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Healing from the effects of energy reform
Pulp leader threatened by new energy regulation
Ence is the number one European producer of eucalyptus pulp
(15%e share), with installed capacity of 1.34mtn (0.93mtn once
Huelva is closed), and the largest biomass electricity generator in
Spain (300MW: 26% biomass generation, 34% biomass cogeneration,
17% natural gas co-generation and 23% energy crops).
It manages 87.5kha of forestry (56% owned, 6% self-sufficiency).
Adapting to the effects of an aggressive energy reform
The regulatory reform on renewable energy (guaranteed 7.4% pretax
project IRR) has resulted in a harsh operating environment (-
10%e decline in average electricity sale prices, +5% increase in
cash costs) and significant impairments (EUR67mn: energy crops)
and future restructuring charges.
Ence will abandon pulp production at its Huelva mill (22% of group’s
pulp production, 43% of energy sales and 28% of payroll) and
transform it into an advanced integrated renewable energy site
(72MW). The company expects to make investments of EUR80mn
(restructuring costs and pulp capacity increases at its remaining mills:
2014-15) and an additional EBITDA contribution of EUR30mn (not yet
reflected in our estimates: 2016e). As a result, we expect an EBITDA/tn
contraction of c.20% to EUR90/tn (vs. EUR110/tn 2000-13).
We consider that the group’s returns on equity will remain under
pressure for the foreseeable future (c.4% 2016e) even after taking
into consideration the potential impact of the EBITDA recovery plan
(7%e) which could require an investment of up to EUR127mn in an
attempt to restore profitability (EBITDA EURc.160mn potentially
targeted by 2016 under the recovery plan).
Awaiting further visibility on the business plan
Our TP stands at EUR1.8/share (SOTP: 50% Pulp, 50% Energy)
which implies c.6.0x EV/EBITDA 15e, in line with its historical average.
Strengths Weaknesses
Resilient tissue demand
Streamlined cost base
Cash flow generation
Energy reform impact
USD and pulp price exposure
Reduced forestry sufficiency
Opportunities Threats
Restructuring programme
Biomass consolidation
Future changes energy
Pulp capacity increases
Demand volatility in China
Weakened financial
position
Small & Mid Caps
21 October 2014
DISCLAIMER
http://ws1.grupobbva.com/BBVA/dat/di/mercadosbursatiles/aviso_rv_i_238.htm
Ence Materials Closing price as of 16/10/2014: EUR1.50 Market Perform
Balance sheet (EUR mn) 2009 2010 2011 2012 2013 2014e 2015e 2016e
Intangible assets 4.97 6.53 8.13 21.6 20.5 20.5 20.5 20.5
Tangible assets 896.5 915.6 952.9 947.2 934.5 863.7 843.8 825.4
Financial investments 1.91 15.4 23.7 18.3 55.9 23.4 23.4 23.4
Other long-term assets 104.5 81.0 82.8 129.5 70.4 70.4 70.4 70.4
Assets classified for disposal 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Current assets 167.3 242.2 229.6 221.3 182.7 205.0 220.1 225.6
Other current assets 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Cash and cash equivalents 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total assets 1,175 1,261 1,297 1,338 1,264 1,183 1,178 1,165
Equity 576.9 766.4 720.2 724.7 709.6 650.5 665.3 688.8
Minority interests 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Prov. and other l.t. liabilities 20.4 23.8 23.2 13.3 31.0 31.0 31.0 31.0
Liabilities classified for disposal 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Financial debt 335.8 178.3 223.0 293.5 248.5 210.7 195.9 159.5
Accounts payable 181.2 190.7 173.7 184.7 179.6 195.4 190.6 190.6
Other current liabilities 60.8 101.6 157.1 121.7 95.3 95.3 95.3 95.3
Total liabilities 1,175 1,261 1,297 1,338 1,264 1,183 1,178 1,165
Net debt 335.8 178.3 223.0 293.5 248.5 210.7 195.9 159.5
Capital employed 992.0 1,055 1,100 1,135 1,028 964.2 964.2 951.2
Working capital -13.9 51.5 55.9 36.6 3.15 9.64 29.5 35.0
P&L (EUR mn) 2009 2010 2011 2012 2013 2014e 2015e 2016e
CAGR
13/16e
Net revenues 538.6 825.9 815.0 800.0 861.7 786.3 827.3 842.2 -0.76
Other income 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Revenues and other income 538.6 825.9 815.0 800.0 861.7 786.3 827.3 842.2 -0.76
Growth in sales (%) -29.0% 53.4% -1.3% -1.8% 7.7% -8.7% 5.2% 1.8%
Supplies -365.6 -362.2 -392.4 -407.2 -425.7 -430.9 -420.4 -420.4
Personnel costs -88.7 -84.3 -89.4 -82.1 -80.5 -70.5 -71.9 -73.3
Other operating expenses -99.1 -201.1 -194.0 -171.4 -214.2 -215.0 -224.0 -228.5
Recurrent EBITDA -14.8 178.3 139.1 139.3 141.3 69.9 111.0 120.0 -5.30
Non-recurrent items 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
EBITDA -14.8 178.3 139.1 139.3 141.3 69.9 111.0 120.0 -5.30
EBITDA growth (%) -115.4% -1300.9% -21.9% 0.1% 1.4% -50.5% 58.8% 8.1%
EBITDA/sales (%) -2.8% 21.6% 17.1% 17.4% 16.4% 8.9% 13.4% 14.2%
Depreciation and provisions -57.7 -61.0 -59.1 -57.0 -112.3 -98.3 -64.8 -63.4
EBIT -72.5 117.3 80.1 82.3 29.0 -28.4 46.2 56.6 25.0
EBIT growth (%) -230.6% -261.8% -31.7% 2.7% -64.8% -197.9% -262.9% 22.4%
EBIT/sales (%) -13.5% 14.2% 9.8% 10.3% 3.4% -3.6% 5.6% 6.7%
EBIT non-recurrent items -77.0 0.00 0.00 0.00 0.00 -6.80 0.00 0.00
Operating profit -149.5 117.3 80.1 82.3 29.0 -35.2 46.2 56.6 25.0
Net financial result -44.3 -26.9 -23.1 -18.6 -24.5 -20.7 -15.2 -13.3
Equity-accounted earnings 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Ordinary income -193.9 90.3 57.0 63.6 4.45 -55.8 31.0 43.2 113.4
Ordinary income growth (%) -3878.8% -146.6% -36.9% 11.6% -93.0% -1354.4% -155.5% 39.6%
Extr. result/discont. activities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Pre-tax profit -193.9 90.3 57.0 63.6 4.45 -55.8 31.0 43.2 113.4
Tax 39.3 -25.6 -15.8 -19.9 -0.98 16.8 -8.67 -10.8
Minorities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net profit -154.6 64.7 41.2 43.7 3.48 -39.1 22.3 32.4 110.5
Net profit growth (%) -3360.3% -141.9% -36.3% 6.1% -92.0% -1224.3% -157.1% 45.4%
Ordinary net profit -93.2 64.7 41.2 43.7 3.48 -34.3 22.3 32.4 110.5
Effective tax rate (%) 20.3% 28.4% 27.8% 31.3% 21.9% 30.0% 28.0% 25.0%
Cash flow statement (EUR mn) 2014e 2015e 2016e
EBITDA 69.9 111.0 120.0
Non-cash EBITDA 0.00 0.00 0.00
Working capital variation -6.49 -19.8 -5.50
Capex -60.0 -45.0 -45.0
Free operating CF pre-tax 3.44 46.2 69.5
Net financial result -20.7 -15.2 -13.3
Non-cash financial result 0.00 0.00 0.00
Taxes 16.8 -8.67 -10.8
Div. from/to assoc./minorities 0.00 0.00 0.00
Cash flow other 58.2 0.00 0.00
FCFE 57.8 22.3 45.4
Dividends -20.0 -7.51 -8.92
FCFE after dividends 37.8 14.8 36.5
FX 0.00 0.00 0.00
Change in net debt -37.8 -14.8 -36.5
Source: company data and BBVA GMR estimates
