Good morning. We welcome you to the Altri First Quarter 2023 Results Conference Call. During the presentation, all participants will be on a listening only mode. There will be an opportunity to ask questions after the presentation. If you wish to ask a question during the Q&A session, you may do so by pressing the star key, followed by 5 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. I will now hand the conference over to Mr. Rui Cesário, Altri's Head of IR. Please go ahead, sir.
Good morning. Thank you for attending today's conference call of Altri's first quarter 2023 results. My name is Rui Cesário, Altri's Industry Relations. We have with us today Mr. José Pina, the Group CEO, and Mr. Miguel Silva, the CFO of Altri. Mr. José Pina and Mr. Miguel Silva will give you a brief description of first quarter 2023 results, and the floor will be open to Q&A. I'll hand over now to Mr. José Pina.
Thank you, Rui. Good morning to everyone, thank you for attending today's conference call of our results. We're pleased to host this call with investors and analysts, hopefully we can give you a picture of first quarter 2023 for Altri and talk about the outlook and challenges ahead for this year. If you turn to slide number 2, we show what we believe to be the main highlights for the first quarter of 2023. We have entered the new pulp cycle phase with a significant destocking and softening in prices taking place in the pulp and paper value chain. Therefore, volumes sold have been lower than last year's first quarter, revenues have decreased by 10%. Printing and Writing and Decor segments are the softer segments, while Tissue remains a sound performer segment.
In a more challenging environment as what we're currently experiencing, we're even more focused on the management of the overall production costs and implementing additional measures to improve operating efficiency. EBITDA reached EUR 50.2 million, an 18% decrease compared to the first quarter of 2022, and -36% quarter-on-quarter. On a quarterly basis, there was a slight decrease in cash cost per ton, and we believe that trend should accelerate during the following quarters. The net debt level of EUR 328 million was flat quarter-on-quarter, implies a flexible net debt to EBITDA of 1.1 times, which is important to accommodate future projects. On Project Gama in Galicia, we continue focused to have all the pieces together, leading to a final investment decision during this year of 2023.
Moving to slide three, we have seen a normalization of the level of inventories at European ports during the fourth quarter of 2022, having now, during the first quarter of 2023, surpassed the average historic levels. This is a consequence of the destocking effect we have been discussing and seeing in the European market in the last few months. In slide four, we highlight the evolution of hardwood pulp prices in Europe. In the first quarter of 2023, average prices are 16% higher in first quarter 2023 versus first quarter 2022, while on a quarterly basis, there was already a 3% decrease. Pulp prices started to decline in February, ending the quarter at $1,280 per ton. Looking at slide five, we present the production and sales volume in the first quarter.
The level of production decreased by 15% year-on-year and 18% less than in the previous quarter, mainly due to the program downtime at our largest unit, Celbi. Volume sold decreased by 16% when compared with last year's first quarter, but registered a 3% increase versus the fourth quarter of 2022. As already mentioned, the destocking effect from many of the players in the pulp and paper value chain has led to significant softness in demand during the first quarter of the year. In slide number six you'll see our sales breakdown for end use and for region. Given the destocking effect occurring during the first quarter of 2023, we have seen an important impact, especially at the Printing and Writing end use segment.
In the first quarter of 2023, the weighting sales from the Printing and Writing segment was 16%, when it usually ranges from 20%-25%. Tissue reinforced its weight to 56% from historic levels, near 50%. On a regional basis, we continue to focus on markets of proximity in Europe and near Middle East. During the first quarter of the year, Europe accounted for 66% of our sales volume, while Middle East increased to 23% versus the historic value of around 16%-17%, as a consequence of our effort to maintain the sales volume in this quarter. Sales to Asia, which presented approximately 11%, continued to be mostly attributed to our dissolving pulp products. I will now pass to Miguel Silva, the Group CFO, that will comment on the main financial highlights of the first quarter, 2023.
Thank you, José. In slide number seven, we comment on the revenue level achieved in the quarter. Altri reached revenues of EUR 125 million in the first quarter of 2023, a decrease of 10% versus the first quarter of 2022. Pulp revenues closed the first quarter at EUR 189 million, a decrease of 6% versus the first quarter of 2022, while other revenues, which include the sale of electricity, decreased by 28%. The main reason for the decrease in revenues when comparing with the 2022 first quarter, was, on one hand, the lower volumes sold during the first quarter, and on the other hand, the change in the energy regime to self-consumption at Celbi, decreasing the reported gross energy revenues.
In slide number eight, we present our EBITDA, which reached EUR 50 million in the first quarter, 18% less than last year's first quarter, and 36% lower than the previous quarter. Reported EBITDA margin was at 22.3%, a decrease of 2.2 percentage points versus last year's first quarter, which compares with 30% in the previous quarter. The main reasons for the decrease in margin were the lower sales volume resisted in the quarter and the level of cash costs. Turning now to slide number nine. Operating results decreased by 26% versus the first quarter of 2022, and by 48% versus the previous quarter. Net profit reached EUR 20 million, a 34% decrease comparing to last year's first quarter, and 44% lower than the previous quarter.
On slide 10, we make some remarks on the cost evolution. After a stabilization in the fourth quarter of 2022, we started to see a slight cost deflation in this first quarter of 2023 versus the previous quarter. We believe this trend should accelerate during the next quarters. The positive contribution from the sale of excess electric energy to the grid is now stabilized. Natural gas prices continue to decline after reaching a peak in the third quarter of 2022. On the wood side, prices have stabilized in Portugal and Spain during the first quarter of 2023, and expect some softening in price trends in the next few quarters. We also expect a reduction of wood imports in 2023, which should improve our mix, lowering our wood expenses.
Chemical prices started to decrease during this first quarter of 2023. We see further reductions during 2023. In slide number 11, we present the evolution of net debt during the first quarter. Altri's net debt during the quarter remained almost flat. The quarterly EBITDA was offset by higher level of CapEx, EUR 18.4 million in the quarter, and higher working capital needs, which were mostly attributed to the increase in wood inventories. Despite the program downtime of the Celbi, we have maintained our normal pace of wood purchases. I will now pass the word back to José .
Thank you, Miguel. Turning to slide 12, we see Altri's ROCE level at 14% in the first quarter of 2023. A sound figure, especially considering the fact that we're in a different phase of the pulp cycle. In slide 13, on sustainability front, Altri continues its work with ESG rating agencies. CDP has made an extensive evaluation of Altri's forests, looking at its policies, commitments, risk management, certification, strategy, amongst others. Altri received a B rating for the forestry category, which compares with the European average of B-minus, and in line with wood and paper sector, as defined by CDP. Finally, in slide 14, we wanted to share our views looking forward. We have seen a destocking process in the European market since the end of 2022, especially in the Printing and Writing and Decor end-use segments.
We continue to see that effect for most of the second quarter of 2023, have now started to see some signs of stabilization for the second half of 2023. Pulp prices in China have moved downwards quite rapidly despite the reopening of the local economy. At current levels, we see demand being reactivated, as suggested by the recent announcements from a large producer to increase June prices by $30 per ton. We also wanted to add that dissolving wood pulp prices have stabilized at the end of first quarter 2023, and are now at historical level premiums to the hardwood kraft pulp, which is roughly in a range of about $300 per ton.
On the cost side, and despite what was already commented, we have started to see some deflation trends during the 1st quarter of 2023. We believe this trend should accelerate in the next quarters. On Gama, finally, the work is progressing well, and most of the pieces we need for the final investment decision should materialize during the 2nd half of 2023.
Ladies and gentlemen, the Q&A session starts now. I would like to remind you that if you would like to ask a question, "please press star followed by five" on your telephone keypad. Our first question comes from Enrique Parrondo from JB Capital. Mr. Parrondo, now your line is open.
Hi, thank you for the presentation and for taking my questions. I have two, if I may. Firstly, on pulp price outlook, we've seen a few relevant players, as you commented, announcing small price increases for deliveries to China, for June orders. My question is for the possible read across for pulp prices in Europe, could we expect something similar or assume that the current levels are close to the bottom, or as demand continues to be softer here, we could still see some further declines? My second one would be on the outlook for cash costs. You commented briefly on the moving parts that you're seeing. In a nutshell, you previously guided for double-digit, low double-digit declines year-on-year for 2023. Could, on the back of what you've already seen in first quarter, this guidance be lifted to maybe mid-single-digit or high double-digit, year-over-year declines? Thank you very much.
Good morning, Enrique. Thank you for your questions. First of all, in terms of pulp prices outlook, as we've commented before, you've seen these increase announcements recently in China. China, effectively from a demand standpoint, has been fairly active, in particular since March, April. That's led to some producers believing that the market has reached its bottom and therefore should correct upwards. I think that is the situation at least that is putting somewhat of a floor in the global pulp market. If you look at the current conditions effectively, if you consider the current spot prices in China, we're looking at least at 20%-25% of the global pulp production below marginal costs.
A lot of that essentially is in Asia, and most of it is integrated, so the question becomes how resilient that is and when are we expecting to see some reverse integration. We're starting to see at least some signs that that's happening. In Europe has always had a certain level of arbitrage, especially in periods of rapid price adjustments. I'll say where Europe will go in the near term, it's certainly gonna be a function of what happens in China, and obviously how demand is going to ultimately evolve in the next few quarters. I would continue to expect, if we look at long term, that prices both in Europe and China, they tend to converge at some point.
There's always some level of arbitrage, nevertheless, if nothing else, because these are two very different markets. I would say, you know, you end up seeing some cargoes that end up being diverted, coming, instead of coming to Europe, going to Asia. We've seen some evidence of that. That also contribute to a little bit of a different picture going forward. I would say if demand remains softer, as we're seeing currently, we would expect at least purely on the destocking trend, that has for the most part, already occurred. Going into particularly the second half, that should not be necessarily a factor.
It's more going to be related to pent-up demand, and depending where that goes, that may at least continue to lead prices to be softer. Eventually, as I said, there will be some sort of a conversion. In the meantime, if we do see the stabilization as we're seeing in prices in China and potentially some uptick, as I said, that could deflate any significant pressure in Europe. Nevertheless, we should see some conversion. On the cash costs, effectively our comment, if you go back to what we said in the results for 2022, in particular the fourth quarter, we said that we would expect to see a reduction in the high single digits.
What we do expect actually, to see some potential deflation or further deflation to the cash costs, as was mentioned in the call, and would expect what you've seen already this quarter, which was effectively, a decrease, we would see likely that decelerating. For the whole year, I'll probably look to at least be within the same range, what we said, high single digits to low double digits.
Great. Thank you.
Thank you.
The next question comes from the line of Bruno Besa from CaixaBank . Mr. Bruno, now your line is open.
Good morning. Thank you very much for taking my questions, three from my side, if I may. The first one, if you could elaborate a bit on your CapEx plans for both 2023 and 2024, and obviously here, not including the potential moving forward of the Gama project. This will be the first question. The second question, if you could elaborate a bit more on your new investment plans. I've seen in your corporate presentation that you mentioned the potential swing in Biotek towards dissolving pulp. And you also mentioned some projects on bio products. If you could elaborate a bit more on this, would be great.
The final question, well, on the Gama project, we know that you have been under several studies. One of them, you have already mentioned studying the availability of woods in the Iberian Peninsula. My question would be if you could share with us your latest conclusions on this, and if you believe that this new plant, if moving forward, will not put pressure on the prices into the internal market. Thank you very much.
Thank you, Bruno. Regarding your first question on CapEx plans for this year, I think we've been looking at an investment in the range of EUR 75 million-EUR 77.5 million. The big four components of that investment is the biomass plant in Caima, which should be operational at the end of October. That will be accretive, given that it has additional, also additional energy, both thermal and electric, that will be used for development to Caima, as well as to inject in the grid. That's sort of the big component. On other investments and actually looking at 2024, we see 2023 a little bit at towards the end of what we've seen as the most recent CapEx investment cycle.
We are still developing as well as part of the additional availability of utilities, in particular steam, to build these acetic acid and furfural plants, which basically are green intermediate chemicals that are used in pharmaceutical and food industries. That's something that we have been developing the engineering package already for some time, and would expect that materializing at some point towards the end of next year.
I would say, looking forward in terms of 2024, we'll probably see a bit more of a return to a steady state on normal CapEx levels, which for us, including maintenance, some environmental and projects like these bioproducts, which tends to be relatively lower CapEx effort, you'll probably see us getting back to more of the, of the high 30s or the mid-30s range. In terms of other projects, I think I've referred before, Biotek has had some investments in the past that would enable it to move towards dissolving.
It's still something that could be an opportunity, and we're assessing that on an ongoing basis in the context, especially of the evolution of the dissolving market, and particularly looking at the development of Caima. That's something that when we would have further news, we'll certainly comment in the future. Regarding your last question on availability of wood, specifically in the Iberian Peninsula. After what we've seen in terms of the availability, both 2022 and now at the start of this year, we've always considered the project without the probability or the possibility that the other coalition plant in Pontevedra would be closing. In fact, when we look at the current market scenario, Galicia effectively has an excess of supply at this point.
There were multiple non-traditional segments that also competed for that fiber in 2022, especially because of the economic activity. We're seeing, if we look at it in the mid to long term, we see that being somewhat different. Overall, actually, in the Iberian Peninsula, at this point, one of the reasons that why we're reducing our level of imports from outside of the Iberian Peninsula, specifically because we do see an improved scenario just because of less using to non-traditional segments. We're... Now, specifically to your question on the study that we're doing, that is being finalized most likely in June, and we'll have more information for that in the near term.
Thank you very much.
Thank you, Bruno.
The next question comes from Jaime Escribano from Banco Santander. Mr. Escribano, now your line is open.
Hi, good morning. A few questions from my side. Just building also on the outlook. In terms of prices in Europe, inventories are again at historical high levels. My question for you would be: How long do you think these inventories are going to take to go down? Based on this, what is your best estimate, and I know it's difficult to know, but based on your market knowledge, where do you think European prices could bottom? Maybe you can just give us a range. I don't know if it's around EUR 900, EUR 950, below. Just for us to have a sense, I think it would be useful. Second question would be regarding cash costs.
Maybe you can elaborate a little bit more on each of the items. How do you see them going down? For example, in the case of wood, how much imports are you going to do from LATAM? Is this going down? What are the dynamics at this front, also in chemicals and logistics, mainly? Then a small question on volumes. Could you give us a sense of how could be the volumes for Altri this year compared to last year? Finally, on Project Gama, you were talking about the wood availability study. What other. How can I say? What other not bottlenecks, but what are the other reports or projects, or what are within the moving parts, what are the other key parts that are basically delaying a little bit the decision to year-end? Just for better understanding. Thank you very much.
Thank you, Jaime. First of all, in terms of the outlook on prices, I mean, it's we're at a point in the cycle that it's obviously difficult to have a lot of visibility. I'm not going to get into that as much as when you look at over the extended cycle, for this year, we continue to believe that in terms of the average prices, we should be in the range of about EUR 1,000-EUR 1,050. That range is slightly, I would say, below where we were perhaps at the beginning of the year, because of the speed with which correction has happened in markets outside, in particular, outside of Europe.
I would say that would be the range we'd be looking at. On inventories, it's hard to see how inventories can go significantly higher from where they're at, because of physical availability. In fact, as I said, we're starting to see some shipments that were coming towards Europe being diverted towards Asia for two reasons. One, because the market in Europe is well supplied, and two, because in Asia, especially in China, it's undergoing a bit of a pulp rally. We would continue to likely see that in the medium term. I would expect the whole restocking processes, as I said, to be somewhat completed in the next couple of months.
By the time we get into the second half, we would be, you know, that process should have been pretty much complete, and that's where demand is really going to play a key role. Pent-up demand at the end consumer level in the key segments, Printing and Writing, Decor papers, et cetera, are going to be really key. On Tissue, we continue to see a good, stable market and actually some even some growth. That's going to complement somewhat the other segments. Regarding cash costs, as we've said, we're looking at an acceleration of the reductions that. We've seen that across all components of our cash costs.
We, on wood specifically, will likely have a reduced need for imports because of availability in Iberia. That availability will likely also translate into softer prices for wood, which ultimately is going to have a positive impact in terms of cash costs. On chemicals, we've seen, most of these, as you know, is are global markets. We play, we do sourcing from multiple in multiple regions, and sometimes we even do spot pricing as well, which helps mitigate some of the potential impact. We've seen as well a reduction on that, and that's likely to continue in the near term. It's going to be dependent where hydrocarbons and electricity are gonna go, which are the two key inputs for that for that component.
Those will be kind of the two major ones. On energy, as you know, on a net-net basis, our needs to purchase natural gas are offset by the excess revenue we generate from the sale of electricity. That's a non significant factor. When you look at volumes versus last year, I'll say the 1st quarter was a bit softer. We have to see where the 2nd quarter is going to go. Coming off of the year as a peak of last year, I would say this year, our main focus is to ensure that we manage appropriately our own inventory levels. We're going to take a more prudent outlook in terms of how do we do that.
If the opportunity comes up to take advantage of specific commercial conditions, we'll definitely take advantage of that. We'll be, I would say, more prudent in terms of the overall volume. Versus last year, you'll probably see it would be somewhat lower than what you've seen last year at the peak. Again, with very, very good levels of productivity. On Gama, regarding some of the key parts, we talked about wood, and specifically, the other component, which is obviously important, deals with the whole structure, the financial structure.
We have been in discussions with both the national and the regional government, as well as we've presented the project to the European Commission. That's a discussion that is ongoing, which we would hope would provide some visibility in the coming 2-3 months in terms of what would be that final structure. That's clearly looking at the level of subsidies, which we feel it's obviously an important component for the financing of the whole project. Apart from that, I mean, the other components we continue to work on, and we're pretty excited in terms of how that's evolving.
Okay, thank you very much. One follow-up question. If I recall well, you were talking about a net pulp margin for this year of around EUR 200 per ton at the EBITDA level, very much in line with Q1. How should we think about this figure, no? Which in the end, what I'm asking is the combination of prices going down, but also, as you pointed out, cash costs going down. How should we think about the net pulp margin evolving in following quarters? Thank you.
Hi, Mia. As you would expect, when you have a rapid price softening in the market, and for vis-a-vis the overall cash costs, I would say you should expect that margin to reduce, which would be normal. In an upswing cycle periods, you will see that margin increase, and in downswing, you'll see that margin reduce. I think that would be normal. Previously, when we have looked at the overall development for the remaining of the year, obviously we were when we had the last discussion, I think we have a lot more information as it stands today versus where we were during the last discussion. That's being incorporated into our projections as well.
Okay, thank you very much
The next question comes from António Seladas, from AS Independent Research. Mr. Seladas, now your line is open.
Good morning. Thank you for taking my questions. Actually, it's just one, because the other ones were already answered. It's related with your solar plants, that should be in place, should be working in over the second half. If you could add more information, namely in terms of revenues or in terms of costs, how are you going to play with the solar plants? What could be the impact in terms of profit and loss, count? Thank you very much.
Thank you, António. The overall, so we're now at the early stage of what would be a particular solar project, which should be ramping up in the short term. That one is effectively, we're talking about 48 MW, and that we have a 10-year PPA agreement. That's gonna have a net positive effect in terms of our overall conditions. I think I've mentioned to you that PPA in particular was negotiated back in 2021, so you're looking at prices in the level of the high 30s, which compared to where energy is today, will give you a pretty good indication in terms of revenues. I don't have the numbers immediately in front of me.
We can certainly follow up with that if you're interested. On the other solar plants for each of our industrial facilities, the so-called UPPs and UPAC. Part of it is for self-consumption, part of it is for, it's under PPA agreements as well. On those, the ones for self-consumption are going to clearly increase, in particular in Celbi and in Biotek, the available energy that we could sell into the grid. The other ones are primarily for, on the basis of financial PPA. When you look at the overall size of the solar projects, the photovoltaic projects we have been working on, we're talking about over 110 MW power capacity.
That will give us in terms of the production, we will be something in the range of 50% of what we have for the overall production capability in the group. You're looking at on a first year on a full year basis, of about 170 GW power in terms of production. That as I said, for above 100 MW of power, it's about 109 MW specifically.
Okay. Thank you very much.
Sure. That's going in terms of how we look at it. On our revenues for the first quarter, and you saw a difference, a significant difference, in particular on the non-pulp related revenues, and that deals essentially with primarily the delta is related to energy, because we moved towards self-consumption mid-last year, and therefore, we did not sell all of the energy that we produced. These projects, I think, are gonna be significant enhancers, and we'll be looking at it as obviously part of our complement to the overall cash cost position.
Okay.
The next question comes from Kamil Waliszewski from Praxis Partners. Now, your line is open.
Hi, thank you for taking my question. Just one from my side. Given the weakness in pulp prices, if you assume the pulp prices stay the same for the rest of the year, what you would expect for realized prices, but from an EBITDA to be for 2023?
You're asking in terms of the average pulp prices for 2023?
no, if you take the current level of prices that you saw this week, if they remained constant for the full year, what could we expect both in terms of prices, but on an EBITDA to be?
In Europe?
Yes.
Yeah. Yeah. I think the current prices in Europe were in the range of $1,050, a little bit over that. If they remain for the full year, they will remain essentially above $1,000. In Europe, and that's USD per ton.
What would you expect your EBITDA to be if the prices remain on this levels for the full year?
Well, if prices were to remain at this level, it's going to be highly dependent in terms of the cash cost evolution, which, as we've said, will be improving. I'm not gonna give the specific figure. We generally do not give guidance on EBIT and EBITDA, but we would expect somewhat, I would say a Q2 adjustment, because we've seen a reduction from Q1. The level of EBITDA on Q2 essentially would likely maintain or actually be improved as long as you have then the full cash cost benefit coming into play.
Right. Understood. Thank you very much.
The next question comes from António Seladas from AS Independent Research. Your line is open.
Hi, just a follow-up question regarding the discount prices versus the fixed prices, reference prices. In the past, it has been about 30%-35%. I guess now figures should be a little bit higher. Could you confirm it or provide some information on this kind of discount?
Thank you, Antonio. Actually, if you look at European producers and the overall conditions of the market, the level of discount has been somewhat higher than what you referenced. Not now, it's just been in the last, I'll say couple of years, would be more closely to the 34%-35%, and slightly higher. What happens is, depending on the specifics of the market, if you're gonna have a slightly higher percentage of spot deals, for example, that will impact the overall discount. I would say at this point, anywhere between a 36%-38% is probably a good reference number. As I said, they have the implications of the percentage of spots that you end up doing in the market.
Okay. Thank you very much.
You're welcome.
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 5 on your telephone keypad. There are no further questions, I will now hand over the session to Mr. José Soares de Pina, Altri's CEO.
Thank you very much. First of all, thanks for joining us. It's hopefully you've gotten a good perspective in terms of the broader particularly the broader market and where Altri stands. As we've said before, through the first quarter of this year, we've entered a new pulp cycle, with significant dynamics, and I would say rapid dynamics that we're following through. At the same time, we're taking clear actions to control the things that we can control and even advancing some extraordinary measures in order to help improve our cost position. Altri, as you know, has been generally very focused on managing the efficiency of operations. We remain to do so.
We believe that we remain the most efficient producers in Europe, and one of the most significant and efficient producers globally. Therefore, that helps us obviously deal with periods of higher and upwards and downward cycles, and that's the nature of the business we're in. Therefore, we believe that we're taking specific concrete actions in order to help us manage that. Thank you very much again for joining, and please follow up any additional questions or comments you may have to Ricardo, our Director of IR.