Ence Energia y Celulosa SA

MAD:ENC

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the ENCE First Quarter 2020 Results Presentation. I will now hand over to Mr. Ignacio Colmenares, Executive Chairman; and Alfredo Avello, CFO. Gentlemen, please go ahead.

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Good afternoon, ladies and gentlemen. I hope you and your families are all well. Thank you for joining ENCE's First Quarter 2020 Results Conference Call. Our CFO, Alfredo Avello; and our Head of IR, Alberto Valdes, are also connected from their homes. After the presentation, we will be pleased to answer any questions you may have.Let's start in Slide #4 with the main highlights of the quarter which has been marked by the international spread of the coronavirus and historically low prices. The market seems to be changing. Various producers have announced price hikes.I am proud to tell you that our early reaction to the threat from this virus on February 24 and the rigorous application of our protocols to prevent and minimize the risk of the spread of the virus, have allowed us to keep our people safe and we continue to operate normally. All ENCE's activities from forestry operations to pulp production and the generation of renewable energy have been considered essential by Spanish authorities and must, therefore, continue during this health crisis.In general terms, the pulp market has continued to operate normally, but prices have been exceptionally low. Demand increased by 7% year-on-year in January and February. Higher consumption of tissue paper and hygiene products has offset the recent decrease in the consumption of printing and writing papers. At the operating level, the capacity expansions made in 2019 began to be at front. Pulp production increased by 9% and cash costs reduced by 4%. Pulp sales improved by 25% year-on-year with a better commercial mix. In the Renewable Energy business, the 2 new biomass plants built in Huelva and Puertollano were commissioned on January 31 and March 31, respectively. These 2 new plants represent a 44% increase in our renewable capacity, which will be noticed in the second quarter. They will provide the Group with greater stability. Despite this operational improvement, first quarter financial results continue to be affected by the low pulp and electricity prices with an EBITDA of EUR 5 million in the Pulp Business and EUR 11 million in the Renewable Energy business. In order to maximize liquidity and ensure the sustainability of our business, in any scenario, we have drawn the EUR 70 million credit line in our Pulp Business, maturing in 2023. As a result, the cash available in the Group's balance sheet at the end of the quarter improved by 24%, up to EUR 281 million. Remember that our 2 businesses enjoy long-term financing with no relevant maturities in the next 2 years and with no covenants in the Pulp Business.Our top priorities now are the health and safety of our people, the continuity of our operations, the reduction of costs and leverage and increasing prices.Moving now to Slide 5. We can see some of the early measures we took against the coronavirus. First of all, we began to plan and to implement preventive measures, long before there was social awareness of the extent of this public health crisis in Spain. These measures allowed us to protect the health of our people and to continue our operations. Other measures are being coordinated by the crisis committee, which I serve personally, and which has been meeting daily, since the health crisis began. In order to protect our people, we began to inform them about different prevention measures on 10th February. We designed a protocol, which was distributed on February 24. At the same time, we adapted the shift schedules so that the plants can operate with a minimum staff. Independent work teams have been appointed for each process. So they do not mix with each other. All these measures have been effective with no infections in our facilities to date. In order to protect our operations, we have, first of all, ensured that this protocol reaches and is implemented in every corner of our organization, including subcontractors and logistic services. We have also taken measures to reinforce our liquidity in case this adverse scenario continue over time. Firstly, we have drawn the revolving credit facility of EUR 70 million in the Pulp Business, maturing in March 2023. As a result, the cash available in the Group's balance sheet at the end of the quarter, improved by 24%, up to EUR 281 million. Secondly, we closed in April long-term backup facilities with no covenants for an additional EUR 60 million. Thirdly, we have pushed back to the next year CapEx payments for an amount of EUR 40 million. And finally, we continue to optimize the use of our factoring and confirming lines. These measures have improved our liquidity by EUR 200 million.Moving now to Slide #6. I would like to mention the highlights of our sustainability performance. Last year, we defined our sustainability plan, which constitutes our road map to excel in sustainability and create value for all our stakeholders. Companies that care for the environment, for their people and for their communities. Companies with a strong corporate governance are companies which are also more efficient, more flexible, more competitive and more sustainable in the long run, and that is a better company for the shareholders. ENCE is at the forefront of the circular economy, sustainable forestry and gender equality.In addition to all these measures, we have implemented in the first quarter to protect our people. I would like to highlight. Firstly, the successful development of our differentiated and more sustainable products, which already accounted for 10% of our pulp sales in the quarter. Secondly, the 44% year-on-year reduction in the Odor Impact of our Pontevedra biomill below 1.5 minutes per day. Thirdly, the 31% year-on-year improvement in our accident frequency index, which is now 10x below the industry average in Spain. And last but not least, the reduction of water consumption at both biomills.In the following slide, #7, we can see the evolution of global pulp shipments and pulp producers' inventories over the last 5 years. In general terms, the pulp market has maintained its normal operations, having registered an increase in demand of 7% year-on-year in January and February, equivalent to 600,000 tonnes. Producer inventories now remain at normal levels, ending the situation of large stocks last year.As we see in the next slide, #8, demand growth in the quarter was boosted by higher consumption of tissue and hygiene products, which offset the recent decrease in printing and writing. Higher tissue demand is being fueled as more people stay at home. At-home tissue is made from virgin market pulp compared with away-from-home tissue, which is mostly made from recovered paper. Similarly, the consumption of hygienic products is rising rapidly at hospitals and packaging is being favored as shoppers switch to the internet.As you can see in the following slide, #9, pulp prices have remained stable at the lowest levels in the last 10 years. These prices have remained below the cash cost of many pulp producers for 3 quarters. Even worse, they were below the free cash flow breakeven point of most pulp producers for 2 quarters. This situation is unsustainable for most of the industry, and several players have announced price hikes as from April for Asia and from May for Europe and the States. In our case, our estimated free cash flow breakeven point included, recurring CapEx and financial expenses is $435 per tonne, below current market prices. In Slide #10, we summarize our views on pulp supply and demand. While it is difficult to forecast this year's demand growth at this moment, the position of the supply side is reasonably clear. There will be hardly any supply growth in 2020, even if all players return to the normal utilization rates. In the long term, pulp demand will surely outgrow supply. Urban population growth and improving living standards in emerging countries, together with increasing plastic substitution, will continue to support an annual average pulp demand growth of 1.5 million tonnes minimum. On the supply side, only 2 major projects have been executed. Arauco's MAPA in Chile and the UPM project in Uruguay. Remember that lead times for new projects are close to 4 years, meaning that no further supply will come onstream over the next few years. The capacity expansions we made in 2019 are beginning to bear fruit, as shown in Slide 11. As expected, our pulp production increased by 9% in the quarter, in line with capacity expansions carried out last year.The fixed cost dilution resulting from this capacity increase, together with lower corporate expenses and good costs, has enabled us to reduce our cash cost by 4% compared to the same period last year. We see no reason to change our annual volume and cash cost targets for now. Our pulp sales improved to 25% year-on-year with a better commercial mix, as you can see in the following Slide #12. Almost all of them went to the European market, where ENCE has significant logistical and service advantages. More than half went to tissue markets. Our strong order backlog should allow us to switch from printing and writing to tissue client, if necessary, over the coming quarters. Remember that printing and writing segment only represents 10% of our pulp sales in the quarter. In addition, ENCE's differentiated products are more sustainable and are better adapted to replace softwood like naturcell and powercell, which already account for 10% of our pulp sales. Moving now to Slide 13 and our Renewable Energy business. We commissioned 2 new biomass power plants in Huelva on January 31 and in Puertollano on March 31. These 2 new power plants represent a 44% increase in our renewable capacity, up to 316 megawatts. This increase will be noticed as from the second quarter and will provide greater stability to the Group.I would like to remind you that the regulated annual return on investment of our power plant was confirmed at 7.4% for the next 12 years. This implies an annual amount of EUR 63 million, with no cost and subject to a minimum operation of just 3,000 hours per power plant. Let's continue in Slide #14, with the summary of our first quarter financial results. Pulp Business EBITDA reached EUR 5 million. Renewable business EBITDA reached EUR 11 million. This is a significant improvement compared to the previous quarter, thanks to the stronger operating performance. However, lower pulp and electricity prices complicate the comparison with the same period last year. Turning to Slide #15. You will find the main cash flow components and our net debt position at year-end. Free cash flow before growth CapEx and dividend payments amounted to EUR 16 million in the quarter, while carryover payment from investments implemented in 2019 amounted to EUR 32 million. The Group's net debt increased by EUR 21 million, up to EUR 534 million, including EUR 55 million related to lease contracts. It is important to highlight once more that our 2 businesses enjoy long-term financing, with no relevant maturities in the next 2 years and without any covenant in the Pulp Business. And that our cash balance at the end of the quarter amounted to EUR 281 million.Finally, let's look at Slide 16, concerning Pontevedra's biomill concession. We have been expecting a first ruling of the National Court in the next few months, but this could be delayed until after the summer due to the coronavirus. I will now invite Alfredo to review the financial figures in more detail.

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

Thank you, Ignacio. Let me start with our Pulp Business results, which you will find in Slide 18.Pulp sales increased by 25% year-on-year, up to 273,000 tonnes, thanks to the higher production levels achieved after the capacity expansions carried out in 2019. Additionally, pulp inventories decreased by almost 12,000 tonnes, down to 45,000 compared to the last year 20,000 tonnes increase in anticipation to the Navia plant shutdown for its capacity expansion. Higher fixed cost dilutions drive the said capacity increases, together with lower corporate expenses and wood costs, allowed us to reduce our cash cost by 4% compared to first Q 2019.On the other hand, average sales pulp price decreased by 31%, as a consequence of the sharp drop in the average reference price in Europe, also resulting in an 86% EBITDA reduction, although, improving by EUR 15 million compared to the previous quarter in 2019. Finally, we recorded negative FX settlements for an amount of EUR 4 million in the quarter compared to the EUR 6 million, recorded in the same period last year. Moving forward on to the Pulp Business P&L in the next slide. After EBITDA, depreciation amounted to EUR 16 million, a 11% increase, driven firstly by the large investments carried out back in 2019 for the biomills' capacity expansions and secondly, by largest wood depletion figure, coming from our Southern Plantation's wood chains within our 10-year long-term contract, signed at the end of 2018.Next, to the right, we show EUR a 1 million related to ENCE's environmental tax provisions in Pontevedra, with no cash outflow effect, resulting in a negative EBIT figure of EUR 12 million for the period.Finally, financial results of EUR 1.6 (sic) [ 2.6 ] million and the positive tax effect of EUR 3.4 million and then, with our net profit of minus EUR 10 million for the period.If we continue to slide 20, we can analyze the Pulp Business cash flow generation. Normalized free cash flow after working capital changes, maintenance CapEx, financial payments and taxes, attained EUR 7 million, benefited from the working capital improvement coming from our pulp inventories reduction in the quarter. Carryover CapEx payments from our 2019 investments, resulted in a free cash flow figure of minus EUR 14 million, including non-cash expenses of EUR 3 million. As part of our plans to maximize liquidity and ensure sustainability of our operations in the long run, under the current unforeseeable scenario, our CapEx guidance given for the year, EUR 115 million, in the Pulp Business, we will reduce by at least EUR 35 million, down to EUR 80 million.Moving on to Slide 21. Let me update you on our ongoing hedging program to mitigate currency volatility in our Pulp Business. In periods in which we were facing large CapEx commitment, the company was hedging close to 80% of its U.S. dollar inflows. Now that we have postponed certain strategic investments, we're coming back to our standard policy, which consists in hedging only up to 50% of our pulp sales, using average cycle prices and limiting the period to 12 months. This program had a negative impact of EUR 4 million in the quarter compared to EUR 6 million in the same period last year. The U.S. euro exchange rate remained at an average of $1.10 in 2020, the full year impact in our P&L will be approximately EUR 15 million.If we continue to Slide 22, you will find our Pulp Business balance sheet. Net debt increased by EUR 20 million to EUR 326 million in the quarter, including a EUR 3 million increase related to lease contracts. At the same time, cash in balance increased by almost 50%, up to EUR 156 million. Within our plans to maximize liquidity and help shielding our operations against any adverse scenario in the tremor of this pandemic, we have drawn down our revolving credit facility of EUR 70 million with a 2023 maturity. Additionally, as our Executive Chairman has said, we are closing additional long-term backup credit facilities for an amount of EUR 60 million. Remember, that this business is covenant free and enjoys long-term maturities, releasing our balance sheet from short-term pressures.Let's now focus on the Energy Business in the Slide 23. The energy volume sold, increased in the first quarter by 4%, thanks to the initial contribution of the new 46-megawatt biomass plant in Huelva commissioned at the end of January. Note that the energy sales of the new biomass plants during their testing phase have been capitalized, together with their corresponding expenses, not contributing to the EBITDA.Let me also highlight the high generation of our Huelva 50-megawatt biomass plant and our 16-megawatt biomass plant in Jaén after the improvement carried out in 2019. Also, the Ciudad Real 16-megawatt plant entered into its planned shutdown for its repowering in the first quarter of this year.Regarding prices, the average selling price in the first quarter was 11% lower than in the same period last year, as a consequence of the fall in the electricity market price. Please note that when comparing periods, and that the average sale price in first Q 2019 of EUR 97-megawatt-hour included a provision equivalent to EUR 11-megawatt-hour for the same price suspension of electricity generation tax without impact at the EBITDA level. The actual market price is below the full price, set by regulatory collar. And therefore, we have recognized an income of EUR 4 million in the quarter related to this item. Whereas in the same period last year, we provisioned EUR 2 million for the same concept, reducing our revenues at that time. As you can see in the next slide, #24, the Renewable Energy business EBITDA reached EUR 11 million in the quarter, a 14% decrease compared to the same period last year, mainly due to the 11% decrease in the average sale price and the lower generation of Ciudad Real 16-megawatt plant due to the planned shutdown for its repowering, as said in this first quarter. On the other hand, this was partially offset by lower cost of EUR 2.4 million.On Slide 25, you can find the breakdown of our Renewable Energy business P&L. Below EBITDA, the depreciation and others column increased by 53%, up to EUR 10.6 million, as a result of the commissioning of the new 46-megawatt biomass plant in Huelva and the transfer of the last remaining assets in Huelva from the Pulp Business to the Renewable Business, once the required administration permits have been granted.Net financial costs were EUR 3.6 million, imply a 23% reduction compared to the first Q 2019, which included certain one-off expenses related to the 50-megawatt CSP project financing maturing in March 2031. All in all, following a EUR 0.7 million tax income contribution, the attributable net result of the Energy Business shows a negative figure of EUR 2.3 million in the quarter compared to a positive balance of EUR 0.8 million in the same period last year. Let's follow in the next slide, #26, with our cash flow generation. After taking into consideration changes in working capital, maintenance CapEx, interest and taxes, normalized free cash flow amounted to EUR 9 million. Strategic planned CapEx of EUR 7 million in our Energy Business was mainly related to the pending payments of the new biomass power plants, commissioned in the quarter. After adjusting for EUR 4 million non-cash income relating to the regulatory collar, the renewable energy free cash flow figure for the quarter was minus EUR 1 million. Let me conclude this review in the Slide 27 with our Energy Business debt situation. This business also enjoys very long-term maturities and ample liquidity. Cash in balance at the end of the quarter amounted to EUR 125 million. Net debt at the end of the period remained virtually flat at EUR 208 million, driving our financial leverage to a multiple of 4.2x LTM EBITDA. However, it should come down close to 3x at the year end with a full year contribution of the 2 new biomass power plants commissioned in the first quarter.Let me now please return the lead of this presentation to our Executive Chairman for the closing remarks.

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Thank you, Alfredo. Let me point out some several things. After the reduction of pulp inventories, several producers have announced price hikes. The capacity expansions we made in 2019 are beginning to bear fruits, with a strong operational improvement in the first quarter. All the early measures taken and the rigorous application of our protocols to prevent and minimize the risk of the spread of the coronavirus are allowing us to keep our people safe and continue to operate normally. All ENCE's activities from forestry operations to pulp production and the generation of renewable energy have been considered essential by Spanish authorities and must, therefore, continue during this health crisis.We have a strong order backlog for the year that should allow us to replace potential lower sales to printing and writing customers with higher sales to booming tissue markets. Therefore, we see no reason to change our pulp volume and cash cost targets for now.New biomass plants' commission should boost our renewable generation as from the next year. This regulated business is adding stability to the Group. It’s regulated annual return on investment amounts to EUR 63 million, and is subject to a minimum operation of just 3,000 hours per power plant. We have reinforced our liquidity by EUR 200 million to face any adverse scenario. Our 2 businesses enjoy long-term financing with no relevant maturities in the next 2 years and without any covenant in the Pulp Business. Our top priorities now are the health and safety of our people, the continuity of our operations, the reduction of costs and leverage and increasing prices. Thank you very much.

[Operator]

[Operator Instructions] The first question comes from João Pinto.

[João Filipe Pinto, Associate of Equities Research Portugal]

The first one, printing and writing was 10% of your sales. Can you compensate pulp pressures in this segment with tissue? Can you tell us how pulp volumes have evolved in April so far? And what do you expect for the rest of the second quarter?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes. Thank you very much, João. Well, let's start before, by the market where printing and writing represents 25% of market pulp. While tissue represents 55%, almost the double. That means that every 10% of reduction in printing and writing is compensated by 5% increase in printing and writing. During March, April, May, when the situation is normal again in Europe and the States, it is true that as we are not at the office, we are printing less, less catalogs are published and the consumption of printing and writing is going down. But at the same time, tissue consumption is booming. As we were -- as I was saying before, away-from-home market in tissue is only 1/3 of the market, while at home it's 2/3. And at home, it's made 100% with virgin pulp, while away-from-home it's made almost 80% with recovered paper. Staying more at home, we are using much more tissue. And we are quite confident that the increase of tissue will more than compensate any decrease -- any possible decrease in printing and writing. Nevertheless, the last tonnes of pulp we produced are much more expensive than the 90% first tones. The wood we are buying is very far away. It is more expensive. The last megawatts we are buying are more expensive. The last trucks of chemicals we are buying are more expensive. And as now we are very much committed to increasing prices, if by any reason, we say that we cannot compensate the sales, the decreasing sales in printing and writing in the booming market of tissue, we will prefer to adjust production. Thank you, João.

[João Filipe Pinto, Associate of Equities Research Portugal]

Yes. So my second question on prices. Do you know if clients in China are accepting the price hikes announced for April? And finally, just -- yes.

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes. We are not selling in China. The only thing we are hearing is from trading companies and what we are reading. And according to what -- I mean, according to all the informations I have, yes, the prices have been accepted in April in China at 100%, yes.

[João Filipe Pinto, Associate of Equities Research Portugal]

And just 2 quick ones. Just to confirm, regarding the guidance of 1.06 million tonnes of pulp for 2020. It is a guidance for production or for pulp sale? The previous presentation in Q4 referred to sales, this one refers to production. If you could clarify your big risk? And the final question, again, on energy, can you update us on the possibility of opening...

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Sorry, sorry. You don't mind, we go question-by-question. Okay. Then regarding the guidance, yes, well, I think, at the end of the year, 10,000 tonnes more or less, the production and the sales will be the same. Now we have sold more than what we have produced. Well, we cannot reduce further our stops. Then in second, third and fourth quarter, sales and production will be the same.

[João Filipe Pinto, Associate of Equities Research Portugal]

And finally, on energy. Can you update us on the possibility of opening the unit -- the units for a minority partner?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Well, like the markets are today, we think it has no sense, then that is on standby. And we will start again as soon as the markets are normalized.

[Operator]

The next question comes from Jaime Escribano from Banco Santander.

[Jaime Escribano, Equity Analyst]

So my first question is regarding volumes in April and May, although, you have commented a little bit, but maybe you can be more specific. So based on the orders you are getting for May and what you have sold in April. Can you give us a little bit of visibility on what should we expect in terms of volumes in Q2?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

There is two considerations, Jaime. There is, one, we don't have visibility, is we don't know when we are going to do the annual shutdowns because of the coronavirus crisis because it will be crazy. We stop the mill and we import 1,000 people, we don't know to manage the annual shutdown. Then -- and we need a lot of foreigners, technicians -- technicians foreigners, and they aren't coming now. Then let's say that we are not going to do the annual shutdown till July, okay? If we don't do the annual shutdown till July, then the production will be normal and we will sell 100% of what we are producing. On the first quarter, we have reduced our stocks. We cannot do that anymore. Then production is going well, pretty well. We have a good order book. Demand in tissue is very, very strong. We are facing no problems in substituting printing and writing mills' orders who are closed, then you have a good visibility. While April is gone and good results in terms of volume, both production and sales. And May is going to be the same. And I expect June will be the same.

[Jaime Escribano, Equity Analyst]

Okay. And in terms of pricing, are you following the price increase of Suzano? And how are your clients responding to potential price increases as of May?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Well, we are not following any movement of Suzano or any other company. We have low results and we have to improve our results, and then we are increasing prices. And we have announced that to the market. And we are not seeing any special reaction.

[Jaime Escribano, Equity Analyst]

Okay. I also had one question, regarding cash costs, which is what could we expect for Q2. So we saw a nice improvement quarter-on-quarter in the cash cost, particularly due to the cost of wood and also due to operating leverage. However, transformation cost, although it went down, I have the impression that maybe there is more room for improvement. Maybe you can give us a little bit more color on where do you see the cash cost in Q2?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes. Jaime, we see the cash cost in Q2, very similar to EUR 1 less or up, very similar to first quarter. It -- well, we are operating normal, but we are operating the mills on exceptional situation. And we have some extra costs being operating in the mills like we are. And they are compensating some savings we are having in other areas. At the end, what we see now is a very similar cash cost in the second quarter and in the first quarter. We will see a reduction in the third and fourth quarter because well, with the coronavirus crisis, although we are running well, the mills. Well, this new turbine in Pontevedra, the technicians were from Germany, they left Spain. And then we are trying to put this turbine at 100% by telephone, which is not easy. The second part driver in Navia has not yet started. It was supposed to start 2 months ago. But the same technicians have gone away. And they will not come until these coronavirus crisis is finished. Then we see that now it's stable and it will keep like it is. We see further improvement in the second half of the year, and that's why we confirm our cash cost guidance for the year of EUR 372 million.

[Jaime Escribano, Equity Analyst]

Okay. Very good. And one final question, if I may, regarding the energy division, which is -- how should we think about volumes sold or volumes produced in the energy division, bearing in mind the new capacity that is -- that you are operating now. And bearing in mind also the operational problems that you point out in your 41-megawatt plant in Huelva, which, as I can read, it will be stopped until June?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes. I would like to start to insist in one thing, which is very important. According how the regulation is in Spain, all our biomass power plants and our thermosolar as well, but not the new 2 we have just started now. All the others, we are getting this 7.4% return on investment by the government, with an amount of EUR 63 million. And the only requirement to get this EUR 63 million per year, and you are getting that month-by-month, is that you are operating more than 3,000 hours. Then you have to be able or to stop after 3,000 hours, or if you get to biomass and the fuel prices are good, you can continue operating, and you get more money than this EUR 63 million. What it means that if Huelva 41 was supposed to be now working. But again, due to this coronavirus, we are going to delay the start-up by 4 weeks. But we have no problem because at the end, we are going to produce 3,000 hours in Huelva 41, and it's not going to affect the EBITDA of the company. Okay. Jaime?

[Jaime Escribano, Equity Analyst]

Okay. Yes. And so for the full year, you should be close to how much megawatts, do you think with the new capacity?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes, 1.6 gigawatts.

[Jaime Escribano, Equity Analyst]

1.6.

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

This is not really important. What is important is that we get the EBITDA we want to get, okay?

[Jaime Escribano, Equity Analyst]

Okay. Yes. For sure.

[Operator]

The next question comes from Luis de Toledo from BBVA.

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

Yes, my main question was already addressed, with regard to the power division volumes. Maybe on wood cost. I don't know, if you could expect softer prices, considering alternative uses and the potential impact on demand? And if you can remind us indexation formula, if we were to expect higher prices. I think, this will not impact initially the wood cost. I don't know if you could elaborate on that?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

I haven't understand very well -- understood very well, the second part of your question, Luis.

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

Okay. It's one question, wood cost, if you expect them to decline? And if pulp prices were to go up and your indexation formula, if they would be impacted or you -- or not for the moment?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes. Okay. That is very easy. Yes, we see on this quarter and on the third and fourth quarter, a slight reduction in the price of the wood because the mix of the wood harvested in the northwest of Spain, 2/3 is eucalyptus for the pulp industry and 1/3 is pine for the tablero industry. And because of the coronavirus and what is happening in construction and what will happen in construction? Well, the large companies producing tablero has stopped, then there is -- there are much more people harvesting new [ characters ] than before, then we have a good offer. We have our stocks full. Then we will reduce slightly the price of the wood by EUR 1 to EUR 2 on the next weeks and months. When the prices of the part decreased at the end of last year, we were not able to translate to the wood, the last reduction. That means that the wood producers all has EUR 1. Then if we increase now this, let's say, $30 in May, we will not be obliged to increase the price. Then we see net-net, a slight reduction in the wood coming.

[Operator]

The next question comes from [ Maria Antonio Casado ] from Kepler.

[Unknown Analyst]

I just have one question, if I may. So the current problems that you're experiencing with one of your turbines in Huelva change your volume expectation for 2020? And also, what about CapEx?

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

Excuse me, we have a problem. It looks like our Executive Chairman is not in the call. They are going to call them back again. Do you mind, [ Maria Antonio ] to wait for a sec, we will get Ignacio back.

[Unknown Analyst]

No, it's fine. Yes.

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

If not, I will continue with the Q&A, but let's wait for him now.

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes, hello. Here I am.

[Unknown Analyst]

Did you hear me? Or should I repeat the question?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes. Yes, I can hear you very well. Can you connect me again, please? Hello, are you there?

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

Ignacio, Ignacio you're connected. Ignacio [Foreign Language]You're in the call, Ignacio.

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes. Here I am again. Sorry, it was technology.

[Unknown Analyst]

Well, did you hear my question?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

No, no, I didn't. I was out for a couple of minutes.

[Unknown Analyst]

Okay. Sorry. So this is [ Maria Antonio ] from Kepler Cheuvreux, and I just wanted to ask if -- so the current problems that you're experiencing with one of your turbines in Huelva, does it change your volume expectations for 2020? And what about CapEx?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

No. No, it doesn't change. No.

[Unknown Analyst]

Okay. And what about CapEx? Nothing as well?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

You're asking if the problem in this turbine change the CapEx in energy. No, it doesn't change.

[Operator]

The next question comes from Alvaro Lenze from Alantra Equities.

[Alvaro Lenze Julia, Research Analyst]

Most of my questions have been already answered. I want to -- first a follow-up on a question from Luis, you mentioned that you could see potential to reduce the price of wood by EUR 1. I wanted to -- if you could clarify whether this is EUR 1 per tonne of wood or EUR 1 of wood cost per tonne of pulp?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

No. I think that we can improve our cash cost from now comparing to, let's say, the second half of the year by EUR 1 to EUR 2 per tonne of pulp.

[Alvaro Lenze Julia, Research Analyst]

Okay. In wood cost, okay, that's clear. And my second question was regarding CapEx, could you please remind us what are the pending payments for the 2019 acquisitions that are still pending for the rest of the year after the investments that you have already paid in Q1?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes.

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

Sorry, we can't hear you.

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes. Well, sorry, [ people ] I was hearing Alfredo Avello is out.

[Alvaro Lenze Julia, Research Analyst]

Do you want me to ask this again?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes, can you repeat again? Yes, could you ask the question again, sorry.

[Alvaro Lenze Julia, Research Analyst]

Yes, sure. My question was regarding the pending CapEx payments for the 2019 investments that you made last year. What is the amount that is still pending for the rest of the year?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes, okay. Then we started the year with carryover from Energy and PAT of EUR 140 million, and we've been able to negotiate friendly to the suppliers, EUR 30 million delay till 2021. Then now what we have to pay from the investments of last year is EUR 110 million. And this EUR 30 million reduction of postponed has been 100% in pulp. At the same time, we have reduced by EUR 5 million, the maintenance CapEx in part also of this year. It was forecasted EUR 15 million, it's going to be only EUR 10 million. Then all in all, carry over from last year and CapEx from this year, the budget was EUR 165 million, EUR 115 million in pulp and EUR 50 million in energy. And it's going to be EUR 35 million less. It's going to be EUR 80 million in pulp and EUR 50 million in energy, EUR 130 million in total.And the other thing is that, well, we were supposed to pay this EUR 165 million, now EUR 130 million. The part of the energy was going to be paid through the financement of the energy to new biomass power plants, but this EUR 115 million in part, or EUR 80 million now after these agreements with suppliers, where we were going to pay that with our cash. As we have increased the lines with the banks by EUR 60 million at 3 to 5 years. Well, if something happens during the second half of this year because of this coronavirus crisis, well, we will not reduce our cash, you understand? We can take these new lines and we can defer those payments 3 to 5 years. And we are absolutely confident in terms of liquidity.

[Operator]

[Operator Instructions]

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

I think, there is no further question.

[Operator]

Yes, we have a question from [indiscernible].

[Unknown Analyst]

Do you have any news for us about the equity investments in the Renewable Business, you were discussing towards the end of last year, is the project off? Or if it is on, what multiple and what valuation are we talking about? And when do you expect the closing?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Yes. Thank you. I think, I was answering before, we are still interested in this project, but it is on standby, as the capital markets are today, and we want to sell that expensive. It is on a stand by. And we will start again in 1 or 2 months as soon as the capital markets restart again.

[Operator]

We have another question from Jaime Escribano.

[Jaime Escribano, Equity Analyst]

Just a follow-up question regarding covenants, can you remind us the covenant on the energy division? I saw you have a net debt-to-EBITDA in the energy division of 4.2x, and just wanted to know if you feel comfortable with that? And in case you break the covenant, can you renegotiate? Or what would be the repercussions?

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Well, you have to take into account that this ratio of net debt-to-EBITDA is with almost all the investments of last year already paid. As I mentioned before, we only have to pay from the investments of last year, energy, EUR 40 million. That means that we have already paid EUR 160 million. They were already paid. And we still don't have the EBITDA. That means that this ratio is a ratio on an extraordinary moment where you have already paid the investment, but you are not getting EBITDA from the investment. Then as soon as these 2 new biomass power plant in Pontevedra and Huelva starts and they have already started, this ratio will improve. And we'll do feel a figure about [ 3x ] by the end of the year, and we feel much more than comfortable with this figure.

[Operator]

Ladies and gentlemen, there are no further questions in the conference call. I will now give back the floor to Mr. Ignacio Colmenares and Mr. Alfredo Avello.

[Ignacio de Colmenares y Brunet, Chairman, CEO & MD]

Thank you very much. Keep safe, and we are in touch. Thank you. Bye-bye.