ENCE Energía y Celulosa, S.A.

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

Good afternoon, ladies and gentlemen. Thank you for joining ANSES First Half 2021 Results Conference Call. Our CFO, Alfredo Avello, and our head of IR, Alberto Valdez, 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 a summary of the latest developments concerning our concession in Pontevedra. As you know, on July the 15th, the National Court issued a ruling that annuls the extension of the concession of public land in Pontevedra on which ANSES Biomil is located. Yesterday, we appealed to the Supreme Court against this ruling and we will exhaust all legal avenues to defend the legality of the 2016 extension. In view of the Court's ruling and in accordance with the accounting regulations, we have recognized asset impairment losses and expenditure provisions in the second quarter financial statement. These include impermanent losses and provisions in a net amount of 148 million, which won't imply any cash outflow, together with a provision of 42 million to cover the estimated cost of dismantling the bio-rail, and the provision of 6 million to cover the estimated cost of terminating outstanding products. The cost of restructuring the excess labor, including the associated corporate overhead, which will be caused by the potential closure of the bio-mill, has not been provisioned yet, as the requirements for its accounting have not been fulfilled. If the annulment of the extension is confirmed, and once all legal avenues and appeals have been exhausted, ENCE will claim the patrimonial responsibility of the national government and seek compensation for all damages caused by your concession, previously granted and subsequently annulled, as well for all investments that were committed and completed. In this event, our alternative is to replace Pontevedra by building a new pipeline in Navia with an installed capacity of 340,000 tons and an investment of 450 million. As you know, we already have all the permits and the land for this new palm mill. It will be smaller than Ponte Vedra in terms of tons, but much more efficient with a cash cost around 25% lower. This new line will generate more EBITDA and more free cash flow than the Ponte Vedra plant and is going to be much more resilient. However, Before moving forward with this investment, we will need to know more about the ruling of the Supreme Court and, in the worst case, about the date set by the authorities for the potential closure of the plant. In the meantime, we will focus on increasing the sales of our differentiated pulp products, on developing our renewable energy business, and on reducing cash costs. Let's move on to slide four, where we summarize the business highlights in the first half of the year. Pulp prices have recovered rapidly after trading at record lows for all of 2020. In Europe, hardwood pulp is trading at a gross price of $1,140 per ton, representing a rally of 68%, which will be fully visible during the second half of the year. At the same time, energy prices in Spain have doubled in the first half of the year to an average of €62 per MWh, and futures point to average energy prices above $180 MWh in the fourth quarter. From an operating point of view, pulp production increased by 4% year-on-year in the second quarter and by 20% compared to the first quarter. when both bio-meals were idle for maintenance work. Pulse production in the second quarter marked a new quarterly record of 270,000 tons, thanks to the capacity we added at the end of 2019. The reduction in conversion costs, which derives from production growth, coupled with saving on overhead expenses, offset the impact of raw material inflation in the first half of 2021. As a result, our cash cost fell by 2% year-on-year to €368 per tonne in the second quarter. In the other hand, renewable energy sales increased by 12% in the first half of the year on a like-for-like basis. Group Ibiza, before the impact of hedges, amounted to €56 million in the second quarter and 71 million in the first half of the year, a 56% year-on-year increase driven by higher pulp and energy prices. On the other hand, the pulp and energy price hedges arranged in 2020, due to the uncertainties caused by the pandemic, had a negative impact during the first half of the year, 10 million in the pulp business and 5 million in the renewable energy business. This negative impact was partially offset by the positive impact of 3 million as a result of our ongoing FX hedging policy. If we discount the impact of the ruling on the Pontevedra concession, our underlying business would have shown a net profit of 12 million in the second quarter. Our balance sheet remains strong. Net debt stood at 176 million at the end of the quarter, with 381 million cash in balance after a 19 million reduction in the use of factoring facilities, the settlement of carryover payments for 40 million, and the prepayment of 95 million of bilateral loans held by the PAL business. Finally, I am proud to communicate that we have been ranked as the leading sustainability player in the global PAL market, according to the most recent study by Sustain Analytics. Let's move now to slide 5, which shows the rapid spark price recovery video. Gross peak pressures in Europe have been trading since July at $1,140 per ton, equivalent to $750 per ton net. On the other hand, net peak pressures in China peaked at $780 per ton in May. Since June, they have progressively returned to $620. While prices in Europe tend to follow prices in China with a lag of two or three months, we are witnessing a decouple between Europe and China due to a strong paper market in Europe and logistics constraints that could last for several more months. At present, it is difficult to shift large pulp and paper shipments from one region to another. This process takes several months. In the following slide, number 6, we summarize our views on pulp demand and supply balance in the coming years. We expect pulp demand to outgrow supply during the next four years, supporting a relatively tight market. The tissue and hygiene product segments already account for 55% of global part demand, and we expect it to continue growing at around 4% annually, driven by urban population growth and improving living standards in emerging countries. Packaging and specialty segments account for 25% of global part demand, and we expect their growth to accelerate to around 3% as a result of economic recovery, single-use plastic substitution, and lower recycled fiber availability. On the other hand, the printing and writing segment now only accounts for the remaining 20% of global part demand. Consumption fell 16% in 2020 and should remain at this low level over the next two or three years. On the supply side, apart from Arauco and Brazil projects in 2022, there is only the UPM project in 2023. The Suzano, METSE and CNPC projects have been announced. The construction has not yet started and they will not be commissioned before 2024. Note, that Brazil has started its ramp-up very progressively during the next couple of years, and that most of its bulk will be used internally to feed Royal Golden Eagle group paper and viscous capacity expansions in Asia. Very little amount will go to the market. In fact, many industry experts have recently increased their pulp price estimates for the fourth quarter of 2021 and for 2022. Moving now to slide number seven, you can see the positive operating performance of the pulp business during the second quarter. Pulp production increased by 4% year-on-year in the second quarter and by 20% compared to the first quarter, when both bio-meats were idled for maintenance work. Pulse production in the second quarter marked a new quarterly record close to 270,000 tons, thanks to the capacity we added at the end of 2019. The reduction in conversion costs deriving from higher production, capital with savings in overhead expenses, offset the impact of raw material inflation. As a result, our cash cost was reduced by 2% year-on-year to $370 68 euro per ton in the second quarter. Looking ahead to the second half of the year, we should expect a higher cash cost compared to the second quarter, driven by higher raw material, energy, and logistic costs. As you know, our wood cost is partially linked to the peak price performance, which reached its annual maximum during the third quarter, implying an increase of around €7 per tonne in our expected cash cost for the second half compared to the second quarter. Besides, we are bringing wood from our plantation in southern Spain and we will import 60,000 tonnes of wood to mitigate the temporary reduction in eucalyptus harvesting capacity due to the strong demand for pine wood. This will imply an increase of €8 per tonne in our expected cash cost for the second half compared to the second quarter. Gas, chemicals, and logistics costs are also rising, implying an increase of another four euro per ton in our respective cash costs for the second half compared to the second quarter. As a result, we now expect an average cash cost of around 387 euro per ton in the second half, an average cash cost for 2021 of 382. These figures exclude the accounting effect of the regulatory COLA on the energy sales price, with an estimated non-cash negative impact of 18 million in our P&L for the second half of the year, assuming an average energy price of 120 euro megawatt hour on the second half. Let's look now at our pulp sales on slide 8. Pulp sales in the second quarter grew by 2%, increasing to almost half a million tons in the first half of the year. This lower figure is caused by the fact that annual stoppages in 2020 occurred in the third quarter, while this year we stopped in the first quarter. Over 90% of these sales went to the European markets, where our customers benefit from ENCE's unique wide portfolio of sustainable products and shorter delivery times. Our differentiated products accounted for 14% of our pulp sales in the first half of the year. These products are more sustainable and are adapted to replace plastic and softwood pulp. They also provide higher margins. Turning to slide number nine, you can see the operating performance of our renewable energy business during the first half of the year. The volume of our energy sales during the first half increased by 12% on a like-for-like basis, excluding the CSP plan. This was driven by higher contributions from the two new plans commissioned during the first quarter of 2020 and a higher contribution from the World Bar 41 megawatt plant, which was idle, as you remember, during second quarter 2020. On the other hand, the World Bar 50 megawatt plant was offline during the second quarter due to an incident detected at the generator in the course of its annual review. We expect to bring it back online in October. The average sales price increased by 2% year on year, thanks to increasing energy prices, which are limited by the color, same by the regulator, and by the hedges. In 2020, we decided to lock in an average price of 44 euro per megawatt hour for the sale of over 700,000 megawatt hour of energy in 2021, at a time when prices were at record lows and when the uncertainty induced by the COVID-19 pandemic was high. The next slide, number 10, updates our renewable energy pipeline. We have developed in-house a pipeline of 140 megawatts in biomass and 373 megawatts in PV. All of them have grid access and location secured. We have already obtained the environmental authorization for a new 50 megawatt biomass project in Porto Llano. and we expect to obtain the permits for the rest of the projects during the coming quarters. The approval of the environmental authorization is taking longer than usual, as the authorities are having to deal with an exceptionally high number of projects. 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 11, and they showed a very strong EBITDA recovery in the first half of the year compared to the same period last year, pushed by the PAL business. Our PAL business EBITDA before hedging impacts improved by 162% year-on-year, up to $48 million, driven by the strong recovery in PAL prices. PAL hedges arranged last year in the very uncertain environment caused by the pandemic had a negative impact of $10 million, which were partially offset by the positive impact of $3 million coming from our ongoing FX hedging program. On the other hand, other income and expenses not included in cash costs had a positive impact of $4 million coming from our forestry activities and the reversal of certain provisions, including those related to Ponte Vedra, following the National Court's ruling on its concessions. After hedges, our coal business EBITDA increased up to 41 million, four times higher than that in the first half of 2020. Focusing now in our renewable energy business, its EBITDA before hedges also increased by 24% year-on-year on a like-for-like basis, excluding the Puerto Llano CSP plant sold last December. This improvement was driven by higher energy volumes and sale prices. We should note that our energy sale prices are affected by two factors. On one hand, the regulatory color, which shows a non-cash negative impact of 1.2 million for the period. And on the other hand, the fixed price contracts signed in 2020, again, under the pandemic environment, which had an impact of 4.6 million in the period. Including all impacts, our Renewable Energy Business ABDA attained €18 million, same level as that of 2020. The slight increase in average sales prices was offset by some higher biomass costs. With our consolidated EBITDA of 59, we should have shown a net profit of €2 million in the first half of the year. This turned into a net loss of 195 million after recording the accounting consequences of the court's ruling on the Ponce de Letras concession. As you can see in the following slide number 12, free cash flow before growth capex was positive by 18 million, including a 24 million working capital reduction after a 19 million lower use of our factoring facilities. Growth and sustainability capex in the period amounted to $40 million, basically related to carryover payments coming from the strategic plan investments made back in 2019. The remaining carryover payments amounting to $28 million in the fall business and $8 million in the renewal business will be fully paid down in the second half of the year. Only the standard maintenance capex for both of our businesses are expected for next year. Net debt at the end of the period remained at $176 million, including $17 million related to lease contracts under IFRS 16, following a $29 million write-off corresponding to Ponce Vedra's annual concession lease. Let's have a closer look at our net debt position in each business in the following slide, number 13. Net debt in the Paul business was just $43 million at the end of the period, including 16 relating to lease contracts and with a cash imbalance of €307 million. On top of the said €19 million reduction in factoring facilities, we have prepaid until June 95 of bilateral loans in our PAL business, adjusting down our balance sheet position after the last year's sale of a minority interest in our renewable energy business. In addition, during the month of July, we prepaid another $20 million, and the business's revolving credit facility of $70 million was refinanced, increasing its availability up to 130 and extending its maturity until June 2026. Of course, maintaining our non-covenant policy. On the other hand, net debt in renewable energy business amounted to $133 million at the end of the period, also with long-term maturities and a cash imbalance of 74 million euros. Turning to slide 14, let me remind you about our current hedging programs in both of our businesses. Regarding FX, our policy is to hedge up to 50% of our pulp sales for up to 12 months. We have secured an average cap of 1.23 and an average floor of 1.18 for almost 50% of our dollar exposure for the remaining of 2021, as well as for the first semester 2022. This program had a positive impact of 3 million euros in the first half, and we don't expect any further impact during the second half of the year. Additionally, and for the first time during the third quarter of last year, we decided to secure better pulp and electricity prices for 2021, due to the uncertainties caused by the pandemic, with pulp and energy prices at record lows and having 75 million carryover payments committed for this year. We secured an average price of $773 per ton for 24% of our expected pulp sales in 2021, compared with an average price of $680 in 2020. These hedges had a negative impact of $10 million in the first half And we still made another 41 for the second half, assuming an average price of 1,140. We also secured an average price of 44 euros per megawatt hour for 50% of our expected renewable energy sales in 2021, compared with an average electricity price in Spain of 34 euros per megawatt hour in 2020. These hedges had a negative impact of 4.6 million in the first half and we estimate another 31 for the second half, assuming an average full price of 120 euros per hour. Please note that from a cash flow perspective, we're still forecasting an operating cash flow of 60 million for 2021 before working capital, interest payment, and capex, since the regulatory call is an accounting but is a non-cash provision. I will now return the lead of this presentation back to our chairman for the final slides.

Thank you, Alfredo. Moving now to slide number 15, I would like to mention the highlights of our sustainability performance. I believe that companies that care for the environment, for the staff, and for the communities, also companies with a strong corporate governance, are more competitive. ENCE is already at the forefront in sustainable forestry, in the circular economy, in social commitment, in gender equality, and in corporate governance. Our best practices have been recognized by independent agencies such as MSCI, Fuji for Good, or Sustainalytics, which in its latest study ranks ENCE as the most sustainable player in the global pulp market. I would like to highlight the following achievements in the first half of 2021. Firstly, our Merida and Pontevedra plants have been the first biomass power plants in Europe to certify the sustainability of the biomass they use as a fuel. Secondly, we have continued to improve all our safety indicators, which are already 10 times better than the average for the industry in Spain. Thirdly, the rigorous application of our protocols against COVID-19 has enabled us to continue operating safely and to carry out the annual maintenance shutdowns of our main production centers without any COVID infections. Fourthly, we have continued to reduce the order of both PAL biomials, which is already below one minute per day. And finally, In our Board of Directors, we have increased both the percentage of female representation, which is now up to almost 40%, and also the percentage of independent directors. To conclude this presentation, I would like to emphasize the following key messages. 2021 will be a positive year for ENCE in terms of cash flow generation. Despite the pulp and energy prices had just closed last year, and the accounting impact of the National Court's ruling on the Pontevedra concession. We will exhaust all legal avenues to defend the legality of the concession. If the annulment is finally confirmed, two or three years down the road, we will seek compensation for all damages and for all investments completed. the substitution of Pontevedra with a new line at Navia should strengthen our competitive position and increase our EBITDA. At the moment, we are focused on increasing the sales of our differentiated pulp products, on developing our renewable energy business, and on reducing cash costs. Thank you. I will be pleased to hear any questions you may have.

Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press 01 on your telephone keypad. You will have the opportunity to make all the questions that you might have. In order to keep it as clear as possible, we kindly ask you to make one question at a time instead of stating multiple questions to our speakers. Thank you. The first question comes from Jaime Escribano from Banco Santander. Please go ahead.

Jaime Escribano Hi, good afternoon. I have a couple of questions, one, two, or three. Could you please repeat the cash cost target for 2021 and for this second half? Sorry, I couldn't get it in terms of guidance for the full year in terms of volumes, bulk sales. How much do you think you could make this year? And then a final question regarding the Pontevedra case. When do you expect we can hear from the Supreme Court if they accept or not the case? And what is the approach that your lawyers are doing in terms of the defense of the case? bearing in mind the sentence.

Thank you, Jaime. Thank you, Jaime. Then we had a cash cost on the first half of the year, as you know, of 378 in 2020 and 376 in first half 2021. Then we, as I mentioned before, we reduced by 2 euros our cash costs Then we have offset the increase in raw materials, in energy, in freight, with reductions in overheads and with a higher volume. For the second half of the year, we expect the cash cost to increase from 376 in the first half to 385 on the second half. The largest increase would be on wood. In terms of cash cost, the wood part of the cash cost was 208 on the first half, and we expect 226, plus 18. A big part of that comes from the fact that the price of the pulp, we expect it to keep at 1140, which is higher than the average on the first half, and that's as some portion is linked to the pig's price, it will increase, and that's good. And another part of that is due to some imports we are doing of eucalyptus wood from abroad and from Huelva due to what is happening on the pine industry at the northwest of Spain and worldwide. The price of the pine is today two times the price one year ago, that's 100% increase. Then a lot of people are harvesting pine instead of eucalyptus, and we prefer to import on spot from abroad to keep the prices of the eucalyptus wood we are sourcing from the northwest of Spain. That's the main increase explaining The increase from 376 in the first half is 385 on the second half. We are also expecting a slight increase in two euros in chemicals. We are also expecting an increase in energy from 13 to 27, which means almost doubling. We can explain that a bit later because it's quite difficult to explain very simply. But you know that at our palm mills, we have cogeneration. And according to the regulatory regime we have in Spain, we are buying all the energy at markets. Then we are buying it very expensive now. And we are selling but with a collar, with a regulatory collar. Then the margin is reducing. That's why... the impact on energy is negative by 14 euros, will be negative by 14 euros on the second half of the year. Regarding the volume, Jaime?

Sorry, one question regarding this. For 2022, do you think it's fair to take 385 euros per ton?

Unfortunately, I cannot give you an answer. We are going to meet most probably in one more time to explain third quarter, and we will have more vision about what is happening with gas, with energy, and with all raw materials. Today, I think that we are all in the middle of a tsunami of price increases in energy costs and other raw materials. To give you a figure for 2022, I prefer to wait a few weeks more. Regarding the volume for For 2022, well, we keep on what we said before. It's 1,050,000. For 2021. Sorry, for 2021.

Sorry, for 2021.

Yeah, yeah. Oh, okay. For 2021, 1,050. Okay? Yeah. Okay. Regarding the timings of the legal procedure, well, we have presented already two appeals. to the two sentences we received in July. There is still a third sentence pending. Once we will receive it, we will have one month to appeal. We haven't received it yet. Then the appeals have not yet finished. It may take another month. And once the appeals are presented, we think that we will know something a bit before next summer. Not before. Then, if the appeal is considered, well, we will know something, let's say, in 2023. More on the second half of 2023 and on the first half of 2023. But all that is not exact. All that is what we think, according to how the Tribunal Supremo, the Supreme Court is working today.

Okay. Because I thought that in this December, the Supreme Court would decide whether to take the case or not. So is this delaying?

Jaime, you are right. That is what we said in July. But today, as you know, the Tribunal Supremo is absolutely collapsed. And what our lawyers think is that it's going to be later. It's going to be more before summer next year than before Christmas now, okay?

Okay, and can you tell us anything about the defense strategy that your lawyers are using to, or what are the arguments, or the argumentation, I don't know the word in English, that they are using, you know, to persuade the Supreme Court to take the case?

Well, it is very, very technical. I would say that, saying that roughly. First, there is no jurisprudence on this matter, you know. The same sala de audiencia has said 180 degrees different sentencia one year ago. And, well, they are saying what they are saying based on an article of the coast law who say that you have to defend that why you have to be there. And what they say is that, well, that is a requirement for a new concession, but it is not a requirement for old concession. Well, it's all very legal and very technical, you know. If you are interested and more of you are interested, we can prepare a small paper maybe and share it with you because it's absolutely technical, you know?

Okay. No, that's fine. That's okay. Thank you very much. Thank you very much.

Thank you. The next question comes from Joe Pinto from JB Capital. Please go ahead.

Hi. Good morning, everyone. I have three questions. First, a follow-up on Jaime's question. Could you please provide an update and some color of pulp volumes during the summer? It seems that demand kept strong in Europe, given the prices. Can you give us some color on volumes during the third quarter?

If I understand, you are asking us the volumes we have sold during the third quarter and during the second quarter, is that right?

I think it's the third quarter, yeah. If it was a strong quarter for you.

But we are presenting now first and second quarter. Okay, but if you could just share... I would have to share that not only, and I don't want to be unpolite, but I cannot share only that with you. I would be obliged to share that with all the market. Now I think that we are talking about the first half of the year. Yes, the summer has been good, strong, the market is strong, and the market is good, but I cannot give you the exact volumes.

Okay, fair enough. Regarding Paul Prices, if you could share with us your outlook for Paul Prices, if you have any feedback from demand in China and how prices are expected to evolve in the short term.

Well, coming back to your first question, well, it's quite simple. You know the volume we have already sold on the first half of the year. and we are telling you that we will produce and sell 1,000 and 50,000 tons, then you can calculate the difference for the second half, okay? Now, your question, your last question. Well, what is our vision? Prices in China have fallen. The market should stabilize because normally, In autumn, the demand is higher. The market suffered this stocking of paper in July, August, and September. It seems that now it's normalized. And then, well, personally, I don't see further price declines in China. Regarding Europe, the market is quite strong. Due to this problem of containers, well, China used to export 3,000 tons of paper, 300,000 tons of paper per year to Europe. They are not exporting this paper now. This paper is produced by our customers. There were big shutdowns, as you know, in printing and writing in integrated mills. Then mills producing paper for printing and writing and buyers of pulp are benefiting from that. then all our customers are benefiting from good demand and good prices. And, well, nobody's thinking now on the market in the price decrease. The analysts were saying that the prices could fall at the end of the year because of Brazil starting and Mapa in Chile starting. They have reconsidered their position after the Barcelona Pulse Week at the beginning of September. They noticed, talking to all the customers and to all the paper mills, that the market is more buoyant in Europe than what they thought. And, well, even if they still today see some price declining at the end of the year, well, they see higher prices than before. And for next year, it's the same. Well, we all see a good market for the first half of the year. Well, the second half of the year is still too far. Regarding in terms of demand, well, as you know, the market is growing by almost 1.9 million tons per year. And as you know, it's coming from the tissue growth. It is 55% of the market. From the specialities and packaging growth, And that's 25% of the market. And we see the remaining 20% of the market printing and writing stable. It went down by 18% that year. And we see it stable at this low volume for this year and next year. Then regarding the demand, the demand is good. Demand is quite good in Europe. There is optimism around the customers. And regarding the new two mills, well, Brazil has already said that it will start slowly. You know that their shareholder has large investments announced and going on in Asia for producing paper, for producing board, and for producing viscose. And, well, they will supply their own mills and then Not a big part of what is going to be produced by Brazil is going to go to the market. And certainly, very few volume is going to come to Europe. First of all, because today, if you want to chart a 40,000 tons vessel from Brazil to Europe, you cannot find it until you haven't bought it. And what they bought on the past was to send that to China and to Asia. And secondly, because as you know, they are not FSC certificate, then we are going to different markets. And regarding Chile, Mapa, Arauco, well, they are going to start at the beginning of next year, and it will take some time to... It will take some time for their part to be on the market, and we are confident. Then we see strong prices for the end of this year and beginning of next year.

That's very clear. A last question, if I might Regarding edging in pulp and energy, what's the amount of edging that you intend to do on a recurring basis as a percent of expected volumes? Could you repeat your question, please? Just wondering what part of your production you intend to edge on a recurring basis, both in pulp and in energy?

No, no, I would say that what we did last year was quite exceptional. You know that we are always hedging a portion of the dollar. Well, normally we don't hedge energy or parts. What we did last year, I would say that today it's causing us a big loss, but the most probably I would do the same thing if I was again on the same position. You have to remember that 15 months ago, we were on the middle of the COVID, of the pandemic, pandemic. Markets were collapsing. We have a great uncertainty. And we had commitments of CapEx carryover for 2021 of close to 75 million euros. Then, well, as We saw the possibility to hedge pulp, you remember, at $770 when the pulp was at $680. And as we said, had the opportunity to hedge energy at $45. Remember that at this time we were below $30. Well, we saw that, well, it would be good in order to guarantee the income and to be sure that we couldn't face any problems. And we did that before selling these 49% of ENFE Energia to Ankara and before selling the CSP. Then on the middle of the uncertainty of the COVID. With 75 millions of CAPEX to be paid in 2021. Then, well, we thought that this guarantee was important. Today, Those hedging are finishing in December 2021, and we are not thinking in hedging anything for 2022. Well, we have a board of ENCE Energía this week, and we may discuss if we hedge the energy produced by the two biomass power plants we started last year, Huelva 46 and Porto Llano 50. As you know, We win the auction of biomass four years ago with zero return on investment. What means, and it is very technical but very important, we don't have color on those plants. Then we benefit from 100% of the price of the energy. Then, well, as we are seeing now that the energy prices for next year are extremely high, we are seeing now Well, the figure I have in front of mine is yesterday. Yesterday, the market was at 175 for the first quarter, at 117 for the full year 2022. Today, it's at 120, where we may have something in these two power plants, but not 100%, something. We are not going to hedge anything on PALP and we are not going to hedge anything else on energy on the rest of the group. Thank you, João.

Thank you very much.

Thank you. The next question comes from Álvaro Lence from Alantra Equities. Please go ahead.

Hi, thanks for taking my questions. First one is on the potential dismantling cost of Pontevedra. You have already provisioned 48 million Back in the day, you guided for 75 million total costs. I understand that these 48 million do not include the layoffs. Would the 75 million reference remain valid?

Yeah, thank you, Álvaro. Well, we think that the cash out for shutting down Pontevedra is going to be on the rate of 75. 72, sorry. We have already... always said. We have the cost of dismantling. It's 48 million. And we have been conferment with an engineering company during the summer in order to check before to provision this figure that our estimation was good and it's 100% confirmed. We have on top of that 6 million of the cost of canceling long-term contracts with suppliers for equipment who is working in Pontevedra. And we have the balance with the layoffs. Regarding the layoffs, we haven't done any provision because according to the account system in Spain, you cannot make a provision unless you have tell to every single guy that you are going to fight that they are going to be fight. And we cannot do that because we are defending the concession. And this appeal is going to take at least a couple of three years. Well, we said, if you remember in 2019, when we have these bad news of the government doing the allanamiento, that we were estimating between 15 and 16 million, the cost of the redundancies at the mill. Well, we may have on top of that something more because we will reduce also the overheads of the company. It's not the same to have one mill at two mills. It is not the same if we just shut down Pontevedra or we reinvest as we want to do that in Navia. Then we don't have, we don't exactly know the number of people who are going to be affected on the overhead, and it's difficult to calculate. And let's say that the uncertainty of when we are going to do the layoffs, if we do them, And the uncertainty of how many people of the overheads are going to be affected make it very difficult to know, and that's very technical, how many people over 50 years are going to go out. And then to calculate these extra costs that you know we have in Spain when you lay off people of more than 50 years, if the percentage of people with more than 50 years you are laying off is higher than your actual percentage of people with more than 50%. Today it's almost impossible to calculate the exact number. What we know is that the layoffs from the mill are going to be on the range of 15 to 16 million. Thank you.

Perfect. Second question would be on the energy business. If you could provide us some update on Huelva 50 megawatt biomass plant, how the repairs are going and when should this be online again?

Yes, the The excitatory part of the turbine is now, well, left Siemens in Germany yesterday. Now it's going to Huelva. The other part was in Navantia in Ferrol is already installed in Huelva. It arrived to Huelva last week, at the end of last week. And we expect to be working with absolute normality during October.

Okay. And going to the pipeline in the energy business, could you provide some update on the biomass auctions? When do you expect them in 2021? And what's your positioning ahead of the auctions?

Well, the minister told us that they will do this auction this year. I presume it will be during the end of the year. And most probably the physical auction it's going to be or in December or in January. And it's going to be, you know, by law, it's going to be 140 megawatts. And you cannot get more than 50% of that. One single group cannot bid for more than 50%.

Okay. And last quick question also regarding the pipeline. I see from your last presentation you've made some changes. There is no longer the 25 megawatts hybridization project in Ciudad Real. And on the other hand, there is a higher pipeline for the Granada PV plant from 100 to 133, if you could explain these changes.

Yes. Well, we have this new connection with all the grants from From Electrica in Granada, we have the land, and we are developing the new land, and that's 137 megawatts. It's a very good location. And as you know, as we sold the CSP, well, we are not anymore today interested in developing this 25 hybridization with the CSP of Ciudad Real. Okay. Thank you very much. Thank you very much, Alvaro.

Thank you. Ladies and gentlemen, as a reminder, if you have any comments or questions, please press 01 on your telephone keypad to enter a queue. Thank you. Ladies and gentlemen, there are no further questions in the conference call. I give back the floor to Mr. Ignacio Gormenares and Mr. Alfredo Abello. Thank you.

Ladies and gentlemen, thank you very much for your time. We will be in contact and we are meeting very soon again. Thank you. Bye-bye. Thank you.