(07/30/2015) The restructuring of the commercial area held by Paranapanema in late 2014 showed important effects on results for the second quarter of 2015 (2Q15). The penetration strategy into new international customers and markets has caused sales to foreign market to grow by 101% over the second quarter of 2014 (2Q14), thus offsetting the sharp fall in the domestic scenario during the period. The net income was of R$ 1.2 billion, 7% higher than the same period last year. Of total sales (65.4 tons), 53% were intended for foreign markets.

“Paranapanema’s business model allows it to be flexible to employ its volumes in markets with better conditions. The awards in foreign markets are more modest than those charged in the domestic market, but export becomes an important strategy when the domestic market cools. It is also important to highlight that even against a very challenging environment for the economy in the second quarter, the company managed to preserve its liquidity”, says the company president, Christophe Malik Akli.

The cash position of Paranapanema (cash + marketable securities) at the end of the quarter was R$ 1.1 billion, compared to R$ 700 million in 2Q14. The net debt/Adjusted EBITDA ratio reached 2.5x, below the current covenant with the company banks.

The total volume of sales grew by 4%, reaching 65.4 tons. Primary copper (cathode) sales totaled 20,600 tons, an increase of 33%, while Copper products (wire, rods, bars, tubes and laminates) registered growth of 5%, reaching 44,800 tons, due to the deterioration in the external economic environment. The sales of co-products totaled 249.6 thousand of tons, down 3% due to scheduled maintenance shutdowns of factories and the recovery of lines of Cast&Roll unit, damaged by fire earlier this year. Repairs of the Cast&Roll, incidentally, were completed one month ahead of the original forecast with the unit resuming its nominal production capacity in July.

Hedge Policy

Whereas the internal and external revenues of the company are in US dollars, Paranapanema adopts a hedging policy to protect the cash flow from exchange rate changes. This policy affected, accounting only, gross profit in the quarter, reaching R$ 5.2 million against R$ 80.5 million in 2Q14, with no impact on the company’s cash.

Other factors such as lower premiums in the international market and the programmed maintenance stoppage, which led to the decrease of primary copper and co-products, influenced the margins of Paranapanema, which recorded -9.3% net margin. Due to the above factors, the company’s net profit was a loss of R$ 108 million. The Adjusted EBITDA was R$ 4.4 million and the EBITDA margin was 0.4%.

During the quarter, Paranapanema held a number of important actions to minimize the impact of the macroeconomic scenario as the renegotiation of logistics contracts with savings of about $ 5 million a year and the lengthening of the debt profile. Additionally, the company has ensured the continuity of supply of energy to the Bahia plant by the Companhia Hidroelétrica do São Francisco [Hydroelectric Company of São Francisco] (Chesf) and the free market at competitive prices.