ENCE Energía y Celulosa, S.A.

Good morning, ladies and gentlemen. Welcome to the NCES 2024 results presentation. I will now hand over to Mr. Ignacio Colmenares, Executive Chairman, and Alfredo Abello, CFO. Gentlemen, please go ahead.

Good afternoon, ladies and gentlemen. Thank you for joining NCES 2024 results conference call. Our CFO, Alfredo Abello, and our head of IR, Alberto Valdez, are also connected to Discord. After the presentation, we will be pleased to answer any questions you may have. Park prices bottomed out in the fourth quarter, as you can see on slide six. Hardwood park demand reached a new record high in the fourth quarter, and producers' inventories ended the year at low levels. On the supply side, The bankruptcy in November, 2024 of a major integrated chain is part and paper producer is now generating a bulk supply gap of over 200,000 tons per month. Additionally, there are hardwood part conversions and significant downtimes settled for the first quarter. This tight part supply demand balance is driving part prices higher. the European pulp price recovered by $100 per ton for order placed in January and delivered in February. In February, we implemented a second price increase of $60 per ton for March deliveries. And we are now implementing a third price increase of another $60 per ton for April deliveries up to $1,220 per ton. I expect Further part price increases in the short term. In the mid-term, part demand growth is expected to continue at healthy rates, boosted by tissue and packaging segments. Furthermore, there are no significant market part capacity additions expected in Latin America until 2028, supporting a positive outlook for part prices in the coming years. Industry experts have increased their pulp price forecasts for the next three years, up to an average of over $1,450 per ton in 2027. The record price gap with softwood pulp is strengthening demand for our ENCE advanced pulp, which accounted for 23% of total pulp sales in 2024 as you can see on the next slide, number seven. These products deliver higher margins than our standard pulp, as they substitute softwood pulp, which is far more expensive. We achieved an extra margin on these products of close to 30 euros per ton during 2024, improving on our average sales price by seven euro per ton. This extra margin increased the pulp business EBITDA by over 7 million in 2024. We expect these products to continue gaining market share, reaching 30% of total pulp sales in 2025 and 50% by 2028, without including our expected flash pulp sales. Our first line to produce up to 125,000 tons of FLASPALP and NAVIA is on track to deliver higher operating margins as from the fourth quarter 2025, as you can see on slide eight. This is an innovative project that has generated a lot of interest among our clients in Europe who are currently importing FLASPALP from North America based on sawdust which is more expensive. Our flash pulp will be based on eucalyptus and will be very competitive. On the basis of today's flash pulp prices, it will deliver an extra margin of around €60 per tonne compared to our standard pulp. This extra margin should allow us to improve the Pulse Business EBITDA by over 7 million per year when fully ramped up. The estimated capex amount to 13 million in 2024 and 2025, and we expect to achieve a return on capital employed of above 15%. As part of our diversification strategy, We have developed a portfolio of renewable packaging solutions capable of replacing plastic food trays. We have already homologated a food tray with a number of important clients in Spain, and we plan to commission a first line in Nadia during the third quarter 2025, capable of producing up to 12 million trays per year. We want to start serving the market as soon as possible while building an independent plant elsewhere with an initial production capacity of 40 million units and with the possibility of scaling it up in the future. We expect this new plant will be ready by the end of 2026. The total estimated investment amounts to 12 million euros. This project has a huge growth potential and very attractive returns. The expected return on capital employed on this project is well over 15%. Continuing with slide nine, let me update you on our efficiency and growth in the pulp business. Firstly, we plan to reduce the cost of our pulp mills by replacing fossil fuel at the lime kins with cheaper recovered methanol and biomass. We are already using recovered methanol in Navia, and we have launched a project to use biomass. This project will allow us to reduce Navia's cash cost by 13 euros per ton, one three, and reduce its scope emission by close to 60%, scope one. Note that all our sustainability projects entail a significant improvement in competitiveness. The expected cash cost reduction in NADIA should improve the PALP business EBITDA by 8 million. Estimated investment amounts to 35 million, with an expected return on capital employed above 15%. We have already been awarded grants of 13 million for this project, which have been deducted from the estimated CAPEX figure and which will be collected once the project has been finalized by the second half of 2026. Secondly, we have an integral project to boost Pontevedra's efficiency and flexibility. We envisage a very competitive biomass specialized in high-margin products. We will finish the engineering for Pontevedra Avanza project this year. That will allow us to close the budget, confirm our cash cost reduction targets, and take an investment decision. This project should allow us to improve the pulp business EBDA by 20 million by reducing Pontevedra's cash cost by 50 euro per ton, by improving its flexibility to use different wood species, and by continuing to upgrade its production from standard pulp to ENCE advanced pulp. The initially estimated capex in this project in this project amounts to 120 million over the next five years with a required return on capital employed of over 12%. Finally, we continue to make good progress with the engineering and permitting of the Aspontes project for the production of bleach recycled pulp for paper, textiles, and bioproducts. We have recently reached a historic milestone We've been able to recover cotton fibers in blended garments using an innovative technology from our Swedish partner Certex. As Pontes will be a fully circular plant based on the recovery of paper, board and textile fibers. It will be 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 previously occupied by a thermal coal plant. For all these reasons, the project completed the public information process without any social opposition. We have presented it to the Decarbonization Program for Greenfield Projects and to the European Next Generation Funds and we are expecting a grant of up to a maximum of $30 million. Note that none of the investments I have described will require more wood. The Iberian pulp industry is already importing over 2 million tons of wood annually from Latin America, which is an increasingly scarce resource both here and there. Turning to slide 10, I'm glad to announce that this month, we sold energy saving certificates equivalent to 191 gigawatt hour for 30 million net. They are expected to be cashed and registered as revenue in the first quarter 2025. This sale is a result of our continued efforts to create shareholder value to efficiency improvements at all our plants. We are working on further energy efficiency actions to achieve more certificates during 2025 and beyond, though we don't expect them to be as substantial as those already achieved. Turning now to slide 11, I would like to highlight the acquisition of a conventional biomethane plant in December at the price of 17 We signed a 15-year agreement with one of the largest oil and gas companies in the world for the sale of the biomethane produced by the plant with its corresponding sustainability certificates. And in January, we signed a project financing for the acquisition and plant investments in the plant. As part of the plant business plan, We aim to invest $7 million in 2025 and 2026 to adapt the plants to our unique business model to transform local agricultural biomass and livestock manure into a biofertilizer with multiple benefits and without disturbing the local communities. Firstly, we are eliminating odors and adapting the biomass transportation routes to avoid the tracks passing through nearby villages. Secondly, we want to upgrade the plant's waste, the digestate, into a high organic fertilizer, which will not nitrify the soil. Finally, we will boost the plant biomethane production up to the targeted 50 gigawatt hour per year, improving the process and eliminating production bottlenecks. These investments will allow us to improve the plant's annual EBDA from close to 2 million expected in 2025 to over 4 million expected in 2027. The acquisition of this plan is an important and strategic milestone that enables us to fast track the development of a large biofertilizer and biomethane platform in Spain and to showcase the added value by our respectful and circular business model. This plant will be our shop window to the communities where we are developing other projects. As you can see on the following slide, number 12, Encebiogas already has a portfolio of 28 biofertilizers and biomethane projects in Spain which already have land secured and feasibility studies. 16 of these projects are already advanced in the permitting phase, and we expect five of them to be ready to build during 2025. On top of these, we are working on another 12 projects, which are at an earlier stage of development. We plan to build these plants with EPC contracts using non-recourse project financing, but by long-term PPAs, like we did at La Gareza. Our initial goal is to generate over one terawatt hour per year and to contribute over 60 million to EBDA by 2030. However, if we consider all the projects that we are developing, we could reach up to four terawatts per year. Let's continue with the progress of our biomass thermal energy business on slide 13. There is an opportunity to generate more competitive renewable thermal energy with biomass to help decarbonize the Spanish industry and get an attractive return for both our customers and us. Through our subsidiary, Magnum Servicios Energeticos, we signed our first OIM contract last year with a major industrial company in the food and beverage sector in Spain. At the end of 2024, we signed a second contract with a leading company in the brewing sector in Spain for the installation of two boilers at one of their facilities and for the supply of 85 gigawatt hour biomass thermal energy per year with a 15 year term. The commissioning of these boilers is expected is expected during the first half of 2026 with a planned investment of 12 million and an expected contribution to EBITDA of over 2 million. This investment already excludes a 4 million subsidiary granted by the European Next Generation Fund already cashed. We are working on another 13 projects with an important industrial companies in the food and beverage and chemical industries in Spain to provide them with renewable thermal energy. We are negotiating in exclusivity in four of these projects, and we expect three of them to be ready to build during 2025. As in the biomethane business, we plan to build these biomass thermal plants using EPC contracts and non-recourse project financing backed by long-term PPA, like we are doing. The aim of Magnum Servicios Energeticos is to produce 2 terawatt hour per year of renewable thermal energy by 2030 and to contribute over 40 million to EBDA. I now invite Alfredo to elaborate further on our 2024 financial results.

Thank you, Ignacio. Let's continue with the financial performance of our pulp business in slide 15. The pulp business EBDA increased in 2024 by three times up to 138 million euros, pushed by higher pulp prices and lower cash cost. The average sale price improved by 69 euros per ton up to 647, while the average cash cost improved by 32, down to 493 euros per ton. despite its increase in the fourth quarter due to temporary factors. These temporary factors were mainly related to a smaller contribution from the sale of surplus energy after the acquisition of the necessary one at market prices following the shutdown of the co-gen turbine in Navia, the unexpected lower grants received from the Ministry of Industry related to offsetting CO2 emissions, and to higher chemical costs following a temporary force majeure stoppage ended within the fourth quarter at one of Spain's largest caustic soda producers. Having said that, know that chemical costs are already normalizing during the first quarter. We also expect normalized ground levels in 2025, and Navia's co-chain turbine will restart in mid-May 2025. Altogether, Our operating margin reached a solid over 154 euros per ton in 2024, which is almost doubling that of 2023. Finally, pile production reached 997,000 tons in 2024, compared to 975,000 in 2023, driven by the strong operating performance of Pontevedra. The new water recovery solution at Ponte Vedra resulted in a close to 50% reduction in its water consumption during the summer, allowing it to operate normally during dry seasons. This is a very important milestone that significantly improves the resiliency of our biomills during dry periods. Turning now to slide 16, a BDA coming from the electricity generation of our biomass energy business increased by 50% in 2024, up to 32 million euros, pushed by higher generation volumes and lower operating costs. The volume of electricity sold in 2024 reached almost 1.2 teras, an increase of 23% from the previous year, which was affected by lower pool prices under the former regulation. Remember that a new methodology for updating quarterly The remuneration of biomass plants was published back in June 2024, with retroactive effects as of the 1st of January of that year. The average sale price recognized for biomass plants is approximately 115 euros per megawatt hour and has two main components. A regulatory pull price, which is estimated by the regulator using a basket of forward prices for the following quarters. and an RO for the difference up to the set 115 euros per milliard hour price. On top of these components, we still receive the remaining RI. It may happen that the real market pull price in each quarter may differ from that estimated by the regulator to the basket of forward prices. Under the old methodology, this difference was compensated through the regulatory color. that this color has now been eliminated. Therefore, in order to mitigate such risk, we're establishing a hedging policy that basically replicates the formula used by the regulator to estimate the regulatory pool price, now covering up to 40% of our estimated energy sales. Biomass operating costs were 24 euros per megawatt hour lower in 24 than in 23 due to lower biomass costs and a higher fixed cost dilution on the back of the higher energy generation. This cost reduction trend should continue in 2025. We expect lower operating costs this year as a result of higher biomass availability at lower prices and higher fixed cost dilution. Finally, the Renewable Business Consolidated EBITDA was 26 million euros in 2024. This is lower than in 2023 which included a positive contribution from other renewal business of 20 million euros, mainly related to the sale of two PV projects in the first half of that year. Also, as you know, we are starting to develop other renewal businesses, which reduced 2024 EBITDA by 6 million euros. This figure includes a 2 million euro impairment of our PV projects during the fourth quarter. We expect the contribution from the new businesses to improve in 2025, following the acquisition of La Galera plant in December. Let's continue in the slide 17 with the solid performance of our consolidated results in 2024. Group revenue grew by 47 million euros year on year, up to 876 million euros, and our consolidated EBDA improved by 76 million euros, up to a solid 165. This is almost two times higher than in the previous year. Finally, the group profit increased by 57 million euros up to 32. Turning now to slide 18, consolidated free cash flow before changes in working capital and growth capex reached 101 million euros in 2024. Changes in working capital implied a cash flow of 66 million euros in 2024. 37 of these were due to higher power prices and inventories, and 29 was related mainly to a higher RO of our biomass plants as a result of the new methodology approved back in 2024. Growth and sustainability capex reached 64 million years in 2024, with half in each of our two businesses. As our chairman highlighted earlier, We acquired a conventional biomethane plant in December 24 for 17 million years, which we aim to adapt to our unique business model, transforming local agro-biomass and livestock manure into a biofertilizer without disturbing the local communities. On top of this, we're developing another up to 40 biofertilizer and biomethane projects and 14 renewable industry thermal energy projects. with the aim of more than doubling the renewable business EBITDA over the next five years. In the pulp business, we are building our first line to produce fluff pulp in Navia, which will be commissioned in the fourth quarter of 2025. We also expect to start first line to produce pulp-based food trays in the third quarter of 2025. All the investments in 2024 were mainly related to the engineering of Navia's cash cost reduction and decarbonization project, which has already been launched and to the engineering of Ponte Verde Avanza and Asponde's project. Continuing with the slide 19, our consolidated net debt was 321 million euros at the end of 2024, including IFRS 16 lease liabilities. This figure implies a low leverage ratio of just 1.8 times the group average cycle EBITDA. Small year-on-year net debt increase includes the payment of $34 million to our shareholders, which implies a 5% dividend yield. Remember that our dividend policy is based on the cash generated in each business and takes into account the leverage level and our capex plans and commitments. Our strong balance sheet and expected cash flow generation should allow us to achieve our growth and diversification goals with maintaining a prudent leverage and an attractive shareholder remuneration. As you can see on the slide number 20, we closed the year with a strong liquidity position. This amounted to a consolidated 287 million euros with long-term maturities in both businesses and no covenants in the fall business. Note that this liquidity position does not include the revolving credit facilities, which amount up to 130 million euros in the top business and 20 in the renewable business, and which remain fully available. In July 24, we refinanced Magnum through 170 million euros, seven and a half year term loan facility, including this 20 million RCF among 14 banks and institutional investors, extending its final maturity until January 2032. This is a new facility. It's ring-fenced to Magnon and has no recourse to the parent company of the renewal business. The proceeds were used to refinance the previous facility, to repay certain shareholder loans, and for other CAPEX and general corporate purposes. We reached this important milestone thanks to our prudent leverage policy which allowed us to cope with the temporary cash imbalances created by the former regulation. It is also an evidence of the financial community's confidence in the operation and development of ENCEF and our biomass energy business. Finally, in January 2025, ENCEF Biogas signed a green project financing loan for the acquisition of La Galera conventional biomethane plant for a total of 20 million euros. This facility will be used to finance the acquisition of the plant, as well as the planned CAPEX investments aimed to adapt it to our previously explained business model. Let's turn now to slide 21. I would like to conclude my section emphasizing once again ENFES' continued and exceptional sustainability performance. We are leaders 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 2024, Sustanalytics confirmed EMCEP for the fourth consecutive year as the most sustainable player in the global poll market, having raised our overall ESG performance score up to 93 points out of 100. We have also been awarded the EcoBodies 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 hand back now the floor to our chairman and CEO. Thank you, Alfredo.