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Hello, everyone. Welcome to the Empresas CMPC First Quarter Earnings 2021 Results Conference Call. On the call with us today are Ignacio Goldsack, Chief Financial Officer; and Colomba Henríquez, Head of Investor Relations. [Operator Instructions] Please note, this event is being recorded.
Please note that statements made today during the presentation and Q&A may include forward-looking statements to assist you in understanding our expectations for future performance. These statements are subject to some risks that could cause actual results and events to differ materially, and I'll refer you to the company's press release and regulatory filings for a discussion of those risks. In addition, statements during the call, including statements related to conditions in the global pulp, personal care, forestry products and paper and packaging markets, are based on management's views as of today, and it is to be expected that future developments may cause these views to change. Please consider the information presented in this slide. The company may, at some point, elect to update the forward-looking statements made today, but specifically disclaims any obligation to do so, except where required by law.
And now I'll turn the floor over to Mr. Ignacio Goldsack, Chief Financial Officer. Please, Mr. Goldsack. You may proceed.
Thank you, and welcome, everyone, to our first quarter 2021 results conference call.
Starting on Slide #3 of the presentation. Results for the quarter are starting to reflect the better conditions we are seeing in the pulp market globally. We were able to capitalize the increase on pulp prices, which is shown in our results for the pulp business. Additionally, Softys and Biopackaging also posted good results compared to last quarter, showing a good cost performance. As our EBITDA increase, we were able to continue delivering moving towards the lower part of our internal policy range, reinforcing our solid financial position.
Now turning to Slide #4. As I mentioned earlier, the pulp market improved during the first quarter, resulting on a 15% increase for hardwood and an 18% increase for softwood compared to the previous quarter. This effect more than offset the lower sales volumes we posted, generating a 38% increase in EBITDA on a quarter-on-quarter basis and more than doubling the EBITDA for the first quarter of last year. Biopackaging and Softys also posted improvements on their EBITDA levels as a result of higher average prices and lower operational costs.
On a consolidated basis, the company's first quarter EBITDA reached $349 million, increasing 36% compared to the previous quarter and 58% compared to the same quarter of last year. Net income was $73 million, decreasing from $85 million we posted last quarter, mainly as a result of a negative effect in income taxes.
I would like now to turn the call over to Colomba Henríquez, our Head of Investor Relations, who will provide more details on our results. Colomba, please go ahead.
Thank you, Ignacio, and good morning, everyone. Please turn to Slide 5 of the presentation, where there is more information on consolidated operating costs and other operating expenses for the first quarter of 2021.
Cost of goods sold reached $888 million, a 7% decrease compared to the previous quarter and a 5% decrease compared to the same period of last year. Consolidated operating costs represented 62% of total revenues compared to 68% in 4Q '20 and 69% in 1Q '20. The sequential decrease was primarily due to lower sale volumes in pulp and lower operating cost in Softys. The year-over-year result is primarily due to lower sale volumes in Softys and lower operating cost in pulp, partly offset by higher cost in Biopackaging as a result of the increase in sales volume and higher direct cost in Softys as a result of higher fiber and personal care products inputs.
Consolidated other operating expenses reached $191 million (sic) [ $192 million ] for the quarter, down 1% quarter-over-quarter and up 1% year-over-year, representing 13% of total revenue compared to 14% in 4Q '20 and 1Q '20. This quarter-over-quarter result is explained by lower COVID-19 expenses, partly offset by higher expenses in pulp and Softys, driven by the appreciation of the Chilean peso. While the year-over-year increase is related to higher COVID-19 expenses as well as higher administrative expenses in pulp.
Please move to Slide 6, where we can see more details on our pulp business results. Pulp production reached 1,044,000 tons, decreasing 2% quarter-over-quarter and increasing 11% year-over-year. Quarter-over-quarter, pulp production was lower in the Santa Fe mill, offsetting the increase of Laja mill. Year-over-year, we saw better results in Santa Fe, Guaíba and Pacifico.
Pulp prices during the first quarter of 2021 reached $698 per ton for softwood and $536 per ton for hardwood, an 18% and a 15% increase, respectively, compared to the previous quarter. Year-over-year, prices also increased for both grades, with a 25% increase in softwood and a 16% increase in hardwood. Total market pulp sale volumes decreased by 7% quarter-over-quarter and increased 2% year-over-year.
Looking at our quarter-over-quarter performance, we saw a 2% increase in softwood sales with higher sales to Asia, excluding China, Europe and Latin America and a 9% decrease in hardwood sales due to lower shipments to China. For the year-over-year comparison, sales volumes decreased 5% for softwood as a result of lower exports to Asia and the U.S. and increased 4% for hardwood, with higher exports to Latin America, the U.S. and Europe.
Revenues for the pulp business totaled $456 million, increasing 9% quarter-over-quarter and 21% year-over-year. Third-party forestry sales volumes decreased by 20% quarter-over-quarter due to lower volumes in most product categories. We saw a decrease in sawlogs in Chile and lower exports of sawn timber, millwork and plywood. Year-over-year, the forestry sales volumes to third parties increased by 15%, driven by an increase in sawlogs in Argentina. Forestry revenues totaled $117 million, showing a 13% sequential decrease quarter-over-quarter, driven by the previously mentioned increase in sales volume and a 2% [ IL ] decrease, driven by lower average prices, mainly as a result of a change in the product mix. Revenues for our Pulp & Forestry business increased by 4% sequentially and 16% compared to 1Q '20.
And EBITDA increased 38% sequentially and 114% compared to 1Q '20. EBITDA margin reached 37.8%. The quarter-over-quarter increase was primarily due to higher prices for hardwood and softwood pulp, which was partly offset by higher forest protection costs and the negative effect of Chilean peso appreciation. In the year-on-year comparison, the increase also comes from higher pulp prices as well as higher sale volume. On the other side, we had higher expenses related to COVID-19 and the appreciation of the Chilean peso.
Now let's move to Slide 7, where we will take a closer look at the Softys business. Softys revenue decreased by 3% quarter-over-quarter and 7% year-over-year, reaching $509 million. Tissue paper sale volumes increased 1% compared to the previous quarter and decreased 7% compared to 1Q '20. Quarter-over-quarter, we registered higher sale volumes in Chile and Peru, compensated by decreases in Brazil, Argentina and Uruguay. Year-over-year, the result is related to the high comparison base of 1Q '20, where we registered a significant increase in sale volumes in most countries ahead of the initial quarantine due to COVID-19.
Personal care product sale volumes increased by 7% and 8% compared to 4Q '20 and 1Q '20, respectively. The quarter-over-quarter increase was driven by higher wet wipes volumes in Mexico, Chile, Peru and Uruguay. In the year-over-year comparison, we benefited from higher diaper sale volumes in Brazil and Argentina as well as higher wet wipes sales in Chile and Peru. Average sale prices measured in U.S. dollars decreased 4% for tissue paper and 9% for personal care products compared to 4Q '20. The decrease in prices is related to the depreciation of local currencies and a change in the product mix.
Softys EBITDA reached $61 million during the quarter, increasing from $55 million in 4Q '20 and decreasing from $86 million in 1Q '20. EBITDA margin reached 11.9%. The quarter-on-quarter increase relates to lower operating costs due to the effect of hyperinflation in Argentina, partly offset by lower sales and higher administrative expenses. The year-over-year decrease is driven by lower average prices of personal care as well as lower tissue pay per sale volume. There were also higher costs related to fibers and raw materials of personal care products, in addition to higher COVID-19 expenses.
Now let's move to Slide 8 to see further details on the Biopackaging results. Sales volumes to third parties decreased by 1% quarter-over-quarter as a result of lower sale volumes of corrugated paper, driven by higher intercompany sales and lower exports of boxboard. Year-over-year, volumes increased 3%, explained by a significant increase in paper sack sales in Peru and Argentina. Average sale prices increased by 12% sequentially and 14% annually. As a result, revenues increased by 4% quarter-over-quarter and 10% year-over-year, reaching $246 million. The packaging business EBITDA reached $40 million, increasing 35% compared to 4Q '20 and 59% compared to 1Q '20. EBITDA margin reached 16.3%. The sequential result is mainly driven by the higher prices in most product categories. The annual increase is mainly from higher sales volume, especially from paper sack as well as higher average prices. This was offset by higher COVID-19 expenses. I will now turn the call over to Ignacio, who will go through our financial position. Thank you all.
Thank you, Colomba. Please turn to Slide #9. Free cash flow was positive $30 million during the first quarter of the year. This is the result of the positive EBITDA figure compensated by the negative working capital variation. Our gross debt decreased 1% quarter-on-quarter and 14% year-over-year to approximately a $3.9 billion. And our cash position continues to be solid at $863 million at the end of the quarter. This way, our net debt was stable compared to the previous quarter and decreased 8% compared to the same quarter last year. Our net debt-to-EBITDA ratio stood at 2.76x, decreasing from 3.13x in the fourth quarter of the last year.
Now on Slide #10. The improvement in the pulp market was the most important factor behind the increase in the results during the quarter. Looking forward, we expect to continue taking advantage of this positive pulp market conditions. We will continue working on efficiency and productivity initiatives we have been implementing over the years in all of our business divisions and analyzing growth opportunities that could come in line with our long-term strategy.
I would like to mention now that Mr. Francisco Ruiz-Tagle, CMPC CEO; and Mr. Raimundo Varela, our Pulp CEO; and Mr. Felipe Arancibia, Softys CFO, are also joining the conference call. We are available to answer any questions you may have. Operator, please open the floor for questions.
[Operator Instructions] And at this time, we will take our first question from George Staphos from Bank of America Securities.
A 2-part question, if you will, on the outlook. First of all, can you talk to the degree to which you think you can maintain market share and increase pricing so that your Softys' results can overcome what's obviously been tougher comparisons because last year, and inflation in fiber? And second part on the outlook question, can you comment as to the potential for further pricing what you think the positives and negatives are in terms of the outlook on pulp?
Thanks, George, for your question. This is Felipe Arancibia speaking. Related to, as you have mentioned, let me answer that with volume first and then we're going to move on from price. So volume, you have seen a higher volume quarter-over-quarter, especially related to consumer tissue, not just we have demand, but also better performance, partially compensated by away-from-home due to the lockdown, especially in Chile and in Brazil. Having said that, year-over-year, as you mentioned, decreased 7%, mainly due to the tough comparison due to lockdowns started in Q1 2020. In addition, away-from-home business, which has had the biggest negative impact by lockdowns during this period. We had an effect of supply chain disrupting in the first quarter that impacted also our sales in several of our markets. Having said that, looking ahead, we are hoping to recover some of it but there was a pretty big impact in Q1 that we think will stick for the rest of the year. So overall, in terms of volume, we have seen -- we are going to see some increase our volumes. And related to -- your question related to price, let me say that our teams have moved very rapidly and made several action to carry out significant price increases during the year. We already announced price action obviously, considering each point of our markets, those which take effect mostly in Q2 and in Q3. And we expect it to be in the mid- to the high single-digit range across both consumer tissue and personal care businesses in order to offset the cost inflation. And also, we are looking for somehow, let's say, further opportunity to take price selectively in the rest part of the year. So I would say we are working tirelessly in order to maintain our margins and continue to our, let's say, target margin EBITDA in the range of 14%, 15% in long run.
George, this is Raimundo. I will take the second question regarding the pulp market. We see in Asia and China, that the prices have reached stability level in both fibers. We see -- we still see some pressures for price increase. But at the same time, there is more resistance. So we think that the prices in May in Asia will be the same than in April, and most likely in June as well. So I see stability would -- a more balanced demand in Asia. And at the same time, in the supply side, there is also a backlog of orders because of logistics reasons. So there's not much pulp available -- additional pulp available. So it's quite balanced, I would say, in Asia, and prices are both in both fibers at a relatively high level. And in the other regions and the U.S., in Europe and in Latin America, we do see room for price improvement in the next couple of months in May and June for sure. Because there is a gap -- quite relevant, I would say, still a relevant gap between the prices in those regions and the prices in China. And that gap, we expect that gap to be reduced and eventually close in the next couple of months. This is more or less normal in the way up, okay. China usually goes higher, quicker on Asia and then the rest of the world follows and in the way down is similar, but in the other direction.
Our next question today will come from Jens Spiess of Morgan Stanley.
So I just want to ask on your realized prices, which seem to be lagging a bit reference prices globally. So if you might comment on that, what's the reason behind that? And on the same line, your production of pulp has the spread versus -- of production versus shipment has increased a bit. Although Softys volumes remained stable. So if you could elaborate on the reasoning of that, is that related to inventory buildup? If you could just elaborate on that.
Yes. Jens, this is Raimundo. The price lagging, it has to do with the shipment delays that makes -- that you end up in, let's say, March, you shipped some of the February orders at February price. And because of the logistic difficulties that we have -- the industry have suffered, I think, worldwide since I would say November, December last year, but that increased in the first quarter of this year. And that we're still suffering. We have managed relatively well, I would say, compared with our -- some of our peers. Our -- to manage the logistic problem, but still it is a problem. There is a lot of congestion in many ports. Therefore, the vessels take a little bit longer to come back, and they usually delay a few a week or 10 days. And then in the container environment, the situation is even worse. We are taking several measures to manage this situation and to comply with all our shipments, but the lagging on the price has to do with that. And then the stocks, I mean, again, I think we are very much oversold. So any stock that you might have seen build up is only related with this shipment delays. So in reality, we're very much oversold, and we are shipping as quickly as we can to all our customers.
Our next question today is from Isabella Vasconcelos of Bradesco BBI.
I have a question on pulp demand dynamics specifically, you commented that you are already oversold. But if you could comment a little bit about demand is in China, how your order book is there? There have been some reports of some paper production curtailments. If you can comment on how demand is evolving in China at the moment? It would be interesting also in Europe how it is faring?
Isabella, thank you for your question. The demand dynamic has been -- I mean Q1 was extremely strong, extremely strong. I think it got us a little bit surprised. I would say, we were expecting a good quarter but probably not this kind of a crazy demand that we saw. In part, I think the logistics issue is also sort of exacerbate this. But overall, I think what we have noticed is that all the customers -- the market segments, the different market segments are enjoying very good demand and pretty much across all geographies, I would say. Yes, particularly so in Asia, China as well as in the other Asian countries, Korea, Japan, Taiwan, Southeast Asia, the market in very, very strong in all segments, specialty papers, eco papers because of the furniture and everything related with the construction materials that segment is doing very, very much. Tissue was also very, very good, I would say, until sort of the last week of March and early April, then I think some segments, by small segments, I would say, in China, show [ inbounding ] show some kind of curtailment in production. But it's not really the big players. I think some of the small players are showing that because maybe probably buying on the spot market and the spot market was a lot higher than them -- than the [ LC ] market, not they probably couldn't compete. But it's not really significant. Again, we are still very much surprised, but a very good demand everywhere in Europe as well. I think Europe they are -- customers, in general, are quite optimistic for Q2 and Q3. They expect a recovery on the tissue segment. The economies are open up -- are opening up. The restrictions in COVID is slowly being relaxed, and that put a relatively good environment, I would say, in the tissue segment. And in the other papers, Europe happened to have good demand, even printing and writing. Last year had a lot of closures. And this year, they are even pushing some price increase in that segment. So overall, we're quite positive and the behavior of the markets and the papers and pulp demand dynamics.
[Operator Instructions] Our next question today will come from Enrique Kenya (sic) [ Marcio Farid ] with JPMorgan.
This is Marcio. Can you hear me?
Yes, Marcio.
Yes. All right. Sorry. My name I wasn't correct. Just a follow-up question to Isabella, please. We've seen retail prices started to decline, well, late March, April. And then investors start to raising questions about what happens with important pulp price negotiations, right? So I wanted to hear from you, Raimundo, what do you think was the reason behind the recent decline in the resale market in China? And how has been the negotiations for May shipments for CMPC? And the second point on the tissue side, Raimundo mentioned that we've seen some signs of normalization in terms of volumes. Just wanted to hear from a CMPC's perspective in the Latin America market, how have been sales and shipments so far? And what are the expectations in terms of price increases to offset this inflationary pressure, especially with fiber increasing by 50% to 60% over the past 4 to 6 months?
This is Raimundo. I think the market in China have -- has become more stable. So therefore, I think this is why now there is -- it's less crazy [ lipped ] tight, I would say. And therefore, I think now the pulp price before was much higher than the [ LC ] price for the last few months and now is a little bit below on the hardware. But we see not relatively low volume available at those -- at that price. So to be honest, I don't think that it's not really at the moment, creating big pressure on prices. I think this is a moderate pressure. I think it's normal to reach a level where the prices are high, and there is some more pulp available. But again, we see that as a relatively small volumes. In general, I think the May business is being conducted at the -- not at the crazy speed of the previous months where maybe even before the month started, we had all the volume already committed at the next month's price. Now I think we are more or less 50% of the [ sensory ] already committed for May at the May price, which is the same price in April. And I think in the next few days, we will probably start closing the remaining. And when I say 50% is on the hardwood and softwood everything is sold already for May. So again, I think the market is more stable, and this is why the speed is becoming less aggressive than before. But it's a sign of stability, I think, more than weakness. We see no weakness really in the market.
Marcio, this is Felipe speaking. So as you can imagine, this is not the first time that we suffer on the cost pressure. So in order to offset this cost inflation, let me say something, a little more broadly perspective. First of all, we are accelerating our digital transformation so we see some opportunities here, and our e-commerce, roughly speaking, represent now 13%, 1-3 percent, of our sales. It is increasing quite significantly. This is number one. Number two is our procurement. We are not just in the number two way that we are working along with Mackenzie, but also we are starting with the third way and we see more opportunities there in order to cost cut (sic) [ cut cost ]. Also, let me say, related to our manufacturing road map program, we have been optimizing our footprint organization in some countries. Also, we have learned how to work more in a leaner way -- in a leaner way, and definitely, we have reinforced our "fit to fight" culture. Having said that, also, as I mentioned before, we already announced on a medium -- let's say, a mid and high single-digit increase price. We know that it's not enough to offset all the cost inflation but partially compensated. So we are looking some opportunity over the year in order to increase price selectively in the rest -- in some countries and the business units. So we are going to see some uplift in our volumes in the rest part of the year. And also because of -- due to our cost and production programs and this price increase, we are quite confident that we'll be able to maintain our margin during the year.
Our next question today will come from Alfonso Salazar of Scotiabank.
I have one question regarding investments. And if you can remind us what are your investment plans for the year for each of the divisions? And in particular, in Softys and in Biopackaging, if you can tell us about all these initiatives that you are planning to implement to offset the higher pulp prices? If you can give us more details on that.
Well, this is Francisco. Thank you for the question. Well, we basically have said before that our CapEx guidance for this year is in the range of $500 million. Of course, we are considering this some operational investments. And -- but again, as we have said before, very much open to continue our growth interest in our businesses. Seeing opportunities for -- in Brazil in the future, working today in the bottlenecking project in our way of a mill. And so this is part of this will be invested this year probably, and again, seeing other opportunities in other mills in the same way we have been continue with our interest in growing our Softys businesses and especially with focus in Brazil and Mexico. Although we, today, have a leading position in Latin America. And this business, we want to continue reinforcing business strategy. So again, continue seeing organic or inorganic possibilities in this business. And speaking a little bit about Biopackaging or our Packaging business, we, of course, have been also working very hard in making this business more important for CMPC. We have been invested this year -- investing this year in several operational aspects, improving and modernizing part of our maintenance in several mills and very active innovation of the pulps we are generating in this division of CMPC. So I would say that -- I have to say that the range again is $500 million, but it could be in that range, but, of course, we are open to added possibilities and continue with our interest in growing this business.
Ladies and gentlemen, this will conclude our question-and-answer session. Pardon me. Well, we do have an additional question that came in. The next question today will come from Rafael Barcellos from Santander.
I have two quick follow-ups. I mean, firstly, in the pulp division, are you -- I mean, what are your current level of pulp inventories? Are you running with inventory slightly below normalized levels? And my second question is about capital allocation. I mean you're approaching the low point of your internal policy of 2.5 and 3.5 net debt-to-EBITDA, right? So is it possible to see higher dividends in the coming quarters? I mean what are your thoughts on that?
Thank you, Rafael. This is Raimundo. Regarding pulp stocks, in terms of our sales commitments, I think we are running with very, very low stocks. So our pulp -- I mean we're just having any stock of what we need in order to have the right pulp in the [indiscernible] and supply the customers. But in terms of sales commitment, we are running below our normal stock. In terms of accounting stocks at the end of each month, we are slightly above because of the shipment delays, yes, but that's pulp that we cannot invoice yet because the vessel -- the vessels might be delayed or we might be postponed for a week, et cetera. And it roll over from 1 month to another one. That pulp is committed, and we might have the [ LC ] open, et cetera. But we suffered the delay in shipments. So that's why accounting-wise, you might see a higher pulp price, not in terms of size commitment or price negotiation, et cetera.
Rafael, this is Ignacio speaking. Regarding our financial policy, we -- yes, we're glad that we are, I mean, lowering the debt-to-EBITDA ratio. We still maintain our target to be in the lower part of the range. Of course, that will depend on pulp prices and, as Francisco explained in detail, our CapEx program for the year.
Ladies and gentlemen, this will now conclude our question-and-answer session. At this time, I would like to turn the conference back over to the management team for any closing remarks.
I would like to thank you all for joining the call today. So please have a nice weekend. And if you have any further questions, please contact us in the Investor Relations department. Bye, all.
The conference has now concluded. And we thank you all for attending today's presentation. You may now disconnect your lines.