Jul 24, 2009. /Lesprom Network/. The most recent data on global economic activity still shows fallout from the financial crisis, but indicates a slowing down of the GDP decline in a number of regions. In this context, the market pulp segment saw a 6.6% reduction in demand during the period January to May 2009, when compared to the same period of 2008, Aracruz reports. Nevertheless, producers’ inventories continued to fall, reaching 34 days of supply at the end of May, similar to the same period of 2008, mainly due to a 66% increase in purchases by China and the discipline of the producers in controlling supplies. As a result, pulp prices have reversed their downward trend, showing a recovery in all regions during the second quarter of 2009. The consolidated pulp production of Aracruz reached 780,000 tons, 8% higher than the 1Q09 figure, due to the downtime at the Barra do Riacho unit during the first quarter, and was in line with that of the 2Q08. Pulp sales came to a total of 832,000 tons, a record for a second quarter and respectively 2% and 8% more than in the 1Q09 and the 2Q08, mainly due to the large volume shipped to China, which maintained the sales to the Asian market around 45% (2Q09: 44%; 1Q09: 45%; 2Q08: 23%). As a result, the inventory level at the end of May was at 42 days of production, 7 days lower than the level at end of March 2009. The pulp cash production cost was R$ 423/ton, 9% under the 1Q09 cost, of R$ 464/ton, mainly due to the lower cost of raw materials and the greater dilution of fixed costs. The figure was down by 10% in comparison with that of the 2Q08, due to the cost reduction program announced by the company during the 3Q08, and to the lower cost of raw materials, particularly chemicals and wood. The adjusted EBITDA came to R$ 206 million, which was respectively 17% and 42% down in relation to the figures for the 1Q09 and 2Q08, and the EBITDA margin was 26% (1Q09: 29% and 2Q08: 40%). In the comparison with the 1Q09, the reduction was largely due to the R$ 104/ton lower average pulp price, despite the lower pulp cash production cost in the cost of goods sold (-R$19/ton), as well as lower logistics expenses. Compared to the 2Q08, the impact of the R$ 211/ton lower average pulp prices was the main reason behind the reduced margin. The net financial result, including monetary and exchange variations, was a net income of R$ 895 million, against a net expense of R$50 million in the 1Q09, mainly due to the 16% appreciation of the local currency (real – R$) against the US dollar during the 2Q09, since 69% of Aracruz’s debt is denominated in foreign currency. As a result of the abovementioned factors, the net income for the quarter came to R$ 595 million, equivalent to R$ 0.58/share, positively affected by the currency impact on the financial results, and the operating income for the period. The company had a cash position of R$ 614 million, as at June 30, 2009, 70% of it in local currency. The total debt, including 50% of Veracel, amounted to R$ 8,158 million, with an average repayment period of 52 months. As part of the effort to fine-tune the company's internal controls and governance, the Board of Directors approved a new financial policy that consolidates the Market Risk Management and Cash Management policies. On July 1st, a change of control mandatory tender offer auction was carried out by Votorantim Celulose e Papel S.A. (VCP), aimed at acquiring all the common stock issued by Aracruz that is still in circulation in the Bovespa (São Paulo Stock Exchange) market, at a price equivalent to 80% of the amount paid to the company’s former controlling shareholders, or R$ 17.0031 per common share (ARCZ3). Through this tender offer, VCP was able to acquire 89% of the common share free float. With regard to VCP’s future absorption of the shares issued by Aracruz, the board members of the two companies agreed, at a joint meeting, to adopt an exchange ratio within the range accepted by their respectice Independent Special Committees (in accordance with CVM Guidance no 35/08), as close as possible to the maximum suggested by the Aracruz Committee (0.1342 to 0.1473) while respecting the limit imposed by the VCP Committee (0.0924 to 0.1347). Hence, the board members decided, on June 1st, to adopt the exchange ratio originally proposed, of 0.1347, for shares of the same type, on the understanding that this ratio meets the recommendations of both committees. In the event that the conversion of Aracruz’s preferred stock into common shares has not taken place at the time of the stock swap merge, and given that all the Aracruz shareholders are to receive VCP common stock anyway, the exchange ratio approved by the committees should be adjusted, so as to also reflect the ratio of 0.91 of a common share for one preferred share, that has already been announced.