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Edited Transcript of ENC.MC earnings conference call or presentation 31-Jul-19 9:30am GMT

Q2 2019 Ence Energia y Celulosa SA Earnings Call

Madrid Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of ENCE Energia y Celulosa SA earnings conference call or presentation Wednesday, July 31, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alfredo Avello De La Peña

ENCE Energía y Celulosa, S.A. - Chief Financial & Corporate Development Officer

* Ignacio de Colmenares y Brunet

ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD

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Conference Call Participants

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* Alvaro Lenze Julia

Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst

* Jaime Escribano

Grupo Santander, Research Division - Equity Analyst

* João Filipe Pinto

JB Capital Markets, Sociedad de Valores, S.A., Research Division - Associate of Equities Research Portugal

* Luis de Toledo

BBVA Research SA - Chief Analyst of Oil and Materials

* Nuno Estácio

Haitong Bank S.A., Research Division - Equity Research Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Welcome to the ENCE First Half 2019 Results Presentation. I now hand over to Mr. Ignacio Colmenares, CEO; and Alfredo Avello, CFO. Gentlemen, please go ahead.

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Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [2]

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Good morning, ladies and gentlemen. Thank you for joining ENCE's 2019 First Half Results Conference Call. I'm here with our CFO, Alfredo Avello; and our Head of IR, Alberto Valdes. After the presentation, we will answer any questions you may have.

Let's start with the main highlights of this presentation. Pulp prices are now weaker than we expected some months ago. High pulp producers inventories at the ports, as a consequence of the unexpected inventory reduction in the paper industry, have continued pressuring pulp prices down during the second quarter. We believe prices should stabilize soon and then rebound for several reasons.

Firstly, prices in China are already below the cost level of less efficient producers. Secondly, Suzano has announced production cuts of over 1 million tonnes during the second half of the year, which should contribute to reduced pulp producers inventories at the ports. Additionally, the rebuilding of pulp inventories on the paper side could bring back to the market an estimated demand of more than 1 million tonnes of market pulp.

In the medium term, the lack of large capacity increases until the second half of 2021 supports our expectation of a tight supply and demand balance. The financial results of our 2 businesses during the first half were mixed.

On the one hand, Pulp business EBITDA decreased by 42% compared to the same period last year, driven by negative FX hedging settlements versus positive ones during first half of 2018, higher discounts due to pulp sales outside Europe at spot prices and lower volumes sold due to the inventory increase prior to October expansion shutdown at Navia. On the other hand, Renewable Energy business EBITDA grew by 30%, thanks to the solar thermal plant acquired in Puertollano last year.

In the Pulp business, we completed our annual maintenance shutdown in Navia during the second quarter and prepared the biomill for the 80,000-tonne capacity expansion in October. In the Energy business, we are on track to start operations in our 2 new biomass power plants in December, which will generate an additional EBITDA of close to EUR 30 million per year, increasing up to EUR 95 million to EUR 100 million in 2020.

ENCE invested EUR 157 million during the first half as part of our strategic plan. EUR 70 million in pulp biomills capacity expansion, EUR 87 million in the 2 new biomass power plants.

Finally, we are now fully focused on a cost-cutting program launched in July in order to secure the achievement of the strategic plan annual cash cost targets.

In Slide 5, you can see the consensus pulp price evolution. These numbers have decreased since our last conference call. Lower pulp demand during the last quarter of 2018 and the first quarter of 2019 due to the unexpected transfer of 2 million tonnes of pulp inventories from paper mills to pulp producers, this has continued to push back prices down during the second quarter. Once prices stabilize, the rebuilding of pulp inventories in the paper side will quickly increase the demand in more than 1 million tonnes.

On the right-hand side of the slide, you can see the estimated pulp producers' cash cost, CIF China. Current prices are already below the cost of less efficient producers. These are the reasons why I believe there will be lower pulp supply and higher demand during the coming months.

In Slide 6, we summarize our views on pulp supply and demand. We have updated our estimates due to the lower pulp demand during the first half of 2019 as well as Suzano's announced production cuts during the second half. We have also included the increase of pulp producer inventories since the end of last year and their expected reduction during the coming months. I see an improving scenario towards the last quarter, which should continue during the coming years as there is only one new pulp mill confirmed for the second half of 2021 and another one for 2022.

Let's now move to Slide 7 which shows our financial results. Revenues for the Pulp business decreased by 3.5% with lower volumes sold after a 27,000-tonne inventory increase prior to the October expansion shutdown and higher discounts due to spot sales outside Europe. On the other hand, revenues for the Renewable Energy business grew by 18% due to the contribution of the solar thermal plant acquired in December. The group's EBITDA decreased by 31%, mainly due to the poor performance of the Pulp business. The decrease in the Pulp business EBITDA was driven by FX hedging settlements, which had a negative impact of EUR 15 million in the first half 2019 versus EUR 5 million positive impact during the same period last year.

It was also affected by lower volumes and prices and cash cost, which increased 5.9%. Meanwhile, the Energy business EBITDA grew by 30%. As a result, our group net income decreased by 50% compared to the same period last year. The first interim dividend of EUR 0.051 per share will be paid in September, in line with our 50% payout ratio policy.

Let's continue with Slide #8 to explain the evolution of the cash cost. Our cash cost increased by EUR 22 per tonne versus first half 2018 as a consequence of EUR 11 per tonne wood cost increase, EUR 8 per tonne overhead cost increase, EUR 4 per tonne higher conversion cost. As mentioned, we have launched a cost optimization program this quarter in order to secure the achievement of the strategic plan annual cash cost targets. I am personally leading it, with [BCG] supporting us. The program will take 18 months.

Slide #9 describes the growth of our Energy business. EBITDA grew by 30% due to the incremental contribution of our Puertollano solar thermal plant. Our 2019 EBITDA should be close to our EUR 65 million target, and EBITDA will grow again in 2020 by approximately EUR 30 million up to EUR 95 million to EUR 100 million as a result of the 2 new biomass power plants, which will start operating next December.

Let's now turn to Slide #10. During the first half of 2019, free cash flow before growth CapEx and dividend payments amounted to EUR 63 million compared to EUR 87 million in the same period last year. Lower EBITDA has been partially offset by lower financial expenses and better working capital performance. Our growth CapEx was EUR 157 million as a result of ongoing capacity expansions, both in the Bulk and Renewable Energy businesses. After these investments, our net debt reached EUR 465 million, up from EUR 305 million at year-end. We have included EUR 53 million in the debt figure resulting from the application of IFRS 16 on leases as from January 2019.

As a result, our leverage ratio is 1.8x our EBITDA over the last 12 months, 1.2x in the Pulp business, 3.9x in the Renewable Energy business, assuming the pro forma full year EBITDA from the solar thermal power plant acquired last December.

In Slide 11, let me review our strategic plan CapEx, which will be lower in 2019 than anticipated as larger capacity expansion will take place in October, pushing back some of the payments as a consequence. We have already invested EUR 157 million during the first half of 2019, and we expect total investments of EUR 265 million in the full year. We are adding 100,000 tonnes of pulp capacity and 96 megawatts of additional generation capacity in our Energy business.

In Slide 12, I would like to give you an update on Navia's swing line project. It will have an installed capacity of 340,000 tonnes of BHKP or alternatively, 200,000 tonnes of dissolving pulp or a combination of both. During the fourth quarter this year, all the permits and EPC processes should be completed.

During the first quarter next year, the board will decide whether to go ahead or to delay the project 1 year, depending on pulp market conditions and our forecasted balance sheet in order to comply with our self-imposed leverage limits set in our strategic plan.

Let's turn now to Slide #13 where we summarize the legal situation of the Pontevedra biomill. As you may know, in January 2016, the National Directorate of Coasts granted an extension of ENCE's concession in Pontevedra until 2073. 3 court cases against the extension were initiated before the National Court.

On March 8, 2019, the National Directorate of Coast requested that the claims be upheld despite having previously argued throughout all of the proceedings that the extension was totally legal. Despite this request from the National Directorate of Coast, the National Court has allowed ENCE to defend the case, and we expect a first resolution before year-end. However, we estimate that the court proceedings could last for up to 4 years, including any appeals before the higher courts.

Also, the National Directorate of Coast has began to process draft legislation amending the general coast regulation, holding the interpretation that the maximum concession terms of 75 years must encompass both the initial term of the concession and any extension thereof. If such interpretation were applied to ENCE, the concession could run until 2033.

Given this uncertainty, as we announced in our last quarter results, the Board of Directors has decided to dedicate remaining part investments of our strategic plan 2019-2023 to the Navia biomill, freezing any new investments in Pontevedra.

Finally, I would like to give you an update on our sustainability activities. We continue to improve our certified wood entries and create value for local suppliers. We keep reducing odor and noise in our biomills as well as the use of water that has experienced a 12% reduction since year-end. Our Pontevedra biofactory obtained the certification 0 residues from AENOR. We lowered the frequency and severity of accidents, and we are pursuing a 0 accidents goal. We are promoting equality and diversity, increasing the number of new hires of women by 58% versus last year.

I will now invite Alfredo to review the figures in more detail.

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Alfredo Avello De La Peña, ENCE Energía y Celulosa, S.A. - Chief Financial & Corporate Development Officer [3]

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Thank you, Ignacio. Let me start by explaining the operating performance of our Pulp business, which you will find on Slide 16. Firstly, it is important to mention the average net pulp price, which has decreased in euro figures by 4.5% versus the first half of 2018, mainly driven by higher sales outside Europe at spot prices, pushing our implied discount up to 31%. Secondly, pulp volumes sold was 5% lower due to increasing inventory levels, which raised up to almost 81,000 tonnes and of Navia's capacity expansion next October. Average cash cost for the period increased by 6% up to EUR 396 per tonne as our CEO previously explained.

Finally, the company had negative FX settlements for an amount of EUR 15 million compared to the positive settlements of EUR 5 million during first half 2018. All in all, EBITDA for the period attained EUR 67 million.

Turning to the next slide, we can find the Pulp business P&L starting with said EBITDA of EUR 67 million. DD&A figure is in line with our expectations and following the provisions of EUR 2.1 million related to ENCE's environmental pact in Pontevedra, signed back in June 2016, we achieved an EBIT of EUR 35 million for the period.

This provision has had no cash outflow effect during the first semester. Below the EBIT line, financial expenses accounted for EUR 4 million, targeting the reduction expected after last year's refinancing process involving the early redemption of our EUR 250 million high-yield bond with an annual coupon of 5 3/8% and issuance of the new EUR 160 million convert bond at 1.25%.

Moving right on the chart, other financial results amount to a positive figure of EUR 0.6 million, including the positive effect on receivables.

Finally, taxes for the period, some close to EUR 8 million, driving to a net income of EUR 24 million for our Pulp business in the first semester.

Following with the cash flow generation in Slide 18, normalized free cash flow after working capital changes, maintenance CapEx, financial payments and taxes achieved EUR 43 million, with lower EBITDA being partially offset by lower financial payments when comparing to 2018.

Growth and sustainability CapEx amount to EUR 70 million related to the Pontevedra 20,000 tonnes and Navia 80,000 tonnes capacity expansion projects. Moreover, the investments for the business added up to EUR 4.5 million, which include the closing of the SPA related to the sale of 1,700 hectares of eucalyptus plantations in Portugal announced at the end of last year. All these sum up a free cash flow figure of minus EUR 18 million for the period.

Moving on to Slide 19, let me update you on the evolution of our hedging program. The only aim of our hedging operations is to mitigate currency volatility. For this reason, we hedge at least 50% of our expected revenues in dollars for a minimum period that encompasses the next 12 months to 18 months on a [rolling-on basis].

This hedging structures are reviewed on a weekly basis. Furthermore, they are thoroughly monitored and timely adjusted. Currently, we have secured an average floor of $1.19, with an average cap of $1.26 for 91% of our expected pulp revenues for the second half of this year. This program has had a negative impact of EUR 14.7 million in the first semester in our P&L. If the U.S. dollar-euro exchange rate just stays at an average of $1.13 for the second half of 2019, the total remaining impact for the year should be of approximately EUR 10 million.

Turning to Slide 20. Let's have a look at our Pulp business balance sheet. Net debt amounts to EUR 233 million. This figure represents a leverage ratio of 1.2x LTM EBITDA, which is well below our self-imposed limit of 2.5x. Increase in net debt is mainly explained by the announced CapEx linked to our strategic plan. It also includes a dividend payment of EUR 13 million that took place in April and our 2.4 million shares buyback program in May, which account for EUR 10 million.

Additionally, the application of IFRS 16 on leases in January led to recognition of a financial liability of EUR 45 million in this business. Cash in balance at the end of the period amounts to EUR 112 million, and the revolving credit facility of EUR 70 million remains fully available.

Let's now change to the Energy business in Slide #21. The energy volume sold was 8% higher than the one back in 2018. This is mainly due to the contribution of our new solar thermal plant in Puertollano acquired in December last year, also increasing our revenues per megawatt hour by 9% for the period. As a result, total revenues grew by 18%, and our EBITDA increased by 13% up to EUR 26 million.

Continuing with the Energy business, let's now analyze its P&L in Slide 22. Depreciation has been 61% higher, attaining EUR 14 million, mainly due to the previously explained CHP plant acquisition. Financial expenses accounted up to EUR 9 million, given decrease in the average gross debt balance related to the funding needs for the construction of our 2 new biomass plants in Huelva and Puertollano as well as the thermal solar plant acquisition. After minorities and taxes, our Energy business reported a net attributable profit of EUR 1.2 million. We expect this figure to significantly increase during the second half since most of the planned maintenance shutdowns, but 2 of them have already occurred in the first semester.

Let's continue to the next slide and have a look at the cash flow generation. After taking into consideration working capital changes, maintenance CapEx, interest and taxes, normalized free cash flow amounted to EUR 20 million compared to EUR 12 million in the same period last year. Higher financial payments have been more than offset by the better working capital performance. Other noncash-led expenses account for another EUR 1 million and are mainly related to the regulatory collar that we register on a monthly basis.

Expansion and sustainability CapEx in our Energy business is linked to the construction of our 2 new plants in Huelva and Puertollano, which will start its operations before year-end, contributing with approximately EUR 30 million to our EBITDA in 2020. After all these investments, free cash flow was minus EUR 65 million.

Moving on to Slide 24. Let me conclude the revision of our financial statements with the Energy business. The net debt position for the Energy business increased to EUR 231 million at the end of June, driving our financial leverage to a multiple of 3.9x EBITDA, excluding the pro forma LTM EBITDA of our 2 new biomass power plants. Taking this pro forma LTM contribution into account, the financial leverage will be reduced down to 2.6. The application of IFRS 16 in this business amounts to EUR 8.4 million and it's all related to land leases.

Cash in balance ended at EUR 93 million for the period, with a very comfortable debt structure that permits us to continue growing and achieving our strategic plan targets.

Let me please now return the lead of this presentation back to our CEO for the closing remarks.

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Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [4]

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Thank you, Alfredo. To conclude this presentation, I want to point out that we are now fully focused on the new cost-cutting program to secure the achievement of our strategic plan annual cash cost targets. Pulp prices should stabilize soon and will rebound thereafter. In the medium and long term, I continue to see a tight supply and demand balance until at least 2022. Our Renewable Energy business will start its 2 new biomass power plants in December, propelling annualized EBITDA to EUR 95 million to EUR 100 million.

We continue analyzing M&A opportunities, but the high multiple spread into renewable energy make us to be prudent. On Pulp business EBITDA -- sorry, our Pulp business EBITDA will depend on pulp prices performance during the second half of the year. We expect sales of 970,000 tonnes in 2019, with an average cash cost of EUR 385 per tonne. Full year hedging sentiments would have a negative EBITDA impact of EUR 25 million. Navia will execute in October its 80,000-tonne plant capacity expansion, which will support cost reduction and increase EBITDA in 2020.

Regarding the new 340,000-tonne swing line in Navia, we are progressing with the engineering and permit. The board will decide on its construction schedule during first quarter 2020, considering pulp market conditions and our self-imposed leverage limit of 2.5x net debt-to-EBITDA.

Thank you very much, ladies and gentlemen. Now we are happy to answer any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we have our first question from Alvaro Lenze from Alantra Equities.

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Alvaro Lenze Julia, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [2]

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I logged in a little bit late to the call, so please forgive me if this has been already answered during the presentation. But I just wanted to know, I understand that the lower production volume for your 29 (sic) [2019] guidance has a negative impact in cash cost due to lower dilution. But I was wondering whether this EUR 385 guidance for cash cost includes any impact from -- any positive impact from lower wood prices given the sharp decline in pulp prices. And secondly, why the guidance for the average FX rate for second half has increased from 1.18 to 1.19? Since I would have understood that new FX hedges would have been made at a lower bottom in terms of the gross rate between dollar and euro for the color. So if you could elaborate on that, please.

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Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [3]

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Yes. Regarding your question, well, we are forecasting full year cash cost of 355 -- EUR 385 per tonne, sorry. That means forecast for the second half of the year of EUR 378. We are forecasting some cost reduction in the second half. We are expecting EUR 4 per tonne due to a more efficient and stable operation of the Navia biomill after its annual maintenance shutdown, together with lower chemical cost and EUR 2 per tonne due -- with the contribution of the energy generation at our biomills.

We are expecting decrease of EUR 1 per tonne in the wood due to the decrease of the pulp price, and we are applying that between August and September. Overhead cost should decrease by EUR 10 per tonne in the second half of the year, 75% due to the fixed cost dilution of our higher sales and 25% due to the initial savings through our cost optimization program. We expect a further EUR 1 per tonne more reduction in cost on the wood at the end of the first half of the fourth quarter.

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Alfredo Avello De La Peña, ENCE Energía y Celulosa, S.A. - Chief Financial & Corporate Development Officer [4]

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Regarding our -- regarding the FX hedging program that you were asking about, you have to bear in mind, number one, that we are looking -- or talking about average floors and caps. But at this percent cap, percentage cover vary depending upon the fixed price. If the net price was EUR 875 during the first quarter and during the second half was EUR 836, the consequence is a percentage of U.S. dollars covered is higher, and therefore, the impact also increases. Thank you.

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Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [5]

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Yes, and I forgot to answer what you asked at the beginning. Yes. The impact of these delay in the Navia. The main impact of the delay is lower production during 2019, and therefore, lower pulp sales than originally expected. We estimate around 50,000 tonnes of production lost due to this delay, and that is in our forecast.

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Alvaro Lenze Julia, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [6]

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Okay. (inaudible) a follow-up. If you could provide any guidance going forward for 2020 and '21 after you have implemented the increase in capacity at Navia. Your guidance in terms of volumes would remain unchanged with those that you provided at Q1? Or will the delay in the expansion of the plant, will also have an impact in 2020?

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Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [7]

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No, no. The volumes for '20 and 2021 remains unchanged.

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Operator [8]

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So we have another question from Nuno Estacio from Haitong Bank.

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Nuno Estácio, Haitong Bank S.A., Research Division - Equity Research Analyst [9]

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A couple of questions, if I may. The first one is, in terms of the way that -- of your hedges is after the weak performance that they're having this year, are you in some way rethinking them? Because, for example, if this scenario of the weaker dollar, the stronger dollar, sorry, and weak pulp prices remains, you will continue to lose money here. Is there any rethinking here that could make sense or you're just fine with this?

The second point would be in terms of the cash costs. Also, taking the question of my colleague before, what has changed since November? Because there is an increase now of EUR 10 in cash costs. A part of that, I can understand, it's coming from lower dilution of fixed costs because you are selling 5% less than what you have planned in -- back in November. But wood costs are lower. So can you explain us a little bit what happened? And also related to that, in terms of cost cutting, what are the specific areas where you think you could have room to improve?

Final question. On the situation of the new investments, if considering the prices in China are well below Europe, so that we will have this pressure for the next coming months, if the scenario is below $800 per tonne in the first quarter of 2020, your plans will be to delay the investments and wait until better moment to delay them permanently, what -- can you share some insight of what could happen?

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Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [10]

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Yes, thank you very much, Nuno. Yes, regarding our hedging policy, well, it's very similar to what we did, I think, 5 years ago. We are on a moment of huge investments, which with huge commitments of cash out. And although we have the risk of not benefiting from a strong dollar, we prefer to have the certainty of having the money to pay our investments. We'll prefer to have EUR 15 million of less income because we make the wrong hedging than having a problem because the dollar goes to 1.30 and then we will have less money.

Regarding cash cost, your cash cost question, during the first half, conversion cost were mainly affected by less stable operations at our Navia biomill, also affected by the temporary reduction in its evacuation capacity from the third discharge pipeline, which was repaired, fully repaired during the maintenance shutdown in the second quarter and is going pretty well now.

Conversion cost should decrease by EUR 6 per tonne during the second half of the year. EUR 4, as I mentioned before because the more stable operation at Navia; and EUR 2, as I mentioned before, due to a greater contribution of the energy co-generation at our biomills.

Overhead. Overhead cost increase is mainly explained by the incremental resources needed to achieve 2019-2023 strategic plan and the lower dilution over less tonnes sold in the period. Overhead cost should decrease by EUR 10 per tonne, as I said before, during the second half of the year; 75% due to fixed cost dilution of a higher sales and 25% due to the initial savings from our cost optimization program. Wood cost increase in the first half is mainly due to higher transportation costs.

At the beginning of the year, as you remember, we were forced by the rainy -- extraordinary rainy rains to transport wood from the south of Spain, but we are not doing anymore, and we suffer a strike on transports, and we were obliged to increase the price of the transport by EUR 1 per tonne, which has an effect of EUR 3 per tonne in cash cost.

Then going back to your last question. Our commitment is financial discipline, and we want to grow and to diversify in this strategic plan 2019-2023. But we don't care if we do the investment for the 340,000 tonnes, swing line 1 year before or 1 year after. What is important is to keep this leverage on the Pulp business below 2.5x. Let's say that now we are in January 2020, and we have the same prices than today. With 90% of probability, I can say that we will postpone 1 year the projects, and we will continue during 2020 to work very hardly in reducing cash costs and making cash in order to reinforce the balance and being able to start the investments in 2022 and being sure that we are not going to be above 2.5x EBITDA in terms of leverage.

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Operator [11]

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So we have another question from Joao Pinto from JB Capital Markets.

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João Filipe Pinto, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Associate of Equities Research Portugal [12]

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A couple, if I may. Firstly, on discounts, the average selling discounting in 2Q was slightly higher versus the previous quarter. My question is, if you're selling lower level of volumes, what are the drivers for discounts keeping at such high levels?

And my second question also on discounts. Your new guidance for sales volumes implies an acceleration during the second half. Will this imply a more aggressive commercial effort and as a consequence, an increase of the average selling discounts in the second half?

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Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [13]

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Yes, Joao, I have to give you a lot of information. You understand why we have those higher discounts. Normally, and it's public, we have the lower discounts of the market. Our competitors from the Iberian Peninsula have normally 1 to 2 points more of discount. The competitors from the West Coast, the East Coast -- sorry, the West Coast of America have 2 points more, and the competitors from the East Coast of America, even 2 points more. What happened during the first half of the year? The market was weak, paper mills were reducing their stocks, and they bought to their cheapest suppliers, and we suffer. And then we were forced to export where we are never exporting, to Middle East and the south of the Mediterranean, where the market is more similar in terms of prices to China. And that's why the average discount is higher than we've been selling during the first half of the year. Less volumes in Europe because being the most expensive, our customers reduced past some volumes, and we sold those volumes in cheapest countries in cheapest markets.

Regarding the second half of the year, well, we are seeing even prices continue to drop in Europe, a different approach from our customers, and we are able to sell more volume in Europe. And what we cannot do is not be there, and we are going to be in this European market as we have been always. Thank you.

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Operator [14]

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So we have another -- yes, we have another question from Luis de Toledo from the BBVA.

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Luis de Toledo, BBVA Research SA - Chief Analyst of Oil and Materials [15]

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2 remaining on my side, both related with CapEx. The first one with CapEx guidance you provided on for this year. I would like to know if it fully covers all the investments in the projects that will start this year, the 2 expansion, the remaining pulp expansions, and fully covering the biomass projects.

The second question maybe regarding the future CapEx. Obviously it will depend on the decision to go ahead or not with (inaudible) this year. But if you could provide us some level of maintenance CapEx, excluding these investments. And I would also like to know if -- if there's been any new development with regards to potential diversification into the fluff segment.

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Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [16]

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Yes. Thank you very much, Luis. Well, yes, the figure we've mentioned covers all the CapEx of the year. We are confident in that. Regarding the future CapEx for the year 2020, let's say we don't decide to go, but let's say, we decide to postpone for 1 year the 340,000 tonnes project, well, we can easily say that we have something between EUR 5 million and EUR 10 million per pulp mill of redundant CapEx, and we can have EUR 15 million on the Energy business. But next year, in 2020, we have payments already committed for a level of around EUR 120 million coming from the investments done in this year 2019.

Regarding fluff, everything goes well. We've been doing all the trials with our pulp. We have good results. We received the comparization (sic) [comparison] of diapers produced with our pulp and first-class diapers as a view of other European producers very recently. And the 3 main KPIs are very good in our part. Then, in September, we will, with 90% of probabilities, commit this project because it's a lower project than the big one of the 340,000 tonnes. It's a project of roughly between EUR 30 million and EUR 40 million, and we are just now finishing the engineering, and we will know the cost in September. And in September, we will take the decision.

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Operator [17]

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So we have another question from Jaime Escribano, Banco Santander.

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Jaime Escribano, Grupo Santander, Research Division - Equity Analyst [18]

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Can you hear me?

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Alfredo Avello De La Peña, ENCE Energía y Celulosa, S.A. - Chief Financial & Corporate Development Officer [19]

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Yes, yes.

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Jaime Escribano, Grupo Santander, Research Division - Equity Analyst [20]

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Sorry, sorry for that. I was on mute. So yes, my first question is could you provide us with a normalized cash cost 2020 after the ramp-ups of Navia and Pontevedra? The second question would be regarding the Energy division which, like-for-like, if we strip out the solar plant, is down 6% in volume in Q2. I assume you are doing some maintenance, but I would like to understand if there is anything else on that front.

Finally...

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Alfredo Avello De La Peña, ENCE Energía y Celulosa, S.A. - Chief Financial & Corporate Development Officer [21]

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Sorry. Sorry, Jaime, I didn't understood what you are asking now.

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Jaime Escribano, Grupo Santander, Research Division - Equity Analyst [22]

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Yes, that. So the first question is regarding the cash cost in 2020.

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Alfredo Avello De La Peña, ENCE Energía y Celulosa, S.A. - Chief Financial & Corporate Development Officer [23]

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No, no, I understood, understood, understood. Yes. Yes. The second one.

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Jaime Escribano, Grupo Santander, Research Division - Equity Analyst [24]

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And then the other one is, is the volume of energy sold in the Energy division, if you strip out the new acquisition, if we do a like-for-like, is falling in volumes of electricity sold of 6%.

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Alfredo Avello De La Peña, ENCE Energía y Celulosa, S.A. - Chief Financial & Corporate Development Officer [25]

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Yes, understood, understood, understood.

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Jaime Escribano, Grupo Santander, Research Division - Equity Analyst [26]

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Okay. So I'm just trying to understand if you've done more maintenance unexpected or what's going on there. And the third question is regarding the cost of wood, which -- is there any possibility that you can reduce the cost of wood, bearing in mind the pulp price? Is there anything you can do on that front?

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Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [27]

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Yes. Thank you very much, Jaime. Regarding cash cost for 2020, yes, we keep in our guidance and our commitment of the level of the strategic plan, which is 372. Regarding the lower volume of energy sold in our Energy division, yes, we had a very long shutdown at our old biomass power plant in Huelva, Huelva 41, who took more than 2 months because we have almost rebuilt 80% of the boiler, in order to be able to use any kind of fuel.

I don't have the problems we had last year. This old boiler was built in order to burn wood and chips. And as you know, we are using cheaper fuels, quite different from -- they come from the agriculture by-product. And we have done an incredible modification of the boiler, and it took us more than 2 months. And on the same time, by the same reason, we have modified the roof of the boiler of Huelva 50 and it took also us close to 1 month, and that's the reason why during this quarter, we had lower sales of energy. I can tell you that since they started back, they are performing very, very well, producing each one at a level of 1 to 2-megawatt more per day.

Regarding wood, yes, as I mentioned before answering to the questions from one of your colleagues, we are applying this EUR 1 of less price due to the low price of the pulp to the wood suppliers since August 1. It would take us 2 months to do that, then we will do that in August and September. August is not an important month in Spain. The harvesters are also in holiday, then the effect on the cash cost will take a couple of months by major stocks. And 100% of this EUR 1 will be done in September. And if prices continue to go down, we will continue reducing the wood cost by the formula as we do with all the suppliers.

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Operator [28]

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So we have no further question, gentlemen. So I give you back the floor. Thank you.

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Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [29]

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Well, ladies and gentlemen, thank you very much for your time, and we'll be in contact in the first week of October again. Thank you. Bye-bye.

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Alfredo Avello De La Peña, ENCE Energía y Celulosa, S.A. - Chief Financial & Corporate Development Officer [30]

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Thank you, gentlemen.