Empresas CMPC S.A. ($CMPC)

Good morning, and thank you for joining CMPC's First Quarter 2026 Earnings Call. I'm Sebastian Zuniga, CFO of CMPC. Joining me today are Francisco Ruiz-Tagle, CEO of CMPC; Guilherme Viesi, Commercial Officer of Pulp; and Claudia Cavada, Head of IR. Before we begin, please refer to the standard note on the forward-looking statements in this presentation. Before we dive into the numbers, I want to share how we are reading this quarter. The opening of 2026 has been about discipline, tightening the cost base, protecting the margin and continuing to build the integrated value chain we announced last year. There are 3 takeaways for the first quarter that I'd like to keep in mind. First is Guaiba maintenance. The annual downtime of both lines was on schedule and drove a decline in production and an increase in cash cost for hardwood. Second, our cost discipline is starting to pay off, which is reflected in recovered margin levels at Biopackaging and EBITDA expansion in Softys. Third, regarding Natureza project, our strategic agenda is on track to enable the Board decision to take place during this year. Now to the headline numbers. Sales of $1.8 billion were essentially flat year-on-year and down 4% quarter-on-quarter. Consolidated EBITDA was $255 million at a 14.1% margin, down 2% versus the fourth quarter and 8% versus first quarter of 2025. Net income reached $25 million. We will comment EBITDA and net income later in the presentation. Now let's go to the consolidated P&L drivers. On the left, sales of $1.8 billion broken down by business. Pulp at $731 million, Softys at $835 million, Biopackaging at $247 million versus fourth quarter of 2025, pulp was down $36 million, mainly due to lower volumes sold, especially in China. Softys was $33 million lower on both Tissue and Personal Care volumes and Biopackaging eased $7 million on a weaker corrugated demand in Chile. Operating cost of $1.2 billion with a stable ratio over sales. Other operating expenses of $332 million sat at 18% of sales. On EBITDA, in the quarter, it decreased $7 million as the combination of $13 million decrease on the pulp business given lower volume sales as well as lower volume in Softys reflected in an EBITDA decline of $11 million. This was partly offset by an increase of $16 million in Biopackaging EBITDA versus the first quarter of 2025, Pulp decreased $37 million on volume, Biopackaging lost $8 million on volume reduction and Softys added $16 million. As a result, consolidated EBITDA was $23 million below the prior year quarter. Net income came at $25 million, down 33% quarter-on-quarter. The main driver is below the EBITDA line, a reduction in the valuation of forest plantations driven by lower discount rates. That was partially offset by a positive $17 million tax effect on Brazilian real appreciation revaluing deferred taxes. Year-on-year, the decline is mainly explained by higher SG&A in Softys. CapEx came in at $185 million, up 24% year-on-year with maintenance making up 56% of the spend and growth roughly 35%. We continue to invest behind the integrated value chain. 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. On Pulp business, during the first quarter, sales reached $731 million, down 5% sequentially and 7% year-on-year. This was almost entirely on hardwood, where third-party volumes fell 12%. This was explained by lower exports to China. Softwood volume was stable. Pricing moved upwards. Hardwood price averaged $561 per ton, up 6.1% sequentially and softwood price averaged $674 per ton, this is 1.7%. EBITDA was $155 million with a 21.2% margin. The headline cost driver this quarter was the planned Guaiba 1 and 2 lines maintenance. That took our hardwood cash cost to $262 per ton, which is 15% above the first Q '25. Softwood cash costs held at $400 per ton. Next, let's discuss our Softys business. Softys delivered $835 million in sales, up 11% year-on-year on the Falcon integration in Brazil and a richer personal care mix. Sales were down 4% sequentially on softer tissue and diaper volumes in Chile, Brazil and Mexico. The market backdrop remains uneven. Chile, Peru and Uruguay are constructive for us. Brazil and Mexico continue to face the context of overcapacity we flagged in mid-2025. EBITDA of $97 million at an 11.7% margin compared to 12.4% in the 4Q '25. The sequential dip is volume driven, partially offset by savings from the MaxEo efficiency program. On the year-over-year comparison, EBITDA was up 20%, driven by Falcon, lower fiber cost, FX, together with the effects of a better sales mix. Inside Personal Care, we're seeing positive trends in feminine Cares and Wipes and our Diaper category is growing 4% year-on-year despite the seasonally weak first quarter. Now let's discuss our Biopackaging business. Biopackaging had a recovery during this quarter at the EBITDA level. Sales were $247 million, down 3% sequentially and 9% year-on-year, reflecting tougher market conditions and the strategic decision to prioritize margin over volume. the quarterly comparison, EBITDA reached $23 million at a 9.4% margin, up from the 4Q '25. Two effects matter here. The 4Q '25 carried inventory write-downs and warranty provisions in the corrugated business. Those did not repeat this quarter. And the efficiency initiatives we roll out through 2025 are now visible in the cost line. In the year-on-year comparison, EBITDA was down 25%. Fixed costs don't fully flex with volume, but the sequential trajectory is what we expected to see and the portfolio rationalization should continue to support margins through 2026.

Thank you very much, Claudia. We ended the first quarter of the year with roughly $5 billion of net debt. Net debt to EBITDA stands at 4.1x. We expect progressive normalization through 2026, supported by results evolution, working capital optimization and operational efficiencies. As we have mentioned on previous earnings calls, we are also evaluating asset monetization alternatives that could further strengthen the balance sheet. Investment-grade rating status was reaffirmed across all 3 agencies, S&P, Fitch and Moody's, the 3 with stable outlook.

[Operator Instructions] And we have our first question coming from Rafael Barcellos from Bradesco.

My first question is about -- can you hear me?

Yes. Very well.

Okay. Sorry, my first question is about your pulp cost. Can you please elaborate a bit further on your cash cost, ex maintenance downtime? And how we should think about the cash costs in the coming quarters? Also, if you can remind us what you have in terms of maintenance downtime scheduled for the rest of the year could be helpful. Then my section question about pulp also -- I mean, if you can help us understand the, you know, the current pulp cycle. If you can just elaborate on what you see in terms of the main trends, softwood markets have been very challenging -- if you can discuss a little bit more [indiscernible] and the implications for the hardwood.

Rafael, this is Francisco Ruiz-Tagle. Well, first question in connection with cash cost of CMPC. I would say probably you will see an increase of the cash cost during this report compared with the first quarter. And it has a lot to do with the maintenance of Guaiba mill. We had the scheduled maintenance for Guaiba I and Guaiba II. So the cash costs are pretty much influenced by those activities. But when you talk about ex maintenance, I would say we will continue with the situation with the cash cost in a very competitive tranche. And although we have been -- we have had some increase in wood prices during this year compared with the last year. But the main change in the cash cost has to be with the maintenance in January of Guaiba I and Guaiba II. And what is going to happen during the rest of the year according with the scheduled maintenance. Actually, the main operation already stopped. So during the second semester, we should have Santa Fe mill with maintenance and basically Pacifico. And so this is more or less regarding the rest of the year. But I'd like to add something that could be interesting to mention now is that probably -- I'm not sure if you heard about that, but we had an unexpected stoppage in Guaiba this week. And it was actually a problem. It was an unscheduled maintenance because we decided to stop the mill because we've had a kind of a problem in the upper part of the boiler in Guaiba II, which is kind of -- we are in the process of maintenance now. And when you have problem in the boiler, as you know, you have to cool the boiler and it takes some days. So we will have that line stopped by probably 8 to -- or close to 10 days. And this is not part of the scheduled maintenance in the year. So typical maintenance, it was a problem in the other part of the boiler. And to solve that, it would take 10 days. So just to mention that it's important for me to transmit that.

Guilherme can take the second question.

Sure. Rafael, thank you for the question. Well, we find ourselves in the market, I would consider the market balanced with different characteristics in different markets. The demand overall in the market is actually good. China comes with a good demand. I think with the problem of paper prices in China remains overcapacity of production remains. But let's not forget that we come from price increases pretty much since the half of last year. Prices have been steadily going up little by little. We came out of Shanghai pulp week with a price increase, which is something that doesn't happen every year. I would call the attention for the European market. European market is slightly tighter than the rest of the world. There is a price announcement of $50 gross for May now. Specifically about softwood, as you said, softwood is on a slightly different trajection is softer, oversupplied. The domestic supply of softwood in China remains, and that obviously affects the rest of the world. We had a price decrease last month. Softwood in China is now trading at around $650 net. That puts further pressure on softwood producers, mainly on North America, Canada and Scandinavia. And it is of our view that the capacity will continue to be reduced, will continue to be under pressure. And there will be further closures as we have seen throughout last year and this year, there will be further closures in the softwood market and eventually rebound -- prices should rebound.

Okay. As a follow-up question so given the more challenging operational scenario for the [indiscernible] views on the leverage evolution and your latest thoughts on the Natureza project could be good. Also if you had any recent talks with the rating agencies, if you have any discussions about the leverage what are the considerations they are making could be interesting for us to understand.

This is Sebastian. Regarding leverage, as we disclosed in our report, we believe that the 4.1% will have a downturn trend during the year, basically driven by efficiencies and costs, which will have an impact on better results and also working capital efforts we are performing. Additionally to that, we have been mentioning the potential asset monetization ventures that we are pursuing, which for obvious reasons, I cannot give much color into that. And once they obviously materialize, we will -- we could give more information to the market. Regarding rating agencies, we are very close to them. We are having, I would say -- well, first of all, it is important to mention that we were downgraded by Fitch as expected to BBB-. So today, CMPC is BBB- in Moody's, Fitch and Standard & Poor's, the 3 with a stable outlook. And regarding how we expect to move forward with Natureza in terms of indebtedness and the strategy of financing it, yes, we are very close to the rating agencies. So they are very well acquainted to our strategy in order to, again, keep the investment-grade status at announcement during the construction and once we finish Natureza. Now regarding Natureza, I would say, Francisco, if you want to take that question.

Okay. Well, just to say last part of the question, Rafael, your question and connected with this challenging operational quarter. Just to say that the mills have been running at a good efficiencies. So what I mentioned has to be with the kind of, I would say, kind of a problem that you can have in a mill and we are stopping for some days, but not seeing this situation as a big problem for the company. I would expect that we will continue running at a good pace and also with very competitive costs, better cost compared with the first quarter, very much influenced, as I said, because of the scheduled maintenance in January. And regarding Natureza, well, Natureza, I wouldn't see that that decision could affect in the short term, the level of debt of the company -- the decision will not be taken within the next couple of months. It will take more time. We are still in the process of permission. We are expecting for licencia previa or previous license. We should have that within the next couple of months. And then it would take probably some more weeks in getting the installation license. So we are not deciding this project until some more months. And so what Sebastian said, according with our plans of financing and monetization of some assets, my impression is that it's very well coordinated with all of our decisions.

[Operator Instructions] And we have a next question from Itau, Marcelo Furlan.

My question is actually a follow-up from the previous one related to the company's expectation of the financial deleverage. So could you please elaborate a little bit more given the fact that maybe the top line for the next months, at least in the pulp would be more challenging. So what are the main efforts the company should have or we should expect in terms of EBITDA improvement and free cash flow and stronger free cash flow generation that could be made from the company's self-help initiatives that actually could improve that and then lead to this financial leverage moving forward. So this is my first question. And my second question is, what are the expected financial leverage ratio you guys believe could be reached by year-end, assuming no CapEx for Natureza and assuming no forest divestments or things like that. So these are my main questions.

Marcelo, regarding your first question, I would probably mention, again, efficiencies in cost revising CapEx and working capital efficiencies. That is what is under the prices of pulp, and that's where we are, I would say, revising every of the 3 concepts very thoroughly in order to bring better costs and better financial management into the company. And regarding ratings, more than giving a number per se, I would say that our aim is to be a solid BBB- investment-grade company. So we are following what the 3 rating agencies state as complying with that status. And again, we are having numerous conversations with them, not only with the trajectory of our leverage without Natureza, but also we're working with them in case we were to prove Natureza, what are all our financial tools and resources in order to, again, with Natureza on the balance sheet, still be in compliance with being an investment-grade company.

We have another question coming from Goldman Sachs, Marcio Farid.

Francisco, I just wanted to follow up on Natureza. It seems like you've changed the language a little bit in terms of timing. Our expectation was for a decision potentially by end of second quarter. Obviously, you're talking -- you mentioned a few months in order to get licenses done and so on and so forth. But just wondering if there has been any change in terms of how you approach the investment decision given obviously, there's a war happening. There's a lot of market uncertainties as well. Just trying to understand if it's just the language has changed just because of licensing conditions or anything else? And maybe a follow-up to -- on the pulp side to Guilherme. Guilherme, you mentioned Europe doing a little bit better than China. Just wondering if, obviously, softwood has been under pressure in China. The last couple of push for higher prices on the hardwood side have only partially been implemented. Just wondering if -- what do you think is going to be the next step here? Are we going to get -- is it a push for high price makes sense? Obviously, costs going up, but then paper prices, as you mentioned, under pressure in China. So yes, just wondering what's the next steps in China? And I think hardwood at $600 cannot -- it's an okay price, right? So it's -- let's see, Softwood at $650 seems to be weak. So is there any room for that kind of spread to normalize as well?

Marcio, for your question. And I will take the first part, then I will just pass. In connection with the decision -- final decision about Natureza, yes, you're right. We were expecting to have everything ready for the midyear. Actually, we have talked about the end of the second quarter or during the third quarter. But basically, what has been happening is that the private license -- the previous license -- sorry, the previous license supposed to be ready by the beginning of this year, and we were asked about some extra question connected with social aspects and impacts of this project in Rio Grande do Sul. And it took actually more time in responding from outside. So it is taking a couple -- 2 or 3 more months in getting the previous license, which is an important moment for us. And so this is the main reason why we are moving from midyear to some extra months. Just to say that the company is fully committed with the project. We see this project as very important for CMPC. And of course, we're also taking into account our decision and our Board has submitted that, that it will be a very responsible decision, very committed with the project with the idea for the future of CMPC, but it will be a responsible decision considering what is happening around the world. And it is true that uncertainty is very important today. I don't have to speak about that because you know more than us about that. But everything will be considered for that. But the main reason for moving a bit ahead, hopefully, final revision of this project is because of the -- it took some more time the environmental permits process.

Can I just follow up before we move to Guilherme quickly. Just there was a news, I think, a couple of months ago saying that I think an indigenous community in the area was complaining about the project. Is that something that should be worried? Or is it just more about getting social recognition and social licenses for the project?

It is connected with some -- was a prosecutor in Rio Grande do Sul, one person that asked and asked about CMPC and actually not CMPC, FEPAM and FUNAI those institutions about requiring some -- to consider recommendation of some indigenous communities. But my comment on that is we have been responding everything that the law is requiring for this kind of projects. And we are 100% focused on responding what the law is asking us. So my impression is that we are doing a right process. And regarding the comment of this recommendation of this prosecutor in Rio Grande do Sul, there was a kind of a federal council of Ministerio of Publico, some days ago, 10 days ago, they said this is not correct, and they are recommending FUNAI and FEPAM, the environmental authority to continue with the normal process of approving this kind of project. So of course, it's always when you require something like that is something that is challenging us, but we feel very comfortable with the overall responses and the studies that we have done connected with the indigenous situation. And so it's a matter of concern. Well, always when you don't have still the license could be, but we feel honestly very 100% comfortable about having a kind of a very positive process.

Regarding hardwood, yes, you're right that $600 is not a bad price, but also cost -- let's remind ourselves that cost doesn't really determine the price of the commodity in the world. What determines the price is supply and demand. And this year, we do not have any new capacity of pulp coming into the market. So from a purely supply-demand perspective, we should see prices going up because market is growing organically every year. Again, different markets with different dynamics. I do see Europe with more space for price increase this year. Europe already has a gap to China of something around $50, give or take with another price increase announced for this month, so we could see Europe opening a gap to China of, I don't know, $75, $80, something like that. So we see momentum. We see inventories in Europe on a low level. We see shipments being diverted from China to Europe because it's paying a higher margin. And China could find themselves with a tight inventory in the next few months. Going to softwood, you're right. The gap from hardwood to softwood, I think, is unsustainable now. The price of softwood is low. I think statistics will say that something around 80% to 90% of the world's softwood production is below breakeven as we speak with the current price levels. So we should see further closures on the softwood. And again, then prices of softwood should rebound and to a more sustainable gap between softwood and hardwood. Overall, in summary, I see 2026 with opportunities of further price increases. If there is no surprise on the economical side globally, we should see prices continue in the same trend modestly, not with huge jumps in price increase, but modestly, the trend should be upwards on the hardwood. And eventually, when we see closures on softwood, the same.

Can I just follow up on a comment you made earlier? You mentioned an issue at Guaiba with the recovery boiler. And you talked about 10 days. Is that extra in addition to the first half maintenance downtime? And is it going to be impacting Guaiba I and Guaiba II? Or is it just one of the lines?

It's extra and it's just impacting Guaiba II.

We have another question coming from Scotiabank, Alfonso Salazar.

I have a question on Natureza. I think to build a project this size, it's very important to take into consideration the outlook for demand in 5, 10, 15 years. And when we look what is happening in China, well, here are the facts, population is in a downtrend. Consumption is weak, and it's hard to see why it's going to recover. More people are going to be living in a low pension going forward. And the ratio between the people -- working people and the supporting people that is supporting retired people is going to deteriorate very sharply. Those are the trends that people are considering in the base case for China. So wondering to what extent the Natureza project is supported by China? Or are you seeing growth and opportunities in other markets and where exactly, right? Maybe it's Europe, maybe it's more for the Americas. Just wanted to reconcile this situation because to me, we have seen demand of commodities starting to be under pressure in China. And I don't know if seeing the big increase in demand in China in terms of pulp and paper in the past is a good predictor of what's going to happen in the future. So I just want to hear your thoughts.

This is Raimundo. I'll take your question, Alfonso, which is very good. What we see basically is that China paper consumption continue to increase. The main trend behind has to do with the middle class. China has approximately 400 million people in middle class today. And their plan is that another 400 million will become middle class in the next 15 years. That's a very relevant trend for basic products consumption. I mean paper at the end of the day is a very basic product. It's used in every day's life. It's not expensive product. So middle class is a key theme, and China is in a process has been and continue to be in a process where people is becoming middle class and therefore, paper consumption increases. At the same time, the importation of the growth on pulp imports will be slower than before, mainly because China have been producing their own pulp. And that, therefore, has limited the growth on imports. So in our plant for Natureza, we are estimating that the imports of pulp in China will grow at a slower rate, roughly about 40% to 50% slower than before. So we continue to grow, but at a slower pace, mainly for what I just said regarding their own production, not because the demand will be much slower. We are forecasting growth in other markets. I think some markets that are relevant to mention are India, for example, where the growth percentage-wise is quite impressive. In terms of absolute volume, it's not huge, but it's relevant, I would say. Today, India imports close to 1.5 million, 1.7 million tons, and that number can easily double in the next 10 years. We are a relevant player in that market. We also grow -- see growth -- steady growth in North America. And then there's also a situation where some mills will probably close. Now there's the age of the mills in the Northern Hemisphere that will also produce a space for demand. And then you have fiber substitution, which is also relevant. So all in all, what we are forecasting is a market that will continue to grow for short fiber around 900,000 tons per year, which is a little bit slower than before. And as I said, with China being relevant, but a slower percentage of the whole growth.

So if I -- can we say that China remains part of the strategy. Then you have -- you see opportunities in other markets like India, for example. And then you also see high-cost mills leaving the market eventually as they -- so it's a combination of everything.

Absolutely.

I think we are talking about paper is a relatively mature market. So the demand will not explode. It's a mature market and companies need to have a very healthy and low cost base. So -- but we do see growth in the paper market at a steady growth, as I mentioned.

Thanks, Alfonso. I see that we don't have more hands raised here. And in the chat box, I see that the questions were basically covered by the call. So I think that we can finish this earnings call. Thank you very much for attending today and for your participation, and we wish you have a good day.