ENCE Energía y Celulosa S A : Results 2Q21

1H21 Results 18

September 29th, 2021

Global ESG score:

91/100

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.

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2

The National Court annuls the Pontevedra concession extension

Ence will appeal before the Supreme Court

• On 15 July 2021, the National Court issued a ruling that annuls the extension of the concession over the public domain lands on which the Pontevedra biomill is located, which was granted in 2016 by the today´s Ministry of Ecological Transition.
• Ence will appeal this ruling before the Supreme Court and will exhaust all legal avenues to defend the legality of the 2016 extension.
• If the Supreme Court does not admit our appeal or if it rules against it, the Ministry of Ecological Transition will determine (in a decision endorsed by the National Court) the deadline for a potential discontinuation of activity at the bio-mill.
• As a result of the ruling and in accordance with the applicable accounting regulations, the Group has recognised asset impairment charges and provisions which won't imply any cash outflow in a net amount of €148m, together with a provision of €42m to cover the estimated cost of the potential dismantling of the bio-mill and a provision of €6m to cover the estimated cost of the potential termination of outstanding contracts.
• The cost of restructuring the surplus labor (including the associated corporate overhead) that would be caused by the potential closure of the bio-mill has not been provisioned yet in the financial statements, as the requirements for its accounting have not been fulfilled.
• If the annulment of the extension to the concession is confirmed, once all legal avenues and appeals have been exhausted, Ence will claim the patrimonial responsibility of the Administration and seek compensation for all damages caused by a concession previously granted and subsequently annulled and for all investments that were committed and completed.

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1H21 business highlights

Strong pulp and energy price recovery

Strong pulp and energy price recovery in 1H21

Higher average prices expected in 2H21

Positive operating performance at the Pulp business in 2Q

+56% EBITDA growth in 1H21 before hedges, to €71m

Net profit of 12 Mn€ in 2Q21 before the impact of the ruling

Strong balance sheet

Leaders in sustainability in the Pulp & Paper industry according to Sustainalytics

• Average gross BHKP price in Europe of US$880/t in 1H21,
• Gross BHKP price in Europe at US$1,140/t in 3Q21, up 68% from the low of 2020
• Average pool price in Spain increased by 114% year-on-year in 1H21 to €62/MWh
• Energy price futures point to average prices of above €120/MWh in 2H21
• Pulp production: -5% vs. 1H20 to 494 Kt (+4% vs. 2Q20 to 270 Kt) due to the maintenance shutdowns in Q1
• Cash cost: -1%vs. 1H20 to €376/t (-2% vs. 2Q20 to €368/t)
• Renewable Energy sales: +12% vs. 1H20 to 657 GWh (excluding Puertollano CSP)
• Pulp business EBITDA before hedges: +162% vs. 1H20 to €48m
• Renewable business EBITDA before hedges: +24% vs. 1H20 (excluding Puertollano CSP) to €22m
• Hedges had a negative impact of €7m in the Pulp business and €5m in the Renewables business in 1H21
• Underlying business returns to net profits of €12m in 2Q21, before the impact of the ruling on Pontevedra concession
• €176m net debt at 30 Jun. 2021 (€43m in the Pulp business including €16m of IFRS16 and €133m in the Renewables business) after a €19m reduction in the use of discounting facilities and €40m of carry over payments
• €381m of cash on the balance sheet at 30 Jun. 2021 (€307m in the Pulp business and €74m in Renewables)
• Prepayment of €95m of gross debt in the Pulp business in 1H21
• Ence ranked as the world leader in sustainability in the pulp and paper sector by Sustainalytics, which lifted Ence's overall ESG score to 91/100 in 2Q21

4

Strong pulp price recovery in 1H21

Temporary decoupling between Europe and China due to logistic constraints

NET BHKP Prices in China

$/t

GROSS BHKP Prices in Europe

$/t

850

800

750

700

650

600

550

500

450

400

10 year average NET price: US$620/t

1.200

	10 year average equivalent GROSS price: US$940/t
1.100	Using an average industry discount of 34%

1.000

900

800

700

600

Jun-11

Dec-11Jun-12Dec-12

Jun-13

Dec-13

Jun-14

Dec-14

Jun-15

Dec-15

Jun-16

Dec-16

Jun-17

Dec-17

Jun-18

Dec-18

Jun-19

Dec-19

Jun-20

Dec-20

Jun-21

Source: FOEX

• NET pulp prices in China recovered by 70% from their 2020 lows to
  US$780/t in May
• Net pulp prices in China have corrected by 20% since June, falling to US$620/t in September, to average cycle levels

Source: FOEX

• GROSS pulp prices in Europe have recovered by 68% from their 2020 lows to US$ 1,140/t since July
• Gross pulp prices in Europe tend to follow net pulp prices in China with a lag of 2/3 months.
• Temporary decoupling between Europe and China due to logistic constraints

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