(03/31/2017) The profound crisis that hit the Brazilian economy, with a marked decline in industrial activity, had a strong influence on the results of 2016 of Paranapanema, Brazil’s largest producer of copper. The sudden retraction in credit supply for industry was the issue that most impacted the company’s results in the last year, thus reducing lines of credit available to the Company by R$ 708 million (equivalent to S$ 219 million, after deducting the exchange rate) used primarily as working capital for the purchase of raw material.

The shortage of credit in the national market has brought a ripple effect immediately in the management of the Company. Funds for customers have been reviewed and receipt deadlines of sales were reduced, contributing to a reduction in the volume of domestic sales.

That way, Paranapanema ended 2016 with net revenue of R$ 4.6 billion and gross profit of R$ 349.9 million, 15% lower compared to 2015 results. Out of the total revenues in the year, 36% of which came from the domestic market (42% in 2015) and 64% of the export market (58% in 2015), whereas the total sales volume was 42,600 tons, drop of 14% compared to the previous period. The total volume of production was 400.1 thousand tons, 73.6 thousand tons less than in 2015 (-16%).

The average stock fall by 23% from 2015 to 2016 – caused by lack of working capital – has impeded the full utilization of the installed capacity in the plants of Dias D’Ávilla (BA) and Santo André (SP), which has generated an increased plant downtime, thus raising the operating expenditure in R$122 million. In addition, uncertainty about the generation of future taxable profits caused the Company to accrue R$ 275.8 million in the second quarter of 2016 related to loans in deferred income taxes. These conditions caused Paranapanema to suffer a net loss of R$373 million in 2016.

Even with a negative result, the Company recorded EBITDA (earnings before interest, taxes, depreciation and amortization, minority shareholdings and equity method) of R$108.4 million in 2016 (R$265.7 million in 2015), representing a margin of 2.4% over the net revenue.

To reduce the impacts of the economic crisis scenario, Paranapanema started, in the first half of 2016, an intense and complex process of negotiations to strengthen the capital structure and reprofiling debts with its main shareholders and creditors. On September 30, 2016, the first standstill agreement was signed, renewed and valid to date, in which the debts with creditors are suspended from collection.

According to the CEO of Paranapanema, Marcos Camara, the efforts are currently focused on resuming the full production of the units and generating results for its shareholders. “Our main concern is seek to reduce the idleness of our facilities, with a positive impact on the operating results of the Company,” said Camara. “In the short term, we expect to complete the process of debt reprofiling and the strengthening of the capital structure of Paranapanema in order to capture the potential benefits that a more favorable economic environment can offer”, adds the executive.