Delivering value
Delivering commitments
June 2017
Disclaimer
The information contained in this presentation has been prepared by Ence Energía y Celulosa, S.A. (hereinafter, "Ence").
This presentation includes data relating to future forecasts. Any data included in this presentation which differ from other data based on historical information, including, in a merely expository manner, those which refer to the financial situation of Ence, its business strategy, estimated investments, management plans, and objectives related to future operations, as well as those which include the words "anticipate", "believe", "estimate", "consider", "expect" and other similar expressions, are data related to future situations and therefore have various inherent risks, both known and unknown, and possess an element of uncertainty, which can lead to the situation and results both of Ence and its sector differing significantly from those expressly or implicitly noted in said data relating to future forecasts.
The aforementioned data relating to future forecasts are based on numerous assumptions regarding the current and future business strategy of Ence and the environment in which it expects to be situated in the future. There is a series of important factors which could cause the situation and results of Ence to differ significantly from what is expounded in the data relating to future forecasts, including fluctuation in the price of wood pulp or wood, seasonal variations in business, regulatory changes to the electricity sector, fluctuation in exchange rates, financial risks, strikes or other kinds of action carried out by the employees of Ence, competition and environmental risks, as well as any other factors described in the document. The data relating to future forecasts solely refer to the date of this presentation without Ence being under any obligation to update or revise any of said data, any of the expectations of Ence, any modification to the conditions or circumstances on which the related data are based, or any other information or data included in this presentation.
The information contained in this document has not been verified by independent experts and, therefore, Ence neither implicitly nor explicitly gives any guarantee on the impartiality, precision, completeness or accuracy of the information, opinions and statements expressed herein.
This document does not constitute an offer or invitation to acquire or subscribe to shares, in accordance with the provisions of Law 24/1998, of 28 July, on the Securities Market and its regulations. Furthermore, this document does not constitute a purchase, sale or swap offer, nor a request for a purchase, sale or swap offer for securities, or a request for any vote or approval in any other jurisdiction.
3
Ence at a glance A hidden value
Leading European eucalyptus pulp (BHKP) producer with close to 1.1 Mn tons of
installed capacity and largest Spanish renewable energy generator with agroforestry
biomass (143 Mw)
Superior eucalyptus pulp demand growth fuelled by tissue consumption mega-trend
(7.6% CAGR 2006-2016)
Strong competitive position in Europe: highly efficient facilities, just in time service and
differentiated offering
Solid earnings secured by stable regulation in the biomass Energy business
Powerful and recurrent cash flow generation: €109 Mn Recurrent Free Cash Flow in
2016 despite lower pulp prices since 2009
Solid balance sheet and strong liquidity: 1.6 Net Debt / EBITDA and €234 Mn cash
available at 31 March 2017
Clear Strategic Plan 2016-2020 on track aiming at doubling EBITDA and increasing its
resiliency through investments in both the Pulp and Energy businesses
Supportive shareholder base with strong entrepreneurial track record
27,5%
6,3%
5,6%
5,7%0,5%
54,4%
Retos Operativos XXI, S.L. Asúa Inversiones S.L.
Alcor Holding, S.A. Fuente Salada S.L.
Treasury Stock Free float
4
Supportive shareholder base With a strong entrepreneurial track record
Shareholding structure (31/05/2017) Board of directors
Juan Luis Arregui (Retos Operativos XXI), Chairman of the Board, founder of Gamesa
and former Vice Chairman of Iberdrola
Mr. Ignacio de Colmenares
CEO y Vice Chairman
Mr. Juan Luis Arregui
Chairman
Mr. Oscar Arregui
Mr. Javier Echenique
Mr. Pascual Fernández
Mr . Luis Lada
Mr . Jose Carlos del
Álamo
Mr. Fernando Abril-
Martorell
Mrs. Isabel Tocino
Mr. José Guillermo Zubía
Mr . Pedro Barato
Mr. Victor Urrutia
Mr. Jose Ignacio Comenge
5
Pulp & Energy Two complementary and isolated businesses
2016 EBITDA breakdown
• Leading European producer with c. 1.1
Mn tons of installed capacity
• Cyclical business largely dependent on
USD based global pulp prices
• Based on Ence`s wood supply
management expertise
• Strong operating know –how and efficient
facilities with c.60 years experience
• Maximum leverage policy 2.5x Net Debt /
EBITDA, long term capital market financing
and high liquidity
75% 25%
• Largest operator in Spain with 143 MW
of installed capacity
• Regulated business with high visibility and
attractive returns
• Based on Ence`s agroforestry biomass
supply management expertise
• Strong operating know –how and efficient
facilities with c.20 years experience
• Maximum leverage policy 5.0x Net Debt /
EBITDA, non recourse bank project
financing and sufficient liquidity
Pontevedra
Navia
Huelva
Mérida
Facilities Location
Eucalyptus pulp production Biomass energy generation
Ciudad Real
Jaen
Taylor made management policy per business and ring fenced financing
6
Chemical Market Pulp industry 59 million tons in 2016
Ence is the leading European hardwood pulp producer with c. 1.1 Mn tons of installed capacity,
competing in the global Chemical Market Pulp industry
Total Paper Grade
fiber consumption
414 Mn Tons
Fiber Source Pulp Processing Integrated vs.
Market Pulp
Pulp Type
Recycled
fiber:
244 Mnt
Virgin Pulp:
170 Mnt Chemical:
142 Mnt
Mechanical:
28 Mnt
Source: RISI – Jan 2017; PPPC G-100 Dic 2016
Market:
59 Mnt
Integrated:
83 Mnt Softwood and
other:
27 Mnt
32 Mnt Hardwood
Chemical Market Pulp
industry
7
Hardwood pulp vs. Softwood pulp Eucalyptus pulp is cheaper to produce than softwood pulp
Most hardwood pulp comes from eucalyptus wood
Best suited for paper products with high smoothness,
opacity and uniformity (i.e. tissue)
Softwood pulp (BSKP)
Eucalyptus only grows under very specific climate conditions, usually in warm subtropical regions.
More abundant pines are better adapted to cold climates
Low production cost High production cost
Substitutive
materials
80%
of final paper
products allow
for different
proportions of
both pulp
types
Hardwood pulp (BHKP)
Forestry yield: 12 – 18 m3 / ha / year
Harvesting cycle: 12 - 15 years
Industrial yield: 2.6 – 3.0 m3 / ton of pulp
Iberian Globulus
Most softwood pulp comes from pine wood
Best suited for paper requiring higher durability and
strength (i.e. printing & writing)
Forestry yield: 2 – 4 m3 / ha / year
Harvesting cycle: 50 - 70 years
Industrial yield: 4.8 - 5.2 m3 / ton of pulp
Nordic Scots pines
8
Tight global Market Pulp supply and demand balance Global demand reached 94% of capacity in 2016
China, Europe and North America are net importers of hardwood pulp (BHKP)
2
20
3
Demand Supply
3
Rest of the World
6 7
7 3
Demand Supply
13 10
Softwood pulp (BSKP)
Hardwood pulp (BHKP)
Source: RISI – Jan 2017; Hawkins Wright - Dec 2016; PPPC G-100 - Dic 2016
China
11
8
Demand
19
Western Europe
9 4
7
8
Supply
12
South America
23
4 2
4 14
Demand Supply
North America
8
16
(Mn Tons)
Demand
16
Supply
2
9
Superior demand growth for Eucalyptus pulp Which is leading global market pulp demand growth
Last 10 years total market pulp demand evolution
0
5
10
15
20
25
30
35
40
45
50
55
60
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
BSKP: + 1.3% CAGR
The more efficient and best suited eucalyptus pulp is gaining market share against other hardwood and softwood pulp,
following a demand increase of over 10 Mn tons in the last 10 years
Source: PPPC G-100
BHKP: + 3.6% CAGR
+ 2.1% CAGR Mn tons
Last 10 years hardwood pulp demand evolution
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
BEKP: + 7.6% CAGR
Source: PPPC G-100
Mn tons
Other BHKP: - 2.4% CAGR Other : - 4.9% CAGR
10
Fuelled by tissue consumption mega-trend Linked to increasing living standards in developing countries
24
15 15
11
6 5 5
3 1 1 0,1
NorthAmerica
WesternEurope
Japan Oceania Latam EasternEurope
China MiddleEast
OtherAsia
Africa India
Tissue paper per-capita consumption (kg/year)
85% of world population 15%
59% of Ence pulp sales are oriented to the fastest
growing tissue market, which has increased by
c.10 Mn tons in the last 10 years
3,0%
2,5%
1,5%
-1,4%
-4,6%
-5,0% -3,0% -1,0% 1,0% 3,0%
End global paper market demand growth
(CAGR 2005 – 2015)
Tissue
Specialties
Packaging
P&W
Newsprint
Ence 2016 pulp sales by end paper market
Packaging: 2%
Tissue: 59% Specialties: 31%
P&W: 8%
Source: RISI
Source: RISI
11
High demand growth requires pulp capacity additions Hardwood pulp demand average growth of 1.4 Mn tons per year
Tight global supply and demand balance should be maintained in the coming years
Eucalyptus pulp annual demand and supply increase
(2013 – 2016)
Source: Ence estimates Source: PPPC G-100; PPPC SRN Feb 2017
1,3
1,6
1,1
1,7
1,4
0,8
1,3 1,3 1,3 1,2
0,0
0,5
1,0
1,5
2,0
2,5
3,0
2013 2014 2015 2016 Average
Demand Supply
Mn Tons
Expected hardwood pulp annual supply and demand increase
(2017 – 2019)
1,4 1,5
1,4 1,4
0,6
1,2
0,6 0,8
0,0
0,5
1,0
1,5
2,0
2,5
3,0
2017E 2018E 2019E Average
Demand Supply
Mn Tons
0
100
200
300
400
500
600
700
800
900
1000
Tight market supports strong pulp prices Pulp prices recovery to continue on favorable supply and demand balance
12
European Pulp Prices
BHKP ($/t) BSKP ($/t)
2012 2013 2014 2015 2016
Net BHKP Prices China vs. Europe
603 633
Europe China
USD / t
Ence has announced a list price
increase of +40 $/t, up to 850 $/t, as
from June
Price increase of +20 $/t in January
Price increase of +35 $/t in February
Price increase of +30 $/t in March
Price increase of +30 $/t in Abril
Price increase of +40 $/t in May
+ 30 $/t
Prices as of 20 June 2017
Net BHKP prices in China still 30 $/t above those in Europe
13
Favorable hardwood supply and demand balance expected Long term visibility on new pulp projects
Any new greenfield pulp project takes from 3 to 6 years to be completed
Expected Annual Increase for Global Market Hardwood Supply and Demand (Mn t)
APP OKI project ramp up is proving to be more
gradual than analyst expectations
Capacity conversions to other pulp grades
accelerating
Recurrent unexpected downtime / closures and
conversions
BHKP prices in Europe have recovered over
$160/t since the beginning of the year
Main BHKP producers have announced additional
price increases up to 850 - 860 $/t in Europe as
from June
Mn t 2017 2018 2019 2017 - 2019
ESTIMATED BHKP DEMAND INCREASE 1,4 1,5 1,4 4,3
China 1,0 1,0 1,0 3,0
Other Asia / Africa / Oceania / Middle East 0,1 0,2 0,2 0,5
Europe 0,1 0,1 0,1 0,3
North America 0,1 0,1 0,0 0,2
Latin America 0,1 0,1 0,1 0,3
ESTIMATED BHKP SUPPLY INCREASE 0,6 1,2 0,6 2,4
APP (OKI) 0,8 1,0 0,4 2,2
FIBRIA (TRES LAGOAS) 0,4 1,3 0,2 1,9
KLABIN (PUMA) 0,5 0,5
ENCE (NAVIA & PONTEVEDRA) 0,1 0,1
SUZANO (IMPERATRIZ, MUCURI & MARANHAO) -0,1 0,2 0,1
METSA (AANEKOSKI) 0,1 0,1
UPM (KYMI) 0,1 0,1
TAIWAN P&P and RFP (Calhoun) -0,1 -0,1
APRIL (RIZHAO) -0,4 -0,3 -0,7
APRIL (KERINCI) -0,3 -0,4 -0,7
OTHER UNEXPECTED DOWNTIME / CLOSURES
AND CONVERSIONS-0,5 -0,3 -0,3 -1,1
BALANCE 0,8 0,3 0,8 1,9
14
Softwood supply and demand will also remain balanced Long term visibility on new pulp projects
Any new greenfield pulp project takes from 3 to 6 years to be completed
Expected Annual Increase for Global Market Softwood Supply and Demand (Mn t)
BSKP supply and demand will also remain
balanced for the coming years
BSKP prices in Europe have recovered close to
$70/t since the beginning of the year
Main BSKP producers have announced additional
price increases up to 910 $/t in Europe as from
June
Mn t 2017 2018 2019 2017 - 2019
ESTIMATED BSKP DEMAND INCREASE 0,5 0,4 0,5 1,4
China 0,4 0,3 0,4 1,1
Other Asia / Africa / Oceania / Middle East 0,1 0,1 0,1 0,3
Europe 0,0 0,0 0,0 0,0
North America 0,0 0,0 0,0 0,0
Latin America 0,0 0,0 0,0 0,0
ESTIMATED BSKP SUPPLY INCREASE 0,3 0,4 0,2 0,9
METSA (AANEKOSKI) 0,1 0,6 0,7
SCA (OSTRAND) 0,1 0,4 0,5
SVETLOGORSKY (BELARUS) 0,2 0,1 0,3
SODRA (VARO) 0,2 0,2
DOMTAR (ASHDOWN + PLYMUTH) 0,1 0,1
IP (RIEGELWOOD) 0,1 0,1
CLEARWATER (LEWINSTON) 0,1 0,1
KLABIN (PUMA) 0,1 -0,1 0,0
STORA (SKUTSKAR) -0,1 -0,1 -0,2OTHER UNEXPECTED DOWNTIME / CLOSURES
AND CONVERSIONS -0,3 -0,3 -0,3 -0,9
BALANCE 0,2 0,0 0,3 0,5
15
New capacity managed by incumbents In a concentrated supply market
Softwood pulp (BSKP) global market share
Top 10 softwood pulp producers account for 65% of
global BSKP market share
Hardwood pulp (BHKP) global market share
Source: RISI 2016 Source: RISI 2016
International Paper:
12%
Koch Ind.: 9%
Arauco: 7%
Paper
Excellence: 6% Sodra: 5%
All other: 36% Fibria +
Klabin: 19%
APRIL: 11%
Suzano: 10%
CMPC: 9%
Arauco: 6% El dorado:
5%
All other: 29%
UPM: 5%
Cenibra: 3%
Ence: 3%
Mercer: 6%
Ilim: 5%
Stora: 4%
Top 10 hardwood pulp producers account for 74% of
global BHKP market share
Altri: 3%
Domtar: 5%
Metsa: 6%
16
Iberian pulp is the most competitive in Europe
Narrowing the gap with Latams and widening it with Nordics
-
50
100
150
200
250
300
350
400
450
500
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
80% of softwood pulp demand could be substituted with hardwood pulp
Estimated delivered cash cost
for the European pulp market
€ / Ton
Mn Tons
Source: Hawkins Wright (April 2017)
At current exchange rates:
• 1,1 $/€
• 3,1 BRL/$
Western European Pulp Market:
16 Mn Tons
BSKP
BHKP
Source: RISI, EPIS, Ence
Demand Source
7
9
7
2
5
300
340 365
404
2
LATAM
(BHKP)
IBERIA
(BHKP)
NORTHERN.EUR
(BSKP)
NORTHERN.EUR
(BHKP)
Mn Tons
17
Ence has well located and highly efficient facilities
Focused on cash cost reduction
Ence will become the most competitive pulp producer in Europe by 2020
Ence Current and Expected Cash Cost Reduction
2014a 2015a 2016a 1T17a 2017e 2018e 2019e 2020e
405.6
359.0 356.7
339 337 329
325
STRATEGIC PLAN
343.6
18
Just in time service and differentiated offering Ence key competitive advantages in the Pulp business
Just in time service
High client diversification
> 100 customers
JIT short shipping
deliveries (5-7 days)
Smaller coastal vessels
Tailor made products
TCF + ECF qualities
7 de-commoditized products
High White
High Porosity
Low Fibre Bundles
High Softness High Bulk
Low Energy Refining
High Stability
Premium
Pulp
50 days / 36€/t
JIT deliveries and de-commoditized products strengthen Ence's positioning among its diversified client base
19
Ence is also the largest agroforestry biomass player in Spain With 143 MW of installed capacity and another 40 MW under construction
Ciudad Real 16 Mw
Fuel: agro waste
Jaen 16 Mw
Fuel: agro waste
Huelva 40 Mw PROJECT
Fuel: agro waste
EBITDA: €11Mn
Mérida 20 Mw
Fuel: agroforestry waste
Huelva 50 Mw
Fuel: agroforestry waste
Huelva 41 Mw
Fuel: agroforestry waste Start up: 01/2020
Capex: €87 Mn
Financing: 60%
Ence´s Energy business strengthens its resilient business model
20
Energy business earnings secured by stable regulation Feed in tariffs to cover all the operating costs of a standard plant
48.1 46.6 47.0
37.6 36.5 36.8
30
35
40
45
50
55
60
2017 2018 2019
Average Cap Average Floor
54.2 55.5 55.7
43.5 43.7 42.2
50.3
38.2
30
35
40
45
50
55
60
2014 2015 2016
Average Cap Average Floor Real pool price
€ / Mwh € / Mwh
Regulated pool price collar 2014-2016 Regulated pool price collar 2017-2019
Average remuneration for operations (Ro): €49 /MWh 1 Average remuneration for operations (Ro): €55 /MWh
Minimum 7.4% regulated return on investment (Ri), for a “standard” plant
Includes Ciudad Real 16 Mw and Jaen 16 Mw
21
Successful agro waste biomass diversification Ence key competitive advantage in the Energy business
Weight of Forestry and Agricultural Waste Supply
€ 45 Mn EBITDA expected in 2017
86
14
60
40 44 56
2015a 2016a 2017e
Forestry waste (%) Agricultural waste (%)
■ Fruit bones and husk ■ Strains ■ Bushes ■ Prunes ■ Olive marc
22
Powerful and recurrent cash flow generation €109 Mn Recurrent Free Cash Flow in 2016 despite lower pulp prices
2015 2016
$783/t
$697/t
Note: Recurrent free cash flow includes Adjusted EBITDA, change in WC, maintenance CAPEX, interest payments and taxes
Group´s Recurrent Free Cash Flow
maintained in 2016 despite lower pulp
prices since 2009
Low FCF Breakeven supports Ence
strong resiliency
$500/t FCF breakeven price for
2017e
€ 111 Mn € 109 Mn
- 11% Average Pulp
Price Decrease
- 2% FCF
23
Solid balance sheet and strong liquidity 1.6x Net Debt / Adjusted EBITDA as of 31 March 2017
250
5.5 5.5
20.5
8.2 6.1
25.4
2017 2018 2019 2020 2021 > 2021
320.9
194.1
126.8
Gross debt Cash Net debt
12.8 13.4 13.6 13.6 14.5
39.8
0.8 1.0 3.3 3.3 4.1
2.3
2017 2018 2019 2020 2021 > 2021
121.4 107.5
13.8
Gross debt Cash Net debt
Pulp business leverage (March 2017) Pulp business gross debt maturity calendar
Energy business leverage (March 2017) Energy business gross debt maturity calendar
Leverage:
0.4x
€107 Mn Outstanding project Finance
€15 Mn Bilateral loans
€250 Mn bond
€71 Mn bilateral loans
Leverage:
1.9x
24
Strategic Plan 2016-2020 on track To become the most competitive pulp producer in Europe
2015a 2016a 2017e 2018e 2019e 2020e TOTAL
CAPEX (€Mn) 30 37 41 71 82 27 288
Pontevedra (€Mn) 3 7 26 28 37 23 124
Navia (€Mn) 27 30 15 43 45 4 164
Divestment Plan (€Mn) 32 38 6 30 30 35 171
NET CAPEX (€ Mn) -2 -1 35 41 52 -8 117
Pulp Production (000, t) 898 931 972 991 1.040 1.120
Cash cost (€/t) 359 357 339 337 329 325
EBITDA / conservative scenario (€Mn) 1 81 85 107 111 125 139
EBITDA / current scenario (€Mn) 2 165 173 198 204 222 244
1 Based on flat net price of 449 €/t (conservative scenario)
2 Based on net prices of 543 €/t (826 $/t and 1.11 €/$) as of 20 June 2017
Become cost leader and remain quality leader across Europe: 34 €/t cash cost reduction by 2020 down to 325 €/t i
Expand capacity in existing mills, on a conservative basis, based on local wood availability: Pulp production increase up to
1,120,000 t
Capex implementation schedule conditioned to a maximum leverage policy of 2.5x Net Debt/EBITDA
Pulp Business Strategic Plan Summary
25
Strategic Plan 2016-2020 on track Energy business expansion accelerating through M&A
Energy Business Strategic Plan Summary
2015a 2016a 2017e 2018e 2019e 2020e TARGET
CAPEX (€Mn) 325
M&A (€Mn) 22
Greenfield (€Mn) 12 35 30 10
TARGET
EBITDA (€Mn) 31 34 45 78
Consolidate the biomass Energy sector in Europe
Expand into biomass energy projects abroad, where regulatory environment is favorable, with project financing and local
partnering.
EBITDA target of €78 Mn by 2020 to cover most of the Pulp business fixed costs
Capex implementation schedule conditioned to a maximum leverage policy of 5.0x Net Debt / EBITDA
26
Strategic Plan 2016-2020 on track Next Steps
New Huelva 40 Mw biomass power plant 30,000 t capacity expansion in Pontevedra in 2018
New Huelva 40 Mw biomass power plant project
on track to start up in 2H 2019
€11 Mn annual EBITDA target
EPC closing expected in July and early works in
October
Synergies with our 50 Mw and 41 Mw plants already
operating in the same location
Capex: €87 Mn
Financing: 60%
During this quarter’s maintenance pause in Pontevedra,
we have prepared part of the capacity expansion that will
be implemented during March 2018 annual maintenance
shutdown
Pontevedra 2018 Cash Cost target: 371 €/t
Pulp production target 2018: 452 Mn t
Additional 40,000 t capacity expansion in 2019
CAPEX 2017e 2018e
Efficiency capex 8 3
Expansion capex 8 8
Environmental capex 10 12
Delivering value
Delivering commitments