Ence Energia y Celulosa SA

MAD:ENC

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the ENCE First Quarter 2018 Results Presentation. I now hand over to Mr. Ignacio Colmenares, CEO; and Alfredo Avello, CFO. Gentlemen, please go ahead.

[Ignacio de Colmenares y Brunet, Vice]

Good afternoon, ladies and gentlemen. Thank you for attending ENCE's First Quarter 2019 Results Conference Call. I'm here today with our CFO, Alfredo Avello, and our Head of IR, Alberto Valdes. After the presentation, we will answer any questions you may have.Let's start with the main highlights of this presentation. Firstly, we have reviewed our strategic plan after the Spanish Administration's change of criteria regarding the 60-year extension of ENCE's concession in Pontevedra, granted back in 2016. As a result, we will transfer most of the investments initially planned for Pontevedra to Navia, doubling its initial capacity expansion with a new swing line.I would like to stress that there is no other viable alternative in Northwest of Spain, neither technical nor economic, to the current site of ENCE's biofactory in Pontevedra. Secondly, the pulp market is still pointing to a strong pulp price scenario for the coming years due to the tight supply and demand balance expected until at least 2022. Now prices are slightly weaker than we originally expected, but prices have already bottomed out in China, and we expect a much better second half of the year.Thirdly, the financial results of our 2 businesses during the quarter were mixed. EBITDA in our Renewable Energy business grew by 49%, thanks to the better operational performance of our existing plants and a newly acquired thermosolar plant in Puertollano. EBITDA in the Pulp business decreased by 28%, caused by: firstly, by the negative FX hedging settlements; secondly, by the higher sales outside Europe at low spot prices; and finally, by the building of inventories ahead of the long shutdown of our biofactories to expand capacity and the associated cash cost increases.Another highlight is that we continued with our strategic CapEx plan, investing EUR 87 million during the quarter as follows: EUR 63 million in the 2 biomass power plants that we will start operating in December, improving [ annual ] EBITDA by EUR 30 million. EUR 24 million for the 100,000-tonne capacity increase in our biofactories. Finally, we expect the 2019 Pulp business EBITDA of around EUR 235 million, assuming $1,050 per tonne as an average price for the second half of the year.Our Renewable Energy business EBITDA remains at EUR 65 million.In Slide 5, we explained the projects in which we invest the EUR 725 million CapEx we announced. As you can see, the main difference comes from the new swing line we will build in Navia. This line will allow us to increase the production of our biofactory. It will be able to produce a maximum of 200,000 tonnes of Dissolving Pulp, or alternatively, 340,000 tonnes of BHKP or any combination of the 2 that we decide. In fact, we tend to produce 100,000 tonnes of Dissolving Pulp and 170,000 tonnes of BHKP. This swing line will give us a more flexible approach to the market depending on demand and prices. I would like also to mention that we reduced the original budget dedicated to sustainability in Pontevedra. In Slide 6, you can see our new targets for our 2019-2023 Strategic Plan. As you can see, Pulp sales and EBITDA target have been maintained, thanks to the CapEx we will invest in our Navia biofactory. Obviously, our basic assumption is that Pontevedra will operate during this period without any major projects, despite the freezing of all nonmandatory investments. The Renewable Energy business targets are confirmed in this overview.If you turn to Slide #7, you can see how we are investing these targets over the years, and how the EBITDA will evolve as we increase production and add new products to our portfolio. We have maintained our EBITDA target for EUR 400 million in 2023, assuming a pulp price of $1,050 and USD 1.20 exchange rate.Slide 8, shows the steady growth of our production, including the new products we will add to our Pulp portfolio. You can see, our cash cost evolution during the next 5 years. Navia's biofactory cash cost will be reduced as a result of all these investments and thanks to the cost dilution.Let's now move to Slide #9, where we summarize our view of the global pulp market. There is still a good demand and supply balance, so we anticipate higher pulp prices in the second half of 2019. As you can see, the market tightness will continue to increase until at least 2022. Let me remind you that the lead time for new pulp [ planned ] is close to 3 years, and we do not expect any surprise increases in supply. In the short term, prices will increase as we expect the paper industry de-stocking process to end soon. Pulp prices have already bottomed out in China, and there are planned stoppages during the second quarter that will reduce the pulp production. All in all, we expect a much better second half of the year.Slide #10, shows our review of increases into global demand and supply. You can still see the tight supply and demand balance until at least 2022. We have not seen announcements of new factories before that date. The new UPM project in Uruguay has not yet been confirmed.Let's now move to Slide 11, which shows our financial results. Our revenues were basically flat while EBITDA decreased by 17% despite higher ForEx prices, a stronger dollar and better performance of energy business. The main reasons for this decrease are: negative FX hedging settlements, EUR 9 million; more sales outside Europe at lower spot prices, EUR 6 million; an increasing cash cost, EUR 5 million; a decrease in pulp sales due to the inventory increase, EUR 3 million. Our net income decreased 41% in the quarter versus first quarter 2019 -- sorry, 2018 as anticipated. We expect all these figures to improve during the second half of the year, since we foresee better production numbers after the shutdowns and higher pulp prices.Slide 12, shows the evolution of our cash costs. The increase of around EUR 13 per tonne compared with the last quarter of 2018 can be explained by the following factors: EUR 14 due to high conversion costs, especially lower fixed cost dilution and the lower contribution from the energy component in the quarter; EUR 2 due to an increase in wood cost as there were higher transportation costs, albeit, despite a EUR 3 per tonne overhead cost improvement. Slide 13 shows the performance of our Renewable Energy business. EBITDA is up by 49% compared to last year, due to the contribution of the 50-megawatt thermosolar plant acquired in December '18 and the better operating performance of our biomass power plants.Our 2019 EBITDA is expected to reach EUR 65 million and will grow up again in 2020 by EUR 30 million as a result of the new biomass power plant, which will start operating next December.Let's turn now to Slide #14. During the first quarter, free cash flow before strategic investments and dividend payments reached EUR 38 million, an increase of 36% compared to first quarter 2018. Our CapEx increased significantly, to EUR 86 million; EUR 24 million in the Pulp business and EUR 62 million in the Renewable Energy business. After these investments, our net debt reached EUR 305 million. It is important to mention that we have included EUR 55 million in the debt from the application of IFRS 16 on leases and from January 2019.Our leverage ratio is only 1.4x our EBITDA over the last 12 months, 0.8x in the Pulp business and 3.4x in the Renewable Energy business, assuming a pro forma full year EBITDA for the newly acquired thermosolar plant.In Slide 11 (sic) [ Slide 15 ], we'll review our strategic plan investments. We invested EUR 87 million during the first quarter, and we will invest a total amount of EUR 320 million during 2019. We started the 20,000-tonne capacity expansion at our Pontevedra biofactory during the first quarter of 2019, and we are now in the process of ramp up. Thereafter, this will add EUR 18 million to our annual EBITDA using our strategic plan assumptions.We are also adding 80,000 tonne capacity in Navia at the end of the second quarter of 2019. This will add EUR 28 million to our annualized EBITDA using the same assumptions. We continue to invest in the construction of our 2 new biomass power plants, which will be operative before the end of the year.In Slide 16, let me remind you of our dividend policy, which is 50% payout and 3 payments during the year. A final dividend of EUR 0.054 per share was approved by our AGM and paid on April 11.Finally, I would like to give you an update on sustainability activities. We continue to improve our certified wood entries and to create value for local suppliers. We are reducing odor and noise in our factories as well as a 12% reduction in the use of water. We are promoting circular economy, reducing waste and increasing the use of local biomass to produce energy. We lowered the frequency and severity of accidents pursuing our zero accident goal. We are promoting equality and diversity, increasing the number of women working by ENCE by 10%. I will now invite Alfredo to review the figures in more detail.

[Alfredo Avello De La Peña, Chief Financial & Corporate Development Officer]

Thank you, Ignacio. Moving on to Slide 19. Let me start with the operating performance of our Pulp business. Our EBITDA attained EUR 39 million in a flat pulp prices scenario to [ plus- ] 6% reduction in our pulp sales as a result of our announced 20,000-tonne inventory rebuilding process ahead of the planned shutdowns of our biofactories. EUR 9 million of negative settlements in our first Q FX hedging program and a 7% cash cost increase related to higher raw material prices, fixed costs and corporate expenses. As you're aware of, in March, Pontevedra had its planned maintenance shutdown in which we took advantage to execute the bulk of the works related to the 20,000-tonne capacity expansion. We expect a progressive ramp up of this new capacity during the second half of 2019 and cash cost dilution should trail this ramp up process.Turning to the next slide. Let me show you our Pulp business first Q P&L bridge from EBITDA to net profit. Compared to first Q last year, below our EBITDA figure of EUR 39 million, marked by some negative FX-hedging settlements, DD&A grew as a consequence of our asset base increase, derived from our strategic planned investments as well as from higher use of wood from our own plantations in the Southern Spain.Once recording a EUR 1 million provision relating to the Pontevedra Environmental Pact, the company achieved an EBIT of EUR 23 million. Below this figure, financial expenses were 39% lower as a consequence of last year refinancing process, which together with a position EUR 1 million FX effect on receivables and EUR 5.7 million in taxes, led us to a net profit of EUR 16.5 million for the quarter.Let's follow with the Slide 21, and the cash flow generation in our Pulp business. Recurrent free cash flow after working capital changes, maintenance CapEx and financial charges reached EUR 4.7 million, leaving the normalized free cash flow to EUR 34 million. CapEx amounted to EUR 24 million partially compensated by P&L payment provisions not yet realized and certain sales of our remaining worldwide industrial assets, finally attaining a free cash flow figure, up EUR 16.5 million for the quarter.On Slide 22, we review our hedging program. We currently have approximately 75% of our FX risk hedged for the remaining year on our yearly cap of 1.26 and a floor of 1.19. As we're aware of, our policy is to hedge a minimum of 50% of our expected U.S. dollar revenues for at least the next 12 months on a rolling on basis to mitigate currency volatility. This program is reviewed and adjusted on a weekly basis.Let's turn to Slide 23, and focus in the Pulp business balance sheet. As you surely know, IFRS 16 has a [ big role ] from January 1, and we now need to add a present value of our lease contracts to our net debt. This calculation, amongst the EUR 46.4 million in this business increase in the net debt to EUR 179 million compared to EUR 148 million as of December 2018, representing a leverage ratio of 0.8x LTM EBITDA, well below our self-imposed limit of 2.5x. Excluding this IFRS 16 effect, the net financial debt would have been reduced by EUR 15 million in the quarter.There no change analysis to our Energy business operating performance in Page 24. The energy volume sold was 9% higher than in the same period last year due to the contribution coming from the new 50-megawatt thermosolar plant acquired in December 2018 as well as from the good operational performance of our biomass power plants, now resolving the operational challenges suffered back in the last quarter 2018. Although, average selling price was 5.7% lower than the previous year due to the temporary suspension of the National Electricity Generation Tax in first quarter '19 that is so-called [ Vassasoria ], which had no impact on EBITDA. Total revenue per megawatt hour, including the return on the investment also increased by 9% up to over EUR 161. All this led the Renewable Energy business EBITDA to grow by 49% up to EUR 13 million. Our CEO has stated, for 2019, we expect that 44% annual EBITDA growth in the Renewal Energy business, up to EUR 65 million, based on the already visible operating improvement of our biomass plants and increasing contribution from the new thermosolar plant. Flipping on to Slide 25 for the P&L. Below our EUR 13 million EBITDA figure, depreciation charges were almost EUR 7 million in the quarter compared to EUR 4 million in the same period last year due to the asset base increase related to the new thermosolar plant acquired. Net financial expenses reached EUR 4.6 million, also due to the debt related to the acquisition of this plant as well as to the 2 new biomass plants under construction.EUR 0.4 million in taxes are offset by the recognition of a tax credit for the same amount. Based on the better-than-expected historical operating performance of our Olive Pulp plant since its acquisition back in 2016 and 2017. As of today, the company has already recouped up to 84% of its invested equities in these assets. Let's now move to cash flow generation, the Slide 26. Working capital needs increased by EUR 5.8 million, explained by 1/3 increase in our biomass inventories, 1/3 in receivables due to the 18% revenue increase and the last 1/3 related to acquisition of the thermosolar plant.Maintenance CapEx and interest payments were in line with expectations and the other collection on payments figure reflects the revenue provision on the regulatory color. Although, the cash flow generation is heavily marked by the EUR 63 million in CapEx related to the construction of the 2 new biomass plants. Moving on now to Slide 27, net debt position for the Energy business ended at EUR 221 million as a consequence of the previously mentioned acquisition of the thermosolar plant and the construction of the 2 new biomass plants in Huelva and Ciudad Real.In this business, the application of IFRS 16 amounts to EUR 8.6 million, all related to land leases.During the quarter, we close a 13-year, EUR 110 million finance to re-finance the bridge loan used for the acquisition of the 50-megawatt thermosolar plant. This [ prior ] finance has no recourse to the parent company following our ring-fence strategy in the 2 businesses.As for the corporate financing of the Renewal Energy business, this project has obtained the highest green rating from S&P, recognizing our firm commitment towards sustainability, transparency and corporate governance. After this deal, financial leverage of our Renewal Energy business, it stands at 3.5x.Let me please now return the lead of the presentation back to our CEO for the closing remarks.

[Ignacio de Colmenares y Brunet, Vice]

Thank you, Alfredo. I conclude this presentation with my confidence that pulp prices will remain strong during the next few years. The supply and demand balance is tight and will remain so, at least until 2022. Prices in China have already bottomed out. I expect stock to reduce during the coming weeks, and I anticipate price increases in all our markets by the end of this quarter.After the review of our strategic plan, we will maintain our EBITDA and production targets in the Pulp business. The problems in Pontevedra will effect neither revenues nor EBITDA over the next 5 years. We believe our 2019 EBITDA will be around EUR 300 million, assuming lower pulp prices during the first half of the year and the recovery during the second half.Renewable Energy business EBITDA will be EUR 65 million, thanks to the improvement of our biomass power plant's operation in Huelva, coupled with the increasing contribution from the newly acquired thermosolar plant.Thank you very much, ladies and gentlemen. Now we are happy to answer any questions you may have.

[Operator]

[Operator Instructions] Your first question comes from Nuno Estácio from Haitong Bank.

[Nuno Estácio, Equity Research Analyst]

Just a couple questions. The first one, if you could help us understand the building blocks of the hedging effects? And if the euro stays flat where it is, will we this still be impacting negatively in the coming quarters?The second question would be, how are you seeing the current demand from your clients? And if you could give us some indications in terms of what you expect for your sales in second quarter in terms of volume of Pulp?And a third question would be, is the strategic CapEx in Pulp is going to be kept even in a scenario where prices stay below $950?And a final question is, the review that you are doing in your guidance from the EUR 275 million in Pulp to EUR 235 million approximately, is this all effect of price? Or is there anything else here that you are also reviewing in terms of the cost or this hedging effects?

[Ignacio de Colmenares y Brunet, Vice]

Yes. Thank you very much, Nuno. Let's start with the question #3. When we presented our strategic plan at the end of last year, we said that we are working with a scenario -- a price scenario of $1,050, but this plan was achievable even at prices of $850 because at those prices, our net debt to EBITDA will remain below 2.5x. Then there is no reason now because we are at $950 to stop or to delay our strategic plan. What we are doing, as I have already explained is, we are going to concentrate everything in Navia. We have already engaged the engineering in order to confirm that, that is possible. Our first analysis say it is possible, and we will have the final confirmation by August. And therefore, we don't see any major change in terms of volume or in EBITDA in our Pulp business because the only effect is that every -- all the investments will go to Navia with higher volume and a higher EBITDA than forecasted previously and much 100% of what we are going to do in Pontevedra.Regarding our guidance for the Pulp business of EUR 235 million. Well, what have modified is everything good has already changed in the first quarter, and I have already explained to you. We have assumed the dollar at the price of $1.12 for the second quarter and further losses because of the FX. We are working with a prices $1,050 for the second part of the year and there are no major changes.Alfredo, why don't you explain the effect of this hedging policy?

[Alfredo Avello De La Peña, Chief Financial & Corporate Development Officer]

Okay. Nuno, as you can see in Page 20 of the presentation, FX impacts our P&L in 2 phases: one is, above EBITDA that's a hedging program; and then one is, EBIT, for the receivables. Basically, this last one is the FX change between -- we issue one invoice and we'll get paid of that. But important is the hedging program. As you know, we hedge on a weekly basis for the following 12 to 18 months. This means that this FX hedging has been contracted like 12 to 18 months ago. The way we use -- the way we hedge is we use permanent 0 cost collars in which we set a floor and a cap, and we let the dollar took to hedging between those collars. Well, right now, as we were saying and this is what you have in Page 22 of the presentation, right now -- from now till the end of the year, we have around 75% of our FX posture hedged with a floor of 1.19 and a cap of 1.26. So yes, every exchange at below 1.19 will be converted into a 1.19. And therefore, you will have these settlements above EBITDA.

[Ignacio de Colmenares y Brunet, Vice]

And I think that you also asked something regarding the second quarter?

[Nuno Estácio, Equity Research Analyst]

Yes.

[Ignacio de Colmenares y Brunet, Vice]

Then -- well, we are expecting a production in second quarter of -- a bit more than 200,000 tonnes, 209,000 tonnes because we are going to stop Navia Mill, May 27 for one month. We expect to sell 237,000 tonnes that is why we have been stocking. We expect a ForEx price of EUR 855, and an exchange rate of 1.14 and the cash cost of EUR 398 because of this low level of production. And with that, we expect an EBITDA for the second quarter of EUR 38 million, which is roughly the same than the one in the first quarter.And we expect an EBITDA in the Pulp, in the Energy business of EUR 15 million.

[Nuno Estácio, Equity Research Analyst]

This EUR 38 million, it includes already the effect of this hedging, which means that there is a small loss between the 1.20 and the 1.14 average that you expect, correct?

[Ignacio de Colmenares y Brunet, Vice]

Yes, yes. EUR 7 million of losses due to the effects above the EBITDA. Therefore, I could -- yes.

[Operator]

Your next question comes from Bruno Bessa from Caixa Bank BPI.

[Bruno Filipe Bessa, Analyst]

Sorry for going back to the guidance revision for 2019. But when looking into your basic assumptions for the EBITDA in the Pulp division in the new [ plate ] and the previous guidance provided in the strategic plan, I see that, obviously, you are assuming now lower pulp prices, also different FX, higher discounts, but I also see a slightly higher level of cash cost. My question is, why are you assuming this higher cash cost considering that the pulp prices are below your previous assumptions? And this would, in theory, have a positive impact on your wood cost? This will be my first question.My second question and also related with wood cost is when are you expecting wood cost to decline? I understand that you have increased wood cost in this quarter due to higher transportation cost because you are supplying more from the South of Spain. But related with this my question will be, why are you supplying more from the South of Spain? Is there any specific that justifies this? And the second one, are you expecting this to revert and start to see the wood cash cost to decline also considering that pulp prices are under a downwards trend?

[Ignacio de Colmenares y Brunet, Vice]

Well, sorry. I answer those questions because you don't -- I am going to forget and you'll have to ask them again. And then you can ask more if you want. Yes. Regarding the guidance for the full year 2019, we are working with an average cash cost of around EUR 380. As said, second half 2019 cash cost should be closer to EUR 370, mainly due to: firstly, higher [ pulp ] production and sales volume, and that will reduce EUR 10, the cash cost versus the first half of the year; higher cogeneration in Pontevedra, and it will reduce EUR 5 per tonne versus the first half of '19; lower wood cost because no further supplies from Huelva, and now it's 6 weeks we are not shipping from Huelva any wood more, EUR 2 per tonne versus the first half; and a basket of other things, minus EUR 4 per tonne if we compare it to the first half of the year.Regarding wood cost and sourcing from Huelva. During fourth quarter 2018 and the first quarter 2019, as you remember, we have been using wood produced at our plantations in Southern Spain due to heavy rains affecting logistics in Northwest of Spain. These wood costs in an account basis is more expensive. In terms of cash, it's cheaper because 50% of the cost has been already expended a few years ago. We don't expect to source wood from those plantations in the second half of 2019. We have never done that. There was terrible rains in winter and is not normal. And as I said before, the fact of not using more wood from Huelva will allow us to reduce our cash cost by EUR 2 per tonne in the second half compared to first half.Going to your question of automatic linkage to pulp prices. Let me remind you, our wood stile system, which is available on our web page. As you know, our wood price is partially linked to pulp price evolution. When the average monthly ForEx price in euros comes above or below its EUR 50 threshold, 700, 750, 800, we increase or reduce EUR 1 per cubic meter in the wood price, which we increase or reduce, which results in EUR 3 per tonne increase or cut in our cash cost.This mechanism allows us to be more flexible under different pulp price scenarios. However, it has a cap at EUR 800 per tonne, and the floor at EUR 500 per tonne. The first price cut will be automatically applied in the average monthly ForEx -- if the average monthly ForEx price falls below EUR 800 per tonne. Then we don't -- we'll not see any price decrease on the second quarter because we don't see those prices, and what we see now on the second half of the year is prices on the range of 1,050. I think I have answered all your questions. Do you have any further questions, Bruno?

[Bruno Filipe Bessa, Analyst]

Yes, if I may. Just a follow-up question on cash cost. I see that in your previous targets in the strategic plan you had a guidance of cash costs for 2019 of EUR 375, while now you have EUR 380. My question is, why are you assuming now higher cash costs? And if this is related with the fact that wood costs were higher in Q1 because of transportation costs?

[Ignacio de Colmenares y Brunet, Vice]

Yes. That's one of the main factors.

[Bruno Filipe Bessa, Analyst]

Okay. So my last 2 questions, 2 quick ones. The first one, if you could provide visibility on the impact of IFRS 16 in the Q1 EBITDA? And the last question, if you could provide us and update on the situation of the Pontevedra license.

[Ignacio de Colmenares y Brunet, Vice]

Yes. Alfredo is going to answer your question of the IFRS 16 in our EBITDA and during the first quarter. While regarding Pontevedra, there is no news. As you remember, the decision of the National Court of pursuing the process is very important because it has been our first victory. What we are doing now is concentrating all our efforts in this battle, in the National Court to win and to maintain this 60 years license. That's what we're doing now. And unfortunately, it will take some years because we see the first result of the National Court by Christmas. And if we lose, we'll appeal, if we win, they will appeal, and so on and so on. And I think that we have in front of us between 4 and 5 years of a legal process. What we are doing meanwhile is, as I have said before, we have frozen all our investments in Pontevedra. We are going only to do those that are legal and mandatory. We have transferred all the investments of the strategic plan to Navia. And what we have stated publicly is that there is no other alternative in the Northwest of Spain to this [ biofactory ] in Pontevedra. That's why we are concentrating all our efforts in the legal battle.

[Alfredo Avello De La Peña, Chief Financial & Corporate Development Officer]

Bruno, regarding IFRS 16, as anticipated in our annual account segregation of IFRS 16 from 1st of January, it has triggered recognition of financial amenities in an amount of EUR 55 million. Close to EUR 46 million correspond to the Pulp business and the EUR 9 million remaining corresponds to the Energy business. If you want to disclose this [ counter ] components of these ones, EUR 33 million are related to the annual [ canon ] payment to the Pontevedra's concession; EUR 11 million related to forest plantation leases and EUR 8 million related to the site lease of the new Ciudad Real thermosolar power plant and EUR 3 million to other leases. On the other hand, the application of this regulation will have an estimated budgeted effect of, as you know, EUR 5 million in the group annual EBITDA that will be offset by around EUR 3 million of higher depreciation charges and EUR 2 million of higher financial expenses.Out of these EUR 5 million, EUR 4 million corresponds to the Pulp business and EUR 1 million to the Renewable Energy business.

[Operator]

The next question comes from Luis de Toledo from BBVA.

[Luis de Toledo, Chief Analyst of Oil and Materials]

Most of my questions have been already answered. I have one remaining regarding the state review and concerning the Renewable Energy business. You highlighted the pending investments for this year. I would like to know if this new situation has changed your previous plans on Renewable Energy. If you could provide some reference regarding future maintenance CapEx for this unit and maybe the CapEx budget also for 2020.

[Ignacio de Colmenares y Brunet, Vice]

No. We keep 100% in our strategic planning energy and nothing has changed.

[Luis de Toledo, Chief Analyst of Oil and Materials]

Okay. Any reference on maintenance CapEx at least for these units going forward?

[Ignacio de Colmenares y Brunet, Vice]

In Energy for 2019?

[Luis de Toledo, Chief Analyst of Oil and Materials]

Well you highlighted 2019. Maybe 2020.

[Ignacio de Colmenares y Brunet, Vice]

Yes. Between EUR 5 million and EUR 10 million for the year.

[Operator]

Your next question comes from Jaime Escribano from Banco Santander.

[Jaime Escribano, Equity Analyst]

Three questions from my side. The first one is related to the expenses that you committed for [ social carrying ] in Pontevedra. Are you going to continue spending that money at this commitment? Or after all this trial, you are going to freeze that expenses? And second question is regarding the business plans. I'm comparing the previous presentation with the new one, you more or less forecast around EUR 400 million in Pulp in EBITDA for 2023 in both of them. And all the figures seems to be the same. The only one that changes is the cash cost. In one, the previous one you have EUR 350 per tonne and in this one is EUR 362. However, you have almost the same EBITDA. Could you help me to reconcile these 2 numbers? And finally, would you consider to do a share buyback at current levels? Is this something that you would think about? Or in the end, you are using the money for the business plan?

[Ignacio de Colmenares y Brunet, Vice]

Regarding your last question, we have [ not ] think about buy-back of shares. Regarding this EBITDA in Pulp business, the reason that the price of -- sorry, the cash cost increases is that -- it is a bit difficult to explain. But you know that we have a negative cost of the energy in Navia. Then the more volume you produce, the less this negative cash cost impact on the total cash cost. And that is why producing more tonnes in Navia than before. The tonnes without -- no benefiting from these energy are more, and then the cash cost is a bit higher than would be expected. But on the other hand, we are producing and selling more tonnes, and that is the reason why we are maintaining the same EBITDA.Regarding your -- could you repeat me your first question, please? Yes. You were talking about the social, yes. I have explained that a bit longer in order that it is well understood. We have, as you know, 2 kind of committed investments in Pontevedra. We signed in June 2016 with the local government of Galicia, an Environmental Pact in order to enhance the living standards of the citizens of Pontevedra, subject, and that is really important, to grant the full necessary permits to operate, to buy a factory and for all planned investments. This Environmental Pact has what is called in Spanish a suspension clause and a [ reservatory ] clause. And since we don't have all the permits to all the investments we were going to do in Pontevedra, and since what happened on the National Court 1 month ago, well, the Environmental Pact is suspended from a legal point of view. This pact included the commitment to invest, but as it is not in ENCE, it is in third parties, it will go to the P&L: EUR 15 million for the modernization of Pontevedra's City Water Treatment Plant, which we don't use; EUR 5 million for the refurbishment of a building to house the public forestry R&D center; and EUR 1 million for a soccer field for the town of Mérida. As of the end of March, end of first quarter, we have provisioned below the EBITDA line up to EUR 6 million out of this EUR 21 million expenses in our balance sheet with no cash flow out, EUR 5 million last year and EUR 1 million during first quarter 2019. On top of that, we're committed to found an annual corporate social responsibility program for an amount of EUR 3 million, which is annually included in -- above the EBITDA line. That was the case in 2018. That was the case in 2017, and that has been the case on the first quarter of 2019. So these expenses have been put on hold until we have more visibility on the future of Pontevedra's concession.

[Operator]

[Operator Instructions] Your next question comes from Alvaro Lenze from Alantra Equities.

[Alvaro Lenze Julia, Research Analyst]

I have just a quick question regarding the Sustainability CapEx in the CapEx plan, which has been reviewed to EUR 140 million. I don't know if you could give us a split between Navia and Pontevedra? And maybe you could give us on the scale you are facing over the next 5 years of how this EUR 140 million will be separated?

[Ignacio de Colmenares y Brunet, Vice]

Well, as you remember, we originally included in our strategic plan, a maximum budget of up to EUR 225 million for sustainability investments. You remember, which included a wide margin to bring in the best available techniques in a favorable scenario of pulp prices. I want to stress out that this sustainability budget is flexible and it may be adjusted in a different pulp price scenario. Those EUR 225 million were not mandatory investments because of the change of regulation. It was just the forecast to take profit of these good prices of pulp to do everything possible in our pulp mills. The new sustainability budget now is for EUR 140 million, as you have said. And it includes up to EUR 120 million in Navia and EUR 20 million in Pontevedra partially already invested or committed.

[Alvaro Lenze Julia, Research Analyst]

Just a follow-up, and maybe on the phasing, I don't know if you can provide some phasing on how much the annual expenditure could be? Or if it's front loaded or more back-end loaded? Or if it's not settled yet?

[Ignacio de Colmenares y Brunet, Vice]

In Pontevedra?

[Alvaro Lenze Julia, Research Analyst]

No. In Navia as well. Well I mean in Pontevedra as well, but in both pulp mills.

[Ignacio de Colmenares y Brunet, Vice]

Well it has been always between EUR 7 million and EUR 10 million per mill.

[Alvaro Lenze Julia, Research Analyst]

I'm referring to the EUR 140 million, so 140 divided by 5, the maximum would be EUR 28 million. Is that reasonable to assume? EUR 28 million per year?

[Ignacio de Colmenares y Brunet, Vice]

Yes. Anything in between 20 and 30, yes. If prices are where they are today or higher, okay?

[Operator]

Ladies and gentlemen, there are no further questions in the conference call. I now give back the floor to the company. Thank you.

[Ignacio de Colmenares y Brunet, Vice]

Okay. Thank you very much. We are in touch, and we will contact you in 3 months' time. Thank you. Bye-bye.