ENCE Energía y Celulosa, S.A.

Hello and welcome, ladies and gentlemen, and welcome to the first quarter 2024 results presentation. I now hand you over to Mr. Ignacio Colmenares, Executive Chairman and Alfredo Avello, CFO. Gentlemen, please go ahead.

Good afternoon, ladies and gentlemen. Thank you for joining ENSES first quarter 2024 results conference call. Our CFO, Alfredo Avello, and our head of IR, Alberto Valdez, are also connected to this call. After the presentation, we will be pleased to answer any questions you may have. I would like to start with the main highlights of the quarter on slide six. The pulp price recovery is continuing, boosted by pulp demand growth, low pulp inventories, and pulp supply constraints. Our average net pulp price improved by 15% compared to the previous quarter, up to €600 per tonne, more than offsetting a 7% quarter-on-quarter increase in cash cost and boosting our pulp operating margin by 70%, up to €114 per tonne. The cash cost increase registered in the quarter is mostly related to temporary factors, we should be offset in the coming quarters. Continuing with slide seven. The renewable business was also favored by the startup of Welva 46 megawatt and Porto Llano 15 megawatt power plants in February, following the unplanned shutdowns during the previous quarter. This boosted renewable energy generation by 65% quarter on quarter. Let's move on to slide nine, which summarizes our outlook for the pulp business in the coming quarters. The positive pulp price momentum continues, boosted by pulp demand growth, low pulp inventories, and pulp supply constraints. We are already selling our pulp at 1380 gross US dollar per ton, equivalent to around 760 net euros per tonne, and the main-pal producers have announced further price increases of up to 1,440 US dollars per tonne equivalent to around 800 net euros per tonne. At the same time, our cash cost should recover its downward trend in the coming quarters, favoured by a higher energy contribution lower logistics costs and a higher fixed cost dilution. Both factors will continue to boost our pulp operating margin and our cash flow generation in the coming quarters. Regarding the outlook for our renewable business and turning to slide 10, the Ministry of Ecological Transition has submitted to the State Council, Consejo del Estado, a revised regulation proposal for biomass power plants aiming to align the short-term cash generation with their accounting EBDA. According to this proposal, we will sell and cash our energy output at a regulated price of €120 per MWh. As a result, the regulatory color adjustment in our cash flow statement would disappear. The new regulation will be applicable as from 1st January 2024 and it would have an estimated positive impact of between 50 and 60 million in the cash flow generation this year compared with the estimated cash flow generation with the current regulation. We expect the new regulation proposal to be approved by the end of the second quarter or the beginning of the third quarter. I now invite Alfredo to elaborate further on our financial results.

Thank you, Ignacio. Let's continue with the financial performance of our PAL business in the slide number 12. The PAL business EBITDA grew by 66% compared with the previous quarter, up to 31 million euros. The 79 euros per ton improvement in average sales prices easily offset the 7% quarterly spike in the cash cost and the lower sales volume related to the usual restocking process prior to Navia's annual maintenance shutdown in April. As announced in our previous call, we were already expecting a temporary increase in the cash cost during the first quarter. mainly due to higher logistics costs related to deliveries to more distant clients with higher margins, lower energy revenues, and lower fixed-cost dilution. These factors should reverse as from the second quarter and should result in a lower cash cost through the year-end. This, together with the continued power price improvement, should result in a stronger operating margin and cash flow generation in the coming quarters. Turning now to slide 13, the renewable business EBITDA reached 14 million euros, more than twice the figure of the previous quarter, driven by the restart of our Welba 46 megawatts and Ciudad Real 15 biomass power plants in February, following the extraordinary shutdowns initiated during the previous quarter. In addition, we closed the sale of a 10 MW PV project in Huelva during the first quarter, generating revenues of 2 million euros and an ABTA contribution of 700,000. We expect to close the sale of the remaining two PV projects in Seville and Granada with a combined capacity of 223 MW during the coming quarters with an expected ABTA contribution of approximately 15 million euros. Let's continue in slide 14 with a strong improvement of our consolidated results driven by the recovery in oil prices and the high renewable energy output. ABDA grew by 78% up to 45 million euros and ed income doubled up to 8 million euros, continuing with a positive trend initiated during the fourth quarter last year that should continue in the coming quarters. Turning now to slide 15, let's review the cash flow generation in the quarter. The cash flow was marked by a working capital increase mainly linked to a higher account receivables balance due to the strong pile price improvement as well as to the poverty stocking process ahead of NAVIA's annual maintenance shutdown. Pre-cast flow before working capital and the regulatory quota adjustment was positive by 19 million euros, after including 5 million euros of maintenance capex, 9 million euros of net interest payments, including advanced prepayments of certain facilities, and 12 million euros of growth and sustainability capex. Out of the said 44 million euros working capital outflow in the quarter, 22 are related to the effect of higher pulp prices on trade receivables. Eight to the pulp inventories increase in anticipation of NAVIA's annual maintenance shutdown. And the rest are lower trade payables in pulp on higher renewable energy outputs. Finally, remember that under the current renewable energy regulation, the difference between the regulated and the market energy prices generates cash collection rights that will be settled during the rest of the regulatory life of the plants. This is what we mean when we refer to the regulatory color, which amounted to 26 million euros in the quarter, together with other minor cash adjustments. Note that we expect a change in the regulation for biomass power plants between the second and third quarter this year, which will align accounting and cash EBITDA, ending these regulatory color adjustments. would have the consequence of advancing the said cash inflow into this year rather than waiting for the rest of the regulatory life of the power plants to cash it in. The strong power price momentum together with expected change in the renewal regulation for biomass power plants anticipate a strong cash flow generation in 2024. Net debt increased up to 323 million euros at the end of the first quarter, as you can see in the following slide number 16. Our liquidity position reached up to 252 million euros at the end of the quarter, after the early repayment of certain bilateral loans in the fall business amounting to 73 million euros. On the other hand, the balance outstanding under our sustainable commercial paper program increased by 22 million euros in the quarter, up to 74. Note that this liquidity position does not include two RCFs amounting to 130 million euros in the PAL business and 20 million euros in the renewable business, which remains fully available. Finally, as mentioned before, the strong cash flow generation expected in 2024 should allow us to end the year with some lower net debt figure, even after the planned growth capex and expected dividend payments. Let me hand you back now to our Chairman and CEO to continue with the presentation.