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Event Brief of Q4 2008 ARACRUZ CELULOSE S A Earnings Conference Call (English) - Final.

Article Excerpt
PARTICIPANTS

. Andre Goncalves, Aracruz Celulose SA, IR Manager . Marcos Grodetzky, Aracruz Celulose SA, CFO & IRO . Carlos Aguiar, Aracruz Celulose SA, CEO . Rafael Biderman, Bradesco, Analyst . Josh Milberg, Deutsche Bank, Analyst . Joe Licursi, BMO Capital, Analyst . Thiago Lofiego, Merrill Lynch, Analyst . Juliana Chu, BES Securities, Analyst . Francisco Schumacher, Raymond James, Analyst . Bruno Montanari, Morgan Stanley, Analyst

OVERVIEW

ARA reported 4Q08 net revenues of $408m and net income (loss) of $881m.

FINANCIAL DATA

A. Key Data From Call 1. 4Q08 net revenues = $408m. 2. 4Q08 net income (loss) = $881m. 3. 4Q08 adjusted EBITDA = $133m. 4. 4Q08 net revenues = 15% lower than 3Q08. 5. Dec.-end cash position = $432m. 6. FY08-end total debt = $4.1b.

PRESENTATION SUMMARY

S1. 4Q08 Results (M.G.) 1. Economic Scenario: 1. When first signs of crisis started to appear in subprime mortgage markets, there was consensus on how severe problem was, at the same time, that markets will quickly come back. 1. Conclusions were reached on back of huge global liquidity and on many sources of growth in world namely emerging economies with special attention to growth delivered by China. 2. Given some expectations, deleveraging process of SIVs in hedge funds led to significant correction in price of assets and erosion of capital base of finance institutions. 1. Risk aversion and credit constraint dominated scenario. 3. Lehman's bankruptcy caused further and severe deterioration in markets. 1. Commodity price declined significantly on back of first signs of recession and falling demand. 4. Believes, pulp prices reached [to floor] and should start to increase in coming months. 1. Prepared Co. to operate in tough environment over course of 2009. 2. Global Pulp Market: 1. Overall demand for chemical market pulp decreased almost 1% in 2008 vs. 2007. 1. [Sales to] North America and Western Europe dropped by 8% and 2% respectively. 2. Chinese demand for chemical pulp increased by 14%. 2. Increased global capacity combined with lower demand led to decrease in shipments to capacity ratio to 88% in 2008 vs. 93% in 2007. 1. This largely explained falling pulp price during 2H08. 3. Pulp producers reduced production in order to better match demand. 1. Even market related downtime introduced by World-20 producers and others did not prevent inventories reaching 46 days at 2008-end vs. 29 days a year before, avg. of 32 days between Dec. 2003 and June 2008. 2. Credit restriction had a big impact on demand. 4. Further cuts in existing capacity in postponement/cancellation of new pulp projects should halt deterioration of supply/demand balance and trigger better outlook before 2009-end. 3. Financial Highlights: 1. Sales volume, 8% higher than 3Q08 with [sales mix to] European market decreasing from 39% to 29% on quarterly basis. 1. Volumes to Asian markets increased to 25% of total sales from 16% in 3Q08. 2. North America market sales volume, stable, due to Co.'s strong link to tissue segment, which has less elastic demand. 1. Sales to tissue segment represents around 60% of Co.'s total sales which reinforced sales strategy to focus on tissue. 3. Net revenues, $408m, 15% lower than 3Q08, due to 22% lower net pulp prices, partially offset by 8% higher sales volume. 4. Cash production cost, $227 per ton, 21% lower than 3Q08, mainly due to: 1. Devaluation of real against dollar, 36% avg. 2. Lower cost of raw material and services, largely due to cost reduction program. 3. Lower labor expenses. 1. Results acheived despite reduced dilution of fixed costs due to maintenance downtime taken at Fiberlines A and C in 4Q08. 5. Adjusted EBITDA, $133m. 1. Representing 33% margin, down from 39% in 3Q08, mainly due to: 1....

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