Empresas CMPC SA
SGO:CMPC
Earnings Call Analysis
Q3-2023 Analysis
Empresas CMPC SA
Welcome to Empresas CMPC's third quarter 2023 earnings review, featuring perspectives from CFO Fernando Hasenberg, CEO Francisco Ruiz-Tagle, and other key executives. The company reported third-quarter sales of nearly $2 billion, with EBITDA at $264 million and a net income of $84 million. These numbers come amid variable performances in the company's diverse business areas, with some showing EBITDA growth and others facing declines due to external market pressures.
The company's Softys business delivered a strong quarter, with EBITDA growing 24% from the previous quarter and a notable 128% year-over-year, mainly due to strategic integrations, better pricing, and increased volumes. On the flip side, the Pulp and Biopackaging segments wrestled with reduced prices and lowered demand, resulting in decreased EBITDA by 30% and 48% year-on-year, respectively.
Third-quarter pulp production was up 10% quarter-over-quarter, revealing the positive outcome of aligned maintenance activities; however, pulp sales volume saw a 2% decline, highlighting the need to monitor market demand closely. Pulp prices experienced a downward trend both quarter-over-quarter and year-over-year, heavily impacting revenues and EBITDA in the segment. The demand for Forestry products also dipped, influenced by market conditions and strategic acquisitions aimed at expanding the company's footprint.
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Hello, everyone, and welcome to Empresas CMPC Third Quarter 2023 Earnings Webinar. I am Fernando Hasenberg, CFO of the company. And joining me today, we have Francisco Ruiz-Tagle, CEO of CMPC; Guilherme Viesi, Chief Pulp Commercial Officer; and Claudia Cavada, our 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 some risks and could cause actual results and events to differ materially. I will start with some highlights of the quarter. Third quarter sales were close to $2 billion. EBITDA was $264 million, and net income was $84 million. Softys business show higher EBITDA totaling $157 million, increasing 24% quarter-over-quarter and 128% year-over-year. This improvement is explained by the integration of Grupo P.I. Mabe in May 2023, higher prices, low costs and better sales volumes. The Pulp business generated an EBITDA of $108 million, decreasing 30% quarter-over-quarter and 79% year-over-year, driven basically by weaker pulp prices. At the same time, Biopackaging generated $18 million of EBITDA during the period, decreasing 28% quarter-over-quarter and 48% year-on-year due to lower prices and lower demand.
Our sales in the third quarter were roughly $2 billion, decreasing 1% quarter-over-quarter, which is explained by lower revenues in Pulp and Biopackaging businesses, both related to lower sell price and lower pulp sales volumes. Compared to the third quarter of last year, revenues decreased by 5%, mainly in Pulp due to lower sales prices, partially offset by an increase in sales volumes. In Biopackaging, there was a drop in both prices and volumes. Operating costs reached $1.4 billion, remaining stable quarter-over-quarter and increasing 12% compared to the same period last year, representing 70% of revenues compared to 69% in second quarter of 2023 and 59% in the third quarter of 2022.
Increase in operating costs compared to the third quarter 2022 are related to the Pulp and Softys businesses. In the first case, the increase is mainly associated with higher wood and labor costs. In Softys is a result of the integration of Grupo P.I. Mabe in Mexico, which began in May 2023. Other operating expenses were $330 million for the quarter, remaining stable quarter-on-quarter at 30% higher year-on-year, representing 17% of total revenues compared to 16% in the second quarter of 2023 and 12% in 3Q '22. The year-on-year variation is explained by higher distribution, administrative expenses subject to inflation and currency appreciation occur below business units.
On a consolidated basis, the company's third quarter EBITDA reached $264 million, decreasing 8% compared to the previous quarter and 54% compared to the same quarter last year. Net income reached $84 million, decreasing from the $125 million registered in the second quarter 2023 and the $309 million registered in the 3Q '22. Both decreases are explained by the lower EBITDA generation that I explained before. Now I would like to turn the presentation over to Claudia, who will provide more details on our results by businesses.
Thank you, Fernando, and good morning, everyone. I'll start with the Pulp business. Pulp production was 1,079,000 tons, increasing by 10% quarter-over-quarter and down 2% year-over-year. Hardwood production was 869,000 tons, growing 11% quarter-over-quarter and decreasing 1% year-over-year. The quarterly variation is explained by lower maintenance in the pulp mills in line with the annual maintenance plan. Softwood production was 209,000 tons, increasing by 5% quarter-over-quarter, while decreasing 4% year-over-year. Regarding Pulp sales volume quarter-over-quarter decreased by 2%. This is explained by lower sales in hardwood, partially offset by higher volumes in softwood. In comparison year-over-year, sales volume increased 9% because of higher sales in both fibers. In terms of cash cost, for softwood, cash cost reached $360 per ton in the third quarter of '23, decreasing 8% from the $382 per ton recorded in the second Q '23 and increasing 1% year-over-year. The quarterly variation is due to lower cost of wood, chemicals and other materials. For hardwood, cash cost reached $250 per ton in the third quarter of '23, decreasing 8% quarter-over-quarter and increasing 11% year-on-year. The quarter-over-quarter decrease is attributed to lower cost of chemicals, wood and energy. When compared year-over-year, the increase was mainly due to higher wood and labor costs.
Pulp prices during the third quarter of the year were $646 per ton for softwood and $518 per ton for hardwood, both decreasing from the second Q '23 by 5% and 6%, respectively. Compared to the third quarter of last year, prices were also lower by 33% for softwood and 41% for hardwood. As a result, revenues for the Pulp business totaled $575 million, decreasing 13% quarter-over-quarter as well as 31% year-on-year. Regarding the Forestry business, sales volume was 1,001,000 cubic meters, down 10% quarter-on-quarter as a result of lower pulpwood, sawlogs, and millwork sales. This was offset partly by higher sum timber sales, which is explained by the incorporation of Powell Valley Millwork in the U.S.A. With this, revenues for our Pulp and Forestry business totaled $742 million, decreasing 9% compared to the previous quarter and 27% below when compared to the last year same period. EBITDA decreased 30% quarter-over-quarter and 79% year-over-year to $108 million with an EBITDA margin of 14.6%. The decrease in EBITDA generation in both cases was caused by the decline in pulp prices in the international markets. And now moving to Softys. Revenues increased on both quarter-on-quarter and year-on-year being up by 8% and 27%, respectively, totaling $978 million. This occurred due to higher sales in the personal care segment by 30% quarter-over-quarter and 61% year-over-year. Tissue paper revenues decreased by 4% quarter-over-quarter whilst improved 10% year-over-year. Tissue paper quarter-on-quarter was 1% up in volumes with higher figures from Brazil, Argentina, Peru and Uruguay, offset by lower volumes in Mexico. Year-over-year, an increase of 3% in volumes is explained by higher figures in Brazil given the consolidation of Carta Fabril. Personal care volumes increased in all segments, both quarter-on-quarter and year-on-year, mainly driven by the consolidation of Grupo P.I. Mabe in Mexico and growth in Brazil and Chile. Softys EBITDA for the third quarter increased from the comparable quarters, reaching $157 million with a margin of 16.1%. This is explained in both cases by higher revenues.
In the Biopackaging business, quarter-over-quarter sales volume to third parties increased 3%. The quarterly increase is attributed to higher corrugated paper and corrugated boxes. Year-over-year, volumes increased 6%, driven by lower sales in boxboard, paper sacks and other papers being partly offset by an increase in corrugated paper, which reflects the recovery of production following a sinister in 2022. Average sales prices decreasing both quarter-over-quarter and year-on-year by 14% and 17%, respectively, rejecting the still weak markets for packaging. As an outcome, revenues decreased by 6% quarter-over-quarter and 13% year-on-year, totaling $275 million. In the third Q '23, EBITDA decreased by 28% quarter-over-quarter and 48% year-over-year, reaching $18 million with a margin of 6.6%, decreasing against the 8.5% in the second Q '23 and 10.9% in the third Q '22. The quarterly decrease is mainly through lower average sales prices. The yearly outcome is explained by lower revenues, higher unitary cost and higher administration and sales expenses.
Thank you very much, Claudia. Capital expenditures during the third quarter totaled $243 million, decreasing from the $675 million recorded in the second quarter of 2023 and increasing from the $179 million of the 3Q '22. Remember that in the second quarter, we had the purchase of Grupo P.I. Mabe in Mexico. In the third quarter, the main disbursements are related to the BioCMPC project, the purchase of Powell Valley in the United States and maintenance. In the third quarter of 2023, the free cash flow was positive at $87 million, compared to the negative $675 million we had in the second quarter of 2023 and $70 million negative we have in the 3Q '22.
On top of what I explained before, the higher quarter-on-quarter cash flow is attributed to lower dividends and lower income tax payments as well as a reduction in working capital. The lower year-on-year result is also explained by the reduction in working capital, dividends and income tax payment. It goes the second quarter of the year with $5.2 billion in total debt and cash of $733 million, leaving our net debt at $4.4 billion, increasing compared to the previous period in $76 million. The net debt-to-EBITDA ratio closed the quarter at 2.83x higher than the 2.29x and 1.83x we had in the second quarter of 2023 and the 3Q '22, respectively. This ratio is in line with our internal policy rate, which goes from 2.5x to 3.5x. Regarding our net profile, the average interest rate is at 4.7% and the average maturity is 5.8 years. I would like to highlight 2 relevant events we had during the quarter. In October, we hosted our Investor Day with more than 80 investors, where our CEO, Francisco Ruiz-Tagle and other company leaders presented the progress of our strategy 2030. And we also had a visit to our Softys mill in Talagante. Also, I would like to comment that according to the plan and within budget, on November 10, the BioCMPC project operation commenced in Brazil. This project expands production capacity by 350,000 plus per year, reduces the production cost and enhance the mill's environmental standards by decreasing greenhouse emissions, minimizing the use of water, among other improvements.
With this, we conclude the presentation and I will hand it over to Claudia to start with the Q&A. Thank you very much.
Thanks, Fernando. And we will now begin our Q&A section. And remember, we have here Francisco Ruiz-Tagle, our CEO; and Guilherme Viesi, Commercial Director for Pulp available for your questions. [Operator Instructions] The first question comes from Camilla Barder from Bradesco.
I was just wondering, I'd like to understand if you tend to follow Suzano business and price hike announcement for hardwood, any key markets? And what's your or view on this -- on implementation of these price hikes considering the [indiscernible] has someone [indiscernible] to China. And the second one, if you could provide some update on the P.I. Mabe integration, how are synergies evolving? So those are my questions.
I'll take the first one. Well, we found ourselves in a quarter with very good level of inventories. As a matter of fact, our inventories are below historical level, below optimal levels. The market is showing some demand that is rather stable, I would say, globally. So we see an opportunity to continue with our price increases. We don't comment on the prices of our competition but we indeed see an opportunity to continue with this upward price trends given the situation of our inventories globally and the situation of the global demand. So yes, we see an opportunity for further price increases.
Camilla, I will take your second question about the integration of Mabe in Mexico. We start the integration process in May, June, as a matter of fact, our corporate office now, for instance, now is already sat in the city of Puebla. We used to have our offices in Monterrey. Now we are located in Puebla in the -- at the Mabe's headquarters. So the results we have been capturing already some of the synergies we were expecting. So we are very happy so far with the integration is underway and in the same way, it was scheduled. So we're very happy with that.
Our next question comes from Marcio Farid, Goldman Sachs. You cannot hear him? Okay. For Now we'll go to the next question. Regarding the BioCMPC expansion, what is the guidance for production and volume sales for 2024?
Well, thank you for the question, Rodrigo. As you know, we are just starting the project BioCMPC. For that we started almost 10 days ago, producing in BioCMPC. We're now in the learning curve stage. Out of this 350,000 tons next year -- my answer actually, it's more underline that we should be producing 100% of the total production by August next year, around August, September next year. This is where the point where we are reaching the design capacity of the mill.
Perhaps I can add regarding sales. Of course, now during 2023, we had a large shutdown to start up the project. So we decreased about 150,000 tons in production, and we slowly increase that towards next year. So the net additional volume that we forecast to sell building up all the inventories in the pipeline worldwide is something around between 50,000-and 100,000-ton extra sales, not production.
Okay. We have 1 more question. One more question is related to the EBITDA and the CapEx associated of the Forestry business, excluding Pulp.
Thank you, Horacio for the question. It's a trick question because we see our Forest business as part of an integrated process. So we don't public this figure. Our first Forestry is the source of the fiber for both the wood product and the pulp product. So when we look at our numbers, we look at them on an integrated basis.
Okay. And now a question related to CapEx in general, CapEx guidance of 2024. And how is the company thinking about M&A in the short or medium term?
CapEx for next year, we have a big -- still a big carryover from the projects we have been executing this year. And on top of that, we also have the plantations. Historically, we invest about $200 million in establishing new plantation or basically to replace what we harvest every year. So with all that, the CapEx guidance for next year should be in the range of the $700 million. That's something we will be working still on the next couple of months, of course, depending on the financial results of the company.
And now let's try to kind of..
In terms of if we are thinking about M&A in the short, medium term, we have to say that of course, the company is always open to see opportunities. And we have a very clear -- defined, very clear strategies of focus. But we are still working on consolidation of some of the last M&As like we have done in Brazil, Mexico, mainly in those countries, we have acquired Tissue businesses and personal care business. And also, we acquired this year, as it was said before, Powell Valley in the United States which is a wood product operation and a small one. But we are still consolidating that and in a process of probably taking more opportunities on the wood product business in the United States.
Okay. Now we go with Marcio Farid from Goldman Sachs.
Sorry for the issue earlier. My mic was not working. I hope it's fine now. I have a couple of follow-up questions. Firstly, on the cost side, I think Guilherme was very clear in terms of how we should think about incremental sales volumes from BioCMPC project next year. But how should we think about costs? I think according to our numbers, at least, we saw around 4% quarter-on-quarter decline. Obviously, gas, fuel oil prices have been all over the place but at least chemicals have shown a good deflationary momentum in the past few quarters. So remind us, I mean, fourth quarter, you have the stoppage of BioCMPC next year, the benefits of BioCMPC and then all the commodities price movement. How should we think about cost as we move into the fourth quarter and especially into 2024, please?
Secondly, Guilherme, if you can provide us a little bit of feedback from recent conversations, obviously London Pulp Week, a couple of weeks ago was quite interesting timing for the market as well. You did mention that you still see some support for the recent announced price hikes or potentially more momentum. But if you can provide us some more details on how you're seeing the different markets on supply and demand. And maybe lastly, on Softys, if you can also provide some details on per region basis, and especially in Mexico and Brazil on how you're seeing supply and demand outlook for tissue following volatile years during a post-pandemic as well. Sorry, a lot of questions but thanks a lot for the opportunity.
Thank you, Marcio. I will take your first question regarding costs. Yes, as we just published, our third quarter cost -- cash cost in Pulp were about 8% in both fiber and short fiber and long fiber, hardwood and softwood. Still, those costs are about 8% above what we had in the same period last year. So we still have some room to make improvement. Those improvements, as you mentioned, of course, are related to the reduction of some of our chemicals and other raw materials. But also because of the efficiencies we have encountered in our own operations, we have been working heavily on looking for improving our operations, improving the consumption of most of the raw materials. So we are very happy also with that, how that has developed. In the coming months, we still have some benefits to capture. So we expect also cost to continue to decline as most of commodities are continuing -- are still declining. So we still have some room to capture more savings there.
And just to add some, Marcio, next year, '24 will not be -- we are in a learning curve stage of this BioCMPC. And you all have to consider that BioCMPC will be 350,000 tons over almost 2.4 million tons. So the impact -- it is -- it will be in a part of the whole total production. But next year, probably will not be a good year for seeing what is the real impact about reducing cost of the snippet that, for sure, will be positively impacting the whole operation of Brazil.
Marcio, thanks for the question. Well, CMPC really has a very long-term customer base worldwide. There are customers that we work with for 20, 25, 30 years. So it's more of a matter of sitting down and renewing volumes, commercial conditions. We see really -- we are not concerned about the volume that we will renew next year, even the incremental part that we're going to have to contract next year. It's more of a optimization, let's say, if you will, in terms of segmentation, market mix and all of that. I would say all in all, Marcio, I left London slightly happier than when I came in. So a bit more optimistic after having all the discussions. Obviously, you can have some difficult discussions in London is to be expected. There's always the discussion of a slight increase in terms of rebate inflation and all that. But all in all, as I said before, I see a healthy demand worldwide. We see no issues in allocating our full production for next year. And this is where we are working at the moment. So slightly more optimistic than when I came in.
In connection with your question about Softys. And what's happening mainly in the Brazil and Mexico. In terms of margins, actually, we don't open by markets but I can tell you that as of today, the EBITDA margin of Softys is in the range of 16% which is very close to our target in that business. And so the challenge there is to keep this in the future. In terms of what is happening with the demand and the main market where we are participating, I have to say that still we have had a good year for Softys, mainly because of we could make this business more profitable in terms of -- because of mainly because of the better costs in fibers and a good study about increasing prices in different markets and also because of the devaluation of some currencies. So it helps us in having a better business.
But in general terms, we are taking a very good position in terms of the market share, mainly in Brazil, now in Mexico in personal care. So this is also a good position for CMPC but speaking about the demand, looking to the future is still challenges. So we see that the region still will be affected by the high inflation situation in general. And so there are some countries where we have businesses that still some pressures on the demand side.
Okay. No more questions for today. So thank you all for joining us today in this earnings presentation, and I hope you have a great day.