ENCE Energía y Celulosa, S.A.

Good afternoon, ladies and gentlemen. Welcome to the ANSES first quarter 2021 results presentation. I now hand over to Mr. Ignacio Gormenares, Executive Chairman, and Alfredo Abello, CFO. Gentlemen, please go ahead.

Good afternoon, ladies and gentlemen. Thank you for joining ANSES first quarter 2021 results conference call. Our CFO, Alfredo Abello, and our head of IR, Alberto Valdes, are also connected. After the presentation, we will be pleased to answer any questions you may have. Let's start in slide number three with the main highlights of our presentation. Park prices are rapidly recovering after one year at minimum levels, driven by a tight supply and demand balance. European gross hardwood pulp prices currently stand at $936 per ton. Additional gross price increases are expected in Europe to match current net prices in China. $1,090 per ton has been already announced for May. As expected, pulp business results in the quarter was driven by still low pulp prices and the annual maintenance shutdowns carried out at both biomass in March. Despite lower sales and higher costs because of shutdowns, pulp business EBITDA increased by 55% year-on-year to 8 million. On the other hand, Renewable business results were driven by the deconsolidation of the Porto Llano CSP plant last December. If we exclude the deconsolidation, comparable EBITDA improved by 13% year-on-year, boosted by 29% higher energy sales and a better regulated sales price. We have a strong balance sheet. Net debt stood at 227 million at the end of the quarter, with 475 million cash in balance. Net debt increased by 49 million in the quarter, driven by a 20 million reduction in the use of factoring lines, and payments of 28 million carried over from the strategic plan investments made in 2018-2019. We continue operating safely despite the pandemic. Our priorities remain the health and safety of our staff, the reduction of costs, and the increase in sales of differentiated products. We are moving ahead with all the permits required to develop our renewable energy pipeline as from next year, subject to the results of public auctions or PPAs. Moving now to slide number four, we show the rapid pulp price recovery now underway. The vast pulp demand, together with supply and logistics constraints, are tightening the global pulp market, driving pulp prices higher. Net peak prices in China have already recovered more than 70% from their minimum in 2020, and are already at $780 per ton. These price increases are being progressively passed through to the European market, where gross peak prices have only recovered by 38% since December, up to $936 per ton. We are already applying a gross price of $1,010 per ton for spot volumes negotiated in Europe. This price should be reflected in the peak price of the coming weeks. Those gross peak prices in Europe should continue rising to match net peak prices in China. In fact, Suzano has just announced a gross price of $1,090 per ton for spot volumes negotiated in Europe in May. This spot price increase should be fully visible in the PICS price at the beginning of June and one month later in our P&L. Remember that most of our contracts are based on the previous month's PICS price. In the following slide, number five, we summarize our views on pulp supply and demand. We expect demand for tissue and hygiene products. packaging and specialities to remain strong and grow in 2021 and demand weakness for printing and writing is fading as economic activity recovers. Market balance should remain tight in the coming months without any new capacity additions until the end of the year. Strong economic recovery in the US from May. The UK from June and the EU from July, following the vaccination programs and logistics constraints too, we support high prices in third quarter, despite weaker seasonal demand. In the longer term, we expect part demand to clearly add ground supply and support high prices during the coming years. Urban population growth and improving living standards in emerging countries, together with increasing plastic substitution, will continue to support part-demand growth. On the supply side, there are two paper-grade part projects now under construction, Arauco's project in Chile and UPM's project in Uruguay. Metsa's new mill in Finland is only at the project phase. Brazil's swing mill is expected to be more biased towards dissolving bulbs. There are no other new projects confirmed, and as lead times for new projects are close to four years, no further capacity should come on stream before 2025. As you can see from the chart, that the supply-demand balance will tighten each year. As you can see in slide number six, We carried out the annual maintenance shutdowns at both biomass during the first quarter instead of the third quarter as in the previous year. This resulted in a 14% year-on-year reduction in pulp production in first quarter to 224,000 tons and a 2% year-on-year increase in cash costs to 386 euros per ton. Each of these shutdowns took almost two weeks. They were carried out successfully with no accidents and no COVID infections, despite the high number of temporary employees. For the same reason, our bulk sales in the quarter decreased by 10% year on year, as you can see in the following slide number seven. Almost all of these sales went to the European market, with our customers' benefit from ENCE's unique wide portfolio of sustainable products and shorter delivery times. Our differentiated products, which are more sustainable and are adapted to replace plastic and softwood pulp, accounted for 12% of our pulp sales in the quarter. Slide number eight looks at our renewable energy business which was impacted by the deconsolidation of Porto Llano CSP plant after its sale last December. The regulated quarterly remuneration from investment linked to the plant amounted to 6 million. This deconsolidation has been partially offset by 29% higher renewable energy sales and the 6% higher regulated sales price, which has been reviewed this quarter to include a compensation for lower energy prices during the state of emergency in Spain. This is a good example of the government's commitment to the green economy. The increased contributions from the two new biomass plants commissioned in the first quarter of last year and from the Ciudad Real and Huelva power plants have more than upset the major overall revision carried out at Huelva 50 MW power plant since February. I want to inform you that we have just detected a failure in the generator of the Huelva 50 MW power plant during its ramp-up after its major overall maintenance revision. Its repair could take up to three months. Please note that both the generator, as well as the loss of profit, are covered by insurance, so we expect that this incident will have a minor impact on EBITDA. We currently estimate that it could trim our annual energy generation by 100 gigawatt hour in 2021, and it may reduce our annual EBITDA by between one and three million. The next slide, number nine, illustrates our renewable energy pipeline. We continue to make progress in securing all the permits needed to build this pipeline in stages from early 2022 onwards, provided, of course, that the upcoming public auctions or the signing of PPAs allows us to secure the required price. I will now invite Alfredo to review the financial figures in more detail.

Thank you, Ignacio. As you can see in the following slide, number 10, health business EBITDA improved by 51% year-on-year, up to 8 million, despite the US dollar depreciation and the effect in this quarter of the planned annual maintenance shutdowns of both biomeas. Our FX heading program contributed with 2 million euros to our quarterly results, compared with the negative 1 of 5 for the same period last year. Also, the other income and expenses items below our cash cost line were 1.5 million positive compared to 0.5 negative last year. This item includes, among others, the higher operating profits from the sale of wood coming from our southern plantations to third parties. On the other hand, our comparable renewable energy business, EVGA, including the Porto Geno CSP plant sold in December last year, improved 13% year-on-year, boosted by 29% higher energy sales, 6% better regulated sales price, and the collections from the insurance company of a $2.4 million compensation related to the breakdown of the World War 41 megawatt turbine back in 2020. These improvements were partially offset by higher biomass costs during the quarter due to the lower olive gate availability. The group's net result ended the quarter with a negative figure of $9.6 million compared with a negative result of $12 million in the same period last year. As you can see in the following slide number 11, free cash flow before growth CapEx was negative by $21 million in the quarter after a working capital outflow of 31, including a $20 million reduction in the use of factoring lines. Growth and sustainability topics for the quarter amounted to $28 million, mostly related to carryover payments from the strategic fund investments made back in 2019. As a result, the group's net debt increased by $49 million in the quarter, up to $227 maintaining a cash imbalance of 475 million euros and included 46 related to lease contracts. Our balance sheet structure is really solid. Turning on to slide 12, let's have a more closely look at our debt position in each business. Net debt in the power business reached 75 million euros at the end of the quarter, with a clashing balance of €407 million. Only 30 are bank debt while the remaining 45 are related to lease contracts. Long-term maturities and covenant-free structures are the main characteristics of this business debt. Regarding the renewable energy business, net debt amounted to €153 million at the end including a cash imbalance of 68. As you can see, this business also enjoys from long-term maturities. Turning to slide 13, let me update you on our hedging program aiming to mitigate the volatility in the pulp and energy businesses. Regarding effects, our policy is to hedge around 50% of our pulp sales for the following 12 months. Currently, ENCE has secured an average cap of 1.21 US dollars per euro and an average floor of 1.14 for over 45% of its dollar exposure for 2021. This program had a positive impact of 2 million in the quarter compared to a negative one of five in the same period last year. Assuming an average exchange rate of 120 per euro in 2021, Our FX aging program will have an estimated positive impact of approximately 3 million euros in our ABDA. Additionally, and for the first time, ENSA decided during the third quarter of last year to secure better pulp and electricity prices for 2021. We secured an average price of $773 per ton for 24% of our expected pulp sales in 2021. This compares with an average price of $680 in 2020. Following the fall price recovery in the first quarter, these hedges had a little positive impact of 0.4 million euros. Assuming an average fall price of $900 per ton and an average exchange rate of 120, our fall price hedges would have an estimated negative impact of 26 million in 2021 ABDA. Finally, we have also secured an average price of 43 euros per megawatt hour for 33% of our expected renewable energy sales in 2021. This compares with an average electricity price in Spain of 34 euros per megawatt hour in 2020. These hedges will have a mildly negative impact of 0.2 million euros in a quarter. Assuming an average full price of 60 euros per megawatt hour Our electricity prices would have an estimated negative impact of $8 million in 2021's EVDA. I will now return the lead of the presentation.