ENCE Energía y Celulosa, S.A. (ENC) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to ENCE's Capital Market Day. I'm Alberto Valdes, Head of Investor Relations. Today's event is scheduled to take no more than 2 hours, with a 1-hour presentation followed by a Q&A session. Our speakers will be Mr. Ignacio Colmenares, Chairman and CEO; Mr. Alfredo Avello, CFO and Chief Forestry Officer; Mr. Jordi Aguiló, CEO of our Pulp business; and Mr. Marc Gómez, CEO of our renewable business, Magnon Green Energy. Today's presentation is divided into 6 sections. Mr. Colmenares will start explaining his strategic vision and will be followed by Mr. Avello, with an overview of our forestry business. Before giving way to Mr. Aguiló and Mr. Gómez, who will explain our competitive position and growth plans for our pulp and renewable businesses. Then Mr. Avello will explain our financial outlook with more detail and Mr. Colmenares will end the presentation with his closing remarks before moving to the Q&A session. Let me hand over now to Mr. Colmenares, who will start with his strategic view. Ignacio, your turn, please.

Thank you, Alberto. Ladies and gentlemen, good afternoon, good morning, good evening. Thank you for joining us today. I am Ignacio Colmenares. I have a long experience on the steel industry, who has many similarities with the pulp and the energy industries. Cost is essential, is very important. It's a commodity. It is cyclical and financial discipline is a must. After 21 years on the steel industry, I moved to the renewables, where I spent almost 3 years managing a company, producing cells, PV panels, developing PV parks and constructing PV parks. Then at the end of 2010, I met Juan Luis Arregui. Juan Luis Arregui, was at this stage, the Executive Chairman of ENCE and was like he is today, the main shareholder of the company. I fell in love with the vision of Mr. Arregui of ENCE based on 2 pillars. First is the use of the total components of the tree, total efficiency on the tree; and the second one is to develop a renewable business based on biomass in order to compensate the lower ratio of growth of the eucalyptus tree in Spain comparing to Brazil and other South American countries. I joined ENCE, as you know, in January 2011. And now I would like to make a description of ENCE. We transform local resources into fantastic renewable products: pulp and electricity. The process is eco-efficient, and we are in 2 growing markets. Pulp market is growing year by year by 1.6 million tonnes. And the renewables, as you will see later on, and as you already know, is the fastest-growing market today on the world. We are the unique pulp producer in Iberia, not importing on a regular basis, good from abroad. All our natural resources are surrounding our pulp mills, and we have the same philosophy in our biomass business. We do not import biomass. We use local and close biomass. We benefit from tremendous natural resources in Spain, both at the north and at the south. But we also sell locally. We don't export to the Far East or to the Americas. We sell mainly in Europe and mainly in Western Europe, where our customers can benefit, as you will see later on, of short lead times. And selling our products close to where we produce them and using local wood, we have a lower impact on the CO2 footprint of our company and our customers. And that is extremely important and will have more importance every day. We have proved that we know how to develop renewable energy business. And we have, as you know, strong financial discipline. Where does it come from? Well, probably because when we are planting the tree, it's for 45 years. A eucalyptus tree planted in Spain is harvested 3 times at 15 years before replanting it at the year #45, long vision. And when we are building, a greenfield biomass power plant is for 25 years, long time, vision. And that's why we have a strict financial discipline, which is extremely important in this cyclical business and in this uncertain world. On top of that, we have a real good corporate governance, which diminish risks, no doubt. And I insist it's real. We have, in all the commissions, a majority of independent directors, all the commissions are lead -- of the commissions of the Board are led by an independent director and the independent directors are nominated directly through the Commissions of Nominations and Retributions. For many years, we've been committed to sustainability, and we've been widely recognized a few months ago by Sustainalytics, as #1 worldwide in sustainability in pulp. What brings us here today? Our share price has suffered on the last year due to 2 results: the Pontevedra problem and our hedges in 2021 in energy and in pulp. As you already know, we made this decision in 2020 on the pandemia, where we had a lot of uncertainties of how were the markets of pulp and energy to develop in 2021. Remember that in 2020, prices of pulp and energy were extremely low, record lows. And we have -- we had more than EUR 80 million of commitments to pay by our investments in 2019 and 2018, and then we decided to secure the cash. And we make a prudent decision, which then later on has cost us a lot of money. But what is important is that today, and since December, 2021, we have no more hedges in pulp or in energy. And that today, we are a bit more optimistic, as you know, about the Pontevedra solution. I would like to insist and to point out very clearly, the Pontevedra problem is a zoning issue. It's not at all an environmental issue. Today, we will present you Navia Excelente. After 2 years of knowing what is happening about Pontevedra, we've been analyzing many opportunities, we've been analyzing many solutions, and we have found a fantastic plan, which we have already started who will bring a lot of value to the company and to the shareholders and who will, in case we have to shut down Pontevedra, will compensate 100% of the free cash flow or the EBITDA Pontevedra is giving us today, and with limited and phased investments. We have decided that we will defend the legality of the concession of Pontevedra, and we are, as I said before, a bit more optimistic today. In December 2021, the Supreme Court ruled in favor of a concession very similar to us. And 1.5 months ago, the Supreme Court has accepted our appeal. What is Navia Excelente? It is a fantastic plan. It will compensate, as I said, the free cash flow and EBITDA we are getting today in Pontevedra, in case we have to shut down Pontevedra. But even more important, we can already start to execute this plan. This plan has several steps. We are investing, firstly, in fluff, a fiber which is today imported from America, from Northern America and Europe and where the customers have a lot of uncertainties about the sustainability in long term of such fiber imported from North America, and they really want us to go into this market. Then we will decarbonize by 75% our Pontevedra -- sorry, our Navia mill, and that is very important because we are going to substitute natural gas by lignin, and at the same time, we are going to debottleneck our recovery boiler, giving us the possibility to produce 30,000 tonnes more of pulp. If we win in Pontevedra case, we will stop there. And if we lose in Pontevedra, we have the possibility to increase Navia by 100,000 tonnes, what is a limited amount of money. What are the pros of this nice project? I insist, we can already start and we have already started. It is a project executed step-by-step with limited amount of investment, and we think it is important on a cyclical business to do that step by step and in case something happens on the market, something happens on the world in 2 years or 3 years, we can just stop a few months, because we like very much Navia at 340,000 tonnes with our project and which is fully permitted. But it is a commitment of EUR 450 million. And today, on this world, to commit EUR 450 million of investment makes us a lot of doubt. That is why we prefer Navia 100,000 tonnes at the end. Why do we keep no debt in pulp, even if it is less financially efficient than having debt? In order to have the freedom in 2 years' time when we will know what happens with Pontevedra to do whatever we think is the best for our shareholders. Why do we have also a low debt in energy? Because we want a high conversion of EBITDA in cash flow. We don't want just a business with nice EBITDA. We want a business with good and strong free cash flow. And as you know, we have very recently approved a new dividend policy, who is more linked to the free cash flow of the company than to the net profit of the company. What are our competitive advantages in pulp? Very simple. Worldwide market is 66 million tonnes. European market is 16 million tonnes. 8 million tonnes, 50% of European markets, are produced in Scandinavia, produced from spruce, a tree who grows very slowly and which is harvested, not before 70 years. The balance, the other 50%, the other 8 million tonnes are hardwood. Out of these 8 million tonnes, 6 million tonnes are coming from Brazil and 2 million tonnes are produced in Iberia. What is our competitive advantage? Two important competitive advantages. Our eucalyptus tree, we harvested every 15 years instead of 70, the spruce in Scandinavia, and which has a higher content of pulp. We only require 3 tonnes of eucalyptus for producing 1 tonne of pulp instead of 5 tonnes of spruce for producing 1 tonne of pulp. We harvest sooner and it has higher yield in pulp. And that gives us a competitive advantage of $100 per tonne if you compare our pulp to the pulp produced in Scandinavia. And 80% of the market, 80% of the pulp on the market can be substituted and that is extremely important in our strategy. What is our competitive advantage against the Brazilians? Well, they have better land than us. They have better rain than us, and they are able to harvest the eucalyptus every 7 years instead of 15. Then they have a cost advantage against ENCE of $100. Well, it's our lead time. We are able to deliver any European customer in 1 week, maximum. And we have a fantastic and wide range of special products. They have huge and massive mills, modern mills, and we have medium-sized mills, and we are able to produce those special products. We have a strong technical team, technician team, working very closely with the customers to substitute softwood by hardwood and to develop the market of paper products substituting plastic. And this portfolio of special products is even more sustainable. One of the stars is the naturcell and naturcell is a pulp, a brown pulp without chlorine and with a very, very ecological process. As I was saying before, another important factor when we compete against the Latin Americans is that we are close to the customer. The CO2 footprint of our pulp in our customers is smaller than the Latin American one. And all our customers, all the important paper companies today in Europe have commitments to reduce the CO2 footprint, which helps our sales. Another very important competitive advantage of ENCE is local wood. We are surrounded by more than 600,000 high class of wood. We have all the wood we need. We don't need to import and our competitors in Europe, the other Iberians, they are importing from Latin America and we have strong doubts about the sustainability and the possibility to do that for many years because the increase of pulp production in Latin America or our competition from Scandinavia, who normally import certain amount of wood from Russia, the equivalent to 2 million tonnes of pulp. And finally, in pulp, we benefit from a strong and experienced team, fully committed to our project. What are the competitive advantages in renewable energy? Well, first of all, the proven know-how in the development of renewable energies. Secondly, the proven capacity of buying brownfield at good prices. We've been always meeting in excess, the IRR targets we declared 5 years ago now, 9% IRR in biomass and almost 8% IRR in PV. Remember, in pulp, it's 15%. Cash conversion. As I said before, we have projects with low debt and the EBITDA has a high conversion in free cash flow. We have demonstrated also a proven capability to rotate assets to generate value to our shareholders. We sold the CSP 2 years ago now at a fantastic price, who was more than the expected free cash flow we were obtaining from this CSP. And we've done the same last year, at the end of last year with our PV pipeline. We grow, and when we see the opportunity to add value to our shareholders and when we get more IRR selling than constructing, we do that. The biomass itself has a strong competitive advantage on the renewables. It's the only dispatchable energy. It's the only manageable energy. And the national grid supports the biomass because of -- because it is the backup of all the other renewables. And finally, on the renewable business, I would like to point out and to explain why we have a new CEO. Well, we've been growing by greenfields, we've been growing by M&A. Today, we believe M&A is not going to be possible on the next years because the assets are very expensive. And then we have to grow with brownfield and going on, on new technologies. And Marc Gomez, who has been many years, the CEO and the Chairman of ABB Iberia (sic) [ABB Spain], has a strong knowledge of all those things who are important to make this business growing from a technological point of view. ENCE is in growing markets. Tissue is a fast-growing market. The consumption of tissue per capita on The States, in Scandinavia, in U.K. is 24 kilos per habitant and per year. It is only 15 kilos in Spain, it's less than 10 kilos in East Europe and it's less than 5 kilos in China. The demand of tissue is growing year by year. And we have a fantastic product made in Pontevedra to produce tissue. Plastic replacement. We've done a survey, you remember, 2 years ago now, and the plastic substitution is going to make the pulp market growing by 3 million tonnes in 2030 in Europe. And we are in this market. We have a good range of products to supply and to develop this market, and we have good agreements with our customers to develop this market. In energy, we are in a booming market. Spain has committed to grow in wind for 28 GW to 50 GW, in PV from 9 GW to 39 GW, and in biomass from 0.6 GW to 1.4 GW and we are going to be a player, an important player in this business. And on top of that, we have in energy, new business opportunities, and Marc will refer to that later on. The CO2 capture, the bioeconomy. And as Alfredo is going to say to you, in our forest assets, we want to develop CO2 capture. Sustainability equals to competitiveness. I remember in the '80s, where the companies were going to total quality, the old managers were claiming that the costs were increasing, and it was not true. I remember in the '90s, when we were on the industry doing a strong effort to be more safety, the old managers were saying the costs are increasing, and it is not true. Lower accident at work is cost reduction, local procurement of biomass and wood is cost reduction, gender pay gap equality allows ENCE to capture talent from the 50% of the market that if we don't have this policy, we were not able to capture. And the company is a Great Place to Work certified company, and that supports the commitment of our employees to our project, which is extremely important. We are reducing the CO2 impact. You know the prices of the CO2, it is cost reduction, and we are reducing the uses of water. And in the local laws in Spain, the less water you use, the less water you pay. We stand ready to share financial impact of climate change. We've been doing that forever. When we develop a new biomass power plant, we see what is going to happen with the climate on the next 25 years. And we've been doing that for Puertollano, we've been doing that in Huelva and we've been doing that in Mérida. And we know what to do in our biomass power plants when they will finish the regulatory life on the next years. We know what is going to happen on the water in Pontevedra and in Navia and we know what is happening on the northwest of Spain, with an increase of 2 degrees and level -- the same level of rain in the north and less rain in the south of Galicia. And we know the [ clones ] we have to plant in order to be able to have good productivities of the future. ENCE Energy, today Magnon, was last year, the first European company to certify the biomass according to the EU regulation. Why were we the first? Very simple. Because already in 2018, we had a standard, our own standard of certification and deliberate with the ecologists, and we've been working with that and certifying our biomass on the last -- on the previous 3 years. And also important from the point of view of corporate governance, ENCE in 2018 had its Sustainability Commission, who is leading our increase of sustainability day-to-day. My mantra, as I said before, is sustainability equals to competitiveness. Before finishing, let me share with you the possible impacts of the war of today in Ukraine. If the war takes long, with no doubt, the GDP will decrease, the inflation will increase, and both may affect pulp demand and the prices of the pulp and the prices of the energy. But we are one of the sole large industries self-sufficient in energy. We have local resources for producing this energy. We are more than self-sufficient, even on the pulp business, we are a net exporter of energy to the grid. We have temporary switch from gas to other fuels at Navia, and we don't depend anymore on gas. We source, I will -- I insist, our wood and our biomass locally, and we source chemicals in Spain and in other very close countries. And we sell our pulp in Western Europe. Let my colleagues talk now. Thank you.

Thank you, Ignacio. Now is the turn of our CFO and Chief Forestry Officer, Mr. Alfredo Avello, who will give us an overview of our sustainable forestry business. Your turn, Alfredo.

Thank you, Ignacio. Thank you, Alberto. Let me talk to you about our hidden jewel in ENCE. We never talked enough about it. ENCE is the largest private forest manager in Spain. We manage 65,000 hectares, 85% of them are PEFC and FSC certified. And around 20% of those areas are dedicated to preserving ecosystems and protecting biodiversity, being the reference in sustainable and responsible forestry management. Our forestry activities meet several targets. First of all, they act as natural carbon sinkers. We capture over 600,000 tonnes of CO2 annually as a great opportunity to continue in this business in the near future. Our plantations in North of Spain, they act as a buffer to source wood to our biomills, helping them not to import any wood as our CEO has said before. We promote efficient and sustainable plantations among private producers, providing improved clones and seedlings to them. We contribute to local richness, we create jobs. We preserve the forestation, we mitigate fire risks, and we fix population in rural areas. But how do we manage all these targets? As you know, sustainable wood production, as well as improved land management, plays a key role in the renewable carbon cycle. Our 3 nurseries in the Spain produce 12 million clones and seedlings that are developed to adapt themselves to a specific climate, soil and pest conditions of the areas in which they are planted. 2/3 of this production is sold to local private producers, strengthening the sustainability of our resources. Also, we have a very advanced R&D forestry activity. We have 9 clones of the second generation of them in the last phases to be approved already in the countryside. These clones should increase by another 20% growth and sinking yields the previous ones. But on top of that, we're already working on our third-generation clones. We have selected 400 families from different parts of the world with similar soil, climate and pest characteristics that should be developed to increase by another 30% this growth and sinking yields. Genetic improvement is key for sustainable forestry management and our R&D activities are going to lead us at the forefront of the production of new byproducts and carbon sink business. We will further then contribute to a circular economy, while maintaining a very high responsible and sustainable business practice. You will hear something more from me later on. Thank you very much.

Thank you, Alfredo. Now is the turn of our CEO of our Pulp business, Mr. Jordi Aguilo, who will explain our competitive position and growth plans for the business. Your turn, Jordi.

Thank you very much, Alberto. Best regards to everyone, wherever you are. It's a shame that we cannot share this time together in person. But at least, we are lucky that we have [ found a ] use to these digital platforms. Next, I'll focus on the key aspects from our market value proposition and strategic projects. Please feel free to ask whatever you consider during the Q&A session. Let me start by sharing you the global pulp trade. As you can see, China and Europe are structural net importers of hardwood due to the lack of hardwood. This dependence cannot be reverted due to land unavailability. The strong growth in China will have pressure on the prices that import -- of the -- sorry, of the wood that China is importing. Therefore, China will face higher cash costs that will increase the bottom prices of the cycle market pulp. Europe is depending in the hardwood that we are consuming. This dependence is around 40%, but in fact, if we consider the eucalyptus demand, this dependence increases up to 65%. ENCE has a privileged position to serve the European market, mainly for two reasons: firstly, high quality of wood located in the Northwest Spain, we don't need to import wood on a recurring basis. And secondly, proximity to our customers, where we have just-in-time advantages, but what's more even important, we supply technical advice, technical support to our customers in order to develop together special products that fits their needs. Over the past 10 years, we've seen our market grow almost 3% annually, which is equivalent to 1.6 million tonnes. The increase in demand in sectors like tissue, specialties or packaging, have more than compensated the decline on the printing and writing sector. More than half of the demand comes today from the fastest-growing sector, tissue. Note that 85% of the population is just starting to consume this product, far away from the consumption rates that we have in developed countries as Ignacio was talking about. Other growing categories are specialties and packaging, with a market share of 25%. They enjoy growth, thanks to the change in consumer habits and plastic substitution. Thanks, to the rise of e-commerce, the change towards self-packaging, the new uses of paper substituting plastics. All the new developments that we are seeing in trays, bottles all made with paper. The declining of printing and writing makes the impact of this sector lesser with time. Nowadays, this sector accounts only for 20% of the demand, while 10 years ago, accounted for more than 40%. We have a huge opportunity in our sector as pulp demand will -- is still growing because 80% of the demand is generated by these growing sectors that we've talked before. Sorry it's not working -- sorry. When it comes to our business presence across markets, as you can see, Europe is the main focus, with 94% of our sales -- sorry, because the slide changes. Okay, so Europe is 94% of our sales. Here is where we can provide a highly differentiated service with just-in-time advantages. We have better lead times and lower delivery costs. We can reach many ports due to the usage of smaller vessels with higher frequencies. This allow us to reduce the bottlenecks that we could face in -- due to the logistic bottlenecks. We can -- this means that when it comes to risk management, we are very valuable for our customers. We have more than 80% of our sales concentrated in the growing sectors where we have a strong customer portfolio. We also engage with printing and writing customers, where we have been to migrate to other sectors which are more profitable, thanks to our technical advice but also thanks to our special products portfolio. All that what we have commented before, has allowed to develop special products under the brand name of ENCE Advanced. These sales represented in 2021, 16% and will continue increasing as we will talk later. As you can see, we have achieved a very relevant growth in the ENCE Advanced portfolio, both in volume and in product lines. First, we seek 3 main characteristics: first, to improve our customer cost. Our customers can reduce their cost because they save energy because they can substitute the more expensive long fiber and because they can increase their paper machines' productivity. Second, we can generate sustainability, thanks to our products. We have been pioneers in developing the first new carbon-neutral pulp and the first company that we have obtained environmental product declaration certified in the market. And finally, these products allow us to improve the technical characteristics of the final products, like porosity, strength or even the printability of those products. As you can see, we have been launching new products in a consistent way during the last 3 years at a growth of more than 70%. Let me say a few words about them. Powercell is one of the core of our catalog. In fact, it's the most successful product that we have. Powercell can substitute long fiber. We can achieve the same strength as softwood while maintaining the softness of the hardwood. We can capture value from the market. Softwood is, in the last 10 years, an average of $100 more expensive than hardwood. And furthermore, our clients can reduce the electrical energy consumption. Naturcell is a product to reduce the carbon footprint. Naturcell is used to substitute plastics and is used in the packaging application. We've seen also a trend regarding the potential of application of unbleached pulp into tissue applications. Close cell is a product that thanks to its low porosity can substitute plastic films and is key in order to improve the carbon footprint of our customers. In 2027, we aim to increase our special products portfolio to 40% of our sales, which will represent 400,000 tonnes of pulp. Sales increase in this range, with [ our one sale ] Ence to increase our relationship with our clients, to increase the various entries and also to capture value from the market. Within the Navia Excelente project, we aim to increase the Navia's mill with 3 main initiatives previously outlined by Ignacio. The first, differentiated product strategy. Due to the success of these products, we've planned to increase the capacity that we have to produce them. We will implement a series of improvements to gaining flexibility and also to gain in eco-efficiency in our pulp mill in Navia. We will invest EUR 15 million to modify the woodyard to modify the cooking system and will allow us to produce more than 400,000 tonnes in 2027. It will allow us to capture an additional margin of EUR 20 per tonne, thanks to the characteristics of these differentiated products. This, together with our technical support and advice, provides us a unique position in comparison to our competitors. Second, project fluff. The pulp is used in absorbent products like diapers or feminine hygiene products, adult incontinence products, even in medical pads or airline applications. The demand of pulp will increase due to the penetration in developing markets as well as the increase of our life expectancy. Trend towards greater sustainability will also boost the demand of fluff because we will substitute the polymers that are used nowadays in absorbent products. Currently, 90% of the fluff is imported from U.S.A. and Canada. 80% of the market is concentrated in only 3 suppliers. ENCE will produce fluff using eucalyptus pulp and will be a great option for our customers to diversify their sourcing. The usage of eucalyptus will reduce the carbon footprint of our products. And we could improve the transformation efficiency using eucalyptus instead of pine. Imagine you are the director of purchasing of a diapers brand. And you could have the possibility to buy the fluff from ENCE, produced locally in Europe using local wood from the northwest of Spain, with greater softness, with lower carbon footprint, this project has a tremendous value. The fluff project will require an investment of EUR 30 million, and we can reach a production of 100,000 tonnes per year, leaving us an extra margin of EUR 40 per tonne. The start-up of this project is scheduled by 2024. We are ready to enter into contracts as we have all the permits and we have all the developing engineering. We have all the engineering and the technology solution already defined. Decarbonization through lignin valorization, which is our last initiative in order to enhance Navia in the Navia Excelente project. Wood is mainly composed of cellulose and lignin. Nowadays, we use lignin in our recovery boiler in order to provide 95% of our energy needs. We are using only 5% of fuel and gas in our line fields. And thanks to this project, we will completely substitute this fuel or gas for full lignin. We will separate the lignin, and we will obtain a full renewable fuel that we can burn it into our line field. Thanks to this project, we can also obtain added value products from the lignin as we've done several R&D projects on this field. This usage of lignin in our line field would allow us to reduce 50,000 tonnes of CO2 emissions every year. It requires an investment of EUR 60 million and will allow us also to increase our capacity production to 30,000 tonnes, because we will debottleneck the recovery boiler. This gain in efficiency will allow us to reduce our cash cost in EUR 5 per tonne. We have already requested all the permits, and we expect it to finalize engineering this year. The expected start-up of this project is in 2024. This ends my part of the presentation. Thank you very much.

Thank you, Jordi. Now is the turn of Marc Gomez, the CEO of our renewable business, Magnon Green Energy, who will explain our competitive position and growth plans for the business. Your turn, Marc.

So good morning, good afternoon, good evening, everyone, depending from where you're attending this online event. So I have the honor to lead Magnon Green Energy, the renewable business of ENCE Group. I would like to share with all of you today the unique and exciting opportunity that we have in the market around the renewable energy in the next years. I call it a journey that brings us to a decarbonized ecosystem, a decarbonized society in the following years, the next years. So we -- if you have to keep in mind just one message from my presentation, only one takeaway, it is very simple on the next one. As Ignacio was stating before, the Spanish market, the Spanish renewable market is expected to double by 2030. It's a market growth driven by 2 main trends. The first one is our commitment as a society towards that decarbonized and sustainable future. The second one, the technology that allows us to make that transition to a decarbonized energy ecosystem. Technologies like solar photovoltaic -- sorry, solar or biomass technologies, where Magnon has a very strong and deep expertise, experience got over the last years. And those technologies are expected to grow even faster than the average of the market, with 2 -- 2.3x, respectively. So the market is not the limit. The question is how we are going to deliver the growth over the next years. And we are going to do it with a very simple strategy, combining 3 main elements. The first one is delivering -- continue delivering the excellent results from our best-in-class operations, our best-in-class operations in our biomass plants. The second one is by delivering and executing our pipeline, our strong pipeline, both in biomass and photovoltaic. And the third one is growing throughout the new opportunities in the energy market, opportunities around energy management, energy storage, I mean, heating industry -- heating -- installed heat by biofuels, biogas. But any strategy needs to be built up from a very solid foundations, very strong pillars. That, in our case, is our actual operations. We are delivering EUR 50 million to EUR 70 million EBITDA result from our existing operations, our biomass operating in a regulated business. This is done throughout our 266 megawatts existing biomass plants. That EUR 50 million to EUR 70 million are built up from, first of all, at the annual return, secured at EUR 41 million, 7.4 percentage IRR operating in that regulated market. Furthermore, we have an additional EBITDA between EUR 10 million to EUR 30 million coming out from the regulated sales price bands. And we can have even additional in cash -- cash inflow from the difference between the market price of the energy and its regulated price, what we call the regulatory color. So this is the foundation of our strategy, our actual perimeter. But we were talking also about the growth, a growth coming from developing and deploying our pipeline. A pipeline that we have foreseen in biomass throughout our 3 projects that we are working very actively. In fact, we are not just thinking about the next auction, we are thinking about the 3 next auctions that are established by law in the Spanish market, which allows really to play with that project in a very prudent way and evaluating all different scenarios in a very uncertain moment and securing the profit and the benefits of our shareholders. So we are not in a hurry. We have a strong experience in building up that kind of bio plant mass (sic) [biomass plant], and we are evaluating all the different elements, which could be -- where could be the main or the best moment to really invest and the way through the next 3 next auctions. About the solar business, solar will be -- and it is a very strong and relevant market for Magnon. We are already developing 373 megawatts that are going to be ready to build status, reach ready-to-build status from the first plant, beginning end of this year and going throughout the rest of the year up to the first quarter of 2024. We are already working also in another 300 more megawatts at the early stage. So I think at this point of time, I don't think -- I don't need to convince anyone about the future of the energy will be green. But I think it's also very important, and we are forgetting very often is that a part of that, the energy needs to be manageable. It's to be dispatchable. And this puts us in a very, very sweet position, and it's because what others call the future, we call it the present. The biomass energy is manageable by definition. It's a great support for the system and giving it stability. This is the present. And we are already working, thanks to that capability and secondary and tertiary regulation of our biomass plants, which allows us to take the best and get the best from our plants, optimize our operations and get the most of our plants. We were talking about other opportunities, and one of them is energy storage with the massive deployment of the renewable energy into the mix in the Spanish mix. I mean with the introduction of more and more solar and wind energy, we need more capacity, more in the storage solutions in the grid. Magnon is analyzing several projects, several technologies that could be molten salts, batteries or gas compressed air to install it in our own facilities and give that support to the grid but also exploring the opportunities in the grid on the -- in the market. We were also talking about industrial heating. I mean that's another opportunity we are discussing with a lot of customers, not just because the actual prices, but even before the rally of the prices on the gas, I mean just because with that regular prices and the cost of the CO2, I mean, it is completely feasible to really change the actual heating done by gas and use the biomass, which is giving us the opportunity to really be independent from that fossil solutions. On the field of biogas and biofuels, we are also exploring the solutions, and we are already putting in place some projects for that kind of solutions. I mean we are already starting to discuss about projects on that. I mean we are very proud also that some large oil and gas companies are approaching us to really develop also that kind of businesses together, because they recognize us as experts in that field, in biomass but also in converting biomass and gas and biofuels. So all in all, just talking about Energy Management, and as I stated in the slide, this will bring us another extra EUR 5 million more on the bottom line annually just because of that optimal solution. So just let me recap on my presentation. So you have to remind just one thing from my message, it is that market is not the limit. And that we are going to deliver the growth base in 3 main elements: the first one, by keeping delivering the excellent results from our [ live -- our filler ] operation -- from our best-in-class operations. The second, growing throughout the biomass and affordable pipeline, creating a very prudent way, understanding what are the situations and always protecting the shareholder value. And the third one is developing and getting the opportunities in the market that are around energy storage and energy management solutions and all related to the economy. So thank you very much.

Thank you, Marc. Now is the turn again of our CFO and Chief Forestry Officer, Mr. Alfredo Avello, who will explain our financial outlook with more detail. Your turn, Alfredo.

Thank you, Alberto. Thank you, Marc. Despite the pandemic, ENCE has maintained a very solid and strong balance sheet and very prudent leverage. In the pulp business, we follow investment-grade leverage ratios of 2.5x at average cycle prices; while in the Energy business, we meet up to 5x due to its higher predictability, unregulated nature. In the Pulp business, we use no covenant policy. We enjoy a net cash position, and we have a fully undrawn EUR 130 million RCF. Also in the renewal energy business, we enjoy from very comfortable and long-term maturities. Both businesses are ring-fenced structure, no recourse one to the other, and they hold several green labels from Standard & Poor's and sustainability. It is important to say that out of the total gross debt of both business, only EUR 25 million are linked to floating rates. All the rest is linked to fixed rate, therefore, protecting our financial cost in the current inflationary scenario. This strong financial position and prudent leverage are key pillars for the development of our strategic plan. Let me talk about the main KPIs of our financial outlook prior to entering into it. Regarding the pulp price, we are following the analyst consensus. As you know, prices in Europe are gross to which we apply a discount that is different depending on the year. Currently, it's 36%. And when we apply that discount, we get to a net price. Well, that is the KPI to follow because that is the figure that will mark our margins. As you can see in the graph, average net prices over the last 10 years has been $605 per tonne. And the analyst consensus expresses that for the following years, we should be at those same level. Well, these are the levels we are using in our financial outlook. Regarding the energy price, we think that we need to be really prudent in the current situation. And we're modeling EUR 48 of energy price starting 1st of April this year are in the whole financial outlook. Also remember that we are not subject to merchant risk. All our plants are regulated. In the pulp business, we're also sufficient, we produce as much energy as the one that we need, and we basically have a feed-in tariff as a margin on top of that net debt position. Regarding our renewable energy business, we have 2 groups of plants. One of them, the last ones, Puertollano 50 and Huelva 46, they enjoy from a regulated floor price, which currently is [ EUR 43 ], but they do not have a cap price. So every single euro, the energy price increases, it will be additional cash inflow during the rest of the financial outlook. Just as a reference, every EUR 10 this energy price increases, you will get additional EUR 36 million in the financial outlook. Regarding the others, they do have a floor price and a cap price, but we do sell at the market price. So the price -- the fuel price increases will cash in those inflows in that year. There will be anticipated inflows. It is like if we get paid the inflows of the following years. We have them in our pocket, and we can use them for the development of our strategic plan. Having said that, as we said, we need to be prudent, and we are not including any cash inflow on top of those 48. We are not including any cash inflow from the regulatory color, starting 1st January '22. Let's go now to our strategy. Our core strategic plan is Navia Excelente, my colleague, Jordi has explained to us before, which means the implementation in the pulp business of the 3 projects he explained -- he talked about, plus the construction of 2 greenfield biomass plants in the renewal energy project in -- sorry, energy business in Magnon. Regarding our cash cost, there's 2 things I would like to remark. Number one, all cash components needed to produce the pulp in our business are included in our cash cost, including the wood. No matter whether it comes from, our own plantations or the market. And this is something that you need to take into account when comparing our cash cost with some other peers of the market. And also, the prudent view on the energy prices of EUR 48 is marking the cash contribution of our Navia 37 MW biomass plant in Navia. This means that if we have a higher energy price, will have a lower cash cost. Just as a reference, every EUR 10, the fuel price is higher, you will have a reduction of EUR 2.50 per tonne in the cash cost. Our CapEx program. Our CapEx program is -- has been built taking into account that the future can change. Maybe in 1, 2, 3 year time, whenever we are implementing and working on these projects, macroeconomics have changed, market conditions have changed. So we have built our CapEx program, which is flexible. The 3 projects are independent, and we have the availability to implement them whenever we think is the best time. That said, taking into account everything we have said until now in this scenario, we're showing a strong free cash flow, average frequent flow of EUR 120 million during the whole financial outlook. But there's something that is not in our hands. We do not have the certainty of the continuation of Pontevedra. We need to wait for the Supreme Court to rule. Well, even if we need to close Pontevedra, we can implement Navia Excelente; has nothing to do with Pontevedra not linked to it. So we can continue with the projects, and we can also build the 2 new greenfield biomass plants. Assuming we need to close Pontevedra -- to shut down Pontevedra at the end of the '23 year, we will stabilize our production around 660,000 tonnes and will reduce the cash cost down to EUR 365 million. Please note that in this scenario, we will benefit from a better wood mix, this will mean that we'll be able to have higher quantities of Eucalyptus Globulus and that will result in the increase of production of around 30,000 tonnes. And also, we will be able to optimize our discounts on the selling of our pulp because we'll be able to choose those clients with lower discount levels. Note that in this scenario, compared with the previous one, there's an additional EUR 72 million of outflow. This is the cash outflow that we need to pay if we need to shut down Pontevedra. And also remember that back in '22, we registered a EUR 2 billion provision in order to take into account that we might need to shut down Pontevedra this year-end. But moreover, if we are obliged to shut down Pontevedra, we will increase the production at Navia. Navia's land is ours and is not subject to any concession limit. In this case, we have 2 projects. Number one, we can use the main equipment from the Pontevedra biomill and build a new BHKP line in Navia. It will be around 100,000 tonnes -- additional tonnes of BHKP. We'll need a CapEx of around EUR 100 million. It will reduce the cash cost by EUR 10, and will add a free cash flow of EUR 15 million. Also, we can implement the Navia 340 project, which you know is the construction of a new swing line in Navia; will produce either 340,000 tonnes of BHKP pulp or 200,000 tonnes of dissolving pulp. It will reduce the cash cost by EUR 15 per tonne, and it will add around EUR 45 million of free cash flow to the company. We are working on the engineering of both projects in order to have them fully ready to whenever we have the outcome of Pontevedra ruling from the Supreme Court. And we will decide which project to implement depending, among other things, on the conditions of such ruling. Let me summarize the main ideas of this financial outlook. Number one, we are using analyst consensus for the pulp price. We're being very prudent on the pulp price, we're using EUR 48 starting 1st of April this year and during the whole financial period. We are not taking into account any cash inflow coming from the regulatory color. Our strategic plan is Navia Excelente, which means the implementation of these 3 projects plus the construction of 2 new greenfield biomass plants. Our CapEx program is flexible and could be adapted to whatever environment we are in. And in case of any adverse scenario in which we need to shut down Pontevedra, we will increase the production in Navia, either through Navia 100 or Navia 340. These projects, together with Navia Excelente will fully offset the free cash flow contribution of Pontevedra. Let me please now get the word back to our CEO, Ignacio Colmenares. Thank you.

Thank you, Alfredo. Now it's the turn of our Chairman, Mr. Ignacio Colmenares for his closing remarks. Please, Ignacio.

Thank you, Alberto. Thank you, Alfredo. Regarding the issue of the zoning problems in Pontevedra, we are more optimistic. We have no more hedges in policy -- sorry, in pulp or in electricity. We have a fantastic business plan, Navia Excelente to keep 100% of the EBITDA Pontevedra is giving to us today, even in case we lose on the Supreme Court. We prefer at the end, like, 100,000 tonnes is more prudent. We don't see disruption of our supply chain due to the war today. However, it has strong competitive advantages, more important than even today, local procurement of wood and biomass, self-sufficient in energy, a full range of special products for substituting plastic and softwood. We are in growing markets. We produce dispatchable green energy. We have a strong balance sheet with almost no debt. We have a good real corporate governance. In pulp, we are market leaders in sustainability worldwide. The objective of today have been to give your (sic) [you] insight into our business strategy and specific modeling. It is evident we are prudentially manage cash-rich business. We are cautious about taking on debt even though the option is available to us within our dividend policy. Our modeling uses the analyst forecast for pulp prices very similar to the average of the last 15 years, and our prudent guidance for production of pulp and energy and from cash cost of pulp and energy. Despite significant CapEx and these prudent guidances, we still increased our net cash positive positively year-by-year. Our shareholders will benefit from the new dividend policy. The future is bright for ENCE. We believe that sustainability equals to competitiveness. Ladies and gentlemen, it has been a pleasure speaking to you today. Now we are open in 5 minutes to the Q&A. Thank you very much.

Thank you, Ignacio. The Q&A session will start in 5 minutes. [Operator Instructions] See you in 5 minutes. Thank you. [Break]

Ladies and gentlemen, the Q&A session starts now. The first question comes from Gonzalo de Cueto from Exane.

I have 3 from my side. The first one, of course, is regarding the geopolitical crisis and there are early reports of Russian pulp makers struggling to get chemical raw materials from Western suppliers. What do you think about this? And could we see Russian pulp output out of the market in the coming months? That would be the first one. The second one will be regarding the transaction with Naturgy...

Excuse me, Gonzalo. Only one question at a time, please.

Gonzalo, thank you for your question. Well, this war may affect the Russian production of pulp, but Russia is not really important worldwide in pulp. Russia is exporting some small volumes to China, and those volumes can be substituted easily from elsewhere. What we see at risk is that Russia exports to Finland, the equivalent of 2 million tonnes of hardwood pulp in form of logs and chips, and that may cause a problem in Scandinavia. But I think that it's very difficult to predict what can happen with the war. It's only now, I think 20 days, it started. We all hope it will finish soon, but it's difficult to predict what is going to happen. In any case, China is not a relevant player in pulp. Thank you, Gonzalo.

My second question would be on the potential investment in Navia of 100,000 tonnes of pulp. I mean how long -- I mean, once you made the decision and go ahead with investment, how long will it take to put that capacity in the market? And what is the potential equity return that you are foreseeing with that investment?

Thank you, Gonzalo. Well, Navia Excelente has 2 phases. The first phase, as we explained, is right now, the fluff after the decarbonization, the special products increase. And then we will know what happens with Pontevedra, if we win at the Supreme Court or we lose. If we win at the Supreme Court, nothing else would happen in Navia. We will continue in Pontevedra, and we will invest in Pontevedra. In case we lose, we will increase the capacity of Navia by 100,000 tonnes. We prefer this project to Navia 340. It is smaller. And what is important is that all the projects of Navia Excelente plus Navia 100,000 tonnes equals to the free cash flow or EBITDA of Pontevedra. Then we will be even losing at the Supreme Court like we are today in terms of free cash flow. Navia 340 is a fantastic project. It has a slightly higher IRR than Navia 100,000 tonnes, both are above 15% IRR, which is our target. But it is EUR 450 million. And today, on this world we are living, with COVID and the war, it's risky to sign a commitment for EUR 450 million even if the project is good. That's why we prefer Navia 100,000 tonnes. But in 2 years' time, we will know what happens with Pontevedra, we will take the final decision.

Okay, very quick. Thank you. Very clear. So the last one is related to the energy business. First of all, regarding the transaction with Naturgy, has there been any update on the permitting of those 373 megawatts? Should we expect something this year? or it's going to be more in 2023, 2024? And the last one looking at your 300-megawatt pipeline, is there any specific target or number that you have in mind in terms of megawatts that you would like to rotate either this year or in 2023?

Thank you, Gonzalo. Regarding the permitting of the pipeline is going on. Yes, today, we expect that we are going to be able to cash in a part of it at the end of this year, another part during 2023 and finally at the beginning of 2024, no news so far. Regarding the other 300-megawatt on early stage, well, we are developing it, and we will decide what to do on the future. Why haven't we decided in December last year to sell to Naturgy the first 340-megawatt? Well, because the prices of the PPAs at that time and the prices of the EPC contract of PV at that time, the IRR with our low debt of 60% on the project was just 5%, and it is below the 8%. And Naturgy was paying EUR 62 million, which is better for our shareholders than developing at 5% IRR, which is not interesting with our cost of capital. What are we going to do in the future? We don't know. Let's develop and let's take the decision in a couple of years. Who knows what is going to be the prices of the PPAs and who knows what is going to be the prices of the EPC contracts for PV. But in any case, we will make value for our shareholders. Thank you, Gonzalo.

The next question comes from Jose Tamayo from GVC Gaesco.

My -- the second question is just answered because it was about asset rotation and renewables. But the first one is about energy also. I think that 1.5 years back we sold -- ENCE sold minority stake in Ence Energia and today, we have a new brand name, Magnon. And in the press release, if I remember properly, it says that we are trying to have much more visibility in the industry of energy. But sometimes, as you know, with the -- in the financial sector, all visibility and, of course, all valuation, it ends only when the company is listed. So my question is after this new brand name, do we have any plan for a possible spinoff of the company?

Well, we want to grow in Magnon, and I let now Marc to explain to you how we are going to double the EBITDA of Magnon on the next years. And yes, we may split the company off, but not below -- not before the company is on EUR 100 million EBITDA. ENCE has the majority and ENCE wants to keep on the majority of the company, then we need a larger EBITDA in order to keep that and make value. Marc, why don't you explain how we are going to grow in Magnon.

So thanks for the question. Really, the new branding is just what Ignacio was saying just reinforcing, giving visibility, given their own personality on the specific market which is energy, which needs also that kind of response. I mean as I was explaining, I mean, this is a story about growth. It's a story about growth from very solid foundation from [ our ] perimeter and then growing the market opportunities that we have with the double size of the market in the years in the next years. I mean we are going to growth on the energy storage. We are going to grow managing even better than the energy. And we are going to grow through industrial heating, for example, we are going to grow through biofuels, biogas. On those projects, we are already working, and we are working on our hand also, we are working also with the competitor -- with corporations with partners, which allows us to learn and also to introduce in that market, always putting ourselves in the value chain of the biofuels on a very high position on the value chain and very close to the consumers. This is about the -- story about growth, and that's exactly what we are going to do and what we are committed to. That's the only way to really double the profitability of the company.

The next question comes from Jaime Escribano -- sorry, from Pablo De Renteria from Kepler.

I have just one question, if I may. What measures do you expect from the government to reduce the energy price and how this could affect your energy business?

Well, Pablo, we have no idea what the government is going to do. The government will, for sure, reduce the price of the energy. They are contemplating different measures, and I think we will know something else at the end of the month. What is very important is that on the model we have shared with you, we have a price of the energy from April 1 at EUR 48-megawatt hour. An average price of the energy in the full year of EUR 100-megawatt hour. And the color we have already generated roughly EUR 50 million on the first quarter is not in our financial statements by prudency, what means that anything that the government decides will be better than what we have in our model. Thank you very much, Pablo.

The next question comes from Edward Bottomley from Berenberg.

I have a few questions. So what is the thinking behind using EUR 48 megawatt hour energy price? And do you expect this to be enforced for longer than just the end of 2022? So are you expecting this regulation from the government to just be for the rest of this year or for the rest of time?

Edward, it's just a question of prudency. EUR 48 is the medium of the range allowed by the regulator today, then we have take the minimum price by prudency.

Okay. In your financial projections, assuming Pontevedra is closed, when would you expect production to cease? And how would the EUR 72 million of dismantling costs be phased? So would that be over 2023 and 2024? Or how exactly?

Well, in our projections, Pontevedra stops production at the end of 2023 and progressively on the second half of the year. And again, it is prudent. Let's say, that we lose on the Supreme Court. We will lose probably or we will win. We will know something from the Supreme Court by the end of this year. The Ministry of Transition Ecological and the procedures of the Pontevedra cases have said that they don't need we shut down immediately. They just want us to shut down. Then we will probably make an agreement and close on a certain reasonable period of time. Again, by prudency in our statements and in the model we have shared with you today, we are shutting down Pontevedra at the end of 2023.

And in terms of the dispensing costs, would that be then in 2024, for example?

Well, by prudency, we will say that the dismantling cost will be 12 months after shutting down.

I was very interested to hear that your forest removed 600,000 tonnes of CO2 annually. Is there a way for you to get any financial benefits from this, say, through the EU carbon permit scheme?

Well, we are working on that with our forest assets, mainly on the south of Spain because we are managing the close to 50,000 hectares. And we have nominated a new responsibility for this business, and we have just started. But we are quite positive it's not going to be a tremendous business, but it's going to be money on top of the EUR 8 million of EBITDA our forest assets are giving us every year. But we are just starting, Edward.

Okay. And last question for me. So am I correct in thinking that the first tender for biomass in Spain will be held on the 6th of April. And are you expecting to win one of these slots? And if so, should we anticipate the return on operation to be in line with the latest biomass plants?

Well, again, prudency. We expect now the auction this year to be before summer. We believe today that it will be a crazy idea to put a fixed price on the bid. We have no idea of the cost of the CapEx. Today, in Europe, you have plenty of projects with EPC projects with 40% and 60% higher cost because of what is happening with the raw materials. We have a structure of EPC contractors in Spain, who is weaker than a couple of years ago. And we want to sign a reliable contract with a reliable partner. And we have, on top of that, uncertainties regarding the regulation of the byproducts on the agriculture. Then today, with the information I have, I would say you -- well, we may go to the option, but with a price who I'm pretty sure will not be attractive. I think today is more clever to wait for the auction who by regulation is going to be next year. I think that by next year, in 12 months' time, we will know better the prices of the materials for an EPC contract, we will know better the financial situation of the EPC contractor, and we will have fully understanding of the regulation in the -- bio availability through our byproducts. When we've been growing in energy since 2011, we're growing prudently. We have not done a single failure in any project and we don't want to do a single failure. You have to understand that we have the balance sheet we have. And the biomass power plant cost at least EUR 125 million today, maybe more on the range of EUR 145 million. And we cannot lose this money, then prudency. We will have by law a new option next year, and I think we will be more prepared to go to this auction. Thank you.

The next question comes from Alvaro Lenze from Alantra.

The first question would be on the cash costs. It will seem that the EUR 450 per tonne that you are guiding is a bit higher than the previous guidance. I wanted to know whether this is because you're recurring to a larger extent to wood imports or whether this is reflecting higher logistics costs from the conflict in Ukraine and Russia?

I maybe misunderstood your question, Alvaro, we don't use gas. We have switched gas. All the gas we used to use in Navia, we have switched to other fuels. And since late December, we are not using at all gas.

Okay. And then what would explain the increase in the guidance for cash costs for this year?

No. The increase in the guidance of cash cost comes from the fact that we have put on the model from April 1, a price of the energy of EUR 48 per megawatt hour. That diminish the EBITDA, the margin of our 37 biomass power plants in Navia, who is reducing our cash cost. And as -- with this new price, the EBITDA of this biomass power plant in Navia is lower. It increased the cash cost in our Pulp Business. It only came for this decrease of the price of the energy who increased our cash cost because we have less profits in Navia 37 biomass power plant.

Okay. Perfect. My second question will be on your forestry asset strategy, whether you are planning to increase your in-house sourcing or whether you're probably going to continue to rely on third parties? And also on the previous line, if I recall correctly, you talked about diversifying and incorporating other species of wood, including pine and so on, whether that's still the case or whether you have abandoned that pathway?

No, the strategy continues. Alfredo can explain what number of hectares we are planting every year and how much we are increasing our hectares per year at the north. And Jordi can explain how we are diversifying in wood species. Alfredo?

Yes. We are currently harvesting around 400,000 tonnes of wood from our plantations. At the end, in the north, this is a fallback of what we are supporting the sourcing of our pulp biomills and the south is basically producing pulp wood for third parties. We are increasing by around 600 to 1,000 hectares per year. It is to keep on being a fallback -- a buffer for the biomills business in the future. And regarding this business, it's just our nurseries and cones. Jordi?

Yes, regarding our strategy in order to diversify our wood resources, yes, in fact, we are using pine to produce pulp. And also, we are using pine for our biomass plants located in our cellulose business. So we are following our strategy. We have also diversified into using nitens and also, we are using regnans. This portfolio of wood allow us also to develop special products. We take advantages of the characteristics of this wood in order also to provide other quality into our pulp, and so we can offer these characteristics into our customers.

Alvaro, our strategy is very simple, is to be able to by locally all the wood we need then for that, we need to diversify in any kind of wood who is growing, surrounding our pulp business and to have a full range of products in pulp in order to be able to sell at a short distance. Local sourcing, local market, diversification, diversification. Thank you, Alvaro.

Perfect. And maybe the last question will be a follow-up on the strategy on energy. I understand the asset rotation in a context in which you were able to achieve a higher rate of return by selling the asset than developing it organically, but stepping aside from the financial side, from a strategic standpoint, if you want to really make this a big business, the big question would be why the organic return was not what was probably initially expected when you launch these projects? I don't know if you feel it was due to CapEx inflation or what the reason may be and whether you expect this to change and whether you can make the products more profitable or sustainable just organically to add size to the energy business.

Alvaro, we are not an old economy company, an oil company. We are already a renewable company. Then we don't have a mass to grow. We don't want to grow. We want to make value for our shareholders. Then a good example was the CSP. The CSP -- the discounted cash flow of the CSP we were expecting when we sold it, now 15 months ago was 50% of what they pay us. And it's very clear, you have to sell. And as I told to you before, with the prices of the PPAs of the energy with our prudent models of modeling the PV at prudent prices of the energy and with the actual cost of the EPC contract, we were only making 5% IRR. It has no sense to make 5% IRR with our WACC. It's better to sell if you have paid EUR 62 million. Then we are growing in energy, but we are growing with financial discipline and with a threshold in the IR targets, and we want to accomplish those targets. Thank you, Alvaro.

The next question comes from Jaime Escribano from Banco Santander.

So a few questions from my side. And the first one regarding the 3 new projects at Navia, although I know you have provided some information, but just to be on the same page, could you please quantify the incremental EBITDA you expect from these 3 projects and also if you end up doing the 100,000 pulp expansion, how much EBITDA would you expect also on that?

Yes. Thank you very much, Jaime. Yes, the fluff business will increase EBITDA by EUR 4 million per year, a minimum. The increase of differentiated products, which have, as you know, an extra margin today of EUR 20 per tonne will increase the EBITDA in EUR 5 million per year. The decarbonization of Navia, what is to switch from gas to lignite and to debottleneck the recovery boiler and being able to produce 30,000 tonnes more will increase the EBITDA by EUR 8 million. Then all in all, we have EUR 17 million. If we lose on the Pontevedra case on the Supreme Court, and we invest EUR 100 million in Navia 100,000 tonnes, we will increase EBITDA in EUR 19 million. If we lose in Pontevedra, we could improve the mix of wood we are buying and we could improve the mix of pulp we are selling, and that will give us further EUR 4 million. Then all in that equals to the EUR 40 million EBITDA Pontevedra is giving us today.

And a follow-up question on this would be, I'm not sure if another analyst asked, but I didn't hear it. In terms of wood availability, these projects who are particularly the one of the expansion of 100,000, right? Would that be a problem? Or how would you contend with that?

No, no. It is not a problem because we are only going to execute this project of Navia 100,000 tonnes in 2 or 3 years' time if we lose in Pontevedra. And if we lose in Pontevedra, we are going to produce 0.5 million tonnes less of pulp, would mean to buy 1.5 million tonnes less of wood. That is why I told you we were going to improve the mix of wood we are buying.

And then another question on energy would be and probably because of your answers, maybe you cannot answer it, but I'm going to ask in any case, just in case is -- so you plan to build 2 biomass plants. The question would be how much CapEx or give us a range? I know that probably with the inflation cost right now is difficult but maybe to have a sense of how much CapEx would you invest. And what is the EBITDA that you could get out of these 2 biomass plants?

Yes. The problem is that, Jaime, we are going to go to an auction. We are going to be extremely prudent on the auction, but I cannot give you the values today. It will be a terrible advantage to our competitors.

I was expecting that. Okay. And just a final question from my side. Regarding the dividend remuneration, can you anticipate anything or not yet? Just to have an idea of how much could be the dividend yield and what size of remuneration are we talking about more or less?

Well, you know our new dividend policy. It's very easy. We have a strict financial policy on debt. Only 2.5x the normal EBITDA in pulp and 5x the normal EBITDA in energy. And any cash we have in excess of that can be distributed if we don't need for CapEx commitments. You know now the figures of the CapEx commitments, you know the figures of the EBITDA, then you can very easily calculate how much we could distribute. In any case, in 2022, you know that in Spain by law, we can only do several things. Then on the first quarter, we could distribute up to 100% of the net profit of the first quarter. And according to our policy, we are going to continue doing such on the third and the fourth quarter.

The next question comes from Manuel Lorente from Mirabaud.

My first question is for Ignacio. Regarding the bridge that you had just stated associated with the potential recovery of Pontevedra's EUR 40 million EBITDA, if I understand you correctly, you were mentioning that the bridge was a combination of EUR 19 million from the different levers associated to Navia in terms of differentiation of products, fluff and decarbonations (sic) [decarbonizations] then EUR 4 million in terms of improvement of mix of wood. And then you were mentioning another EUR 17 million from capacity expansion.

Yes. It's roughly is what I said. I said EUR 8 million, the decarbonization, EUR 4 million, the fluff, EUR 5 million of differentiated products. It is EUR 17 million. EUR 4 million, the improvement of the commercial mix of pulp and the commercial mix of wood. And at last, if we lose Pontevedra, if we lose, not if we win Pontevedra, EUR 19 million by increasing 100,000 tonnes the production in Navia, totaling EUR 40 million.

Okay. I see. And those numbers are incorporated in the free cash flow expectations, in the sense that when I see your presentation, I see that if you do not lose Pontevedra, you're expecting an average of EUR 120 million of free cash from the period 2022 to '27, right? On the following slide, you're mentioning that if you do lose Pontevedra, the average of free cash flow on the same period, it will go down to EUR 103 million. But when I see on the left side of that slide, I see no capacity expansion. So my question is whether on those free cash flow expectations ex Pontevedra, you're incorporating or not the 100,000 tonnes expansion in Navia?

Manuel, may I answer you?

Yes, sure.

Manuel, we have shown 2 financial outlooks. In the first one, where you're saying we're having Navia Excelente having Pontevedra operating. In the second one, what we are doing is excluding Pontevedra maintaining Navia Excelente including the EUR 4 million of the wood mix on the pulp. But remember, please, that you have EUR 72 million from the shutting down of Pontevedra. You don't have Navia 100 there. You just have what I have just said.

Okay. So that explains the EUR 15 million gap or EUR 20 million gap of free cash flow on the '26, '27 not that you don't have any capacity expansion in Navia?

Yes, sir.

And you have the cost of dismantling in Pontevedra.

Okay. Okay. I see. So just one more question on the energy business then. I agree that the stance on the Capital Market Day is based off massive growth ahead on that business. I agree. And that implies a massive growth in volumes going forward. But your expectations in terms of prices, we are seeing that massive competition on that front. Actually, in the last action, there was a severe compression in terms of price. So I believe that at this stage, nobody has doubts regarding volume expectations of the business, but what about prices? Because they might condition as well profitability of the business going forward.

Well, that is why we said we have to be prudent. Then in biomass, well, there is no so fierce competition like in PV for sure. But today, it's difficult to know the price of the CapEx. What is the price of a biomass power plant today with a huge weight of steel inside and copper inside? Nobody knows, then it's very difficult to bid the price. And on the PV auctions, well, I think that there is also uncertainty on what are going to be the price of the steel structures on the PV park, what is going to be the cost of the labor on a PV park and what is going to be the cost of the solution and the PV panels. Then today, what I see is uncertainty. I think that what happened 6 months ago, will not happen again during this year because of the huge uncertainty and uncertainty increased prices, for sure.

We have a written question from an investor who has technical problems. [ Gianluca Perricone ] from [ Noninvest ]. His first question is Navia 100 project is inevitably an alternative to Pontevedra. Cannot we increase capacity and keep Pontevedra?

Well, again, it's a question of being prudent. We think that if we win in Pontevedra, we are on an intensive capital industry. We have not been investing in Pontevedra since the game change 2 years ago. We are not going to invest this year, and we will have for sure to invest in Pontevedra on the future, then we prefer to concentrate those investments in Pontevedra. And don't forget that Navia 100,000 tonnes is very cheap in terms of CapEx to the volume we will produce and has a fantastic yield because Navia 100,000 tonnes is done with part of the equipments of Pontevedra. If you go to a brand-new mill pulp line in Navia, it will be much more expensive. Thank you.

His second question is regarding the cyclicality of the pulp price. If you can elaborate a little bit about the main drivers of the pulp price?

Well, we are in a cyclical business, no doubt. Then I think that when we project, we have to take average prices. What has been the average pulp price in the last 15 years? Well, the equivalent to a net price of $600. What has been the minimum? $450 million. Then the price has been going from $450 to $800 and an average price of $809 -- sorry, of $600 net price. If we see the industry now, while, the new expansions in Brazil are tremendously competitive, no doubt; the expansions in Chile and in Uruguay are like they are today, very similar to the Iberian cost. And the cost -- marginal cost in China will increase a lot. And the marginal cost of the pulp mills importing wood is going to increase a lot because wood in Latin America is going to be secured by the increase of the new pulp projects. All in all, what in the industry we see today, and it's a short vision is that this bottom price of $450 is going to be above $500, which is already above $500 at normal prices of the freight rate and normal prices of the gas and the energy. Then if you elaborate, if we elaborate models while we use in our own models, we are not sharing with you $600 of the net price with stress case who were $450, they are going to be more on the size of $500. And when you take the projections of the independent analysts, well this $600 net is very similar to what they are saying.

There is only one final question coming from Alvaro Lenze, again from Alantra.

Just a question on the capital allocation. I understand the prudency stance given the very high uncertainty on basically all fronts and that you do not want to commit that much CapEx to the big expansion on Navia even if Pontevedra finally does not work out. But I wanted to know if that is the case, why not, not distribute dividends instead of the recent dividend policy that you have announced? So why not save the cash so that you have more flexibility to engage in these investments, which you, yourself, have indicated that could potentially have higher IRR than the Navia 100,000 tonnes project?

I really don't understand what you are asking, Alvaro.

Yes. You have indicated that your preference is the smaller expansion in Navia if Pontevedra does not work out because you do not want to commit as much CapEx to the larger expansion of Navia. And my question would be, why not instead of paying a generous dividend, save that capital and have higher flexibility to engage in the bigger investment if eventually Pontevedra does not work out?

Well, we will see on the future. What is very difficult is to take a decision today. And today, our decision is in case we lose and today, I insist, we are a bit more optimistic than a few months ago. If we lose, we will do Navia 100,000. Why? Our planned Navia Excelente is fantastic because it's a step-by-step plan and on a cyclical business that is excellent. We invest EUR 30 million on the fluff. We invest EUR 60 million on the decarbonization. We invest a small amount of money in being able to produce special products in Navia. And then we take the decision. Today, if today, we were obliged to take the decision is Navia 100,000 tonnes. Why? Because today, we have -- we finished last year with EUR 20 million positive cash on the pulp business, but even so to sign a contract for EUR 450 million with our size of balance sheet is a bit risky on this uncertain world and on the cyclical industry. But now just a dream. Let's say that we are in 2024, and we are unfortunately losing Pontevedra. We have been making a lot of cash in '22 and '23. And we have a strong net cash position at the pulp business. We have money from the European projects to finance part of the project. Maybe we will go to Navia 340. But today, with the information we have, we think it is more prudent to go to Navia 100,000 tonnes in case we lose Pontevedra. But today, we are more optimistic regarding Pontevedra.

There are no more questions.

Well, ladies and gentlemen, thank you very much for your interest during the last 2 hours. We are, as always, Alberto Valdes, Alfredo, Alvaro and myself, open to any meeting you may require in order to go deeper in this information. Thank you, and all the best.

Thank you.