Suzano Pulp and Paper reports strong results for 2016 supported by cost discipline and Paper segment

Target cash cost for pulp production reached two years ahead of plan; operating cash generation in Paper segment grows 29.4% in the year

São Paulo, February 8, 2017 – Suzano Pulp and Paper announced today its results for the fourth quarter and fiscal year 2016, with operating cash generation (adjusted EBITDA less sustaining capex) of R$615.1 million in the quarter and R$2.75 billion in the year. Given the challenging scenario for the pulp industry in 2016, the results were driven by performance of the Paper segment and by the gains captured by the policy to control costs and expenses.

This combination drove adjusted EBITDA (excludes non-recurring and/or non-cash items) to R$901.6 million in the fourth quarter. In the year, adjusted EBITDA amounted to R$3.91 billion. Sustaining capex was R$286.5 million in the fourth quarter and R$1.16 billion in 2016.

The consolidated cash cost of market pulp production ex-downtime reached R$570/ton in the fourth quarter, a level considered to be the company’s target cash cost, which previously was expected to be reached only in 2018. In the year, pulp cash cost ex-downtime stood at R$623/ton, decreasing 3% from 2015.

Another highlight was unit Cost of Goods Sold (COGS), which ended the year at R$1,391/ton, increasing 1.7% from the prior year, well below inflation in the period (+6.3%).

The year also was marked by 1.6% growth in market pulp and paper production volume, to 4.66 million tons. Suzano Pulp and Paper also set a new record for annual production and sales of market pulp, which surpassed the mark of 3.5 million tons. The solid operating results were partially offset by the effects from lower international pulp prices, which affected the industry as a whole.

In the Paper segment, which is less exposed than pulp to exogenous factors, such as exchange rates and international prices, margins continued to expand. Operating cash generation in this segment came to R$960.4 million, advancing 29.4% in relation to 2015. Adjusted EBITDA in the period was R$1.16 billion, while sustaining capex amounted to R$199.7 million.

To deliver these results, Suzano Pulp and Paper continued to move forward in its strategy to strengthen relations with end clients, through the Suzano Mais Program. The implementation of this new business model enabled the company to expand its base to over 35,000 active clients.

In the year, the company posted net income of R$1.7 billion, reversing the net loss of R$925 million posted in 2015.

Strategy

The results for 2016 attest to the effectiveness of Suzano Pulp and Paper’s strategy to maintain a diversified production portfolio, with 61% of its revenue coming from Pulp and 39% from Paper. This strategy should continue in 2017, with the company continuing to advance in the fluff eucalyptus pulp market and entering the tissue and lignin market.

In the Pulp segment, market fundamentals supported an incipient recovery in international prices for this input used by paper manufacturers. Data from the Pulp and Paper Products Council (PPPC) show that, in the fourth quarter, pulp shipments advanced 13.9% on the same period a year ago.

Suzano Pulp and Paper also closely monitors opportunities for reducing its debt cost and for boosting the competitiveness of its operations. At the end of last year, for example, it concluded the acquisition of properties in Maranhão state, which was the final structural milestone for attaining its target cash cost of R$475/ton by 2021-22.

As a result of its investment in the acquisition (R$800 million), Suzano’s total capital expenditure in 2016 increased by 51.4% on the prior year, to R$2.6 billion. Excluding this transaction, annual investment was approximately R$1.8 billion, slightly below the company’s most recent guidance for the year.

The closing balance sheet for 2016 also shows a decline in the financial leverage of Suzano Pulp and Paper, as measured by the ratio of net debt to EBITDA, with this ratio falling from 2.7 at the end of 2015 to 2.6 at the end of 2016. Meanwhile, net debt declined by 17.3% to end the year at R$10.3 billion.