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Facing an Adverse Environment, VCP Increases Net Income in the Second Quarter 2005

Posted on: Monday, 18 July 2005, 09:08 CDT

SAO PAULO, Brazil, July 18 /PRNewswire-FirstCall/ -- Votorantim Celulose e Papel S.A. - VCP (Bovespa: VCPA4), one of the largest pulp & paper producers in Latin America, announced today its earning results for the second quarter 2005 (2Q05). The operational and financial information herein, unless otherwise indicated, is presented on a consolidated basis and in U.S. dollars in accordance with U.S. GAAP. However, this report does not include the proportional consolidation of Aracruz Celulose S.A. (12.4%) and Ripasa S.A. Celulose e Papel (23.0%), whose results were accounted for using equity income. All comparisons provided in this release refer to the second quarter of 2004 (2Q04), unless otherwise specified.

Key Financial Indicators (in US$ million) 2Q05 2Q04 2Q05/2Q04 Net Sales Revenue 273 248 10% Domestic Sales 131 122 7% Exports 142 126 13% Operating Profit(1) 72 87 (17%) Net Income 92 85 8% Earnings per Preferred ADR 0.50 0.47 6% Earnings per Common ADR 0.45 0.42 7% EBITDA 98 107 (8%) (1) Operating Profit, excluding financial results and equity income

Comments from Mr. Valdir Roque, VCP's Finance and Investor Relations Officer

"During the second quarter of 2005, the global pulp market remained at balance. The seasonal demand reduction, linked to the beginning of Summer in the Northern Hemisphere, was compensated by the industry strike in Finland and the temporary halt of operations at a Chilean plant due to environmental problems. These events allowed for the increase in price adopted in April to be maintained for the period. Domestically, we are facing an adverse macroeconomic environment of inhibited growth, characterized by high interest rates and a falling exchange rate. On the other hand, the decrease in inflationary pressures suggests a possible economic rebound for the second half, which could allow for a faster growth in the domestic paper market for that period, supplementing the seasonality effect.

To face this challenging environment, VCP sought to increase its operational efficiency by leveraging scale gains and decreasing both its fixed and variable costs. Despite suppressed demand, when compared to 1Q05, VCP increased its total sales volume for both pulp and paper by 3%, primarily in function of greater exports. VCP succeeded in increasing cash generation (EBITDA) from US$ 96 million to US$ 98 million, despite the decrease in the average exchange rate (-7%) that hurt the Company's export sales margin and caused EBITDA margin to fall from 38% to 36%. Additionally, adequate financial resource management enabled VCP to register a record Net Income of US$ 92 million, 51% above the US$ 61 million reported for 1Q05.

For the first six months of 2005, VCP recorded Net Operating Revenue of US$ 524 million, 6% above that registered for 1H04. This increase was due to higher average prices in U.S. dollars, and would be higher were it not affected by an increased PIS/COFINS tax rate applied to domestic sales. EBITDA for the period reached US$ 194 million and would be higher than the same period for 2004 were it not pressured by an unfavorable exchange rate." commented Valdir Roque, VCP's Finance and Investor Relations Officer.

Full release can be accessed on: http://www.mz-ir.com/admin/arquivos/145_1.pdf . CONFERENCE CALL:

VCP will host a conference call on Tuesday, July 19, 2005, at 10:00 am (U.S. EDT): +1 (412) 858-4600, Password: 688

Votorantim Celulose e Papel S.A.

CONTACT: Investor Relations, Valdir Roque, Finance and InvestorRelations Officer, or Alfredo F. Villares, Investor Relations Manager, orAndrea Kannebley or Natasha Nakagawa, +011-5511-3269-4168, or+011-5511-3269-4261, or fax, +011-5511-3269-4066, or ir@vcp.com.br

Web site: http://www.mz-ir.com/admin/arquivos/145_1.pdfhttp://www.vcp.com.br/

Source: PRNewswire-FirstCall

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