Good morning. We welcome you to the Altri Q2 2023 Results Conference Call. During the presentation, all participants will be on a listen-only mode. There will be an opportunity to ask questions after the presentation. If you would like to ask a question during the Q&A session, you may do so by pressing the star key, followed by five on your telephone keypad. If you are experiencing any difficulty in hearing the conference at any time, please make sure you have your headset fully plugged in, or alternatively, please try calling from a different device. We have with us Mr. José Pina, the CEO of the Altri Group, and Mr. Miguel Silva, the group's CFO. Mr. José Pina and Mr. Miguel Silva will give us a brief description of Q2 2023 results, and the floor will be open to Q&A.
I will now hand the conference over to Mr. José Pina, the CEO of the Altri Group. Please, you may go ahead, sir.
Good morning to everyone, thank you for attending today's Conference Call of Altri's Second Quarter 2023 Results. We're pleased to host this call with investors and analysts, and hopefully we can give a picture of the second quarter for Altri and talk somewhat about the outlook and challenges ahead for this year. If we turn to the first slide, we show what we believe to be the main highlights of the second quarter 2023. The slowdown in global pulp demand resulted from a significant destocking effect in the pulp and paper industry, which, combined with lower sale prices, has caused a decrease in revenues. Accordingly, volumes sold have been lower than last year's second quarter, and revenues have decreased by 26%. Printing and writing segments have been the most impacted, while Tissue remains resilient.
Considering the challenging environment we are currently experiencing, we are even more focused on improving our efficiency. EBITDA reached EUR 31 million, a 56% decrease compared to the second quarter of 2022. On a quarterly basis, we have witnessed accelerated variable cost reductions, not enough to compensate lower sale prices observed in recent months. In May 2023, the Altri Group distributed to shareholders a cash dividend of EUR 0.25 per share and a dividend in kind corresponding to Greenvolt shares, equivalent to EUR 0.74 per Altri share. Also in May, the Altri Group performed an accelerated bookbuilding operation to sell the remaining Greenvolt shares, and the group now holds no interest in Greenvolt.
Finally, we maintain the intention to take a final investment decision in 2023 regarding the Gama project in Galicia. We continue to be focused on developing the project on all fronts. Moving to Slide 3, we see the inventories at European ports during the 2Q of 2023, which levels above the historical average because of destocking trend in pulp in the whole pulp and paper chain. Stock levels have since stabilized in recent months. In Slide 4, we highlight the evolution of hardwood pulp prices in Europe. Average fixed prices are 12% lower in 2Q 2023 versus the same quarter the previous year on a quarterly basis. There was an 18% decrease. Pulp prices started to decline last February and end this quarter at $958 per ton.
Looking at Slide 5, we present the production and sales volume in the second quarter. The level of production decreased by 1% year-on-year and increased by 17% when compared to the previous quarter, which means that production is now at a normalized level after the programmed downtime at our largest unit, Celbi, in the first quarter of 2023. Volume sold decreased by 6% when compared with last year's second quarter, mainly due to a softening of demand, combined with a destocking effect along the pulp and paper value chain. However, we registered a 9% increase in volume sold versus the first quarter 2023 as a result of the group's commitment in finding new market destinations, primarily in the Middle East. In Slide 6, we show our sales breakdown per end use and per region.
Given the destocking effect occurring during 2023, we have seen an important impact, especially in the printing and writing end-use segment. In the second quarter, 2023, the weight in sales from the printing and writing segment was at 17%, when it usually ranges from 20%-25%. Tissue remains resilient, with a weight of 53% near historic levels of 50%. On a regional basis, we continue to focus on markets of proximity, like Europe and near Middle East. During the second quarter of 2023, Europe, including Portugal, accounted for 61% of our sales volume, while the Middle East increased to 26% versus a historic value around 16%-17% as a consequence of our effort to maintain the sales volume in the quarter. Sales to Asia, around 13%, continue to be mostly attributable, attributable to our dissolving pulp business.
I'd like now to pass the floor to Miguel Silva, the group's CFO, who will comment the main financial highlights for the second quarter.
Thank you, José. We move to Slide 7, where we comment the revenues and the EBITDA levels achieved in the second quarter. Altri reached revenues of EUR 202 million in the second quarter of 2023, a decrease of 26% versus the second quarter of 2022. The main reasons for the decrease in total revenues were, on the one hand, the lower volumes of cellulosic fibers sold due to slowdown in demand and the decrease in prices. On the other hand, for other revenues, the change to self-consumption energy regime at Celbi, decreasing the energy volume sold. EBITDA reached EUR 31 million in the second quarter, 56% less than last year's second quarter, and 38% lower than the previous quarter.
Now, in Slide 8, we present the revenues and the EBITDA for the first half of 2023. Total revenues reached EUR 437 million, 18% less than last year. EBITDA reached EUR 81 million in the first half of 2023, which is 38% less than last year's first half. Now, in slide 9, reported EBITDA margin was at 15.4% in the second quarter, a decrease of 10.2 percentage points versus last year's second quarter, a decrease of 6.9 percentage points versus the previous quarter. In the first six months of 2023, the EBITDA margin was at 19%, a decrease of 6.1 percentage points versus last year's first half.
Despite the favorable evolution of variable costs, this was not sufficient to compensate the reduction in sales prices and was the main cause of the EBITDA margin decrease. Turning now to Slide 10, EBIT decreased by 74% versus the second quarter of 2022, and by 58% versus the previous quarter. Net profit reached EUR 8 million, a 79% decrease comparing to last year's second quarter, and 57% lower than the previous quarter. The decrease in net profits is impacted by a EUR 5.8 million non-cash negative variation in the fair value of a derivative contract to hedge the acquisition of electricity. This contract, whose initial valuation on signing date was not accounted for, has still a positive value at the end of the quarter.
It is Altri's expectation, according to current price forecast, that the present positive value of the contract will translate in a future benefit for the group. On Slide 11, we make now some remarks on the cost evolution. After a slight cost deflation in the first quarter, we saw an accelerated favorable evolution of costs in the second quarter of 2023. Natural gas prices continued to decline in this second quarter, after reaching a peak in last year's third quarter. Additional power generation capacity is expected in the second half of 2023, mainly through the sale of the electricity surplus from the new biomass boiler in Caima, which will make this plant Altri's first fossil fuel-free unit. Moreover, Altri will also start up the photovoltaic auto consumption units at the three plants.
Regarding wood, during second quarter, we noted a reduction in import needs and a decrease in overall wood prices, which allowed for a reduction in costs. Prices of chemicals continued the downward trend that started in the first quarter of the year. In slide 12, we present the evolution of net debt during the second quarter. Altri net debt reached EUR 401 million at the end of this second quarter, while net debt to EBITDA from the last 12 months increased to 1.6x the quarter, due mainly to cash outflow related to dividend distribution. I will now pass the word back to Jose Pina.
Thank you, Miguel. We would now move to Slide 13, where we see Altri's return on capital employed level, which is at 23% in the second quarter of 2023, which remains a solid figure and above the group's historical average. Slide 14, on the sustainability front, Altri continues to improve its ESG ratings and focus on our 2030 Commitment, which is our roadmap on sustainability and ESG. We'd like to highlight the achievement of 0 incidents involving internal employees during two consecutive months, April and May, which emphasizes our focus on safety. In terms of ESG ratings, Altri has significantly improved the rating assigned by Sustainalytics, now reaching the Top 5 worldwide in the pulp and paper sector.
EcoVadis granted the Platinum medal to the Altri Group, which places us in the top 1% of the sector worldwide. Additionally, the Altri Group was awarded the first place in sustainability category in the KAIZEN Award Portugal, which is an encouraging recognition of our work developed towards our 2030 Commitment. Finally, in Slide 15, we wanted to share our views looking forward. In the Chinese market, there is some evidence that demand is strengthening, and we believe these trends could continue during the second half of 2023. The destocking process in the European market experienced since the end of 2022 should be coming to an end. The end-use segments of printing and writing, Decor, and some specialties show low levels of demand, while demand in Tissue remains very resilient.
The group is seeking the best possible commercial solutions to accommodate to the demand trends across segments, but we remain disciplined and prudent. Pulp prices in Europe are in line with prices in China, having followed the global trend. We believe that this trend may be coming to an end, and we expect a stabilization in prices in the following months. The group will remain cautiously aware and attentive to the outlook for the coming quarters. We have witnessed an accelerated cost reduction in the second quarter of 2023, and Altri will continue to work towards achieving additional cost reductions in the rest of the year. Finally, on the Gama project, we should reach a final decision during the second half of 2023, and the work is progressing well on all fronts.
Ladies and gentlemen, the Q&A session starts now, and I would like to remind you that if you wish to ask a question, please press Star followed by 5 on your telephone keypad. Our first questions comes from Enrique Parrondo, from JB Capital. Your line is opened.
Hi, good morning, everyone. Thank you for the presentation and for taking my questions. I would like to ask three, if I may. The first one on, on demand and pricing. I was wondering if you could provide us your view, a little bit more color on your view for the sector. A competitor of yours yesterday highlighted that they had seen an increase in their order books, and, and they expected a small increase in prices for the year and in Europe. I don't know if you share the view. Second one, cash costs. How should we think about them in the second half of the year, in the sense of how much room for, you know, for normalization, do you see?
Finally, on the Gama project, there has been a relevant amount of news flow on your conversations with the administration. From what I read, I believe that there's a more proactive approach from the administration. I was wondering if you are more positive now, maybe that that you were at the end of first quarter this year in saying that you were negative before. As I asked in previous occasions, are you still targeting to obtain 25% of the funds from the EU? Or should we expect a change in this percentage? Thank you.
Thank you, Enrique, and good morning. Starting with, with demand, we have obviously seen, the European market has been under significant destocking process across the chain since the end of 2022. At some point, this was basically a reflex of softer demand as well in the region. We've seen when we look at, CEPI's numbers, which I'm sure you, you, you follow, the industry association for European producers, pulp and paper producers. Most of the end segments, on average, you've seen basically over 17% production reduction, and that had an impact as well, obviously on upstream. In essence, the combination of slower demand and destocking led to what we have, what we have experienced.
On the Tissue side, as I mentioned, we believe demand remains resilient in line with last year. Going forward, we would not expect at least any, any changes to that. Specifically, when it comes to your question around demand, what I can, what I can mention is that we have, we started to see some, let's call it, early signs, that the destocking process is reaching essentially its tail end. We remain very cautious in terms of how is that going to effectively occur. As I said, we started seeing some, some early signs that there could be much more stability going forward on the demand and eventually somewhat of a rebound, in the second half or towards the end of the second half.
In terms of prices, again, we remain obviously, we have been quite cautious and remain cautious. We believe that where we see it today, basically, Europe is at the level of China, and we've all seen how China has what has occurred, at least on China, with a very slight rebound from the lows that we've experienced a few months ago. There were two announcements of price increases. The first one did take hold, the second one partially took hold, and actually we expect this month for the rest of that price increase to go through.
Uh, so I think in China, at least, we're seeing a situation where, uh, the overall industry is much more, um, uh, much more, um, uh, stable, and going forward, we could see a slight rebound. If we take that back to Europe, effectively, when you have prices at similar levels, uh, there's very little space for prices, uh, to, uh, to drop further. So I think there could be, uh, at least some, some stability, uh, in the coming months. And generally, that could lead to, um, somewhat of an upswing, uh, towards the end of the year. In particular, as, um, some of these destocking processes generally tend to be, uh, to overshoot. And, uh, and, and there could be a, uh, somewhat of a replenishment or a partial replenishment, I should say, towards, um, the end of the year.
The other thing is, a lot of producers, especially those that operate outside of, or particularly Latin American producers, they, they effectively becomes more attractive to sell pulp into Asia, and into the Middle East versus Europe. I think European end users are also pretty much aware that these dynamics take place, and therefore, I think we'll see a more cautious approach in terms of trying to force further price reductions from where we are. As I said, we do remain. We've taken a very prudent, a very disciplined approach, and that's the stance that we're going to maintain. Regarding your last question on Gama. Yes, there has been some very direct interactions with the administration.
I would say we've never really been to your point, negative on, on, on the funding. On the contrary, we remain positive. It's not a straightforward engagement, and we've seen different levels of engagement in the past. At this point, we have a very proactive engagement. We've seen a more positive as well, approach from the administration, and we're in the midst of the discussion. We would hope in the next few months, we'll have more to report there. Thank you, Enrique.
Thank you very much.
The next question comes from Jaime Escribano from Banco Santander. Now, your line is open.
Hi, good morning. I'm sorry, because I'm traveling, so maybe my connection is not very good, and I couldn't catch all what you said. Just a follow-up on the market. My question more specifically would be regarding the printing and writing segment. In order to better understand the dynamics there, I see that the softwood pulp price remains very high and the spread with hardwood is very high. And I was wondering why? Because if the demand of printing and writing is so weak, maybe you can give us a little, some hints of what's going on. The second question is regarding cash cost, which on my numbers declined around 11% quarter-over-quarter.
I would like to know, what should we expect for the second half? If, if you can give us some kind of visibility and beyond. In the long run, what do you think could be a sustainable cash cost? How, how much room do you have to keep reducing the cash costs? Thank you very much.
Thank you, Jaime. Regarding your first question on the printing and writing. Effectively, when you look at how prices have evolved, in particular, some of the core segments such as uncoated woodfree, and the more A4 markets. What we have noticed is, in fact, between the peak prices on both pulp and then compared to paper, in essence, you have a gap of about over $370, which is very significant, as you said. How do we reconcile that with a reduction in 30% demand? What I would say is, historically, we would tend to see less significant swings when we look at the printing and writing papers.
There's never been swings as, as wide as you've seen in pulp, and that makes sense because pulp, being a more extreme, segment, is more exposed to supply-demand variables. In printing and writing, those have been less obvious. There have been some shutdowns, so the industry has also proactively been managing its supply, and I think to a certain extent, that has played a role in the ability to sustain prices a little bit higher. But nevertheless, prices have declining, and I think you'll see that gap between pulp and printing and writing, actually shrinking, in the months that have, as, as tends to be the case generally. On regarding our, our cash costs, and I understand, and Enrique also has, has asked that question, so just to address that.
We have indeed seen the decrease of 13% quarter-on-quarter, and 10% if you look at same quarter previous year. We have effectively now had a consecutive six months of month-on-month reductions, and we expect to keep this. We have stated earlier, if you recall, that our target was close to double digits. I think that's a target that we'll be able to achieve. For this year, we continue to work very proactively, and the remaining two quarters will obviously be relevant. We expect continued quarter-on-quarter reductions in order to achieve that level.
On the question regarding what normalized cash costs could be, if I go back two years ago, probably more in the range of EUR 360, EUR 350, EUR 360, a little bit higher. I think if you look at the impact of inflation in the last few years, and this is the true for the entire industry on a global basis, but we would expect, at least for us, to be somewhat below EUR 400, in the high EUR 300s, once we reach more normalized levels.
Just to note that on the rest of the industry, what we have seen, and in particular because of the significant impact on increases, particularly on wood costs in Latin America, cash costs for the whole industry have been on the upswing. I think we'll have a new normal going forward, and that should also set a floor in terms of price levels. We've seen that in China, and I think we're seeing that as well in Europe.
Thank you very much.
Thank you, Jaime.
The next question comes from Antonio Seladas, from AS Independent Research. Now your line is open.
Hi, good morning. Thank you for taking my questions, and thank you for the presentation. I have three. The first one is related with volumes, with volumes sold in bulk. In the second quarter, I think that figures were fine, actually it surprised me on that side. My question is, there were any, there were any specific reasons for these figures? What kind of data should we or figures should we expect for the second half? The second question is related with costs, and sorry to come to this issue again, but nevertheless, just on wood. I think that wood costs now are more normal and more similar to the second half last year. Nevertheless, they are still much higher than two years ago.
However, you mentioned that costs will continue to go down. It means that wood costs should go to levels seen by 2021 or not? Can you add more color on this? Last question is related to dissolving. On the press release, I think that you were cautious on dissolving because the price gap in dissolving and both, if I understood well. I don't know if you can elaborate a little bit more on this issue. Thank you very much.
Thank you, Antonio. Specifically on the first question, into volume sold second quarter and expectation for the second half. We've had, obviously, year-on-year reduction of 6%, quarter-on-quarter, an increase of 9%. We remain, I would say, cautious in terms of this particular period in the cycle. We remain disciplined, so we're not going to go after all of the business opportunities that we have been faced with. That's something that, as I said, we're managing very carefully.
If you look at it on, on an annual basis, I think the previous indication is that we will probably see at least a five, or expect at least a five, between 5% and 10% reduction in the total volume. It depends on the dynamics in the second half. If the second half dynamics are more stable than we presented, in particular with a better position with our, with our cost structure, I think we'll take advantage of that, and we'll be ready to take advantage of that. I think overall at least we've been keeping in line with what we see in the market.
We have actually been ahead of some of the reductions we've seen in the market. That's been a result of us, of the group also looking for additional opportunities that, as I said, were valuable opportunities, and that's the way we'll continue to approach it. On the wood costs... I personally don't think we'll should expect to see prices where they were two years ago. There's been plenty of inflation that has impacted the wood value chain. We do expect wood prices to continue to adjust, in particular with the current cycle. As I said, I don't, I don't think that anyone should expect prices to be at the level as they were before the previous pulp cycle.
We'll continue to look for opportunities to optimize our sourcing, as we always do, but the expectation is that we'll see further adjustments. On the dissolving wood pulp, we actually positive in terms of where that market is today. Prices have held fairly well. There's been some slight price erosion, but not anything significant. We expect prices to remain relatively stable. There may still be slight adjustments in the next few months, but overall, I think dissolving has been a bright, a bright light in the overall pulp segment. We've obviously been keen on taking advantage of that. Thank you, Antonio. Thank you for your question.
Okay.
Ladies and gentlemen, I would like to remind you that in order to be able to ask a question, you must press the star key followed by five on your telephone keypad. There are no further questions from the conference call. We will start now with the written questions. Our first questions come from Jose Antonio Suarez Roig from CaixaBank. What cash cost levels do you see for the second half of the year? For 2024, what should we think to be the new normalized cash cost levels? If Gama project doesn't go in Spain, will you consider to develop it in Portugal? What level should we see of discounts in 2024? Thank you.
Thank you, José. On cash costs, I think the indication just, just from what I mentioned before, we expect to continue to see quarter-on-quarter reductions. Overall, for the year, our target has been close to double digits, as we've stated, so close to 10%. I think at this point, and given the progress we've been making, that should be fully feasible, and we'll continue to work to see whether we'll actually be able to go beyond that, and we'll take every opportunity available to us. Given where we come from last year, that's been a very, very significant effort for us. As I said, we'll continue to work very, very focused on it. You should...
When you look at the overall components, in particular on that cash cost, as I've mentioned, just in the previous question, we would expect to see wood continue to be adjusting. I don't expect much more on energy, at least at this point. We do expect some slight adjustments as well on chemicals and logistics, but overall, that should add to us continuing to make significant progress on our cash costs. In terms of the Gama project, the Gama project is in Galicia. It's not in Portugal. If that project was not to go forward, it would not be necessarily in the same configuration.
We do have some options that we would consider, in particular, looking at our current industrial footprint, in Portugal, but definitely will be a different project. Perhaps we need to look at beyond Spain as well for that. At this point, that's not something we're considering, because of the attractiveness of the project where it is. There's a reason for it to be in Galicia, particular proximity to raw materials as well as to some end markets. That's clearly aligned with the value proposition of the project.
In terms of discounts for 2024, it's a little bit too early to say, but I would expect if you see a stabilization in the pulp market, you would only expect commercial discounts based on the volume, the non-contracted volume that was transaction this year. You would expect that to lead to slower, and eventually to lower discounts overall next year. But again, it depends where the market is gonna go in the next few quarters. But if you start seeing less non-contracted volume taking place, then it should lead to a reduction in the discounts. Thank you.
Ladies and gentlemen, I would like to remind you that if you want to send your written question, you can do it through the web, to the webcast. There are no further questions. We'll hand over the session to Mr. José Pina, our CEO. Your line is open.
Very good. Just wanted to thank you everyone for joining the call. Hopefully, you have a better view as to where Altri is and how we're operating through this environment. We wish you all a good weekend. Thank you for joining.