Empresas CMPC S.A. (CMPC.SN) Earnings Call Transcript & Summary

Hello, everyone. I'm Sebastian Moraga, CFO of CMPC. I would like to welcome you to our Fourth Quarter 2025 Earnings Webinar. Joining me today are Francisco Ruiz-Tagle, CEO of CMPC; Raimundo Varela, Chief Commercial Officer of Pulp and Boxboard; and Claudia Cavada, our Head of Investor Relations. Please note that the statements made today during the presentation and Q&A may include forward-looking statements to assist you in understanding our expectations for future performance. These statements are subject to some risks that could cause actual results and events materially differ. In the fourth quarter of 2025, sales amounted roughly to $1.9 billion, and net income was $37 million. The Pulp business generated an EBITDA of $168 million with an EBITDA margin of 21.9%. The Softys business reported an EBITDA of $107 million, increasing 13% quarter-over-quarter and 3% year-on-year with an EBITDA margin of 12.4%. This business has experienced increased competition in its markets, especially in Brazil, where the tissue paper installed capacity has increased substantially. Also, weaker macroeconomics impacting consumption in other markets, especially in Mexico and Argentina, have limited our ability to increase prices. Biopackaging reported an EBITDA of $7 million during the period with a margin of 2.8%. The fluctuations of these 3 businesses versus previous quarters are highlighted in the slide. In the fourth quarter, the composition of CMPC sales was $767 million from the Pulp business, $868 million from Softys and $254 million from Biopackaging. The 1% consolidated quarter-on-quarter sales growth was driven primarily by the Pulp business. Pulp increased by 6% quarter-on-quarter, reflecting higher international prices and increased sales volume of hardwood pulp. Softys decreased 1% or lower volumes in the tissue paper unit, while Biopackaging decreased by 5%, mainly on lower sales volume. The year-on-year variation reflects an 8% drop in Pulp and Forestry sales, largely explained by a lower average price. In Biopackaging, a 12% drop was recorded as a result of a lower sales volume. And in the case of Softys, a 9% increase was observed explained by higher sales volume along with a lower average price in U.S. dollar terms. Operating costs increased 1% quarter-over-quarter and 2% year-over-year. Operating costs increased quarter-on-quarter due to higher sales volume and year-on-year mainly by the consolidation of Falcon in Brazil. Other operating expenses amounted to $348 million in the fourth quarter, increasing 4% quarter-on-quarter and 5% year-on-year. Quarter-on-quarter were related to higher expenses in Softys and to a lesser extent in Pulp and Biopackaging. Given the aforementioned effects on a consolidated basis, the company's fourth quarter EBITDA was $262 million, where the contribution of the Pulp segment was 59%, Softy was 39% and Biopackaging was 2%. Net income totaled $37 million during the period, an increase from $34 million obtained in the previous quarter and from the $10 million obtained in the fourth quarter of year 2024. The quarter-on-quarter increase was driven by higher EBITDA and favorable exchange rate differences. In the year-on-year comparison, the increase in net income is largely explained by lower income tax expenses and favorable exchange rate differences. Capital expenditures in the third quarter totaled $179 million, which compares with $176 million reported in the third quarter and to $261 million recorded in the fourth quarter of last year. The year-on-year comparison is explained by lower maintenance expenses. Now I'd like to turn the presentation over to Claudia, who will provide more details on our results by business.

Thank you, Sebastian, and good morning, everyone. We will begin with the Pulp business. In the fourth quarter, our total Pulp production was up 2% quarter-over-quarter and 4% year-over-year. The growth was mainly due to lower maintenance downtimes. Breaking this down, hardwood production was 936,000 tons, up 6% quarter-over-quarter and year-over-year as well. Softwood production was 180,000 tons, a decrease of 14% from last quarter and 6% from the prior year. These fluctuations reflect time differences in our maintenance schedule. Looking at our sales volume, Pulp volumes sold to third parties increased by 5% quarter-over-quarter and decreased 2% year-over-year. In the quarterly comparison, hardwood volume was up 7%, driven by higher exports to China, while softwood volume declined 4%, reflecting lower sales to Asia, ex-China and Europe. In a year-over-year comparison, Pulp sales volumes declined by 2%. Hardwood sales were up 2%, driven by higher exports to China and softwood sales decreased by 16%, primarily from lower exports to China, the rest of Asia and Europe. On the pricing side, the average sales price for softwood in the second quarter was $663 per ton, a decrease of 4% from last quarter and 12% from last year. The average sales price for hardwood was $529 per ton, up 4% quarter-over-quarter and down 8% year-over-year. As a result, revenues for the Pulp business totaled $607 million, increasing 8% quarter-over-quarter and decreasing 9% year-over-year. In our forestry business, sales volume was 993,000 cubic meters. These volumes were stable quarter-over-quarter and up 15% year-over-year, reflecting strong sales of pulpwood, sawlogs and other forestry products. Combined, total revenues for our pulp and forestry businesses were $767 million, up 6% from the previous quarter and down 8% from last year. Next, let's look at the pulp cash cost per ton. For hardwood, Cash costs were $228 per ton, an increase of 4% quarter-over-quarter and 1% year-over-year. The quarterly increase was driven by higher cost of chemicals, wood and labor, partially offset by lower cost of energy. Year-over-year, there were increases in the wood cost and chemicals, while we saw decreases in energy and labor. For softwood, cash cost reached $403 per ton, up 6% quarter-over-quarter and 13% year-over-year. The quarterly increase was driven by a higher cost of energy and materials, while chemicals decreased. Year-over-year, all cost lines increased with the most significant increase recorded in energy and wood. The EBITDA for the pulp business was $168 million, marking a 4% increase quarter-over-quarter and a 27% decrease year-over-year. The EBITDA margin was 21.9%. The quarterly increase in EBITDA was mainly due to higher sales volume together with a higher price in hardwood. The year-on-year decrease was a result of the lower average sales price. Next, let's discuss our Softys business. This quarter, the market remained highly competitive. In response, we have sharpened our focus on brand building and positioning, particularly for our personal care products and in market with strong growth potential. Softys' revenues for the fourth quarter totaled MXN 868 million. This is a 1% decrease from the third quarter and a 9% increase year-over-year. Let's break down the volume. Tissue paper volumes decreased by 3% Q-on-Q and increased 2% year-over-year. Personal Care volumes increased by 3% in the quarterly comparison and 24% year-over-year. This growth largely reflects the integration of Falcon diaper operations in Brazil. In terms of pricing, the average sales price for tissue products increased 3% quarter-over-quarter and declined 2% year-over-year, reflecting the latter case, the currency appreciation across Latin America. For Personal Care, the average price decreased by 3% quarter-over-quarter and year-over-year also reflecting currency appreciation in the region, together with a highly competitive environment. Softys' EBITDA for the third quarter was $107 million with a 12.4% margin. This represents a 13% increase from the previous quarter, and it's a 3% increase year-over-year. Next, let's discuss our Biopackaging business. Sales volume for the quarter decreased by 3% from the prior quarter and 12% year-over-year. The quarter-over-quarter and year-over-year decline were primarily driven by lower volumes of boxboard and reflect the high inventory stocks observed globally in the boxboard and other paper industry due to a contraction in the packaging market. Our average sales price in U.S. dollars was down by 1% quarter-over-quarter and remained stable year-over-year. As a result, revenues for the Biopackaging totaled $254 million, down 5% from the last quarter and 12% from the same period of last year. The quarterly decrease was a direct result of the lower sales volumes and a lower average selling price. Biopackaging EBITDA for the third quarter was down 61% from the prior quarter and 63% year-over-year, reflecting lower volumes. Our EBITDA margin for the quarter was 2.8%, a decrease from the 6.8% we saw in the third quarter and the 6.6% from the fourth quarter of last year.

Thank you very much, Claudia. We ended the third quarter of the year with roughly $5 billion of net debt, which decreased 1% quarter-on-quarter and increased 3% year-on-year. Cash totaled $900 million. The net debt-to-EBITDA ratio reached 3.97x in the fourth quarter of 2025, which compares to 3.79x in the third quarter of this year and 3.15x on the fourth quarter of year 2024. Now I would like to highlight some events that occurred during this last quarter of 2025. In December, CMPC held its Investor Day, bringing together leading analysts and investors. Our senior executives presented the company's strategy to address current challenges in the paper sector, including increased Chinese pulp and paper production, tissue overcapacity in Brazil and weaker demand in Mexico. We also shared our financing plan and provided further details on the scope of the Natureza project. In January of 2026, we signed the concession contract to build a private terminal at the Port of Rio Grande in Brazil. This port infrastructure will be essential to support the Natureza project, which is expected to be submitted to our Board of Directors for approval in mid-2026. Additionally, CMPC achieved a AAA rating from the Carbon Disclosure Project. This recognition underscores our leadership in managing climate risks, responsible water use and forest protection aligned with international standards. With that, Claudia, we can now start our Q&A section.

Thank you, Seb. [Operator Instructions] We have the first question coming from Safra Ricardo Monegaglia.

I have 2. First [Technical Difficulty] also disclose how are your order book was [indiscernible] January that would be great. And my second question on [Technical Difficulty] mix, volumes and cost normalization? And what gives you confidence that Softys margins can continue expanding, especially given the recent appreciation of local currencies against the U.S. dollar.

Ricardo, this is Raimundo. I'll take your first question regarding the market. We have had a successful contract negotiation. At the end of the year, we negotiated the contracts for the following year, and we were able to close 100% of our volume for 2026. In some cases, we didn't have over demand in some regions. So in general, I think was a good contract negotiation season for us. And then regarding placing the January orders, we had a good feeling of the market. I think in January, -- in China, we closed January and February with price increases for both months. So I think that the situation in hardwood in general, I think, is healthy. And softwood is a little bit different. Our volume in softwood is not so big, so we were able to place it without problem. But the market in softwood is a bit more difficult. There is more volume available. There's a bit of less appetite, less demand. So I think hardwood quite positive, softwood a little bit more difficult.

Okay. And the second part of the question was connected with Softys. Could you please repeat the question? I couldn't take it very well.

Yes, sure. So margins were a positive surprise to us in the quarter. So I wonder if you could break down how much of this margin growth came from pricing, mix? Volumes and maybe cost normalization? And what gives you confidence that Softys margins can continue to expand through the year, especially as we saw a recent appreciation of local currencies against the U.S. dollar, which does not bode well to your margins?

Okay. Well, thank you very much for the question. First of all, I can say that the situation of the volume during the last quarter in Softys have been better compared with the rest of the year, so improving in some way volumes. So it's affected with that. Also the -- in Softys, we have been in a plan for price increases during the last quarter. As you know, there are some economies affected in Latin America, some overcapacity in Brazil and in Mexico. So some competitive situation that is also challenging us. But even considering that, we have been successful increasing prices. And in connection with the revaluation of the currencies, I would say this is basically -- it's good news for Softys in the sense that we are increasing our prices in dollar in general in the market we are participating and affected negatively from the cost side, but some costs that are based in local currency, but in general, a lower revaluation of currencies is affecting positively the result of that business.

And the next question comes from Goldman Sachs, Marcio Farid.

Quick one on me for Natureza. Obviously, you've done the revaluation of forest assets and marketing to market the forest value. That seems to better reflect the value of your asset, but it also seems to be a preparation for a potential alienation or sale leaseback of forest for the Natureza project, right? Can you just remind us how you're thinking about preparing the balance sheet for an eventual Natureza approval? What is the next step here? Obviously, I think you have to finalize the licensing and then take it to the Board by midyear. But you just mentioned the point agreement, which is also an important one. So just to try to see what are the next steps and the confidence you have that you're going to have the balance sheet ready for Natureza kickoff. Thank you.

Okay. Thank you, Marcio, for your question. Let me start first for the -- what is the status of Natureza and some -- answering some of your concerns about this. And also -- so let me answer part of your question, and then I will pass to Sebastian to talk a little bit about the balance. But of course, we are in the process of preparing the company for this possible project. And I say possible because it has not been still approved by the Board. The situation today is that we are still in the process of obtaining the permits, environmental permits required for all these technical studies for this project. And we are expecting to present the project to the Board of Directors by mid-2026, 100% aligned with the project. And so we are today preparing everything for having this ready. And we have had important advancement in terms of engineering of the project in general and with some negotiations and definitions, of course, and still waiting for the previous license, which is the next step, which is we are under kind of a normal period process. And the previous license should be ready by probably we're expecting that within the next couple of months. And then the installation license probably a couple of months after that. So in general, I have to say that everything is advancing without any particular problem. And probably Sebastian can explain to you what we did about the revaluation of the land, but it's not necessarily connected with the project. It's part of a revision that we did. But a part of that, I can tell you that we are, of course, preparing the best way to -- and a responsible way because we have a really clear target in our debt levels. So we are preparing this in a responsible way to go ahead with the project. So Sebastian, probably you can add something about our changes and the valuation of the land.

Marcio, regarding the land revaluation, basically, the decision to do that was to provide better information of the value embedded in our balance sheet to the market. That does not necessarily mean we want to do something with the land. But basically, it was driven to provide better information to the market. Now to your question regarding balance sheet, as we mentioned on the Investor Day, first of all, investment-grade status for the company is cornerstone. And in that sense, we have been very close with rating agencies. We have provided them the plan that we have in mind in terms of deleveraging the company to take the decision of Natureza with a stronger balance sheet. And obviously, through the construction of Natureza, which obviously will entail a lot of CapEx, we will keep on investment grade as a cornerstone, and we're taking all the measures to do that. Now regarding the monetization plan that we announced on the Investor Day, I can obviously comment that the plan is advancing well. But obviously, given the nondisclosure agreements, I cannot comment more on that. Hopefully, in probably the next investor call, we can provide some more color into that.

Sounds good. And maybe another follow-up here on the cost side, I think there has been some good cost momentum at least up to a couple of quarters ago. And I think especially on the softwood side, cash costs have increased a little bit and hardwood stop improving as well. Can you just highlight to us what is the expectation in terms of cash costs and the key drivers going forward, please?

Marcio, connected with the cash cost of softwood and hardwood, I would say, yes, we are ending a year with improvements in cost compared with last year, even compared with our budget we were very much in line and working hard on being, as we said before in other meetings, working hard on being P10. I mean -- so I would say my impression is that we are improving per ton cost on the main raw materials, especially wood. And so just to say that, I mean, we will still continue being absolutely competitive, especially in Brazil.

Thank you, Marcio. [Operator Instructions] And the next question comes from JPMorgan, Tathiane Candini. Hi, Tathi.

I think some of them was already explored, but I would just like to focus on the Biopackaging segment. I think the results for this quarter missed a little bit of our expectations, and we understand that this is coming from lower sales and lower realized prices. But I would just like to explore with you what is the future that like the long-term margins that you expect for this segment. And how are the plans to achieve that? I think we have been -- this has been a segment that the results have been struggling a little bit. Environmental is not like environment for this business has not been that easy. But what are the plans? What is the long-term view that you have on this unit, just to give like -- just to understand a little bit with more clarity, what should we expect for the coming, maybe not quarter, but maybe for the coming years?

Probably Raimundo you can start explaining something about Boxboard and then I continue with the rest of the business?