Ence Energia y Celulosa SA

MAD:ENC

Earnings Call Transcript 2023-Q2

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the ENCE Second Quarter 2023 Resource Presentation. I will now hand over to Mr. Ignacio Colmenares, Executive Chairman; and Alfredo Avello, CFO. Gentlemen, please go ahead.

[Ignacio de Colmenares, executive]

Good afternoon, ladies and gentlemen. Thank you for joining ENCE's First Half 2023 Results Conference Call. Our CFO, Alfredo Avello, and our Head of IR, Alberto Valdes, are also connected to this call. After the presentation, we will be pleased to answer any questions you may have.

I would like to start on Slide 6 with the key financial highlights of the first half. Firstly, the EUR 100 tonne reduction in the cash cost achieved in the second quarter. This has allowed us to partially mitigate the 34% fall in the net fund price during the same quarter.

Secondly, the regulated energy price update in June would imply a cash generation increase of approximately EUR 26 million this year. Its adverse accounting noncash effect is compensated by a higher remuneration from investment cash analysts from 2023.

Thirdly, we have distributed EUR 140 million in dividends so far in 2023 against 2022 results based on strong free cash flow generation and low leverage. Fourth, as expected, our working capital normalized during the first half of the year, following the return of EUR 85 million excess ARPO collected in 2022 and the production normalization at Pontavedra. Our low leverage position, both in absolute

terms and relative to our average through-the-cycle EBITDA offers flexibility to size multiple growth opportunities.

Finally, we closed the first half with a consolidated cash balance of EUR 376 million.

Turning now to Slide 7. You can see how the EUR 100 per tonne cash cost reduction achieved in the second quarter had allowed us to partially mitigate the reduction of the pulp price over the same period. Following the recovery of pulp prices in Asia during the second quarter, I think the pulp price in Europe bottomed out in July. At the same time, our cash cost is set to continue improving over the coming quarters and into 2024.

Our expectation is that cash cost over the second half of the year should fall below EUR 500 per tonne as shown in the chart. Continuing with Slide 8, let me share with you our midterm view of the market dynamics of global pulp supply and demand. We expect the currently destocking in the paper industry to end soon. Furthermore, the displacement of higher cost integrated pulp capacity at current net price levels is now stimulating a recovery in market price demand.

Industry specialists currently expect pulp price to recover as far from next year. I remain confident about the fundamental strength of the pulp industry. We expect pulp demand growth to exceed supply growth over the next 5 years, thus strengthening pulp prices.

On the other hand, there are no new pulp projects confirmed as for 2024. Good availability is listing competitive pulp capacity additions, both market and integrated. On the other hand, demand growth should accelerate as a result of 3 positive structural market rates.

Firstly, over population growth and higher billing standards in emerging markets. These trends are boosting demand for the fastest-growing paper segment, such as tissue, packaging and specialties, which now account for over 80% of market power demand. Secondly, continuing plastics and synthetic fiber substitution will strengthen pulp demand over the next few years.

Finally, the lower availability of recycled fiber due to the decline in printing and writing paper consumption will result in rising demand for fiber. As we got good availability, I remind you of ENCE's unique strong position, which is a result of our solid local wood sourcing and our locations.

Our bio mill are separated by over 0.5 billion high cap for the plantations. Let's turn now to Slide 9, where we explain the recent update on the regulated energy price applicable as from January 1, 2023. At the end of June, the Spanish government approved a broader degree and published a ministry of order updating the regulatory price of energy and the remuneration parameters applicable at the gross renewable energy generation from 2023 to 2025.

The regulatory price for the year 2023 was set at EUR 109 per megawatt hour compared to EUR 208 per megawatt hour set in December 2022. These regulated energy price updates will imply a cash generation increase of approximately EUR 26 million this year. Its accounting noncash impact of EUR 65 million on group EBITDA during the first half of the year is compensated by higher remuneration for impairment cash balance.

Remember that biomass plant regulations ensure a minimum return of 7.4% over the planned life. I now invite Alfredo to further elaborate on our first half results.

[Alfredo Avello, executive]

Thank you, Ignacio. Continuing with our consolidated results on Slide 10. Group revenues reached EUR 459 million in the first half of the year, representing a 17% decrease compared to the same period of last year. The decline was mainly driven by the accounting noncash impact caused by the regulated energy price update and the year-on-year decrease in the average pulp price.

These 2 factors, combined with the higher cash costs year-on-year caused by the delayed effect on inflation on raw material and energy costs, explained a 56% reduction in the group's EBITDA to EUR 65 million. Note that if we exclude the accounting noncash impact of the change in the regulated energy price, group EBITDA would have been EUR 130 million in the first half.

Having said that, please note that regulatory change also has a positive effect in the RI resulting in higher class in revenues of EUR 14 million per year during the same period, started 2023 and then in 2025 as well as lower tax outflows. Also, the sale of our first TV project in high-end during the first quarter contributed EUR 23 million to our EBITDA.

As our Chairman has already explained in its importance -- it is important to highlight the EUR 100 per tonne cash cost reduction in the second quarter, a significant improvement, which will continue during the coming quarters and into 2024.

Finally, attributable net income in the first half turned to be negative by EUR 4 million, following the previously explained accounting noncash impact of the regulated energy price update. If we exclude this negative impact, attributable net income would have been EUR 30 million in the first half of 2023.

Moving now on to Slide #11. I will present our cash flow performance. As you can see, first half 2023 free cash flow was positive by EUR 10 million before the negative impact of the working capital normalization recorded during the first half of the year. Working capital changes include the return of EUR 85 million excess remuneration collected in 2022 following last year's regulatory adjustment and the normalization of our operations in Pontevedra after a temporary suspension of production during the second half of 2022 related to the severe drag we suffered.

Turning now to Slide 12, you can see our strong shareholder remuneration related to 2022 results, which included EUR 140 million dividend distribution during the first half of 2023. Our dividend policy allows us the flexibility to increase shareholder remuneration in periods of strong free cash flow generation and low leverage. As you can see on the following Slide 13, we ended the first semester with a low leverage position relative to our average through-the-cycle EBITDA despite the working capital normalization and strong dividends distributed over this period. This gives us flexibility to seize a number of different future growth opportunities.

We have also amortized the EUR 63 million remaining from the convertible bond issued back in March 2018 for an amount of EUR 160 million, which was refinanced through 268 of new facilities closed June 2023 with EUR 376 million in cash in our balance sheet. Our pulp business ended the period with a net debt of EUR 124 million. This includes liabilities from lease contracts, which amounted to EUR 39 million.

The cash balance in our pulp business was EUR 326 million at the end of the quarter. Note that our pulp business financial debt is covenant free. And our renewal business, net debt at the end of the period was EUR 87 million with a cash balance of EUR 50 million. Please note that we also have a fully undrawn EUR 130 million RCF maturing in 2026.

Turning to Slide 15. Let's now review the financial performance of our pulp business. Pulp sales in the first half amounted to 462,000 tonnes. This is 5% lower than in the same period last year despite a 3% increase in production due to higher cost inventories during the period, mainly linked to the planned maintenance shutdowns of our biomills.

Our differentiated products accounted for 16% of total pulp sales compared to 19% in the same period of last year due to temporary narrowing of the price spread versus softwood pulp. These higher value-added differentiated products are more sustainable and well adapted to replace plastic and softwood pulp in multiple pace for applications and also deliver higher margins for ENCE.

We are aiming to increase the sale of these products during the next 5 years towards a target of 400,000 tonnes. Over 92% of pulp sales went to the European market where our customers benefit from ENCE's unique wide portfolio of sustainable products and shorter delivery times versus other competitors.

Over half of our sales were in the fastest-growing tissue and hygiene product segments. As you can see on the following Slide 16, our pulp business was also affected by the accounting impact of regulated energy price update. This regulatory update had a EUR 25 million noncash negative impact on both revenues and EBITDA, which will be compensated by a EUR 5 million higher RI and only cash starting this year 2023.

Excluding this accounting impact, pulp business EBITDA would have been EUR 59 million in the first half. Our pulp business recorded a lower operating margin over this period, driven by a 4% year-on-year decrease in the average sales price following the pulp price correction observed over the second quarter and a 17% year-on-year higher cash cost due to the delayed effect of inflation in raw material and energy costs as well as because of the trials of our new water recovery system in Pontevedra.

Nevertheless, our cash costs showed a significant improvement over the second quarter, which will -- which allow us to partially mitigate the decline in pulp prices, as you can see in the following Slide #17. The cash costs improved by EUR 100 per tonne in the second quarter compared to the previous quarter, falling to EUR 535 per tonne mainly due to lower energy, wood and chemical costs. Pontevedra's first trial phase of the water recovery solution, and as well as the repairs of its energy turbine implied an extra cash cost of EUR 28 per tonne in the second quarter, down from EUR 46 in the first quarter.

Note that we are finishing with the installation of our old water recovery equipment in Pontevedra, and we are progressing with administration in all other to receive the necessary permits to operate this equipment in a second trial phase in case of trout. Also the repair works in Pontevedra Energy provided concluded in July. This should help us to continue reducing our cash cost to below EUR 500 per tonne over the second half of the year. The downward trend in cash cost is expected to continue into 2024 and fall towards the levels we had prior to the energy crisis back in 2021 over time.

Continuing to Slide 19, I would like now to review the financial performance of our renewal business, mostly driven by the regulated energy price update in June. Regulated energy price for 2023 was reviewed downwards from EUR 208 to EUR 109 per megawatt hour. This update had a EUR 40 million accounting noncash impact on both revenues and EBITDA, which will be compensated by EUR 9 million higher remuneration for investment annually cash in as from 2023.

Excluding this accounting impact, renewable fees EBITDA would have been EUR 72 million in the first half. Energy sold was down year-on-year to 556 gigawatt hour, mainly due to the lower biomass availability together with the maintenance works at 50-megawatt power plant.

During the first quarter, we closed the sale of our first PV project in high end, which contributed EUR 23 million to EBITDA, as you can see in the following Slide 20. We expect further EUR 27 million contribution to EBITDA from the remaining PV project sales over the following quarters. Actually, I can share with you that we closed yesterday the sale of a second PV project in [indiscernible] with an EBITDA contribution of EUR 4 million and a cash collection of EUR 7 million. This last transaction is also a part of the agreement signed with Naturgy back in December 2021.

Turning now to Slide 21. Let me conclude my section emphasizing once again ENCE's continued and exceptional sustainability performance. We are leaders in sustainable forestry, in circular economy, in social commitment, in gender equality and in corporate governance. Our best practices have been recognized by independent ESG agencies and indexes. An inflated study, Sustenalytics confirmed ENCE for the third consecutive year as the most sustainable player in the global pulp market.

We have been member of the prestigious FTSE4Good Index since 2021. And in June 2023, ENCE was awarded with the EcoVadis Platinum medal, the highest rating awarded by this platform. Let me also highlight some of our recent sustainability achievements.

Firstly, in 2022, we reduced our total greenhouse emissions by 10%. Secondly, Navian Pontevedra, as well our biomass power plants, continue to reduce their water footprint by 5%, 7% and 6%, respectively, compared to a year ago. Thirdly, we continue to reduce the order of both pulp biomills, which is already below 1 minute per day. And fourthly, our health and safety record remains very solid with no single accident over the past 9 months in the renewal business.

ENCE's Pulp business ended last year with the best safety metrics in its history at levels that are 14x lower and the benchmark values for the industry in Spain. I hand back now to our Chairman and CEO to review our 2023 outlook and update you on our multiple growth and diversification in each of this.

[Ignacio de Colmenares, executive]

Thank you, Alfredo. Let's continue with Slide 23, which summarizes our guidance for 2023. Our second half cash cost is expected to improve below EUR 500 per tonne. Cash cost improvements is expected to continue in the coming quarters, moving towards the cash loss level we have driver to the energy crisis, but in 2021.

Pulp production is expected to normalize close to 1 million tonnes. The pulp price in Europe is now bottoming out, following the significant correction in the second quarter and after the price recovery in Asia. We expect pulp demand growth to exceed supply growth over the coming years, providing strong support for an improving pulp price outlook.

The regulated energy price updates will have an estimated positive cash impact of EUR 36 million over the whole of 2023, resulting from the increased remuneration from investments and from lower taxes. And finally, we expect a further EUR 27 million positive contribution to EBITDA from remaining PV project sales during the coming quarters. In fact, as the fed has already advanced, we closed just omit the state of a second project with an EBITDA contribution of EUR 4 million.

Let me update you now on our growth and diversification initiatives. Starting with Slide 25. The first phase of our Navia Excellence project remains on track. We continue to diversify our production towards our high-margin differentiated ad products and flat. Firstly, the project to diversify our production in the last part was approved by the Board today and will be executed over 2024 and 2025 with an estimated investment of over EUR 30 million and the segmented return on capital employed of over 12%.

Flat pulp is raw material necessary to produce a wide range of assortment hygiene profs. Despite of the fast growing segment is rising demand driven by an aging operation. It has a significant price premium compared to the standard hardwood pulp.

Secondly, we continue to diversify our production towards higher value-added differentiated pulp products with the aim of reaching 400,000 tonnes by 2027. Our higher value-added pass products are more usable and are better adapted to replace some fat in multiple paper applications. Importantly, we also command higher margins. CapEx in this project will be below the initial estimate because we won't need to invest in new equipment to increase sales of our higher value-added products.

Pontevedra [indiscernible] shutdown in 2022 obliges us to make them in Dalia without this improvement. Now let's move to next slide, #6, the [indiscernible] project. In June last year, we and the regional government of Galicia announced a new project at Asphalt for the production of like mixed fiber from recovered taper and virgin pulp of uses. We believe this is an excellent opportunity to offer a bridge next fiber to our customers.

[indiscernible] has been declared, a project of strategic importance by the regional government. This will accelerate the permitting process. We aim to finish engineering and the permitting process by summer next year. Hopefully, we should be able to take the finance investment decision by the end of 2024. We believe that wood be an increasingly limited results in the future, and note that none of the investments I have described will require wood.

The timing of all these investments will be adapted and aligned to our cash flow generation throughout the past cycle and to our leverage policy. Our aim will be to maintain good and [indiscernible] and an attractive remuneration for shareholders while investing for future profitable growth.

Turning now to Slide 27. Let me describe one of our unique competitive advantages our local group sources. Firstly, our biomills surrounded by over 0.5 million hectares of very good plantations. The excellent location allows us to source our roots at an average distance of less than 110 kilometers.

Secondly, ENCE is the largest sports manager in Spain. We manage over 65,000 high class with an unlike production of around 400,000 tonnes. Thirdly, we benefit from our own wood supply team, which is able to source close to 1/3 of our wood needs [indiscernible] from more than 10,000 landowners.

And fourthly, we have also developed a long-term relationship with our network of very small bus suppliers from whom we source over 40% of our wood needs. This strength allows us to look and source over 95% of our wood needs. We import less than 5% of the wood we consume, what are our largest peers in the vapeninsula already import approximately 1/3 of the wood needs. There is not enough local wood to supply wood projects in the [indiscernible], and we believe important wood become even more expensive in the future.

None of our growth and diversification projects require increased construction of woods. This gives us a unique competitive advantage. Let's move now to ENCE's renewables, starting with ENCE bio glass in Slide 20. ENCE bio gas is our new subsidiary directly to develop and operate value plants. Our [indiscernible] business model is based on the recycling of local organic waste into bio methane, the high-quality organic fertilizer and sustainability certificates.

Our target is to develop 20 plants with a total capacity to supply over 1 kilowatt hour vertical during the next 5 years. ENCE bio gas already has a portfolio of 16 projects and the development in Spain. 6 of these projects are in the engineering phase and are expected to start up by 2026. The estimated CapEx is around EUR 15 million to EUR 20 million on average per plant with a targeted return on capital employed of over 12%.

With these bio ethane plants with EPC contracts using nonrecourse project financing, just as we did in biomass. Let's turn now to Slide 39, which illustrates other growth opportunities with the ENCE derivables business. I want to highlight 3. Firstly, we have developed 3 biomass projects with a combined capacity of 140 megawatts, which are ready to participate in future public options.

Secondly, we are working with potential industrial customers in Spain to help them decarbonize by resetting [indiscernible] hedging with renewabkle heating. We signed a first of this contract in June. Thirdly, we are developing further 300 megawatts in PV on top of the projects, and we sold to [indiscernible] in the coming quarters. Let's now turn to our management of forest in Spain.

ENCE is the largest private forest manager in Spain. We manage 60,000 papers, and we are a model of responsible and sustainable forestry. Our line forest constitute an important guaranty and offer additional growth opportunities in the Loterie C02 markets. We have already reduced 387 tractors with the Spanish Climate Change Office, equivalent to the removal of over 60,000 tonnes of CO2 during the life of the plantations.

Furthermore, we have identified 40,000 hectares within our current plantations, which are eligible to produce coal cures. We aim to register even more hedges over the next 5 years. CO2 traffics will allow us to double the revenues of these high class as they produce roughly the same amount of CO2 as wood and the drive of C02 project is also similar to that of standing time.

Let me give you some closing remarks before we move to the Q&A session. We see the first signs of an improvement in pulp demand. The pulp price in Europe is already bottoming out in July and we see further price increases in third cash. Cash cost is expected to continue improving over the going quarters.

We are fully focused on cash cost reduction. We should be able to recover the cash cost levels we have time in the energy prices back in 2021. The future of our customer concession is clear enough and our balance sheet is strong. We are well positioned to pursue different growth and diversification opportunities in both businesses while maintaining a prudent leverage and an attractive stockholder remuneration. Thank you for your attach. We will be pleased now to hear any questions you may have.

[Operator]

[Operator Instructions] The first question comes from Enrique Parrondo from JB Capital.

[Enrique Parrondo, analyst]

So I have 2, if I may. The first 1 would be on your short-term view for the sector. I was wondering if you could maybe give us more color on your expectations for pulp prices in the sense of what's leading you to believe that this has bottomed out? Is it higher appetite from clients? Because I believe that there we are not -- haven't seen any signs of normalization in inventories yet. And more importantly, where do you see the signs of upside that you recently mentioned for the second half?

[Ignacio de Colmenares, executive]

Thank you very much, Enrique. Well, I mentioned 3 months ago on the presentation of first quarter. At this time, prices were bottoming out in China, and that will happen. And the prices went from low prices of around 440, 450, to price of between 5, 25, 30 in China. And that's the level of prices of today.

And today, we've given you some announcement of primetime for low fiber for Asia for August. In Middle East, prices were at the same level than China and prices today are going up and are also on a range between EUR 500 and EUR 530. Those prices in the Middle East and China are the same than the prices -- the net price of today at a price of eur 850. And it is very important to note that it is much cheaper to Middle East or to Asia where the inputs are cheaper and where the product we manufacture and we sell is cheap.

To sell in Europe is more expensive because it importers and because the quality of the product we offer to the European customers. Therefore, it's very simple. On the last few weeks, the customer has stopped to ask for cheap business in Europe because they know we prefer order to sell to Middle East and to Europe. And that's why I see prices are already bottomed out in Europe.

On the other hand, I look our orders for August and September, and they are better than they were 1, 2 and 3 months ago. We have more demand from Europe, and we have more demand from the Middle East. And sales of selling in Asia, but I know that the demand in Asia is quite strong and quite good.

Then we see that and I'm convinced that second half bottomed out in Europe and prices are going to be stable several months in Europe, and prices have started to increase slightly into cash.

Regarding inventories, it's very difficult to know what is happening on the graphic paper supply chain, but all the best things that this project is going to be solved very quickly and customers on the graphic industry are going to buy again at normal levels. And on the other hand, the past inventories in the European Boards lagger than normally, but they are at the same level than the previous month. It was not the case on the previous months, where the stuff on the European costs have been increasing, increasing and increasing. And this increase has stopped. And in July, they are stable if you compare with June. Thank you, Enrique.

[Enrique Parrondo, analyst]

Just 1 clarification because I think the line broke a little bit. But you were mentioning price increases, small ones, obviously, but toward the end of the year. Did I get that right?

[Ignacio de Colmenares, executive]

Yes. Well, all the analysts see better prices for next year. Well, it means a price increase at the end of the year. And we see the fundamentals. We agree on that because of the fundamentals, the high expecting.

[Enrique Parrondo, analyst]

Great. So the second one -- so my second question would be on cash cost. Maybe could you quantify or give us a little bit more color on what have been the moving parts for the cash cost decrease in the second quarter, and what are your expectations also for the different cash cost components for the remainder of the year?

[Ignacio de Colmenares, executive]

Yes. Thank you. Well, we made a strong reduction on good cost from first quarter to second quarter. We have also stopped the big costs we had in Pontevedra because the equipment we were renting and because the problem we have in the turbine. And we have started to reduce price of chemicals, the price of the logistics and the price of the overheads, the cost of the overheads.

And we will continue on working on the same items on the first quarter and on the fourth quarter. And our aim, as I have said to you, is to be on average on the second half of the year below EUR 500 per tonne. And our aim is to come back to the normal levels we were before 2021. Let's say,at the end of next year.

[Operator]

[Operator Instructions] The next question from the line of Alvaro Lenze from Alantra Equities.

[Alvaro Lenze Julia, analyst]

My first question would be regarding the commercial discount in the past. When prices were rising, you indicated that discounts were going up because you were selling the fact that the price is referenced to a couple of months lagging price index led to an optical effect that increased the commercial discount. Now that prices are falling I would have expected the same thing to work in reverse, allowing you to lower your commercial discount, but it seems to be going up. Could you please explain why is this happening?

[Ignacio de Colmenares, executive]

Yes, it's quite cheap. You have a commercial discount agreed with the customers, and you have a mathematical commercial discounts when you convert your net price of the month with, let's say, the last price or the fixed price of the month. .

As you were saying, when pulp prices are going up and we have many contracts leaked to the previous months -- to the previous month, well, your effective discounts, your effective price is going up with 1 month of delay. And when you calculate your net price and you compare it with the fixed price at the end of the month, you have a higher discount. When prices are stable and it doesn't matter if it is $1,200 or $800, when prices are stable, both commercial discounts are the same, contract commercial discounts and the multi-circular calculated commercial discounts at the end of the month because prices are stable.

When prices are going down, like it was the case on the last 4 months, you have 2 markets. You have the supply and the price of the contract, and you are forced to do spot days and those spot days either in Europe or on the Mediterranean are at lower price than the discount -- sorry, than the fixed price. Then when you calculate at the end of the month your net price and you cover it with the mix at the end of the month, from a mathematical point of view, your discount is [indiscernible]. Would mean that now that we think that on the next couple of months, prices are going to be stable. We are going to see a commercial discount very close to the commercial discount we have, in fact, in our projects.

[Alvaro Lenze Julia, analyst]

Okay. That's clear. And then another question, if currently spot markets in Europe, including the commercial discounts, are already below $500 million per tonne, if I am not mistaken. With your current cash costs, even though they fall, let's say, to roughly 500 million in Q3, that would mean that you would be selling at a loss in terms of gross margin. Would you rather not sell? Or what is -- I don't think we have seen this situation in the past in which the spot price is below your cash cost. So how do we how should we understand your commercial strategy in this situation?

[Ignacio de Colmenares, executive]

Yes, as we were explaining to Enrique Parrondo before. On the last 2 weeks, we are not signing any deal below the prices we can offer in China or the prices we can offer in the Middle East. What means that if we can offer in the Middle East at 620, we can sell in Europe at 600. The product is more expensive and the transport cost is more expensive.

[Alvaro Lenze Julia, analyst]

Okay. And lastly, you're facing some debt maturities next year. You have a significant amount in dividends. I don't know when do you expect to refinance this? Or if you expect to just cancel debt and reduce the outstanding levels of debt? Just to understand how could financial cost evolve in the future?

[Ignacio de Colmenares, executive]

Yes. We have canceled our competitor was at the beginning of the year. And we have raised fresh money from the system. All this amount of money we have right on the second quarter. It's with a maturity of 5 years is good. It has no covenants. And then today, we have a good, solid customer situation. Alfredo is going to give you more details. Alfredo?

[Alfredo Avello, executive]

Yes. Alvaro, I mean, what we have done is we have refinanced all these maturities in the next year with -- in the future years with different bilateral facilities almost getting up to 300 on a 5-year term with 2-year non-amortization period and 3 years later on. .

We have the home maturities in Q4 of 82, which basically 50 is just 1 facility that will be -- that is the financials I was telling you, and the rest will follow the same way. You also need to remember that we have EUR 130 million undrawn RCF that will give us some leeway on that.

If you look at our cash in hand in the pulp business is right now, EUR 326 million, it will remain at those levels during the rest of the year. And all that has been already refinanced.

In the case of the Energy business, as you know, there's only EUR 12 million left this year and EUR 23 million next year that we'll be perfectly taking care with the cash of the company. So we are not. I mean we think that we are in a very, very liquid position.

[Operator]

The next question comes from Jaime Escribano from Banco Santander.

[Jaime Escribano, analyst]

So 1 follow-up question from Alvaro. Could you tell us the interest rate that you are paying on this refinancing? And second, in terms of cash cost, the cash cost of this company used to be around EUR 380 per tonne in the old days. What do you think it could be the new normalities or asking in a different way. So you say you are going to put the cash cost below EUR 500 million, but how much do you think you can make it at EUR 450 million, EUR 400 million? So how much room you have for maneuver in that sense?

[Ignacio de Colmenares, executive]

Thank you, Jaime. After the wood start [indiscernible] will continue with the customers. .

[Alfredo Avello, executive]

Yes, regarding our facilities with a spread below 200 [indiscernible] plus 200. And they would have IRSs for around 75% of it. You should think about 5%, something like that all-in cost.

And on the other side, you just remember that we have all this cash in on the 323 in pulp and 50 in the renewable business. And we are getting a remuneration from our bank account in the range of around 3%.

[Ignacio de Colmenares, executive]

Regarding cash cost, yes, we're always going to have in the second half of the year, cash cost is below EUR 500. I cannot give you now more details. [indiscernible] 880 or 899. It is below 500. Our normalized level of cash cost is 400. We had in 2019 404. We had in 2022 with all the commodities very depressed during COVID, 387. We had in 2021, 295. And let's say, we used to have a normalized cash cost of 400. So we think that something makes us come back at a leveraging work 4 years ago.

But at the same level, we are working also to improve Pontevedra. We are working in order to improve Renevia. And then we think that we should have something slightly below 400 by the end of next year, as I told before.

[Operator]

The next question comes from the line of Luis de Toledo from ODDO BHF.

[Luis de Toledo Heras, analyst]

One question from my side. It's regarding the diversification investments. The Board has got the source investment. I would like to know how do you rank the investments. You usually refer to return on capital employed above 12%. I would like to know if with the regulatory changes, although they do not affect cash generation. I don't know if the future biomass opportunities, which plays out the rank compared to further differentiation to pulp and all the agreements and CO2 opportunities?

[Ignacio de Colmenares, executive]

I don't understand very well your question, Luis [indiscernible] proper answer.

[Luis de Toledo Heras, analyst]

Ignacio, sorry, if you allow me. I mean, after all these regulatory changes, how do you believe biomass future projects rank compared to solar PV, decarbonization and so on?

[Ignacio de Colmenares, executive]

Yes. Okay. Well, regarding biomass, it is extremely important to understand that with the low sales is that we have a 7.4% return on our -- in our investments. And we are happy with this return in our investments we have already done.

We have 3 projects, and we are working in NOrtheast Asia in order to improve this 7.4% and in order to go to future options of biomass published by the government and deliver to make a bit more than 7.4%. That's regarding biomass.

Regarding other applications of biomass, we strongly believe there is a bright future for [indiscernible] biomass. As I mentioned, we have already signed an important contract with the food and beverage industrial, where we are replacing his former gas fitting solution by biomass fitting solution. And we have quarters already to more than 6 big industrial companies, the substitution of gas or fuel hitting by biomass or [indiscernible]. And we see a smart and right business and a good growth in this area, which is not regulated. It was business to business.

We are developing these 20 by the same plants in Spain. We want to have in 5 years time our of value retail in production with roughly 400,000 tonnes of organic fertilizer production and with all the certificates who can be exported. That's a good business, and we are looking for an effective yield, as you know. And what we like of this business, it is very similar, will be developed in biomass. The raw material is the important thing, and we are figure very, very close to the countryside. And it is our business to do that.

It's plenty of investment companies trying to deploy bio in Spain, whether they are a big building in matter far away from the countryside that we think have a strong advantage. And we are going to replicate will be in biomass in order to aboid risk. We are going to sign EPC contracts. We have already hired, as I mentioned on the last conference call, [indiscernible] to do the engineering of the plants at no risk of construction and operations and nontechnological risk. And we want to finance these investments through project finance by 2 reasons.

The reason that everybody financed the project finance in order to have because to get to the main company. And the other thing is because when a bank, if you're project finance, it gives you -- it makes you a very important audit about the raw material you really have, the technology, you are using, I don't mistake, and that's why we go in to do that. That's in renewables. And at the same time, because we know how to develop big assets, we will continue developing building assets. I don't think we will build and operate the assets. We are going to develop to sell to large companies who have more difficulty in development.

And regarding the densification of the past, business will have the last project, which has been launched today and is an important increase of the EBITDA to the top line and gives tremendous opportunities to diversify the product we are producing.

Today, we are on the range of 200,000 tonnes of differentiated products with higher margin, and we want that to be a significant amount of our sales in 4 years time. And in the other hand, we have this fantastic project being responded where we are going to produce fixed recycled place cyber. That's the product that the customers love. Because in terms of sustainability, they can offer tissue or the kind of a paper or the kind of packaging to the customers with mixed fiber, virgin fiber coming from certified and loan -- sorry, and short-term [indiscernible] for with no impact on CO2 and with recovered data.

[Operator]

The next question comes from Enrique Parrondo from JB Capital.

[Enrique Parrondo, analyst]

Just one follow-up on the [indiscernible] project. I recall from the full year results presentation that you commented that you expect to take a final investment decision towards the beginning FY '24. And I believe you recently was commented that's likely going to take place towards the end of 2024. What has been the change or the driver of this?

[Ignacio de Colmenares, executive]

Yes. Well, it took a bit more than what we forecasted to have the final agreement with [indiscernible], the owner of the land, to construct the engineering, to start to ask for the water permit, to start to ask with the electricity permit, the engineering of the project and the declaration like the regional government and strategic projects. And today, we think it is more realistic to think end of 2024 instead of the 2024.

Thank you, everyone. We convene in October.