MMX Announces Results Relating to 1st Quarter of 2014
OREANDA-NEWS. In this first quarter of 2014, the executive board of MMX continued in the process of restructuring the Company, focusing on the adequacy of its cost structure and seeking to improve the performance of current operation.
In this first quarter of 2014, the executive board of MMX continued in the process of restructuring the Company, focusing on the adequacy of its cost structure and seeking to improve the performance of current operation.
The presented numbers reflect the sale of 65% of Porto Sudeste do Brasil to the consortium formed by Trafigura and Mubadala, which lead to a nearly bank debt-free MMX.
With the interruption of the expansion project of the Serra Azul Unit, after the financial difficulties experienced by the company throughout 2013, new challenges and goals arise for 2014, such as the renegotiation of contracts with the suppliers, among them MRS, as well as the consolidation of the process of searching for a new strategic partner that allows the Company to resume the expansion project of the Serra Azul Unit.
Highlights of the 1Q14 and subsequent events:
Conclusion of the investment operation of Trafigura and Mubadala in Porto Sudeste do Brasil S.A. (previously named MMX Porto Sudeste Ltda.);
Reverse Split of the total shares representing the capital in a ratio of 6 shares to 1 share with no alteration of the Company's current capital.
Operation Performance and Financial Statements
Iron ore
Production
MMX Sudeste - the increase in production of the 1T14 resulted from low rainfall rates and operational improvements, leading to greater productivity in the period, compared to the same period of the previous year and to 4T13. Fluctuation compared to the 4T13 is even greater since the last quarter of 2013 was negatively impacted by the repositioning of the Tico-Tico plant.
MMX Corumbб - In 1T14, production remained interrupted, as well as in 4T13.
Sales
MMX Sudeste - There were no exportations in 1T14, because the contracts for port services signed with CSN and Vale contemplate the beginning of shipments in April. However, the domestic market absorbed a fair share of the production of this period. In January, Vale was the main client from the second half of the month. In February, the shipments for CSN were resumed, bringing the balance of contract to zero.
MMX Corumbб - In the domestic market, Vetorial stopped purchasing products from the moment the production halted. Some sale was performed in 4T13, but the stock of the product they are used to buying was practically brought to zero. In exports, there is always the effect of the river's dry season (generally, between November and February), but, in addition to this, the Interbarge convoys spent a great period of 1Q14 in charter out making it impossible for us to ship products to Siderar. With availability restored, the demobilization of practically all workforce of the operation reduced the shipping capacity.
Commercial Expenses
Commercial expenses in 1Q14 amounted to BRL 59 million. The lower level of exports in this quarter facing the previous ones (1Q14: 3%; 4Q13: 29%; 1Q13: 71%) added to the lower level of sales in the period (4Q13: -15%; 1Q13: -12%) led to a reduction of 54% and 46% concerning 4Q13 and 1Q13, respectively.
General and Administrative Expenses (G&A)
In 1Q14, MMX recorded consolidated General and Administrative Expenses of BRL 53 million, an increase of 5% when compared to the previous quarter and 50% above the 1Q13. The main reason was the accounting of costs with demobilization, bonus and retention package for some employees. In Corumbб, the raise was mainly due to the provision for PIS/COFINS credit loss, ICMS/CIAP credit and loan adjustment.
EBITDA
The Brazilian Securities and Exchange Commission (CVM), by way of Instruction 527 dated October 4, 2012 , introduced provisions on the voluntary disclosure of EBITDA, producing effects on the disclosures made as of January 1, 2013. MMX management opted to adopt the recommendations of this Instruction in the financial statements for the year ended at December 31, 2012. In this document, among other aspects, the CVM instructs that non-recurrent, non-operating items or discontinued operations cannot be withdrawn from the calculation of EBITDA. The indicator will be obtained according to the following formula:
EBITDA = Net result of the period + Taxes on profit + Net Financial Expenses + Depreciation/amortization/depletion
The same Instruction allows the Company to disclose the Adjusted EBITDA figures, excluding the results from discontinued operations and other items that contributed to improved information on the potential to generate gross cash. Accordingly, the above formula will include the items underlined below:
Adjusted EBITDA = Net earnings of the period + Taxes on profit + Net Financial Expenses + Depreciation/amortization/depletion + Equity in earnings + Allowance for exposed net assets + Impairment of assets + Options Plan
The EBITDA report and the explanations deriving from the variations will be made considering the Adjusted EBITDA. The EBITDA, as per the CVM Instruction, and the reconciliation of the Adjusted EBITDA are indicated at the end of this report.
The Consolidated Adjusted EBITDA posted by MMX in 1Q14 was negative BRL 501 million, 282% lower than 4Q13, mainly due to the negative impact caused by provision after the result of detailed estimates of costs considering the evolution of analysis of contracts with suppliers hired for the Expansion Project of Unity Serra Azul (BRL 431 million), the “Take or Pay” provision of fine concerning the contract with MRS (BRL 29 million), inventory adjustments concerning the fines of Emicon (BRL 18 million), the low stocks classified in the long term without estimated implementation (BRL 3 million), associated to the decrease of sales in the period, although it was mild.
Financial Results
The Net Financial Results of MMX in 1Q14 was negative in BRL 129 million, better if compared to the 4Q13, a consequence of the substantial reduction of bank debt after concluding the transaction with Mubadala/Trafigura, as well as of the assumption of the obligations relative to the Variable Remuneration Titles (MMXM11) by Porto.
Net Results
In 1Q14, MMX posted net loss in the amount of BRL 69 million facing the previous net losses of BRL 353 million in 4Q13 and of BRL 55 million in 1Q13. This result is fundamentally a consequence of the net result relating to the drop of the obligations of the Variable Remuneration Titles in the amount of 647 million, the recognition of liabilities relating to suppliers of the Project Serra Azul, as mentioned before, among other issues.
Cash, Debt and Acquisitions
Cash
Net Position:
The cash position at the end of the first quarter of 2014 was of BRL 86.7 million, distributed among: (i) BRL 19.1 million in highly liquid, short term financial applications, remunerated at market interest, indexed to the CDI and (ii) BRL 67.6 million in cash. The Company's cash flow suffered alterations in this period, mainly due to: (i) payments to suppliers of the current operation in the amount of BRL 46 million; (ii) logistics costs in the amount of BRL 16 million; (iii) Payment of funding lines of approximately BRL 65 million ; (iv) advance of exports revenue of approximately BRL 60 million. The company maintained in its balance sheet an amount of BRL 80 million Brazilian reais classified as assets maintained for sale cash flow.
Indebtedness:
In the first quarter, MMX posted a total financial debt of BRL 190.6 million, of which BRL 113.2 million are of short-term and BRL 77.3 million of long-term debt. The company maintained in its balance sheet an amount of BRL 105.6 million Brazilian reais classified in short term financial debt of assets maintained for sale.
In 1Q14, the average term of the debt in foreign currency was 1,782 days, while the average term of the debt in Brazilian reais was 1,880 days. The weighted average cost of the debt in US dollars in the fourth quarter was 6.07% p.a, in addition to exchange rate variation in US dollars. The average cost of the debt in Brazilian reais was 11.24% p.a.
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