Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ENCE Energia y Celulosa SA (STU:ENCA, Financial) reported a strong operating margin of EUR190 per tonne in the third quarter.
- Pulp production in Pontevedra increased by 36% compared to the same quarter last year, despite challenges such as maintenance shutdowns and severe drought.
- The company's Renewable business EBITDA doubled to EUR9 million in the third quarter, driven by normalized energy output and lower operating costs.
- ENCE Advanced pulp sales accounted for 22% of total pulp sales, delivering higher margins and expected to reach 30% of total sales next year.
- The company maintains a strong liquidity position with consolidated liquidity of EUR332 million and no covenants in the pulp business.
Negative Points
- Hardwood pulp prices in Europe declined by over 20% from their peak, impacting revenue.
- An incident in Navia's co-generation turbine led to temporary higher energy purchases, resulting in an extra cost of EUR1.7 million in the third quarter.
- Extra costs of approximately EUR6 million are expected in the fourth quarter 2024 and EUR5 million in the first quarter 2025 due to the turbine incident.
- The average net selling price of pulp decreased by EUR49 per tonne compared to the previous quarter.
- Cash costs increased slightly to EUR489 per tonne, mainly due to higher wood costs.
Q & A Highlights
Q: What is your outlook for pulp prices, especially in Europe, following trends in China?
A: Prices in China are currently at $560 per tonne, and in Europe, they vary. We believe the bottom price has been reached in Asia, the Middle East, and Europe. Prices in Europe for 90% of sales should not fall below $600. We expect prices to start rising again in one to three months as the market is firm and demand is strong.
Q: Can you provide insights on current inventory levels in the pulp market?
A: Pulp producers have limited stock, and our customers maintain a normal level of stock. We do not foresee inventory levels being a problem for prices to bottom out.
Q: What are the challenges in ramping up volumes of advanced pulp products, and what are your targets for next year?
A: We aim to increase advanced pulp sales from 22% to 30% next year, excluding fluff pulp, which will start in the second half of the year. All our products are homologated, and we are confident in achieving this target without further homologations.
Q: How do you see wood costs and cash costs evolving in the Iberian Peninsula?
A: We expect wood costs to remain stable, with potential reductions of EUR2 to EUR5 per cubic meter through increased efficiency. The structural deficit in wood makes it challenging to reduce prices significantly.
Q: What is the status of your renewable growth projects, particularly in biomethane and renewable thermal energy?
A: We are close to signing a contract for a renewable thermal energy project with a major brewer, expected to be operational in 12 months. We plan to start construction on five biomethane projects next year, with operations beginning in early 2026.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
