ENCE Energía y Celulosa, S.A.

Good morning, ladies and gentlemen. Welcome to the NCEA third quarter 2024 results presentation. I will now hand the call over to Mr. Ignacio Colminades, Executive Chairman and Alfredo Avello, CFO. Gentlemen, please go ahead.

Good afternoon, ladies and gentlemen. Thank you for joining NCEA's third quarter 2024 results conference call. Our CFO, Alfredo Avello, and our head of IR, Alberto Valdez, are also connected to this program. 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. A strong operating margin of €190 per tonne in the quarter. Hardwood palm prices in Europe declined by over 20% from their peak in July driven by pulp destocking in China and the start of new capacity additions. European hardwood pulp reached a gross price of $1160 per tonne in October, equivalent to a net price of around €650 per tonne. Our average net selling price during the third quarter was €679 per tonne. This is €200 per tonne more than the net price registered during the same quarter last year and €49 per tonne less than that of the previous quarter. At the same time, our cash cost increased slightly to €489 per tonne. This is €5 per tonne more than in the same quarter last year and €15 per tonne more than that of the previous quarter, mainly due to higher wood costs in the context of high farm prices. Continuing with our operating performance on slide 7, I would like to highlight two things. Pulse production in Ponte Vedra increased by 36% compared to the same quarter last year, up to 93,000 tons, despite its annual maintenance shutdown during the quarter and severe drought during the summer. The new water effluents recovery solution resulted in a close to 50% reduction in the means water consumption in August and September, allowing it to operate normally during this period while complying with the ecological river water level. This is an important milestone that significantly improves the resilience of this volumin during dry periods. Moreover, we expect to receive the concession and the environmental permit to recycle the water from the adjacent city trading plant in the coming quarters. We had an incident in Nadia's cogeneration turbine during September. It does not affect our power production. However, it requires temporary higher energy purchases to compensate for our reduced energy cogeneration. This implies an extra cost of 1.7 million, which is included in our third quarter operating results. This incident is expected to be resolved at the end of the first quarter of 2025. Extra costs of approximately $6 million are expected in the fourth quarter 2024 and $5 million in the first quarter 2025. Note that these are one-off costs and are not included in the cash cost figure and will be offset by other one-off positives. Continuing now with slide number eight. Our ENCE advanced pulp sales accounted for 22% of our total pulp sales during the first nine months of the year, despite the annual shutdown of Ponte Venda. These products deliver higher margins than our standard pulp, as they are better adapted to replace softwood pulp, which is more expensive. These products deliver an extra margin of about 30 euros per tonne during this period and imply a 7 euro per tonne improvement in our average sales price. The higher the price gap between hardwood pulp and softwood pulp, the more we sell our ENCE advanced pulp products. We expect these products to continue gaining market share during the coming years reaching 30% of our total park sales next year, in 2025, and 50% by 2028. Turning now to slide number nine. Our renewable business EBITDA doubled up to 9 million in the third quarter, driven by a more normalized energy output, lower operating costs, as well as a higher regulated price. Let's move now to slide 11, which summarizes our outlook for palm prices. We believe that prices may begin to bottom out soon over the next two or three months. Net hardwood palm price has already stabilized in China at $560 per tonne. I expect hardwood palm price in China to recover from here due to fiber substitution supported by a US$200 net price gap with softwood pulp and a US$400 net price gap with dissolving pulp. Additionally, several softwood and hardwood pulp producers have already announced market-related production constrainments and swings to dissolving pulp for a total amount of over 1 million tons during the next few months. which will help rebalance the market. Besides, net BHKP prices are already at the marginal production cost level of integrated producers in China, which is currently producing around 5 million tons annually, incentivizing a strong market part demand.

As you can see in the following slide number 12,