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Ence Bets on Biomass Power in Spain to Prepare Americas Growth

Grupo Empresarial Ence SA (ENC), Europe’s largest producer of pulp from eucalyptus, will invest in biomass renewable energy in Spain to prepare for expansion in the U.S. and Latin America as it diversifies from cellulose products.

Ence, which won financing last month to build a 50-megawatt biomass-fueled power plant in southern Spain, will focus on energy in its domestic market in the next three years and prepare for “huge” growth worldwide, especially in the U.S., Argentina and Brazil, to offset the more cyclical cellulose market, Chief Executive Officer Ignacio de Colmenares said.

“Spain will be a test to show capital markets what we’re able to achieve and will serve as a launch pad for our expansion abroad,” de Colmenares said in an interview at Ence’s headquarters in Madrid. “We see huge growth opportunities in the biomass industry in those additional regions, which will make Ence a much bigger business.”

Ence dates back to the government’s establishment of three cellulose makers in 1957. The pulpmaker, which hasn’t been state-owned since 2001, started investing in renewable energy after pulp prices dropped in 2008, the CEO said. Ence already generates and sells 230 megawatts of electricity, including 180 megawatts fueled by biomass from fast-growth trees or forest and paper-production waste, and 50 megawatts from gas cogeneration.

Buyback

Ence rose as much as 1.4 percent to 2.82 euros and was up 1.1 percent as of 9:38 a.m. in Madrid trading. The stock has increased 18 percent this year in the fifth-biggest gain on Spain’s Ibex Medium-Cap Index (IBEXC), which has advanced 0.1 percent. Ence said in a filing late yesterday that it bought back 9.7 million of its shares, or a 3.8 percent stake, from investor group Atalaya de Inversiones SL to hold as treasury stock.

The manufacturer’s planned 143 million-euro ($207 million) biomass power plant in the Spanish town of Huelva, including forest investment, received pledges of 101.3 million euros in funding from seven banks in June. The project, scheduled to start operating in the fourth quarter of 2012, was the first of its kind in Spain to receive such financing, de Colmenares said.

The Huelva plant is the first step in Ence’s plan to add 210 megawatts of capacity that will include two 20-megawatt projects, for which the paper maker is seeking 80 million euros in financing by the end of 2011, and six more sites by 2013. Ence aims for earnings before interest, taxes, depreciation and amortization from renewable energy to triple to 120 million euros in 2015, or 50 percent of group Ebitda, from 40 million euros, or 22 percent, last year.

Pulp Price Forecast

Ence exports 85 percent of the 1.2 million tons of pulp it makes yearly, mainly to other European markets, the CEO said. The company, whose competitors include Brazil’s Fibria Celulose SA (FIBR3), the world’s largest pulp producer, and Suzano Papel & Celulose SA and Setubal, Portugal-based Portucel-Empresa Produtora de Pasta & Papel SA, expects a “slight” decline in cellulose prices in mid-2011, to $850 to $860 a ton in July from $880 a ton in June.

Demand from China for pulp has slipped after customers there overbought during the first few months of the year, while a number of manufacturers in Europe are suspending production for maintenance reasons during the summer, allowing them to reduce inventories, de Colmenares, 50, said in the July 1 interview.

“Overall prices remain at good levels and we are not concerned about it,” he said. “Prices will climb back again or will be maintained for the rest of the year.”

First-quarter net income more than doubled to 16.2 million euros from 6.71 million euros a year earlier. Second-quarter earnings continued that rate of gain, the CEO said.

“We see stable earnings growth for the rest of the year,” the executive said. Ence reported its highest profit in 10 years in 2010, with net income of 64.7 million euros compared with a 154.6 million-euro loss in 2009. “This year we’ll achieve that again and we’ll slightly beat it,” de Colmenares said.

To contact the reporter on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net.

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net.

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