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Edited Transcript of CMPC.SN earnings conference call or presentation 10-Mar-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Empresas CMPC SA Earnings Call

Santiago Mar 11, 2017 (Thomson StreetEvents) -- Edited Transcript of Empresas CMPC SA earnings conference call or presentation Friday, March 10, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ignacio Goldsack

Empresas CMPC S.A. - CFO

* Colomba Henrquez

Empresas CMPC S.A. - IR

* Guillermo Malins

Empresas CMPC S.A. - Pulp Commercial Manager

* Hernan Rodriguez

Empresas CMPC S.A. - CEO

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Conference Call Participants

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* Lucas Ferreira

JPMorgan - Analyst

* Andres Cieta

Lagothree Guides - Analyst

* Karel Luketic

BofA Merrill Lynch - Analyst

* Marcio Perez

UBS - Analyst

* Andrew McCarthy

Citigroup - Analyst

* Hernan Kisla

MetLife - Analyst

* Ricardo Maranda

- Analyst

* Ciera Branzini

- Analyst

* Jon Brandt

HSBC - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the CMPC fourth-quarter 2016 earnings results conference call.

(Operator Instructions). It is my pleasure to turn the floor over to Ignacio Goldsack, Chief Financial Officer. Sir, the floor is yours.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [2]

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Thank you, Operator, and hello, everyone. Thank you for joining CMPC's fourth-quarter results conference call.

If you are following the presentation, please turn to slide 3. In the fourth quarter of full-year 2016, we executed on our strategy to operate as a large-scale Latin American producer, made significant progress with our diversification strategy, and managed our capital expenditures program effectively. During the fourth quarter, we reached a record pulp production of slightly over 980,000 tons. This was achieved despite maintenance down times at our Laja and Sante Fe I mill and the final maintenance stage of our Guaiba I mill.

In terms of sales volumes, we increased our softwood exports especially to China and Latin America. Hardwood sales volumes were also higher this quarter, mainly to Asian markets. While we started to see a rebound in pulp prices during the fourth quarter, first in China and later in Asia, there is a lot we are doing when we set up our price increase and when this is reflected in our financials, and even though the Asian market began to recover during the first quarter, this was not spread across other markets, especially in Europe and America.

In the first month of this year, we have started to see a pickup in Europe and America and are continuing recovery in Asia. However, I would like to point out that since our Laja II mill came online we were able to effectively increase our pulpwood action capacity during the first quarter, which resulted in volume increase of 5% from the third quarter and 10% from the fourth quarter of 2015.

We also increased our production by 50,000 tons quarter on quarter and 90,000 tons year on year. During the fourth quarter, as well as throughout 2016, we have been focused on implementing strategic capital initiatives. These initiatives include a multistage forward haul of our Maule mill, which just completed its second phase in November last year.

In addition, we are pleased to report that the startup of our tissue Canete mill is well underway and, more recently, at the end of January produced its first [humoroll]. Most of these projects are in line with our strategy to diversify our product offering.

Furthermore, I would like to mention the important step we made during the first quarter in terms of the refund to tissue consumers in Chile. First, on January 27 we reached an agreement with the national consumer service and consumer representatives to refund Chilean tissue consumers with CLP97,647 million. Second, on March 2 we deposit the total amount in our CMPC tissue account in Bancotel, which will be allocated entirely to [specific] consumers in the form and date determined by the committee shared by the (inaudible).

In terms of [layerex], we are aware that the material degrees experienced in pulp prices [that year] delayed our ability to meet our internal targets. We are confident that given the improving price environment, along with the implementation of several initiatives, including productivity and efficiency programs, capital productions, working capital improvements, and sales of non-core assets, we should be able to achieve a net debt to EBITDA ratio of close to three times levered this year.

Finally, I would like to highlight that this quarter we began to provide detailed information on production and cash flows in connection with our five corporations, in line with global market practice. This can be found on our earnings release.

Turning to the following page, I would like to point out that for the full year we experienced growth in volumes across our pulp and tissue division, especially with our largest businesses, pulp, where volumes grew by 28% year on year. For the fourth quarter of 2016, revenues increased by 2% to $1.3 billion quarter on quarter and year on year. This was driven by improved production capacity, but was partially offset by lower pulp prices and the (inaudible) foreign exchange impact in our tissue business.

EBITDA for the first quarter declined to $220 million from $264 million in the third quarter and $313 million in the fourth quarter last year. This was the result of a slight increase in costs, which I will cover in more detail on the next slide.

On the net (inaudible) impact of bulk winter pulp prices and the less favorable foreign currency environment, the results of the agreement reached with the national consumer service and consumer representatives, we reported a net loss of CLP162 million for this quarter. I would like to also note that all of our maintenance downtime for the quarter were scheduled. As I mentioned before, we were on track with our CapEx program [and grew that] with a net additional machine, this project is ahead on scale and will deal with CMPC tissue Peru business a total production capacity of 133,000 tons per year. At the end of December, the project is on budget and is scheduled to be completed during the second half of 2017. When completed this fall, it will provide a 25% increase in production capacity at the facility.

Now please turn to slide number five. As I mentioned on the previous slide, during the fourth quarter we experienced higher cost of [wood salt], which totaled $870 million or 68% of our revenues. The increase was primarily the result of higher costs from our pulp business due to increased sales volumes and the scheduled maintenance downtime we experienced in the first quarter.

Other operational expenses totaled $180 million, up 8% from the third quarter and 11% from the fourth-quarter 2015. The sequential increase was driven by higher distribution cost in pulp business, as well as the higher expenses related to efficiency and productivity initiatives we executed during the first quarter. On a year-on-year basis, the increase was driven by higher cost in pulp and tissue, as well as the costs related to efficiency measures.

Other operating expenses were 14% of revenues, up slightly from the third quarter this year and fourth quarter last year.

I will now turn the call over to Colomba Henrquez, Head of Investor Relations, who will cover our results by business.

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Colomba Henrquez, Empresas CMPC S.A. - IR [3]

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Thank you, Ignacio, and thank you everyone who is participating in our call. For a detailed look into our various businesses, please turn to slide six to review our pulp business.

Starting with pulp, while production and sales volumes increased both quarter on quarter and year on year, revenues were impacted by wood prices, particularly in the year-over-year comparison, this along with higher maintenance costs, effected EBITDA generation this quarter.

Total pulp sales volumes in the quarter were up 18% to 887,000 tons year on year. This was mainly driven by continued growth in eucalyptus pulp, which was up 22% as the Guaiba 2 line in Brazil continued to run pulp. The majority of our exports have gone to China, Asia, and Europe and we continue to grow exports to the US.

As Ignacio mentioned, we took three planned downtimes this quarter, 12 days each at Laja and Santa Fe I and the nine final days of maintenance at Guaiba 1. Production volumes nonetheless were up 5% quarter on quarter and 10% year on year, reaching approximately 980,000 tons as we increased hardwood production at Guaiba.

Pulp prices declined by 1% sequentially in both softwood and eucalyptus, averaging $480 per ton in hardwoods and $566 per ton in softwood. Year on year, pulp prices were down nearly 20% in hardwood and 6% in softwood.

Moving on to forestry, revenues were up 6% quarter on quarter and 11% annually on the back of higher average prices resulting from a change in product mix. On a sequential basis, sales volumes to third parties fell 7% to 1 million cubic meters, mainly driven by lower sawn logs sales in China and Brazil, with a decline in pulp wood sales in Chile and Argentina. This more than offset the strong performance in sawn wood products, which were up 15% as a result of higher export of sawn wood to Middle East and Asia and of manufactured wood and plywood to the United States.

However, year on year forestry volumes were up 8%, supported by increases across the majority of our products, particularly higher sawn wood exports to Asia and the Middle East, along with increased plywood volumes to the US and our highest sawn logs sales in Chile. This more than offset lower pulp wood volume impacted by soft economic conditions in Argentina.

In terms of profitability, higher costs due to the increased pulp output and the maintenance downtime I just mentioned lowered our [beat count] on a sequential basis. Year on year, EBITDA was also impacted by the sharp decline in prices, which more than offset the 18% growth in pulp sales volume.

As a result of these factors, our EBITDA declined 15% quarter on quarter and 38% annually to $143 million. Despite this challenging quarter, we believe our scale and efficiency in the pulp business make this division a long-term strength.

Please turn to slide seven for a look into our tissue business. Tissue paper volumes declined 1% quarter on quarter to 168,000 tons, as weaker volumes in Chile and Argentina more than offset strong performance in Mexico, Brazil, and Peru. Year on year, we have seen higher sales across all countries, with volumes up 10%. We are particularly pleased with the strong performance in Mexico, one of the largest tissue markets in Latin America, which delivered a 27% annual increase in sales volume.

Total sanitary products were down 3% quarter on quarter, mainly on the lower diaper volumes across most countries, though feminine care was positive. On an annual basis, sales volumes were up 3%, supported by higher diaper and feminine care across the majority of our countries.

Average sales prices in US dollars were down quarter on quarter by 4% for tissue paper and 2% for sanitary products, mainly impacted by the depreciation of local currencies against the US dollar. All in all, revenues for the tissue business declined 4% sequentially, but were up 8% year on year.

In terms of profitability, lower sales volume, currency depreciation, and higher SG&A more than offset the benefits from lower direct costs, including fibers, chemicals, and energy. These yielded lower EBITDA, which was down 29% sequentially and was also impacted by a very strong comparison in the third quarter of 2016. On an annual basis, EBITDA increased 3%, driven by higher volumes and local currency prices that offset currency depreciation.

We maintain a strong position in this business, as we continue to focus on growing in underpenetrated markets in Latin America in both tissue and sanitary.

Please turn to slide eight for a look into our paper business. Paper volumes were up 5% quarter on quarter, largely due to higher sales volumes of corrugated boxes driven by the fruit season in Chile and demand for salmon boxes. We also experienced higher export of corrugated paper to Latin America. This more than offset lower boxboard volume stemming from lower production as we undertook the second phase of the Maule project. Year on year, paper volumes were down 1%, mainly related to lower boxboard exports to the US and Latin America and a reduction in volumes of corrugated paper and boxes. Prices in turn fell 2% sequentially and were stable annually.

EBITDA declined 8% quarter on quarter and 32% year on year to $21 million. Note that during the fourth quarter of 2016 two corrugated paper machines, with an added capacity of 45,000 tons per year, ceased to operate. During the fourth quarter, we wrote off the spare parts of these machines, which negatively impacted EBITDA.

Also, results were impacted by efficiency and productivity initiatives executed during the fourth quarter. Furthermore, EBITDA decreased quarter on quarter due to lower boxboard and molded pulp tray sales. The year-over-year decline in EBITDA was also impacted by lower boxboard and corrugated paper revenue.

Please turn to slide nine. Global market pulp demand ended the year on a high note, with a 3.9% increase adding 2.2 million tons during 2016, while supply growth in the same period was 3.8%, adding 2.35 million tons. Growth in demand came largely out of China, which accounted for all of the growth in the market during 2016, which was up 13.8%. If you look at demand by grade, hardwood market pulp demand rose 4.1% in 2016, driven by eucalyptus, which increased by 1.7 million tons. Softwood market pulp demand in turn grew 3.3% over 2015.

We closed the year with 33 days of inventories, declining by four days from September 2016 and three days from a year ago. I now turn the call back to Ignacio for a review of our financial position.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [4]

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Thank you, Columba. Please turn to slide 10.

Across the year, we were net debt to EBITDA of 3.7 times, up from 3.4 times in the third quarter and 3.2 times in the fourth quarter of 2015. This was largely the result of weaker EBITDA this quarter, as we just discussed, keeping a strong focus on financial discipline.

On a sequential basis, we reduced debt by 1%, from $4.2 billion, while our cash position remained flat at $596 million. CapEx fell 1% to $140 million and was mainly related to the Maule and Laja projects. Year on year, net debt was up 2%, with capital expenditures increasing 3%.

While winter pulp prices and currency depreciation in many of our countries has impacted the case of our delivering process, we remain committed to maintaining a strong balance sheet and a steady investment grade.

Now please turn to slide 11. Moving now to our strategic focus for 2017, our operational results for the fourth-quarter and full-year 2016 were strong, especially in pulp and tissue where we continue to add production capacity. Our focus is to continue to operate at full capacity across all business units and leverage the new capacity. We are also focused on growing the packaging business, which, like tissue, is less capital intensive than pulp.

We are always aiming to improve our profitability and our plan for 2017 is no different. Having already implemented some cost-control measures, we have been focused on capital expenditure programs across our operations that will help deliver other operational efficiencies within our plants and mills. This process requires a disciplined approach to financial management, one that we believe has enabled us to succeed through the difficult pulp market conditions and negative currency environment.

Finally, the Company plans to continue to execute on its diversification strategy, which has helped us navigate difficult situations and grow our market conditions. As I mentioned earlier, pulp prices have been increasing and CMPC is very well positioned to benefit from this. Increased prices, standard production capacity, and improved efficiencies will enable us to provide better financial results.

Before starting the Q&A, I would like to mention that Mr. Guillermo Malins, CMPC's pulp commercial manager, and Mr. Hernando Rodriguez, CMPC's CEO, are joining the conference call. They will be available to answer any questions you may have. Operator, please open the call for questions now.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Lucas Ferreira, JPMorgan.

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Lucas Ferreira, JPMorgan - Analyst [2]

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Hi, good morning, everyone. Thanks for the questions. My first question is regarding production costs in the pulp business both in forestry. I had some difficulty understanding and reconciliating the declining margins of these units with the relative stability in the cash cost of production for pulp, which, by the way, I think it's a great initiative for you to disclose. So I couldn't understand exactly what happened there for margins to drop so much in the quarter, considering that pulp prices were just slightly down, production and also sales were not down. So could you give us a bit more details on what exactly impacted the profitability of this business this quarter, if that has something to do with the forest fires or more difficult operations in the fourth quarter?

And then, the second question is regarding the unexpected stoppage at Guaiba 2 due to that leakage. If you could give us an update on how long that stoppage will take, if it's indeed starting March 15, and how much production loss you estimate of this event, and if you can give us some guidance on the impact on sales volumes for the first quarter? That's it. Thank you very much.

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Colomba Henrquez, Empresas CMPC S.A. - IR [3]

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This is Colomba Henrquez. Regarding your first question about pulp cost, I would say that, first, it's important to mention that the cash costs we're disclosing are mostly direct costs, so it's wood, chemicals, energy, and labor -- direct labor. Therefore, maintenance costs are not included in that number.

So what happened during the fourth quarter is that we had two maintenance downtimes, in the Santa Fe I and the Laja mill, and we also had the last part of the Guaiba I maintenance downtime, and even though it was only nine days of the little more than 30 days of total downtime of Guaiba, most of the costs are actually spent in this quarter. So I would say that the fourth quarter was especially -- had especially more costs regarding maintenance downtime, which were all scheduled, but, of course, it's a hard quarter-on-quarter and year-over-year comparison.

But regarding direct costs, as you saw in the cash costs we provided, there's no big importance. And also regarding the forest fires, forest fires were mostly in the second part of January and we didn't have anything in the fourth quarter, so forest fires shouldn't have affected by anything in our fourth-quarter results.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [4]

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I will take the question regarding the Guaiba II recovery boiler. Basically, the mill will be stopped as you mentioned until next week and our total loss of production will be in the range of 120,000 tons, and during this quarter, sales of pulp will be affected between 50,000 to 60,000 tons and the rest will come in the next quarter because we today have inventories. So, about half of the production loss will be not sold during this quarter and the other half during next quarter.

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Operator [5]

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[Andres Cieta], [Lagothree Guides].

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Andres Cieta, Lagothree Guides - Analyst [6]

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I have two questions. First, yesterday you announced that the economic damage caused by the wildfires amounted to roughly $41 million, so I want to understand how much can you recover through insurance? Can you minimize some damage on the affected areas and what was the average age of the damaged forest? Then I have another question.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [7]

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Basically what we informed in yesterday's remark is our best estimate as of today of the net profit. That includes all the recovery that we are going to make in the forest, as well as some insurance recoveries, but it is the net.

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Andres Cieta, Lagothree Guides - Analyst [8]

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Perfect.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [9]

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Andres, we already informed that about 19,000 hectares were affected and the average age -- most of that is fine because it was mainly in the seventh region. We have mostly pine in the seventh region and the age is, I would say, very evenly distributed between zero and 25 years.

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Andres Cieta, Lagothree Guides - Analyst [10]

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Perfect. And my other question is regarding leverage. What's the level of net debt to EBITDA that you are expecting for year-end? Now (multiple speakers) you reported 3.7 now, so you can go below 3?

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [11]

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According to our operations, of course it will depend on pulp prices. That's the main driver to the leverage, even though we are taking several initiatives, such as increasing our position in working capital. We are looking to increase production of our guidance we provided in terms of relative to CapEx and some others; we expect to be near three times at some point this year.

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Andres Cieta, Lagothree Guides - Analyst [12]

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Okay. Great. That will be all for me. Thank you very much, very clear.

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Operator [13]

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Karel Luketic, BofA Merrill Lynch.

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Karel Luketic, BofA Merrill Lynch - Analyst [14]

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Good morning, everyone. Thank you for the questions and congratulations on the increased disclosure. It's very welcomed on our end.

I have two questions. My first one is on pulp prices. Could you please comment on how implementation of the recent price hikes have been? Have you already seen the full implementation of the March hike? And also, what is your view on potential additional hikes towards April for hardwood in Asia? That's my first question.

My second question regarding your tissue business margin, -- we saw compression in the fourth quarter mostly explained by currencies, but there were some additional costs as well. If you can comment, if you've seen our partial reversal of that in the first quarter or should we work with that level as a base for this year? Those are my questions. Thank you.

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Guillermo Malins, Empresas CMPC S.A. - Pulp Commercial Manager [15]

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Hi, this is Guillermo Malins. I'm going to comment on pulp prices. Actually, the market is very strong today, led by China, as you all know, and to our knowledge pulp prices in Asia for March have been already fully implemented. I don't think anyone is doubting that the prices in March will come through.

Actually, also in the different parts of the world, especially in Europe, there's even some announcements of higher prices for April. Stocks are quite short. The Guaiba stoppage has contributed, unfortunately, to the whole issue, but we feel that March prices are strong. Even I would even think that April will be strong as well; however, you can't really tell so much about what's going to happen after that because if you'll all recall a couple of months ago we all felt very differently about the pulp prices in the first quarter. It all depends on all these new events that happen across the world and what will happen next month is very difficult to say, but to summarize, March is strong. Prices have already been established in Asia and in Europe and even April could be also a month where prices go up.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [16]

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Okay. I will take the questions regarding the tissue margins in the fourth quarter. We had, I would say, a couple of effects. One is, as you mentioned, the currency effect in the fourth quarter was the one that the currencies didn't appreciate, I would say. On the contrary, we saw a slight depreciation in currencies, especially in Chile and Brazil and in very high respect Mexico. That's the answer.

Secondly, there was a seasonal effect in lower volumes and also seasonal effect in high expenses, especially marketing. That's the financial -- the low margin in tissue in the fourth quarter.

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Operator [17]

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Marcio Perez, UBS.

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Marcio Perez, UBS - Analyst [18]

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Hi, good morning. Thanks for taking my call -- my question, sorry. I have just one follow-up question on the pulp price. I just wanted to understand how far behind that pulp price is in China versus Europe and the US in terms of realized prices. I'm just trying to understand if prices in China, for example, stock rising in April, for how many months can you see price continue to rise in Europe and in the US? Thank you.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [19]

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Hello. Normally, there's a two-month lag in Europe and in the US. Normally, prices go up in China, and this time because of high prices in China, which there's a difference of about maybe $70 between the net CRF prices in Europe and in China, a lot of new volume has gone into China, so that has made the situation in Europe very, very tight.

So what normally would happen is that if prices stop rising in China, we might see a couple of months, two months, of further rises in Europe and in America in order to equalize prices. That's what I expect; that's what happened in the past.

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Marcio Perez, UBS - Analyst [20]

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If I may, just a follow-up question on the softwood side. I think your comments are mostly general, but can you just comment a little bit about the situation in the softwood because prices have been rising as well, but maybe for different reasons than hardwoods, right?

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [21]

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That's true, but softwood was stronger than hardwood at the end of the year and prices have been rising in softwood as well, and I think that probably we will see, if there is a weakening in prices of hardwood, that would not be the same in softwood. I think that the difference between hardwood and softwood is quite small today and that will mean that probably softwood will remain stronger than hardwood for a time.

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Operator [22]

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Andrew McCarthy, Citi.

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Andrew McCarthy, Citigroup - Analyst [23]

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You mentioned that you are anticipating lower production volumes and sales volumes consequently due to the Guaiba 2 outage of approximately 120,000 tons. I'm just wondering if you are also expecting some reductions from the forest fires that occurred in January.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [24]

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I'll take the question. No, we are only expecting lower volumes in the pulp sales due to the Guaiba 2 stoppage, but we are not expecting lower volumes in wood products due to the forest fires.

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Andrew McCarthy, Citigroup - Analyst [25]

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Okay, great. Thanks for that. And my second question was just on the write-down of the spare parts in the paper business. So just wondering if you could provide us with a quantification of that so that we could see -- pull that number out to see what the sort of underlying margin was in the paper division in the fourth quarter, please?

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Colomba Henrquez, Empresas CMPC S.A. - IR [26]

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Hi, Andrew; this is Columba. The write-down of the spare parts was approximately $4 million.

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Andrew McCarthy, Citigroup - Analyst [27]

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Great. Thanks a lot.

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Operator [28]

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Hernan Kisla, MetLife.

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Hernan Kisla, MetLife - Analyst [29]

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I have actually two questions; they are both regarding [Laja]. So I would like it if you can provide more color about it. Is it possible, for example, what were three of the initiatives that you have mentioned, like adding CapEx maybe more aggressively or selling assets and so on? So what would lead you to do that? Is there a certain lever of leverage for that?

The second question is if you have had conversations with the ratings agencies regarding that and if they have expressed any concerns regarding the lack of progress on raising leverage.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [30]

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Of course. I will start with the ratings agencies. If you read the last report published after the announcements of the Company regarding the agreement, they are a little bit concerned about the liquidity of the capital, and that's why we are in the final stages to close our committed mine for up to $400 million. This will provide enough liquidity for the next three years, so this is very positive.

Regarding the initiatives, last quarter we announced the guidance for this year of around $500 million for the CapEx, analyzing some idea to even reduce this guidance to lower this number we provide. Regarding working capital, we are implementing some ideas. We expect to show results in the coming months.

I would like to mention also that we are pre-opting our financial policies. We are updating two of them and one is in regards to net debt to EBITDA. We are giving now a range between 2.5 times to 3.5 times, and our objective is being in the lower part of the range, so we will maintain our strong commitment with a prudent financial management. And also, we are including a new part of this, saying that if this ratio goes up to four times, the Company will have six months to provide a solution in order to lower this ratio again. So this is regarding the initiatives we are taking. Again, we are strongly committed to maintain our investment grade and we are confident that we will lower the ratio during year.

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Hernan Kisla, MetLife - Analyst [31]

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Okay. So a follow-up on what you said about updating the financial policies. Now you have a range of 2.5 to 3.5. Before it was a target of 2.5, and if I don't remember what, you could go up above it during expansion plans, like you did with Guaiba 2. Now it's a range that you can be between 2.5 and 3.5 even without any expansion plans ongoing?

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [32]

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That's why we are adding more flexibility, right? Because this ratio -- given the cyclicality of the business where the Company is involved, especially pulp prices, and as you mentioned after and during strong CapEx periods, it is for you guys to give a little bit of more room. Before this change, the ratio was 2.5, as you mentioned, and we are committed to maintain -- our objective is to maintain this in the lower part of the range.

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Hernan Rodriguez, Empresas CMPC S.A. - CEO [33]

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May I add a comment as well? As a Company, we have defined internally a very conservative financial position. That has been our historical, I would say, strategy.

Secondly, we are obviously taking into account our high exposure into the pulp business, so we expressly set in our target regarding net debt to EBITDA, as Ignacio said, that not only we are probably increasing our debt net to EBITDA through expansion cycles, but also we added and/or cyclical prices of pulp since we are -- our exposure into the pulp business increased dramatically with the expansion of Guaiba 2. For that reason, we set a range, instead of just a number.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [34]

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The other minor change with it was to include undrawn committed lines in the cash definition.

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Operator [35]

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[Ricardo Maranda].

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Ricardo Maranda, - Analyst [36]

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Hi, good morning, everybody, and thanks for the conference call. I have three questions. The first one is regarding how much will add the Maule (inaudible) developing. The second one is regarding the (inaudible) Guaiba 2, so how much will be the costs for the first quarter? And the third one is if you can elaborate a little bit more about the CapEx of 2017. Thank you very much.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [37]

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Okay. Your three questions, first, Maule will add about 90,000 tons capacity by end of this year. The second question, maintenance expense in Guaiba 2, it is not really significant, the maintenance expense. It's more the time involved, rather than the expense itself. And the third question regarding CapEx, I already mentioned we exceed our CapEx guidance for this year about in the range of $500 million. It's under revision; it could be a bit down, between 5% to 10% down.

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Colomba Henrquez, Empresas CMPC S.A. - IR [38]

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(multiple speakers). Yes, around 200 million is maintenance and most of the rest is involved with the Canete project, the Maule project, and the Laja project. So, most of them are projects that we started last year and are finishing now. So we don't have a lot of new projects ongoing.

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Operator [39]

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Lucas Ferreira, JPMorgan.

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Lucas Ferreira, JPMorgan - Analyst [40]

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Hi, thanks for the follow-up question. Regarding your outlook for market supply in the next, let's say, six to eight months, especially with regards to the ramp-up of the ATP mill, so what have you been hearing about the ramp-up speed of that mill? Did you hear from your agents, your clients that they are already hitting the markets? Or if there's any update on that, it would be very helpful. Thank you.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [41]

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I can take that. First of all, the OKI project, in part the expectations of the OKI project at the end of the year were partly responsible for the movements in January of prices in China, of people expecting a lot in the fourth quarter and January that would hit the market.

What we've been seeing up to today is that no volume from OKI has hit the market yet. I understand, we've heard that they have some logistical problems to move the pulp out from OKI; however, we are not our customers and not really very concerned about OKI. OKI was an issue during the last months of last year, but today people are not really worried about OKI because, although apparently it's running, most of the pulp is being used internally by ATP because there's a big demand for paper in China.

Part of all this, the rise in prices. In one way, it's a stock movement situation, but another one that we have seen is there's a real increase in demand in China, basically because there's been a lot of small paper mills that have been closed by the government or by the conditions of the environment, and that has meant that most of our customers are having better demand, they are putting paper prices up, and therefore there's a real new internal demand in China for paper, therefore for pulp. But OKI up to now has not been a problem in the market.

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Lucas Ferreira, JPMorgan - Analyst [42]

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But just to follow up, so when do you expect your volumes to start hitting the market and what has been the latest news on that? If the clients are actually more -- let's say they are seeing less chances of them bringing a huge amount of volume this year. Do you have any updates on when this will start to become a problem again?

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [43]

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It's very difficult to say because ATP is very sketchy with the information they give the market, so it's all hearsay and it's very difficult to assess.

You have to remember also that the pulp from Indonesia, although it does affect the market in China, it's not of the same quality normally that eucalyptus. A lot of people use eucalyptus because they have new machines with the latest technology and therefore they can get much better performance with eucalyptus.

So although OKI will affect the market, it's not a complete, I would say, challenge to eucalyptus. So, I don't really know when OKI will hit the market. I expect it has to be in the next three months, but I can't tell you more because I have no more information. What I told you before is what you hear from agents, customers, but there's no word from ATP, officially at least.

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Operator [44]

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[Ciera Branzini].

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Ciera Branzini, - Analyst [45]

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Hi, good morning, everyone. Thanks for taking my question. I have two questions. First, you mentioned that there was a delay in pulp prices when you filled your pulp. Of how much is that delay? Do you expect prices in Europe to increase in the next quarter?

And my second question is regarding price hikes. Maybe you could tell us how much price hikes have you announced in the first quarter. Thanks.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [46]

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First of all, as I said before, there is normally a delay both going up and going down between China that reacts faster to price changes than Europe or the US, and that delay is like a couple of months.

Obviously, there's a big gap today in net prices within Europe and China; therefore, if China prices stop going up, again we expect that a couple of months will continue with price rises in Europe. Now, when and if the prices in China will stop, it's very difficult to say. We expect that the next couple of months will still have some price rises, unless something different happens, but more than that it's very difficult to say.

We, in the case of prices in, let's say, Asia, we have put up our prices by $80 between January and March -- that's what we've done and most of the market has done something similar. Some more, some less, but that's about what has been the price rise between 1 January and March. Of course, there is some delay there because some of the shipments are shipped a month afterwards, so not the whole of the price rise both in Europe or in Asia go through same month, but most of it does, and some is delayed for the month both going up or going down. Would that answer your question?

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Ciera Branzini, - Analyst [47]

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Thank you.

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Operator [48]

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Jon Brandt, HSBC.

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Jon Brandt, HSBC - Analyst [49]

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Good morning. I just had a question on Guaiba. I understand Guaiba 1 was down in January for a fire and Guaiba 2 obviously was down because of the recovery boiler. So I'm wondering sort of what's happening at Guaiba, if this was just a coincidence or if there's some sort of underlying issue with the Guaiba facility itself.

And my understanding is that Guaiba 2, when it originally went down, was expected to be back up and running in 15 days and now it is going to be closer to a month, so I'm wondering, are you bringing forward investments? Why the difference between the 15 days and now the 30 days?

And then, secondly, if I could ask you about tissue, more so in Mexico, sort of how that operation is going, how much resistance you are seeing from other competitors, how the market share trends are going for you, and how profitable that operation is? Thanks.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [50]

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On the first question, the Guaiba 1 fire was more than a year ago, so obviously it has nothing to do with the Guaiba 2 downtime that we are taking this year.

And we did have a problem in the recovery boiler, but basically it takes some time to analyze what happened and then to make a repair. For that reason, it took more time than what we expected at the beginning. So, nothing related to Guaiba 1 and Guaiba 2.

And your question regarding Mexico. The Mexico operation, I would say it's doing quite well. We added a new tissue paper machine last year and we have increased also our converting lines in Mexico. Volume wise, Mexico is doing well, but obviously with the huge devaluation of the currency, it has been quite difficult to implement price increases.

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Jon Brandt, HSBC - Analyst [51]

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Okay. Thank you.

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Operator [52]

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Thank you and that appears to be our last question. I'll turn it back over to Ignacio for closing remarks.

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Ignacio Goldsack, Empresas CMPC S.A. - CFO [53]

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Thank you very much, everyone, for joining today's call.