Ence Energia y Celulosa SA

MAD:ENC

Earnings Call Transcript 2022-Q4

[Operator]

Good afternoon, ladies and gentlemen. Welcome to ENCE Fourth Quarter 2022 Results 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 Fourth Quarter 2022 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. Ahead of the formal presentation, I want to stress that in what has been a very volatile and unpredictable year with substantial challenges, I am immensely proud that ENCE is able to deliver this very strong 2022 performance, supported by its employees, customers and, of course, its shareholders.

So let's start with the highlights, key messages of 2022 in Slide 4. Firstly, I would like to set out our strategic highlights and developments over 2022. After 4 years of tireless legal defense by ENCE, the Supreme Court has addressed, endorsed the legality of the Pontevedra concession extension until 2073. Pontevedra's biomill resumed its activity in November after 4 months downtime.

Our Navia Excelente investment, well adapted to the pulp cycle, remains on track to deliver. As Pontes project constitute an excellent opportunity to continue growing and diversifying the pulp business without increasing the consumption of local wood. We have 9 biogas projects currently under development, targeting a ROCE above 12%.

And finally, we are exploring new opportunities to monetize carbon credits from our plantations in the CO2 markets. All this has been achieved while continuing to lead our industry in sustainability.

I will discuss the strategic highlights in more detail shortly. Our 2022 financial highlights will be discussed in more detail by Alfredo later in the presentation, but I would just like to address upfront our exceptional EUR 250 million free cash flow generation over 2022 and our decision to announce an exceptional interim dividend of 99 -- sorry, EUR 0.29 per share for our shareholders.

Finally, we look forward to 2023 with confidence. We expect Pontevedra's production to normalize, solid energy prices to continue while noting that the difference between the regulated and market energy prices in 2023 will generate future cash collection rights and PV project sales to boost EBITDA by EUR 50 million over 2023 to 2024. Again, Alfredo and I will cover the outlook in more detail later.

Before giving more detail on the group's operations, I would like to spend a little more time on the details of the Pontevedra ruling. The court determined that concessions approved prior to the General Coastal Law of 1988 may be extended, provided they have favorable environmental reports from the authorities as in our case.

The reversal of asset impairments and expense provisions, which we recorded in 2021 as a result of the previous National Court ruling, had a positive impact in our 2022 net profit of EUR 169 million. It is important to highlight that any future modification of Spain's coastal regulations will not apply to the Pontevedra concession.

Our biomill in Pontevedra is an example of the circular bioeconomy that will continue to generate employment and wealth in Galicia. With that in mind, we will invest in EUR 13 million annually in this biomill over the next 10 years. The biomill will continue to meet the best quality and sustainability standards.

Now more on the group's operational highlights, starting on Slide 8. Let me now update you on the temporary downtime at the Pontevedra biomill in 2022, caused by the low water levels of its local river.

First of all, I'm proud to confirm that ENCE has developed an innovative solution for drought situations at Pontevedra, which will allow us to regenerate the water from the biomill's effluent and from the adjacent public wastewater treatment plant, thus minimizing the consumption of river water when its flow level drops as happened last year.

I'm pleased to confirm that after 4 months of downtime, Pontevedra resumed its activity using this new solution in its testing phase while repair work was carried out on the river water collection infrastructure.

Lower volumes sold and higher cash cost in the second half were mitigated by higher pulp prices and FX improvement. EBITDA in the second half was similar to that of the first half despite the temporary downtime.

The biomill is still using this new solution in the first half of 2023 in order to optimize the trials on the water recovery process.

Pulp sales in 2022 amounted to 827,000 tons, as you can see on the next Slide #9. This is 170,000 tons less than in 2021 due to Pontevedra's temporary downtime. Our differentiated products accounted for 18% of our total Pulp sales compared to 16% in the same period of last year despite Pontevedra downtime. These higher value-added products are more sustainable and are well adapted to replace plastic and softwood pulp and also deliver higher margins.

We aim to increase progressively the sale of these products during the next years towards a target of 400,000 tons. Over 94% 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.

Continuing with Slide 10, let me remind you of our strategic road map for the pulp business with modular investments adaptable to the cycle and a targeted return on capital employed of over 12%. In our Capital Market Day back in March 2022, we announced our Navia Excelente project, which aims to promote the sale of our differentiated products, to diversify production towards fluff pulp and to decarbonize the biomill. With an estimated investment of over EUR 105 million, this project we'll be undertaking now and between 2027. Furthermore, the As Pontes project constitute an excellent opportunity to continue growing and diversifying our pulp business without increasing our local wood consumption.

As you can see in the following Slide #11, in June, we announced together with the regional government of Galicia a new project in As Pontes for the production of bleached mixed fiber from recovered paper and from virgin pulp produced by us. The project is still in its engineering phase. We aim to start the permit process during the second quarter of the year. This will take over 1 year. Hopefully, we should be able to take the investment decision around the end of next year.

The first phase of the project consists of a line for the production of bleached mixed fiber with a capacity of 100,000 tons per year. We estimate an investment of EUR 125 million spread over 3 years between 2025 and 2027.

Note that none of these investments require more wood. We believe that wood is going to be a limited resource in the future. The timing of all these investments in Pontevedra, in Navia and in As Pontes will be adapted to our cash flow generation throughout the cycle with the aim of maintaining a prudent leverage and an attractive shareholder remuneration.

Turning now to Slide 12. We show the different growth opportunities we have in ENCE renewables businesses. First of all, we have developed 3 biomass projects with a combined capacity of 140 megawatts, which are ready to participate in the next auctions.

Secondly, biomass has a great potential to decarbonize the industry. We are analyzing several opportunities in Spain to replace gas industrial heating with biomass in different industries.

Thirdly, we are also developing a pipeline of 673 megawatts in the PV. The permit process for 373 megawatts has almost finalized. The remaining 300 megawatts are at an early stage of development.

Moving now to Slide 13. Let me introduce you to our new subsidiary, ENCE Biogas, created to develop and operate biomethane plants. This new business is based on the circular bioeconomy and has a high growth potential in Spain.

Our circular business model is based on the recycling of local organic waste into biomethane, a high-quality organic fertilizer and sustainability certificates. ENCE Biogas already has a portfolio of 9 projects under development in Spain with a combined capacity to supply 550 gigawatt hour per year. Our target is to develop 20 plants with a total capacity to supply over 1 terawatt hour per year before 2029.

The estimated CapEx per gigawatt hour is around EUR 300,000. And our required return on the capital employed is over 12%. We will build these biomethane plants with EPC contracts and using nonrecourse project financing as we did in biomass.

Turning now to Slide 14. I would like to review our managed forests, which constitutes an important carbon sink and offer additional growth opportunities in the voluntary CO2 markets. As you probably know, ENCE is the largest forest manager in Spain. We've managed 66,000 hectares, and we are a model of responsible and sustainable forestry.

Our managed forest not only produce pulp wood, they also remove over 600,000 tons of CO2 annually from the atmosphere and yield other environmental benefits such as biodiversity, water cycle regulation and soil protection. Part of our managed forest produce carbon credits, which may be sold in the voluntary CO2 markets to help other companies offset their carbon footprint.

We have already registered 387 hectares with the Spanish Climate Change Office, equivalent to the removal of over 60,000 tons of CO2 during the life of plantations. Furthermore, we have identified 3,000 hectares which are eligible to produce carbon credits, and we aim to register even more hectares over the next 5 years.

To give you an idea of the potential of this business, each hectare can produce carbon credits amounting to 150 to 200 tons of CO2 during the life of the plantation, and its price may be around EUR 20 to EUR 50 per ton of CO2. By selling carbon credits, in addition to wood, we will double the revenue generation of these eligible hectares.

Finally, in my part of the presentation, I want to reemphasize our exceptional sustainability performance over 2022. We are already leaders 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 FTSE4Good or Sustainalytics, which in its latest study confirmed ENCE, once again, as the most sustainable player in the global pulp market.

I would like to highlight the following sustainability achievements in 2022. Firstly, all of our plants have now been awarded AENOR's Zero Waste certificate forwards. Secondly, Navia reduced its water footprint by 11% compared to the previous year, and we have developed an innovative solution to minimize river water consumption during times of drought at Pontevedra.

Thirdly, we continued to reduce the odor of both pulp biomills, which is already below 1 minute per day. This is the lowest level in Navia's history. This result demonstrates our strong commitment to the communities in our environment.

And fourthly, our health and safety record was strong in 2022. The pulp business ended the year with the best metrics of its history at levels that are 14x lower than the benchmark value for the industry in Spain. I think you will agree, our sustainability performance has been remarkable.

I will now invite Alfredo to review our 2022 financials in more detail.

[Alfredo Avello, executive]

Thank you, Ignacio. First of all, please remember that these accounts correspond to the fourth quarter '22 cumulative results. As announced back in January 24, since we did not have certainty about when the Supreme Court ruling would be served, we decided to release these accounts while the full annual ones will be approved on March 31.

In essence, these accounts now published should show the same financial results as those we'll release by the end of the month with the main difference, including additional notes and the auditor's report.

Now starting on Slide 17. I want to set out the 5 key financial takeaways for '22. Firstly, group revenues grew by 22%, driving our EBITDA from EUR 107 million up to EUR 247 million, boosted by continued strong pulp and energy prices.

Secondly, differentiating and higher value-added products accounted for 18% of sales despite Pontevedra's downtime. Thirdly, pulp price strong levels more than offset inflation in raw materials.

Fourthly, net cash position offers substantial flexibility to seize multiple growth opportunities. And finally, as Ignacio has already mentioned, we are proud to announce an exceptional interim dividend to our shareholders of EUR 0.29 per share amounting to EUR 70 million to be paid on the 16th of March.

Let me elaborate on the group financials from Slide 18. Year '22, group revenues of EUR 1 billion were driven by continued solid pulp and energy prices, which more than offset a 17% decrease in pulp volumes due to Pontevedra biomill downtime. EBITDA more than doubled, up to EUR 248 million driven by the aforementioned sales growth and the impact of one-off hedges in '21.

I would like to point out that '22 results includes a EUR 33 million regulatory collar provision reversal, offset by a EUR 38 million asset impairment with no cash flow impact. Finally, the reversal of the Pontevedra-related asset impairments and expense provisions recorded back in '21 as a result of the National Court rulings had a positive impact of EUR 169 million in '22 net profit up to the said total EUR 247 million after the Supreme Court ruling backing the legality of our concession.

Turning now to the next Slide #19. As you can see, '22 was a year of a strong free cash flow generation and deleveraging. Consolidated free cash flow in the year attained up to EUR 250 million, allowing us to reduce the net debt by EUR 132 million after EUR 55 million of CapEx and EUR 46 million in interest and taxes, also allowing us to distribute an interim dividend of EUR 67 million during the year.

After all said, our net cash position at the end of the period was EUR 30 million. It is worth to say that our working capital improvement in '22 included certain cash inflows that will be returned to electricity system for a total amount of EUR 85 million related to the regulatory changes made by the government during '22. This amount will be returned to administration in the first 4 months of '23.

Following with Slide 20, we have ended the year with a very strong financial position, which provide us with flexibility to seize our different growth opportunities.

At year-end, our pulp business had a net cash (sic) [ debt ] position of EUR 36 million, with a cash in balance of EUR 282 million. This figure includes EUR 23 million, which are part of the said EUR 85 million that will be returned to administration during the first 4 quarters (sic) [ months ] of '23.

Also, during '22, we have continued repurchasing our convertible bond, reaching 60% of the total issuance of the original EUR 160 million. Only EUR 64 million are left to be amortized in March this year. On the other hand, our renewable energy business net debt was reduced by EUR 115 million down to just EUR 6 million at the end of the year with a cash balance of EUR 145 million. Again, this figure includes EUR 62 million as part of the remaining amount up to the said EUR 85 million that will be returned to the administration in relation to regulatory changes made during 2022.

Let's now move to the next Slide #21. Our dividend policy states that the shareholder remuneration should be linked to the cash generation of the company, maintaining prudent leverage levels as well as taking into account our future CapEx plans. Well, I'm pleased to say that the Board has approved the distribution of an exceptional interim dividend of EUR 70 million based on the fourth quarter results to be paid on the 16th of March. This is in addition to the EUR 67 million already distributed during 2022.

On the following Slide 23, I will now quickly review the financial performance of our pulp business. We have delivered a set of strong pulp operating results in '22 despite the temporary downtime at Pontevedra. Our Pulp business EBITDA improved by 55% year-on-year, up to EUR 138 million driven by a strong recovery in pulp prices, which more than offset the widespread inflationary pressure in raw materials and the temporary downtime at Pontevedra.

Excuse me. As you can see in the next Slide #24, solid pulp prices boosted the operating margin of our pulp business up to EUR 204 per ton in '22 compared with an operating margin of EUR 155 in the previous year and a similar average for the last 5 years. The year-on-year increase in the cash cost was mainly due to higher raw materials and logistics costs as well as chemical. These last ones [ linked ] to electricity prices.

Pontevedra's downtime implied a EUR 34 per ton increase in annual cash costs mainly due to a lower fixed cost dilution and the extra cost of our testing of the new water recovery solution. Regarding '23, please note that we expect a higher temporary pulp cash cost of EUR 35 -- tons in first half of '23. Of this, EUR 20 are related to the said water recovery solution and the remaining EUR 15 due to a failure in one of the Pontevedra turbines during January that we'll be repairing until June.

On Slide 26, we review the financial performance of our renewable business. The average net selling price in '22 increased up to EUR 170 per megawatt hour, boosted by solid market prices, especially at those plants which are not subject to the regulatory cap, coupled by the increased contribution coming from our backup services to the electricity system. These higher prices offset the effect of reduced olive pomace availability, which is likely to persist into 2023.

On the other hand, regulated energy price for '23 has been set at EUR 207 per megawatt hour. Please note that this is the price that will be used as reference for our accounts, while the cash inflows will be marked by the market price. The difference between the regulated price adjusted by its ramp, and the market price will result in an asset provision that will turn into future cash collection rights to be received during the rest of the regulatory life of the plants.

Continued solid energy prices drove a 90% increase in our renewable energy business sales. Its EBITDA reached EUR 110 million, also taking into account that nowadays, all our clients at Huelva 50, Almeria 20 are not subject to our regulatory cap.

Let's turn to Slide #29. Remember that back in December of '21, Magnon agreed to sell 5 PV projects for an amount of up to EUR 62 million to [ ENCE Energía ]. Well, these projects will reach RTB status during 2023 and 2024. Closing of the transaction will be made by phases per project at achieving its ready-to-build status.

We expect a positive EBITDA of EUR 50 million for the full transaction, further increasing our renewable business EBITDA by approximately EUR 25 million in '23 and the same amount in '24.

Let me turn now to our Chairman, who will present the final section of the report.

[Ignacio de Colmenares, executive]

Thank you, Alfredo. As we set out at the beginning of the presentation, we are making certain forward-looking statements, namely, pulp production is expected to normalize above 1 million tons. We expect solid energy prices to continue with a regulated price above EUR 200 per megawatt hour.

The difference between the regulated and market energy prices in 2023 generates future cash collection rights. PV project sales in 2023 to 2024 to further boost renewables EBITDA by over EUR 50 million in those years.

To conclude this presentation, ENCE looks ahead to 2023 and beyond with confidence with the legal certainty of our long-term Pontevedra concession now secured. Our strong cash generation and balanced sheet strength will allow us to take advantage of multiple growth opportunities, both in the pulp and in the renewable businesses, where we expect to create significant value for our shareholders. We will maintain our dividend policy.

Thank you for your attention. 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 3 if I may. Firstly, could you provide us your view on the pulp market? How are your conversations with clients developing? And have you seen any improvement in demand from these versus the fourth quarter?

[Ignacio de Colmenares, executive]

Yes. Thank you very much, Enrique. The market is a bit weak now on this first quarter of the year. We see that the inventories of the customers -- of our customers grows too much next year. And we think that they need until the end of March to destock these large values of paper on the supply chain.

And we expect in terms of demand a better second quarter of the year. The tissue demand is going well, pretty well, pretty strong all around the world. And here in Europe, printing paper demand is low due to these big stocks of the retailers of paper.

And the demand of specialties is more or less stable. But I insist we think that after the reduction of stocks of paper for printing and writing during this first quarter, second quarter, the demand will be normalized. It has happened in many, many sectors after a fantastic year of demand last year boosted partially by the constraints in logistics.

Regarding prices, you know that we are now at EUR 1,329 per ton -- sorry, $1,329 per ton gross price as the fixed price then prices are going down but very slightly. We more or less agree with the vision of all the analysts you know for the first and the second quarter. And we disagree on the third quarter.

We think that China pulp and paper demand will recover strongly over 2023, especially from the second quarter as pandemic pressures ease. We have seen the figures of GDP in China recently and is growing better than expected.

A very important data is Bracell has announced that it will progressively integrate its pulp production, over 2.8 million tons, with its expansion in viscose and paper production in Asia on their paper mills and viscose mills. And we think that this market share will be substituted by UPM and Arauco. But what is very important is that UPM and Arauco have not yet started to supply to the market. They are still on trials then we don't see their volumes in Europe before after summer.

And in any case, we strongly believe that they will substitute Bracell sales will go -- will be integrated in the paper and viscose mills in Asia. Then as a resume, we see a weak first quarter in terms of demand. We see a better quarter. The second quarter will be good, and we see a normalized third quarter and fourth quarter.

[Enrique Parrondo, analyst]

So secondly, you've been experiencing some biomass cost in the last quarters, and you had to hold activity in one of [indiscernible] in the fourth quarter, if I'm not mistaken. What is your view for biomass availability into this year, 2023? And if this scarcity continues, what alternatives do you have?

[Ignacio de Colmenares, executive]

Yes. There are 2 kinds of biomass. We have the -- well, the forest and agri subproducts. And we don't see any problem in terms of volume and offer in this segment of the market, and I will come back later to talk about prices.

And we have the olive pomace or olive cake, where last year, the demand from the cement industry to replace fossil fuels was very important. And on top of that program, the collection of olive has been very, very low, as you know, this year in Spain, this campaign. And then we see a strong reduction on the availability of olive pomace or olive cake.

Then as olive pomace and olive cake are very limited and are extremely expensive, that is why we stopped on the last quarter of last year the biomass power plant in Ciudad Real called Enemansa. And today, it's still stopped. It's a small facility of 16 megawatts. That is not terrible. The impact is not strong. It's a mill that normally gives us a couple of million euros of EBITDA per year.

And now coming back to the prices of the agri waste and forest waste biomass. Well, there is no problems of availability, but well, what is happening in wood is also happening partially in biomass. Then we have more exports of biomass from Spain to northern part of Europe as a fuel then the prices have gone up on an important way.

And what we decided is to stop Huelva 41 biomass power mill on the last quarter of last year. It's a mill with a very low yield because it's an old mill. And what we wanted is to rebuild, stop biomass in order to be able after the rainy season than now in 15 days to decrease the prices of the biomass.

Today, we have already announced to all our suppliers that we will reduce the price of the biomass at April 1. Then we have gave them March in order to do what they have to do.

We are confident because we have strong biomass stocks now in Huelva. Huelva is buying close to 1 million tons per year. We have good biomass stocks in the other biomass power plants. The rainy season is almost over now, and then we are confident in reducing the prices of the biomass in our biomass power plants.

[Enrique Parrondo, analyst]

And my final question on growth plans in pulp. So I understand that growth ahead -- growth in pulp or -- growth plans in pulp, in the pulp business. So I understand that growth ahead does not contemplate any more Navia 100 or Navia 340 partially due to Pontevedra's favorable ruling. But are these plants totally disregarded?

And thinking about As Pontes, are you finding the process any harder than expected or experiencing difficulties? And I ask because I believe that initial start-up production was scheduled for 2026, and now it has been delayed a little bit. And also, are you targeting any European funds to finance the greenfield? And if so, how much of the CapEx do you believe these European funds could cover?

[Ignacio de Colmenares, executive]

Thank you, Enrique. That's 10 questions in one question. Well, the vision we have, as I have said many times in the last quarters, is that wood is and is going to be further limited.

You can see what is happening in Latin America, what has happened on the prices of the wood in Brazil. It's terrible. They increased. Our competitors from Brazil are suffering. We strongly believe that the amounts of goods exported from Brazil and from Uruguay to Europe are going to be very limited and extremely expensive in the future.

With the start of Arauco, Chile will start to export chips to Asia. The prices of the chips will further increase. Then we have incorporated all that in our strategy. And we strongly believe that we have to grow, diversifying our capacity.

And when I talk about capacity, I talk of both, capacity of buying local wood and capacity of manufacturing pulp. We cannot increase, we have to diversify to more profitable products such as all these differentiated products competing with long fiber then competing with our Scandinavian competitors and not with the Brazilian competitors, one more competitor.

Products able to substitute plastic on the packaging, we have to go in this way. That's why we want to produce 400,000 tons. Last year, because of the downtime of Pontevedra, we only increased a bit. We are going to do a big increase there again. We have to go to more profitable products and to diversify our production.

That's why we are going to invest in fluff in Navia. And we have to go to products where we can supply units of our customers and is the case of As Pontes, where we are going to build a mill able to produce mixed bleached, recycled and virgin fiber, buying recycled paper in the area and using virgin pulp produced in Pontevedra or in Navia.

And the customers, the tissue customers are extremely interested in this product. They are going to be able to label a fantastic product, soft, white with an excellent wideness made partially with recycled fiber. And that's very important in terms of marketing for them, and they are awaiting this product.

And we see now also a very important interest of producers of packaging in using this mixed bleached fiber. But what is even more important is that we are not going to use more wood in this product because we think it will be absolutely crazy to increase capacity using more wood now in the northwest of Spain.

And that is why we have almost abandoned the Navia 640,000 tons project despite we have all the permits and we have the land. There is no 1 million tons available in Spain or in Iberian Peninsula to supply this new mill. We have to be realistic.

And regarding Navia 100,000 tons, well, that was in the case we were forced to shut down Pontevedra, it was the idea of removing the best equipment of Pontevedra to Navia and to capture 100,000 tons. But it is not anymore the case. We have Pontevedra secured till 2073.

What -- we just have several months, the project in As Pontes, and we have change of year just by a few months. Then it's not 12 months more. It's just a few months. It's not a problem. Well, all the permitting is going well, but it's going to be a long process.

And regarding the European funds, while we are seeing what all the Spanish industry is saying in many different industries and in many Spanish regions. These so-called [indiscernible] give a very limited amount of money. Then we have presented already the As Pontes project to what is called the economia circular, circular economy [indiscernible] and for a targeted investment of EUR 125 million.

The maximum we could get, and it will be always below this figure is EUR 10 million. That's what we see. And that's what many industries are telling me, the amount of money you could receive from these European funds, it's very, very limited. I hope I have answered all your questions, Enrique.

[Operator]

The next question...

[Ignacio de Colmenares, executive]

Sorry, sorry, yes. Yes, one thing which is important to finalize with the last question. What we like very much of As Pontes, we have the ROCE above 12% we want even if we don't receive a single euro of European funds.

It's not a project who needs 10% or 20% of European funds. It's a profit -- it's a project who is profitable and fits in our strategy of growing and diversifying not using wood.

[Operator]

The next question comes from Edward Bottomley from Berenberg.

[Edward Bottomley, analyst]

Congratulations on your results. My first question would be, I guess, quite a simple one. How should we think about the progression for cash costs in 2023 and maybe beyond that? Because if we look at your CMD guidance from last year, I'd expect that now to be quite a bit higher than what you were guiding for. So any color on cash costs would be appreciated.

[Ignacio de Colmenares, executive]

Thank you very much for the question Edward. Well, unfortunately, we will have to be forced to talk about recurring cash costs on the first half of the year, mainly on the first quarter and account cash costs.

What is the difference between both? It is all the money we are expecting -- spending in all these equipment for regenerate the effluent of Pontevedra in order to continue all the trials during the first half of the year. That has an impact in the cash cost of EUR 4 per ton on the first quarter and another EUR 4 on the second quarter.

Now that we know that we have win in the ruling of Pontevedra, it has no sense to have rented equipment. We will invest and then we don't -- we will not have this EUR 4 per ton on the second half of the year.

That's -- and on top of that, we have EUR 14 more than the total cost of these equipment we are using in Pontevedra is EUR 18 on the first quarter, and it is EUR 20 per ton on the second quarter, EUR 18 and EUR 20. On top of that, we had a big problem in January on a turbine in Pontevedra. The turbine is now in Germany. Repair is going to take 4 months.

Then we are using energy from the grid, and we are generating energy with fuel. And that has a nonrecurring cash cost during the first quarter and second quarter of EUR 18 and EUR 16 on the second quarter. That means that we have nonrecurrent cash cost of EUR 36 in first and second quarter. People forget that because it is not recurrent.

Our recurring cash cost is going to be very high in the first quarter, we think in the range of EUR 605, EUR 606 per ton. We see that this cash cost will be reduced to -- in the range of EUR 569, EUR 570 in the second quarter and will be normalized in the second half of the year on an average of EUR 633, EUR 634 -- sorry, EUR 535, EUR 534, sorry. Then EUR 600, let's say, EUR 606 first quarter, EUR 569 second quarter and on the range of EUR 533 on the third and fourth quarter.

Regarding next year, while we see the prices of the chemicals we are using, the price of the wood, the price of the transport going down. Then we see a cash cost in the range of EUR 460. Remember that we had in 2021, EUR 392. And then we think that in 2025, it will be again normalized.

What are the main drivers of this high cash cost in the first, second quarter and in the second half of the year? Regarding the wood, we see the wood maybe EUR 1 or EUR 2 more expensive than last year. You have to multiply that by 3 in order to go to euros per ton. And we expect the wood to be maybe EUR 3 -- EUR 9 per ton of pulp more expensive in '23 than in 2022.

We have finished with a fantastic stock of 260,000 tons of wood at the end of the year. But we see the market very, very hot. Then we see limited capacity of reducing. We see a capacity of stabilized prices with maybe a small increase and not a huge increase.

The chemicals will be this year even more expensive than the past year. We have benefited from the stoppage of Pontevedra. We have not been obliged in the second half of the year to buy marginal, very expensive caustic soda and chlorine.

And despite the prices of electricity have started to go down, we don't yet see a normalization of the prices of the soda and the chlorine. We see those prices to be normalized in 2024 and so on.

And regarding the freight rate, the cost of logistics was a cost of EUR 36 on the past and was a cost of EUR 56 last year. We see prices stable or going slightly down. And we see a future decrease in 2024 and 2025. Is that clear?

[Edward Bottomley, analyst]

Very clear. So maybe now...

[Ignacio de Colmenares, executive]

I think there is -- my colleague reminds me a very important fact linked to the electricity regulation. I hope I will be able to explain that. You know that in 2021 and 2022, when the prices of the market -- the market prices of electricity were above the regulated market, we were collecting more cash than what we were reflecting in our EBITDA, if you remember that.

This year is the opposite. The regulated price is above the market price. Then we have, let's say, an extra EBITDA. We recognize the future cash collection rights we are having this year. And by how we do our accounts, that is not reflected on the cash cost. Then on the cash cost, we have the low prices of the electricity we are exporting from the pulp mills.

But on the cash cost, you don't have EUR 40 million of future cash collection rights we are making this year, who will be on the EBITDA, but not on the cash cost. Do you follow me? Because it's a bit complicated.

[Edward Bottomley, analyst]

Yes. So -- I followed that. So maybe now on carbon prices. So you mentioned that you're trying to utilize your forest to sell carbon permits. I guess 2 questions on that side, which would be what do you need to change in the way you operate your forest to get this carbon credit production?

Do you need to not take out the trees? Or does it not change anything for your day-to-day operations? And then also on the carbon prices, if I understood correctly, you said you were selling EUR 15 to EUR 20 per ton, but the carbon market today for the EU ETS is EUR 100 per ton. So if you could also briefly explain the difference there, and if you might be able to sell them at about EUR 100 a ton price going forward.

[Ignacio de Colmenares, executive]

Yes. Yes. I hope I had understood your question because the line is not very good. Let me answer and if I have made -- I have answered not to what you are asking, please ask again your question.

Well, we are managing 60,000 hectares, and not all these hectares are what is called eligible, eligible for this voluntary CO2 reduction of emissions according to the law today in Spain. And these hectares as you can put on the so-called Spanish Office of Climate Change. And it recognize you the rights of CO2, and then you are able to sell to voluntary reductors these CO2 rights.

Today, we have a bit below 400 hectares already in the -- registered. According to the law, we think that we can register 3,000 hectares more in the hectares we are today managing. Then about -- out of 66,000 hectares, only 3,000 hectares are eligible for this market.

But we see other hectares in hands of third parties. And we see a strong opportunity to manage those hectares and then to be able to produce wood and to produce CO2 to this voluntary market. This voluntary market prices today, there is no regulated price. The market price today is between EUR 20 and EUR 50 per ton of CO2.

And what is extremely important to understand is that when you have a hectare of eucalyptus, in 20 years, you produce roughly 200 tons of wood. And you produce the same tons of CO2 if those hectares are eligible.

The price of the wood, the standing price of the wood is around EUR 30 per ton. And the price of the CO2 is between EUR 20 and EUR 50. And what is important is that in these new hectares, these 400 hectares already registered is 300 hectares we can register. And further 1,000 hectares we are going to look and we are looking, we can double the income of each hectare.

And nothing has to be done from forest management. Nothing has to change. It's to do the same we are doing today. It's to plant and to harvest eucalyptus. But it is not on the 66,000 hectares. It's on a limited amount of 3,000 hectares plus the hectares to date registered, 3,400, but we are looking for third parties' hectares to do this business. Is that what you were asking, Edward?

[Edward Bottomley, analyst]

Yes. That's perfect. And then one more question on differentiated products, if I may. You mentioned that you have higher margins. And obviously, the differentiated products as a percentage of sales is expected to grow pretty strongly.

Could you explain exactly how the higher margins of differentiated products shows in your -- in the calculation of EBITDA for the pulp business? Because I imagine cash costs are higher than the standard hardwood pulp, which would imply then on pricing. But given you base your prices in your financials on the BHKP spot price, does this mean it's reflected in a smaller commercial discount in your financials? Or how should we be trying to model this higher penetration of differentiated products?

[Ignacio de Colmenares, executive]

Yes. The extra margin that we had last year on those products were EUR 20 more of margin. We are marketing them EUR 40 per ton higher. And we have roughly an average of EUR 20 more of cash costs in these differentiated products.

But what is very important for us -- even more important than this margin, which is important, is that these products go to 2 very interesting segments. We are not competing against Arauco, against Suzano. We are competing against the Scandinavians and against their long fiber because the star of these differentiated products, it's a product that our customers can substitute long fiber with it. Then we compete with high cash cost pulp producers.

And the second strategic advantage of these differentiated products is that they go to packaging products to replace plastic. And that's a market growing and growing, and the growth has just not yet started. The growth is going to be enormous in this market.

[Operator]

Next question comes from the line of Alvaro Bernal from Alantra Equities.

[Alvaro Bernal, analyst]

So I have a -- I just need a quick clarification on the EUR 0.29 extraordinary dividend [ pay ]. Is this associated with retaining the Pontevedra concession as you now have more balance sheet flexibility? Or is it associated with the group's target of paying dividends based on free cash flow as opposed to net profit? Should we expect an additional final dividend on 2022 earnings or -- and that's all.

[Ignacio de Colmenares, executive]

Alvaro, regarding your first question, it's both of them, both of them. We've been extremely prudent with our leverage in order -- in case we hadn't win, to be able to do whatever was needed. Now we don't have those needs, and then we can produce the amount of cash available on the company and that increase the debt.

And it is also because you have to come back to the past. When we sold 49% of our energy division in 2021, at the end of 2021, and we sold 100% of our CSP, we made around EUR 320 million of cash income, and no dividends were given because we were on the COVID, and we were very prudent because of Pontevedra.

Then now I think that we have to optimize our financial structure. It's not normal. A company with no debt is not normal. It's not efficient. We have to normalize that. And it's also because, well, we had good results last year. And then we recognize the effect of the Pontevedra ruling on the fourth quarter, and then we had decided to give this EUR 0.29. And regarding what is going to happen in the future, we will continue with our policy, and it is published [ in -- earlier ]. Thank you.

[Operator]

[Operator Instructions] There are no further questions. Dear speakers, back to you.

[Ignacio de Colmenares, executive]

Well, thank you very much for your interest, ladies and gentlemen. I would actually insist now we are, again, a normal company, and we can work on the business and just on the business. Then as we have a strong balance sheet, fantastic mills and very nice projects, I hope you will appreciate what we are going to deliver. Thank you very much. Bye-bye.

[Alfredo Avello, executive]

Thank you.