Empresas CMPC S.A. (CMPC) Earnings Call Transcript

Good morning, and thank you for joining CMPC's Second Quarter 2026 Earnings Call. I'm Sebastian Zuniga, CFO of CMPC. Joining me today are Guilherme Viesi, Chief Commercial Officer of pulp; and Diego Morales, Finance Director, Brazil and Head of IR. Before we begin, please refer to the standard note on the forward-looking statements in this presentation. Before we go into the presentation, I want to share the key highlights of this quarter. The second quarter reflected continued recovery both in pulp and Softys, and at the same time, we are facing some challenges that we believe are important to discuss Being said that, there are the 4 takeaways for this quarter. I'd like you to keep in mind. First, pulp price recovery took hold, a 7% sequential increase in hardwood price together with a 3% reduction in the cash cost, lifted pulp EBITDA 16% quarter-on-quarter to $180 million. This was achieved despite a more demanding environment of higher energy and logistics costs tied to Brent. Second, soft is confirmed its improvement in results. EBITDA reached $101 million, up 4% versus the previous quarter, showing that our efficiency and cost optimization initiatives continue to capture benefits and help offset the brand-related cost headwind. Third, biopackaging had a more challenging quarter. Sales were up 2%, but EBITDA fell to $15 million on continued boxboard oversupply from Asia. -- plus seasonality and one-off costs in corrugated. As we flagged last quarter, we expect the operational and efficiency initiatives underway to translate into a better scenario toward year-end. On leverage, our net debt to EBITDA reached 4.17x and we are very aware that this remains outside our target range. We expect it to decline progressively over the coming quarters as results on cash generation improve, and we continue advancing our asset monetization program to further strengthen the balance sheet, preserving a robust capital structure consistent with international investment-grade rating remains fundamental for CMPC. On Naturesa project, we continue to advance on the enabling conditions. In June, we obtained the Licencia plavia for the Rio Grande terminal, an important step forward. Now to the headline numbers. Sales of $1.9 billion were up 5% compared to the first quarter of this year and essentially flat year-on-year. Consolidated EBITDA was $270 million, at a 14.1% margin, up 6% versus the first quarter, but down 19% versus the second quarter of last year. Net income reached $9 million. We will comment details on EBITDA and net income later in the presentation. Going to the consolidated P&L drivers. On the left, Sales of EUR 1.9 billion broken down by business, pulp at $768 million, softness at $893 million, Biopackaging at $251 million versus the first quarter, pulp was up $37 million, almost entirely on the 7% increase in the average hardwood selling price. Softys added $58 million on the sales recovery in Brazil and Mexico across both Tissue and Personal Care, and Biopackaging was up $4 million on higher falling boxboard volumes versus the same quarter of last year, sales were essentially flat. Softys grew $76 million on higher volume in both Personal Care and Tissue, but that was largely offset by the absence of last year's nonrecurring Tensa sale, which contributed $71 million to the second quarter of last year's sales. Operating cost of $1.2 billion held at a stable ratio at 68% of sales. Other operating expenses of $349 million sat at 18% of sales. On EBITDA, in the quarter, it increased $50 million quarter-on-quarter. This was mainly explained by pulp on higher hardwood pricing and lower fixed costs tied to forest protection. The latter was partially offset by the brand-driven increase in logistics and selling costs. Softys added $4 million and Biopackaging subtracted $8 million on lower falling boxboard EBITDA and corrugated seasonality versus the same quarter of last year, consolidated EBITDA was $62 million lower. The largest single driver in the comparison base, which included the Tensor sale, a $46 million EBITDA impact in the second quarter of last year that did not repeat. EBITDA was also down $25 million on higher brand-related costs, which increased forestry harvesting transportation, energy and raw material costs. This was partially offset by a $19 million improvement in Softys. Net income came at $9 million, down 65% quarter-on-quarter and 89% year-on-year. Compared to last quarter, despite the $50 million EBITDA improvement, net income was pressured by foreign exchange losses in reais and Mexican denominated liabilities as both currencies appreciate, a lower price level restatement benefit given a smaller hyperinflation adjustment in Argentina. Year-on-year, the decline mainly reflects the lower EBITDA and the FX losses on the Brazilian and Mexican denominated liabilities, partially offset by a $25 million income tax benefit this quarter versus $10 million expense on the same quarter of 2025. CapEx came in at $170 million, down $15 million sequentially and down EUR 157 million year-on-year. The year-on-year decline reflects the Falco acquisition that was part of second quarter of 2025 space. We had no inorganic growth spent this quarter, consistent with the capital discipline we are applying given our current leverage. Now I'd like to turn the presentation over to Diego, who will provide more details on our results by business.

Thank you, Zuniga, and good morning, everyone. On Pulp business, during the second quarter, sales reached $768 million, up 5% versus previous quarter and roughly flat year-on-year. Hardwood prices averaged $600 per ton up 7% quarter-on-quarter and 9% year-on-year, while softwood averaged $665 per ton, down 1% sequentially and 9% year-on-year, narrowing the price gap between the 2 fibers to $65 per ton from $113 last quarter and $117 a year ago. Production totaled $1 million tons, up 10% quarter-over-quarter as hardwood output recovered 13% following the maintenance shutdowns of both Guaiba lines in the first quarter of this year. Softwood production is 3% on the scheduled general shutdown at Laja. EBITDA reached $180 million with a margin of 23.4%, increasing 16% quarter-over-quarter, while declining 12% year-over-year. Compared to first quarter of this year, the improvement was primarily driven by a 7% increase in hardwood pulp prices and a 3% reduction in cash costs. These positive effects more than offset a more challenging cost environment as higher energy and logistics expenses linked to increased Brent prices weighed on results. On a year-over-year basis, EBITDA was lower mainly due to higher Brent prices, which drove up both selling and logistic costs. This also translated into higher forestry harvesting and transportation expenses as well as increased industrial costs related to energy and other key raw materials. Hardwood cash cost came in at $254 per ton, down 3% versus previous quarter, mainly the comparison against first quarter of this year's Guaiba shut down. The wood cost rose on higher Brent prices, higher DMT in Chile and the Brazilian real appreciation. Softwood cash costs rose 5% versus the first quarter of this year to $419 per ton, reflecting the Laja downtime and its ramp-up through June. Next, let's discuss our softest business. Softys had a favorable quarter, driven mainly by stronger commercial dynamics in Brazil and Mexico, where both tissue and personal care posted higher sales and volumes versus both the prior quarter and last year. Sales reached EUR 893 million up 7% quarter-over-quarter and 9% year-on-year, with Personal Care at $437 million, up 13% versus the first quarter of this year and tissue at $456 million, up 2% versus first quarter 2026. With Personal Care, diaper volumes were up 10% sequentially on strong performance in Brazil, Mexico and Argentina, while feminine care and wipes also contributed to growth. EBITDA reached $101 million at 11.3% margin, up 4% sequentially and 24% year-on-year. The sequential improvement was driven by higher personal care sales, a favorable FX effect and continued gains from our efficiency initiatives. This was achieved despite an estimated $10 million negative EBITDA impact from higher brand-related raw material and logistics costs year-on-year, the improvement mainly reflects the richer mix towards personal care and the positive FX effect. Next, let's discuss our Biopackaging business. Biopackaging continued to operate in a challenging environment, particularly in Boxboard segment, where continued oversupply from Asia kept pressuring selling prices across our markets. We stayed focused on revenue and profitability management, prioritizing margin over volume and used commercial and mix improvements in Sakraft and corrugated to partially offset that pressure. Sales reached $251 million, up 2% versus previous quarter on higher folding Boxboard volumes in Chile and Europe and higher Sakraft exports to Mexico, but down 2% year-on-year on lower folding boxboard prices. EBITDA fell to $15 million, down 36% versus the first quarter of 2026. Beyond the folding boxboard price pressure, corrugated volumes were affected by the end of the summer fruit season, a plant maintenance shutdown and fixed costs related to a fire at the Papeles-Cordilera plant.

Thank you very much, Diego. We ended the second quarter with net debt of $5 billion. Net debt-to-EBITDA stands at 4.7x, up from 4.1x last quarter. As I mentioned earlier, we expect this ratio to decline progressively over the coming quarters, driven mainly by improved results and cash flow generation across our businesses. And as I mentioned, we continue advancing our asset monetization program to further strengthen the balance sheet.

Thank you, Sebastian. Please recall that you're welcome to ask your question, just raising your hand in the chatbox. And today, we have Francisco Ruiz, CEO of CMPC. Sebastian Zuniga, our CFO; Raimundo Varela, Vice President of Pulp and Boxboard and Guilherme Viesi, Chief Commercial Officer of pulp in the call to answer your questions.

First, we will start with Henrique Marquez from Goldman Sachs.

I have a couple of questions. I think I'll start with the net debt position and asset sales. I think these are the most pressing ones. So just trying to understand here, is there any target for you to reach in terms of net debt-to-EBITDA before moving ahead with the Natureza project? And if so, I mean, would you consider 100% of the hybrid bond only the part that is classified as debt? Just trying to understand here, what exactly is the metric of net debt EBITDA that you would look at considering the project of Naturesa. Also, if you could remind us what the policy for net debt EBITDA is, that would be great. And -- my second question regarding asset sales. Just trying to understand here, what is the amount targeted for asset sale? Is this a prerequisite for moving ahead with the Natureza project? Are you considering selling any of your operating assets? Or would that be strictly noncore assets? That's it.

I'll take the first point -- and the second question -- so I'll go with the first question. Regarding our targeted SP1 At net financial debt-to-EBITDA between 2.5 and 3.5x. So as we mentioned in our analysis, today, we are very well aware that we are deviated from that metric. Second question is how do we account into hybrid bonds? It's only that 4.17x considers 50% equity contribution -- and that's where we end up with this number. Third is how are we expecting this to evolve? Well, we we commented that we are in the process of monetizing assets. I can let you know that we are, I would say, confident that the level of indebtedness of CMPC will evolve positively into the range that I just mentioned on the coming quarters. I cannot comment into detail on the advancement of monetization of assets, but I can let you know that we are confident that in the coming quarters, we will be able to show that progress.

Thank you, Sebastian. Next in line, we have...

There was the B part of Henrique. I don't know if you want to take it, Francisco

I have no comment with your answer.

Next in line, we have Tathiane from JPMorgan.

Okay. So maybe just like a follow-up on the previous question when it comes to the level of debt. When it comes to Nate, I think the project was like announced to the market a couple of years ago, and we had like the CapEx, but a lot has changed since then. So -- with all these moving parts, could we expect to see like some new expectation when it comes to the CapEx amount. We know that there is some inflation in the industry, something that can also impact those numbers. And if you are still comfortable with the level, as you mentioned, like with the target that you are 2.5 and 3.5 to go ahead with the project or in periods of investments we would be comfortable to be above those levels. And maybe my second question, this is more for maybe Vesi on like an update on the pulp industry. We see that like today announcements on resale prices, there is a lot of pressure when it comes to the hardwood prices in China, sorry, -- so just to like understand overall what you kind of expect for pulp prices for the coming quarters if you are positive on the like expansion for 2027. So just an overall view on that.

Thank you very much for your question. I can take it. Yes, as you said, we announced this a couple of years ago, but of course, we have been working in detail and all the engineers of this project and all the -- what this rate means in general, considering some extra investment in infrastructure. But I can say that, of course, we have some inflation in the period. We are not seeing any any particular deviation compared with the -- we announced at the beginning of the process. We haven't -- we haven't finished that process, but we feel comfortable with the figures with the figures that we have announced in the past. And in connection with your second question about Naturiza of our leverage. And I would reaffirm what the Sebastian said. I can say that this company is a really a responsible company in terms of its leverage. And of course, our target range is between 2.5% and 3.5%, and we will continue working on that. And we have some processes that we expect to be really -- and that range discloses that range within the next quarters, but I cannot tell you that, I mean exactly that, what will be the point where we will decide about the Natureza.

I'll take the second question regarding market and prices for the future. I think we have to bear in mind, we are in summer in the northern hemp here, some are typically in China and in Europe tends to be rather quiet. July, August are the quietest of the month. Although in the second half of August, China tends to come back from their holidays and start picking up momentum -- so from a demand perspective, I think globally, it's okay. Every market, it's quite okay with the demand. Obviously, excluding Middle East, which is, at the moment, very complex situation. North America has a very good demand. Europe has an okay demand for the summer expected. China similar. When it comes to prices, well, I would say the latest news we have been seeing regarding the Indonesian wildfires is likely to impact on the price and cost of wood chips worldwide. I think these issues on wood chips coming from Indonesia is now expanding for 12 months, almost started with floods and then some logistics issues. Now we have wildfires. We had the revocation of some licenses. So this contributes to an increase in the cost of wood chips, which in turn contributes to the marginal cost of the pulp production in China, which reflects positively on pulp prices. So we do expect pulp prices to start trending upwards from here on towards the end of this year.

Follow-on question on your answer, -- so you mentioned a little bit the impact that Indonesia is suffering. Do you see any type of impact on El Nino. We see some companies like preparing inventory for this time of the year. So do you also see any kind of impact? Or are you preparing in any way from that as well? .

Well, El Nino has impacted a lot of companies, ourselves included. We have a lot of rain in the south of Chile here, where our mills are in Rio Grande do Sul in Brazil. We have been affected by that as well. At the moment, without any production or sales impact -- but it's definitely being a challenge for pulp production companies, and there's a lot of pulp production companies in the Southern Hemisphere. So I would not be surprised if they are impacted. .

Next in line is Matheus Moreira from Bradesco.

My first question is on leverage. And sorry to insist on this topic, you mentioned in the release that you expect leverage to trend down in the coming quarters. given expected stronger cash flow from operations. However, we have seen pulp prices declining in recent weeks, while market conditions and both is to an biopackaging remain fairly challenging. I'm just wondering where should we expect this deleverage coming from Besides the asset monetization that you guys talked about earlier, do you -- is there any other initiative in place that could bring this leverage down in the near term? So that's my first question. And then my second question, changing a bit gears here in the Tissue division. I mean, you delivered a strong quarter in Q2, right, with volumes increasing both on a Q-on-Q and year-over-year basis. I understand that market fundamentals are still very challenging, right? But have you seen any initial signs of recovery across your geographies? And could you give us a broad overview on what you're seeing here in terms of supply, demand and pricing for the coming quarters for the division? And if I may squeeze in a very quick third question on the Natureza project. I mean, you guys gave an update on the project during the release, right? -- you guys have received the preliminary installation license. What are the key milestones -- remaining milestones required to -- before you can submit the project board approval? And when do you expect that for happening.

Matheus let me take your first question. Yes, you're right that we're seeing pulp prices trending a bit down and how are we expecting to bring down leverage? Well, I would repeat what we have been posting the last quarter is basically a very strict use of cash, and that translates into working capital initiatives, I would say, into revising our CapEx. You already saw that the CapEx of the third second quarter is lower on the first. And you could see for the coming quarters that we are going to be strictly very efficient in the use of cash. And that is obviously that helps to bring leverage down. okay?

There's another question about tissue, Francisco .

With the tissue question, Well, the tissue question, let me tell you that. Yes, regarding the market and the situation of the market, we are participating and I can say that probably we are not seeing big changes compared with the last quarters. But in terms of the market, still we are seeing over capacity in Brazil in terms of production, probably it is important, probably around 30%, 40% overcapacity than the interest rate issue, even considering that, as I mentioned Brazil as 1 of the main markets for CMPC, even Mexico is another important market, as you know. .

Since we just lost Francisco. Let give him a few seconds. Okay. Here, we have Francisco back.