Empresas CMPC SA

SGO:CMPC

Earnings Call Transcript

[Fernando Hasenberg, executive]

Hello, everyone, and welcome to Empresas CMPC Second Quarter 2024 Earnings Webinar. I am 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, Commercial Director at CMPC Pulp; 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.

For the second quarter of 2024, sales were $1.888 billion, EBITDA was $377 million and net income was $125 million. The Pulp business generated an EBITDA of $251 million with an EBITDA margin of 33.5%. EBITDA increased 30% quarter-over-quarter, which is explained by a higher average sales price and lower cash costs.

Softys business show an EBITDA of $132 million with an EBITDA margin of 15.1%, decreasing 20% quarter-over-quarter and increasing 4% year-over-year. The quarter-over-quarter variation is explained by increasing pulp prices during the year, along with the depreciation of currencies in Chile, Brazil and Argentina.

Biopackaging generated an EBITDA of $24 million during the period. This represents a 27% decrease in quarter-over-quarter when excluding the insurance compensation received in the previous period. The decline is attributed to reduced sales due to seasonality, weakness in some markets and higher pulp price.

As mentioned, in the second quarter, sales were $1.9 billion, slightly lower than the previous quarter. This was due to lower sales volumes in Pulp, which were mainly offset by higher average selling prices. Additionally, Biopackaging experienced decreased revenues due to lower prices and sales volumes as a result from a weaker demand due to seasonality and its sales to the building material industry.

Compared to the second quarter of last year, revenues decreased by 6%, primarily due to lower sales volumes, which were partially offset by higher average selling prices in Pulp. Biopackaging was also impacted by the lower selling prices, and Softys experienced reduced volumes due to challenging market conditions in most of the markets.

Operating costs reached $1.2 billion, decreasing 3% quarter-over-quarter and 14% year-over-year. This represented 63% of total revenues in the second quarter of 2024, which compares to the 63% in the first quarter of 2024 and 69% in the second quarter of 2023. The decrease in operating costs compared to the first quarter of 2024 is attributed to lower direct costs in pulp, which were partially offset by higher direct costs in Softys and Biopackaging.

Other operating expenses account that comprises distribution costs, administrative expenses and other expenses by function, amounted to $314 million in the second quarter, decreasing by 1% quarter-over-quarter and 5% year-over-year. The [ yearly evaluation ] was driven by the increased distribution and other expenses by function largely attributed to the integration of Grupo P.I. Mabe in Mexico. The ratio of other operating expenses to revenues was 16.6% in the second quarter of 2024, which compares to 16.3% in both comparable quarters.

Given the aforementioned effects, on a consolidated basis, the company's first quarter EBITDA was $377 million with a contribution of 62% from Pulp, 32% from Softys and 6% from Biopackaging. Net income totaled $125 million during the period, down from $209 million in the previous quarter and stable compared to the result recorded in the second quarter of 2023.

Now I would like to turn the presentation over to Claudia, who will provide more details on our results by businesses.

[Claudia Cavada, executive]

Thank you, Fernando, and good morning, everyone.

I'll start with the Pulp business. Pulp production was 1,024,000 tons, decreasing 2% quarter-over-quarter and increasing 4% year-over-year. Out of it, hardwood production was 825,000 tons, down 3% quarter-over-quarter and up 6% year-over-year. The quarterly variation is explained by higher downturns at pulp mills, mainly at Santa Fe II after a general shutdown of 16 days this quarter. Softwood production was 198,000 tons, increasing 4% quarter-over-quarter and decreasing 1% year-over-year.

Regarding Pulp sales volume, it decreased by 10% quarter-over-quarter and 21% year-over-year, reflecting the impact of the floods in Rio Grande do Sul, on port activities in May, along with a weaker demand in some markets. Year-over-year, hardwood volume decreased by 25% on lower exports to China and the rest of Asia. In the case of softwood, the year-over-year 1% decrease is the result of a combination of reduced exports to China and increased exports to Europe and the rest of Asia.

Pulp prices during the second quarter of the year were in average $801 per ton for softwood and $730 per ton for hardwood. This is a quarter-over-quarter increase of 11% for softwood and 16% for hardwood. Compared to the second quarter of last year, price were higher by 17% for softwood and 33% for hardwood. As a result, revenues for the Pulp business totaled $615 million, decreasing 3% quarter-over-quarter and 7% year-over-year.

Regarding the Forestry business, sales volume was 800,000 cubic meters, down 15% quarter-over-quarter as a result of lower sawlogs and some timber sales. Our shipments were impacted in April and May by a port strike in Coronel. The situation has been normalized since June.

With this, revenues for our Pulp and Forestry business totaled $750 million, decreasing 4% quarter-over-quarter and 8% year-over-year. As part of our strategic plan and specifically in relation with our competitiveness pillar, we continue to see improvements in cash costs.

In terms of cash cost for hardwood, cash cost reached $230 per ton in the second Q '24, decreasing 5% quarter-over-quarter and 16% year-over-year. The Q-on-Q reduction was driven by lower wood costs. There were also reductions in chemicals and labor costs. Cash cost for the year-over-year comparison decreased across all cost lines, especially wood and chemicals.

For softwood, cash cost reached $353 per ton in the second Q '24, decreasing 5% from the $371 per ton recorded in the second -- in the first Q of 2024 and 10% below the $392 per ton recorded in the second Q '23. The quarterly variation is mainly due to lower cost of wood. Year-over-year, cash costs also decreased mainly from lower wood costs, and this was accompanied by reductions in chemicals, materials and labor costs.

EBITDA for the Pulp business increased 30% quarter-over-quarter and 61% year-over-year, recording $251 million with an EBITDA margin of 33.5%. The increase in EBITDA is mainly related to higher average selling prices and lower cash costs, both quarter-over-quarter and year-over-year.

And now moving to Softys. Revenues were stable compared to the previous quarter and decreased by 3% year-over-year, totaling $878 million. Compared to the previous quarter, Tissue Paper revenues remained unchanged and decreased by 15% year-over-year. The decline from the previous year is mainly explained due to a lower market activity in the region. This was accompanied by a 2% higher average selling prices in U.S. dollar terms.

In the Personal Care segment, sales were stable Q-on-Q and increased 20% year-over-year. In the year-over-year comparison, the increase in sales is explained by slightly higher volumes and a 21% price increase.

Softys EBITDA for the second Q reached $132 million with a margin -- EBITDA margin of 15.1%. EBITDA decreased 20% quarter-over-quarter and increased 4% year-over-year. The Q-on-Q variation was mainly due to an increase in pulp prices and currency depreciation in Chile, Argentina and Brazil. In the year-over-year comparison, the 4% increase was driven by the integration of P.I. Mabe in Mexico.

In the Biopackaging business, we still see challenges related to a weak construction activity in the markets we serve. Q-on-Q sales volume to third parties decreased 2%, mainly due to lower sales in paper sacks and corrugated boxes. This was mainly offset by higher sales in corrugated paper and molded pulp trays. Year-over-year, sales volume increased 6%, driven by boxboard, corrugated paper and corrugated boxes.

Revenues amounted $259 million, representing a 5% quarter-over-quarter decrease, excluding the impact of insurance compensations received in the first Q '24. This decline is attributed to lower volumes and average selling prices. Year-on-year, revenues decreased 12%, reflecting a lower sales price.

As a result, in the second Q of '24, EBITDA decreased by 27% quarter-over-quarter, excluding the insurance compensation in the first Q '24, and this decline is associated with the decreased sales and higher raw material costs. Year-over-year, EBITDA decreased by 4% and EBITDA margin was 9.3%, down from 12% recorded in the first Q '24 and above the 8.5% recorded in the second Q '23.

[Fernando Hasenberg, executive]

Thank you very much, Claudia.

Capital expenditures during the second quarter totaled $146 million, in line with the $152 million reported in the first quarter '24 and decreasing from the $447 million recorded in the second quarter of 2023. The latter relates to the BioCMPC project and the acquisition of Grupo P.I. Mabe in Mexico.

Regarding free cash flows during the period, there was a net outflow of $22 million compared to an outflow of $176 million in the first quarter of 2024 and $663 million outflow in the second quarter of 2023. When comparing quarter-over-quarter, the increased free cash flow is attributed to a lower dividend payment and a tax refund in the second quarter of 2024. And year-over-year, the difference refer to the aforementioned BioCMPC project and the acquisition in Mexico in the second quarter of 2023.

We closed the second quarter of the year with nearly $5.4 billion in total debt. Cash and cash equivalents, including financial investment with short-term maturities, were $658 million, leaving our net debt at $4.761 billion. The net debt-to-EBITDA ratio closed the quarter at 3.75x, lower than the 4.03x in the last quarter and higher than the 2.29x we had in June of 2023. As anticipated, we expect this number to continue to improve in the coming quarters. Regarding our debt profile, the average rate is 4.82%, and the average maturity is 5.4 years.

I would like to highlight some important events that occurred during the quarter. In May, severe floods in Rio Grande do Sul, Brazil have impacted over 400 municipalities, causing human casualties and significant disruptions in all industries and normal life activities. CMPC has been actively supporting local authorities and affected communities. While our facilities remain intact, the floods affected many of our employees, the communities around our operations and disrupted road and port infrastructure around Guaíba, affecting, among other things, the shipment of our pulp. Since June, we have been able to ship everything we produced.

CMPC's Integrated Report 2023 was published. It highlights Brazil's leadership in pulp production and growing global interest in sustainable products. Chairman Luis Felipe Gazitúa emphasized CMPC's commitment to sustainability, innovation and community engagement. Additionally, Luis Felipe Gazitúa was honored as Engineer of the Year 2024 by the School of Engineers of Chile, recognizing his contributions to development and innovation.

Now I will turn the mic to Claudia for the Q&A session.

[Claudia Cavada, executive]

Thank you, Fernando. [Operator Instructions]

[Claudia Cavada, executive]

And the first question comes from Rafael Barcellos from Bradesco.

[Rafael Barcellos, analyst]

My first question is about pulp markets. So recently, we saw a standstill between pulp buyers and sellers, right? And therefore, we are now seeing hardwood pulp prices clocking roughly $650 per ton in China. So I just wanted to understand whether pulp buyers have returned to the market after this price drop or if we will have to see pulp prices dropping further to really see pulp buying activity increasing again?

And secondly -- and my second question here is about leverage and capital allocation. So your net debt-to-EBITDA ratio remains above your internal policy, right? So I just wanted to understand, I mean, how are you seeing leverage evolving in the coming quarters? And how can it affect the decision related to the Natureza Project?

[Francisco Edwards, executive]

Okay. Rafael, thank you for your question. I'll take the first one. Yes, it's true that the Chinese activity has been slow over the past 2 months. They are back now. We are only on the second day of August, and we can confirm that a lot of orders have come through at the price that you have indicated. Softwood remains solid. The demand for softwood significantly stronger than hardwood.

It's hard to say what's going to happen for the future, whether prices will go further down or not. I think what is important to highlight is that global inventories remain below historical level, both in Europe and in China, which is a strong indicator that the market should be relatively firm and stable in terms of prices. So we believe that from now on, the market should start showing more stability in terms of prices.

[Fernando Hasenberg, executive]

Rafael, maybe -- yes, I would take your second question regarding indebtedness. Indeed, as anticipated, we have reduced our net debt-to-EBITDA ratio. It was above 4 in the last quarter, now it's at 3.75. And we anticipate that next quarter and at the end of the year, probably it's going to be within our policy range.

Regarding the financing for the Natureza Project, we are preparing our balance sheet for that. We are being -- we have been very conservative in CapEx, and we will continue to be very specific on capital allocation in the coming months. So the balance sheet is going to be ready for the project. As we have mentioned, having a strong balance sheet is important for us. And in that way, we are preparing the financing structure for the Natureza Project.

[Claudia Cavada, executive]

And the next question comes from Bank of America, Guilherme Rosito.

[Guilherme Rosito, analyst]

My question is on Natureza Project. I know you guys are still in the early stage, you have to take it to the Board. But just to understand with regards to -- what do you guys expect in terms of land and forestry CapEx? I mean as far as I understood from the release you guys put out, it was just industrial CapEx you were estimating for now. And what is the incentive price for this project, just to understand what you guys are seeing to the market as well into the future?

And then additional question, I know the idea right now is to make it a hardwood, but are you guys considering like dissolving pulp or maybe some kind of other product coming out of this line?

[Raimundo Varela, executive]

Okay. Yes, we have been progressing in the Natureza Project. We are quite happy with the progress. We have received the terms of reference approval from the local authorities. So that put us in good shape for progressing. We also keep progressing in the forestry to fulfill the forestry needs. We are about 60% of what we need. And we will continue working on that. The project, we expect that project to go to the Board during 2026. And so far, that is -- we are maintaining that program.

And regarding the type of pulp, it's something we are looking at it, but our base case is that we will produce regular pulp, standard pulp. That's our base case.

[Claudia Cavada, executive]

We have a next question from Eugenia Cavalheiro with Morgan Stanley.

[Eugenia Cavalheiro, analyst]

My question is more if we move towards Softys and all the Tissue segments. So if you could detail a bit more how you see the competitive environment in Mexico and how is all that shaping up, that will be helpful.

[Guilherme Viesi, executive]

Well, thank you, Eugenia, for your question. Just in general, I would say the competitive environment for the Tissue segment is important. And Mexico, we see a competitive environment. Although I have to say that in case of CMPC, the result we have had in Mexico during the last couple of months is very -- well, last quarter is very much connected with a drought we suffered in one of our mills. So it has more to be with that than with the competitive environment. We are not so important in tissue production as a percentage of that market. But internal, we see our company competing well and also in a good trade for continued improving margins.

[Claudia Cavada, executive]

Now we have a question from Santander, Yuri Pereira.

[Yuri Pereira, analyst]

My first question is, how do you see this shifting volumes to Europe from Asia, if at these levels you see volumes getting back to Asia or do you still see this mix? Or on the other hand, if you see some correction in Europe as well? And my second question is about the outlook for volumes of tissue, CMPC's tissue and pulp volumes for the second half of the year.

[Francisco Edwards, executive]

[ I'll take ] the first one. Thank you, Yuri, for the question. We don't see, at least for the moment, too much volume shifting from Asia to Europe. I think many producers globally had a significant backlog of shipment to China specifically. So -- and that's proven by the level of inventories globally. We see Europe pretty much following what's happening in China. There is a price correction there. There could be some sort of arbitrage being applied between Asia and Europe, but I don't think it's anything too meaningful that will disrupt the market. I think the markets will continue their gap between Asia and Europe. And Asia coming back, there should be a significant volume of pulp going back to Asia. So I don't see too much arbitrage being applied there.

[Raimundo Varela, executive]

Okay. Second question. Thank you, Enrique, for your question...

[Francisco Edwards, executive]

Yuri.

[Guilherme Viesi, executive]

Sorry, Yuri, for your question. My answer is the following. I would say that in terms of volume, tissue has been affected during the last quarter mainly because of strong competition in Brazil. Bracell and Suzano is also -- they are also in the market and strongly competing in that market. So I would say this is, in some way, affecting our margins and results in Brazil.

Again, I would say that mainly in May, end of April and May, we were affected by the drought in Mexico. And so -- and in other markets like Peru, we are seeing -- we see also Argentina with a weaker customer because of the economic conditions. I would think that during the second quarter, some of the market could increase our volume like Mexico, not sure in Brazil. And in general, the region is, in my opinion, is that it's still affected.

So of course, we are also very much concerned about our margins and results in Tissue. So all of this -- a combination of all of these, I would say, I've not seen probably a strong recovery in terms of volume during the second quarter...

[Francisco Edwards, executive]

Second semester.

[Guilherme Viesi, executive]

Second semester. But probably we'll be a bit better compared with the first semester, but very much concentrated in having a profitable year.

[Raimundo Varela, executive]

I'm not sure whether Yuri also asked for the pulp volumes in the second half of the year. I will comment anyway. I think our volumes in -- of pulp in Q2 were a bit lower than what we expected, mainly because of the floodings in Rio Grande do Sul that created some logistical issues that are already solved. So that pulp is being shipped. And therefore -- and we also have quite a heavy maintenance in our annual shutdowns in our mills. So we have Guaíba II in August, Santa Fe I in August, and then we have Pacífico in October and Guaíba I in November. So it's quite a heavy maintenance season for us second half of the year. So therefore, our volumes will come to a normal way of stocks and our sales volume will come to normal.

[Claudia Cavada, executive]

And we have a next question from Goldman Sachs, Henrique Marques.

[Henrique Tavian Marques, analyst]

Just a follow-up here on the tissue volume. I mean I understand the rising competition can impact volumes. But I wanted to understand the impact on costs and then impact for margins in the Tissue business. I know you guys want to keep margins around 15% to 20%. But I don't know, with this rising competition, especially in Brazil, do you guys see that as possible, especially for this year?

And just another question on the Rio Grande do Sul situation, just want to make sure if that's resolved for the rest of the year. Are you guys still seeing any impact, especially on logistics?

[Fernando Hasenberg, executive]

Thanks, Henrique, for your question. Yes, as we have been mentioning, our focus is profitability in Softys in our Tissue business. Therefore, that will continue to -- working on that. Of course, there is a lag in cost, and the increase in pulp prices has been affected this -- affecting this quarter our tissue cost. That's part of our integration model. But also the devaluation of some important currencies where we operate, the Chilean devaluation -- Chilean peso devaluation, the real in Brazil, same thing in Argentina. So all those things combinated (sic) [ combined ] have been affecting our cost, but we are happy with the 15% EBITDA margin we have today and working to have that as a, I would say, as a sort of floor and from there, increasing our profitability.

[Raimundo Varela, executive]

And regarding the Rio Grande do Sul situation, I mean, as you know, this has been an extremely severe and dramatic situation in the whole state. And I think we -- our people has been affected. We had about 185 people that was affected, their houses were affected. We were able to support our people and also support the community. So that's the most important thing.

I think the state will continue, I think, recovering for many months to come. Normality has not yet arrived, I mean, the airport is still closed, et cetera, et cetera. I think people has been showing their energy and their motivation, and I think everybody sort of are rising up. And we can feel it from our own team that have show enormous energy, not just to maintain our operations, but also to help in the communities, et cetera.

And we see that also across the state. So we want to recognize the tremendous effort that our people have done and, in general, all the people from Rio Grande do Sul to rise up after this huge calamity. And regarding the impact in our operation for second half, no, we don't see -- I mean we have to spend more money in to repair roads where we -- our forestry trucks go through that kind of things and making some adjustments in our inland logistics, but nothing really of size.

[Guilherme Viesi, executive]

Just to complement Raimundo, just as he said, we have a very much committed team operating in Brazil. But also, I want to add that our assets were not affected at all. Fortunately, the mill is running very normal, in a very normal way. Of course, during the flooding moments, there were many of our forest operations that were stopped, but our contractors and everybody then is back since end of May in a very normal way. And so we are receiving the wood that we need for operating. And logistics is back since 1.5 months ago and without problems. So supplying our customers in a very regular way.

[Henrique Tavian Marques, analyst]

Got it. Just a follow-up, if I may. On the Pulp business, I think, correct me if I'm wrong, but I believe the plan was to deliver a 20- to 25-ton decrease in cash costs compared to the average from 2023. And we've seen cash cost decreasing. I just want to know, can we expect any further improvement from current levels? Should we see that flattish stable levels through the remainder of the year? I just wanted to understand what you guys are seeing for cash cost in the Pulp business.

[Raimundo Varela, executive]

Thank you for recognizing our progress on cost. It's something that we have put a lot of effort and energy. It's a program that will be with us for several years. I think we are progressing extremely well in our Guaíba mill in cost. In the Chile mills as well, maybe a little bit slower, but we're also on the right track. So yes, I would think that you guys should expect some improvement in our cost in the following quarters and years. Again, as I said, it's a program. One of our pillars of our strategy is competitiveness.

[Claudia Cavada, executive]

[Operator Instructions] I see here Alfonso Salazar from Scotiabank.

[Alfonso Salazar, analyst]

The question that I have is related to the cost structure and in the Pulp business. Can you remind us how much of your cost is in U.S. dollars for softwood and hardwood, please?

[Fernando Hasenberg, executive]

Thanks, Alfonso, for the question. It's not that easy to be answered. More than differentiating between softwood and hardwood, I will start differentiating between Chile and Brazil. In Chile, as a rule of thumb, 70% of our costs are in dollars; and in Brazil, it's the other way around. It's probably 70% in reais and 30% in dollars.

But of course, when you do a double-click in Chile, we do buy some wood in the market. So when you compare softwood and hardwood, the case of hardwood, some of the hard pulpwood is sold in dollars in Chile because it can be exported, and it's not the case in softwood. So when we buy pine in Chile, that wood is traded in pesos. So the percentage of pesos in the softwood cost is a little bit higher than in hardwood. That's a very general explanation, but I think it's a good way of looking at that.

[Alfonso Salazar, analyst]

Yes. That's very helpful. Just a follow-up on China's market. And more than in the short term, what do you think -- and I want to relate the question on China to the Natureza Project because what we see is that there are some announcements of new pulp mills to be developed over the coming years. And what the market is expecting, a continuation of demand over the coming years. What could go wrong in China that could put us on hold the project in Natureza? What is your expectation? And what could be the risk, the major risk that you see in terms of demand in China?

[Raimundo Varela, executive]

Thank you for the question, Alfonso. This is Raimundo. I think -- well, first, I think our -- we have a very diversified portfolio of sales in our Pulp business, and we plan to continue that way. So some of the Natureza volume will go to China, but a lot of the volume will be diversified across all our sales in the world. So that's first.

Second, I think we believe that China will continue to grow growth in their tissue -- their paper demand, and some of that will be supplied with the domestic production as it has happened. But I think they will need -- they will continue to need large amounts of imported pulp. I think we see -- it's very difficult for them to really be able to fulfill all their needs with local production. So I think market pulp will be needed.

But I think in complement with locally produced pulp with imported ships, we know that ships is also not that easily available around the world. The nonavailability of ships have been mostly coming down or stable, not -- definitely not going up. So again, we are optimistic about the prospect for the pulp demand in the next years.

[Alfonso Salazar, analyst]

Okay. And just a final question on trade. What we are seeing is trade tariffs in many other industries, especially in some industries that are related to problems of overcapacity in China like steel or high technology like EVs, and I don't think that at this time, we are thinking that the paper business would be affected that badly as we see in other industries.

But how do you see the situation in the case of China? Especially just thinking in the case of paper, they produce too much paper for exports. How that can change over time your base of customers going forward? Because there is a lot of capacity in China to produce paper there and then export from China. Is that something that would change because of this trade in the future because of trade restrictions? So how do you see this unfolding?

[Raimundo Varela, executive]

The second question, I think -- I mean paper is a very basic product, and it goes to very basic needs. So we don't see paper being affected by trade tariffs. We really think they will not be affected. And I think the Chinese exports on paper are -- they are relevant to complement. I mean the paper players in China, they depend on the local market, I think, mainly, and they complement with exports, no?

So I think when exports are kind of affected like right now because of the high freights, you see a reduction in paper export. But they don't put the mills to export. That's -- I mean they don't make enough money. The economics are just not there for that to be the rationale behind. So again, we don't think that this should affect the paper industry.

[Claudia Cavada, executive]

We have a question from Itaú, Marcelo Furlan.

[Marcelo Furlan Palhares, analyst]

My question is related to the capital structure and the capital allocation going forward. You guys ended this quarter with financial average around 3.8x. And here, we are having these downside pulp cycles for the second half. So I'd like to understand, what are the main strategies here to maintain the financial average at still healthy levels going forward and also the main strategy regarding the debt profile for the company?

And looking for the medium term, you guys have the Natureza Project, which will then require some higher CapEx disbursements going forward. So until there, would like to understand, what are the main capital allocations for the company until the CapEx for the potential Natureza Project goes to initiate? So these are my questions here, guys, related to the capital structure and also to the capital allocation for the medium term.

[Fernando Hasenberg, executive]

Thanks, Marcelo, for your question. As I mentioned, we expect for the end of the year for the net debt-to-EBITDA ratio to be closer to 3x and, from then, to continue to improve until 2026 when we should take the project, the Natureza Project for Board approval. As we have mentioned and it was published on the press release, still the CapEx for Natureza is in the range of $4.5 billion, and we are working with that number.

And in the meantime, as I also mentioned, we have been very restrictive in capital allocation. We have been reducing and we have been very more selective on projects going forward. Our estimation for this year is that CapEx is going to be more in the close to $600 million, low -- much lower than what we had in the last couple of years. And the number should be in that area in 2025 as well so we can be ready for the Natureza Project.

[Claudia Cavada, executive]

I have -- I see another question related to financial leverage. So what's a comfortable leverage level to start the Natureza Project?

[Fernando Hasenberg, executive]

Thanks for the question. It will depend on how we define to finance the project, and that hasn't been defined yet, right? But we should be in the range of -- in the area of 2x net debt to EBITDA.

[Francisco Edwards, executive]

Yes, our policy.

[Fernando Hasenberg, executive]

Yes. And yes, remember that our internal policy is to be between 2.5 and 3.5x. But we -- but to start a project, we should probably should be below that range.

[Claudia Cavada, executive]

Okay. Thank you. I'm reading the questions here in the chat box. More questions on what has been the performance in the business of Softys in Argentina, opportunities and upsides given the -- that there are more opportunity given some [ rigid ] benefits for companies and et cetera, Argentina in general?

[Guilherme Viesi, executive]

It mentioned Argentina, if you want, Softys in Argentina, we have had actually a good year for Softys in Argentina. It has to be with the increase in prices during the first quarter and still with a lower costs because of inventories at lower costs. So still getting results in Argentina, although, as I mentioned before, the customer is much weaker today. Of course, the situation in Argentina, it's a good news that inflation is getting better. But we see a second semester more affected in Argentina. This is the answer for that.

So at the end, as a summary, I mean, we had the opportunity to increase prices, and many other companies did that because of the actually problem with the cost, we increase importantly prices. And it means for us that the first semester has been a good one.

So this -- and regarding competition in Brazil, I guess I already mentioned that there's more capacity in Bracell, starting with new paper machines, also Suzano consolidating its tissue business during the year. So I would say, we are facing more competition in Brazil in tissue, especially looking at price level today in the market that is a very low one.

[Claudia Cavada, executive]

Okay. I don't see more questions here. So just, of course, to thank you all for joining us today for your question and participate, and have a good day.