Fibria Celulose Executive Insights: EBITDA & Chinese Resistance, Pulp Market

On Monday, Fibria Celulose SA ADR (NYSE:FBR) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

EBITDA & Chinese Resistance

Carlos de Alba – Morgan Stanley: First question is regarding the spending initiatives or further liquidity events for the year, how much do you think you can raise with these efforts and what do you see your – provided that those are materialized, what do you see your net debt-to-EBITDA at year-end? It seems that even after taking into consideration what your tip already, which was a lot in the first quarter, 4.3 times net debt-to-EBITDA, seemed sort of a bit high and it may not be enough to meeting the covenants of 3.5 times. The second question is regarding the market in China. We’ve heard that the implementation of the last increase, $30 for May, is meeting a lot of resistance. If you can talk a little bit about the implementation of such an increase and the conditions in the market, I would appreciate that as well.

Marcelo Castelli – CEO: In terms of liquidity events, as you rightly said, we already have said that we have Losango forest and we have also smaller assets that has less significant value. So, you can estimate the value of Losango, some of this should be R$1.6 billion and then you get the total amount of the liquidity events for the year. With the liquidity events that I mentioned now, plus the cash flow generation we will probably be reaching year end and also of course it will depend on the exchange rate levels, but roughly speaking about three times net debt to EBITDA. In terms of the covenants that you mentioned, our covenants for the year is 3.5 times net debt to EBITDA so we expect to finish the year in compliance with all our covenants.

Marcelo Castelli – CEO: With regards to your question about Chinese market, yes, the market is trying to resist the price increase in China, but again I would like to go back to the fundamentals that are supporting such an increase. As I said, we are entering maintenance shutdown period with 34 days for the industry as a whole of inventories and we are sometime facing some difficulties to (structure) the shipment. So, again our position is very clear. Any order that will not be confirmed by today will be kept and this is again not a problem. Our inventories will be tight at the end of the month just like next month.

Pulp Market

Thiago Lofiego – Bank of America Merrill Lynch: I have two questions. One is just to complement Carlos’s question and actually to clarify. Did you provide any value guidance for the Losango and timing as well and also if there are other initiatives that you could take in terms of divestments that would be significant throughout 2012? This would be the first question and the second question is regarding the pulp market outlook for the next year or two, while considering all of the new plants that should be starting up in this period. How do you guys see or when do you see the pulp market effectively going off balance? Is there a chance we could already see a impact at the end of this year or do you think this could be only felt by mid next year or late next year?

Marcelo Castelli – CEO: This is Castelli speaking. First of all, regarding the Losango asset, we do not give any guidance regarding to the value, okay. We are pursuing these assets sales. We believe that we can materialize and realize these asset sales until the end of 2012 which is that we are working on. We don’t have anything in our hands right now so far, but we are analyzing, as I mentioned before, different alternatives, okay. We are analyzing very hard and we think that we have something in our hands, but not (actual) at all at this time, okay.

Guilherme P. Cavalcanti – CFO and Investor Relations Officer: Regarding your question about the stock market for the next two years, again, let’s say supply side it remains to be seen whether all these capacities will enter the market for the timing that were announced. We do believe that there will be some delays and of course, this will is in some ways the pressure on the market. On the same time, we do understand that there are a lot of additional capacities. If you look at the Chinese markets and all the additional capacities (this time) more or less 3 million to 4 million tons of paper on year-only basis from 2010 to ’11 and ’11 to ’12 and this will meet a lot of pulp of course. Without mentioning, the fact that there will be some closures, (normally) pulp in China led also some switch of market troughs to dissolving; actually, this is something that were quite commented in Vancouver. So, again, we are quite positive about the market being balanced in the next two years, since not always happen the worst way or at least the way it is presented.