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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, everyone, and welcome to Empresas CMPC's First Quarter 2023 Earnings Webinar. I'm Fernando Hasenberg, CFO of the company; and joining me today, we have Francisco Ruiz-Tagle, CEO of CMPC; Raimundo Varela, CEO of CMPC Pulp; Guilherme Viesi, Chief Pulp Commercial Officer; and Colomba Henríquez Benavente, our newly appointed Investor Relations Officer. Please note that the 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 certain risks and could cause actual results to an event to differ materially.
We started the year with approximately $2.1 billion in sales, $556 million in EBITDA and $226 million in net income. The pulp business had a production of 1,067,000 tons with prices that are starting to go down. This generated an EBITDA of $463 million and an EBITDA margin of 44.1%. The Softys' business posted a slightly higher EBITDA on a quarter-on-quarter level, but a significant improvement on a year-on-year basis, mainly as a result of higher average prices as well as the integration of Carta Fabril in Brazil. On the other side, the Biopackaging business posted a lower EBITDA because of the higher operational costs with similar revenues as the previous quarter. Revenues for the first quarter reached $2.1 billion, increasing 6% quarter-over-quarter, mainly explained by the payment received from the insurance company because of the Guaiba II event in 2017. Compared to the first quarter of last year, revenues increased by 23% because of higher sales in all business areas. Operational costs reached $1.3 billion, increasing 2% compared to the previous quarter and 20% higher compared to the same period last year. This represents 60% of total revenues compared to 62% in the fourth quarter of last year and 61% in the first quarter of 2022. The quarter-on-quarter cost variation is mainly related to higher costs in pulp related to forest production. These higher costs were compensated by lower maintenance cost in pulp, lower distribution cost in biopackaging and lower operational costs in Softys.
The year-on-year increase is mainly related to higher direct costs, which includes [ fossil ] fuel, chemicals and other raw materials. Consolidated other operating expenses reached $287 million for the quarter, 3% lower quarter-on-quarter and 40% higher year-on-year, representing 14% of total revenues compared to 15% in the last quarter and 12% in the first quarter of 2022. The quarter-over-quarter result is explained by lower administrative expenses. The year-on-year result is explained by inflation as well as higher logistic costs in all business divisions. On a consolidated basis, the company's first quarter EBITDA reached $556 million, increasing 24% compared to the previous quarter and 21% compared to the same quarter last year.
Net income reached $226 million, increasing from the $221 million registered in the fourth quarter of '22, mainly because of the higher EBITDA and decreasing from the $251 million reached in the first quarter of 2022, mainly due to the losses caused by the wildfires and higher taxes. Now I would like to turn the presentation over to Colomba, who will provide more details on our results by businesses. Welcome Colomba to CMPC. The floor is yours.
Thank you, Fernando. I'm very excited to be here and join the company and good morning, everyone. I'll start with the Pulp business. Pulp production was 1.1 million tons, up 8% quarter-over-quarter and down 1% year-over-year. Hardwood production was 874,000 tons, increasing 4% quarter-over-quarter as in line with the maintenance schedule. There was no maintenance downtime during this quarter. When compared to the first quarter of 2022, hardware production was stable. Softwood production was 194,000 tons, increasing 26% on a quarterly basis and decreasing by 7% on an annual basis, which is mainly explained by the lack of maintenance, downtime and lower production by the Laja mill. Regarding pulp sales volume quarter-over-quarter, it increased by 6%. This was due to higher volumes of hardwood, driven by China and the U.S.A. This was partly offset by a decrease in softwood. Year-over-year, pulp volumes decreased by 11% with lower hardwood sales to all regions except for China and the United States and lower softwood exports mainly to the rest of Asia and Latin America.
In terms of cash costs. For softwood, cash costs were $394 per ton in the first quarter of 2023, decreasing 6% quarter-on-quarter and increasing 18% year-over-year. Hardwood cash costs were $233 per ton in the first quarter of 2023, decreasing 3% quarter-over-quarter and increasing 23% year-over-year. The lower quarterly cash costs were due to the aforementioned major maintenance that occurred in the fourth quarter of 2022 and did not occur in the first quarter 2023. The annual increase in cash cost was due to higher prices of chemicals, energy, primarily related to oil, added to higher harvesting and transportation cost of wood. Pulp prices during the first quarter of the year were $859 per ton for softwood and $748 per ton for hardwood, both decreasing from the fourth quarter of 2022 by 6% and 14%, respectively.
Compared to the first quarter of the year -- of the last year, prices were higher by 6% for softwood and 11% for hardwood. As a result of this, revenues for the Pulp business totaled $902 million, increasing 17% quarter-on-quarter and increasing 29% year-on-year. Regarding the forest business, sales volume was 910,000 cubic meters, up 11% quarter-on-quarter from higher sales of some timber remanufactured wood, pulpwood and plywood. Year-over-year, volumes increased 13%, primarily from pulpwood and some timber in Chile and Argentina as well as from increased sales and remanufactured wood, strong timber and plywood in various regions.
Forestry sales were $146 million, 6% below quarter-over-quarter and 1% below year-over-year. With this, revenues for the Pulp and Forestry business were $902 million, decreasing 3% compared to the previous quarter and increasing 6% compared to the last year. EBITDA increased 27% quarter-over-quarter and 21% year-over-year to $463 million with an EBITDA margin of 51.3%. The increase was mainly due to an insurance settlement of $176 million related to Guaíba, offsetting lower pulp prices and higher forest protection costs. The year-over-year increase was also due to the insurance settlement offsetting lower sales volume and higher production costs. In the Biopackaging business, quarter-over-quarter, sales volume to third parties remained stable, driven by increased sales of corrugated paper and molded pulp trays. Year-over-year, volumes increased by 2%, driven by higher sales of paper sacks and corrugated paper. However, sales of cardboard boxes and molded pulp trays decreased due to lower fruit boxes and trays demand. Average sales price increased 14% with all products posting increases, except for corrugated paper and a change in the product mix, and posted a 9% annual increase with all products showing increases. As a result, revenues remained stable quarter-over-quarter and increased 7% year-over-year, reaching $323 million.
In the first quarter of 2023, EBITDA decreased by 24% quarter-over-quarter and 36% year-over-year, reaching $42 million with a margin of 12.6%. The decrease was mainly due to higher selling costs, related to random paper purchase from third parties and higher maintenance costs. The decrease year-over-year is also explained by currency appreciation. The impact was offset by the incorporation of Iguaçú in April 2022.
And now moving to Softys. Revenues remained stable quarter-over-quarter and increased 31% year-over-year, reaching $756 million. Tissue paper sales volumes increased 7% compared to the previous quarter and increased 21% compared to the first quarter of 2022.
Quarter-over-quarter, we registered lower volumes in Chile and Mexico. Year-over-year, results are explained by the integration of Carta Fabril in addition to higher volumes in Argentina. Personal Care Products sales volume increased 6%, with lower volumes in all segments in Brazil and increased 13% annually, mainly explained by higher feminine care products in Argentina, Peru and Uruguay as well as higher diaper sales in Brazil, Mexico and Uruguay. Quarter-over-quarter, the average selling price of personal care products and tissue papers increased by 6% and 7% respectively, measured in U.S. dollars. Annually, the prices of tissue paper and personal care products increased by 13%. The annual increase is attributed to an increase in local currency sales price and currency appreciation. Softys EBITDA for the first quarter increased compared to the previous quarters with a margin of 9.1%. The increase in EBITDA is attributed to improved selling price and appreciation of local currencies, offset by higher administrative and sales expenses. The annual increase is due to higher margins explained by better sales price in all segments, increased sales volumes and the consolidation of Carta Fabril in Brazil.
Thank you very much, Colomba. Capital expenditures during the first quarter was stable, totaling $153 million, decreasing compared to the $162 million during the fourth quarter of 2022, but increasing from the $106 million we had in the first quarter of 2022. The free cash flow was positive at close to $220 million compared to negative $200 million we had in the last quarter and the positive $55 million we had in the first quarter of 2022. The quarterly result is due to the higher EBITDA, where the payment received from the insurance company was very important. The annual result is also explained by the effect of the mentioned insurance indemnification and the higher payment of income taxes.
We closed the first quarter of the year with $5 billion in total debt and cash of approximately $1.2 billion, leaving our net debt at approximately $3.7 billion, increasing compared to the previous quarter because of the higher level of debt. We closed with cash on hand above normal because of the $100 million bond that is due during May. The net debt-to-EBITDA ratio closed the quarter at 1.7x, stable when compared to the same quarter of last year. Additionally, I would like to comment on the impact of the wildfires in Chile. As mentioned on our earnings release, 37,400 hectares were affected during the 2022, 2023 season, which meant a loss of $76 million. Finally, I would like to mention that we are committed to our 2030 strategy. But because of the market conditions, we are accelerating the competitivity plan, implementing savings in costs and expenses that will help to compensate the lower prices. We believe that these initiatives will enable us to continue executing our strategy while creating value for our shareholders. Now we will open the floor for questions.
Thank you, Fernando. We will now begin the Q&A section. Remember that we have here today, Francisco Ruiz-Tagle, Raimundo Varela and Guilherme Viesi available for your questions. [Operator Instructions]
The first question comes from Thiago Lofiego from Bradesco.
Hi. Can you hear me well?
Yes.
Okay. So the first question I have is about your pulp inventory. It seems like over the last couple of quarters, your own inventory [indiscernible]. I would just like to understand how much higher it is versus normalized level. If you could just give us some color on that.
The second question is about the BioCMPC project, which could be still expected to start up by the end of the year. Can you also comment a little bit about that, how the project is progressing.
And then if I may, a third question here about the pulp market, you're seeing prices trading -- hardwood pulp prices trading below $500 per ton in China. So the question is, have you guys seen a significant demand increase here because of the lower prices. We heard also about potentially an integrated paper producers starting to buy market pulp. So if you could just give us some comments about the market, that would be great.
So I think Guilherme Viesi is connected, he is sitting in Asia. So Guilherme maybe you can take the first and the third question, and I can answer the question regarding BioCMPC.
Hi, Thiago. thanks for the question. I'll take the first and the third one. Well, regarding your first question, our inventory is approximately a 100,000 tons higher compared to Q1 last year. This is partially because we had some carryover from Q1 into Q2. And we will see those inventories returning to normal levels during Q2 this year. So it's not something that we are particularly concerned about. As I said, there are some carryover, and we are returning to normal levels.
Regarding your third point, I'm actually -- the reason why I'm online is because I am in Asia at the moment. I've spent 2 weeks here talking to a customer visiting different countries. Yes, we can feel that price is currently trading below $500, has generated some demand -- some strong demand, as a matter of fact. Our April sales has been almost double, the regular volume in China. And yes, we can see that when you -- there has been several announcements over the last week of Chinese pulp production curtailing volumes. Also in North America, we heard and we believe this is going to continue more and more. So yes, answering your question, the price has generated extra demand.
If I may here, just a quick follow-up. Do you think this extra demand is enough to generate a potential rebound on prices? Or it's basically topping prices from falling further?
It's a very difficult question, Thiago, but I believe that, yes, it potentially can generate extra demand when customers see the prices start reaching the bottom. They buy a little bit more than they used to buy. They want to build up some inventories. The problem is, obviously, we have some significant capacity coming on stream over the next couple of months. But let's not forget that the average cost reduction of pulp in China is above $450. Some of them above $550. And there is around 10 million tons of volume on that production costs. So there's a lot of space of production volume to be curtailed.
Question regarding our project, BioCMPC. The project is progressing very well. We are very happy, very proud. The team have worked extremely hard. And we are preparing all the commissioning. We are right now in -- or next week, we'll start maintenance of the line where a lot of the tie-ins are going to happen. And we -- so far, we maintained the starting date at the Q4 this year. That's what we can say regarding the project.
The project also has been developed without affecting the production of the mill. I mean we have had a very good coordination with the normal production of the mill, so that has not been affected.
Absolutely.
Question comes from Rafael Barcellos from Santander.
So a quick follow-up on the market pulp dynamics. I mean, could you please elaborate a bit for all the soft dynamics as well? And still -- I mean, regarding the capital allocation discussion, I mean, as you mentioned, the brownfield pulp project will start by the end of this year. So after that, I mean, what could we expect the company focusing on going forward? I mean, could we expect a new pulp mill, maybe in Brazil? I mean, what are your thoughts on capital allocation after these brownfield project? And if I may, my last question here. I mean, on the Biopackaging division, I mean, we understand that this division is probably still being affected by the disruption [indiscernible].
But -- so my question is, when do you expect the Biopackaging division to deliver again results or, let's say, margins close to 20% again, okay? So these are my questions.
Okay. So I'll take the first 1 again. Thanks for the question. I think the dynamic is very similar to hardwood. We have reached to a point in softwood where we started hearing some North Americans, specifically Canadians, softwood producers announcing some curtailment. So the dynamic is very similar. I would -- the only thing I would say is that softwood still finds demand worldwide relatively good, whereas in China, the hardwood has to find demand -- strong demand only when the price drops further. So that is the main difference. But I would say they are working hand-in-hand because the substitution happens fairly quickly when the price gap is too large.
Okay. Well, in connection with the second question, I can say that we haven't decided yet about new projects after the BioCMPC. So we don't have any definition on that, but we, of course, always are working or preparing the forest base for growing in the future. But we haven't -- we don't have any concrete new announcement yet. And in connection with the Biopackaging business, well, it is true. What is happening here is that in general, we -- I can say that our boxboard business is doing relatively well. But when the industry start going down in general, our paper sacks business, and -- it is affected by the cement industry now, which is really low and the -- I would say, the corrugated box is also affected because of the less activity we are seeing in the industry in general. So your question regarding when we can get a margin close to 20% again. I would say that we are very much depending on what is happening in the region, in particular with the industry in general, that is consuming packaging.
[indiscernible] so the recent pressure on cost is not related to the disruption that you faced a couple of quarters ago in the [indiscernible]?
We still have some issue spending regarding that event basically because we are still holding a very expensive paper stocks, paper we acquire to satisfy the demand of our corrugated boxes business that we have to import. So we are still holding some expensive inventories of paper, but we are -- those should be gone in the next 1 or 2 months. From an operational point of view, the paper machine is running very well. So we don't have any problem.
The next question comes from Rodrigo Godoy from [ Citigroup ].
Yes. Can you hear me?
Yes.
Thank you, very much for giving us a chance of being here, and welcome to Colomba to CMPC. And I have 2 questions. The first 1 is related to the acquisition of Mabe in Mexico, and if you could give us some information about its financial figures for last year. I mean sales revenues, EBITDA and growth -- main growth drivers for the future?
And the second question is regarding the packaging business. I would like to know if there was any nonrecurring income impacting revenues and EBITDA in the first quarter of this year as we observed in the preceding quarter?
Thank you for your question. In connection with the acquisition of Ontex in Mexico, first of all, to transmit to you that is absolutely part of our strategy about being more important in the Mexican market, saying that we did in the past in the Brazilian market. Actually, the figure I can tell you now is that with this acquisition in Mexico, we are probably -- we'll have about 30% of the market share of diapers in general and feminine care. So -- and this is an important acquisition for CMPC and part of -- absolutely is part of our growth strategy. Could you repeat us the second question, please?
Yes, can you hear me?
Yes.
Yes. The question is if there was any nonrecurring effect or income impacting revenues and EBITDA in the third quarter '23 for the packaging business, as we observed in the preceding quarters related to the insurance payment or compensation associated with the paper machine #20?
During the first quarter, we didn't have any insurance payment from the Biopackaging business. The only insurance compensation we received was the 1 related to the event in Guaiba from 2017 that we announced on the earnings release. That's in pulp, not in -- we are still expecting some compensations from the insurance related to the [ MP 20 ] machine, though. But probably, those will come more on the second or third quarter.
Okay. The next question comes from [indiscernible].
Can you hear me? Okay. First of all, thank you all for the presentation. Second of all, I would like to start with some questions about what are your expectations for softwood and hardwood prices considering the pressure that China is putting on the market?
And the second question is about the project in Mexico that you had with this acquisition in terms of what is the timing that you are trying to handle the 30% of the market share?
This one, I think Guilherme can take.
Yes, I'll take the first one. Well, honestly, I think prices are very near the bottom. I don't think there's so much more room for prices to go down. China usually drives the prices first to the bottom. And when you go below $500, we see significant amount of shutdowns on the hardwood. And on the softwood, where the level they are at the moment, we already see some North Americans shutting down. So I think the main question remains is how long it will take for the bounce back to happen. It all depends on the resilience of the integrated producers in China and the Canadian producers of softwood, but we are positive. We think that from here onwards, there's only 1 way it should be up. We are carefully positive.
Okay. In connection with the second question, well, actually, with the acquisition of Mabe of Ontex in Mexico, we already have 30% of market share in diapers. And so the challenge there is basically to make this operation more profitable compared to where it was in the past. So we're working hard in that.
And the synergies with our current operations, Personal Care products are very complementary with all the tissue products. So we should get better distribution and logistics advantages.
Okay. I see no more questions. So thank you all for joining the presentation of our first quarter of 2023 results. I hope you have a great day.