Empresas CMPC SA

SGO:CMPC

Earnings Call Transcript

[Operator]

Hello, everyone, and welcome to the Empresas CMPC Fourth Quarter Earnings 2019 Results Conference Call. On the call today with us are Ignacio Goldsack, Chief Financial Officer; and Colomba Henríquez, 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 to -- and events to differ materially, and I'll refer to you to the company's press release and regulatory filings for discussions of those risks. In addition, statements during this call include statements related to conditions in the global pulp, personal care, forestry products and paper and packaging markets are based on management's views as of today, and it is to be expected that future developments may cause these views to change. Please consider the information presented in this slide. The company may, at some point, elect to update the forward-looking statements made today, but specifically disclaims any obligation to do so, except where required by law.

And I'll now turn the floor over to Mr. Ignacio Goldsack, Chief Financial Officer. Please go ahead, Mr. Goldsack.

[Ignacio Trebilcock, executive]

Thank you, and welcome, everyone, to our fourth quarter 2019 results conference call.

Starting on Slide #3 of the presentation, the fourth quarter continued to be impacted by the weakness in global pulp prices. EBITDA for the quarter totaled $223 million with a positive EBITDA declining as a result of lower pulp prices. Both Biopackaging and Softys EBITDA increased during the quarter, boosted by higher sales volumes and lower operational costs, reinforcing our diversification strategy. During the fourth quarter, we consolidated the Sepac acquisition. This was a milestone acquisition for the Softys business as it reinforced our leading position in the Brazilian tissue market and brings us closer to our goal to be a leading player in the Latin American business. It already contributed with a solid operational result during the fourth quarter, and we expect to continue taking advantage of this situation in the coming years. Finally, we were able to close 2019 with a prudent net debt-to-EBITDA level and a strong liquidity position, fully complying with our financial targets.

Now turning to Slide #4. We continue to see a decline in pulp prices during the fourth quarter, which, together with a lower pulp production, led us to a 34% quarter-on-quarter decrease in EBITDA in the pulp business. On the other hand, the value packaging division showed improved results during the fourth quarter, in line with the seasonal increase in the corrugated segment's lower operational costs. Also, the Softys business posted a positive result posted by the Sepac acquisition and lower operational costs. As a result, the company's fourth quarter EBITDA reached $223 million, down 22% quarter-over-quarter and 45% year-over-year. CapEx increased mainly due to the Sepac acquisition, leading to a negative free cash flow of $186 million during the fourth quarter.

I would like now to turn the call over to Colomba Henríquez, our Head of Investor Relations.

[Colomba Benavente, executive]

Thank you, Ignacio, and good morning, everyone. Please turn to Slide 5 of our presentation, where we provide more color on consolidated operating costs and other operational expenses for the fourth quarter of 2019.

Cost of goods sold reached $942 million, a 2% increase compared to the previous quarter and flat compared to the previous year. Consolidated operating costs represented 69% of total revenue, up from 65% in 3Q '19 and 61% in 4Q '18. This 2% sequential increase was primarily due to higher operating costs in the pulp division related to proper maintenance stoppages and forest protection, partially offset by the lower direct costs in pulp as a result of lower sale volume and in Softys, driven by lower pulp prices and efficiency and productivity initiatives. The year-over-year result is primarily due to higher sale volumes in all 3 business divisions, resulting in an increase in operating costs, mitigated by the positive effect of lower direct costs.

Consolidated other operating expenses reached $207 million for the quarter, a 3% sequential increase and a 5% increase from the previous year, representing 15% of total revenue, slightly higher than the 14% reported in 3Q '19 and above the 13% reported in 4Q '18. This quarter-over-quarter increase is due to higher administrative expenses in all 3 business divisions, partially offset by lower distribution costs in pulp. The year-over-year increase is related to higher administrative expenses in pulp and Softys.

Moving to Slide 6 now. We will take a closer look into our pulp business results. Pulp production totaled 969,000 tons, decreasing 8% quarter-over-quarter and 6% year-over-year. Pulp production was impacted by the scheduled maintenance downtimes at Laja, Santa Fe I and Guaiba I. And also, Santa Fe II and Guaiba II had a lower operational rate during the quarter. Pulp prices during the fourth quarter of 2019 reached $542 per ton for softwood and $495 per ton for hardwood, decreasing 33% and 32%, respectively, since the previous quarter.

Total market pulp sale volumes decreased by 5% quarter-over-quarter and increased 8% year-over-year. Looking at our quarter-over-quarter performance, we saw a 4% decrease in hardwood sales and a 7% decrease in softwood sales. The quarter-over-quarter decrease is explained by lower exports to China, Europe and Latin America in the case of hardwood and to Asia and Latin America in the case of softwood. For the year-over-year comparison, sale volumes were up 16% for softwood as a result of higher exports to Asia and 7% for hardwood, with higher exports to Asia, the U.S. and Europe.

Third-party Forestry sales volumes decreased by 10% quarter-over-quarter due to an 18% decline in sawing logs sales related to higher intercompany sales in Chile and 31% lower pulpwood sales in Chile and Argentina, an increase of 15% in softwood as a result of higher sales to China, Middle East and Latin America as well as a 10% increase in plywood related to higher sales in Chile, Latin America and Oceania, partly compensated the negative effect during the quarter. Year-over-year, Forestry sale volumes to third-party grew by 8%. During the quarter, we saw a significant increase in pulpwood volumes with higher sales in Chile and Argentina. This was partly offset by a 28% decrease in sawn wood sale volumes as a result of lower sales to Asia, excluding China, the Middle East and Chile. Due to the previously highlighted effects, revenues of our Pulp & Forestry business decreased by 11% sequentially and 26% compared to 4Q '18.

EBITDA was 34% lower sequentially and 60% lower compared to 4Q '18. Breaking down the quarter-over-quarter EBITDA decrease, we can see that it was primarily due to lower pulp prices as well as lower sale volumes of both fibers. In addition, there were higher operating costs related to maintenance downtime and forest protection. In the year-over-year comparison, the decrease resulted largely from lower pulp prices, which decreased by 33% for softwood and 32% for hardwood. Higher pulp sale volumes partly compensated the negative effect of lower pulp prices, together with lower maintenance and distribution costs.

Moving to Slide 7. We will take a closer look at the Softys business. Softys revenues increased by 6% quarter-over-quarter and by 10% year-over-year, reaching $558 million. Tissue paper sale volumes increased 10% compared to the previous quarter and 15% compared to 4Q '18. Quarter-over-quarter, we registered higher sales volumes in Brazil related to the consolidation of Sepac. Year-over-year, the increase was offset due to higher sale volumes in Brazil as well as higher volumes in Mexico and Argentina.

Personal care product sale volumes grew by 3% compared to 3Q '19 and 16% compared to 4Q '18. The quarter-over-quarter increase was due to higher baby diaper volumes in Brazil and wet wipes in Chile. In the year-over-year comparison, personal care sales volumes benefited from baby diaper sales growth with significant increases in Brazil and Argentina. Also, there were higher sales volumes of wet wipes, highlighting the growth in Chile and Peru. Average sale prices measured in U.S. dollars were 5% down for tissue paper and increased 6% for personal care products. The decline in tissue paper prices is related to the depreciation of local currencies, especially the Chilean peso and the Argentinian peso as well as a change in the product mix. The increase in personal care products is related to higher prices measured in U.S. dollars in Argentina and Brazil as well as a change in the product mix.

Softys EBITDA reached $64 million during the quarter compared to $60 million in 3Q '19 and $25 million in 4Q '18. The quarter-over-quarter increase relates to the Sepac acquisition as well as lower operating costs as a result of lower pulp prices, partly compensated by the negative effect of local currency depreciation and higher administrative expenses. The year-over-year increase is also driven by the Sepac acquisition and lower operating costs related to lower pulp prices, operational efficiencies and higher prices in local currency.

Now moving to Slide 8. We can see further detail on the Biopackaging results. Sales volume to third parties increased by 6% quarter-over-quarter as a result of higher volumes of corrugated paper and corrugated boxes as well as higher boxboard exports. Year-over-year, volumes increased 9% as a result of higher sales volumes of boxboard with higher exports to the Middle East, Asia, excluding China, and the U.S. and the higher sales of corrugated paper. This was partly offset by lower volumes of salmon and fruit boxes in Chile and lower paper bags sales. Average sales prices decreased 4% sequentially and 9% annually. As a result, revenues increased by 2% quarter-over-quarter and decreased 1% year-over-year, reaching $220 million. The Packaging business EBITDA reached $13 million, showing a 12% increase quarter-over-quarter and a 17% increase year-over-year.

The sequential increase is mainly related to higher sale volumes of corrugated boxes and corrugated paper as well as boxboard, partly compensated by lower prices. Costs were stable as the increase in sale volume was compensated by operational efficiencies. The annual increase is mainly from higher boxboard revenue, lower operating costs related to lower fiber costs and operational efficiencies and lower administrative expenses.

Ignacio will now go over our financial position. Thank you.

[Ignacio Trebilcock, executive]

Thank you, Colomba. Please turn to Slide #9.

Free cash flow was negative $186 million during the fourth quarter compared to a positive $261 million last quarter and a positive $221 million in the fourth quarter of last year. As I mentioned earlier, CapEx increased as a result of the Sepac acquisition. Also, EBITDA decreased in line with lower pulp prices. Both effects offset the positive $126 million working capital variation during the fourth quarter of 2018.

Our cash position reached $615 million, decreasing as a result of the negative free cash flow and as we disbursed the remaining portion of the CMPC 2019 bond. Also, we took some short-term debt during the quarter, which was paid during January after the $500 million bond issuance. As a result of this, our net debt closed the quarter at $3.3 billion, increasing 11% compared to the last quarter.

Moving to Page #10. Looking into 2020, we remain fully committed with the execution of our strategy while maintaining our financial ratios within our internal policies, understanding that in this volatile environment, we have to be prudent and flexible when looking into the future. We will continue working on the operational efficiency and productivity initiatives we have been implementing during these last years.

CapEx for this year should be in the range of $400 million to $500 million, which includes maintenance and some minor growth projects in all our business divisions, where we continue analyzing opportunities that could contribute to consolidating our leading position in the business where we operate.

I would like now to mention that Mr. Francisco Ruiz-Tagle, CMPC's CEO; and Mr. Raimundo Varela our Pulp Commercial Director, are also joining the conference call. They will be also available for questions you may have. Now, operator, please open the floor for questions.

[Operator]

[Operator Instructions] Your first question comes from Thiago Ojea with Goldman Sachs.

[Thiago Ojea, analyst]

My first question is regarding the outlook on pulp prices, if you can discuss a little bit the situation in China and how your shipments to the region are going right now would be great. And the second is regarding tissue. Do you see an extra demand on tissue due to the coronavirus? Do you think this could be a potential source of extra revenue?

[Raimundo Varela, executive]

Thank you for the question. This is Raimundo Varela. We have seen a very active market in the first months of 2020, a very healthy market, actually, both in Europe, in the U.S. and in Asia as well, both in long fiber and in short fiber. Our shipments have been performing very well with some minor delay because of the container shipments into Asia. But in our case, it does not represent a huge volume, some delays because of the coronavirus and the blank sailings of the shipping line, but without any relevant impact. And the China market itself, well, of course, the Chinese New Year normally creates a much wider market in January, that's normal, and this year was the case. And then it was extended. But coming back from this extended Chinese New Year, we were positively surprised with a very active market, people buying their regular volumes in both fibers, and we were even able to increase our long fiber prices in February. So we're quite positive about the market in Asia and also in the rest of the world.

[Ignacio Trebilcock, executive]

Well, in connection with the question about tissue, well, probably early to say if we could have any extra revenues connected with the coronavirus. But of course, we have been hearing that, I know in Asia and China, probably could be more demand of these kind of products because of the coronavirus. And also -- probably you also have seen in the press that there's some camps with Australia mentioning that they could consume more tissue because of this. But honestly, it's too early to mention that it is a good news for tissue. Nothing to do with that.

[Thiago Ojea, analyst]

Just to confirm, so you're not seeing any weakness on Chinese demand?

[Francisco Edwards, executive]

Nothing relevant, really. I think we have seen some delays on the withdrawals from Chinese ports into the customer hands. You look at the figures from the terminal. The stocks at the terminals have been increasing, and that has to do mainly with the slower withdrawals because of logistical issues. So less people working during a few weeks in China and, therefore, slower withdrawals. But that's not related really with demand, but more with logistical constraints. But the volume we were able to sell in February. We actually have more demand than what we have for sale. So we saw a normal demand. And again, there have been some problems in the logistic area within China, but we are not seeing an impact in the demand. We have seen some sectors like the tissue in China require more pulp because they are producing -- I mean, there's an overcapacity in tissue, and the demand is better than expected because of these buyers. And some other segments that have been slightly under -- and under requested with less demand because of the same situation. But all in all, you are at normal market.

[Operator]

Your next question comes from Jens Spiess with Morgan Stanley.

[Jens Spiess, analyst]

Yes. So on tissue, could you maybe elaborate on the percentage of your -- the EBITDA that was attributable to Softys in the fourth quarter? And also, your expectations on the ramp-up of the Zárate mill, by when do you expect to have it at full capacity? And given the current economic situation in the country, do you even think that will be achievable? And also along those lines, where do you think -- where are -- do you -- are you looking at what markets to expand next tissue capacity?

[Colomba Benavente, executive]

Jens, this is Colomba. So EBITDA for Softys represented around 17% during 2019, of course, a lot higher than what we had last year. And of course, that is a combination of the decrease or mainly due to the decrease in pulp prices, which helps the Softys costs. The Zárate mill started at the end of February. We produced the first jumbo roll, I think, in February 26. So the mill has been operating well, and we expect a 6-month ramp-up period.

[Francisco Edwards, executive]

I'm connected -- I'm sorry, I'm connected with the strategy you are asking us. Well, first of all, of course, as Colomba said, this new investment in Zárate is just starting in the period of the ramp-up, very normal, everything on time and on budget. And in connection with the growth strategy that we have mentioned before that -- well, the region is very important for us. So in general terms, we are -- we continue with our efforts in being more important in the region. We don't see any problem in selling the new investment in Argentina even in -- even considering the -- some problems with economy and with the rest of the region. We -- as you know, we started with a new investment in Brazil, Sepac last year, and pretty much connected with our strategy and what we have said before. And so the plans of CMPC in terms of growing this business continues in that -- in the same way.

[Jens Spiess, analyst]

Okay. And regarding the first question, and sorry, what's the percentage of Softys EBITDA that was attributable to setback approximately?

[Francisco Edwards, executive]

Regarding that question, we consolidate the Sepac acquisition by the end of October. So not the whole quarter. It was, say, about 8%, probably something like that. It was like -- what was the EBITDA of -- remember that? So I would say that it has been in line with our expectations, perhaps even a bit better. We maintained the guidance we provided last year with a range of $40 million -- between $30 million to $40 million EBITDA contribution for the whole year.

[Operator]

Your next question comes from George Staphos with Bank of America.

[George Staphos, analyst]

Two questions. First, in terms of Softys, can you talk a little bit more about what was driving the mix? I think you said that mix was a bit negative in the quarter. If you could get into why that was the case, and also why direct costs were lower for Softys. And then with pulp, recognizing that, gentlemen, you're seeing normal demand right now in China, is there anything that you would be doing prudently to manage the supply chain, given the risks that demand may fall off even if you're not seeing it currently within China? Might you take a bit more maintenance in upcoming quarters just to maintain supply-demand balance? What are you doing differently, given the uncertainty of China? And how did the mills come up, just last point here, from maintenance in the fourth quarter? Did you have any operating issues as the mills came out of maintenance? Good luck in the first quarter.

[Colomba Benavente, executive]

George, Colomba here. So regarding your question about -- so your question about the Softys direct costs and the product mix. So during the fourth quarter, given the situation we had here in Chile, we did have kind of a change on the, let's say, sales mix or sales network. We used to sell a lot more in the retail side, and now we're selling more in the traditional market. And that leads to a lower, let's say, average price in Chile for a lower product mix. And I would say that is going to be our -- the main reason behind it. And in terms of direct costs, of course, we have, first, lower pulp costs. That is one important factor. We also have some cost reduction because of some cost efficiencies in the Softys business.

[George Staphos, analyst]

That's what I was getting at.

[Colomba Benavente, executive]

But also, we have the cessation of local business affect -- also have an effect on lower costs as they have lower sales. So we have all those effects running together.

[Raimundo Varela, executive]

And regarding the second question, this is Raimundo, our target stocks are very normal. And I think we -- from Q4 already, I think we reached our normal stock, which is around 500,000 tonnes. And during Q1, it has been also the case. So I think we do not see, at the moment, any need to take measures. We do have relevant maintenance in Santa Fe and Guaiba during January to April this year. And so we don't -- this is not a period of time where we have huge production because of the -- of this maintenance. And we are taking some measures like adjusting the proportion of our shipments that we do, break bulk versus containers. We're doing a bit more break bulk, a bit less containers. Because as I said before, that part has been -- some has some impact, and then, therefore, we're doing a bit more break bulk for a few months to reduce risk of our pulp arriving on time at the market.

[Operator]

Your next question comes from Thiago Lofiego with Bradesco BBI.

[Thiago Lofiego, analyst]

Raimundo, if I may explore a little bit more the demand situation in Asia, and, also, we could talk a little bit about Europe. But just in Asia, you mentioned your shipments are normal at this point, right? But is this pulp, in your view, being consumed? In other words, how do you see the virus situation impact and user paper demand in Asia at this point? And then within this same question, do you see the possibility that this positive momentum that we have been seeing over the last couple of months in terms of positive price expectations, price hikes expectations, do you think this momentum is fading away and potentially delayed, postponed to the second half of the year because of the virus situation? Or this is not your interpretation at this point? And also, last point, then going to Europe, how do you see the inventory situation in Europe impacting pricing dynamics for pulp? Those are my questions.

[Raimundo Varela, executive]

Yes. Thank you for the questions. I think what we have in Asia is that the -- and this is our customers. I mean I cannot talk about all customers, but I can talk about our customers have been producing pulp on a normal basis. I mean, again, overall, in the Tissue segment, our Tissue customers in China, they are producing more than normal. I mean, regularly, they do not produce 100% capacity because of the overcapacity that their systems have. But during this period, they are producing -- I mean, I cannot tell you are right, but much -- they're demanding more than normal, and that pulp is being consumed. We do know that some of our customers also are buying a little bit less. Those that are more on the packaging segment, on the specialty papers, are producing a little bit less and demanding a little bit less. Nothing dramatic, but a little bit less. Overall, volumes for our customers are normal. And according to our people in the ground, that pulp is being consumed. With this caveat that I said more on the tissue segment, a bit less on the other segment.

Regarding the comment about the positive momentum and price expectations, we believe that the momentum is still around. We do not expect to be postponed to second semester. I think we see that April, latest May is where we will see price increasing because the market -- we see the market relatively tight, to be honest in the short fiber. In the long fiber, it's definitely tight because of the demand and because of the -- of less production, because of the Finnish strike and the Canadian issues. And then in Europe, we have seen the inventories are decreasing, the pulp inventories at the ports, and the demand has been a bit better than expected. I think the Europeans have benefited a little bit of some of the Chinese struggle on the logistics, and they are filling the gap in some of the -- on the export markets. And so I think the European paper exports are probably a bit higher or will be a bit higher. And production -- the demand is a little bit better. I mean, being in Europe is not hugely dynamic, but it's a little bit better than expected.

[Thiago Lofiego, analyst]

And if I may complement on -- in Europe. I'm not sure how big Italy is for you, but if you can give us some color on whether you've seen any impact from demand in Italy, specifically, just for us to understand whether the virus has spread to other regions in the intensity that it did in Europe -- in Italy, what kind of demand impact we could see. If there's any comment that you could make there.

[Raimundo Varela, executive]

Yes. In Italy, as you know, the Tissue segment is extremely strong. They export tissue to several countries around Europe and even outside Europe. So that segment I expect to be -- to benefit from this situation. So far, we haven't heard, and we haven't seen any factory, any paper factory reducing production because of this situation. And again, in the Tissue segment, we'll probably benefit in the -- during this months that they will be affected.

[Operator]

Your next question comes from Ana Sagrera with JPMorgan Chase.

[Marcio Farid Filho, analyst]

This is Marcio from JP. I will stick to one question as requested. Raimundo, can you please talk a little bit about the outlook on -- or maybe, Ignacio, on the pulp production costs? We obviously have been seeing the BRL and the Chilean peso depreciated a lot. That should kind of benefit your cost structure, right? And if I may extend a little bit the question, how you're seeing overall pulp production cost for your peers outside of Latin America as well, let's say, Canada, Europe and especially in Asia, what are your expectations for pulp production costs going forward?

[Colomba Benavente, executive]

Marcio, Colomba here. So you're correct. We will have a benefit from the depreciation of the Chilean peso and the Brazilian real as part of our cost in the pulp business are in local currencies. The impact will be higher in Brazil than in Chile because we are more exposed to the Brazilian real than the Chilean peso. You know we have a lot of costs in dollars here in Chile.

[Ignacio Trebilcock, executive]

But -- Marcio, this is Ignacio. But on the other hand, we have the tissue exposures that is -- belong to Latin American currencies. So that, in some way, is partially offsetting that positive effect. All-in-all, in an aggregate basis, it's positive from the operational side.

[Operator]

Your next question comes from Leopoldo Silva with LarrainVial.

[Leopoldo Silva, analyst]

So looking at the Chilean customs data and knowing that's not 100% reliable, but helps in terms of trends, I see that the European market, which used to represent 35% of the volumes for 2018 and 2019, and which has shown a lot of resilience as for prices in the data from -- in the period from February to November in last year, has finally nosedived in December from $570 to $410 per ton. So -- and staying there in January and, while at the same time, increasing its share to 50% in January. So perhaps despite confirming the market rumors of the applications of higher discounts on the European market, I'm surprised about the magnitude. So my question is, do your volumes going out from Brazil have suffered or faced the same price dynamics in the European market as your Chilean exports?

Second, was the resiliency in February to November due to an especially sticky commercial strategy? And what should we expect coming into 2020? Prices to follow the spot prices or to be more sticky as the -- your European market has been? If you can give us some color in the discounts. Are they as large as you have faced before? Any color on that would be much appreciated.

[Raimundo Varela, executive]

Yes. This is Raimundo. I think a better index to look for the European prices is the ForEx price, and that's published every Tuesday. Our prices in Europe, selling prices reflect that movement, very, very much correlated with that, in particular in the short fiber as well as in the long fiber. In the long fiber, our price -- our radiata has a discount compared with the NBSK. But in the -- on the hardwood, our prices in Europe, it's very much linked or very close or it follows very closely the European ForEx price for the hardware. So I think the Chilean customer data has some delay because in Europe, we sell on a -- we send pulp out of Chile on a consignment basis. And we have warehouses in several places in Europe to supply our customers on a daily basis, on a weekly basis. So I think the Chilean customer data has some delay, and it does not really reflect the price at which we are selling. You looked at their ForEx price that is published every week. I think you will have a much better feel of our real prices in Europe on a weekly basis -- on a monthly basis. Does that answer your question?

[Leopoldo Silva, analyst]

Yes. And about the discounts, have you faced higher discounts as consultants today?

[Raimundo Varela, executive]

Yes, I think -- okay. The European price last year was -- the Chinese price was the one that is coming -- that came down or came lower much quicker than the price in the rest of the world. But in Europe -- but Europe did catch up with China in Q4, yes. Later in the year, the prices in Europe were with a small premium over China, but much, much smaller than earlier on the year. You compare the European fixed price, and you take out the discount and you compare that with the Chinese fixed price, you will see that delay in the prices during 2019. But by Q4, the prices were already very much very near maybe with a difference of about, I don't know, $30, something like that. And I think starting January this year, where the new contract came into effect, the European price is even closer to the Chinese price because of the higher discounts. Yes, we did suffer some higher discounts, a bit less than our competitors, in our opinion, but the discount did increase in Europe, no doubt. But it's still -- with that, the net price in Europe is maybe $10 better than in China currently.

[Leopoldo Silva, analyst]

Okay, perfect. And just one little more. All your pulp stoppages were shorter than previously announced or scheduled. Is there something special? Is there efficiencies? Or where -- or did you -- because you had scheduled them like longer than previous years, around 20 days. Was -- where were you -- had you planned to do special repairs at these mills and that you ended up not doing it? Has this to do with market -- I mean, with the market timing?

[Francisco Edwards, executive]

Yes. This is Francisco Ruiz-Tagle. Connection with the maintenance days we are using in our -- and the period when we're maintaining them in the stoppages are basically connected with being more efficient in -- during the maintenance period. We have been working hard in improving our efficiencies in the maintenance. It has to do with that.

[Operator]

Your next question comes from Alfonso Salazar with Scotiabank.

[Alfonso Salazar, analyst]

Well, most of the questions I had on pulp and tissue are now -- have been addressed. The question I have is in Biopackaging business. If you can elaborate a little bit on your short-term expectation. And then in the long-term expectation for this business, what is going to be the impact that you see in the short term due to the coronavirus? And then in the long term, what are the opportunities, the strategy that you plan to establish to compete with other products for packaging like plastic? So if you can just comment something on this to the long term and the short term for the business.

[Francisco Edwards, executive]

Yes. As we -- this is Francisco. As we have said before, Biopackaging is an important within the fiber for us in terms of opportunities. We have been focusing our efforts in being better, and we have been working a bit much more efficient in boxboard, for instance. And we are increasing our sales in boxboard, and mainly because we are -- we have now our Maule mill, especially where we invested a couple of years ago. We have now totally productive that mill. So we are selling more. And of course, we see in that business an important advantage. And for CMPC, for continuing our -- growing in that business and looking to the future, and then -- and on the packaging and the other business like box -- like corrugated boxes and, et cetera, still looking for opportunities and improving mainly efficiencies in the mills we have now and growing with good opportunities about growing sales. And softwood, for instance, we are selling in different countries. And we see, again, good opportunities for CMPC to continue growing in that market. And in boxboard, we're mainly in the domestic market. So we have challenges in this business.

[Alfonso Salazar, analyst]

Okay. Anything about the impact in the short term that you can foresee?

[Francisco Edwards, executive]

I -- in Biopackaging, I'm not seeing actually some important impact. We are selling normally. Probably what the problem that you get -- could happen in almost every business that we have currently -- there are some problems with their containers coming from China. Some of these products are, as you know, shipping containers. So -- but basically, until now, we have been with a normal -- very normal operation in general. No important impact, negative or positive. I mean, very, in general, normal.

[Operator]

Your next question comes from Ana Sagrera with JPMorgan Chase.

[Marcio Farid Filho, analyst]

Ignacio, can I ask you about capital allocation going forward, please? CMPC's balance sheet is -- leverage is back at 2.8x. This all, obviously, driven by a combination of higher CapEx with the Brazil acquisition and lower earnings because of where pulp prices are. But I mean, for 2020, what are the main targets here in terms of leverage, in terms of capital allocation? And if you can also discuss a little bit how you're thinking about potential growth strategy in the mid to long term as well.

[Ignacio Trebilcock, executive]

Marcio, well, regarding CapEx, we provided a guidance for this year in the range of $400 million to $500 million. And that figure includes, of course, maintenance, plus the completion of the Zárate mill. We already did some minor projects in different several areas like environmental improvements, operations, et cetera. Of course, we have flexibility, and we will -- we can evaluate and reevaluate this figure along the year. Regarding the capital structure, we expect to be in the range of our financial policy. Our financial policy is from 2.5 to 3.5x net debt to EBITDA. And of course, higher pulp prices will contribute to return to our target levels. That means to be in the lower part of the range. But this current situation on volatility could, of course, provide some extra volatility inside the range.

[Operator]

There are no further questions at this time. I'll turn the call back over to Colomba Henríquez.

[Colomba Benavente, executive]

Well, thank you all who participated on the call today. I hope you have a nice weekend. Bye-bye.

[Operator]

This concludes today's conference call. You may now disconnect.