ENCE Energía y Celulosa, S.A.

Good morning, ladies and gentlemen. Welcome to the NSAQ-1 2025 results presentation. I will now hand over to Mr. Ignacio Colmenares, Executive Chairman, and Alfredo Alvello, CFO. Gentlemen, please go ahead.

Good morning, ladies and gentlemen. Thank you for joining NSAQ-1 2025 results conference hall. Sorry for the small delay, but as you can see, we have a light problem on the presentation. You are going to see some paragraphs in red. We don't know why. We've been trying to correct that, but we haven't been able. Our CFO, Alfredo Avello, and our head of IR and M&A, Ines Alvarez, are also connected to this call. After the presentation, we will be pleased to answer any questions you may have. The date... Pulp supply demand balance drove prices higher in the first quarter, as you can see on slide six. Pulp prices bottomed out in December. Since then, the European hardwood pulp price has rebounded by 21% to $1,218 for orders placed in March and delivered in April. Demand for market pulp continued to grow in the first quarter driven by China, with a 5% year-on-year increase to February. The record price differential with softwood pulp is boosting demand for hardwood pulp. Hardwood pulp demand was up 7% year-on-year to February. On the supply side, pulp producers' inventories remain relatively low at 40 days. Moreover, the bankruptcy of a large integrated Chinese pulp and paper producer has created a paper supply gap, and the major Brazilian mill continues to switch from hardwood to dissolving pulp. I believe that this tight pulp supply demand balance should continue to support strong pulp prices, despite the short-term turbulence caused by the US tariffs In the medium term, pulp demand growth is expected to continue at healthy rates, driven by tissue consumption, while no significant market pulp capacity additions are expected in Latin America until 2028, supporting a positive outlook for pulp prices in the coming years. Industry experts continue to forecast and improving price outlook, with average hardwood part prices of over $1,400 per ton in 2027. Turning to slide seven, it is worth noting that virtually all of our sales are generated in Europe, where we have a significant competitive advantages in logistic and customer service, making us more resilient to rising trade tariffs elsewhere. Our pulp is mainly used to make basic and resilient consumer products, such as tissue paper and hygiene products. Almost all our wood consumption is sourced locally. Our chemicals are also locally sourced or imported from Western Europe. Our pulp mills are energy self-sufficient. They generate, as you know, of renewable energy, which is sold to the national grid at a regulated price. Similarly, 100% of the biomass used in our renewable business is sold locally, and the energy produced is sold also on the national market. Continuing with slide eight, our ongoing FX hedging policy will allow us to mitigate the impact of a weaker dollar. As you can see in this slide, we have secured an average gap of $1.09 for almost 50% of our expected pulp sales in 2025. Turning to slide 9, the record price gap with softwood pulp is strengthening demand for our ENCE advanced pulp. which accounted for 35% of our total pulp sales in the quarter. These products deliver higher margins than our standard pulp, as they substitute solid pulp, which is more expensive. We expect these products to continue to gain market share, reaching 50% of our total pulp sales by 2028, excluding our expected fluff bulb sales. We expect these products to generate an additional margin of almost 30 euros per ton, including our average sales price by 15 euros per ton and our EBITDA by 15 million by 2028. Continuing with slide 10, our first line to produce up to 125 1,000 tons of fluff pulp at Navia is on track to start up in the fourth quarter. Fluff is a special absorbent pulp used mainly in hygiene products such as sanitary towels, nappies, and feminine care products. Today, it is mainly produced in the U.S. We are the first in Europe to produce it using more economical eucalyptus pulp replacing the more expensive softwood fluff pulp. Our new line has attracted plenty of interest from several potential customers. We are now targeting an accelerated ramp up in 2026. Fluff pulp has traded at an average premium net of commercial discounts of over $300 per ton of hardwood pulp over the last five years. We expect our flash pulp to deliver a net extra margin of over 60 euros per ton over our standard pulp. This extra margin should allow us to improve the EBITDA of our pulp business by over 7 million when fully ramped up. Together, our ENCE advanced pulp and our flash pulp will account for more than 60% of our total pulp sales by 2028, with an additional margin of 22 million per year. Turning to slide 11, as previously announced in February, we sold 191 gigawatt hour of energy saving certificates for 30 million euros net. They were cashed in and reported and other operating income in the quarterly results of our PALP business. This sale is the result of our continued efforts to create shareholder value through efficiency improvements at all our plans. We are working on further energy efficiency measures to achieve more certificates during 2025 and beyond, though we don't expect them to be as substantial at those already achieved. Turning now to slide 12, I would like to highlight the positive performance of La Galera biomethane plant in its first quarter under our management. We acquired the plant last December, and it has already improved its biomethane production by 67% in the first quarter compared to the previous one. We have started to adapt the plant 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 others 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-quality organic fertilizer. We aim to produce and sell 20,000 tons of our biofertilizer in this plant as from 2027. Finally, we are boosting the plant biomethane production up to the targeted 50 gigawatts per year by improving the process and eliminating production bottlenecks. These improvements will allow us to increase the plant's annual EBDA from over 1 million expected in 2025 to over 4 million expected in 2027. The acquisition of this plant is an important milestone that enables us to fast track the development of a large biofertilizer and biomethane platform in Spain and to showcase the value added by our respectful business model. This is the plan model that we will be showing this year to the communities where we are developing our other projects. As you can see on the following slide, number 13, we have a portfolio of 32 biofertilizer and biomethane projects in Spain, which already have land and feasibility studies 16 of these projects are already well advanced in the permitting phase. We expect 10 of them to be ready to build during 2025 and 2026. On top of this, we are working on other 16 projects which are at an earlier stage of development. We plan to build these plants with EPC contracts. using non-request project financing backed by long-term PPAs, as we did in La Galera. 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 over three terawatt hour per year. Let's continue with the progress of our biomass thermal energy business on slide 14. There is an opportunity to generate more competitive renewable thermal energy with biomass to help decarbonize the Spanish industry at an attractive return. Through our subsidiary Magnum Servicios Energéticos, we signed our first O&M contract in 2023 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 the facilities and for the supply of 85 gigawatt hour of biomass thermal energy per year with a 15 year term. We have already started work to launch the service in the first half of 2026 with an expected contribution to a BDA of over 2 million annually. This project is our second step in the creation of a renewable industrial heating platform in Spain, as you can see the following slide, number 15. We are now working on another 13 projects with important industrial companies in the food, beverage and chemical industries in Spain to provide them with renewable thermal energy. We are in exclusive negotiations for three of these projects which are expected to materialize this year. 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 PPAs. The aim of Magnum Servicios Energeticos is to produce two terawatt hour per year of renewable thermal energy by 2030 and to contribute over 40 million to the BDA. I now invite Alfredo to elaborate further on our first quarter financial results.

Thank you, Ignacio. Let's continue with the financial performance of our appalled business in slide 17. our public and CPTA attained 28 million euros supported by the 35% sales rate of ENCE advanced products with higher margin sold in the quarter. The 11 euros per ton cash cost reduction compared to the previous quarter as the temporary factors which affected our cash cost in the fourth quarter of last year began to dissipate as guided in our previous goal. The sale of energy saving certificates for a net amount of 30 million euros, coming from our continuous effort in improving energy efficiency in our operations, and the gross power price increase from the loss of $1,000 per ton to the current $1,218 per ton now in April. This 28 million euro CPTA figure is in line with the same period of 2024, despite the low production and sales as a consequence of the different calendars for the yearly maintenance shutdown at Navia, which was planned for March this year, while in 2024 took place in the month of April. The absence of the cogeneration turbine at Navia had a one-off cost impact of 8 million euros in the quarter, and repairing plans to restart its operating operation continued for mid-May. We also keep on expecting annual pulp sales above one million tons for 2025. Turning now to slide 18, let's talk about our renewables energy platform. As you know, our renewables energy platform is being developed over four main business verticals, all linked to our main base core activity and strong operating know-how. the collection and management of different kinds of biomass and its transformation into non-conventional renewable energies. These four main verticals are, firstly, our traditional business of biomass into regulated energy, currently operating 266 megawatts. Secondly, our energy services business, aiming to decarbonize the Spanish food and beverage and chemical industry, through providing efficient non-fossil thermal energy, currently managing energy service for one of the biggest Spanish breweries under the construction process of a second one and in the final negotiation phase of another three contracts. Thirdly, the production of biofertilizers and biomethane from agroforestry and livestock biomass, a cooperating 50-megawatt plant recently acquired in December last year, And fourthly, we are taking first steps for the capture and valorization of the biogenic CO2 produced in our plants towards our potential contribution into the e-fuels industry. All these four verticals also enjoy from very sane and credible pipelines. Now, focusing in our traditional biomass into regulated energy business, the CABDA was 6% higher than that in the same period of last year, attaining 7.3 million euros compared to 6.9. When comparing to the previous quarter, the 1.7 million difference is mainly explained through the planned annual maintenance stoppages carried out for 70% of our installing capacity during the first quarter in the expectancy of lower biomass costs in the coming quarters. This planned annual maintenance resulting in 12% lower energy volume sold compared to the previous quarter. However, this volume is still 19% higher than in the first quarter of last year. Remember that our new methodology for updating quarterly the remuneration of biomass plants was published back in June 24 with retroactive effects as of 1 January 24. The average sales price recognized for our biomass plants in 2025 is approximately 117 euros per milliwatt hour and has two main components. Our regulatory pull price, which is estimated by the regulator using a basket of forward prices, and RO for the difference up to the set 117 euros per milliwatt price. And on top of these two components, we still receive the remaining RI, which for the quarter was 6.4 million euros. It may happen that the real market pool 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 collar, but this collar has now been eliminated. In order to mitigate such risk, we have established a hedging policy that replicates the formula used by the regulator to estimate the regulatory pull price, currently covering up to 40% of our estimated energy sales for the quarter, and ending in a net positive impact of 2.7 million in the first quarter, including 1.5 settlement from these hedges. Net operating costs were flat in the year, year on year, at 16 years per megawatt higher than in the previous quarter due to higher fixed cost derived from the set plant maintenance shutdowns carried out in the quarter. We continue to expect higher energy generation and lower operating costs in 2025 as a result of higher fixed cost dilution and lower biomass costs. When analyzing the full renewable business, including all four verticals, Consolidated EBITDA was 6 million euros for the quarter. This is some 10% lower than in the first quarter of last year, which included 0.7 million euros positive contribution from the sale of a 10 MW PB project. The other three renewable businesses verticals had an impact of 1 million euros of EBITDA in the first quarter due to its earlier stage of development and lower fixed cost delusions. Let's continue in slide 19 with our quarterly consolidated results. Although group revenues were lowered by 17 million euros year on year, our consolidated EBITDA was just one million euro lower at a solid 34 million euros. This is 22 million higher than in the previous quarter due to the sale of energy saving certificates coming from our energy efficient efficiency projects in the fall business. Finally, the group profit reached 2 million euros in the quarter, 1 million euros less than in the first quarter of last year, and 12 million more than in the previous quarter in 2024. Turning now to slide 20, consolidated free cash flow before working capital variation and growth CapEx reached 20 million euros in the quarter. Working capital implied a cash outflow of 8 million, mainly driven by the increase in wood inventories related to Navia's planned maintenance shutdown in March. Growth and sustainability capex amounted to 11 million euros in the quarter. 8 million coming from the pulp business, mostly related to our first fluff pulp line, our first recycled molded fiber packaging line, and to decarbonization and cross-cutting project in Navia. Regarding our renewable business platform, we invested 4 million euros concentrated in our recently acquired conventional biomethane plant in La Galera to improve its performance and round out its process for the future production of biofertilizers. Also, we continue with development of our biofertilizer and renewable industrial heating verticals in Spain. Continuing with the slide 21, our consolidated net debt level was 331 million euros at the end of the quarter, including 61 million under IFRS 16. This is 10 million euro higher than at the end of 24. $5 million is explained by the free cash flow, another $5 million by leases increased under the IFRS 16 in the power business and the provision of interest in the renewable business. The figure implies a low leverage ratio of just 1.8 times the group average cycle ABDA. We ended the quarter with a strong liquidity position amounting to a consolidated €316 million with long-term debt maturities in both businesses and no covenants in the PAL business. Note that this liquidity position does not include the revolving credit facilities amounting to €130 million in the PAL business and €20 million in the renewable business and which remain fully available. Also, a non-recourse green project financing facility for the acquisition and plan investments at La Galera plant was closed in January for a total principal amount of 20 million and a final maturity in June 2037. Let's turn now to slide 22. I would like to conclude my section emphasizing, once again, ENFES continued an 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 industries. We have been ranked by Sustainalytics as the most sustainable player in the global crop industry for four consecutive years. We have also been awarded the EcoBodies Platinum Medal the highest rating order by this platform, and we remain members of the prestigious Food Sheet for Good Index since 2021, and the IBEX ESG and IBEX Gender Equality Indexes. Let me hand back now the floor to our executive chairman, Ignacio de Cunha.

Thank you, Alfredo. Let me conclude with our outlook for 2025 and some closing remarks. Regarding the outlook for 2025 on slide 24, I would like to highlight the following. Pulp prices bottomed out in December. Since then, the European pulp price has rebounded by 21% to $1,218 per ton in April. Virtually all of our sales and all of our sourcing of raw materials are done in Europe, making us more resilient to rising trade tariffs elsewhere. Our ongoing FX hedging policy will allow us to mitigate the impact of a weaker dollar. We expect the cash cost reduction to continue during 2025. Our first fluff pulp line is on track for startup in the fourth quarter. We will start the production and sale of our renewable packaging solutions later this year. Let me finish now with some closing remarks on slide 25 before we move to the Q&A session. Industry experts continue to forecast and improving price outlook, with estimated average hardwood pulp prices of over $1,400 per ton in 2027. Our higher margin and value-added pulp sales are expected to exceed 60% of the total by 2028, including both our ENCE advanced pulp and fluff pulp sales. delivering over 22 million of additional margin. We are building a large biofertilizer and biomethane platform in Spain, which aims to produce over one terawatt hour by 2030 and contributes over 60 million to EBITDA. Our thermal energy business is developing well. aims to produce 2 TWh by 2030 and contribute over 40 million to EBITDA. Reaching these goals should allow us to more than double the renewable business EBITDA over the next five years, whilst the transformation of ENCE into a producer of special pulp will significantly improve the business operating margin. that the execution of these projects will be adapted and aligned to our cash flow generation to maintain a prudent leverage and an attractive remuneration for shareholders. Thank you for your attention. We will be pleased now to hear any questions you may have.

Thank you. And ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press the star one on your telephone keypad. You will have the opportunity to ask all the questions that you may have. We kindly ask you to ask only one question at a time to our speakers instead of asking multiple questions at the beginning. And once again, please press the star one to register for a question. One moment, please, for your first question. And your first question comes from the line of Cole Hawthorne with Jefferies. Please go ahead.

Morning. Thanks for taking the question. Can I just start off with your views on pulp near term? I mean, you've been quite clear medium term around supportive supply and demand until 2028. But on the short term, we've got a lot of trade uncertainty and we've seen cuts to import prices increase. in China as well as the resale price levels come down a fair amount. I'm just wondering how you see Europe versus China price gap developing over the next three to six months. Do you think that the European index prices or net prices might be able to maintain a premium versus China net prices? Thank you.

Yeah, thank you very much, Claudia. I do think that the European market will keep a premium over the international market. The situation in China is very different to the situation in Europe today. It is true that the impact, the mathematical impact of the tariffs in the part of demand in China is minor because the The volume imported from China to the States in paper is below 1 million tons, 400,000 tons of tissue paper, and 500,000 tons of packaging. Then, well, if China loses this market of 1 million tons, it is not a big volume. compared to the total size of the industry of the paper and pulp industry in China, where just the market pulp is over 30 million tons. But in the other hand, U.S. exports paper as well to China. U.S. exports almost a million tons also of packaging products to China. Well, we see that China will try to export those products to other countries. China may lose a small part of this volume. And on the other hand, in pulp, as you know, China is not exporting to the US nor to the rest of the countries. And the states are exporting pulp to China. They are exporting 1 million tons of fluff per year to China. Well, I think that's an opportunity for the producers of pulp in Scandinavia, in Brazil, and if the tariffs keep on to ENFE at the end of the year. Then we see today there is a lot of uncertainty in China, but if you take data and mathematics, the impact in the pulp and paper industry in China is very limited. And as I was saying before, well, more than 70% of what we produce goes to hygiene products. And more than 70% of the pulp China is importing goes to tissue paper and hygiene products, basic products who are not affected by these kinds of things. Then we think that we are now trying to fix the prices for mail in Europe. It is tougher than it was four weeks ago, eight weeks ago, that's true. We still don't have the results. We will continue pushing for trying to keep prices going up, but we will see the results during this week, not before. It is tougher than one month ago. I think personally that maybe now we are going to be doing several weeks on a platform, stable prices. the level we have already reached and the most probably uh after all this uncertainty starts to well to stop uh the part we continue going up that's my vision and then maybe just to follow up on on that um view on the european stability um in in index prices from here

Have you seen any changes in customer order patterns for uncertainty or anything changing from the customer basis or any inventory accumulation? I'm just trying to assess if there's any change in order patterns or inventories that you're seeing on the pulp side.

No, we haven't seen any increase of inventories. We have seen on the last two weeks some spot offers at, let's call that international prices, but they are very limited. They make a lot of noise, but they are quite limited in terms of volume.

And then you brought up fluff pulp from the US producers selling into China. Now, if there are tariffs that might displace a lot of those volumes, how do you think that might impact your ramp up at the Navier Mill. Do you see some of those US producers potentially exporting more volumes to Europe or do you think this might give you an opportunity if some of the Scandinavians export from Europe into China while you are trying to ramp up and you can place more volumes in Europe? Just wanting to know if you have any thoughts there or is it too early?

What I have seen is, and my vision is what I said before, there is now a big opportunity for Brazilians and Scandinavians to substitute the U.S. exports of LAF to China. And I think that will be good for the European market in terms of a limited offer. I don't see the U.S. increasing their exports to Europe because they have its long-term contracts. and the European customers are not going to buy more. They are already buying and they are satisfied with what they are getting from the mix they are getting from Scandinavia and from Brazil and from the States. And what we see is because of all these doubts regarding the tariffs, we see an increasing interest of all the European customers in ENCE starting as soon as possible to produce power. we are going to have by May 15, we are going to be able to produce flash pulp, but on bales, not on coils, on bales. We will, with that, start the homologations, and we think that by the fourth quarter, we will have coils available, and then we will start all the process of homologation. And today, we see that we are going to have a more accelerated ramp-up of this business than what we expected two years ago when we launched this new opportunity.

Thank you. And then finally, just love your thoughts on how cash costs in pulp develop through 2025 and all the temporary issues now resolved and behind you.

Yeah, well, it's pretty better today. April has been a different month of the first quarter. Some problems we have on the energy generation on the pulp mills is solved. We can confirm that on May 15, the alternator in the Navia is going to start to work. We had, as you remember, on the last quarter of 2024 and first quarter of 2025, huge increases of chemicals prices because some problems on a large mill in Spain producing chemicals. That's also solved. The chemicals price is down now. And that's why we see a cash cost for this quarter, for second quarter, of 485. And our guidance says for the cash cost of the full year is also 485. Thank you. Thank you.

And once again, if you would like to ask a question, simply press star 1 on your telephone keypad.

Okay, gentlemen, thank you very much for your time. I hope to be in contact with you in three months' time. Thank you. Thank you.

Thank you. And ladies and gentlemen, this now concludes our presentation. Thank you all for attending. You may now disconnect.