Good afternoon, ladies, and gentlemen. Welcome to the ENCE First Quarter 2023 Results Presentation. I will now hand over to Mr. Ignacio Colmenares, Executive Chairman, and Alfredo Avello, CFO. Gentlemen, please go ahead.
Good afternoon, ladies, and gentlemen. Thank you for joining ENCE's First Quarter 2023 R esults Conference Call. Our CFO, Alfredo Avello, and our Head of IR, Alberto Valdés, are also connected. After the presentation, we will be pleased to answer any questions you may have. May I begin by saying that ENCE is, in my view, ideally positioned to offer shareholders increased value in the future. We deliver excellent results during the first quarter. We are working on a number of important growth and diversification initiatives, which will increase income and cash for our shareholders in the future. We continue to lead the pulp industry in sustainability. I would like to start by looking at slide five with the highlights of the first quarter. Alfredo will discuss these highlights in more detail, but I wish to draw your attention to two things.
Our outstanding EBITDA of EUR 89 million, which includes the sale of our first PV project. Our decision to announce a final dividend against 2022 results of EUR 0.29 per share, already approved at our recent AGM. I will update you on the significant growth and diversification initiatives I have just mentioned in the final section of today's presentation. I now invite Alfredo to summarize the financial highlights of the first quarter.
Thank you, Ignacio. Starting with slide eight, I would like to mention the main six key financial highlights for the first quarter. Firstly, group revenues grew by 26% and the EBITDA almost doubled up to EUR 89 million, boosted by a still strong pulp price, the normalization of our production at Pontevedra, the higher regulated energy price, and the sale of our first PV project under construction. Secondly, group FCF rocket rose up to 18% in the quarter. Thirdly, the difference between regulated and market energy prices generated cash collection rights amounting to EUR 40 million in the quarter, of which 33 will be fully cashed along 2024. Fourthly, new facilities totaling EUR 145 million were raised in our pulp business, contributing to ENCE's group cash balance of EUR 550 million at the end March 2023.
Fifth, a key highlight is that we continue to report a low leverage ratio of just 0.4 times, leaving ENCE ideally placed to seize multiple growth opportunities. Finally, as Ignacio has already mentioned, we recently announced a final dividend against 2022 results of EUR 0.29 per share. This was recently approved by our AGM and will be paid on the 18th of May. Let me now elaborate on the first quarter group financials on slide nine. First of all, please note that the government has proposed a new methodology for the compensation of CBT differences between the regulated energy price and the market price. This new proposal applies to all our biomass plants and our gas cogeneration plants, whether in the renewable or in the pulp business, but not to our Navia cogeneration plants in the pulp business.
Although the government's draft is still in the interrogation phase, we have prudently considered this new methodology in our first quarter results. With the previous methodology, our first quarter EBITDA would have been EUR 14 million higher. In the proposed new methodology, the regulatory collar generated in 2023 for our biomass and cogeneration plants will be fully cashed in 2024 instead of during the regulatory life of the plants, thus improving our free cash flow generation in the short term. Following the said adjustment, group revenues of EUR 286 million in the quarter were driven by still strong pulp prices, the normalization of our production at Pontevedra, the higher regulated energy price, and the sale of our first PV project under construction.
EBITDA almost doubled up to EUR 89 million, driven by the strong sales growth and a EUR 22 million contribution from the first PV project sale. As we expected, EBITDA also benefited from higher regulated energy prices. These generated cash collection rights registered as regulatory collar amounting to EUR 40 million, of which 33 will be fully cashed within 2024. Net income more than doubled up to EUR 30 million in the quarter. Turning now to the next slide, number 10. You can see that first quarter group free cash flow was as expected, negative by EUR 99 million. It was impacted by three main factors. Firstly, the difference between regulated energy market prices in the quarter. As said, the difference in regulated cash collection rights amounting to EUR 40 million. Secondly, return of the excess return on the operation remuneration collected following last year's regulatory adjustment.
The remaining EUR 20 million were returned in April. Thirdly, the normalization of our operations in Pontevedra. As you can see on the slide 11, we entered the quarter in a very strong financial position. A net debt EBITDA ratio of just 0.4 x at the group level. This give us flexibility to seize a number of different future growth opportunities. Please note that the group net debt of EUR 127 million was mostly driven by the working capital normalization in the quarter, as explained in the previous slide. During the quarter, we have also amortized EUR 63 million remaining from the convertible bond issued back in 2018 for an amount of EUR 160 million, refinanced to EUR 145 million of new facilities. Additional facilities for EUR 57 million have also been raised up to this stage, totaling EUR 202 million.
All these facilities enjoy from non-covenant structures. Regarding cash and balance, we ended March with EUR 350 million. Our pulp business showed a net debt of EUR 72 million, which includes liability from lease contracts amounting to EUR 37 million. The cash balance in our pulp business amounted to EUR 252 million at the end of the quarter. Our renewable business net debt was EUR 55 million, with a cash balance of EUR 98 million. Let's move now to the next slide, number 12. As our chairman mentioned earlier, our recent AGM held on the 5th of May approved the distribution of our final dividend for EUR 17 million to be paid on the 18th of May. This is in addition to the EUR 137 million already distributed over the past 12 months in respect to final year 2022.
Our dividend policy allows us to increase shareholder remuneration in periods of a strong free cash flow generation and low leverage, thus improving the efficiency of our balance sheet. Turning to slide 14, I will now review the financial performance of our pulp business. Pulp sales in the first quarter amounted to 217,000 tons. This is 13,000 tons more than the corresponding quarter in 2022, with Pontevedra's production now normalized. Also, the annual maintenance shutdown occurred during the first quarter last year. Our representative products accounted for 15% of our total pulp sales, compared to 18% in the same period of last year, due to a temporary narrowing of the price spread versus softwood. Now the spread has widened again.
These higher value-added products are more sustainable and are well adapted to replace plastic and softwood pulp in multiple paper applications, also deliver higher margins. We aim to increase progressively the sale of these products during the next years towards a target of 400,000 tons. Over 93% of pulp sales went to the European market, where our customers benefit from ENCE's unique wide portfolio of sustainable products and shorter delivery times. We're half of our sales. We're in the fastest growing tissue and hygiene product segment. As you can see on the following slide 15, gross pulp prices in Europe reached EUR 1,340 per ton in the first quarter. These prices more than offset the global inflation in raw materials, excluding the temporary extra cost at our Pontevedra mill.
We have delivered a set of strong pulp operating results in the quarter, with pulp production normalizing at Pontevedra, attaining revenues of EUR 181 million, up 20% year-over-year. The EBITDA grew by 77%, up to EUR 37 million compared to the first quarter last year, driven by the sales growth and also boosted by EUR 12 million coming from higher regulated energy prices, of which EUR 5 million are related to the biomass plants and will be fully cashed next year under the proposed new regulation. Please note that the industry specialists currently expect an average pulp price of $1,060 per ton over 2023. Starting with slide 17, we will review the financial performance of our renewal business. In December 2021, Magnon agreed to sell several PV projects as they reached their ready-to-build status.
In the first quarter, we closed the sale of our first PV project in Spain, which contributed EUR 23 million to our EBITDA. We expect a further EUR 27 million contribution to EBITDA for the remaining PV projects in sale in 2023 and 2024. Turning to slide 18, the average selling price in the quarter increased to EUR 240 per MWh , benefiting from the high regulated price, currently at 207 for the first semester. Together with the complementary remuneration on the operation at our gas combined plant in Córdoba, pending to be adjusted to the new regulation, and increased contribution from our back-up services to electricity system. Our annual sales increased by 14%, while EBITDA reached EUR 52 million, also boosted by the EUR 23 million already mentioned from the PV project sale in the quarter.
The regulated energy price has delivered a higher EBITDA in the quarter through the regulatory collar. As previously mentioned, the government has proposed a new methodology for the compensation of deviations between regulated energy price and the market price, the so-called regulatory collar. The government's draft, which is currently in its allegation phase, sets four main changes. Firstly, it only applies to our biomass and cogeneration plants in the renewable and in the pulp business, but not to our lignite cogeneration plants, which will follow the current regulation. Secondly, the regulated price will be set annually rather than every three years as currently. Thirdly, on the applicable plants, deviations between the regulated and market energy prices will be compensated during the following year instead of during the rest of the regulatory life of the plants.
This means that the regulatory fall balance at the end of 2023 will be fully collected along 2024. Fourthly, the annual settlements will be independent from the remuneration from the investments set for each plant, and will be proportional to the real power generation instead of the theoretical production of 7,500 hours per year. Note that the average production of our biomass plants during the last five years has been approximately 5,500 hours per year. This number of hours was aimed at optimizing our production in order to maximize our financial results based on the current regulation. In the second semester, we will adjust our operations to the new optimal production hours in order to also maximize our financial results under the new regulation proposed. Let me conclude my section on slide 19, emphasizing once again ENCE's continued exceptional sustainability performance.
We are leaders in sustainable forest, in the circular economy, in social commitment, in gender equality, and in corporate governance. Our best practices have been recognized by independent agencies such as FTSE4Good and Sustainalytics. Actually, Sustainalytics confirmed ENCE in its latest study once again as the most sustainable player in the global pulp market. Let me highlight some of our recent sustainability achievements. Firstly, Navia Pontevedra continued to reduce the water footprint by 5% and 10% respectively compared to a year ago, and we recently developed an innovative solution to minimize river water consumption during times of drought at Pontevedra. Secondly, we continue to reduce the odor of pulp mill biooils, which is already below 1 minute per day. These results demonstrate our strong commitment to the communities in our environment.
Thirdly, our health and safety record remains very strong, with no accidents in the past six months in the renewable business. ENCE's pulp business ended last year with the best metrics of its history, at levels that are 14 times lower than the benchmark values for the industry in Spain. I will hand back to our Chairman and CEO to review our 2023 outlook on our growth and diversification initiatives.
Thank you, Alfredo. Now let's move to slide 21 with our outlook for 2023. 2023 will be characterized by the normalization of our pulp production to close to 1 million tons. Average pulp prices, which industry specialists are now forecasting at $1,060 per ton in 2023. The improvement of our cash costs compared to the first quarter, down by EUR 135 per ton during the second half to below EUR 500 per ton. A highly regulated energy price of EUR 207 per MWh for the first semester, which boosted our renewable business EBITDA in the first quarter. A regulated price of EUR 144 per MWh for the second half of the year.
Remember that the difference between the regulated and market energy prices generates cash collection rights that will be cashed in 2024. We expect PV project sales in 2023, 2024 to boost our renewables EBITDA by over EUR 50 million in those years, including EUR 23 million already obtained in the first quarter. Let's move to slide 22 and our recent view on the market dynamics of pulp supply and demand. We expect current destocking process in the paper industry to end soon. China's reopening and the displacement of its integrated pulp capacity at current net price levels should unleash a strong rebound in market pulp demand during the second half of the year. I remain confident about the fundamental strength of the pulp industry. We expect pulp demand to outgrow supply over the coming years, providing a strong support for pulp prices.
On the one hand, there are no new pulp projects confirmed as far from 2024. Wood availability is limiting pulp capacity additions, both market and integrated. On the other hand, demand growth should accelerate as a result of the fastest growing pulp segments, which now account for over 80% of market pulp demand, boosted by structural growth trends such as urban population increase and higher living standards in emerging markets. As a result of plastic and synthetic fiber substitution, which will play an increasing role in the coming years. As a result of the lower availability of recycled fiber due to declining printing and writing paper consumption. This will increase demand for virgin fiber. Industry specialists currently expect pulp prices to rise significantly as from 2025 onwards.
As regards wood, I remind you of ENCE's unique strong position, which is the result of our solid local wood sourcing. Let's move to slide number 23 and our cash cost forecast. We expect cash costs to fall by 135 EUR per ton during the second semester compared to the first quarter, down to below 500 EUR per ton, mainly due to lower energy, wood, chemical, and logistics costs. Note that Pontevedra's rented water recovery equipment and rented diesel generators had an estimated impact of 46 EUR per ton on group cash costs during the first quarter. Both situations should be resolved by this summer. Let's move to slide 24, which summarizes the current mechanism for biomass regulation, which ensures a minimum return on investment in our biomass assets of 7.4%. Our biomass plants sell their renewable energy at regulated prices.
The difference between the regulated price and the market price in 2022 generates cash collection rights, which will be cashed in 2024. In the following slide, number 25, we summarize the main changes included in the new methodology proposed by the regulatory collar calculation. The government's draft, which is currently in its allegation phase, sets two main changes. Firstly, the regulated price will be set annually rather than every three years as at present. Secondly, deviations between the regulated and market energy prices will be paid during the following year instead of during the rest of the regulatory life of these plants. As I said in my introduction, ENCE is pursuing a significant growth and diversification initiatives. I would like to briefly remind you of these. Let's start with slide 27, the Navia Excelente project.
We announced at our Navia Excelente project on our Capital Markets Day back in March 2022. It aims to increase the sale of our differentiated products with great potential to substitute plastic in multiple applications, to diversify production towards fluff pulp, and to decarbonize the bio mill. The project will be undertaking between 2024 and 2027. Let's move to next slide, number 28, the As Pontes project. In June last year, we announced a new project at As Pontes for the production of bleached mixed fiber from recovered paper and from virgin pulp produced by us. We believe this is an excellent opportunity to offer bleached mixed fiber to our customers. This project is still in its engineering phase. We aim to start the permit process during the second quarter of the year. This process is likely to take over one year.
Hopefully, we should be able to take the investment decision around the end of 2024. The first phase of the project consists of a line for the production of bleached mixed fiber with a capacity of 100,000 tons per year, which will be operating by 2027. We estimate an investment of EUR 125 million, with a targeted return of over 12%. Finally, 2023 CapEx in Pontevedra will allow the bio mill to operate in drought periods. Note that none of these investments will require more wood. We believe that wood is going to be a limited resource in the future. The timing of all these investments in Pontevedra, in Navia, and in As Pontes will be adapted to our cash flow generation throughout the cycle. Our aim will be to maintain a prudent leverage and an attractive remuneration for shareholders.
Let's now talk about our renewable business, starting by slide 29. Ence Biogas is our new subsidiary, created to develop and operate biomethane plants. Our circular business model is based on the recycling of local organic waste into biomethane, a high-quality organic fertilizer, and sustainability certificates. Our target is to develop 20 plants with a total capacity to supply over 1 TWh per year during the next five years. Ence Biogas already has a portfolio of 15 projects under development in Spain. Six of these projects are at their engineering phase and are expected to start up by the end of 2025 and 2026. The estimated CapEx is around EUR 20 million on average per plant, with a targeted return on the capital employed of over 12%. We will build these biomethane plants with EPC contracts and using non-recourse project financing as we did in biomass.
Let's turn now to slide 30, which illustrates other growth opportunities within ENCE's renewables business. I wish to highlight three things. Firstly, we have developed three biomass projects with a combined capacity of 140 MW, which are ready to participate in future public auctions. Secondly, biomass has a great potential to decarbonize the industry. We are already working on several opportunities in Spain, to replace gas with biomass in renewable industrial heating. Thirdly, we have started to develop another 300 MW in PV on top of the project that will be sold to Naturgy in the coming quarters. Let's now turn to slide 31, our management of forests in Spain. ENCE is the largest private forest manager in Spain. We manage 60,000 hectares, and we are a model of responsible and sustainable forestry.
Our managed forests constitute an important carbon sink and offer additional growth opportunities in the voluntary CO₂ markets. The forests do not only produce pulpwood, they also remove over 600,000 tons of CO₂ annually from the atmosphere and yield another environmental benefit, such as biodiversity, water cycle regulation, and soil protection. Part of our managed forest produce carbon credits, which may be sold in the voluntary CO₂ market to help other companies offset their carbon footprint. We have already registered 387 hectares within the Spanish Climate Change Office, equivalent to the removal of over 600,000 tons of CO₂ during the life of these plantations. Furthermore, we have identified 4,000 hectares within our current plantations, which are eligible to produce carbon credits, and we aim to register even more hectares over the next five years.
To give you an idea of the potential of this business, each hectare can produce carbon credits amounting to about 200 tons of CO₂ during the life of the plantation, and its price may be around EUR 30-EUR 45 per ton of CO₂. CO₂ credits will allow us to double the revenues of these hectares as they produce roughly the same amount of CO₂ as of wood, and the price of CO₂ credits is also similar to that of standing timber. Let's look finally at slide 32, which summarizes our conclusions. I believe prices are bottoming in China. Pulp and paper destocking in Europe is close to its end. We remain confident on the strong fundamentals of the pulp industry. We delivered strong 1st quarter results. Our balance sheet is strong, and we anticipate strong organic free cash flow generation in the future.
ENCE is now well positioned to take full advantage of multiple opportunities for growth over the coming years, and we expect these opportunities to create significant value for our shareholders. Our main target for 2020 is to reduce cash costs. We look ahead to 2023 and beyond with confidence. Thank you for your attention. We would be pleased now to hear any questions you may have.
Ladies, and gentlemen, the Q&A session starts now. If you wish to ask a question, please press star one one 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. Thank you. The first question comes from the line of Enrique Parrondo from JB Capital. Please go ahead.
Hi. Good afternoon, gentlemen. Thank you for the presentation and taking my questions. I have three, if I may. The first one on the pulp market. Could you maybe share your views on the current environment? Maybe did you see any improvement in the months of April and May? If you could comment by segment that would be helpful. Also on your view for pricing in the coming months, is it, does it differ materially from consensus estimate that you recently shared? Thank you.
Yeah. Thank you, Enrique. Yeah. As I said, I believe pulp prices are already bottoming in China. You have to take into account that the today's price in China of $450 net is far below the variable costs of local integrated producers. China reopening and the displacement of its integrated pulp capacity at current net price levels into important market pulp should unleash a strong rebound in the market pulp demand during the second half of the year. You have to remember that there are 5 million tons of integrated pulp capacity in China, and they are swinging to important market pulp because it's cheaper than the variable cost of production. In Europe, current destocking should end by summer.
Industry specialists now expect pulp prices to normalize around $900 gross per ton during the second half of the year in Europe. As I said before, I remain confident in the strong fundamentals of the pulp industry. There is no single new project after 2024. Fiber, the wood is a scarce resource. We expect pulp demand to outgrow supply over the coming years, providing a strong support for pulp prices. I think that's the most important things for your first question.
Thank you. That's very helpful. Second one on cash costs. You revised downwards your cash cost outlook for the second half by just to 6%. Could you run us through the different levers for this? For instance, what sort of decline are you expecting in wood costs? Also considering that the first quarter cash costs were slightly below your estimate share during full year 2022 resource presentation, is there room also for some improvement in the second quarter, cash cost estimate that you shared, during the full year 2022 release? Thank you.
Thank you very much. As I said, we expect cash costs to be below EUR 500 per ton in third quarter and fourth quarter. We expect cash costs in the second quarter to be below EUR 580. We have, as I mentioned before, different areas of reduction. The most important one is that these extraordinary costs we are suffering in Pontevedra on the first half of the year are quite significant. They are on average on the group cash costs, close to EUR 40 per ton in the first half of the year, and it will be zero on the second half of the year. These equipment for using the water of the Pontevedra treatment plant is rented.
It's partially rented because we were obliged to put it, when we had no visibility about the concession, and now we are investing in our own equipment. We are going to save a bit more than EUR 1 million per month of rental of this equipment. Secondly, as you know, we had a severe problem on a turbine on the first half of the year in Pontevedra. The turbine is coming back from Germany now in June. Meanwhile, we have been obliged to rent diesel generators to generate the energy we need, with a terrible impact on the cash flows. As the turbine is coming back in June, this effect will not continue on the second half of the year.
Those two effects have an impact of EUR 40 per ton of improvement in the second half of the year, starting in the third quarter. We see the wood slightly going down. We see chemicals going down, we see freight rates going down, all these effects push us to be below 500 in third and fourth quarter, and below 580 on the third quarter. Sorry, on the second quarter of this year.
Great. Thank you. And the final one. On growth plans that you recently commented for biogas and industrial heating, I know it might be a bit early in terms of timing, but could you help us understand what sort of revenue contribution could we expect from both businesses? Also in terms of investment required, are you planning on requesting any aids from the European funds or sharing the investment with a partner? I guess the latter applies for biogas. Thank you.
Yeah. Okay. Let's start by biogas, let's continue with the renewable industrial heating. In biogas, we are following the same strategy than we did successfully in biomass 10 years ago. We are going to have, in some plants, a local shareholder, a local partner, able to supply part of the raw material we need. On the holding of the biomass company, we are going to be alone for the time being. We are very excited with this project. Biomethane is the second substitute for natural gas with the highest growth potential in Europe. As I mentioned before, our business model is based on the recycling of local organic waste. We know how to buy organic waste. We are buying 1.7 million tons of agroforestry biomass today in Spain.
We are going to convert that in biomethane. We are going to sell the gas to the grid. In our business model, the gas is at EUR 30 per MW today. Anyone would like to buy at over EUR 60. The associated sustainability certificates are increasing and increasing in price and in demand. We are going to produce with a by-product, a high quality organic fertilizer. It's a business where we are going to have three incomes in each plant, and each one has a weight of 1/3, the biomethane, the certificate, and the organic fertilizer. Our target is to develop 20 plants. Each plant costs roughly EUR 20 million on average.
We are talking about a total investment of EUR 400 million, and the idea is to have a capacity of 1 TWh per year, and to have that complete after five years. Today, we have a portfolio of 15 projects out of this plan of 20 under development in Spain, and 6 of them, as I mentioned before, are at their engineering phase with the potential to start by the end of 2025 or in 2026. We are also looking some brown opportunities, brownfield opportunities. Our required return on the capital employed, ROCE, is over 12%. As I mentioned, we try to avoid risk. We are going to build those plants with EPC contracts in order to avoid technological risk and the construction risk, as we did in biomass successfully.
We are going to finance in project finance without recourse to the rest of the businesses. The banks are a good filter to analyze each project one by one. That's biogas. Regarding renewable industrial heating, biomass and electricity have a great potential to decarbonize the industry in Spain, responsible for more than 30% of the country's energy consumption. Today, we are working on several opportunities with some Spanish industries to replace gas, but even coal or fuel in industrial heating, and we will replace that either with biomass or with renewable electricity. The relevant sectors are food and beverage and chemicals. We expect renewable industrial heating to become a material business line for ENCE during the next five years.
We will share with you more details of its, of this business plan in due course. It is not a regulated business, and we like that. It is not a regulated business. The typical size of the renewable industrial heating plants range from 4 MW-50 MW thermal, with required CapEx below 1 million per MW. Thank you, Enrique.
Thank you, Ignacio
Thank you. The next question comes from Jaime Escribano from Banco Santander. Please go ahead.
Hi. Good afternoon. My first question regarding market outlook. Are you starting your customers restocking again? I'm asking this because the Europe pulp is almost at 1.8 million tons.
Jaime, I'm very sorry. Jaime, you have the voice distortion, and I don't understand very well what you are saying.
Okay. Is it now better?
What?
Now better?
That's better, yeah. Continue.
Okay. No, because I remove the [inaudible]. Y eah, my first question regarding the sector outlook. My question is, the inventories at Europe pulp are close to 1.8 million tons. And you are talking about the restocking process going to an end. My question is if you are seeing customers already restocking or the restocking process you think is going to continue a few more months?
Okay. Understood. Yeah. Yeah. Today, we have no signals of this stocking process to have finished. The only thing we have is the forecast of our customers, and we have a better demand for June than for May, and a better demand for July than for May. Not being yet a strong demand. All our customers... Because we have two problems.
We have this large volume of pulp in European ports, that the root cause of what is happening is a big stock of paper on the supply chain. Our customers are telling us that this high level of paper on the supply chain is arriving to a normal level, but they were saying the same a couple of months ago. We don't have a clear visibility of that. We think, and all the industry think in Europe, that this problem of supply chain being overstocked with paper is going to be solved by summer, we don't have KPIs or exact figures to follow that.
Okay. Thank you. In terms of new capacity coming into the market, are you seeing the new capacity from Arauco already arriving to Europe? When do you expect this new supply coming to the market?
No, we are saying, we are seeing Arauco and MAPA in Uruguay, they have started. They are offering mainly to China now, and they are in conversations with Europe. I think they will start on the first quarter or on the first four months to supply before to China than in Europe.
Okay. Thank you. A question on the cash costs. You are pointing to a cash cost below EUR 500 per ton in the second half of the year. Just thinking out loud, what happen if the European prices go down as much as the Chinese prices? Also, what happen if there is...
Sorry, Jaime.
Because of lack of rain
Jaime, your question was? Sorry, Jaime, your first question was? I don't understand that.
Yeah. Yeah.
What happened if?
Yeah, my question-
What happen with the pricing?
My question is, if you think that the European price could go down to the levels of China? If it goes to the levels of China, the price, the selling price would be below your cash cost. You don't think this is not going to happen in Europe?
I think it's very, very improbable that it happens in Europe. I think, but it is my personal opinion, that prices are very soon bottoming out in China. With this, integrated palm means stopping China and buying annually 5 million tons of market pulp, the prices should recover a bit in China. We have been always able to defend a gap between Chinese price, Chinese lowest price, and European lowest price. I don't see that. In any case, on the worst case, if prices are in Europe at EUR 450, in ENCE, this price will be above our cash cost in Navia and above our variable cash cost in Pontevedra.
We will continue working and having a contribution margin with very low EBITDA contribution margin in Pontevedra and EBITDA in Navia.
Okay. Yeah, and just a final question on cash control. If, in this summer, we have rain problems again, the cash costs of Pontevedra, if you have to use the residual water of the city of Pontevedra, the cash cost is the same, or is it the cash cost a little bit higher?
No, no.
Okay.
I have to go back to last year. Last year when we suffered the drought in end of July, well, we were working, remember, in August and September on an engineering solution to use the water of the Pontevedra treatment plant. We put that working with 50% own capacity and 50% rented capacity. What we are doing since we knew that we have won on the Supreme Court, then what we have did is that we are canceling these rental contracts, we are building our own capacity. Then, we are saving these more than EUR 1 million per month of rental of those equipments.
If we have problems of water in Pontevedra this summer, we are going to have our own equipment to work, without paying those, terrible costs.
Okay. Okay. Thank you very much.
Thank you, Jaime.
Thank you. The next question comes from Cole Hathorn from Jefferies. Please go ahead.
Good afternoon. Thanks for taking the question. I'm just trying to understand your CapEx profile over the next few years and how you think about your absolute debt level. Maybe we start with the CapEx. When you talk about the biogas plants, and you talked about the EUR 400 million of CapEx, could you give us an idea of when that CapEx will be spent? Will it be 2024, 2025, 2026? Just a rough estimate of how you see that CapEx being deployed on the biogas.
Yeah. Let me explain you two things before, that are important. Yeah. We have a commitment to never surpass 2.5x normal EBITDA of the company in terms of debt. Normal is the EBITDA the company has with an average price of the pulp of $900 per ton. What is the historical average price on the last 15 years. Secondly, we don't have a single EUR 400 million project. We have six different small projects, and each project has different phases. We have the biomethane, and the total investment is EUR 400 million, but it is in six years, seven years, and it's plant by plant.
We have the Navia Excelente project, who has three different projects inside this name, it's roughly EUR 100 million, it's going to be done between 2024, 2025 and 2026. We have the As Pontes project, which is EUR 125 million, in principle, we are going to build that between 2025 and 2027. As I said on my conference before, we will adapt our CapEx to the market and where we are in terms of debt and free cash flow. The first rule is to never surpass 2.5x of normalized EBITDA to debt, and to, let's say, play with the times we invest in order to do our program.
If we do the program in four years, we do the program in four years because we can do that. If we have to do that in eight years, we will do that in eight years. We don't have a single huge program. We have different small program. Will give us a lot of flexibility to adapt our CapEx to the cycle.
Thank you. I mean, maybe if we split that out, you're always gonna be looking it at the group level rather than kind of the pulp business level and the energy business level. Because you may be in a position where, you know, if we're at the trough of pulp prices in, let's say, 2024, you don't have any covenants on your debt, so you don't have any covenant problems. Your balance sheet on your energy division might be fine, and you can still invest in those biogas and, you know.
Yeah.
Push forward as many of those energy projects as possible. I'm just trying to understand how you're thinking about it at the group and the company level because-
Yeah.
-uh, on trough-
Yeah.
Trough, EBITDA. Go ahead.
When I was talking about 2.5 x, it is in pulp business. That is pure pulp and As Pontes project as well. In the energy business, the roof is 4 x.
Okay.
4 x the 2x EBITDA. That applies for Magnon, the electrical biomass energy, for the renewable industrial energy and for the biogas.
Perfect. You've got significant flexibility there. If we do go to understand, you've always been quite conservative in your CapEx projects and, you know, when you pull the trigger on bigger projects, what are the levers you have to pull in 2024 and we should be thinking about on the profitability and cash flow? Should I imagine we should start getting working capital inflows into 2024? You should also get the cash benefits of, you know, the energy provisions coming back into. I'm just wanting to understand, you know, potentially the cash inflows that we could see in 2024 that maybe not thinking about immediately.
Yeah. Yeah. Well, the first thing is to know what is going to be the price in 2024. The second question is how below from EUR 500 we are going to be in terms of cash costs in 2024. With that, we are going to build our CapEx plan for 2024. In 2024, let's say the standard program talks about EUR 70 million CapEx in pulp business, EUR 70. Well, that's one thing that can be changed, can be reduced or can be accelerated, the market change rapidly. And we will add as an income, the regulatory collar we are going to cash in next year. Yeah.
On the energy business, all those things I told you, they amount in between the biogas, the energy services and Magnon, to EUR 85 million. At the same, we will adapt that according to our expectations of the price of the energy, the price of the biomass in 2024.
Thank you.
Thank you. That's one thing we have been doing that on the past.
Thank you. The next question comes from José Antonio Suárez from CaixaBank. Please go ahead.
Hi. Good afternoon. Thank you for taking my question. My question is regarding the appeal for nullity filed by the state attorney regarding the ruling of Pontevedra that has been released this information this last week. Could you provide us some visibility where.
Sorry, José. Sorry. I have the same problem as with Jaime before. I don't understand. We don't understand what you are saying. We hear a voice before.
Do you hear me better right now?
A bit.
Okay. My question was regarding the appeal for nullity filed by the Spanish state attorney regarding the ruling of Pontevedra, that this new has been provided, like, this last week. I was wondering if you have any visibility whether it could be admitted or not. In case it is, it was admitted, how long will it take for this new process to have a resolution? A little bit about the visibility regarding this news of the ruling of Pontevedra and the appellant of the state attorney.
What I have to start saying, I will conclude saying that we don't see any risk at all. The Supreme Court has confirmed the legality of the Pontevedra concession until 2073. The Supreme Court is the last resort in an administrative process, and therefore its ruling is final. As expected, the town council of Pontevedra and the state attorney have requested the nullity of the Supreme Court ruling. It is likely that the Supreme Court should dismiss the claims. That's what our lawyers, all our lawyers say. However, it is also expected that they could try to appeal before the Constitutional Court of Spain after. Again, our lawyers understand that there are no solid grounds for these claims to prosper. We are confident that the issue of Pontevedra is over, and we have a firm concession until 2073.
Wait. Wait. You have almost full visibility on that on your, from your lawyer part. If the situation, if just imagine the situation could go worse in the sense that even the constitutional sector and Constitutional Court take the appeal into consideration. More or less, in the worst-case scenario, how long do you think it could last this? Just in this worst-case scenario, how long should it take in this worst-case scenario to resolve in case the Constitutional admitted the appeal? Do you have any visibility? Are you contemplating it in your numbers?
It can take.
... decisions?
It can take between one to two to three years for these politicians claiming of the court. Remember that Greenpeace is not claiming, it's the politicians who are claiming, and you know where we are now in close to May in Spain. I insist we are confident, and we don't see any risk.
Okay. Worst case scenario, you see no risk, but worst case scenario, one, three to three years. Okay. Thank you. Thank you for [inaudible].
Thank you. The next question comes from Pablo de Renteria from Kepler Cheuvreux. Please go ahead.
Good afternoon all. Thanks for the presentation and for taking my question. Do you think that the Altri's project to build up dissolving pulp mill in Galicia could somehow interfere with your project in As Pontes, given the current tightness of the Iberian wood market? Thanks.
Yeah. Yeah. Thank you. I don't know what Altri is doing, and I don't know what, why Altri is doing what they are doing. All my opinions are personal opinions and what we think here at ENCE. I don't like to talk about competitors. I understand Altri promoting a pulp mill in Galicia during the process we were on the court, hoping that we were going to lose. Once we have win and we have a concession granted till 2073, but it's clear there is no wood in, not only in Spain, there is no wood in, Iberian Peninsula for a new project who, according to the figures we are reading, is going to consume over 1 million tons of wood.
Secondly, our company promoted a dissolving project, you remember, in Navia five years ago. We have all the permits, we have the land, we have canceled this project. Every single new project we are launching is a project with no wood. As Pontes is producing rich recycled fiber, not using wood. The fluff we are going to sell from Navia is not more pulp, it's instead of regular BHKP, because we think there is no more wood Iberian Peninsula to source new projects. At ENCE, if we would promote a dissolving pulp mill of 100,000 or 200,000 tons, we will not do that in Spain, where the wood is extremely expensive, comparable to Latin America or South Africa or Indonesia, for producing a product who is intensive in wood.
Remember that we need 3 tons of wood, of eucalyptus for 1 ton of BHKP, and in dissolving, you need 5 tons. Any case, wood supply is one of our unique competitive advantages. Our bio mills are surrounded by enough eucalyptus plantations to fulfill our demand. As you know, we are importing less than 5% of the wood we consume, while our peers in the Iberian Peninsula already import 1/3 of their wood. Imported wood is going to be a problem. Imported wood from Latin will be more scarce and expensive once Arauco, UPM and Suzano new projects have started. We don't see it. Again, we don't see a problem there. Thank you very much.
Thank you. Gracias. Very clear.
Thank you. Ladies, and gentlemen, there are no further questions. Dear speakers, back to you.
Sorry, because we have a problem. We don't know if we are out or we are in. If we are in, and if there are no further questions, thank you very much for your time, and I hope to meet with you again before August holidays. Thank you very much. Bye-bye.
Thank you very much, ladies and gentlemen. This is the end of our conference call. You may now disconnect your lines.