May 20, 2014 / 12:06 PM / 4 years ago

Bond buyback weighs down Votorantim Industrial profit; debt sinks

SAO PAULO, May 20 (Reuters) - Net income at Votorantim Industrial SA fell in the first quarter in the wake of a $880 million bond buyback that helped Brazil’s largest industrial conglomerate significantly reduce debt.

The São Paulo-based group, whose interests range from cement and metals and mining to steel and pulp, earned a net profit of 8 million reais ($3.6 million) in the first three months, compared with a profit of 199 million reais a year earlier, according to a statement on Tuesday. Despite the result, operational profit rose at each of the group’s five different business segment, the statement said.

Without the impact of the debt repurchase, net profit would have been 408 million reais, representing a jump of 105 percent on a year-on-year basis, the statement said.

Revenue rose 11 percent to 6.6 billion reais from 5.9 billion reais in the year-earlier period.

In March, Votorantim Industrial finished a tender for $586 million of its bonds due in 2019 and $294 million of notes issued by unit Cia Brasileira de Aluminio SA, lowering net debt to 22.2 billion reais, or the equivalent of 2.98 times earnings before interest, tax, depreciation and amortization. EBITDA, as the operational profit is commonly known, measures the ability of a firm to generate cash from its core business.

According to the statement, consolidated EBITDA at the conglomerate surged 41 percent to 1.5 billion reais at the end of March, in the wake of rising prices and sales volumes, a weaker Brazilian real that helped prop up dollar-denominated revenues and a curb in sales, general and administrative expenses. Votorantim Industrial, a privately held conglomerate, is controlled by the Ermirio de Moraes family.

“The results are a proof of our companies’ consistent operational performance,” Chief Executive Officer Jõao Miranda was quoted in the statement as saying. “We are in a permanent search for efficiency in our operations as well as for management improvements.”

In spite of the profit tumble, the results underscore the group’s efforts to adapt their business to challenging global and domestic conditions as the Ermirio de Moraes family enhances governance in the conglomerate. The group took advantage of faster cash generation and smaller-than-expected volatility in capital markets to repurchase expensive debt.

“We evaluated the timing for the debt repurchase plan and we concluded that it was the right timing, because we wanted to cut our foreign currency-denominated liabilities and we found a receptive market for funding in reais,” Sérgio Malacrida, head of treasury and investor relations, said in the statement. The conglomerate’s cash holdings ended up the quarter at 4.8 billion reais, which Malacrida called a “comfortable level.”

A year earlier, Votorantim Industrial’s net debt ratio had reached 3.60 times EBITDA. Capital spending in the quarter totaled 465 million in the quarter, with 20 percent of that amount funneled into projects to expand the businesses, especially the cement unit. ($1 = 2.20 Brazilian reais) (Reporting by Guillermo Parra-Bernal and Alberto Alerigi Jr; Editing by Chizu Nomiyama)

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