Company made $15bn offer to buy IP, sources say; earnings fell 96% in Q1, to R$220m
05/10/2024
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Walter Schalka — Foto: Ana Paula Paiva/Valor
Just under two months before stepping down as CEO of Suzano, Walter Schalka said the pulp and paper company will maintain its long-term investment perspective and, consequently, growth. However, the executive declined to comment on the company’s interest in International Paper (IP), arguing that Suzano does not speak about specific operations.
“The company, in a rationalist manner, will look at organic and inorganic opportunities in different geographies,” he said. According to sources, Suzano made an informal offer to acquire the U.S.-based company, valued at $15 billion. However, one of the obstacles to a potential deal is a requirement made by Suzano—the end of the agreement involving the acquisition of DS Smith by IP.
Suzano released its first quarter results on Thursday (9), which brought the effects of the strong pulp depreciation in the first half of 2023. Net earnings fell 96%, to R$220 million, also pressured by the financial result. Net revenue totaled R$9.46 billion, a drop of 16%, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 26%, to R$4.56 billion.
Pulp prices have been recovering since the middle of last year. According to Mr. Schalka, the market is more favorable than last year, with “robust” demand in the three main regions: Asia, Europe, and North America. Non-recurring events, such as strikes, logistical issues, and unexpected factory shutdowns, led to a better price moment, with a gradual increase.
“The average price realized in the first quarter has not yet captured all of the increases,” he said.
At the beginning of the year, pulp price in China was $617 per tonne, compared to $740 this month. Given this scenario, the expectation is that the average price realized in the second quarter will be higher than at the beginning of the year.
According to Mr. Schalka, pulp revenue in the first quarter also reflects a movement to replenish stocks, which in December were below safe levels and, if maintained at those levels, could put supply to customers at risk in the future.
The Cerrado Project, which involves the construction of a plant with a capacity to produce 2.55 million tonnes of pulp per year in Ribas do Rio Pardo, Mato Grosso do Sul, is on schedule and the forecast for starting operations by the end of June has been maintained. Suzano is investing R$22.2 billion in the project.
With the start of operations, the expectation is for a gradual reduction in financial leverage, which reached 3.5 times in March, within the cap set by the debt policy in investment cycles. According to Mr. Schalka, with a cash cost of pulp production of R$812 per tonne in the first three months of the year, which is 13% below a year earlier, Suzano should see a further drop in this item after the stabilization of the Cerrado Project.
Marcelo Bacci, chief financial, investor relations, and legal officer, says that Cerrado will bring a “quite significant” return at current pulp price levels. “The new projects will have a higher investment per tonne than those that are being carried out now, as wood, land, and industrial capex have become more expensive, and will have to be justified by higher pulp prices,” he pointed out.
*Por Stella Fontes — São Paulo
Source: Valor Inaternational