ENCE Energía y Celulosa, S.A.

I would now like to turn the conference over to Ignacio Colmenares, Executive Chairman, and Alfredo Abello, CFO. Please go ahead.

Good afternoon, ladies and gentlemen. Thank you for joining NCES Second Quarter 2024 Results Conference call. Our CFO, Alfredo Abello, 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'd like to start with the main highlights of the quarter on slide six. The pulp price recovery continued during the second quarter, boosted by strong pulp demand growth, low pulp inventories, and pulp supply constraints. Our average net pulp price improved by 127 euros per tonne compared to the previous quarter, and by €150 per tonne compared to the same quarter of last year, up to an average net price of €728 per tonne, boosted by strong part demand and supply constraints. At the same time, we were able to reduce our cash costs by €13 per tonne compared to the previous quarter, and by 60 euros per ton, compared to the same quarter of last year, down to 474 euros per ton, largely due to lower raw material and logistics costs. Both levers contributed to lift our path operating margin by 140 euros per ton, compared to the previous quarter, and by 210 euros per ton, compared to the same quarter of last year, up to 254 euros per ton in the second quarter. We expect to keep a strong operating margin in the third quarter, as I will show you later. Continuing with slide seven, as we anticipated, the new methodology for quarterly updating the cash remuneration of biomass plants was published in June. According to this new methodology, we should sell and cash our energy output at an average regulated price of €115 per MWh. As a result, the former regulatory collar has been eliminated. Our business cash flow generation is now aligned with EBITDA and our cash generation profile has improved. This year, the use of this new methodology will improve our initial cash flow forecast by over 60 million. Let's move on to slide nine, which summarizes our outlook for the past business in the coming quarter. The European PIX price is flattening out at high levels. we only expect a small fall of the PIX price on the third quarter. Take note that our PIX sales represent over 60% of the total. The price of these contracts are based on the PIX price of one or two months ago. That is why we see a high price for a large amount of our sales during the quarter, despite some falls in the sports market. We see a strong average price for the third quarter. At the same time, our cash cost is also expected to stabilize during the third quarter, despite the Pontevedra value bid maintenance shutdown scheduled for September. Both levers will contribute to maintaining a strong operating margin and cash flow generation in the PAL business during the third quarter. On the other hand, our operating costs in the value-added business should continue the downward trend in the coming quarters, contributing to an improved BDA and cash flow generation. As you can see on the following slide, number 10, our shareholder remuneration policy is based on cash generation and on our prudent leverage limit for business. We have approved a first interim dividend against 2024 results amounting to 26 million euros, equivalent to 0.107 euro per share, payable at the 7th of August. The first interim dividend Payment implies 3.4% yield over yesterday's closing price. According to our shareholder remuneration policy, a second interim dividend will be decided by the end of October. I now invite Alfredo to elaborate further on our financial results.

Thank you, Ignacio. Let's continue with the financial performance of our pulse business in slide number 12. The pulse business EBDA was over seven times that of the second quarter last year, reaching up to 61 million euros. When comparing to the same period last year, a 150 euros per ton improvement in average sale prices, together with a 60 euros per ton reduction in cash cost, increased our operating margin up to 254 euros per ton in the quarter. Regarding the 60 euros per ton cash cost reduction, almost 50% is explained by operating improvements in our Ponte Vedra Biomill and the rest by lowering wood, chemicals, and logistic costs. Looking at our first quarter, 24, and as advanced in our previous call, the cash cost also improved by 13 euros per ton In this case, mainly due to lower chemicals, logistics, and fixed costs, among others. As our chairman has already pointed out, the expected stabilization of real sale prices during the third quarter, together with our cash cost level, should result in another quarter of solid operating margins and cash flow generation. Turning now to slide 13, the renewable business EVDA reached almost $5 million in the second quarter, which is 10% above the same period last year. The 24% year-on-year improvement in the energy output, together with a 20% year-on-year reduction in the biomass operating costs, more than offset the lower revenues per milliard hour derived from the elimination of the regulatory core under the new renewable regulations. Last year, renewable regulatory changes increased the average sale price of our biomass plants up to approximately 115 euros per milliwatt hour. This price will be clashing through two components, a regulatory pull price composed by a combination of forward, yearly, quarterly, and monthly pull prices, and an RO for the difference up to the said 115 euros per milliwatt hour prices. The calculation of the remuneration is updated quarterly and liquidated on a monthly basis, thus aligning our cash flow generation with our EBITDA and improving our cash flow generation. This new regulation is applicable as from 1st of January 24. The regulatory score generated after the 31st December 23 will continue to be cashed in in the long term within the RI as with the previous regulation. As our chairman has previously stated, we see an improvement in the renewable business EVDA and cash flow generation in the coming quarters, also due to the reduction of our biomass operating costs. Let's continue in slide 14 with the solid performance of our consolidated results, based on a higher pulp and energy sales and boosted by the improvement in pulp prices and the reduction of our operating costs. Consolidated EBITDA grew by 54 million euros compared to the same quarter last year, reaching up to 66 million, and the net income rose by 40 million euros year-on-year after the 23 million euros. Turning now to slide 15, at the group level, free cash flow was positive by 24 million euros in the second quarter, after including a 12 million euros working capital outflow, driven by higher pulp prices and 10 million euros growth and sustainability capex. The said 12 million working capital increase is sustained by a 27 million working capital outflow in the pulp business, mainly due to the increase in pulp prices, partially offset by a working capital inflow amounting up to 15 million in the renewable business. This last figure includes the no-recourse factoring of part of the RO for biomass plants accrued from January to June 24 under the new methodology for an amount of 35, which will be completely paid by the regulator in the third quarter. Continuing in slide 16, on a consolidated level, net debt was reduced by 44 million euros in the second quarter, down to 279, with a solid cash balance of 281 million euros. On top of the free cash flow generated in the quarter, net debt reduction in the quarter also includes the bridge loan provided to Magnum Green Energy by its shareholders during the second quarter, which is expected to be redeemed during the coming quarter, starting this month of July. Please note that the way we manage Magnum is maximizing cash distribution where possible while at the same time temporarily supporting the company if needed under non-ordinary circumstances. Actually, 2021 and 2022 were years of very strong cash flow in the running of our business due to the high full prices. So we distributed up to 66 million euros to the shareholders, including the last one last year. One of these non-ordinary circumstances occurred during the first semester of 24 when two important events were co-living. The interim period between the end of the previous regulation and the new one, which deferred the collection of 40 million euros coming from the RO, accrued during the first semester, which is not going to be collected until the end of the third quarter. And the recognizing process of Magnum's 111 million euro remaining corporate loan, which could not be launched until the new regulation was published back in June. Until both events happened, the shareholders decided that the appropriate way to temporarily finance the company during this period was through shareholder loans at full market conditions to be repaid in the following quarters. Well, I'm very glad to announce that yesterday, July the 30th, we closed and disbursed 170 million seven and a half year term loan facilities. was a 20 million RCF among 14 banks and institutional investors extending its financial maturity until January 2032. The new facility qualifies as green financing and it has no recourse to the prime company or the renewable business. The use of these proceeds are the refinancing of the previous facility as well as the repayment of shareholder loans among other CAPEX and corporate purposes. Actually, 25 million are being distributed today to man-owned shareholders as part of the above-mentioned shareholders' bridge loan amortization and interest payments. This, again, evidences the confidence and support of the financial community in the operation and development of our biomass energy business. The solid cash flow generation expected during the second half of the year should allow us to end the year with a lower net debt figure, even after the planned growth capex and dividend payments. Let's turn now to slide 17. I would like to conclude my section emphasizing once again ENFES' continued and exceptional sustainability performance. We are a leader in sustainable forestry, circular economy, social commitment, gender equality, and corporate governance. Our best practices have been recognized by independent ESG agencies and indexes. In its latest study, Sustainalytic has confirmed MENCE for the fourth consecutive year as the most sustainable player in the global oil market. We have also been awarded the EcoBuddies Platinum Medal, the highest rating awarded by this platform. And we remain members of the prestigious FTSE for Good Index, since 2021, and the IBEX ESG and IBEX Gender Equality Indexes. Let me now give the floor back to our Chairman and CEO to update you on our growth and diversification projects.