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

Good morning. We welcome you to the Altri Second Quarter 2026 Results Conference Call. [Operator Instructions] I'll now hand the conference over to Mr. Rui Cesario, the Head of IR of the Altri Group. Please go ahead, sir.

Good morning, and thank you for joining Altri Second Quarter 2026 Results Conference Call. Today, we will review the financial performance, market conditions, operational highlights and outlook followed by Q&A session. Joining us this morning are Mr. Jose Pina, our Chief CEO; and Mr. Miguel Silve, the Group CFO. I will now hand over to Jose Pina.

Thank you, Rui. Good morning, everyone, and thank you for joining us today. We move on to Slide #2. Second quarter represented a significant improvement compared to the first quarter of the year. As you will recall, the beginning of 2026 will have the impact of severe storms in Portugal, which affected food availability, logistics and operational across our mills. During the second quarter, however, conditions progressively normalize allowing us to recover production stability and improved overall profitability. At the same time, market conditions became increasingly supportive. Pulp prices recovered throughout the quarter, resolving pulp demand strengthened and customer activity remains healthy, particularly across Asian markets. These developments provide a much stronger commercial environment than the one we experienced at beginning of the year. Against this backdrop, revenues reached approximately EUR 205 million and EBITDA recovered to EUR 30 million with a margin of 14.7%. While profitability remains below the levels achieved in stronger market cycle, the quarter clearly demonstrates earnings potential of the business once operational disruptions are removed. Importantly, we did not only focus on operational recovery, we focus to advance our long-term diversification strategy with the [indiscernible] projects entering the rental place at Caima, the Biotek conversion project and in commercial momentum and AeoniQ demo project progressing well according to time. These developments represent important steps in what we believe will become an increasingly significant source of allocation for the group. In parallel, the group continues to receive important external recognition for sustainability performance, further reinforce our positioning as the leading sustainable private business. Therefore, while the quarter clearly reflects the recovery of our core business, it also marked the beginning of the new page, with all 3 starts to impressively capture the benefits from the specialty fibers and diversification [indiscernible] cycle that has been under execution over the last few years. Moving on to market development. Although global pulp demand remained relatively soft during the first month of the year, euro trends improved progressively throughout the quarter. China continues to outperform most other regions and remain the key demand driver for our group pulp. While global demand still slightly below last year's levels, we observed a much shock in our market environment that one seen towards the end of 2025. Turning to Slide #4. The dissolving pulp market continues to be one of the most interesting areas to be in the growth private market. As shown on this slide, global dissolving pulp even increased by more than 6% year-on-year during the first 4 months of 2026, with Asia accounting for most of this growth in China remaining the main demand for [indiscernible]. The underlying driver remains unchanged. [indiscernible] continues to increase her solo fibers, supported by consumer demand for more sustainable products. And by the means, we do reliance on top of base in [indiscernible]. These structural trends is creating attractive long-term opportunities for [indiscernible] pulp businesses. For all 3, this market is strategically important, it support diversification efforts and our objective of increasing exposure to higher value [indiscernible] applications. Whilst we're still in a transformation phase of [indiscernible], the demand trends we see today continue to reinforce the rationale behind this investment and our confidence in the long-term growth potential of the business. Let me now briefly comment on inventory levels, which remain an important indicator of market. Inventories at European ports have remained below historical averages during April and May indicating a healthier supply-demand does. As you can see, stock levels were consistently within the range of approximately 1.45 million tons. The inventory position contributed to the element in market sentiment in Europe observed during the second quarter. Moving from demand and inventories to pricing. Let me add a few comments on BHKP prices in Europe during the quarter. At the weaker environment towards the end of 2025, pulp markets grew significantly during the first half of 2026. We saw a sequence of successful price increase announcements across the industry, supported by better demand trends, particularly in China, and by relatively healthy inventory levels in Europe. As a result, average BHKP prices in Europe increased by around 16% year-on-year and 13% compared to the first quarter. What is particularly encouraging is that this recovery was not driven by a single event but rather by a gradual improvement in market fundamentals throughout the first half of the year. To Altri's perspective, higher prices come at an important time as they coincided with the progressive normalization of operations following the storms experienced in the first quarter. While we remain mindful of the macroeconomic uncertainties that continue to affect lower industrial activity, we believe current inventory levels and customer purchasing patterns support a more balanced market environment going forward. On dissolving pulp pricing, we also observed a positive trends. As shown on this slide, average CP prices increased around 9% quarter-on-quarter and recovered materially from the levels observed at the beginning of the year. This improvement was primarily supported by stronger demand for Asian textile producers, particularly in viscose and [indiscernible] application, where colloid fibers continue to gain relevance as a more sustainable alternative to synthetic patterns. For Altri, this trend is particularly relevant. Over the past few years, we have been progressively positioning the group to increase its exposure to higher value-added solicitors fibers and resolving pulp as the central component of that strategy. Whilst we're still at an early stage of the Biotek transformation journey, market dynamics remain supportive and reinforce our confidence in the long-term opportunity for this business segment. Moving now to operational performance. The first half of the year continued to reflect the impact of the severe weather events experienced during the first quarter as well as the scheduled maintenance shutdown at Celbi. As expected, these factors affected production volumes on a year-on-year basis. Section decline compared to the first half of 2025 largely reflecting circumstances that we consider for very [indiscernible]. However, one aspect I'd like to highlight is the resilience shown by our commercial platform. Despite the operational challenges, the sales volumes increased versus the same period last year reflecting both the strength of our relationships and the team's ability to maintain a reliable supply to market. The tightening customer relationships has always been one of Altri's strategic priorities, particularly during periods of operational disruption. And we believe this quarter again demonstrated the value of that approach. And now the important development was the continued increase in dissolving pulp sales. These replace both the gradual conversion of Biotek, technical [indiscernible] of our products by customers. Although the transition remains ongoing, we are encouraged by the commercial progress achieved so far and by an increasing number of qualification processes currently underway. Looking now at our commercial mix. [indiscernible] continues to represent our largest end-use segment and remains a stable source of demand for our product. However, the most strategically relevant trend is the increasing contribution from textile applications and Asian markets. Textiles represented around 15% of our sales volumes during the first half, with Asia accounted for approximately 18%. Both figures have increased meaningfully of recent years and reflect the change in profile of the group. This evolution is not occurring by chance. It is a direct consequence of our deliberate strategy to move further into evolving pulp and other specialty fiber application, where we believe long-term growth prospects are particularly [indiscernible]. At the same time, the increasing exposure to Asian markets provides access to some of the fastest-growing and new segments globally, particularly within the textile value chain. As part of our strategy, we now have a direct presence in China with a local [indiscernible]. Therefore, beyond the short-term quarterly performance, this slide illustrates the direction in which we are strategically transforming the group. I will now pass the floor to Miguel de Silva, CFO, who will walk you through the main financial highlights of the quarter.

Thank you, Jose, and good morning, everyone. Let me now review the financial performance for the quarter in Slide #10. As Jose highlighted earlier, the second quarter represents a significant recovery compared to the first quarter and demonstrates the business ability to generate earnings once operations with [indiscernible] commission. Total revenue reached EUR 204.6 million during the quarter, an increase of approximately 21% compared to the same period last year and almost 28% versus the first quarter. This performance was supported by 3 main factors: First, recovering bonds following the operational disruptions we experienced at the beginning of the year. Second, a stronger contribution from dissolving pulp sales; and third, the improvement in market prices that we discussed earlier. On the productibility side, EBITDA reached EUR 30 million compared with EUR 5.1 million in the first quarter and EUR 28.2 million in the second quarter of last year. The quarter, therefore, marked the returned to a more normal profitability profile for the group. Whilst we continue to face some wood cost, most operational and logistics inefficiencies experienced earlier in the year were directed during the second quarter, allowing profitability to recover materials. I would also note that this recovery was achieved while continuing to invest in the commercial development of our diversification projects and specialty traveling. Looking now at the first part of the call on Slide 11. The reported figures still reflects the significant disruption caused by the first quarter. Total revenues reached EUR 365 million, broadly stable compared with the half of last year, declined by only around 2%. However, EBITDA reached EUR 35.5 million compared with EUR 57.6 million in the first half of 2025. The difference is almost entirely explained by the extraordinary circumstances that attractive operations during the first quarter, including the [indiscernible] for supply chain disruptions and [indiscernible] For that reason, we believe the quarterly evolution from Q1 to Q2 provides a better indication of the current trend in the business than the first half comparison alone. The key takeaways is that the operational and commercial recovery achieved during Q2 allowed us to start rebuilding profitability following what was a newly challenging [indiscernible]. This recovery is particularly visible at the margin level. EBITDA margin improved from 3.4% in the first quarter to 14.7% in the second quarter representing an increase of more than 11 percentage points quarter-on-quarter. This was driven by a combination of stronger selling prices, higher sales volumes and improved operational efficiency. Overall, however, we are encouraged by the pace of [indiscernible] we achieved during the quarter and by the clear improvement in profitability trend. Moving down the income state -- moving down on the income statement as as a consequence of the EBITDA recovery, the improvement [indiscernible] is the remainder of income. EBIT reached EUR 18.5 million to weaker quarter compared with a negative EUR 6.3 million in the first quarter and EUR 16.9 million in the second quarter of last year. Net profit reached EUR 12.9 million compared with a loss of EUR 7.3 million in Q1 and EUR 6.4 million in the comparable period last year. This represents a very significant recovery in earnings and clearly illustrates the operating leverage embedded with it. Meaning at the out-year figure, EBIT for the first 6 months reached EUR 12.2 million while net profit amounted to EUR 5.6 million. Those figures remain below the levels achieved during the first half of 2025. However, once again, these results are heavily influenced by the very weak first quarter. If we look only at the second quarter, profitability levels are already much slower to recent Eastern [indiscernible] Turning now to costs on Slide #15. We're not the most increasing development during the second quarter was the progressive normalization of most operating and Brazil. Energy costs remained broadly stable. Chemical costs also remained relatively controlled despite some inflationary pressure linked to energy related [indiscernible] The main area where we continue to see some pressure is good. As discussed previously, the storms experienced early in the year affected with availability and sourcing conditions across Portugal. While conditions improved significantly throughout the quarter, some impact on procurement costs remains feasible. The positive aspect is that we expect the effect to progressively [indiscernible] over the coming quarters as supply chain continue to normalize. Moving to the balance sheeting on Slide 16. Net debt increased from approximately EUR 348 million at the end of March to EUR 398 million at the end of June. This increase was primarily explained by 2 matters: first, the payment of dividends during the quarter; and second, we continue the investment in diversification and growth profit. During the quarter, [indiscernible] is investing in projects that we believe will contribute meaningly to the future development of the group, including a DSX conversion to dissolving pulp, time specific assets in [indiscernible] and AeoniQ. Despite these investments, we have a comfortable liquid position that a sufficient financial flexibility to execute our strategy. With that, I will now pass it back to Jose.

Thank you, Miguel. Before discussing our strategic projects, I'd like to spend a moment on capital efficiency and returns. As shown on this slide, ROC currently stands at around 3%, significantly below the level that Altri has historically delivered over the cycle. It is important to recognize that these reflect the very specific point in the cycle rather than a structural change in the quality of the business. Over the last decade, Altri has consistently generated double-digit returns through multiphase the pulp cycle and in stronger market environments, we have achieved returns comfortable in the mid-teens and above. Today, however, we are simultaneously facing 2 factors that [indiscernible] depress returns. First, earnings remain impacted by a period of relatively weak full market conditions and more recently by the operational disruption experienced in the first quarter. Second, we are carrying significantly larger asset base as a result of investments made over recent years to support our diversification strategy. In other words, part of the capital has already been invested whilst the meaningful portion of the future earnings contribution is still to be delivered. This is particularly true for projects such as [indiscernible] conversion into dissolving pulp, [indiscernible] project that kind and the AeoniQ platform, all of which are at different stages of commercialization in Renda. Therefore, we believe the current ROCE should be viewed as a traditional metric rather than a reflection of the long-term earnings potential of the group. As market conditions continue to improve and our diversification projects progressively contribute to profitability, our objective is to move returns closer to the level that shareholders have to sort associated with Altri. Moving on to sustainability. It remains fully embedded in our business strategy and continues to be an important differentiating effect for the group. During the quarter, Altri was recognized by CDP as a supplier engagement leader after achieving an rating for the supply engagement assessment. This distinction recognizes companies that demonstrate leadership in working collaboratively with suppliers on climate-related matters and strengthening resilience across their supply chain. We're also included for the second consecutive year in times ranking of the world's most sustainable companies, highlighting our continued progress across environmental, social and governance financials. While these recognitions are clearly positive, we view them as confirmation that the strategic choices made by the group over many years are producing tangible results. In parallel, we launched our sustainability literacy program designed to strengthen sustainability warmness across the organization and further invest sustainability to everyday decision-making. Ultimately, we see sustainability not only at the responsibility, but also as a source of competitive advantage as customers increasingly focus on traceability, carbon footprint and sustainable sourcing. We believe all 3 position to benefit from these structural trends. Turning now to our diversification project. The first project, I would like to discuss is the [indiscernible] and portfolio units at Caima. These projects entered the ramp-up phase during June and represents an important milestone in Altri strategy to expand in with the adjacent specialty markets, in particular in bioproducts. Although relatively modest in size compared to our core pulp operations, the economics of the project are highly attractive. We expect annual revenues of approximately EUR 6 million to EUR 7 million and annual EBITDA of around EUR 5 million once fully ramped up. Importantly, this project demonstrates the diversification does not always require very large capital commitments. By leveraging existing industrial assets and know-how, we were able to take what was before residue create attractive new revenue streams while maintaining disciplined capital allocation. The project is expected to achieve full ramp up by the end of this year, and we look forward to obtaining shareholders on this progress over the coming quarters. On Biotek conversion into dissolving pulp, we believe this move represents one of the most significant value creation opportunities currently with group. As we have discussed previously, dissolving pulp has historically commanded a substantial time for commodity hardwood pulp, while requiring only a moderate increase in operating costs. During the second quarter, we continued to accelerate the commercial phase of the projects. Customer qualifications progress engagement with the [indiscernible] clients in Greece, and we completed the first large-scale commercial delivery customers. While qualification processes in specialty markets naturally require time, we are encouraged by the impact received and by the increasing visibility of future demand opportunities. What is particularly important is that we're now moving beyond the technical conversion pace and increasingly into commercial acquisition pace. In many ways, this is where value creation starts becoming visible. The investment is partially completed, although some into 2027, the operational capability is in place, and our focus is now on customer development, product qualification and progressively increasing. For that reason, we increasingly view Biotek as the project and [indiscernible] delivery execution phase rather than investment sales. In the following slide, on the AeoniQ project, it remains one of the most interesting long-term opportunities within our portfolio. The objective is to create a new generation of sustainable textile fibers capable of addressing some of the environmental challenges associated with traditional textile product. During the quarter, execution continued according to plan and [indiscernible] units which is, in this case, pre-industrial [indiscernible] final intellection. Production is expected to begin during the fourth quarter of this year. While AeoniQ is still at an earlier stage than Biotek, we continue to see strong interest from potential partners and customers across the textile value chain. What makes this opportunity particularly attractive is that it positions Altri much further downstream, bringing us closer to end markets and creating exposure to a potentially very large addressable market. Naturally, this remains the long-term project. However, every milestone achieved during 2026 improves our confidence in its future potential and in the strategic role in play within the group longer term. To conclude, let me share our outlook and strategic execution. The first point I'd like to highlight is that market contains and conditions have clearly improved compared to the beginning of the year. Hardwood pulp demand remain supported by China and good indications from Europe, while dissolving pulp continues to benefit from positive structural and cyclical trends. The second point relates to pricing. Following the strong recovery observed during the first half, we expect a more stable pricing environment during the second half of the year. Whilst we do not assume a continuation of the revenue increases experienced early in the year, current fundamentals that bears supportive of the balanced market environment. Finally, operationally, the significant disruption experienced during the first quarter is now largely behind us. Looking beyond the immediate market environment, our strategic focus remains unchanged, delivering our diversification strategy remains 1 of management's top priority. At Biotek, we continue to expand customer qualification and commercial relationships. At Caima, we expect the acetic acid and [indiscernible] projects progressively ramped up during the second half. And at AeoniQ, our focus remains our successful starting production at [indiscernible] unit later this year. To conclude, I wanted to highlight that the second quarter marked a clear recovery for Altri. Our operations normalized profitability improved significantly. Market conditions have become more supportive and our strategic projects continue to advance [indiscernible] At the same time, we are increasingly seeing signs that the investments made over recent years in diversification and specialty fibers are beginning to translate to tangible commercial and operational progress, also remain disciplined and realistic regarding the challenges we have, we believe the group enters the second half of 2026 from a position of greater strength and improved market fundamentals. We believe Altri will be successful in the transition to become a more diversified group with a higher footprint in the specialties market besides cost leadership in the [indiscernible]. Thank you for your attention. We look forward to your questions.

[Operator Instructions] Our first question comes from Bruno Filipe Bessa from Caixa Bank BPI.

So a few questions from my side, if I may. The first one on the cash cost for 2026. If I remember correctly that I mean, I think you mentioned the mid-single-digit cash cost increase expected in 2026 with our Q1 earnings call. Just trying to understand if you keep that view...

We cannot hear anything.

Can you hear me better now? Hello. Hello?

I'm sorry, we can ask you any questions.

Okay. Okay. There seems to be a small problem with the connection. We will try and solve it. And in the meantime, we will follow to the next question, and we'll come back to Bruno as soon as fixed. Sorry for the inconvenience.

Operator, can you move to the following question?

Our next question comes from Antonio Seladas from AS Independent Research.

I have two. So the first one is on volumes sold. The quarter was quite nice. So maybe you can provide some color on what kind of figures do we expect for the coming quarters? -- namely in dissolving because I think the quarter was one of the best quarters ever in terms of dissolving pulp sold down sold. This is the first question. Second question is the wood prices. You mentioned that prices -- well, the situation should the abnormally high prices should dilute or should come down, so we expect 10% to 20% prices coming down? Is that a fair assumption? Or maybe you can provide some color on these two.

I'm sorry, Bruno, we're unable to hear the question. The sound did not come through clearly. [Technical Difficulty]

I'm going to do the questions via the by the webcast.

We are sorry for the inconvenience. Ladies and gentlemen, we seem to be experiencing some technical difficulties. [Operator Instructions] In the meantime, we are trying to solve the complications. Thank you very much for your understanding. [Operator Instructions]

Thank you. In the meantime, we do have a recent question by Antonio Seladas and I will read the question. Wood process, could you provide some color to coming quarters? Namely, it's fair to expect 10% to 20% price decreases? Volumes sold or dissolving pulp, what should we expect in the coming quarters? So Antonio, what we can say at this point, as we have referenced the wood process more initiating in the first quarter. Some of that had implications in the second quarter, as you would imagine. We've had a significant reduction in market availability of fiber during the first 6 months. But things have now been normalizing. And in terms of costs going into the second half, we expect that situation to be gradually back to normal. So the overall process should be normalized and availability should be normalizing as well in the second half. And effectively, by the end of this year, we don't expect any significant further impact. With respect to volumes of the dissolving pulp, we have more stable volumes within our existing [indiscernible] unit, when it gets to Biotek, there are multiple qualifications taking place. Some of the commercial sales that you have seen now in Q2 are continuing. So they'll start providing base loading of the Biotek asset. But over time, we have now more than 10 [indiscernible] ongoing into multiple segments, not just in textiles, but also in specialty. So we would expect to actually start seeing some of those qualifications conclude. It will depend when contracts actually will have to be negotiated and confirmed once qualifications do take place. And the final stage of the qualification as you may know, is a large-scale industrial production and then [indiscernible] of that output into the customers' applications and with customers further down the value chain. So that's usually the take some time. But as I said, we're now ongoing with Biotek on already commercial cell. And virtually, you should see a steady increase in industry. Thank you for the question. We have another question. Could you please ask the question?

Yes, we have the following question from Luis de Toledo told from ODDO. The question is, with regards to Gamma project, do you expect the need to book material impairments in the foreseeable future?