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.

Thank you Alfredo. Continuing with slide 17, I'm glad to announce that we have updated our sustainability master plan for the next five years. This plan has been based on a double materiality assessment from both a sustainability and financial perspective. and it is structured on five strategic pillars. The first one, safe and efficient operations, pursues operational excellence in our industrial and forestry activities from environmental safety and efficiency perspectives. Our sustainability master plan includes a decarbonization plan that will allow us to reduce the group's CO2 emissions by 70% under Scope 1 and 2 before 2025. It will also improve our profitability because biomass fuel is cheaper than gas or fuel. It also includes a water resilience plan that will allow us to reduce our water consumption and make us self-sufficient during water stress situations. The second pillar, sustainable products, aims to boost the development and diversification of healthiest sustainable products and services, all of which are based on natural and renewable resources and contribute to a decarbonized economy. Most of these products compete with softwood pulp and yield better margins. The third pillar, a responsible supply chain, aims to improve the ESG performance of our supply chain with a special focus on human rights and on environmental protection. One of our competitive advantages is our short wood supply chain. Therefore, we don't expect any cost increase. The fourth pillar, Positive social impact includes different initiatives designed to benefit our employees and the local communities where we operate. The fifth strategic pillar aims to further strengthen the corporate governance across the organization, enhancing the ethics and compliance function. Our best practices have been recognized by independent ESG agencies and indices. In their latest study, Sustainalytics confirmed ENCE for the third consecutive year as the most sustainable player in the global pulp market. Moving now to slide 19, let me update you on our growth and diversification initiatives in the pulp business. Firstly, we continue to diversify our production towards higher value added pulp products. ENCE Advanced Park Sales accounted for 19% of total park sales in the first quarter. We aim to reach 25% this year and 50% by 2028. Our ENCE Advanced Park products are more sustainable and are better adapted to replace plastic and softwood park in multiple paper applications. They also deliver higher margins. With these products, we compete against pulp producers in Scandinavia based on softwood, and we are more competitive. Secondly, our project to diversify up to 125,000 tons of our production into fluff pulp for absorbent hygiene products is on track. This is an innovative project that has generated a lot of interest among our clients in Europe who are currently importing fluff pulp from North America based on sawdust. Our fluff pulp will be based on eucalyptus. It will be very competitive and will deliver higher margins. The project has all the permits required. We have already ordered the equipment and started the civil works. The commissioning is scheduled for the end of 2025. We estimate a CAPEX of 30 million between 2024 and 2025, with a targeted return on capital employed of over 12%. And thirdly, the Aspontes project is an excellent opportunity to continue growing and diversifying our palm business without increasing the consumption of wood. The project is based on the recovery of paper, board and textile fibers, on the recovery of water and on the recovery of industrial land to produce bleached recycled pulp for paper, textiles and bioproducts. It will be a fully circular plant, 100% decarbonized, with no waste generation and minimal water consumption. It also avoids a new mill invading a natural space, since the project will be located on industrial land occupied previously by a thermal coal plant. For all these reasons, the project has already completed the public information process without any social opposition. We aim to finish the engineering and the permitting process by the summer of next year. we should be able to take the final investment decision by the end of 2025. Note that none of the investment I have described will require more wood, which we believe is an increasingly limited resource today. Remember that the Iberian Peninsula pulp industry already imports over 2 million tons of wood from Latin America. Turning now to slide number 20, let me remind you about our Pontevedra Avanza project. At last, we have an integral project that will replace Pontevedra's efficiency and flexibility at the forefront of the industry in Europe. This project will allow us to reduce Pontevedra's cash cost by €50 per ton, improve its flexibility by using different species of eucalyptus, and to continue to upgrade our production from standard pulp to ENCE advanced pulp products. We envisage a very competitive bio-mill specializing in high margin products. The estimated capex in this project amounts to 120 million during the next 5 years, with a required return on capital employed of over 12%. Its execution will be adapted and aligned to our cash flow generation throughout the part cycle and to our leverage and dividend policies. Remember that our aim is to maintain a prudent leverage and offer an attractive remuneration for shareholders while investing for profitable growth in the future. Turning now to our growth and diversification opportunities in renewables in slide 21. Firstly, through our subsidiary ENCE Biogas, we aim to produce one terawatt hour of biomethane by 2030. Our business model is based on the recycling of local organic waste into biomethane. with corresponding sustainability certificates as well as producing a high quality organic fertilizer and biogenic CO2. ENCE Biogas has already developed a portfolio of 20 biomethane projects which already have been land secured and their feasibility studies completed. We expect 8 of them to be ready for construction in 2025 and to become operational in 2026. In addition to these 20 projects, ENCE Biogas is developing another 15 biomethane projects at an early stage of development. We plan to build these plants with EPC contracts, using non-recourse project financing, but by long-term PPAs. The initially estimated capex is around 20 million for a standard plant with the capacity to produce 50 GWh per year. the targeted return on the capital employed is over 12%. Secondly, biomass thermal energy is not only carbon mutual, but may also be more price stable and more competitive than fossil thermal energy. Through our subsidiary, Magnum Servicios Energéticos, we signed our first service contract last year with a major industrial company in the food and beverage sector in Spain. We are final bidders in five contracts with important industrial companies in Spain and we are working with another 15 companies in the food, paper and chemical industries to provide them with renewable thermal energy. Our customers appreciate our strong position in the biomass market and our experience in providing integral solutions from biomass sourcing to plant design and operation. As in the biomethane business, we plan to build these biomass thermal plants with EPC contracts and using non-recourse project financing backed by long-term PPAs. The estimated capex per plant ranges between 6 and 20 million, with an estimated production of between 60 and 200 GW per plant. The targeted return on capital employed is over 11%. The development of these two businesses should allow us to more than double the recurrent EBDA of our renewable business in the next five years. Furthermore, looking beyond 2030, biogenic CO2 capture will become a new source of revenues and EBDA for all our businesses. As the leading player in Iberia in eucalyptus pulp and biomass energy, ENCE Group annually produces around 6 million tons of biogenic CO2 in our different businesses. This biogenic CO2 is a raw material used to produce green fuels such as e-methanol or sustainable aviation fuel. These green fuels will play a crucial role in decarbonizing our economy with extensive use in marine and earth transport and in the chemical industry. We've been actively studying the market and we are now making progress with the engineering and permitting needed to capture and monetize our biogenic CO2. We will start to see the results by the end of this decade. Let's finish now with some closing remarks in slide 22 before we move to the QLA session. The positive price momentum continues, boosted by pulp demand growth, low inventories of pulp, and pulp supply constraints. There are no significant market pulp capacity additions confirmed beyond the Cerrado project at the end of this year. supporting an improving outlook for part prices in 2025, 2026 and 2027, just as industry specialists are currently forecasting. At the same time, our cash cost should recover its downward trend in the coming quarters, also contributing to the strong operating margin improvement and cash flow generation. Regarding our renewable business, the expected change in the regulation for biomass power plants will also boost this business cash flow generation in 2024. Our priorities in the pulp business are to reduce cash costs and to diversify our production towards more profitable products such as ENCE Advanced Pulp, FLUF and ASPONTES Recovered Fiber. We will make Pontevedra one of the most competitive mills in Europe. Our priorities in the renewable business are to expand our leadership in biomass trading in Spain and to develop our renewable, thermal energy and biomethane businesses. The achievement of these goals should allow us to significantly improve our recurrent EBDA in the palm business and more than double the recurrent EBDA in the renewable business in the next five years. Looking beyond 2030, we are getting prepared to be a major supplier of biogenic CO2 for the production of e-fuels. I believe We are well positioned to pursue our strategic priorities in both businesses, while maintaining a prudent leverage and an attractive shareholder remuneration. Thank you for your attention. We will be pleased now to hear questions you may have.

Thank you. Ladies and gentlemen, if you do wish to ask an audio question, please press star 1 on your telephone keypad now. If you wish to withdraw your question, you may do so by pressing star 2 to cancel. You will have the opportunity to ask all the questions that you might have today. We kindly ask you to limit your questions to one at a time instead of asking multiple questions at once. Once again, that is star 1 to register for any questions. And our first question comes from the line of Enrico Paranjo from JB Capital. Please go ahead. Your line is now open.

Hi, good afternoon. Thank you for the presentation and for taking my questions. I have three, if I may. The first one is related to the latest price hikes announced by Sufano. Wanted to get your view and better understand what do you believe is the main driver behind this last hike? Is it more demand or supply driven, do you believe? And how confident are you with regards to its implementation? Thank you.

Thank you very much for your question, Enrique. I'm 100% confident we are going to achieve this price hike. And I would say 50% came from supply and 50% came from demand. Supply, as I have already mentioned, we have on the industry some problems in Scandinavia with the ports. One of our colleagues has had a terrible explosion and it's stopped now. There are problems in northern part of the States and Canada to produce saltwood. And we also have the fact that the Canal of Suez is not able to transport all the paper which should come from Asia to Europe, and therefore our customers in Europe are working pretty well. And continuing with demand, well, the demand is not boosting, but it's much better than last year. Remember that last year was an year of destocking all the supply chain, and we have decreases in printing and writing paper of 25, 26% on the demand, in specialties of 15% on the demand. Well, and now, the final demand is normal in Europe, and it's slightly increasing. The final demand is growing, like it is always growing in China. Don't forget that the product we are selling, the pulp we sold in China, is not transformed in harbors or houses. or factories, it's a basic product, a basic healthy product, and therefore the demand is still growing in China. And on top of that, we have the restocking of all the supply chain. We think the restocking of the bulk inventories have already finished. And now we are seeing the restocking of the paper industries. And we will see on summer the restocking of the retail stocks. Then as a conclusion, we are 100% sure that the new price hike will go to the market.

Super, thank you. Second one is related to cash costs. Maybe could you give us a range on where do you expect cash costs to be in the second quarter and whether the reduction of achieving close to four quarters of 23 level is still your goal for the end of this year? Maybe also a comment on different components, moving parts would be helpful. Thank you.

Thank you Enrique. Coming back to your first question, I forgot to comment that the Cerrado project is a 2.5 million tons pulp mill in Brazil belonging to Sudano. It's starting in the middle of the year, but due to the logistics, we don't foresee any pulp coming to the market nor in Europe or in Asia or the States before the end of the year. And that is very important because the market is growing this year, like every year, and that means that the growth of the market will permit the market to be balanced at the end of the year despite the new part of Cerrado project coming on stream by the end of the year and beginning of next year. And you have to remember that there are no further projects, no further new projects of pulp worldwide for the next three years. Then we are quite confident in having good good 2025, 2026 and 2027 on top of good 2024. And now going back to your second question, well, we had a temporary increase on the cash cost in the first quarter, if we compare that to the first quarter, we had a bit higher chemicals due to price increases of the of the chemicals we had a temporary increase in logistics now it's solved and we are coming back to the figures we had at the end of the year and we have the effect of the energy now looking to the second quarter we see a decrease in the cash costs and we hope to see to be between

the first quarter and the fourth quarter of last year and we see and we continue to see to be at the end of the year at a very similar level at the level we reached at the end of last year super thank you very much and the final question would be uh with regards to capital allocation uh specifically maybe how should we think of shareholder remuneration and investment plans specifically in the the plan Avanza for Pontevedra. So assuming that most likely towards the end of the third quarter, you will be below your target leverage level. So maybe what's kind of your priority here considering that this project will probably boost shareholder returns in the future? Thank you.

Well, as you have always said, we want to combine a prudent leverage, and you know that for us a prudent leverage is to be below 2.5 times net debt to a BDA, talking about the recurring BDA of this company and this business, in part, and below 4.5 times in energy. We don't like big projects. In part, because the market suddenly changed and, well, you have to pay what you have already committed. That is why we like very much phased projects. The Pontevedra Avanza project is a project of 120 million euros. We will have all the engineering finished by the third quarter of this year. We will take the final investment decision in the fourth quarter of this year. And I would say, firstly, that even if we wanted to spend more money next year, it would be impossible because it takes time to buy and to produce the equipment and to install the equipment. And we only stop our permits once per year. then we think that the most prudent and the more realistic things is to do these investments in the five years we have already forecasted. We will not accelerate these projects. Because we want to be on the low level of debt, because we want to keep an interesting dividend for our shareholders, and because we think these projects will require time to do that properly.

Thank you very much.

Thank you. And our next question comes from the line of Jamie Escribano from Santander. Please go ahead. Your line is now open.

Hi. Good afternoon. So a couple of questions from my side. The first one regarding the regulatory color. So you mentioned that you expect changing the regulation that should normalize the there or should we consign the P&L, the BDA with a cash flow? My question would be if, for example, the 33 million regulatory color that you are accumulating in Q1 plus whatever is accumulated in Q2, with a new regulation, it is contemplated that you cash in this money this year or Maybe you can just explain us better how should we think about the cash flow this year once the regulation is changed.

That would be my question is what you said, according to the next to the text, the concept of the status has served with us. Uh, formally, you know, that we present our ideas and we are going to cash this color. We think on the 3rd quarter or maximum on the 4th quarter. That is why I was saying before that our. cash flow statement is going to improve by 50 to 60 million euros compared to the previous situation.

Just to add something, Simon, just one question, just to make it clear. All the net collar that we have in our accounts until 31st December 23, that will follow the same rules as in the past. It will be included in the RI that will be cashed 26 and onwards. But as you said, all the color generated between 1st January till now or within this year will be cashed, netted within this year.

Okay. Alfredo, can you remind us before December 23 what has been accumulated to know that portion that comes in 2026?

Give me two minutes and I'll come back to you on this. Okay.

And then my second question is if you can elaborate a little bit on the biogenic CO2 opportunity. I know it's still very preliminary, but just to give us some figures because you have talked in the past and it looks like very interesting, but maybe you can elaborate a little bit more. Thank you.

Yeah, thank you very much. In five years time, Biogenic CO2 capsule will become a new source of revenues and EVDA for all our business, as I mentioned before. We are advancing with the engineering process to capture the Biogenic CO2 released by our pulp and biomass power activities. As a leading player in Egea in eucalyptus pulp and biomass energy, Enfe Group annually produces around 6 million tons of Biogenic CO2 in our different businesses. roughly 50% in part and 50% in energy. The biogenic CO2 is a raw material used to produce green fuels in combination with green hydrogen, such as e-methanol or sustainable aviation fuel, SAF. These green fuels will play a crucial role in decarbonizing our economy, with extensive use in marine and oil transport and in the chemical industry. We see a market in the Iberian Peninsula at the south and north-west of Spain between 2 and 10 million tonnes. It's maybe too early now to define exactly how precious is the market in 2030 and increasing very, very rapidly to 2035. We've been actively studying, as I said, the market. And now we are making processes with the engineering and permitting needed to capture and monetize our biogeogenic CO2. We have land available in all our plants but in Pontevedra to have electrolyzers, to have the synthesis and to have the capture of CO2 in Huelva, in Porto Llano, in Merida, in Navia. We have already accessed, with the support of the local administrations, the power for these electrolyzers on the ResElectra Planificación 2025-2029. We have the water needed for these electrolyzers. And we are doing all the engineering, fail 1, fail 2, fail 3, in all these plants to capture the CO2. we will not invest in producing green fuels ourselves. We are talking about major investments, maybe two billions per plant, but we will have everything ready to invite investors to come to our sites to capture or co-capture our CO2 and produce these e-fuels based on all the framework we are organizing. And we think that will give an important value for our company and it will improve the EBITDA of all our businesses in the future. Today, we have offers of 1414 euro per ton of CO2 just on the flu without investing for our site. Then we think that with all these engineering and permitting we are doing, we will benefit even a bit better. Thank you. Jaime.

Yes.

We're talking about 27 million, of which 21 are in the renewable business and six in the coal business.

Okay, perfect. Thank you very much.

Thank you.

Thank you. And once again, to register for any questions, it's a star one on your telephone keypad. And the next question comes from the line of Cole Hawthorne from Jefferies. Please go ahead. Your line is open.

Good afternoon. Thanks for taking my question.

Could I just start off with how you see wood availability in the Iberian Peninsula and if we can support further capacity expansions in pulp or or other end markets in the Iberian Peninsula? Because, I mean, we look up to the Nordics, and it's a challenging market. Ability to add new capacity is limited. You look at either, you know, Central Eastern Europe, including, you know, Poland. We've seen pushback on capacity expansions. So I'm just wondering, you know, how do you think about the Iberian Peninsula and the wood availability in your region?

Thank you. Thank you for your question, Paul. Yeah, we think it's the same all around the globe. Wood is going to be a limited resource. That is why all our growth and all our diversification is not using more wood, as we have said and insisted many times. Remember that we used to have, back in 2018, a very interesting project to produce dissolving pulp at Nadia. At this time, we had all the permits, we had the land, we had the engineering, and we decided to stop. A project of 200,000 tons of dissolving pulp will require a bit more than 1 million tons of wood per year. And today, in Iberia, part producers are importing between two and three million tons per year they are already importing between two and three million tons per year from latin america then we think it has absolutely no sense on a market where there is no good on a market where the wood is expensive because in iberia the market is extremely expensive you will compare with indonesia south africa or brazil or chile or uruguay it has absolutely no sense to invest on a new pulp mill requiring more wood. On top of that, back in 2018, and two years after we took the decision, the regional government of Galicia launched a law called the moratoria, forbidding planting new eucalyptus. The same that Portugal did back in 2016. Today, the population, the society, the ecologists don't want more plantations of eucalyptus. Then, we think that today there is not enough wood for the requirements of today. It has to increase the pulp capacity. You have to take into account that BHKP requires three tons of wood per one ton of pulp. When we are talking about dissolving pulp, it's 70% more. You require at least five tons of wood per one ton of pulp. Then it is a more intensive product in wood per ton of pulp. That is why, in our side, we have developed the FLAF project. It is not an increase in terms of production, it is a diversification. We want to have 50% of our pulp sold as special products with higher margins, not increasing the volume. And that is why we have launched this fantastic project in Aspontes, where we are recovering paper and board from the northwest of Spain and transforming it into recovered paper.

thank you very much thank you and then maybe just to follow up i mean we've seen i mean i think it's like the eighth month in a row now where hardwood pulp prices have been rising and your comments earlier around you know logistics supply disruptions you know while very helpful we we've seen a lot of those supply disruptions actually in softwood pulp so i'm just wondering you know, softwood pulp is probably the one where I would have expected a tighter market and more push for the price. But we're seeing a lot of those price increases in hardwood. And I'm just wondering, you know, what are the demand drivers of pulling through the hardwood and the hardwood price rather than softwood? And maybe could you give a little bit more color on your inventories? You said the inventory pulp supply chain has restocked, but you still expect kind of some of the end market retail restocking in pulp, sorry, in the end products. Was that on tissue, graphic paper? I'm just wondering what end markets you're referring to.

Yeah, yeah, yeah. It is true that the constraints are happening more in saltwood, and surprisingly, saltwood is increasing less than hardwood in terms of price and more slowly. I really don't know why and we are a bit surprised and the fact is that on the first quarter our special products we only were able to sell 19% of the total sales when our target for this year is 25%. We are going to do that on the second quarter and the main reason was because the gap between short fiber and hardwood was slower than normal and we really don't know what is the reason of that. We even don't know why with these strikes in ports in Finland, the long fiber is not increasing more rapidly. We don't know, like you, I don't know the exact reason. What I know is that the market part in Harwood is hot. Customers are demanding more. You have to remember that more or less 70% of the But used in any paper grade, you can do that either with short fiber or long fiber, with hardwood or with softwood, where you are more efficient in some products with one of the two fibers, but 70% can be substituted. And what I suspect is that due to these logistic constraints, we are seeing a bit more substitution and a bit more demand in hardwood. Regarding your question of the stocks, as I said before, and I don't have more further information, but we see now that the PALP stocks are where they should be, because in China and in Europe, customers have been buying. seriously buying on the first quarter, on the first quarter, on the last quarter last year and the first quarter this year. And now what we see and our customers are telling us is the paper retailers who are now, sorry, the paper mills who are buying paper. Then we see that this restocking on the paper industry, the industry thinks we continue this mess up. And on top of that, and it is very important, the final demand is better than last year. Then everything is good. I think that this year is going to be a near normal increase in the final path demand between one and two million tons, like always, with bigger volumes due to these restockings.

Thank you.

Just a final question on the CapEx profile. You've been very clear that you're going to be disciplined and it depends on your leverage and your free cash flow generation. But I'm just wondering how you think about it into 25 and 26 because if poll prices stay where they are now or increase, as you suggested, the Susano hike, your earnings are going to be very good. Your free cash flow is going to be higher. You will have that flexibility to potentially pull forward a little bit more CapEx. So I'm just wondering, yes, you may have the financial flexibility to do more CapEx, but how much can you manage? How much can the NSA project teams kind of do a year? Because even if you have the financial flexibility to spend 150, 200 million of CapEx, Do you have the operational team ability to pull that forward? I'm just wondering, how should we think about that capex so that we can think about how much may be returned to shareholders versus debt paid out?

That is what I tried to say before. We have two constraints. We have our suppliers constraint and our technical team constraint. Now we have all the team dedicated to the FLAS project in Nadia. We have an engineering team working in engineering in the Pontevedra Avanza project in the end of the year. And then we have to invest in Pontevedra phase by phase because we cannot stop the mid-free months. We have to take profit of stops of two weeks per year and then you can do what you can do in two weeks. And as you have mentioned, we have the team we have. Then we will not change dramatically our calendar of investments even if the market is extremely good And we have the money to do that. And I think you have to be proud of this industry. Even if you see everything in a fantastic color, suddenly nobody knows why things change. And then it is important to go step by step and to follow the calendar we already have. And, well, it's easier to give a bit more dividend than to try to invest more in one year. And it has less danger.

Thank you.

Thank you.

Thank you. And our next question comes from the line of Jose Antonio Suarez from Kaiser Bank. Please go ahead. Your line is now open.

Hi. Good afternoon. Thank you for taking my question. I'll take two of them and I'll go back to the queue. First one is relating to the potential EBITDA generation for 2024. So basically you've been mentioning that you see Susanna's price hike going forward, its capacity not coming into the market until year 24. So in this scenario where prices will stand high, you'll see major corrections going forward. Doing some numbers, I've come to figure if you think it should be feasible to achieve for the WBA division 200% million euros of EBITDA in 2024, would you be comfortable with this figure? Do you think it's feasible? That will be the first question.

You know that we never give a great answer for EBITDA, you know.

Yeah, but basically, do you see... I mean, assuming... You're assuming prices of... So, you're basically saying that...

And you also have to decide in which level of dollar you are going to put. But we cannot give that.

Okay, okay, okay. No problem. So going with another question, in terms of discount, what level should we think in the next four years going forward? How do you see the levels going forward in the second and third and the fourth quarter? 41%. So this is 41%. And just a last one. With this strong evolution of your pulp division, especially in the pulp division, the cash flow you will be generating from the changes in the energy regulatory, could you give a little bit more visibility on how Should we think about dividend for 2024? Are we all with more color on that?

Yeah, we will follow our policy and you know what is our policy? Yeah, we will give back to the shareholders everything who allows us to be in part below 2.5 times the debt to the BDA and to pay the committed capex and to do the capex of next year. Yeah, then we see an interesting dividend this year, but I cannot give you now the exact fee. We will pay a pretty short dividend. second quarter and a good division in third quarter, but I will have to wait a bit before the board decides the letter.

Okay, perfect. Thank you very much.

Thank you. And as a final reminder, it is a star one on your telephone keypad if you wish to register for any questions. And as we have no more questions registered, I'll hand back to our speakers. for any closing comments.

Thank you very much. Ladies and gentlemen, we meet again in three months' time. Thank you. Thank you.

This now concludes our presentation. Thank you all for attending. You may now disconnect your lines.