1. QUARTERLY MARKET BULLETIN / 3RD QUARTER 2008.
Rio de Janeiro, November 14, 2008 - Brasil Ecodiesel Indústria e Comércio de Biocombustíveis e Óleos
Vegetais S.A. (“Brasil Ecodiesel” or the “Company”) and (Bovespa: ECOD3), pioneer in the biodiesel
production in Brazil, hereby announces its 3Q08 results and informs its shareholders on the Company’s
performance. The Company’s financial statements herein are presented, in accordance with the Brazilian
Corporation Law, on a consolidated basis and in accordance with Brazilian accounting practices.
CONTACTS CONFERENCE CALL
English
José Carlos Aguilera
Monday, November 17, 2008
CEO and INVESTOR RELATIONS
OFFICER 1:00 p.m. (Brazil) / 10:00 a.m. (EDT-NY)
Eduardo de Come Phone: +1 (412) 858-4600
CHIEF FINANCIAL OFFICER
Code: Brasil Ecodiesel
Marcos Leite
Replay: +1 (412) 317- 0088
IR MANAGER
Código: 424840#1
Portuguese
www.brasilecodiesel.com.br/ir
Monday, November 17, 2008
E-mail: ri@brasilecodiesel.com.br 11:00 a.m. (Brazil) / 08:00 a.m. (EDT-NY)
Phone: +55 11 2188-0188.
Phone: +55 (21) 2546-5031
Replay: +55 11 2188-0188.
Code: Brasil Ecodiesel
HIGHLIGHTS: Continuation of the Company’s restructuring
Restructuring of 82.65% of bank debt, obtaining 48 months for settlement, with a 12-month
grace period and 36 months of amortization.
3
Sales of 29,072 m in 3Q08, 53.7% more than the previous quarter, but still below
3
expectations due to the prevailing financial restrictions, with 14,221 m (49%) in September
alone, following completion of the working capital financing operation.
Reduction of 34.4% in G&A Expenses.
Beginning of direct sales to distributors, representing the opening of a new biodiesel
sales channel.
Revocation of the ratification of the 4Q08 auction for most of the Company’s lots and
granting of an injunction suspending the ANP’s decision, enabling the continuity of deliveries
under current contracts.
Net Revenue of R$89.3 million, Gross Profit of R$1.4 million and Adjusted EBITDA of R$7.8
million negative in 3Q08.
2. Management Comments
The last few months have been particularly challenging for the economy and for companies the
world over. The capital market crisis reached hitherto unimaginable proportions and has required
massive government and corporate efforts to minimize the impact of the financial system losses
and the scarcity of funding in the real economy.
Amid this highly complex situation, as disclosed in our last Quarterly Market Bulletin, the Company
is undergoing an operational restructuring and reorganization process in order to overcome the
difficulties faced throughout last year. After recording successive losses in its sales, which had a
significant impact on the Company’s financial structure, Brasil Ecodiesel reached a point of such
financial restriction and lack of working capital that it was prevented from maintaining production
levels and filling the orders won in the auctions.
On August 14, 2008, despite the severe capital market crisis, we announced the successful
completion of negotiations with our creditor banks, which allowed the Company to extend its debt
and obtain additional funding to ensure sufficient working capital to continue its operations. We
consider the conclusion of this restructuring to be the crucial first step in the continued
reorganization of our operations, aiming at recouping profitability. Following a reduced production in
July and early August, our plants began operating with improved capacity use as of August 15,
when funds to purchase inputs were raised. As a result, September’s biodiesel deliveries climbed to
14,221 m3 from 14,851 m3 in July and August, giving total sales of 29,072 m3 for the quarter.
This upturn in production following the improvement in the financial situation highlights the
Company’s effective production capacity, which has been substantially underutilized due to the lack
of working capital for large-scale operations. Therefore, as soon as the Company normalizes its
capacity to finance operations, whether through an improvement in the credit scenario or some
other means of capitalization, it will be operating at the limit of its installed capacity. Brasil Ecodiesel
currently has Brazil’s highest biodiesel capacity and plans to maintain the leading position it has
held since the founding of the industry, when it demonstrated a pioneering and innovative spirit.
In addition, after the ANP ruling that distributors can acquire biodiesel directly from the producers
provided volumes exceed the amounts contracted in the auctions, the Company initiated direct
sales to the fuel distributors. Although such sales represent only a small percentage of the domestic
biodiesel market, they are enormously significant since they indicate the freeing up of the market,
i.e. that the auction system will gradually be replaced by direct negotiations.
After the financial restructuring the Company moved ahead with its operational and administrative
reorganization, beginning with operational restructuring, aiming to identify opportunities of
improving processes, thereby reducing costs. As a result, we were able to cut G&A expenses by a
substantial 34.4% last quarter, thanks to the reduction in personnel expenses, especially at the
corporate level, and the optimization of administrative expenses, overhead, and third-party
services.
3. The Company is currently studying alternatives for its agricultural development strategy, which was
negatively impacted by inclement weather, poor mamona yield and tighter credit in 2008, forcing us
to reduce the pace of our raw material diversification strategy.
In 4Q08, the Company has contracts to supply up to 70,000 m3 of biodiesel, at adequate prices
given the cost structure and the recent decline in vegetable oil prices. However, on September 22,
just one week before supply was due to begin, we were surprised by the ANP’s decision to cancel
the result of the auctions for a portion of the biodiesel volume won by Brasil Ecodiesel. Considering
that this decision was taken without any notice and without our being given the right of defense, we
filed for a preliminary injunction to suspend the regulatory agency’s decision. However, we were
only granted the injunction reversing the decision and granting us the opportunity to fulfill the
contracts on October 1, when deliveries should have already begun. As a result, the first weeks of
deliveries were jeopardized by bureaucratic process.
In 4Q08, vegetable oil prices are continuing to move down and are currently at mid-2006 levels.
Soybean oil prices, which stood at 70.4 cents/lb in early March 2008, are currently around
33 cents/lb on the Chicago Exchange. However, the price of oil sold on the domestic market is
linked to the CBOT price and therefore to the U.S. dollar, so this reduction has been partially offset
by the dollar appreciation. Independently of this, the crisis has thrown up strong indications that the
greater part of the previous rise in vegetable oil prices was speculative in nature, with no relation to
real supply and demand, debunking the view of critics who claimed that biofuels were causing an
increase in food prices.
In addition, the Company believes that the best way to develop an industry is to allow its players to
freely seek the best way of creating efficiency and generating returns for shareholders. We also
believe that this should take place in an environment regulated by specific rules and legislation, but
which guarantees free competition. It is our firm contention that a free market, i.e. with direct sales
between biodiesel distributors and producers, would be healthier for the industry and for the
Company, as opposed to an auction system in which any competitive advantage in terms of
logistics, scale, services, or any other area for that matter, is simply eliminated. The freeing up of
the market, plus the potential introduction of superior biodiesel blends as soon as 2009, as recently
signaled by members of the government, will provide the sector with additional momentum.
Brasil Ecodiesel hopes to recoup its results in the coming periods and continue developing its raw
material diversification strategy, thereby reducing exposure to the commodity market. We remain
focused on the same objective since the beginning of our operations, which is to establish
ourselves as an important player in the Brazilian biodiesel market, through a growth strategy based
on the diversification of raw material sources, taking advantage of expansion opportunities in the
domestic market and gaining a relevant share of the international market. And we will continue to
maintain this focus, even if we are forced to change some of our operational tactics in light of the
current market conditions, which are very different from those prevailing when we developed our
initial strategic plan.
4. Comments on the Consolidated Performance
Sales totaled 29,072 m3 in 3Q08, 53.7% up on the previous quarter. Despite the difficulties in July
and August, we substantially increased the volume of deliveries at higher prices, generating a
99.3% increase in B100 revenue over 2Q08.
Porto Rosário do
Biodiesel Floriano Crateús Iraquara Itaquí Total
Nacional Sul
3Q07 9,055.80 10,349.50 19,300.10 7,069.30 3,746.90 3,787.20 53,309.10
Sales of B100
2Q08 1,084.41 299.36 5,842.40 470.21 6,945.50 4,276.45 18,918.32
(m3)
3Q08 3,594.90 3,515.95 5,298.31 0.00 8,719.07 7,943.87 29,072.10
3Q07 17,665.54 20,578.90 38,024.23 13,921.91 7,366.14 7,445.67 105,002.40
Revenues of
B100 2Q08 3,289.24 1,105.59 15,714.05 982.08 14,583.47 12,111.03 47,785.46
(R$ths)
3Q08 13,376.79 13,004.20 16,548.73 0.00 27,433.64 24,850.08 95,213.42
As a result, 3Q08 net revenue totaled R$89.3 million and gross profit stood at R$1.4 million, most of
which from operations in September, showing that the new operating conditions enable the
Company to generate positive results – results that would be even better if billed volume was more
in line with that obtained at the auctions.
1Q08 2Q08 3Q08 Total
Net Revenue 167,264 45,790 89,262 302,316
COGS (180,313) (58,992) (87,856) (327,161)
Gross Profit (13,049) (13,202) 1,406 (24,845)
Net Loss (14,934) (82,536) (28,901) (126,371)
Our net result was chiefly impacted by the financial result, due to the Company's debt level, in
addition to lower-than-expected sales volume, which was insufficient to cover operating expenses
despite the positive contribution margin. In order to give a more accurate view of the specific period
result, the following table shows our Adjusted EBITDA.
1Q08 2Q08 3Q08 Total
Net Loss (14,934) (82,536) (28,901) (126,371)
Depreciation and Amortization 4,649 4,490 4,699 13,838
Financial Result 9,922 12,831 16,347 39,099
Provision 35,778 - 35,778
Adjusted EBITDA (363) (29,438) (7,855) (37,656)
*EBITDA in 2Q08 adjusted for the Petrobras fine provisions and
market value of inventories, which do not generate a cash effect.
5. Gross Revenue
Gross revenue totaled R$104.3 million, 91.3% of which (R$95.2 million) from the sale of
29,072 m3 of biodiesel. In addition, given market conditions, and aiming to give liquidity to its high
level of inventories and strengthen its cash position, the Company sold a portion of its castor stocks,
generating revenue of R$7.0 million (6.7% of the total). The remainder of our gross revenue came
from the sale of byproducts, especially glycerin and fatty acids.
Gross Revenue (R$ ‘000)
250.000
200.000
150.000
Glycerin and By-products
Castor
100.000
Biodiesel B100
50.000
-
1Q08 2Q08 3Q08
Deductions
Deductions totaled R$15.0 million, or 14.4% of gross revenue, R$7.3 million of which in
ICMS tax, R$5.8 million in Cofins tax and R$1.3 million in PIS tax. In fact, deductions would have
been even higher, but for the use of R$4.4 million in ICMS tax credits.
In addition, since July 1, 2008, payments by Petrobras have no longer been subject to a
withholding rate of 5.85% related to PIS, COFINS and income and social contribution taxes.
Although this change has no effect on the Company’s result, it has a significant impact on its cash
position.
Net Revenue
Net revenue totaled R$89.3 million, 94.9% up on the previous quarter, thanks to the upturn in
sales volume and prices.
Cost of Goods Sold
COGS totaled R$87.9 million. Vegetable oil is still the main production cost item and,
together with methanol, accounts for 94% of the cost of biodiesel sold.
6. COGS of B100
2.3%
1.7% 2%
Vegetable Oil
11.6%
Methanol +
Chemicals
Labor
General Costs
82.4%
Depreciation
As a percentage of net revenue, COGS fell from 128.8% in 2Q08 to 98.4% in 3Q08,
generating gross profit of R$1.4 million.
Operating Expenses
General and Administrative Expenses
These comprise general administration expenses, including employee salaries and benefits,
expenses from outsourced services, travel, telecommunications, leases, provisions for
contingencies, and other items. In 3Q08, as part of the Company's reorganization initiatives and cost
control, G&A expenses fell substantially, thanks to the reduction in personnel expenses and efforts
to cut administrative expenses. The latter were chiefly impacted by the lower amount spent on
travel, outsourced services and telecommunications and by the reduction in provisions for labor
contingencies, given that many claims were settled in the Company’s favor. All in all, G&A expenses
totaled R$9.0 million, 34.4% down on in the previous quarter.
General and Administrative Expenses (R$ ‘000)
16.000
14.000
12.000
10.000
8,712
8.000 5,884
4,726
6.000
4.000
2.000 4,625 5,003 4,277
-
1Q08 2Q08 3Q08
Personnel Expenses Administrative Expenses
7. Tax expenses
Tax expenses came to R$0.6 million, most of which from IOF (financial operations tax),
41.7% down on the 2Q08.
Other operational revenue
Other operational revenue totaled R$0.7 million in the 3Q08. This refers to the contract
assigning the right to use our industrial capacity, which is booked under non-current liabilities to be
written down proportionately during the contract’s 15-year validity period.
Financial Result
The Company posted a net financial expense of R$16.3 million, mainly due to the payment of
charges on loans, especially short-term loans to finance working capital. Financial expenses totaled
R$16.8 million and financial revenue came to R$0.5 million. The impact of the exchange variation on
a financing contract in U.S. dollars accounted for R$2.9 million of our financial expense.
The Company did not possess derivatives during the period nor does it make use of financial
instruments for speculative purposes.
Non-operating Result
This line recorded an expense of R$5.0 million, reflecting the cost of idle capacity in our
industrial plants, which were operating at well below normal capacity, and whose fixed costs in
proportion to idle capacity were recognized as non-operating expenses.
Results
The Company reported a 3Q08 net loss of R$28.9 million, mostly due to the high period
financial expenses and the low contribution margin from operations, which was positive but still
below the expected scale.
Debt
The Company closed the 2Q08 with net debt of R$267.6 million, mainly short-term and
contracted to finance working capital. Short-term debt pressure led the Company to negotiate a debt
restructuring agreement with creditor banks in order to extend maturities. With the financial
restructuring completed on August 14 and already considering the inflow of new funds obtained in
the negotiation, net debt on September 30 stood at R$281.1 million, but with a long-term profile, with
the majority maturing as of September 2009, i.e. a 12-month grace period and 36 months of
amortization.
Debt (R$ ‘000) 2Q08 3Q08
Short term 243,137 95,351
(+) Long term 29,119 193,788
(=) Total debt 272,256 289,139
(-) Cash and cash equivalents 4,622 8,021
(=) Net debt 267,634 281,118
9. Attachment I – Income Statements
Statements of Operations
(In thousand Brazilian reais R$) 3Q07 2Q08 3Q08 9M07 9M08
Gross Sales 129.050 53.318 104.272 258.682 362.069
Taxes and returns (29.356) (7.528) (15.010) (57.325) (59.753)
Net Sales 99.964 45.790 89.262 201.357 302.316
Cost of Goods Sales (99.300) (58.992) (87.856) (200.951) (327.161)
Gross Profit 394 (13.202) 1.406 406 (24.845)
Operating Expenses
General and Administrative (10.931) (13.715) (9.004) (27.298) (33.228)
Taxes (2.267) (1.091) (637) (3.604) (3.305)
Other Operational 16.164 (35.371) 683 16.159 (14.655)
2.966 (50.177) (8.958) (14.743) (51.188)
Loss/Profit from Operations before financial results 3.360 (63.379) (7.552) (14.337) (76.033)
Financial Results
Financial Revenue 2.018 448 525 7.692 1.350
Financial Expenses (4.336) (13.279) (16.872) (6.864) (40.449)
(2.318) (12.831) (16.347) 828 (39.099)
Loss/Profit from operations 1.042 (76.210) (23.899) (13.509) (115.132)
Non-operating income, net 51 (6.327) (5.003) 203 (11.241)
Loss before income and social contribution taxes 1.093 (82.537) (28.902) (13.306) (126.373)
INCOME AND SOCIAL CONTRIBUTION TAXES 1 - - (3) -
Loss Before Minority Interest 1.092 (82.537) (28.902) (13.309) (126.373)
Minority Interest - 1 1 - 2
Loss for the year 1.092 (82.536) (28.901) (13.309) (126.371)
10. Attachment II – Balance Sheet
BALANCE SHEETS OF 09/30/08 AND 06/30/08
CONSOLIDATED
In thousands of Brazilian reais
Assets 09/30/08 06/30/08 LIABILITIES AND SHAREHOLDERS EQUITY 09/30/08 06/30/08
CURRENT ASSETS CURRENT LIABILITIES
Cash and Cash Equivalents 8.020 4.622 Loans and financing 74.878 225.619
Temporary cash investments 1 300 Local suppliers 15.614 15.352
Trade accounts receivables 62.622 31.219 Mutual Agreement with shareholder 20.473 17.518
Inventories 123.080 152.039 Advances of customers 15.054 14.475
Advances to suppliers 8.300 7.257 Accrued payroll, vacation and related taxes 8.174 6.666
Recoverable Taxes 11.250 15.383 Taxes payable 5.539 6.698
Other receivables 411 504 Assignment of Use Rights 2.728 2.728
Prepaid expenses 384 606 Other payables 323 18
Total Current Assests 214.068 211.930 Total current liabilities 142.783 289.074
NON-CURRENT ASSETS NON-CURRENT LIABILITIES
Long-term assets Long-term liabilities:
Long-term cash investments 2 9.969 Loans and Financing 193.788 29.119
Recoverable taxes 22.206 22.329 Tax incentives 3.524 -
Judicial deposits 184 490 Contingency provision 1.354 2.246
Secure deposits 97 97 Assignment of use rights 35.919 36.601
Other receivables 180 180 Total non-current liabilities 234.585 67.966
Investiments:
Property, plant and equipment 252.349 253.605 MINORITY INTEREST 8 10
Intangible assets 1.272 1.273
Defferred charges 70.405 69.465 SHAREHOLDERS’ EQUITY
Total non-current assets 346.695 357.408 Capital 388.957 388.957
Capital reserve 15 15
Accumulated deficit (205.585) (176.684)
Total shareholders’ equity 183.387 212.288
TOTAL LIABILITIES AND SHAREHOLDERS
TOTAL ASSETS 560.763 569.338 EQUITY 560.763 569.338
11. INVESTOR RELATIONS CONTACTS
CEO and IRO: José Carlos Aguilera
IR Manager: Marcos Leite
E-mail: ri@brasilecodiesel.com.br
Site: www.brasilecodiesel.com.br/ir
Phone: (00XX21) 2546-5031
About Brasil Ecodiesel: Brasil Ecodiesel was founded in 2003, and its stock is listed on the Novo
Mercado trading segment of the São Paulo Stock Exchange (Bovespa). It is the pioneer in the
production of biodiesel in Brazil, having produced 52.6% of the total volume in 2007. It operates with
an innovative business model for the sourcing of raw materials, seeking to guarantee supplies at
competitive and stable prices, and to diversify raw material sources by establishing new agricultural
production chains in Brazil.
It is investing in Brazil's favorable natural conditions in order to become an important global producer
of a renewable fuel which substantially reduces emissions of pollutant gases. Brasil Ecodiesel
currently maintains six operational units with an installed annual biodiesel production capacity of
3
640,000 m .
This release contains forward-looking statements subject to risks and uncertainties. Such forward-looking statements are based
on the management’s beliefs and assumptions and information currently available to the Company. Forward-looking statements
include information on our intentions, beliefs or current expectations, as well as on those of the Company’s Board of Directors and
Board of Executive Officers. The reservations as to forward-looking statements and information also include information on
possible or presumed operating results, as well as any statements preceded, followed or including words such as “believe”, “may”,
“will”, “continue”, “expect”, “intend”, “plan”, “estimate” or similar expressions. Forward-looking statements are not guarantees of
performance; they involve risks, uncertainties and assumptions because they refer to future events and, therefore, depend on
circumstances that may or may not occur. Future results and value to shareholders may differ materially from those expressed or
suggested by said forward-looking statements. Many of the factors which will determine these results and figures are beyond
Brasil Ecodiesel’s ability to control or predict.
