ENCE Energía y Celulosa, S.A.

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

Good afternoon, ladies and gentlemen. Thank you for joining ANSES fourth quarter 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 with slide three, where we summarize the business highlights in 2021, a year of strong cash flow generation and net debt reduction. Operating cash flow generation before hedges increased to 302 million in 2021. Free cash flow generation and net debt reduction amounted to 76 million, even after negative settlements from one of hedges of 106 million. A 21 million reduction in the use of factoring lines and 56 million carryover capex payments from previous years. No pulp or energy prices hedges have been contracted for 2022. Strong pulp prices have more than offset the temporary inflation in raw materials and logistics, boosting the operating margin of the pulp business. Moreover, main pulp producers have announced pulp price increases of up to $1,200 per tonne as from March 2022. industry specialists are further improving the price forecasts. In July and October 2021, the National Court issued three rulings that annull the extension of our Pontevedra concession. As a result, we recognized in first half 21 asset impairment charges and provisions for a net amount of 200 million. I'm glad to announce that the Supreme Court has accepted our appeal against the national court rulings. These decisions allow us to be more optimistic, although we must prudently wait for the final resolution, which may take several months. Excluding the accounting impact of those rulings, annual net income amounted to 10 million, after the impact of one of hedges. We close the year with a very strong balance sheet with just 102 million net debt and close to 400 million cash in balance. On December 2021, we agreed to rotate five PV assets with a combined capacity of 373 megawatt for an amount of up to 62 million, which we expect to cash in between the fourth quarter of 2022 and the first quarter of 2024. It is also very important to remember that Sustanalytic has ranked ENCE as the leader in sustainability in the global pulp industry. We have approved a new dividend policy based on free cash flow generation and prudent leverage ratios for business. Finally, I am pleased to announce that we will hold the Capital Market Day on March 17th to share with you our plans for the coming years. Let's now move to slide four, which shows our consolidated cash flow statement for 2021. As you can see, EBITDA before hedges reached 213 million in 2021 as a result of strong pulp and energy prices. On top of that, the regulatory collar, which is the difference between the energy market price and its regulated price, which we collect but it is not included in EBITDA, implied an extra cash inflow of 89 million, lifting the consolidating operating cash flow to over 300 million. As a result, consolidated free cash flow reached 76 million in 2021, even after negative settlements from one of hedgers of 106 million, a 21 million reduction in the use of factoring lines, and the 56 million carryover CAPEX payments from previous years. As you can see in the following slide number five, there are no part or electricity price hedges contracted for 2022. Those hedges were closed exceptionally in 2020 during the worst months of the pandemic prior to the sale of a minority stake in our renewable energy business. They were made to secure a minimum cash flow generation at a time when part prices were at record lows, when the duration of the pandemic was unknown, and when we had significant carryover capex payments committed for 2021. Those hedges had a negative impact of 106 million in 2021. The good news is that they ended at year end. Since then, we are benefiting fully from strong pulp and energy prices. Let's move now to slide 6, which shows the strong pulp price recovery in 2022. Gross peak prices in Europe have been trading at $1140 per tonne since July 2021. Main pulp producers have announced two price hikes in Europe this year, to $1,170 for February and $1,200 for March. Industry specialists are forecasting average prices of over $1,100 per ton in 2022. As you can see in the following slide, number 7, strong PAL prices are more than offsetting the temporary inflation in raw materials and logistics. boosting the operating margin of the pulp business by up to €155 per tonne in 2021 and by up to €207 per tonne in the fourth quarter. Higher cash cost in the fourth quarter was mainly due to the non-recurrent wood imports and the rise in logistic costs. We were bringing wood from our plantations in southern Spain and we have imported 90,000 tons of wood to mitigate the short-term reduction in eucalyptus harvesting capacity due to the strong demand for pine wood. In the first quarter 2022, you should expect higher cash costs than in the fourth quarter as we undertook annual maintenance shutdowns at both bio-mills and chemical and logistic prices have continued to soar. Let's look now at our pulp sales on slide eight. Our pulp sales amounted to almost 1 million tons in 2021. Over 90% of these sales went to the European market where our customers benefit from ENFE's unique wide portfolio of sustainable products and shorter delivery times. Our differentiated products accounted for 16% of our pulp sales compared to the 9% in the previous year. These products are more sustainable and are well adapted to replace plastic and softwood pulp. They also give higher margins. Turning to slide number nine, let me now summarize the current status of our Pontevedra concession. In July and October 2021, the National Court issued three rulings that annul the extension of our Pontevedra concession. As you remember, we booked in first half 2021 asset impairment charges and provisions for a net amount of 200 million, including a 48 million provision to cover the estimated cost of the potential dismantling of the bio-mill and the termination of outstanding contracts. We have appealed against these rulings to the Supreme Court, which, as you know, has just accepted one of them. This decision allows us to be optimistic, although we must prudently wait for the final resolution, which may take several months. 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, ENCE shows very strong underlying operating results in 2021. Our pulp business EBITDA before hedging impacts improved by six times year on year, up to 142 million euros driven by the strong recovery in pulp prices. Pulp hedges contracted back in 2020 for last year in the very uncertain environment caused by the pandemic had a negative impact of 53 million euros in this business. On the other hand, regarding cash, on top of the EBITDA figure and not included in it, we had a 24 million euro inflow coming from the regulatory collar, which is fully free to be used without any restriction. Focusing now in our renewable energy business, its EBITDA before hedges also increased by 54% year on year, on a like-for-like basis, excluding the Porto Llano CSP plant sold in December 2020. The fixed price electricity contracts signed again back in 2020 had a negative impact of over 53 million euros in this business. On the other hand, as in the power business, on top of the ABDA and not included in it, we had a 65 million euros cash inflow coming from the regulatory color of this business. Therefore, the total amount of cash inflows coming from the regulatory color, not seen in our ABDA figure, but that implies an effective cash inflow, was 89 million euros for 2021. With such strong operating results, our consolidated net income, including the 106 million euros negative settlements from the one-off hedges, was 10 million prior to registering the 200 million related to the Pontevedra provision, finally ending in a net income of 190 million euros minus 190 million euros for the year. As you can see in the following slide number 11, we closed 2021 with a very strong financial position. The debt was reduced down to 102 million euros and we finished the year with 387 million euros cash in balance. Our PAL business closed 2021 with a net cash position of 20 million euros, including 16 related to the lease contracts and a cash balance of 325 million euros. During 2021, we adjusted down our PAL business balance sheet, prepaying 146 million of various of our facilities. In addition, we successfully refinanced our revolving credit facility, increasing its availability up to 130 million euros. Also, we extended the maturity of another 18 million euros of bilateral loans until 2026. All of it, of course, maintaining our non-covenant policy. On the other hand, net debt in the renewable energy business amounted to 121 million euros at year-end, with long-term maturities and a cash imbalance of 72 million euros. I will now return the lead of this presentation back to our chairman for the final slides.