Afternoon, ladies and gentlemen. Welcome to the ENCE Energía y Celulosa Q3 2025 results presentation. I will now hand over to Mr. Ignacio de Colmenares Brunet, Executive Chairman and CEO, and Alfredo Avello de la Peña, CFO. Gentlemen, please go ahead.
Good afternoon, everyone, and thank you for joining ENCE Energía y Celulosa's third quarter 2025 results presentation. Let me please start this presentation pointing out that, firstly, ENCE's pulp division is firmly evolving towards a higher margin special pulp-centered business, substituting more expensive BSKP alternatives based on local wood sourcing and proximity service. Secondly, our local biomass backbone, renewable energy platform, continues its development, transforming the biomass nearby collected into a diversified range of energies, including regulated renewable electricity, industrial renewable heating, biomethane, and renewable fuels, with solid recurrent EBITDA and tangible pipelines under execution. Today, I'm joined by our CFO, Alfredo Avello de la Peña, and our IR Director, Inés Álvarez. I will begin with a brief overview of the quarter and our strategic process. Alfredo will then take you through the financials, and I'll return with the closing remarks.
On page four, you can find the main highlights of the quarter. BHQP prices hit lows in the third quarter. Since then, price increase announcements were made by the main producers for a total gross of $130 per ton in Europe, of which $60 are already recognized in the picks. In the third quarter, we continued our discipline in cash cost reduction with an improvement of EUR 29 per ton, quarter on quarter. Cash cost savings were mainly driven by operational efficiencies and the positive contribution from the energy revenues after the successful ramp-up of Navia's turbine in June. Reinforcing our commitment towards efficiency and competitiveness, ENCE Energía y Celulosa has launched an efficiency and competitiveness plan based on two main pillars. Firstly, process re-engineering and AI initiatives, and secondly, streamline of the operations through an orderly reduction of FTEs.
The full plan will generate potential annual savings of EUR 22 per ton at cash cost level and will require a cash out of approximately EUR 23 million, resulting in a net present value of EUR 200 million. The plan will be implemented in the next 24 months. The Navia decarbonization plan and Pontevedra Avanza will continue in parallel. ENCE's higher margin special pulp products accounted for 29% of the sales volumes year to date, 30% higher than in the first nine months of 2024, delivering an incremental margin of EUR 32 per ton over the remaining 61% of standard BHQP. Despite low pulp prices, free cash flow before growth CapEx amounted to EUR 12 million, compared to a cash consumption of EUR 13 million in the previous quarter, solidly supported by the optimization of the working capital that has fully neutralized the increase of the first half of the year.
Our investment approach remains disciplined, prioritizing long-term value creation and cost effectiveness, implementing a clear strategy for both businesses in this new growth phase. By 2028, ENCE Energía y Celulosa aims to increase its across-the-cycle EBITDA by 50% in pulp on the back of higher margin special pulp products, operational efficiency, and cash cost focus, Pontevedra Avanza as Pontevedra's project, and renewable packaging solutions. By 2030, our diversified renewable energy biomass backbone platform is on track to more than triple its recurrent EBITDA, growing into renewable industrial heating and biomethane businesses prior to entering the renewable fuel business. Moving to slide six, you can see that gross BHQP pulp prices bottomed at $1,000 per ton in August.
Since then, two price increase announcements were made for a total of gross $130 per ton in Europe, of which $60 are already reflected in the fixed pulp, as well as $30 per ton net in China. The demand backdrop remains supportive, with global demand 7% up to August and a widening gap versus solid pulp. The recent U.S. tariff redemptions for pulp imports and the planned maintenance shutdowns among large Latin American producers in the fourth quarter should consolidate the positive price trend into year-end. Continuing with our FX policy in slide seven, we've hedged nearly half of our 2025 pulp sales with an average cap at $1.09 per EUR. In this quarter, FX hedging has resulted in a positive inflow of EUR 4 million and should add another EUR 3 million in the fourth quarter, assuming a EUR-USD exchange rate of 1.16.
Turning to slide eight, I would like to review with you the efficiency and competitiveness plan launched in the third quarter. It is a 24-month program to streamline our operations based on process re-engineering and AI-enabled initiatives across procurement, maintenance, industrial operations, safety, and quality. The plan targets approximately EUR 22 per ton of cash cost savings by the end of 2027, with a cash out of around EUR 23 million to be deployed in the said two years, yielding an estimated net present value of EUR 200 million and one-year payback. Projects have been launched in both businesses, and negotiations with labor representatives are on track. The ultimate goal is to strengthen ENCE Energía y Celulosa's competitive positioning while securing a stable and constructive employment relations framework. Turning to slide nine, our higher margin ENCE Advanced portfolio continues to expand.
In the first nine months, special products represented 29% of pulp volumes, an increase of 30% compared to the first nine months of 2024, and delivering EUR 33 per ton operating margin premium versus the remaining 61% standard BHQP. The improvement of the mix is central to our strategy of substituting higher cost solid grades in targeted applications. Continuing with our higher margin product portfolio in slide 10, our first 125,000 tons fluff line has started its production in the fourth quarter and is already in product homologation phase. As a reminder, flood is a value-added news with a gross price gap of around $900 per ton versus standard BHQP, where ENCE Energía y Celulosa will be the one and only European flood manufacturer with cheaper hardwood sourcing. Just for your information, as of today, more than 90% of worldwide flood pulp is solid.
Our flood pulp should account for more than 12% of sales volume by 2028, and we expect a structural extra margin of roughly EUR 60 per ton versus standard BHQP at across-the-cycle prices. This is on top of the 50% of the higher margin ENCE Advanced product sales. Special pulp will account to 62% of total sales by 2028. Moving to slide 11, let's look at the global cost curve and ENCE Energía y Celulosa's positioning. Leveraging on the 62% ENCE higher margin special pulp mix forecasted for 2028, we are repositioning the company within the cash cost curve. At the second half of 2025, cash cost guidance of EUR 466 per ton, equivalent to $545 per ton, ENCE Energía y Celulosa stands as a top quartile producer compared to global BHQP ones that deliver an average cash cost of $678 per ton.
Continuing with the energy savings certificates on slide 12, we have cashed in the EUR 10 million recorded in the second quarter of the year. To date, in 2025, we have sold energy certificates for a total amount of EUR 40 million, fully cashed in. Also, we are working on generating additional certificates for approximately EUR 4 million that should be recorded by year-end. Let's move now to our local biomass backbone renewable energy platform in slide 13, talking about La Galera, our Tarragona biomethane plant. As you know, we acquired the plant in December 2024. La Galera is now on track to increase its annual production by 20% without CapEx, just by applying ENCE's industrial standards. On top of that, orders will be completely eliminated by year-end.
As guided, we will continue upgrading the plant to increase its annual biomethane output up to 50 GWh and will launch our first biofertilizer production unit in 2026. These initiatives should be fully completed by 2027. Turning the page to slide 14, we would like to update you on our solid and tangible biomethane pipeline. We have 38 projects with locations secured and feasibility studies completed. 18 of these projects are already at a late permitting phase, and its biomass is secured. The projects will carry a ROCI of over 12% and will aim to deliver over 1 terawatt-hour by 2030. These should yield over EUR 60 million in incremental EBITDA. Nobody in Spain has ENCE experience in biomass procurement, small rural projects development, and digestion know-how.
Continuing with our renewable industrial heating solutions in page 15, we will reach 2 TWh of thermal energy with EUR 40 million incremental EBITDA contribution also by 2030. To achieve this target, we already have one plant in operation since 2024, one contract in its startup phase, and three projects under construction. On top of that, we are currently negotiating 10 projects, and we expect to close at least one of them during the fourth quarter, having another project ready to build before year-end. Continuing with renewable industrial heating business, I would like to explain to you the key achievements of the quarter on slide 16. On top of the ongoing plant construction at MAU facilities, we have started the construction of two plants for a well-known French dairy group located in Andalucía and Castilla-La Mancha.
These 15-year term projects will start its operations during the second quarter of 2026 and will have an estimated combined production of approximately 85 GWh. In addition, we have gained another co-named contract for 8MW ready-to-operate plants for a food and beverage company located in Extremadura that is in ramp-up phase and should be fully operational within fourth quarter 2025. Alfredo?
Thank you, Ignacio. Let me start with our special pulp-centered business in slide 18. In the third quarter, pulp sales rose up to 263,000 tons, plus 8% quarter on quarter, while the average net selling price decreased by around EUR 90 per ton, down to EUR 452. Crucially, cash costs declined by EUR 29 per ton, down to EUR 459, driven primarily by lower wood costs and operational leverage. This sequential step-down supports our second-half cash cost guidance of EUR 466 per ton. Pulp EBITDA accounted for EUR 4 million in Q3.
The third quarter includes approximately EUR 8 million of insurance proceeds related to the Navia turbine, fully cashed in during the period, but no additional revenues from the energy savings certificates. Turning now to our renewables business backbone platform in slide 19, biomass to electricity volumes increased up to 315 GWh in Q3, plus 4% quarter on quarter, with lower operating costs per megawatt-hour following several maintenance interventions in the first half, operational leverage, and lower biomass input costs. Revenues per megawatt-hour were 2% higher versus Q2, resulting in an EBITDA of EUR 9 million in our biomass to electricity business vertical, offset by around EUR 1 million from the rest of the business verticals currently in ramp-up process. The final platform EBITDA was EUR 8 million versus EUR 3 million from the previous quarter. Let me now guide you through the consolidated P&L figures on slide 20.
Group revenues declined by EUR 11 million compared to our previous quarter. The growth in renewable energy business has partially offset a EUR 15 million decline in the pulp business derived from the depressed pricing environment. EBITDA declined to EUR 13 million in Q2 despite the improvement in operating costs in both businesses, ending in a bottom line showing EUR 15 million losses. In this context, our main focus is to align operational expenditure, investment guidance, and cost discipline to capitalize on cycle turn from day one. Turning to slide 21, free cash flow before growth CapEx was EUR 12 million in Q3, despite low pulp prices. Working capital contributed with a positive EUR 18 million, fully reversing the first half bill. Growth and efficiency CapEx totaled EUR 17 million in the quarter, including the flood project, Navia decarbonization and cost reduction initiatives, renewable packaging development, and the ramp-up of our biomethane and renewable thermal energy projects.
All in all, free cash flow for the period was negative by EUR 8 million. Slide 22 highlights our solid financial position. Consolidated net debt stood at EUR 367 million, supported by a strong EUR 265 million cash position. Importantly, both our pulp and renewable business have fully available revolving credit facilities for a total amount of EUR 150 million, and our pulp segment is covenant-free. This high liquidity position ensures the strengthening of the company along the different cycles. As you've heard me say before, maturities are well distributed across several years, and we benefit from a flexible capital structure that provides us with optionality and growth room. Finally, on slide 23, let me go through ENCE Energía y Celulosa's sustainability performance indicators, a core pillar of our profitable long-term strategy. We are rated in the top 1% by EcoVadis, confirming our position at the forefront of industrial sustainability.
Key milestones include our accident rates remaining four times lower than the industry average, and we completed the Pontevedra shutdown with no severe incidents. Navia recorded zero odor minutes during the three quarters of 2025. 100% of our sites are zero waste certified. Two new sustainability certifications for our pulp products. Our forestry operations include 4,200 hectares with CO2 sinking rights officially registered in an OECC voluntary, as well as improved plant material adapted to climate change. 100% site sewer system certified, confirming the sustainable origin of our biomass. Promotion of professional development in rural communities with 750 technical advisor sessions with forestry owners and forestry machinery training programs. Let me please now return the floor to our Executive Chairman for his closing remarks.
Thanks, Alfredo. Let me please conclude the presentation with some closing remarks.
Firstly, price increase announcements of $130 per ton in Europe should consolidate in the coming weeks on the back of U.S. tariff redemption for pulp imports, good demand, wide gap with solid wood, and significant annual maintenance shutdowns announced for the fourth quarter. Secondly, we are firmly committed to cash cost reduction that should target EUR 466 per ton for the second half of the year. Thirdly, our ENCE Energía y Celulosa special pulp-centered business should increase the average across the cycle EBITDA by 50% through top line and cash cost initiatives by 2028. On the top line front, I would like to highlight our product mix upgrade towards higher margin special pulp products that substitute more expensive BSKP, reaching 62% of total sales by 2028, that should contribute with an incremental EBITDA of approximately EUR 22 million.
From the cash cost side, the levers are the ongoing competitiveness plan, EUR 22 million, Navia's decarbonization and cost reduction project, EUR 8 million, as well as Pontevedra Avanza, EUR 20 million. On the growth side, the Aspontes project got its environmentally integral license in third quarter 2025, and we foresee the start of renewable packaging solutions planned in 2026. Both projects would further increase our results. Fourthly, and finally, we are building the largest biomass backbone renewable energy platform in Iberia, including biomass to regulated electricity, renewable industrial heating, biomethane, and renewable fuels, and it is on track to more than triple its EBITDA by 2030. The execution of all these projects will be adapted and aligned to our cash flow generation to maintain a prudent across-the-cycle delivery rate and an attractive shareholders' remuneration. In pulp, none of all these projects requires more wood, a scarce resource worldwide.
Thank you for your attention. We will be pleased to hear any questions you may have.
Thank you. Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press *1 on your telephone keypad. You will have the opportunity to ask all the questions that you may have. We kindly ask you to ask only one question at a time to our speakers instead of asking multiple questions at the beginning. Once again, please press *1 on your telephone keypad if you would like to ask a question. Your first question comes from the line of Alvaro Lence. Please go ahead.
Hi. Thanks for taking my questions. The first one is on the expected cash cost. You're guiding for EUR 466 for the second half. If my math is not wrong, that implies an increase from EUR 459 in Q3- around EUR 473 in Q4. I just wanted to understand why do you expect cash costs to go up?
Yeah. In winter, normally, a collection of wood is more expensive. It's more difficult due to weather conditions, and these bad weather conditions at the North Atlantic also normally make a pressure on prices of the freight. As we are prudent, that's why we expect a slight increase, a slight temporary increase due to weather conditions.
Okay. My second question is if you could please try to clarify a little bit of what's going on with the net prices and the discount, because you mentioned that the weight of differentiated products which have a premium keeps going up, but the discount is also going up quite significantly this quarter. It's about 49%. I understand that the discounts tend to go up in the industry, but I do not think that competitors are having this discount, let alone if we could make the numbers of what the actual discount is in the normal BHQP pulp that you're selling. It will be probably above 50%. It's like we should expect the discount to narrow at some point or to stabilize thanks to the changing mix, just to understand the dynamics there.
First quarter has been the worst quarter of the year with the lowest prices. When the fixed price is at EUR 1,000 and you are at the lowest moment, it's absolutely impossible to sell the full volume of standard BHQP at this price. You have to accept spot orders which have a huge discount in Europe and in the Mediterranean. What I recommend is that you wait for other competitors to publish their results, and you will see what is the net price and what is our net price. That's where you are going to see the big interest of these special products.
If we take the average price of this 61% of standard BHQP we have sold in the first nine months, and you compare with the average price of the special products we have sold in these first nine months, 29% corrected by the extra costs they have, we have this EUR 33 per ton of more margin. That is like that. The problem is that the standard products in the third quarter have been sold at very low prices due to a very tough market.
Okay. My last question would be on the cost-saving plan. I think it's very welcome. I just wanted to know first why now, what has changed? Why do you see why not do this a year ago or something? You have been struggling with high cash costs for quite some time now. It also strikes me as very cheap. One-year payback is very good payback for a restructuring plan. I wanted to know what the mix is from the savings, how much of the savings are coming from layoffs, and why is the plan so cheap? Thank you.
Yeah. I have to start apologizing, but I cannot now disclose a lot of details because we are just in the middle of the negotiation with the unions, and I don't want to disclose my cards. Why now? It has been the fourth quarter, the fourth quarter, one after the other, where prices have been declining and where EBITDA has been declining. According to the Spanish law, you can launch a restructuring plan by economical causes who are the most clear, only if you have three quarters of turnover and results going down. We prepared everything during the second quarter, and we have launched the negotiations during the third quarter. We are now in the middle of the negotiations. As you know, the two mills where we produce pulp, in Navia and Pontevedra, are very heavily unionized. It's very difficult to reduce employees there. It's almost impossible.
It has not been possible. Now we have a strong opportunity because law-wise, now our position is very solid. That is why they have accepted negotiations, and we are negotiating. We are negotiating at Navia, and we are going to start negotiations next week with Pontevedra and with the unions representing the forest activities and the administrative activities.
Okay. Thank you.
Out of the total layoffs we are planning, 10% can go out immediately, but the balance we need to invest. We are going to rationalize the control rooms we have in our pulp mills. We have to invest in loops to do that possible. We are putting automation and artificial vision in quality control, and we have several other plans. That's why we have small investments to do all that, but it's small investments. That's the way we can reduce the number of employees we have. That's going to take two years because we need some investments, and we have ways to do that with a good agreement with the unions. That's what we are working now.
On top of that, because the EUR 22 per ton savings is not because of layoffs, on top of that, we started now one year to do a strong re-engineering of all the activities subcontracted at ENCE Energía y Celulosa. It's all the movements of biomass and pulp inside the mills. It's all the industrial cleaning. It's all the movement and sales of byproducts. It's all the medical service. We finished by summer all the re-engineering, which has been very tough. We did that very carefully in order to have good results. Now we are starting to see the first savings, and these savings will continue over the next 12 months.
Thank you.
Thank you, Álvarez.
Thank you. If you would like to ask a question, simply press star one on your telephone keypad. I am showing no further questions at this time. I would like to turn it back to Mr. Ignacio de Colmenares Brunet for closing remarks.
Thank you very much for attending our call. I hope to give you more details about this strong plan. We are now working on it, and to give you good results about cash costs and that you will be able to see the prices going up at the next call at the beginning of next year. Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, this now concludes our presentation. Thank you all for attending. You may now disconnect.