U.S. markets open in 5 hours 8 minutes

Edited Transcript of ENC.MC earnings conference call or presentation 27-Feb-20 3:00pm GMT

Q4 2019 Ence Energia y Celulosa SA Earnings Call

Madrid Mar 21, 2020 (Thomson StreetEvents) -- Edited Transcript of ENCE Energia y Celulosa SA earnings conference call or presentation Thursday, February 27, 2020 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* 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

================================================================================

Conference Call Participants

================================================================================

* 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

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon, ladies and gentlemen. Welcome to the ENCE Fourth Quarter 2019 Results Presentation. I will now hand over to Mr. Ignacio Colmenares, Executive Chairman; and Alfredo Avello, CFO. Gentlemen, please go ahead.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Good afternoon, ladies and gentlemen. Thank you for joining ENCE's Fourth Quarter 2019 Results Conference Call. I'm here today with our CFO, Alfredo Avello; and our Head of IR, Alberto Valdes.

After the presentation, we will be pleased to answer any questions. Let's start with the main highlights of last year in Slide #4. Latest global pulp shipment statistics confirm the pulp demand improvement in the fourth quarter with a 15% pulp demand growth and a reduction of 6 days in producers inventories.

Despite the coronavirus, pulp prices seem to be finally bottoming out in the first quarter after the last 10-year minimum reached in fourth quarter 2019. Our full year 2019 results were marked by the sharp drop in pulp prices and the loss of production following the shutdown of Navia, which was necessary to increase capacity, but which was longer than expected. Navia is now running 10% above the production rate registered in the first quarter of last year. Pontevedra is also running at 3% above the same period last year as a result of the 20,000 tonne capacity expansion carried out last year. As for our renewable Energy Business, we commissioned 2 new biomass plants in February with a capacity of 96 megawatts. This will boost our renewable energy sales by more than 50% this year. The Board of Directors have decided to postpone new strategic plan investments in pulp following our policy to maintain the leverage ratio in this business at below 2.5x at average cycle prices.

We are now fully focused on the cost optimization program launched in 2019 and on deleveraging the Pulp Business.

Moving now to Slide 5. We show the evolution of global pulp shipments and pulp producers inventories during the last 5 years. Pulp demand recovery during the second half of the year, together with market-related downtimes has resulted in rapid adjustments to pulp producers inventories, which are now close to normal levels.

As you can see in Slide 6, pulp prices seem to be finally bottoming out in the first quarter this year. Pulp prices are still $180 below the last 10-year average and clearly below the cash cost of many pulp producers. Even worse, the free cash flow breakeven of most pulp producers is above current market prices. This is an unsustainable situation.

Our estimated free cash flow breakeven this year, including recurring CapEx and financial expenses will be $435 per tonne, well below the breakeven point of the industry leaders. Several pulp producers have announced price hikes effective as from February. Despite the coronavirus, I believe that several factors will support higher prices in the coming weeks. Firstly, the loss of 300,000 tonnes of market pulp as a result of labor strikes in Finland. Secondly, the loss of another 200,000 tonnes due to climate-related outages in Indonesia and Chile. Thirdly, the closure of 300,000 tonnes pulp mill in Canada. And finally, ongoing capacity conversion to dissolving pulp for up to 700,000 tonnes in 2019. In the long term, pulp demand will surely outgrow supply.

Let's now move to Slide 7, where we summarize our views on pulp supply and demand. Urban population growth and the improvement of living standards in emerging countries are the main factors driving the continued growth of market pulp demand for daily consumption in products such as tissue, hygiene, packaging and labeling. These products account for over 2/3 of market pulp demand. These mega trends are also increasingly underpinned by the attributes of pulp, which is a natural, sustainable, recyclable and biodegradable material to replace polluting materials, such as plastics and synthetic fibers.

So as you can see in this table, global pulp demand growth is set to outpace capacity additions by about 5 million tonnes over the next 4 years. This will have a significant impact on the operating rates of the global pulp industry, which should be reflected in pulp prices.

Let's continue in Slide #8 with a summary of our 2019 financial results. They were driven by the sharp drop in pulp prices and the execution of the significant investment of our strategic plan to expand the capacity and profitability of both of our businesses. These investments are already contributing significantly to the growth of our 2 businesses, even though they meant lower production and higher costs last year. The drop in the pulp price and FX settlements are the main factors that explain a 69% decrease in the EBITDA of the Pulp Business last year. On the other hand, the renewable Energy Business EBITDA improved by 15%, thanks to the contribution of the solar thermal plant at Puertollano. These increasing contributions have been partially offset by the cost of exceptional shutdowns undertaking to repower 3 biomass plants during the year, together with lower selling prices and higher biomass processing costs. As a result, our group net income decreased by 95% to $7 million. The first interim dividend of EUR 0.051 per share was paid in September. The final dividend payment against 2019 results should be expected.

I would like to mention the highlights from our sustainability plan in Slide #9. Sustainability is intrinsic to ENCE, as a leading company in bioproducts and renewable energy production. It's fully integrated into the company's vision and mission, and it's a strategic priority for us. Last year, we defined our sustainability plan, which is our road map to excel in sustainability to create value for our stakeholders and to strengthen our competitiveness. Just to give you a few examples. ENCE is at the forefront in sustainability forestry. Over 85% of our plantations are certified.

On the safety front, we completed all the capacity expansion work without a single accident. At times, this work involved over 2,000 people working simultaneously. As regards gender equally, we reached our 2019 target of reducing the gender pay gap to 0. Lastly, I would like to highlight the successful development of more sustainable products, that is to say, products with a smaller environmental footprint, such as naturcell. These are proving highly popular among our European customers. Please note that all these examples strengthen our competitiveness as well.

Turning to Slide #10, you will find the main cash flow components and our net debt position at year-end. Free cash flow before growth, CapEx and dividend payments amounted to EUR 134 million last year, while investments related to the execution of our strategic plan amounted to EUR 263 million. Installed capacity in our Pulp Business increased by 9% and by 44% in our renewable Energy Business. As a result, the group's net financial debt increased by EUR 156 million last year or by EUR 208 million when including the accounting impact of IFRS 16.

In Slide 11, we explained the evolution of our cash cost. Cash cost last year was EUR 20 per tonne higher than in the previous year. This increase was mainly due to the effect of lower dilution of fixed costs and overheads and lower production caused by the exceptional shutdowns. Our 2019 cash cost would have been EUR 387 per tonne, excluding the impact of Navia's 80,000 tonne capacity expansion, which was successfully implemented during the fourth quarter. The production rate of the biomill in the first 2 months this year is more than 10% higher than in the same period last year. Similarly, the production rate of the Pontevedra biomill in the first 2 months of this year is showing a year-on-year improvement of more than 3%. The cost optimization program launched last year should further contribute to reduce our cash cost down to an average of EUR 372 per tonne this year.

In Slide 12, I would like to comment on the commercial mix expected in 2020. We closed sales agreement for over 1.1 million tonnes for this year. Most of this will be sold in Europe, our core market, where we have strong logistics and service competitive advantages. Our commercial strategy is based on the high-quality of our pulp as well as on the flexibility of our production, which enables us to adapt to our customer needs. This year, we aim at doubling the sales of our differentiated products, which are very well valued by the market. For example, our powercell has been developed to substitute softwood pulp in paper products requiring high tensile strength. Our naturcell has been developed to substitute softwood and bleached pulp in products requiring greater capacity and predictability.

Let's move now to Slide 13, where you can see our current renewable energy asset base with an installed capacity of 316 megawatts, including the 2 new biomass plants commissioned in February. These new plants, together with the repowering of some of the former ones, should boost our renewable energy generation by more than 50% in 2020, which should be reflected in an EBITDA increase between 35% and 75% depending on electricity prices.

Let's turn to Slide #14. In order to continue growing in renewables in Spain, we have developed the pipeline of 405 megawatt, which already has access to the grid with locations already secured. I would like to stress the high-value of this pipeline.

Let's turn now to Slide 15. The Board of Directors have decided to postpone new investments related to the execution of the strategic plan in the Pulp Business in order to keep its financial leverage ratio at below 2.5x at average cycle prices. In the meantime, we will finish the engineering work and permits for a new swing line of 340,000 tonnes in Navia. Regarding the fluff project, also on the standby, we are working on the permits and engineering. In July, the Board will review its decision to postpone investments in the light of pulp market conditions and our self-imposed leverage limits.

Finally, let's now look at Pontevedra's biomill concession in Slide 16. We are now at the final stage of the proceedings, and we expect a first ruling by the National Court in the next few months. Nevertheless, let me remind you that we believe these legal proceedings could take as long as 4 years, including any appeals to the higher courts.

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

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Ignacio. Let me start with our Pulp Business results, which you will find on Slide 18.

The Pulp Business EBITDA reached EUR 75 million in 2019, mainly due to the lower average net prices, which decreased by EUR 112 per tonne compared to the previous year. The falling selling prices explains 42% of the EBITDA decline. Another 14% is explained by the negative FX settlements, which implied EUR 13 million in 2019. Remaining is explained by higher cash cost and lower pulp sales, mainly related to the sizeable capacity expansions carried out in 2019.

Other expenses not included in our cash cost amount to EUR 10 million. These include EUR 3 million related to Pontevedra Social Plan, one-off labor expenses for EUR 2 million and EUR 4 million related to working capital provisions, which should be partially reversed as pulp prices recover.

As our Chairman previously highlighted, these capacity expansions are already contributing to enhance our business operations in 2020.

Moving forward on to the Pulp Business P&L in the next slide. After EBITDA depreciation, amounted to EUR 61 million, in line with our growth CapEx program and linked to our wood share long-term contract in Iberia.

Next to the right, EUR 4 million are related to ENCE's Environmental Pact provisions in Pontevedra with no cash outflow effects, resulting in an EBIT figure of EUR 10 million for the period. Financial expenses amount to EUR 9 million and imply a 67% reduction versus 2018, benefiting from the previous year's refinancing process. Carrying on, other financial results reached EUR 1 million, thanks to the positive FX effect on receivables. Finally, taxes for the period were EUR 3 million, ending with a net profit of EUR 0.3 million.

If we continue to Slide 20, we can analyze the Pulp Business cash flow generation. Normalized free cash flow after working capital changes, maintenance CapEx, financial payments and taxes attained EUR 92 million, with a lower EBITDA, being partially offset by lower financial payments and working capital reductions, which included a high utilization of our nonrecourse factoring facilities for EUR 25 million. Growth and sustainability CapEx in 2019 added up to EUR 141 million, corresponding to the successful capacity expansions implemented in our biomills. The other payments column for an amount of EUR 26 million included a EUR 35 million equity contribution to the renewable Energy Business in order to finalize the construction of our 2 new biomass plants being commissioned during the first quarter of '20.

Finally, divestments in the business accounted for EUR 5 million and include the closing of a transaction related with a sale of certain eucalyptus plantations in Portugal. All mentioned, our ending free cash flow figure has been highly driven by the extraordinary expansion CapEx effort made back in 2019.

Moving on to Slide 21. Let me update you on our ongoing hedging program. Again, the only aim of our hedging program is to mitigate currency volatility in the Pulp Business. In periods in which we were facing large CapEx commitments, the company was hedging close to 80% of its U.S. dollar inflows. Now that we have postponed certain strategic decisions, we're coming back to our standard policy, hedging up to 50% of our pulp sales using average cycle prices and limiting the period to 12 months. This program had a negative impact during 2019 of EUR 30 million compared to the positive effect of EUR 4 million in the previous year. Just for your information, if the U.S. dollar exchange rate stays at an average of $1.10 in 2020, the full year impact in our P&L should be of approximately EUR 15 million.

If we continue to Slide 22, you will find our Pulp Business balance sheet. I want to emphasize that this business enjoys long-term maturities with ample liquidity and no maintenance covenants. Cash imbalance at the end of the year amounted to EUR 106 million, remaining fully available the revolving credit facility for EUR 70 million. Net debt amounted to EUR 306 million at year-end. This figure represents a leverage ratio of 4x over LTM EBITDA. However, it comes down to 2x when considering average cycle prices and the contribution of the 100,000 tonnes capacity increase executed back in 2019. On a like-for-like basis, screen IFRS 16 effect for EUR 44 million, net debt increased by EUR 114 million in 2019 after strategic plan investments of EUR 141 million. 2020 will be a year in which the company will be strongly focused in cost-cutting and CapEx optimization in order to quickly recoup our usual low leverage level.

Let's now focus on Energy Business in Slide 23. Energy volume was sold was 13% higher than the previous year. Also revenue per megawatt was 7% higher, thanks to the contribution of our CSP plant in Puertollano, acquired back in December 2018. As a result, total revenues grew by 21% and our EBITDA increased by 14%, up to EUR 52 million. 2019 has been a transitional year for the Energy Business, in which we have made an extraordinary investment effort, not only in the 2 new plants, but also in the repowering of 3 of our previous ones. These efforts should be then compensated during 2020. Increasing EBITDA contribution from the new CSP plant partially offset by the several repowering actions, together with higher biomass processing costs and a lower average selling price. Finally, I would like to highlight that this revenue and EBITDA figures prudently include a provision related to the regulatory collar for EUR 7 million in 2019 on top of the EUR 10 million provision back in 2018, adding stability to our future P&L.

In the Slide 24, you can find the breakdown of our renewable Energy Business P&L. Depreciation for the period was 63% higher, attaining EUR 29 million, mainly due to the Puertollano CSP plant acquisition. Financial expenses added up to EUR 14 million as a result of the debt level increase also related to such acquisition. After minorities and taxes, our Energy Business reported a net attributable profit of EUR 5 million in 2019.

Let's follow with Slide #25, with our cash flow generation. After taking into consideration changes in working capital, maintenance CapEx, interest and taxes, normalized free cash flow amounted to EUR 46 million. Working capital improvement of EUR 16 million includes utilization of our nonrecourse factoring facilities for an amount of EUR 26 million at year-end. Strategic plan CapEx of EUR 122 million in our Energy Business is the consequence of the contribution of our 2 new biomass plants, which will contribute to boost our renewable energy generation by more than 50% in 2020. Again, as in our Pulp Business, energy free cash flow figure was heavily impacted by all the CapEx efforts made in 2019.

Let me conclude this review on Slide 26 with our energy business debt situation. This business also enjoys very long-term maturities and ample liquidity. Cash in balance at year-end amounted to EUR 121 million. Net debt at the end of the period increased to EUR 207 million, driving our financial leverage to a multiple of 4x LTM EBITDA. Let me reinforce that this figure includes all the CapEx invested back in 2019 for the construction of our 2 new biomass plants but not their EBITDA contribution. Therefore, once it's included, it will rapidly come down to approximately 2.5x in the fourth quarter. The application of IFRS 16 in this business led to a recognition of financial liabilities of EUR 9 million mostly related to land leases.

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

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Alfredo. 2019 has been a transitional year for ENCE, following the large and significant investments, which we made to increase our capacity in both pulp and renewable energy. These investments are already making a considerable contribution to the growth, competitiveness and profitability of both businesses this year. In the Pulp Business, we aim to increase pulp sales by 17%, up to 1,060,000 tonnes. We have already closed sales contracts for this year, giving a much higher weighting to the European market and doubling the contribution of our new products. Higher sales should also help to reduce our cash costs down to EUR 372 per tonne at an average for this year. After 2 years of intensive CapEx, we are now fully focused on cost-cutting and deleveraging. Pulp prices seem to be finally bottoming out underpinned by strong demand and lower producers inventories despite coronavirus. Pulp demand is set to outgrow pulp supply for the next few years.

In the Energy Business, we aim to increase our renewable generation this year by over 50%. Thanks to the contribution of the 2 new biomass plants commissioned in February. In order to continue growth in this business, we have developed a very valuable pipeline of 405 megawatt with grid access and locations already secured. Thank you very much, ladies and gentlemen. We are happy to answer any questions you may have.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question comes from João Pinto from JB Capital.

--------------------------------------------------------------------------------

João Filipe Pinto, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Associate of Equities Research Portugal [2]

--------------------------------------------------------------------------------

Some questions, if I may. First one on energy. Can you give us some color on how much EBITDA you expect to reach in 2020 from Energy? Also do you have any visibility on the potential impact from the revision of remuneration parameters? Regarding pulp, investments have been postponed. Can we expect them for 2021? Or is it reasonable to think that they could be delayed for a longer period of time? Finally, regarding the coronavirus impact, do you see any problems import in China? Are you concerned with the impact that it might have on inventories in the short term?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you very much. It was one question by one question. That's good starting with 4 questions at once. Your first quarter question, João, regarding the EBITDA guidance in energy. As you know, I think that since summer last year, we don't give any more EBITDA guidance. What I can tell you in energy is that we are planning energy sales of 1.6 gigawatts, 53% more than last year. We are planning the cash cost of our megawatt hour of EUR 80, which is 20% less than 2019. I would like to remember you that we have an annual remuneration for investments, what is called (inaudible) in Spanish, of EUR 63 million per year. And to any price of electricity you put on the model, you have to deduct 7% of electricity generation tax. When you have all the data to construct our EBITDA, you will have to put the price of the electricity. Regarding what is happening with your regulation, I would like to point out that our electricity system has a stable and predictable regulation. The adjustment to gas cogeneration remuneration proposed by the regulator doesn't affect our cogeneration facilities in the Pulp Business, as we use lignin as fuel, as you know, not gas. Secondly, in our renewable energy business, we only have a small gas cogeneration plant of 12 megawatt within our 27 power complex in Cordoba. The estimated impact in EBITDA is just EUR 0.5 million for this year.

Regarding your question and our renewable energy plans, remember that the annual return on investment of 7.4% will remain unchanged for the next 12 years according to the royal decree approved in November 2019. In our case, this is equivalent to EUR 63 million per year. On top of this, we will continue selling our energy at its regulated price of around EUR 100 per megawatt hour. The maximum deviation that we could face is plus/minus EUR 6 per megawatt. That is what we called the regulatory collar. Please bear in mind that so far in this first quarter, our energy selling prices is at the floor of this minus EUR 6 megawatt hour regulatory collar according to the last proposal made by the regulator. And remember that according to this regulatory collar, we have prudently provisioned EUR 6.7 million in 2019 on top of the EUR 10.5 million provision back in 2018, adding stability to our future P&L.

Going to your third question, pulp CapEx in 2021, as I said before, in July, we will study again the case. And according to the pulp prices and the strength of our balance sheet, we will decide to go on to postpone for 6 months more. Now it's difficult for me to give you this information. I think that July will be too early. We would need to have an extraordinary income on the company to strengthen so quickly the balance sheet or we will need very high prices of pulp for the next months, which I don't see. I see prices going up slightly, but not very quickly. Then my vision is that most probably in July, we will continue maintaining the decision, and we will review that again by December. But in any case, we are working very hard on all the permits and all the engineering in the EPC contract in order that the same day that we say go on, we can fully go on.

And going back to your last question, it is true that coronavirus has created some uncertainty during the last weeks. Although according to our information, market activity and logistics continue. Real data isn't available just for demand and production during the last weeks in China. In Europe, we see a normal market activity so far, even in Italy. Internally, we have prudently improved our safety protocols, reinforcing hygienic measures as well as avoiding visits to our premises and restricting travels of our staff. Thank you very much, João.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

The next question comes from Jaime Escribano from Banco Santander.

--------------------------------------------------------------------------------

Jaime Escribano, Grupo Santander, Research Division - Equity Analyst [5]

--------------------------------------------------------------------------------

So 2 questions from my side. Regarding the Energy Business, I understand from your presentation that the volumes grow something like -- in the quarter, I mean something like 30%, and the net selling price decreases by 3%. But then in terms of EBITDA, there is a big decline year-on-year. And you mentioned that this is due to 30% lower pool prices. I just wanted to better understand if you can maybe explain how this works. And my other question is regarding the CapEx 2020, if you can give us a guidance of maintenance and growth CapEx. And I know that you have halted all the strategic plan, but I maybe refer more to maybe potential payments that you still need to do from the recent operation of the new energy plant and recent upgrade in Pontevedra and Navia.

--------------------------------------------------------------------------------

Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [6]

--------------------------------------------------------------------------------

Jaime, we'll start by the last question regarding the CapEx. Because I didn't understand very well your first question, you were talking about the Energy Business. You were talking about -- something about 30% and the price decline, but I didn't catch the question. And then you mix with the pulp price. And then I was totally lost.

Then let's start by the CapEx, and you ask again the first question when I finish, if you don't mind.

As I mentioned before, our strategic plan included stabilized investments in order to be able to adapt it to changing pulp market conditions while keeping net debt-to-EBITDA ratio below 2.5x at average cycle prices. That is not a surprise. When we launched the strategic plan, we always said that it was phased. And the first criteria was to be absolutely inflexible on the financial strength of the company. And if you remember, 3 years ago, we also postponed investments on a situation like this one. And as soon as prices went up again, we restarted the investments. That is a cyclical business, and you have to manage that like that. The first 2 projects were successfully implemented in 2019. And as you know, we have decided to postpone the next 2 projects, fluff and dissolving pulp. 2020 CapEx corresponds mainly to carryover payments of the growth and sustainability investments implemented in 2019. Carryover payments in the pulp business amount to EUR 100 million in 2020, excluding $15 million of maintenance CapEx. Carryover payments in renewable energy business amount to EUR 40 million, excluding EUR 10 million of maintenance CapEx.

Can you ask again your first question, please?

--------------------------------------------------------------------------------

Jaime Escribano, Grupo Santander, Research Division - Equity Analyst [7]

--------------------------------------------------------------------------------

Yes. Sorry because I didn't have in front of me the model. Yes. So in Q4, Energy Business, electricity volumes sold plus 23% -- plus 26.3% year-on-year growth in volume. Electricity selling price minus 3% year-on-year. So this makes energy division growing in Q4 at 27% year-on-year. However, the EBITDA of the energy division declined by 19%, even though, the sales were growing at 27%. And from your presentation, you explained that this is because the pool price, the electricity, the pool price...

--------------------------------------------------------------------------------

Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [8]

--------------------------------------------------------------------------------

Oh, the pool price. Okay. I understand pulp, sorry.

--------------------------------------------------------------------------------

Jaime Escribano, Grupo Santander, Research Division - Equity Analyst [9]

--------------------------------------------------------------------------------

Goes down 30%. So I just want to understand the mechanics why even growing, say, energy sales at 27%, the energy EBITDA has declined by 19%.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. I will respond to this question by memory. If I make any mistake or any case, we will put on the website the correct answer with all the details. The price of electricity was very high last year. And by November, the prices of electricity started to go down. Then we had very low prices of energy in December. And that is why the average net price of the energy sold over the last quarter was very low. And that's the main reason of this decline in the EBITDA. And the collar was playing adversely on the fourth quarter last year, if we compare that with the same quarter the previous year. Because the -- well, I think that you have plus 20% of megawatts sold, you have more revenues, but the net price is less and then you have less EBITDA per megawatt hour, that's automatic. And I would like to insist that on the fourth quarter, the collar was negative in EUR 4 million. Alfred?

--------------------------------------------------------------------------------

Alfredo Avello De La Peña, ENCE Energía y Celulosa, S.A. - Chief Financial & Corporate Development Officer [11]

--------------------------------------------------------------------------------

Sorry, I don't know if you remember, we adjust on the collars on a monthly basis. In recent year time, we are delivering any revenues coming from the energy -- on the pulp or on the, well, the energy division, we are adjusting it for the regulatory collar, whether for good or for bad. And that is not the value you need to take into account. It is not just the pool price that you will have in the market, but the average pool price that you will have on the year. Okay?

--------------------------------------------------------------------------------

Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [12]

--------------------------------------------------------------------------------

I think it's much more clear if we answer that with the paper really because it's very technical.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

The next question comes from Alvaro Lenze from Alantra Equities.

--------------------------------------------------------------------------------

Alvaro Lenze Julia, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [14]

--------------------------------------------------------------------------------

I have a couple of questions. First of all, if you could provide some breakdown on the EUR 15 per tonne reduction in estimated cash cost for 2020. I wanted to know how much of this is lower oil prices and how much could come from fixed cost dilution due to higher volumes. Second, just a follow-up on the question that you answered to Jaime. You said that estimated maintenance CapEx for Pulp Business in 2020 is going to be EUR 15 million, which seems low when compared to the last 5 years' average. And lastly, if you could provide some update on the potential time line of a potential sale of a minority stake in the Energy Business.

--------------------------------------------------------------------------------

Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [15]

--------------------------------------------------------------------------------

Thank you, Alvaro. Then let's start with the first question, the reduction on the cash cost in 2020. Then our final cash cost in 2019 has been EUR 397, and we want to be on the full year in EUR 372. And as you know, we have a target for first half of EUR 380, and the target for the second half of EUR 365, then answering to the average to EUR 372, now maybe going step by step, and -- with your question. Wood was last year EUR 209 per tonne. We expect wood to be EUR 2 less on the first half of the year, and we expect to reduce EUR 2 further in the second half of the year. On the average, wood is going to be EUR 3 less than the previous year from EUR 209 to EUR 206. We expect a high production and sales volume in 2020, in line with this 100,000 tonnes capacity expansion successfully implemented. And that will result in a higher dilution cost -- sorry, higher dilution of fixed conversion cost of EUR 17, [1.7] on the year. We compare the full EUR 219 with the average EUR 220.

I confirm the figure I gave you. Recurring CapEx is going to be EUR 15 million. Well, we have almost no recurring CapEx in the forestry division, which is included in the Pulp Business. This year is a tough year. We have, as I mentioned before, EUR 100 million of carryover from next year. And that's why we have fixed low recurring CapEx.

And you have to remember that the annual shutdown of each mill is an important part of the recurring CapEx, and we have stopped Navia during the full month in October last year. And we were not able to start a full capacity till the end of November. Then Navia mill is like a virgin today. We don't have to spend any more money on several months. And going to your last question, well, I confirm what I said on the last meeting, there isn't anything new regarding the energy on top of what I said to you before. Thank you.

--------------------------------------------------------------------------------

Alvaro Lenze Julia, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [16]

--------------------------------------------------------------------------------

Okay. If I may follow-up on the reduction of wood costs. EUR 2 or EUR 3 in average for the full year seems a little bit low considering the tranches in which you pass cost declines to providers. So if I'm correct, if I read that correctly, for every $50 reduction in pulp prices, you would reduce wood prices by 1, which -- times 3, which is the conversion rate for the wood cost. This would imply much lower cash costs stemming from wood in 2020. Or I don't know if I'm missing anything or if you have changed your purchase policies?

--------------------------------------------------------------------------------

Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [17]

--------------------------------------------------------------------------------

No, we haven't changed anything. But today, what I see is EUR 2 in the first half of the year, and we are planning EUR 2 further more on the second half of the year. And let's see if we can do more, but that's what I think we can do.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

(Operator Instructions) Next question comes from (inaudible) from Santa Lucia.

--------------------------------------------------------------------------------

Unidentified Analyst, [19]

--------------------------------------------------------------------------------

Ignacio, Alfredo, Alberto, I have a little question that I can tie with the maintenance CapEx. When you have more visibility on pulp prices, if your stock keeps at current prices, would buyback be on the table since what returning EBITDA versus say, organic CapEx or buyback is not on the table?

--------------------------------------------------------------------------------

Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [20]

--------------------------------------------------------------------------------

Sorry, but I don't understand what do you mean by buyback?

--------------------------------------------------------------------------------

Unidentified Analyst, [21]

--------------------------------------------------------------------------------

By buying back shares and amortization of those shares. Because I think you said in the past, you're looking for a shorter stake of the energy business. And when you take that into account if pulp prices start to recoup a little bit, what the cash this business can generate, maybe it's more accretive to buy your own shares than to put it in organic CapEx in pulp.

--------------------------------------------------------------------------------

Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [22]

--------------------------------------------------------------------------------

Well, we haven't decided anything regarding that, no. It is not in our program for the year.

--------------------------------------------------------------------------------

Unidentified Analyst, [23]

--------------------------------------------------------------------------------

So it's -- you don't analyze those type of things in when you...

--------------------------------------------------------------------------------

Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [24]

--------------------------------------------------------------------------------

No, no, we do analyze, but we have decided to do -- don't do that now. The main reason being that I insist that's a cyclical business. And today, we see that we have a very good command order. We are seeing that in January and February, absolutely different to what it was last year. You know that on the market, the discount has declined a lot. And we have the same -- we have in January and February, the same discount that in the fourth quarter last year because we have an excellent order book, concentrated in Europe, being good customers and good quality of products. I see that prices are starting to go up. I see our both mills are running perfectly in January and February, but we have to be extremely prudent. And we have this coronavirus. Today, we don't see a major impact on the market. But we have an uncertainty, and we have to be prudent. And today, we have to reserve the cash and when we will have more visibility, we could take other decisions.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

(Operator Instructions)

--------------------------------------------------------------------------------

Ignacio de Colmenares y Brunet, ENCE Energía y Celulosa, S.A. - Vice-Chairman, CEO & MD [26]

--------------------------------------------------------------------------------

Well, if there is no more questions, I think the best is to finish now. I hope to meet you again in a couple of months with the results of the first quarter. Thank you very much.