Ence Energia y Celulosa SA

MAD:ENC

Earnings Call Transcript 2021-Q2

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the ENCE Second Quarter 2021 Results Presentation. I now hand over to Mr. Ignacio Colmenares, Executive Chairman and Alfredo Avello, CFO. Gentleman, please go ahead.

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

Good afternoon, ladies and gentlemen. Thank you for joining ENCE's First Half 2021 Results Conference Call. Our CFO, Alfredo Avello and our Head of IR, Alberto Valdes are also connected. After the presentation, we will be pleased to answer any questions you may have. Let's start in Slide #3 with a summary of the latest developments concerning our concession in Pontevedra. As you know, on July 15th, the National Court issued a ruling that announced the extension of the concession of public land in Pontevedra in which ENCE's biomill is located.Yesterday, we appealed to the Supreme Court against the ruling, and we will exhaust all legal avenues to defend the legality of the 2016 extension. In view of the court's ruling and in accordance with the accounting regulations, we have recognized asset impairment losses and expenditure provisions in the second quarter financial statements. These include impairment losses and provisions in a net amount of EUR 148 million, which won't imply any cash outflow together with a provision of EUR 42 million to cover the estimated cost of dismantling the biomill and the provision of EUR 6 million to cover the estimated cost of terminating outstanding contracts.The cost of restructuring the excess labor, including the associated corporate overhead, which will be caused by the potential closure of the biomill has not been provisioned yet, as the requirements for its accounting have not been fulfilled. If the announcement of the extension is confirmed and once all legal avenues and appeals have been exhausted, ENCE will claim the patrimonial responsibility of the national government and seek compensation for all damages caused by a concession previously granted and subsequently announced, as well for all investments that were committed and completed. In this event, our alternative is to replace Pontevedra by building a new pipeline in Navia with an installed capacity of 340,000 tonnes and an investment of EUR 450 million.As you know, we already have all the permits and the land for this new pulp mill. It will be smaller than Pontevedra in terms of tonnes, but much more efficient with a cash cost around 25% lower. This new line will generate more EBITDA and more free cash flow than the Pontevedra plant and it's going to be much more resilient. However, before moving forward with this investment, we will need to know more about the ruling of the Supreme Court and in the worst case about the date set by the authorities for the potential closure of the plant. In the meantime, we will focus on increasing the sales, our differentiated pulp products, on developing our renewable energy business and on reducing cash costs.Let's move on to Slide 4, where we summarize the business highlights in the first half of the year. Pulp prices have recovered rapidly after trading at record lows for all of 2020. In Europe, hardwood pulp is trending at a gross price of $1,140 per ton, representing a [ rally ] of 68%, which will be fully visible during the second half of the year. At the same time, energy prices in Spain have doubled in the first half of the year to an average of EUR 62 per megawatt hour and futures point to average energy prices above $180 a megawatt hour in the fourth quarter.From an operating point of view, pulp production increased by 4% year-on-year in the second quarter and by 20% compared to the first quarter when both biomills were idled for maintenance work. Pulp production in the second quarter marked a new quarterly record of 270,000 tonnes, thanks to the capacity we added at the end of 2019. The reduction in conversion costs, which are derived from production growth, coupled with savings on overhead expenses, offset the impact of raw material inflation in the first half of 2021.As a result, our cash cost fell by 2% year-on-year to EUR 368 per tonne in the second quarter. On the other hand, renewable energy sales increased by 12% in the first half of the year on a like-for-like basis. Group EBITDA before the impact of hedges amounted to EUR 56 million in the second quarter and EUR 71 million in the first half of the year, a 56% year-on-year increase, driven by higher pulp and energy prices. On the other hand, the pulp and energy price hedges range in 2020 due to the uncertainties caused by the pandemic had a negative impact during the first half of the year, EUR 10 million in the pulp business and EUR 5 million in the renewable energy business. This negative impact was partially offset by the positive impact of EUR 3 million as a result of our ongoing FX hedging policy. If we discount the impact of the ruling on the Pontevedra concession, our underlying business would have shown a net profit of EUR 12 million in the second quarter.Our balance sheet remains strong. Net debt stood at EUR 176 million at the end of the quarter with EUR 381 million cash in balance after a EUR 19 million reduction in the use of factoring facilities, the settlement of carryover payments for EUR 40 million and the prepayment of EUR 95 million of bilateral loans held by the pulp business. Finally, I am proud to communicate that we have been ranked as the leading sustainability player in the global pulp market according to the most recent study by sustained analytics.Let's move now to Slide 5, which shows the rapid pulp price recovery this year. Gross fixed prices in Europe have been trading since July at $1,140 per tonne equivalent to $750 per tonne net. On the other hand, net fixed prices in China peaked at $780 per tonne in May. Since June, they had progressively returned to $620. While prices in Europe tend to follow prices in China with a lag of 2 or 3 months, we are witnessing a decoupling between Europe and China due to a strong paper market in Europe and logistics constraints that could last for several more months. At present, it is difficult to see large pulp and paper shipments from one region to another. This process takes several months.In the following Slide #6, we summarize our views on pulp demand and supply balance in the coming years. We expect pulp demand to outgrow supply during the next 4 years, supporting a relatively tight market. The tissue and hygiene products segments already account for 55% of global pulp demand and we expect it to continue growing at around 4% annually, driven by urban population growth and improving leading standards in emerging countries.Packaging and Specialty segments account for 25% of global pulp demand and we expect the growth to accelerate to around 3% as a result of economic recovery, single-use plastic substitution and lower recycled fiber availability. On the other hand, the printing and writing segment now only accounts for the remaining 20% of global pulp demand. Consumption fell 16% in 2020 and should remain at this low level over the next 2 or 3 years.On the supply side, apart from Arauco and Bracell projects in 2022, there is only the UPM project in 2023. The Suzano, MET SA and CMPC projects have been announced. The construction has not yet started and they will not be commissioned before 2024. Note that Bracell has started its ramp-up very progressively during the next couple of years and that most of its pulp will be used internally to feed Royal Golden Eagle Group paper and viscose capacity expansions in Asia, very little amount will go to the market. In fact, main industry experts have recently increased their pulp price estimates for the fourth quarter of 2021 and for 2022.Moving now to Slide #7. You can see the positive operating performance of the pulp business during the second quarter. Pulp production increased by 4% year-on-year in the second quarter and by 20% compared to the first quarter, when both biomills were idled for maintenance work. Pulp production in the second quarter marked a new quarterly record close to 270,000 tonnes, thanks to the capacity we added at the end of 2019. The reduction in conversion costs deriving from higher production, coupled with savings in overhead expenses, offset the impact of raw material inflation. As a result, our cash cost was reduced by 2% year-on-year to EUR 368 per ton in the second quarter.Looking ahead to the second half of the year, we should expect a higher cash cost compared to the second quarter, driven by higher raw material, energy and logistics. As you know, our wood cost is partially linked to the peak price performance, which reached its annual maximum during the third quarter, implying an increase of around EUR 7 per ton in our expected cash cost for the second half compared to the second quarter. Besides, we are bringing wood from our plantation in Southern Spain and we will import 60,000 tons of wood to mitigate the temporary reduction in eucalyptus harvesting capacity due to the strong demand for pine wood. This will imply an increase of EUR 8 per ton in our expected cash cost for the second half compared to the second quarter.Gas, chemicals and logistics costs are also rising, implying an increase of another EUR 4 per ton in our expected cash costs for the second half compared to the second quarter. As a result, we now expect an average cash cost of around EUR 387 per tonne in the second half and an average cash cost for 2021 of EUR 382. These figures exclude the accounting effect of the regulatory collar on the energy sales price with an estimated noncash negative impact of EUR 18 million in our P&L for the second half of the year, assuming an average energy price of EUR 120 megawatt hour on the second half.Let's look now at our pulp sales on Slide 8. Pulp sales in the second quarter grew by 2%, increasing to almost 0.5 million tons in the first half of the year. This lower figure is caused by the fact that annual stoppages in 2020 occurred in the third quarter, while this year, we stopped in the first quarter. Over 90% of these sales went to the European market where our customers benefit from ENCE's unique wide portfolio of sustainable products and shorter delivery times. Our differentiated products accounted for 14% of our pulp sales in the first half of the year. These products are more sustainable and adapts to replace plastic and softwood pulp. They also provide higher margins.Turning to Slide #9. You can see the operating performance of our Renewable Energy business during the first half of the year. The volume of our energy sales during the first half increased by 12% on a like-for-like basis, excluding the CSP plant. This was driven by higher contributions from the 2 new plants commissioned during the first quarter of 2020 and a higher contribution from the Huelva 41-megawatt plant, which was idled, as you remember during second quarter of 2020.On the other hand, the Huelva 50-megawatt plant was offline during the second quarter due to an incident detected at the generator in the course of its annual review. We expect to bring it back online in October. The average sales price increased by 2% year-on-year, thanks to increasing energy prices, which are limited by the collar set by the regulator and by the hedges. In 2020, we decided to lock in an average price of EUR 44 per megawatt hour for the sale of over 700,000 megawatt hour of energy in 2021 at a time when prices were at record lows and when the uncertainty induced by the covenant in pandemic was high.The next Slide #10 updates our renewable energy pipeline. We have developed in-house a pipeline of 140 megawatts in biomass and 373 megawatts in PV. All of them have grid access and locations secured. We have already obtained the environmental authorization for a new 50-megawatt biomass project in Puertollano and we expect to obtain the permits for the rest of the projects during the coming quarters. The approval of the environmental authorization is taking longer than usual and the authorities are having to deal with an exceptionally high number of projects.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. As you can see in the following Slide #11, ENCE showed a very strong EBITDA recovery in the first half of the year compared to the same period last year, pushed by the pulp business. Our pulp business EBITDA before hedging impacts improved by 162% year-on-year, up to EUR 48 million, driven by the strong recovery in pulp prices. Our hedges arranged last year in the very uncertain environment caused by the pandemic had a negative impact of EUR 10 million, which were partially offset by the positive impact of EUR 3 million coming from our ongoing FX hedging program.On the other hand, other income and expenses not included in cash costs had a positive impact of EUR 4 million coming from our forestry activities and the reversal of certain provisions, including those related to Pontevedra following the National Court's ruling on each concession. After hedges, our pulp business EBITDA increased up to EUR 41 million, 4x higher than that in the first half of 2020.Focusing now on our renewable energy business, its EBITDA before hedges also increased by 24% year-on-year on a like-for-like basis, excluding the Puertollano CSP plant sold last December. This improvement was driven by higher energy volumes and sales prices. We should note that our energy sale prices are affected by 2 factors. On one hand, regulatory collar, which shows a noncash negative impact of EUR 1.2 million for the period and on the other hand, the fixed price contracts signed in 2020, again under a pandemic environment, which had a dramatic impact of EUR 4.6 million in the period.Including all impacts, our Renewable Energy business EBITDA attained EUR 18 million, same level as that of 2020. The slight increase in average sales prices was offset by some higher biomass costs. With our consolidated EBITDA of EUR 59 million, we should have shown a net profit of EUR 2 million in the first half of the year. However, this turned into a net loss of EUR 195 million after recording the accounting consequences of the court's ruling on the Pontevedra concession.As you can see in the following Slide #12, free cash flow before growth CapEx was positive by EUR 18 million, including a EUR 24 million working capital reduction after a EUR 19 million lower use of our factoring facilities. Growth and sustainability CapEx in the period amounted to EUR 40 million, basically related to carryover payments coming from the strategic plan investments made back in 2019. The remaining carryover payments amounting to EUR 28 million in the pulp business and EUR 8 million in the renewable business will be fully paid down in the second half of the year. Only standard maintenance CapEx for both of our businesses are expected for next year. Net debt at the end of the period remained at EUR 176 million, including EUR 17 million related to lease contracts under IFRS 16. Following a EUR 29 million write-off corresponding to Pontevedra's annual concession lease.Let's have a closer look at our net debt position in each business in the following Slide #13. Net debt in the pulp business was just EUR 43 million at the end of the period, including EUR 16 million relating to lease contracts and with a cash in balance of EUR 307 million. On top as I said EUR 19 million reduction in factoring facilities, we have prepaid until June, EUR 95 million of bilateral loans in our pulp business, adjusting down our balance sheet position after the last year sale of a minority interest in our renewable energy business.In addition, during the month of July, we prepaid another EUR 20 million and the businesses revolving credit facility of EUR 70 million was refinanced, increasing its availability up to 130 and extending its maturity until June 2026, of course, maintaining our non-covenant policy. On the other hand, net debt in renewable energy business amounted to EUR 133 million at the end of the period, also with long-term maturities and a cash in balance of EUR 74 million.Turning to Slide 14. Let me remind you about our current hedging programs in both of our businesses. Regarding FX, our policy is to hedge up to 50% of our pulp sales for up to 12 months. We have secured an average cap of EUR 1.23 and an average floor of EUR 1.18 for almost 50% of our dollar exposure for the remaining of 2021 as well as for the first semester of 2022. This program had a positive impact of EUR 3 million in the first half and we don't expect any further impact during the second half of the year.Additionally, and for the first time during the third quarter of last year, we decided to secure better pulp and electricity prices for 2021 due to the uncertainties caused by the pandemic with pulp and energy prices at record lows and EUR 175 million carryover payments committed for this year. We secured an average price of EUR 773 per tonne or 24% of our expected pulp sales in 2021, compared with an average price of EUR 680 in 2020. These hedges had a negative impact of EUR 10 million in the first half and we estimate another EUR 41 million for the second half, assuming an average price of EUR 1,140.We also secured an average price of EUR 44 per megawatt hour or 50% of our expected renewable energy sales in 2021 compared with an average electricity price in Spain of EUR 34 per megawatt hour in 2020. These hedges had a negative impact of EUR 4.6 million in the first half and we estimate another EUR 31 million for the second half, assuming an average pool price of EUR 120 per megawatt hour. Please note that from a cash flow perspective, we are still forecasting an operating cash flow of EUR 60 million for 2021 before working capital, interest payment and CapEx since the regulatory collar is an accounting, but is a noncash provision.I will now return the lead of this presentation back to our Chairman for the [ following slides ].

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

Thank you, Alfredo. Moving now to Slide #15. I would like to mention the highlights of our sustainability performance. I believe that companies that care for the environment, for the staff and for the communities, also companies with a strong corporate governance, are more competitive. ENCE is already at the forefront in sustainable forestry, in the circular economy, in social commitment, in gender equality and in corporate governance. Our best practices have been recognized by independent agencies such as MSCI, FTSE4Good or Sustainalytics, which in its latest study ranked ENCE as the most sustainable player in the global pulp market.I would like to highlight the following achievements in the first half of 2021. Firstly, our Merida and Pontevedra plants have been the first biomass power plants in Europe to certify the sustainability of the biomass they use as a field. Secondly, we have continued to improve all our safety indicators, which are already 10 times better than the average for the industry in Spain. Thirdly, the rigorous application of our protocols against COVID-19 has enabled us to continue operating safely and to carry out the annual maintenance shutdowns of our main production centers without any COVID infections. Fourthly, we have continued to reduce the order of both pulp biomills, which is already below one minute per day.And finally, in our Board of Directors, we have increased both the percentage of female representation, which is now up to almost 40% and also the percentage of independent directors. To conclude this presentation, I would like to emphasize the following key messages: 2021 will be a positive year for ENCE in terms of cash flow generation despite the pulp and energy prices hedges closed last year and the accounting impact of the National Court ruling on the Pontevedra concession. We will exhaust all legal avenues to defend the legality of the concession.If the [ annulment ] is finally confirmed, 2 or 3 years down the road, we will seek compensation for all damages and for all investments completed. The substitution of Pontevedra with the new line at Navia should strengthen our competitive position and increase our EBITDA. At the moment, we are focused on increasing the sales of our differentiated pulp products and developing our renewable energy business and on reducing cash costs.Thank you. And we'll be pleased to hear any questions you may have.

[Operator]

[Operator Instructions] The first question comes from Jaime Escribano from Banco Santander.

[Jaime Escribano, Equity Analyst]

I have a couple of questions, 2 or 3. Could you please repeat the cash cost target for 2021 for this second half, sorry, I couldn't get it. In terms of guidance for the full year in terms of volumes, pulp sales, how much do you think you could make this year? And then a final question regarding the Pontevedra case, when do you expect we can hear from the Supreme Court if they accept or not the case? And what is the approach that your lawyers are doing in terms of the defense of the case and bearing in mind the sentence?

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

Thank you, Jaime. Then -- we had a cash cost on the first half of the year, as you know, of EUR 378 in 2020 and EUR 376 in first half 2021. Then we -- as I mentioned before, we reduced by EUR 2, our cash cost. Then we have offset the increase in raw materials in energy, in freight with reductions in overheads and with a higher volume. For the second half of the year, we expect the cash cost to increase from EUR 376 million in the first half to EUR 385 million in the second half. The largest increase would be on wood, in terms of cash cost, the wood part of the cash cost was EUR 208 on the first half, and we expect EUR 226 plus EUR 18. A big part of that comes from the fact that the price of the pulp, we expect it to keep at $1,140, which is higher than the average on the first half, and that's some portion is linked to the fixed price, it will increase, touch wood. And another part of that is due to some imports we are doing of eucalyptus wood from abroad and from Huelva, due to what is happening on the pine industry at the northwest of Spain and worldwide.The price of the pine is today 2 times the price 1 year ago, that's 100% increase. Then, a lot of people are harvesting pine instead of eucalyptus, and we prefer to import on spot from abroad, but to keep the prices of the eucalyptus wood we are sourcing from the Northwest of Spain.That's the main increase explaining the increase from EUR 376 in the first half and EUR 385 on the second half. We are also expecting a slight increase into [ figures ] in chemicals. We are also expecting an increase in energy from 13% to 27%, which means almost doubling. We can explain that a bit later, because it's quite difficult to explain very simply. But you know that at our pulp mills, we have cogeneration. And according to the regulatory regime that we have in Spain, we are buying all the energy at markets than we are buying it very expensive now. And we are selling, but with the color with the regulatory color. Then the margin is reducing. That's why the impact on energy is negative by EUR 14 will be negative by EUR 14 on the second half of the year. Regarding the volume, Jaime?

[Jaime Escribano, Equity Analyst]

Sorry, one question regarding this, I mean, for 2022 do you think it's fair to take EUR 385 per ton? Or you expect this is now...

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

Unfortunately, I cannot give you an answer. We are going to meet most probably in 1 month time to explain third quarter. And we will have more vision about what is happening with gas, with energy and with all raw materials. Today, I think that we are all in the middle of a tsunami of price increases in energy costs and other raw materials, then in order to give you a figure for 2022, I prefer to wait a few weeks more. Okay?

[Jaime Escribano, Equity Analyst]

Okay.

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

And regarding the volume for 2022, while we keep on what we said before, it's 1,050,000 tons.

[Jaime Escribano, Equity Analyst]

For 2021?

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

For 2021, yeah. For 2021, 1,050,000 okay. Regarding the timing of the legal procedure, well, we have presented already 2 appeals to the 2 sentences we received in July. There is still a third sentence pending, once we will receive it, we will have 1 month to appeal. We haven't received it yet. Then the appeals have not yet finished, it may take another month. And once the appeals are presented, we think that we will know something a bit before next summer, not before. Then, if the appeal is considered, well, we will know something let's say, in 2023, more on the second half of 2023 and on the first half of 2023. But all that is not exact. All that is what we think according how the Tribunal Supremo, the Supreme Court is working today.

[Jaime Escribano, Equity Analyst]

Okay. Because I thought that in this December, the Supreme Court would decide whether to take the case or not. So it's been delaying.

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

That is what, Jamie, you are right. That is what we said in July. But today, as you know, the Tribunal Supremo is absolutely collapsed. And what our lawyers think is that it's going to be later. It's going to be more before summer next year than before Christmas now, okay?

[Jaime Escribano, Equity Analyst]

Okay. And can you tell us anything about the defense strategy that your lawyers are using to -- or what are the arguments or documentation, I don't know the word in English, that they are using to persuade the Supreme Court to take the case.

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

Well, it is very, very technical. I would say that saying that roughly, first, there is no jurisprudence on this matter. The same [ sala de sentencia ] have said 180 degrees different [ sentence ] 1 year ago. And well, they are saying what they are saying based on an article of the cost low who say that you have to defend that why you have to be there. And what they say is that, well, that is a requirement for a new concession, but it is not a requirement for old concession. Well, it's all very legal and very technical. If you are interested and more of you are interested, we can prepare small paper, maybe and share it with you, because it's absolutely technical.

[Operator]

Your next question comes from Joao Pinto from JB Capital.

[João Pinto, VP & Associate of Equities Research Portugal]

I have 3 questions. First, a follow-up on Jamie's question. Could you please provide an upside and some color of pulp volumes during the summer? It seems like demand kept strong in Europe given the prices. Can you give us some color on volumes during the third quarter?

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

If I understand, you are asking us the volumes we have sold during the third quarter and during the second quarter, is that right?

[João Pinto, VP & Associate of Equities Research Portugal]

Yeah. The third quarter, yes, if it was a strong quarter for you.

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

We are presenting now first and second quarter. I would have to share that not only -- and I don't want to be unpolite, but I cannot share that only that with you. I would be obliged to share that with all the market. Now I think that we are talking about the first half of the year, yes, the summer has been good, strong, the market is strong and the market is good, but I cannot give you the exact volumes.

[João Pinto, VP & Associate of Equities Research Portugal]

Fair enough. Regarding pulp prices, if you could share with us your outlook for pulp prices, if you have any feedback from demand in China and how prices are expected to evolve in the short term?

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

Well, coming back to your first question. Well, it's quite simple. You know the volume we have already sold on the first half of the year, and we are telling you that we will produce and sell 1,050,000 tonnes, then you can calculate the difference for the second half, okay?And now your question, your last question. Well, what is our vision? Pressures in China have followed half 1. The markets should stabilize because normally, in autumn, the demand is higher. The market suffer a destocking of paper in July, August and September. It seems that now it's normalized.And then, well, personally, I don't see further price decreases in China. Regarding Europe, the market is quite strong. Due to this problem of containers, well, China used to export 3,000 tons of paper, 300,000 tonnes of paper per year to Europe. They are not exporting this paper now. This paper is produced by our customers. There were big shutdowns, as you know, in printing and writing in integrated mills, then mills producing paper for printing and writing and buyers of pulp are benefiting from that.Then, all our customers are benefiting from good demand and good prices. And well, nobody is thinking now on the market in the price decrease. The analysts were saying that the prices could fall at the end of the year because of [ Brazil ] starting and [ MAPA ] in Chile starting. They have reconsidered a bit the position after the Barcelona Pulp Week at the beginning of September. They noticed talking to all the customers and to all the paper mills that the market is more buoyant in Europe than what they thought. And well, even if they still today see some price declining at the end of the year, well, they see higher prices than before.And for next year, it's the same, well, we all see a good market for the first half of the year, well, in the second half of the year is still too far. Regarding, in terms of demand, well, as you know, the market is growing by almost 1.9 million tonnes per year. And as you know, it's coming from the tissue growth is 55% of the market from the specialties and packaging growth, that's 25% of the market. And we see the remaining 20% of the market printing and writing stable. It went down by 18% last year, and we see it stable at this low volume for this year and next year.Then regarding the demand, the demand is good. Demand is quite good in Europe. There is optimism around the customers. And regarding the new 2 mills, well, Brazil has already said that it will start rolling. You know that the shareholder has large investments announced and going on in Asia for producing paper, for producing board and for producing viscose, and well, they will supply their own mills and then not a big part of what is going to be produced by Brazil is going to go to the market. And certainly, very few volume is going to come to Europe, first of all, because today, if you want to chart a 40,000 tonnes vessel from Brazil to Europe, you cannot find it until you haven't bought it. And what they bought on the past was to send that to China and to Asia.And secondly, because as you know, they are not FSC certificates than what they're going to different markets. And regarding Europe, Chile, MAPA, Arauco they are going to start at the beginning of next year, where it will take some time to -- it would take some time the part to be on the market, and we are confident.Then we see the strong prices for the end of this year and beginning of next year.

[João Pinto, VP & Associate of Equities Research Portugal]

That's very clear. Last question, if I may. Regarding hedging in pulp and energy, what's the amount of hedging that you intend to do on a recurring basis as a percent of expected volumes?

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

Could you repeat your question, please?

[João Pinto, VP & Associate of Equities Research Portugal]

Yes. Just wondering what part of your production you intend to hedge on a recurring basis, both in pulp and in energy.

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

No. No, I would say that what we did last year was quite exceptional. You know that we are always hedging a portion of the dollar. Well, normally, we don't hedge energy or pulp. What we did last year, I would say that today, it's causing us a big loss. But the most probably, I would do the same if I was again on the same position. You have to remember that 15 months ago, we were on the middle of the COVID, of the pandemic, markets were collapsing. We have a great uncertainty. And we had commitments of CapEx carryover for 2021 of close to EUR 75 million. Then while, as we saw the possibility to hedge pulp, you remember at $770 when the pulp was at $680, and as we said, had the opportunity to hedge energy at 45%, remember that at this time, we were below 30%. Well, we saw that, well, it will be good in order to guarantee the income and to be sure that we couldn't face any problem. And we did that before selling this 49% of ENCE Energia to Ancala and before selling the CSP on the middle of the uncertainty of the COVID.With EUR 75 million of CapEx to be paid in 2021. Then, well, we thought that this guarantee was important. Today, those hedgings are finishing in December 2021, and we are not thinking in hedging anything for 2022. Well, we have a Board of the ENCE Energia and this weekend we may discuss if we hedge the energy produced by the 2 biomass power plants we started last year, Huelva 46 and Puertollano 50.As you know, we win the auction of biomass 4 years ago with zero return on investment. Which means -- and it is very technical but very important, we don't have color on those plants. Then we benefit from 100% of the price of the energy. Then well, as we are seeing now that the energy prices for next year are extremely high. We are seeing now, well, the figure I have in front of mine is yesterday. Yesterday, the market was at 175 for the first quarter at 117 for the full year in 2022.Today, it's at 120, where we may have something in these 2 power plants, but not 100%, something. But we are not going to hide anything on pulp and we are not going to hide anything else on energy on the rest of the group.

[Operator]

The next question comes from Alvaro Lenze from Alantra Equities.

[Alvaro Lenze Julia, Research Analyst]

First one is on the potential dismantling cost of Pontevedra, you have already provisioned EUR 48 million. Back in the day, you guided for EUR 75 million total costs. I understand that this EUR 48 million do not include the layoffs. Would the EUR 75 million reference remain valid?

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

Well, we think that the cash out for shutting down Pontevedra is going to be on the range of 72% as we have already always said. We have the cost of dismantling, it's EUR 48 million, and we have been confirming with an engineering company during the summer to check before to provision this figure that our estimation was good, and it's 100% confirmed.We have on top of that EUR 6 million of the cost of canceling long-term contracts with suppliers for equipment who is working in Pontevedra. And we have the balance with the layoffs. Regarding the layoffs, we haven't done any provision because according to the account system in Spain, you cannot make a provision unless you have tell to every single guy that we are going to start to fight, that they are going to be fight and we cannot do that because we are defending the concession. And this appeal is going to take at least a couple or 3 years.Well, we said, if you remember, in 2019, when we have this bad news of the government doing the Ayuntamiento that we were estimating between EUR 15 million and EUR 16 million, the cost of the redundancies at the mill. Well, we may have on top of that something more, because we will reduce also the overheads of the company. It's not the same to have 1 mills or 2 mills. It is not the same if we just shut down Pontevedra or we reinvest as we want to do that in Navia. Then we don't have -- we don't literally know the number of people who are going to be affected on the overhead, and it's difficult to calculate.And let's say that the uncertainty of when we are going to do the layoffs if we do them, and the uncertainty of how many people of the overheads are going to be affected, make us very difficult to know, and that's very technical. How many people over 50 years are going to go out. And then to calculate this extra cost that you know, we have in Spain when you lay off people of more than 50 years, if the percentage of people with more than 50 years you are laying off is higher than your actual percentage of people with more than 50%.Then today, it's almost impossible to calculate the exact number. What we know is that, well, the layoffs from the mill are going to be in the range of EUR 15 million to EUR 16 million.

[Alvaro Lenze Julia, Research Analyst]

Second question would be on the Energy business. If you could provide us some update on Huelva 50-megawatts biomass plant, how the repairs are going and when should these be online again?

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

Yes. The exit at this part of the turbine is now left [ Siemens ] in Germany yesterday. Now it's going to Huelva. The other part was in Navantia in Ferrol is already installed in Huelva, it's arrived to Huelva last week, at the end of last week. And we expect to be working with absolute normality during October.

[Alvaro Lenze Julia, Research Analyst]

And going to the pipeline in the energy business, could you provide some update on the biomass auctions? When do you expect them in 2021? And what's your positioning ahead of the auctions?

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

Well, the minister told us that they will do this auction this year. I presume it will be during the end of the year. And most probably, the physical auction is going to be in December or in January. And it's going to be very low, it's going to be 140 megawatts. And you cannot get more than 50% of that. One single group cannot bid for more than 50%.

[Alvaro Lenze Julia, Research Analyst]

And last question also regarding the pipeline. I see from your last presentation, you've made some changes. There is no longer the 25 megawatts [ hybridization ] project in Ciudad Real. And on the other hand, there is a higher pipeline for the Granada PV plant from 100 to 133, if you could explain these changes.

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

Yes. Well, we have these new connection with all the grants from Red Electrica in Granada. We have the land, and we are developing these new land, and that's 137 megawatts. It's a very good location. And as you know, as we sold the CSP, well, we are not any more today interested in developing this 25 hybridization with the CSP of Ciudad Real.

[Operator]

[Operator Instructions] Thank you. Ladies and gentlemen, there are no further questions in the conference call. I give back the floor to Mr. Ignacio Colmenares and Mr. Alfredo Avello. Thank you.

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

Well, ladies and gentlemen, thank you very much for your time. We will be in contact, and we are meeting very soon. Thank you. Bye-bye.

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

Thank you.