Empresas CMPC SA

SGO:CMPC

Q3-2025 Earnings Call

[Sebastian Moraga, executive]

Hello, everyone. I'm Sebastian Moraga, recently appointed as CFO of CMPC. I would like to welcome you to our third quarter 2025 earnings webinar. Joining me today are Francisco Ruiz-Tagle, CEO of CMPC; Gonzalo Darraidou, CEO of Softys; Guilherme Vesi, Chief Commercial Director of CMPC Pulp; and Claudia Cavada, our Head of Investor Relations.

Please note that statements made today during the presentation and Q&A may include forward-looking statements to assist you in understanding our expectations for future performance. These statements are subject to some risks that could cause actual results and events materially differ. As the slide shows, in the third quarter of 2025, sales amounted roughly to $1.9 billion. EBITDA was $260 million and net income was $34 million. The Pulp business generated an EBITDA of $162 million with an EBITDA margin of 22.5%. The Softys business reported an EBITDA of $95 million, increasing 16% quarter-over-quarter and decreasing 13% year-on-year with an EBITDA margin of 11%. This business has experienced increased competition in its market, especially in Brazil, where the tissue paper installed capacity has increased substantially.

Also, a weaker macroeconomic scenario impacting consumption in several markets, specifically in Mexico and Argentina, has limited the ability to increase prices. Biopackaging reported an EBITDA of $18 million during the period with a margin of 6.8%. The fluctuations of these 3 businesses versus previous quarters are highlighted in the slide. In the third quarter, the composition of CMPC sales was $721 million from the Pulp business, $873 million from Softys and $266 million from Biopackaging.

The quarter-on-quarter variation is explained by the sale of a noncore asset in the second quarter of this year for $71 million corresponding to TENSA, the electricity transmission line. At business level, Pulp decreased 5% quarter-on-quarter on lower international price of pulp, while Softys increased 7% on better volumes and FX variations. Biopackaging increased 4% on higher sales volume.

The year-on-year variation reflects a 16% drop in Pulp sales explained by a lower average price, which was partially offset by higher volume. In Biopackaging, a 4% drop was recorded as a result of a lower average price. And in the case of Softys, a 3% increase was observed explained by higher sales volume accompanied by a lower average price in U.S. dollar terms.

Operating costs increased 1.5% quarter-over-quarter and 3% year-over-year. Operating costs increased both quarterly and yearly, mainly due to higher sales volumes in Pulp and Softys. Other operating expenses amounted to $335 million in the third quarter, increasing 3% quarter-on-quarter and 5% year-on-year. Both variations were related to higher expenses in Softys and to a lesser extent, in Biopackaging. This was partly offset by lower expenses in the Pulp business. Given the aforementioned effects on a consolidated basis, the company's third quarter EBITDA was $260 million, where the contribution of the Pulp segment was 59%, Softys was 34% and Biopackaging was 7%.

Net income totaled $34 million during the period, a decrease from $81 million obtained in the previous quarter and from $147 million obtained in the third quarter of last year. The quarter-on-quarter decrease was driven by a lower EBITDA explained mainly by the sale of TENSA in the second quarter of this year. In a year-on-year comparison, the decrease in the net income is largely explained by a lower pulp price.

On capital expenditures in the third quarter, it totaled $176 million, which compares with $327 million reported on the last quarter and to $194 million recorded on the same quarter of last year. The quarter-on-quarter decrease is related mostly to the acquisition of Falcon's Personal Care operations in Brazil for an amount of $124 million. Now I'd like to turn the presentation over to Claudia, who will provide more details on our results by business.

[Claudia Cavada, executive]

Thank you, Sebastian, and good morning, everyone. We will begin with the Pulp business. In the third quarter, our total pulp production reached 1,093,000 tons, up 3% quarter-over-quarter and 4% year-over-year, mainly due to lower maintenance downtimes in our mills. Breaking this down, hardwood production was 883,000 tons, up 1% quarter-over-quarter and 5% year-on-year. Softwood production was 210,000 tons, a 13% increase from last quarter and a 1% decrease from the prior year. These fluctuations reflect as well our maintenance schedule in our pulp mills.

Looking at our sales volumes, total pulp volumes increased by 2% quarter-on-quarter and 3% year-on-year. In a quarterly comparison, hardwood volume was up 3%, driven by higher exports to China and Latin America, while softwood volume declined 2%. In a year-on-year comparison, third-party pulp sales volumes grew by 3%. Hardwood sales were up 6%, driven by higher exports to Europe, Latin America and the rest of Asia. Softwood sales decreased by 6%, primarily from lower exports to China.

On the pricing side, the average sales price for softwood in the second quarter was $689 per ton, a decrease of 5% from last quarter and 10% decrease from last year. The average sales price for hardwood was $507 per ton, down 8% quarter-on-quarter and down 26% year-over-year.

As a result, revenues for the Pulp business totaled $561 million, decreasing 7% quarter-on-quarter and 19% year-on-year. In our Forestry business, sales volume was 997,000 cubic meters. This is up 12% quarter-on-quarter and up 9% year-on-year, reflecting stronger sales of pulpwood, sawlogs, sawn timber and other forestry products. Combined, total revenue for our pulp and forestry business was $721 million, down 5% from the previous quarter and down 16% from last year.

Next, let's look at the pulp cash cost per ton. For hardwood, cash costs were $219 per ton, a decrease of 2% quarter-on-quarter and a 10% decrease year-over-year. The quarterly decrease was driven by lower cost of chemicals, partially offset by higher cost of energy, wood and materials. Year-on-year, all cost lines decreased. Softwood, cash costs reached $381 per ton, down 1% quarter-on-quarter and up 7% year-on-year. The quarterly decrease was driven by a lower cost of energy, partially offset by higher cost of wood, chemicals and labor.

Year-on-year, the most significant increase was recorded in chemicals and labor. The EBITDA for the Pulp business was $162 million, marking a 5% decrease quarter-on-quarter and a 16% decrease year-on-year. The EBITDA margin was 22.5%. The quarterly year-on-year decrease in EBITDA was mainly due to lower sales price.

Next, let's discuss our Softys business. In the third quarter, Softys revenues totaled $873 million. This is a 7% increase from the second quarter and a 3% increase year-on-year. Let's break down the volumes. At Tissue Paper, volumes increased by 7% quarter-on-quarter and 5% year-on-year. Regarding Personal Care, volumes increased by 6% in the quarterly comparison and by 23% year-on-year. This growth largely reflects in part the integration of Falcon's diaper operations in Brazil. In terms of pricing, the average sales price for tissue products was stable quarter-on-quarter and declined 9% year-on-year. This was a result of currency depreciation across Latin America and the competitive market mentioned before. For Personal Care, the average price increased by 1% quarter-on-quarter and decreased by 8% year-on-year, also reflecting the same reasons.

Softys EBITDA for the second Q was $95 million with a 10.9% margin. This represents a 16% increase from the previous quarter and a 13% decrease year-on-year, which was a direct result of the aforementioned foreign exchange fluctuations and market conditions.

Next, let's discuss our Biopackaging business. Sales volume for the quarter increased by 7% from the prior quarter and decreased by 4% year-on-year. The quarterly improved was primarily driven by higher sales of boxboard, paper sacks, corrugated paper and corrugated boxes. The year-over-year decline was due to lower volumes in boxboard. Our average sales price in U.S. dollars was down, decreasing by 3% quarter-on-quarter and remained stable year-over-year.

As a result, revenues for Biopackaging totaled $266 million, up 4% Q-on-Q and down 4% from the third Q '24. The quarterly increase was a direct result of the higher sales volume. Biopackaging EBITDA for the third quarter remained stable from the prior quarter and down 31% year-on-year. This was driven by lower volumes. Our EBITDA margin for the quarter was 6.8%, a decrease from the 7% we saw in the second quarter and the 9.4% from the third quarter of last year.

[Sebastian Moraga, executive]

Thank you very much, Claudia. We ended the third quarter of the year with roughly $5.1 billion of net debt, cash with $914 million. The net debt-to-EBITDA ratio reached 3.79x, which compares to 3.65x in the last quarter and to 3.3x on the third quarter of last year.

Now I would like to highlight some events that occurred on the third quarter.

Hybrid bond issuances. In August, CMPC completed 2 sustainable hybrid bond issuances, the first in Chile for $400 million. And a few days later, the company issued another $600 million in the U.S. market. Both instruments include the typical features of hybrid bonds and rating agencies consider half of their value as equity until the first call date. These proceeds will be used to refinance debt, support investments and fund other corporate purposes under CMPC's sustainable finance framework. With that, Claudia, we can now start the Q&A section.

[Claudia Cavada, executive]

We welcome your questions. [Operator Instructions] We have a first question coming from Marcelo Furlan, Itau.

[Marcelo Palhares, analyst]

I have 2 as a matter of fact. So the first one is related to capital allocation and financial leverage. So you guys reached this 3.8x net debt-EBITDA ratio in this Q. And we know that the company will propose to the Board next year the Natureza Project. So I'd like to understand what does the company think about the flexibility towards free cash flow generation, CapEx and deleverage and also this potential of Natureza Project. So how do you guys see the current situation and how this could affect the decisions of to have this project approved by the Board next year? So this is my first question.

And my second one is related to pulp prices. So we have seen lately some recent news regarding some softwood mills discussing layoffs in Finland and also some producers opting to make softwood pulps instead of hardwood and so on and so forth. So I'd like to understand from you guys, if you guys have already seen signs of likely shortage of supply for pulp in this month. So these are my 2 main questions here.

Thank you, Marcelo. Nice to meet you. My name is Sebastian Moraga. This is my first conference call. So I will take the first question. So regarding leverage, yes, we posted the 3.79 this quarter. But as we see an improvement in the performance of the business, driven mainly by a pickup on the pulp prices, we should see a deleveraging of the indebtedness ratio. Now we are aware that probably this could not be fast enough to converge with our policy.

And as CMPC disclosed a couple of weeks ago in an interview, the company has been analyzing lately, I would say, opportunities that could be monetized that are embedded in our balance sheet, just to name probably 3 of those. We have extensive forestry capacity of more than 1 million hectares, both in Chile, Brazil and Argentina. On top of that, we have the land of those forests that also are on those 3 countries.

We have, I would say, very valuable real estate assets that today have, I would say, a very high attractiveness on housing and commercial, I would say, interest. So our idea is that we are analyzing not only this, but other, I would say, very valuable assets that we have on our balance sheet in order to, first of all, create value and on the other hand, to monetize them, and that could be a source of, I would say, important liquidity and efficient liquidity. So those are, I would say, what we are -- those levers are where we are working towards, and we hope to give you some more color and detail, I would say, on our next Annual Investor Meeting, which will take place on December 9 of this year.

[Guilherme Viesi, executive]

Dear Marcelo, Guilherme here. I'll take the second question regarding pulp prices and pulp availability. We have seen definitely some curtailment taking place during the Q3, which is not a surprise given the record low prices that we have reached over the past few months. This has triggered some companies that -- especially in the Northern Hemisphere to generate curtailments on the softwood side, but not limited to the softwood side. We've also seen curtailments happening on the hardwood side. And I would add on top of it, the severe weather extremes that have been experienced in Southeast Asia, in Vietnam, in China that have impacted the availability of wood chips, mainly in China. That has led to an inflation on the price of wood chips and as a consequence, has allowed prices of pulp to be increased in China since we have touched the bottom during the August season.

So that combination of factors, very low prices plus inflation in the wood chip costs has allowed us to improve our prices. It's the third price increase that we have managed to pass through in China. And obviously, as a consequence, it has led for price increases in Europe and the rest of the world as well. We expect this trend to continue in future months.

[Claudia Cavada, executive]

We have a next question coming from Henrique Braga from Morgan Stanley.

[Henrique Braga da Silva, analyst]

So what I wanted to discuss is regarding the Natureza project. So you have -- you're still going to present the project to the Board. Just want to understand how do you see the feasibility of this project at current pulp prices and the company's leverage level. If there is a pulp price that would make the product no longer feasible economically speaking. And if we could also discuss what's your outlook for the packaging and the tissue market?

[Sebastian Moraga, executive]

Well, okay, thank you, Emerson. Thank you for your question. Well, regarding Natureza project, Yes, we have been under a deep analysis of the project and engineering studies and preparing the project. And what -- my answer to your question is that we and CMPC, of course, consider the scenarios -- different scenarios of prices, but our view is a long-term view.

So my answer to that is that we are really very focused on our project because we see our project as a very competitive one. And so we are considering when we are ready to present this to the Board for a final approval. And at the moment, we are in a process of having environmental permits and still in progress and hopefully have that ready during the first quarter of the next year. So that's my answer regarding Natureza.

And in connection with Biopackaging, what we have seen is that in some markets, especially in the case of boxboard, we have seen some weak demand, not only in Latin America, but in Europe and other also markets, very much connected with what is happening in general -- in the paper business in general and with the consumption in several countries, weak consumption in several countries affected then the demand of boxboard.

In case of corrugated boxes, we are mainly in Chile. And actually, we are having a very good year in corrugated boxes and having a good position in our market. In fruits, in wines, in salmon, most of this -- or many of the business is going for -- is used for exporting different kind of woods. And in the case of paper sacks, still, I would say, seeing that industry and not in an easy condition because the construction is very much connected with the paper sack business. And still, we see a room for recovery in several countries. We are mainly in Latin America. And we are not seeing in the near future, probably a good moment for that business. Gonzalo, probably about tissue, you can answer that.

[Gonzalo Hernán Darraidou DÃaz, executive]

In terms of tissue, we have different situation according to markets. If we analyze markets like Chile, Argentina, Uruguay, we see that it's very well balanced in terms of demand and capacity. But if you analyze Mexico and Brazil, there is still excess of capacity. According to that -- because of that, we are totally focused and improve our efficiency cost, logistics and improve our execution at podium sales, and we decided to begin to develop strong marketing programs to reinforce our brand in those markets. For the next year, '26 and '27, we see that excess of capacity will maintain in the case of Mexico and Brazil.

[Sebastian Moraga, executive]

Did we answer Emerson, Sorry, Henrique, your questions?

[Henrique Braga da Silva, analyst]

Yes, that is all very clear.

[Claudia Cavada, executive]

[Operator Instructions] the next question comes from Goldman Sachs, [ Emerson Vieta ].

[Unknown Analyst]

I have 2. The first one on the hybrid debt. I couldn't find proper information on those instruments. So just want to clarify a few things. First, I mean, the equity portion of the bond is not considered for the reported leverage ratio, right? And the second one, for the equity portion, I mean, how do they work? Is there any clause that allows creditors to convert their holdings into CMPC equity? If that's the case, I mean, what would be the conversion rate?

And going forward, I mean, is this hybrid debt your preferred mechanism for funding going forward? And just on the tissue business, just a follow-up here. You guys mentioned that excess capacity will remain in 2026, and you have some ongoing initiatives to improve the tissue business cost. So just to clarify, I mean, looking 2027 onwards, when do you guys expect margins to reach that 15% level that you guys have been talking, I mean, for the past couple of months/years, I would say? That's it.

[Sebastian Moraga, executive]

Emerson, this is Sebastian. I will take your first question. First, how is it accounted in our annual report? Yes, we are accounting the 50% equity contribution. So we issued $400 million in the domestic market, $600 million in the U.S. market, total hybrid bond of $1 billion and $500 million, saying 50% of the amount accounts as equity. So to your first question, yes, we are considering that in our net debt to EBITDA.

The second question is, how does it work? Does it have a conversion rate? No, it does not have a conversion rate. The hybrid bond basically is a long-term instrument, which in this case, has a 7-year non-call. And in those 7 years, it has the feature of having 50% equity. After that, the feature does no longer work. Now what it brings, it brings the ability to defer interest if obviously -- if we wish to do, but I can tell you when we consider this instrument, we haven't -- at that point and now we haven't considered deferring interest payments.

I would say in simple terms, that -- those are the main features of the hybrid bond. Now if it's the preferred instrument? I would say no. We have many instruments. We always see them across the board. The hybrid instrument is a very interesting one, but it's not the preferred one. So it's one of many other instruments available in the financial system.

[Gonzalo Hernán Darraidou DÃaz, executive]

Emerson, this is Gonzalo. In terms of Softys margin, first of all, I want to explain to you that at this moment, we're developing very strong programs in Brazil, mainly in Brazil and Mexico in terms of revenue growth management, logistic cost efficiency in our factories and developing innovation and marketing programs in terms to be very close to the consumer and to our customer looking for new products. All of this program will allow us to reach our better margins. And we believe that last quarter, '26 or the first semester of '27, we're going to be very close to our 15 margin points.

[Unknown Analyst]

All right. Just a follow-up here on the funding. You guys mentioned at the beginning that there are other mechanisms for improving liquidity, such as using real estate or monetizing on other assets. I mean, how relevant could those initiatives be in terms of monetizing real estate and other assets?

[Francisco Edwards, executive]

Yes, Emerson, this is Francisco. And it could be really relevant. We have -- we mentioned we have an important forest base. And since -- so we have, I would say, in what way we can monetize that -- there are some of these probably forest base that is not really a strategic part of our forest base for CMPC. So we're taking a look at that, and we already identified some areas. And also, I would say that we can do some off balance operations in order to get financing. And we believe that we have an important base for doing that.

[Claudia Cavada, executive]

Thank you, Emerson. [Operator Instructions] We got a question through the chat box, a follow-up on the leverage calculation of the hybrids reflected 100% as debt on the balance sheet or 50% debt, 50% equity?

[Sebastian Moraga, executive]

Well, when I mean that the -- first of all, in terms of financial statements measured at IFRS, 100% of the total hybrid bond is reflected on the balance sheet. But since credit rating agencies provide the 50% equity component, when we calculated the ratio, and it's clearly stated there, we are not adding 50% of that $1 billion in bond. In simple terms, we took out $500 million of the numerator and divided by the denominator. But again, I believe we -- and if it's not clear, we can have a bilateral discussion, but it's clearly stated on the press release.

Clear? Because this was from the chat.

[Claudia Cavada, executive]

Yes, it's very clear. And yes, we don't have more questions for now, then we can conclude the Q&A session. And before closing this call, we want to recall that next month, on December 9, we will host our Investor Day in Santiago de Chile. That will be in the morning and only in-person event, and we will welcome you if you can attend. For more details, please reach out to Investor Relations e-mail or you will be receiving more information in your e-mail. So that's for now. Thank you for attending today. We close the earnings call. Have a good day.