Empresas CMPC SA
SGO:CMPC
Earnings Call Analysis
Q4-2023 Analysis
Empresas CMPC SA
CMPC's fourth quarter of 2023 depicts a challenging period for the company, marked by a blend of declining performance in its Pulp operations and growth in other sectors such as Softys (tissue and personal care). Revenue stood stable with a slight 2% decrease compared to the previous quarter, amounting to nearly $2 billion. Net income saw a considerable reduction, falling to $35 million from $84 million in the previous quarter and from $221 million in the fourth quarter of the previous year, primarily due to lower EBITDA generation.
Pulp business faced headwinds due to weaker international market prices and operational downtimes. EBITDA for the Pulp sector plunged 80% year-over-year to $73 million, also lowering by 33% from the prior quarter. Sales volumes decreased 16%, attributed to reduced exports to China. Consequently, Pulp revenues dropped 7% quarter-on-quarter and 31% compared to the same period last year. Despite a 10% price increase for both softwood ($710 per ton) and hardwood ($570 per ton) compared to the prior quarter, year-over-year comparisons indicate a sharp decline in prices, with a 22% drop for softwood and a 34% reduction for hardwood.
The company navigated through rising costs, with operating expenses maintaining stable at $1.4 billion quarter-over-quarter but increasing by 12% year-over-year. This rise reflects higher input costs in wood, energy, and labor, particularly influenced by the integration of Grupo P.I. Mabe in Mexico. Simultaneously, other operating expenses amounted to $330 million, an 11% uptick from the same quarter the previous year. Accumulated impacts of these increases contributed to an overall EBITDA drop of 13% quarter-over-quarter and 50% year-over-year, totaling around $230 million.
The Softys division, responsible for tissue paper and personal care products, provided a silver lining with remarkable year-over-year EBITDA growth of almost 130%, reaching $153 million, though it did retreat slightly by 3% from the preceding quarter. Revenues rallied, showing a 32% annual increase and a moderate 2% quarterly rise, to approximately $995 million. This positive performance is set against the backdrop of an integration strategy effectuated by the acquisition of Grupo P.I. Mabe, signaling effective consolidation and market strength within the segment.
The company's Biopackaging arm showed resilience with a 5% increase in EBITDA quarter-over-quarter to $19 million. Nonetheless, the segment faced a steep 64% year-on-year decline in EBITDA, attributed to a downturn in industry activity, particularly in the construction sector, which led to reduced sales volumes. Such dynamics suggest a cautious outlook for this division, requiring close observation of broader economic indicators moving forward.
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Hello, everyone, and welcome to Empresas CMPC Fourth Quarter 2023 Earnings Webinar. I'm 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 differ materially. For the Fourth Quarter of 2023, sales were $1,959 million. EBITDA was $229 million, and net income was $35 million. The Pulp business generated an EBITDA of $73 million with an EBITDA margin of 10.6%. EBITDA decreased 33% quarter-over-quarter, mainly explained by lower sales volume and higher costs. Year-over-year, EBITDA decreased 80%, which is explained by weaker pulp prices in international markets. It is important to mention that this result was impacted by the stoppage of the Guaíba II line related to the start-up of the BioCMPC project. Softys business show an EBITDA of $153 million, decreasing 3% quarter-over-quarter, while increasing almost 130% year-over-year. The quarter-over-quarter decrease is mainly explained to adverse exchange rate impact in Argentina. The year-over-year increase is explained by stronger margins in most of the markets and by the integration of P.I. Mabe in Mexico. At the same time, Biopackaging generated $19 million of EBITDA during the period, increasing 5% quarter-over-quarter and decreasing 64% year-on-year. The quarter-over-quarter increase was driven by lower raw materials and lower maintenance downtimes together with favorable seasonality in the corrugated boxes market in Chile. The yearly variation was due to a weaker performance in the industry activity, especially in the construction sector, which negatively impacted sales volume. Our sales of close to $2 billion in the Fourth Quarter is stable when compared to the previous quarter, decreasing 2%. This is mainly related to lower revenues in Pulp, which was offset in part by the growth in Softys and Biopackaging. Compared to the Fourth Quarter of last year, revenues decreased by 2%, mainly from Pulp caused by lower average selling prices but partially offset by Softys from its higher sales volumes. Biopackaging decreased its revenue due to lower prices as a result of weaker demand in most of its business segments. Operating costs reached $1.4 billion, a stable figure compared quarter-over-quarter and increasing 12% compared to the same period last year. Operating costs represented 71% of total revenues in the Fourth Quarter of 2023, which compares to 70% in 3Q '23 and 62% in Fourth Quarter 2022. The increase in operating cost compared to the Fourth Quarter of last year came from Pulp and Softys. In the first case, the increase is mainly associated with higher wood, energy and labor costs in Softys, it's aligned to the integration of Grupo P.I. Mabe in Mexico, which began in May 2023. Other operating expenses were $330 million in the Fourth Quarter being a stable compared quarter-over-quarter and 11% higher year-on-year. The ratio of other operating expenses to revenues was 17% in the Fourth Quarter of 2023, stable quarter-on-quarter and higher than the 15% recorded in the 4Q '22. The yearly variation is given by higher distribution and other expenses by function, offset by lower administrative expenses, which largely reflect the integration of Grupo P.I. Mabe. On a consolidated basis, the company's Fourth Quarter EBITDA reached close to $230 million, decreasing 13% compared to the previous quarter and 50% compared to the same quarter last year. Again, the latter is explained by the Pulp business cycle, which was offset in part by the growth of Softys. Net income totaled $35 million during the period, decreasing from the $84 million registered in the third quarter 2023 as well as from the $221 million registered in the 4Q '22. Both decreases are directly related to the lower EBITDA generation. 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 will start with the Pulp business. Pulp production was 875,000 tons, decreasing 19% quarter-over-quarter and 12% year-over-year. Hardwood production was 702,000 tons, decreasing 19% quarter-over-quarter and 16% year-over-year. The quarter year variation is explained by higher downtimes at Pulp mills mainly at Guaíba II. After a general shutdown of 26 days, which allowed the ramp-up of the BioCMPC project. Softwood production was 174,000 tons, decreasing 17% quarter-over-quarter, whilst increasing 14% year-over-year. Regarding the Pulp sales volume quarter-over-quarter decreased by 16% and remained stable compared to the same period last year. This is explained by lower exports to China for both fibers. Year-over-year, hardware volumes increased 3% on higher exports to Europe, China, the rest of Asia and United States. In the case of softwood, a decrease of 13% was recorded, mainly from declines in exports to China and the rest of Asia. In terms of cash cost, for Softwood, cash cost reached $393 per ton in the 4Q 2023, increasing 9% from the $360 per ton recorded in the third Q '23 and increasing 6% year-over-year. The quarterly variation is due to higher cost of energy with an other materials. The year-over-year decrease reflects largely lower cost of chemical products. For hardwood, cash cost reached $285 per ton in the 4Q '23, increasing 14% quarter-over-quarter and 18% year-over-year. In both cases, the increase is due to higher wood, energy and chemical products costs. Pulp prices during the Fourth Quarter of the year were in average $710 per ton for softwood and $570 per ton for hardwood, both increasing from the third Q '23 by 10%. Compared to the fourth quarter of last year, prices were lower by 22% for softwood and 34% for hardwood. As a result, revenues of the Pulp business totaled $532 million, decreasing in both quarter-on-quarter and year-over-year by 7% and 31%, respectively. Regarding the forestry business, sales volume was 903,000 cubic meters, down 10% quarter-over-quarter as a result of lower sawlocks and millwork sales. This was offset partially by higher sales of pulpwood, some timber and plywood. With this, revenues for our Pulp and Forestry business totaled $686 million, decreasing 8% compared to the previous quarter and 26% below when compared to the last year's same period. EBITDA decreased 33% quarter-on-quarter and 80% year-over-year to $73 million, with an EBITDA margin of 10.6%. The decrease in EBITDA compared to the third Q '23 is mainly related to a decrease in sales volumes, combined with higher costs. Compared to the fourth Q '22, the decrease is mainly related to lower pulp prices in the international markets. And now moving to Softys. Revenues increased on both quarter-over-quarter and year-over-year being up 2% and 32%, respectively, and totaling $995 million. Tissue paper revenues increased by 9% quarter-on-quarter and 19% year-over-year. In the quarterly comparison, average prices increased 17% and volume declined 6%. In the yearly comparison, average prices increased 20% and volume declined 7%. In both cases, an inflationary environment in the region has impacted consumption, not only for tissue paper but also for personal care products, especially in the case of Argentina. In the personal care segment, revenues declined 9% quarter-over-quarter and increased 56% year-over-year. The quarterly comparison reflects a decline of 4% in prices and 6% in volume, following a strong third quarter and facing the difficulty in consumption described before. In the year-over-year comparison, the increase of 56% in sales is explained by volume growth, 44% up and price increased 33% up besides reflecting a stronger performance in the region. This evidences the consolidation of Mabe in Mexico. Softys EBITDA for the Fourth Quarter decreased 3% from the prior quarter and increased 129% from the same period last year, reaching $153 million with a margin of 15.4%. The quarterly decline is mainly explained by adverse foreign exchange effects in Argentina and Chile together with higher such costs and expenses that are linked to inflation. Yearly growth is explained by stronger operations in the region and the integration of Grupo Mabe. In the Biopackaging business, quarter-over-quarter, sales volumes to third parties increased 9% due to a favorable seasonality of the demand given the box for corrugated paper and corrugated boxes growth. Year-over-year, volumes increased 2% as a result of the combination of higher sales in corrugated paper, corrugated boxes being partly of sales -- offset by a decrease in box board, molded Pulp trays and other papers. As an outcome, revenues increased by 1% quarter-over-quarter and decreased 14% year-over-year, totaling $277 million. Average sales price decreased 7% quarter-over-quarter and 16% year-over-year, reflecting the still weak markets for packaging. In the Fourth Q 23, EBITDA increased by 5% quarter-over-quarter and decreased 64% year-over-year, reaching $19 million. EBITDA margin of 6.9% increase against the 6.5% recorded in the third Q 23 and was below the 16.5% of the fourth Q '22. The quarterly increase is driven by lower raw material and supply costs as well by lower maintenance downtime. The yearly outcome is explained by lower industrial activity that has impacted sales altogether with higher overall administrative costs and expenses.
Thank you very much, Claudia. Capital expenditures during the Fourth Quarter totaled $220 million, decreasing from the $243 million recorded in the third quarter of 2023 and increasing from the $162 million of the fourth quarter of 2022. The yearly increase is explained by higher organic growth, including expenses related to BioCMPC project. Also during the period, the free cash flow had a net outflow of $144 million compared to a net inflow of $87 million we had in the third quarter of 2023 and the $201 million outflow in the fourth quarter of 2022. We closed the fourth quarter of the year with nearly $5.5 billion in total debt and cash on hand of $846 million, leaving our net debt at $4.6 billion, increasing compared to the previous quarter. The net debt-to-EBITDA ratio closed the quarter at 3.45x higher than the 2.83x we had in the last quarter and the 1.87x we had in December 2022. In line with our internal policy. Regarding our debt profile, the average rate is [ 4.91% ], and the average maturity is 5.6 years. Moving into the relevant events during the period. I would like to highlight that CMPC is now ranked #1 in the world in the Dow Jones Sustainability Index in the Paper and ForEx product sector. We are very proud of this recognition because it shows that our 2030 strategy is in the right path. During December, CMPC also received various recognition for its commitment to sustainable development, particularly in the environmental and social space, in the Zero Waste Awards 2023 and Connecta 2023. Also in December, Softys built its business plan toward 2028. This plan focused on the company's future vision, emphasizing its commitment to comprehensive care for consumers. On the other hand, the BioCMPC project in Brazil started as planned and it was executed within budget. The ramp-up phase plan is in progress. I would like to highlight that this strategic project for CMPC is stand out in the industry for execution, adherence to deadlines and budget and being a benchmark in sustainability and community relations. Finally, CMPC launched a $100 million innovation funds for start-up projects innovation alliances with other companies and collaboration with our other universities and innovation centers in Chile and abroad. We are excited about all the opportunities these efforts can bring to the future of the company, the industry and in general, for sustainability.
Thank you very much. And now I will turn to Claudia to start with the Q&A.
Thank you, Fernando. We will now begin the Q&A section. [Operator Instructions] And we have the first question from Marcio Farid from Goldman Sachs.
I have a couple of questions on my side here. The first 1 is related to Pulp cost, which was up, I think, 17% quarter-on-quarter. Our understanding is that it's probably related to BioCMPCs ramp-up and consequent long downtime at Guaíba, right? So just trying to understand how should we think about cost as Guaíba ramps back up, it certainly have third quarter maybe as a better base level than the one-offs that we saw in the fourth quarter. And then on -- still on the Pulp side and taking advantage of Guilherme on the line as well. Guilherme, can you please talk a little bit about what you're seeing in terms of demand for Pulp in the key regions, especially maybe Europe and China? Europe was quite weak late last year, but this seems recently suggesting that volumes have picked up in the region. China seems to be a little bit quiet, but would be great to hear from you what you're seeing on the demand side, especially for those 2 key regions, please. Thank you.
Thank you, Marcio, for your question. Relating costs, you are correct in -- when you look at short fiber, BEKP, definitely, the cost in Guaíba related to the stoppage of the plant because of the start-up of BioCMPC had a big impact. We also have a -- we had a big impact because we have the stoppage, the annual maintenance for Pacifico during the quarter. Both fibers were impacted in cost due to these maintenances. Remember that Guaíba II was stopped for almost 30 days when you consider the whole stoppage process plus the start-up. So the impact was very significant. Moving forward, probably as the third quarter is basically a better baseline. When you consider the whole year, the average of 2023, in 2024 we expect to have lower costs. And probably on average in both fibers will be more than $20 below what we had during the whole year on average.
I'll take the next one. Thank you, Marcio, for the question. Regarding demand globally, you're correct. We have seen Europe picking up a little bit of its demand. This is possibly related to the issues that they are facing -- the world is facing on the red sea with the Houthis and the war breaking out, the attacks on the Houthis that is disturbing the transportation from the far East and from the Middle East into Europe. And what we can see is a very similar effect that we saw during the pandemic where Chinese and Middle Eastern print and writing companies that export their papers to Europe, they are unable to do so or when they can do is at a much higher cost and that means that the local producers in Europe of printing and writing have now a much better opportunity to sell their paper and to produce at a much more competitive price and costs. So we have seen a pickup in demand from those players. And when it comes to China, we have seen a regular demand, I would say. Typically, just prior to Chinese New Year, they tried to stock up. And we haven't seen too much difference from previous years. So I would say the surprise now is coming from Europe. So much so that there are recently announced increased prices for the region and that is a reflection of a pickup in demand.
Can I just follow up and ask you what you seeing in terms of the price hike announcement that was made for China, I think, $10, for January? And what's the momentum there?
The $10 still is being challenged, but that's most likely because it would be an unchanged price from the [ 650 ] to the [ 660 ]. So instead of applying the [ 660 ], which some have accepted, but it's true that it's being challenged. But the unchanged is the likely scenario.
We have a next question from Cesar Perez, BTG Pactual. Cesar, please go ahead.
Yes. I have 3 questions, if I may. Could you please comment on the ramp-up progress that your BioCMPC project. When should the asset attain design capacity? And more importantly, what cost per ton are you expecting for the year? Or alternatively, if you don't disclose that information, maybe provide some sort of direction on a consolidated basis. In addition, 2024 volume guidance would also be appreciated. On costs, in general, you also mentioned in the press release that you did encounter higher wood and energy costs. Could you please discuss specifics and the visibility that you have over them? Or maybe how long you would expect for them to sustain and third and finally, on the tissue business. Softys operational numbers came in strong despite a general macro slowdown in the region last year still, despite these conditions, pricing grew last year. Do you see those conditions improving at Softys this year considering that inflation is receding in the region and central banks start to ease interest rates, which would be favorable conditions as well for the consumer? Those would be my questions.
Thank you for your questions. I'm going to start with the cost, if you want, and maybe Francisco, you can talk about the -- of BioCMPC. In relation to the costs, as I mentioned, last quarter, we were impacted by the shutdowns in Pacifico and in Guaíba II, those effects are gone now for this quarter. And you have to remember that we have -- one of the pillars of our strategy is competitiveness, so we have a big team working on improving our cost structure, and we are very positive about 2024 and the effect of all these initiatives will have. As I said before, on average, when you look at the whole year, probably $20 or a little bit more than that should be expected in terms of lower costs. In relation to energy for the quarter and wood, that's also related to the stoppages because all the cost of your system have to be diluted in lower production. So that's not something we should expect for next year. Maybe Francisco ?
In connection with your question, Cesar, about BioCMPC, the startup. My comment is that we actually first of all, ended the project in the term that we originally calculated for the project also in budget. And the start-up, I would say that has been very much in accordance with the start-up curve that we defined for the project, except during the, I would say, the last 7 days, we had a problem with the blackout -- Energy blackout in Rio Grande do Sul for some days, and we -- and the start-up curve was interrupted because of that. But the comment -- my comment is that we are in a very normal process of increasing the capacity of the mill considering what this new line means for CMPC. In terms of cost and as Fernando said, we are seeing a very convenient situation for the average cost of the mill. The total capacity or the 100% of capacity should be in place by the middle of the year. So this is more or less my question on that. And in connection with the last question you asked about tissue, the Softys business. Yes, my comment on that is Softys has been doing a very impressive job in the region in terms of recovering profitability, after some past years with more promise costs and volumes. It is true that -- I mean, we are seeing in the future that -- we will continue taking advantage of our position in Latin America and the countries where we are participating in Softys. There is a challenge. There is a challenge because of the situation of the consumer that was affected because of the high interest rates and consumption has been going down in some of our markets. So still challenges on that. But basically, I would say, with a good prognosis for the paper business and personal care.
Now the next question comes from CrediCorp, Rodrigo Godoy.
Well, the first 1 is related to Pulp inventory. Could you give us some color on CMPC Pulp inventory levels by the end of last year? Are they still above normalized levels? And when do you expect to reach those average figures? And the second question is, if you could tell us something about the impact of the inflationary accounting in Argentina during the fourth quarter. Thank you very much.
I'll take the first 1 regarding inventories. Rodrigo, thanks for the question. Our inventories are, in fact, very low at the moment. As you know, this stoppage in Guaíba we were prepared for it. We built up some inventories, but it ran a few days more than what we expected. The demand at the end of the year has been very healthy. And that combination meant that our inventories are significantly lower than they were in Q3 in all regions of the world, including Chile, at origin. So we are at the moment where our inventories are below our ideal levels.
I'm going to take the question about Argentina inflation and exchange rate and the impact. Overall, Rodrigo in the -- during the year, of course, we had over 200% inflation in Argentina. We also had a big devaluation in Argentina at the end of the year and those 2 effects combined, when you put everything together, we had about $200 million of impact that were positive basically because of IFRS better mind that we need to collect the value of our inventories and all the nonmonetary assets in our balance sheet because of the inflation. So that was the impact on the year. Of course, that is not operational. And for 2024, we don't expect that to be so important.
We go now to the next question. It comes from [indiscernible]. He asked about the Guaíba shutdown for 26 days. Was it expected to be this long?
I can answer that. Absolutely expected to shut down Guaíba.. I would say very much because of the start-up of BioCMPC at the start of the project that was already calculated in that way. So it's totally normal.
Okay. And another question related to leverage from the Gabriela Bahachille, PineBridge. When do you think that leverage will peak? And what's your estimate for the year-end 2024 in terms of net leverage?
Yes. Thank you, Gabriela, for your question. We closed the year with a net debt-to-EBITDA ratio a little bit below 3.5x, which is our policy. And probably, it will -- it could be a little bit over that at the end of the first quarter. However, by the end of the year, it should return below 3. That's the scenario we are working.
Okay. Another question comes from [ Yusuke Kawai ]. Can you comment on the 2024 forecast in sales, EBITDA and margin?
Unfortunately, we cannot give that kind of projections.
And Hernán Kisluk ask can you provide guidance on CapEx for 2024?
I would say still solving some definitions about that. But normally, it's about probably $500 million is our -- we do not have any special project in place right now. So it's about $500 million.
We have another question from Alfonso Salazar, Scotiabank.
Just a quick question. If you can share the outlook for the Packaging business, how do you think it's going to perform in 2024?
I would say that the packaging business has been really affected this year because of lower volumes in general in packaging. So -- and very affected, I would say, also because of the less activity in the cement industry. And so it's very much connected with -- for instance with the business of the cement bags -- paper bags. So in our case, we were affected because of that. And we see -- we do not see that we are losing market share and that basically, you see the cement companies in the world has been affected because of the high interest rates and the constructions in general. In the case of, I would say corrugated boxes, again, you see in general the consumption has been lower in different industries. And also, I would say, also affected in general in different markets. And boxboard again, connected with packaging for medicines and for some cereals and foods and general temps also, I would say, affected. So last year was not a very good one. And I don't -- I'm not -- we are not seeing actually a dramatic difference compared with last year for the 2024. I mean it would depend a lot basically on what is going to happen with the interest rates and with the reaction of the consumers. And also very much connected with the construction industry. So we do not see a fantastic opportunity or situation for that industry during this year.
We have another question from Alexandra Symeonidi.
You mentioned that you expect net leverage to be a bit over 3.5x. How do you think rating agencies will respond to this? Have you been in contact with any of them recently. I remember Fitch had a sensitivity of 3x net leverage. So yes, that will be my question.
Thank you, Alexandra, for your question. Yes, we are in constant communications with the rating agencies. This is not a surprise for them. And of course, they have their own model, but we discussed those very, very close. And so this is not a surprise. They're expecting this and they are always looking in medium and long term and not necessarily on a quarterly basis. So we -- that this shouldn't represent any concern for them. It's not going to be a surprise.
We'll go to the next question comes from Carolina Cruzat, Banchile.
So thanks for the presentation. And I would like to ask about eventual bond issuance, given that you have maturities coming this year, if you could say something about that.
Thanks, Carolina, for your question. Indeed, we have a bond that is due in September. So we are working to refinance that during the -- probably during the first semester. And that, of course, will be announced in advance. But we are working and looking at different alternatives. We always have, of course, the alternative to issue in the international markets. But we always have the alternative to issue bonds in Chile. We -- last year, we opened the Mexican market as well. So we have plenty of opportunities in markets to tap but of course, we will do that in anticipation of September.
The next question comes from [ Bastian Mayer ].
Just 1 follow-on, on the leverage question that was asked before. Considering the other metric of leverage of gross debt to equity that you have a covenant of the local bonds in 0.8. Should we see the same trend of the net debt to EBITDA that should be in the first quarter of 2024? Or what you expect -- just to understand if this is going to peak near the 0.8 or what?
The calculation for that ratio is a little bit different because it doesn't depend on EBITDA. The net debt to EBITDA ratio will pick up in the first quarter because of -- when we compute the last 12 months EBITDA generation that on the first quarter is going to be lower. When we talk about leverage debt to equity, it's a little bit very different and it's going to be more stable.
Now we go to the next question that sent by Hernán Kisluk. He says, can you comment on the situation of wood sourcing in Brazil given the latest transactions moving forestry assets across big players in the region?
Yes. First of all, CMPC is located in Rio Grande do Sul and it's a Pulp operation, where we have more demand on wood. But it's what is -- what is happening today in Brazil as you see what is happening with the price of the land in general terms in different areas of Brazil, is going -- has been going up prudently. And so I would say the price of the wood has been increased prudently. And this is affecting the competitiveness at the end of the eucalyptus. I mean the price of the land has been going up. So in terms of the possibility of acquiring wood -- speaking about our own area, we have been -- have no problem. We have our forest base already there. Also, I would say, a very clear plan in terms of incorporating some more forest in our operations. So I do not see a problem for having more wood in our area, but probably with more cost compared with the -- if you see some years ago, 3, 4, 5 years ago.
Okay. I don't see more questions. So that's it for today. Thank you all the investors and analysts that joined us today, and have a great day.