ENCE Energía y Celulosa, S.A. ($ENC)

Good morning, ladies and gentlemen. Welcome to the Ence First Q 2026 Results Presentation. I'll now hand over to Mr. Ignacio Colmenares, Executive Chairman; and Alfredo Avello, CFO. Gentlemen, please go ahead.

Good morning, good afternoon, and welcome to Ence's First Quarter 2026 Results Presentation. Thank you for joining us. I'm Ignacio Colmenares, Executive Chairman. And today, I'm joined by our CFO, Alfredo Avello; and our Head of IR, Ines Alvarez. Let me start with the strategic picture and our overall objectives. Our plan remains simple to describe and rests on 4 pillars: growth in higher-margin special pulp substituting BSKP; local wood and biomass sourcing; cash cost efficiency; and EBITDA growth in our Renewables platform, leveraging our position as the largest collector of biomass in the Iberian Peninsula. Slide 4 summarizes the first quarter of 2026. It shows the progress we continue to make in all pillars of the strategy despite a less-than-brilliant quarter, impacted by several one-off events. Importantly, these events do not change our full year Pulp guidance. We consider that both the market and the company's costs are at an important inflection point that will be visible in future quarters. The pulp price environment has continued the positive trajectory we saw at the end of 2025. European gross BHKP prices stood at $1,286 per tonne at the end of first quarter '26 compared with $1,100 per tonne at year-end 2025. Major producers have announced further price increases up to $1,430 per ton to be implemented in the short term. Since prices in our contracts are linked to the 2 previous months, we started to benefit from the price increase in the second quarter. At the same time, we continue to work on the fundamentals of the business, improving our product mix, making progress in our cost reduction initiatives and advancing the Renewables platform. In our Pulp operations, our pro forma cash cost was EUR 479 per tonne in first quarter with Navia in its planned shutdown and excluding the impact of the Navia strike. On the product mix, special pulp products, including initial fluff volumes, accounted for 34% of total pulp volumes sold in first quarter '26, plus 13% compared with 2024 -- sorry, compared to 2025 despite the strike. We remain on track to reach 40% for the full year 2026 and to exceed 62% by 2028. As for our Renewables platform, pro forma energy generation was 303 gigawatt-hour in first quarter '26 compared with 277 gigawatts in first quarter 2025. This figure excludes recent extreme weather conditions in the Iberian Peninsula. This had an impact of 40 gigawatt-hour in production and of around EUR 6 million at EBITDA level. La Galera has completed its odor elimination program and will act as a showcase for our biomethane pipeline developments. Financially speaking, group consolidated EBITDA was EUR 1 million in first quarter '26. Pulp EBITDA was negative EUR 1 million. Renewables EBITDA was EUR 3 million, including EUR 1 million [ of the rest ] related to new business developments. Investments amounted to EUR 53 million in the quarter, including machinery leasing of the fluff project and the final payment of EUR 15 million for the 2019 pulp dryer debottlenecking at Navia. Our full year CapEx guidance of EUR 120 million for both businesses remain unchanged. Net debt stood at EUR 462 million with EUR 209 million in cash. We also continue to act proactively on financing. As a reminder, we registered a new EUR 200 million MARF bond program in January 2026 and completed a first EUR 85 million issuance with a 4-year bullet maturity and a 410 basis points coupon, a clear signal of the reliability of Ence for the investor community. In addition to the EUR 7 million cash already collected in the first quarter, we cashed, in last week, EUR 21 million from the collection of tax losses. In summary, this was a quarter heavily impacted by one-off events, the Navia strike in Pulp and extreme weather conditions in biomass generation. But none of these changed our full year guidance, nor our strategic trajectory. Before turning to the pulp market, I would like to address the geopolitical context. On Slide 6, we not only outline why we expect the Iranian conflict to have a limited negative impact on our business, thanks to strategic mitigants in both Pulp and the Renewables platform, but also why the conflict could create opportunities for European pulp players and local energy producers. In Pulp, our mitigants are structural. We are more than self-sufficient in electricity within our production process with excess energy sold back to the grid, and that excess may benefit from higher pool prices. Our gas exposure will be further reduced in the near term through Navia's efficiency and decarbonization plan, which includes replacing gas consumption in the lime kiln with pulverized biomass and bioethanol captured during the process. This investment will be fully operative by mid-2026. Remember that out of 6 thermal megawatt-hour required per ton of pulp, 5.5 are already self-produced. We source wood locally with an average radius of less than 110 kilometers. And our commercial focus is in Europe, which accounts for 92% of our pulp sales. In our Renewables platform, we rely on fully local biomass sourcing with an average radius of 145 kilometers. We have an ongoing electricity hedging program for 80% of production and gas hedging for 72% of our needs. The opportunities are real. In Pulp, the positive pricing momentum favors European players focused on the local market, given the logistics constraints faced by Middle East, Asian and Latin American pulp and paper producers in its exports. In our Renewables platform, we expect an acceleration in our industrial heating pipeline. Biomass is more competitive than gas, and its supply is more reliable, as well as increased revenues from ancillary services due to higher power prices. Biomethane benefits from similar tailwinds. Let's look at cost competitiveness on Slide 7. Our cash cost trajectory remains on track to meet our full year guidance of around EUR 468 per tonne for 2026. Our competitiveness and efficiency plan aims at cost savings of EUR 30 per tonne: EUR 22 per tonne from headcount reduction, process reengineering and digital and AI-enabled optimization; and EUR 8 per tonne from the Navia cost reduction, decarbonization project. In terms of progress during the quarter, on the competitiveness and efficiency plan, we captured savings of EUR 6 million on an annualized basis in first quarter. Taken together, these initiatives underpin the EUR 30 per tonne cash cost reduction expected during '26 and '27 with approximately EUR 15 per tonne expected this year in '26, supporting our guidance of around EUR 468 per tonne for the year. Slide 8 considers the market environment and the continued upward momentum in hardwood pulp pricing. BHKP prices ended first quarter '26 at $1,286 per tonne compared to $1,100 per tonne at the end of '25. Major pulp producers have announced price increases in Europe of up to $1,430, to be implemented in the coming weeks. The expected cost increase in logistics and chemicals, stemming from the Iranian conflict, combined with a tighter paper and board market in Europe, may offer further upside on spreads. We expect a price improvement in the second quarter and third quarter as our pricing structure is indexed to a 2 months trailing reference. Importantly, BHKP continues to gain share versus softwood. Eucalyptus pulp demand has grown by 1.3% so far in 2026 January and February, in contrast with a 6% decline in BSKP. Fiber-to-fiber substitution, combined with BSKP capacity closures and shifts towards dissolving wood pulp will continue to drive BHKP demand up. Moreover, logistics disruptions linked to the Iranian conflict favor higher prices for regional players such as Ence due to the limited availability of overseas products such as pulp and paper from Asia, Latin America and Middle East. Overall, the message is clear. The market backdrop supports firmer hardwood pulp pricing in Europe, driven by a combination of favorable demand dynamics, supply constraints and higher fiber costs. That is precisely why our strategy is built around cost, fiber security and growth in special pulp substituting BSKP. Moving to Slide 9. Our product strategy continues to progress as a key differentiator. Special pulp accounted for 34% of sales volume in first quarter '26 compared with 30% in '25. These products deliver higher margins, approximately EUR 36 per tonne above standard BHKP, since they substitute higher-cost softwood alternatives in multiple applications. We expect this share to increase to 40% in 2026 and to exceed 62% by 2028. We have a range of special pulp products. Advanced is our solid broad range of BSKP pulp substitutes with different attributes: high strength, unbleached hardwood pulp, low porosity, softness, suitable for diverse applications, including hygiene, decor and packaging. Our '28 target is 500,000 tonnes with an incremental margin of over EUR 30 per tonne versus standard BHKP. Ence Fluff is another flagship strategic product. Ence is the sole European producer of fluff pulp based on eucalyptus wood competing with more expensive softwood. We are currently in 8 [indiscernible] processes. Our 2028 target is 125,000 tonnes, with an incremental margin of over EUR 60 per tonne. Fluff ramp-up is not just a start-up story. It's a market access story. Qualification takes time. But once approved, volumes tend to be sticky. And the product is anchored in more stable end markets linked to the aging population and improved hygiene habits. These products are not simply marketing labels. They are an economic lever. When customers use our grades to substitute softwood pulp, they do so for performance reasons. That performance allows pricing discipline, and over time, a structurally higher margin than standard hardwood pulp. As you can see in Slide 10, our strategic goal is simple. We are not only lowering costs, we are improving what we sell. Together, these moves are designed to reposition Ence as the lowest-cost producer on a BSKP substitute basis. By 2028, more than 62% of Ence's sales will come from BSKP substitute products. Combined with our cash cost reduction programs, this strengthens our relative position on the core in downcycles and increases our operating leverage in upcycles. Due to the effects of both the improved product mix and cost saving initiatives, in 2028, the pulp spread will be EUR 52 per tonne higher than in 2025. Moving on to Slide 11. Let me now turn to our Renewable Industrial Heating platform in Spain. Our target is to supply 2 terawatt-hour of thermal energy by 2030, contributing around EUR 30 million to EBITDA. We currently have 1 contract in operation, and we are adding 1 more in May and 3 more in the summer, 5 contracts operating at the end of the year. Our pipeline includes 11 projects under negotiation, of which 3 are under advanced negotiation with a required ROCE above 11%. Continuing with Slide 12, our biomethane platform in Spain continues to advance steadily. Our target is to produce over 1 terawatt-hour of biomethane by 2030 and to contribute more than EUR 60 million to EBITDA with return discipline above 12% ROCE. The pipeline is solid and substantial. Nine plants are expected to reach ready-to-build between '26 and '27, and 25 plants are already in their late permitting phase. In total, we have 41 plants with gas grid connection authorized, feedstock and locations guaranteed. Slide 13 illustrates the depth and maturity of our biomethane pipeline. Our pipeline has a potential capacity of 4 terawatt-hour, 4x our 2030 current target of 1 terawatt-hour. This underscores the different options open to us and our ability to accelerate or pace development according to market conditions and return discipline. I'll now ask Alfredo to summarize our financial position.

Thank you, Ignacio, and good afternoon to everyone on the call. I will now walk you through the financial results for the first quarter of 2026 before handing back to our Executive Chairman for the closing remarks and the Q&A session. Let me start on Slide 15 with an overview of our financial results. As already mentioned, the first quarter of 2026 was, apart from the annual planned shutdown at Navia, marked by 2 one-off events: strike at Navia linked to the ongoing collective dismissal process and the extraordinary spell of extreme weather conditions suffered in the Iberian Peninsula with less rainfall reaching a staggering 2.4x the annual average. In any case, none of these changed our full year guidance given in our last call. Group consolidated revenues amounted to EUR 154 million in first Q '26 compared to EUR 187 million in first Q '25. In the Pulp business, revenues reached EUR 114 million compared with EUR 135 million in first Q '25. The increase in gross pulp prices was offset by a weaker dollar and by lower sales volumes in the context of the strike. In the Renewables platform, revenues amounted to EUR 41 million compared with EUR 52 million in first Q '25 as a consequence of lower electricity production due to the disruptions caused by the said extraordinary spell of extreme weather conditions. In the Pulp business, EBITDA amounted to a negative EUR 1 million compared with EUR 29 million in first Q '25, which included EUR 30 million of energy saving certificates, the so-called CAEs. The extra costs from the strike were mostly offset by EUR 7 million of revenues from CAEs, which are not included in our cash cost calculation. In the Renewables business, EBITDA stood at EUR 3 million compared with EUR 6 million in first Q '25 as a result of lower production, lower pool prices, extra costs derived from the extraordinary severe storms, which alone impacted EBITDA by approximately EUR 6 million. At the bottom line, attributable net income amounted to a loss of EUR 18 million in first Q '26 compared to a positive EUR 2 million in first Q '25. Importantly, as highlighted by our Executive Chairman, these results reflect isolated events and the seasonal planned Navia shutdown. Looking ahead, the combination of stronger pulp prices, which you need to remember that has a time lag of approximately 2 months prior to flowing into our P&L; the end of the strike in agreement with the unions, and therefore, the permitted execution of our efficiency and competitiveness plan; the start-up of the Navia cost cutting, decarbonization and woodyard debottlenecking project; and the normalization of the devastating weather conditions should drive a significant improvement in the coming quarters. Turning to the next slide. The quarter ended with a free cash flow cash out of EUR 76 million. Please note that this figure includes EUR 41 million in growth CapEx, a high concentration of carryover CapEx payment in the period, as several strategic projects initiated in previous quarter or years will reach commercial operation by midyear '26. Let me walk you through the main components of the cash flow, starting from EBITDA. We had EUR 8 million of maintenance CapEx, EUR 7 million of net interest payments and no tax payments during the quarter. This results in a free cash flow before working capital and growth CapEx of approximately a negative EUR 14 million. Working capital absorbed EUR 18 million in the quarter, driven mainly by an increase in Pulp's trade and other receivables and by Renewable Industrial Heating inventories. These are assets that, since we revert to the client at the end of the contract rather than accounting them as assets, are registered as inventories. Growth and efficiency CapEx amounted up to EUR 41 million in the quarter. This figure includes the final payment of EUR 15 million for the Navia 2019 pulp dryer debottlenecking project, CapEx associated with the Navia cash cost reduction and woodyard debottlenecking project, As Pontes engineering development expenses, and the Renewable Industrial Heating CapEx linked to the Mahou and Lactalis projects. Although first Q '26 is marked by a high concentration tail of CapEx payments, we have a clear target of deleveraging the company and a committed focus in continuing adjusting down our CapEx obligations in the coming quarter. All in all, free cash flow for the quarter stood at negative EUR 76 million. It is important to stress that the Navia cost reduction, decarbonization and woodyard debottlenecking project, as well as the Mahou and Lactalis Renewable Industrial Heating projects are all expected to enter into operation in the second and third quarter this year and starting to contribute to EBITDA and cash flow in the second half of '26. In addition, as our Chairman mentioned, we are receiving a positive cash flow -- cash inflow of approximately EUR 30 million in the year, EUR 21 million from the collection of non-applied tax losses already cashed in during the second -- during the first quarter -- sorry, during the second quarter from the Spanish Inland Revenue Service, and the rest from energy saving certificates, the so-called CAEs, of which EUR 6 million have already been collected in the first quarter. Moving to our financial position on Slide 17. We closed first quarter '26 with a solid and well-structured balance sheet. Consolidated net debt stood at EUR 462 million at the end of March with EUR 209 million in cash across both businesses. Let me break this down by business. In the Pulp business, gross debt amounted to EUR 498 million, including EUR 63 million of IFRS 16 lease contracts, with EUR 158 million in cash, resulting in a net debt of EUR 340 million. The Pulp business' financial debt remains covenant-free and enjoys some great liquidity, well-diversified financial sources between institutional investors and banks, long-term maturities and no covenants. Maturities are also well spread with no significant concentration in any given year. Also backing our balance sheet, we have fully available EUR 130 million RCF. As a key highlight, in January 26, we registered the new EUR 200 million MARF bond program and successfully completed a first issuance of EUR 85 million with a 4-year bullet maturity in 2030 and 410 basis points coupon. This transaction extends our average debt maturity, diversifies our funding sources and represents a clear signal of the confidence of the investor community in Ence's credit profile. In the Renewables business, gross debt stood at EUR 173 million, including EUR 5 million of IFRS 16 lease contracts, with EUR 51 million in cash, resulting in a net debt of EUR 122 million. The financial structure is also well diversified with comfortable long-dated maturities and a fully available EUR 20 million revolving credit facility. Overall, we have a strong liquidity, long-term maturities and no covenants in the Pulp business, which provide us with the flexibility to execute our deleveraging objectives without any constraints. Before handing back to our Executive Chairman, let me briefly comment on Slide 18, which summarizes our main sustainability highlights for the first quarter '26. Sustainability is not a side topic at Ence. It is fully embedded in how we operate, and it directly enhances our cost competitiveness, our commercial positioning and our license to operate. On safe and eco-finance operations -- eco-efficient operations, sorry, our cumulative lost time injury frequency rate stood at 2.54 in the first quarter, the best result across our entire historical series. At Navia, we recorded no odor minutes, maintaining our '25 historic record. And we achieved a new historical low in specific water consumption. 100% of our pulp and energy plants are zero waste certified. And on climate action, direct Scope 1 emissions at Navia were reduced by 10% in '25 -- sorry, by 10% in '25 versus '24. On byproducts and ecosystem services, we obtained 6 new approvals for specialty pulps under our special -- our Ence special products portfolio. And we have submitted the application for the approval of our fluff pulp under the Nordic Swan and EU Ecolabel schemes. Special pulp products substituting softwood now represent 34% of our sales. Recycled fiber project at As Pontes has been awarded EUR 25 million under the Industrial Decarbonisation PERTE program, reinforcing our commitment to circularity. We also continue to make progress in forestry bioproducts with a new eucalyptus clone planned for '26 and over 4,300 hectares of CO2 forest sinks registered in the voluntary carbon market schemes. On responsible supply chain, approximately 88% of the land we manage and 84% of the wood we source are certified. And 100% of our sites are SURE System certified for sustainable biomass. On positive social impact, 30% of our managerial positions are held by women. 41% of job openings have been filled with internal promotions. We continue to advance in the allocation of EUR 3 million to 240 social and environmental projects under the sixth edition of the Pontevedra Social Plan. And we have launched 4 talent programs across Navia, Pontevedra, Magnon and corporate functions. Finally, the External Criminal Compliance audit has been completed with results indicating that the level of implementation and operation of our control mechanisms is more than adequate with no nonconformities or observations identified. These achievements are not only reflected in our leading ESG ratings, EcoVadis Platinum, among the top 1% and MSCI ESG rating [indiscernible] excellence and our inclusion in the FTSE4Good Index, but also translate into tangible cost and commercial advantages. With this, I hand the floor back to our Executive Chairman for the closing remarks.

Thank you, Alfredo. Let's finally look at Slide 20 with the outlook for 2026 and some closing remarks before inviting your questions. It is true that it has not been a great quarter because of the impact of several [ one ] events. However, putting all these together, our strategy remains consistent and disciplined: to increase sales of special pulp substituting BSKP; to strengthen local wood and biomass supply; to reduce cash costs; and to expand our Renewables platform EBITDA, while protecting the balance sheet and maintaining capital allocation discipline. To summarize the quarter and the outlook for 2026, I wish to highlight 5 key messages. First, the pulp market continues to improve. We have announced $1,430 per tonne from May. The positive outlook is supported by fiber-to-fiber substitution, rising production costs in the context of the Iranian conflict, and scarcity, driven by logistics disruptions on Middle East, Asian and Latin American pulp and paper imports into Europe. We are already benefiting from the better prices in the second quarter. Second, we have strategic mitigants to absorb geopolitical volatility. In Pulp, we are not only self-sufficient in electricity, we also export energy to the grid. We have local wood sourcing. And we are regionally focused on Europe in Renewables and local biomass sourcing. In both businesses, the conflict may offer opportunities: higher pulp prices and spreads in Europe due to limited overseas supply, energy surplus sold at higher pool prices, the acceleration of the Renewables pipeline, and higher revenue from ancillary services. Third, the quarter was impacted by one-off events, but our full year guidance is unchanged. Ongoing cash cost initiatives are expected to reduce cash cost by EUR 30 per tonne over the '26 and '27 period. EUR 15 per tonne on savings are targeted in 2026, supporting our cash cost guidance of around EUR 468 per tonne for 2026. Fourth, our mix upgrade continues. Special pulp substituting BSKP accounted for 34% of sales volumes in first quarter '26 and is expected to reach close to 40% in 2026. By 2028, over 62% of our sales will compete against BSKP, positioning Ence as the lowest-cost producers in the BSKP cash cost curve. Together with Pontevedra Avanza, we expect these initiatives to increase the average across-the-cycle EBITDA by 1.5x from 2028 onwards. Fifth, the Renewables platform continues to grow and diversify. Leveraging in our solid pipeline potential, we are building the largest Iberian biomass backbone renewable energy platform, combining regulated biomass electricity, renewable industrial heating, biomethane and renewable fuels, and we are on track to almost triple its contribution to EBITDA by 2030. The execution of these projects will be adapted and aligned to our cash flow generation to maintain a prudent across-the-cycle leverage and an attractive shareholder remuneration. Thank you. We now invite your questions.

[Operator Instructions] We have your first question comes from Inigo Recio with GVC Gaesco.

In the context of significant investments ahead, how do you expect CapEx to evolve? And what deleveraging measures you plan to implement?

Yes. Thank you very much. We ended the quarter, as you know, with EUR 462 million net debt, EUR 340 million in Pulp business and EUR 121 million in the Renewable business. We have a strong liquidity, which amounted to EUR 157 million in the Pulp business and EUR 51 million in the renewable business. And besides, as you know, we have undrawn revolving credit facilities for an amount of EUR 130 million in the Pulp business and EUR 20 million in the Renewable business. Said that, we are conscious that we have to deleverage. We don't have a problem, but we have to deleverage. As you know, in the second quarter, we have cashed already EUR 21 million from tax losses. Due to its cyclical nature, the Pulp business is financed with covenants-free debt and long-term maturities, as Alfredo has explained before. Our balance sheet and the expected cash flow generation should allow us to reach our growth and diversification goals, whilst maintaining a prudent leverage and an attractive shareholder remuneration. The timing of our investments could be adapted to our cash flow generation through the cycle, as it has been always happening in the past. Net debt in euros will remain almost flat up to fourth quarter '26 when it should be reduced. The company is fully committed towards deleveraging. No major new investments should occur prior to 2028 to allow the business to consolidate, a stronger cash generation profile on the back of the results of the efficiency and competitiveness plan and Navia decarbonization initiative and the improved product mix in the context of a positive price environment, as we have described. In 2028, once cash generation reaches a run rate level and leverage is normalized, initial works of Pontevedra should start. The last 12 months' net debt-to-EBITDA ratio is affected by the low pulp prices and strikes in fourth quarter '25 and first quarter '26. Nevertheless, investment discipline, pulp prices and delivery on cash cost saving initiatives are expected to normalize the ratio by the end of the year. We maintain our target average cycle EBITDA ratio of below 2.5x in the Pulp business, below 4.5x in the Renewable business. Regarding CapEx, we maintain our 2026 guidance of EUR 120 million. CapEx in first quarter '26 amounted to EUR 53 million, and it will go down to EUR 28 million in second quarter '26. In the second half of the year, we expect to invest the remaining EUR 39 million, allocated almost evenly between the 2 quarters. We should note that the majority of cash outflows will take place in the first half of the year due to: first, payments related to growth investments scheduled for competition during the first half such as the industrial heating project and the Navia cost reduction, decarbonization and woodyard debottlenecking projects; two, the $15 million payment related to the 2019 Navia expansion was made in the first quarter; and three, the maintenance shutdown in Navia in first quarter. In 2026, Pulp business CapEx will be EUR 74 million, of which EUR 23 million are related to annual recurrent maintenance of both factories and forestry activities that are capitalized, whereas the remaining corresponds to investment projects from previous year with significant impact on the group's profitability, as an example, fluff or Navia decarbonization. Navia cost reduction, decarbonization and woodyard debottlenecking, EUR 14 million already paid in first quarter, EUR 3 million to be paid in second quarter. Closing payments of Navia '29 (sic) [ '19 ] pulp dryer debottlenecking project, EUR 15 million already paid. Fluff, EUR 1 million paid in first quarter and EUR 6 million to be paid in second quarter. Going now to Renewable business, in 2026, EUR 46 million, out of which EUR 17 million are related to 2026 maintenance or new initiatives, very limited, and the remaining are carryover investments from the previous years. Renewable Industrial Heating, EUR 5 million cash-out in first quarter and EUR 14 million expected in second quarter. In 2027, CapEx should be around half of the 2026 level. The main items will be recurring maintenance of approximately EUR 35 million in total in the full perimeter and no more than -- sorry, EUR 35 million in total and no more than EUR 30 million in renewable packaging and biomethane projects. The pipeline of industrial heat projects should continue to grow, supported by 30 programs, and therefore, with limited equity returns. Is there any other question?

[Operator Instructions] As of the moment, there are no further questions. Please continue.

Good, gentlemen. If there are no further questions, we will stop now. You know that you can call either Ines, Alfredo or myself [indiscernible] if you have further questions, and we shall meet in 3 months' time with better results on the second quarter. Thank you, and good afternoon.

This concludes today's conference call. Thank you for participating. You may now disconnect.