Ence has embarked on an intensive investment and cost reduction programme
- The result in 1Q14 was a net loss of €14 million, compared with a net profit of €13 million in 1Q13.
The electricity pool was exceptionally low in 1Q (€26/MWh compared with an average of €52.1/MWh in the previous quarter), accentuating the impact of the electricity sector reform.
The anticipated increase in pool prices during the remainder of the year and an active management of generating facilities will enable a recovery from the loss of profitability in 1Q.
Electricity sales drop 46% following the new electricity remuneration proposals and the abovementioned abnormally low pool prices.
Adjusted EBITDA fell 69%, mainly from the impact of new energy taxes and proposals for new premiums on renewable energy and cogeneration.
The Mérida 20MW plant is to be connected to the Electricity Grid six months earlier than planned, and will contribute an annual EBITDA of €7 million in coming years.
Sound financial position: Net financial debt has remained virtually unchanged at €118 million, once the investment in the new Mérida 20MW plant has been absorbed. The leverage ratio excluding non-recourse debt stood at 1.2x.
Ence is deploying an intensive cost improvement and efficiency programme, as well as investing for growth that will enable it to recover the level of its results and maintain shareholder dividends.
06 May 2014.- Ence reported a net loss of €14 million in 1Q14 compared with a net profit of €13 million in 1Q13, mainly because of lower electricity sales as a result of the electricity reform. In addition, abnormally low pool prices in the first months of the year have meant losses for those generating plants with higher operating costs, so that the company has had to limit output during periods when prices were lowest.
The combined impact of pool prices and lower output rose to €5.1 million. Nevertheless, the anticipated increase in pool prices during the remainder of the year and an active management of generating facilities will enable Ence to offset the loss of profitability in the quarter.
Adjusted EBITDA stood at €13.7 million (-69%) from the impact of new energy taxes and the proposed changes in the way renewable energy and co-generation are remunerated, as well as because of the drop in production and sale of cellulose and electricity. Given the provisional nature of the new electricity tariffs, the results recorded for the period are subject to changes subsequent to their publication.
The electricity reform is having a severe impact on the energy output from the Ence plant in Huelva, which posted a cash cost in March that was €71/t higher than in the first quarter of the previous year and resulted in a negative EBITDA –compared with an impact of €19/ton at Navia and Pontevedra–, which will demand a significant restructuring of that operating centre once the new electricity regulation is approved.
Pulp sales drop 13% due to a drop in production and volumes sold. Euro sales prices have dropped 8% due to a price drop (3%) and depreciation on the dollar of 4%.
Mérida Plant Start-Up
The Mérida 20MW plant received its Definitive Certificate of Commissioning by the Extremadura Government Department of Agriculture, allowing it to begin supplying energy to the Electrical Grid. The plant has a forecast production capacity of 160 million kWh/year, which is a 9% increase on the Ence’s installed capacity for biomass energy production, going from 230 MW to 250 MW. It is expected that annual EBITDA for the plant will be around €7 million.
Efficiency and Growth Measures Under Way
The sound balance sheet position of the company, its healthy cash situation and low level of borrowing have ensured that Ence has been able to undertake an intensive cost improvement and efficiency programme, as well as investing for growth that will enable it to maintain shareholder dividends.
It should be noted that the investments made to improve the efficiency of Ence’s factories have already begun to bear fruit. Thus, the cost reduction programme that has been implemented has enabled the company to lower the average cash cost by €18/ton compared with the last quarter of 2013, eliminating the effect of the exceptional prices in the electricity pool. Furthermore, the development of the average cash cost in the first quarter of the year shows a progressive reduction month by month, indicating that the cost reduction plans are evolving as foreseen by the company.
In view of the sound progress of the measures for the recovery of results implemented by Ence, it is estimated that by 2016 the company will have returned to the same cash cost it had achieved one year ago.
