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Transcript of Delivering value Delivering commitments - Ence presentation_ENG.pdfprice of wood pulp or wood, ......
Disclaimer
The information contained in this presentation has been prepared by Ence Energía y Celulosa, S.A. (hereinafter, "Ence").
This presentation includes data relating to future forecasts. Any data included in this presentation which differ from other data based on historical information, including, in a merely expository manner, those which refer to the financial situation of Ence, its business strategy, estimated investments, management plans, and objectives related to future operations, as well as those which include the words "anticipate", "believe", "estimate", "consider", "expect" and other similar expressions, are data related to future situations and therefore have various inherent risks, both known and unknown, and possess an element of uncertainty, which can lead to the situation and results both of Ence and its sector differing significantly from those expressly or implicitly noted in said data relating to future forecasts.
The aforementioned data relating to future forecasts are based on numerous assumptions regarding the current and future business strategy of Ence and the environment in which it expects to be situated in the future. There is a series of important factors which could cause the situation and results of Ence to differ significantly from what is expounded in the data relating to future forecasts, including fluctuation in the price of wood pulp or wood, seasonal variations in business, regulatory changes to the electricity sector, fluctuation in exchange rates, financial risks, strikes or other kinds of action carried out by the employees of Ence, competition and environmental risks, as well as any other factors described in the document. The data relating to future forecasts solely refer to the date of this presentation without Ence being under any obligation to update or revise any of said data, any of the expectations of Ence, any modification to the conditions or circumstances on which the related data are based, or any other information or data included in this presentation.
The information contained in this document has not been verified by independent experts and, therefore, Ence neither implicitly nor explicitly gives any guarantee on the impartiality, precision, completeness or accuracy of the information, opinions and statements expressed herein.
This document does not constitute an offer or invitation to acquire or subscribe to shares, in accordance with the provisions of Royal Legislative Decree 4/2015, of 23 October, approving the consolidated text of the Securities Market Act. Furthermore, this document does not constitute a purchase, sale or swap offer, nor a request for a purchase, sale or swap offer for securities, or a request for any vote or approval in any other jurisdiction.
3
Ence at a glance A hidden value
Leading European eucalyptus pulp (BHKP) producer with close to 1.1 Mn tons of
installed capacity and largest Spanish renewable energy generator with agroforestry
biomass (170 Mw)
Superior eucalyptus pulp demand growth fuelled by tissue consumption mega-trend
(7.6% CAGR 2006-2016)
Strong competitive position in Europe: highly efficient facilities, just in time service and
differentiated offering
Solid earnings secured by stable regulation in the biomass Energy business
Powerful and recurrent cash flow generation: €92 Mn Recurrent Free Cash Flow in
9M17 and over €120 Mn expected for 2017
Solid balance sheet and strong liquidity: 1.0 Net Debt / EBITDA and € 250 Mn cash
available at 30 September 2017
Clear Strategic Plan 2016-2020 on track aiming at doubling EBITDA and increasing its
resiliency through investments in both the Pulp and Energy businesses
Supportive shareholder base with strong entrepreneurial track record
4
Supportive shareholder base With a strong entrepreneurial track record
Shareholding structure (30/09/2017) Board of directors
Juan Luis Arregui (Retos Operativos XXI), Chairman of the Board, founder of Gamesa
and former Vice Chairman of Iberdrola
Mr. Ignacio de Colmenares
CEO y Vice Chairman
Mr. Juan Luis Arregui
Chairman
Mr. Oscar Arregui
Mr. Javier Echenique
Mr. Pascual Fernández
Mr . Luis Lada
Mr . Jose Carlos del
Álamo
Mr. Fernando Abril-
Martorell
Mrs. Isabel Tocino
Mr. José Guillermo Zubía
Mr . Pedro Barato
Mr. Victor Urrutia
Mr. Jose Ignacio Comenge
*Treasury stock: updated September 2017
28,0%
6,3%
5,7%
5,5%0,6%
53,9%
Retos Operativos XXI, S.L. Asúa Inversiones S.L.
Fuente Salada S.L. Alcor Holding, S.A.
Treasury Stock Free float
- Mr. Victor Urrútia
- Mr. Jose Ignacio Comenge
- Mr. Juan Luis Arregui
5
Pulp & Energy Two complementary and isolated businesses
2016 EBITDA breakdown
• Leading European producer with c. 1.1
Mn tons of installed capacity
• Cyclical business largely dependent on
USD based global pulp prices
• Based on Ence`s wood supply
management expertise
• Strong operating know –how and efficient
facilities with c.60 years experience
• Leverage policy: maximum 2.5x Net Debt
/ EBITDA, long term capital market
financing and high liquidity
75% 25%
• Largest operator in Spain with 170 MW
of installed capacity
• Regulated business with high visibility and
attractive returns
• Based on Ence`s agroforestry biomass
supply management expertise
• Strong operating know –how and efficient
facilities with c.20 years experience
• Leverage policy: maximum 5.0x Net Debt /
EBITDA, non recourse bank project
financing and sufficient liquidity
Pontevedra
Navia
Huelva
Mérida
Facilities Location
Eucalyptus pulp production Biomass energy generation
Ciudad Real
Jaen
Taylor made management policy per business and ring fenced financing
Cordoba
6
Chemical Market Pulp industry 59 million tons in 2016
Ence is the leading European hardwood pulp producer with c. 1.1 Mn tons of installed capacity,
competing in the global Chemical Market Pulp industry
Total Paper Grade
fiber consumption
414 Mn Tons
Fiber Source Pulp Processing Integrated vs.
Market Pulp
Pulp Type
Recycled
fiber:
244 Mnt
Virgin Pulp:
170 Mnt Chemical:
142 Mnt
Mechanical:
28 Mnt
Source: RISI – Jan 2017; PPPC G-100 Dic 2016
Market:
59 Mnt
Integrated:
83 Mnt Softwood and
other:
27 Mnt
32 Mnt Hardwood
Chemical Market Pulp
industry
7
Hardwood pulp vs. Softwood pulp Eucalyptus pulp is cheaper to produce than softwood pulp
Most hardwood pulp comes from eucalyptus wood
Best suited for paper products with high smoothness,
opacity and uniformity (i.e. tissue)
Softwood pulp (BSKP)
Eucalyptus only grows under very specific climate conditions, usually in warm subtropical regions.
More abundant pines are better adapted to cold climates
Low production cost High production cost
Substitutive
materials
80%
of final paper
products allow
for different
proportions of
both pulp
types
Hardwood pulp (BHKP)
Forestry yield: 12 – 18 m3 / ha / year
Harvesting cycle: 12 - 15 years
Industrial yield: 2.6 – 3.0 m3 / ton of pulp
Iberian Globulus
Most softwood pulp comes from pine wood
Best suited for paper requiring higher durability and
strength (i.e. printing & writing)
Forestry yield: 2 – 4 m3 / ha / year
Harvesting cycle: 50 - 70 years
Industrial yield: 4.8 - 5.2 m3 / ton of pulp
Nordic Scots pines
8
Tight global Market Pulp supply and demand balance Global demand reached 94% of capacity in 2016
China, Europe and North America are net importers of hardwood pulp (BHKP)
2
20
3
Demand Supply
3
Rest of the World
6 7
7 3
Demand Supply
13 10
Softwood pulp (BSKP)
Hardwood pulp (BHKP)
Source: RISI – Jan 2017; Hawkins Wright - Dec 2016; PPPC G-100 - Dic 2016
China
11
8
Demand
19
Western Europe
9 4
7
8
Supply
12
South America
23
4 2
4 14
Demand Supply
North America
8
16
(Mn Tons)
Demand
16
Supply
2
9
Superior demand growth for Eucalyptus pulp Which is leading global market pulp demand growth
Last 10 years total market pulp demand evolution
0
5
10
15
20
25
30
35
40
45
50
55
60
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
BSKP: + 1.3% CAGR
The more efficient and best suited eucalyptus pulp is gaining market share against other hardwood and softwood pulp,
following a demand increase of over 10 Mn tons in the last 10 years
Source: PPPC G-100
BHKP: + 3.6% CAGR
+ 2.1% CAGR Mn tons
Last 10 years hardwood pulp demand evolution
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
BEKP: + 7.6% CAGR
Source: PPPC G-100
Mn tons
Other BHKP: - 2.4% CAGR Other : - 4.9% CAGR
10
Fuelled by tissue consumption mega-trend Linked to increasing living standards in developing countries
24
15 15
11
6 5 5
3 1 1 0,1
NorthAmerica
WesternEurope
Japan Oceania Latam EasternEurope
China MiddleEast
OtherAsia
Africa India
Tissue paper per-capita consumption (kg/year)
85% of world population 15%
59% of Ence pulp sales are oriented to the fastest
growing tissue market, which has increased by
c.10 Mn tons in the last 10 years
3,0%
2,5%
1,5%
-1,4%
-4,6%
-5,0% -3,0% -1,0% 1,0% 3,0%
End global paper market demand growth
(CAGR 2005 – 2015)
Tissue
Specialties
Packaging
P&W
Newsprint
Ence 2016 pulp sales by end paper market
Packaging: 2%
Tissue: 59% Specialties: 31%
P&W: 8%
Source: RISI
Source: RISI
11
High demand growth requires pulp capacity additions But there are no new large project starts expected for next 3 years
Tight global supply and demand balance should be maintained in the coming years
Eucalyptus pulp annual demand and supply increase
(2013 – 2016)
Source: Ence estimates Source: PPPC G-100; PPPC SRN Feb 2017
1,3
1,6
1,1
1,7
1,4
0,8
1,3 1,3 1,3 1,2
0,0
0,5
1,0
1,5
2,0
2,5
2013 2014 2015 2016 Average
Demand Supply
Mn Tons
Expected hardwood pulp annual supply and demand increase
(2017 – 2020)
1,4
1,6
1,4 1,4 1,5
0,3
1,0
-0,3 -0,5
0,1
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
2017E 2018E 2019E 2020E Average
Demand Supply
Mn Tons
887 905 1,010
Positive outlook for pulp prices Ence has announced another price increase up to 1.000 $/t in December
12
European BHKP Pulp Prices RISI´s European BHKP Pulp Price Estimates ($/t)
Tight supply and demand balance in 2017 driven by:
Capacity integrations and conversions to other pulp
grades in Asia
Unplanned production outages
Progressive ramp-ups of new capacity
High pulp prices expected for the next 3 years:
No more large capacity increases in the pipeline
Continued demand growth based on tissue
consumption mega-trend
Virgin pulp demand growth in China underpinned by
increasing environmental standards
BHKP ($/t) BHKP (€/t)
1Q17 2Q17 3Q17
Source: RISI estimates (November 2017)
400
500
600
700
800
900
1.000
1.100
1.200
4Q17 Avg. 2018 Avg. 2019 Avg. 2020
Increased market tightening in the long run No new large project starts expected for next 3 years
13
Source: ENCE estimates
Expected Annual Increase for Global Market Hardwood Supply and Demand (Mn t) 1
Continued demand growth based on
global tissue consumption mega-trend
Virgin pulp demand growth in China
underpinned by increasing environmental
standards
No new large project starts expected for
next 3 years
Ongoing capacity conversions to other
pulp grades
Recurring unplanned production outages
1) Estimates correspond to the expected increase in supply and demand of market pulp for paper production. It excludes therefore the production of integrated pulp and other pulp grades such as Dissolving Pulp or Fluff
Mn t 2017 2018 2019 2020 2017 - 2020
ESTIMATED BHKP DEMAND INCREASE 1,4 1,6 1,4 1,4 5,8
China 1,0 1,1 1,0 1,0 4,1
Other Asia / Africa / Oceania / Middle East 0,2 0,2 0,2 0,2 0,8
Europe 0,0 0,1 0,1 0,1 0,3
North America 0,0 0,1 0,0 0,0 0,1
Latin America 0,1 0,1 0,1 0,1 0,4
ESTIMATED BHKP SUPPLY INCREASE 0,3 1,0 -0,3 -0,5 0,5
APP (OKI) 1,2 0,6 0,2 0,2 2,2
FIBRIA (TRES LAGOAS) 0,5 1,4 1,9
FIBRIA (ARACRUZ) -0,1 -0,2 -0,3
KLABIN (PUMA) 0,5 0,5
SUZANO (IMPERATRIZ, MUCURI & MARANHAO) -0,1 0,3 0,2
ENCE (NAVIA & PONTEVEDRA) 0,1 0,1 0,2
METSA (AANEKOSKI) 0,1 0,1
UPM (KYMI) 0,1 0,1
CMPC (GUAIBA) -0,6 0,6 0
TAIWAN P&P and RFP (Calhoun) -0,1 -0,1
ARAUCO (VALDIVIA) -0,1 -0,1
APRIL (RIZHAO)
APRIL (KERINCI)
OTHER UNEXPECTED CLOSURES / CONVERSIONS -0,2 -0,2 -0,2 -0,2 -0,8
SURPLUS / (DEFICIT) (1,1) (0,6) (1,7) (1,9) (5,3)
-1,0 -1,2 -0,6 -3,4-0,6
14
Softwood supply and demand will also remain balanced On continued demand growth and limited supply additions
Any new greenfield pulp project takes from 3 to 6 years to be completed
Expected Annual Increase for Global Market Softwood Supply and Demand (Mn t) 1
Mn t 2017 2018 2019 2017 - 2019
ESTIMATED BSKP DEMAND INCREASE 0,6 0,6 0,6 1,8
China 0,5 0,5 0,5 1,5
Other Asia / Africa / Oceania / Middle East 0,1 0,1 0,1 0,3
Europe 0,0 0,0 0,0 0,0
North America 0,0 0,0 0,0 0,0
Latin America 0,0 0,0 0,0 0,0
ESTIMATED BSKP SUPPLY INCREASE 0,4 0,5 0,3 1,2
METSA (AANEKOSKI) 0,1 0,6 0,7
SCA (OSTRAND) 0,1 0,4 0,5
SVETLOGORSKY (BELARUS) 0,2 0,1 0,3
SODRA (VARO) 0,2 0,2
DOMTAR (ASHDOWN + PLYMUTH) 0,1 0,1
IP (RIEGELWOOD) 0,1 0,1
CLEARWATER (LEWINSTON) 0,1 0,1
KLABIN (PUMA) 0,1 -0,1 0,0
STORA (SKUTSKAR) -0,2 -0,2
OTHER UNEXPECTED CLOSURES / CONVERSIONS -0,2 -0,2 -0,2 -0,6
BALANCE 0,2 0,1 0,3 0,6
BSKP supply and demand will also remain
balanced for the coming years
BSKP prices in Europe have recovered over
$80/t since the beginning of the year
1) Estimates correspond to the expected increase in supply and demand of market pulp for paper production. It excludes therefore the production of integrated pulp and other pulp grades such as Dissolving Pulp or Fluff.
Source: ENCE estimates
15
New capacity managed by incumbents In a concentrated supply market
Softwood pulp (BSKP) global market share
Top 10 softwood pulp producers account for 65% of
global BSKP market share
Hardwood pulp (BHKP) global market share
Source: RISI 2016 Source: RISI 2016
International Paper:
12%
Koch Ind.: 9%
Arauco: 7%
Paper
Excellence: 6% Sodra: 5%
All other: 36% Fibria +
Klabin: 19%
APRIL: 11%
Suzano: 10%
CMPC: 9%
Arauco: 6% El dorado:
5%
All other: 29%
UPM: 5%
Cenibra: 3%
Ence: 3%
Mercer: 6%
Ilim: 5%
Stora: 4%
Top 10 hardwood pulp producers account for 74% of
global BHKP market share
Altri: 3%
Domtar: 5%
Metsa: 6%
16
Iberian pulp is the most competitive in Europe
Narrowing the gap with Latams and widening it with Nordics
-
50
100
150
200
250
300
350
400
450
500
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
80% of softwood pulp demand could be substituted with hardwood pulp
Estimated delivered cash cost
for the European pulp market
€ / Ton
Mn Tons
Source: Hawkins Wright (August 2017)
At current exchange rates:
• 1,2 $/€
• 3,1 BRL/$
Western European Pulp Market:
16 Mn Tons
BSKP
BHKP
Source: RISI, EPIS, Ence
Demand Source
7
9
7
2
5
260
330 368
397
2
LATAM
(BHKP)
IBERIA
(BHKP)
NORTHERN.EUR
(BSKP)
NORTHERN.EUR
(BHKP)
Mn Tons
17
Ence has well located and highly efficient facilities
Focused on cash cost reduction
Ence is already the most competitive pulp producer in Europe
Ence Current and Expected Cash Cost Reduction
2014a 2015a 2016a 1H17a 2017e 2018e 2019e 2020e
405.6
359.0 356.7
339 337 329
325
STRATEGIC PLAN 1
344.5
1) Under a conservative assumption of 720 $/t pulp price and 1.25 $ exchange rate
18
Just in time service and differentiated offering Ence key competitive advantages in the Pulp business
Just in time service
High client diversification
> 100 customers
JIT short shipping
deliveries (5-7 days)
Smaller coastal vessels
De-commoditized products
TCF + ECF qualities
7 de-commoditized products
High White
High Porosity
Low Fibre Bundles
High Softness High Bulk
Low Energy Refining
High Stability
Premium
Pulp
50 days / 36€/t
JIT deliveries and de-commoditized products strengthen Ence's positioning among its diversified client base
1
1,05
1,1
1,15
1,2
1,25
1,3
1,35
1,4
31-12-12 31-12-13 31-12-14 31-12-15 31-12-16 31-12-17 31-12-18
Ongoing FX hedging program To mitigate FX volatility on the Pulp business
19
$1.15/€
$1.08/€
4T17: 68% revenues
Avg. cap: $ 1.15 €
Avg. floor: $ 1.09 €
1H18: 55% revenues:
Avg. cap: $ 1.16 €
Avg. floor: $ 1.08 €
2H18 : 46% revenues:
Avg. cap: $ 1.14 €
Avg. floor: $ 1.09 €
Ence has secured an average cap of $1.15/€ for >50% of its dollar exposure until Dec. 2018
Dollar/Euro Exchange Rate Evolution Current Hedges
20
Ence is also the largest agroforestry biomass player in Spain With 170 MW of installed capacity
Ciudad Real 16 Mw
Jaen 16 Mw
Mérida 20 Mw
Huelva 50 Mw
Huelva 41 Mw
Current estimated annual EBITDA of €50 Mn
Cordoba 27 Mw
21
Energy business earnings secured by stable regulation Strengthening the resiliency of Ence´s business model
104 104 104
94 94 94
0
20
40
60
80
100
120
2017 2018 2019
Average Cap Average Floor
€ / Mwh
Regulated price collar 2017-2019
(regulated pool price + Ro)1
Continued cost cutting initiatives to offset the small effect of a lower Regulated IRR from 2020
1 Includes regulated pool price collar + average remuneration for the operation of our plants (Ro) of €57 /MWh
Low exposure to regulated return on investment
(Regulated IRR)
7.4%
5.5%
Current Ri 2020 Worst CaseScenario
- €3.8 Mn EBITDA
Our worst case scenario is an Regulated IRR based on a
regulated return of 5.5% from 2020
EBITDA impact of just 3.8 Mn€ for our 6 operating plants and new Huelva project (without Regulated IRR)
Regulated electricity price plus the remuneration for the
operation (Ro) to cover all the operating costs of a
standard plant
22
Successful diversification to agricultural biomass Ence key competitive advantage in the Energy business
Weight of Forestry and Agricultural Biomass Supply
Diversification to agricultural byproducts multiplies the biomass availability around our plants, reducing its cost
86
14
60
40 44 56
2015a 2016a 2017e
Forestry biomass (%) Agricultural biomass (%)
■ Fruit bones and husk ■ Strains ■ Bushes ■ Prunes ■ Olive pulp
2015 2016 2017e
€120 Mn
23
Powerful and recurrent cash flow generation €109 Mn Recurrent Free Cash Flow in 2016 despite lower pulp prices
$783/t
$ 697/t
Note: Recurrent free cash flow includes Adjusted EBITDA, change in WC, maintenance CAPEX, interest payments and taxes
€111 Mn €109 Mn
Over €120 Mn recurrent free cash flow expected for 2017 with an average pulp price of 820 $/t
$820/t
24
Solid balance sheet and strong liquidity 1.0x Net Debt / Adjusted EBITDA as of 30 September 2017
Pulp business leverage (September 2017) Pulp business gross debt maturity calendar
Energy business leverage (September 2017) Energy business gross debt maturity calendar
Leverage:
0.8x
Leverage:
1.0x
€250 Mn bond
€68 Mn bilateral loans
€101.3 Mn Outstanding Project Finance
€14.3 Mn Bilateral loans
€90 Mn RCF fully available
319.2
148.8
170.4
Gross debt Cash Net debt
250
2.5 5.5
20.5 8.2 6.1
25.4
2017 2018 2019 2020 2021 >2022
114.7
34.7
80
Gross debt Cash Net debt
6.4
13.4 13.6 13.6 14.5
39.8
0.3
1 3.3 3.3 4.1
2.3
2017 2018 2019 2020 2021 >2022
Next steps for the Pulp business 150,000 t capacity expansion in 2018 - 2019 aiming at €22 Mn EBITDA growth 1
25
70,000 t capacity expansion
in Pontevedra between 2018 and 2019
During 1Q17 maintenance downtime in Pontevedra, we have
prepared 30,000 t capacity expansion that will be completed
during March 2018 annual maintenance downtime
Additional 40,000 t expansion in Pontevedra between 2018
and 2019 maintenance downtimes
80,000 t capacity expansion
in Navia between 2H18 and 1H19
2015 a 2016 a 2017e 2018e 2019e 2020e Total
Net Capex (€ Mn) 2 -2 -1 35 41 52 -8 117
Production sold (000, t) 898 931 972 991 1,040 1,120
Cash cost (€/t) 358 357 339 337 329 325
Pulp Business Strategic Plan Summary (at 720 $/t pulp price and 1.25 $ exchange rate)
Between winter 2018 and spring 2019, we will expand
capacity by 80,000 t in Navia
Total capacity expansion will be done with just one
shutdown
1) €22 Mn EBITDA growth vs 2017 resulting from 150,000 t capacity expansion, under a conservative assumption of 720 $/t pulp price and 1.25 $ exchange rate
2) After non core forestry assets Divestment Plan
Next steps for the Energy business New Huelva 40 Mw power plant pushing annualized EBITDA up to €61 Mn
New Huelva 40 Mw biomass power plant
New Huelva 40 Mw biomass power plant project on
track to start up in 2H 2019
€11 Mn annual EBITDA target, without regulated IRR
EPC closed in July and early works agreed in October
Synergies with our 50 Mw and 41 Mw plants already
operating in the same location
Capex: €87 Mn
Financing: 60%
Currently analyzing opportunities to accelerate the Energy business growth through
acquisitions in Spain and Europe to reach an EBITDA target of €78 Mn by 2020
26
Acquisition date: December 2016
EV: €34 Mn (€22 Mn for Ence stake)
2016 EBITDA: €5.5 Mn
2017 Expected EBITDA: €7.5 Mn
Acquisition date: August 2017
EV: €29 Mn (€26 Mn for Ence stake)
2016 EBITDA: €4 Mn
2017 Expected EBITDA: €5 Mn
Successful M&A track record