Hello, everyone, and welcome to Empresas CMPC fourth quarter 2023 earnings webinar. I'm Fernando Hasenberg, CFO of the company, and joining me today we have Francisco Ruiz-Tagle, CEO of CMPC, Guilherme Viesi, Chief Pulp Commercial Officer, and Claudia Cavada, our Investor Relations Officer. Please note that the statements made today during the presentation and Q&A may include forward-looking statements to assist you in understanding our expectation for future performance. These statements are subject to some risk and could cause actual results and events differ materially. For the fourth quarter of 2023, sales were $1,959,000 . EBITDA was $229 million, and net income was $35 million. The pulp business generated an EBITDA of $73 million, with an EBITDA margin of 10.6%.
EBITDA decreased 33% quarter-over-quarter, mainly explained by lower sales volume and higher costs. Year-over-year, EBITDA decreased 80%, which is explained by weaker pulp prices in the international markets. It is important to mention that this result was impacted by the stoppage of the Guaíba 2 line related to the startup of the BioCMPC project. Softys business shows an EBITDA of $153 million, decreasing 3% quarter-over-quarter, while increasing almost 130% year-over-year. The quarter-over-quarter decrease is mainly explained by the adverse exchange rate impact in Argentina. The year-over-year increase is explained by stronger margins in most of the markets and by the integration of P.I. Mabe in Mexico.
At the same time, Biopackaging generated $19 million of EBITDA during the period, increasing 5% quarter-over-quarter and decreasing 64% year-on-year. The quarter-over-quarter increase was driven by lower raw materials and lower maintenance downtimes, together with favorable seasonality in the corrugated boxes market in Chile. The yearly variation was due to a weaker performance in the industry activity, especially in the construction sector, which negatively impacted sales volume. Our sales of close to $2 billion in the fourth quarter is stable compared when compared to the previous quarter, decreasing 2%. This is mainly related to lower revenues in pulp, which was offset in part by the growth in Softys and Biopackaging.
Compared to the fourth quarter of last year, revenues decreased by 2%, mainly from pulp, caused by lower average selling prices, but partially offset by Softys from its higher sales volumes. Biopackaging decreased its revenue due to lower prices as a result of weaker demand in most of its business segments. Operating costs reached $1.4 billion, a stable figure compared quarter-over-quarter, and increasing 12% compared to the same period last year. Operating costs represented 71% of total revenues in the fourth quarter of 2023, which compares to 70% in 3Q 2023 and 64.2% in fourth quarter 2022. The increase in operating cost compared to the fourth quarter of last year came from pulp and Softys. In the first case, the increase is mainly associated with higher wood, energy, and labor cost.
In Softys, it's aligned to the integration of Grupo Mabe in Mexico, which began in May 2023. Other operating expenses were $330 million in the fourth quarter, being stable compared quarter-over-quarter and 11% higher year-on-year. The ratio of other operating expenses to revenues was 17% in the fourth quarter of 2023, stable quarter-on-quarter and higher than the 15% recorded in the 4Q 2022. The yearly variation is given by higher distribution and other expenses by function, offset by lower administrative expenses, which largely reflect the integration of Grupo Mabe. On a consolidated basis, the company's fourth quarter EBITDA reached close to $230 million, decreasing 13% compared to the previous quarter and 50% compared to the same quarter last year.
Again, the latter is explained by the pulp business cycle, which was offset in part by the growth of Softys. Net income totaled $35 million during the period, decreasing from the $84 million registered in the third quarter, 2023, as well as from the $221 million registered in the 4Q 2022. Both decreases are directly related to the lower EBITDA generation. Now, I would like to turn the presentation over to Claudia, who will provide more details on our results by businesses.
Thank you, Fernando, and good morning, everyone. I will start with the pulp business. Pulp production was 875,000 tons, decreasing 19% quarter-over-quarter and 12% year-over-year. Hardwood production was 702,000 tons, decreasing 19% quarter-over-quarter and 16% year-over-year. The year-over-year variation is explained by higher downtimes at pulp mills, mainly at Guaíba 2, after a general shutdown of 26 days, which allowed the ramp-up of the BioCMPC project. Softwood production was 174,000 tons, decreasing 17% quarter-over-quarter, while increasing 14% year-over-year. Regarding the pulp sales volume, quarter-over-quarter decreased by 16% and remained stable compared to the same period last year. This is explained by lower exports to China for both fibers.
Year-over-year, hardwood volumes increased 3% on higher exports to Europe, China, the rest of Asia, and United States. In the case of softwood, a decrease of 13% was recorded, mainly from declines in exports to China and the rest of Asia. In terms of cash cost for softwood, cash cost reached $393 per ton in the fourth Q 2023, increasing 9% from the $360 per ton recorded in the third Q 2023, and increasing 6% year-over-year. The quarterly variation is due to higher cost of energy, wood, and other materials. The year-over-year decrease reflects largely lower cost of chemical products. For hardwood, cash cost reached $285 per ton in the fourth Q 2023, increasing 14% quarter-over-quarter and 18% year-over-year.
In both cases, the increase is due to higher wood, energy, and chemical products costs. Pulp prices during the fourth quarter of the year were on average $710 per ton for softwood and $570 per ton for hardwood, both increasing from the third Q-2023 by 10%. Compared to the fourth quarter of last year, prices were lower by 22% for softwood and 34% for hardwood. As a result, revenues for the pulp business totaled $532 million, decreasing in both quarter-over-quarter and year-over-year by 7% and 31% respectively. Regarding the forestry business, sales volume was 903,000 cubic meters, down 10% quarter-over-quarter as a result of lower sawlogs and millwork sales. This was offset partially by higher sales of pulpwood, some timber, and plywood.
With this, revenues for our pulp and forestry business totaled $686 million, decreasing 8% compared to the previous quarter, and 26% below when compared to the last year's same period. EBITDA decreased 33% quarter-over-quarter and 80% year-over-year to $73 million, with, with an EBITDA margin of 10.6%. The decrease in EBITDA compared to the third Q-2023 is mainly related to a decrease in sales volumes combined with higher costs. Compared to the fourth Q-2022, the decrease is mainly related to lower pulp prices in the international markets. Now moving to Softys. Revenues increased on both quarter-over-quarter and year-over-year, being up 2% and 32% respectively, and totaling $995 million. Tissue paper revenues increased by 9% quarter-over-quarter and 19% year-over-year.
In the quarterly comparison, average prices increased 17% and volume declined six percent. In the yearly comparison, average prices increased 20% and volume declined 7%. In both cases, an inflationary environment in the region has impacted consumption, not only for tissue paper, but also for personal care products, especially in the case of Argentina. In the personal care segment, revenues declined 9% quarter-over-quarter and increased 56% year-over-year. The quarterly comparison reflects a decline of 4% in prices and 6% in volume, following a strong third quarter and facing the difficulty in consumption described before. In the year-over-year comparison, the increase of 56% in sales is explained by volume growth, 44% up, and price increase, 33% up. Besides reflecting a stronger performance in the region, this evidences the consolidation of Mabe in Mexico.
Softys EBITDA for the fourth quarter decreased 3% from the prior quarter and increased 129% from the same period last year, reaching $153 million with a margin of 15.4%. The quarterly decline is mainly explained by adverse foreign exchange effects in Argentina and Chile, together with higher such costs and expenses that are linked to inflation. Yearly growth is explained by stronger operations in the region and the integration of Grupo Mabe. In the Biopackaging business, quarter-over-quarter, sales volumes to third parties increased 9% due to a favorable seasonality of the demand, given the boxboard, corrugated paper and corrugated boxes growth.
Year-over-year, volumes increased 2% as a result of the combination of higher sales in corrugated paper, corrugated boxes being partly offset, offset by a decrease in boxboard, molded pulp trays, and other papers. As an outcome, revenues increased by 1% quarter-over-quarter and decreased 14% year-over-year, totaling $277 million. Average sales price decreased 7% quarter-over-quarter, and 16% year-over-year, reflecting the still weak markets for packaging. In the fourth Q 2023, EBITDA increased by 5% quarter-over-quarter, and decreased 64% year-over-year, reaching $19 million. EBITDA margin of 6.9% increased against the the 6.5% recorded in the third Q 2023, and was below the 16.5% of the fourth Q 2022.
The quarterly increase is driven by lower raw material and supply costs, as well by lower maintenance downtimes. The yearly outcome is explained by lower industrial activity that has impacted sales, all together with higher overall administrative costs and expenses.
Thank you very much, Claudia. Capital expenditures during the fourth quarter totaled $220 million, decreasing from the $243 million recorded in the third quarter of 2023, and increasing from the $162 million of the fourth quarter of 2022. The yearly increase is explained by higher organic growth, including expenses related to BioCMPC project. Also, during the period, the free cash flow had a net outflow of $144 million, compared to a net inflow of $87 million we had in the third quarter of 2023, and the $201 million dollar outflow in the fourth quarter of 2022.
We closed the fourth quarter of the year with nearly $5.5 billion in total debt and cash on hand of $846 million, leaving our net debt at $4.6 billion, increasing compared to the previous quarter. The net debt to EBITDA ratio closed the quarter at 3.45x , higher than the 2.83x we had in the last quarter, and the 1.87x we had in December 2022, in line with our internal policy. Regarding our debt profile, the average rate is 4.91%, and the average maturity is 5.6 years. Moving into the relevant events during the period, I would like to highlight that CMPC is now ranked number one in the world in the Dow Jones Sustainability Index, in the paper and forest product sector.
We are very proud of this recognition because it shows that our 2030 strategy is in the right path. During December, CMPC also received various recognition for its commitment to sustainable development, particularly in the environmental and social spheres, in the Zero Waste Awards 2023 and CONECTA 2023. Also, in December, Softys unveiled its business plan toward 2028. This plan focused on the company's future vision, emphasizing its commitment to comprehensive care for consumers. On the other hand, the BioCMPC project in Brazil started as planned, and it was executed within budget. The ramp-up phase plan is in progress. I would like to highlight that this strategic project for CMPC stands out in the industry for its execution, adherence to deadlines and budget, and being a benchmark in sustainability and community relations.
Finally, CMPC launched a $100 million innovation funds for startup projects, innovation alliances with other companies, and collaboration with our other universities and innovation centers in Chile and abroad. We are excited about all the opportunities these efforts can bring to the future of the company, the industry, and in general, for sustainability. Thank you very much, and now I will turn to Claudia to start with the Q&A.
Thank you, Fernando. We will now begin the Q&A section. So in order to participate, please raise your hand, or type in the chat box of the platform. We have a first question from Marcio Farid from Goldman Sachs.
Hi. Morning, everyone. Can you hear me, Claudia? Yeah. All right. Sorry, I think it's working. Morning, everyone, and thanks for the time. I have a couple of questions on my side here. The first one is related to pulp cost, which was up, I think, 17% quarter-on-quarter. Our understanding is that's probably related to BioCMPC's ramp-up and consequent long downtime at Guaíba mill, right? So just trying to understand, how should we think about costs as Guaíba ramps back up, if it's going to have, you know, third quarter, maybe as a better base level than the one-offs that we saw in the fourth quarter? And then on... still on the pulp side and taking advantage of Guilherme on the line as well.
Guilherme, can you please talk a little bit about what you're seeing in terms of demand for pulp in the key regions, especially maybe Europe and China? Europe was kind of weak late last year, but there seems recent news suggesting that volumes have picked up in the region. China seems to be a little bit quiet, but would be great to hear from you what you're seeing on the demand side, especially for those two key regions, please. Thank you.
Thank you, Marcio, for your question. Relating cost, you are correct in when you look at short fiber, the ATP, definitely the cost in Guaíba related to the stoppage of the plant because of the startup of BioCMPC had a big impact. We had a big impact because we have the stoppage, the annual maintenance for Pacífico. So, during the quarter, both fibers were impacted in cost due to these maintenances. Remember that Guaíba 2 was stopped for almost 30 days when you consider the whole stoppage process plus the startup. So the impact was very significant. Looking forward, probably, yes, the third quarter is basically a better baseline.
But when you consider the whole year, the average of 2023, in 2024, we expect to have lower costs. And probably on average, in both fibers will be more than $20 below what we had during the whole year on average.
I'll take the next one. Thank you, Marcio, for the question. Regarding demand globally, you're correct. We have seen Europe picking up a little bit of its demand. This is possibly related to the issues that they are facing, the world is facing on the Red Sea, with the Houthis and the war breaking out, the attacks on the Houthis. That is disturbing the transportation from the Far East and from the Middle East into Europe. And what we can see is a very similar effect that we saw during the pandemic, where Chinese and Middle Eastern printing and writing companies that export their papers to Europe, they are unable to do so, or when they can do, is at a much higher cost.
That means that the local producers in Europe of printing and writing have now a much better opportunity to sell their paper and to produce at a much more competitive price and cost. So we have seen a pickup in demand from those players. When it comes to China, we have seen a regular demand, I would say. Typically, just prior to Chinese New Year, they try to stock up, and we haven't seen too much difference from previous years. So I would say the surprise now is coming from Europe. So much so that there are recently announced increased prices for the region, and that is a reflection of a pickup in demand.
Thank you, Guilherme. Can I just follow up and ask you, what you see in terms of, the price hike announcement that was made for China? I think $10 for January, and, what's the momentum there?
Yeah, I think the $10 is still being challenged, but that's most likely because it would be an unchanged price from the $650-$660. So instead of applying the $660, which some have accepted, but it's true that it's being challenged. But the unchanged is a likely scenario.
Great. Thank you very much. Thanks, thanks again.
You're welcome.
Thanks, Marcio. We have our next question from Cesar Perez, BTG Pactual. Cesar, please go ahead.
Yes, good morning, gentlemen. I have three questions, if I may. Could you please comment on the ramp-up progress at your BioCMPC project? When should the asset attain design capacity, and more importantly, what cost per ton are you expecting for the year? Or alternatively, if you don't disclose that information, maybe provide some sort of direction on a consolidated basis. In addition, a 2024 volume guidance would also be appreciated. On costs in general, you also mentioned in the press release that you did encounter higher wood and energy costs. Could you please discuss specifics and the visibility that you have over them, or maybe how long you would expect for them to sustain?
And, third and finally, on the tissue business, Softys' operational numbers came in strong, despite a general macro slowdown in the region last year. Still, you know, despite these conditions, pricing grew last year. Do you see those conditions improving at Softys this year, considering that inflation is receding in the region and central banks start to ease interest rates, which would be favorable conditions as well for the consumer? Those would be my questions. Thank you.
Thank you, Cesar, for your questions. I'm gonna start with the costs, if you want, and maybe, Francisco, you can talk about the startup of BioCMPC. In relation to the costs, as I mentioned last quarter, we were impacted by the shutdowns in Pacífico and in Guaíba 2 . Those effects are gone now for this quarter, and you have to remember that we have... One of the pillars of our strategy is competitiveness. So we have a big team working on improving our cost structure, and we are very positive about 2024 and the effect of all these initiatives will have. As I said before, on average, when you look at the whole year, probably-
... $20 or a little bit more than that should be expected in terms of lower costs. In relation to energy for the quarter and wood, that's also related to the stoppages, because all the costs of your system have to be diluted in lower production. So that's not something we should expect for next year. Maybe Francisco.
Okay, and in connection with your question, Cesar, about BioCMPC and the startup. My comment on that is that we actually first of all ended the project in the term that we originally you know calculated for the project, also in budget. And the startup, I would say, that been very much in accordance with the startup curve that we defined for the project. Except during the, I would say, the last seven days that we had a problem with the energy blackout in Rio Grande do Sul for some days, and the startup curve was interrupted because of that. But the comment is...
My comment is that we are in a very normal process of in increasing the capacity of the mill, considering what this new line means for CMPC. In terms of cost, and as Fernando said, we are seeing a very convenient, you know, a very convenient situation for the average cost of the mill. The total capacity, or the 100% of capacity should be, you know, in place by the middle of the year. So this is more or less my question on that. And in connection with you, the last question you asked about tissue, the Softys business. Yeah, I...
My comment on that is, Softys has been doing a very impressive job in the region in terms of recovering profitability after some past years, you know, with more problems in costs and volumes. It is true that, I mean, we are seeing in the future that we will continue, you know, taking advantage of our position in Latin America and the countries where we are participating in Softys. There is a challenge, there is a challenge because of the situation of the consumer that was affected because of the high interest rates and consumptions has been going down in some of our markets.
So, still challenges on that, but basically, I would say with a good prognosis for a paper business and personal care.
All right. Thank you very much, gentlemen.
You're welcome.
Okay, now the next question comes from Credicorp. Rodrigo Godoy, your mic is open.
Okay, good morning. Can you hear me? Okay, perfect. Thank you for taking my questions. Well, the first one is related to pulp inventory. Could you give us some color on CMPC pulp inventory levels by the end of last year? Are they still above normalized levels, and when do you expect to reach those average figures? And the second question is, if you could tell us something about the impact of the hyperinflationary accounting in Argentina during the fourth quarter. Thank you very much.
I'll take the first one regarding inventories. Rodrigo, thanks for the question. Our inventories are, in fact, very low at the moment. As you know, this stoppage in Guaíba, we were prepared for it. We built up some inventories, but it ran a few days more than what we expected. The demand at the end of the year has been very healthy, and that combination meant that our inventories are significantly lower than they were in Q3, in all regions of the world, including Chile, at origin. So we are at the moment where our inventories are below our ideal levels.
I'm gonna take the question about Argentina, inflation and exchange rate and the impact. Overall, Rodrigo, during the year, of course, we had over 200% inflation in Argentina. We also had a big devaluation in Argentina at the end of the year, and those two effects combined. And when you put everything together, we had about $200 million of impact that were positive. Basically because of what IFRS—bear in mind that we need to correct the value of our inventories and all the non-monetary assets in our balance sheet because of the inflation. So that was the impact on the year. Of course, that is not operational.
For 2024, we don't expect that to be so important.
Thank you very much.
Okay, we go now to the next question. It comes from, Clemente [Soup]. He asked about the Guaíba shutdown for 26 days. Was it expected to be this long?
... I can answer that. I mean, yes, absolutely expected. The shutdown for Guaíba was very much because of the startup of BioCMPC, and first part of the project, it was originally calculated in that way, so it's totally normal.
Okay, and another question related to leverage from Gabriella Bartile, Pine Bridge: When do you think net leverage will peak, and what's your estimate for the year in 2024 in terms of net leverage?
Yes. Thank you, Gabriella, for your, for your question. We closed the year with our net debt to EBITDA ratio a little bit below 3.5, which is our policy. And probably it will peak, it could be a little bit over that at the end of the first quarter. However, by the end of the year, it should return below 3. That's the scenario we are working.
Okay. Another question comes from Yusuke Kuwayama: Can you comment on the 2024 forecasting sales, EBITDA, and margin?
Unfortunately, we cannot give that kind of projections, Yusuke. No.
Hernan Kisluk asks: Can you provide guidance on CapEx for 2024?
I would say still, you know, solving some definitions about that, but normally it's about probably $500 million is our normal... We do not have any special project in place right now. So it's about that, $500 million.
Mm-hmm. Thanks. We have another question from Alfonso Salazar. Alfonso, welcome. Your mic is open. Scotiabank, by the way.
Can you hear me?
Yes. Yeah.
Great, thank you. Just a quick question. If you can share your outlook for the packaging business, how do you think it's going to perform in 2024?
Thank you, Alfonso, for your question. I would say that the packaging business has been really affected this year because of lower volumes in general in packaging. So, and very affected, I would say also because of the less activity in the cement industry. And so it's very much connected with, for instance, with the business of the cement bags, paper bags. So in our case, we were affected because of that, and we don't see... we do not see that we are losing market share in that. Basically, it's a, you see the cement companies in the world have been affected because of the high interest rates and the constructions in general.
In the case of, I would say, corrugated boxes, again, you see, in general, the consumption has been lower in different industries, and also, I would say also, affected in general in different markets. And boxboard, again, connected with, you know, the packaging for medicines and for some cereals and foods in general terms, also, I would say, affected. So last year was not a good one. And I don't, I'm not—we are not seeing actually a dramatic difference compared with the last year for 2024.
I mean, it would depend a lot, basically, on what is gonna happen with the interest rates and with the reaction of the consumers, and also very much connected with the construction industry. And so we do not see, you know, a fantastic, you know, a fantastic opportunity or situation for that industry during this year.
Excellent. Thank you. Thank you very much.
Okay, we have another question from Alexandra Symeonidi. Alexandra, your mic is open.
Hi, thank you for taking my question. You mentioned that you expect net leverage to be a bit over 3.5x . How do you think rating agencies will respond to this? Have you been in contact with any of them recently? I remember Fitch had a sensitivity of 3x net leverage. So yeah, that would be my question. Thank you.
Thank you, Alexandra, for your question. Yes, we are in constant communications with the rating agencies. This is not a surprise for them. Of course, they have their own model, but we discussed those very, very close. And so this is not a surprise. They're expecting this, and they are always looking in a medium and long term, and not necessarily on a quarterly basis. So, we... Yeah, that this shouldn't represent any concern for them. It's not gonna be a surprise.
Okay.
Okay, we go to the next question comes from Carolina Cruzat, Banchile. Carolina, your mic is open.
... Hi, everyone. Can you hear me?
Yes.
Okay. So, thanks for the presentation. And I would like to ask about eventual bond issuance, given that you have maturities coming this year. If you could say something about that.
Thanks, Carolina, for your question. Indeed, we have a bond that is due in September. So we are working to refinance that during the--probably during the first semester, and that, of course, will be announced in advance. But we are working and looking at different alternatives. We always have, of course, the alternative to issue in the international markets, but we always have the alternative to issue bonds in Chile. Last year, we opened the Mexican market as well, so we have plenty of opportunities and markets to tap. But of course, we will do that in anticipation of September.
All right, we go to the next. The next question comes from Bastian Mayer. Bastian, welcome.
Hi. Can you hear me?
Yes.
Okay. Just one follow-on on the leverage question that was asked before. Considering the other metric of leverage, of gross debt to equity, that you have a covenant of the local bonds in 0.8x, should we see the same trend of the net debt to EBITDA that should be on the first quarter of 2024? Or what you expect? Just to understand, if this is going to peak near the 0.8x or what?
The calculation for that ratio is a little bit different because it doesn't depend on EBITDA. The net debt to EBITDA ratio will pick up in the first quarter because of when we compute the last 12 months EBITDA generation. That on the first quarter is gonna be lower. When we talk about leverage, debt to equity, it's a little bit different, and it's gonna be more stable.
Okay, thanks.
Okay. Thank you, Bastian. Now we go to the next question that sent Hernan Kisluk. He says: "Can you comment on the situation of wood sourcing in Brazil, given the latest transactions moving forestry assets across big players in the region?
Yeah. First of all, CMPC is located in Rio Grande do Sul , and it's a hub operation, where we have more demand on wood. But what is happening today in Brazil is you see what is happening with the price of the land in general terms, in different areas of Brazil, is going... has been going up importantly. And so I would say the price of the wood has been increased importantly, and it is affecting the competitiveness of the, you know, the eucalyptus there. I mean, the price of the land has been going up.
So in terms of the possibility of acquiring wood, in our speaking of our own area, we have been, you know, have no problem. We have our forest base already there. Also, I would say a very clear plan in terms of incorporating, you know, some more forest in our operations. So I do not see a problem for having more wood in our area, but probably with more cost compared with the, if you see for some years ago, three years, four years, five years ago.
Okay, I don't see, I don't see more questions. So that's it for today. Thank you all the investors and analysts that joined us today, and have a great day.