Ence Energia Y Celulosa Sa · BME:ENC
Ence Energia Y Celulosa Sa — Investor Presentation (April 2023)
56 slides from Ence Energia Y Celulosa Sa's investor presentation, April 2023
Slide 1: Leading the Circular Bioeconomy
Leading the Circular Bioeconomy April 2023 Global ESG score: 91/100
Slide 2: Disclaimer
Disclaimer The information contained in this presentation has been prepared by Ence Energía y Celulosa, S.A. (hereinafter, "Ence"). This presentation includes data relating to future forecasts. Any data included in this presentation which differ from other data based on historical information, inclu
Slide 3: Vision, Purpose, Strategy
Vision “To be leaders in the sustainable use of natural resources to produce special pulp and renewable energy in competitive bio-factories and plants integrated into their environment” Purpose “…to contribute to the development of society through the sustainable and responsible use of the natural r
Slide 4: Contents
Contents: 1. Ence Overview 2. Why Invest in Ence Market Positioning & 3. Competitive Advantage 4. Growth Opportunities 5. FY22 Financial Results & Outlook 4
Slide 5: Ence Overview
sence ENERGIA & CELULOSA. 1 Ence Overview ||
Slide 6: Leading the Circular Bioeconomy: activities and reporting segments
Leading the Circular Bioeconomy 4 activities, 2 reporting segments, 1 vision Sustainable Forestry Management Eco-efficient Production of Special Pulp 1 2 We are a leading European eucalyptus pulp producer, with PULP Business Ence manages >65,000 hectares of forest land in the 1.2 Mn tons of inst
Slide 7: Pulp & Renewables – Independent reporting segments
Pulp & Renewables – 2 Independent reporting segments The regulated Biomass business complements the cyclicality of the Pulp business Ence Energía y Navia Pulp Business Celulosa Pontevedra 100% 100% 100% 100% Forestry Pontevedra Navia Ence Assets Pulp Biomill Pulp Biomill Renewables Ciudad Real 51% 1
Slide 8: Ence main figures
Ence main figures In FY22 Revenues Normalized Dividends paid Net Debt (Cash) +22% FCF1,2,3 >2x €1bn vs. FY21 vs. FY21 €67m (€0.27ps) €(30)m €250m EBITDA3 Net Income6 ROCE4 Market Cap +16% €248m vs. FY21 €247m 13% €957m5 1 Normalised FCF = EBITDA +/- change in working capital - maintenance capex - ne
Slide 9: Ence Management Team
Ence Management Team Ignacio de Colmenares Alfredo Avello Jordi Aguiló Guillermo Negro Chairman & CEO CFO & Chief Forestry Officer CEO of Pulp business CEO of Biomass business 9
Slide 10: Why invest in Ence
SSS 2 Why invest in Ence a LE :
Slide 11: Why invest in Ence
Why invest in Ence We are leaders in the We enjoy competitive We focus on value 1 circular Bioeconomy, 2 advantages in both Pulp & 3 creation for our addressing structural Renewables shareholders, the growth markets with 4 generation of strong complementary activities profitability, and attractive r
Slide 12: Strong & consistent delivery of EBITDA & cash flow through the cycle
Strong & consistent delivery of EBITDA & cash flow through the cycle Our regulated Biomass business complements the cyclical nature of the Pulp business 1 2015 – 2022 LTM EBITDA per business 2015 – 2022 LTM normalized FCF per business €m €m 350 300 300 291 200 250 250 45 248 250 216 213 200 192 144
Slide 13: Focus on profitability
Focus on profitability Returns-based framework drives decision-making with ROCE targets for each business 2015 – 2022 LTM ROCE per business €m ROCE framework 50% “Through • Good measure of capital efficiency 25% • Focuses the business on cash generation and 40% 19% 1 the cycle” > 10% optimal asset a
Slide 14: Dividend policy aligned with cash available for distribution & leverage
Our dividend policy is aligned with cash available for distribution & leverage Typically payable in 3 annual payments Average of €30m dividend paid per year DIVIDEND POLICY (€m) Amount is based on cash available for distribution after considering capex plans 80 CASH Ensuring a leverage below: 70 70
Slide 15: Sustainability industry leader
Sustainability industry leader The most sustainable company in our sector (Sustainalytics) Safe & efficient operations Climate Action People & Values Corporate Governance Decarbonization Quality employment Transparency and best Equality & diversity Protecting Health and Climate change ad
Slide 16: Robust corporate governance with a supportive shareholder base
Robust corporate governance with a supportive shareholder base Management remuneration aligned with shareholder interests Shareholding Structure Board of Directors As of Dec. 2022 29.4% D. Juan Luis Arregui Sustainability Nominating & 7.3% D. Victor Urrutia Committee Compensation Chairwoman Committe
Slide 17: Clear strategy towards growth and diversification
Clear strategy towards growth and diversification Highly experienced management team, with a strong track record Pulp business Government accepts the appeals against the extension of The Supreme Court confirms the extension Reform of the regulation of Expansion of PONTEVEDRA concession. of the PONTE
Slide 18: Pulp Market Positioning & Competitive Advantage
Pulp Market Positioning 3a. & Competitive Advantage 18
Slide 19: The global market pulp industry
The global market pulp industry 60% of hardwood pulp is produced in South America and exported to China and Europe Europe 18 16 China North America 1 1 7 10 23 10 5 2 15 7 Demand Supply 8 1 14 12 2 5 3 2 Demand Supply Demand Supply South America Rest of the 25 World 2 66 Mn t in 2022 4 23 13 1 5 6 3
Slide 20: Market pulp demand grows at a 3% average annual rate
Market pulp demand grows at a 3% average annual rate Boosted by structural megatrends Estimated global market pulp demand breakdown by end use Mn t Source: Ence Tissue & Hygiene products: 36 Mn t Printing & Writing: 13 Mn t CAGR 2010 –20: 3.9% Source: RISI CAGR 2010 –2020: - 3.3% Source: RISI Contin
Slide 21: Tissue is the fastest growing paper segment
Tissue is the fastest growing paper segment Driven by urban growth and increasing living standards in emerging countries Tissue paper per-capita consumption Tissue annual consumption growth 3.9% Kg/year Last 10 years (Mn tons) CAGR 2010-20 Mn tons 13% of world population 87% 2,0 1,7 28 1,5 1,4 1,3 1
Slide 22: We expect pulp demand to outgrow supply over 2023-27
We expect pulp demand to outgrow supply over 2023-27 Wood availability to limit further pulp capacity additions (market or integrated) Market Pulp Expected Supply and Demand Growth over 2023 - 2027 Main market pulp demand growth drivers (Mn tons) China reopening and the displacement of its integra
Slide 23: Keeping a tight supply & demand balance
Keeping a tight supply & demand balance Prices expected to normalize along 2023 and 2024 before rising materially again as from 2025 Avg. annual Pulp Prices Europe BHKP US$/t Sources: - Annual average FOEX gross price in Europe - Net price provided by Ence 1400 1.285 1200 1.037 1.010 1000 860 792 78
Slide 24: Competitive advantage 1: Largest private forest manager in Spain
Competitive advantage 1: Largest private forest manager in Spain Wood back-up, carbon credits & innovation within our own eucalyptus plantations Ence eucalyptus plantations Hectares Annual production and book value 2022: Annual production: 0,4 million m3/year 15.000 h Book value: €144m (€84m lan
Slide 25: Competitive advantage 2: Local wood sourcing
Competitive advantage 2: Local wood sourcing Eucalyptus plantations available at short distances through our unique supply chain Eucalyptus plantations surface in N.W. Spain Main figures in 2022: GALICIA CANTABRIA 2.8 million m3 of wood purchased in 2022 400.000 h 40.000 h 96% sourced locally in
Slide 26: China has the highest production costs due to its lack of local wood
China has the highest production costs due to its lack of local wood Its 6 Mn tons of integrated capacity act as a floor mechanism for pulp prices Market pulp industry total cost curve China acts as a US$/t floor mechanism for pulp prices USD/t Coastal Finland BC Other Other 591$/t 663 $/t 750 Asia
Slide 27: Competitive advantage 3: Lower costs vs. softwood pulp producers
Competitive advantage 3: Lower costs vs. softwood pulp producers Substitutive materials with an average price spread of 95 US$/t Hardwood pulp (BHKP) Softwood pulp (BSKP) Most hardwood pulp Substitutive Most softwood pulp Source from eucalyptus wood materials from pine & spruce wood Best suited for
Slide 28: Competitive advantage 4: Circular, sustainable & self-sufficient processes
Competitive advantage 4: Circular, sustainable & self-sufficient processes Producing renewable & recyclable products capable of replacing plastics 1 Local wood sourced responsibly • Certified sources • Unique supply chain 2 Environmental Excellence 6 • Renewable, recyclable & biodegradable products
Slide 29: Competitive advantage 5: A growing portfolio of differentiated products
Competitive advantage 5: A growing portfolio of differentiated products Aimed at softwood pulp & plastic substitution…with higher operating margins Differentiated pulp sales Aimed to replace softwood pulp Tons Targeted for demanding customers in terms of sustainability + Certified life cycle a
Slide 30: Competitive advantage 6: Just-in-time service with 5-7 days delivery
Competitive advantage 6: Just-in-time service with 5-7 days delivery Compared to 40 days from LatAm producers Lower logistics costs vs LatAm Protection against rising transport costs Reduced transport related CO2 emissions Ence has a privileged access to the European market with a capilliarized sale
Slide 31: Renewables Market Positioning & Competitive Advantage
Renewables Market 3b. Positioning & Competitive Advantage 31
Slide 32: Spain's biomass installed capacity x2 by 2030
Spain’s biomass installed capacity x2 by 2030 A unique growth opportunity for Ence EU’s target of energy from renewable sources by 2030… 32% Spain expected renewable energy to double by 20301 Spain renewable electric energy share MW to rise >20pp by 20301 In % of total MW Technology (MW) 2020 2025E
Slide 33: Ence is the largest biomass operator in Spain with 40% market share
Ence is the largest biomass operator in Spain with 40% market share Benefitting from economies of scale CIUDAD REAL II CIUDAD REAL 50 MW 50 MW MÉRIDA 20 MW Current Power Plants Portfolio HUELVA CIUDAD REAL 50 MW 16 MW Biomass operating power plants HUELVA 266 MW 41 MW Biomass Pipeline ALMERÍA 140 MW
Slide 34: Biomass is the only fully manageable, renewable technology
Biomass is the only fully manageable, renewable technology Ence provides backup services to the Spanish electricity network operator at a higher price Biomass is a very abundant Biomass is neutral in carbon resource in Spain. emissions and avoids diffuse We draw upon local agricultural emissions of
Slide 35: Biomass regulation ensures a minimum return of 7.4%
Biomass regulation ensures a minimum return of 7.4%1 Biomass plants sell their output at a regulated price Regulated price (€/MWh) Regulatory price + Return on the operations (Ro) 350 300 1H23 250 200 150 Cash + 100 Cash collection rights 50 0 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Market
Slide 36: Growth Opportunities
qence ENERGIA & CELULOSA Growth Opportunities
Slide 37: Capital allocation priorities
Capital allocation priorities With clear leverage limits and ROCE targets for each business 1) Maintain a strong balance sheet 2) Fund organic investments with prudent leverage limits per with clear ROCE targets per business: business: Pulp business: >12% Pulp business Net Debt / EBITDA < 2.5x
Slide 38: Navia Excelente investment plan
Navia Excelente investment plan Modular investments adaptable to the cycle with a targeted ROCE1 >12% DIFFERENTIATED PRODUCTS FLUFF DECARBONIZATION R&D for plastic substitution and To diversify Navia product range into Use of lignin to replace natural gas in improvement of the eco-efficiency and Flu
Slide 39: As Pontes project
As Pontes project Pulp growth and diversification opportunity, without increasing the consumption of wood Ence continues to make progress on the project it is studying to launch in the town of As Pontes in Galicia. The first phase of the project consists of a line for the production of bleached
Slide 40: Ence Biogas: a new business based on the circular bioeconomy
Ence Biogas: a new business based on the circular bioeconomy 15 projects now under development with a targeted ROCE1 >12% Ence has incorporated a new subsidiary in its Renewable business, Ence Biogas, for the development and operation of biomethane plants. Biomethane These plants will recycle lo
Slide 41: Other growth opportunities in Renewables
Other growth opportunities in Renewables Biomass plants, industrial heating and PV projects Biomass Energy Industrial Heating PV Projects 100 MW sold in 1Q23 with an €23m Biomass has a great potential to help Developed 3 projects with a combined EBITDA contribution decarbonize the industry cap
Slide 42: Largest private forest manager in Spain offers growth in CO2 markets
Largest private forest manager in Spain… …offers additional growth opportunities in the voluntary CO2 markets >600,000 tons of CO2 is removed annually from the atmosphere and yield other environmental benefits: biodiversity promotion, water cycle regulation and soil protection Part of our manage
Slide 43: FY22 Financial Results & Outlook
FY22 Financial Results 5. & Outlook 43
Slide 44: Strong Group EBITDA recovery, up to €248m
Strong Group EBITDA recovery, up to €248m Driven by solid pulp and energy prices Group Revenues (€ m) Group EBITDA (€ m) Attributable Net Income (€ m) +22% 1.003 x2 248 247 One-off energy Reversal of price hedges 169 Pontevedra effect 820 1 impairments One-off pulp and and provisions energy price 78
Slide 45: EBITDA performance drives outstanding Group FCF generation
EBITDA performance drives outstanding Group FCF generation WC figure includes pending payments to the electricity system amounting to €85m Short Cash Flow Statement 2022 (€m) 90 22 351 331 20 23 23 35 283 283 285 35 250 250 248 EBITDA Regulatory collar Operating cash Working Capital Lower factoring
Slide 46: Solid balance sheet offers flexibility to seize growth opportunities
Solid balance sheet offers flexibility to seize multiple growth opportunities 60% of the convertible bond already repurchased at the end of the period Pulp business net debt as of 31 Dec. 2022 (€ m) Pulp business debt maturity schedule (€ m) €63m of convertible bonds €130m RCF – Fully undrawn €95m o
Slide 47: 2023 outlook
2023 outlook 1 Pulp production expected to normalize close to 1 million tons 2 Industry specialists forecast average pulp prices of US$1,060/t in 2023 3 Cash cost expected to improve by 135€/t during 2H23 vs. 1Q23 to below €500/t 4 Regulated energy price 207 €/MWh in 1H23 and 144 €/MWh in 2H23 The d
Slide 48: Thank You!
Thank You! Investor Relations contact details: Email: ir@ence.es Phone: (+34) 91 337 85 53 Alberto Valdes Head of Investor Relations 48
Slide 49: Appendix
ENERGIA & CELULOSA
Slide 50: Group Financial Review: Short P&L
Group Financial Review Short P&L 2022 2021 Figures in € m Pulp Renewables Adjustments Consolidated Pulp Renewables Adjustments Consolidated Total revenue 712,9 294,3 (3,8) 1.003,4 667,6 154,9 (2,8) 819,7 Other income 20,5 4,3 (1,2) 23,6 14,8 19,3 (1,4) 32,6 Foreign exchange hedging operations result
Slide 51: Group Financial Review: Short Cash Flow
Group Financial Review Short Cash Flow 2022 2021 Figures in € m Pulp Renewables Adjustments Consolidated Pulp Renewables Adjustments Consolidated Consolidated profit/(loss) for the period before tax 239,8 12,2 1,6 253,6 (164,3) (30,9) 2,7 (192,5) Depreciation and amortisation 59,0 40,3 (0,9) 98,4 59
Slide 52: Group Financial Review: Short Balance Sheet
Group Financial Review Short Balance Sheet Dec - 22 Dic. - 21 Figures in € m Pulp Renewables Adjustments Consolidated Pulp Renewables Adjustments Consolidated Intangible assets 15,6 35,0 (12,7) 37,9 13,2 38,1 (13,3) 37,9 Property, plant and equipment 603,4 389,0 (8,5) 983,9 436,9 456,3 (9,6) 883,6 B
Slide 53: Alternative Performance Measures (APMs) Pg.1
Alternative Performance Measures (APMs) Pg.1 Ence presents its results in accordance with generally accepted accounting principles, specifically IFRS. In addition, its quarterly earnings report provides certain other complementary metrics that are not defined or specified in IFRS and are used by man
Slide 54: Alternative Performance Measures (APMs) Pg.2
Alternative Performance Measures (APMs) Pg.2 OPERATING PROFIT PER TONNE OF PULP The operating profit is a yardstick for the operating profit generated by the Pulp business without taking into account asset depreciation and amortisation charges, impairment losses on non-current assets and gains or lo
Slide 55: Alternative Performance Measures (APMs) Pg.3
Alternative Performance Measures (APMs) Pg.3 FREE CASH FLOW Ence reports free cash flow as the sum of its net cash flows from operating activities and its net cash flows from investing activities. Free cash flow provides information about the cash generated by the Group's operating activities that i
Slide 56: Delivering value, delivering commitments
Global ESG score: 91/100 Delivering value Delivering commitments
Ence Energía y Celulosa — Investor Presentation (April 2023) on 6ix