Altri, SGPS, S.A. (ALTR) Earnings Call Transcript & Summary

Good morning. We welcome you to the Altri Second Quarter 2025 Results Conference Call. [Operator Instructions] We have with us Mr. Jose Pina, the CEO of Altri Group; and Mr. Miguel Silva, the Group's CFO. Mr. Jose Pina and Mr. Miguel Silva will give a brief description of the second quarter of '25 results and the floor will be open to Q&A. I'll now hand the conference over to Mr. Jose Pina, the CEO of the Altri Group. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you for attending Altri's conference call. We're always pleased to host this call with investors and analysts to share Altri's results, views of the market environment and challenges. If you turn to Slide #2, we comment on some of the main highlights of the second quarter 2025. We have seen some slowdown in pulp demand during the second quarter 2025 after a positive start of the year. The announcement of U.S. tariffs for most geographies brought additional economic uncertainty, especially in Asia, affecting demand from April onwards. Demand for the soybean pulp and Asian textile chain has also been impacted since early 2025. Given the more challenging market environment, our focus continues to be on efficiency. Altri's EBITDA reached EUR 28.2 million in the second quarter 2025, a material decline versus last year's 2024, but in line with the first quarter 2025 with an implied margin improvement of 2.2 percentage points. This was the result of an improvement in our cash cost despite the program maintenance shutdowns at Biotek and Caima during the quarter. Altri has diversified the applications of its cellulosic fibers with the acquisition of a 58.7% stake in AeoniQ, a Swiss-based company offering innovative solutions in the textile sector with technology for producing cellulosic-based fibers with properties of synthetic fibers with a high level of sustainability. Still on the M&A front, the acquisition of Greenalia Forest and Greenalia Logistics completed during the second quarter of 2025 allows the group to establish a forestry platform in Northern Spain. Moving to Slide #3. After a year of 2024 with negative growth in pulp, global pulp demand increased by 3% in the first 5 months of the year with hardwood pulp growing by 4.6%. After a stronger take-up in the first quarter of 2025, we saw several signs of slowdown during the quarter, which was also reflected in the evolution of prices. Europe and North America posted a negative growth from January to May after a double-digit growth year-on-year. In Slide #4, global demand for dissolving pulp has decreased by 5.5% in the first 5 months of 2025 with a clear impact of the global trade war in the textile value chain after a positive growth of 6% in 2024. In Slide #5, inventories at European ports have been stable since the second half of 2024, in line with the historic average of 1.4 million to 1.5 million. On Slide #6, the evolution of the USD versus euro is having also a material impact in 2025 for Altri. Average pulp prices in Europe in the second quarter of 2025 were minus 13% in USD, but 70% in euros versus the second quarter of 2024. Looking on a quarterly basis, the increase of 10% in USD translated in only 3% in Europe. The fixed price index ended June at USD 1,117 per tonne. In Slide #7, we see dissolving pulp prices down by 10% in the second quarter of 2025 versus last year's first quarter and comparing with the first quarter 2025. Despite a historic stable and lower volatile trend versus BHKP, dissolving pulp prices have been affected by the U.S. tariff announcements with material consequences for the global textile value chain. At Slide #8, we show a slightly negative evolution of production and sales volumes in the first half of 2025, given the lower demand environment and the program maintenance stops for Biotek Caima, which took place during the second quarter. Going to Slide #9. Volumes sold maintained a similar pattern when looking at sales per region, while the end use is led by tissue with dissolving pulp increasing its weight. I now pass the call to Miguel Silva, Altri's CFO, who will comment on the main financial highlights of the quarter.

Thank you, Jose. Good morning all. In Slide #10, we can see that the lower coal prices in 2025 and lighter volumes in the second quarter have put revenues under pressure versus last year's second quarter. When comparing to first quarter, the decrease in revenues was mainly attributed to volumes. Despite lower revenues in the second quarter of 2025 versus the first quarter, EBITDA was fairly flat due to better efficiency, having some of the issues commented in the first quarter already solved, such as the cogeneration turbine at Celbi working since late March. Turning now to Slide 11. On an accumulated basis, revenues and EBITDA have registered a decrease in the first half of '25 as the pulp market environment was more favorable in the first half of 2024. Turning to Slide 12. EBITDA margin has been in the mid-teens during 2025, given a lower volume and the pricing environment. It is worth noting that due to efficiency improvements, we increased EBITDA margin by more than 2 percentage points from Q1 to Q2. In Slide 13, EBIT and net profit in the second quarter of '25 decreased when compared with the first quarter of '25. For the previously mentioned reasons, there was a material decrease in EBIT and net profit in the period when comparing with the second quarter of 2024. On Slide 14, we can see the same trend on year-to-date figures. On Slide 15, in spite of a challenging market environment and with 2 program stoppages at Biotek and Caima, we have been able to reduce the cash cost in the quarter by 9% quarter-on-quarter and minus 5% year-on-year, putting the first half '25 number flat when comparing with the first half of 2024. We will focus our efforts in optimizing variable and fixed costs with the goal to achieve a slight reduction for the full year of 2025. On the several items and starting by the energy front, the normalization of the cogeneration turbine at Celbi on late March led to an improved production level of electricity and higher efficiencies at the Celbi plant. Overall, energy prices have been in line with historic averages being at a slightly better level than 2024 and the first quarter of '25. Wood prices have been fairly stable during 2025, much in line with the situation in 2024. Chemical prices have been slowly trending downwards since the end of 2022. And during the second quarter of '25, prices were slightly below the average reported in 2024. On Slide 16, we see an increase in net debt during the quarter, mainly due to dividend distribution, income taxes and to a lesser extent, working capital. Net debt to EBITDA of the last 12 months is now at 2.1x. I will now pass the word back to Jose Pina.

Thank you, Miguel. In Slide #17 mentioned Altri's return on capital employed level in the first half of 2025, which will tend to be lower under the current challenging environment still on a double-digit basis. In Slide 18, we share an update on some sustainability developments and efforts the group during the quarter. The group was recognized as the winner in the category Health and Well-being in Organizations - Large Organization at the fifth edition at the Portuguese Sustainability Awards promoted by Jornal de Negocios. This recognition reflects the organization's commitment to the safety, health and well-being of its employees, promoting safe, conscious and preventive behaviors. Altri has also announced its ninth Biospot in the Algarve region south of Portugal, reflecting the group's strategy for biodiversity conservation. This Biospot is part of the Altri's diversity program aligned with the group's commitment to create 15 biodiversity stations by the end of 2023. In Slide #19, Altri completed in the third quarter of 2025, the acquisition of a 58.7% stake in AeoniQ, marking a decisive step in the sustainable textile sector. Altri's investment, including a capital increase will support the development of AeoniQ's commercial scale production capacity, reinforcing its strategic vision of diversifying into high-value, low environmental impact cellulosic application. AeoniQ is a Swiss-based company that developed the world's first biodegradable climate positive cellulosic filament designed to replace polyester and nylon. The AeoniQ platform is set to transform the global textile industry by offering a renewable plastic-free alternative that replicates the performance of synthetic fibers without their environmental impact. From innovation to scale, as part of the agreement, the world's first AeoniQ industrial plant will be built at Altri's fiber facility in Caima. Construction is scheduled to begin in 2026 with an initial capacity of 1,750 tonnes per year. And in addition to the existing power plant in Austria, a pre-industrial unit will be launched in Portugal in early 2026 to accelerate the development of prototypes, brand partnerships and capsule collection. In Slide 20, we put some numbers to the project. An expected 1,700 tonnes per year could generate EUR 20 million to EUR 25 million annual revenue at a CapEx ex subsidies of approximately EUR 60 million. We expect to start operating in early 2028. Some of the photos show some of the products manufactured with AeoniQ filament, yarn in the huge collections of Hugo Boss, also a shareholder of AeoniQ. In Slide 21, we share the main figures of the acetic acid and furfural production unit at Caima that should start operation in the first quarter of 2026. In Slide #22, we show some figures about the full migration of Biotek BHKP production into full dissolving pulp that continues on schedule to happen by the end of 2026. In Slide #22, we repeat some highlights on the Gama project and happy to discuss an update of the situation in the Q&A session. Finally, in Slide 23, some forward-looking comments. The recovery in global pulp market demand in early 2025 was interrupted by the U.S. announcement starting in April to impose tariffs on a large share of imports with a significant impact on the Asian region, particularly China. This has been a key factor to short-term economic uncertainty and the resulting slowdown in global pulp demand. We believe the measures and tariffs to be implemented by the U.S. should stabilize at some point. Hardwood pulp prices in China and Europe increased at the start of 2025, followed by declines during the second quarter ending the semester in Europe at a level of $1,120 per tonne. We believe pulp prices in China are close to marginal cost, which could indicate a near stabilization point as local integrated paper producers have an economic incentive to purchase pulp on the market. European prices should follow China often with a 1 to 2-month delay. The Altri group should focus its efforts on optimizing variable costs aiming for a slight reduction in cash cost year-on-year to mitigate the current economic environment. We have achieved a higher level of operational efficiency in second quarter 2025, improving production costs and the first half closely in line with 2024. On the growth and diversification front, the acquisition of 58.7% of AeoniQ reinforces Altri's group strategy of developing projects in the field that high value-added, low environmental impact cellulosic projects. The acquisition of Greenalia Forest, one of the leading companies in the Galician forestry sector and Greenalia Logistics during the second quarter 2025 was an important strategic step to enable the group to establish a forestry platform in northern Spain. As a conclusion, 2025 is a challenging year given the economic doubts caused by tariff announcement and evolution of the U.S. dollar. We expect to see a normalization of the situation into Q4 2025 with a pick up in demand and progressively higher returns. So we remain, as always, focused on operational -- optimizing our operational performance. Thank you for your attention. We look forward to your questions.

[Operator Instructions]. Our first question comes from Bruno Bessa from CaixaBank BPI.

The first one will go for the net debt evolution, which saw an increase on a quarter-on-quarter basis. I understand that's also driven by the dividend. But still, I believe that working capital has significantly deteriorated in the quarter also due to the ongoing market conditions. But on this front, just trying to understand if you could share with us some color and some expectations about this debt evolution until the end of the year, if we could get closer to the levels seen at the end of '24 or if this level of debt should be difficult to further materially reduce considering the ongoing industry backdrop. This will be the first question. The second question focused on the AeoniQ acquisition. If you could provide a bit more color on this acquisition, namely in terms of invested capital, including the capital increase that you are undertaking in the company to expand capacity and the potential EBITDA uplift coming from this and the potential for -- to scale up the business in the future? Then third question, a bit of more focused on the P&L. If you could explain the movement in the net financial cost line in the first half and particularly in the Q2 and if this is a good reference to be extrapolated to the full year.

Thank you, Bruno. Just a few comments regarding net debt evolution. Obviously, the net debt is always a key impact then where your EBITDA comes. And with the reductions we've had so far this year, obviously, we will take a more prudent approach. The dividend was the largest part of that increase. And we also have a meaningful increase in working capital, and that's primarily driven by seasonal wood stocking. So usually at the end of June, early July tends to be when we have the highest wood inventory in our plants. So that should, towards the end of the year, normalize to a more efficient level. On the side of the inventories regarding pulp, as we said earlier, we've always tried to keep a fairly prudent approach on inventories. I would say, at this stage, where we see them, we see them in line or even below what has been our historic number. Obviously, depending on how the market evolves in the next few months that may or may not have a negative impact or eventually would be further reduced with a positive impact on working capital. But the biggest element there clearly has been the wood inventories. Regarding AeoniQ, in terms of plans for future scallops, when we look at a business like this, usually has -- it's a very strong high value-added business. We estimate that EBITDA would be somewhere in the range of 30% to 40% plus. So it's a high-value business. This first plant is really to -- this first industrial plant is really to start feeding the market, qualifying different brands. There is a pipeline of more than 15 projects ongoing with multiple brands, which have not yet been disclosed, but there is a high level of activity of qualifying brands, including some very well-known global brands. But this initially -- so there's 2 steps. We have pilot plants, we have pilot plants in Austria, which primarily are focused on product and application development. And they see that some of the initial capsule launches that Hugo Boss did. And Hugo Boss and a few other brands, including home textile, [indiscernible] for example, in a Portuguese company. But then the second stage is to have a pre-industrial pilot line with larger quantities to start qualifying those brands. And then the third one, which is this first industrial scallops plant is really the first step of the ramp-up. Now we have some ideas in terms of what follows, which will be a continuation of the scale-up into significantly larger quantities, but we will not disclose any further plans until we have a better understanding of how the market -- the speed of market development. But yes, there are some developed scallops plants that will follow this first industrial one. Regarding our [indiscernible] cash flow and the financial results, I'll ask Miguel to comment specifically on this.

Yes. Regarding financial results and answering directly to the question, I think those figures both in Q1 and Q2, I think they don't provide a good base for the next quarters. Even if we don't know exactly what is going to happen with the exchange rate because it mainly has 2 components. The normal interest paid and received, which are absolutely in line, even better than expected because increase in interest rates have been more than we expected that we have forecasted. And then the other -- more or less the other half is exchange rate losses, knowing that most of those exchange rate losses are potential. They are not actual exchange losses. This is due to the reevaluation of the balance at the end of the quarter. So that means that we have both in the end of first quarter and the end of second quarter, a strong depreciation of U.S. dollar meaning that some of those losses have been reverted in the following weeks and months. But answering directly, I would say our base case for financial results will be lower than what we presented in both the first quarter and the second quarter.

[Operator Instructions] Our next question comes from Antonio Seladas from AS Independent Research.

The first one is related with volumes. If you could provide some reference or some idea about volumes to be sold in the rest of the year. And second question is related with capital spending. So if you can provide an update, taking into consideration the acquisition of AeoniQ and Biotek conversion. If you can provide an update on capital spending for the current year and for 2026? And last one is related with net debt. So I understood from your answer -- from your prior answer that taking consideration that working capital come down that net debt should come down until the rest of the year. So could you confirm it?

Thank you, Antonio. Regarding your first question on volumes, our expectation is volumes should be pretty much in line with the first half. We don't have any more stoppages left until the end of the year. So effective all of the program planned stoppages. So that should provide us a good base for us to target normalized volumes. So I would say in terms of volume, we're looking at beyond 1.1 million tonnes on an annual basis. Regarding your second question on capital spending. This year, we have several projects underway. We have the acetic acid and furfural which were completed early 2026. So this year is the main year of spend. And we also have the conversion of Biotek, which involves the refurbishment and expansion of the lime kiln, also evaporation. So a number of those projects will extend through 2026. But obviously, 2025 is still a higher capital expenditure year. Other projects in line with that for -- as far as it relates to AeoniQ, there's very little still this year, primarily furfural line industrial. Next year, we'll be focusing on the industrial -- the first industrial line, and that's when most of the investment will be made. So I would say, all in all, for this year, we're aiming to be around EUR 70 million in terms of capital spend, which is, I believe, pretty much in line with what we've stated in the past. Obviously, it depends on the execution of some of these projects, whether some will pass on to next year or not, but that's the level we're targeting. On the net debt, my comment was depending on how the market evolves, there is an expectation that EBITDA is obviously a key element of our net debt and eventually will -- depending on how the rest of the year goes, we would expect particularly on net debt to be impacted in terms of our free cash flow by working capital. That's what I said about the wood inventories. That one specifically, the working capital, we would expect some reduction. But I would say in terms of net debt level, we will probably be at higher levels compared to the end of last year.

Just a follow-up question. Just a clarification, sorry, in terms of your EBITDA margin regarding your AeoniQ project. So I understood that it will be between 30% and 40%, just to confirm it.

Yes. We're estimating between 30% and 40% EBITDA margin.

There are no further questions. So I will hand over the session to Mr. Jose Soares de Pina, Altri's CEO.

Thank you all. Thank you for attending the call. As we stated before, we're very focused on continuing to remain, as always, very focused on operational performance, as we've stated, and I think you've seen through the results of the second quarter, in particular on our cash costs, we will be very much focused on managing that very actively through the remaining of the year. And I think that was the key point that we made earlier. And despite that, we continue on the investment in terms of our growth projects, which we believe will be pretty significant in the next few quarters. Thank you so much. Have a good day.

This concludes today's event. We thank you all for your presence. Ladies and gentlemen, you may now disconnect your lines.