(08/23/2016) Paranapanema, largest Brazilian producer of copper, closed the second quarter of 2016 (2Q16) with net revenue of BRL 1,3 billion, 10% growth compared to the first quarter of 2015 (2Q15). The result is part of the company’s strategy to develop new foreign markets and offset the slowdown in the domestic market. In the last quarter, 67% of production was directed to export.

Paranapanema also presented improvement in the evolution of its margins: the Gross Margin increased by 7.9% as a result of the more favorable scenario of exchange (rate and hedging program) and awards, over the same period of last year. The Adjusted Ebitda in the 2Q16 was BRL 105 million, with margin of 8.2% compared to the 2Q15, resulting in the maintenance of the Net Debit/Adjusted EBITDA index LTM in 2.57 times, compared to the same period of the previous year.

“Despite the Brazilian economic scenario of many uncertainties, mainly due to the credit crunch and economic confidence, Paranapanema continues to advance in operating results,” says the President of Paranapanema, Christophe Malik Akli. “The high quality of our products, that meet widely diverse global markets, and the work that we do of strict control of operating costs have contributed to this result.”

The Total Sales Volume reached 65.8 thousand tons, an increase of 1% compared to 2Q15, impacted mainly by the reduction in sales of Copper Products. In primary copper, were marketed 36.4 thousand tons in 2Q16, growth of 76% compared to 2Q15, due to the increased production of cathode destined mostly for export. In copper products, were marketed 29.4 thousand tons, a decrease of 34% compared to 2Q15, mainly as a result of low demand in the domestic market in the electrical and infrastructure sectors.

The net financial result of 2Q16 was of BRL 63,3 negative millions, depending on the exchange rate in the period and growth of 43% of the financial costs, reaching BRL 56,1 million, mainly as a result of the increased interest rate in the bank credit operations, as well as the reversal of interest income on court-ordered debt payments.

As for the net result, the prejudice of 2Q16 was of BRL 280,5 million according to the provision for loss in the amount of BRL 252,3 million on the credits of tax losses recorded in deferred assets. This provision is due to the uncertainty of utilization of these tax credits in the current context and can be reversed by the change of scenery as for profit-taking, after the reprofiling of debit and improving the capital structure of the Company. It should be noted that there is no limitation of these credits, as well as there are no cash impacts for the Company.

Reprofiling of debits

At the end of May, considering the significant downturn of banking credit in Brazil, Paranapanema began negotiations with creditors to align the Company’s debit profile with its future cash generation. The company hired Rothschild to advise it on the implementation of measures for improvement of debit and capital structure, with the initial goal to ensure the scroll of the most existing banking lines, initially through a temporary agreement for suspension of maturities (stand still – in advanced stage of negotiation with creditors), while the plan for reprofiling of debit is being designed for negotiating with creditors.

The Gross Banking Debit (with no LC’s and forfaiting operations) of Paranapanema has been reduced by 17.1% to BRL 1,7 billion (settlement of BRL 358 million) compared with 2Q15. At the same time, the cash equivalents were reduced by 51.1% (reduction of credit lines and mandatory amortization of more than BRL 594 million of LC and Forfait operations), resulting in an increase in Net Debit in 30.9%, to BRL 1,1 billion.