Empresas Copec Reports In-line First Quarter Results

Empresas Copec SA posted nearly in-line first quarter results on Tuesday during market hours. Q1 2015 EBITDA of $519 million remain higher than our original forecast (before Arauco results last week) of $498 million but lower than consensus estimates of $525 million. This compares with EBITDA of $439 million last quarter and $564 million in first quarter of 2014.

Net income was 29.6% up on 4Q14, due to a 49.2% increase in operating income, partly offset by lower non-operating income in the forestry business. EBITDA rose 18.1% on the previous quarter and consolidated revenue was US$4,694 million, a 18.7% decrease. Net income dropped 55.4% year-on-year (YoY), largely due to a US$222 million decrease in non-operating income, mainly on account of the profit generated from the sale of the interest in Guacolda the year before. Operating income also dropped US$ 60 million. EBITDA was 8.0% down YoY and amounted to US$ 519 million. Consolidated revenue fell 22.0% YoY to US$4,694 million, to a large extent explained by lower fuel prices.

The development highlights in the quarter was: the announcement of 2015 investment plan of Empresas Copec, and Terpel inaugurating a strategic gas station at El Dorado airport in Bogota.

1Q15 versus 4Q14. Net income in the quarter, net of minority participation, was 55.4% down on that in 1Q14 and amounted to US$ 161 million. That was mainly due to non-operating and operating income dropping US$ 222 million and US$ 60 million, respectively. The company’s gross margin fell 6.9% amounting to US$ 770 million, which mainly came from Arauco’s subsidiaries of US$ 415 million; with Copec accounting for US$ 288 million; Abastible for US$ 52 million; Sonacol for US$ 12 million; and Igemar for US$ 5 million. There was a decrease in operating income in the forestry and fuels businesses. The latter was due to lower margins. Although the fuels business had higher volumes in Chile, Colombia, Ecuador, and the Dominican Republic, the lower income was because of the negative effect of the revaluation of inventories that hit margins as a result of the recent downward trend of fuel prices. Such effect mainly hit Terpel’s margins in
the first quarter. There was also a higher exchange rate that affected the recognition of the sector’s income in US dollars.

Non-operating income fell, mainly on account of lower other revenue largely related to the profit generated from the sale of the interest in Guacolda in 1Q14, along with lower other revenue in the forestry sector. That was partly offset by lower other expenses.

1Q15 versus 4Q14. Net income in 1Q15 was 29.6% up on that in 4Q14, explained by higher operating income, partly offset by more unfavorable non-operating income. Operating income increased 49.2%. That was partly because of higher income at Arauco, mainly due to lower production costs for long-fiber and short-fiber wood pulp. Moreover, in the fuels business margins recovered
after the negative effect of the revaluation of inventories and the first in first out (FIFO) costing system in a scenario of falling fuel prices in the previous quarter. There were also higher sales volumes in Chile, the Dominican Republic and Panama, offset by lower volumes in Colombia and Ecuador. Non-operating income fell US$ 59 million, because of decreased other
revenue and mainly related to a lower revaluation of biological assets in the forestry business, lower income from associates and joint ventures, and more unfavorable exchange rate differences, partly offset by lower other expenses.


Yoon Chung, CFA (from Harvard University, Massachusetts), is research analyst and covers Basic Materials, Financial & REIT and Healthcare sectors. Prior joining Market Cash Cow, Yoon Chung worked with Wells Fargo. If you have a great story idea for Yoon Chung, you can write at [yoon.chung@marketcashcow.com ].


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