our expectation is still similar to the first quarter. No news regarding the domestic market that might strengthen the market. In the second half of the year, then we expect the market to be stronger for the domestic markets and for Klabin. But
[Audio Gap]
Thank you.
[Operator Instructions]
[Audio Gap]
The Q&A session is closed. Mr. Cristiano Teixeira will make the closing remarks now.
Our expectation for the second quarter is that uncertainties about the Brazilian economy might diminish, maybe creating some room for the improvements of the domestic market. We all expect a minimum political stability for us to have some predictability for the public accounts, so for investment, for employment and for income. This is the expectation of all Brazilian citizens.
Now talking specifically about Klabin, by the end of May, we will have the general downtime of Monte Alegre's scheduled downtime. So expect the pace of results will be quite similar to one that we have delivered now.
And I would like to take the opportunity to thank our Board of Directors. The Board of Directors was extremely important in this whole process, giving us the guidelines and placing their trust on this executive committee so that we could have the approval of Puma II. So the alignment was evidenced -- the alignment between the Executive Board and the Board of Directors. And Klabin, more than ever, is a highly competitive player with global reach focused on consistent growth and creation of value for all shareholders. Thank you very much, and see you on the next call.
Klabin's conference call is closed. Thank you very much for participating, and we wish you a good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]