Earnings call transcript: Ence Q4 2024 misses forecasts, stock rises 2%

Ence’s fourth-quarter earnings call revealed a mixed financial picture, with the company missing both earnings and revenue forecasts. The actual earnings per share (EPS) came in at -0.04, against an expected -0.01, while revenue fell short at $208.1 million compared to the forecasted $246 million. According to InvestingPro data, the company maintains a healthy P/E ratio of 19.39 and a market capitalization of $880.5 million. Despite these misses, Ence’s stock price rose by 2.05%, closing at $3.49, reflecting investor optimism about the company’s strategic direction and sustainability efforts. Based on InvestingPro’s Fair Value analysis, the stock appears fairly valued at current levels.

Key Takeaways

• Ence missed both EPS and revenue forecasts for Q4 2024.
• Stock price increased by 2.05% post-earnings announcement.
• Strong growth in EBITDA and free cash flow reported.
• Recognition as a leader in sustainability boosted investor sentiment.
• Strategic initiatives in renewable packaging and energy are underway.

Company Performance

Ence reported a robust performance in key areas despite missing earnings expectations. The company achieved significant growth in group revenue, which increased by €47 million to €876 million, and consolidated EBITDA nearly doubled to €165 million. InvestingPro analysis reveals two key insights: the company has been profitable over the last twelve months and analysts expect continued profitability this year. These results highlight Ence’s ability to generate substantial cash flow and maintain a low leverage ratio of 1.8x, even as it navigates challenges in the pulp market. For deeper insights into Ence’s financial health and growth prospects, investors can access comprehensive analysis through InvestingPro’s detailed research reports.

Financial Highlights

• Revenue: €876 million, up €47 million year-over-year.
• EBITDA: €165 million, an increase of €76 million from the previous year.
• Group profit: €32 million, up €57 million.
• Free cash flow: €101 million before changes.

Earnings vs. Forecast

Ence’s Q4 2024 earnings per share were -0.04, missing the forecast of -0.01 by 0.03. Revenue also fell short, coming in at $208.1 million against a projected $246 million. This represents a significant deviation from expectations, reflecting challenges in market conditions and operational execution.

Market Reaction

Despite the earnings miss, Ence’s stock rose by 2.05%, closing at $3.49. This movement suggests that investors are optimistic about the company’s strategic initiatives and sustainability achievements, which may offset concerns about the missed forecasts. InvestingPro data shows the stock is trading near its 52-week high of $3.77, with analyst price targets ranging from $3.79 to $5.30, suggesting potential upside. The stock has demonstrated impressive momentum with a 19.87% return over the past year and maintains relatively low price volatility.

Outlook & Guidance

Looking ahead, Ence is targeting significant advancements in its renewable energy and packaging sectors. The company plans to launch a new food tray production line and expand its fluff pulp line in 2025. Additionally, Ence aims to more than double its renewable business EBITDA over the next five years, supported by its biomethane and thermal energy projects.

Executive Commentary

CEO Ignacio Comunares emphasized Ence’s strategic focus on sustainability and innovation: "We are building a large biofertilizer and biomassane platform in Spain." He also noted that "pulp prices bottomed out in the fourth quarter," suggesting potential price recovery, which could benefit future earnings.

Risks and Challenges

• Achieving future EPS and revenue targets amid market volatility.
• Execution risks associated with new product lines and energy projects.
• Fluctuations in pulp prices could impact profitability.
• Regulatory changes and environmental compliance in production facilities.
• Competition from other sustainable packaging and energy companies.

Q&A

During the earnings call, analysts inquired about Ence’s acquisition strategy for biomethane plants and the timing of investments in the Pontevedra project. Management provided insights into pulp demand trends and reaffirmed its commitment to strategic growth initiatives.

Full transcript - ENCE (ENC) Q4 2024:

Conference Moderator: Good morning, ladies and gentlemen. Welcome to the Ensign twenty twenty four Results Presentation. I will now hand over to Mr. Ignacio Comunares, Executive Chairman and Alfredo Avel, CFO. Gentlemen, please go ahead.

Ignacio Comunares, Executive Chairman and CEO, Ence: Good afternoon, ladies and gentlemen. Thank you for joining EnFest twenty twenty four results conference call. Our CFO, Alfredo Aereo 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. Parts prices bottomed out in the fourth quarter, as you can see on Slide six.

Hardwood part 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 Chinese pulp and paper producer is now generating a pulp supply gap of over 200,000 tonnes per month. Additionally, there are hardwood pulp conversions and significant downtimes scheduled for the first quarter. This tight pulp supplydemand balance is driving pulp prices higher. The European pulp price recovered by $100 per tonne for order placed in January and delivered in February.

In February, we implemented a second price increase of $60 per tonne for March deliveries. And we are now implementing a third price increase of another $60 per tonne for April deliveries up to $12.20 dollars per tonne. I expect further pulp price increases in the short term. In the mid term, pulp demand growth is expected to continue at healthy rates, boosted by Tissue and Packaging (NYSE:PKG) segments. Furthermore, there are no significant market pulp capacity additions expected in Latin America until 2028, supporting a positive outlook for pulp prices in the coming years.

Industry experts have increased their pulp price forecast for the next three years, up to an average of over $14.50 dollars per tonne in 2027. The record price gap with softwood pulp is strengthening demand for our Ense 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 solid pulp, which is far more expensive. We achieved an extra margin on these products of close to per tonne during 2024, improving on our average sales price by per tonne. This extra margin increased the pulp business EBITDA by over EUR 7,000,000 in 2024.

We expect these products to continue gaining market share reaching 30% of total pulp sales in 2025 and fifty percent by 2028 without including our expected flash pulp sales. Our first line to produce up to 125,000 tonnes of flasks pulp at Navia is on track to deliver higher operating margins as from the fourth quarter twenty twenty five, 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 flasks pulp from North America based on solute, which is more expensive. Our flasks 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 EUR 60 per tonne compared to our standard pulp.

This extra margin should allow us to improve the pulp business EBITDA by over EUR 7,000,000 per year when fully ramped up. The estimated CapEx amount to EUR 30,000,000 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 NIVEA during the third quarter twenty twenty five, capable of producing up to 12,000,000 trays per year. We want to start saving the market as soon as possible while building an independent plant elsewhere with an initial production capacity of 40,000,000 units and with the possibility of scaling it up in the future.

We expect this new plant will be ready by the end of twenty twenty six. The total estimated investment amounts to EUR 12,000,000. 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 line keens 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 per tonne, 13 and reduce its scope emissions by close to 60%, scope one. Note that all our sustainability projects entail a significant improvement in competitiveness. The expected cash cost reduction in NIVEA should improve the pulp business EBITDA by EUR 8,000,000.

Estimated investments amounts to EUR 35,000,000, with an expected return on capital employed above 15%. We have already been awarded grants of EUR 13,000,000 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 twenty twenty six. Secondly, we have an integral project to boost Antebellas’ efficiency and flexibility. We envisage a very competitive bio meal 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 EBITDA by EUR 20,000,000 by reducing Pontevera’s cash cost by EUR 50 per tonne, by improving its flexibility to use different wood species and by continuing to upgrade its production from Standard Park to Ense Advanced Pulp. The initially estimated CapEx in this project amounts to $120,000,000 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 As Pontes 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, Shertex.

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 under the European Next (LON:NXT) Generation Funds, and we are expecting a grant of up to a maximum of EUR 30,000,000.

Note that none of the investments I have described will require more goods. The Iberian pulp industry is already importing over 2,000,000 tonnes of goods 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 30,000,000 net. They are expected to be cashed and registered as revenue in the first quarter twenty twenty five.

This sale is a result of our continued efforts to create shareholder value through 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 a price of EUR 17,000,000. We signed a fifteen 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 planned investments in the plant.

As part of the planned business plan, we aim to invest EUR 7,000,000 in 2025 and 2026 to adapt the plans to our unique business model to transform local agriculture 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 trucks passing through nearby villages. Secondly, we want to upgrade the plant’s waste, the digestate, into a high organic fertilizer, which will not nitrutify the soil. Finally, we will boost the plant biomethane production up to the targeted 50 GWh per year, improving the process and eliminating production bottlenecks. These investments will allow us to improve the plant’s annual EBITDA from close to EUR 2,000,000 expected in 2025 to over EUR 4,000,000 expected in 2027.

The acquisition of this plant 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, Encebio Gas already has a portfolio of 28 biofertilizer 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 Galera. Our initial goal is to generate over one terawatt hour per year and to contribute over 60,000,000 to EBITDA by 02/1930. However, if we consider all the projects that we are developing, we could reach up to four terawatt 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.

To our subsidiary, Magnum Salvicos and Rechetico, we signed our first oil and M contract last year with a major industrial company in the food and beverage sector in Spain. At the end of twenty twenty four, 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 fifteen year term. The commissioning of these boilers is expected during the first half of twenty twenty six with a planned investment of $12,000,000 and an expected contribution to EBITDA of over 2,000,000 This investment already excludes a EUR 4,000,000 subsidiary granted by the European Next Generation found already cashed. We are working on another 13 projects with an important industrial company 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 and our plants using PPC contracts and non recourse project financing backed by long term PPA like we are doing. The aim of Magnum services in Americas is to produce two terawatt hour per year of renewable thermal energy by 02/1930 and to contribute over 40,000,000 to EBITDA. I now invite Alfredo to elaborate further on our 2024 results financial results.

Alfredo Aereo, CFO, Ence: Thank you, Matthew. Let’s continue with the financial performance of our pulp business in Slide 15. The pulp business EBITDA increased in 2024 by three times up to €138,000,000 pushed by higher pulp prices and lower cash cost. The average sale price improved by USD69 per ton up to USD647, while the average cash cost improved by USD32 down to USD499 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 cogen 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 false major 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 cogen turbine will restart in mid May twenty twenty five. Altogether, our operating margin reached a solid over €154 per ton in 2024, which is almost doubling that of 2023. Finally, pulp production reached 997,000 tons in 2024 compared to 975,000 in 2023, driven by the strong operating performance of Ponte Vedra. 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 bio mills during dry periods. Turning now to Slide 16, EBITDA coming from the electricity generation of our biomass energy business increased by 50% in 2024 up to EUR 32,000,000 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 pulp 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 protracted effects as of the January 1 of that year. The average sale price recognized for our biomass plants is approximately per megawatt hour and has two main components, a regulatory pool 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 said per minute at hour price.

On top of these components, we still receive the remaining RI. 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 to the regulatory color, but 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 per megawatt hour lower in 2024 than in 2023 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 Renewal business consolidated EBITDA was EUR26 million in 2024. This is lower than in 2023, which included a positive contribution from other renewal business of EUR20 million mainly related to the sale of two PV projects during the first half of that year. Also, as you know, we are starting to develop other renewable businesses, which reduced 2024 EBITDA by EUR 6,000,000.

This figure includes a EUR 2,000,000 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 on Slide 17 with the solid performance of our consolidated results in 2024. Group revenue grew by EUR47 million year on year up to EUR $876,000,000 and our consolidated EBITDA improved by EUR 76,000,000 up to a solid EUR 165,000,000. This is almost two times higher than in the previous year.

Finally, the group profit increased by EUR 57,000,000 up to EUR 32,000,000. Turning now to Slide 18, consolidated free cash flow before changes in working capital and growth CapEx reached EUR 101,000,000 in 2024. Changes in working capital implied a cash flow of EUR66 million in 2024. EUR37 million of this was due to higher power prices and inventories and EUR29 million 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 €64,000,000 in 2024, with half in each of our two businesses.

As our Chairman highlighted earlier, we acquired a conventional biomethane plant in December 2024 for €70,000,000 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 flat pulp in Navia, which will be commissioned in the fourth quarter twenty twenty five. We will expect to start first line to produce pulp based food trays in the third quarter twenty twenty five. All the investments in 2024 were mainly related to the engineering of Navios cash cost reduction and the capitalization project, which has already been launched and to the engineering of Ponte Vedanta (NYSE:VEDL) and As Pontus project.

Continuing with the Slide 19. Our consolidated net debt was EUR321 million at the end of twenty twenty four, 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 $34,000,000 to our shareholders, which implied 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 EUR287 million with long term maturities in both businesses and no covenants in the pulp business. Note that this liquidity position does not include the revolving credit facilities, which amount up to EUR130 million in the pulp business and EUR20 million in the renewal business, and which remain fully available. In July 24, we refinanced Magnum through a 170,000,000 seven point five year term loan facility, including this 20,000,000 RCF among 14 banks and institutional investors extending its final maturity until January 2032.

This new facility is ring fenced to Mangnan and has no recourse to the parent company of the renewables business. The proceeds were used to refinance the build 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 NCEB and our biomass energy business. Finally, in January 2025, NCEB Biogas signed a green project financing loan for the acquisition of La Galera Conventional Biomethane Plant for a total of EUR20 million.

This facility will be used to finance the acquisition of the plant as well as the planned CapEx investments aimed to adapt it for our previously explained business model. Let’s turn now to Slide 21. I would like to conclude my section emphasizing once again MFE’s 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, Sustainalytics confirmed MCEP for the fourth consecutive year as the most sustainable player in the global pulp market, having raised our overall ESG performance score up to 93 points out of 100. We have also been awarded the Ecovares Platinum Medal, the highest rating awarded by this platform. And we remain members of the prestigious Foodsea 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.

Ignacio Comunares, Executive Chairman and CEO, Ence: Thank you, Alfano. Let me conclude with our outlook for 2025 and some closing remarks. Regarding the outlook for 2025 on Slide 23, I would like to highlight the following. Pulp prices bottomed out in the fourth quarter. The European pulp price has already increased by $160 in January and February, and we are now implementing a third price increase of $60 up to $12.20 dollars per tonne.

I expect further price increases. We are working and we expect a cash cost reduction in pulp during 2025 already starting in first quarter, as the temporary factors which affected negatively our cash cost in the fourth quarter twenty twenty four are diminishing. The sale of energy savings certificates for SEK 30,000,000 is expected to be cashed on the next weeks and register as revenue in the first quarter twenty twenty five. We expect a higher energy generation in 2025 at Mangnan, supported by the restart of our 16 megawatt power plant in Ciudadriand. We expect lower operating costs at our biomass plants, supported by higher biomass availability and higher fixed cost dilution.

Finally, we expect an improvement in the contribution from new renewable businesses following the acquisition of La Galera by the methane plant in December. Let me finish now with some closing remarks on Slide 26 before we move to the Q and A session. We are building a large biofertilizer and biomassane platform in Spain, which aims to produce over one terawatt hour by 02/1930 and contribute over $60,000,000 to EBITDA. Our thermal energy business is developing well. It aims to produce two terawatt hour by 02/1930 and contribute over 40,000,000 to EBITDA.

Our Ense Advanced Pipe sales are expected to reach 50% of the total BHKP sales by 2028, with an operating margin approximately per tonne higher than our standard pulp. We forecast 30% for this year. On top of this, our first one hundred and twenty five thousand tonnes flat pulp line in Navia will be commissioned in the fourth quarter twenty twenty five with an expected operating margin approximately EUR 60 per tonne higher than our standard pulp. We expect to start the production and sale of our renewable packaging solutions in 2025. Navia’s cost reduction and decarbonization project has been launched, and we are making good progress with engineering at the Ponte Vedra Vanta and Aspartes projects.

Reaching these goals should allow us to more than double the renewable business EBITDA over the next five years. Whilst the transformation of Ense into a producer of special pulp products will significantly improve the business operating margin. Remember 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.

Conference Moderator: Thank you. Ladies and gentlemen, the Q and A session starts now. Thank you. Your first question is from Cole Hathorn from Jefferies. Your line is now open.

Cole Hathorn, Analyst, Jefferies: Good morning. Thanks for taking the questions. Can I start with the pulp cash costs? You’ve been very clear that there was some one off disruptions that raised cash costs into the fourth quarter. But I’m just wondering what is the profile of the cash cost decline in 2025?

And is there a kind of broad level of cash cost that you’re thinking about into 2025?

Ignacio Comunares, Executive Chairman and CEO, Ence: Yes. Yes. First of all, because it’s important, dilution wise, we expect to produce around 1,000,000 tonnes in 2025. I would like to insist that we expect an annual cash cost reduction in 2025 as temporary factors, which affected the cash cost in the fourth quarter twenty twenty four are proximately ending during this first half of twenty twenty five. Lower sales of Sapnus Energy due to the failure of Navios turbine alternator we held in May CO2 emissions grants were normalized since January 2025 Chemical costs, which increased in fourth quarter twenty twenty four due to temporary stoppage of one of Spanish largest soda producers are progressively normalizing in first quarter twenty twenty five.

The price today is $100 below fourth quarter. We also expect stable wood prices in 2025. January and February, we have been buying at same price than last year than at the end of last year. Additionally, there will be a higher fixed cost dilution after Navios maintenance shutdown at the end of first quarter twenty twenty five. By all those reasons, I now see an average cash cost of around $510 per ton in the first quarter twenty twenty five and below €485 per ton for the full year 2025.

Cole Hathorn, Analyst, Jefferies: Thank you. And then maybe just following up on to your key projects like the Fluff project, which is well timed considering closures from IP on the softwood side. But as we go into 2025, you’re improving your mix, but you’re also going to get further cost reduction per tonne. That’s quite clear on the NAVIA side, but on Ponte Vedra, when will you be making the decision for your project there? And when could we start to see the benefit of the cost reduction?

I know you’ve said over time that you’ll do more work each annual maintenance. And I’m just wondering how quickly we could see the benefits?

Ignacio Comunares, Executive Chairman and CEO, Ence: Yes. Your first question, the flat, well, we plan to commission the installation by summer this year and then to start to be able to amortigate the product in our customers. And we expect to start selling the flat pipe at a good price with an extra margin of at least per tonne from just the beginning of twenty twenty six. We are quite positive on that. The market is supporting, and all our customers are expecting and want the product to came to them as soon as possible.

And that’s one of that’s the first line. We plan to build a second line as soon as we are on the finish as soon as we will have finished the ramp up of this first line of 125,000 tonnes. We still don’t know if we are going to do that at Navia or at Altavera, the second line. Going continue with Pontevedra. The Pontevedra Avansas project is now on the Fed3 phase of engineering.

We did last year Fed1 and Fed2. Now we are finishing Fel three. Fel three engineering guarantees you with more than 99% of probability that you are going to have the cost you expect, that the time required for the installation is going to be what you expect. And therefore, we will have a guarantee on the return I mentioned before over 12%. It’s a full transformation of the mill.

We are going to reduce all the inefficiencies of this mill who while very much linked to the thermal energy of the mill. We are going to flexibilize the mill in order to be able to buy different species of eucalyptus and pine, not decreasing production capacity. And we are going to increase some parts of the mill capacities in order to be able to increase the percentage of special products we sell. We think the final investment decision is going to be finalized on the third quarter of this year, and then we will decide when to start by the end of this year. As I mentioned before, it’s a five years investment.

We don’t want to stop the mill during several months because we will lose customers and market share and because we are prudent. As I mentioned many times, we like phased investments. And if something happens on the market you don’t expect and there is a strong reduction in prices, you can stop the investment and you don’t you are not burning cash at the same time from the day to day business and from the CapEx. Then that is why we are going to do this investment in five years. And we will not change that even if from a just financial point of view, it will be better to do that only in two years.

Then as a conclusion, final investment decision at the end of this year, and it’s going to take five years to transform the mill.

Cole Hathorn, Analyst, Jefferies: Thank you. And then maybe just one for Alfredo, which is on the $30,000,000 energy sales. Where will that be recognized? And can we assume that is revenue and profit will be the same number, so kind of $30,000,000 benefits of revenue and profits in Q1?

Alfredo Aereo, CFO, Ence: That is, we are expecting. Recorded as revenue in 1Q twenty five, the cash is definitely or should definitely come in and that is the way we are proceeding.

Cole Hathorn, Analyst, Jefferies: Thank you.

Ignacio Comunares, Executive Chairman and CEO, Ence: Yes. What is important is that the cash is going to be in our hands in a few days, because we made the the process is quite complicated. Then we first did an auction at the end of the third quarter. The company won the auction, then they did due diligence. With all these data, we went to the minister to register those certificates.

They were approved finally by the ministry. Then we did, we invoiced all these gigawatts at this price three weeks ago now and we should be we should collect the bill on a few days. And what is important is cash is going to be on our hands very, very soon. Soon. Thank you.

Thank you.

Conference Moderator: Your next question is from Manuel Lorente Ortega from Santander (BME:SAN).

Ignacio Comunares, Executive Chairman and CEO, Ence: My first question probably is a follow-up on Ponte Vedra Savantas project.

Manuel Lorente Ortega, Analyst, Santander: I don’t know if I’m right, but looking at your previous presentations,

Ignacio Comunares, Executive Chairman and CEO, Ence: it looks like there has been some delays on the investment decisions that initially

Manuel Lorente Ortega, Analyst, Santander: was contemplated at some point in Q1 and now you are mentioning at some point late this year. So I was wondering is this because of any engineering issue that you are facing on that mill or is just the combination of all the projects that are getting faster traction like the fluff or the packaging?

Ignacio Comunares, Executive Chairman and CEO, Ence: Yes, Emmanuel, no, it has nothing to do with the fluff or with the packaging. Nothing to do with all the other projects we are doing. It’s just as I mentioned, a question of the engineering. We want to have the phase of engineering one hundred percent finished before the final investment decision. And that is going to happen by summer when the decision is going to be taken on the last quarter of this year.

Manuel Lorente Ortega, Analyst, Santander: Okay. And my second question then, it will be on the growth CapEx needed for the different diversification or transformation plans that you are currently taking place. On 2024, they amounted roughly EUR 66,000,000. It will be great if

Ignacio Comunares, Executive Chairman and CEO, Ence: you can give us some indication regarding what we should expect for this year and eventually for the following years? Thanks. Yes. Well, I would like to insist that in all the plans we have on the strategic roadmap from last year till 2028, we are financing the growth with our cash flow. At the same time, we will be able to pay normal dividends to our shareholders, and we will keep a low level of leverage.

As I have already always mentioned, below 2.5 times EBITDA on the pulp business and below five times on the energy business. Regarding the CapEx we require for this year, for growth, we

Manuel Lorente Ortega, Analyst, Santander: have

Ignacio Comunares, Executive Chairman and CEO, Ence: million, million is for the fluff. We already paid some money last year. And million is for the first line of packaging and the beginning of the second line of the packaging, million. So that’s million on the pulp business. It’s not a growth project, but it’s a transformation project.

The decarbonization cost reduction in Nadia is 50,000,000 and is going to be paid this year, this 50,000,000. The balance of the total project will be paid next year and next year we will collect the grants. And going back to the going to the renewable business CapEx, biofertilizers and biomethane grow, we are planning million this year without any new M and A, just greenfield projects. We would like to start the construction of two biomethane plants by the end of the year. And regarding the renewable thermal energy growth, we are planning million for this year, because we have the contract we signed last year with this large brewer close to Madrid.

And we have almost signed two other contracts with milk producer and we will start this year the works. Then million on the renewable business. Then 40,000,000 on renewable and 25,000,000 on plant business for growth.

Manuel Lorente Ortega, Analyst, Santander: Okay. And just my final question and again a qualitative question, so I might be wrong.

Ignacio Comunares, Executive Chairman and CEO, Ence: I remember the first time you presented all these transformation or programs into in order

Manuel Lorente Ortega, Analyst, Santander: to build up your biomethan and your thermal platforms. I remember that you kind of pointed out that you would expect a faster pace of growth in the VMSAN than in the thermal platform. However, when I see your current pipeline look like benefits from thermal are coming on a faster pace than on the Vio Mezzano or at least is what I see from the pipelines that you are pointing out on the different slides. So this is correct first and or

Ignacio Comunares, Executive Chairman and CEO, Ence: Well, let me give you some information. Today, the purchase are boosting the possibility of signing thermal contracts with the food and beverage sector. It is not happening on the biomethane business. Secondly, it is easier in terms of permitting to do a new installation of biomass boiler on a factory already existing than starting from zero with a permitting for the biomethane business. Thirdly, the biomass required in these thermal units we are installing in terms of biomass is quite small, it’s 40,000 tons per year.

On the other hand, on the biomethane and biofertilizer business, where you require up to 100,000 tons of biomass and manure per mill and you have to secularize that before starting all the process when it takes longer. Then I would say that by all these factors I mentioned, in 2025 and 2026, we are going to see more results from the industrial heating business. But once we have started and we already have on the pipeline the permits for the biomethane plants and they are ready to build, it will go faster. Is that clear?

Manuel Lorente Ortega, Analyst, Santander: Yes. Okay. Thank you. So it’s

Ignacio Comunares, Executive Chairman and CEO, Ence: a matter that it’s, let’s say, easier to implement at the first stage. Yes.

Manuel Lorente Ortega, Analyst, Santander: Okay. Thank you.

Ignacio Comunares, Executive Chairman and CEO, Ence: Thank you, Manuel. Is there any other questions?

Conference Moderator: No more questions at this time. Please proceed with a little closer. Sorry, we have a follow-up from Cole Hathorn from Jefferies.

Cole Hathorn, Analyst, Jefferies: Thanks for taking the follow-up. I’d just like to follow-up on the biomethane business. I mean, you’ve just taken it over now, you’ve just got the keys. How do you think about that business to derisk growth? Are you using this acquisition now to kind of look at the business, how it works and better plan for growth in that business?

How are you kind of using this acquisition to de risk future growth? I just like your thoughts there.

Ignacio Comunares, Executive Chairman and CEO, Ence: Yes. It’s an important question. Thank you. For us, this acquisition was strategic by two reasons. The first reason is that the biomethane produced in Germany or produced in Denmark at the largest scale in France or Spain has mostly a unique feedstock, corn, and then is a stable process quite easily to be dominated.

In Spain, the raw material we are using is a mixture of manure coming from cows, from pigs, biomass coming from the agriculture, residues and I don’t know very well the name in English,

Alfredo Aereo, CFO, Ence: Off date?

Ignacio Comunares, Executive Chairman and CEO, Ence: Yes, past date from the supermarkets. Then it’s a mix. It’s digestion without oxygen. It takes forty days. And you need to know very well and to dominate the process which absolutely different to the process done in Germany and Denmark.

And that is why we decided to acquire these plants. And just for your information, this plant was producing between 20 megawatts and 25 megawatts per day and two months after we are between sixty and seventy, just installing all our knowledge of processing, biomass and processing pulp we have in our mills. That’s the first thing. The second thing, which is even more important, is that our business model is absolutely different to the business model of our competitors in Spain. Our competitors are developing biomethane plants close to villages, no matter the order, no matter the transport of these manure through the villages.

And they are producing two products, biomethane and digestate. The plant we bought has a terrible order. The board was there at the end of last year, and it was terrible. And they wanted to have the board there in order they understand what we are doing. We have already get the permits and get the contracts, and zero order will be there by mid February sorry, by mid April.

And we want these plans to be a showroom where we are going to invite the appetites and the measures of all the others areas where we are developing our biofertilizers and biomesane plants. In order they realize that with our model, there are no damages for the population nearby. And the third thing is that all our competitors are producing, as I mentioned before, unlike these plants today, biomethane and digestate. The digestate is the output, is a liquid product. You have to put that on the field.

It’s a low quality fertilizer, but it’s terrible because it needs to defecate the soil. And that is why Greenpeace, Ekronokistas and Accion are against this business model. What we are doing and we are just now with the permitting, but we have already the contract with the technology producer. We are going to transform this Digestate into an organic fertilizer. The main difference is that it’s quite difficult to explain in two minutes is that the nitrogen when it is ammoniacal like on the digested or like on the manure, it is dissolved very, very quickly on the soil.

And then it goes to the soil and from the soil to the rivers or to the water below. And it has a strong effect of pollution. While this organic fertilizer has an organic nitrogen, which delides very, very slowly. And it doesn’t affect nor the soil nor the water below the soil. And what we want is to have a showroom for showing to all the stakeholders, what is our business model and to be able to replicate that quickly around Spain.

That’s the three reasons why we decided to buy this conventional biomethane plant.

Cole Hathorn, Analyst, Jefferies: And then if you’ll allow me just one follow-up on demand trends in pulp. It might be too early to give any color what you’re seeing from customers on pulp in Europe. But from the outside looking in 2025, we’ve seen inventory levels kind of restated lower, Qingming in China is still down and that’s tightened the market. But I’m wondering if you’re seeing anything from your European customers. Are there any kind of improvements in demand, less competition from any Chinese exports on paper or boxboard products that’s pulling in a bit of pulp into your customers or not really?

I’m just wondering if you’re seeing anything.

Ignacio Comunares, Executive Chairman and CEO, Ence: Yes. To be frank, demand for pulp in Europe has been good on the third and fourth quarter last year. Prices dropped because of the prices in China, not because of reduction on the demand. The demand today is good. I think from now until summer, we are going to have two demands, the normal demand and a recovery of the stocks on the supply chain.

But I would like to insist that the demand has been good at the end of last year and the second half of last year, and we expect a good demand in all the sectors. In tissue, the market continues to grow in Europe. In writing paper, the demand is stable. In specialties, the demand is good. And in packaging, the demand is good.

Then what we expect is a normal year in terms of demand with new stocks being built at the beginning of the year and until the half of the year.

Cole Hathorn, Analyst, Jefferies: Thank you.

Ignacio Comunares, Executive Chairman and CEO, Ence: Thank you.

Conference Moderator: Thank you. There are no further questions at this time. Please proceed with the closing remarks.

Ignacio Comunares, Executive Chairman and CEO, Ence: Yes. Thank you very much.

Alfredo Aereo, CFO, Ence: Thank you.

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