Ence takes root in sustainable businesses

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Ence is not what it was. The company, privatized at the turn of the century—2001—has adopted the word sustainability as its emblem and the circular economy as its model. Ence has been selling the cellulose it extracts from wood since 1958, but has diversified the activity. Half of its business comes from paper pulp and the other half from the generation of electricity through the subsidiary Magnon Green Energy – 266 MW of installed power based on forest biomass – and from the use of heat – cogeneration – in the pulp mills of Pontevedra and Navia. The company, controlled by some of the country's great fortunes—Arregui, Urrutia, Comenge—has shed some of its skin. It is no longer (only) a company exploiting natural resources, the first private forestry owner on the Peninsula, polluting and very well connected to political power. The focus has changed so much that the company's new pulp projects do not need wood. Its factories are “biofactories” and “bioplants”. Ence, company sources specify, “agrees with the current regulations that establish a moratorium on eucalyptus plantations, and is committed to not increasing the surface area of ​​this forest crop, in line with society's demands.” The company which was chaired between 2006 and 2019 by the founder of Gamesa Juan Luis Arregui, today honorary president and main shareholder of Ence with 29.24% of the capital, is experiencing a sweet moment. The price of pulp has skyrocketed, especially due to the resurrection of the Chinese market. The company, which lost 24.7 million in 2023, returned to its profit path in the last half year. In the fourth quarter of 2023 it earned 3.5 million and three times more (9.5 million) in the first quarter of this year. The Stock Market has perceived the change in cycle. So far this year, the stock has risen more than 18%. “The turning point in the fourth quarter of 2023 and the rebound in the company's operating performance after a period of weakness are confirmed,” Renta analysts point out. 4. “We expect a positive impact not only due to the improvement in results,” say the analysts at Banco Sabadell, “but also due to the good prospects of the pulp market, where price increases are being confirmed and levels above maximum levels are being reached. 2022, which predicts positive future quarters.” The paper mill, like all exporting firms, moves with the tides of international trade. The current one is favorable. The company has closed sales agreements – most of it to Europe – for more than one million tons of pulp in 2024, which means covering the maximum production of the factories. Gone are the bad moments of 2023 in which paper companies—Ence, but also competitors such as Altri and Navigator—set minimums on the stock market. “Only the generous shareholder remuneration policies managed to mask the behavior in a year of sharp falls in pulp prices,” summarizes Pablo Fernández de Mosteyrín, from Renta 4 Banco. So the future looks good. All analyzes agree that there is a scenario underway of recovery in sales prices and normalization in cash cost (production cost). The two factors will predictably increase the margins of the paper mills. In general, experts anticipate a horizon of structural growth in pulp demand. The keys are the increase in the urban population in emerging countries, the substitution of plastic and polluting materials for paper and derivatives, and the increase in electronic commerce, which increasingly requires recyclable packaging. The improvement in the business should allow the company deal with the many projects he has underway. Ence has recently approved a strategic framework for the period 2024-2028, through which it plans to double its operating result (ebitda) in the renewables business and increase it significantly in pulp. Growth and diversification projects will pose a challenge for the allocation of capital that is not unlimited. The increase in income and the moderate debt load – 323 million – will help the deployment. Among the ongoing projects, a plant in As Pontes stands out – a bioplant, in the company's terminology – to produce cellulose from recycled paper and cardboard, and the start-up of up to 20 biogas plants in the next five years in different autonomous communities.

Operational momentum

Ence's energy business, in association with the British fund Ancala Partners (controls 49% of Magnon Green Energy), “provides stability and visibility to income,” says the latest report from Jefferies Financial. According to its estimates, the area will have a minimum contribution of 40-50 million annually to the operating result from 2024 “in the regulated price ranges and with additional EBITDA potential at higher energy prices.” “The Energy division has a solid growth opportunity over the next 10 years, with Spain expecting to double its renewable energy capacity by 2030,” Jefferies experts conclude. Ence will close this year the sale of 223 MW of photovoltaic installations to Naturgy within the agreement that both companies reached at the end of 2021 for a total capacity of 373 megawatts (MW). Ence is having a good streak. It began more than a year ago with the resolution favorable to the company of a thorny issue such as the complaints regarding the extension – until 2073 – of the occupation permit for 373,524 square meters of public domain land in Lourizán, in the Pontevedra estuary. The Supreme Court declared of no value or effect the ruling handed down by the National Court in 2021, where it declared the extension of the concession of the Pontevedra factory null and void. A sigh of relief and a pleasant shiver in the box because Ence had already provisioned 200 million euros to face the costs of dismantling the factory and launched a plan b to increase investment in other facilities, such as Navia (Asturias). ).Follow all the information on Economy and Business on Facebook and xor in our weekly newsletter