Important Notice

THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) QUALIFIED INSTITUTIONAL BUYERS WITHIN THE MEANING OF RULE 144A UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE U.S. SECURITIES ACT) OR (2) NON-U.S. PERSONS OUTSIDE OF THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT (AND, IF INVESTORS ARE RESIDENT IN A MEMBER STATE OF THE EUROPEAN ECONOMIC AREA (A QUALIFIED INVESTOR), A QUALIFIED INVESTOR WITHIN THE MEANING OF ARTICLE 2(1)(E) OF DIRECTIVE 2003/71/EC, AS AMENDED (THE PROSPECTUS DIRECTIVE), AND ANY RELEVANT IMPLEMENTING MEASURE IN EACH MEMBER STATE OF THE EUROPEAN ECONOMIC AREA). IMPORTANT: You must read the following before continuing. The following applies to the offering memorandum following this notice (the Offering Memorandum), and you are therefore advised to read this carefully before reading, accessing or making any other use of the Offering Memorandum. In accessing the Offering Memorandum, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE U.S. SECURITIES ACT) EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THE FOLLOWING OFFERING MEMORANDUM MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE U.S. SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. Confirmation of your representation: In order to be eligible to view the Offering Memorandum or make an investment decision with respect to the securities, investors must be either (1) Qualified Institutional Buyers within the meaning of Rule 144A under the U.S. Securities Act (QIBs) or (2) non-U.S. persons (within the meaning of Regulation S under the U.S. Securities Act) in offshore transactions outside of the United States in reliance on Regulation S under the U.S. Securities Act; provided that investors resident in a member state (Member State) of the European Economic Area (the EEA) must be a Qualified Investor. By accepting the e-mail and accessing the Offering Memorandum, you shall be deemed to have represented to us and to each initial purchaser that: (1) (2) you consent to delivery of such Offering Memorandum by electronic transmission, and you and any customers you represent are either: (a) (b) QIBs, or non-U.S. persons, and the e-mail address that you gave us and to which the e-mail has been delivered is not located in the United States, its territories and possessions (including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands), any State of the United States or the District of Columbia.

Each person in a Member State of the EEA which has implemented the Prospectus Directive (each, a Relevant Member State) who receives any communication in respect of, or who acquires any Notes under, the offers to the public contemplated in this Offering Memorandum will be deemed to have represented, warranted and agreed to and with us and each initial purchaser that: (1) it is a Qualified Investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive;

(2)

in the case of any Notes acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the Notes acquired by it in this Offering have not been acquired on behalf of, and have not been acquired with a view to their offer or resale to, persons in any Relevant Member State other than Qualified Investors, as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of the initial purchaser has been given to the offer or resale; (ii) where Notes have been acquired by it on behalf of persons in any Relevant Member State other than Qualified Investors, the offer of those Notes to it is not treated under the Prospectus Directive as having been made to such persons.

For the purposes of this representation, the expression an offer to the public in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State. Prospective purchasers that are QIBs are hereby notified that the seller of the notes may be relying on the exemption from the provisions of Section 5 of the U.S. Securities Act provided by Rule 144A under the U.S. Securities Act. You are reminded that the Offering Memorandum has been delivered to you on the basis that you are a person into whose possession the Offering Memorandum may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorized to, deliver the Offering Memorandum to any other person. Under no circumstances shall the Offering Memorandum constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. If a jurisdiction requires that this Offering be made by a licensed broker or dealer and the initial purchaser or any affiliate of the initial purchaser is a licensed broker or dealer in that jurisdiction, this Offering shall be deemed to be made by the initial purchaser or such affiliate on behalf of ENCE Energ a y Celulosa, S.A. in such jurisdiction. The attached Offering Memorandum has been sent to you in an electronic format. You are reminded that documents transmitted in an electronic format may be altered or changed during the process of transmission and consequently none of the Issuer, the initial purchasers and their respective affiliates, directors, officers, employees, representatives and agents accepts any liability or responsibility whatsoever in respect of any discrepancies between the document distributed to you in electronic format and the hard-copy version. You are responsible for protecting against viruses and other destructive items. Your use of this e-mail is at your own risk and it is your responsibility to ensure that it is free from viruses or other items of a destructive nature.

The information in this preliminary offering memorandum is not complete and may be changed. This preliminary offering memorandum is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated January 21, 2013 CONFIDENTIAL PRELIMINARY OFFERING MEMORANDUM NOT FOR GENERAL CIRCULATION IN THE UNITED STATES

g250,000,000

% Senior Secured Notes due 2020

18JAN201316360506

ENCE Energ a y Celulosa, S.A.

ENCE Energ a y Celulosa, S.A. (the Issuer), a sociedad an onima organized under the laws of Spain, is offering e250,000,000 in aggregate principal amount of its % senior secured notes due 2020 (the Notes). The Notes will bear interest at the rate of % per annum, payable semi-annually on and of each year, beginning on , 2013. The Notes will mature on , 2020. The Issuer may redeem the Notes in whole or in part at any time on or after , 2016 at the redemption prices specified herein. Prior to , 2016, the Issuer may also redeem all or part of the Notes by paying a make-whole premium at the redemption price specified herein. In addition, prior to , 2016, the Issuer may redeem up to 35% of the aggregate principal amount of the Notes with the net proceeds from certain equity offerings at the redemption prices set forth in this Offering Memorandum. Prior to , 2016, the Issuer may also redeem during each 12-month period up to 10% of the aggregate principal amount of the Notes at the redemption price specified herein. In the event of certain developments affecting taxation, the Issuer may redeem all, but not less than all, of the Notes. Upon the occurrence of certain events constituting a Change of Control (as defined herein), the Issuer may be required to make an offer to repurchase all of the Notes at a redemption price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any. The Notes will be the senior secured obligations of the Issuer and will rank equally in right of payment with all existing and future indebtedness of the Issuer that is not subordinated in right of payment to the Notes and will be senior in right of payment to all existing and future indebtedness of the Issuer that is subordinated in right of payment to the Notes. The Notes will be fully and unconditionally guaranteed (the Guarantees and, each, a Guarantee) on a senior secured basis by certain subsidiaries of the Issuer (the Guarantors and, each, a Guarantor). The Guarantees will rank equally in right of payment with all of the existing and future indebtedness of such Guarantor that is not subordinated in right of payment to the Guarantees and will be senior in right of payment to all existing and future indebtedness of such Guarantor that is subordinated in right of payment to the Guarantees. The Notes and the Guarantees will be secured by first-ranking security interests (together with the Issuers and Guarantors obligations under the Revolving Credit Facility (as defined herein)) over the share capital and certain other assets of the Guarantors (the Collateral). In the event of enforcement of the Collateral, the holders of the Notes will receive proceeds from the Collateral only after the lenders under the Revolving Credit Facility and certain hedging obligations have been repaid in full. Please see Description of the Notes Credit EnhancementSecurity. Currently, there is no public market for the Notes. Application has been made for the listing particulars to be approved by the Luxembourg Stock Exchange and for the Notes to be listed on the Official List of the Luxembourg Stock Exchange and to be admitted to trading on the Luxembourg Stock Exchanges Euro MTF Market. The Euro MTF Market is not a regulated market pursuant to the provisions of Directive 2004/39/EC. There is no assurance that the Notes will be listed on the Official List of the Luxembourg Stock Exchange and admitted to trading on the Euro MTF Market thereof.

Investing in the Notes involves a high degree of risk. Please see Risk Factors beginning on page 27.
The Notes have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the U.S. Securities Act) or the securities laws of any other jurisdiction. Accordingly, the Notes are being offered and sold only to qualified institutional buyers (QIBs) in accordance with Rule 144A under the U.S. Securities Act (Rule 144A) and to certain persons in offshore transactions in reliance on Regulation S under the U.S. Securities Act (Regulation S). Prospective purchasers that are QIBs are hereby notified that the seller of the Notes may be relying on the exemption from the registration requirements of the U.S. Securities Act provided by Rule 144A. Please see Important Information About This Offering and Notice to Investors for additional information about eligible offerees and transfer restrictions. The Notes will be issued in registered form in minimum denominations of e100,000 and integral multiples of e1,000 in excess thereof. The Notes will be represented on issuance by one or more Global Notes (as defined herein), which we expect will be delivered in book-entry form through Euroclear Bank SA/NV (Euroclear) or Clearstream Banking, soci et e anonyme (Clearstream), on or about January , 2013. Please see Book-Entry, Delivery and Form. Potential investors should review the summary set forth in Certain Tax ConsiderationsSpanish Tax Considerations regarding the tax treatment in Spain of income obtained in respect of the Notes. In particular, income obtained in respect of the Notes will be exempt from Spanish withholding tax provided certain requirements are met.

Price:

% plus accrued interest, if any, from the Issue Date

Joint Bookrunners

Deutsche Bank BBVA Banesto Bankia Barclays Citigroup

Co-Managers

Bankinter
The date of this Offering Memorandum is

Banco Sabadell
, 2013.

TABLE OF CONTENTS
Page

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Managements Discussion and Analysis of Financial Condition and Results of Operations Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certain Relationships and Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . Description of Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Description of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Book-Entry, Delivery and Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice to Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certain Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service of Process and Enforcement of Civil Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . Certain Insolvency Law and Enforceability Considerations . . . . . . . . . . . . . . . . . . . . . . . Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Where You Can Find More Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Listing and General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Glossary of Selected Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex ANotes Guarantee and Security Package . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex BProcedures for Direct Refund from the Spanish Tax Authorities . . . . . . . . . . . . Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 27 51 52 53 56 89 99 124 132 141 142 143 155 209 214 217 221 230 231 237 237 238 239 240 241 247 F-1

IMPORTANT INFORMATION ABOUT THIS OFFERING You should rely only on the information contained in this offering memorandum (the Offering Memorandum) or in a document to which we have referred you. We have not, and Deutsche Bank AG, London Branch, Banco Bilbao Vizcaya Argentaria, S.A., Banco Espa nol de Cr edito, S.A., Banco de Sabadell, S.A., Bankia, S.A., Bankinter, S.A., Barclays Bank PLC and Citigroup Global Markets Limited (collectively, the Initial Purchasers) have not, authorized anyone to provide you with information that is different from the information contained herein. We are not, and the Initial Purchasers are not, making an offer of these securities in any jurisdiction where such offer is not permitted. You should not assume that the information contained in this Offering Memorandum is accurate as of any date other than the date on the cover page of this Offering Memorandum. Our business, financial condition, results of operations and prospects may have changed since that date. This Offering Memorandum does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such offer or solicitation. No action has been, or will be, taken to permit a public offering in any jurisdiction where action would be required for that purpose. Accordingly, the Notes may not be offered or sold, directly or indirectly, and this Offering Memorandum may not be distributed, in any jurisdiction except in accordance with the legal requirements applicable in such jurisdiction. You must comply with all laws applicable in any jurisdiction in which you buy, offer or sell the Notes or possess or distribute this Offering Memorandum, and you must obtain all applicable consents and approvals; neither we nor the Initial Purchasers shall have any responsibility for any of the foregoing legal requirements. Please see Notice to Investors. Neither we nor the Initial Purchasers, the Trustee, the Paying Agent, the Transfer Agent or the Registrar, nor any of our or their respective representatives are making any representation to you regarding the legality of an investment in the Notes, and you should not construe anything in this Offering Memorandum as legal, business, tax or other advice. You should consult your own advisors as to the legal, tax, business, financial and related aspects of an investment in the Notes. In making an investment decision regarding the Notes, you must rely on your own examination of the Issuer and the terms of this offering (the Offering), including the merits and risks involved. By accepting delivery of this Offering Memorandum, you agree to the foregoing restrictions, to make no photocopies of this Offering Memorandum or any documents referred to herein and not to use any information herein for any purpose other than considering an investment in the Notes. This Offering Memorandum is based on information provided by us and other sources that we believe to be reliable. The Initial Purchasers are not making any representation or warranty that this information is accurate or complete and are not responsible for this information. In this Offering Memorandum, we have summarized certain documents and other information in a manner we believe to be accurate, but we refer you to the actual documents for a more complete understanding thereof. We accept responsibility for the information contained in this Offering Memorandum. To the best of our knowledge and belief, having taken all reasonable care to ensure that such is the case, the information contained in this Offering Memorandum is in accordance with the facts and does not omit anything material that is likely to affect the import of such information. The information contained in this Offering Memorandum is correct as of the date hereof. Neither the delivery of this Offering Memorandum at any time after the date of publication nor any subsequent commitment to purchase the Notes shall, under any circumstances, create an implication that there has been no change in the information set forth in this Offering Memorandum or in our business since the date of this Offering Memorandum. The information contained in this Offering Memorandum under the heading Exchange Rate Information includes extracts from information and data publicly released by official and other sources. While we accept responsibility for accurately summarizing such information, we accept no further responsibility in respect thereto. The information set forth in relation to sections of this Offering Memorandum describing clearing and settlement arrangements, including in Description of the Notes and Book-Entry, Delivery and Form, is subject to any change in, or reinterpretation of the rules, regulations and

ii

procedures of Euroclear and/or Clearstream currently in effect. While we accept responsibility for accurately summarizing the information concerning Euroclear and/or Clearstream, we accept no further responsibility in respect of such information. The Notes will be available initially only in book-entry form. We expect that the Notes offered hereby will be issued in the form of one or more Global Notes, which will be deposited with a common depositary and registered in the name of the nominee of the common depositary for the accounts of Euroclear and/or Clearstream. Beneficial interests in the Global Notes will be shown on, and transfers of beneficial interests in the Global Notes will be effected only through, records maintained by Euroclear and/or Clearstream and its participants, as applicable. Please see Book-Entry, Delivery and Form. The Notes are subject to restrictions on transferability and resale, which are described under the heading Notice to Investors. By possessing this Offering Memorandum or purchasing any Note, you will be deemed to have represented and agreed to all of the provisions contained in that section of this Offering Memorandum. You should be aware that you may be required to bear the financial risks of your investment for a long period of time. We reserve the right to withdraw this Offering at any time. We and the Initial Purchasers also reserve the right to reject any offer to purchase the Notes in whole or in part for any reason or no reason and to allot to any prospective purchaser less than the full amount of the Notes sought by it. The Initial Purchasers and certain of their respective related entities may acquire, for their own accounts, a portion of the Notes. We have applied for listing particulars to be approved by the Luxembourg Stock Exchange and for the Notes to be admitted to the Official List of the Luxembourg Stock Exchange and traded on the Euro MTF Market thereof. In connection with this listing application, we have submitted this Offering Memorandum to be used as the base for such listing particulars. Although the listing particulars are likely to contain substantially the same information as that contained in this Offering Memorandum, it is possible that we may be required (under applicable law, rules, regulations or guidance applicable to the listing of securities or otherwise) to make certain changes or additions to the financial and other information included in this Offering Memorandum and, in particular, we may be required to include additional information, including additional financial information, in respect of the Guarantors. We may also be required to update the information in this Offering Memorandum to reflect changes in our business, financial condition or results of operations and prospects. Following the listing, the relevant listing particulars will be available at the offices of Deutsche Bank Luxembourg S.A., as Luxembourg listing agent (the Luxembourg Listing Agent). Any investor or potential investor in the European Economic Area (the EEA) should not base any investment decision relating to the Notes on the information contained in this Offering Memorandum after publication of the listing particulars and should refer instead to those listing particulars. This Offering Memorandum is an advertisement and not a prospectus for the purposes of the Prospectus Directive. We cannot guarantee that the application we have made to the Official List of the Luxembourg Stock Exchange for the Notes to be listed and admitted to trading on the Euro MTF Market thereof will be approved as of the Issue Date for the Notes or at any time thereafter, and settlement of the Notes is not conditioned on obtaining this admission to trading. Each purchaser of the Notes will be deemed to have made the representations, warranties and acknowledgements that are described in this Offering Memorandum under the Notice to Investors section of this Offering Memorandum. The Notes and the Guarantees have not been and will not be registered under the U.S. Securities Act or with any securities regulatory authority of any state or other jurisdiction in the United States and may not be offered or sold in the United States, except to QIBs (as defined in Rule 144A), in reliance on the exemption from the registration requirements of the U.S. Securities Act provided by Rule 144A. The Notes may be offered and sold outside the United States to non-U.S. persons in offshore transactions in reliance on Regulation S. Prospective investors are hereby notified that sellers of the Notes may be relying on the exemption from the registration requirements of Section 5 of the U.S. Securities Act provided by Rule 144A. For a description of certain restrictions on transfers of the Notes, please see Notice to Investors.

iii

Neither the U.S. Securities and Exchange Commission (the SEC), nor any U.S. state securities commission nor any non-U.S. securities authority has approved or disapproved of these securities or determined that this Offering Memorandum is accurate or complete. Any representation to the contrary is a criminal offense. Potential investors are alerted to the statements in this Offering Memorandum regarding the tax treatment in Spain of income obtained in respect of the Notes. In particular, income obtained in respect of the Notes will be exempt from Spanish withholding tax provided certain requirements are met. IN CONNECTION WITH THIS OFFERING OF NOTES, DEUTSCHE BANK AG, LONDON BRANCH (THE STABILIZING MANAGER) (OR ANY PERSON ACTING ON BEHALF OF THE STABILIZING MANAGER) MAY, TO THE EXTENT PERMITTED BY APPLICABLE LAW, OVER-ALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO STABILIZING OR MAINTAINING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. THERE IS NO ASSURANCE, HOWEVER, THAT THE STABILIZING MANAGER WILL UNDERTAKE ANY SUCH STABILIZATION ACTION. SUCH STABILIZATION ACTION, IF COMMENCED, MAY BEGIN ON OR AFTER THE DATE OF ADEQUATE PUBLIC DISCLOSURE OF THE FINAL TERMS OF THE OFFER OF THE NOTES AND MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 CALENDAR DAYS AFTER THE DATE ON WHICH THE ISSUER RECEIVED THE PROCEEDS OF THE ISSUE AND 60 CALENDAR DAYS AFTER THE DATE OF ALLOTMENT OF THE NOTES. ANY STABILIZATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE STABILIZING MANAGER (OR PERSON(S) ACTING ON BEHALF OF THE STABILIZING MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. NOTICE TO CERTAIN EUROPEAN INVESTORS European Economic Area This Offering Memorandum has been prepared on the basis that any offer of Notes in any Member State of the EEA that has implemented the Prospectus Directive (each, a Relevant Member State) will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of Notes. Accordingly, any person making or intending to make an offer in that Relevant Member State of Notes that are the subject of the Offering contemplated in this Offering Memorandum may only do so in circumstances in which no obligation arises for the Issuer or any of the Initial Purchasers to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither the Issuer nor the Initial Purchasers have authorized, nor do they authorize, the making of any offer of Notes in circumstances in which an obligation arises for the Issuer or the Initial Purchasers to publish a prospectus for such offer. Neither the Issuer nor the Initial Purchasers have authorized, nor do they authorize, the making of any offer of Notes through any financial intermediary, other than offers made by the Initial Purchasers, which constitute the final placement of the Notes contemplated in this Offering Memorandum.

iv

This Offering Memorandum and this Offering are only addressed to and directed at persons in Member States of the EEA who are Qualified Investors within the meaning of Article 2(1)(e) of the Prospectus Directive. The Notes are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, Qualified Investors. This Offering Memorandum and its contents should not be acted upon or relied upon in any Member State of the EEA by persons who are not Qualified Investors. The expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive), and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU. United Kingdom This document is for distribution only to persons who: (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the Financial Promotion Order); (ii) are persons falling within Article 49(2)(a) to (d) (high net worth companies, unincorporated associations etc) of the Financial Promotion Order; (iii) are outside the United Kingdom; or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the FSMA)) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as relevant persons). This document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons. Spain The Notes may not be offered or sold in Spain except in accordance with the requirements of the Spanish Securities Market Law 24/1988, of July 28 (Ley 24/1988, de 28 de Julio, del Mercado de Valores), as amended and restated, and Royal Decree 1310/2005, of November 4, on the listing of securities, public offers and applicable prospectus (Real Decreto 1310/2005, de 4 de noviembre, por el que se desarrolla parcialmente la Ley 24/1988, de 28 de julio, del Mercado de Valores en materia de admisi on a negociaci on de valores en mercados secundarios oficiales, de ofertas p ublicas de venta o suscripci on y del folleto exigible a tales efectos) (the Spanish Securities Market Law). The Notes may not be sold, offered or distributed to persons in Spain, except in circumstances which do not constitute a public offer (oferta p ublica) of securities in Spain, within the meaning of the Spanish Securities Market Law. Neither the Notes, this Offering nor this Offering Memorandum and its contents have been approved or registered with the Spanish Securities and Exchange Commission (Comisi on Nacional del Mercado de Valores), and therefore it is not intended for the public offering or sale of Notes in Spain. Each Initial Purchaser has represented and agreed that it will not initially offer or sell the Notes in Spain, but the Initial Purchasers have made no representation as to subsequent resales of the Notes. France This Offering Memorandum has not been prepared in the context of a public offering of financial securities in France within the meaning of Article L.411-1 of the French Code mon etaire et financier and Title I of Book II of the R` eglement G en eral of the Autorit e des march es financiers (the AMF) and therefore has not been and will not be submitted for clearance to the AMF. Consequently, the Notes are not being offered, directly or indirectly, to the public in France and this Offering Memorandum has not been and will not be released, issued or distributed or caused to be released, issued or distributed to the public in France. Offers, sales and distributions of the notes in France will be made only to qualified investors (investisseurs qualifi es) acting for their own accounts or to a closed circle of investors (cercle restreint dinvestisseurs) acting for their own accounts, and/or to providers of the investment service of portfolio management for the account of third parties (personnes fournissant le service dinvestissement de gestion de portefeuille pour le compte de tiers) as defined in, and in accordance with, Articles L.411-1, L.411-2 and D.411-1 to D.411-4,

D.744-1, D.754-1 and D.764-1 of the French Code mon etaire et financier. The Notes may only be offered, directly or indirectly, to the public in France, in compliance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code mon etaire et financier. Germany The offering of the Notes is not a public offering in Germany. The Notes may be offered and sold in Germany only in accordance with the provisions of the Securities Prospectus Act of the Federal Republic of Germany (Wertpapierprospektgesetz) (the German Securities Prospectus Act) and any other applicable German law. Consequently, in Germany, the Notes will only be available to, and this Offering Memorandum and any other offering material in relation to the Notes is directed only at, persons who are qualified investors (qualifizierte Anleger) within the meaning of Section 2 No. 6 of the German Securities Prospectus Act. Any resale of the Notes in Germany may only be made in accordance with the German Securities Prospectus Act and other applicable laws. We have not filed, and do not intend to file, a securities prospectus with the German Federal Financial Supervisory Authority (Bundesanstalt f ur Finanzdienstleistungsaufsicht) (BaFin) or obtain a notification to BaFin from another competent authority of a Member State of the EEA, with which a securities prospectus may have been filed, pursuant to Section 17 Para. 3 of the German Securities Prospectus Act. The Netherlands The Notes which are the subject of the offering contemplated by this Offering Memorandum, have not, may not and will not be offered to the public in the Netherlands, other than (i) exclusively to qualified investors (gekwalificeerde beleggers), as defined in section 1:1 of the Dutch Act on financial supervision (Wet op het financieel toezicht) (the AFS) or (ii) in any other circumstances falling with an exemption of the obligation pursuant to section 5:2 of the AFS to publish a prospectus in respect of an offer of the Notes, on the basis of section 3:5(2) of the AFS or otherwise. Each purchaser of Notes described in this Offering Memorandum located in the Netherlands will be deemed to have represented, acknowledged and agreed that it is a qualified investor (gekwalificeerde beleggers) as defined in section 1:1 of the AFS. For the purposes of this provision, the expression an offer of notes to the public in relation to any Notes in the Netherlands means to make a sufficiently specific offer addressed to more than one person as referred to in section 217(1) of Book 6 of the Dutch Civil Code to conclude a contract to purchase or otherwise acquire the Notes, or to issue an invitation to make an offer of the Notes. THIS OFFERING MEMORANDUM CONTAINS IMPORTANT INFORMATION THAT YOU SHOULD READ BEFORE YOU MAKE ANY DECISION WITH RESPECT TO AN INVESTMENT IN THE NOTES. FORWARD-LOOKING STATEMENTS This Offering Memorandum contains forward-looking statements within the meaning of the securities laws of certain jurisdictions, including statements under the headings Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, Industry Overview, Business and in other sections. In some cases, these forwardlooking statements can be identified by the use of forward-looking terminology, including the words aims, believes, estimates, anticipates, expects, intends, may, will, plans, continue or should or, in each case, their negative or other variations or comparable terminology or by discussions of strategies, plans, objectives, targets, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Offering Memorandum and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and dividend policy, and the industry in which we operate. By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. In addition, even if our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent with the forward-looking

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statements contained in this Offering Memorandum, those results or developments may not be indicative of results or developments in future periods. You should not place undue reliance on these forward-looking statements. Any forward-looking statements are only made as of the date of this Offering Memorandum and we do not intend, and do not assume any obligation, to update forward-looking statements set forth in this Offering Memorandum. Many factors may cause our results of operations, financial condition, liquidity and the development of the industries in which we compete to differ materially from those expressed or implied by the forward-looking statements contained in this Offering Memorandum. These factors include, among others: the impact of global economic conditions on worldwide demand for our products and services and on our access to financing; the deterioration of Spanish economic conditions; cyclicality in the market prices for our pulp products; increases in the cost of wood, certain chemicals, energy and oil, which are the main raw materials used in our activities; volatility in market electricity prices; failure to adjust pulp production volumes in a timely or cost-efficient manner in response to changes in demand; failure to keep up with technological changes, as well as changes in prices, industry standards and other factors; economic, political and social risks in foreign countries; significant competition in the industries in which we operate; the expiration of the administrative concession related to our Pontevedra facilities in 2018; competition for land use; significant interruptions to our operations at the pulp production, energy generation, transportation, storage, distribution and port facilities we own or utilize, including those resulting from mechanical failures or difficulties or unplanned or planned shutdowns at our pulp production facilities; catastrophes, natural disasters, adverse weather conditions, unexpected geological or other physical conditions, or criminal or terrorist acts; interest rate and currency risks; risks related to hedging activities; any insufficiency of our insurance coverage; regulatory changes affecting our electricity generating operations; exposure to various administrative controls and extensive governmental regulation; the costs of compliance with environmental, health and safety laws and regulations; liability and costs in connection with hazardous substances present at certain of our facilities; concerns about the effects of climate change; changes in the financing conditions for biomass projects; failure to satisfy requirements related to substantial capital investments, suitable sites, qualified suppliers and administrative permits and authorizations in our electricity generating activity; delays in the completion of our biomass energy projects;

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 adverse effects to our electricity generating operations resulting from adverse circumstances affecting our pulp production operations; the social, economic and environmental side effects of our electricity generating operations; failure to retain key employees; wage increases or work stoppages by our unionized employees; credit risk of our counterparties; risks associated with acquisitions or investments in joint ventures with third parties; risks in connection with divestitures; and other factors beyond our control. These risks and others described under Risk Factors are not exhaustive. Other sections of this Offering Memorandum describe additional factors that could adversely affect our results of operations, financial condition, liquidity and the development of the industries in which we operate. New risks can emerge from time to time, and it is not possible for us to predict all such risks, nor can we assess the impact of all such risks on our business or the extent to which any risks, or combination of risks and other factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. PRESENTATION OF FINANCIAL AND OTHER INFORMATION The Issuer of the Notes is ENCE Energ a y Celulosa, S.A. This Offering Memorandum includes: (i) the unaudited consolidated condensed interim financial statements of the Issuer and its subsidiaries as of and for the nine months ended September 30, 2012 and the comparative period for the nine months ended September 30, 2011, including the accompanying notes thereto (the Interim Consolidated Financial Statements); and (ii) the audited consolidated annual financial statements of the Issuer and its subsidiaries as of and for each of the years ended December 31, 2009, December 31, 2010 and December 31, 2011, including the accompanying notes thereto. In addition, we also present consolidated financial data as of and for the year ended December 31, 2007 derived from our audited consolidated financial statements as of and for the year ended December 31, 2007 that are not included in this Offering Memorandum, and consolidated financial data as of and for the year ended December 31, 2008 derived from the audited consolidated financial statements for the year ended December 31, 2009, where they were included for comparative purposes to give effect to a restatement in 2009 resulting from the sale of certain of our Uruguayan assets. The audited consolidated financial statements for the years ended December 31, 2011, December 31, 2010 and December 31, 2009 and the consolidated financial data for the years ended December 31, 2008 and December 31, 2007 are herein referred to as the Consolidated Financial Statements. The Consolidated Financial Statements of the Issuer and its subsidiaries as of and for the years ended December 31, 2007, December 31, 2008, December 31, 2009, December 31, 2010 and December 31, 2011 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). Unless otherwise stated herein: (i) all financial information as of and for the nine months ended September 30, 2012 and the comparative period for the nine months ended September 30, 2011 presented herein has been derived from the Interim Consolidated Financial Statements; and (ii) all financial information as of and for the years ended December 31, 2007, December 31, 2008, December 31, 2009, December 31, 2010 and December 31, 2011 presented herein has been derived from the Consolidated Financial Statements. The unaudited financial information for the twelve months ended September 30, 2012 has been derived by subtracting from the audited consolidated financial information for the year ended December 31, 2011 the unaudited consolidated financial information for the nine months ended September 30, 2011 and adding the unaudited consolidated financial information for the nine months ended September 30, 2012.

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Except as otherwise indicated, the financial statements and financial information included herein are presented in euro. The euro is the common legal currency of the Member States participating in the third stage of the European Economic and Monetary Union, including Spain. In this Offering Memorandum, we present certain non-GAAP measures, including Adjusted EBITDA, Cash Costs, EBITDA, Gross debt, Mid-cycle EBITDA, Net debt, Other Cash Costs, Total Costs, Unlevered free cash flow (excluding expansion capital expenditure), Wood Costs and Working capital, and certain leverage and coverage ratios that are not required by, or presented in accordance with, IFRS. Our management believes that the presentation of these non-GAAP measures and ratios is helpful to investors because these and other similar measures are widely used by certain investors, security analysts and other interested parties as supplemental measures of performance and liquidity. However, you should not construe these non-GAAP measures and ratios as alternatives to profit and loss from operations determined in accordance with IFRS or to cash flows from operations, investing activities or financing activities, or to any other measure or ratio required by, or presented in accordance with, IFRS. In addition, our non-GAAP measures and ratios may not be comparable to similarly titled measures or ratios used by other companies. As used in this Offering Memorandum, the following terms have the following meanings: Adjusted EBITDA means EBITDA adjusted for severance payments, for provisions and other items, for capitalized interest expenses, for results from sale of fixed assets and other extraordinary items and for operational hedging. Cash Costs means Wood Costs plus Other Cash Costs. EBITDA means profit and loss from operations adjusted for depreciation and amortization and for impairment and gains or losses on disposals of non-current assets. Gross debt means current and non-current financial debt plus other financial liabilities. We present our gross debt both including and excluding project finance indebtedness. Mid-cycle EBITDA means, at any time, senior managements good faith estimate of the consolidated EBITDA of the company based on an estimate of average historical peak and trough pulp prices through the economic cycle. Net debt means gross debt less cash and cash equivalents. We present our net debt both including and excluding project finance indebtedness. Other Cash Costs means the cost of chemicals, non-biomass fuels, energy costs (net of energy revenues), commercial expenses, logistics, packaging, fixed production costs and other cash overhead. Total Costs means Cash Costs plus finance cost and depreciation (excluding forestry depletion charge). Unlevered free cash flow (excluding expansion capital expenditure) means net cash flow from operating activities adjusted for interest paid, interest received, income tax paid (recovered) and maintenance capital expenditure. Wood Costs means the cost of timber at the mill gate plus the forestry depletion charge. Working capital means inventories, plus trade and other receivables plus receivables from public authorities, plus other current financial assets, plus other current assets, less trade and other payables, less corporate income tax payable, less other accounts payable to public authorities and less other current liabilities. Certain data contained in this Offering Memorandum, including financial information, have been subject to rounding adjustments. Accordingly, in certain instances, the sum of the numbers in a column or a row in tables may not conform exactly to the total figure given for that column, row or table, or the sum of certain numbers presented as a percentage may not conform exactly to the total percentage given. The financial information included in this Offering Memorandum is not intended to comply with the applicable accounting requirements of the U.S. Securities Act and the related rules and regulations of the SEC which would apply if the Notes were being registered with the SEC.

ix

Pursuant to Spanish regulatory requirements, directors reports are required to accompany our Consolidated Financial Statements and the related auditors report and are included in this Offering Memorandum only in order to comply with such regulatory requirements. Investors are strongly cautioned that the directors reports contain information as of various historical dates and do not contain a current description of our business, affairs or results. The information contained in the directors reports has been neither audited nor prepared for the specific purpose of this Offering. Accordingly, the directors reports should be read together with the other sections of this Offering Memorandum, and particularly Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations. Any information contained in the directors reports is deemed to be modified or superseded by any information contained elsewhere in this Offering Memorandum that is subsequent to or inconsistent with it. Furthermore, the directors reports include certain forward-looking statements that are subject to inherent uncertainty (please see Forward-Looking Statements). Accordingly, investors are cautioned not to rely upon the information contained in such directors reports. PRESENTATION OF INDUSTRY AND MARKET DATA We have generally obtained the market and competitive position data in this Offering Memorandum from industry publications and from surveys or studies conducted by third party sources that we believe to be reliable. In particular, we use data extracted from reports by industry consultants RISI, Inc. (RISI) dated August 2012 and Hawkins Wright Ltd. (Hawkins Wright) dated July 2012 and December 2012, as well as data and forecasts from market research, governmental and other publicly available information, and independent industry sources. Nonetheless, we cannot assure you of the accuracy and completeness of such information and neither we nor the Initial Purchasers have independently verified such market and position data. In addition, this Offering Memorandum contains summaries we believe to be accurate with respect to certain documents, but reference is made to the actual document for complete information. We take no responsibility for such information other than for its correct reproduction. Market data and statistics are inherently predictive and speculative and are not necessarily reflective of actual market conditions. Such statistics are based on market research, which itself is based on sampling and subjective judgments by both the researchers and the respondents, including judgments about what types of products and transactions should be included in the relevant market. In addition, the value of comparisons of statistics for different markets is limited by many factors, including that: (i) the markets are defined differently; (ii) the underlying information was gathered by different methods; and (iii) different assumptions were applied in compiling the data. Accordingly, the market statistics included in this Offering Memorandum should be viewed with caution and no representation or warranty is given by any person as to their accuracy. In addition, in many cases we have made statements in this Offering Memorandum regarding our industry and position in the industry based on our experience, internal estimates and our own investigation of market conditions. We cannot assure you that any of these assumptions are accurate or correctly reflect our position in the industry, and none of our internal surveys or information have been verified by any independent sources.

DEFINITIONS In this Offering Memorandum: References to Collateral are to the collateral as described under Description of the NotesCredit EnhancementSecurity. References to Consolidated Financial Statements are to the audited consolidated annual accounts of the Issuer and its consolidated subsidiaries as of and for the years ended December 31, 2007, December 31, 2008, December 31, 2009, December 31, 2010 and December 31, 2011. References to dollar, U.S. dollar or $ are to the currency of the United States. References to euro or e are to the currency of the Member States of the European Union participating in the third stage of the Economic and Monetary Union. References to ENCE, we, us and our and the Group are to the Issuer and its consolidated subsidiaries, unless the context otherwise requires or the meaning is clear from the context. References to EURIBOR are to the Euro Interbank Offered Rate. References to Existing Credit Facilities are to (i) the credit agreement dated April 2, 2008 entered into by and among ENCE Energ a y Celulosa, S.A., as borrower, certain subsidiaries within its group, as guarantors, and a syndicate of lenders acting Banco Bilbao Vizcaya Argentaria, S.A., as agent thereof, as amended from time to time; (ii) the credit agreement dated October 14, 2010 entered into by and among ENCE Energ a y Celulosa, S.A., as borrower, Celulosas de Asturias, S.A.U., as guarantor, and a syndicate of lenders acting Banco Bilbao Vizcaya Argentaria, S.A. as agent thereof; (iii) the credit agreement dated February 19, 1990 between Norte Forestal, S.A.U., as borrower, and Banco Gallego, S.A., as bilateral lender, as amended from time to time; (iv) the mortgage-secured loan agreement dated December 12, 2005 entered into by and between Silvasur Agroforestal, S.A.U. as borrower, and Caja Rural del Sur, Sociedad Cooperativa de Cr edito, as lender, as amended from time to time; and (v) the mortgage-secured loan agreement dated April 1, 2009 entered into by and between Silvasur Agroforestal, S.A.U., as borrower, and Caja Rural del Sur, Sociedad Cooperativa de Cr edito, as lender. References to GAAP are to Generally Accepted Accounting Principles as used in accordance with IFRS as issued by the International Accounting Standards Board and adopted by the European Union. References to the Guarantees are to the senior secured guarantees by the Guarantors to guarantee the payment obligations of the Issuer under the Notes. References to the Guarantors are, collectively, to Celulosa Energ a, S.A.U.; Celulosas de Asturias, S.A.U.; Norte Forestal, S.A.U.; and Silvasur Agroforestal, S.A.U., as guarantors of the Notes. References to IFRS are to International Financial Reporting Standards as adopted by the European Union. References to the Indenture are to the indenture between, among others, the Issuer, the Security Agent and the Trustee under which the Notes will be issued. References to the Initial Purchasers are to the firms referred to under the Plan of Distribution section in this Offering Memorandum. References to the Intercreditor Agreement are to the Intercreditor Agreement to be entered into on or around the Issue Date between, among others, the Issuer, Deutsche Bank AG, London Branch, Banco Bilbao Vizcaya Argentaria, S.A., Banco Espa nol de Cr edito, S.A., Bankia, S.A., Banco de Sabadell, S.A., Barclays Bank PLC, CaixaBank, S.A., Citibank International PLC, London and Bankinter, S.A., as revolving lenders; Deutsche Bank AG, London Branch, as facility agent, original issuing bank and security agent; and Deutsche Trustee Company Limited, as secured notes trustee. Please see Description of Other IndebtednessIntercreditor Agreement.

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 References to Interim Consolidated Financial Statements are to the unaudited consolidated condensed interim financial statements of the Issuer and its consolidated subsidiaries as of and for the nine months ended September 30, 2012 and the comparative period as of and for the nine months ended September 30, 2011. References to the Issue Date are to the date on which the Notes offered hereby are issued. References to the Issuer are to ENCE Energ a y Celulosa, S.A. References to LIBOR are to the London Interbank Offered Rate. References to the Luxembourg Listing Agent are to Deutsche Bank Luxembourg S.A. References to the Market Tariff are to the option of receiving the sale price set by the organized market (the pool price) or the price freely negotiated by the owner or representative of the facilities, supplemented, as the case may be, by a premium, subject to applicable caps and floors, for all electricity sold. References to the Notes are to the hereby. % Senior Secured Notes of the Issuer offered

References to the Offering are to the offering of the Notes hereby. References to the Paying Agent are to Deutsche Bank AG, London Branch. References to the Registrar are to Deutsche Bank Luxembourg S.A. References to the Regulated Tariff are to the option of receiving a regulated single tariff for all scheduling periods for all electricity sold. References to the Revolving Credit Facility are to the Super Senior Multicurrency Revolving Facility Agreement entered into on or around the Issue Date between, among others, the Issuer, certain subsidiaries of the Issuer, Deutsche Bank AG, London Branch, Banco Bilbao Vizcaya Argentaria, S.A., Banco Espa nol de Cr edito, S.A., Bankia, S.A., Banco de Sabadell, S.A., Barclays Bank PLC, CaixaBank, S.A., Citibank International PLC, London and Bankinter, S.A., as arrangers, certain financial institutions listed in Schedule 1 thereto, as original lenders, and Deutsche Bank AG, London Branch, as facility agent, original issuing bank and security agent, providing for a e90.0 million revolving credit facility. Please see Description of Other Indebtedness. References to the Security Agent are to Deutsche Bank AG, London Branch, as security agent under the Indenture. References to the Security Documents are to the Security Documents defined in the Indenture. References to the Transfer Agent are to Deutsche Bank Luxembourg S.A. References to the Trustee are to Deutsche Trustee Company Limited, as trustee under the Indenture. For a glossary of certain industry-related terms used in this Offering Memorandum, please see Glossary of Selected Terms.

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EXCHANGE RATE INFORMATION We present our Interim Consolidated Financial Statements and Consolidated Financial Statements in euro. We have set forth in the table below, for the periods and dates indicated, period average, high, low and end Bloomberg Composite Rates, expressed as U.S. dollars per e1.00. We have provided this exchange rate information solely for your convenience. We make no representation that any amount of currencies specified in the table below has been, or could be, converted into the applicable currency at the rates indicated or any other rate. The exchange rate of the euro on January 17, 2013 was $1.3364 per e1.00.
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1.3708 1.4697 1.3952 1.3211 1.3924 1.2911 1.2291 1.2405 1.2871 1.2974 1.2833 1.3126 1.3211

1.4858 1.5990 1.5094 1.4510 1.4874 1.3357 1.2612 1.2577 1.3121 1.3119 1.3002 1.3245 1.3364

1.2906 1.2452 1.2543 1.1952 1.2925 1.2306 1.2053 1.2164 1.2561 1.2875 1.2710 1.2937 1.3049

1.4583 1.3953 1.4331 1.3366 1.2960 1.3197 1.2306 1.2571 1.2876 1.2970 1.3002 1.3197 1.3364

Month July 2012 . . . . . . . . . . . . . . . . . . . August 2012 . . . . . . . . . . . . . . . . . September 2012 . . . . . . . . . . . . . . October 2012 . . . . . . . . . . . . . . . . November 2012 . . . . . . . . . . . . . . December 2012 . . . . . . . . . . . . . . January (through January 17, 2013)
(1)

Period average means the average of the exchange rates on the last business day of each month for annual averages and the average of the exchange rates on each business day during the relevant period for monthly averages.

We did not use the rates listed above in the preparation of our Interim Consolidated Financial Statements or Consolidated Financial Statements.

xiii

SUMMARY This summary highlights information contained elsewhere in this Offering Memorandum. The summary below does not contain all the information that you should consider before investing in the Notes. You should read the entire Offering Memorandum carefully, including our Interim Consolidated Financial Statements and Consolidated Financial Statements and the notes to those financial statements, before making an investment decision. Please see Risk Factors for factors that you should consider before investing in the Notes and Forward-Looking Statements for information relating to the statements contained in this Offering Memorandum that are not historical facts. Overview Our Company We are the largest Bleached Hardwood Kraft Pulp (BHKP) producer in Europe, with an annual maximum installed capacity of 1.34 million tonnes of pulp as of September 30, 2012. We also have a significant co-generation and renewable energy generation business, with an installed capacity of approximately 230 MW as of September 30, 2012 (excluding our new 50 MW independent biomass energy facility in Huelva, Spain, which became operational in September 2012 and for which we expect the transfer of ownership from our EPC contractor to us to take place in the first quarter of 2013) and total energy sales of 1,545 GWh for the twelve months ended September 30, 2012. Our integrated pulp and energy business model takes advantage of our strong positioning in forestry supply management, both with respect to managing forest plantations and crops for the production of wood and cultivated biomass and with respect to sourcing wood from third-party sources as required for the sustainability of our business. As of September 30, 2012, we managed approximately 87,370 hectares of plantations (excluding our forestry assets in Uruguay, which we are in the process of divesting), of which we owned approximately 59%. We are publicly listed on the Madrid Stock Exchange (Bolsa de Valores de Madrid) with a market capitalization of e533.1 million as of December 31, 2012. For the twelve months ended September 30, 2012, we generated revenue of e801.5 million, Adjusted EBITDA of e149.9 million and unlevered free cash flow (excluding expansion capital expenditure) of e122.3 million. Business Areas We organize our economic activities into three distinct but closely interrelated and complementary business areas: Pulp Production We are the largest BHKP producer in Europe, focused on eucalyptus pulp, with an annual maximum installed capacity of 1.34 million tonnes as of September 30, 2012, almost twice the capacity of the next largest BHKP producer in Europe. For the twelve months ended September 30, 2012, we produced an aggregate of 1.26 million tonnes of eucalyptus pulp across our three pulp production facilities in Huelva, Navia and Pontevedra, Spain, representing a utilization rate of 94%. For the twelve months ended September 30, 2012, our pulp production activities generated revenue of e577.0 million, representing 72% of our total revenue. In the twelve months ended September 30, 2012, we exported 87% of our eucalyptus pulp sales by volume, primarily to the European market, the largest global pulp market and a net importer of market pulp, where we have a market share of 14%. We held a significant market share by volume for BHKP in each of Germany, Italy, Spain and France, the principal markets for our pulp products, which accounted for 22%, 15%, 13% and 9% of our volume, respectively, for the twelve months ended September 30, 2012. During the same period, we also exported our pulp products to other Western European countries (19%) and to Eastern Europe (10%), as well as selectively outside of Europe (12%, primarily to China). Our sales are focused on end-market paper segments with high forecasted growth rates. Our biggest end-market by volume is the tissue segment (the end products of which mainly include paper towels for kitchen, bathroom and toilet paper), which represented 47% of our pulp sales by volume for the twelve months ended September 30, 2012. According to RISI, the tissue segment benefits from a resilient and stable end-customer demand, and is forecasted to grow globally at a compound annual growth rate (CAGR) by volume of 4.1% per annum over the period from 2011 to 2016, which is, according to RISI, the highest forecasted CAGR among the various paper

segments by global demand during such period. Of the remaining 53% of our pulp sales by volume for the twelve months ended September 30, 2012, 29% came from certain specialty paper and packaging segments, including beauty products and white-top packaging, while approximately 24% came from the printing and writing paper (P&W) segment, which, according to RISI, are expected to grow globally at a CAGR by volume of 2.8% and 0.9%, respectively, over the period from 2011 to 2016. Eucalyptus Pulp Sales (by volume) by Country(1)
RoW 12% East Europe 10%

End-Market Paper Segment Pulp Sales (by volume)(1) and Forecast CAGR (by volume) (2011 - 2016)
P&W 24% 0.9% CAGR Tissue 47% 4.1% CAGR

Germany 22%

West Europe 19% France 9%

(1)

Italy 15% Spain 13% 15JAN201323244572

Specialties 29% 2.8% CAGR

15JAN201323244311

For the twelve months ended September 30, 2012.

Source: Company and RISI.

Energy Generation With respect to our energy generation activities, we are primarily a biomass renewable energy generator. We generate renewable energy in two ways: (i) co-generation of electricity and steam integrated with our existing pulp production facilities, given the nature of the pulp production process, mainly fuelled through the use of the black liquor produced in the extraction of cellulose; and (ii) electricity generation independent from our pulp production, using biomass from energy crops and forestry residues (primarily consisting of wood barks and other wood-based residues related to harvesting activities). In addition, we co-generate electricity and steam using natural gas. All electricity produced by us is sold to the national electricity grid in Spain. All of our facilities use an all-all sale and purchase system, such that all energy generated at our plants is sold at a regulated inflation-adjusted preferential rate and all electricity required by the facilities to cover production needs is subsequently repurchased at a market rate (plus an access toll). The regulated inflation-adjusted preferential rate is governed by Royal Decree 661/2007, which guarantees the sale of the total produced electricity. For more information on the regulations governing our renewable energy generation activities, please see BusinessPrincipal ActivitiesEnergy Activity and Regulation. Including the additional 50 MW of generation capacity at our new independent biomass energy facility in Huelva, Spain, for which we expect the transfer of ownership from our EPC contractor to us to take place during the first quarter of 2013, we have a total installed capacity of approximately 280 MW, split into approximately 152 MW of co-generation capacity (102 MW from biomass and 50 MW from natural gas) and 128 MW of generation capacity. For the twelve months ended September 30, 2012, our energy generation activities produced revenue of e198.9 million, representing 25% of our total revenue. On the basis of our position and experience in the forestry sector in the Iberian Peninsula and our expertise in the development of short-rotation energy crops, we have developed a strategy for further expansion of our energy generation activities. In line with this strategy, in addition to the 50 MW independent biomass energy facility in Huelva, Spain for which we expect the transfer of ownership from our EPC contractor to us to take place during the first quarter of 2013, we are constructing an additional 20 MW independent biomass energy facility in M erida, Spain which is expected to become operational by the fourth quarter of 2014. These two plants are financed under long-term project finance arrangements. Please see Description of Other IndebtednessProject

Financings. Both the Huelva and M erida independent biomass energy facilities have qualified for the regulated inflation-adjusted preferential rate governed by Royal Decree 661/2007 and are not subject to the recent moratorium imposed by the Spanish government on additional renewable energy facilities in Spain. Please see BusinessPrincipal ActivitiesEnergy ActivityDevelopment of Additional Biomass Energy Facilities and RegulationRegulation Promoting Renewable Energy and Biomass GenerationRoyal Decree Law 1/2012. Forestry Our forestry activities consist of the nursing, planting, maintaining and harvesting of trees, and the sourcing of third-party timber, both locally and in the international markets, for the supply of wood necessary for our pulp production and biomass energy generation activities. Wood represents the largest portion of the cost of production of pulp. We source wood in several ways, including direct purchases from landowners through large and small suppliers and through imports, and from our own forestry assets. By increasing the proportion of our total wood supply sourced locally, we expect to reduce our reliance on wood imports in the coming years, since, in the recent past, wood imports have proven to be more expensive than locally sourced wood. We also sell timber and provide forestry services to third parties on a limited scale, an activity which generated revenue of e25.6 million for the twelve months ended September 30, 2012, representing only 3% of our total revenue. We have over 55 years of experience in the forestry business. As of September 30, 2012, we managed approximately 87,370 hectares of forest plantations (excluding Uruguay), of which we owned approximately 59%, with the remainder being managed in collaboration with third parties. Under typical management arrangements, the land continues to be owned by a third party, while we manage the preparation, planting and maintenance of the land only. These arrangements typically have a duration of two to three rotation cycles, or approximately 30 years. We also engage in research, development and innovation (R&D&I) activities related to our forestry activities as well as activities focusing on health and safety at work and environmental, quality and forestry activity sustainability management systems (all of which are fully integrated in the day-to-day management of our forestry activities). As of September 30, 2012, the net book value of the standing timber in our owned forest plantations (excluding Uruguay) was e172.6 million. We recently entered into an agreement for the sale of the forest plantations that we own in Uruguay. Please see Recent DevelopmentsUpdate on Uruguay Assets Disposal. Industrial Footprint We have a high-quality asset base underpinning our strong operating and environmental performance, having invested over e530 million in our asset base since 2007, excluding our investments in our new independent biomass energy facilities at Huelva and M erida, Spain and Uruguay assets. Our industrial infrastructure is comprised of three pulp production facilities located in Huelva, Navia and Pontevedra, Spain, where we also own and operate seven energy facilities which co-generate and generate energy by taking advantage of synergies from the industrial process. Each of these facilities is also strategically located in close proximity to our forestry assets and to shipment ports, in order to allow us to operate our business with reduced inventory levels as well as to allow efficient and timely deliveries of our pulp products at a competitive cost. In addition, we expect the independent 50 MW biomass energy facility in Huelva, Spain to be transferred to us from our EPC contractor during the first quarter of 2013. This new independent biomass energy facility is located in close proximity to our pulp production facility in Huelva, Spain. Furthermore, we are currently constructing another independent biomass energy facility in M erida, Spain, which is expected to become operational by the fourth quarter of 2014. We comply with internationally recognized standards on health and safety and with respect to the environment and pollution prevention, and internationally recognized guidelines on corporate responsibility and sustainability. As of August, 2012, 71% of our forestry assets were certified under the Programme for the Endorsement of Forest Certification (PEFC) scheme and 27% under the Forest Stewardship Council (FSC) scheme (excluding Uruguay), both of which are internationally recognized certification schemes promoting sustainable forest management. We intend to continue focusing on the sustainability of our production as well as to comply with strict environmental standards.

Our History Formation The origins of our company date back to 1957, when Empresa Nacional de Celulosa de Pontevedra, Empresa Nacional de Celulosa de Huelva and Empresa Nacional de Celulosa de Motril were created by the Instituto Nacional de Industria (an industrial holding institute owned and managed by the Spanish government). In 1968, these companies merged, creating Empresa Nacional de Celulosa, S.A., our predecessor company. Our predecessor company was set up at its inception with an export focus that we continue to maintain today. In 1987, the Motril facility was sold, and, in 1999, we acquired full ownership of Celulosas de Asturias, S.A.U., the owner of the Navia facility. We underwent two partial privatizations in 1990 and 1995 (which included public listings), and were fully privatized in 2001. The configuration of our pulp production and forestry activities took place in 1995, and we started generating renewable energy in 1997. Transformation Process Our company has undergone a significant transformation and change in strategy over the last five years. Between 2007 and 2009, our management was focused on several capital intensive growth projects running in parallel (including a brownfield pulp and energy capacity expansion at Navia and Huelva, Spain and a greenfield pulp production project in Uruguay, as well as a pipeline of biomass projects), which were managed with internal financial and construction resources, with only limited focus on the efficiency and profitability of the existing operations. With respect to our energy generation business, our energy generation revenue represented approximately 10% of our total revenue in 2007 and we financed our biomass expansion projects on our balance sheet. As a consequence of this focus on growth, we also had high financial leverage. Additionally, we operated a forestry ownership business model with a lesser focus on wood sourcing from third parties. From 2010 onwards, our managements focus and strategy shifted from capacity expansion to cost optimization and efficiency improvements across our pulp production facilities to exploit the business cash flow potential and to better protect our financial performance from cyclicality. As a result, we reduced fixed costs and introduced our Total Quality Management program in 2011, which was designed to drive operational efficiencies, balance maintenance capital expenditure requirements across our facilities and significantly improve utilization rate and productivity levels. In forestry, we now operate a forestry supply management business model, sourcing our supplies of wood through various local third parties (primarily forest owners and traders), and acting across the value chain (from standing timber through to harvesting and transportation) in order to reduce costs and to ensure the sustainability and security of our wood supply. Our revenue from energy generation has increased and, for the twelve months ended September 30, 2012, it represented 25% of our total revenue, enabling us to improve our cost competitiveness in the pulp production business as well as providing greater stability and long-term visibility to our future cash flow generation capabilities. With respect to growth projects, which are limited to independent biomass energy generation expansion opportunities, we have started outsourcing their execution to engineering, procurement and construction (EPC) providers in order to improve our risk profile. We currently finance independent biomass energy generation projects under long-term project finance arrangements. We also operate a forestry consultancy services business which we intend to exit in the near future in line with our strategy, following the restructuring of our Ibersilva, S.A.U. subsidiary in 2011. Through cash proceeds from internal cash flow generation, selected asset disposals in 2009 (including divestment of the Uruguayan companies Eufores, S.A., Celulosa y Energ a Punta Pereira, S.A., Zona Franca Punta Pereira, S.A. and Zona Franca Bopicua, S.A.) and a e130 million capital increase, which we implemented in 2010, we have also successfully reduced our net debt from e471.8 million, or 5.3x net debt/Adjusted EBITDA, as of December 31, 2008 to e227.7 million, or 1.5x net debt/Adjusted EBITDA (including 0.4x in relation to our project finance debt), as of September 30, 2012. In December 2012, we also entered into an agreement for the sale of the forest plantations that we own in Uruguay. Please see Recent DevelopmentsUpdate on Uruguay Assets Disposal. We operate a conservative financial policy, characterized by low leverage and adequate liquidity, which is a fundamental element of our strategy to further enhance the resilience of our business. As of the date of this Offering Memorandum, our management has publicly communicated that the companys financial strategy is to maintain, going forward, a

maximum leverage of 2.5x net debt/Mid-cycle EBITDA, including project finance debt. We define Mid-cycle EBITDA as, at any time, senior managements good faith estimate of the consolidated EBITDA of the company based on an estimate of average historical peak and trough pulp prices through the economic cycle. Any strategy is forward-looking in nature, and as such is subject to risk and uncertainties. Please see Forward-Looking Statements. Our Key Strengths Leading Market Positions and Strategically Located Production Facilities We are the largest BHKP producer in Europe, focused on eucalyptus pulp, with an annual maximum installed capacity of 1.34 million tonnes, almost twice that of the next largest BHKP producer in Europe. In the last twelve months ended September 30, 2012, we exported 87% of our eucalyptus pulp sales by volume primarily to Western European markets, the largest global pulp market, where we have a market share of 14%. We hold a significant market share by volume for our pulp products in each of Germany, Italy, Spain and France, the principal markets for our pulp products, which accounted for 22%, 15%, 13% and 9% of our volume, respectively, for the twelve months ended September 30, 2012. Our three pulp production facilities are strategically located along the coast, in close proximity to our forestry assets as well as to port terminals. The strategic locations of our pulp production facilities, together with a dynamic logistics scheme to 14 ports of destination, allow us to maintain low transportation costs (using a combination of trucks, trains, vessels and barges), to reduce inventory levels, and, at the same time, to provide an improved customer service by enabling us to respond quickly to our individual customers delivery needs, thus delivering a less commoditized product. Our three-pulp production facility layout, in combination with our relative proximity to the majority of our clients, provide us with manufacturing flexibility to tailor our pulp products to the specifications of our clients. We believe that our leading market positions provide us with significant economies of scale and an advantage over our competitors. In addition, the cash flows generated from our operations have allowed us to continually reinvest in our business, thus enabling us to retain our leading market positions. We also benefit from significant barriers to entry in our market, including the complexity and cost of wood supply, the high investment for industrial equipment, significant lead times and financing constraints for building new production facilities and long-term customer relationships with large paper companies as well as the required regulatory consents. Increasingly Geographically Diversified Revenues While we exported 87% of our eucalyptus pulp sales by volume primarily to Western European markets for the twelve months ended September 30, 2012, since 2011 we have focused on further diversifying our revenues by increasing our exposure to high-growth markets in Eastern Europe, particularly Poland and Slovenia, and selectively selling to non-European markets, particularly China, to take advantage of the more favorable supply/demand dynamics in these markets. Within Europe, for the twelve months ended September 30, 2012, we exported by volume 22% of our eucalyptus pulp sales to Germany, 15% to Italy, 9% to France, 19% to other Western European markets and 10% to Eastern European markets and, in parallel, have reduced our exposure to the Spanish market from 19% of sold volumes in 2010 to 13% during the twelve months ended September 30, 2012. Focus on Key Growth Segments of the Paper Market The global BHKP market has grown at a CAGR by volume of approximately 4.0% over the period from 2006 to 2011. According to RISI, this trend is expected to continue over the period from 2011 to 2016 at a CAGR by volume of 3.8%, primarily driven by continued underlying growth in the demand for tissue as well as a strong increase in demand from emerging markets, particularly China. Our hardwood eucalyptus pulp is highly suited to the tissue segment, which accounted for 47% of our pulp sales by volume for the twelve months ended September 30, 2012. The tissue segment is less-commoditized, benefitting from a resilient and stable end-customer demand, according to RISI, and is forecasted to grow globally at a CAGR by volume of 4.1% per annum over the period from 2011 to 2016. Of the remaining 53% of our pulp sales by volume for the twelve months ended September 30, 2012, 29% came from certain specialty paper and

packaging segments, including beauty products and white-top packaging, while approximately 24% came from the P&W segment which, according to RISI, is expected to grow globally at a CAGR by volume of 2.8% and 0.9%, respectively, over the period from 2011 to 2016. Furthermore, according to RISI, Chinese demand for BHKP is expected to grow faster than in any other geographic region at a CAGR of 9.7% for the 20112016 period. Given the high production costs in China and the scarcity of local wood, relative to other geographies, Chinas demand for BHKP is expected to be heavily dependent on imports. Well-Invested and Efficient Facilities Having invested over e530 million in our asset base since 2007 (excluding investments in our new independent biomass energy facilities at Huelva and M erida, Spain and Uruguay assets), we have well-invested, cost-efficient, low-maintenance cost production facilities with improved environmental performance. Our installed pulp production capacity has increased by 23% since 2007 and we had a 94% utilization rate during the twelve months ended September 30, 2012. We also have a historically stable pulp production profile. In addition, our energy sales have increased consistently year-on-year since 2007 and our renewable energy generation business continues to grow, with 848 GWh of energy sold in 2007, 1,490 GWh of energy sold in 2011 and 1,545 GWh of energy sold during the twelve months ended September 30, 2012, the highest level that we have ever sold. Excluding expansion programs, our maintenance capital expenditure (including investment in pulp facilities, energy and forestry activities to produce wood for pulp) have remained consistently in the e40 million per annum range during the period from 2007 to 2011. Pulp Production Capacity and Utilization Rate(1)
102% 100% 78% 86% 93% 94%

Energy Sold (GWh)

1,490 1,216 1,051 1,332 1,545

1,090

1,090

1,278

1,340

1,340

1,340

848

2007

2008

2009

2010

2011

LTM Sep 2012

Pulp production capacity (k tonnes)

Utilization rate (%) 19JAN201300442183

2007

2008

2009

2010

2011

2012 17JAN201323425096

LTM Sep

(1)

The decline in the 2009 utilization rate for pulp production was driven by stoppages at the Navia pulp production facility due to capacity expansion works we undertook, as well as a temporary, extraordinary shutdown of one of our two production lines at our Huelva pulp production facility due to low pulp prices.

Source: Company.

Our efficient facilities and production processes allow us to continue to operate during periods of low pulp prices. Since 2001, we have not needed to shut down pulp production as a result of economic factors except in 2009 when, as the result of extraordinarily low pulp prices, we temporarily closed one of our two production lines at our pulp production facility in Huelva, Spain. Complementary Business Model and Valuable Energy Assets We own and operate seven energy generation facilities at Navia, Pontevedra and Huelva, Spain and, in addition, we expect the transfer of ownership from our EPC contractor to us of a new 50 MW independent biomass energy facility in Huelva, Spain to occur during the first quarter of 2013. Together, these facilities have a total installed capacity of approximately 280 MW, split into approximately 152 MW of co-generation capacity (102 MW from biomass and 50 MW from natural gas) and approximately 128 MW of generation capacity. Through these facilities, we generate more electricity than we require to cover the production needs of our facilities. Moreover, our facilities produce electricity fuelled by biomass, thereby helping reduce greenhouse gas emissions and improving energy efficiency. The integration of our pulp manufacturing process, with complementary energy generation and forestry activities, is our key strength, and our focus on our energy assets is fundamental to our strategy going forward in terms of improving the cost competitive position of our

pulp production facilities, diversifying our revenue towards a regulated business as well as providing greater stability and long-term visibility to our future cash flow generation. In addition, we are currently constructing a 20 MW independent biomass energy facility in M erida, Spain which is expected to become operational in the fourth quarter of 2014. Our existing energy facilities and our independent biomass renewable energy generation facility under construction in M erida, Spain are not affected by the recent moratorium on new renewable energy facilities in Spain. Proven Track Record of Competitive and Sustainable Forestry Supply Management Our Wood Costs are the largest component of our cost base and represented, for the twelve months ended September 30, 2012, more than 50% of our Cash Costs, which is defined as our Wood Costs plus Other Cash Costs. We have over 55 years of experience in the forestry business and have successfully built a strategy in wood supply management based on two pillars: (i) increasing direct purchases of standing timber from land owners; and (ii) increasing purchases from small, local suppliers in order to increase the proportion of local timber versus comparatively more expensive wood imports. In doing so, we have been able to reduce costs across our entire value chain. We are collaborating with plantation owners through long-term arrangements, which typically have durations of two to three rotation cycles, or approximately 30 years, thereby ensuring the availability of wood from local supplies and directly sharing our know-how on forestry management and logistics with the owners for their benefit, thus increasing their loyalty. Our direct purchases of standing timber from forestry owners and of wood from small, local suppliers have increased from 1,498,129 m3 in 2007 to approximately 2,332,734 m3 during the twelve months ended September 30, 2012, accounting for approximately 64% of our total wood purchases during this period as compared to 49% of our total wood purchases in 2007. Accordingly, we have had to rely less on importing comparatively more-expensive wood, which has reduced our costs and improved our efficiency. As a result of these measures, the proportion of imported wood within our total wood supply decreased to 14% of our total wood supply during the twelve months ended September 30, 2012, compared to 18% of our total wood supply during 2007. Evolution of Forestry Supply: 2007 vs. Twelve Months ended September 30, 2012 Forestry Supply in Year Ended December 31, 2007
Imported, 18% Owned wood, 8% Acquisitions from land owners, 12%
Large suppliers, 19%

Forestry Supply in Twelve Months Ended September 30, 2012(1)

Imported, 14% Owned wood, 3% Acquisitions from land owners, 28%

Large suppliers, 25% Small suppliers, 37% 19JAN201305554855

Small suppliers, 36%

19JAN201305555007

(1)

We define small suppliers as those supplying less than 3,000 m3 of timber per month and large suppliers as those supplying more than 3,000 m3 of timber per month.

Source: Company.

Strong Focus on Cost Leadership and Cash Generation Since 2009, we have continuously maintained a focus on cost reduction across all our business activities, by improving the cost base and production efficiency of our pulp production facilities, increasing the energy contribution from our renewable energy generation activities, shifting from a forestry ownership to a forestry management business model, divesting non-core assets, increasing and stabilizing production and reducing overhead costs. As a result of these initiatives, since 2009 our Other Cash Costs (our Cash Costs excluding Wood Costs) declined by 13% to

e140 per tonne for the twelve months ended September 30, 2012. Our Total Costs for the twelve months ended September 30, 2012 and for the years ended December 31, 2011 and December 31, 2010 were e412 per tonne, e437 per tonne and e449 per tonne, respectively. For the year ended December 31, 2011, we believe that these costs are in line with the levels achieved by Brazilian pulp producers, the largest pulp producers by volume globally, according to RISI. Evolution of Other Cash Costs (Cash Costs Excluding Wood Costs)
178 185 162 169 153 140

EUR / tonne

2007

2008

2009

2010

2011

2012 17JAN201323424960

LTM Sep

Source: Company.

For the twelve months ended September 30, 2012 and for the year ended December 31, 2011, we generated unlevered free cash flow (excluding expansion capital expenditure) of e122.3 million and e98.4 million, respectively. Balance Sheet Strength and Conservative Financial Policy Management Over the past five years, through cash proceeds from internal cash flow generation, selected Uruguay asset disposals in 2009 and a e130 million capital increase implemented in 2010, we have successfully reduced our net debt from e471.8 million (or 5.3x net debt/Adjusted EBITDA) as of December 31, 2008 to e227.7 million as of September 30, 2012 (or 1.5x net debt/Adjusted EBITDA, including 0.4x in relation to our project finance debt). Experienced and Proven Management Team Complemented by a Supportive Shareholder Base We have an experienced, proven and fully committed management team with a history of successfully managing through several industry cycles. The management team of each of our divisions has an average operating experience of approximately 20 years in both the pulp and paper and renewable energy sectors, including within highly ranked multinationals. Our major shareholders as of the date of this Offering Memorandum remain fully committed to the business. They participated in our e130 million capital increase implemented in March 2010, which underscored their continued conviction and confidence in our business. Our two largest shareholders, Retos Operativos XXI, S.L. and Alcor Holding, S.A., have each held a shareholding interest in excess of 20% of our shares since 2007. In addition, Juan Luis Arregui, who represents the interests of our largest shareholder, Retos Operativos XXI, S.L., which owns 24.5% of our shares, is currently the Chairman of our Board of Directors. Our Strategy Our overall strategy is to further develop our complementary, integrated business model in terms of cash generation, profitability and return on investment. We intend to achieve this strategy through the continuous improvement of the operational performance of our existing pulp production facilities by focusing on cost reduction and efficiency, stability of production, delivering superior customer satisfaction and maintaining efficient forestry supply management, and by focusing on growth through the selective expansion of our renewable energy generation business. In addition, we intend to continue to maintain our focus on maximizing cash flow generation through controlled capital expenditures and a conservative financial policy. Maintain Low-Cost, Efficient Pulp Production with a Focus on International Markets We believe that we are among the lowest-cost pulp producers in Europe, largely as a result of our integrated business model and our significant past investments in our production facilities,

resulting in well-invested, cost-efficient production facilities with high utilization rates and expected low maintenance capital expenditure. Our cost leadership is also underpinned by the strategic location of our production facilities. We seek to further optimize our production process and improve the cost efficiency at all of our facilities. Our strategy is to do so by leveraging our integrated business model and our energy generation and forestry activities, thereby minimizing further investments and increasing our competitiveness, profitability and cash generation. We strive to continuously increase the productivity of our pulp business (as measured by tonnes produced per employee) and at the same time maintain the competitive performance of our production facilities against internal and external industry benchmarks relating to key operational indicators and raw material consumption. Additionally, we seek to maintain and further strengthen our leading market positions across Europe, maintaining a diversified client base, further expanding pulp sales in the high-growth tissue market and in other European geographic regions, as well as maintaining a selective approach to other international markets such as China, thereby increasing our overall market share. Selective Further Expansion of Our Renewable Energy Generation Business We expect biomass energy generation to continue to be a key focus for us. We aim to leverage our extensive experience in building and operating biomass-based renewable energy co-generation and independent generation facilities to optimize efficiency at our existing facilities as well as to grow selectively in the biomass renewable energy sector by developing profitable opportunities that fulfill our requirements both domestically and internationally. In order to guarantee biomass supply in terms of volumes and costs, and structure project finance schemes to lower cash contribution and improve returns, we intend to develop short-rotation energy crop plantations to secure 50% to 60% of our total fuel supply. Until the current moratorium on the development of renewable energy in Spain is lifted, we do not intend to undertake any new renewable energy investments in Spain other than the construction already underway on our 20 MW independent biomass energy facility in M erida, Spain, which is expected to become operational by the fourth quarter of 2014 and which qualifies for a regulated inflation-adjusted preferential rate. In the meantime, we intend to explore and pursue opportunities in other jurisdictions that offer favorable regulatory regimes for such investments and where we can apply our expertise, with an initial focus on European countries. We intend to continue to finance any potential opportunities on a project finance basis and transfer the execution risk to EPC providers, and we plan to address international opportunities by entering into partnerships in order to reduce equity contribution and minimize risks. Renewable energy generation is fundamental to our strategy going forward, as a source of recurring stable income, and is underpinned by the European Unions goal to have renewable energy account for 20% of the European Unions gross total energy consumption by 2020. Therefore, we intend to gradually further expand our footprint in renewable energy generation while maintaining a conservative financial policy with a view to diversifying our revenue towards a regulated business and to improving the cost-competitive position of our pulp production facilities, as well as to provide greater stability and long-term visibility to our future cash flow generation. Optimize Forestry Supply Management with a Focus on Reducing Fixed Assets We intend to continue to focus on increasing direct purchases of standing timber from land owners so as to reduce costs derived across the entire wood value chain and increase our visibility on the availability of wood for our facilities and stimulate supply. Leveraging upon our 55 years of experience in the forestry business, we aim to further increase our collaboration with plantation owners through long-term agreements, thereby ensuring the availability of wood from local supplies and sharing our know-how on forestry management and logistics directly with the owners for their benefit. We also intend to continue to focus on increased purchases from small suppliers in order to increase our purchasing power and diversify our wood supply sources. Lastly, we intend to continue to reduce contribution from imports to further reduce costs and improve our efficiency. Our increasing ability to source wood at competitive prices from local wood suppliers and landowners and the low contribution of our owned plantations in the supply mix (wood from our plantations accounted for only 3% of our total wood supply during the twelve months ended September 30, 2012) has led us to look for opportunities to divest our forestry asset base. As described in Recent DevelopmentsUpdate on Uruguay Assets Disposal, we entered into an

agreement to divest 27,780 hectares in Uruguay in December 2012 and will continue to look for opportunities to reduce our forestry asset base in Spain and Portugal. For the supply of biomass, given the shorter crop cycles (3 to 5 years) of energy crops as compared to pulp wood (9 to 12 years) and the availability of highly productive irrigated land for rent due to the reduction of agriculture subsidies, we directly manage our biomass forestry assets and intend to continue to develop energy crops to ensure self-sufficiency for our energy generation facilities. Continue to Focus on Strong Cash Flow Generation and Follow a Conservative Financial Policy Our overall strategy across our three main business activities underpins our focus on continued strong free cash flow generation, while maintaining a conservative financial policy. We seek to further optimize capital expenditures and working capital so as to maintain our leading cash conversion capabilities among our European peers. As of the date of this Offering Memorandum, our management has publicly communicated that the companys financial policy strategy, going forward, is to maintain a maximum leverage of 2.5x net debt/Mid-cycle EBITDA, including project finance debt. We define Mid-cycle EBITDA as, at any time, senior managements good faith estimate of the consolidated EBITDA of the company based on an estimate of average historical peak and trough pulp prices through the economic cycle. Recent Developments Current Trading Update Although our financial results for the fourth quarter of 2012 are not yet available, we believe our revenue and EBITDA for the fourth quarter of 2012 will be higher than our revenue and EBITDA for the fourth quarter of 2011. This is primarily due to higher pulp prices and energy sales in the fourth quarter of 2012. For the year ended December 31, 2012, we believe our revenue and EBITDA will be in line with our revenue and EBITDA for the year ended December 31, 2011. Increase in the Sale Price of Pulp On December 10, 2012, we announced an increase of our pulp sale price to $800 per tonne. This decision was made in light of the upward trend in pulp prices during the second half of 2012, and reflects the rising demand worldwide for short-fiber pulp, such as BHKP , which is in turn used to produce tissue and other products. The price increase came into effect on January 1, 2013. Huelva 50 MW Biomass Energy Generation Facility Our new 50 MW independent biomass energy generation facility in Huelva, Spain became operational in September 2012. We expect the ownership of our new facility to be transferred to us from our EPC contractor during the first quarter of 2013. Our new Huelva facility will not be subject to the recent moratorium imposed by the Spanish government on additional renewable energy facilities in Spain. Please see BusinessPrincipal ActivitiesEnergy ActivityDevelopment of Additional Biomass Energy Facilities and RegulationRegulation Promoting Renewable Energy and Biomass GenerationRoyal Decree Law 1/2012. In accordance with the base case model underlying the e101.3 million (which has since been reduced to e99.1 million) project finance arrangement through which the development and construction of this biomass energy generation facility was financed (please see Description of Other IndebtednessProject FinancingsProject Financing for the Huelva Facility), we estimate that the facility will contribute e17.5 million to our consolidated EBITDA in the year ended December 31, 2013 (excluding the impact of the new energy taxes discussed below). New Energy Taxes in Spain On January 1, 2013, a new statute became effective (the Energy Tax Law), which, among other things, provides for: a direct tax on energy generators equal to 7% of the total annual revenues of each energy generation facility; and

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 the implementation of a green cent (c entimo verde) tax on natural gas under certain circumstances (including for the purposes for which natural gas is used in our energy generation facilities) at a rate of e0.65 per gigajoule and on fuel oil (which we use in small amounts to start the boilers necessary to our energy generation operations) used for the production of electric energy at a rate of e12.00 per tonne. Both taxes are tax-deductible. Although we expect the electricity market to pass a portion of these new taxes through the electricity pool prices, the Energy Tax Law is likely to increase our cost of production of energy. In addition, this change could have an impact on the project financing for our Huelva and M erida biomass energy facilities. The availability under such project finance facilities is calculated by a formula that includes tax as an input. The change in tax could have the effect of reducing the availability under these facilities from up to e101.3 million to up to e99.1 million, in the case of Huelva, and from up to e60.7 million to up to e50.7 million, in the case of M erida. While we have just initiated negotiations with our project finance lenders, we believe that the reduction of the available amount under these project finance facilities may be significantly less due to the impact of higher revised tariffs associated with inflation. In the event such reductions finally take place, we will have sufficient liquidity to complete the projects without any significant new financing demands on our Group. Acquisition of the Foresta Groups Energy Crop Technology On December 20, 2012, we entered into an agreement to acquire the energy crops-related technology of Foresta Capital, S.L. and Foresta Mantenimiento de Plantaciones, S.L. (the Foresta Group), including certain technology related to research and development, in vitro technology and a poplar clone known as Viriato. The agreement, which also includes provisions related to the transfer of seven employees of the Foresta Group to our subsidiary ENCE Investigaci on y Desarrollo, S.A.U., provided for an initial payment of e3.4 million to be paid at signing, with up to e3.1 million in additional consideration to be paid, subject to certain agreed terms and conditions. We will also be required to make a payment of e0.25 million per year under a service agreement for the next two years. Please see Certain Relationships and Related Party Transactions. Update on Uruguay Assets Disposal On December 14, 2012, we entered into an agreement to sell, subject to certain closing conditions, 27,780 hectares of land and related forestry assets owned by us in Uruguay for a total consideration of $77.3 million. Closing is conditional on, inter alia, the receipt of certain regulatory approvals and the making of required anti-trust notifications to the Uruguayan authorities, as well as other agreed closing conditions, and is expected to occur during the first quarter of 2013. This divestiture of our Uruguayan forestry assets is in line with our strategy to divest our forestry assets in order to enable us to focus on sourcing wood locally at more competitive prices from land which we do not own and at the same time to reduce our dependence on more expensive imports for part of our wood supply. Share Repurchase from Fidalser, S.L. On December 7, 2012, we acquired a total of 12,815,353 shares of ENCE Energ a y Celulosa, S.A., representing 5.12% of our share capital, from our former shareholder Fidalser, S.L. These shares, which were purchased for a total consideration of e25.3 million, will be kept as treasury shares pending further action by our Board of Directors. Greenhouse Gas Emission Rights In December 2012, we acquired 506,202 tonnes of greenhouse gas emission rights for CO2 emissions at a price of e24.7 per right in settlement of a forward agreement entered into in June 2008 for the purposes of meeting our emissions rights consumption requirements arising from our production activities in 2012 and going forward. We have entered into European Union Allowance (EUA) daily future contracts to purchase 601,000 tonnes of CO2 rights, which are settled on a daily basis, and which we may roll over totally or partially to cover our CO2 rights needs in the future. These contracts have their final settlement date on December 31, 2013. We will continue to enter into forward contracts to acquire additional CO2 rights, and believe we have contracted, or will

11

be able to contract, sufficient emissions rights to meet our operational needs for 2013 through 2016. Please see BusinessPrincipal ActivitiesEnergy Activity. The Issuer The Issuer of the Notes is ENCE Energ a y Celulosa, S.A. This entity was initially incorporated in Spain in 1968 as a sociedad an onima under the name Empresa Nacional de Celulosa, S.A. It changed its name to Grupo Empresarial ENCE, S.A. in 1999 and then to ENCE Energ a y Celulosa, S.A. in April 2012. Since 1990, we have been publicly listed on the Madrid Stock Exchange (Bolsa de Valores de Madrid) with a market capitalization of e533.1 million as of December 31, 2012. The Issuers principal executive offices are located at Paseo de la Castellana, 35, 28046 Madrid, Spain and its telephone number is +34 91 337 85 00. Its corporate website can be accessed at www.ence.es. The information and other content on our corporate website do not form part of this Offering Memorandum. The Guarantors The Notes will be fully and unconditionally guaranteed on a senior secured basis by certain subsidiaries of the Issuer. On the Issue Date of the Notes, the Guarantors will be Celulosa Energ a, S.A.U., Celulosas de Asturias, S.A.U., Norte Forestal, S.A.U. and Silvasur Agroforestal, S.A.U. On an aggregated basis for the nine months ended September 30, 2012, the Issuer and the Guarantors together represented 88.7% of the revenue and 97.4% of the EBITDA of the Issuer and its consolidated subsidiaries.

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Organizational and Finance Structure The following diagram summarizes our corporate structure and principal outstanding financing arrangements after giving effect to the issuance and sale of the Notes offered hereby. All entities shown below are 100% wholly owned. Please see Description of the Notes and Description of Other Indebtedness for more information. Entities that are shaded dark grey will be Guarantors of the Notes.
Issuer Guarantor Non-guarantor Restricted group

ENCE Energa y Celulosa, S.A. (the Issuer)

(1)

250.0 million % Senior Secured Notes (2) due 2020

90.0 million Revolving (3) Credit Facility

Celulosas de Asturias, (4) S.A.U.

Silvasur Agroforestal, (4) S.A.U.

Norte Forestal, (4) S.A.U.

Sierras Calmas, (5) S.A.

Maderas Aserradas del (5) Litoral, S.A.

ENCE Investigacin y Desarollo S.A.U.

Celulosa Energa, (4) S.A.U.

ENCE Energa, S.L.U.

Ibersilva, S.A.U.

Norfor Maderas, S.A.U.

Iberflorestal, S.A.U. (Portugal)

Huelva project financing facility(6)

ENCE Energa Huelva, S.L.U.

ENCE Energa Extremadura, S.L.U.

Mrida project financing facility(7)

20JAN201300292014
(1) (2) ENCE Energ a y Celulosa, S.A. (the Issuer) is listed on the Madrid Stock Exchange (Bolsa de Valores de Madrid). The Notes will be senior secured obligations of the Issuer and will be fully and unconditionally guaranteed on a senior secured basis (the Guarantees) by certain subsidiaries of the Issuer as of the Issue Date (the Guarantors). The Notes and the Guarantees will be secured by a first-ranking security interest in the shares of the Guarantors, intercompany debt, certain receivables and cash. On or about the Issue Date, we will enter into a new credit agreement providing for a e90.0 million revolving credit facility (the Revolving Credit Facility). The primary obligors under the Revolving Credit Facility are ENCE Energ a y Celulosa S.A., Celulosas de Asturias, S.A.U., Celulosa Energ a, S.A.U., Silvasur Agroforestal, S.A.U. and Norte Forestal, S.A.U. Pursuant to the Intercreditor Agreement, the Collateral also secures the Revolving Credit Facility on a pari passu basis with the Notes. For more information on the terms of the Revolving Credit Facility and the Intercreditor Agreement, please see Description of Other IndebtednessRevolving Credit Facility and Description of Other IndebtednessIntercreditor Agreement. On an aggregated basis, we estimate that the Issuer and the Guarantors together would have accounted for 81% of our total assets, 88.7% of our revenue and 97.4% of our EBITDA of the Issuer and its subsidiaries as of and for the nine months ended September 30, 2012. The subsidiaries of the Issuer that will not guarantee the Notes would have had e70.7 million of debt outstanding as of September 30, 2012 on a consolidated basis. On December 14, 2012, we entered into an agreement to sell, subject to certain closing conditions, 27,780 hectares of land and related forestry assets owned by us in Uruguay through Sierras Calmas, S.A. and Maderas Aserradas del Litoral, S.A. for a total consideration of approximately $77.3 million. However, if Sierras Calmas, S.A. or any successor thereof (i) continues to be a subsidiary of the Issuer after December 31, 2013; and (ii) has not sold all or substantially all of its assets and has not distributed the net sale proceeds to the Issuer, Sierras Calmas, S.A. will be required to provide an additional Guarantee of the Notes. Subject to certain limitations, any other subsidiary whose EBITDA in any completed fiscal year after the Issue Date represents the greater of: (i) 5% or more of the consolidated EBITDA of the Issuer and its restricted subsidiaries; or (ii) e5.0 million, will also be required to provide an additional Guarantee. On June 21, 2011, ENCE Energ a Huelva, S.L.U. entered into a syndicated project finance loan agreement in order to finance the construction and commissioning of the independent biomass renewable energy generation facility in Huelva, Spain in the amount of e101.3 million (which amount may be reduced to e99.1 million), the repayment of which will begin on June 22, 2013. This agreement will mature on December 22, 2022. Please see Description of Other IndebtednessProject FinancingsProject Financing for the Huelva Facility. On June 15, 2012, ENCE Energ a Extremadura, S.L.U. entered into a syndicated project finance loan agreement in order to finance the construction and commissioning of an independent biomass renewable energy generation facility in M erida, Spain in the amount of e60.7 million (which amount may be reduced to e50.7 million), the repayment of which will begin on December 15, 2014. This agreement will mature on June 15, 2027. Please see Description of Other IndebtednessProject FinancingsProject Financing for the M erida Facility.

(3)

(4)

(5)

(6)

(7)

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THE OFFERING The following summary contains basic information about the Notes. It may not contain all of the information that is important to you. For a more complete understanding of the Notes, please refer to the section of this Offering Memorandum entitled Description of the Notes. Terms used in this summary and not otherwise defined have the meanings given to them in Description of the Notes. Issuer . . . . . . . . . . . . . . . . . . . . . . ENCE Energ a y Celulosa, S.A., a sociedad an onima organized under the laws of Spain, having its corporate seat in Madrid, Spain and registered with the Commercial Registry of Madrid under Volume 27,825, Sheet 150, Section 8, Page M-31,131. e250.0 million aggregate principal amount of the Issuers % senior secured notes due 2020. , 2020. % per annum. Semi-annually in arrears on and of each year, commencing Interest will accrue from the Issue Date. , 2013. % (plus accrued interest, if any, from the Issue Date). Each Note issued will have a minimum denomination of e100,000 and integral multiples of e1,000 in excess thereof. Euroclear and Clearstream will not be responsible for monitoring such minimum transfer amounts. The Notes will initially be represented by one or more global notes in registered form without interest coupons attached which will be deposited, on the Issue Date, with a common depositary and registered in the name of the nominee of the common depositary for the accounts of Euroclear and Clearstream. Please see Book-Entry, Delivery and Form. Ranking of the Notes . . . . . . . . . . The Notes will: be general, senior obligations of the Issuer, secured by first-ranking security interests in the Collateral as set forth below under Security; rank pari passu in right of payment with any existing and future indebtedness of the Issuer that is not subordinated to the Notes (including the Revolving Credit Facility); rank senior in right of payment to any existing and future obligations of the Issuer that are expressly subordinated to the Notes; be effectively subordinated to any existing and future secured indebtedness of the Issuer and its subsidiaries that is secured by property or assets that do not secure the Notes, to the extent of the value of the property or assets securing such indebtedness, including our project finance debt; and be structurally subordinated to any existing and future indebtedness of the subsidiaries of the Issuer that do not guarantee the Notes. Please see Risk FactorsRisks Relating to the Notes and Our StructureLocal insolvency laws may not be as favorable to you as U.S. bankruptcy laws or those insolvency laws of another jurisdiction with which you may be more familiar. , 2013.

Notes Offered . . . . . . . . . . . . . . . . Maturity Date . . . . . . . . . . . . . . . . Interest Rate . . . . . . . . . . . . . . . . . Interest Payment Dates . . . . . . . . .

Issue Date . . . . . . . . . . . . . . . . . . . Issue Price . . . . . . . . . . . . . . . . . . Denomination and Form . . . . . . . .

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Guarantees . . . . . . . . . . . . . . . . . .

The Notes will be guaranteed on a senior secured basis (the Guarantees) by the following subsidiaries of the Issuer (the Guarantors) on the Issue Date: Celulosa Energ a, S.A.U.; Celulosas de Asturias, S.A.U.; Norte Forestal, S.A.U.; and Silvasur Agroforestal, S.A.U. On an aggregated basis for the nine months ended September 30, 2012, the Issuer and the Guarantors have generated 97.4% of our EBITDA and 88.7% of our revenue and, as of September 30, 2012, would have held 81% of our total assets. In addition, Sierras Calmas, S.A. or any successor thereof will provide an additional Guarantee if (i) it continues to be a subsidiary of the Issuer after December 31, 2013 and (ii) it has not sold all or substantially all of its assets and has not distributed the net sale proceeds to the Issuer. Any other subsidiary (other than a subsidiary engaged in biomass renewable energy generation) the EBITDA of which in any completed fiscal year after the Issue Date represents the greater of (i) 5% or more of the consolidated EBITDA of the Issuer and its restricted subsidiaries; or (ii) e5.0 million, will also be required to provide an additional Guarantee. As of September 30, 2012, on a consolidated basis giving pro forma effect to this Offering as described under Use of Proceeds: we would have had a total debt of e317.2 million, including unamortized transaction costs of e15.5 million; the Issuer would have had no outstanding debt other than the Notes offered hereby, the Revolving Credit Facility, e1.6 million outstanding under a bilateral loan agreement and e10.4 million outstanding under certain CDTI indebtedness. Please see Description of Other Indebtedness; the Guarantors would have had no debt outstanding; the subsidiaries of the Issuer that will not guarantee the Notes would have had e70.7 million of debt outstanding. Please see Description of Other IndebtednessProject Financings. The obligations of each Guarantor under its Guarantee will be limited to an amount that can be guaranteed under applicable laws, and will not apply to the extent a Guarantee would be illegal or unenforceable under applicable local and bankruptcy laws. Please see Risk FactorsRisks Relating to the Notes and Our StructureLocal insolvency laws may not be as favorable to you as U.S. bankruptcy laws or those insolvency laws of another jurisdiction with which you may be more familiar and Annex A of this Offering Memorandum.

Ranking of the Guarantees . . . . . .

Each Guarantee will: be a general senior obligation of the relevant Guarantor, secured by first ranking security interests in the Collateral as set forth under Security;

15

 rank pari passu in right of payment with any existing and future indebtedness of that Guarantor that is not subordinated to such Guarantors Guarantee (including indebtedness under the Revolving Credit Facility); rank senior in right of payment to any existing and future obligations of that Guarantor that are expressly subordinated to such Guarantee; and be effectively subordinated to any existing and future indebtedness of that Guarantor that is secured by property or assets that do not secure that Guarantors Guarantee, to the extent of the value of the property or assets securing such indebtedness. Please see Risk FactorsRisks Relating to the Notes and Our StructureLocal insolvency laws may not be as favorable to you as U.S. bankruptcy laws or those insolvency laws of another jurisdiction with which you may be more familiar. The Guarantees will be subject to the terms of the Intercreditor Agreement. Please see Description of Other IndebtednessIntercreditor Agreement. The Guarantees will be subject to release under certain circumstances. Please see Risk FactorsRisks Relating to the Notes and Our StructureThe Collateral may be released without the consent of the holders of the Notes and Description of the NotesCredit Enhancement Release of Guarantees. Security . . . . . . . . . . . . . . . . . . . . The Notes and Guarantees will be secured by a first-ranking security interest in the collateral (the Collateral), which as set forth in further detail in Annex A of this Offering Memorandum, will include: all present and future shares of capital stock of each of the Guarantors; all present and future debt of the Issuer or a restricted subsidiary owing to and held by the Issuer or any of the Guarantors (other than debt owed by our subsidiaries engaged in independent biomass renewable energy generation); subject to certain exceptions, all present and future receivables (excluding receivables subject, or to be subject, to factoring) owed to the Issuer or any of the Guarantors; and all present and future cash and cash equivalents held in bank or investment accounts of the Issuer or any of the Guarantors. The first-ranking interest in the Collateral will be granted and perfected within 45 calendar days of the Issue Date (except with respect to the security interest over intercompany debt and receivables, which will be granted within 45 days but is subject to a registration period for perfection which may take up to two months). Any additional security interests that may in the future be pledged to the Security Agent (or another security agent to be appointed for this purpose), to secure obligations under the Indenture would also constitute Collateral.

16

The obligations of the Issuer and of each subsidiary of the Issuer providing a first-ranking security interest in the Collateral (or to perfect any liens on such Collateral) may be limited under applicable laws or in accordance with the terms of the security documents relating to the Collateral and may be released under certain circumstances. Please see Risk FactorsRisks Relating to the Notes and our StructureThe enforcement of the Collateral may be restricted by Spanish law, Risk FactorsRisks Relating to the Notes and our StructureThe Collateral may be released without the consent of the holders of the Notes, Description of Other IndebtednessIntercreditor Agreement, Description of the NotesCredit EnhancementRelease of Collateral and Annex A to this Offering Memorandum. Intercreditor Agreement . . . . . . . . The first-ranking security interest in the Collateral will also be granted to secure indebtedness under the Revolving Credit Facility and certain hedging obligations. In addition, the Indenture will permit us to secure additional indebtedness with liens on the Collateral under certain circumstances. These intercreditor relationships will be governed by an intercreditor agreement (the Intercreditor Agreement). Pursuant to the terms of the Intercreditor Agreement, any liabilities in respect of obligations under the Revolving Credit Facility and certain hedging arrangements will receive priority with respect to any recoveries received upon enforcement over any such Collateral, as described in more detail under Description of Other Indebtedness Intercreditor Agreement. At any time prior to , 2016, the Issuer will be entitled, at its option, on one or more occasions to redeem the Notes in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the Notes with the net proceeds of certain equity offerings at a redemption price equal to % of the principal amount of the Notes plus accrued and unpaid interest and additional amounts, if any, to the date of redemption; provided that at least 65% of the original principal amount of each of the Notes remains outstanding after the redemption. In addition, at any time prior to , 2016, the Issuer may redeem all or part of the Notes at a redemption price equal to 100% of their principal amount plus accrued and unpaid interest, and additional amounts, if any, to the date of redemption, plus the Applicable Premium (as defined under Description of the NotesOptional Redemption). At any time prior to , 2016, the Issuer may also redeem up to 10% of the principal amount of the Notes in each 12-month period commencing on the Issue Date at a redemption price equal to 103% of the principal amount of the Notes plus accrued and unpaid interest, and additional amounts, if any. At any time on or after , 2016, the Issuer may also redeem all or part of the Notes at the redemption prices listed under Description of the NotesOptional Redemption plus accrued and unpaid interest, if any, to the date of redemption.

Optional Redemption . . . . . . . . . .

17

Additional Amounts . . . . . . . . . . . .

Any payments made by the Issuer with respect to the Notes or a Guarantor in respect of any Guarantee will be made without withholding or deduction for taxes in any relevant taxing jurisdiction unless required by law. If Spanish withholding or deduction is required by law, subject to certain exceptions (including those referred to under Spanish Tax Law Requirements below), the Issuer or the relevant Guarantor, as applicable, will pay additional amounts so that the net amount you receive is no less than the amount which you would have received in the absence of such withholding or deduction. Please see Description of the NotesAdditional Amounts. Under regulations established by Royal Decree 1065/2007, as amended by Royal Decree 1145/2011, income obtained in respect of the Notes will not be subject to withholding tax in Spain, provided certain requirements are met, including that the Paying Agent provides the Issuer, in a timely manner, with a duly executed and completed Payment Statement. Please see Certain Tax Considerations Spanish Tax ConsiderationsCompliance with Certain Requirements in Connection with Income Payments. The Payment Statement shall contain certain details relating to the Notes, including the relevant payment date, the total amount of income to be paid on such payment date and a breakdown of the total amount of income corresponding to Notes held through each clearing agency located outside Spain. The Issuer and the Paying Agent have entered into an agreement whereby the Paying Agent undertakes to implement certain procedures for the timely provision by the Paying Agent to the Issuer of a duly executed and completed Payment Statement in connection with each payment of income under the Notes. Please see Certain Tax ConsiderationsSpanish Tax Considerations Compliance with Certain Requirements in Connection with Income Payments. If a payment of income in respect of the Notes is not exempt from Spanish withholding tax, including due to any failure by the Paying Agent to deliver a duly executed and completed Payment Statement, such payment will be made net of Spanish withholding tax, currently at the rate of 21%. If this were to occur due to any failure by the Paying Agent to deliver a duly executed and completed Payment Statement, affected beneficial owners will receive a refund of the amount withheld, with no need for action on their part, if the Paying Agent submits a duly executed and completed Payment Statement to the Issuer no later than the 10th calendar day of the month immediately following the relevant payment date. In addition, following the 20th calendar day of the month immediately following the relevant payment date, beneficial owners may apply directly to the Spanish tax authorities for any refund to which they may be entitled pursuant to the Procedures for Direct Refund from the Spanish Tax Authorities set forth in Annex B of this Offering Memorandum. The Issuer will not pay Additional Amounts in respect of any such withholding tax.

Spanish Tax Law Requirements . . .

18

Beneficial owners should note that none of the Issuer or the Initial Purchasers assume any responsibility relating to the procedures established for the timely provision by the Paying Agent of a duly executed and completed Payment Statement in connection with each payment of income under the Notes. Accordingly, none of the Issuer or the Initial Purchasers will be liable for any damage or loss suffered by any beneficial owner who would otherwise be entitled to an exemption from Spanish withholding tax but whose income payments are nonetheless paid net of Spanish withholding tax because these procedures prove ineffective. Optional Tax Redemption . . . . . . . The Issuer may also redeem the Notes in whole, but not in part, at any time, upon giving proper notice, if certain changes in law impose certain withholding taxes on amounts payable on the Notes. If the Issuer decides to do this, the Issuer must pay you a price equal to the principal amount of the Notes plus accrued and unpaid interest and certain additional amounts, if any, to the date of redemption. Please see Description of the NotesOptional Tax Redemption. If a Change of Control occurs, the Issuer will be required to offer to repurchase the Notes at 101% of their aggregate principal amount, plus accrued and unpaid interest and certain additional amounts, if any, to the date of repurchase. Please see Description of the NotesChange of Control. The Issuer will issue the Notes under the Indenture. The Indenture will limit, among other things, the ability of the Issuer and its restricted subsidiaries to: incur more debt; pay dividends, repurchase stock, and make distributions and certain other payments and investments; create or permit to exist certain liens; enter into transactions with affiliates; transfer or sell assets other than in the ordinary course of business; impair security interests for the Notes; provide guarantees of other debt; agree to restrictions on dividends or other payments by certain subsidiaries to the Issuer; and merge or consolidate. Each of these covenants is subject to a number of significant exceptions, limitations and qualifications. For a more detailed description of these covenants, please see Description of the NotesCertain Covenants. Use of Proceeds . . . . . . . . . . . . . . The Issuer intends to use the proceeds from the sale of the Notes, together with cash that the Issuer has on hand, to: (i) repay existing debt; (ii) repay existing interest rate swaps related to the existing debt that is being repaid; and (iii) pay estimated transaction fees and expenses incurred in connection with this Offering. Please see Use of Proceeds. The Notes have not been, and will not be, registered under the U.S. Securities Act or any state securities law or

Change of Control . . . . . . . . . . . . .

Certain Covenants . . . . . . . . . . . .

Transfer Restrictions . . . . . . . . . . .

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regulation and may not be offered or sold, except pursuant to an exemption from, or in a transaction not subject to the registration requirements of, the U.S. Securities Act. Please see Plan of Distribution and Notice to Investors. The Issuer has not agreed, or otherwise undertaken, to register the Notes under the U.S. Securities Act or any state securities law or regulation. Absence of a Public Market for the Notes . . . . . . . . . . . . . . . . . . The Notes will be new securities for which there is currently no market. Although the Initial Purchasers have informed us that they intend to make a market in the Notes, they are not obligated to do so and they may discontinue market-making at any time without notice. Accordingly, we cannot assure you that a liquid market for the Notes will develop or be maintained. Deutsche Trustee Company Limited. Deutsche Bank AG, London Branch. Deutsche Bank AG, London Branch. Deutsche Bank Luxembourg S.A. Application has been made for the Notes to be listed on the Official List of the Luxembourg Stock Exchange and to be admitted to trading on the Euro MTF Market thereof. There is no assurance that the Notes will be listed on the Official List of the Luxembourg Stock Exchange and admitted to trading on the Euro MTF Market thereof. New York law.

Trustee . . . . . . . . . . . . . . . . . . . . . Paying Agent . . . . . . . . . . . . . . . . . Security Agent . . . . . . . . . . . . . . . Registrar, Transfer Agent and Luxembourg Listing Agent . . . . . Listing . . . . . . . . . . . . . . . . . . . . . .

Governing Law for the Notes, the Guarantees and the Indenture . . Governing Law for Security Documents relating to the Collateral . . . . . . . . . . . . . . . . . . Governing Law for the Intercreditor Agreement . . . . . . . Governing Law for the Revolving Credit Facility . . . . . . . . . . . . . .

Spanish common law. English law. English law except for Schedule 12 (Information Undertakings and Incurrence Covenants) and Schedule 13 (Events of Default), which are governed by the laws of the State of New York. RISK FACTORS

Investing in the Notes involves risks. You should carefully consider the information under the heading Risk Factors and the other information included in this Offering Memorandum before deciding whether to invest in the Notes.

20

SUMMARY CONSOLIDATED FINANCIAL, OPERATING AND OTHER DATA The table below sets forth summary consolidated financial data and other data for ENCE Energ a y Celulosa, S.A. and its consolidated subsidiaries as of and for the years ended December 31, 2007, December 31, 2008, December 31, 2009, December 31, 2010 and December 31, 2011, for the nine months ended September 30, 2011 and September 30, 2012 and as of and for the twelve months ended September 30, 2012, as well as certain unaudited pro forma financial data for the last twelve months ended September 30, 2012. The consolidated financial data as of and for the years ended December 31, 2009, December 31, 2010 and December 31, 2011 have been derived from our Consolidated Financial Statements, which were prepared in accordance with IFRS and are included elsewhere in this Offering Memorandum. The consolidated financial data as of and for the year ended December 31, 2008 have been derived from the Consolidated Financial Statements for the year ended December 31, 2009, where they were included for comparative purposes to give effect to a restatement in 2009 resulting from the sale of certain of our Uruguayan assets and are consequently unaudited. The consolidated financial data as of and for the year ended December 31, 2007 have been derived from our Consolidated Financial Statements, which were prepared in accordance with IFRS and are not included in this Offering Memorandum. The consolidated financial data for the nine months ended September 30, 2011 and September 30, 2012 have been derived from our Interim Consolidated Financial Statements, which were prepared in accordance with IFRS and are included elsewhere in this Offering Memorandum. The unaudited financial information for the twelve months ended September 30, 2012 has been derived by subtracting from the audited consolidated financial information for the year ended December 31, 2011 the unaudited consolidated financial information for the nine months ended September 30, 2011 and adding the unaudited consolidated financial information for the nine months ended September 30, 2012. Such compilation has not been audited or reviewed and has been prepared for illustrative purposes only. The unaudited consolidated financial information for the twelve months ended September 30, 2012 is also not intended to be an indicator of our financial condition or results of operations in the future. You should review the unaudited consolidated financial information for the twelve months ended September 30, 2012 together with the Consolidated Financial Statements and the Interim Consolidated Financial Statements. In this Offering Memorandum, we present certain non-GAAP measures, including Adjusted EBITDA, Cash Costs, EBITDA, Gross debt, Mid-cycle EBITDA, Net debt, Other Cash Costs, Total Costs, Unlevered free cash flow (excluding expansion capital expenditure), Wood Costs and Working capital and certain leverage and coverage ratios that are not required by, or presented in accordance with, IFRS and which are not audited. Our management believes that the presentation of these non-GAAP measures and ratios is helpful to investors because these and other similar measures are widely used by certain investors, security analysts and other interested parties as supplemental measures of performance and liquidity. However, you should not construe these non-GAAP measures and ratios as an alternative to profit and loss from operations determined in accordance with IFRS or to cash flows from operations, investing activities or financing activities, or any other measure or ratio required by, or presented in accordance with, IFRS. In addition, our non-GAAP measures and ratios may not be comparable to similarly titled measures or ratios used by other companies. The following table should be read in conjunction with, and is qualified in its entirety by reference to, the Interim Consolidated Financial Statements and the Consolidated Financial Statements and the related notes thereto. The table should also be read together with Selected

21

Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations.
Year ended December 31, 2008 (unaudited) 2009 2010 Twelve Nine months ended months ended September 30, September 30, 2011 2012 2012 2011 (unaudited) (unaudited) (unaudited) (g in millions) 596.9 184.3 44.3 825.5 (10.4) 456.5 133.7 37.2 627.4 (11.2) 436.6 148.3 18.6 603.4 (21.9) 577.0 198.9 25.6 801.5 (21.2)

2007(1) Income Statement Data: Pulp sales . . . . . . . . . . . . . Electricity sales . . . . . . . . . . Wood and forestry services . . Revenue . . . . . . . . . . . . . . Gains or losses on hedging operations . . . . . . . . . . . Changes in inventories of finished goods and work in progress . . . . . . . . . . . . Procurements . . . . . . . . . . Gross Margin . . . . . . . . . . . Group work on non-current assets . . . . . . . . . . . . . Other operating income . . . . Capital grants transferred to profit and loss . . . . . . . . Staff costs . . . . . . . . . . . . Depreciation and amortization charge . . . . . . . . . . . . . Impairment and gains or losses on disposals of non-current assets . . . . . . Other operating expenses . . Profit/(Loss) from operations Finance income . . . . . . . . Change in fair value of financial instruments . . . Finance costs . . . . . . . . . Exchange differences . . . . . .

497.7 66.6 72.9 637.2 59.4

484.7 117.8 54.1 656.6 (14.6)

361.0 126.9 47.7 535.6 3.8

626.5 140.2 64.1 830.8 (4.9)

. . . . . . . .

(0.8) (316.7) 379.1 42.2 4.9 5.8 (102.4) (46.3)

7.1 (382.8) 266.4 32.4 15.1 19.8 (82.8) (36.3)

(17.4) 4.8 (1.7) (348.2) (367.0) (390.8) 173.8 34.4 3.0 8.2 (88.7) (46.8) 463.7 27.8 3.5 7.3 (84.3) (61.2) 422.6 27.2 5.2 7.4 (89.4) (63.5)

5.3 (296.1) 325.4 22.7 2.3 5.5 (66.8) (45.8)

2.7 (302.3) 281.9 23.1 1.8 3.2 (59.5) (45.6)

(4.3) (397.0) 379.0 27.6 4.7 5.1 (82.1) (63.3)

. .

(13.6) (185.2) 84.6 1.1 (10.0) (2.3) (11.2)

(3.0) (164.1) 47.5 6.8 (25.5) (32.7) 3.5 (47.8)

(10.8) 0.2 4.4 (145.6) (239.7) (233.9) (72.5) 117.3 2.4 2.0 (21.2) (26.0) 0.5 2.5 (31.5) 0.1 80.1 5.3 1.6 (32.0) 2.1

4.0 (174.3) 73.0 1.1 1.5 (21.7) 0.7 (18.4)

2.4 (147.7) 59.4 0.6 2.8 (18.2) (1.4) (16.3)

2.7 (207.2) 66.5 4.8 2.8 (28.6) (21.0)

. . . . . . . . . .

Financial Loss . . . . . . . . . . . . Net result from sale of non-current assets kept for sale . . . . . . . . . . . . . . . . Profit/(Loss) before tax . . . . . . Income tax . . . . . . . . . . . . . Profit/(Loss) for the period from continuing operations . . Loss for the year from discontinued operations . . . Profit/(Loss) for the period . . .

(44.3) (26.9) (23.1)

(5.7) 67.7 (9.8) 57.9 57.9

6.4 6.1 2.2 8.3 (3.6) 4.7

(116.8) 39.3 (77.6) (77.0) (154.6)

90.3 (25.6) 64.7 64.7

57.0 (15.8) 41.2 41.2

54.6 (16.3) 38.3 38.3

43.1 (14.3) 28.8 28.8

45.5 (13.9) 31.7 31.7 As of September 30, 2012 (unaudited)

2007(1)

As of December 31, 2008 (unaudited) 2009 2010 (g in millions)

2011

Balance Sheet Data: Cash and cash equivalents . . . . . . . . . Working capital(2) . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . Gross debt (excluding project finance)(3) Gross debt(3) . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. 7.2 . 168.2 . 1,195.0 . 250.0 . 250.0 . 745.8

5.3 141.5 1,461.9 477.1 477.1 729.6

49.1 71.0 71.6 (7.2) 73.6 71.9 1,224.2 1,331.7 1,368.8 351.3 258.3 250.0 351.3 258.3 304.4 576.9 766.4 720.2

76.3 16.2 1,369.7 237.7 304.0 735.2

22

2007(1)

Year ended December 31, 2008 (unaudited) 2009 2010

Twelve Nine months ended months ended September 30, September 30, 2011 2012 2012 2011 (unaudited) (unaudited) (unaudited) (g in millions)

Cash Flow Data: Net cash flow (used in)/ from operating activities . . . . . . . . . . 113.9 Net cash flow (used in)/ from investing activities (177.7) Net cash flow (used in)/ from financing activities . . . . . . . . . . 68.6 Net increase/(decrease) in cash and cash equivalents . . . . . . . .

65.1 (269.3)

87.9 59.1

90.0

110.7

82.7 (71.5)

98.2 (59.3)

126.2 (77.1)

(98.8) (89.3)

202.3

(103.1)

30.7

(20.8)

(28.5)

(34.2)

(26.5)

4.7

(1.9)

43.9

21.9

0.6

(17.3)

4.7

22.7

Twelve months ended and as of Year ended and as of December 31, September 30, 2008 2012 2007(1) (unaudited) 2009 2010 2011 (unaudited) (g in millions, except percentages and ratios)

Other Financial Data: EBITDA(4) . . . . . . . . . . . . . . . . . . . Adjusted EBITDA(5) . . . . . . . . . . . . . Adjusted EBITDA margin . . . . . . . . . Capital expenditures . . . . . . . . . . . . Unlevered free cash flow (excluding expansion capital expenditure)(6) . . Net debt(7) (excluding project finance) Net debt . . . . . . . . . . . . . . . . . . . . Net debt (excluding project finance)/ Adjusted EBITDA . . . . . . . . . . . . Net debt/Adjusted EBITDA . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

144.5 116.0 18.2% 178.1 98.4 242.8 242.8 2.1x 2.1x

86.9 88.8 13.5% 300.7 49.4 471.8 471.8 5.3x 5.3x

(14.9) 178.3 139.1 (15.3) 200.2 152.1 NM 24.1% 18.4% 157.9 81.4 101.6 64.8 302.2 302.2 NM NM 84.2 187.3 187.3 0.9x 0.9x 98.4 178.4 232.8 1.2x 1.5x

127.1 149.9 18.7% 84.8 122.3 161.4 227.7 1.1x 1.5x

Twelve months ended and as of September 30, 2012 (unaudited)

..... ..... ..... ..... .....

Pro forma Data: Pro forma debt(8) (excluding project finance) . . . . . . . . . . . . . . . . . . . . Pro forma net debt (excluding project finance) . . . . . . . . . . . . . . . . . . Pro forma interest expense(9) (excluding project finance) . . . . . . . . . . . . Pro forma debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro forma net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro forma interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro forma net debt (excluding project finance)/Adjusted EBITDA . . . . . . Adjusted EBITDA/Pro forma interest expense (excluding project finance) . Pro forma net debt/Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted EBITDA/Pro forma interest expense . . . . . . . . . . . . . . . . . . .
(1)

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

250.8 176.9 19.7 317.2 243.2 24.9 1.2x 7.6x 1.6x 6.0x

The consolidated financial results for the year ended December 31, 2007 do not reflect the impact of a restatement that was given effect to in the year ended December 31, 2009 to reflect the sale of certain of our Uruguay assets. Giving effect to that restatement in the year ended December 31, 2007, EBITDA and Adjusted EBITDA for that year would have been e137.0 million and e111.6 million, respectively. We define working capital as inventories, plus trade and other receivables plus receivables from public authorities, plus other current financial assets, plus other current assets, less trade and other payables, less corporate income tax payable, less other accounts payable to public authorities and less other current liabilities. Our working capital levels vary as a result of several factors, including the impact of raw material prices and selling prices, production stoppages and maintenance works, changes in payment terms in the case of key suppliers, foreign exchange rates, our decisions to hold inventories and the operating level of our business.

(2)

23

(3) (4)

Gross debt means current and non-current financial debt plus other financial liabilities. We present our gross debt both including and excluding project finance indebtedness. Prior to 2010, we did not have any project finance debt. EBITDA means profit and loss from operations adjusted for depreciation and amortization and for impairment and gains or losses on disposals of non-current assets. For a reconciliation from profit and loss from operations to EBITDA, see the following table: Reconciliation of Profit and Loss from Operations to EBITDA: Twelve Nine months ended months ended September 30, September 30, 2011 2012 2012 2011 (unaudited) (unaudited) (unaudited) (g in millions) 80.1 63.5 73.0 45.8 59.4 45.6 66.5 63.3

2007(1) Profit and loss from operations Depreciation and amortization . . . Impairment and gains or losses on disposals of non-current assets . . . . . . EBITDA . . . . . . . (5)

Year ended December 31, 2008 (unaudited) 2009 2010

84.6 46.3

47.5 36.3

(72.5) 46.8

117.3 61.2

13.6 144.5

3.0 86.9

10.8 (14.9)

(0.2) 178.3

(4.4) 139.1

(4.0) 114.7

(2.4) 102.7

(2.7) 127.1

Adjusted EBITDA means EBITDA adjusted for severance payments, for provisions and other items, for capitalized interest expenses, for results from sale of fixed assets and other extraordinary items, and for operational hedging. Adjusted EBITDA does not reflect any contribution from our independent biomass renewable energy generation facilities in Huelva or M erida as they were not operational during the reviewed periods. For a reconciliation from EBITDA to Adjusted EBITDA, see the following table. Reconciliation of EBITDA to Adjusted EBITDA: Twelve Nine months ended months ended September 30, September 30, 2011 2012 2012 2011 (unaudited) (unaudited) (unaudited) (g in millions) 178.3 139.1 114.7 102.7 127.1 1.3 17.6 6.8 (1.6) 5.0 2.5 1.6 (1.5) 3.4 (5.5)

2007(1) EBITDA . . . . . . Severance payments(a) . . Provisions and other items(b) . Capitalized interest expenses(c) . . Results from sale of fixed assets and other extraordinary items(d) . . . . . Operational hedging(e) . . . Adjusted EBITDA (a) . . . 144.5 17.6 4.2

Year ended December 31, 2008 (unaudited) 2009 2010 86.9 0.4 (0.7) (14.9) 7.2 0.8

(7.2)

(6.9)

(7.2)

(3.7)

(1.4)

(2.6)

0.0

1.2

. .

16.4 (59.4) 116.0

(5.4) 14.6 88.8

2.6 (3.8) (15.3)

1.9 4.9 200.2

(1.4) 10.4 152.1

(0.4) 11.2 130.4

3.5 21.9 128.2

2.5 21.2 149.9

Payments related to the severance of personnel, primarily arising from certain restructuring activities conducted in 2007, the sale of certain of our assets in Uruguay in 2009 and the restructuring of Ibersilva, S.A.U., our forestry services and civil works subsidiary, in 2011. Provisions primarily related to the reorganization and restructuring of our forestry activities, including the restructuring of Ibersilva, S.A.U., our forestry services and civil works subsidiary. Expenses related to the capitalization of interest related to the financing of plantations and/or the construction of facilities. Gains or losses arising from the sale of fixed assets and other extraordinary gains or losses related to disposals of fixed assets as well as other extraordinary items.

(b) (c) (d)

24

(e)

Operational hedging relates to: (i) foreign exchange hedges; and (ii) pulp and energy hedges. Please see Managements Discussion and Analysis of Financial Condition and Results of OperationsQuantitative and Qualitative Disclosures About Market Risk.

(6)

Unlevered free cash flow (excluding expansion capital expenditure) means net cash flow from operating activities adjusted for interest paid, interest received, income tax paid (recovered) and maintenance capital expenditure. Below is a table explaining the derivation of unlevered free cash flow (excluding expansion capital expenditure). Nine months ended September 30, 2011 2012 Twelve months ended September 30, 2012

2007

Year ended December 31, 2008 2009 2010 2011 (g in millions) (unaudited) 65.1 33.9 (1.3) (8.3) (40.0) 87.9 20.5 (2.4) (0.7) 90.0 110.7 30.3 28.0 (1.8) (5.3) 2.9 (38.0)

Net cash flow from operating activities . . . . . . . . . . . Interest paid(a) . . . . . . . . . Interest received(a) . . . . . . . Income tax paid (recovered) Maintenance capital expenditure(b) . . . . . . . .

. . . .

. . . .

113.9 22.8 (38.4)

82.7 19.6 (1.7) (25.5)

98.2 15.7 (0.6) 1.1 (15.4)

126.2 24.2 (4.2) 4.0 (27.9)

. .

(40.4) (34.2)

Unlevered free cash flow (excluding expansion capital expenditure) . . . . . (a) (b) (7) (8) (9)

98.4

49.4

64.8

84.2

98.4

75.1

99.0

122.3

In 2007, interest paid and interest received were not included in net cash flow from operating activities. Therefore, no reversal adjustment is being made with respect to these items. Maintenance capital expenditure means investments in the maintenance of industrial facilities and forestry plantations for pulp production.

Net debt is defined as gross debt less cash and cash equivalents. We present our net debt both including and excluding project finance indebtedness. Prior to 2010, we did not have any project finance debt. Represents actual debt or net debt, in each case, adjusted to give effect to the Offering and the use of the proceeds thereof. Please see Capitalization. Represents finance cost adjusted to give effect to the Offering and the use of proceeds as if the Offering had occurred at the beginning of the period. Pro forma interest expense has been calculated by adding to finance cost the finance cost associated with the Notes and the Revolving Credit Facility and by deducting from finance cost the finance cost associated with our Existing Credit Facilities, the interest rate swap in relation to our Existing Credit Facilities. This is being presented for illustrative purposes only. Pro forma interest expense does not purport to represent what our interest expense would have actually been had the Offering occurred on the date assumed nor does it purport to project our interest expense for any future period. We present pro forma interest expense both including and excluding interest expense relating to project finance indebtedness.

25

Summary Operating Data:

Nine months ended and as of September 30, 2011 2012 Twelve months ended and as of September 30, 2012

Year ended and as of December 31, 2007 2008 2009 2010 2011

Industry/market metrics: BHKP ($/tonne)(1) . . . . . . . . . Average exchange rate ($/e) . Pulp production/employee (tonnes) . . . . . . . . . . . . . Wood Costs(2) (e/tonne) . . . . Other Cash Costs(3) (e/tonne) Cash Costs (e/tonne)(4) . . . . . Total Costs (e/tonne)(5) . . . . . Pulp production: Pulp production (000 tonnes) Pulp production installed capacity (000 tonnes) . . . . Utilization rate . . . . . . . . . . . Pulp sales (000 tonnes) . . . . Average pulp sale price (e/tonne)(7) . . . . . . . . . . . . Energy production: Installed capacity (MW)(6) . . . Electricity sales (GWh) . . . . . Average pool price (e/MWh) . Average electricity sale price (e/MWh) . . . . . . . . . . . . . Forestry supply management: Wood supply to the industrial process (000 m3) . . . . . . . Cost (e/m3) . . . . . . . . . . . . . Group: Total average employees . . .
(1) (2) (3) (4) (5) (6) (7)

. . . . . . . . . . . . . . . .

706.6 1.37 566 175.1 177.5 352.6 390.9 1,111

774.4 1.47 541 211.8 185.0 396.8 452.1 1,089

563.0 1.39 536 198.2 161.7 359.9 420.1 998

846.7 1.33 683 208.5 168.6 377.0 448.5 1,156

799.1 1.39 789 212.6 153.2 365.8 436.5 1,243

842.7 1.40 554 215.2 155.7 370.9 438.9 915

749.7 1.28 727 202.4 138.2 340.6 405.9 928

732.1 1.30 952 203.2 140.3 343.5 412.0 1,256 1,340 94% 1,248 463.0 230 1,545 49.5 128.7

1,090 1,090 1,278 1,340 1,340 1,340 1,340 102% 100% 78% 86% 93% 91% 93% 1,113 1,067 1,061 1,147 1,232 900 915 447.3 148 848 39.4 78.6 454.5 148 1,051 64.4 112.1 340.9 199 1,216 37.0 104.4 546.4 230 1,332 37.0 105.2 484.7 230 1,490 49.9 123.7 507.7 230 1,106 49.2 120.9 477.8 230 1,161 48.6 127.7

. . .

3,063 64.0 1,962

3,118 73.3 2,014

2,939 67.0 1,862

3,502 68.8 1,692

3,669 71.4 1,575

2,745 71.7 1,651

2,694 69.7 1,276

3,648 69.9 1,320

BHKP refers to the price of hardwood fiber in $/tonne with reference to CIF North Europe. Data is calculated from average foreign exchange prices. Wood Costs means the cost of timber at the mill gate plus the forestry depletion charge. Other Cash Costs means the cost of chemicals, non-biomass fuels, energy costs (net of energy revenues), commercial expenses, logistics, packaging, fixed production costs and other cash overheads. Cash Costs means Wood Costs plus Other Cash Costs. Total Costs means Cash Costs plus finance cost and depreciation (excluding forestry depletion charge) and amortization. The installed capacity excludes the 50 MW Huelva plant which became operational in September 2012 and of which we expect to take ownership from our EPC contractor during the first quarter of 2013. Average pulp sale price after applying customer discount to BHKP prices.

26

RISK FACTORS An investment in the Notes involves a high degree of risk. In addition to the other information contained in this Offering Memorandum, you should carefully consider the following risk factors before purchasing the Notes. If any of the possible events described below occurs, our business, financial condition, results of operations or prospects could be adversely affected. If that happens we may not be able to pay interest or principal on the Notes when due and you could lose all or part of your investment. The risks and uncertainties below are not the only ones we face, but represent the risks that we believe are material. However, there may be additional risks that we currently consider not to be material or of which we are not currently aware that could have the effects set forth above. This Offering Memorandum also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including the risks we face that are described below and elsewhere in this Offering Memorandum. Risks Relating to Our Business Difficult conditions in the global economy and in the global markets have caused, and may continue to cause, a sharp reduction in worldwide demand for our products and services, including global demand for our pulp products, and negatively impact our access to the levels of financing necessary for the successful development of our existing and future biomass projects. Our results of operations have been, and continue to be, materially affected by conditions in the global economy and in the global capital markets. Recently, concerns over commodity prices, energy costs, geopolitical issues and the availability and cost of financing have contributed to increased volatility and diminished expectations for the economy and global markets going forward. These factors, combined with declining global business and consumer confidence and rising unemployment, have precipitated an economic slowdown and have led to a recession. The economic instability and uncertainty is affecting the willingness of companies to make capital expenditures and investment in the markets in which we operate. Poor economic conditions that have impacted, and continue to affect, government budgets also threaten the continuation of certain government subsidies which have benefitted our business. These events and continuing disruptions in the global economy and in the capital markets may, therefore, have a material adverse effect on our business, financial condition and results of operations. Moreover, even in the absence of a market downturn, we are exposed to substantial risk of loss due to market volatility with certain factors, including consumer spending, business investment, government spending and the volatility and strength of financial markets. Generalized or localized downturns in our key geographical areas, such as Western Europe, could also have a material adverse effect on the performance of our business. In addition, continued disruptions, uncertainty or volatility in capital and credit markets may limit our access to additional capital required to operate our business, including our access to project finance which we use to fund many of our biomass projects. Such market conditions may limit our ability to replace, in a timely manner, maturing liabilities and access the capital necessary to grow our business. As a result, we may be forced to delay raising capital, issue shorter-term securities than we prefer, or bear an unattractive cost of capital which could decrease our profitability and significantly reduce our financial flexibility. Furthermore, demand for our pulp products is linked to overall economic activity within those international markets in which we sell our products. After a steady period of growth between 2003 and 2007, during which period pulp demand increased with a CAGR of 3.7%, the marked drop in demand resulting from the global economic crisis of 2008, when pulp demand declined by 1.0% year on year, demonstrated the vulnerability of the pulp market to international economic conditions. Through 2010, the global economy continued its recovery and provided improved conditions for the pulp market. In 2011, however, the pulp market had two distinct phases, with demand in the global pulp market increasing during the first half of the year, primarily as a result of strong Chinese demand, but decreasing in the second half of the year, primarily as a result of economic concerns in Europe and the impact of such concerns on the global economy. In 2012, rising demand in China led prices to increase in the first half of the year, although at the same time

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a decrease in demand in Europe coupled with a decline in imports in Europe resulted once again in an increase in producer inventories. More recently, demand for pulp has increased, along with prices. A decline in the level of activity in either the domestic or the international markets within which we operate could adversely affect both the demand for and the price of our pulp products and have a material adverse effect on us. The deterioration of Spanish economic conditions could adversely affect our business. For the nine months ended September 30, 2012, we made 13.6% of our sales of pulp by volume in Spain, and we sell all of our electricity in Spain, where the global economic crisis, together with a domestic real estate crisis, has caused a significant deterioration in the economy since 2009. While our sales are diversified throughout the European Union and Asia, a portion of our business is concentrated in Spain, and we may be significantly affected by the general economic conditions in Spain. In addition, Spain has recently experienced high unemployment and government debt which we believe could adversely affect our operations in the near future. If Spains economic conditions deteriorate further, our business, financial condition and results of operations may be adversely affected. Furthermore, economic instability and difficult economic conditions in Spain have resulted in a decline in tax revenue obtained by the Spanish public administration, which has resulted in higher effective tax rates and reduced local financing availability. The market prices for our pulp products are cyclical. The prices we are able to obtain for our pulp products, from which we derived 72.4%, 72.3% and 75.4% of our total revenues during the nine months ended September 30, 2012 and during the years ended December 31, 2011 and December 31, 2010, respectively, depend on the prevailing world prices for market pulp. The price of pulp is established in an active market, the evolution of which significantly affects our revenues and our earnings. World pulp prices have been considerably volatile in recent years as a result of periodic supply/demand imbalances in the pulp and paper industries and subject to significant fluctuations over short periods of time depending on a number of factors, including: global demand for pulp products; global pulp production capacity and inventories; strategies adopted by major pulp producers; and the availability of substitutes for our pulp products. All of these factors are beyond our control. Price fluctuations occur not only from year to year but also within a given year as a result of global and regional economic conditions, capacity constraints, facility openings and closures, and the supply of and demand for both raw materials and finished products, among other factors. The timing and magnitude of price increases or decreases in the pulp and paper markets have generally varied by region and by type of pulp and paper. Discounts from list prices are frequently granted by sellers to significant purchasers. Although we have long-term relationships with many of our customers, no assurance can be given that prices for pulp will stabilize or not decline further in the future, or that demand for the pulp that we produce will not decline in the future. Furthermore, while most of our pulp sales contracts are one-year sales contracts, the pricing is generally based on a formula linked to the BHKP price and reset on a monthly basis. As a result, no assurance can be given that we will be able to operate our pulp production facilities in a profitable manner in the future. A significant decline in the price of one or more of our pulp products could have a material adverse effect on our net operating revenues, cash flows, operating income and net income. Increases in our Wood Costs, the cost of certain chemicals or the cost of energy or oil could significantly increase our operating costs. Some of our activities require significant consumption of wood, chemicals (mainly caustic soda), electricity and energy and oil, and we are vulnerable to material fluctuations in their prices. Eucalyptus timber is the main raw material input for the production of cellulose pulp. Presently, we supply our production facilities mostly with local timber acquired from third-party suppliers in Spain and Portugal and, to a lesser extent, with timber imported from South America and Africa. If there is an insufficient supply of eucalyptus timber to meet our demand in certain markets where our facilities are located, we may be required to seek timber from alternative markets at increased purchase prices or with increasing logistical costs. A number of factors can affect the supply of available timber, including climate conditions, fires, pests, droughts, floods, disease, ice,

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wind storms and other nature and man-made causes, substantial changes in the demand for pulp or other products whose raw material is timber as well as environmental litigation aimed at protecting forests and species habitats or regulatory restrictions that may reduce the amount of timber available for commercial harvest. In addition, future claims and regulations concerning the promotion of forest health and the response to and prevention of wildfires could affect timber supplies in the jurisdictions in which we operate. Any changes or disruptions in the supply of timber due to these or other factors could increase the price of timber and, depending on the availability of alternative sources, make it difficult to find replacement supply channels. In addition, in accordance with our focus on corporate responsibility and the promotion of sustainable forest management, we aim to source a significant proportion of the timber we use from forests that have been certified as managed according to certain international standards of sustainability. In the event of pulp capacity increases or supply disruptions, we may face difficulties finding alternative sources of certified timber in particular. Moreover, increases in the price of timber, whether certified or not, may have a materially adverse effect on our profits and cash flows. Furthermore, approximately 80% of the chemicals used for the cooking and bleaching process of our products tend to have their prices closely linked to that of petroleum. Significant increases in our Wood Costs, the cost of chemicals (especially caustic soda) or the cost of energy or oil, or shortages of the supply of any such products, could have a material adverse effect on our business, financial condition and results of operations. Our sales from our renewable energy business are partially exposed to market electricity prices. In addition to regulated incentives, sales from certain of our projects partially depend on market prices for sales of electricity. Market prices may be volatile and are affected by various factors, including the cost of raw materials used as the primary source of energy, user demand and, if applicable, the price of greenhouse gas emission rights. We are exposed to remuneration schemes which contain both regulated incentive and market price components. The regulated incentive component may not compensate for fluctuations in the market price component, and, consequently, total remuneration may be volatile. There can be no assurance that market prices will remain at levels that enable us to maintain profit margins and desired rates of return on investment. A decline in market prices below anticipated levels could have a material adverse effect on our business, financial condition and results of operations. Furthermore, our sales could be affected if we elected to receive the Regulated Tariff and the pool price is then higher than expected. We may not be able to adjust pulp production volumes in a timely or cost-efficient manner in response to changes in demand. If we have to operate at significant idle capacity during periods of weak pulp demand, we may be exposed to higher Total Costs since a significant portion of our cost structure is fixed in the short term due to the high capital investment required for our pulp operations. This will also result in lower co-generation of energy. In addition, efforts to reduce costs during periods of weak demand could be limited by labor regulations or previous labor or government agreements. Conversely, during periods of high demand, our ability to rapidly increase production capacity is limited, which could render us unable to satisfy the demand for our pulp products. If we are unable to satisfy excess customer demand, we may lose market share. We may fail to keep up with and effectively incorporate technological changes into our pulp production and energy-generation processes, as well as changes in prices, industry standards and other factors. The markets in which our businesses operate change rapidly because of technological innovations and changes, prices, industry standards, product instructions, customer requirements and the economic environment. New technology or changes in industry and customer requirements may render existing products obsolete, excessively costly or otherwise unmarketable. As a result, we must continuously enhance the efficiency and reliability of our existing technologies and seek to

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develop new technologies in order to remain at the forefront of industry standards and customer requirements. In addition, our renewable energy products and services rely, to a significant extent, on governmental subsidies to remain competitive with conventional energy sources. If we are unable to introduce and integrate new technologies into our products and services in a timely and cost-effective manner, our competitive position will suffer and our prospects for growth will be impaired. The primary pulp production process applied in our facilities is known as the Kraft or sulphate process (the Kraft process) and currently constitutes the dominant technology in the chemical cellulose production industry thanks to its high efficiency in energy and environmental terms and raw material consumption. We cannot guarantee that a new product replacing cellulose pulp will not emerge or that a more competitive production process than the current Kraft process will not be invented. Any new product that competes or replaces cellulose pulp or any innovation in any component of the Kraft process may render our installations less competitive or obsolete and may require substantial investments to update and replace them. Our exports of pulp expose us to economic, political and social risks in foreign countries. Our pulp sales outside of Spain, primarily to the European Union and Asia, accounted for 86%, 86% and 81% of our total revenue during the nine months ended September 30, 2012 and the years ended December 31, 2011 and December 31, 2010, respectively. Our exports expose us to risks not faced by companies operating solely in Spain or in any other single country. For example, our exports may be affected by import restrictions and tariffs, other trade protection measures, import or export licensing requirements, payment collection difficulties, and the absence, loss or non-renewal of favorable treaties or similar agreements with local authorities, or political, social and economic instability. Our future financial performance will depend significantly on economic conditions in our principal export markets. Other risks associated with our international activities include: adapting to the regulatory requirements of such countries, lower global demand for pulp, which could result in a reduction of our sales, operating income and cash flows; changes in foreign currency exchange rates (particularly against the U.S. dollar), currency control measures and inflation in the foreign countries in which we operate; exchange and international trade controls; changes in a specific countrys or regions economic conditions, particularly in developing markets; adverse consequences deriving from changes in regulatory requirements, including environmental rules, regulations and certification requirements; difficulties and costs associated with complying with, and enforcing remedies under, a wide variety of complex international laws, treaties, and regulations; adverse consequences from changes in tax laws; and logistics costs, disruptions in shipping or reduced availability of freight transportation. While we attempt to manage certain of these risks through the use of risk management programs, they cannot and do not fully eliminate these risks. An occurrence of any of these events may negatively impact our ability to transact business in certain existing or developing markets and have a material adverse effect on our business. We face significant competition, which may adversely affect our market share and profitability. The pulp industry is highly competitive. In the international pulp market, certain of our competitors may have greater financial strength and access to cheaper sources of capital, and consequently have the ability to support strategic expenditures directed to increase their market share. Our market share may be adversely affected to the extent we are unable to continue to successfully expand our production capacity at the same pace as our competitors. In addition, most markets for pulp are served by several suppliers, often from different countries. Many factors influence our competitive position, including mill efficiency and operating rates and the availability, quality and cost of wood, energy, water, chemicals, logistics, labor and exchange rate fluctuations. Some of our competitors may have greater financial and marketing resources, operate mills that are lower-cost producers of pulp products than our mills, receive government subsidies or have a greater breadth of product offerings than we do. Some of our competitors may have advantages over us, including lower raw material, energy and labor costs and fewer environmental and governmental regulations with which to comply. As a result, we cannot assure you that each of our mills will remain competitive or that we will be able to take advantage of consolidation opportunities that may arise, or that any failure to exploit opportunities for growth would not make us less competitive. If we are unable to remain competitive with these

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producers in the future, our market share may be adversely affected. Furthermore, increased competition, including a decrease in import duties in accordance with the terms of free trade agreements, could cause us to lose market share, increase expenditures or reduce pricing, any of which could have a material adverse effect on the results of our operations. In addition, competition may result in our inability to increase the selling prices of our products sufficiently or in time to offset the effects of increased costs without losing market share and aggressive pricing by competitors may force us to decrease prices in an attempt to maintain market share. We may also face competition in the future from other renewable energy providers in Spain. Legislation in Spain currently limits payment of incentives to generators of 50 MW or below, but in the future parties may bring increased political pressure to reduce subsidies paid to increase the generation threshold or larger market participants could become beneficiaries of such subsidies. For example, in the United Kingdom the absence of a maximum threshold has allowed larger competitors to be eligible to receive payments of incentives. Although we endeavor to maintain our competitiveness, no assurance can be given that we will be able to succeed in doing so in the face of current or future competition. Any such failure to compete successfully would negatively impact our ability to grow our business and generate revenue, which could have a material adverse effect on our business, financial condition and results of operations. Our Pontevedra facilities are constructed on land subject to an administrative concession that is expected to expire in 2018, which may have a material adverse effect on our operations. Our Pontevedra facilities are constructed on land over which there is a right of use covered by an administrative concession which, pursuant to article 66 of the Coasts Act of 1988 (the Coasts Act) will expire in 2018. The facilities comprise a biomass co-generation installation with a total installed nominal power of 34.57 MW. We are seeking to extend our Pontevedra land concession beyond 2018. A new law which would amend the Coasts Act of 1988 is currently being debated in the Spanish Parliament. Among other things, this new law would extend the limits of the concessions up to 75 years, provided that the activities undertaken are compatible with maritimeterrestrial public use. The draft law also foresees a special extension for concessions granted before its entry into force. In relation to the Pontevedra concession, the approval of this law would enable an extension of 75 years from 2018. Nevertheless, if the proposed law is not passed and if we otherwise fail to achieve the extension of our Pontevedra land concession, we may be required to cease the operation of our Pontevedra facility, which will have a material adverse effect on our business, financial condition and results of operation. Please see BusinessOur Sites and FacilitiesPontevedra. Furthermore, the non-governmental organization (NGO) Asociaci on Salvemos Pontevedra has requested the General Directorate of Coasts to declare the expiration of the concession, due to an alleged infringement of the terms of the concession. These proceedings resulted in a favorable judgment for this NGO before the Spanish courts. However, we and the General Directorate of Coasts have appealed this judgment, with the appeal currently pending before the Spanish Supreme Court. In addition, the extension of the Integrated Environmental Authorization granted to our Pontevedra facilities on December 31, 2011 has been challenged by another NGO, the Asociaci on por la Defensa da R a da Pontevedra, and the town council of Pontevedra, although the government of Galicia subsequently confirmed the extension of this authorization. The NGO is currently appealing this decision. Competition for land for use as eucalyptus forests for the purposes of pulp production or for other crops, such as soy beans, sugar cane and other commodities, may affect our expansion. Greater global demand for certain commodities, especially for grains and biofuel, may impact our forestry operations such that greater competition for land could impact the price of such commodities. Grain and biofuel production generally are economically superior to forestry activities and, as a result, prospective increases in land values may inhibit expansion of new forests. For the same reason, we may face difficulties in convincing third-party partners to begin or to expand eucalyptus production for use in the pulp industry.

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We may be materially adversely affected if operations at the pulp production, energy generation, transportation, storage, distribution and port facilities we own or utilize were to experience significant interruptions or suffer any mechanical failures or difficulties. In addition, our operations may be affected by unplanned and planned shutdowns at our pulp production facilities. Our operations are dependent upon the uninterrupted operation of pulp production, energy generation, transportation, storage, distribution and port facilities that we own or utilize. Operations at these facilities could be partially or completely shut down, temporarily or permanently, as a result of any number of circumstances that are not under our control, including catastrophic events, strikes or other labor difficulties and transportation disruptions. Furthermore, we may face issues related to our connection to the main network due to congestion or other factors, mechanical failures or difficulties and the suspension or termination of public concessions (concesiones administrativas) granted to us or to our commercial partners or independent contractors relating to the right to provide a specific service. Any significant interruption at any of our facilities or any inability to transport products to or from these facilities (including through exports) or to or from our customers for any reason may materially adversely affect us. We also depend on connection and access to electricity grids for the sale and transport of the energy we produce. We do not own or control the electricity transport and distribution installations. If the transport and distribution grids suffer from technical capacity restrictions, whether temporary or permanent, our ability to sell electricity will be adversely affected and our operations, revenue and financial condition may suffer as a result. On occasion, we experience unplanned shutdowns, interruptions or reductions in the rate of pulp production in our pulp production facilities located. For example, in May 2012, an unexpected outage at our Huelva pulp production facility resulting from a mechanical failure led to a shutdown of our pulp production at this facility for 16 days. In addition, every year the pulp production in all three of our facilities is stopped in order to enable us to undertake planned operations and annual maintenance work. Such planned works are carried out during a period of approximately 15 days, with no pulp being produced in the affected facility during such periods. Once the planned works have been completed, it typically takes around one to two days to return the facility to its normal rate of pulp production. Such unplanned and planned shutdowns and interruptions at our pulp production facilities have the effect of reducing the level of income we generate from our pulp production operations, and may affect our business, financial condition and results of operations. Our business may be adversely affected by catastrophes, natural disasters, adverse weather conditions, unexpected geological or other physical conditions, or criminal or terrorist acts at one or more of our sites or facilities. If one or more of our sites were to be exposed in the future to fire, flood or a natural disaster, adverse weather conditions, terrorism, power loss or other catastrophe, or if unexpected geological or other adverse physical conditions were to develop at any of our sites, we may not be able to carry out our business activities at those locations or such operations could be significantly reduced. This could result in lost revenue at these sites during the period of disruption and costly remediation, which could have a material adverse effect on our business, financial condition and results of operations. In addition, despite security measures taken by us, it is possible that our sites relating to our pulp facilities or energy generation facilities, or other sites, could be affected by criminal or terrorist acts. Any such acts could have a material adverse effect on our business, financial condition and results of operations. Furthermore, the Spanish landscape is prone to, and ecologically adapted to, frequent fires. The risk of uncontrolled fires entering and burning significant areas of plantation is high, but under normal weather conditions this risk is managed through comprehensive fire prevention and protection plans. In the last decade, Spain has experienced certain disastrous fires across vast areas of its territory. Furthermore, there is some cause for concern that abnormal weather conditions that lead to such fires may occur more frequently as a result of the impact of climate change. In addition, other catastrophic events, such as pathogen and pest infestations may occur. As a consequence, the risk of plantation fires or other catastrophic events remains high and may be increasing. Continued or increased losses of our wood source could jeopardize our ability to supply our mills with timber from the region.

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We are exposed to interest rate and currency risks. We are exposed to various types of market risk in the normal course of business, including the impact of interest rate changes and foreign currency exchange rate fluctuations. Some of our indebtedness, including our Revolving Credit Facility, bears interest at variable rates, generally linked to market benchmarks such as EURIBOR and LIBOR. Any increase in interest rates would increase our finance costs relating to our variable rate indebtedness and increase the costs of refinancing our existing indebtedness and issuing new debt. Please see Managements Discussion and Analysis of Financial Condition and Results of OperationsQuantitative and Qualitative Disclosures About Market RiskCommodity Price Risk. Furthermore, while the majority of our sales are made in the European market, revenues from sale of cellulose pulp are affected by the U.S. dollar/euro exchange rate, because the benchmark sale price on the international market is in U.S. dollars per tonne and we invoice our customers in U.S. dollars. Insofar as our cost structure is mainly in euro, changes in the U.S. dollar/euro exchange rate can have a significant adverse effect on our earnings. Please see Managements Discussion and Analysis of Financial Condition and Results of OperationQuantitive and Qualitative Disclosures About Market RiskForeign Exchange Risk. Our business may be adversely impacted by risks related to hedging activities. We enter into hedging transactions using financial derivatives instruments to protect against risks related to the fluctuation of interest rates, exchange rates, the price of pulp, the price of gas, fuel oil and electricity used in the production process, equity swaps related to our share price and CO2 forward agreements related to our greenhouse gas emission rights. Please see Managements Discussion and Analysis of Financial Condition and Results of OperationQuantitive and Qualitative Disclosures About Market Risk. Among interest rate derivatives, we mostly use financial interest rate swaps. Pulp price derivatives and those of certain energy products are principally swaps and options. Our hedging transactions may not sufficiently or adequately protect us against these risks. Market changes in the future may not be consistent with historical data or our assumptions. If markets move adversely, we may incur financial losses on these hedging transactions. We account for our derivative instruments in accordance with IFRS. Such methodology could imply a change in the value of the derivative instruments that could have an impact on the profit and loss accounts. In addition, the value of such instruments may increase or decrease due to fluctuations resulting from changes in economic conditions, investor sentiment, monetary and fiscal policies, the liquidity of global markets, international and regional political events and acts of war or terrorism. Our insurance coverage may be insufficient to cover our losses. Our insurance coverage may be insufficient to cover losses that we might incur. We have comprehensive insurance with leading insurers to cover our receivables, damage to our facilities caused by fire, general third-party liability for accidents and operational risks, and international and domestic transportation. We do not maintain insurance coverage against all risks related to our forests, in particular with respect to forest fires. The occurrence of losses or other damages not covered by insurance, or that exceed our insurance limits, could result in unexpected additional costs. In addition, our insurance policies are subject to review by our insurers. If the level of premiums were to increase in the future, we might not be able to maintain insurance coverage comparable to that currently in effect at a comparable cost, or at all. If we were unable to pass any increase in insurance premiums on to our customers, such additional costs could have a material adverse effect on our business, financial condition and results of operations. Regulatory changes may have an adverse effect on our electricity generating operations. Our electricity generating operations have relied on a favorable regulatory regime in Spain and have grown to become increasingly important to our business, because they represent an increasing proportion of our overall sales. Regulatory changes relating to electricity generation may have an adverse effect on our electricity generating operations and ultimately our revenue and financial condition. In particular, on January 27, 2012, the Spanish Council of Ministers approved

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the Moratorium, temporarily suspending further generation capacity from being registered under Royal Decree 661/2007, which had provided economic incentives for the construction of new energy facilities that used co-generation, renewable energy sources and waste. Please see Regulation. Nonetheless, those facilities that had already been registered prior to the passing of the Moratorium, including all of the facilities we currently operate or are in the process of constructing (including our Huelva and M erida facilities), will continue to benefit from the economic incentives provided by Royal Decree 661/2007. While the Moratorium allows the Spanish government to set up a new economic incentive regime for co-generation facilities and other energy facilities using primary energy sources, nonconsumable and non-hydraulic renewable energy, biomass, biofuels and agricultural waste, this new economic incentive regime has not yet been established. The Moratorium, so long as it remains in effect, therefore removes incentives for growing our electricity generating operations and introduces uncertainty with regard to the development of new facilities, as the suspension period is open-ended and may extend indefinitely. On December 28, 2012, a new law aimed at reducing the deficit within Spains heavilysubsidized electricity production industry and ensuring the sustainability of Spains energy supply through the imposition of certain tax measures was published in the Spanish Official Gazette (the Energy Tax Law). Please see Regulation. The Energy Tax Law, which became effective as of January 1, 2013, provides for, inter alia: a direct tax on energy generators equal to 7% of the total annual revenues of each energy generation facility; and the implementation of a green cent (c entimo verde) tax on natural gas under certain circumstances (including for the purposes for which natural gas is used in our energy generation facilities) at a rate of e0.65 per gigajoule and on fuel oil (which we use in small amounts to start the boilers necessary to our energy operations) used for the production of electric energy at a rate of e12.00 per tonne. Although both taxes are deductible and we expect the electricity market to pass a portion of these new taxes through the electricity pool prices, the Energy Tax Law is likely to increase our cost of production of energy. Our business is conducted under various administrative controls and subject to extensive governmental regulation. Our operations are subject to the general supervision of various public administrative authorities, including labor, tax and environmental authorities, as well as to extensive regulation of our business. Such laws and regulations require licenses, permits and other approvals to be obtained in connection with the operations of our business. This regulatory framework imposes significant actual, day-to-day compliance burdens, costs and risks on us. Non-compliance with such regulations could result in the revocation of permits, sanctions, fines or even criminal penalties. Compliance with regulatory requirements may result in substantial costs to our operations that may not be recovered. In addition, we cannot predict the timing or form of any future regulatory or law enforcement initiatives. Changes in existing energy, environmental and administrative laws and regulations may materially and adversely affect our business, products, services, margins and investments. Furthermore, such changes in laws and regulations could increase the size and number of claims and damages asserted against us or subject us to enforcement actions, fines and even criminal penalties. We believe that we manage our business in a manner that conforms to general practice in our industry and that complies with applicable administrative rules, regulations and procedures. However, we cannot assure you that our interpretation and application of such rules, regulations and procedures will not differ from the views of the relevant public authorities as to their appropriate interpretation and application. These public authorities may audit, review or inspect our activity. To the extent any such audit, review or inspection reveals discrepancies between the interpretations and applications made by us and those made by the relevant public authority, we may experience a material adverse effect on our business, financial condition, results of operations and cash flows. In particular, our biomass renewable energy generation facilities are subject to strict international, national, state and local regulations relating to their development, construction and

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operation (including, among other things, land acquisition, leasing and use, and the corresponding building permits, landscape conservation, noise regulation, environmental protection and environmental permits and energy transmission and distribution network congestion regulations). In addition, the turnover that we generate from our biomass renewable energy projects is significantly dependent on regulated tariffs. Under our agreements with the Spanish public administration, a tariff structure is established, and we have limited, or no, possibility of independently raising tariffs beyond the established rates. In addition, we may be unable to adjust our tariffs as a result of fluctuations in the prices of raw materials, exchange rates, labor and subcontractor costs or any other variations, which may reduce our revenue. Moreover, in some cases, if we fail to comply with certain pre-established conditions, the Spanish government may reduce tariffs payable to us. In addition, during the life of a concession, the Spanish government may unilaterally impose additional restrictions on our tariff rates. The Spanish government may also postpone annual tariff increases until a new tariff structure is approved without compensating us for lost revenue. In the case that any one or more of these events occur, there could be a material adverse effect on our business, financial condition and results of operation. In addition, we may decide to pursue biomass renewable energy projects in the future in countries in Europe other than Spain. Regulations applicable to the generation of electricity in such countries may vary substantially vis-` a-vis Spain, and may be more restrictive or unfavorable to us. We may face high costs related to compliance with environmental, health and safety laws and regulations. Our business is subject to extensive environmental, health and safety laws and regulations relating to controlling discharges and emissions of pollutants to land, water and air, the use and preservation of natural resources, the noise impact of our operations and the use, disposal and remediation of hazardous materials. Compliance with these laws and regulations is a significant aspect of our industry, and substantial legal and financial resources are required to ensure compliance and to manage environmental risks. Moreover, environmental laws and regulations applicable to us are likely to become more stringent in the future. For example, the EU Emissions Trading Scheme, which implements the Kyoto Protocol of 1997 in the countries in which our mills operate, is expected to require progressively increased reductions of carbon dioxide and other greenhouse gas emissions during its third phase of regulation from 2013 to 2020. Until January 2013, under the EU Emissions Trading Scheme, greenhouse gas emission allowances were allocated to us largely free of charge. However, from January 2013 to January 2020, our regulatory allocation of CO2 rights will be reduced. Currently, it is estimated that such allocation will amount to 128,544 tonnes of CO2 rights annually, which creates a deficit for our operational requirements. This reduction and any further limitations applicable to us may require additional material expenditures. In addition, most of our facilities in Spain have been licensed under the EU Integrated Pollution Prevention and Control regime, and conditions imposed by authorities as part of this licensing scheme, or the licensing scheme under its successor, could become more stringent over time and require material capital and other expenditures. Our industry also faces increasing public and community pressure to consume energy more efficiently, including through the use of renewable fuels, and to reduce waste. In addition, the European paper industry faces increasing pressure to procure wood and pulp from sustainably managed forests through a number of certification schemes. While approximately 27% of the wood used to manufacture our products currently comes from such forests, we may be required to implement additional measures in an effort to address these concerns in the future, which may require us to invest substantial resources in adjusting and modifying our production processes. The risk of substantial environmental costs and liabilities is inherent in our industry, and there can be no assurance that any incurrence by us of such costs and liabilities, or the adoption of increasingly strict environmental laws, regulations and enforcement policies and practices, will not have a material adverse effect on our financial condition, results of operations or cash flows. Although we strive to ensure that our facilities comply with all applicable environmental laws and permits required for our operations, we have in the past been, and may in the future be, subject to governmental enforcement actions for failure to comply with environmental regulations. Impacts from historical operations, including the land or water disposal of waste materials, or our

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own activities may require costly investigation and clean up. In addition, we could become subject to environmental liabilities resulting from personal injury (including from exposure to hazardous materials in the workplace), property damage or natural resources damage and governmental authorities may impose fines, penalties and sanctions, together with tax or other liens on the responsible parties to secure the parties reimbursement obligations. Expenditures to comply with future environmental requirements and the costs related to any potential environmental liabilities and claims could have a material adverse effect on our business and financial condition. Environmental regulations also require us to perform environmental impact studies as a condition of obtaining the necessary regulatory licenses, permits and other approvals for future projects. There can be no assurance that governmental authorities will approve these environmental impact studies; or that laws or regulations will not change or be interpreted in a manner that increases our costs of compliance, or materially or adversely affect our operations, facilities or our plans for the companies in which we have an investment or to which we provide our services. We may incur liability and costs in connection with hazardous substances present at certain of our facilities. Some of our properties are located on land with a long history of industrial use by us and other companies before us, which has resulted in spills and other releases of hazardous materials (including asbestos) over time. The limited testing for contamination that has taken place at certain of our properties may not be sufficient to ascertain the extent of our obligations with respect to any contamination relating to any of our facilities. Should we face claims relating to any such hazardous substances, we could incur significant costs defending such claims or damages awards arising from them. Such expenses could have a material adverse effect on our business, financial condition and results of operations. Concerns about the effects of climate change may have an impact on our business. Concerns about global warming and carbon footprints, as well as legal and financial incentives favoring alternative fuels, are causing the increased use of sustainable, non fossil fuel sources for electricity generation. Electricity generation companies are competing in the same markets as us for the same raw materials we use in our pulp production process, namely wood and wood chips, driving prices for such materials upwards, especially during the winter in the Northern hemisphere. Climate change could also cause the spread of disease and pestilence into our plantations and fiber sources, far beyond their traditional geographic spreads, increasing the risk that the wood supply necessary to our operations may be negatively impacted. If either of these phenomena intensifies, additional costs or supply shortages could have a material adverse effect on our business, financial condition and results of operations. Financing conditions for biomass projects may change, affecting the growth and profitability of our electricity generating operations. Implementation of the electricity generating biomass projects that form part of our growth plan requires the negotiation and closing of project finance structures, reducing future capital commitments. Currently, low interest rates favor the profitability of renewable energy projects, including biomass, and limit the financial attractiveness of alternative investments. We have been and believe that we will continue to be able to reach project finance agreements on favorable terms to us. However, any change in the expected project finance conditions and an increase in interest rates could lead to a reduction of the profitability of new biomass projects and, as a result, negatively affect the prospects for developing this growth opportunity. Our electricity generating business requires substantial capital investments, suitable sites, qualified suppliers, and administrative permits and authorizations, and we may fail to satisfy these requirements. The development of electricity production requires a substantial investment of capital, and the period to recover this investment may be long. Under concessions and other agreements, we have committed to make certain future capital expenditures. Any recovery of our capital expenditures and research and development, especially those made in respect of our concessions, will occur over a substantial period of time. Moreover, we may be unable to recoup our investments in these projects

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due to delays, cost overruns and general timing issues as to when revenue can be derived from these projects. Electricity production also requires the supply and assembly of several technical components, such as turbines and biomass boilers, which are supplied by a small number of suppliers, and large areas of land, which enable the cultivation of bioenergy products as raw materials for the production of energy. A significant increase in the development and construction costs of new installations, difficulties in acquiring or repairing technical equipment and difficulties in finding suitable sites for electricity production could have a significant adverse effect on our business, results of operation and financial condition. We are also required to obtain administrative permits and authorizations to conduct these activities from various central, regional and local government bodies. We cannot guarantee that the corresponding authorities will approve or grant the necessary permits, licenses and authorizations for our activities or that legislation will not be amended or interpreted in a manner that increases the costs of compliance or causes delays to our projects and investment plans. Delays in the completion of our biomass projects may have adverse consequences on our business, including the acceleration of the relevant project finance loans and the loss of the preferential tariff. We may experience delays in the completion of our projects, which in turn may have negative consequences, including the acceleration of the relevant project finance loans and government fines. For example, although we have obtained guarantees from the contractor under our EPC contract for the construction of our new independent biomass energy facility in M erida, Spain, that the facility will be operational during the fourth quarter of 2014, in the event that this deadline is not met we would not only become subject to a mandatory prepayment of debt under the M erida project finance loan but may also lose our entitlement to the preferential tariff. Please see Description of Other IndebtednessProject FinancingsProject Financing for the M erida Facility and Regulation. Our electricity generating operations may be adversely affected by any adverse circumstances affecting our pulp production operations. For the twelve months ended September 30, 2012, 67.3% of our electricity generation activities were connected with the production of pulp. Consequently, a shutdown, interruption or reduction in the rate of pulp production at any of our facilities could result in a reduction in the volume of electricity production and, as a result, a reduction in the level of income we generate from our electricity generating operations. The social, economic and environmental impact of our electricity generating operations may have an adverse effect on our business. Our electricity generating operations may produce environmental side effects. For example, the forestry component of these projects requires devoting large areas of forest for the cultivation of bioenergy products, which occasionally can displace traditional economic activities and affect the local populations, as well as the native animal and plant species of the area. In addition, forest activities necessary for producing timber, such as clearing forests, felling trees and applying chemical treatments to timber, can lead to the loss of natural habitats for local wildlife. Moreover, electricity production facilities may produce negative effects on the environment in the form of atmospheric emissions, waste, water and noise. Public and political opposition to our electricity generating projects based on their real or perceived economic, social and environmental impact may obstruct or increase the cost of obtaining necessary permits to implement projects, and our existing permits and authorizations may be subject to legal challenges by persons who consider that they have been prejudiced by our projects. The real or perceived economic, social or environmental impact of our activities may expose us to negative publicity and to compliance, litigation and reputation costs and, as a result, have an adverse effect on our business, results of operation and financial condition. As a result, we cannot guarantee that all of the biomass renewable energy generation facilities that we may develop in the future will ultimately be authorized by local authorities or accepted by the local population. For example, the local population could oppose the construction of a biomass renewable energy generation facility at the local government level, which could in turn lead to the imposition of more restrictive requirements.

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In certain jurisdictions, if a significant portion of the local population were to mobilize against the construction of a biomass renewable energy generation facility, it may become difficult, or impossible, for us to obtain or retain the required building permits and authorizations. Moreover, such challenges could result in the cancellation of existing building permits or even, in extreme cases, the dismantling of, or the retroactive imposition of changes in the design of, existing biomass renewable energy generation facilities. Our operations could be adversely affected if we are unable to retain key employees. We depend on our senior management. Our performance and our ability to implement our strategy depend on the efforts and abilities of our executive officers and key employees. Our operations could be adversely affected if, for any reason, a number of these officers, key employees or valuable local managers with significant experience in a specific market do not remain with us. There may be a limited number of persons with the requisite skills to serve in these positions and we may be unable to replace key employees with qualified personnel on acceptable terms. In addition, our future success requires us to continue to attract and retain competent personnel. A large percentage of our employees are unionized and wage increases or work stoppages by our unionized employees may have a material adverse effect on our business. A large percentage of our employees are represented by labor unions under collective bargaining agreements, which need to be renewed from time to time. We are due to renegotiate and/or renew five of our current union agreements in 2013, four of which expired in 2012 and one in 2010. We will seek but may not be able to negotiate more favorable terms for our business and may renew the agreement on the same or similar terms to those currently in place, a result that may be more favorable to our employees. In addition, we have in the past and may in the future seek, or be obligated to seek, agreements with our employees regarding workforce reductions, closures and other restructurings. Furthermore, recent labor law reforms in Spain have reduced the automatic extension of union agreements from two years to only one year from the date of such agreements respective expiration dates, thus increasing employees incentive to negotiate for more favorable terms since the expiration of such extension would result in the employees becoming subject to the less favorable general labor regulations. We may not be able to negotiate acceptable new collective bargaining agreements or future restructuring agreements, which could result in labor disputes. We may also become subject to material cost increases or additional work rules imposed by agreements with labor unions. This could increase expenses in absolute terms and/or as a percentage of net sales. Although we believe we have good relations with our employees, work stoppages or other labor disturbances may occur in the future which could adversely impact our business. For example, in August 2012, a strike occurred at the work center located in Navia, Spain and, in November 2012, a one-day strike occurred at our pulp production facility in Pontevedra, Spain. Transactions with counterparties expose us to credit risk which we must effectively manage to mitigate the effect of counterparty defaults. We are exposed to the default risk of counterparties (a customer, provider, partner or financial entity), which could impact our business, financial condition and results of operations. Although we actively manage this credit risk through the use of nonrecourse factoring contracts, which involve banks and third parties assuming a counterpartys credit risk, and credit insurance, our risk management strategy may not be successful in limiting our exposure to credit risk, which could adversely affect our business, financial condition and results of operations. We may be adversely affected by risks associated with acquisitions or investments in joint ventures with third parties. If we decide to make certain acquisitions or financial investments in order to expand or diversify our business, we may take on additional debt to pay for such acquisitions. Moreover, we cannot guarantee that we will be able to complete all, or any, such external expansion or diversification transactions that we might contemplate in the future. To the extent we do, such transactions expose us to risks inherent in integrating acquired businesses and personnel, such as the inability to achieve projected synergies; difficulties in maintaining uniform standards, controls,

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policies and procedures; recognition of unexpected liabilities or costs; and regulatory complications arising from such transactions. Furthermore, the terms and conditions of financing for such acquisitions or financial investments could restrict the manner in which we conduct our business, particularly if we were to use debt financing. These risks could have a material adverse effect on our business, financial condition and results of operations. In addition, we may pursue significant investments in certain strategic development projects with third parties. In certain cases, these projects may be developed pursuant to joint venture agreements over which we only have partial or joint control. Investments in projects over which we have partial or joint control are subject to the risk that the other shareholders of the joint venture, who may have different business or investment strategies than we do or with whom we may have a disagreement or dispute, may have the ability to block business, financial or management decisions, such as the decision to distribute dividends or appoint members of management, which may be crucial to the success of the project or our investment in the project, or otherwise implement initiatives that may be contrary to our interests. Our partners may be unable, or unwilling, to fulfill their obligations under the relevant joint venture agreements and shareholder agreements or may experience financial or other difficulties that may adversely impact our investment in a particular joint venture. We are subject to risks in connection with divestitures. We are examining the potential sale of some of our forestry assets. In light of the ongoing and possibly worsening economic crisis, we may be unable to realize such divestitures at all or only at lower than anticipated valuation levels. These risks could have material adverse effects on our business, financial condition and results of operations. On December 14, 2012, we entered into an agreement to sell, subject to certain closing conditions, including a material adverse change clause, 27,780 hectares of land and related forestry assets owned by us in Uruguay, for a total consideration of $77.3 million. Please see Summary Recent DevelopmentsUpdate on Uruguay Assets Disposal. If such closing conditions are not met, the final execution of the sale may not take place or may be delayed, which may have a material adverse impact on our business, financial condition and results of operation. Risks Relating to the Notes and Our Structure Market perceptions concerning the instability of the euro, the potential re-introduction of individual currencies within the countries that utilize the euro as an official currency (the Eurozone), or the potential dissolution of the euro entirely, could adversely affect the value of the Notes. As a result of the credit crisis in Europe, particularly in Greece, Italy, Ireland, Portugal and Spain, the European Commission created the European Financial Stability Facility (the EFSF) and the European Financial Stability Mechanism (the EFSM) to provide funding to Eurozone countries in financial difficulties that seek support. In March 2011, the European Council agreed on the need for Eurozone countries to establish a permanent stability mechanism, the European Stability Mechanism (the ESM), to assume the role of the EFSF and the EFSM in providing external financial assistance to Eurozone countries after June 2013. On February 2, 2012, the Treaty Establishing the European Stability Mechanism (the ESM Treaty) was signed by each Member State of the Eurozone. The ESM Treaty includes a package of measures, including the provision of financial assistance to its signatories experiencing or being threatened by severe financing problems, where such financial assistance is necessary for the safeguarding of financial stability in the Eurozone as a whole, and entered into force on September 27, 2012. On March 2, 2012, a new fiscal compact, the Treaty on Stability, Coordination and Governance in the Economic Monetary Union (the Fiscal Compact), was signed by all Member States of the European Union (the Member States) (except the Czech Republic and the United Kingdom) and will enter into force on the first day of the month following its ratification by the twelfth Eurozone country. To date, the European Council had received 10 ratification instruments from Eurozone countries. The Fiscal Compact will place deficit restrictions on Member State

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budgets (other than the United Kingdom and Czech Republic), with associated sanctions for those Member States that violate the specified limits. Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations, the overall stability of the euro and the suitability of the euro as a single currency given the diverse economic and political circumstances in individual Member States. These and other concerns could lead to the re-introduction of individual currencies in one or more Member States, or, in more extreme circumstances, the possible dissolution of the euro entirely. Should the euro dissolve entirely, the legal and contractual consequences for holders of euro-denominated obligations would be determined by laws in effect at such time. These potential developments, or market perceptions concerning these and related issues, could adversely affect the value of the Notes. Creditors under the Revolving Credit Facility and certain hedging debt are entitled to be repaid with the proceeds of Collateral sold in any enforcement sale in priority to the holders of Notes. The obligations under the Notes and the Guarantees are secured on a first-ranking basis with security interests over Collateral that also secures our obligations under the Revolving Credit Facility. The Indenture will also permit the Collateral to be pledged to secure additional indebtedness permitted to be incurred and secured, including on an equal and ratable basis or subordinate or junior to the Notes, the Guarantees and the Revolving Credit Facility, in accordance with the terms thereof and of the Intercreditor Agreement. Pursuant to the Intercreditor Agreement, the liabilities under the Revolving Credit Facility will have priority over any amounts received from the sale of the Collateral pursuant to an enforcement action taken with respect to the Collateral. As such, in the event of a foreclosure of the Collateral, you may not be able to recover on the Collateral if the then outstanding claims under the Revolving Credit Facility and certain hedging arrangements are greater than the proceeds realized. Any proceeds from an enforcement sale of the Collateral by any creditor will, after all obligations under the Revolving Credit Facility and certain hedging arrangements have been discharged from such recoveries, be applied in repayment of the Notes and any other obligations secured by the Collateral on a pro rata basis. The Intercreditor Agreement will provide that a common Security Agent, who will also serve as the security agent for the lenders under the Revolving Credit Facility and any additional secured debt permitted to be incurred by the Indenture whose representative accedes as a party to the Intercreditor Agreement, will act only as provided for in the Intercreditor Agreement. In general, there are limitations on the ability of the holders of the Notes to take enforcement action with respect to the Collateral, including a specified consultation period that is required to be observed before enforcement action can commence. For additional details regarding the ability of the holders of the Notes to enforce, please see Description of Other Indebtedness Intercreditor Agreement. The Notes are secured only to the extent of the value of the Collateral that has been granted as security for the Notes and the Guarantees, and such security may not be sufficient to satisfy the obligations under the Notes and the Guarantees. The holders of the Notes will be secured only by the Collateral. While the Indenture limits the amount of additional debt that can be incurred by the Issuer and its Restricted Subsidiaries, any such debt can be secured by the Collateral, including on an equal and ratable and pari passu basis or on a junior or subordinated basis. If there is an Event of Default (as will be defined in the Indenture) on the Notes, there is no guarantee that the value of the Collateral will be sufficient to enable the Issuer to perform its obligations under the Notes. There is no requirement to provide funds to enhance the value of the Collateral if it is insufficient. The proceeds of any sale of the Collateral following an Event of Default with respect to the Notes may not be sufficient to satisfy, and may be substantially less than, amounts due under the Notes as well as other indebtedness secured by the Collateral, including indebtedness under the Revolving Credit Facility as well as pari passu debt. The amount of proceeds realized upon the enforcement of the security interests over the Collateral or in the event of liquidation will depend upon many factors, including, among others, whether or not our business is sold as a going concern, the jurisdiction in which the enforcement action or sale is completed, the ability to readily liquidate the Collateral, the availability of buyers

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and the condition of the Collateral, and exchange rates. Furthermore, there may not be any buyer willing and able to purchase our business as a going concern, or willing to buy a significant portion of its assets in the event of an enforcement action. The book value of the Collateral should not be relied on as a measure of realizable value for such assets. Portions of the Collateral may be illiquid and may have no readily ascertainable market value. In addition, the Collateral excludes leases as well as intellectual property rights, licenses, concessions, contracts or other agreements. Some of these contracts may be material to the Issuer or the Guarantor or may be necessary to operate essential facilities, or conduct to its business operations, and such exclusion or termination could have a material adverse effect on the value of the Collateral or the ability to enforce or realize it. By its nature, some or all of the Collateral may not have a readily ascertainable market value or may not be salable or, if salable, there may be substantial delays in its disposal. To the extent that liens, security interests and other rights granted to other parties encumber assets owned by the Issuer or the Guarantors, those parties have or may exercise rights and remedies with respect to the property subject to their liens, security interests or other rights that could adversely affect the value of that Collateral and the ability of the Security Agent, acting on behalf of the Trustee or investors as holders of the Notes to realize or enforce that Collateral. If the proceeds of any sale of Collateral are not sufficient to repay all amounts due on the Notes and the Guarantees, investors (to the extent not repaid from the proceeds of the sale of the Collateral) would have only an unsecured claim against the Issuers and the Guarantors remaining assets. Each of these factors or any challenge to the validity of the Collateral or the Intercreditor Agreement could reduce the proceeds realized upon enforcement of the Collateral. In addition, there can be no assurance that the Collateral could be sold in a timely manner, if at all. Proceeds from enforcement sales of capital stock and assets that are part of the Collateral must first be applied in satisfaction of obligations under the Revolving Credit Facility and certain hedging arrangements and thereafter towards repayment of the obligations of the Issuer and the Guarantor under the Notes on a pari passu basis. In addition, the Indenture will allow the incurrence of certain additional permitted debt in the future that is secured by the Collateral on a priority or pari passu basis. Such additional secured debt may be substantial. The rights of a holder of Notes to the Collateral may be diluted by any increase in the debt secured by the Collateral or a reduction of the Collateral securing the Notes. To the extent that other first-priority security interests, preexisting liens, liens permitted under the Indenture and other rights encumber the Collateral securing the Notes, those parties may have or may exercise rights and remedies with respect to the Collateral that could adversely affect the value of the Collateral and the ability of the Security Agent to realize or foreclose on the Collateral. The Issuer and the Guarantors have control over the Collateral securing the Notes, and the sale of particular assets could reduce the pool of assets securing the Notes. The Security Documents will allow the Issuer and the Guarantors to remain in possession of, retain exclusive control over, freely operate, and collect, invest and dispose of any income from the Collateral securing the Notes. So long as no default or event of default under the Indenture would result therefrom, the Issuer and the Guarantors may, among other things, without any release or consent by the Security Agent, conduct ordinary course activities with respect to the Collateral, such as selling, factoring, abandoning or otherwise disposing of Collateral and making or collecting ordinary course cash payments, including repayments of indebtedness. The value of the Collateral may decrease because of obsolescence, impairment or certain casualty events. The value of the properties that the Issuer and the other Guarantors own or lease and the real estate serving as Collateral may be adversely affected by depreciation and normal wear and tear or because of certain events that may cause damage to these properties. Although the Security Documents contain certain covenants in relation to the maintenance and preservation of assets, the Issuer and the Guarantors are not required to improve the Collateral. The Issuer is obligated under the Security Documents to maintain insurance with respect to the Collateral, but the proceeds of such insurance may not be sufficient to rebuild or restore such properties to their original condition prior to the occurrence of the events that caused the insured damages. Those insurance policies will most certainly not cover all the events that may conceivably result in damage to the Collateral.

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It may be difficult to realize the value of the Collateral securing the Notes. The Collateral securing the Notes is subject to any and all exceptions, defects, encumbrances, liens and other imperfections permitted under the Indenture and/or the Intercreditor Agreement and accepted by other creditors that have the benefit of first priority security interests in the Collateral securing the Notes from time to time, whether on or after the Issue Date. The existence of any such exceptions, defects, encumbrances, liens and other imperfections could adversely affect the value of the Collateral securing the Notes, as well as the ability of the Security Agent to realize or foreclose on such Collateral. Furthermore, the first-priority ranking of security interests can be affected by a variety of factors, including, among others, the timely satisfaction of perfection requirements, statutory liens or recharacterization under the laws of certain jurisdictions. The security interests of the Security Agent may be subject to practical problems generally associated with the realization of security interests over real or personal property such as the Collateral. For example the Security Agent may need to obtain the consent of a third party to enforce a security interest. We cannot assure you that the Security Agent will be able to obtain any such consents. We also cannot assure you that the consents of any third parties will be given when required to facilitate a foreclosure on such assets. Accordingly, the Security Agent may not have the ability to foreclose upon those assets, and the value of the Collateral may significantly decrease. In addition, we are required to register our various operations with national regulators. Such requirements may prohibit foreclosure on the share capital of the Guarantors or may require us to incur significant cost and expense due to such requirements. Furthermore, there can be no assurance that any applicable governmental authorities will consent to such action. If any regulatory approvals that are required are not obtained or are delayed, the foreclosure may be delayed, a temporary shutdown of operations may occur and the value of the Collateral may be significantly decreased. The security interests in the Collateral are not directly granted to the holders of the Notes. The security interests in the Collateral that secure the obligations of the Issuer under the Notes and the obligations of the Guarantors under the Guarantees are not granted directly to the holders of the Notes but are granted only in favor of the Trustee and the holders of the Notes in accordance with the Indenture and the Intercreditor Agreement, holders of the Notes will not have direct security interests and will not be entitled to take enforcement action in respect of the Collateral securing the Notes, except through the Trustee, who will (subject to the provisions of the Indenture) provide instructions to the Security Agent in respect of the Collateral. The enforcement of the Collateral may be restricted by Spanish law. Spanish Insolvency Law imposes a moratorium on the enforcement of secured creditors rights (in rem security) in the event of insolvency. Once the debtor is declared insolvent, the enforcement of security interests over assets owned by the debtor and used for its professional or business activities (presumably most of the debtors assets) is stayed until the first of the following circumstances occurs: (a) approval of a creditors composition agreement (unless the content has been approved by the favorable vote of the secured creditors, in which case it will be bound by whatever has been agreed in the composition agreement); or (b) one year has elapsed since the declaration of insolvency without liquidation proceedings being initiated. Enforcement will be stayed even if at the time of declaration of insolvency the notices announcing the public auction have been published. The stay will only be lifted when the court hearing the insolvency proceedings determines that the asset is not used for the debtors professional or business activities or is not necessary for the survival of the debtors business. When it comes to determining which assets of the debtor are used for its professional or business activities, courts have generally embraced a broad interpretation and will likely include most of the debtors assets. Finally, enforcement of the Collateral will be subject to the provisions of Spanish Procedural Law and Spanish Insolvency Law (where applicable) and this may entail delays in the enforcement. Applicable law requires that a security interest in certain assets can only be properly perfected (or registered or other foreign equivalent) and its priority retained through certain actions undertaken by the secured party. The liens on the Collateral securing the Notes from time to time owned by us or the Guarantors may not be perfected (or registered or other foreign equivalent), which may result in the loss of the priority, or a defect in the perfection (or registration or other

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foreign equivalent), of the security interest for the benefit of the Trustee and holders of the Notes to which they would have been otherwise entitled. Neither the Security Agent nor the Trustee will be obligated to create or perfect any of the security interests in the Collateral. Spanish law does not contemplate the concept of security agent. Although this by itself does not prohibit this agent to be set in place, the fact that there is a lack of regulation on the matter provides uncertainty as to how a Spanish court would recognize the acting of the Security Agent in an enforcement situation. Since holders of the Notes will not have any independent power to enforce the Collateral securing the Notes, except through the Security Agent following the instructions of the Trustee, there is some uncertainty as to whether a Spanish court would recognize the authority of the Security Agent or whether lack of recognition would entail delays in the enforcement or even the consequence of the Collateral not being able to be enforced on the same terms as provided for in the Security Documents. For more information, please see Certain Insolvency Law and Enforceability Considerations. The Collateral may be released without the consent of the holders of the Notes. The Collateral may be released in certain circumstances, including in the event the Collateral is sold pursuant to an enforcement sale in accordance with the Intercreditor Agreement. If such Collateral consists of all of the shares of a Guarantor, then such Guarantors Guarantee might also be released under such circumstances. Please see Description of the NotesCredit EnhancementRelease of Guarantees and Description of the NotesCredit Enhancement Release of Collateral. Additionally, the Indenture will permit us to release and retake the security interest granted over the Collateral in order to issue additional Notes pursuant to the Indenture. Upon the issuance of additional Notes pursuant to the Indenture, there may be a time period imposed by applicable laws between the release and retaking of the security interest during which there is no security interest over the Collateral. In some circumstances, such as if we were to file for bankruptcy after the issuance of additional Notes, a hardening period may apply and retroactively void the retaking of the security interest in favor of the holders of the Notes. Accordingly, there is a risk that, should we issue additional Notes pursuant to the Indenture, the Collateral could be released and its subsequent retaking voided. Please see Description of the NotesCertain CovenantsImpairment of Security Interest. Our substantial indebtedness may make it difficult for us to service our debt, including the Notes, and to operate our business. We have, and after this Offering will continue to have, a significant amount of indebtedness. As of September 30, 2012, as adjusted to give effect to this Offering, we would have had e317.2 million of indebtedness, of which e250.0 million would have been represented by the Notes. We anticipate that our substantial indebtedness will continue for the foreseeable future. Our substantial indebtedness may have important negative consequences for you, including: making it more difficult for us and our subsidiaries to satisfy our obligations with respect to our debt, including the Notes and other liabilities; requiring that a substantial portion of the cash flow from operations of our operating subsidiaries be dedicated to debt service obligations, reducing the availability of cash flow to fund internal growth through working capital and capital expenditures, and for other general corporate purposes; increasing our vulnerability to economic downturns in our industry; exposing us to interest rate increases; placing us at a competitive disadvantage compared to our competitors that have less debt in relation to cash flow; limiting our flexibility in planning for or reacting to changes in our business and our industry; restricting us from pursuing strategic acquisitions or exploiting certain business opportunities; and

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 limiting, among other things, our and our subsidiaries ability to borrow additional funds or raise equity capital in the future and increasing the costs of such additional financings. In the worst case, an actual or impending inability by us or our subsidiaries to pay debts as they become due and payable could result in our insolvency. In addition, the Indenture and the Revolving Credit Facility contain restrictions that substantially limit our financial and operational flexibility and that of our subsidiaries. In particular, these agreements place limits on our ability to incur additional indebtedness; grant security interests to third persons; dispose of material assets; undertake organizational measures such as mergers, changes of corporate form, joint ventures or similar transactions; and enter into transactions with related parties. Despite our current substantial indebtedness, we may be able to incur more debt in the future, including on a secured basis over the Collateral or otherwise, which could further exacerbate the risks of our indebtedness. We may incur more debt in the future. The Revolving Credit Facility provides for total commitments of up to e90.0 million, and no cash drawings will be outstanding on the date the Notes are issued. The Indenture will limit our ability to incur additional debt but will not prohibit us from doing so. We may incur additional debt in the future, secured by the Collateral or otherwise, which could mature prior to the Notes, and such debt could be secured on an equal, ratable and pari passu basis with the Notes and the Guarantees. Any non-Guarantor subsidiary could also incur additional debt, and the Notes and Guarantees would be structurally subordinated to any such debt. Furthermore, while our management intends to stand by its publicly communicated strategy, as of the date of this Offering Memorandum, to maintain a maximum leverage of 2.5x net debt/ Mid-cycle EBITDA going forward, since 2010, when management first announced this strategy, our leverage ratio has been subject to significant movements. We cannot be sure that we will be able to implement our strategy, which is subject to numerous known and unknown risks and uncertainties. Future defaults under our project finance indebtedness could adversely affect us. Under the terms of our existing project financing guarantees related to the Huelva and M erida facilities, the Issuer undertakes under certain circumstances the obligations of the respective project companies, including in the event of cost overruns related to the construction of the facilities, non-completion of the facilities by a specified date or failure to meet certain requirements under the EPC contracts. In addition, in connection with each of the Huelva and M erida project finance debt, we have agreed to maintain a minimum biomass stock equivalent to 670,000 tonnes and 200,000 tonnes, respectively, and, in the event stocks fall below these limits, we have undertaken to set aside in a special account sufficient funds to purchase the difference, with a cap of e25.0 million and e4.3 million, respectively. Even though we now have back-to-back guarantees with the contractor under our EPC contracts, we may not be able to enforce these back-to-back guarantees against the EPC contractor and the EPC contractor may not be able to fulfill those guarantees. For a more detailed description of the terms of these project financing agreements, please see Description of Other IndebtednessProject FinancingsProject Financing for the Huelva Facility and Description of Other IndebtednessProject FinancingsProject Financing for the M erida Facility. As of September 30, 2012, we had e304.0 million of outstanding indebtedness on a consolidated basis, of which e66.3 million (net of e4.3 million of unamortized transaction costs) was project finance debt. Defaults by our project finance companies can have important consequences for the Issuer and the restricted group, including, without limitation: (i) reducing the restricted Groups receipt of dividends, fees, interest payments, loans and other sources of cash since the project company will typically be prohibited from distributing cash to the Issuer and its restricted subsidiaries during the pendency of any default; (ii) causing the Issuer to record a loss in the event the lender forecloses on the assets; and (iii) causing the loss or impairment of investor confidence in the Issuer.

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The Issuer is dependent on payments from its subsidiaries in order to be able to make payments on the Notes, and the Issuers subsidiaries may not be permitted or otherwise able to make payments to the Issuer. Even if our subsidiaries generate sufficient cash from their operations, their ability to provide funds to the Issuer is subject to, among other things, local tax restrictions and local corporate law restrictions related to earnings, the level of legal or statutory reserves, losses from previous years and capitalization requirements for our subsidiaries. As a result, although we may have sufficient resources, on a consolidated basis, to meet our obligations, our subsidiaries may not be able to make the necessary transfers to us to permit us to satisfy our obligations under the Notes or otherwise. In particular, our subsidiaries may be restricted from providing funds to us under some circumstances. These circumstances include: restrictions under the corporate law of the jurisdictions in which our subsidiaries are based. The relevant laws could require, among other things, that our subsidiaries retain a certain percentage of annual net income in a legal reserve, that our subsidiaries maintain the share capital of a limited liability company and that, after payment of any divided, the relevant subsidiarys shareholders equity exceed its share capital. For example, Spanish law limits our subsidiaries ability to provide funds to the Issuer due to restrictions that require, among other things, each of our Spanish subsidiaries to retain at least 10% of its annual net income in a legal reserve until the reserve reaches at least 20% of such companys share capital and that, after payment of any dividend, shareholders equity (after subtracting goodwill and start-up expenses) must exceed the companys share capital. Moreover, the by-laws of each of our Spanish subsidiaries may provide for additional reserves that must be retained prior to providing funds to us; restrictions under foreign exchange laws and regulations that could limit or tax the remittance of dividends or transfer payments abroad; and existing and future contractual restrictions, including restrictions in credit facilities, cash pooling arrangements and other indebtedness that affect the ability of our subsidiaries to pay dividends or make other payments to us in the future. We require a significant amount of cash to service our debt and for other general corporate purposes. Our ability to generate sufficient cash depends on many factors beyond our control. Our ability to make payments on our debt, and to fund working capital and capital expenditures, will depend on our future operating performance and ability to generate sufficient cash. This depends, to some extent, on general economic, financial, competitive, market, regulatory and other factors, many of which are beyond our control, as well as the other factors discussed in these Risk Factors and elsewhere in this Offering Memorandum. Our business may not generate sufficient cash flows from operations, and additional debt and equity financing may not be available to us in an amount sufficient to enable us to pay our debts when due, including the Notes, or to fund our other liquidity needs. For a discussion of our cash flows and liquidity, please see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources. If our future cash flows from operations and other capital resources are insufficient to pay our obligations as they mature or to fund our liquidity needs, we may be forced to: reduce or delay our business activities and capital expenditures; sell assets; obtain additional debt or equity financing; or restructure or refinance all or a portion of our debt, including the Notes, on or before maturity. We may not be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the terms of our debt, including the Revolving Credit Facility and the Notes, and any future debt that we may incur, may limit our ability to pursue any of these alternatives.

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The Guarantees are significantly limited by applicable laws and are subject to certain limitations or defenses. The Guarantors will guarantee the payment of the Notes as described in Description of the NotesCredit EnhancementGuarantees. The Guarantees provide the holders of the Notes with a direct claim against the relevant Guarantor. However, the obligations of each Guarantor under its Guarantee will be limited under the Indenture to an amount that has been determined so as to ensure that amounts payable will not result in violations of laws relating to corporate benefit, capitalization, capital preservation (under which, among others, the risks associated with a guarantee or grant of security on account of a parent companys debt need to be reasonable and economically and operationally justified from the guarantors or grantors perspective), thin capitalization, corporate purpose, financial assistance or transactions under value, or otherwise cause the Guarantor to be deemed insolvent under applicable law or such Guarantee to be deemed void, unenforceable or ultra vires, or cause the directors of such Guarantor to be held in breach of applicable corporate or commercial law for providing such Guarantee. If these limitations were not observed, the Guarantees and the grant of security interests by the Guarantors could be subject to legal challenge. As a result, a Guarantors liability under its Guarantees could be materially reduced or eliminated depending upon the amounts of its other obligations and upon applicable laws. In particular, in certain jurisdictions, a guarantee issued by a company that is not in that companys corporate interests or the burden of which exceeds the benefit to the company may not be valid and enforceable. It is possible that a Guarantor, a creditor of a Guarantor or the insolvency administrator, in the case of an insolvency of a Guarantor, may contest the validity and enforceability of the respective Guarantee and that the applicable court may determine that the Guarantee should be limited or voided. In the event that any Guarantee is deemed invalid or unenforceable, in whole or in part, or to the extent that agreed limitations on the Guarantee apply, the Notes would not be guaranteed by such Guarantee. For more information on the specific limitations under applicable law of the respective jurisdictions of incorporation of the Guarantors and certain contractual limitations to be confirmed in the Indenture, please see Certain Insolvency Law and Enforceability Considerations. Security over certain Collateral will not be in place on the Issue Date or will not be perfected on the Issue Date. Security over the Collateral will not be in place on the Issue Date of the Notes or will not be perfected on the Issue Date of the Notes. We have a period of 45 calendar days from the Issue Date to grant and perfect the first-ranking security interest in the Collateral, except with respect to the security interest over intercompany debt and receivables, which will be granted within 45 days but is subject to a registration period for perfection which may take up to two months. If the Issuer or any Guarantor were to become subject to bankruptcy proceedings before all security over the Collateral has been granted and is perfected, the holders of the Notes (the Noteholders) will not benefit from any such security that is not in place or perfected. Fraudulent conveyance laws may limit your rights as a holder of Notes. Although laws differ among various jurisdictions, in general, under fraudulent conveyance laws, a court could subordinate or void a Guarantee if it found that: the Guarantee was incurred with an actual intent to hinder, delay or defraud creditors or shareholders of the Guarantor; the Guarantee was granted within two years prior to the insolvency declaration of the Guarantor and it is detrimental for the Guarantors state; or the Guarantor did not receive fair consideration or reasonably equivalent value for the Guarantee and the Guarantor: was insolvent or was rendered insolvent because of the Guarantee; was undercapitalized or became undercapitalized because of the Guarantee; or

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 intended to incur, or believed that it would incur, debts beyond its ability to pay at maturity. The measure of insolvency for purposes of fraudulent conveyance laws varies depending on the law applied. Generally, however, a Guarantor would be considered insolvent if it could not pay its debts as they become due. If a court decided that any Guarantee was a fraudulent conveyance and voided such Guarantee, or held it unenforceable for any other reason, you would cease to have any claim in respect of the Guarantor of such Guarantee and would be a creditor solely of the Issuer and the remaining Guarantors. Please see Certain Insolvency Law and Enforceability Considerations. In an insolvency proceeding, it is possible that creditors of the Guarantors or the appointed insolvency administrator may challenge the Guarantees, and intercompany obligations generally, as fraudulent transfers or conveyances or on other grounds. If so, such laws may permit a court, if it makes certain findings, to: (i) avoid or invalidate all or a portion of a Guarantors obligations under its Guarantee; (ii) direct that holders of the Notes return any amounts paid under a Guarantee to the relevant Guarantor or to a fund for the benefit of the Guarantors creditors; and (iii) take other action that is detrimental to you. Local insolvency laws may not be as favorable to you as U.S. bankruptcy laws or those insolvency laws of another jurisdiction with which you may be more familiar. The Issuer is incorporated in Spain, and the Guarantors are organized under the laws of Spain. Accordingly, any insolvency proceedings against the Issuer and the Guarantors would likely be based on Spanish insolvency laws. The insolvency laws of Spain may not be as favorable to holders of the Notes as the laws of the United States or some other jurisdictions. Certain provisions of Spanish Insolvency Law could affect the ranking of the Notes and the Guarantees or claims relating to the Notes and the Guarantees on an insolvency of the Issuer or the Guarantors, as the case may be. In particular, under Spanish law, a creditors rights will be subordinated to the preferential and ordinary debts of a debtor in an insolvency proceeding if such creditor is determined to be a specially related party to the debtor. One factor considered in determining if a party is specially related is (i) whether such party holds more than 10% of the capital of the debtor (for companies that are not listed) or 5% (for companies that are listed, as in the case of the Issuer) by the time the credit right under dispute in the insolvency scenario arises; or (ii), in the event of companies pertaining to the same group as the insolvent debtor and their common shareholders, provided that such shareholders meet the minimum shareholding requirements set forth before. Payments made under an equitably subordinated loan preceding the bankruptcy of an obligor may in certain circumstances be clawed back. Please see Certain Insolvency Law and Enforceability ConsiderationsSpainSpanish Insolvency Law. Not all of our subsidiaries will guarantee the Notes, and any claim by us or any of our creditors, including the holders of the Notes, against such non-Guarantor subsidiaries will be structurally subordinated to all of the claims of creditors of those non-Guarantor subsidiaries. Not all of our existing and future subsidiaries will guarantee the Notes. On a consolidated basis as of September 30, 2012, we had total assets of e1,369.7 million and total debt of e304.0 million. On an aggregated basis, we estimate that the Issuer and the Guarantors together would have accounted for approximately 81% of the total assets, 88.7% of the revenue and 97.4% of the EBITDA of the Issuer and its subsidiaries as of and for the nine months ended September 30, 2012. In addition, the subsidiaries of the Issuer that will not guarantee the Notes would have had e70.7 million of debt outstanding as of September 30, 2012 on a consolidated basis. The Indenture does not limit the transfer of assets to, or the making of investments in, any of our restricted group members, including our non-guarantor subsidiaries. Please see Description of the NotesCertain Covenants. Accordingly, even though any subsidiary whose EBITDA for the most recently completely fiscal year represents the greater of: (i) 5% or more of the consolidated EBITDA of the Issuer and the subsidiaries that will be Restricted Subsidiaries under the Indenture; or (ii) e5.0 million, will be required to provide an additional Guarantee for the benefit of the Notes, non-Guarantor subsidiaries could account for a higher portion of our assets, liabilities, revenues and net income in the future.

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In the event that any of our non-Guarantor subsidiaries becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, the assets of such non-Guarantor subsidiary will not be subject to claims from the holders of the Notes to satisfy their respective credits against us and will be used first to satisfy the claims of the non Guarantor subsidiarys creditors, including trade creditors, banks and other lenders. Consequently, any claim by us or our creditors against a non-Guarantor subsidiary will be structurally subordinated to all of the claims of the creditors of such non-Guarantor subsidiary. We may not have the ability to raise the funds necessary to finance a change of control offer. Upon the occurrence of certain change of control events as described in the Indenture, we will be required to offer to repurchase all of the Notes in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. The requirement that we offer to repurchase the Notes upon a change of control is limited only to the transactions specified in the definition of Change of Control within the Indenture. Please see Description of the NotesChange of Control. We may not have sufficient funds at the time of any such event to make the required repurchases. Additionally, certain change of control events would be prepayment events under the Revolving Credit Facility. In the event this results in an event of default thereunder, the lenders under the Revolving Credit Facility may accelerate such debt, which could also cause an event of default under the Indenture. The source of funds for any repurchase required as a result of any such event will be available cash or cash generated from operating activities or other sources, including borrowings, sales of assets and sales of equity or funds provided by subsidiaries. Sufficient funds may not be available at the time of any such events to make any required repurchases of the Notes tendered. You may be unable to enforce judgments against us, the Guarantors or our respective directors and officers. Neither the Issuer nor any of the Guarantors are incorporated in the United States. In addition, all of the Groups assets are outside the United States and all of the Groups directors and officers live outside the United States, primarily in Spain. The Issuers and the Guarantors auditors are also organized outside the United States. As a result, it may be difficult or impossible to serve process against any of these persons in the United States. Furthermore, because all or substantially all of the assets of these persons are located outside of the United States, it may not be possible to enforce judgments obtained in courts in the United States predicated upon civil liability provisions of the federal securities laws of the United States against these persons. Additionally, there is doubt as to the enforceability in many foreign jurisdictions, including Spain, of civil liabilities based on the civil liability provisions of the federal or state securities laws of the United States against the Issuer, the Guarantors, the directors, controlling persons and management and any experts named in this Offering Memorandum who are not residents of the United States. Please see Service of Process and Enforcement of Civil Liabilities. Our significant shareholders may sell their stake in the near future, which may ultimately affect our results of operations and increase the volatility of our share price. Some of our current significant shareholders may suffer financial distress and may need to sell their stake in the Issuer in the market. In order to avoid negative distortions to and minimize the volatility of our share price derived from any such sales, we may decide from time to time to acquire such shares for our treasury stock, which would result in a substantial cost for us and may affect our results of operations. There are risks related to withholding tax in Spain, including in conjunction with the collection of certain documentation from the Paying Agent. Under new Spanish tax regulations established by Royal Decree 1065/2007, as amended by Royal Decree 1145/2011, income obtained in respect of the Notes will not be subject to withholding tax in Spain only if certain requirements are met, including that the Paying Agent provides us, in a timely manner, with a duly executed and completed statement providing certain details relating to the Notes (the Payment Statement). Accordingly, if we do not receive the Payment Statement from the Paying Agent in a timely manner, income in respect of the Notes will be subject to

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withholding tax in Spain, currently at the rate of 21%. Please see Certain Tax Considerations Spanish Tax Considerations for a more detailed explanation. The Issuer will not gross up payments in respect of any such withholding tax. It is expected that the Paying Agent will follow certain procedures to facilitate the timely provision by the Paying Agent to us of a duly executed and completed Payment Statement in connection with each payment of income under the Notes. Please see Certain Tax ConsiderationsSpanish Tax Considerations. If such procedures are not followed, however, the Issuer will withhold tax at the applicable rate (currently 21%) from any income payment in respect of the Notes. Such procedures may be revised from time to time in accordance with changes in the applicable Spanish laws and regulations or administrative interpretations thereof. Accordingly, while the Notes are represented by a Global Note (as defined herein), holders of the Notes must rely on such procedures in order to receive payments under the Notes free of any Spanish withholding tax, to the extent applicable. Prospective investors should note that neither the Issuer nor the Underwriters will be liable for any damage or loss suffered by any beneficial owner who would otherwise be entitled to an exemption from Spanish withholding tax because these procedures prove ineffective. Moreover, the Issuer will not pay any additional amounts with respect to any such withholding. Therefore, to the extent a payment of income in respect of the Notes is not exempt from Spanish withholding tax, including due to any failure by the Paying Agent to deliver a duly executed and completed Payment Statement, beneficial owners may have to apply directly to the Spanish tax authorities for any refund to which they may be entitled. There are certain risks relating to the Euro MTF Market not being regarded as an organized secondary market. Pursuant to Law 13/1985 of May 25 on Investment Ratios, Own Funds and Information Obligations of Financial Intermediaries, as amended (Law 13/1985), the application of the tax regime described under Certain Tax ConsiderationsSpanish Tax Considerations requires, among other conditions, that the Notes be listed on an organized secondary market (mercado secundario organizado). However, Law 13/1985 does not clarify how this term should be interpreted and neither the Spanish tax authorities nor the Spanish courts have issued an opinion with respect to this matter so far. While there is a reasonable basis to believe that multilateral trading facilities, such as the Euro MTF Market of the Luxembourg Stock Exchange, satisfy the requirements for such a facility to be considered an organized secondary market, there is a possibility that the Spanish tax authorities could take a different position and assert that only regulated markets (as this term is defined by the EU Directive 2004/39/EC) meet the organized secondary market requirement established by Law 13/1985. If the Notes are not deemed to be listed on an organized secondary market, Law 13/1985 will not apply to the Notes, which may have a material adverse effect on our results of operations. There are certain risks relating to the interplay between certain provisions of U.S. and Spanish law. In Spain, issuers of debt securities such as the Notes are generally required to have a syndicate of holders (Sindicato de Obligacionistas) that is represented by a commissioner (Comisario). However, because the Indenture governing the Notes will contain mandatory provisions relating to the appointment of a Trustee, there will be neither a Syndicate of Holders nor a commissioner. As a result, a holder of Notes will not benefit from: (i) any rights as a holder of Notes arising from Article 411 of the Spanish Capital Companies Law (Ley de Sociedades de Capital); (ii) the constitution of a Syndicate of Holders; and (iii) the appointment of a commissioner (with respect to (ii) and (iii), both as regulated by Articles 419 and 429 et seq. of the Spanish Capital Companies Law), and will be deemed to have irrevocably instructed the Trustee to take any action and/or to execute and deliver any documents or notices that may be necessary or desirable to comply with, and give effect to, the preceding sentence. Notwithstanding the foregoing, the effectiveness of certain amendments, consents, waivers or other actions of the holders of the Notes taken pursuant to the Indenture or the lack of a syndicate of holders or of an express appointment of a commissioner may be challenged under Spanish law.

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There is no existing public trading market for the Notes and the ability to transfer them is limited, which may adversely affect the value of the Notes. The Notes are a new issue. There is no existing trading market for the Notes and there can be no assurance that a trading market for the Notes will develop. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market or how liquid that trading market might become. Although the Initial Purchasers have advised us that they intend to make a market in the Notes, they are not obligated to do so and may stop at any time. The market price of our Notes may be influenced by many factors, some of which are beyond our control, including: changes in demand, the supply or pricing of our products; general economic conditions, including raw material prices; the activities of competitors; our quarterly or annual earnings or those of our competitors; investors perceptions of us and the pulp industry; the failure of securities analysts to cover our Notes after this Offering or changes in financial estimates by analysts; the publics reaction to our press releases or our other public announcements; future sales of Notes; and other factors described under these Risk Factors. As a result of these factors, you may not be able to resell your Notes at or above the initial offering price. In addition, securities trading markets experience extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of a particular company. These broad market fluctuations and industry factors may materially reduce the market price of our Notes, regardless of our operating performance. If an active trading market does not develop, you may have difficulty selling any Notes that you buy. The Notes have not been and will not be registered under the U.S. Securities Act or any U.S. securities laws and we have not undertaken to effect any exchange offer for the Notes in the future. You may not offer the Notes for sale in the United States except pursuant to an exemption from, or a transaction not subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws, or pursuant to an effective registration statement. The Notes and the Indenture will contain provisions that will restrict the Notes from being offered, sold or otherwise transferred except pursuant to the exemptions available pursuant to Rule 144A and Regulation S, or other exceptions under the U.S. Securities Act. Furthermore, we have not registered the Notes under any other countrys securities laws. It is your obligation to ensure that your offers and sales of the Notes within the United States and other countries comply with applicable securities laws. Please see Notice to Investors. In addition, by its acceptance of delivery of any Notes, the holder thereof agrees on its own behalf and on behalf of any investor accounts for which it has purchased the Notes that it shall not transfer the Notes in an amount less than e100,000.

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USE OF PROCEEDS We estimate that the gross proceeds of this Offering of the Notes will be e250.0 million. We intend to use the gross proceeds from this Offering: (i) to repay certain existing debt including the Existing Credit Facilities; (ii) to repay existing interest rate swaps related to our Existing Credit Facilities that are being repaid; and (iii) to pay estimated transaction fees and expenses in connection with this Offering. The following table sets forth the estimated sources and uses of the proceeds from this Offering. Actual amounts will vary from estimated amounts depending on several factors, including differences from the estimate of fees, expenses and outstanding amounts upon repayment.
Source of Funds (g in millions) Use of Funds (g in millions)

Notes offered hereby . . . . . . . . . .

250.0

Debt repayment(1) . . . . . . . . . . . . Interest rate swap cancellation(2) . . Estimated transaction fees and expenses related to the Offering(3) . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . .

229.6 12.9

9.8 252.3

Cash . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . .
(1)

2.3 252.3

Represents the repayment and cancellation of our Existing Credit Facilities in an aggregate principal amount of e229.6 million (excluding unamortized transaction costs). Does not reflect any interest accrued but unpaid or a e8.4 million drawdown under our Existing Credit Facilities since September 30, 2012. Represents the settlement of an interest rate swap in relation to our Existing Credit Facilities which have a floating interest rate based on EURIBOR. We intend to settle this interest rate swap following the repayment of our Existing Credit Facilities. As of September 30, 2012 the fair market value of this interest rate swap amounted to negative e12.9 million. We estimate that the settlement payment to cancel this interest rate swap will amount to e10.2 million. Reflects our estimate of fees and expenses associated with this Offering, including discounts and other commissions, advisory and other professional fees and transaction costs. This estimate is for illustrative purposes only. We have assumed the Notes will not be issued at a discount to the stated principal amount.

(2)

(3)

On or about the Issue Date, we will also enter into a new Revolving Credit Facility in the amount of e90.0 million. We do not currently intend to draw any amounts under the Revolving Credit Facility as of the Issue Date.

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CAPITALIZATION The following table sets forth our consolidated cash and cash equivalents and total capitalization as of September 30, 2012: (i) on an actual basis for the Issuer; and (ii) as adjusted to give effect to the Offering and the use of proceeds thereof on September 30, 2012. You should read the following table in conjunction with Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations, and our Interim Consolidated Financial Statements and Consolidated Financial Statements and the related notes thereto. Except as set forth below and in SummaryRecent Developments, there have been no other material changes to our capitalization since September 30, 2012.
As of September 30, 2012 As Adjusted Actual (unaudited) (g in millions)

Cash and cash equivalents(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt: Notes offered hereby . . . . . . . . Loans and credit lines(2) . . . . . . CDTI indebtedness(3) . . . . . . . . New Revolving Credit Facility . . Unamortized transaction costs(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

76.3 231.2 10.4 (3.9) 237.7 70.7 (4.3) 304.0 735.2 1,039.2

74.0 250.0 1.6 10.4 (11.2) 250.8 70.7 (4.3) 317.2 732.6 1,049.9

Total debt (excluding project finance) . . . . . . . . . . . . . . . . . . . . . . . . . . . Project finance for Huelva and M erida facilities . . . . . . . . . . . . . . . . . . . . Unamortized transaction costs(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
(5)

Cash and cash equivalents does not take into account cash outflows that occurred after September 30, 2012 related to the acquisition of certain assets of the Foresta Group on December 20, 2012, a share repurchase from Fidalser, S.L. on December 7, 2012 and the settlement of a forward contract related to greenhouse gas emissions in December 2012. Please see SummaryRecent DevelopmentsAcquisition of the Foresta Groups Energy Crop Technology, SummaryRecent DevelopmentsShare Repurchase from Fidalser, S.L. and SummaryRecent DevelopmentsGreenhouse Gas Emission Rights. Loans and credit lines consist of the Existing Credit Facilities and one bilateral loan as well as accrued but unpaid interest thereon as of September 30, 2012. Please see Description of Other Indebtedness. After September 30, 2012, we made an e8.4 million drawdown under our Existing Credit Facilities. The Spanish Center for Industrial and Technological Development (CDTI) indebtedness consists of zero-interest loans provided by public authorities in order to fund certain research, development and innovation activities. Please see Description of Other Indebtedness. If we are required to repay the CDTI indebtedness following the completion of the Offering, we will repay e9.0 million plus e1.4 million of a subsidy lost due to early repayment to avoid any breach of the loan agreement. Represents the capitalization of debt issuance costs relating to debt being repaid and the Notes. Does not include approximately e35.6 million to be drawn after September 30, 2012 to fund the completion payment in connection with the delivery of the Huelva independent biomass energy facility expected in the first quarter of 2013. Please see SummaryRecent Developments. Represents the capitalization of debt issuance costs relating to the project finance debt for the Huelva and M erida facilities.

(2)

(3)

(4) (5)

(6)

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SELECTED FINANCIAL DATA The table below sets forth selected consolidated financial data for ENCE Energ a y Celulosa, S.A. and its consolidated subsidiaries as of and for the years ended December 31, 2007, December 31, 2008, December 31, 2009, December 31, 2010 and December 31, 2011 and for the nine months ended September 30, 2011 and September 30, 2012 and as of and for the twelve months ended September 30, 2012. The consolidated financial data as of and for the years ended December 31, 2009, December 31, 2010 and December 31, 2011 have been derived from our Consolidated Financial Statements, which were prepared in accordance with IFRS and are included elsewhere in this Offering Memorandum. The consolidated financial data as of and for the year ended December 31, 2008 have been derived from our Consolidated Financial Statements for the year ended December 31, 2009 where they were included for comparative purposes to give effect to a restatement in 2009 resulting from the sale of certain of our Uruguayan assets and are consequently unaudited. The consolidated financial data as of and for the year ended December 31, 2007 have been derived from our Consolidated Financial Statements, which were prepared in accordance with IFRS and are not included in this Offering Memorandum. The consolidated financial data for the nine months ended September 30, 2011 and September 30, 2012 have been derived from our Interim Consolidated Financial Statements, which were prepared in accordance with IFRS and are included elsewhere in this Offering Memorandum. The unaudited financial information for the twelve months ended September 30, 2012 has been derived by subtracting from the audited consolidated financial information for the year ended December 31, 2011 the unaudited consolidated financial information for the nine months ended September 30, 2011 and adding the unaudited consolidated financial information for the nine months ended September 30, 2012. Such compilation has not been audited or reviewed and has been prepared for illustrative purposes only. The unaudited consolidated financial information for the twelve months ended September 30, 2012 is also not intended to be an indicator of our financial condition or results of operations in the future. You should review the unaudited consolidated financial information for the twelve months ended September 30, 2012 together with the Consolidated Financial Statements and the Interim Consolidated Financial Statements. The following table should be read in conjunction with, and is qualified in its entirety by reference to, the Interim Consolidated Financial Statements and the Consolidated Financial

53

Statements, and the related notes thereto. The table should also be read together with Managements Discussion and Analysis of Financial Condition and Results of Operations.
Year ended December 31, 2008 (unaudited) 2009 2010 Twelve Nine months ended months ended September 30, September 30, 2011 2012 2012 2011 (unaudited) (unaudited) (unaudited) (g in millions) 596.9 184.3 44.3 825.5 (10.4) 456.5 133.7 37.2 627.4 (11.2) 436.6 148.3 18.6 603.4 (21.9) 577.0 198.9 25.6 801.5 (21.2)

2007(1) Income Statement Data: Pulp sales . . . . . . . . . . . . . Electricity sales . . . . . . . . . . Wood and forestry services . . Revenue . . . . . . . . . . . . Gains or losses on hedging operations . . . . . . . . . . Changes in inventories of finished goods and work in progress . . . . . . . . . . Procurements . . . . . . . . . . . . . .

497.7 66.6 72.9 637.2 59.4

484.7 117.8 54.1 656.6 (14.6)

361.0 126.9 47.7 535.6 3.8

626.5 140.2 64.1 830.8 (4.9)

. . . . . . . . . . . .

(0.8) (316.7) 379.1 42.2 4.9 5.8 (102.4) (46.3)

7.1 (382.8) 266.4 32.4 15.1 19.8 (82.8) (36.3)

(17.4) 4.8 (1.7) (348.2) (367.0) (390.8) 173.8 34.4 3.0 8.2 (88.7) (46.8) 463.7 27.8 3.5 7.3 (84.3) (61.2) 422.6 27.2 5.2 7.4 (89.4) (63.5)

5.3 (296.1) 325.4 22.7 2.3 5.5 (66.8) (45.8)

2.7 (302.3) 281.9 23.1 1.8 3.2 (59.5) (45.6)

(4.3) (397.0) 379.0 27.6 4.7 5.1 (82.1) (63.3)

Gross Margin . . . . . . . . . . . Group work on non-current assets . . . . . . . . . . . . . . . Other operating income . . . . Capital grants transferred to profit and loss . . . . . . . . . . Staff costs . . . . . . . . . . . . Depreciation and amortization charge . . . . . . . . . . . . . . Impairment and gains or losses on disposals of non-current assets . . . . . . . . . . . . . . . Other operating expenses . . Profit/(Loss) from operations . Finance income . . . . . . . . . Change in fair value of financial instruments . . . . . . . . . . . . Finance costs . . . . . . . . . . Exchange differences . . . . .

. . . . . . .

(13.6) (185.2) 84.6 1.1 (10.0) (2.3) (11.2)

(3.0) (164.1) 47.5 6.8 (25.5) (32.7) 3.5 (47.8)

(10.8) 0.2 4.4 (145.6) (239.7) (233.9) (72.5) 117.3 2.4 2.0 (21.2) (26.0) 0.5 2.5 (31.5) 0.1 80.1 5.3 1.6 (32.0) 2.1

4.0 (174.3) 73.0 1.1 1.5 (21.7) 0.7 (18.4)

2.4 (147.7) 59.4 0.6 2.8 (18.2) (1.4) (16.3)

2.7 (207.2) 66.5 4.8 2.8 (28.6) (21.0)

Financial Loss . . . . . . . . . . . . Net result from sale of non-current assets kept for sale . . . . . . . . . . . . . . . Profit/(Loss) before tax . . . . . . Income tax . . . . . . . . . . . . . Profit/(Loss) for the period from continuing operations . . Loss for the year from discontinued operations . . . . . Profit/(Loss) for the period . . .

(44.3) (26.9) (23.1)

(5.7) 67.7 (9.8) 57.9 57.9

6.4 6.1 2.2 8.3 (3.6) 4.7

(116.8) 39.3 (77.6) (77.0) (154.6)

90.3 (25.6) 64.7 64.7

57.0 (15.8) 41.2 41.2

54.6 (16.3) 38.3 38.3

43.1 (14.3) 28.8 28.8

45.5 (13.9) 31.7 31.7 As of September 30, 2012 (unaudited)

2007(1)

As of December 31, 2008 (unaudited) 2009 2010 (g in millions)

2011

Balance Sheet Data: Cash and cash equivalents . . . . . . . . . Working capital(2) . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . Gross debt (excluding project finance)(3) . Gross debt(3) . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. 7.2 . 168.2 . 1,195.0 . 250.0 . 250.0 . 745.8

5.3 141.5 1,461.9 477.1 477.1 729.6

49.1 71.0 71.6 (7.2) 73.6 71.9 1,224.2 1,331.7 1,368.8 351.3 258.3 250.0 351.3 258.3 304.4 576.9 766.4 720.2

76.3 16.2 1,369.7 237.7 304.0 735.2

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2007(1) Cash Flow Data: Net cash flow (used in)/from operating activities . . . . . . . Net cash flow (used in)/from investing activities . . . . . . . . . . . . . Net cash flow (used in)/from financing activities . . . . . . . Net increase/(decrease) in cash and cash equivalents (1)

Year ended December 31, 2008 (unaudited) 2009 2010

Twelve Nine months ended months ended September 30, September 30, 2011 2012 2012 2011 (unaudited) (unaudited) (unaudited) (g in millions)

113.9

65.1

87.9

90.0

110.7

82.7

98.2

126.2

(177.7) 68.6 4.7

(269.3) 202.3 (1.9)

59.1 (103.1) 43.9

(98.8) 30.7 21.9

(89.3) (20.8) 0.6

(71.5) (28.5) (17.3)

(59.3) (34.2) 4.7

(77.1) (26.5) 22.7

The consolidated financial results for the year ended December 31, 2007 do not reflect the impact of a restatement that was given effect to in the year ended December 31, 2009 to reflect the sale of certain of our Uruguay assets. Giving effect to that restatement in the year ended December 31, 2007, EBITDA and Adjusted EBITDA for that year would have been e137.0 million and e111.6 million, respectively. We define working capital as inventories, plus trade and other receivables plus receivables from public authorities, plus other current financial assets, plus other current assets, less trade and other payables, less corporate income tax payable, less other accounts payable to public authorities and less other current liabilities. Our working capital levels vary as a result of several factors, including the impact of raw material prices and selling prices, production stoppages and maintenance works, changes in payment terms in the case of key suppliers, foreign exchange rates, our decisions to hold inventories and the operating level of our business. Gross debt means current and non-current financial debt plus other financial liabilities. We present our gross debt both including and excluding project finance indebtedness. Prior to 2010, we did not have any project finance debt.

(2)

(3)

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of our financial condition and results of operations as of and for the years ended December 31, 2009, December 31, 2010 and December 31, 2011 and the nine months ended September 30, 2011 and September 30, 2012. This discussion should be read in conjunction with the sections entitled Presentation of Financial Information, Summary Consolidated Financial, Operating and Other Data, Selected Financial Data and the Interim Consolidated Financial Statements and Consolidated Financial Statements and the related notes thereto. Among other things, those financial statements, which were prepared in accordance with IFRS, include more detailed information regarding the basis of presentation for the following information. The following discussion contains certain forward-looking statements that reflect our plans, estimates and beliefs. Our results could differ materially from those discussed in these forwardlooking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Offering Memorandum, including in the sections entitled Forward-Looking Statements, Risk Factors and Business. Overview Our Company We are the largest BHKP producer in Europe, with an annual maximum installed capacity of 1.34 million tonnes of pulp as of September 30, 2012. We also have a significant co-generation and renewable energy generation business, with an installed capacity of approximately 230 MW as of September 30, 2012 (excluding our new 50 MW independent biomass energy facility in Huelva, Spain, which became operational in September 2012 and for which we expect transfer of ownership from our EPC contractor to us to take place in the first quarter of 2013) and total energy sales of 1,545 GWh for the twelve months ended September 30, 2012. Our integrated pulp and energy business model takes advantage of our strong positioning in forestry supply management, both with respect to managing forest plantations and crops for the production of wood and cultivated biomass and with respect to sourcing wood from third-party sources as required for our business. As of September 30, 2012, we managed approximately 87,370 hectares of plantations (excluding our forestry assets in Uruguay, which we are in the process of divesting), of which we owned approximately 59%. Please see SummaryRecent Developments. We are publicly listed on the Madrid Stock Exchange (Bolsa de Valores de Madrid) with a market capitalization of e533.1 million as of December 31, 2012. For the twelve months ended September 30, 2012, we generated revenue of e801.5 million, Adjusted EBITDA of e149.9 million and unlevered free cash flow (excluding expansion capital expenditure) of e122.3 million. Key Factors Affecting Our Results of Operations Our results of operations are driven by a combination of factors affecting the pulp and energy industries, including, in addition to general macroeconomic conditions, cyclicality in the pulp industry, costs of raw materials such as wood, non-biomass fuels and chemicals, energy costs, the effects of currency fluctuations and government incentives relating to renewable energy production and co-generation. Our results of operations are also impacted by company-specific structural and operational factors, as well as acquisitions, dispositions and changes in business focus. Set forth below is an overview of the key drivers that have affected the historical results of operations of our business and/or are expected to affect our consolidated results of operations in future periods. Cyclicality in the Pulp Industry Our results of operations are affected significantly by cyclicality in the pulp industry. Long-term demand for pulp is driven by global economic and demographic trends, technological developments and trends in end-user preferences and therefore the demand for paper products and the adjustment of production capacity to changes in demand. In addition, greater pulp production capacity, and hence an increased amount of available pulp supplies, on a global basis can also impact the supply and demand balance. Profitability in the pulp industry is highly sensitive to changes in prices, and industry cycles reflect the constantly shifting balance between supply and

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demand for pulp, as well as changes in inventory levels. Periods of industry-wide investment in new production capacity or significant contractions in demand due to weak economic conditions have in previous industry cycles led to decreases in product prices. Over the last three years, BHKP prices in Europe fluctuated from $483 per tonne to $700 per tonne during 2009; from $700 per tonne to $920 per tonne during 2010; from $648 per tonne to $877 per tonne during 2011; and from $649 per tonne to $786 per tonne during the nine months ended September 30, 2012. We are dependent on pulp sales which as of the nine months ended September 30, 2012, accounted for 72.4% of our revenues. The international market prices of pulp have historically fluctuated significantly, and we believe that they will continue to do so due to global economic developments, such as changes in demand for pulp in China and in other countries which are significant consumers of pulp. Significant increases in the international market price of pulp, and consequently, the prices that we are able to charge customers, would likely increase our net revenues and our results of operations to the extent that we are able to maintain our operating margins and such increased prices do not reduce sales volumes of the pulp that we produce. Conversely, however, significant decreases in the international market price of pulp, and consequently, the prices that we are able to charge customers, would likely reduce our net revenues and our results of operations to the extent that we are not able to increase our operating margins and/or such reduced prices do not result in increased sales volumes of our products. Costs of Raw Materials Our results of operations are impacted by the prices we pay for the raw materials used to manufacture our products, including, in particular, for wood sourced from third parties, certain non-biomass fuels and chemicals (including caustic soda). Raw material costs are a significant component of our Cash Costs (defined as Wood Costs plus Other Cash Costs). The principal raw materials used in the manufacture of our products are as follows: Wood. Wood Costs accounted for more than half of our Cash Costs in the last three financial years and in the nine months ended September 30, 2012. Eucalyptus wood is the principal raw material used by us to manufacture pulp. Of the total amount of wood supplied 74.8%, 68.2%, 73.9% and 85.4% was obtained from local suppliers or landowners in the Iberian Peninsula in the years ended December 31, 2009, December 31, 2010 and December 31, 2011 and in the nine months ended September 30, 2012, respectively, with for these same periods 7.1%, 6.2%, 4.6% and 3.0%, respectively, from our own plantations in the Iberian Peninsula and 18.1%, 25.6%, 21.5% and 11.6%, respectively, being imported from South America or Africa (including our plantations in Uruguay). The price we pay for local wood is dependent on a number of factors related to local supply and demand dynamics (including the demand for wood from other industries that consume wood and the potential impact on wood supply of natural phenomena such as forest fires and insect infestations) as well as the species of eucalyptus from which the wood was obtained, the characteristics of the land the wood is grown upon, the type of forestry sustainability certifications provided and, more generally, pulp prices on the current local market. The price we pay for imported wood, by contrast, is more dependent on global macroeconomic conditions, the current demand for wood from certain emerging markets with limited local supplies and fluctuations in the value of the U.S. dollar, the reference currency for trading in wood pulp. Non-biomass fuels. Non-biomass fuels are comprised primarily of fuel-oil, propane and petroleum coke. Non-biomass fuels accounted for approximately 5.7%, 6.6%, 6.8% and 6.7% of our Cash Costs in the years ended December 31, 2009, December 31, 2010 and December 31, 2011 and in the nine months ended September 30, 2012, respectively. Although our increased focus on developing our biomass-fuelled energy generation capacity in recent years currently enables us to self-supply all of the electricity and heat we require for our industrial operations, our energy production activities, particularly in our gas co-generation facilities, require us to complement the biomass being used as fuel with certain fossil fuels which, unlike biomass, are not generated through our other activities. Chemicals. Chemicals accounted for approximately 9.8%, 10.0%, 10.7% and 11.1% of our Cash Costs in the years ended December 31, 2009, December 31, 2010 and December 31, 2011 and in the nine months ended September 30, 2012, respectively. We use a number of

57

chemicals, including caustic soda, cryogenic oxygen, ethylenediaminetetraacetic acid (EDTA), sodium chlorate, hydrogen peroxide, sulfate and lime, during the conversion of wood into pulp, particularly during the cooking and bleaching stages of this process. A small amount of various antifoaming and dispersion agents is also necessary to complete the pulp production process. Approximately 80% of the chemicals we use tend to have their prices closely linked to that of petroleum. We are focused on tightly controlling our raw material costs as well as diversifying our supplier base and reducing our dependency on imports. As described in Operational Productivity and Efficiency, we are in the process of implementing a number of cost-saving measures focused on the continuous improvement of our operations, as part of our Total Quality Management program first introduced in 2011, a strategic program aimed at ensuring maximum efficiency and quality in all of our business processes, including through the reduction of wood, non-biomass fuel, chemical and energy costs as well as the total consumption thereof. For example, the program intends to reduce the use of higher-cost imported wood in our pulp production processes by diversifying our local supply sources through the increased use of small suppliers, as well as increasing the volume of standing timber purchased directly from landowners and forest proprietors associations. These measures allow us to better control our harvesting and transportation logistics costs which would otherwise be included in the price of already-cut wood purchased by us from other suppliers. Please see Quantitative and Qualitative Disclosures About Market RiskCommodity Price Risk and Description of Other IndebtednessHedging Arrangements. Energy Costs Energy costs for electricity and natural gas also constitute a significant component of our costs, particularly for our pulp production processes. Due to our energy generation activity, in general, as our energy costs increase, so do our revenues. In the twelve months ended September 30, 2012, energy costs were equivalent to 15.1% of our consolidated revenues. We do not currently enter into any hedging activities in relation to electricity. This is because for electricity, we have a natural hedge given that we generate a surplus of electricity and we are mainly selling at a Market Tariff, thus eliminating the impact of pool prices on the consumption of electricity. However, if we elect to change our generation assets to the Regulated Tariff due to a decrease in pool prices, we would consider engaging in electricity hedging activities. We acquire natural gas under one-year agreements with prices updated on a quarterly basis, linked to crude oil, on a take or pay basis. We do not currently enter into any hedging activities in relation to natural gas. This is because the tariff for natural gas co-generation is linked to natural gas prices and adjusted on a quarterly basis, providing a natural hedge to natural gas price volatility. Effect of Currency Fluctuations Our sales of pulp are primarily denominated in U.S. dollars. Because our principal product, pulp, is a commodity whose reference sale price in the international market is denominated in U.S. dollars per tonne, our revenues from pulp sales are impacted by the U.S. dollar/euro exchange rate since the price of pulp even when denominated in euro per tonne is a reflection of this price in U.S. dollar per tonne. Our sales of energy, as well as most of our costs, are primarily denominated in euro. As such, when the U.S. dollar appreciates against the euro, assuming international market prices of pulp remain constant in U.S. dollars, our net sales revenue from pulp sales would increase. By contrast, when the U.S. dollar depreciates against the euro, our net sales revenue from pulp sales would decrease. We continuously analyze our U.S. dollar/euro exchange rate risk based on our net cash flow expectations in U.S. dollars over the subsequent twelve months, and selectively enter into hedging agreements to mitigate this risk. Please see Quantitative and Qualitative Disclosures About Market RiskForeign Exchange Risk and Description of Other IndebtednessHedging Arrangements.

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Renewable Energy Production Incentives Our energy generation segment depends significantly on regulations and economic incentives and subsidies aimed at promoting the greater use of renewable energies. Currently, the income obtained from our production of electricity depends to a large extent on the economic regime established in Spain to incentivize renewable energy generation and co-generation. New regulations reducing or eliminating these incentives, such as those adopted in part in response to the current fiscal crisis in Spain, could have a negative impact on our financial condition and result of operations. Please see SummaryRecent DevelopmentsNew Energy Taxes in Spain and Risk FactorsRisks Relating to Our BusinessRegulatory changes may have an adverse effect on our electricity generating operations. For example, the Moratorium suspended proceedings for the registration of special regime energy facilities benefiting from regulated tariffs and premiums, thus freezing the development of new renewable energy facilities in Spain. The Moratorium has not had an impact on our existing biomass projects in Huelva and M erida, Spain, because the regulation does not affect energy facilities that were in operation or registered with a pre-allocation registry before the Moratoriums entry into force. However, the Moratorium could affect our future plans to further expand into biomass energy facilities in order to reduce the cyclicality of our operations, which have been put on hold until the Moratorium is lifted. In the interim period, we intend to continue to work on the development and promotion of biomass electricity projects, including in countries other than Spain. Operational Productivity and Efficiency Our profitability can be affected by the productivity and efficiency of our operations. Accordingly, we are implementing our Total Quality Management program across our different business activities in order to optimize our cost structure and increase the productivity, efficiency and fully leverage the complementary nature of our pulp manufacturing, energy generating and forestry activities. We are also optimizing capital expenditure in our pulp production facilities and co-generation and renewable energy generation facilities scheduled for maintenance and environmental upgrades in the near future, and more generally focusing on preventive maintenance versus corrective maintenance to enhance the stability of our production processes. In terms of direct cost savings from raw material costs, we have diversified, and intend to continue diversifying, our base of raw material suppliers, and particularly wood suppliers, thereby allowing us to benchmark our suppliers pricing more broadly. Please see Costs of Raw Materials and BusinessRaw Materials. Diversification away from larger suppliers has been achieved by creating a team focused on developing relationships with forest owners and small suppliers, including through offering support to forest owners to improve their plantations (including through the use of more advanced clone trees and silviculture techniques), which in turn enables us to better understand the forest resources available in the areas supplying our facilities and to improve the quality of our wood supply and the competiveness of our production costs. The diversification of suppliers has also been facilitated by our ongoing initiatives to increase the number of different eucalyptus species. In addition, we continue our efforts to develop rapid-growth clone trees and energy crops better adapted to climatic conditions and the soil of both us and our third-party suppliers, thereby reducing the costs associated with producing such wood and energy crops. In addition, in our complementary forestry activity, we have developed and implemented mechanized harvesting techniques, in lieu of the manual felling that was commonly used in the sector, aimed at improving overall productivity and reducing operating costs. We have also sought to improve the logistics for the transportation of the wood and energy crops to our production facilities, including through increased monitoring of the transportation of such materials by subcontractors in order to decrease inefficiencies. Acquisitions, Dispositions and Changes in Business Focus Acquisitions and dispositions can have a substantial impact on our results of operations. In recent years, we have acquired and disposed of significant assets, particularly assets used in conjunction with our forestry activities. For example, in 2009 and 2010, we divested forestry-related assets in Uruguay and, most recently, in December 2012, we entered into an agreement to divest a substantial proportion of our remaining forestry-related assets in Uruguay. Please see Summary

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Recent DevelopmentsUpdate on Uruguay Assets Disposal. These disposals are in line with our strategy to optimize our forestry supply management with a focus on reducing fixed assets. Please see BusinessOur StrategyOptimize Forestry Supply Management with a Focus on Reducing Fixed Assets. More generally, changes in our business focus can also impact our results of operations. Currently, we are expanding our presence in the biomass energy sector, including through a new independent biomass energy facility in Huelva, Spain for which we expect transfer of ownership in the first quarter of 2013, and a second independent biomass energy facility, in M erida, Spain, which is expected to become operational during the fourth quarter of 2014. We anticipate that each of these facilities, once fully commercially operational, will impact our results of operations. Please see SummaryRecent DevelopmentsHuelva 50 MW Biomass Energy Generation Facility and BusinessPrincipal ActivitiesEnergy Activity. Moreover, in our forestry activity, in addition to our focus on reducing fixed assets, we are also gradually disengaging from sales of wood to third parties and our forestry consultancy services business, including through our 2011 restructuring of Ibersilva, S.A.U., our forest services and civil works subsidiary, to enable an increased focus on the provision of intragroup forestry services. Other Financial Measures In this Offering Memorandum, we present certain non-GAAP measures, including Adjusted EBITDA, Cash Costs, EBITDA, Gross debt, Mid-cycle EBITDA, Net debt, Other Cash Costs, Total Costs, Unlevered free cash flow (excluding expansion capital expenditure), Wood Costs and Working capital and certain leverage and coverage ratios that are not required by, or presented in accordance with, IFRS. Our management believes that the presentation of these non-GAAP measures and ratios is helpful to investors because these and other similar measures and ratios are widely used by certain investors, security analysts and other interested parties as supplemental measures of performance and liquidity. However, you should not construe these non-GAAP measures and ratios as an alternative to net income determined in accordance with IFRS or to cash flows from operations, investing activities or financing activities, or to any other measure or ratio required by, or presented in accordance with, IFRS. In addition, our non-GAAP measures and ratios may not be comparable to similarly titled measures or ratios used by other companies. Explanation of Line Items Our pulp production activities are inseparably associated with our energy generation and our forestry activities, because the process by which we generate energy is integrated within our pulp production process and the wood we use to produce pulp is sourced by our forestry activities. In addition, we have independent energy generation facilities that use biomass fuel sourced through our forestry activities. Because our pulp production, energy generation and forestry activities are so closely integrated, the results of the activities carried out by each of them are analyzed jointly by our management, and, except for revenue, there is no separate financial information for each of them. Furthermore, because the majority of our revenues from forestry activities is generated within the Group, it is not possible and would not be representative to indicate an EBITDA figure exclusively associated with sales to third parties. The following is a brief description of the line items that are included in our consolidated income statements. Revenue Our revenue represents the combined results of our three business activities: pulp, energy and forestry. Revenue from pulp is calculated from the volume of pulp sold in the period multiplied by a net price in euros. The net price, in turn, is calculated through the conversion of the reference price in U.S. dollars agreed with the customer into euros and applying the agreed commercial discount. Revenue from energy is calculated by multiplying the volume of electricity sold to the grid at either a Regulated Tariff or a Market Tariff. Current regulations allow us to sell 100% of our electricity production at the regulated price and buy the energy we consume from the grid at market prices

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(plus an access toll). During the twelve months ended September 30, 2012, we produced approximately twice the amount of electricity than we consumed. Revenue from forest management relates to our sales to third parties and is comprised of revenues derived from our forestry services, civil works activities, wood trading activities (which, historically, have primarily been comprised of sales of wood from Uruguay to third parties), and wood swaps with Spanish and Portuguese companies. The impact of this activity on our operating profit has historically been marginal, and we expect our revenue from our forest management activity to further reduce with the agreed sale of our Uruguayan forestry assets in December 2012 (please see SummaryRecent DevelopmentsUpdate on Uruguay Assets Disposal), as well as the restructuring of Ibersilva, S.A.U., our forest services and civil works subsidiary, in 2011, to enable it to focus on intragroup forestry services. Gains or losses on hedging operations Gains or losses on hedging operations represents the results of our hedging operations, primarily our foreign exchange hedging operations, which we enter into to protect against exchange rate volatility between the U.S. dollar (the currency in which our pulp sales are conducted) and the euro (with the general exception of imported wood, petrochemicals and certain fuels, the currency in which most of our costs are incurred). Our foreign exchange hedges are short term, typically for approximately twelve months. To a lesser extent, and although we currently do not have any material hedging arrangements in place, we also sometimes enter into hedging arrangements to reduce our exposure to pulp prices. Please see Quantitative and Qualitative Disclosure About Market RiskCommodity Price Risk. Changes in inventories of finished goods and work in progress Change in inventories of finished goods and work in progress consists of variations in the level of inventories of finished goods and work in progress at the end of the most recent period compared with the end of the prior period. Procurements Procurements are comprised primarily of costs relating to purchases of raw materials, including wood, from third-party suppliers, as well as non-biomass fuels and chemicals. Group work on non-current assets Group work on non-current assets includes the capitalization of expenses related to our property, plant and equipment and biological assets (eucalyptus plantations and energy crop plantations). Items capitalized in relation to plantations include rental properties, treatments related to the clearing and preparation of land, irrigation, the phytosanitation of land, the planting and replanting of land, herbicides, and fertilizer. Other operating income Other operating income includes rental income and other extraordinary income, compensation provided by insurance on property damage for loss of profits and reversals of provisions that were not applied. Capital grants transferred to profit and loss Capital grants transferred to profit and loss relate to investments in our production centers, certain grants related to greenhouse gas emissions and, to a lesser extent, subsidies for operations. The most significant subsidy recently received in this regard is a subsidy granted by IDEPA (the regional government of Asturias) in 2011 for e8.5 million in conjunction with expansion works that were undertaken in our Navia pulp production facility. We also receive free CO2 rights on an annual basis pursuant to the Spanish National Allocation Plan (Law 1/2005). These are recorded as a capital grant at the value of the CO2 rights as of January 1. Staff costs Staff costs include wages and salaries, social security costs and other personnel costs. Staff costs also include the termination benefits to employees terminated under certain circumstances. The termination benefits that can be reasonably quantified are recognized as an expense in the year in which the decision to terminate the employment relationship is taken.

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Depreciation and amortization charges Depreciation and amortization charges are comprised primarily of the depreciation of our industrial assets, together with the depreciation of wood originating on our own plantations, which is considered a reduction in the value of our biological assets, also known as forestry depletion. Forestry depletion is the cost allocated to felled timber, based on the aggregate costs incurred to the date of felling and the residual value of the plantation. Impairment and gains or losses on disposals of non-current assets Impairment and gains or losses from disposal of non-current assets relates to the impairment loss in respect of, or gains/losses upon disposal of, intangible assets, property, plant and equipment and investment property. Other operating expenses Other operating expenses includes cost of transport, freight and marketing, utilities, repairs and maintenance, leases and royalties, insurance, costs associated with the CO2 emission rights used, professional services, communication and indirect taxes. The key line items included in the other operating expenses are: (i) transport, freight and marketing costs (primarily comprised of the delivery cost of wood and other raw materials to our industrial facilities, and the supply of finished pulp to our end-customers); (ii) utilities and supplies (primarily comprised of electricity costs incurred to run our industrial operations); and (iii) repairs and maintenance costs (incurred for the general upkeep and maintenance of our production facilities). Finance income Finance income includes income from cash deposits. Change in fair value of financial instruments Change in fair value of financial instruments includes the gains or losses derived from changes in the fair value of financial instruments mainly related to: (i) interest rate swap derivative used to hedge our bank debt, which due to a repayment during 2009, ceased to qualify for hedge accounting and (ii) an equity swap we entered into in 2007 for the purpose of hedging the potential increase in the value of stock options awarded to the management that were subsequently not granted, although the equity swap remained in place. Finance costs Finance costs include expenses due to interest and similar expenses, including interest on our outstanding corporate indebtedness. Finance costs also include the costs related to factoring and confirming lines entered into in the ordinary course of business. Exchange differences Exchange differences include gains and losses originating from exchange differences related to assets and liabilities denominated in currencies other than euro (primarily related to our Uruguay operations). Income tax Income tax includes all current and deferred taxes, as calculated in accordance with relevant tax laws in force in the jurisdictions in which we operate.

62

Results of Operations Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011 The following table sets out selected items from our consolidated income statements for the periods indicated and the percentage change from period to period, and shows these items as a percentage of total revenues.
Nine months ended September 30, 2011 2012 (g in millions, unless indicated) (unaudited)

Percentage change (%)

Operating Data: Pulp sales (000 tonnes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electricity sales (GWh) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wood supply to the industrial process (000 m3) . . . . . . . . . . . . . . . Income Statement Data: Revenue . . . . . . . . . . . . . . . . . . . . . . . . . Gains or losses on hedging operations . Changes in inventories of finished goods Procurements . . . . . . . . . . . . . . . . . . . . ................ ................ and work in progress ................ . . . . . . . . . . . . . . . . . . . . . . . . . . .

900 1,106 2,745

915 1,161 2,694

1.7% 5.0% (1.9)% (3.8)% 95.8% (49.6)% 2.1% (13.4)% 1.6% (21.2)% (42.0)% (11.0)% (0.4)% (41.0)% (15.3)% (18.6)% (46.6)% 85.6% (15.8)% NM (11.3)% (21.0)% (12.1)% (24.8)% (24.8)%

627.4 603.4 (11.2) (21.9) 5.3 2.7 (296.1) (302.3) 325.4 281.9 22.7 23.1 2.3 1.8 5.5 3.2 (66.8) (59.5) (45.8) (45.6) 4.0 2.4 (174.3) (147.7) 73.0 1.1 1.5 (21.7) 0.7 (18.4) 54.6 (16.3) 38.3 38.3 59.4 0.6 2.8 (18.2) (1.4) (16.3) 43.1 (14.3) 28.8 28.8

Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Group work on non-current assets . . . . . . . . Other operating income . . . . . . . . . . . . . . . Capital grants transferred to profit and loss . Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization charge . . . . . Impairment and gains or losses on disposals Other operating expenses . . . . . . . . . . . . . . Finance income . . . . . . . . . . . . . . . . . . . . Change in fair value of financial instruments Finance costs . . . . . . . . . . . . . . . . . . . . . . Exchange differences . . . . . . . . . . . . . . . . . . . . ................ ................ ................ ................ ................ of non-current assets ................ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Profit/(Loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit/(Loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit/(Loss) for the period from continuing operations . . . . . . . . . Profit/(Loss) for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revenue

Our revenues decreased by e24.0 million to e603.4 million in the nine months ended September 30, 2012 from e627.4 million in the nine months ended September 30, 2011, a 3.8% decrease. This decrease was primarily attributable to the effect of lower pulp prices combined with lower sales in our forest services business during the nine months ended September 30, 2012 compared to the previous period, which offset the overall increases in pulp and energy volumes sold during the period ended September 30, 2012.

63

The table below shows the split of our total consolidated revenue generated by each of our three business activitiespulp, energy and forestryfor the nine months ended September 30, 2012 and the nine months ended September 30, 2011, respectively:
Nine months ended September 30, 2011 Revenue by activity (g in millions) (%) (unaudited) Nine months ended September 30, 2012 Revenue by activity (g in millions) (%) (unaudited)

Percentage Change (%)

Pulp sales . . . . . . . . . . . . . . . . . . . . . . . . Electricity sales . . . . . . . . . . . . . . . . . . . . Wood and forestry services . . . . . . . . . . . Revenue . . . . . . . . . . . . . . . . . . . . . . . . .

456.5 133.7 37.2 627.4

72.8% 21.3% 5.9%

436.6 148.3 18.6 603.4

72.4% 24.6% 3.1%

(4.4)% 10.9% (50.1)% (3.8)%

Our revenues from pulp sales decreased by e19.9 million to e436.6 million in the nine months ended September 30, 2012 from e456.5 million in the nine months ended September 30, 2011, a 4.4% decrease. This decrease is due to a decline in average sale prices by 5.9% to 477.8 e/tonne in the nine months ended September 30, 2012 from 507.7 e/tonne in the nine months ended September 30, 2011 due to lower demand in developed markets after a destocking phase, partially offset by an increase in sales volumes of 1.7% to 915 thousand tonnes in the nine months ended September 30, 2012 from 900 thousand tonnes in the nine months ended September 30, 2011. Our revenues from energy sales increased by e14.6 million to e148.3 million in the nine months ended September 30, 2012 from e133.7 million in the nine months ended September 30, 2011, a 10.9% increase. This increase is attributable to a 5.6% increase in average electricity sale price to 127.7 e/MWh in the nine months ended September 30, 2012 from 120.9 e/MWh in the nine months ended September 30, 2011 and a 5.0% increase in electricity sold to the grid to 1,161 GWh in the nine months ended September 30, 2012 from 1,106 GWh in the nine months ended September 30, 2011 as a result of improved efficiency in electricity generation. Our revenues from forestry sales decreased by e18.6 million to e18.6 million in the nine months ended September 30, 2012 from e37.2 million in the nine months ended September 30, 2011, a 50.1% decrease. This decrease is attributable to our decision to gradually disengage from this activity. Please see BusinessOur StrategyOptimize Forestry Supply Management with a Focus on Reducing Fixed Assets and SummaryRecent DevelopmentsUpdate on Uruguay Assets Disposal. Gains or losses on hedging operations We recorded a e21.9 million loss in the nine months ended September 30, 2012, compared to a e11.2 million loss in the nine months ended September 30, 2011. During the nine months ended September 30, 2012, we realized a loss when we settled forward pulp sale contracts in respect of 36,000 tonnes of pulp at an average strike price of $720 per tonne (compared to an average pulp price of $750 per tonne) and $398 million of foreign exchange contracts at an average strike price of 1.374 ($/e) (compared to an average exchange rate of 1.279 ($/e)). During the nine months ended September 30, 2011, we realized a loss when we settled forward pulp sales contracts in respect of 254,000 tonnes of pulp at an average strike price of $551 per tonne (compared to an average pulp price of $601 per tonne) which was partly offset by a small gain when we settled $132 million of foreign exchange contracts at an average strike price of 1.372 ($/e) (compared to an average exchange rate of 1.401 ($/e)). Changes in inventories of finished goods and work in progress Changes in inventories of finished goods and work in progress was a e2.7 million increase in the nine months ended September 30, 2012 compared to a e5.3 million increase in the nine months ended September 30, 2011. Procurements Procurements during the nine months ended September 30, 2012 increased by e6.2 million to e302.3 million from e296.1 million in the nine months ended September 30, 2011, a 2.1% increase.

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This increase was due to the increase in changes in inventories of raw, auxiliary and commercial materials and other external expenses, partially offset by a decrease in purchases. Despite a 1.4% increase in pulp sales from 900 tonnes in the nine months ended September 30, 2011 to 915 tonnes in the nine months ended September 30, 2012, purchases declined by 6.8% due to lower timber costs. This was primarily due to the decrease in imported timber which was replaced by greater sourcing of wood as standing timber from landlords. The higher other external expenses were related to increased harvesting activity as a result of the increase of standing timber purchased directly from landlords. The following table sets forth the items that constituted our procurements in the periods presented:
Nine months ended and as of September 30, 2011 2012 (g in millions) (unaudited)

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in inventories of raw, auxiliary and commercial materials . . . . . . . Other external expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Group work on non-current assets

261.4 2.2 32.5 296.1

243.5 17.4 41.5 302.3

Group work on non-current assets increased by e0.4 million to e23.1 million in the nine months ended September 30, 2012 from e22.7 million in the nine months ended September 30, 2011, a 1.6% increase. This increase was primarily attributable to our increased investments in energy crops for the supply to our energy generation facilities, which was partially offset by lower investments in our Uruguay assets held for sale. Other operating income Other operating income decreased by e0.5 million to e1.8 million in the nine months ended September 30, 2012 from e2.3 million in the nine months ended September 30, 2011, a 21.2% decrease. Capital grants transferred to profit and loss Capital grants transferred to profit and loss decreased by e2.3 million to e3.2 million in the nine months ended September 30, 2012 from e5.5 million in the nine months ended September 30, 2011, a 42.0% decrease. This decrease was primarily attributable to the decrease in the price for CO2 rights on January 1, 2012 compared to January 1, 2011, which resulted in a lower valuation of our CO2 rights grant. Staff costs Staff costs decreased by e7.3 million to e59.5 million in the nine months ended September 30, 2012 from e66.8 million in the nine months ended September 30, 2011, an 11.0% decrease. This decrease was primarily due to a reduction in the average number of workers to 1,276 in the nine months ended September 30, 2012 from 1,651 in the nine months ended September 30, 2011 as a result of the restructuring of Ibersilva, S.A.U., our forestry and civil works subsidiary, and our Uruguay operations.

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The following table sets forth the items that constituted our staff costs in the periods presented:
Nine months ended September 30, 2011 2012 (g in millions) (unaudited)

Wages and salaries . . . . . . . . . Social security and taxes . . . . . Pension contributions and other Termination benefit costs . . . . . Other . . . . . . . . . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

47.7 11.6 1.4 5.0 1.1 66.8

45.2 10.5 1.4 1.6 0.8 59.5

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization charge

Depreciation and amortization charge decreased by e0.2 million to e45.6 million in the nine months ended September 30, 2012 from e45.8 million in the nine months ended September 30, 2011, a 0.4% decrease. Impairment and gains or losses on disposals of non-current assets We recorded a e2.4 million gain in the nine months ended September 30, 2012 compared to a e4.0 million gain in the nine months ended September 30, 2011. The gain in the nine months ended September 30, 2012 was primarily due to a reversal of provisions and a gain from the sale of assets in Uruguay. The gain in the nine months ended September 30, 2011 was primarily due to a reversal of provisions. Other operating expenses Other operating expenses decreased by e26.6 million to e147.7 million in the nine months ended September 30, 2012 from e174.3 million in the nine months ended September 30, 2011, a 15.3% decrease. This decrease was primarily attributable to a reduction in transport, freight and marketing costs due to lower volumes of imported timber. The following table sets forth the items that constitute our other operating expenses in the periods presented:
Nine months ended September 30, 2011 2012 (g in millions)

Outside services: Transport, freight and marketing costs . . . Utilities and supplies . . . . . . . . . . . . . . . Repairs and maintenance . . . . . . . . . . . . Rent and royalties . . . . . . . . . . . . . . . . . Insurance premiums . . . . . . . . . . . . . . . Independent professional services . . . . . Banking and similar services . . . . . . . . . Advertising, publicity and public relations Other services . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

64.2 46.8 13.3 6.9 5.0 3.6 1.8 0.7 20.4 162.0 4.7 3.2 3.5 174.3

46.1 45.9 11.1 5.9 5.1 5.0 1.8 0.7 15.7 137.6 2.2 4.8 3.1 147.7

Total outside services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Emission rights used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other taxes and operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in operating provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

66

Profit from operations Profit from operations decreased by e13.5 million to e59.4 million in the nine months ended September 30, 2012 from e73.0 million in the nine months ended September 30, 2011, an 18.6% decrease. This decrease was primarily attributable to a decline in market prices of pulp, which was partially offset by our higher sales volumes of both pulp and electricity. Finance income Finance income decreased by e0.5 million to e0.6 million in the nine months ended September 30, 2012 from e1.1 million in the nine months ended September 30, 2011, a 46.6% decrease. Change in fair value of financial instruments We recorded a e2.8 million gain in the nine months ended September 30, 2012 compared to a e1.5 million gain in the nine months ended September 30, 2011. The gains in both periods were primarily due to gains on the interest rate swap related to our syndicated credit facility partially offset by losses on our equity swap due to a decrease in our share price. In May 2008, we entered into an interest rate swap to hedge 60% of our bank debt. This debt substantially changed in 2009 due to a repayment (from the Uruguay disposal proceeds). As a result, the interest rate swap ceased to qualify for hedge accounting on October 16, 2009. Since that date, changes in the value of this instrument have been recognized in the change in fair value of financial instruments. In 2007, we entered into an equity swap to hedge against the potential increase in the value of stock options awarded to our management. The stock options were subsequently not granted to management; however, the equity swap remained in place. The subsequent changes in the fair value of this equity swap have been recognized in the change in fair value of financial instruments. Finance costs Finance costs decreased by e3.4 million to e18.2 million in the nine months ended September 30, 2012 from e21.7 million in the nine months ended September 30, 2011, a 15.8% decrease. This decrease was primarily attributable to a decrease in interest rates. Exchange differences We recorded a e1.4 million loss in the nine months ended September 30, 2012 compared to a gain of e0.7 million in the nine months ended September 30, 2011. Both the loss and the gain were primarily attributable to the translation impact of foreign exchange fluctuations in relation to our Uruguayan assets. Financial gain/(loss) Financial loss decreased by e2.1 million to e16.3 million in the nine months ended September 30, 2012 from e18.4 million in the nine months ended September 30, 2011, an 11.3% decrease, primarily due to lower finance costs. Profit before tax Profit before tax decreased by e11.5 million to e43.1 million in the nine months ended September 30, 2012 from e54.6 million in the nine months ended September 30, 2011, a 21.0% decrease. This decrease was primarily due to lower profit from operations. Income tax Income tax decreased by e2.0 million to e14.3 million in the nine months ended September 30, 2012 from e16.3 million in the nine months ended September 30, 2011, a 12.1% decrease. This decrease was primarily attributable to the decrease in profit before tax.

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Profit from continuing operations Profit from continuing operations decreased by e9.5 million to e28.8 million in the nine months ended September 30, 2012 from e38.3 million in the nine months ended September 30, 2011, a 24.8% decrease. Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010 The following table sets forth selected items from our consolidated income statements for the periods indicated and the percentage change from period to period, and shows these items as a percentage of total revenues.
Year ended December 31, 2010 2011 (g in millions, unless indicated) Percentage Change (%)

Operating Data: Pulp sales (000 tonnes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electricity sales (GWh) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wood supply to the industrial process (000 m3) . . . . . . . . . . . . . Income Statement Data: Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains or losses on hedging operations . . . . . . . . . . Changes in inventories of finished goods and work in Procurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... ....... progress ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,147 1,332 3,502 830.8 (4.9) 4.8 (367.0) 463.7 27.8 3.5 7.3 (84.3) (61.2) 0.2 (239.7) 117.3 2.0 2.5 (31.5) 0.1 (26.9) 90.3 (25.6) 64.7 64.7

1,232 1,490 3,699 825.5 (10.4) (1.7) (390.8) 422.6 27.2 5.2 7.4 (89.4) (63.5) 4.4 (233.9) 80.1 5.3 1.6 (32.0) 2.1 (23.1) 57.0 (15.8) 41.2 41.2

7.4% 11.9% 5.6% (0.6)% NM NM 6.5% (8.9)% (2.1)% 45.8% 2.5% 6.0% 3.7% NM (2.5)% (31.7)% NM (36.9)% 1.6% NM (14.4)% (36.9)% (38.3)% (36.3)% (36.3)%

Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Group work on non-current assets . . . . . . . . . . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . Capital grants transferred to profit and loss . . . . . . . . . . . . Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization charge . . . . . . . . . . . . . . . . Impairment and gains or losses on disposals of non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . Finance income . . . . . . . . . . . Change in fair value of financial Finance costs . . . . . . . . . . . . . Exchange differences . . . . . . . ......... instruments ......... ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.... .... . . . . . . . . . . . . . . . .

Profit/(Loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit/(Loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit/(Loss) for the year from continuing operations . . . . . . . . . Profit/(Loss) for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revenue

Our revenues decreased by e5.3 million to e825.5 million in the year ended December 31, 2011 from e830.8 million in the year ended December 31, 2010, a 0.6% decrease. This decrease was primarily attributable to a decline in pulp prices during 2011 from the record highs seen in the year ended December 31, 2010 and a decrease in sales in our forestry activity.

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The table below shows the split of our total consolidated revenue generated by each of our three business activitiespulp, energy and forestryfor the years ended December 31, 2011 and December 31, 2010, respectively:
Year ended December 31, 2010 Revenue Revenue by activity by activity (g in (%) millions) Year ended December 31, 2011 Revenue Revenue by activity by activity (g in (%) millions)

Percentage Change (%)

Pulp sales . . . . . . . . . . . . . . . . . . . . . . . . Electricity sales . . . . . . . . . . . . . . . . . . . . Wood and forestry services . . . . . . . . . . . . Revenue . . . . . . . . . . . . . . . . . . . . . . . . .

626.5 140.2 64.1 830.8

75.4% 16.9% 7.7%

596.9 184.3 44.3 825.5

72.3% 22.3% 5.4%

(4.7)% 31.5% (30.9)% (0.6)%

Our revenues from pulp sales decreased by e29.6 million to e596.9 million in the year ended December 31, 2011 from e626.5 million in year ended December 31, 2010, a 4.7% decrease. This decrease is due to a downward adjustment in average sale prices of 11.3% to 484.7 e/tonne in the year ended December 31, 2011 from 546.4 e/tonne in the year ended December 31, 2010. This decline in sale prices was partially offset by a 7.4% increase in sale volumes to 1,232 thousand tonnes in the year ended December 31, 2011 from 1,147 thousand tonnes in the year ended December 31, 2010. The unusually high prices achieved in the year ended December 31, 2010 were a result of the earthquake in Chile in February 2010, which led to a drop in global production capacity of 8% for several months. Our revenues from energy sales increased by e44.1 million to e184.3 million in the year ended December 31, 2011 from e140.2 million in the year ended December 31, 2010, a 31.5% increase. This increase is attributable to a 17.5% increase in the average electricity sale price to 123.7 e/MWh in the year ended December 31, 2011 from 105.2 e/MWh in the year ended December 31, 2010 and also an 11.9% increase in electricity sold to 1,490 GWh in the year ended December 31, 2011 from 1,332 GWh in the year ended December 31, 2010 as a result of improved efficiency in electricity generation. Our revenues from forestry sales decreased by e19.8 million to e44.3 million in the year ended December 31, 2011 from e64.1 million in the year ended December 31, 2010, a 30.9% decrease. This decrease is attributable to our decision to gradually disengage from this activity. Please see BusinessOur StrategyOptimize Forestry Supply Management with a Focus on Reducing Fixed Assets and SummaryRecent DevelopmentsUpdate on Uruguay Assets Disposal. Gains or losses on hedging operations We recorded a e10.4 million loss in the year ended December 31, 2011 compared to a loss of e4.9 million in the year ended December 31, 2010. This e10.4 million loss was primarily due to our pulp hedging activities and was partially offset by gains from our foreign exchange hedging activities. During the year ended December 31, 2011, we realized a loss when we settled forward pulp sales contracts in respect of 333,300 tonnes of pulp at an average strike price of e551.2 per tonne (compared to an average pulp price of e575 per tonne). This was partially offset by the settlement of $233 million of foreign exchange contracts at an average strike price of 1.3792 ($/e) (compared to an average exchange rate of 1.390 ($/e)), which resulted in a gain. The e4.9 million loss in the year ended December 31, 2010 was a result of the settlement of $347 million of foreign exchange contracts at an average strike price of 1.3797 ($/e) (compared to an average exchange rate of 1.326 ($/e)). Changes in inventories of finished goods and work in progress Changes in inventories of finished goods and work in progress amounted to a reduction of e1.7 million in the year ended December 31, 2011 as compared to an increase of e4.8 million in the year ended December 31, 2010.

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Procurements Procurements during the year ended December 31, 2011 increased by e23.7 million, to e390.8 million from e367.0 million in the year ended December 31, 2010 a 6.5% increase. This increase was due to a 7.4% increase in pulp sales and an 11.9% increase in energy sales over the previous period, which required increased raw material inputs, such as wood, non-biomass fuels and chemicals. The increase in other external expense was due to a greater portion of wood being sourced from landlords resulting in higher harvesting and transportation costs. The following table sets forth the items that constituted our procurements in the periods presented:
Year ended December 31, 2010 2011 (g in millions)

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in inventories of raw materials, other materials and merchandise . . . . . . . Other external expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Group work on non-current assets

354.8 358.3 (22.4) (10.9) 34.6 43.4 367.0 390.8

Group work on non-current assets decreased by e0.6 million to e27.2 million in the year ended December 31, 2011 from e27.8 million in the year ended December 31, 2010, a 2.1% decrease. Other operating income Other operating income increased by e1.6 million to e5.2 million in the year ended December 31, 2011 from e3.5 million in the year ended December 31, 2010, a 45.8% increase. Capital grants transferred to profit and loss Capital grants transferred to profit and loss increased by e0.1 million to e7.4 million in the year ended December 31, 2011 from e7.2 million in the year ended December 31, 2010, a 2.5% increase. Staff costs Staff costs increased by e5.1 million to e89.4 million in the year ended December 31, 2011 from e84.3 million in the year ended December 31, 2010, a 6.0% increase. This increase was primarily attributable to redundancy payments related to the restructuring of Ibersilva, S.A.U., our forestry and civil works subsidiary. The following table sets forth the items that constituted our staff costs in the periods presented:
Year ended December 31, 2010 2011 (g in millions)

Wages and salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . Social security costs . . . . . . . . . . . . . . . . . . . . . . . . . . Pension contributions and other employee benefit costs Termination benefits . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

64.0 15.4 3.6 1.3 84.3

63.6 15.2 3.8 6.8 89.4

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization charge

Depreciation and amortization charges increased by e2.3 million in the year ended December 31, 2011, from e61.2 million in the year ended December 31, 2010 to e63.5 million in the

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year ended December 31, 2011, a 3.7% increase. This increase was primarily attributable to the impact of a change in the depreciation schedules applied to Celulosas de Asturias, S.A.U. (our Navia plant) to align the depreciation schedules with those used at the Group level. Impairment and gains or losses on disposals of non-current assets We recorded a gain of e4.4 million in the year ended December 31, 2011 compared to a e0.2 million gain in the year ended December 31, 2010. The gain in the year ended December 31, 2011 was primarily due to a gain from the sale of land in Uruguay and reversals of provisions. Other operating expenses Other operating expenses decreased by e5.9 million to e233.9 million in the year ended December 31, 2011 from e239.7 million in the year ended December 31, 2010, a 2.5% decrease. The decrease was driven primarily by a decrease in other services cost, which was more than offset by increased electricity costs resulting from an increase in the energy pool price in the year ended December 31, 2011 compared to the year ended December 31, 2010. In the year ended December 31, 2010, we made a provision of e8.5 million related to the restructuring of lbersilva S.A.U., our forestry services and civil works subsidiary, which was reversed in the year ended December 31, 2011 in other services costs. The following table sets forth the items that constitute our other operating expenses in the periods presented:
Year ended December 31, 2010 2011 (g in millions)

Outside services: Transport, freight and marketing costs . . . Utilities . . . . . . . . . . . . . . . . . . . . . . . . . Repairs and maintenance . . . . . . . . . . . . Leases and royalties . . . . . . . . . . . . . . . Insurance premiums . . . . . . . . . . . . . . . Independent professional services . . . . . Banking and similar services . . . . . . . . . Advertising, publicity and public relations Research and development expenses . . . Other services . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

82.2 52.3 18.9 8.6 7.1 7.1 2.7 1.6 0.4 34.8 215.6 6.9 4.1 13.1 239.7

87.8 64.4 18.7 8.6 6.1 5.8 2.5 0.8 0.1 19.9 214.4 5.6 5.0 8.5 233.9

Total outside services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Emission rights used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other taxes and operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in operating provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit from operations

Profit from operations decreased by e37.2 million to e80.1 million in the year ended December 31, 2011 from e117.3 million in the year ended December 31, 2010, a 31.7% decrease. This decrease was primarily attributable to an increase in procurement costs due to the increase in pulp and energy production. Finance income Finance income increased by e3.3 million to e5.3 million in the year ended December 31, 2011 from e2.0 million in the year ended December 31, 2010. This increase was primarily attributable to a reclassification of e3.4 million of capitalized interest expenses relating to biomass plantations from group work on non-current assets to finance income.

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Change in fair value of financial instruments We recorded a e1.6 million gain in the year ended December 31, 2011 compared to a e2.5 million gain in the year ended December 31, 2010. The gains in both periods were due to gains on the interest rate swap related to our syndicated credit facility partially offset by losses on our equity swap further to a decrease in our share price. Finance costs Finance costs increased by e0.5 million to e32.0 million in the year ended December 31, 2011 from e31.5 million in the year ended December 31, 2010, a 1.6% increase. This increase was primarily attributable to an increase in factoring volumes resulting in higher factoring interest costs, as well as increased amortization of financing fees related to the refinancing of our syndicated loan and the project financing entered into for the purposes of financing our new biomass energy facility located in Huelva, Spain. Exchange differences We recorded a gain of e2.1 million in the year ended December 31, 2011 compared to a gain of e0.1 million in the year ended December 31, 2010. These gains were primarily attributable to the translation impact of exchange rate fluctuations in relation to our Uruguayan operations. Financial gain/(loss) Financial loss decreased by e3.8 million to e23.1 million in the year ended December 31, 2011, from e26.9 million in the year ended December 31, 2010, a 14.1% decrease. This was primarily attributable to an increase in financial income. Profit before tax Profit before tax decreased by e33.3 million to e57.0 million in the year ended December 31, 2011 from e90.3 million in the year ended December 31, 2010, a 36.9% decrease. This decrease was primarily attributable to lower profit from operations. Income tax Income tax decreased by e9.8 million to e15.8 million in the year ended December 31, 2011 from e25.6 million in the year ended December 31, 2010, a 38.3% decrease. This decrease was primarily attributable to lower profit before tax. Profit from continuing operations Profit from continuing operations decreased by e23.5 million to e41.2 million in the year ended December 31, 2011 from e64.7 million in the year ended December 31, 2010, a 36.3% decrease.

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Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009 The following table sets forth selected items from our consolidated income statements for the periods indicated and the percentage change from period to period, and shows these items as a percentage of total revenues.
Year ended December 31, 2009 2010 (g in millions, unless indicated) Percentage Change (%)

Operating Data: Pulp sales (000 tonnes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electricity sales (GWh) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wood supply to the industrial process (000 m3) . . . . . . . . . . . . . Income Statement Data: Revenue . . . . . . . . . . . . . . . . . . . . . . . . Gains or losses on hedging operations . Changes in inventories of finished goods Procurements . . . . . . . . . . . . . . . . . . . ................. ................. and work in progress . ................. .. .. .. .. .. of .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,061 1,215 2,939 535.6 3.8 (17.4) (348.2) 173.8 34.4 3.0 8.2 (88.7) (46.8) (10.8) (145.6) (72.5) 2.4 (21.2) (26.0) 0.5 (44.3) (116.8) 39.3 (77.6) (77.0) (154.6)

1,147 1,332 3,502 830.8 (4.9) 4.8 (367.0) 463.7 27.8 3.5 7.3 (84.3) (61.2) 0.2 (239.7) 117.3 2.0 2.5 (31.5) 0.1 (26.9) 90.3 (25.6) 64.7 64.7

8.1% 9.6% 19.2% 55.1% NM NM 5.4% NM (19.2)% 16.7% (11.0)% (5.0)% 30.7% NM 64.7% NM (16.7)% NM 21.1% (86.4)% (39.2)% NM NM NM NM NM

Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Group work on non-current assets . . . . . . . . Other operating income . . . . . . . . . . . . . . . Capital grants transferred to profit and loss . Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization charge . . . . . Impairment and gains or losses on disposals non-current assets . . . . . . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . Finance income . . . . . . . . . . . . . . . . . . . . . Change in fair value of financial instruments . Finance costs . . . . . . . . . . . . . . . . . . . . . . Exchange differences . . . . . . . . . . . . . . . . .

............ ............ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Profit/(Loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial Gain/(Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit/(Loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit/(Loss) for the year from continuing operations . . . . . . . . Loss for the year from discontinued operations . . . . . . . . . . . . . . Profit/(Loss) for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revenue

Our revenues increased by e295.2 million to e830.8 million in the year ended December 31, 2010 from e535.6 million in the year ended December 31, 2009, a 55.1% increase. This increase was primarily attributable to higher pulp prices in the international market, combined with higher volumes of both pulp and electricity sales during the year ended December 31, 2010 as compared to the year ended December 31, 2009.

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The table below shows the split of our total consolidated revenue generated by each of our three business activitiespulp, energy and forestryfor the years ended December 31, 2010 and December 31, 2009, respectively:
Year ended December 31, 2009 Revenue Revenue by activity by activity (g in (%) millions) Year ended December 31, 2010 Revenue Revenue by activity by activity (g in (%) millions)

Percentage Change (%)

Pulp sales . . . . . . . . . . . . . . . . . . . . . . . . Electricity sales . . . . . . . . . . . . . . . . . . . . Wood and forestry services . . . . . . . . . . . . Revenue . . . . . . . . . . . . . . . . . . . . . . . . .

361.0 126.9 47.7 535.6

67.4% 23.7% 8.9%

626.5 140.2 64.1 830.8

75.4% 16.9% 7.7%

73.5% 10.5% 34.5% 55.1%

Our revenues from pulp sales increased by e265.5 million to e626.5 million in the year ended December 31, 2010 from e361.0 million in the year ended December 31, 2009, a 73.5% increase. This increase is attributable to average sale prices increasing by 60.3% to 546.4 e/tonne in the year ended December 31, 2010 from 340.9 e/tonne in the year ended December 31, 2009 due to the 8% reduction in global production capacity for several months after the earthquake in Chile in February 2010. The prices in the year ended December 31, 2009 were unusually low as a result of the global economic crisis and destocking. Volumes sold increased by 8.1% to 1,147 thousand tonnes in the year ended December 31, 2010 from 1,061 thousand tonnes in the year ended December 31, 2009 due to the fact that our Navia facility was partially shut down for capacity expansion in the year ended December 31, 2009. Our revenues from energy sales increased by e13.3 million to e140.2 million in the year ended December 31, 2010 from e126.9 million in the year ended December 31, 2009, a 10.5% increase. This increase is primarily attributable to a 9.6% increase in sales volumes for electricity to 1,332 GWh in the year ended December 31, 2010 from 1,216 GWh in the year ended December 31, 2009 due to the fact that our facilities in Navia were partially shut down for capacity expansion in the year ended December 31, 2009. In addition, our average electricity sales price increased by 0.8% to 105.2 e/MWh in the year ended December 31, 2010 from 104.4 e/MWh in the year ended December 31, 2009. Our revenues from forestry sales increased by e16.4 million to e64.1 million in the year ended December 31, 2010 from e47.7 million, a 34.5% increase. This increase is due to higher wood sales to third parties. Gains or losses on hedging operations In the year ended December 31, 2010, we recorded a e4.9 million loss compared to a gain of e3.8 million in the year ended December 31, 2009. During the year ended December 31, 2010, we realized a loss when we settled $347 million of foreign exchange contracts at an average strike price of 1.3242 ($/e) compared to an average exchange rate of 1.326 ($/e). During the year ended December 31, 2009, we realized a gain as we settled 102,000 tonnes of pulp hedges at a strike price of $601 per tonne (compared to the average pulp price of $563 per tonne during the same period). Changes in inventories of finished goods and work in progress Changes in inventories of finished goods and work in progress represented an increase of e4.8 million in the year ended December 31, 2010, compared to a reduction of e17.4 million in the year ended December 31, 2009. In the year ended December 31, 2009, sales of pulp were 1,061 tonnes compared to pulp production of 998 tonnes, leading to a reduction in our inventory of finished pulp. Procurements Procurements during the year ended December 31, 2010 increased by e18.9 million to e367.0 million from e348.2 million in the year ended December 31, 2009, a 5.4% increase. This increase was due to higher pulp and energy production in the year ended December 31, 2010,

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following the capacity expansion at the Navia plant implemented during the year ended December 31, 2009 which resulted in higher raw material consumption. The following table sets forth the items that constituted our procurements in the periods presented:
Year ended December 31, 2009 2010 (g in millions)

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in inventories of raw, auxiliary and commercial materials . . . . . . . . . Other external expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Group work on non-current assets

281.4 32.7 34.1 348.2

354.8 (22.4) 34.6 367.0

Group work on non-current assets decreased by e6.6 million to e27.8 million in the year ended December 31, 2010 from e34.4 million in the year ended December 31, 2009, a 19.2% decrease. This decrease was primarily attributable to the reduction of our level of investment due to the completion of the construction work undertaken in the year ended December 31, 2009 to increase the capacity in both our pulp production and energy generation facilities at the Navia and Huelva facilities, which was partly offset by the capitalization of expenditure undertaken in the year ended December 31, 2010 related to construction at the Huelva plant. Other operating income Other operating income increased by e0.5 million to e3.5 million in the year ended December 31, 2010 from e3.0 million in the year ended December 31, 2009, a 16.7% increase. Capital grants transferred to profit and loss Capital grants transferred to profit and loss decreased by e0.9 million to e7.3 million in the year ended December 31, 2010 from e8.2 million in the year ended December 31, 2009, a 11.0% decrease, as a result of a decrease in the value of CO2 rights awarded in the year ended December 31, 2010 compared to the year ended December 31, 2009. Staff costs Staff costs decreased by e4.4 million to e84.3 million in the year ended December 31, 2010 from e88.7 million in the year ended December 31, 2009, a 5.0% decrease. This decrease was due to the higher termination costs in the year ended December 31, 2009 related to some of our assets in Uruguay which were sold later that year. The following table sets forth the items that constituted our staff costs in the periods presented:
Year ended December 31, 2009 2010 (g in millions)

Wages and salaries . . . . Social security costs . . . . Pension contributions and Termination benefits . . . .

............ ............ other employee ............

.......... .......... benefit costs ..........

. . . .

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62.8 15.2 3.5 7.2 88.7

64.1 15.4 3.6 1.3 84.3

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization charge

Depreciation and amortization charges increased by e14.4 million to e61.2 million in the year ended December 31, 2010 from e46.8 million in the year ended December 31, 2009, a 30.7%

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increase. This increase was primarily attributable to the capacity increases undertaken in 2009 for both our pulp production and energy generation facilities at our Navia and Huelva plants. Impairment and gains or losses on disposals of non-current assets Gains from disposals of non-current assets were e0.2 million in the year ended December 31, 2010, compared to an impairment loss from disposals of e10.8 million in the year ended December 31, 2009. The e10.8 million impairment loss was primarily attributable to impairments taken in the year ended December 31, 2009 in relation to certain assets of our Navia pulp production facility that had become obsolete due to the capacity expansion works undertaken at this facility. Other operating expenses Other operating expenses increased by e94.2 million to e239.7 million in the year ended December 31, 2010 from e145.6 million in the year ended December 31, 2009, a 64.7% increase. This increase was attributable to increases in the activities of our pulp production facilities and energy generation facilities over this period resulting from our capacity expansion at our Navia and Huelva facilities. The following table sets forth the items that constitute our other operating expenses in the periods presented:
Year ended December 31, 2009 2010 (g in millions)

Outside services: Transport, freight and commercial expenses Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . Repairs and maintenance . . . . . . . . . . . . . Leases and royalties . . . . . . . . . . . . . . . . . Insurance premiums . . . . . . . . . . . . . . . . . Independent professional services . . . . . . . Banking and similar services . . . . . . . . . . . Advertising, publicity and public relations . . Research and development expenses . . . . . Other services . . . . . . . . . . . . . . . . . . . . . . Total outside services . . . . . . . . . . . . . Emission rights used . . . . . . . . . . . . . . Taxes and other management expenses . Change in trading provisions and others . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . .

. . . . . . . . . . . . . .

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46.6 34.3 12.3 7.6 6.4 5.8 1.4 0.7 0.1 16.2 131.4 6.2 3.5 4.5 145.6

82.2 52.3 18.9 8.6 7.1 7.1 2.7 1.6 0.4 34.8 215.6 6.9 4.1 13.1 239.7

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit/(Loss) from operations

Profit from operations was e117.3 million in the year ended December 31, 2010, compared to a loss from operations of e72.5 million in the year ended December 31, 2009. The e117.3 million profit was primarily attributable to a significant increase in pulp prices during the year ended December 31, 2010 compared to the year ended December 31, 2009 and increase in capacity in our pulp production and energy generation at our Navia and Huelva facilities. The e72.5 million loss in the year ended December 31, 2009 was primarily due to the low pulp prices further to the global economic crisis. Finance Income Finance income decreased by e0.4 million to e2.0 million in the year ended December 31, 2010 from e2.4 million in the year ended December 31, 2009, a 17.3% decrease.

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Change in fair value of financial instruments We recorded a e2.5 million gain in the year ended December 31, 2010 compared to a e21.2 million loss in the year ended December 31, 2009. The e2.5 million gain in the year ended December 31, 2010 was due to a gain on the interest rate swap related to our syndicated credit facility partially offset by a loss on our equity swap further to a decrease in our share price. The e21.2 million loss in the year ended December 31, 2009 was primarily due to the reclassification of our interest rate swap from a hedging derivative to a speculative derivative further to a significant repayment of the underlying debt. Finance costs Finance costs increased by e5.5 million to e31.5 million in the year ended December 31, 2010 from e26.0 million in the year ended December 31, 2009, a 21.1% increase. This increase was primarily attributable to increases in financial costs related to the amendment of our syndicated loan facility entered into in 2008. Exchange differences We recorded a e0.1 million gain in the year ended December 31, 2010 compared to a gain of e0.5 million in the year ended December 31, 2009. These gains were primarily attributable to the translation impact of foreign exchange rate fluctuations related to our Uruguayan assets that had not been included in the sale of our pulp assets in that country. Financial gain/(loss) Financial loss decreased by e17.4 million to e26.9 million in the year ended December 31, 2010, from e44.3 million in the year ended December 31, 2009, a 39.2% decrease. This decrease was primarily attributable to the positive impact in the year ended December 31, 2009 of changes in the fair value of financial instruments. Profit before tax We recorded a profit before tax of e90.3 million in the year ended December 31, 2010 compared to a e116.8 million loss in the year ended December 31, 2009. This increase in profitability was primarily attributable to higher profit from operations in 2010 compared to 2009. Income tax Income tax increased by e64.9 million to an income tax expense of e25.6 million in the year ended December 31, 2010, compared to an income tax benefit of e39.3 million in the year ended December 31, 2009. This was primarily attributable to the profits before tax in the year ended December 31, 2010, compared to a loss before tax in the year ended December 31, 2009. Profit from continuing operations We recorded a e64.7 million profit in the year ended December 31, 2010, compared to a e77.6 million loss from continuing operations in the year ended December 31, 2009. This was primarily attributable to higher pulp prices combined with higher volumes of pulp and energy sold due to increased capacity at our Navia and Huelva facilities. Liquidity and Capital Resources Overview Liquidity and capital resources describe the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, capital expenditures, debt service obligations, other commitments, contractual obligations and acquisitions. Our principal sources of liquidity have historically been cash generated from our operating activities, cash raised through bank borrowings and from the equity capital markets. For example, in 2010 we completed an equity raising in which we issued 83,112,890 ordinary shares of the company in exchange for gross proceeds of e130 million, which were used to reduce our indebtedness. Our principal uses of cash are for capital expenditure related to the maintenance of

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our pulp production and energy generating facilities, the improvement of the productivity and efficiency of our pulp production facilities, our further expansion into the biomass energy sector and distributions to our shareholders. In the future, we expect our liquidity to be addressed through cash generated from operations and borrowings under the Revolving Credit Facility. Our cash and cash equivalents, on a pro forma basis for this Offering, as of September 30, 2012 would have been e74.0 million. Please see SummaryRecent Developments for a description of recent cash outflows. Cash flows Following this Offering, we believe that our operating cash flows, the proceeds of this Offering and our borrowing capacity under our credit facilities, including the Revolving Credit Facility will be sufficient to meet the cash requirements of our business operations for the foreseeable future. However, our ability to generate cash from our operations depends on future operating performance, which in turn depends, to a certain extent, on general economic, financial, competitive market, legislative, regulatory and other factors, many of which are beyond our control, as well as other factors discussed in the sections Risk Factors and Business. Moreover, we cannot assure you that future debt or equity financing will be available to us. If our cash flows are lower than expected or the cash requirements of our business exceed our projections, we may be required to seek additional financing, which may not be available on commercially reasonable terms, if at all. Our ability to arrange financing generally and our cost of capital depend on numerous factors, including general economic conditions, the availability of credit from banks, other financial institutions, and the capital markets, restrictions in the instruments governing our debt, and our general financial performance.
Nine months ended September 30, 2011 2012 (unaudited)

Year ended December 31, 2009 2010 2011 (g in millions)

Cash Flow Data: Cash flows from/used in operating activities: Consolidated profit for the year before tax . . . . . . . . . Adjustments for: Depreciation and amortization charge . . . . . . . . . . . Depletion of forestry reserve . . . . . . . . . . . . . . . . . . Amortization of intangible assets . . . . . . . . . . . . . . . Changes in provisions and other deferred expenses (net). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains/losses on disposal of non-current assets . . . . Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrual accounts . . . . . . . . . . . . . . . . . . . . . . . . . . Grants and subsidies transferred to profit and loss . . Loss from Uruguay sale . . . . . . . . . . . . . . . . . . . . . . Changes in working capital: Trade and other receivables . . . . Current financial and other assets Current liabilities . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

... ... ... ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(193.9) 35.5 9.7 1.6 11.4 3.8 (3.9) 48.2 (0.5) 77.0 34.9 (1.2) 26.8 55.7 (20.5) 2.4 0.7 87.9

90.3 49.2 10.7 1.4 10.6 (0.8) (2.0) 28.9 (0.9) (60.0) (12.7) 25.7 (22.0) (30.3) 1.8 90.0

57.0 53.7 8.5 1.3 (3.6) (4.2) (5.3) 29.3 (1.1)

54.6 38.7 6.3 0.8 2.3 (4.3) (1.1) 19.5 (1.4) (0.6)

43.1 40.6 4.3 0.7 0.6 (2.6) (0.6) 15.9 (3.1) (1.0)

28.0 16.2 4.3 (10.8) 2.6 13.6 (8.0) (24.4) (13.9) (8.3) (8.6) 12.6 (28.0) (19.6) (15.7) 5.3 1.7 0.6 (2.9) 1.1 110.7 82.7 98.2

Other cash flows from operating activities: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax recovered (paid) . . . . . . . . . . . . . . . . . . . . . Net cash flows from/used in operating activities . . . . . .

78

Year ended December 31, 2009 2010 2011 (g in millions)

Nine months ended September 30, 2011 2012 (unaudited)

Cash flows from/used in investing activities: Investments: Property, plant and equipment . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . Other financial assets . . . . . . . . . . . . . . . . . Disposals: Property, plant and equipment . . . . . . . . . . Other financial assets . . . . . . . . . . . . . . . . . Assets available for sale . . . . . . . . . . . . . . . Divestment in Uruguay project . . . . . . . . . .

......... ......... ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(163.9) (2.4) (3.9) 229.3 59.1

(96.9) (1.6) (0.3) (98.8)

(94.9) (76.8) (60.3) (0.4) (0.4) 1.9 (0.3) 4.3 1.7 3.7 0.4 0.9

Net cash flows from/used in investing activities . . . . . . Cash flows from financing activities: Proceeds and payments relating to equity instruments: Proceeds from issuance of equity instruments, net of share issue costs . . . . . . . . . . . . . . . . . . . . . . . . Purchase of treasury shares . . . . . . . . . . . . . . . . . . Disposal of treasury shares . . . . . . . . . . . . . . . . . . Proceeds and payments relating to financial liability instruments: Increase/(decrease) in bank borrowings, net of loan arrangement costs . . . . . . . . . . . . . . . . . . . . . . . Grants and subsidies received . . . . . . . . . . . . . . . . Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial instruments (equity swaps): . . . . . . . . . . . . . Net cash flows from operating activities

(89.3) (71.5) (59.3)

... ... ...

124.9 (6.1) (11.8) 5.8 10.0

(53.7) (47.6) (12.0) 7.2 7.0 0.8

. . . .

. . . .

. . . .

(102.8) 0.1 (103.1)

(94.2) 1.7 30.7

43.1 31.9 (3.2) 8.5 5.9 (25.8) (25.8) (16.5) (3.3) (20.8) (28.5) (34.2)

Net cash flows from financing activities . . . . . . . . . . . .

During the nine months ended September 30, 2012, our cashflow from operating activities was e98.2 million, compared to e82.7 million during the nine months ended September 30, 2011, or e15.5 million more. This e15.5 million increase was primarily due to a decrease in working capital of e16.5 million in the nine months ended September 30, 2012, compared to a e14.2 million working capital increase in the nine months ended September 30, 2011. The e16.5 million working capital reduction in the nine months ended September 30, 2012 was primarily driven by lower average pulp prices during the period due to lower demand in developed markets resulting in lower trade receivables and inventories. During the year ended December 31, 2011, our cashflow from operating activities was e110.7 million, compared to e90.0 million during the year ended December 31, 2010, or e20.7 million more. The e20.7 million increase was primarily due to a working capital reduction of e0.8 million in the year ended December 31, 2011, compared to a e69.0 million working capital increase in the year ended December 31, 2010. This was due to unusually high pulp prices during 2010 further to the reduction in global pulp production capacity as a result of the earthquake that occurred in Chile in February 2010. The positive working capital effect in the year ended December 31, 2011 was partially offset by lower consolidated profit for the year before tax of e57.0 million compared to e90.3 million for the year ended December 31, 2010 due to the same reason. During the year ended December 31, 2010, our cashflow from operating activities was e90.0 million, compared to e87.9 million during the year ended December 31, 2009, or e2.1 million more. In the year ended December 31, 2010, we recorded a e69.0 million working capital increase compared to a e116.2 million working capital reduction in the year ended December 31, 2009. The e69.0 million working capital increase in the year ended December 31, 2010 was primarily driven by increased sales due to the increase in average global pulp prices further to an 8% reduction in

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global pulp production capacity as a result of the earthquake that occurred in Chile in February 2010 and the increase in pulp production capacity. The effect of the e69.0 million increase in working capital on our net cash flows from operating activities was more than offset by the e90.3 million consolidated profit for the year before tax for the year ended December 31, 2010. The e116.2 million working capital reduction in the year ended December 31, 2009 was primarily driven by the unusually low average pulp prices as a result of the global economic crisis and destocking as well as the lower production volumes due to the partial shutdown of the Navia production facility due to capacity expansion. The effect of the e116.2 million working capital reduction in 2009 on our net cash flows from operating activities was more than offset by a e193.9 million consolidated loss for the year before tax for the year ended December 31, 2009. Net cash flows from Investing Activities During the nine months ended September 30, 2012, our cashflow used in investing activities was e59.3 million, compared to e71.5 million for the nine months ended September 30, 2011, or e12.2 million lower. This was primarily due to lower maintenance and expansion capital expenditure in connection with our 50 MW independent biomass renewable energy generation facility in Huelva in the nine months ended September 30, 2012. During the year ended December 31, 2011, our cashflow used in investing activities was e89.3 million compared to e98.8 million for the year ended December 31, 2010, or e9.5 million lower. The higher capital expenditure for the year ended December 31, 2011 compared to the year ended December 31, 2010 was due to higher expansion capital expenditure (financed through a project finance loan) with respect to the construction of our 50 MW independent biomass renewable energy generation facility in Huelva. During the year ended December 31, 2010, our cashflow used in investing activities was e98.8 million compared to e59.1 million cash flows from investing activities. The e98.8 million cash flow used in investing activities was primarily due to investments in Huelva during the year ended December 31, 2010. The e59.1 million cash flow from investment activities was due to the e229.3 million proceeds from the disposal of certain of our Uruguay assets in the year ended December 31, 2009, which more than offset the higher investment in property, plant and equipment of e163.9 million during the same period. The increased investment in the year ended December 31, 2009 was related to the expansion of the pulp and energy generation capacity at our Navia and Huelva plants. Net cash flows from Financing Activities During the nine months ended September 30, 2012, our cashflow used in financing activities was e34.2 million, compared to e28.5 million for the nine months ended September 30, 2011, or e5.7 million higher. Our principal sources and uses of cash in the financing activities were: a e12.0 million purchase of treasury shares in the nine months ended September 30, 2012, compared to e47.6 million in the nine months ended September 30, 2011, of which e26.4 million related to a share buyback from Atalaya de Inversiones, S.L. in July 2011; a e16.5 million dividend payment to our shareholders in the nine months ended September 30, 2012 compared to e25.8 million in the nine months ended September 30, 2011; e5.9 million of grants received in the nine months ended September 30, 2011 from the Asturias regional government related to the modernization plan for our Navia plant located in Asturias; e3.2 million of net debt repayments resulting from a e11.4 million drawing under our project finance arrangements offset by e14.6 million of debt repayments in the nine months ended September 30, 2012 compared to e31.9 million net borrowing in the nine months ended September 30, 2011 when we borrowed e42.3 million under our project finance arrangements partly offset by e10.3 million of debt repayments; and e3.3 million of payments due to the equity swap in the nine months ended September 30, 2012. During the year ended December 31, 2011, our cashflow used in financing activities was e20.8 million, compared to a e30.7 million net cash inflow from investing activities in the year ended December 31, 2010, a e51.5 million increase.

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Our principal sources and uses of cash in the financing activities were: a e53.7 million share buyback (of which e26.4 million related to our share buyback from Atalaya de Inversiones, S.L. in July 2011) in the year ended December 31, 2011, compared to e11.8 million in the year ended December 31, 2010; a e25.8 million dividend payment to our shareholders in the year ended December 31, 2011; e8.5 million of grants received from the Asturias regional government related to the modernization plan for our Navia plant located in Asturias in the year ended December 31, 2011 compared to e1.7 million in grants and subsidies received in the year ended December 31, 2010; and e43.1 million net borrowing cash inflow resulting from drawings of e54.9 million under our project finance arrangements offset by e11.8 million of syndicated and bilateral loan repayments. During the year ended December 31, 2010, our cashflow from financing activities was e30.7 million compared to e103.1 million cashflow used in the year ended December 31, 2009, an increase of e133.8 million. The increase was due to the repayment of indebtedness using Uruguay assets disposal proceeds in the year ended December 31, 2009. Our principal sources and uses of cash in the financing activities in the year ended December 31, 2010 were: e124.9 million of net proceeds from the capital increase carried out in March 2010; and e94.2 million of net repayment of bank borrowing primarily funded from the capital increase proceeds in the year ended December 31, 2010 compared to e102.8 million in the year ended December 31, 2009 primarily funded by proceeds from the disposal of our Uruguay assets. As of September 30, 2012, we had cash and cash equivalents of e76.3 million, as compared with e71.6 million as of December 31, 2011. As adjusted to give effect to the issuance of the Notes offered hereby and the use of the proceeds therefrom, we would have had cash and cash equivalents on September 30, 2012 of e74.0 million. Working Capital The movement in components of net working capital is as shown in the table below for each of the periods indicated.
Nine months ended and as of September 30, 2012

Year ended and as of December 31, 2009 2010 2011 (g in millions)

Inventories . . . . . . . . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . . . . . . . . Receivables from public authorities . . . . . . . Other current financial assets . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . Trade and other payables . . . . . . . . . . . . . Corporate income tax payable . . . . . . . . . . Other accounts payable to public authorities Other current liabilities . . . . . . . . . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

88.8 90.5 12.3 1.9 1.4 (195.3) (2.8) (3.7) (0.4) (7.2) 116.2

105.9 112.5 140.0 122.8 20.1 13.0 14.6 22.8 1.5 0.9 (201.1) (182.0) (2.2) (0.4) (4.9) (17.7) (0.3) (0.1) 73.6 (69.0) 71.9 0.8

93.4 117.7 21.6 9.5 4.7 (214.7) (9.9) (5.5) (0.5) 16.2 16.5

Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in working capital as per cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

We define working capital as inventories, plus trade and other receivables, plus receivables from public authorities, plus other current financial assets, plus other current assets, less trades and other payables, less corporate income tax payable, less other accounts payable to public authorities and less other current liabilities. Our working capital levels vary as a result of several

81

factors, including the impact of raw material prices and selling prices, production stoppages and maintenance works, changes in payment terms in the case of key suppliers, foreign exchange rates, our decisions to hold inventories and the operating level of our business. We believe our working capital requirements are inversely related to the pulp price cycle. For example, in 2009, we realized a net working capital inflow of e116.2 million. This was driven by a reduction in inventory level as we adjusted to weak pulp market outlook, and reduced trade and other receivables due to the decline in pulp price. Conversely, in 2010 we had a e69.0 million working capital outflow as a result of the increase in pulp prices due to the 8% reduction in global production capacity in the aftermath of the earthquake in Chile in February 2010. As of September 30, 2012 we had nonrecourse factoring facilities in place under which we are allowed to factor up to e60.0 million of which e38.6 million was drawn. As of September 30, 2012 we also had confirming lines (reverse factoring) in place with an aggregate limit of e76.5 million of which e66.0 million was drawn. Capital Expenditures
Nine months ended September 30, 2011 Nine months ended September 30, 2012 (g in millions) Twelve months ended September 30, 2012

Year ended December 31, 2009 2010 2011

Capital expenditures . . of which maintenance capital expenditure

157.9

81.4

101.6

78.6

61.8

84.8

40.4

34.2

38.0

25.5

15.4

27.9

Our principal uses of cash are for capital expenditures related to maintenance capital expenditure, development of biomass energy plants at Huelva and M erida, and the capacity expansion at the Huelva and Navia plants. For the nine months ended September 30, 2012, capital expenditures decreased by e16.8 million, or 21.4%, to e61.8 million, compared to e78.6 million in the nine months ended September 30, 2011. This decrease was primarily related to lower maintenance capital expenditure and the reduction of payments related to the construction of the independent biomass energy facility in Huelva, Spain. Investments related to the maintenance of our pulp activity and to our biomass expansion totaled e15.4 million and e44.1 million, respectively, for the nine months ended September 30, 2012, compared with e25.5 million and e51.4 million, respectively, for the nine months ended September 30, 2011. In the year ended December 31, 2011, capital expenditures totaled e101.6 million, which was primarily related to maintenance capital expenditure in our pulp activity and investments in our 50 MW independent biomass energy facility in Huelva. In the year ended December 31, 2010, capital expenditures totaled e81.4 million, compared to e157.9 million in the year ended December 31, 2009, which was primarily related to pulp and energy capacity expansion from 1,090,000 tonnes to 1,340,000 tonnes and from 148 MW to 230 MW, respectively, at the Navia and Huelva plants. Financial Liabilities Our financial liabilities decreased to e304.0 million as September 30, 2012 from e304.4 million as of December 31, 2011. As adjusted to give effect to the issuance of the Notes offered hereby and the use of the proceeds therefrom, we would have had total debt on September 30, 2012 of e317.2 million.

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Financial and Other Material Contractual Obligations Financial Obligations The following table summarizes the aggregate principal amount of our financial liabilities as of September 30, 2012 and the related amounts falling due within the periods indicated, as adjusted to give effect to the issuance of the Notes offered hereby and the use of the proceeds therefrom:
Payments Due by Period Between January 1, Until 2014 and After December 31, December 31, January 1, 2013 2019 2020 (g in millions)

Pro Forma Maturities of Financial Liabilities

Notes offered hereby . . . . . . . . . . . . . . . . . . . . . . . . . . . . Project finance(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CDTI and other indebtedness(2) . . . . . . . . . . . . . . . . . . . . Total Financial Liabilities . . . . . . . . . . . . . . . . . . . . . . . .
(1) (2)

1.7 2.3 4.0

34.1 7.3 41.4

250.0 34.0 2.4 286.4

Represents the project finance arrangements for the Huelva and M erida independent biomass energy facilities. Represents one bilateral loan and CDTI indebtedness. Please see Description of Other Indebtedness. If we are required to repay the CDTI indebtedness following completion of the Offering, we will repay e9.0 million plus e1.4 million of a subsidy lost due to early repayment to avoid any breach of the CDTI loan agreement.

Other Material Contractual Obligations We are party to a long-term take-or-pay contract for the supply of natural gas. Under the terms of that contract, we are committed to acquire 201 GW of natural gas per annum. The contract expires in February 2016. As of December 31, 2011, our lease payments until December 31, 2016 will be e8.7 million and thereafter e22.3 million (not including common expenses, future increases for inflation or future contractual rent rises). As of December 31, 2011, we leased 28,419 hectares of forest land for the cultivation of standing timber. These leases have an average term of 30 years. In addition to the above obligations, we enter into a large number of short- and long-term agreements for the purchase of standing timber. However, we do not consider that any of these agreements individually to be a material obligation. Our ability to make scheduled payments of principal of, or to pay the interest on, or to refinance, our indebtedness (including the Notes), or to fund our other contractual obligations, will depend on our future operating performance, which in turn depends, to a certain extent, on general economic, financial, competitive market, legislative, regulatory and other factors, many of which are beyond our control, as well as other factors discussed in Risk Factors and Business. Off-Balance Sheet Arrangements Under the Spanish Greenhouse Regulations, we are required to obtain certain greenhouse gas emission authorizations. We have entered into EUA daily future contracts to purchase 601,000 tonnes of CO2 rights, which are settled on a daily basis, and which we may roll over totally or partially to cover our CO2 rights needs in the future. These contracts have their final settlement date on September 31, 2013. Going forward, we will continue to enter into forward contracts to acquire additional CO2 rights, and management believes we have contracted, or will be able to contract, sufficient rights to meet our operational needs for 2013 through 2016. Please see Summary Recent DevelopmentsGreenhouse Gas Emissions Rights and Regulation. Other than this forward contract for CO2 emission authorizations, we do not have any material off-balance sheet finance activities. Quantitative and Qualitative Disclosures About Market Risk We are exposed in varying degrees to a variety of market risks. The Board of Directors, with the assistance of senior management, defines our risk management criteria and approves the

83

specific policies applied to manage commodity price, exchange rate, interest rate, credit and liquidity risks, and the use of derivative financial instruments for risk management purposes. The following table summarizes our estimated derivative positions as of September 30, 2012, as adjusted to give effect to the issuance of the Notes offered hereby and the use of the proceeds therefrom:
As of September 30, 2012 Current Non-current Current Assets liabilities liabilities (g in millions)

Liabilities/Assets

Huelva interest rate swap M erida interest rate swap Equity swap . . . . . . . . . . Foreign currency hedges . Pulp price hedges . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

1.9 1.9

10.2 1.1 8.4 19.6

2.4 0.1 2.5

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The main financial risks facing the Group, and the policies and controls adopted to mitigate them, are as follows. Commodity Price Risk Pulp price The price of pulp is established in an active market, the evolution of which significantly affects our revenues. Changes in pulp prices affect the cash flows obtained from sales. Pulp prices display a cyclical nature, and there has been considerable price volatility in recent years. Price movements are associated with changes in volumes or the conditions dictating supply and demand, as well as the financial situation of firms operating in the market. In order to mitigate this risk, we have made significant investments in recent years to raise productivity and improve the quality of the products we sell to the market. We estimate that a 5% increase in the international pulp price in euro would have increased our consolidated revenues by approximately 3.9% in the year ended December 31, 2011. From time to time, we enter into hedges to minimize our exposure to fluctuations in the price of BEKP . As of September 30, 2012, the notional amount of these hedges amounted to 12,000 tonnes of cellulose pulp. Timber supplies Eucalyptus timber is the main raw material input in the production of pulp, and its price is subject to fluctuations due to regional changes in the balance of supply and demand, and the need to access markets in other regions when local supplies are insufficient to meet demand, resulting in higher logistical costs. We also maximize the value added in our products by increasing our use of certified timber, which is more costly. We estimate that a 5% increase in the price per cubic meter of eucalyptus timber used in the production process would have reduced our operating margin by approximately 15% in the year ended December 31, 2011. Foreign Exchange Risk Although the majority of our sales are made in the European market, revenues from sales of pulp are affected by the U.S. dollar/euro exchange rate because the benchmark sale price of pulp on the international market is calculated in U.S. dollars per tonne. Since our cost structure is primarily in euros, changes in the U.S. dollar exchange rate can have a significant impact on earnings volatility. We estimate that a 5% appreciation of the U.S. dollar against the euro would have increased our consolidated revenues by approximately 4% in the year ended December 31, 2011. We continuously monitor our foreign exchange risk and enter into hedging transactions if deemed appropriate to minimize our exposure to currency fluctuations. All hedging schemes are

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subject to the approval of our Board of Directors. As of September 30, 2012, the notional amount of these hedges amounted to $340.5 million. Interest Rate Risk We have limited exposure to floating interest rate debt. To the extent we are exposed to floating rate debt, we use interest rate swap contracts to manage our exposure to interest rate movements on portions of our existing debt. We have entered into hedges associated with the project financing of our Huelva and M erida plants. As of September 30, 2012, and pro forma for the Offering and the use of proceeds thereof, these hedges amounted to a liability of e11.2 million. Equity Swap On October 25, 2007, the Issuer arranged an equity swap with Bankia, S.A. for a total amount of 5.1 million shares of the Issuer, at a base price of e4.40 per share, in order to comply with certain terms and conditions set forth in the management incentive plan of our senior management. The terms of this equity swap were amended in March 2010 as a result of our share capital increase, at a base price of e4.11 per share, and in June 2012, by extending its term until 2015, with partial cancellation of 1.0 million shares in each of March 2013 and March 2014 and 1.8 million shares in March 2015. In addition, March 15, 2015 was designated as the new termination date. As of September 30, 2012, the fair value of the instrument was negative e10.8 million. Credit Risk We are exposed to credit risk in respect of outstanding balances receivable from customers, particularly in our pulp business. We manage this risk by entering into credit insurance policies, which assign credit limits to each of our customers based on their credit quality as determined by the insurer. These policies provide cover for between 75% and 90% of our trade receivables associated with the sale of pulp. Provisions are made for overdue balances where there is evidence of impairment, as well as for all receivables overdue by twelve months or more that are not covered by credit insurance policies. With respect to credit risk relating to our energy generation business, payment is obtained from the Iberian electricity system. Liquidity and Asset Management Risk We are exposed to both liquidity and asset management risk. We manage these risks by closely monitoring the maturities of our bank borrowings and ensuring that there are sufficient committed loan facilities (including refinancing, if necessary) to cover forecasted cash requirements, as well as taking such risks into account in our consideration of any dividends to be distributed. Critical Accounting Estimates and Judgments Our consolidated financial statements are prepared in accordance with IFRS. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates and judgments could cause actual results to differ. Our accounting policies are more fully described in Note 4 to our audited consolidated financial statements for the year ended December 31, 2011. We believe the following policies to be the most significant policies that require management to consider matters that are inherently uncertain or to make subjective and complex judgments. Assessment of Possible Impairment Losses on Certain Assets We test tangible and intangible assets for impairment to determine whether the recoverable amount of the assets has been reduced below their carrying amount. The recoverable amounts are calculated for each of our cash-generating units. The recoverable amount is the higher of fair value less costs to sell and value in use. In order to calculate value in use, the estimated cash flows from the cash-generating unit are discounted applying a discount rate representing the cost of capital, taking into account the cost of borrowing and business risks. Where it is estimated that the recoverable amount of an asset is less than its carrying amount, the latter is written down to the

85

recoverable amount and an impairment loss is recognized in the consolidated income statement. If an impairment loss subsequently reverses, the carrying amount of the cash-generating unit is increased to the revised estimate of the recoverable amount such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized in prior years. A reversal of an impairment loss is recognized as income. Useful Life of Property, Plant and Equipment and Intangible Assets We calculate the depreciation of our property, plant and equipment on a straight-line basis at annual rates based on the years of estimated useful life of the assets, as follows:
Estimated Years of Useful Life

Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . Plant and machinery . . . . . . . . . . . . . . . . . . Other fixtures, tools and furniture . . . . . . . . . Other items of property, plant and equipment

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2040 1116 11 11

While land is considered to have an indefinite useful life and is therefore not depreciated, investments made in buildings constructed on land granted under administrative concessions are recognized under Buildings. This cost and the cost of any other permanent fixtures located on concession land is depreciated over the shorter of the assets useful life or the term of the concession. Fair Value of Financial Assets, Financial Instruments and Derivatives Financial Assets We classify our financial assets into two categories: (i) Loans and receivables: trade receivables and financial assets with fixed or determinable payments arising from non-trade operations arising from the sale of goods or the provision of services. Available-for-sale financial assets: these include debt securities and equity instruments of other companies that are not classified in any other category.

(ii)

Financial assets are initially recognized at the fair value of the consideration given plus any directly attributable transaction costs. Loans and receivables are measured at amortized cost. We also recognize impairment losses in the consolidated income statement where it is determined that the financial assets present recoverability risks. Available-for-sale financial assets are measured at fair value, and the gains and losses arising from changes in fair value are recognized in consolidated equity until the asset is disposed of or it is determined that it has become permanently impaired, at which time the cumulative gains or losses previously recognized are taken to the net consolidated profit or loss for the year. We derecognize a financial asset when it expires or when the rights to the cash flows from the financial asset have been transferred and substantially all the risks and rewards of ownership have been transferred. However, in transfers of financial assets in which substantially all the risks and rewards of ownership are retained, we do not derecognize such financial assets and recognize a financial liability for an amount equal to the consideration received. Financial Liabilities Financial liabilities include accounts payable by us that have arisen from the purchase of goods and services in the normal course of business, and those which, not having commercial substance, cannot be classified as derivative financial instruments. Accounts payable are initially recognized at the fair value of the consideration received, adjusted by the directly attributable transaction costs. These liabilities are subsequently measured at amortized cost. We derecognize financial liabilities when the obligations giving rise to them cease to exist.

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Derivative financial instruments and hedge accounting We use financial derivative instruments to hedge against exposures to certain financial and market risks, including foreign exchange, commodity and interest rate risks. These financial instruments are initially recognized at their cost of acquisition and the necessary valuation adjustments are subsequently made to reflect their fair value at any given time. Write-downs are recognized under Derivatives in the consolidated balance sheet, and any eventual write-backs are recognized under Financial assetsDerivatives. The gains or losses on these changes in value are recognized in the consolidated income statement, unless the derivative has been designated as a hedging instrument, in which case it is recognized as follows: (i) Fair value hedges: both the hedged item and the hedging instrument are measured at fair value, and any changes in the value of either are recognized in the consolidated income statement. Effects are offset in the same caption of the consolidated income statement. Cash flow hedges: Changes in the fair value of financial derivatives are recognized in EquityValuation adjustments. The cumulative loss or gain recognized under this heading is transferred to the consolidated income statement to the extent the underlying has an impact on the consolidated income statement, so that both effects are offset.

(ii)

In order for these financial instruments to qualify for hedge accounting, they are initially designated as such and the hedging relationship is documented. We also verify, both at inception and periodically over the term of the hedge, that the hedging relationship is effective, i.e., that it is prospectively foreseeable that changes in the fair value or cash flows of the hedged item (attributable to the hedged risk) will be almost fully offset by those of the hedging instrument, and that, retrospectively, the gain or loss on the hedge was within a range of 80125% of the gain or loss on the hedged item. The part of the hedging instrument that is determined to be ineffective is immediately recognized through the consolidated income statement. The fair values of the different financial derivative instruments is calculated by discounting expected cash flows based on conditions in both spot and futures markets at the calculation date. All of the methods used are generally accepted by financial instrument analysts. Hedge accounting is discontinued when the hedge is no longer highly effective. In this case, the cumulative gain or loss arising on the hedging instrument that was recognized directly in equity is maintained until the expected commitment or transaction materializes, when it is transferred to the consolidated income statement. Where the commitment or transaction envisaged is not expected to occur, any accumulated gain or loss previously recognized in equity is taken to the consolidated income statement. The fair value of financial instruments of this kind which are not traded on an active market is calculated applying measurement techniques that maximize the use of observable market data, and to a lesser extent, estimates. On this basis, the measurement techniques applied to derivative financial instruments are, in general, second-level methods, because the key data employed to calculate fair value (interest rate curves and the cellulose pulp price curve) are observable. Equity instruments An equity instrument represents a residual ownership interest in the equity of the Issuer once all of its liabilities have been deducted. The equity instruments issued by the Issuer are recognized in equity for the amount of the proceeds received, net of issuance costs. Treasury shares acquired by the Issuer are recognized at the value of the consideration paid and are presented as a reduction in equity. The gain or loss arising on the purchase, sale, issue or redemption of treasury shares is recognized directly in equity. No amounts are recognized in the income statement in this respect. Commitments with Employees The fair value of the the Special Variable Executive Compensation Plan, our management incentive plan, has been determined using the Black-Scholes method, which is generally accepted for financial instruments of this type. The fair value of the equity swap we arranged with Bankia, S.A. on October 25, 2007 is calculated based on the discounted cash flows of the share component and the discounted cash flows generated by the accrual of interest. This instrument

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does not meet the criteria to qualify as a hedging instrument, and changes in fair value must therefore be recognized in the consolidated income statement as they occur. Provisions The consolidated financial statements include all provisions where there is a likelihood an obligation will have to be settled. Contingent liabilities are not recognized in the consolidated financial statements but rather are disclosed in the accompanying notes, unless the possibility of an outflow in settlement is not considered remote. Provisions, including variable employee remuneration, are measured based on the present value of the best estimate possible of the sum necessary to cancel or transfer the obligation, taking into account the information available on the event and its consequences. Adjustments to provisions are recognized as finance costs as they are accrued. Deferred tax assets Deferred tax expenses or income relate to the recognition and derecognition of deferred tax assets and liabilities. These amounts are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability settled. Deferred tax assets are recognized to the extent that it is considered probable that the Group will have taxable profits in the future against which the deferred tax assets can be utilized. Deferred tax assets and liabilities arising from transactions charged or credited directly to equity are also recognized in equity. The deferred tax assets recognized are reassessed at the end of each reporting period and the appropriate adjustments are made to the extent that there are doubts as to their future recoverability. Also, unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that they will be recovered through future taxable profits.

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INDUSTRY OVERVIEW Industry and Market Overview Introduction Wood pulp is one of the principal raw materials required to manufacture paper and paperboard. Wood pulp is classified according to the type of wood or fiber from which it is made (hardwood or softwood), the manner in which it is processed (chemical or mechanical process) and whether it is bleached. Paper and paperboard may alternatively be manufactured from recycled fiber. Two types of wood pulp can be produced. Pulp made from hardwood (short fiber), such as eucalyptus, aspen, birch or acacia, has shorter fibers and is generally better suited for the manufacturing of, for example, tissue paper and P&W paper. Short fibers are the best type for manufacturing wood-free paper with good printability, smoothness, opacity and uniformity. Pulp made from softwood (long fiber), such as pine, spruce or fir, has longer fibers and is generally better suited for manufacturing paper that requires durability and strength. The pulp manufacturing process determines the suitability of pulp for particular end-uses. Pulp is converted from wood by means of chemical or mechanical processes. Chemical pulp is produced by cooking wood chips in chemical solutions to separate the cellulose fibers and remove lignin, a chemical compound filling the space between the cellulose fibers and providing strength to the wood. Mechanical pulp is pulp where the lignin remains in the mix as fibers are separated by a mechanical process. This process results in a higher fiber yield and a shorter fiber length, due to the greater physical impact on the cellulose fibers. Wood pulp can be bleached for whiteness, particularly when manufacturing printing and writing, specialty and tissue papers. Unbleached pulp exhibits a brown color and is used in the production of packages, corrugated board, paperboard, packaging papers and bags. We believe that hardwood pulp derived from eucalyptus is superior to pulp produced from other hardwood trees because of the greater consistency and uniformity of its fibers, which improve the opacity, softness and printability of paper. BEKP is widely accepted among producers of printing and writing papers and tissue paper worldwide because of its properties, supporting an increasing percentage of BEKP in the world production of hardwood pulp. Moreover, eucalyptus trees have a shorter growth cycle than other hardwood trees, yield higher productivity per planted hectare and normally require a smaller amount of space between them to grow. The pulp we produce is called market pulp because it is sold to third parties rather than being used in integrated pulp and paper mills. According to RISI, global wood pulp production capacity was 198 million tonnes in 2011, of which 61.2 million tonnes, or 31%, were market pulp. Of the market pulp, according to RISI, 27.8 million tonnes, or 45%, were BHKP . The segment of the pulp industry in which we compete is BHKP , and more specifically BEKP , because we use 100% eucalyptus wood in our production process.

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Global bleached chemical pulp market share by grade (2012)

Mixed 13% NMHW 7.4% Sulphite 1.6% NBSK 27.1%

SMHW 3.5%

Asian HW 9.3%

Softwood BSKP 45%

SBSK 12.0%

Focus of

BEKP 31.5% Other BSK 6.3% Birch 1.4% Hardwood BHKP 42%

19JAN201323201732

Source: Hawkins Wright (December 2012).

We estimate that BEKP accounted for more than half of BHKP production capacity in 2012. We also believe that BEKP will keep gaining market share going forward, because most of the new production capacity expected to come on-stream is based on the eucalyptus tree. The chart below shows the evolution of the global annual demand and capacity of BHKP from 2001 to 2011, and an estimate of how global annual demand and capacity of BHKP is expected to continue to grow from 2011 to 2016:
40,000
(Thousands tonnes)

01 11 CAGR BHKP global demand BHKP global capacity 3.9% 4.0%

11 16 CAGR 3.8% 5.2%

35,000 30,000 25,000 20,000 15,000 10,000 2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

BHKP global demand

BHKP global capacity

15JAN201323243916

Source: RISI (August 2012).

Globally, in the period from 2001 to 2011 there has been a capacity surplus for BHKP , which is forecast by RISI to continue to exist until 2016. For BEKP , while there is no historical data, Hawkins Wright forecasts a global capacity surplus through 2016. Europe is expected to remain a net importer of BEKP because regional demand is expected to remain larger than local production capacity. In Europe, we estimate that our market share for BEKP based on volume in the nine months ended September 30, 2012, was 13% in Germany, 15% in Italy, 27% in Spain and 13% in France. Analysis of Demand Hardwood and Softwood With an average annual rate of global demand growth of 9.0% from 2001 to 2011 according to Hawkins Wright, BEKP has demonstrated the highest annual rate of global demand growth across

90

all pulp grades over this period. According to Hawkins Wright, the annual global demand growth rate for BHKP over this period was 4.6% and 2.0% for BSKP . In 2011, global demand for BEKP represented 15.7 million tonnes, approximately 58% of the global demand for BHKP of 28.0 million tonnes in the same year. Between 2011 and 2016, global BHKP demand is expected to grow by an average annual rate of 2.6%, or an average 0.7 million tonnes per annum, to 30.6 million tonnes. Over the same period, global demand for BEKP is forecast to expand by an average annual growth rate of 5.4%, or an average of 0.9 million tonnes per annum, to 20.4 million tonnes. The chart below sets forth the global annual demand in BHKP (excluding BEKP), BEKP and BSKP from 2006 through 2011 and an estimate of how global annual demand in BHKP (excluding BEKP), BEKP and BSKP is expected to continue to grow from 2011 to 2016: Global hardwood vs softwood pulp demand (million tonnes)
CAGR BSKP BEKP BHKP (ex BEKP) 0611 0.8% 8.3% (1.0)% 1116 0.5% 5.4% (1.6)%

11.3 11.3 11.8 11.0 9.4 10.2

11.0

10.8

10.8

10.5

10.2

10.5

12.0

13.4

15.5

15.1

15.7

16.1

17.3

18.3

19.3

20.4

21.8

22.2

21.3

21.2

21.9

22.7

23.3

23.2

23.3

23.4

23.4

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

BSKP

BEKP

BHKP (ex BEKP)

19JAN201300441466

Source: Hawkins Wright (December 2012).

Geographic Areas In terms of geographies, emerging markets, and China in particular, are expected to play an increasing role in the demand for pulp, and are expected to drive market growth going forward. According to RISI, China is expected to generate the largest amount of growth in wood pulp demand of any world region over the next 15 years, growing at an average of 2.0 million tonnes, or 5.1%, per annum. This is higher than the growth in the countrys total paper and paperboard output of 4.5%, because wood pulps share of the fiber mix is predicted to rise gradually. RISI estimates that net pulp imports into China will grow by 6.9% in 2012 and by an average of 7.1%, or 1.1 million tonnes, per annum from 2011 to 2016, owing to the scarcity of natural fiber in the country. In the longer term, RISIs analysis suggests that Chinas incremental pulp needs will be supplied with about half from within China and the rest from imports.

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The charts below illustrate the geographic evolution of the global annual demand in BHKP , including an estimate for 2016:
2006 2011
Rest of the World(b) 23% North America 13% China 22%

2016
Rest of the World(b) 24% Europe(a) 27%

Rest of the World(b) 32%

Europe(a) 34%

Europe 34%

(a)

North America 14%

China 15%

Latin America 5%

Latin America 8%

North America 11% China 30%

Latin America 8%

15JAN201323244830

(a) (b)

Europe includes Western Europe. Rest of the World includes Eastern Europe and the Commonwealth of Independent States (CIS) countries.

Source: RISI (August 2012).

Pulp End-markets The three pulp end-markets in which we operate are tissue, specialty paper and packaging, and P&W. End products for tissue mainly include paper towels for kitchens and bathrooms and toilet paper. End products for specialty paper and packaging include boxboard, packaging papers and board cardboard boxes used for products such as beauty products, cereals and dry detergents. End products for P&W include paper for writing purposes. Of these three pulp end-markets, the two areas least likely to be impacted by market share losses to other technologies are tissue and specialty paper and packaging. Demand for tissue has historically been resilient and growing even during economic downturns, as its consumption is less dependent on the economic cycle than the consumption of printing and writing grades or packaging grades. The main drivers of demand are growth in global domestic product, demographic growth, economic development and disposable income. RISI expects global annual growth for tissue demand to average 4.1% (by volume) between 2011 and 2016. Western European tissue usage is predicted to rise at an average annual rate of 2.5% over the same period, despite virtually no growth in population. The growth in developing markets, especially China, has been tremendous over the past few years, and the low per capita usage in developing regions indicates that tissue has the potential to grow strongly for some time. RISI anticipates an average annual growth rate in Chinese tissue demand of 7.9% between 2011 and 2016.

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Tissue end-market evolution (mtpa)

CAGR 06 11 11 16 06 16 Graphic paper Tissue (1.0)% 3.3% 1.1% 4.1% 0.0% 3.7% Relative size (mtpa) 2006 115.1 25.9 2011 109.6 30.5 2016 114.5 37.3

40.0

35.0

30.0 37.3 35.9 34.5 33.1 31.8 25.0 25.9 26.9 27.9 28.1 29.3 30.5

20.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 19JAN201323201872

Source: RISI (August 2012).

The specialty paper and packaging end-market in which we operate is comparable to the other paper and paperboard market to which RISI refers. RISI anticipates that the global demand growth for other paper and paperboard will average 2.8% annually between 2011 and 2016. Major positive factors supporting demand growth in the developing world include upgrading distribution systems, strong construction activity and the rising consumption of specialty products. Global demand growth for P&W paper is decelerating due to declines in North America and Western Europe, and a maturing growth curve in many other markets. RISI anticipates world P&W paper demand to grow an average of 0.9% annually between 2011 and 2016. The CAGR of the paper end-markets in which we are not present, namely newsprint and container board is forecast to be negative 1.6% and 3.7%, respectively, between 2011 and 2016. Analysis of Supply In 2011, the global BHKP production capacity was 27.8 million tonnes, a net increase of 3.9 million tonnes since 2006. With 5.6 million tonnes of new BHKP capacity added since 2006, of which 3.9 million tonnes is in Brazil alone over the same time period, Latin America has more than offset BHKP capacity closure and conversion in the rest of the world. This reflects the favorable natural conditions for wood production in the region, including soil, topography, water resources and climate, coupled with land availability and strong forest engineering technology, thereby enabling faster wood production in a smaller growing area than the majority of producing regions worldwide. The postponement in 2009 of major BHKP projects outside of China, due to plunging paper demand in the United States and Europe, low pulp prices, increased economic uncertainty and greater difficulty in obtaining financing, resulted in a slowdown in pulp capacity expansion in 2010, 2011 and 2012.

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The chart below shows the evolution of annual BHKP production capacity from 2001 through 2011 and an estimate of how annual BHKP production capacity is expected to continue to grow from 2011 to 2016:
0111 CAGR Global 40,000 Europe 35,000 Latin America 30,000 25,000 20,000 15,000 10,000 5,000 0 2001 2002 2003 4.0% (2.0)% 12.1% 1116 CAGR 5.2% 0.3% 8.7%

(Thousands tonnes)

2004

2005

2006 Global

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Europe

Latin America

19JAN201305554667

Source: RISI (August 2012).

In 2011, Latin America was the largest regional producer of BHKP worldwide, with an installed capacity of 13.5 million tonnes. The charts below illustrate the geographic evolution of the global annual BHKP production capacity, including an estimate for 2016:
2006
Rest of the World(b) 23% Europe(a) 24%

2011
Rest of the World(b) 22% North America 12% Latin America 34% China 2% Europe(a) 15%

2016
Rest of the World(b) 22% North America 8% Latin America 49% China 1% Europe(a) 12%

North America 17% China 2%

Latin America 57%

15JAN201323243664

(a) (b)

Europe includes Western Europe and the Nordic countries. Rest of the World includes Eastern Europe and the CIS countries.

Source: RISI (August 2012).

The relative recovery of paper demand and pulp prices in 2010 led to the revival of many of the projects that were being proposed pre-crisis, some on an accelerated basis. Hence, the rate of investment is expected to accelerate from 2012 onwards, bringing a net 11.6 million tonnes of new BHKP production capacity into the market by 2016, according to RISI. However, several projects are still to be confirmed because the economic rationale for new mills in Brazil, the main area of development, is deteriorating on the back of inflation in wages and cost of land over the past ten years, coupled with a strengthening trend of the Brazilian currency (Real) and challenging financing conditions. While Brazilian pulp manufacturers are focused on reducing their financial leverage and prove reluctant to engage in high capital expenditure projects, foreign companies face restrictions for land acquisitions.

94

The table below lists the new BHKP projects coming on-stream, as expected by RISI in August 2012:
Company Location Country Capacity (ktpa) Grade Comments

Arauco

Nueva Aldea

Chile

Eldorado Montes del Plata(a) UPM Suzano Klabin CMPC Arauco

Tres Lagoas Punta Pereyra Fray Bentos Maranhao State Parana Guaiba Arauco

Brazil Uruguay Uruguay Brazil Brazil Brazil Chile

Suzano Lwarcel Fibria Sappi (Cloquet) Total

(a)

Piaui State Lencois Paulista Tres Lagoas Minnesota

Brazil Brazil Brazil US

Capacity extension of existing mill Assumed start in 2012, but no comment from Arauco 1,500 BEKP Assumed start in Q4 2012 1,300 BEKP Assumed start in Q3 2013 200 BEKP Assumed start in 2014 1,300 BEKP Assumed start in 2014 1,500 BHKP/BSKP Assumed start in 2015 1,350 BHKP Assumed start in 2015 1,000 BEKP Assumed start in Q4 2015 Net capacity increase of 1,000 ktpa, after removing existing 300 ktpa capacity 1,300 BEKP Assumed start in 2016 750 BHKP Assumed start in 2016 1,500 BEKP Assumed start in 2016 (250) BHKP Assumed capacity removal in 2013 11,630

180

BSKP/BHKP

50/50 Joint venture between Arauco and Stora Enso.

Source: RISI (August 2012).

According to Hawkins Wright, the five largest BHKP producers in 2011 worldwide were Fibria (5.3 million tonnes of installed capacity), APRIL (3.9 million tonnes of installed capacity), Suzano (1.9 million tonnes of installed capacity), CMPC (1.6 million tonnes of installed capacity) and ENCE (1.3 million tonnes of installed capacity), representing an aggregated 14.1 million tonnes, or 48% of the BHKP production capacity worldwide. In Europe, we are the largest BHKP producer according to RISI, with an installed capacity representing almost twice that of the next largest BHKP producer in Europe. Please see BusinessCompetitors. Pricing Environment The pulp industry is highly competitive and is also sensitive to changes in industry capacity, producer and consumer inventories and cyclical changes in the economy and the demand for paper. Global pulp prices are cyclical because demand for paper depends heavily on general economic conditions and because production capacity tends to adjust slowly to changes in demand. The price of BHKP generally increases as the global economy expands. Pulp price fluctuations occur not only from year to year but also within a given year as a result of global and regional economic conditions, capacity constraints due to mill openings, closures and supply, and demand for both raw materials and finished products, among other factors. Prices for BEKP are generally set by producers on a monthly basis for delivered pulp to North American, European and Asian ports. Historically, global consumer inventories have also driven short-term wood pulp demand and pricing. Excluding China, world consumer inventories have fluctuated within a very narrow range of 1.21.3 million tonnes since early 2009. These levels are near historical lows, having been driven down by shrinking paper demand and more efficient supply chain management. Statistics for Chinese consumer stocks are not available but anecdotal evidence suggests that consumer stock levels are relatively volatile. This is primarily the result of opportunistic pulp buying by China during times of depressed pulp prices and pulp selling when pulp prices recover, because traders represent an important portion of Chinese imports. This is not the case in Europe, where the majority of pulp producer sales come directly from paper companies.

95

The chart below illustrates our estimate of the historical evolution of producer and consumer days of inventories from September 2001 through to September 2012:
55 50 45 40 35 30 25 20 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Consumers Producers 15

15JAN201323244962

Source: Company

The divergence in pulp demand between China and the rest of the world continues to grow, and is now the key feature on the demand side of the pulp market. We believe that the volatility in Chinas demand is now the key driver of short-term cycles in the world pulp market and price evolution. Over the past five years, European BEKP average list prices have experienced strong volatility. Prices experienced a sharp drop from 2008 into 2009, falling from US$840 per metric tonne in August 2008 down to a five-year trough of US$475 per metric tonne in April 2009, as a result of a bleak economic outlook and a falling demand in paper, fueled by sharp destocking in a context of high inventory levels. Owing to falling margins, consequently, 8% of the market pulp capacity was closed, half of such closures being permanent. As the destocking phase came to an end and Chinas demand increased, driven by a strong economic growth, the rebound in paper demand in 2010 was stronger than expected and consequently drove BEKP prices up to a five-year high of US$920 per metric tonne in July 2010. This record price was further supported by the earthquake suffered in February 2010 in Chile, which forced the shutdown of 8% of the global production capacity of both long and short fiber. Since then pulp price volatility has reduced but overall pulp prices declined, with a particular dip during the fourth quarter of 2011 as prices bottomed out at US$650 per metric tonne when increasing macroeconomic fears in Western Europe and North America led to a demand correction in these geographies. Again, a strong surge in Chinese demand, taking advantage of lower prices and declining consumer inventory levels, led to a fast recovery in BEKP prices: the average list price in Europe in December 2012 was US$775 per metric tonne, above the past five-year monthly average of US$748 per metric tonne. The charts below set forth the historical evolution of the average yearly pulp prices in U.S. dollars per metric tonne delivered in Northern Europe from 2006 through 2011, including a forecast evolution from 2012 through 2020 according to RISI, from 2013 to 2017 according to

96

Hawkins Wright, and a quarter-on-quarter evolution of pulp prices in U.S. dollars per metric tonne delivered in Northern Europe from the first quarter of 2011 to the third quarter of 2012. Long-term BEKP price evolution (US$/ton)
1000 995 985

Recent evolution of pulp prices (US$/ton)

900 849 802 800 707 700 642 587 520 500 484 459 502 564 781
754

873

864

783 750

802

765
759 755

758 735 731

765 745 755 692

679

847

868

816 684 703

772

766

770

603

620

600

400
20 0 20 0 20 0 20 0 20 14 20 15 20 16 20 17 20 18 20 19 20 20 20 0 20 1 20 1 20 0 20 0 20 0 20 0 20 1 20 1

Q1-11

Q2-11

Q3-11

Q4-11

Q1-12

Q2-12

Q3-12

Q4-12

Historic

RISI

Hawkins Wright

Average (RISI and Hawkins Wright)

20JAN201318363535
Source: Company.

Source: RISI and Hawkins Wright.

RISI expects the pulp market to remain volatile going forward, particularly as a function of global supply. In terms of demand, RISI does not anticipate any serious economic slowdown globally until 20152016. The next price down-cycle starting in 2015 is the result of a slowdown in global demand for paper, especially P&W paper, combined with a wave of capacity expansion coming on-stream. RISI expects 2016 to mark the bottom of the price cycle and anticipates a price recovery starting in 2017 with the next price peak reaching US$995 per metric tonne in 2019, driven by an expected recovery of the global economy. In the short term, Hawkins Wright is expecting some price increases attempts, but only with partial success given the general weak demand in end-use markets. Hawkins Wright notes that the impact from the Brazilian pulp producer Eldorados widely anticipated start has been fairly muted to date, and that the new supply should be largely offset by closures or conversions through the first half of 2013. However, prices are expected to slip through the second quarter of 2013, partly in anticipation of the second greenfield line in Uruguay (Montes del Plata), and to trough in the third quarter of 2013. By this stage, Hawkins Wright expects certain higher cost mills to be curtailed, although to a lesser extent in the BHKP market. Production curtailments should stimulate a rise in prices through the fourth quarter of 2013, particularly if they coincide with a period of re-stocking in China. In the longer run, Hawkins Wright expects hardwood prices to move within a similar range through 2014 and 2015 as new supplies from Suzano Maranhao and CMPC Guaiba begin coming on-stream. Taking the view that it is very rare for the industry to maintain a supply-demand ratio below 89% for more than two consecutive years, Hawkins Wright presents an upturn in BHKP prices through 201617, in line with the trend in nominal prices. The divergence between the forecasts of RISI and Hawkins Wright is driven by the differences in the methodology used. RISIs forecast is based on their views on the global economic cycles and their impact on the pulp prices. Hawkins Wrights forecast is based on their outlook on supply and demand dynamics and their views on the global economy. Cost of Production According to RISI, among the major producing countries, including Brazil, Canada, Chile, Finland, Indonesia, Portugal, Spain, Sweden and the United States, the average total cost of producing one tonne of BHKP delivered to Europe measured in U.S. dollars will average US$612 in 2012.

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The charts below compares the variable and total costs in Brazil and Spain in U.S. dollars per metric tonne of BHKP produced in 2011: Average BHKP variable costs and total costs(a) ($/tn)
624 618 445 37 26 54 45 21

409 69 70 26 68 30 146

262

Spain

Spain

Brazil

Variable cost Wood Energy Chemicals Labour

Total cost Transport Other 19JAN201300442018

Source: RISI. (a) Total cost includes depreciation and interest costs.

According to RISI, Brazil retains its position as one of the countries with the lowest variable cost. However, comparability is difficult because Brazilian pulp mills source a high proportion of wood from their own plantations with only a small amount bought from third parties. The average wood cost above refers only to the costs of harvesting and transportation, but excludes silviculture (forestry management) costs, which are capitalized. Self-supplied wood cost is considered a depreciation of biological assets (usually called forestry depletion) and does not impact variable costs and EBITDA. Hence, the differential in variable costs between the Brazilian and other producers is largely driven by the accounting for forestry depletion. On a total cost basis Brazilian and other producers have comparable cost levels because Brazilian producers incur higher depreciation and amortization and financial expenses, resulting from the necessary financing of silviculture. Iberian pulp companies manage their own plantations but source a high proportion of wood from third parties, mainly small domestic plantation owners. Timber costs in Iberia have remained stable because producers have been able to maintain the balance in the domestic market by managing the amount of imports. This contrasts with the higher volatility of international wood markets, driven by an increasing demand for wood, where domestic producers lack the size to play a role. The depreciation of the euro has also lowered U.S. dollar costs for Iberian BEKP producers in absolute terms. Over the next 15 years, RISI forecasts real U.S. dollar-denominated production costs for both BSKP and BHKP trending downward, but notes that the analysis is sensitive to the choice of exchange rate assumptions over the forecast period.

98

Brazil

BUSINESS Our Company We are the largest BHKP producer in Europe, with an annual maximum installed capacity of 1.34 million tonnes of pulp as of September 30, 2012. We also have a significant co-generation and renewable energy generation business, with an installed capacity of approximately 230 MW as of September 30, 2012 (excluding our new 50 MW independent biomass energy facility in Huelva, Spain, which became operational in September 2012 and for which we expect the transfer of ownership from our EPC contractor to us to take place in the first quarter of 2013) and total energy sales of 1,545 GWh for the twelve months ended September 30, 2012. Our integrated pulp and energy business model takes advantage of our strong positioning in forestry supply management, both with respect to managing forest plantations and crops for the production of wood and cultivated biomass and with respect to sourcing wood from third-party sources as required for the sustainability of our business. As of September 30, 2012, we managed approximately 87,370 hectares of plantations (excluding our forestry assets in Uruguay, which we are in the process of divesting), of which we owned approximately 59%. We are publicly listed on the Madrid Stock Exchange (Bolsa de Valores de Madrid) with a market capitalization of e533.1 million as of December 31, 2012. For the twelve months ended September 30, 2012, we generated revenue of e801.5 million, Adjusted EBITDA of e149.9 million and unlevered free cash flow (excluding expansion capital expenditure) of e122.3 million. Business Areas We organize our economic activities into three distinct but closely interrelated and complementary business areas: Pulp Production We are the largest BHKP producer in Europe, focused on eucalyptus pulp, with an annual maximum installed capacity of 1.34 million tonnes as of September 30, 2012, almost twice the capacity of the next largest BHKP producer in Europe. For the twelve months ended September 30, 2012, we produced an aggregate of 1.26 million tonnes of eucalyptus pulp across our three pulp production facilities in Huelva, Navia and Pontevedra, Spain, representing a utilization rate of 94%. For the twelve months ended September 30, 2012, our pulp production activities generated revenue of e577.0 million, representing 72% of our total revenue. In the twelve months ended September 30, 2012, we exported 87% of our eucalyptus pulp sales by volume, primarily to the European market, the largest global pulp market and a net importer of market pulp, where we have a market share of 14%. We held a significant market share by volume for BHKP in each of Germany, Italy, Spain and France, the principal markets for our pulp products, which accounted for 22%, 15%, 13% and 9% of our volume, respectively, for the twelve months ended September 30, 2012. During the same period, we also exported our pulp products to other Western European countries (19%) and to Eastern Europe (10%), as well as selectively outside of Europe (12%, primarily to China). Our sales are focused on end-market paper segments with high forecasted growth rates. Our biggest end-market by volume is the tissue segment (the end products of which mainly include paper towels for kitchen, bathroom and toilet paper), which represented 47% of our pulp sales by volume for the twelve months ended September 30, 2012. According to RISI, the tissue segment benefits from a resilient and stable end-customer demand, and is forecasted to grow globally at a compound annual growth rate (CAGR) by volume of 4.1% per annum over the period from 2011 to 2016, which is, according to RISI, the highest forecasted CAGR among the various paper segments by global demand during such period. Of the remaining 53% of our pulp sales by volume for the twelve months ended September 30, 2012, 29% came from certain specialty paper and packaging segments, including beauty products and white-top packaging, while approximately 24% came from the printing and writing paper (P&W) segment, which, according to RISI, are expected

99

to grow globally at a CAGR by volume of 2.8% and 0.9%, respectively, over the period from 2011 to 2016. Eucalyptus Pulp Sales (by volume) by Country(1)
RoW 12% East Europe 10%

End-Market Paper Segment Pulp Sales (by volume)(1) and Forecast CAGR (by volume) (2011 - 2016)
P&W 24% 0.9% CAGR Tissue 47% 4.1% CAGR

Germany 22%

West Europe 19% France 9%

(1)

Italy 15% Spain 13% 15JAN201323244572

Specialties 29% 2.8% CAGR

15JAN201323244311

For the twelve months ended September 30, 2012.

Source: Company and RISI.

Energy Generation With respect to our energy generation activities, we are primarily a biomass renewable energy generator. We generate renewable energy in two ways: (i) co-generation of electricity and steam integrated with our existing pulp production facilities, given the nature of the pulp production process, mainly fuelled through the use of the black liquor produced in the extraction of cellulose; and (ii) electricity generation independent from our pulp production, using biomass from energy crops and forestry residues (primarily consisting of wood barks and other wood-based residues related to harvesting activities). In addition, we co-generate electricity and steam using natural gas. All electricity produced by us is sold to the national electricity grid in Spain. All of our facilities use an all-all sale and purchase system, such that all energy generated at our plants is sold at a regulated inflation-adjusted preferential rate and all electricity required by the facilities to cover production needs is subsequently repurchased at a market rate (plus an access toll). The regulated inflation-adjusted preferential rate is governed by Royal Decree 661/2007, which guarantees the sale of the total produced electricity. For more information on the regulations governing our renewable energy generation activities, please see Principal ActivitiesEnergy Activity and Regulation. Including the additional 50 MW of generation capacity at our new independent biomass energy facility in Huelva, Spain, for which we expect the transfer of ownership from our EPC contractor to us to take place during the first quarter of 2013, we have a total installed capacity of approximately 280 MW, split into approximately 152 MW of co-generation capacity (102 MW from biomass and 50 MW from natural gas) and 128 MW of generation capacity. For the twelve months ended September 30, 2012, our energy generation activities produced revenue of e198.9 million, representing 25% of our total revenue. On the basis of our position and experience in the forestry sector in the Iberian Peninsula and our expertise in the development of short-rotation energy crops, we have developed a strategy for further expansion of our energy generation activities. In line with this strategy, in addition to the 50 MW independent biomass energy facility in Huelva, Spain for which we expect the transfer of ownership from our EPC contractor to us to take place during the first quarter of 2013, we are constructing an additional 20 MW independent biomass energy facility in M erida, Spain which is expected to become operational by the fourth quarter of 2014. These two plants are financed under long-term project finance arrangements. Please see Description of Other IndebtednessProject Financings. Both the Huelva and M erida independent biomass energy facilities have qualified for the regulated inflation-adjusted preferential rate governed by Royal Decree 661/2007 and are not subject to the recent moratorium imposed by the Spanish government on additional renewable

100

energy facilities in Spain. Please see Principal ActivitiesEnergy ActivityDevelopment of Additional Biomass Energy Facilities and RegulationRegulation Promoting Renewable Energy and Biomass GenerationRoyal Decree Law 1/2012. Forestry Our forestry activities consist of the nursing, planting, maintaining and harvesting of trees, and the sourcing of third-party timber, both locally and in the international markets, for the supply of wood necessary for our pulp production and biomass energy generation activities. Wood represents the largest portion of the cost of production of pulp. We source wood in several ways, including direct purchases from landowners through large and small suppliers and through imports, and from our own forestry assets. By increasing the proportion of our total wood supply sourced locally, we expect to reduce our reliance on wood imports in the coming years, since, in the recent past, wood imports have proven to be more expensive than locally sourced wood. We also sell timber and provide forestry services to third parties on a limited scale, an activity which generated revenue of e25.6 million for the twelve months ended September 30, 2012, representing only 3% of our total revenue. We have over 55 years of experience in the forestry business. As of September 30, 2012, we managed approximately 87,370 hectares of forest plantations (excluding Uruguay), of which we owned approximately 59%, with the remainder being managed in collaboration with third parties. Under typical management arrangements, the land continues to be owned by a third party, while we manage the preparation, planting and maintenance of the land only. These arrangements typically have a duration of two to three rotation cycles, or approximately 30 years. We also engage in research, development and innovation (R&D&I) activities related to our forestry activities as well as activities focusing on health and safety at work and environmental, quality and forestry activity sustainability management systems (all of which are fully integrated in the day-to-day management of our forestry activities). As of September 30, 2012, the net book value of the standing timber in our owned forest plantations (excluding Uruguay) was e172.6 million. We recently entered into an agreement for the sale of the forest plantations that we own in Uruguay. Please see SummaryRecent DevelopmentsUpdate on Uruguay Assets Disposal. Industrial Footprint We have a high-quality asset base underpinning our strong operating and environmental performance, having invested over e530 million in our asset base since 2007, excluding our investments in our new independent biomass energy facilities at Huelva and M erida, Spain and Uruguay assets. Our industrial infrastructure is comprised of three pulp production facilities located in Huelva, Navia and Pontevedra, Spain, where we also own and operate seven energy facilities which co-generate and generate energy by taking advantage of synergies from the industrial process. Each of these facilities is also strategically located in close proximity to our forestry assets and to shipment ports, in order to allow us to operate our business with reduced inventory levels as well as to allow efficient and timely deliveries of our pulp products at a competitive cost. In addition, we expect the independent 50 MW biomass energy facility in Huelva, Spain to be transferred to us from our EPC contractor during the first quarter of 2013. This new independent biomass energy facility is located in close proximity to our pulp production facility in Huelva, Spain. Furthermore, we are currently constructing another independent biomass energy facility in M erida, Spain, which is expected to become operational by the fourth quarter of 2014. We comply with internationally recognized standards on health and safety and with respect to the environment and pollution prevention, and internationally recognized guidelines on corporate responsibility and sustainability. As of August, 2012, 71% of our forestry assets were certified under the PEFC scheme and 27% under the FSC scheme (excluding Uruguay), both of which are internationally recognized certification schemes promoting sustainable forest management. We intend to continue focusing on the sustainability of our production as well as to comply with strict environmental standards.

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Our History Formation The origins of our company date back to 1957, when Empresa Nacional de Celulosa de Pontevedra, Empresa Nacional de Celulosa de Huelva and Empresa Nacional de Celulosa de Motril were created by the Instituto Nacional de Industria (an industrial holding institute owned and managed by the Spanish government). In 1968, these companies merged, creating Empresa Nacional de Celulosa, S.A., our predecessor company. Our predecessor company was set up at its inception with an export focus that we continue to maintain today. In 1987, the Motril facility was sold, and, in 1999, we acquired full ownership of Celulosas de Asturias, S.A.U., the owner of the Navia facility. We underwent two partial privatizations in 1990 and 1995 (which included public listings), and were fully privatized in 2001. The configuration of our pulp production and forestry activities took place in 1995, and we started generating renewable energy in 1997. Transformation Process Our company has undergone a significant transformation and change in strategy over the last five years. Between 2007 and 2009, our management was focused on several capital intensive growth projects running in parallel (including a brownfield pulp and energy capacity expansion at Navia and Huelva, Spain and a greenfield pulp production project in Uruguay, as well as a pipeline of biomass projects), which were managed with internal financial and construction resources, with only limited focus on the efficiency and profitability of the existing operations. With respect to our energy generation business, our energy generation revenue represented approximately 10% of our total revenue in 2007 and we financed our biomass expansion projects on our balance sheet. As a consequence of this focus on growth, we also had high financial leverage. Additionally, we operated a forestry ownership business model with a lesser focus on wood sourcing from third parties. From 2010 onwards, our managements focus and strategy shifted from capacity expansion to cost optimization and efficiency improvements across our pulp production facilities to exploit the business cash flow potential and to better protect our financial performance from cyclicality. As a result, we reduced fixed costs and introduced our Total Quality Management program in 2011, which was designed to drive operational efficiencies, balance maintenance capital expenditure requirements across our facilities and significantly improve utilization rate and productivity levels. In forestry, we now operate a forestry supply management business model, sourcing our supplies of wood through various local third parties (primarily forest owners and traders), and acting across the value chain (from standing timber through to harvesting and transportation) in order to reduce costs and to ensure the sustainability and security of our wood supply. Our revenue from energy generation has increased, and, for the twelve months ended September 30, 2012, it represented 25% of our total revenue, enabling us to improve our cost competitiveness in the pulp production business as well as providing greater stability and long term visibility to our future cash flow generation capabilities. With respect to growth projects, which are limited to independent biomass energy generation expansion opportunities, we have started outsourcing their execution to EPC providers in order to improve our risk profile. We currently finance independent biomass energy generation projects under long-term project finance arrangements. We also operate a forestry consultancy services business, although, in line with the restructuring of our Ibersilva, S.A.U. subsidiary in 2011, we intend to exit this business in the near future. Through cash proceeds from internal cash flow generation, selected asset disposals in 2009 (including divestment of the Uruguayan companies Eufores, S.A., Celulosa y Energ a Punta Pereira, S.A., Zona Franca Punta Pereira, S.A. and Zona Franca Bopicua, S.A.) and a e130 million capital increase, which we implemented in 2010, we have also successfully reduced our net debt from e471.8 million, or 5.3x net debt/Adjusted EBITDA, as of December 31, 2008 to e227.7 million, or 1.5x net debt/Adjusted EBITDA (including 0.4x in relation to our project finance debt), as of September 30, 2012. In December 2012, we also entered into an agreement for the sale of the forest plantations that we own in Uruguay. Please see Recent DevelopmentsUpdate on Uruguay Assets Disposal. We operate a conservative financial policy, characterized by low leverage and adequate liquidity, which is a fundamental element of our strategy to further enhance the resilience of our business. As of the date of this Offering Memorandum, our management has publicly communicated that the companys financial strategy is to maintain, going forward, a maximum leverage of 2.5x net debt/Mid-cycle EBITDA, including project finance debt. We define

102

Mid-cycle EBITDA as, at any time, senior managements good faith estimate of the consolidated EBITDA of the company based on an estimate of average historical peak and trough pulp prices through the economic cycle. Any strategy is forward-looking in nature, and as such is subject to risk and uncertainties. Please see Forward-Looking Statements. Our Key Strengths Leading Market Positions and Strategically Located Production Facilities We are the largest BHKP producer in Europe, focused on eucalyptus pulp, with an annual maximum installed capacity of 1.34 million tonnes, almost twice that of the next largest BHKP producer in Europe. In the last twelve months ended September 30, 2012, we exported 87% of our eucalyptus pulp sales by volume primarily to Western European markets, the largest global pulp market, where we have a market share of 14%. We hold a significant market share by volume for our pulp products in each of, Germany, Italy, Spain and France, the principal markets for our pulp products, which accounted for 22%, 15%, 13% and 9% of our volume, respectively for the twelve months ended September 30, 2012. Our three pulp production facilities are strategically located along the coast, in close proximity to our forestry assets as well as to port terminals. The strategic locations of our pulp production facilities, together with a dynamic logistics scheme to 14 ports of destination, allow us to maintain low transportation costs (using a combination of trucks, trains, vessels and barges), to reduce inventory levels, and, at the same time, to provide an improved customer service by enabling us to respond quickly to our individual customers delivery needs, thus delivering a less commoditized product. Our three pulp production facility layout, in combination with our relative proximity to the majority of our clients, provide us with manufacturing flexibility to tailor our pulp products to the specifications of our clients. We believe that our leading market positions provide us with significant economies of scale and an advantage over our competitors. In addition, the cash flows generated from our operations have allowed us to continually reinvest in our business, thus enabling us to retain our leading market positions. We also benefit from significant barriers to entry in our market, including the complexity and cost of wood supply, the high investment for industrial equipment, significant lead times and financing constraints for building new production facilities and long-term customer relationships with large paper companies as well as the required regulatory consents. Increasingly Geographically Diversified Revenues While we exported 87% of our eucalyptus pulp sales by volume primarily to Western European markets for the twelve months ended September 30, 2012, since 2011 we have focused on further diversifying our revenues by increasing our exposure to high-growth markets in Eastern Europe, particularly Poland and Slovenia, and selectively selling to non-European markets, particularly China, to take advantage of the more favorable supply/demand dynamics in these markets. Within Europe, for the twelve months ended September 30, 2012, we exported by volume 22% of our eucalyptus pulp sales to Germany, 15% to Italy, 9% to France, 19% to other Western European markets and 10% to Eastern European markets and, in parallel, have reduced our exposure to the Spanish market from 19% of sold volumes in 2010 to 13% during the twelve months ended September 30, 2012. Focus on Key Growth Segments of the Paper Market The global BHKP market has grown at a CAGR by volume of approximately 4.0% over the period from 2006 to 2011. According to RISI, this trend is expected to continue over the period from 2011 to 2016 at a CAGR by volume of 3.8%, primarily driven by continued underlying growth in the demand for tissue as well as a strong increase in demand from emerging markets, particularly China. Our hardwood eucalyptus pulp is highly suited to the tissue segment, which accounted for 47% of our pulp sales by volume for the twelve months ended September 30, 2012. The tissue segment is less commoditized, benefitting from a resilient and stable end-customer demand, according to RISI, and is forecasted to grow globally at a CAGR by volume of 4.1% per annum over the period from 2011 to 2016. Of the remaining 53% of our pulp sales by volume for the twelve months ended September 30, 2012, 29% came from certain specialty paper and packaging segments, including beauty products and white-top packaging, while approximately 24%

103

came from the P&W segment, which, according to RISI, is expected to grow globally at a CAGR by volume of 2.8% and 0.9%, respectively, over the period from 2011 to 2016. Furthermore, according to RISI, Chinese demand for BHKP is expected to grow faster than in any other geographic region at a CAGR of 9.7% for the 20112016 period. Given the high production costs in China and the scarcity of local wood, relative to other geographic locations, Chinas demand for BHKP is expected to be heavily dependent on imports. Well Invested and Efficient Facilities Having invested over e530 million in our asset base since 2007 (excluding investments in our new independent biomass energy facilities at Huelva and M erida, Spain and Uruguay assets), we have well-invested, cost efficient, low maintenance cost production facilities with improved environmental performance. Our installed pulp production capacity has increased by 23% since 2007 and we had a 94% utilization rate during the twelve months ended September 30, 2012. We also have a historically stable pulp production profile. In addition, our energy sales have increased consistently year-on-year since 2007 and our renewable energy generation business continues to grow, with 848 GWh of energy sold in 2007, 1,490 GWh of energy sold in 2011 and 1,545 GWh of energy sold during the twelve months ended September 30, 2012, the highest level that we have ever sold. Excluding expansion programs, our maintenance capital expenditure (including investment in pulp facilities, energy and forestry activities to produce wood for pulp) have remained consistently in the e40 million per annum range during the period from 2007 to 2011. Pulp Production Capacity and Utilization Rate(1)
102% 100% 78% 86% 93% 94%

Energy Sold (GWh)

1,490 1,216 1,051 1,332 1,545

1,090

1,090

1,278

1,340

1,340

1,340

848

2007

2008

2009

2010

2011

LTM Sep 2012

Pulp production capacity (k tonnes)

Utilization rate (%) 19JAN201300442183

2007

2008

2009

2010

2011

2012 17JAN201323425096

LTM Sep

(1)

The decline in the 2009 utilization rate for pulp production was driven by stoppages at the Navia pulp production facility due to capacity expansion works we undertook, as well as a temporary, extraordinary shutdown of one of our two production lines at our Huelva pulp production facility due to low pulp prices.

Source: Company.

Our efficient facilities and production processes allow us to continue to operate during periods of low pulp prices. Since 2001, we have not needed to shut down pulp production as a result of economic factors except in 2009 when, as the result of extraordinarily low pulp prices, we temporarily closed one of our two production lines at our pulp production facility in Huelva, Spain. Complementary Business Model and Valuable Energy Assets We own and operate seven energy generation facilities at Navia, Pontevedra and Huelva, Spain, and, in addition, we expect the transfer of ownership from our EPC contractor to us of a new 50 MW independent biomass energy facility in Huelva, Spain to occur during the first quarter of 2013. Together, these facilities have a total installed capacity of approximately 280 MW, split into approximately 152 MW of co-generation capacity (102 MW from biomass and 50 MW from natural gas) and approximately 128 MW of generation capacity. Through these facilities, we generate more electricity than we require to cover the production needs of our facilities. Moreover, our facilities produce electricity fuelled by biomass, thereby helping reduce greenhouse gas emissions and improving energy efficiency. The integration of our pulp manufacturing process, with complementary energy generation and forestry activities, is our key strength, and our focus on our energy assets is fundamental to our strategy going forward in terms of improving the cost competitive position of our pulp production facilities, diversifying our revenue towards a regulated business as well as

104

providing greater stability and long-term visibility to our future cash flow generation. In addition, we are currently constructing a 20 MW independent biomass energy facility in M erida, Spain which is expected to become operational in the fourth quarter of 2014. Our existing energy facilities and our independent biomass renewable energy generation facility under construction in M erida, Spain are not affected by the recent moratorium on new renewable energy facilities in Spain. Proven Track Record of Competitive and Sustainable Forestry Supply Management Our Wood Costs are the largest component of our cost base and represented, for the twelve months ended September 30, 2012, more than 50% of our Cash Costs, which is defined as our Wood Costs plus Other Cash Costs. We have over 55 years of experience in the forestry business and have successfully built a strategy in wood supply management based on two pillars: (i) increasing direct purchases of standing timber from land owners; and (ii) increasing purchases from small local suppliers in order to increase the proportion of local timber versus comparatively more expensive wood imports. In doing so, we have been able to reduce costs across our entire value chain. We are collaborating with plantation owners through long-term arrangements, which typically have durations of two to three rotation cycles, or approximately 30 years, thereby ensuring the availability of wood from local supplies and directly sharing our know-how on forestry management and logistics with the owners for their benefit, thus increasing their loyalty. Our direct purchases of standing timber from forestry owners and of wood from small local suppliers have increased from 1,498,129 m3 in 2007 to approximately 2,332,734 m3 during the twelve months ended September 30, 2012, accounting for approximately 64% of our total wood purchases during this period as compared to 49% of our total wood purchases in 2007. Accordingly, we have had to rely less on importing comparatively more expensive wood, which has reduced our costs and improved our efficiency. As a result of these measures, the proportion of imported wood within our total wood supply decreased to 14% of our total wood supply during the twelve months ended September 30, 2012, compared to 18% of our total wood supply during 2007. Evolution of Forestry Supply: 2007 vs. Twelve Months ended September 30, 2012 Forestry Supply in Year Ended December 31, 2007
Imported, 18% Owned wood, 8% Acquisitions from land owners, 12%
Large suppliers, 19%

Forestry Supply in Twelve Months Ended September 30, 2012(1)

Imported, 14% Owned wood, 3% Acquisitions from land owners, 28%

Large suppliers, 25% Small suppliers, 37% 19JAN201305554855

Small suppliers, 36%

19JAN201305555007

(1)

We define small suppliers as those supplying less than 3,000m3 of timber per month and large suppliers as those supplying more than 3,000m3 of timber per month.

Source: Company.

Strong Focus on Cost Leadership and Cash Generation Since 2009, we have continuously maintained a focus on cost reduction across all our business activities, by improving the cost base and production efficiency of our pulp production facilities, increasing the energy contribution from our renewable energy generation activities, shifting from a forestry ownership to a forestry management business model, divesting non-core assets, increasing and stabilizing production and reducing overhead costs. As a result of these initiatives, since 2009, our Other Cash Costs (our Cash Costs excluding Wood Costs) declined by 13% to e140 per tonne for the twelve months ended September 30, 2012. Our Total Costs for the

105

twelve months ended September 30, 2012 and for the years ended December 31, 2011 and December 31, 2010 were e412 per tonne, e437 per tonne, and e449 per tonne, respectively. For the year ended December 31, 2011, we believe that these costs are in line with the levels achieved by Brazilian pulp producers, the largest pulp producers by volume globally, according to RISI. Evolution of Other Cash Costs (Cash Costs Excluding Wood Costs)
178 185 162 169 153 140

EUR / tonne

2007

2008

2009

2010

2011

2012 17JAN201323424960

LTM Sep

Source: Company.

For the twelve months ended September 30, 2012 and for the year ended December 31, 2011, we generated unlevered free cash flow (excluding expansion capital expenditure) of e122.3 million and e98.4 million, respectively. Balance Sheet Strength and Conservative Financial Policy Management Over the past five years, through cash proceeds from internal cash flow generation, selected Uruguay asset disposals in 2009 and a e130 million capital increase implemented in 2010, we have successfully reduced our net debt from e471.8 million (or 5.3x net debt/Adjusted EBITDA) as of December 31, 2008 to e227.7 million as of September 30, 2012 (or 1.5x net debt/Adjusted EBITDA, including 0.4x in relation to our project finance debt). Experienced and Proven Management Team Complemented by a Supportive Shareholder Base We have an experienced, proven and fully committed management team with a history of successfully managing through several industry cycles. The management team of each of our divisions has an average operating experience of approximately 20 years in both the pulp and paper and renewable energy sectors, including within highly ranked multinationals. Our major shareholders as of the date of this Offering Memorandum remain fully committed to the business. They participated in our e130 million capital increase implemented in March 2010, which underscored their continued conviction and confidence in our business. Our two largest shareholders, Retos Operativos XXI, S.L. and Alcor Holding, S.A., have each held a shareholding interest in excess of 20% of our shares since 2007. In addition, Juan Luis Arregui, who represents the interests of our largest shareholder, Retos Operativos XXI, S.L., which owns 24.5% of our shares, is currently the Chairman of our Board of Directors. Our Strategy Our overall strategy is to further develop our complementary, integrated business model in terms of cash generation, profitability and return on investment. We intend to achieve this strategy through the continuous improvement of the operational performance of our existing pulp production facilities by focusing on cost reduction and efficiency, stability of production, delivering superior customer satisfaction and maintaining efficient forestry supply management, and by focusing on growth through the selective expansion of our renewable energy generation business. In addition, we intend to continue to maintain our focus on maximizing cash flow generation through controlled capital expenditures and a conservative financial policy. Maintain Low-Cost, Efficient Pulp Production with a Focus on International Markets We believe that we are among the lowest-cost pulp producers in Europe, largely as a result of our integrated business model and our significant past investments in our production facilities, resulting in well-invested, cost-efficient production facilities with high utilization rates and expected

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low maintenance capital expenditure. Our cost leadership is also underpinned by the strategic location of our production facilities. We seek to further optimize our production process and improve the cost efficiency at all of our facilities. Our strategy is to do so by leveraging our integrated business model and our energy generation and forestry activities, thereby minimizing further investments and increasing our competitiveness, profitability and cash generation. We strive to continuously increase the productivity of our pulp business (as measured by tonnes produced per employee) and at the same time maintain the competitive performance of our production facilities against internal and external industry benchmarks relating to key operational indicators and raw material consumption. Additionally, we seek to maintain and further strengthen our leading market positions across Europe, maintaining a diversified client base, further expanding pulp sales in the high growth tissue market and in other European geographic regions, as well as maintaining a selective approach to other international markets such as China, thereby increasing our overall market share. Selective Further Expansion of Our Renewable Energy Generation Business We expect biomass energy generation to continue to be a key focus for us. We aim to leverage our extensive experience in building and operating biomass-based renewable energy co-generation and independent generation facilities to optimize efficiency at our existing facilities as well as to grow selectively in the biomass renewable energy sector by developing profitable opportunities that fulfill our requirements both domestically and internationally. In order to guarantee biomass supply in terms of volumes and costs, and structure project finance schemes to lower cash contribution and improve returns, we intend to develop short-rotation energy crop plantations to secure 50% to 60% of our total fuel supply. Until the current moratorium on the development of renewable energy in Spain is lifted, we do not intend to undertake any new renewable energy investments in Spain other than the construction already underway on our 20 MW independent biomass energy facility in M erida, Spain, which is expected to become operational by the fourth quarter of 2014 and which qualifies for a regulated inflation-adjusted preferential rate. In the meantime, we intend to explore and pursue opportunities in other jurisdictions that offer favorable regulatory regimes for such investments and where we can apply our expertise, with an initial focus on European countries. We intend to continue to finance any potential opportunities on a project finance basis and transfer the execution risk to EPC providers, and we plan to address international opportunities by entering into partnerships in order to reduce equity contribution and minimize risks. Renewable energy generation is fundamental to our strategy going forward, as a source of recurring stable income, and is underpinned by the European Unions goal to have renewable energy account for 20% of the European Unions gross total energy consumption by 2020. Therefore, we intend to gradually further expand our footprint in renewable energy generation while maintaining a conservative financial policy with a view to diversifying our revenue towards a regulated business and to improving the cost competitive position of our pulp production facilities, as well as to provide greater stability and long-term visibility to our future cash flow generation. Optimize Forestry Supply Management with a Focus on Reducing Fixed Assets We intend to continue to focus on increasing direct purchases of standing timber from landowners so as to reduce costs derived across the entire wood value chain and increase our visibility on the availability of wood for our facilities and stimulate supply. Leveraging upon our 55 years of experience in the forestry business, we aim to further increase our collaboration with plantation owners through long term agreements, thereby ensuring the availability of wood from local supplies and sharing our know-how on forestry management and logistics directly with the owners for their benefit. We also intend to continue to focus on increased purchases from small suppliers in order to increase our purchasing power and diversify our wood supply sources. Lastly, we intend to continue to reduce contribution from imports to further reduce costs, and improve our efficiency. Our increasing ability to source wood at competitive prices from local wood suppliers and landowners and the low contribution of our owned plantations in the supply mix (wood from our plantations accounted for only 3% of our total wood supply during the twelve months ended September 30, 2012) has led us to look for opportunities to divest our forestry asset base. As described in SummaryRecent DevelopmentsUpdate on Uruguay Assets Disposal, we entered

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into an agreement to divest 27,780 hectares in Uruguay in December 2012 and will continue to look for opportunities to reduce our forestry asset base in Spain and Portugal. For the supply of biomass, given the shorter crop cycles (3 to 5 years) of energy crops as compared to pulp wood (9 to 12 years) and the availability of highly productive irrigated land for rent due to the reduction of agriculture subsidies, we directly manage our biomass forestry assets and intend to continue to develop energy crops to ensure self-sufficiency for our energy generation facilities. Continue to Focus on Strong Cash Flow Generation and Follow a Conservative Financial Policy Our overall strategy across our three main business activities, underpins our focus on continued strong free cash flow generation, while maintaining a conservative financial policy. We seek to further optimize capital expenditures and working capital so as to maintain our leading cash conversion capabilities among our European peers. As of the date of this Offering Memorandum, our management has publicly communicated that the companys financial policy strategy, going forward, is to maintain a maximum leverage of 2.5x net debt/Mid-cycle EBITDA, including project finance debt. We define Mid-cycle EBITDA as, at any time, senior managements good faith estimate of the consolidated EBITDA of the company based on an estimate of average historical peak and trough pulp prices through the economic cycle. Principal Activities Pulp Activity Our pulp activities comprise managing the production of pulp at our three pulp production facilities in Spain, located in Navia, Huelva and Pontevedra, as well as the sales of the produced pulp. The combined nominal production capacity of our three pulp production facilities is 1.34 million tonnes/per annum and, during the twelve months ended September 30, 2012, the combined utilization level was 94%. The pulp that we produce is used for the manufacture of tissue (including hygienic tissues, facial tissues, kitchen towels, wrapping tissue, toilet paper and table napkins), specialty paper and packaging (including packaging for beauty products, labels, cigarette papers, currency, coasters and d ecor paper), and P&W paper, with the principal European paper producers being our primary clients. Production Process We produce short fiber chemical pulp exclusively from eucalyptus timber. Two types of wood pulp can be produced. Pulp made from hardwood (or short fiber), such as eucalyptus, aspen, birch or acacia, has shorter fibers and is generally better suited for the manufacturing of, for example, tissue papers and P&W papers. Short fibers are the best type for manufacturing wood-free paper with good printability, smoothness, opacity and uniformity. Pulp made from softwood (or long fiber), such as pine, spruce or fir, has longer fibers and is generally better suited for manufacturing paper that requires durability and strength. We use the Kraft process, which consists of treating the wood chips with a mixture of sodium hydroxide and sodium sulfide to break the bonds linking the lignin to the cellulose, in our pulp production facilities. Our pulp production facilities in Huelva and Navia, Spain produce pulp by using the elemental chlorine free (ECF) process, a technique that uses chlorine dioxide instead of elemental chlorine gas during the bleaching process, preventing the formation of dioxins and other carcinogens. Our pulp production facility in Pontevedra, Spain, on the other hand, produces pulp by using the totally chlorine free (TCF) process, a technique that bleaches pulp through the use of an oxygen bleaching process (typically using hydrogen peroxide) instead of the chlorine dioxide that is used in the ECF process. Both the ECF and TCF processes were developed during the 1990s to replace a chlorine gas-based process, which was more harmful to the environment.

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The installed capacity, production and percentage utilization as of and for the twelve months ended September 30, 2012 for each of our facilities are detailed below:
Type of Bleaching Process Used/Facility Installed capacity (tonnes/year) Production (tonnes) Percentage utilization (twelve-month average)

Huelva(i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Navia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total ECF . . . . . . . . . . . . . . . . . . . . . . . . . . . Pontevedra . . . . . . . . . . . . . . . . . . . . . . . . . . Total TCF . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(i)

410,000 500,000 910,000 430,000 430,000 1,340,000

360,248 480,670 840,918 414,909 414,909 1,255,827

88% 96% 92% 96% 96% 94%

The decline in the utilization rate at our Huelva pulp production facility during the twelve months ended September 30, 2012 was driven by a mechanical failure at this facility in May 2012, which led to a shutdown of pulp production for 16 days.

In addition to eucalyptus timber, received in the form of logs (mainly with bark) or in the form of chippings (typically timber imported from South America), the principal raw materials used in the pulp production process are as follows: Non-biomass fuels. These fuels consist primarily of fuel oil. Small amounts of propane and petroleum coke are also used. Chemicals. These primarily consist of oxygen produced on site and cryogenic oxygen, oxygenated water, caustic soda, sulphuric acid, sodium chlorate, EDTA, lime and sulphur dioxide. In addition, small quantities of additives such as talc, antifoaming and dispersion agents are also used. The timber received at the facility is debarked and chipped prior to being subjected to a controlled steaming process, which uses an alkali additive produced on site. The steaming dissolves the lignin (a component that holds together the cellulose fibers) present in the wood, thus causing the cellulose fibers to separate. The resulting mixture is washed with water in a virtually closed circuit, separating the dissolved lignin from the suspended cellulose fibers and leaving a residual cellulose paste. The cellulose paste is then subjected to a bleaching process prior to being dried, cut and packaged in order to facilitate its transportation to its point of use as raw material in the production of paper, cardboard, card, packaging and related materials. The separated lignin together with the chemical products used in the steaming of the wood are concentrated in a multiple-effect evaporation train in order to facilitate combustion. We harness the energy generated during the combustion process, in the form of steam, in our co-generation facilities. Additionally, we use the bark of the wood as fuel for our biomass generation facilities. Finally, the processes we use allow us to regenerate the alkali component necessary for the steaming of the wood from our waste streams with minimum contributions to the circuit to replace losses. Each pulp production facility undergoes, on an annual basis, an approximately 15-day-long maintenance shutdown. Please see Risk FactorsRisks Relating to Our BusinessWe may be materially adversely affected if operations at the pulp production, energy generation, transportation, storage, distribution and port facilities we own or utilize were to experience significant interruptions or suffer any mechanical failures or difficulties. In addition, our operations may be affected by unplanned and planned shutdowns at our pulp production facilities. Regulation We continuously monitor environmental parameters at each of our pulp production facilities in terms of their liquid and atmospheric effluents (for example, waste and noise), verifying and taking the necessary steps to ensure that they are within the limits required in each case. The monitoring procedures and operating guidelines are set forth in our pulp production facility management systems. Furthermore, since December 2008, all of our pulp facilities have been required to receive a corresponding Integrated Environmental Authorization, certifying that the facility complies with certain environmental and anti-pollution regulations.

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We are also subject to Law 13/2010, which modifies Law 1/2005 governing the scheme for greenhouse gas emissions trading and Royal Decree 1722/2012, approved on December 28, which develops certain aspects of the allocation of allowances (the Spanish Greenhouse Regulation) implementing Directive 2009/29/EU with regard to greenhouse gas emission rights for carbon dioxide. Under the Spanish Greenhouse Regulations we are required to obtain certain greenhouse gas emission authorizations. We were allocated 657,970 tonnes of emission rights annually for the 2008 to 2012 period. However, from January 2013 to January 2020, our regulatory allocation of CO2 rights will be reduced. Currently, it is estimated that such allocation will amount to 128,544 tonnes of CO2 rights annually, which creates a deficit for our operational requirements. However, we have secured, and we expect to secure in the future, sufficient emissions rights to conduct our activities, including through the purchase of such rights. In December 2012, we acquired 506,202 tonnes of greenhouse gas emission rights for CO2 emissions at a price of e24.7 per right in settlement of a forward agreement entered into in June 2008, for purposes of meeting our emissions rights consumption requirements arising from our production activities in 2012 and going forward. We have entered into EUA daily future contracts to purchase 601,000 tonnes of CO2 rights, which are settled on a daily basis, and which we may roll over totally or partially to cover our CO2 rights needs in the future. These contracts have their final settlement date on December 31, 2013. Going forward, we will continue to enter into forward contracts to acquire additional CO2 rights, and management believes we have already contracted sufficient rights to meet our operational needs for 2013 through 2016. Please see SummaryRecent DevelopmentsGreenhouse Gas Emissions Rights and Regulation. Logistics Our pulp production facilities are strategically located near well-invested port terminals to cover the European market. Due to our presence on the ground in Europe, we can offer certain logistical solutions that increase our competiveness over Latin American producers, such as the use of coastal vessels of a size more adapted to customer demand, enabling a quicker response to their needs. Furthermore, the north-south flow of goods around Spain and Portugal is greater than the reverse, which enables us to operate in a market with a surplus of logistical resources otherwise forced to return to northern Europe under ballast, enabling us to obtain lower logistics costs. Our Huelva pulp production facility is located ten kilometers from the port of Huelva, which enables this facility to competitively supply the Mediterranean zone. Our Pontevedra pulp production facility is located two kilometers from the port of Mar n where there is a covered terminal, which enables large cargo ships to be loaded on their arrival, irrespective of weather conditions. There is also container shipping capacity in this port. Finally, the Navia pulp production facility is 35 kilometers from the port of Ribadeo, which to date has acted as the logistics base for the dispatch of products sold by this particular facility. We also use warehouses in different European ports, from which we can efficiently distribute products to our customers installations by land or by a combination of trucks and barges. Customers In the twelve months ended September 30, 2012, our top ten customers by pulp volume sold accounted for 51.9%, and our top 50 customers accounted for 90.3%, of our consolidated revenues from sales of pulp. We principally sell to European countries where we are able to better leverage our logistical advantages. Our most important markets are Germany, Italy, Spain and France. It is our strategy to have a diversified customer base. For example, as a result of the economic and financial crisis in Spain, we have reduced our exposure to the Spanish market to 13% of our sold pulp volume for the twelve months ended September 30, 2012, compared to 18% of our sold pulp volume for the year ended December 31, 2007.

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The destination markets of our pulp products during the twelve months ended September 30, 2012 compared to the year ended December 31, 2007, were as follows: Year Ended December 31, 2007
Other Western Europe 30% Eastern Europe 5% Other 6% Other Western Europe 19%

Twelve Months Ended September 30, 2012

Eastern Europe 10% Other 12%

Germany 24% France 7% Italy 10% France 9% Spain 18% Spain 13% Italy 15%

Germany 22%

19JAN201323582923

We have long-term sales relationships with most of our pulp customers in the domestic and international markets. Generally, we sign contracts with customers during the last quarter of the year for their requirements during the next year, which can account for up to 100% of our yearly pulp sales. These contracts outline agreed sales volumes and also provide the basis for any agreed commercial discounts that will be applied to any purchases by a particular customer. These contracts usually provide for prices to be reviewed on a monthly basis and linked to a certain benchmark such as the listed market price of the pulp or a foreign exchange rate. Our prices are usually set on a Cost, Insurance and Freight (CIF) basis, i.e., including freight and insurance, meaning that if a certain customer wants us to arrange the logistics for the actual delivery of the pulp, an additional fee is charged to that customer. Marketing and Distribution Our three-pulp production facility layout, in combination with our relative proximity to the majority of our clients, provides us with the manufacturing flexibility to tailor our pulp products to the specifications of our clients. This gives us an advantage over our Latin American competitors, who, given their logistical difficulties in accessing Europe, tend to ship pulp of a single grade in bulk. Most of our pulp deliveries are to customers within Europe and we use third parties to transport our products in Europe by sea, truck or rail. We also use third parties to ship our products by sea to customers outside of Europe. Our sales are focused on end-market paper segments with high forecasted growth rates. Our biggest end-market by revenue is the tissue segment, which accounted for 47% of our pulp revenue during the twelve months ended September 30, 2012. According to RISI, the tissue segment benefits from a resilient and stable end-customer demand, and is forecast to grow globally at a CAGR by volume of 4.1% per annum over the period from 2011 to 2016, which according to the report is the highest forecast rate among various business acitivies by global demand during such period. Of the remaining 53% of our pulp revenue for the twelve months ended September 30, 2012, 29% came from certain specialty paper segments, including beauty products and white-top packaging, while approximately 24% came from the P&W segment which, according to RISI, are expected to grow globally at a CAGR by volume of 2.8% and 0.9%, respectively, over the period from 2011 to 2016.

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The following charts show the percentage of our sales by volume generated from each end-market in the twelve months ended September 30, 2012 compared to the year ended December 31, 2007: Year Ended December 31, 2007
P&W 37%

Twelve Months Ended September 30, 2012

P&W 24%

Tissue 35%

Tissue 47%

Specialties 29%

Specialties 28%

15JAN201323244177

15JAN201323245492

Energy Activity Production We operate seven co-generation and biomass generation assets at each of our three sites in Spain, located at Navia, Pontevedra and Huelva. Our co-generation installations generate both electricity and steam that are used in the pulp production processes. Our efforts are focused on reducing steam consumption in order to maximize the amount of electricity that will be sold to the grid. In addition, the Navia and Huelva complexes have condensing turbines to maximize the quantity of energy generated from biomass, while Huelva also has a natural gas co-generation installation to support the pulp production process. In addition, our independent 50 MW biomass energy facility close to our existing facilities in Huelva became operational in September 2012, as part of our strategy of increasing the volume of business associated with the production of renewable energy based on biomass to grow organically and to reduce earnings volatility. The new Huelva biomass energy facility has been specifically designed to produce electricity from energy crops and forestry waste, and has a projected annual production of approximately 340 GWh, which, when fully operational, will make it the largest biomass energy facility supplying energy to the Spanish electricity grid. We expect to take ownership of this facility from our EPC contractor in the first quarter of 2013, following the successful completion of a test phase in December 2012. We are also in the process of constructing a further 20 MW biomass energy facility in M erida, Spain, which we expect to be operational by the fourth quarter of 2014. The renewable energy facilities in Huelva and M erida are not or will not be affected by the Moratorium imposed by the Spanish government on new renewable energy facilities in Spain. Please see Regulation. Our energy sales by location and installed capacity during the twelve months ended September 30, 2012, by location, were as follows:
Twelve months ended September 30, 2012 (total sales in GWh) Twelve months ended September 30, 2012 (installed capacity in MW)

Huelva . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pontevedra . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Navia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

827.0 220.3 498.1 1,545.4

118.4 MW 34.6 MW 77.0 MW 230.0 MW

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Our energy sales during the twelve months ended September 30, 2012, by generation type, were as follows:
Twelve months ended September 30, 2012 (total sales in GWh)

Generation with biomass(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Co-generation with biomass(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Co-generation with gas(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) (2) (3)

505.4 664.4 375.6 1,545.4

Generation with biomass is defined as electricity generated through the use of condensing turbines which are powered by steam produced from the combustion of biomass. Co-generation with biomass is defined as electricity generated through the use of back pressure turbines powered by steam produced from the combustion of biomass. Co-generation with gas is defined as electricity generated through the use of back pressure turbines powered by natural gas.

Regulation All of our energy generation facilities are included under Royal Decree 661/2007, which enables us to sell the electricity we generate to the Spanish electricity grid at either a Regulated Tariff or a Market Tariff. For further information on this regulation, please see Regulation. We are able to choose between these two options for every turbine for a period not less than twelve months, a decision that is based on our analysis of market price prospects. (Under the terms of the decree, this remuneration mechanism will remain in place for 15 years and continues at a lower fixed tariff for the life of the installation after the initial 15-year period after installation thereby eliminating possible risks deriving from the income received per MWh sold). Facilities falling under Royal Decree 661/2007 have priority access to the distribution grid, guaranteeing the sale of all of the energy that we produce. Please see Risk FactorsRisks Relating to Our BusinessRegulatory changes may have an adverse effect on our electricity generating operations. For all of our assets except CENER I and CENER II, the fixed tariffs are set to expire in 2024. For CENER I and CENER II, the applicable tariff is set to expire in 2015. After 2015, both CENER I and CENER II will continue to benefit from a fixed preferential tariff, although at a lower rate. Conversely, we acquire the electricity necessary to supply our production processes at the pool price plus an access toll (payable by persons accessing the grid). Given the positive difference between the price at which we sell electricity and the price at which we buy electricity, all of our facilities use an all-all sale and purchase system, meaning that all electricity generated at the facilities is sold to the grid and all electricity required by the facilities to cover production process needs is purchased. During the twelve months ended September 30, 2012, we produced more than twice the electricity than we consumed. All facilities with an installed capacity exceeding 10 MW (and groupings of power generation plants amounting to 10 MW or more) must be built or be connected to a generation control center (centro de control de generaci on), which must liaise with the system operator, sending information in real time from the facilities and making sure that the system operators instructions are executed to ensure reliability of the electricity system at all times. We have our own generation control center which is responsible for the operation as well as the negotiation of energy in the electricity market. Our generation control center participates in the daily power market, making daily and intra-day bids for the purchase and sale of electrical energy to the market operator Operador del Mercado Ib erico de la Electricidad Polo Espa nol, S.A. (OMEL), responsible for managing the bid system, and also interfaces with the system operator Red El ectrica de Espa na, S.A.U. (REE), the CNE, the Ministry of Industry, Energy and Tourism and other industry public authorities. Please see Regulation. Biomass Generation Biomass covers a large group of materials of different origins and with very different characteristics, from the waste from forest exploitations and agricultural crops to waste from garden pruning, waste from agricultural forestry industries, crops for energy purposes, liquid fuels deriving from agricultural products, and waste of animal or human origin, among others.

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The biomass which we currently use as raw material for renewable energy generation originates from the following principal sources: Lignin. This is biomass generated from a delignification process where wood fibers are separated through a cooking process, which is a part of the pulp production process. The resulting black liquoressentially, lignin mixed with the chemical products used to cook the woodis used as fuel in recovery boilers generating steam for electricity generation. Additionally, after combustion, the cooking chemicals are recovered in the lime kiln for re-use during the production process, thereby contributing to an elimination of waste generation for the environment and increased efficiency in the pulp production process. Forest wastes (solid biomass). This is biomass generated during the management and harvesting of the plantations (such as branches and stumps) as well as through the debarking of the timber, before chipping and sending the wood to the digestor for the cooking process. This biomass is burned in a biomass boiler to generate steam for electricity production, thus increasing the efficiency of the process. Energy crops (solid biomass). Crops (eucalyptus and poplar) specifically cultivated to be used as fuel in order to generate electricity. We have experience and know-how in management of the biomass supply chain and, with access to our own forest resources and through arrangements with our suppliers, we believe we have guaranteed sufficient biomass resources for our biomass generation assets in the medium and long terms. In addition, since we own or manage more of our biomass resources, we can harvest our forest biomass at a more efficient cost. Our investment in R&D&I, particularly in energy crops, has also reduced the acquisition cost of our raw materials compared with the cost of purchasing from suppliers. Improvements in productivity of the crops have allowed us to reduce our dependence on suppliers and have given us greater control over our supply chain. As of September 30, 2012, we managed 18,240 hectares planted with ligneous energy crops, out of which we owned 8,871 hectares. Moreover, additional land for crops continues to become available on long-term leasing agreements on price terms lower than those in previous years as existing agricultural crops cease to be economically viable (as a result of low yields combined with the gradual elimination of aid deriving from the European Unions common agricultural policy). Of the 8,871 hectares owned by us, 7,679 hectares (primarily non-irrigated land) are ring-fenced for the supply of the 50 MW independent biomass energy facility in Huelva, and are equivalent to 45% of our estimated annual requirements for biomass of that installation. The remaining volume relates to the initial activities for development of biomass crops for our remaining projects. For the 50 MW Huelva independent biomass energy facility, our strategy is for around 60% of biomass supply to come from energy crops, while the remaining supply will come from thirdparty suppliers of forest waste under long-term contracts. Please see Project Financings Project Finance for the Huelva Facility. For our remaining development in M erida, Spain, it is expected that around 50% of the supply of biomass will come from energy crops, but mainly implemented on irrigated land. The remaining supply will be covered through waste, principally forest waste. Productivity of irrigated land is much higher than that of unirrigated land which, combined with the fact that we expect to use proportionally fewer energy crops in new developments, means that we will need fewer hectares planted with energy crops for new developments as compared to the Huelva independent biomass energy facility. Development of Additional Biomass Energy Facilities Our objective is to diversify into independent biomass energy facilities as a way of reducing the volatility of our operating profits, which are linked to changes in pulp prices, by increasing our operations in a regulated business. We believe that this diversification will reinforce our financial stability. The process of constructing a new biomass energy facility in Spain usually requires a number of years. First, the proposed biomass energy facility must receive an administrative authorization, including planning permission by the town council in the area where the facility will be built, and an

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integrated environmental permit from the relevant regional administration. The facility must also obtain a water concession from the relevant water administration, together with a connection to the electricity grid from REE, the Spanish grid manager. After these permits are granted, the proposed facility then must be registered in the pre-allocation registry of the state Ministry of Industry, guaranteeing that the power plant will sell the electricity at the regulated preferential rate. Before or at approximately the same time as the pre-allocation registration, the project finance documentation, the EPC contract(s) and the operation and maintenance contract in relation to the facility are negotiated with the lenders, the construction company or companies and the operator, respectively. Once all such agreements have been negotiated and signed, the developers of the facility must then construct it so that it may be commissioned, registered on a definitive basis with the registry of the state Ministry of Industry under the Special Regime (Registro de Instalaciones de Producci on en R egimen Especial) (RIPRE) and start selling energy. The facility must start selling energy within a period of 36 months as from the date of registration in the pre-allocation registry. After the construction phase is completed and the facility is tested (which occurs after the start of operations), the completed facility is delivered to its owner. Our presence in all stages of the biomass supply chain and our experience in developing energy crops, including optimizing the productivity of the different types of crop used and their calorific power, together with our knowledge of the forest industry in Spain, where we believe we are the most significant buyer of wood, provides us with an advantage to benefit from the regulatory support given to biomass as a renewable source of energy. However, because the Moratorium recently imposed by the Spanish government pursuant to Royal Decree 661/2007 prevents further renewable generation capacity from being registered, further development of independent biomass energy facilities (aside from the independent biomass renewable energy generation facility that we have recently completed in Huelva, Spain and the independent biomass renewable energy generation facility that we are constructing in M erida, Spain, both of which were not affected by the Moratorium) has been temporarily put on hold. Please see Risk FactorsRisks Relating to Our BusinessRegulatory changes may have an adverse effect on our electricity generating operations. Forestry Activity Our forestry activity focuses on three distinct activities: (i) management of eucalyptus plantation assets (which are comprised primarily of the globulus eucalyptus variety) as well as energy crop plantations, which are mainly comprised of eucalyptus or poplar, depending on the location of the land; (ii) facilitating the sourcing, purchase and supply of eucalyptus timber (both from our own forestry assets and the purchase and supply from third parties, sourced both locally and, to a significantly lesser extent, internationally) to our facilities by managing the harvesting and/or transport of such timber to these facilities; and (iii) to a lesser extent, selling timber to third parties. Our forest management activity also provides forestry and environmental consultancy services. Forestry Management Activities As of September 30, 2012, we had approximately 87,370 hectares of land under management in Spain and Portugal. Of this amount, we owned 59%, while 41% was managed on behalf of thirdparty owners. Where we manage forests on behalf of third parties, the owner will retain the ownership of the land while we are typically responsible for land preparation, planting and maintenance. At the time of felling, the owner receives an agreed percentage of the timber extracted from the area, or an amount corresponding to this percentage valued at market price. These arrangements benefit us by ensuring the sustainability of our future supply of timber without requiring us to invest in the underlying property. Although the saplings are normally supplied by us, in some circumstances, the owner will take responsibility for certain planting and/or maintenance tasks in exchange for an additional premium, which is paid to the owner at the time of felling. The duration of these arrangements is typically for two to three rotation cycles, or approximately 30 years, which allows the owner to benefit from our experience and expertise in forestry management and logistics.

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The principal activities of the forestry activity are as follows: Nursing and Planting. We reforest our assets in parallel with the harvesting of the prior crop. Our reforestation program seeks to achieve greater productivity of future assets by applying forestry technology (primarily consisting of planting techniques and treatments, land preparation, fertilization and pest control) and advanced cloning (primarily consisting of the selection of trees, their cloning in nurseries and the raising of the clones in greenhouses). We have greenhouses located in Pontevedra, Huelva and Navia, Spain. We planted 1,655 hectares (excluding Uruguay) during the twelve months ended September 30, 2012. Maintenance. We carried out conservation and forestry work on 26,516 hectares (excluding Uruguay) during the twelve months ended September 30, 2012. Harvesting. The crop cycle for pulp wood is 10 to 14 years and the crop cycle for wood for energy generation from biomass is 3 to 5 years. We harvested 124,402 m3 (excluding Uruguay) during the twelve months ended September 30, 2012. We apply sustainability criteria in managing our forestry assets with the goal of managing and using our plantations while maintaining their biodiversity, productivity and regeneration capacity and viability, as well as enhancing their ecological, social and economic functions. As of September 30, 2012, our forestry assets under management in Spain and Portugal (excluding forestry assets to be used solely for biomass generation) were as follows:
Geographical area Hectares under management Of which hectares owned % in ownership

Northwest Spain . . . . . . . . . . . . . . . . . . . . . . . . . . Southwest Spain . . . . . . . . . . . . . . . . . . . . . . . . . . Portugal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,604 50,994 4,532 69,130

2,928 37,436 2,608 42,972

22% 73% 58% 62%

In addition, as of September 30, 2012, we managed 18,240 hectares, of which we owned 8,871 hectares, of energy crop plantations to be used as fuel for our biomass generation facilities. During the twelve months ended September 30, 2012, our total investments in forests in the Iberian Peninsula amounted to e20.5 million. 55% of new investments were allocated to the cultivation of energy crops, primarily through the leasing of land on which to conduct such activities as well as the management of these assets. Our forestry assets in Uruguay were classified in our financial statements for the year ended December 31, 2011 as held for sale. We entered into an agreement to divest these assets on December 14, 2012 for a total consideration of approximately $77.3 million (e59.1 million) at the applicable e/$ exchange rate on December 14, 2012. Closing is conditional on, inter alia, the receipt of certain regulatory approvals and the making of required anti-trust notifications to the Uruguayan authorities, as well as other customary conditions (including a customary material adverse change clause), and is expected to occur during the first quarter of 2013. Please see SummaryRecent DevelopmentsUpdate on Uruguay Assets Disposal. For the supply of biomass, given the shorter crop cycles (3 to 5 years) of energy crops compared to pulp wood (9 to 12 years) and the availability of highly productive irrigated land for rent due to the reduction of agriculture subsidies, we directly manage our biomass forestry assets and intend to continue to develop energy crops to ensure self-sufficiency for our energy generation facilities. Timber Supply Activities Our forestry activity also involves the sourcing and supply of timber to our pulp production facilities and biomass generation facilities. We source our timber from our own forestry assets as well as through direct acquisitions from forest owners, imports (historically from South America,

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particularly Uruguay, and Africa) and certain third-party suppliers. In the twelve months ended September 30, 2012, we sourced our timber as follows:
Source Thousands m(3) %

Own wood . . . . . . . . . . . . . . . . . . . Direct acquisitions from forest owners Imports . . . . . . . . . . . . . . . . . . . . . . Small suppliers(1) . . . . . . . . . . . . . . . Large suppliers(1) . . . . . . . . . . . . . . .

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124.4 1,016.1 495.3 1,316.6 683.4 3,635.8

3% 28% 14% 36% 19% 100%

Total wood acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1)

We define small suppliers as those supplying less than 3,000 m3 of timber per month and large suppliers as those supplying more than 3,000 m3 of timber per month.

The majority of the eucalyptus timber consumed in Spain and Portugal is located in the northern and Atlantic zone, where there is a well-developed market due to the favorable conditions for the development of forest plantations, and where current wood growth and availability is in excess of our timber requirements. However, in the catchment area in which the Huelva facility is located, the eucalyptus timber market is much smaller, resulting in a dependence on timber from other areas to maintain current production levels. Own wood. Although we have been providing for part of our timber supply requirements from timber from our own land assets since 1977, our current strategy is to reduce the level of timber self-supply in order to reduce the capital investment involved in owning the underlying forestry assets and in order to increase our overall liquidity. Please see SummaryOur StrategyOptimize Forestry Supply Management with a Focus on Reducing Fixed Assets. Direct acquisitions from forest owners. We purchase wood directly from forest owners and meet the costs associated with the harvesting and logistics of transporting this timber to the mill gates. Given the traditionally high fragmentation of land ownership in the Iberian Peninsula, our strategy is to increase the amount of timber sourced directly from forest owners through the development of new purchasing and harvesting teams in order to achieve better knowledge of wood availability, reduce harvesting and logistics costs, and help forest owners increase the productivity of their plantations through the sharing of our experience and expertise, improved eucalyptus clones and best forestry practices (including the implementation of advanced silvaculture techniques). In the longer term, we believe that this strategy will enable us to improve the quality of the wood used in our production processes and the competitiveness of our production process. Imports. We define imports as timber sourced from outside Spain and Portugal. In the case of timber originating from Uruguay and other countries, vessels normally transport both our own timber and that acquired from third parties. Our current strategy is to reduce the level of imports of timber, and correspondingly increase our sourcing of less-expensive wood from smaller local suppliers, given that imports have proven to be more expensive and inefficient than other sources of timber available to us. Please see SummaryRecent DevelopmentsUpdate on Uruguay Assets Disposal. Small and large suppliers. We purchase already-harvested timber from suppliers located within Spain and Portugal, which is normally delivered to us at our facilities. The purchase price for such timber typically reflects the costs associated with felling the standing timber through to its transport to our facilities. Our current strategy is to increase the amount of timber sourced from small suppliers versus large suppliers in order to enable us to diversify our supplier base while simultaneously reducing costs. We are not reliant on any particular supplier and we believe we have access to significant quantities of timber for the foreseeable future. Our forestry activity is also responsible for the harvesting of timber and the logistics of delivering this timber to our facilities in cases in which these services are not provided by the seller of the wood. We are focusing on the mechanization of the harvesting process in order to generate cost savings, and, in cases in which the timber must be manually harvested, outsourcing the

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harvesting. On the logistics side, we are currently focused on monitoring the transportation of wood by subcontractors in order to decrease inefficiencies. In addition, we are currently implementing a new logistics scheme to supply wood to the Huelva facility from northwestern Spanish woodlands, thereby eliminating the need to import wood from overseas and decreasing our exposure to volatile international markets and currency risks. Timber Commercialization Activities Our forest management activity also sells timber and provides forestry services to third parties, although only on a limited scale. These activities generated revenue of e25.6 million during the twelve months ended September 30, 2012, representing 3.0% of our total revenue. Ancillary Activities In addition to our three primary activities, we also have several ancillary activities, including our R&D&I activity, health and safety at work and environmental, quality and forestry activity sustainability management systems (all of which are fully integrated in the day to day management of our activities) and corporate support activities, including financial, capital and human resources, legal and corporate services activities. Our R&D&I activity covers the whole spectrum of our activities, from the cultivation of raw materials through to the production process. Our R&D&I activity focuses its efforts on three basic objectives: in pulp production, producing ecological paper pastes of improved quality, at competitive costs through the improvement of pulp manufacturing processes; in energy generation, optimizing renewable energy products and increasing the productivity of crops devoted to renewable energy production, measured in Kcal per hectare per year, through two principal programs based on the production of short rotation woody crops and another for use of waste biomass; and in forest management, increasing forestry productivity measured in tonnes of final cellulose per hectare planted per year. In addition to the R&D&I activities we conduct in our own centers, we maintain ongoing collaborations with several public and private universities and research centers, both in Spain and internationally, including through the use of research agreements. Our Sites and Facilities Navia Our Navia facilities are situated on land owned by us which measures approximately half a million square meters. The pulp production facility has a capacity of approximately 500,000 tonnes of pulp annually. Two electricity facilities are also located on-site: CEASA NAVIA I and BIOMASA CEASA, with a total installed nominal power of 76.98 MW and total production in the twelve months ended September 30, 2012 of 498.1 GWh. CEASA NAVIA I is an electrical biomass co-generation facility, with a nominal installed power of 40.33 MW, comprised of a counter-pressure steam turbine and alternator which produces both electricity and useful heat. Black liquor generated by the Navia pulp production facility provides most of the fuel used by this facility, with the remainder provided by energy crops and forest waste. During the twelve months ended September 30, 2012, the electricity sales of CEASA NAVIA I amounted to 280.1 GWh. This facility currently sells its energy under the Market Tariff. BIOMASA CEASA is an electrical biomass co-generation facility, with a nominal installed power of 36.65 MW, comprised of a condensation steam turbine and alternator. 100% of this facilitys fuel requirements, 100% are met by energy crops and forest waste. During the twelve months ended September 30, 2012, the electricity sales of BIOMASA CEASA amounted to 218.0 GWh. Currently, this facility sells its energy under the Market Tariff.

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Pontevedra Our pulp production facility has a maximum production capacity of 430,000 tonnes of pulp annually. At the Pontevedra site, we also have two electrical biomass co-generation facilities (comprised of two counter-pressure generators of 7.95 MW and 26.62 MW, respectively) with a combined total installed nominal power of 34.57 MW and total sales in the twelve months ended September 30, 2012 of 220.3 GWh. Currently, these two facilities sell their energy under the Market Tariff. The Pontevedra facilities are situated on a maritime terrestrial public concession awarded to us under a Ministerial Order issued on June 13, 1958. The concession deed did not specify a fixed term for the concession itself, although Article 66 of the Coasts Act later established a maximum term of 30 years for maritime terrestrial public concessions, which, for any concession granted prior to the entry into force of the Coasts Act, would start as from the date of the entry into force of the Coasts Act. Because the Coasts Act entered into force on July 29, 1988, our concession is thus scheduled to expire on July 29, 2018. We are seeking to extend our Pontevedra concession beyond this expiration date. A law that would amend the Coasts Act is currently being debated in the Spanish Parliament. Among other things, the new law would extend the limits of the concessions up to 75 years, provided that the activities undertaken are compatible with maritime-terrestrial public use. The draft law also foresees a special extension for concessions granted before its entry into force. In the case of the concession granted over the site of our Pontevedra facilities, the approval of this law would allow for a 75-year extension of this concession which would run from the expiration date of the initial concession in 2018. However, there is no guarantee that the proposed amendment to the Coasts Act will pass, or that we will otherwise be able to extend our Pontevedra land concession. Please see Risk FactorsRisks Relating to Our BusinessOur Pontevedra facilities are constructed on land subject to an administrative concession that is expected to expire in 2018, which may have a material adverse effect on our operations. Huelva Our Huelva pulp production facility has a maximum production capacity of approximately 410,000 tonnes annually. We also have three electricity generation facilities situated on this site: CENER I, CBIO and CENER II, with a combined total installed nominal power of 118.39 MW and total energy sales in the twelve months ended September 30, 2012 of 827.0 GWh. CENER I is a natural gas co-generation facility with an installed nominal power of 49.94 MW. During the twelve months ended September 30, 2012, the total electricity production of CENER I was 375.6 GWh. Currently, this facility sells its energy under the Regulated Tariff. CBIO is an electrical biomass co-generation facility, with a nominal installed power of 27.50 MW. It is comprised of a counter pressure steam turbine. This facility uses black liquor derived from the pulp production process as its principal fuel, as well as bark, other forest waste and, to a lesser extent, energy crops. During the twelve months ended September 30, 2012, the total electricity production of CBIO was 164.0 GWh. Currently, this facility sells its energy under the Market Tariff. CENER II is a condensation installation which uses biomass as fuel, with a nominal installed power of 40.95 MW, comprising a turbo alternator. This facility also uses black liquor derived from the pulp production process, forest waste and energy crops as fuel. During the twelve months ended September 30, 2012, the total electricity production of CENER II was 287.4 GWh. Currently, this facility sells its energy under the Market Tariff. In September 2012, a new 50 MW independent biomass generation facility at Huelva, Spain became operational following the completion of its construction, through ENCE Energ a Huelva, S.L.U. This facility was specifically designed to produce electricity from energy crops and forestry waste, and has a projected annual production of approximately 340 GWh. The test phase for this facility was completed in December 2012 and it is expected to be transferred to our ownership in the first quarter of 2013. This new independent biomass renewable energy generation facility in Huelva is not impacted by the Moratorium. M erida We are currently constructing, through ENCE Ener gia Extremadura, S.L.U., a second independent biomass generation facility at M erida, Spain, which is expected to enter into

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production by the fourth quarter of 2014. This facility, like our independent biomass generation facility in Huelva which recently entered into production, is also designed to produce electricity from energy crops and forestry wastes, and will have a projected annual production of 158 GWh. This facility will have a capacity of 20 MW. Our independent biomass generation facility at M erida is not impacted by the Moratorium. Other Assets The headquarters of the Issuer are located in Madrid, Spain, at Paseo de la Castellana, 35. This property was leased in 2009 for a term of five years, with the possibility of extending it by an additional three years. Raw Materials The principal raw materials used to manufacture our products are wood, energy, water and chemicals. We believe we have access to adequate sources of the raw materials necessary to ensure that there is no interruption to our required supply for the foreseeable future. The prices of certain raw materials are subject to commodity price fluctuations. Due to competitive pressures, the prices of our products are not always correlated with increases and decreases in the cost of raw materials. Please see Risk FactorsRisks Relating to Our BusinessThe market prices for our pulp products are cyclical and Managements Discussion and Analysis of Financial Condition and Results of OperationsKey Factors Affecting Our Results of OperationsCosts of Raw Materials. Competitors We sell the majority of the pulp we produce to the European market, due to a shortage of fiber in Europe, which only produces two-thirds of the market pulp that it consumes. This shortage is expected to last for a number of years. Therefore, we face competition from other BHKP producers selling to the European market, particularly Altri and Portucel in Portugal and Fibria, Suzano and Cenibra in Latin America. While historically Latin American producers have been the low variable cost producers in the industry, inflationary pressures and currency appreciation have closed the gap between Latin American producers and Iberian producers. Although high capital expenditure requirements and increasing costs challenge the development of new pulp production capacity, more pulp production facilities are expected to be built in Latin America in the coming years, thereby increasing the availability of pulp sold in the European market. Competition in the pulp industry is primarily based on price. Nonetheless, our proximity to European clients is an advantage to us because we are able to offer a better service with lower logistical costs. In our electricity generating business, we do not compete with other electricity producers, as the current regulatory framework guarantees that all of the renewable energy that we produce will be sold to the Spanish electricity system. Seasonality The demand for our pulp is not subject to seasonality in any material way. In addition, since all of the electricity that we generate is sold to the Spanish national grid, our electricity sales also do not experience seasonality. Intellectual Property We seek to protect our intellectual property rights in Spain, Portugal and other markets. We also hold various patents relating to our forestry operations, cellulose production operations and our energy generation operations. In addition, we have non registered intellectual property rights, including trade secrets, proprietary technology, know how and processes, many of which are related to our forestry, production and generation operations. Consistent with the industry in which we operate, our operations are not dependent to a significant extent on our protected intellectual property rights. Although our intellectual property portfolio as a whole is material, we do not believe that any individual intellectual property right or group of such rights is material to our business.

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Loss Prevention and Insurance We believe that we maintain insurance coverage that reflects the risks, size and requirements of our business operations and that is comparable to the insurance coverage maintained by other companies operating in our industry. Please see Risk FactorsRisks Relating to Our Business Our insurance coverage may be insufficient to cover our losses. We currently carry property, loss of profits, general liability, product liability, transportation, environmental impairment and management liability insurance. We maintain insurance coverage for all of our properties and facilities and all of our properties and facilities are valued at their reinstatement value. On a consolidated basis, in the twelve months ended September 30, 2012, the total amount we paid for insurance premiums in relation to policies held by us was e3.9 million. We believe that prevention, protection and employee training are key means of defending ourselves against loss from workplace incidents. Please see Risk FactorsRisks Relating to Our BusinessOur insurance coverage may be insufficient to cover our losses. Employee Matters For the twelve months ended September 30, 2012, we had an average of 1,281 employees (excluding Uruguay) as computed on a full-time equivalent basis with 1,012 full-time equivalent employees and 269 temporary employees. Substantially all of our employees are represented by labor unions pursuant to collective bargaining agreements. We observe local practice and legislation in our labor relations matters and in negotiating collective bargaining agreements, and in this respect we are due to renegotiate and/or renew in 2013 five of our current collective bargaining agreements, four of which expired in 2012 and one in 2010. Because labor law reforms in Spain have recently reduced the automatic extension of union agreements to only one year from the date of their expiration date, we believe that this may provide an incentive to employees to negotiate for more favorable terms given that the expiration of this extension would result in such employees becoming subject to less favorable general labor regulations. Please see Risk FactorsRisks Relating to Our BusinessA large percentage of our employees are unionized and wage increases or work stoppages by our unionized employees may have a material adverse effect on our business. We believe that we have good relations with our employees and their representatives. However, in August 2012, a strike occurred at our pulp production facility in Navia, Spain, and in November 2012, a one-day strike occurred at our pulp production facility in Pontevedra, Spain. In addition, the works committees at our Huelva and Pontevedra facilities convened strikes on February 18 and 19, 2010 after raising certain questions in relation to the safety policies implemented within these workplaces. We consider that we have complied with our health and safety at work standards in all material respects, including having applied safety standards higher than those laid down by legislation, as accredited by the certification obtained by us under the OHSAS 18000 series of international standards. Our employees participate in defined contribution and defined benefit post-employment plans. Certain executives also participate in a long-term incentive plan consisting of the granting of options over shares. Environmental, Health and Safety Regulation We operate in industries that are subject to extensive environmental regulation, including those pertaining to the storage, handling, treatment, transportation and disposal of hazardous materials, the construction and operation of our facilities (including the noise and odor impact of our operations), the protection of natural resources and endangered species, and our emissions and discharges of pollutants to air and water. Environmental, health and safety standards applicable to us are established by the laws of the European Union and the Member States in which we operate (primarily Spain), standards adopted by regulatory agencies and our permits and licenses, each of which is subject to periodic and increasingly more stringent modifications and requirements. Violations of these laws, regulations or permits and licenses may result in substantial fines and penalties, as well as orders to cease the violating operations or to conduct or pay for corrective

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works. In some instances, violations may result in the suspension or revocation of permits and licenses. All of our pulp production facilities have environmental management systems in place that are presently certified to the ISO 14001 standard of the International Organization for Standardization. Each of our pulp production facilities has also obtained registration of its environmental management standards under the European Unions Eco-Management and Audit Scheme. Nonetheless, the risk of environmental, health and safety infractions is inherent in our industry, and from time to time we have experienced non-compliance with such laws and regulations and may do so again in the future. In addition, pursuant to the requirements of sustainable forest management and best practices in establishing the chain of custody of wood used, we do not use wood that is not from legitimate sources (including wood that could originate from genetically modified trees or from an area in which the rights of local people to their resources may have been violated). Our forest management subsidiaries in Spain in particular have been pioneers in the implementation of forest certification programs, and were the first companies in the Iberian Peninsula to obtain a certificate from the Programme for Endorsement of Forest Certification, which includes a certification as to the chain of custody. The environmental management systems in place for our forest management subsidiaries have also been certified to the ISO 14001 standard of the International Organization for Standardization. We also endeavor to ensure that our suppliers and contractors adhere to the same environmental standards. The health and safety of persons is a priority objective in our management systems and is included as a fundamental aspect of our day-to-day work at all levels, with our management and training adapted to the different activities carried out by us, both in the forestry and industrial and corporate fields. We have implemented a system of health and safety at work management that is developed and improved continuously in accordance with the OHSAS 18000 series of international standards. The industrial complexes at our forestry subsidiaries Norte Forestal, S.A.U. and Silvasur Agroforestal, S.A.U. are certified in accordance with these standards, and our remaining workplaces are in the process of receiving such certification. We operate a health and safety joint prevention service which clearly defines roles and responsibilities at all hierarchical levels within our Group on matters relating to health and safety. This means that there is greater integration of health and safety in all tasks and decisions carried out by us and the system extends to activities and work conducted by contractors and suppliers to ensure compliance with established standards. The joint prevention service covers all four preventative specialties: workplace safety; industrial hygiene; ergonomics and applied psychosociology; and health monitoring. Our activities in Uruguay are governed by the same health and safety at work management criteria and policies that apply to the Groups other activities. Legal Proceedings and Tax Audits We are party to pending legal proceedings, including tax audits, arising in the ordinary course of business. While the results of such proceedings cannot be predicted with certainty, we do not believe any of these matters will be material to our business, financial condition or results of operations, except the matters described below. The following legal proceedings concern the facilities in Pontevedra: Appeal, initially brought before the High Court of Justice of Galicia by a non-profit organization. The court partially considered the appeal and ordered the Administration to initiate the procedure leading to the expiration of ENCEs concession. As far as we are aware, this investigation has not yet started. However, the court ruling would not prejudice the merits of the case. The judgment is based only on procedural matters, rather than substance. Both ENCE and the Administration have filed an appeal to reverse the court

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ruling before the Supreme Court. Thus, if the appeals filed with the Supreme Court were to be dismissed, this would not be the automatic expiration of the concession granted to ENCE, but only the initiation of the administrative procedure for that purpose, in which case ENCE shall be granted a hearing. The final decision taken within that procedure can be challenged before the administrative courts. Judicial review. The matter was referred to the High Court of Galicia for the expiration of the concession granted to ENCE with the argument that a wastewater treatment station was built on the grounds (i.e., land) of ENCE by the Autonomous Community of Galicia. In our opinion, this appeal is unlikely to succeed. Judicial review which took place before the High Court of Galicia, which the Superior Court of Justice delivered judgment by dismissing the application for judicial review of the Integrated Environmental Authorization (IEA) of ENCE. This is a final judgment which recognizes the legality of the IEA 2008. Judicial review of an action brought by the town council of Pontevedra and a non-profit organization against the administrative decision of December 21, 2011 by the Government of Galicia granting ENCE the renewal of its IEA. The arguments used by the appellant are similar to those referred to in the preceding paragraph and which were ruled in favor of ENCE. Eufores, S.A., a former Uruguayan subsidiary which was sold by us pursuant to a share purchase agreement dated May 17, 2009, is involved in various litigation regarding claims for damages resulting from breach of contracts. On the basis of the share purchase agreement dated May 17, 2009, we may be liable for the outcome of these proceedings. Additionally, claims have been brought against us for breach of representations and warranties under the share purchase agreement dated May 17, 2009 for the aggregate amount of US$3,758,511, and we have opposed these claims. However, no arbitral proceedings have yet started as a result of these claims. We are also subject to tax audits from time to time. Among other tax audits, the Spanish tax authorities are currently conducting an inspection, which began in 2012, of the corporate income tax (Impuesto sobre Sociedades) returns filed by our Group for the tax years 2007, 2008 and 2009.

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REGULATION Overview Our business is highly regulated. Our activities are subject to both national and international regulatory regimes. Because most of our activities are carried out in Spain, the regulatory environment of our business activities is shaped by EU directives and regulations, which are either implemented in the individual Member States through national legislation or have direct application to the Member States or individuals. Each of our business activitiespulp production, energy generation and forestryis subject to a different but sometimes overlapping set of regulations, at both EU and national levels. The following is a description of the primary industry-related regulations applicable to our businesses and currently in force in Spain, which is the principal market in which we operate. European Union and Spanish Regulation Governing Our Production Processes Generally IPPC Directive, LCP and IED Directive The Integrated Pollution Prevention and Control (the IPPC) Directive (Directive 2008/1/EC of the European Parliament and of the Council of January 15, 2008 concerning integrated pollution prevention and control, repealing the Council Directive 96/61/EC) mandates a single integrated permit for air and water discharges, soil management, waste management activities, energy efficiency, noise, the use of raw materials, the prevention of accidents, the impact of operations on the environment, plant closure and restoration. The IPPC Directive has been implemented in Spain through Law 16/2002 approved in July 2002. All of our installations in Spain have been granted permits in accordance with this law. Our operations are also subject to the EU Large Combustion Plant Directive (the LCP Directive) (Directive 2001/80/EC on the limitation of emissions of certain pollutants into the air from large combustion plants, as amended). The LCP Directive applies to plants with a thermal input of 50 MW or greater and establishes strict limits on specific emissions values, including for sulfur dioxide, nitrogen oxides and particulates. In Spain, the LCP Directive has been implemented by Royal Decree 430/2004, as amended by Royal Decree 687/2011. All of our installations with a thermal capacity over 50 MW are in compliance with the limits imposed by Royal Decree 430/2004. The Industrial Emissions Directive 2010/75/EU (the IED) was entered into force in January 2011 and will gradually replace the current IPPC Directive and the sectoral directives (including the LCP Directive). The IED had to be implemented into national legislations by January 7, 2013. By January 7, 2014, all existing installations except for LCP installations must comply with the IED but Spain is still in the process of implementing it. LCP installations such as ours must comply with the new requirements, including the new emission standards, by January 1, 2016 (subject to temporary derogation mechanisms associated with the best available techniques provided in the IED). In Spain, the IED is currently being implemented by means of the amendment of Law 16/2002 approved on July 1, 2002 on integrated pollution prevention and control. Environmental Liability Directive Directive 2004/35/EC on environmental liability with regard to the prevention and remedying of environmental damage (the Environmental Liability Directive) implements a polluter pays principle for remedying environmental damage. Its fundamental aim is to hold operators whose activities have caused environmental damage financially liable for remedying the damage. In addition, the Environmental Liability Directive holds those whose activities caused an imminent threat of environmental damage liable to taking preventative actions. The Environmental Liability Directive was implemented in Spanish law by the provisions of Law 26/2007 on environmental liability, approved on October 27, 2007. Law 26/2007 upholds the polluter pays principle and imposes strict prevention, avoidance and remedy obligations on operators for damage and threat of damage to the environment. The Spanish regulation is stricter than the minimum requirements imposed by the Environmental Liability Directive because it promotes necessary awareness and responsibility within the private sector for damages and risks to the

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environment that its activities carry. Law 26/2007 has been developed by Royal Decree 2090/2008, approved on December 22, 2008. Emissions Trading System Our operations are covered by the EU Emissions Trading System (the EU ETS), which is an EU-wide system of trading allowances that are allocated by Member States to cover industrial greenhouse gas emissions. Industrial sites to which the EU ETS applies receive a certain number of allowances to emit carbon dioxide or other greenhouse gases and must surrender one allowance for each tonne of a greenhouse gas emitted. Sites that emit fewer tonnes of greenhouse gases than their allowances cover are able to sell the excess allowances in the open market, whereas those that emit more must buy additional allowances through the EU ETS. Non-compliance is subject to penalties. Phase I of the EU ETS covered emissions in calendar years 2005 to 2007 and Phase II covered the period from 2008 to 2012. By virtue of Directive 2009/29/EC of the European Parliament and of the Council of April 23, 2009 amending Directive 2003/87/EC, the European Union has extended the EU ETS for a third phase covering emissions in calendar years 2013 to 2020. Our plants will be covered by the EU ETS in this phase. The main changes for Phase III include the introduction of a single EU-wide cap on emissions that will decrease annually, extending the system over other industrial sectors, and the gradual replacement of the free allocation of allowances with an auctioning system pursuant to which, beginning in 2013, Member States will be required to auction all allowances not allocated free of charge. During Phase III, the allocation of allowances will decrease each year at a preset rate, resulting in only 30% of allowances allocated freely by 2020, and none by 2027. Accordingly, as a result of the more stringent emissions limits and the move to the auctioning system, we will be required to purchase an increasing number of our emissions allowances. Please see BusinessPrincipal ActivitiesEnergy Activity. In Spain, requirements of the Directive 2009/29/EC are implemented into national law by the amendment of Law 13/2010, approved on July 5, 2010, which modifies Law 1/2005 governing the scheme for greenhouse gas emissions trading and the Royal Decree 1722/2012, approved on December 28, 2012, which develops certain aspects of the allocation of allowances. Regulation Promoting Renewable Energy and Biomass Generation European Union Regulation The Kyoto Protocol, ratified by the European Union and its Member States on May 31, 2002, imposed on the European Union a target of reducing its emissions of greenhouse gasses by 8%. On November 26, 1997, the European Union published a white paper (the White Paper) which outlined a strategy and a community-wide action plan aimed at doubling energy production from renewable energy sources in the European Union to 12% of total energy consumption by 2010 from 6% in 1996. The White Paper proposed a number of measures to promote the use of renewable energy sources, including measures designed to provide better access for renewable energy sources to the electricity market. Directive 2001/77/EC of the European Parliament and Council of September 27, 2001 (the 2001 Renewable Energy Directive) encouraged the development of electricity produced from renewable energy sources (non-fossil fuel sources, such as wind, solar, hydropower, biomass and relief gas) by requiring Member States to set indicative national targets for the consumption of electricity produced from renewable energy sources consistent with the European Commissions target of generating 12% of the European Unions energy and 22% of the European Unions electricity from renewable energy sources by 2010. In 2009, the European Parliament and Council adopted the 2009 Renewable Energy Directive (2009/28/EC), which repealed the 2001 Renewable Energy Directive and set mandatory national overall targets consistent with at least a 20% share of energy from renewable energy sources in the European Unions gross final consumption of energy in 2020. Member States are required to prepare individual action plans for the implementation of their national targets. A recent directive on energy efficiency, 2012/27/EU, establishes a common framework of measures for the promotion of energy efficiency within the European Union in order to achieve the 20% target on energy efficiency by 2020 and to pave the way for further energy efficiency

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improvements beyond that date. Each Member State will be obliged to set an indicative national energy efficiency target, based on primary or final energy consumption, primary or final energy savings, or energy intensity. Directive 2004/8/EC on the promotion of co-generation based on a useful heat and electricity demand in the internal energy market, obliges Member States to analyze the potential of co-generation in their own country and to provide support mechanisms to encourage the technology into the market. Spanish Regulation Since the early 1980s, a special regulatory regime has applied to co-generation facilities, mini-hydro power stations and other facilities using renewable energy sources which have an installed capacity of 50 MWs or less. The Electricity Sector Act 54/1997, of November 27 (the 1997 Electricity Law) sets forth the main regulations governing all aspects of the electricity industry. Articles 27 to 31 specifically govern this special generation regime. 1997 Electricity Law The 1997 Electricity Law included the obligation to establish a development plan for renewable energy to ensure that renewable energy sources provide at least 12% of Spains total energy demand by 2010. In addition to highlighting the need for a special scheme to support renewables, the 1997 Electricity Law obligated public authorities to take necessary measures to meet these objectives. This prompted the adoption by the Spanish government of the Renewable Energies Development Plan 20002010 (REP 20002010) in 1999. This first REP 20002010 sought to incentivize the construction of renewables facilities through various measures, including the establishment of premiums that would make it attractive to developers to develop these facilities. These premiums included certain obligations to purchase renewable energy and the setting of purchase prices at one of two options: a fixed tariff rate or a market price plus premium. On August 26, 2005, the Spanish government updated REP 20002010 through the Renewable Energies Plan 2005-2010. In addition, in order to comply with the mandatory renewable energy targets set forth in the 2009 Renewable Energy Directive, the Spanish government approved the Renewable Energy Plan 20112020. However, REP 20112020 has been affected by the entry into force on January 28, 2012 of the Moratorium, discussed in detail below. Facilities already registered with a pre-allocation registry or in operation before the Moratorium entered into force on January 28, 2012 are instead mainly regulated by Royal Decree 661/2007. Royal Decree 661/2007 develops in great detail the basic provisions found in the 1997 Electricity Law governing special regime generation facilities. Royal Decree 661/2007 Royal Decree 661/2007 requires that in order to benefit from the tariff or economic system chosen, the project must be registered in the Administrative Registry of Production Facilities under the Special Regime (Registro Administrativo de Instalaci ones de Producci on en Regimen Especial) (RAIPRE), and start selling the electricity output to the grid before a specific deadline. Furthermore, by way of Royal Decree 6/2009, the Spanish government launched a pre-registration requirement of allocation pursuant to which only those projects that have been registered in the relevant pre-allocation registry will be entitled to receive the remuneration as special regime facilities (except for solar photovoltaic projects, which are expressly excluded and governed by Royal Decree 1578/2008). Royal Decree 661/2007 aims for co-generation with biomass to reach a reasonable degree of profitability both through the feed-in tariff system and a market remuneration system. Generators subject to the special regime may sell their electricity using either of the following options: (i) delivering their output to the electricity system through the transmission or distribution grid, and in return receiving the Regulated Tariff. Pursuant to Royal Decree 661/2007, the energy so transferred is not acquired by the local distribution company but, instead, is supplied to the transmission or distribution grid; or selling electricity in the wholesale power market in which most transactions take place (the Pool) at the sale price set by the organized market or the price freely negotiated 126

(ii)

by the owner or representative of the facilities, supplemented, as the case may be, by a premium in euro cents per kilowatt-hour (the Market Tariff), subject to the applicable caps and floors. Generators have the ability to switch between the two options each year. Since June 1, 2007, the electricity generated by facilities that have opted to sell their electricity output at the Regulated Tariff has been incorporated into the Pool by assuming that all of such electricity was offered at 0 euro/MWh. The settlement of the special regime payments (regardless of the sale option chosen) is made up of two payment flows: payments from the Pool and the settlement of the equivalent premium (prima equivalente) by the Spanish National Energy Commission, or the CNE. Market Price Settlement The market operator (Operador del Mercado Ib erico de la Electricidad Polo Espa nol, S.A.) (OMIE) and, for the imbalances, the system operator (Red El ectrica de Espa na, S.A.U.) calculate their respective settlements to generators on a weekly basis. Payments are then carried out by market representatives on a monthly basis within the month following the production month. Sellers in the Pool are ordinary power stations that are not exempt because of the existence of a physical bilateral contract, and special regime power stations and wholesale suppliers (comercializadores). Buyers in that market are direct consumers registered as market agents and wholesale suppliers. The Pool is structured according to the daily market, the security of supply restrictions, solution of technical restrictions, the allocation of secondary regulation, the intra-daily market and adjustment services. Selling and purchasing bids are normally submitted for each of the 24 hours of the following day by 10:00 a.m. The market operator then matches the different bids through simplified or complex matching methods depending on the type of bids received. The marginal price is determined by the price offered by the last selling unit, the production of which was required to meet the demand for electricity for each trading session. After carrying out different operations (i.e. technical restrictions, adjustment services, etc.) the system operator determines the final program and the settlement is made. Settlement of the Equivalent Premium and Supplementary Payments by the CNE Generators receive the pool price from the market operator and system operator for the energy sold and the CNE, then pays the difference between the regulated feed-in tariff and the market price (the difference is known as the equivalent premium (prima equivalente). In order to do this, the CNE requires specific information as follows: The system operator must provide the market representatives of generators and the CNE with the BALDITA for specific periods, broken down for each market representative or generator. BALDITA is an acronym for Base de Liquidaci on de la Diferencia con la Tarifa Regulada (Settlement Basis of the Difference with the Regulated Tariff), which is the amount that a market representative obtains for the sale of the generators energy on the market and that must be subtracted from the regulated tariff in order to calculate the equivalent premium. The market representatives or the generators, using the information received from the system operator, must send the CNE a breakdown of the BALDITA for each facility they represent or own. The competent company for metering (typically the distribution company) must provide hourly meter readings (real or estimated) of the net active and reactive energy per facility. The market operator must inform the CNE of the price of electricity in the daily market and in the intra-day market sessions, as well as the final prices of electricity and the settlement to be made between the market representatives or generators in accordance with the results of the matched bids in the daily and intra-day market.

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Based on these data, the CNE determines the payment of the equivalent premium and other supplementary amounts due to each facility by subtracting the BALDITA from the regulated feed-in tariff. Neither the CNE nor the Spanish Government act as guarantors of the tariff payments. Rather, the CNE determines the amount of the equivalent premium and requires the distribution companies to pay the amounts collected from consumers and wholesale suppliers into an account held by the CNE in a capacity analogous to a trustee for this purpose. As such, a generator receives the pool price directly or through its representative from the market operator and the system operator and the remaining amount, the BALDITA, directly from the CNE. The closing of the first provisional settlement from the CNE to the generator for the electricity generated during a certain month occurs on the 28th of the following month, or the next business day thereafter, with any amounts resulting in favor of the generator required to be paid within 31 calendar days following this closing. Imbalances (desv os): The system operator is responsible for the determination and settlement of the imbalances (desv os) whether the generator had opted for the Regulated Tariff or for the Market Tariff. The company must provide the system operator with a forecast of its electricity generation on a daily basis. As a general rule: If the electricity generated is lower than the forecasts, the generator shall pay a penalty but only if the system has suffered an electricity deficit (that is, if as a result of all sale and purchase transactions that have taken place in the relevant settlement period the demand is higher than expected and therefore more electricity is needed to cover the demand). Otherwise, no penalty needs to be paid. If the electricity generated is higher than the forecasts, the system operator will pay the generator but the price will be different depending on whether or not the system needs such electricity or not to cover the electricity demand. The Regulated Tariff and Market Tariff (as well as the caps and floors) are revised every year depending on the type of technology review applicable. The Regulated Tariff applicable to biomass facilities must be updated by reference to the Retail Price Index (RPI) minus 0.50 % from December 31, 2012. The following table indicates the Market Tariff for our biomass renewable energy generation facilities:
Evolution of Biomass Generation Remuneration (g/MWh) Nine months ended Year ended December 31, September 30, 2007 2008 2009 2010 2011 2011 2012

Pool price (e/MWh) . . . . . . . . . . . . . . . . . . . . . Premium (e/MWh) . . . . . . . . . . . . . . . . . . . . . Eligibility Criteria for Remuneration

39.4 39.3

64.4 47.7

37.0 67.4

37.0 68.2

49.9 73.7

49.2 71.7

48.6 79.1

Royal Decree 661/2007 classifies, as special regime facilities, power stations with an installed capacity of up to 50 MW that fall into any one of the following categories: facilities that generate electricity using waste from industrial activities, provided that such generation represents a high efficiency (Group A); facilities that use as a primary energy source any renewable source, such as non-consumable sources (e.g. solar or wind), biomass or any kind of biofuel, provided that the owner of the facilities does not operate under the ordinary regime (e.g. large hydropower stations) (Group B); and facilities that use municipal solid wastes as a primary energy source (Group C). Certain other facilities are also classified as special regime, such as facilities involved in the treatment and reduction of waste from agricultural and services sectors that have an installed capacity of up to 25 MW, and where certain high efficiency ratios are satisfied. 128

Efficiency of each of our facilities is calculated based on a formula prescribed by regulation. Not reaching the efficiency levels established may give rise to revocation under the special regime or suspension of the economic regime. Our generation installations comply with the prescribed efficiency requirements. Royal Decree Law 1/2012 Royal Decree Law 1/2012 (the Moratorium) came into effect in January 2012 and provides for (i) the elimination of economic incentives for the implementation of special regime energy production facilities; and (ii) the suspension of the proceedings for registration with the pre-allocation registries. The Moratorium will not affect our facilities that are already in operation or registered with the pre-allocation registry before its entry into force. The amendments introduced by the Moratorium apply to (i) special regime facilities (of any kind of technology) that by the date of entry into force of the Moratorium were not registered in the pre-allocation registry created by virtue of Royal Decree Law 6/2009; (ii) special regime photovoltaic facilities that by the date of entry into force of the Moratorium were not registered in the pre-allocation registry created by virtue of Royal Decree 1578/2008; and (iii) ordinary regime installations that by the date of entry into force of the Moratorium had not obtained their administrative authorization. The changes introduced by the Moratorium were mainly motivated by a rapid over-supply of combined cycle power plants and special regime installations projected for the period 20052010, and the drop in demand for energy resulting from the economic crisis. The Spanish government is now of the view that there is an imbalance between the current production costs of certain types of special regime facilities and remuneration under the special regime. As of the date of this Offering Memorandum, we have 230 MW of installed capacity, all of which is already in commercial operation, having already obtained final registration under the special regime, and since the Moratorium is not retroactive, these facilities in operation are not affected by this regulation. In addition, we also have now a 50 MW facility located in Huelva, Spain, which became operational in September 2012, and is expected to be transferred to us from our EPC contractor in the first quarter of 2013, and a 20 MW facility under construction at M erida registered in the pre-allocation registry before the Moratorium entered into force which are not affected by this regulation. Notwithstanding the foregoing, the M erida facility must achieve final registration with the RAIPRE within the 36 months following its registration with the pre-allocation registry. If it fails to do so, it will lose its entitlement to the feed-in tariff that was allocated to the project when it was registered with the pre-allocation registry. Comparing total installed capacity to the target installed capacity as per REP 2011-2020, biomass is the least developed technology, has better social impact, and is one of the most efficient technologies. The Moratorium expressly allows the Spanish government to establish a new incentive regime for co-generation and biomass, amongst other, facilities. However, such an incentive regime has not yet been approved. For the reasons outlined above, we believe that, provided that a new incentive regime is finally approved, the Moratorium will not have as negative of an impact on biomass generation as it will on other renewable energy sources. Law 15/2012 on Tax Measures to Achieve Environmental Sustainability On December 28, 2012, the Energy Tax Law, aimed at reducing the current funding deficit within Spains heavily-subsidized electricity production industry and ensuring the sustainability of Spains energy supply through the imposition of certain tax measures, was published in the Spanish Official Gazette. The Energy Tax Law, which became effective as of January 1, 2013, provides for, inter alia: (i) the creation of a tax on electricity generation (TEG); and (ii) the implementation of a green cent (c entimo verde) tax on natural gas and oil.

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TEG TEG is a direct tax with an in rem nature, levied on the generation and delivery to the Spanish grid of output electricity, measured at a power plants busbars (barras de central). The main features of this tax can be summarized as follows: All types of electricity generation facilities are subject to the TEG. No exceptions are made for any renewable energy producer or nuclear plants, nor is there a minimum installed capacity threshold. The taxable base is calculated on the basis of the total proceeds to be received by the taxpayer for the generation and delivery of the output electricity. The taxable base is determined individually for each electricity production facility and referred to the tax period that, in general terms, coincides with the calendar year. The applicable rate is 7%. Green cent (gas and fuel) This tax is levied on natural gas intended for a use other than as a fuel, and for use as a fuel in stationary engines at a rate of e0.65 per gigajoule, and on fuel oil and diesel used for the production of electric power at a rate of e12.00 per tonne of fuel oil and e29.15 per 1,000 liters of diesel. Forestry Management Regulation European Union regulation EU timber regulation 995/2010 imposes the following key obligations: It prohibits the placing of illegally harvested timber and products derived from such timber on the EU market, whether they are of domestic or imported origin. Timber accompanied by a FLEGT (Forest Law Enforcement, Governance and Trade) or CITES (Convention on International Trade in Endangered Species) license will be accepted as legal. In all other cases, operators must exercise due diligence when they sell imported and domestic timber or timber products. Traders (those after the operators in the supply chain) must keep records of their suppliers (and customers), so that the operators can always be traced. Regulation 995/2010 does not need to be implemented into Spanish law because the regulation is binding in its entirety and directly applicable in all Member States. Some of the provisions (mainly related to Members States obligations) applied from December 2, 2010, but the principal provisions apply from March 3, 2013. Spanish Regulation In addition, in Spain the legal framework consists of the Hillside Act 43/2003, approved on November 21, 2003 (Ley de Montes) as amended by Law 10/2006, approved on April 28, 2006 (and the Second Additional Provision of Law 10/2006), the Water Royal Decree Law approved on July 20, 2001, Royal Decree Law 1/2008 on Environmental Impact approved on January 11, 2008 and the rules concerning the Organization of Hillsides (Ordenaci on de Montes), both nationwide and at the autonomous community level. Local environmental, waste and labor regulations also apply to activities carried out in rural and forest environments. Pursuant to these regulations, it is necessary to develop forest management plans that are submitted for public consultation and that must be officially and regularly approved by the Official Hillside Association (Colegio Oficial de Montes) and the pertinent public authorities. Internationally Recognized Initiatives In addition to European Union and Spanish regulations applicable to forestry management activities, there is a set of sustainable forest management practices and criteria internationally accepted and acknowledged by the FAO since 1981, which have been subsequently promoted since the R o de Janeiro Earth Summit of 1992. Over the years, they have been implemented and

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broadened on a regulatory and voluntary basis in successive international summits and by means of non-governmental initiatives. The most common forest certification system worldwide is the PEFC, with 223 million certified hectares. Furthermore, the FSC has 112 million certified hectares. We have the UNE-EN-ISO 14001-2004 environmental certification with regard to all of our forest activities in Spain. Moreover, our forest assets in Spain are certified in accordance with the PEFC systems and the FSC to a lesser extent.

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MANAGEMENT The Issuer The Board of Directors of the Issuer The Board of Directors of the Issuer (the Board of Directors) has the power and duty to manage our corporate affairs. The Board of Directors elects its president and can select one or more vice presidents. Except for matters reserved by law and the articles of association to the general shareholders meeting (the General Shareholders Meeting), the Board of Directors is the highest decision-making body of the Issuer. Meetings shall be called by the president or by directors constituting at least one-third of the Board of Directors. The attendance quorum necessary for a Board of Directors meeting is the majority of the Board of Directors. If the number of directors on the board is uneven, the necessary quorum shall be more than 50% of the board. Resolutions of a Board of Directors meeting are adopted by an absolute majority of the members present at such meeting, unless the law requires a different majority. The following table sets forth, as of the date of this Offering Memorandum, the name, age and title of each member of the Board of Directors, and is followed by a brief summary of biographical information of each director.
Name Age Position

Juan Luis Arregui Ciarsolo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ignacio de Colmenares y Brunet . . . . . . . . . . . . . . . . . . . . . . . . . . Retos Operativos XXI, S.L., represented by Javier Arregui Abendivar Pascual Fern andez Mart nez . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Javier Echenique Landiribar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Norte na Patrimonial, S.L., represented by Jes us Ruano Mochales . . Jos e Carlos del Alamo Jim enez . . . . . . . . . . . . . . . . . . . . . . . . . . Fernando Abril-Martorell Hern andez . . . . . . . . . . . . . . . . . . . . . . . Gustavo Mat as Clavero . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jos e Guillermo Zub a Guinea . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jos e Manuel Serra Peris . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pedro Barato Triguero . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . .

69 51 42 52 52 40 61 50 60 66 53 53

Chairman Chief Executive Officer External Director External Director External Director External Director Independent Director Independent Director Independent Director Independent Director Independent Director Independent Director

Juan Luis Arregui Ciarsolo is Chairman of the Board of Directors as well as Chairman of the Executive Committee of the Issuer. He joined us in February 2006. Mr. Arregui Ciarsolo has a degree in technical engineering from the Higher School of Engineering of Bilbao, a diploma in numerical control from Wandsdorf (Germany) and a masters degree in micro-mechanical engineering from Besan con (France). He began his professional career in 1975 by founding Gamesa, a company that would later become the Gamesa group, specializing in aeronautics, robotics, composites and wind turbines. He was Chairman of Gamesa until 1995 and is currently Vice Chairman and a member of both the appointments and remuneration committee and the executive committee of Gamesa. In 1994, following the integration of Gamesa with Iberdrola, he became a board member of Iberdrola, serving until 2009 as Senior Deputy Chairman and a member of its executive committee. In 1995, he took charge of the Guascor company, a manufacturer of internal combustion engines, complementing the engines with co-generation installations. In 1998, he created CESA, a corporation dedicated solely to the production of wind energy. In 2001, he founded Foresta Capital, S.L. for the production of hardwood trees. In 2002, he created Foresta Biomasa, which became the world leader in the production of plants with in vitro technology. In 2006, he became our Chairman and has led the diversification of our activities with the production of renewable energy through forest biomass. He has also been Senior Deputy Chairman of Cartera Industrial Rea, S.A. since 2008 and is a board member of various funds that invest in energy and activities related to modern technology. Ignacio de Colmenares y Brunet is a member of our Board of Directors, our Executive Committee and our Advisory Committee for Forestry and Regulatory Policies. He is also our Chief Executive Officer and president of ASPAPEL (Spanish Association of Pulp and Paper Manufacturers). He joined us in December 2010.

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Mr. de Colmenares y Brunet has an undergraduate degree in law from the Central University of Barcelona and a masters degree in Economics and Business Management from IESE. He has extensive experience in the steel and renewable energy industries, having helped to develop international business projects with a focus on revenue growth, investment optimization, process improvements and cost control as a way of increasing competitiveness. Javier Arregui Abendivar is the legal representative of Retos Operativos XXI, S.L., which is a member of our Board of Directors and our Appointments and Remuneration Committee. He joined us in February 2006. Mr. Arregui Abendivar has a degree in business administration from Saint Louis University (Missouri, United States). He began his professional career in 1992 in the sales department of the Guascor group, occupying a variety of positions until he was ultimately named managing director in Argentina in 1996. In 2002, he returned to Spain, where until 2005 he held management positions in the S ech e group. He also was a member of the boards of directors of CESA, the Guascor group and Foresta Capital and was a controller and chief procurement officer for Campo Noble, S.A. He currently holds the position of sole administrator of the Foresta group. Pascual Fern andez Mart nez is currently a member of our Board of Directors, as well as a member and the secretary of our Appointments and Remuneration Committee and a member of the Advisory Committee for Forestry and Regulatory Policies. He joined us in May 2005. Mr. Fern andez Mart nez has a doctorate in economics and business and has carried out his professional career primarily in public administration, both as a professor and researcher, at the Aut onoma University of Madrid, Rey Juan Carlos University and the University of Valladolid, and in management for the autonomous communities of Castilla y Le on and Madrid as well as for the Spanish Ministry of the Economy and Treasury and the Ministry of Environment. He is a lecturer of applied economics at Rey Juan Carlos University, a lecturer in the Executive Master in Public Administration (EMPA) program at the Instituto de Empresa Business School, a lecturer in the Masters program in Infrastructure and Public Service Management of the School of Civil Engineering at the Universidad Polit ecnica de Madrid; director of the Economy of Madrid Center for Studies at the Rey Juan Carlos University, Chairman of the Economics and Environment Commission of the Association of Economists of Madrid, and a member of the Association of European Conjuncture Institutes (lAssociation DInstituts Europ eens de Conjoncture Economique (AIECE)). He has served on the boards of directors of a number of companies, including Sodical, Renfe (serving as Chairman from 1997 to 2001), Instituto de Cr edito Oficial (ICO), Gran Telescopio de Canarias, Sociedad Gestora de Planes de Pensiones de Caja Madrid and Gamesa (serving as chairman of the appointments and remuneration committee from 2006 to 2010). Javier Echenique Landiribar is an external proprietary member of our Board of Directors and a member of our Executive Committee and Audit Committee. He joined us in December 2005. Mr. Echenique Landiribar has a degree in economics and actuarial sciences and has been a board member and managing director of Allianz-Ercos and managing director of the BBVA group. He is currently Vice-Chairman of Banco Sabadell, S.A., Chairman of Banco Guipuzcoano, S.A. and a board member of Repsol S.A., ACS Actividades de Construcci on y Servicios, S.A., ACS Servicios, Comunicaciones y Energ a, S.L., Telef onica M oviles M exico y Celistics S.L. and Calcinor, S.A. He is also a member of the advisory council of Telef onica Europa and a delegate of the board of Telef onica, S.A. in the Basque country and trustee of the Novia Salcedo Foundation and the Altuna Foundation. Jes us Ruano Mochales is a member of our Board of Directors and our Audit Committee. He joined us in June 2002. Mr. Ruano Mochales has a degree in economics and business from CUNEF and a specialization in finance from the University of Deusto. He held the position of assistant manager at Chase Manhattan Bank from 1997 to 2000 and the position of deputy director of mergers and acquisitions at N M Rothschild & Sons from 2000 to 2005. He is currently director of the Investees division of Cajastur and a member of the management and financial management committees. He is also the representative of Caja de Ahorros de Asturias (currently Liberbank, S.A.) on the board of directors of various companies, such as Itinere, Telecable, CAPSA, General de Alquiler de Maquinaria, S.A. and Sedes.

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 Jos e Carlos del Alamo Jim enez is an independent external member of our Board of Directors and a member of the Advisory Committee for Forestry and Regulatory Policies. He joined us in June 2009. Mr. del Alamo Jim enez has a degree in forestry from Madrid Polytechnic University and a diploma from ESADE. He is also a lecturer in the Energy Efficiency and Climate Change Master Degree at the Environmental Sciences University Institute, part of Madrids Complutense University, a lecturer in the Environmental Project Engineering Master degree at the Universidad Polit ecnica of Madrid and a lecturer in Carolina Foundations Higher Course on Forestry Management Policies and Instruments as well as a professor at the San Pablo CEU University and other academic institutions. He has held positions of responsibility both in the central government, for which he served as Director-General of Nature Conservation (Ministry of Environment), and at the autonomous community level, where he founded the Regional Ministry of Environment of Galicia and was board member from 1997 to 2003 and Director General of Forest and the Natural Environment from 1990 to 1996. He was also Vice-Chairman of the Autonomous National Parks Authority, president of the trusteeship of the Islas Atl anticas National Park, member of the Environmental Advisory Board of the Ministry of Environment and Chairman of the Galician Environmental Council. He is also president of the Professional Union of Engineering Associations (UPCI), president and dean of the College and Association of Forestry Engineers, secretary of the Forests and Climate Change forum, president of the Environmental Forum for Economic and Social Progress and a board member of the Regional Hunting Council of the regional government of Castilla y Le on. He is currently Chairman and CEO of Tecnoma, S.A., an environmental consulting and engineering firm, Chairman of Tecnoma Energ a Sostenible, S.A., Chairman of Tecnoma Aprovechamientos Energ eticos, S.L. and Chairman of Estad stica y Servicios, S.A., all of which belong to the TYPSA group, of which he is also a board member. Fernando Abril-Martorell Hern andez is an external member of our Board of Directors, Chairman of our Appointments and Remuneration Committee and a member of our Executive Committee. He joined us in March 2007. With a degree in law and economics and business from the Pontifical Comillas University, Mr. Abril-Martorell Hern andez began his professional career at JP Morgan where he held various positions in the companys financial markets division from 1986 to 1996. In 1996, he joined the Telef onica group as its CFO. In 1998, he was named president of TPI P aginas Amarillas, and in 2000 he was made managing director of the group, a position he held through the end of 2003. In 2002 he was named managing director of the Credit Suisse group in Spain and Portugal. He currently holds the position of Chief Executive Officer to the managing director of the Prisa group and is a member of the board of directors of Telecomunicaciones de S ao Paulo. He is also a trustee of the Comillas University Foundation, the Familia Foundation and the Fernando AbrilMartorell Foundation. Gustavo Mat as Clavero is an independent external member of our Board of Directors and a member of our Appointments and Remuneration committee. He joined us in March 2007. Mr. Mat as Clavero has a doctorate in economics and business from the Universidad Aut onoma of Madrid and a degree in information sciences from the Complutense University of Madrid. He is a lecturer on international economic organization at the Universidad Aut onoma of Madrid, where he has been teaching since 1986, and for the Balance Sheet Analysis Master Degree of the Instituto de Empresa Business School (1982). He is a member of various expert panels on economic client and economic consensus, an evaluator of three scientific publications and a regular contributor to the magazine Consejeros and the digital publication Intercampus. As a consultant and researcher, he is primarily concerned with the new economy of information and knowledge (about which he taught doctoral courses for ten years at the Universidad Aut onoma of Madrid and has published a dozen books and pamphlets), healthcare, education and sustainable development. He was a visiting professor at CUNEF for three years, at Universidad de Nebrija for another three years, at the European Business School, at the School of Industrial Organization (Escuela de Organizaci on Industrial) and at the School of Telecommunications Engineers (Escuela de Ingenieros de Telecomunicaci on). He has co-directed or taught summer courses at Universidad Aut onoma of Madrid, the Complutense University, the Universidad del Pa s Vasco, Valladolid University, and UIMP

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and Segovia universities. A managing advisor to the Telematics masters program (Caixa Galicia), and he has also directed a dozen courses for the European Social Fund and others on sustainable development and its indicators. He has been a member of the group for Regulation of Telecommunications (GRETEL), vice-president of the Spanish Telecommuting Association, director of the Spanish Association of Telecommunications and Information Technology Law, an economics journalist for Europa Press, El Pa s and Gaceta de los Negocios as well as a columnist for El Mundo-Nueva Econom a, media for which he has published more than 3,000 articles. In 1978, he was awarded the Order of Agricultural Merit and has received a number of national awards from the National Institute of Statistics and for economic journalism. Jos e Guillermo Zub a Guinea is an independent external member of our Board of Directors and is a member of our Executive Committee and Chairman of our Audit Committee. He joined us in March 2007. Mr. Zub a Guinea has a degree in law from the Complutense University in Madrid. He also studied economics at the Complutense University and taxation at the Center for Economics and Tax Studies (Centro de Estudios Econ omicos y Tributarios). He has been a business owner and consultant and board member for various public and private firms. He was secretary general of the Alava Business Union (SEA) from 1979 to 1995. He was general secretary of the Basque business confederation (Confebask) from October 1995 to March 2011. He also regularly participates in various courses and conferences at the Universidad Internacional Men endez Pelayo University, the summer courses of El Escorial and the summer university of the Pa s Vasco University. He is also a member of the standing committee at the Andalusia School of Economics, a member of the Economic and Social Council of Spain and of its economic and labor relations committees. Jos e Manuel Serra Peris is an independent external member of our Board of Directors and a member of our Audit Committee. He joined us in October 2000. Mr. Serra Peris received a degree in law from Valencia University in 1981 and has been a state attorney since 1984. He was active in the administration, first as a state attorney in the regional office of the Spanish treasury in Valencia and in the courts of the regional government of Valencia (1986 to 1996), and later held various positions in the state administration, primarily in the Ministry of Industry, Trade and Tourism, where he served as general technical secretary (19961998), undersecretary (1998) and finally Secretary of State for Industry and Energy (19982000), a position he left at his own behest. He has also been president of the Spanish Patent and Trademark Office, president of the Center for Energy, Environment and Technology Research (CIEMAT) and president of the Spanish Center for Industrial and Technological Development (CDTI). He has sat on the boards of directors of Sociedad Estatal de Participaciones Industriales (SEPI) and Sociedad Estatal de Participaciones Patrimoniales (SEPPA), companies responsible for the privatization of public companies such as Iberia L neas A ereas de Espa na, S.A., Endesa, Red El ectrica de Espa na, S.A., Uralita, S.A. and Cable y Televisi on de Catalu na, S.A. (MENTA) of the Auna group. He has also sat on the boards of L neas A ereas de Espa na, S.A. and Bankia, S.A. Pedro Barato Triguero is an independent external member of our Board of Directors and a member of the Advisory Committee for Forestry and Regulatory Policies. He joined us in June 2008. Mr. Barato Triguero has a degree in law and has been a member of the National Confederation of Farmers and Livestock Owners since 1978 and the national president of the Agricultural Association of Young Farmers (ASAJA) since 1990. He is also a board member of the Spanish Confederation of Business Organizations (CEOE), a member of the presidium of the Committee of Agricultural Organizations (COPA) of the European Union, a member of the CAP advisory committee of the European Commission, president of the Inter-trade Organization of Spanish Olive Oil, president of the Occupational Accident Insurance Association (AMAT), president of the National Confederation of Beet and Sugar Cane Growers and president of the Spanish Federation of Self-employed Persons (CEAT). He was a member of the European Economic and Social Committee from 1997 to 2007 and a member of the Spanish Economic and Social Council from 1991 to 2007.

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The Senior Management of the Issuer Our senior management team is led by Juan Luis Arregui Ciarsolo. The following table sets forth our current senior management team and their respective ages and positions.
Name Age Position

Juan Luis Arregui Ciarsolo . . . . . . . Ignacio de Colmenares y Brunet . . . Diego Maus Lizariturry . . . . . . . . . . Jos e Manuel Zarandona de la Torre Jacinto Lobo Mor an . . . . . . . . . . . . Alvaro Eza Bernaole . . . . . . . . . . . . Mar a Jos e Zueras Saludas . . . . . . . Guillermo Medina Ors . . . . . . . . . . Luis Carlos Mart nez . . . . . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

69 51 43 49 61 38 52 45 53

Chairman Chief Executive Officer Chief Financial Officer Director General of the Pulp Business Director General of the Energy Business Director of the Forestry Business Director General of Human Resources Vice Secretary and General Counsel Director General of Communications

The following is the biographical information for each of the members of our senior management team who do not also serve on our Board of Directors: Diego Maus Lizariturry is our Chief Financial Officer. He joined us in June 2007 as advisor to the Chairman and Head of Corporate Development. Mr. Maus Lizariturry holds a business degree from the Colegio Universitario de Estudios Financieros (CUNEF) in Madrid and is a Certified European Financial Analyst (CEFA). Prior to joining us, he occupied several roles at Telef onica, including Sub-director for Investment Control nica Internacional, Director of Investor Relations of Telefo nica and controller of and Analysis of Telefo Telef onica. Manuel Zarandona de la Torre is the Director General of our pulp business. He joined Jose us in April 2010. Mr. Zarandona de la Torre holds a degree in industrial engineering from the Escuela Superior de Ingenieros Industriales in Bilbao as well as a postgraduate degree in Business from the Universidad de los Andes in Bogot a, Colombia. Prior to joining us, he worked from 2000 to 2010 at Grupo SCA in Spain, where he was most recently Director of Energy for Europe, and from 1996 to 2000 at Papeles Nacionales in Colombia, where he was plant director and engineering director. Mr. Zarandona has also had experience working as an engineer for ENERTEC, Fort James Espa na and Sidenor. Jacinto Lobo Mor an is the Director General of our Energy business. He joined us in May 2011. Mr. Lobo Mor an holds a degree in energy engineering from ETSII Bilbao. Prior to joining us, he was Director of Business Development for the Iberian Market at ESB Internacional from 2000 to 2011, Executive Vice-President of Ente Vasco de Energ a (EVE) from 1994 to 1998 and Senior Manager for Utilities at Andersen Consulting. He was also Director of Energy and Environment at SENER from 1974 to 1980, 1991 to 1994 and 1998 to 2000. Mar a Jos e Zueras Saludas is the Director General of our Human Resources department. She joined us in November 2007. Ms. Zueras Saludas holds law degrees from the Facultad de Derecho de Zaragoza and the Universidad Complutense in Madrid and a Masters degree in Human Resources Management from CESEM. She has also completed a general management course at ESADE in Barcelona. Prior to joining us, over the course of her career she held senior human resource management and labor relations roles at AXA Winterthur, Telef onica de Espa na, Arcelor and Aceralia. She has also held roles at TENEO and the State Industrial Agency in Spain. Alvaro Eza Bernaole is the Director of our Forestry Business. He joined us in November 2011. Mr. Eza holds a BSc in Electrical Engineering, and an MBA in the IESE Business School in Navarra. Prior to joining us, he was the Managing Director of Cosidesa (part of the Celsa group) between 2004 and 2008. Prior to that, he was the Procurement Director at Celsa.

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Guillermo Medina Ors is our General Counsel and Vice Secretary. He joined us in June 2009. Mr. Medina Ors holds degrees in law and in business administration from ICADE-Pontificial University of Comillas (Madrid, 1990) as well as masters degrees in Financial Economy (ICADEMadrid) and Political and Institutional Communication (Carlos III UniversityMadrid). He has also undertaken doctoral studies in law at Universidad Complutense and Universidad San Pablo-CEU (Madrid) and participated in postgraduate courses on various legal matters (competition, corporate law, mergers and acquisitions, communications and media) in different universities (including Harvard University and the University of Amsterdam). He worked as an associate at the n, S law firm IberforoAlzaga, Caro, Mara no anchez-Ter an & Asociados and a partner at the law firm Cremades & Calvo-Sotelo. Previously, he served as in-house legal counsel at the Spanish branch of Commerzbank and at Telef onica, where he held the positions of Deputy Director of Legal and Regulatory Affairs at Telef onica Internacional (Madrid, Spain) and Deputy General Counsel at Unisource (Z urich, Switzerland). Luis Carlos Mart nez is our Director General of Communications and Public Affairs. He joined us in January 2012. Mr. Mart nez holds a degree in economics and business from the Universidad Complutense de Madrid and an Executive MBA from the Instituto de Empresa in Madrid. Prior to joining us, from 1986 to 2011, he held a number of positions at Iberdrola (formerly Hidroel ectrica Espa nola), including Director of the Iberdrola Foundation and Director of Communications Strategy. Corporate Governance The Board of Directors comprises executive directors (consejeros executivos), representative external directors (consejeros dominicales) and independent external directors (consejeros independientes). Executive board members are the managing directors and those others who carry out executive functions or maintain a stable contractual relationship with us or our subsidiaries other than as a director. Representative external directors are those proposed by shareholders by reason of a stable holding in our capital. Finally, independent external directors are professionals of acknowledged prestige who can contribute their experience and knowledge to corporate governance and who fulfill the remaining conditions required by the regulations, including not being connected to the executive team or to significant shareholders. Our Board of Directors believes that its actions, composition, organization, remuneration and responsibilities comply with existing corporate governance recommendations in accordance with the specific indications set forth in our annual corporate governance report. We include all documentation relating to our annual corporate governance report on our website, www.ence.es, in accordance with the provisions of the Transparency Act (Order ECO/3722/2003), Circular 1/2004 of March 17, of the Spanish Securities and Exchange Commission, Article 539 of the Spanish Companies Law on annual reports on corporate governance and the Unified Code of Good Governance approved by the board of the Spanish Securities Commission. Board Practices According to our by-laws, our Board of Directors consists of a minimum of eight and a maximum of sixteen directors. The term of office of directors is three years. The annual General Shareholders Meeting has the power to appoint and remove directors. The Board of Directors may fill any vacancies that may arise from among the shareholders using the co-option procedure on an interim basis until the next annual General Shareholders Meeting is held. In any event, the proposals for the appointment of directors submitted by the Board of Directors to the annual General Shareholders Meeting and the appointment decisions adopted by the Board of Directors in accordance with its powers of co-option legally attributed to the same shall be preceded by the relevant proposal to the Appointments and Remuneration Committee. Where the Board of Directors opts not to follow the recommendations of the Appointments and Remuneration Committee, it shall explain the reasons for its actions and shall include the same in the minutes.

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The Board of Directors and the Appointments and Remuneration Committee shall seek to ensure the candidates selected are persons of recognized solvency, competence and experience, and shall proceed with due caution in relation to procedures to cover vacancies for independent directors. In accordance with applicable board regulations, the Board of Directors shall seek to ensure that independent and non-executive directors represent an ample majority among the members of the Board of Directors and, in general, that the different categories of directors are in line with best corporate governance practice in terms of proportionality and characteristics. In order to establish a reasonable balance between proprietary and independent directors, the Board of Directors shall consider our ownership structure so that the ratio of each class of directors to each other shall reflect the relationship between stable and floating capital. In addition, in accordance with applicable board regulations, the Board of Directors is required to evaluate its own functioning and the quality and effectiveness of its work at least once per year, as well as the performance of the Chairman of the Board of Directors and our Chief Executive Officer, as well as the functioning of the board committees based on the reports submitted by the same. On February 28, 2012 the Board of Directors proceeded with the self-assessment procedure in accordance with the terms of the applicable board regulations. Board Committees The Board of Directors has established four committees to conduct our operations: the Executive or Delegate Committee; the Audit Committee; the Appointments and Remuneration Committee; and the Advisory Committee for Forestry Regulatory Policies. Executive or Delegate Committee The Executive Committee is in charge of all of the tasks delegated by the Board of Directors, which can delegate all the responsibilities allowed to be delegated by it according to Spanish law, our by-laws and board regulations. In accordance with our by-laws, the Executive Committee shall be composed of a minimum of four directors and a maximum of eight, including the Chairman. Within these limits, the number of committee members shall be decided by our Board of Directors in view of changing circumstances, seeking at all times to ensure that the Executive Committee reproduces a reasonable balance between the different types of directors. The Executive Committee is currently comprised of Juan Luis Arregui Ciarsolo (Chairman), Ignacio de Colmenares y Brunet, Javier Echenique Landir bar, Fernando Abril-Martorell Hern andez, and Jos e Guillermo Zub a Guinea. Audit Committee The Audit Committee assists the Board of Directors in the functions of oversight and control, supervising the effectiveness of our internal controls, internal audits and the processes involved in the preparation and presentation of financial information. In accordance with our by-laws, the Audit Committee shall be composed of a minimum of three and a maximum of seven directors, the majority of whom must be non-executive directors. In addition, at least one of the members of the Audit Committee shall be an independent director and shall have competence in accounting and/or auditing. Within these limits, the number of committee members shall be decided by the Board of Directors, which shall ensure that independent directors are appropriately represented. The Audit Committee is currently comprised of Jos e Manuel Serra Peris (Chairman), Jes us Ruano Mochales, Javier Echenique Landir bar and Jos e Guillermo Zub a Guinea. Appointments and Remuneration Committee The Appointments and Remuneration Committees role is to propose a system and an amount of annual remuneration for directors to the Board of Directors; oversee compliance with our remuneration policy; and propose measures to safeguard the transparency of remuneration and compliance therewith.

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In accordance with the board regulations, the Appointment and Remuneration Committee shall be formed by non-executive directors and shall have the number of members decided by the Board of Directors, with a minimum of three members. The committees membership shall include appropriate representation of independent directors. The Appointments and Remuneration Committee is currently comprised of Fernando AbrilMartorell Hern andez (Chairman), Javier Arregui Abendivar, Gustavo Mat as Clavero, and Pascual Fern andez Mart nez. Advisory Committee for Forestry and Regulatory Policies The Advisory Committee for Forestry and Regulatory Policies role is to advise on the policies and regulations related to our activities, to establish the strategies relating to such policies and regulations, and to promote and develop relationships with policymakers and regulators as well as the related administrations and institutions. The Advisory Committee for Forestry and Regulatory Policies is currently comprised of Juan Luis Arregui Ciarsolo, Ignacio de Colmenares y Brunet, Pedro Barato Triguero, Jos e Carlos del Alamo Jim enez, Jes us Ruano Mochales, and Pascual Fern andez Mart nez. Director and Executive Compensation The office of director is remunerated by way of a regular allocation of fixed remuneration and allowances for attendance at meetings of the Board of Directors and of the board committees. The amount of remuneration payable by the Company on an annual basis to its directors in respect of these items may not exceed the sum earmarked for such purposes by the annual General Shareholders Meeting, without prejudice to conditions related to the system for pensions payable in the case of death, superannuation, invalidity, incapacity to hold office or retirement and to the share options or other financial instruments which may be approved by the General Shareholders Meeting. The amount so determined shall be maintained until such time as it may be modified by a new resolution of the annual General Shareholders Meeting. The exact amount payable within that limit, the distribution thereof among the directors and the timing of payments shall be decided by the Board of Directors. The annual General Shareholders Meeting held on June 29, 2006 established a maximum annual limit on directors remuneration of e1,500,000, and this limit currently remains in force because it has not been changed by any subsequent annual General Shareholders Meeting. In accordance with applicable board regulations, a director shall be entitled to receive the remuneration set by the applicable board regulations in accordance with the provisions of the by-laws and subject to a prior report of the Appointments and Remuneration Committee. The Board of Directors shall ensure that the directors remuneration is moderate in view of market circumstances and that it is in line with such circumstances. Where the Board of Directors understands in any given year that strict application of the statutory rules would result in remuneration that might not be in line with moderate criteria, it shall resolve to waive the payment of the amount considered excessive. Such waiver shall be submitted to the annual general meeting responsible for deciding on remuneration. The remuneration of each director shall be transparent. For this purpose, the Board of Directors shall prepare an annual report on the remuneration of directors in addition to the annual corporate governance report, the contents and structure of which shall be as established by law. This report shall inform the shareholders at the General Shareholders Meeting and it shall be subjected to a vote at the same on a consultative basis as a separate item on the agenda. In accordance with this requirement, the Board of Directors prepared and approved the annual report on directors remuneration policy for 2011 at its meeting of February 28, 2012. With regard to the remuneration of independent directors, the board regulations require the Board of Directors to adopt all available measures, with the advice of the Appointments and Remuneration Committee, to ensure that the remuneration of independent directors is appropriate and offers incentives for their dedication but without impairing their independence. Finally, in accordance with the by-laws, the directors may be compensated, in addition to and independently of the remuneration referred to above, by way of the delivery of shares or share

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options, or using any other remuneration system that is based on the value of our shares. The application of such remuneration systems shall be agreed by the General Shareholders Meeting in accordance with the Spanish Companies Law (Ley de Sociedades de Capital), which was approved by the Legislative Royal Decree 1/2010 dated July 2, 2010 (the Spanish Companies Law). Statutory limits on remuneration of this kind payable in general to executive directors are regulated in the applicable board regulations. Exceptionally, our shares may be delivered to non-executive directors by way of remuneration, providing the same are held until these directors cease to hold office. Management Incentive Plan On March 30, 2007, our Board of Directors approved a Management Incentive Plan (the Plan), which was modified and restated during the shareholders meeting held on November 30, 2010. The purpose of the Plan is to incentivize management for the achievement of objectives that were set out for the financial years 2010, 2011 and 2012, and shall be in force until June 30, 2015, the date on which all the granted options shall be exercised (and all non-exercised options will expire). For such purposes, each year the Beneficiaries (as defined below) will receive a number of options over shares of the Company, subject to certain limits for each member of management. The Beneficiaries of the Plan include our Chief Executive Officer, members of our Management Committee, managers within the so-called second rank management level (Segundo Nivel Directivo), as well as any other manager that the Board of Directors may designate from time to time (the Beneficiaries). The maximum number of shares granted to the Beneficiaries of this Plan is limited to 3,850,000 shares, which represent approximately 1.5% of our total share capital. The maximum number of options over shares to be granted in favor of our Chief Executive Officer is limited to 1,000,000 shares. The strike price for the options corresponding to the 2010 financial year will be the average price of the stock of the Issuer within the 20 business days prior to June 22, 2010. For the options corresponding to financial years 2011 and 2012, the strike price will be the average price of the stock of the Issuer within the first 20 days of March 2011 and the first 20 days of March 2012, respectively. The options shall be cumulative for the Beneficiaries, and may be exercised after the second anniversary from the date in which such options were granted, only if (i) the Beneficiary maintains a work or service relationship with the Issuer, from the time of joining the Plan to the date on which the options are exercised (i.e., two years after the granting of such options), and (ii) at the time of exercising the option, the Issuer has reestablished a regular dividend policy. Employment Agreements Several of the members of our senior management team have employment agreements that include provisions for special severance payments in addition to those required under applicable law. The aggregate value of the severance payments under these agreements was e1.6 million as of September 30, 2012.

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PRINCIPAL SHAREHOLDERS As of September 30, 2012 the authorized share capital of ENCE Energ a y Celulosa, S.A. was e225,245,250, consisting of 250,272,500 fully paid-up shares, forming part of the same series, each with a par value of e0.9. The following table sets forth information regarding the beneficial ownership of ENCE Energ a y Celulosa, S.A. as of September 30, 2012.
As of September 30, 2012 Number of Shares held Percent

Owner

Retos Operativos XXI, S.L. (Juan Luis Arregui Ciarsolo) . . . Alcor Holding, S.A. (Alberto Alcocer and Alberto Cortina)(a) Liberbank, S.A(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Public float . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

61,360,032 57,009,740 17,217,140 95,881,616 18,803,972 250,272,500

24.5% 22.8% 6.9% 38.3% 7.5% 100.0%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a)

Alcor Holding, S.A. and Liberbank, S.A. are under no legal obligation to disclose their shareholdings, unless they cross a certain threshold. Their shareholdings are calculated based on their estimated shareholdings at the time of the General Meeting of July 24, 2012 as well as the dividend in kind declared on August 16, 2012. Treasury Stock as disclosed in the most recent notification to the Spanish Securities and Exchange Commission (Comisi on Nacional del Mercado de Valores) on December 11, 2012.

(b)

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS In the ordinary course of our business, we carry out transactions with related parties in accordance with established market practice and specific legal requirements. We carried out the following transactions with related parties in the nine months ended September 30, 2012 and the years ended December 31, 2011, December 31, 2010 and December 31, 2009: Acquisition of the Foresta Groups Energy Crops Technology On December 20, 2012, we entered into an agreement to acquire the energy crops-related technology of the Foresta Group, including certain technology related to research and development, in vitro technology and a poplar clone for an initial payment of approximately e3.4 million to be paid at signing, with up to e3.1 million in additional consideration to be paid subject to certain agreed terms and conditions. We will also be required to make a payment of e0.25 million per year under the services agreement for the next two years. Share Repurchase from Fidalser, S.L. On December 7, 2012, we acquired a total of 12,815,353 shares, representing 5.12% of our share capital, from our former shareholder Fidalser, S.L. These shares, which were purchased for a total consideration of e25.3 million, will be kept as treasury shares pending further action by our Board of Directors. Transaction with Atalaya de Inversiones, S.L. In July 2011, we acquired a total of 9,701,770 shares, representing 3.76% of our share capital, from our former shareholder Atalaya de Inversiones, S.L. for a total consideration of e26.4 million at a price of e2.72 per share.

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DESCRIPTION OF OTHER INDEBTEDNESS The following summary of the material terms of certain financing arrangements to which the Issuer and certain of its subsidiaries are a party does not purport to be complete and is subject to, and qualified in its entirety by reference to, the underlying documents. For further information regarding our existing indebtedness, please see Managements Discussion and Analysis of Financial Condition and Results of Operations. Revolving Credit Facility On or around the Issue Date, the Issuer, as original borrower and guarantor, will enter into a Revolving Credit Facility agreement (the RCF Agreement) between, among others certain subsidiaries of the Issuer listed in Schedule 1 thereto, Deutsche Bank AG, London Branch, Banco Bilbao Vizcaya Argentaria, S.A., Banco Espa nol de Cr edito, S.A., Bankia, S.A., Banco de Sabadell, S.A., Barclays Bank PLC, CaixaBank, S.A., Citibank International PLC, London and Bankinter, S.A. as arrangers, and certain financial institutions listed in Schedule 1 thereto as original lenders and Deutsche Bank AG, London Branch, as facility agent, original issuing bank and security agent. The RCF Agreement provides for a e90.0 million committed revolving credit facility (the Revolving Credit Facility). In the event that the e90.0 million committed revolving credit facility is reduced by reason of a lender defaulting or it becomes unlawful for a lender to provide or continue to provide funding, the borrower is entitled to request that the aggregate commitments are increased to permit another lender or lenders to provide a commitment equal to the commitment of the defaulting lender. The Issuer may, with 15 business days prior written notice, request that the amount of the Revolving Credit Facility be increased by up to an additional e5.0 million to up to e95.0 million in total. Such increased commitment (the Increased Revolving Credit Facility Amounts) will be provided by one or more existing or new lenders of the Revolving Credit Facility and/or by another appropriate entity selected by the Issuer. Debt incurred under the Revolving Credit Facility, including any Increased Revolving Credit Facility Amounts, will rank pari passu with the Notes. Interest and Maturity The loans under the RCF Agreement will bear interest at LIBOR or, in relation to any loan in euro, EURIBOR, plus a margin of 4.00% per annum (plus the mandatory cost, if any) payable on the last day of each applicable interest period (as determined in accordance with the terms of the RCF Agreement); provided that at the end of the first quarter, following the anniversary of the date of completion of the Offering and at the end of each quarter thereafter, the margin will fluctuate with and be tied to our ratio of net debt to EBITDA (as both terms are defined in the RCF Agreement) at a rate per annum of between 4.00% and 3.00%. The lower margin will be applicable if our ratio of net debt to EBITDA is less than 1.50:1, while the higher margin will be applicable if our ratio of net debt to EBITDA is greater than or equal to 2.00:1. The termination date of the Revolving Credit Facility is the fifth anniversary of the date the RCF Agreement is signed. Covenants and Events of Default The RCF Agreement contains certain restrictive covenants and events of default which, subject to conforming amendments, reflect the covenants and events of default contained in the Indenture. The RCF Agreement also contains certain customary representations and warranties for facilities of this type. In addition, the Issuer shall not, and shall procure that none of its subsidiaries shall, repay, prepay, purchase, defease (or otherwise retire for value) or directly or indirectly acquire any of the Notes or offer to do so unless (to the extent such Notes purchases made since the date of the RCF Agreement have resulted in the aggregate principal amount outstanding under the Notes being 40% or less than the aggregate principal amount outstanding under the Secured Notes on the Issue Date) the commitments under the RCF Agreement are also cancelled in a pro rata amount. Security and Guarantees Our obligations under the RCF Agreement will be secured by first-priority security interests over the same assets as those securing the Notes. Guarantees, subject to certain limitations in

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relation to unlawful financial assistance, will be jointly and severally provided by the same subsidiaries guaranteeing the Notes. In particular, the obligations and liabilities of any Spanish Guarantor shall not include any obligation which if incurred would constitute financial assistance within the meaning of article 150 of the Spanish Companies Law (Ley de Socidades de Capital). Voluntary Prepayments The Issuer and the other borrowers of the Revolving Credit Facility (the Borrowers) have the option to voluntarily prepay or cancel all or part of the Revolving Credit Facility in tranches of at least e250,000 (and in multiples of e250,000 if more) with five business days notice for each of cancellation and prepayments. The Issuer and the Borrowers have the option to voluntarily prepay an individual lender or issuing bank in the event that any sum payable to that lender or issuing bank is required to be increased due to a tax gross-up or indemnification or where increased costs are payable in certain circumstances. Mandatory Prepayments Mandatory prepayment and cancellation of the Revolving Credit Facility will, reflecting the covenants contained in the Indenture, occur upon (i) certain change of control events and a sale of substantially all of our assets or (ii) it being illegal for a lender to provide or continue to provide funding (such prepayment will be limited to such lenders share). In the case of any prepayment, the Issuer and the other Borrowers would be required to pay accrued interest on the amount prepaid and break costs. Project Financings Project Financing for the Huelva Facility On June 21, 2011, ENCE Energ a Huelva, S.L.U., an indirectly wholly-owned subsidiary of the Issuer, entered into a e101.3 million credit facility agreement (the Huelva Senior Credit Agreement) with Banco Espa nol de Cr edito, S.A., Caja de Ahorros y Pensiones de Barcelona (currently, CaixaBank, S.A.), Banco Bilbao Vizcaya Argentaria, S.A., Banco Santander, S.A., Bankia, S.A., Instituto de Cr edito Oficial and Banco Sabadell, S.A. to finance the development, construction and commissioning of its Huelva biomass energy facility. The availability under the Huelva Senior Credit Agreement is expected to be reduced to e99.1 million. Construction of this facility, which has a capacity of 50 MW and a forecast annual production of approximately 340 million kWh, was completed in September 2012, with a test phase completed in December 2012 and we expect to take possession of the facility in the first quarter of 2013. The Huelva Senior Credit Agreement provides for the financing of 75% of the project costs (excluding applicable VAT) with the remainder financed through equity and subordinated debt. The financing period is twelve years, including two years for the construction period and a ten-year amortization period over the facilitys commercial operation. The Huelva Senior Credit Agreement bears an interest rate equal to EURIBOR plus a margin of 3.25% during years 1 through 4, 3.50% during years 5 through 8 and 3.75% from year 9 onwards, and its maturity date is December 22, 2022. The Huelva Senior Credit Agreement contains certain customary events of default, including, among others, and subject to certain exceptions and grace periods, defaults in the payment or prepayment of any amounts payable, breach of obligations or undertakings provided for in the project finance documentation, misrepresentation, enforcement of security, failure to comply with certain financial covenants, cross-default under other indebtedness related to project finance and occurrence of certain bankruptcy and insolvency events. In connection with the Huelva Senior Credit Agreement, we granted security over certain assets of particular companies of our Group, including, among others, a pledge over the shares of the project special purpose vehicle (ENCE Energ a Huelva, S.L.U.) granted by ENCE Energ a, S.L.U., a pledge over the credit rights arising from certain project agreements related to the processing plant and the facility, a chattel mortgage commitment over the processing plant and the facility, a pledge over biomass stock and a pledge on certain bank accounts related to the project.

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In addition, we entered into a commitment and guarantee agreement (contrato de compromisos y garantias) pursuant to which we granted the following guarantees within the framework of the Huelva Senior Credit Agreement and also undertook to comply with certain obligations customary for this kind of project, many of which are backed by the terms of the EPC contract: Limited Recourse in Force Until the Completion Date: Under the Huelva Senior Credit Agreement, the Issuer may be required to pay any cost overrun related to the project without any limitation with respect to the amount of liability. The Issuer may be required to prepay certain amounts drawn under the Huelva Senior Credit Agreement (including related breakage costs) in the event of (i) the non-completion of the project by June 14, 2013, (ii) acceleration by the lenders under the Huelva Senior Credit Agreement before the Completion Date, and (iii) changes in the tariff applicable to the facility or the approval of amendments to Royal Decree 661/2007 that would have an impact on the economic feasibility of the facility and/or the ability of the project special purpose vehicle to comply with its obligations under the Huelva Senior Credit Agreement. Limited Recourse in Force After Completion but Subject to Expiration Date: The Issuer may be required to prepay certain amounts drawn under the Huelva Senior Credit Agreement (including related breakage costs) in the event of (i) failure to meet certain requirements under the EPC contract, and (ii) shortfalls in the electricity production of the facility. In addition, the Issuer may be required to prepay 40% of the amounts drawn under the Huelva Senior Credit Agreement in the event that the plan for growing crops agreed between us and the lenders in connection with the the Huelva Senior Credit Agreement is not complied with, which requirement will expire on January 1, 2014. If certain other technical conditions are met, the guarantee (i) will be reduced to 20% of the amounts drawn under the Huelva Senior Credit Agreement if 80% of the plan for growing crops has been complied with and (ii) will expire upon completion of 90% or more of the plan for growing crops. As of December 31, 2012, we had complied with approximately 76% of such plan. Limited Recourse Without Applicable Expiration Date: The Issuer may be required to prepay certain amounts drawn under the Huelva Senior Credit Agreement (including related breakage costs) in the event that the biomass supply plan agreed between us and the lenders in connection with the Huelva Senior Credit Agreement is not complied with, with a maximum amount of liability limited to e25 million. In addition, the Issuer may be required to increase the amount of biomass supplied to the project special purpose vehicle on an ongoing basis if a regulatory amendment approving a reduction in permitted fossil fuel uses for electricity generation through biomass transformation is enacted. The Issuer may be required to guarantee any damages and loss of profits during the whole operation period of the facility arising from a breach of the availability parameters required in connection with the operation and maintenance contract, with a maximum amount of liability equal to the price applicable under the operation and maintenance contract. The Issuer may be required to cover the tax consequences of improved profits and/or extra losses as a result of the inclusion of the project special purpose vehicle into the tax group of the Issuer for corporate tax purposes, provided that certain circumstances occur. This guarantee is not subject to any cap on its amount. In addition, the Issuer may be required to pay taxes chargeable to the project special purpose vehicle as a result of the creation of the chattel mortgage over the facility. Project Financing for the M erida Facility On June 15, 2012, ENCE Energ a Extremadura, S.L.U., an indirectly wholly owned subsidiary of the Issuer, entered into a e60.7 million credit facility agreement (the M erida Senior Credit Agreement) with Banco Espa nol de Cr edito, S.A., Banco Bilbao Vizcaya Argentaria, S.A. and CaixaBank, S.A. to finance the development, construction and commissioning of its M erida biomass energy facility. The availability under the M erida Senior Credit Agreement is expected to be reduced to e50.7 million.

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The facility, which has a capacity of 20 MW and an expected annual production of 158 GWh, is expected to become operational during the last quarter of 2014. The M erida Senior Credit Agreement provides for the financing of 75% of the project costs (excluding VAT), with the remainder financed through equity and subordinated debt. The financing period is 15 years, including two years for the construction period and a 13-year amortization period over the facilitys commercial operation. The M erida Senior Credit Agreement bears an interest rate equal to EURIBOR plus a margin of 3.5% during years 1 through 5 and 4.0% from year 6 onwards, and its maturity date is June 15, 2027. The M erida Senior Credit Agreement contains certain customary events of default, including, among others, and subject to certain exceptions and grace periods, defaults in the payment or prepayment of any amounts payable, breach of obligations or undertakings provided for in the project finance documentation, misrepresentation, enforcement of security, failure to comply with certain financial covenants, cross-default under other indebtedness related to project finance and occurrence of certain bankruptcy and insolvency events. In connection with the M erida Senior Credit Agreement, we granted security over certain assets of particular companies of the Group, including, among others, a pledge over the shares of the project special purpose vehicle (ENCE Energ a Extremadura, S.L.U.) granted by ENCE Energ a, S.L.U., a pledge over the credit rights arising from certain project agreements, a pledge over bank accounts related to the project, a promissory pledge commitment without transfer of possession over biomass stock, a promissory pledge over certain credit rights derived from the sale of energy and a mortgage commitment over the facilitys site. In addition, we entered into a shareholders support agreement (contrato de apoyo de socios) pursuant to which we granted the following guarantees within the framework of the M erida Senior Credit Agreement and also undertook to comply with certain obligations customary for this kind of project, many of which are backed by the terms of the EPC contract. Limited Recourse in Force Until the Completion Date: Under the M erida Senior Credit Agreement, the Issuer may be required to contribute equity to the project special purpose vehicle in such amount as is required to ensure that the maximum gearing ratio applicable under the M erida Senior Credit Facility does not exceed 75/25. The Issuer may be required to pay any cost overrun related to the project without any limitation with respect to the amount of liability. The Issuer may be required to prepay certain amounts drawn under the M erida Senior Credit Agreement (including related breakage costs) in the event of (i) the non-completion of the project by March 31, 2015, (ii) non-registration of the facility with the Spanish Registry of Electricity Production Installations under Special Regime (Registro de Instalaciones de Producci on en R egimen Especial) (RIPRE) by October 31, 2014, (iii) acceleration by the lenders under the M erida Senior Credit Agreement before the completion date, and (iv) approval of any changes in the applicable regulatory regime or enactment of any regulation that creates an increase in the project costs (including, inter alia, the creation of any tax on revenues from electricity generation) and/or a decrease in the net electricity remuneration. In addition, the Issuer may be required to service any amount owed under the M erida Senior Credit Agreement until September 30, 2014. The Issuer may be required to prepay 45% of the amounts drawn under the M erida Senior Credit Agreement in the event that the plan for growing crops agreed between us and the lenders in connection with the M erida Senior Credit Agreement is not complied with. If certain other technical conditions are met, this guarantee (i) will be reduced to 20% of the amounts drawn under the M erida Senior Credit Agreement where 80% of the plan for growing crops has been complied with and (ii) will expire upon completion of 90% or more of the plan for growing crops. As of December 31, 2012, we had complied with approximately 77% of such plan. Limited Recourse in Force After Completion but Subject to Expiration Date: The Issuer may be required to prepay certain amounts drawn under the M erida Senior Credit Agreement (including related breakage costs) in the event of shortfalls in the facilitys electricity production. The guarantee will expire 24 months after the completion date.

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 Limited Recourse Without Applicable Expiration Date: The Issuer may be required to prepay certain amounts drawn under the M erida Senior Credit Agreement (including related breakage costs) in the event that the biomass supply plan agreed between us and the lenders in connection with the M erida Senior Credit Agreement is not complied with, with the maximum amount of liability being limited to e4.3 million. The Issuer may be required to cover the tax consequences of improved profits and/or extra losses as a result of the inclusion of the project special purpose vehicle into the tax group of the Issuer for corporate tax purposes. In addition, the Issuer may be required to make payments in order to cover a more-adverse tax treatment and/or position that may result under the interest barrier rules applicable in Spain (as a consequence of including the project special purpose vehicle within the tax group of the Issuer for corporate tax purposes). None of these guarantees have any limitation with respect to amount of liability. Intercreditor Agreement In connection with entering into the RCF Agreement and the Indenture, the Issuer and the Guarantors shall enter into the Intercreditor Agreement to govern the relationships and relative priorities among: (i) the lenders under the Revolving Credit Facility (the RCF Lenders); (ii) any persons that accede to the Intercreditor Agreement as providers of hedging which is permitted to be secured pari passu with the Revolving Credit Facility (the Hedge Counterparties) pursuant to certain hedging agreements, as permitted in the relevant finance documents (collectively, the Hedging Agreements); (iii) the Trustee, for itself and on behalf of the holders of the Notes (the Noteholders); and (iv) subsidiaries of the Issuer which are borrowers or guarantors of the Revolving Credit Facility (each an Obligor and together the Obligors). The Issuer and each of its restricted subsidiaries that provides a guarantee under the RCF Agreement or the Indenture is referred to in this description as a Guarantor and are referred to collectively as the Guarantors. In this description Group refers to the Issuer and its Restricted Subsidiaries. The Intercreditor Agreement sets forth: the relative ranking of certain indebtedness of the Obligors; the relative ranking of certain security granted by the Obligors; when payments can be made in respect of certain indebtedness of the Obligors; when enforcement actions can be taken in respect of that indebtedness; the terms pursuant to which certain indebtedness will be subordinated upon the incurrence of certain insolvency events; turnover provisions; and when security and guarantees will be released to permit a sale of any assets subject to security (the Collateral). The Intercreditor Agreement contains provisions allowing future indebtedness that may be incurred by the Obligors or another group company and that is permitted by the RCF Agreement and the Indenture to rank pari passu with the Revolving Credit Facility and the Notes and be secured by the Collateral, subject to the terms of the Intercreditor Agreement (such debt being Pari Passu Liabilities and the creditors of such debt being Pari Passu Creditors). The Intercreditor Agreement also allows, under certain conditions, additional advances under the Revolving Credit Facility and additional Notes to rank pari passu with the Revolving Credit Facility and the Notes and be secured by the Collateral. The Intercreditor Agreement allows for a refinancing in full or in part of the Notes or the Revolving Credit Facility or any Pari Passu Liabilities. The following description is a summary of certain provisions, among others, contained in the Intercreditor Agreement. It does not describe the Intercreditor Agreement in its entirety, and we urge you to read that document because it, and not the description that follows, defines your rights as holders of the Notes.

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Ranking and Priority The Intercreditor Agreement provides that the liabilities of the Obligors with respect to the Revolving Credit Facility (the RCF Liabilities) and certain hedging agreements (to the extent secured, the Hedging Liabilities and, together with the RCF Liabilities, the Super Senior Liabilities), the liabilities of the Obligors in respect of the Notes (the Notes Liabilities), the Pari Passu Liabilities and the liabilities of the Obligors under certain intercompany loans, including those relating to the on-lending of the proceeds of the Notes, the repayment of which is needed to enable an Obligor to repay any of the Notes Liabilities (Structural Intercompany Liabilities), will rank in right and priority of payment in the following order: first, the Super Senior Liabilities, the Notes Liabilities, the Pari Passu Liabilities (together with the Super Senior Liabilities and the Notes Liabilities, the Secured Liabilities) and the Structural Intercompany Liabilities pari passu and without any preference between them; and second, certain intercompany liabilities of the Obligors under intercompany loans that are not Structural Intercompany Liabilities (the Non-Structural Intercompany Liabilities). Under the Intercreditor Agreement, all proceeds from enforcement of the Collateral will be applied as provided under Application of Proceeds. Permitted Payments of Subordinated Debt The Intercreditor Agreement permits, among other things, payments to be made by the Obligors in respect of the RCF Liabilities, the Notes Liabilities, the Pari Passu Liabilities and Structural Intercompany Liabilities. The Intercreditor Agreement also permits payment of Non-Structural Intercompany Liabilities from time to time when due to members of the Group owed Non-Structural Intercompany Liabilities (Non-Structural Intercompany Liabilities Payments) if at the time of payment no acceleration event has occurred in respect of any RCF Liabilities, Notes Liabilities or Pari Passu Liabilities (an Acceleration Event). The Intercreditor Agreement permits Non-Structural Intercompany Liabilities Payments if such an Acceleration Event occurs (i) prior to the date on which all Super Senior Liabilities are discharged in full and the RCF Lenders have no further obligations under the Revolving Credit Facility documents and the hedge counterparties have no further obligations under the agreements governing the Hedging Liabilities (the Super Senior Discharge Date), with the consent of the RCF Agent (as defined below); (ii) prior to the date on which all the Notes Liabilities are discharged (the Notes Discharge Date), with the consent of the Trustee; and (iii) prior to the date on which the Pari Passu Liabilities have been discharged in full and the Pari Passu Creditors have no further obligation in respect of the Pari Passu Liabilities (the Pari Passu Discharge Date), with the consent of the creditor representative of the Pari Passu Creditors (the Pari Passu Representative). Creditor Representative Under the Intercreditor Agreement (or, in respect of the RCF Agent, under the RCF Agreement), the parties appoint various creditor representatives (each a Secured Representative) being: (i) (ii) (iii) in relation to the RCF Lenders, the Revolving Credit Facility agent (the RCF Agent); in relation to the Noteholders, the Trustee; and in relation to the Pari Passu Creditors, the Pari Passu Representative. Each Hedge Counterparty shall be its own creditor representative. Entitlement to Enforce Collateral The Security Agent may refrain from enforcing the Collateral unless otherwise instructed by: (i) prior to the Super Senior Discharge Date, the Pari Passu Discharge Date, the Notes Discharge Date and the date falling six months after the occurrence of any relevant Acceleration Event which is continuing (the Six Months Date), the Notes/Pari Passu Required Holders (as defined below) and, if the RCF Agents instructions (acting on instructions from the Majority Super Senior Creditors (as defined below)) are consistent with those of the Notes/Pari Passu

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Required Holders, the RCF Agent (acting on instructions from the Majority Super Senior Creditors); (ii) (iii) after the Super Senior Discharge Date but prior to the Notes Discharge Date and the Pari Passu Discharge Date, the Notes/Pari Passu Required Holders; or prior to the Super Senior Discharge Date but after the first to occur of (A) the Six Months Date and (B) the first date on which both the Pari Passu Discharge Date and the Notes Discharge Date have occurred, the RCF Agent (acting on instructions from the Majority Super Senior Creditors),

and provided that, so long as neither the Super Senior Discharge Date, nor the Pari Passu Debt Discharge Date nor the Notes Discharge Date has occurred, such instructions are consistent with certain principles (the Security Enforcement Principles). Please see Limitation on Enforcement by Super Senior Creditors and Noteholders. The Security Agent may disregard any instructions from any other person to enforce the Collateral and may disregard any instructions to enforce any Collateral if those instructions are inconsistent with the Intercreditor Agreement. The Security Agent is not obligated to enforce the Collateral if it is not appropriately indemnified (including by way of pre-funding) by the relevant creditors. Pari Passu Debt Required Holders means, in respect of any direction, approval, consent or waiver, the Pari Passu Creditors of the principal amount of Pari Passu Liabilities required to vote in favor of such direction, consent or waiver under the terms of the relevant Pari Passu Liabilities documents or, if the required amount is not specified, the holders holding at least the majority of the principal amount of the then outstanding Pari Passu Liabilities. For the avoidance of doubt, in determining whether the Pari Passu Creditors of the required principal amount of Pari Passu Liabilities have concurred in any direction, waiver or consent, Pari Passu Liabilities owed by any member of the Group, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with any Obligor, will be considered as though not outstanding. Notes/Pari Passu Required Holders means: (i) (ii) the Notes Required Holders (as defined below); and if applicable and if the aggregate amount of Pari Passu Liabilities is equal to or more than e50,000,000, the Pari Passu Debt Required Holders,

provided that, if the instructions are received from only the Notes Required Holders or (subject to paragraph (ii) above) only the Pari Passu Debt Required Holders, the instructions of that responding class will prevail, and in the event that there is an inconsistency in instructions received from the Notes Required Holders and (subject to paragraph (ii) above) the Pari Passu Liabilities Required Holders: (i) (ii) if the Notes Liabilities are equal to or greater than the Pari Passu Liabilities, the instructions of the Notes Required Holders will prevail; and if the Pari Passu Liabilities are greater than the Notes Liabilities, the instructions of the Pari Passu Liabilities Required Holders will prevail.

Notes Required Holders means, in respect of any direction, approval, consent or waiver, the Noteholders of the principal amount of Notes required to vote in favor of such direction, consent or waiver under the terms of the Notes or, if the required amount is not specified, the Noteholders holding at least the majority of the principal amount of the then outstanding Notes, in accordance with the Indenture. For the avoidance of doubt, in determining whether the Noteholders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by any member of the Group will be considered as though not outstanding. Majority Super Senior Creditors means, at any time, those RCF Lenders and Hedge Counterparties whose Super Senior Credit Participations at that time aggregate more than 6623% of the total Super Senior Credit Participations at that time. RCF Discharge Date means the first date upon which the RCF Liabilities have been unconditionally discharged in full and the RCF Lenders are owed no further obligations under the Finance Documents.

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Super Senior Credit Participation means, in relation to an RCF Lender or Hedge Counterparty, the aggregate of: (a) on or prior to the RCF Discharge Date, each RCF Lenders aggregate Commitments (as defined in the RCF Agreement and, in the event of any Refinancing permitted in accordance with the RCF Agreement, Commitments as defined in any applicable replacement facility agreement); in respect of any hedging transaction of a Hedge Counterparty under any Hedging Agreement that has, as of the date the calculation is made, been terminated or closed out in accordance with the terms of the Intercreditor Agreement, the amount, if any, payable to that Hedge Counterparty under any Hedging Agreement in respect of that termination or close-out as of the date of termination or close-out (and before taking into account any interest accrued on that amount since the date of termination or close-out) to the extent that amount is unpaid (that amount to be certified by the relevant Hedge Counterparty and as calculated in accordance with the relevant Hedging Agreement); and after the RCF Discharge Date only, in respect of any hedging transaction of a Hedge Counterparty under any Hedging Agreement that has, as of the date the calculation is made, not been terminated or closed out: (i) if the relevant Hedging Agreement is based on a 1992 ISDA Master Agreement or a 2002 ISDA Master Agreement the amount, if any, which would be payable to it under that Hedging Agreement in respect of that hedging transaction, if the date on which the calculation is made was deemed to be an Early Termination Date (as defined in the relevant ISDA Master Agreement) for which the relevant Obligor is the Defaulting Party (as defined in the relevant ISDA Master Agreement); or if the relevant Hedging Agreement is not based on an ISDA Master Agreement, the amount, if any, which would be payable to it under that Hedging Agreement in respect of that hedging transaction, if the date on which the calculation is made was deemed to be the date on which an event similar in meaning and effect (under that Hedging Agreement) to an Early Termination Date (as defined in any ISDA Master Agreement) occurred under that Hedging Agreement for which the relevant Obligor is in a position similar in meaning and effect (under that Hedging Agreement) to that of a Defaulting Party (under and as defined in the same ISDA Master Agreement),

(b)

(c)

(ii)

that amount, in each case, to be certified by the relevant Hedge Counterparty and as calculated in accordance with the relevant Hedging Agreement. Limitation on Enforcement by Super Senior Creditors and Noteholders If the RCF Agent or the Trustee or the Pari Passu Representative wishes to instruct the Security Agent to commence enforcement of any Collateral in the manner described under Entitlement to Enforce Collateral, the RCF Agent, the Trustee and the Pari Passu Representative (the Secured Representatives) must consult with one another and with the Security Agent in good faith with a view to coordinating these instructions for 30 days or such other period as the Secured Representatives may agree. None of the Secured Representatives shall be obliged to consult before giving instructions to enforce the Collateral in the manner described above if: (i) the relevant Collateral has become enforceable as a result of any insolvency proceedings relating to the Obligor against which the acceleration action has been taken or the debt accelerated; or a Secured Representative determines in good faith (and notifies each other Secured Representative and the Security Agent) that to enter into such consultations and thereby delay the commencement of enforcement of the Collateral could reasonably be expected to have an adverse effect on: (A) (B) their ability to enforce any of the Collateral; or the realization proceeds of any enforcement of the Collateral in any material respect.

(ii)

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Until the Notes Discharge Date, if the Security Agent has received conflicting enforcement instructions from the Secured Representatives then the Security Agent will promptly notify the Secured Representatives and such Secured Representatives will consult with each other for a period of 15 days or such other period as the Secured Representatives may agree with a view to resolving the conflict in such instructions (the Further Consultation Period). The Further Consultation Period will end immediately if: (i) the relevant Collateral has become enforceable as a result of insolvency proceedings relating to the Obligor against whom the enforcement action has been taken or the debt has been accelerated; or a Secured Representative determines in good faith (and notifies each other Secured Representative and the Security Agent) that to enter into such consultations and thereby delay the commencement of enforcement of the Collateral could reasonably be expected to have an adverse effect on: (A) (B) their ability to enforce any of the Collateral; or the realization proceeds of any enforcement of the Collateral in any material respect.

(ii)

The Security Agent will only enforce Collateral in accordance with instructions the Security Agent has received from the Notes/Pari Passu Required Holders to enforce or direct the enforcement of the Collateral (regardless of whether or not the Security Agent has received conflicting instructions or sole instructions from the RCF Agent (acting on instructions from the Majority Super Senior Creditors) to enforce or direct the enforcement of the Collateral (save if the Pari Passu Discharge Date and Notes Discharge Date or the Six Months Date has occurred, whereupon the Security Agent shall enforce or direct the enforcement of such Collateral in accordance with the instructions it has received from the RCF Agent)). A Creditor Representative may only give enforcement instructions that are consistent with the Security Enforcement Principles, including that: (i) it shall be the primary and overriding aim of any enforcement of the Collateral to achieve the security enforcement objective (being to maximize so far as is consistent with prompt and expeditious realization of value from enforcement of the Collateral, the recovery by the RCF Lenders, the Hedge Counterparties, the Noteholders and the Pari Passu Creditors (together the Secured Creditors) such objective being, the Security Enforcement Objective); the Collateral will be enforced and other enforcement action will be taken such that either: (A) all proceeds of enforcement are received by the Security Agent in cash for distribution in accordance with the Intercreditor Agreement (please see Application of Proceeds); or sufficient proceeds from enforcement will be received by the Security Agent in cash to ensure that when the proceeds are applied in accordance with the Intercreditor Agreement (please see Application of Proceeds), the Super Senior Liabilities are repaid and discharged in full (unless the RCF Agent agrees otherwise);

(ii)

(B)

(iii) (iv)

the enforcement actions are prompt and expeditious to the extent reasonably achievable provided that they are consistent with the Security Enforcement Objective; to the extent that the Collateral that is the subject of the proposed enforcement action is: (A) (B) over assets other than shares in a member of the Group where the aggregate book value of such assets exceeds e10,000,000 (or its equivalent) (Material Collateral); or over some or all of the shares in a member of the Group,

then the Security Agent shall (unless it is unnecessary in respect of enforcement proceedings in a relevant jurisdiction or the enforcement proceedings are by way of public auction or through a court supervised process) appoint a big four accounting firm, any reputable and independent international investment bank or other reputable and independent professional services firm with

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experience in restructuring and enforcement (a Financial Advisor) to opine (the Financial Advisors Opinion) as expert on: (A) (B) (C) (v) (vi) the optimal method of enforcing the Collateral so as to achieve the Security Enforcement Principles and maximize the recovery of any such enforcement action; that the proceeds received from any such enforcement are fair from a financial point of view after taking account all relevant circumstances; and that such sale is otherwise in accordance with the Security Enforcement Objective;

the Financial Advisors Opinion (or any equivalent opinion obtained by the Security Trustee will be conclusive evidence that the Security Enforcement Objective has been met; and in the event than an enforcement of the Collateral is over assets or shares referred to in paragraph (iv) above and such enforcement is conducted by way of public or court auction, any equity investors of the Group shall, subject to compliance with applicable law, be entitled to participate in such auction.

The Trustee will be under no obligation to take any action under the Intercreditor Agreement unless it is indemnified or secured to its satisfaction in accordance with the Indenture in respect of all costs, expenses and liabilities which it would in its opinion thereby incur. No provision of the Intercreditor Agreement shall require either of the Trustee or the Security Agent to do anything which might, in its opinion, constitute a breach of any law or regulation of be otherwise actionable at the suit of any person. Application of Proceeds The Intercreditor Agreement provides that amounts received from the realization or enforcement of all or any part of the Collateral will be applied in the following order of priority: (i) first, in payment of the fees, costs, expenses and liabilities of the RCF Agent, the Security Agent, the Pari Passu Representative and of any receiver, delegate, attorney or agent appointed under any Collateral documents or the Intercreditor Agreement or the Pari Passu Liabilities documents or the Intercreditor Agreement and of the Trustee pari passu and ratably between such parties; second, in payment of the balance of the costs and expenses of the RCF Lenders and the Hedge Counterparties (together, the Super Senior Creditors) (other than the Security Agent, any receiver or delegate) in connection with such realization or enforcement pari passu and ratably between such parties; third, in payment to the RCF Agent and the Hedge Counterparties for application towards the balance of each of the RCF Liabilities and the Hedging Liabilities pari passu and ratably between such parties; fourth, in payment pari passu and pro rata of the balance of: (A) (B) (v) the costs and expenses of the Trustee on behalf of each Noteholder; and the Pari Passu Representative on behalf of each Pari Passu Creditor; and

(ii)

(iii)

(iv)

fifth, in payment: pari passu and pro rata to: (A) (B) the Trustee for application towards the balance of the Notes Liabilities; and the Pari Passu Representative for application towards the balance of the Pari Passu Liabilities.

Additional Indebtedness In the event that any Obligor incurs any additional indebtedness that is permitted under the terms of the Notes and the RCF Agreement to be secured by the Collateral, the creditors in respect of such additional liabilities will share in the proceeds of any enforcement of Collateral on the basis and to the extent permitted under the terms of the Notes and the RCF Agreement.

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Release of the Guarantees and the Security Where a disposal of an asset is being effected, the Intercreditor Agreement provides that the Security Agent is authorized (i) to release the Collateral or guarantee (and the relevant Obligors shall release any Collateral given to them) where such releases are required to give effect to the Intercreditor Agreement and the documents governing the Secured Liabilities and/or where such releases are connected to a sale, transfer or other disposal of any assets, undertaking or business that is not prohibited or is expressly permitted under the terms of the Finance Documents, and (ii) on commencement of enforcement action in order for a disposal of assets or shares in the capital of an Obligor to be fully effective to release that Obligor and any subsidiary of that Obligor from all or any part of its liabilities to a member of the Group or a Secured Creditor such that no Secured Liabilities remain attached to those assets being disposed of or any Obligor or subsidiary of that Obligor in which shares are being disposed of. Amendment The Intercreditor Agreement provides that it may only be amended with the consent of the Security Agent, the Notes/Pari Passu Required Holders (acting through the Trustee and/or the Pari Passu Representative), the RCF Agent, the Trustee and the Hedge Counterparties save in respect of administrative changes or to correct manifest errors on the instructions of the RCF Agent, the Pari Passu Representative and the Trustee. Option to Purchase: RCF Liabilities and Hedging Liabilities After enforcement action has been taken against an Obligor, the Trustee and the Pari Passu Representative, at the direction and expense of the Noteholders and the Pari Passu Creditors (as applicable), will, subject to meeting certain conditions, have the right to acquire or procure that a nominee acquires all (but not part only) of the Super Senior Liabilities. Any such purchase will be on terms which will include, without limitation, payment in full in cash of an amount equal to the Super Senior Liabilities then outstanding, including in respect of any broken funding costs, as well as certain costs and expenses of the Super Senior Creditors; after the transfer, no Super Senior Creditor will be under any actual or contingent liability to any person under the Intercreditor Agreement; the purchasing Noteholders and Pari Passu Creditors indemnify each Super Senior Creditor for any actual or alleged obligation to repay or claw back any amount received by such Super Senior Creditor; and the relevant transfer shall be without recourse to, or warranty from, any Super Senior Creditor save as to title and the absence of third-party interests, power and authority and completion of know-your-customer checks. CDTI Agreements As of September 30, 2012, we had approximately e9.0 million of principal outstanding relating to loans granted by CDTI, a public institution attached to the Spanish Ministry of Economy and Competitiveness, whose purpose is to encourage the innovation and technological development of Spanish companies by providing financing. Under the terms of these loans, we undertook to comply with certain restrictive covenants, including restrictions on the creation of any personal guarantees, mortgages or pledges on our assets. Furthermore, as a result of such loan agreements, the CDTI was granted pari passu status with respect to any security granted in connection with any of our existing and/or future borrowings. The granting of the security over the Collateral securing the Notes, the Revolving Credit Facility and other secured indebtedness of the Issuer will require the consent of the CDTI. We have requested such consent. If we fail to obtain such consent, we will repay the loan outstanding under the CDTI agreements in order to avoid any breach. Local Facility We have a small local facility with an aggregate principal amount outstanding as of September 30, 2012 of e1.6 million.

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Equity Swap Arrangement On October 25, 2007, the Issuer arranged an equity swap with Bankia S.A. for a total amount of 5.1 million shares of the Issuer, at a base price of e4.40 per share, in order to comply with certain terms and conditions set forth in the management incentive plan of our senior management. The terms of this equity swap were amended in March 2010 as a result of our share capital increase, at a base price of e4.11 per share, and in June 2012, by extending its term until 2015, with partial cancellations of 1.0 million shares in each of March 2013 and March 2014 and 1.8 million shares in March 2015. In addition, March 15, 2015 was designated as the new termination date. As of September 30, 2012, the fair value of the instrument was negative e10.8 million.

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DESCRIPTION OF THE NOTES ENCE Energ a y Celulosa, S.A. (the Company) will issue e250 million % senior secured notes due 2020 (the Notes) under an indenture (the Indenture) among itself, the Guarantors (as defined herein), Deutsche Trustee Company Limited, as trustee (the Trustee), Deutsche Bank AG, London Branch, as security agent (the Security Agent) and the other parties named therein. The terms of the Notes will be stated in the Indenture. The Notes issued on the Issue Date (as defined herein) will be denominated in euro. The Indenture will be unlimited in aggregate principal amount subject to the provisions of the Indenture, although the issuance of Notes on the Issue Date will be limited to e250 million. The Indenture will not incorporate or include or be subject to any provisions of the U.S. Trust Indenture Act 1939, as amended. Certain terms used in this description are defined under the heading Certain Definitions. In this description: (i) the Company refers only to ENCE Energ a y Celulosa, S.A. and not to any of its Subsidiaries; and (ii) Guarantor refers only to such Guarantor and not to any of its Subsidiaries. The following description is only a summary of the material provisions of the Indenture. It does not restate the Indenture in its entirety. You should read the Indenture because it, not this description, defines your rights as Holders. You may request copies of the Indenture at the address set forth under the heading Where You Can Find More Information and, for so long as the Notes are listed on the Official List of the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, you may inspect copies of such documents at the office of the Listing Agent in Luxembourg. The Holder of a Note will be treated as the owner of the Note for all purposes. Only the Holder will have rights under the Indenture. Brief Description of the Notes The Notes: will be general senior secured obligations of the Company; will rank pari passu in right of payment with all existing and future Debt of the Company that is not subordinated to the Notes; will rank senior in right of payment to any existing and future Subordinated Obligations of the Company; will be structurally subordinated to all liabilities (including trade payables), disqualified stock and preferred stock of the Companys Subsidiaries that do not guarantee the Notes; will be effectively subordinated to any existing and future Debt of the Company that is secured by property or assets that do not secure the Notes, to the extent of the value of the property or assets securing such Debt; and will benefit from additional credit enhancement provided by the Company and certain Restricted Subsidiaries of the Company. Credit enhancement for the Notes will include: (i) the Guarantees and (ii) the pledge by the Company and certain of its Restricted Subsidiaries of the Collateral. The Guarantors will be jointly and severally liable with respect to the Companys obligations under the Notes. The Notes and the Guarantees will be secured by the Collateral pledged for the benefit of the Trustee, the Holders of the Notes and the other secured parties under the Intercreditor Agreement. Only certain Restricted Subsidiaries of the Company will guarantee the Notes, and those Guarantees will be subject to significant limitations. The credit enhancement in respect of the Notes, and the limitations to which the credit enhancements are subject, are more fully described below under Credit Enhancement and in Annex A to the Offering Memorandum. ENCE Energ a Huelva, S.L.U. (the Huelva Biomass Subsidiary) and ENCE Energ a Extremadura, S.L.U. (the M erida Biomass Subsidiary) are existing Biomass Subsidiaries and each of the Huelva Biomass Subsidiary and the M erida Biomass Subsidiary is a borrower under a Biomass Financing Agreement. Neither the Huelva Biomass Subsidiary nor the M erida Biomass Subsidiary is a Guarantor. The Company may set up additional Biomass Subsidiaries in the future, which may enter into an additional Biomass Financing Agreement, and none of such additional

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Biomass Subsidiaries would be required to become a Guarantor. As a result, lenders under any Biomass Financing Agreement, whether in respect of the Huelva Biomass Subsidiary, the M erida Biomass Subsidiary or any future Biomass Subsidiary that enters into a Biomass Financing Agreement, may be able to assert claims for repayment against any such Biomass Subsidiary, as such Biomass Subsidiary will be a non-guarantor Restricted Subsidiary with respect to which Holders of the Notes would have no direct claims for repayment. Any right of the Holders of the Notes to participate in the assets of any of the Companys Subsidiaries that is not a Guarantor, upon the bankruptcy, liquidation or reorganization of any such Subsidiary will (except insofar as the Company has an unsubordinated claim against such Subsidiary for intercompany debt that has not been pledged in favor of the lenders under any Biomass Financing Agreement) also be subject to the prior claims of the creditors of such Subsidiary, including but not limited to trade creditors. Claims by the Trustee against a Guarantor on behalf of the Holders of the Notes will be direct claims on that Guarantor. However, some of the Guarantors may be holding companies, and hence claims under any such Guarantee will be structurally subordinated to the prior claims of the creditors of the Subsidiaries of such Guarantors, including but not limited to trade creditors. As of the date of the Indenture, all of the Companys Subsidiaries will be Restricted Subsidiaries. However, under the circumstances described below under the definition of Unrestricted Subsidiaries, the Company will be permitted to designate certain of its Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to any of the restrictive covenants in the Indenture. Principal, Maturity and Interest The Company will issue the Notes in an initial aggregate principal amount of e250 million. The Notes will be issued pursuant to a notarial deed (escritura notarial) which will be registered with the Mercantile Register of Madrid and the issuance of the Notes will be published in the Mercantile Registry Official Gazette. The Notes will mature on , 2020. The Company will issue the Notes in denominations of e100,000 and integral multiples of e1,000 in excess thereof. Notes in denominations of less than e100,000 will not be available. Subject to the Companys compliance with the covenant described under the heading Certain CovenantsLimitation on Debt, the Company is permitted to issue additional Notes from time to time under the Indenture in an unlimited principal amount (the Additional Notes). The Notes and the Additional Notes, if any, will be treated as a single class for all purposes of the Indenture, including waivers, amendments, redemptions and offers to purchase. Unless the context otherwise requires, for all purposes of the Indenture and this Description of the Notes, references to the Notes include any Additional Notes actually issued. Notes Interest on the Notes will accrue at the rate of % per annum. Interest on the Notes will be payable semi-annually in arrears on each Interest Payment Date commencing , 2013, to the person in whose name the Notes are registered on the relevant record date as stated below. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from and including the Issue Date. Interest will be computed on the basis of a 360-day year comprising twelve 30-day months. Interest Payment Date means and in each year from and including , 2013. If any Interest Payment Date would otherwise fall on a day which is not a Business Day, it shall be postponed to the next day which is a Business Day unless it would then fall into the next calendar month, in which event, the Interest Payment Date shall be brought forward to the immediately preceding Business Day. The Company will make each interest payment to the Holders of record on the immediately preceding and . The rights of Holders of beneficial interests in the Notes to receive the payments of interest on the Notes are subject to applicable procedures of Euroclear and Clearstream and of the relevant participant, as applicable.

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Optional Redemption Optional Redemption Prior to , 2016

At any time prior to , 2016, upon not less than 30 nor more than 60 days prior notice (which notice shall be irrevocable), the Company may at its option on any one or more occasions redeem up to 35% of the aggregate principal amount of the Notes at a redemption price of % of the principal amount of the Notes being redeemed, plus accrued and unpaid interest and Additional Amounts, if any, to the redemption date (subject to the right of Holders of the Notes on the relevant record date to receive interest due on the relevant Interest Payment Date), with the net proceeds from one or more Public Equity Offerings after the Issue Date. The Company may only do this, however, if: (a) (b) at least 65% of the aggregate principal amount of Notes that were initially issued would remain outstanding immediately after the proposed redemption; and the redemption occurs within 90 days after the closing of such Public Equity Offering.

At any time prior to , 2016, upon not less than 30 nor more than 60 days prior notice (which notice shall be irrevocable), the Company may at its option redeem during each 12-month period commencing on , 2013 up to 10% of the original aggregate principal amount of the Notes, from time to time, at a redemption price equal to 103% of the principal amount of the Notes being redeemed, plus accrued and unpaid interest and Additional Amounts, if any, to the redemption date (subject to the rights of Holders of the Notes on the relevant record date to receive interest due on the relevant Interest Payment Date). At any time prior to , 2016, upon not less than 30 nor more than 60 days prior notice (which notice shall be irrevocable), the Company may at its option redeem all or part of the Notes at a redemption price equal to 100% of the principal amount thereof plus the Applicable Redemption Premium and accrued and unpaid interest and Additional Amounts, if any, to the redemption date (subject to the right of Holders of the Notes on the relevant record date to receive interest due on the relevant Interest Payment Date). The Notes will not otherwise be redeemable at the option of the Company prior to , 2016, except as described above and in Optional Tax Redemption. Optional Redemption On and After , 2016

On and after , 2016, upon not less than 30 nor more than 60 days prior notice (which notice shall be irrevocable), the Company may at its option redeem at any time as a whole, or from time to time in part, the Notes at the following Redemption Prices (expressed as percentages of the aggregate principal amount), plus accrued and unpaid interest and Additional Amounts, if any, to the redemption date (subject to the right of Holders of the Notes on the relevant record date to receive interest due on the relevant Interest Payment Date), if redeemed on or during the 12-month period commencing on of the years set forth below:
Year Redemption Price

2016 2017 2018 2019

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% % % 100.000%

The Company may acquire Notes by means other than a redemption, whether by tender offer, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws, so long as such acquisition does not otherwise violate the terms of the Indenture. Selection and Notice of Redemption If less than all the Notes are to be redeemed, the particular Notes to be redeemed will be selected not more than 60 days prior to the relevant redemption date by the Trustee or the Registrar (as appropriate) on a pro rata basis by application of a pool factor or by such method as the Trustee or the Registrar (as appropriate) will deem fair and appropriate or in such manner as complies with the requirements of the principal securities exchange, if any, on which the Notes being redeemed are listed and the requirements of any depositary holding the global certificates

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representing the Notes; provided, however, that if the Notes are in a definitive form, no Note of e100,000 in original principal amount or less shall be redeemed in part and only Notes in integral multiples of $1,000 will be redeemed. Neither the Trustee nor the Registrar will be liable for any selections made by it in accordance with this paragraph. If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount thereof to be redeemed. The Company will issue a new Note in a principal amount equal to the unredeemed portion of the original Note if the Notes are in definitive form, in the name of the Holder upon cancellation of the original Note. Subject to the terms of the applicable redemption notice, Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest will cease to accrue on the Notes or portions thereof called for redemption (unless the Company defaults in providing the funds for such redemption) and such Notes will cease to be outstanding. Notices of redemption, while the Notes are in definitive form, will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes, with a copy to the Trustee, to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to the redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture. For Notes which are represented by global certificates held on behalf of Euroclear and/or Clearstream, notices of redemption may be given by delivery of the relevant notices to Euroclear and/or Clearstream for communication to entitled account holders in substitution to the aforesaid mailing. So long as any Notes are listed on the Official List of the Luxembourg Stock Exchange and admitted to trading on the Euro MTF Market of the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, the Company will provide a copy of all notices to the Luxembourg Stock Exchange. Sinking Fund The Company is not required to make mandatory sinking fund payments with respect to the Notes. Additional Amounts All payments made under or with respect to the Notes or any Guarantee shall be made free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge of whatever nature (including penalties, interest and other liabilities related thereto) (hereinafter Taxes), unless the withholding or deduction of such Taxes is required by law. If any deduction or withholding for, or on account of, any Taxes imposed or levied by or on behalf of: (1) the government of any of the countries in which any of the Company or the relevant Guarantor and, in each case, any successor thereof (each, a Payor) is organized or any political subdivision or any authority or agency therein or thereof having power to tax; (2) any other jurisdiction in which a Payor is otherwise resident for tax purposes; or (3) any jurisdiction from or through which any payment under or with respect to the Notes or any Guarantee is made (each, a Relevant Taxing Jurisdiction) will at any time be required from any payment made under or with respect to the Notes or a Guarantee, as applicable, such Payor will be required to pay such additional amounts (Additional Amounts) as may be necessary so that the net amount received in respect of such payments by any Holder after such withholding or deduction (including any such deduction or withholding from such Additional Amounts) will equal the amount such Holder would have received if such Taxes had not been withheld or deducted; provided, however, that the foregoing obligation to pay Additional Amounts does not apply to: (1) any Taxes that would not have been imposed but for the existence of any present or former connection between the relevant Holder (or between a fiduciary, settlor, beneficiary, partner, member or shareholder of, or possessor of power over, the relevant Holder, if the relevant Holder is an estate, nominee, partnership, limited liability company, trust or corporation) and the Relevant Taxing Jurisdiction, including such Holder (or such fiduciary, settlor, beneficiary, partner, member, shareholder, or possessor) of the Notes being or having been a citizen, resident for tax purposes, or national thereof or being or having been present or engaged in a trade or business therein or having or having had a permanent establishment therein, other than a connection resulting from the mere receipt of such payment or the ownership, holding or enforcement of such Note or Guarantee; (2) any estate, inheritance, gift,

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sales, excise, transfer, personal property tax or similar Tax; (3) any withholding or deduction in respect of the Notes or any Guarantee (a) where such withholding or deduction is imposed on a payment to an individual or a residual entity within the meaning of the European Council Directive 2003/48/EC and is required to be made pursuant to such Directive or any other Directive implementing the conclusions of the ECOFIN Council meeting of November 26 and 27, 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directives, or (b) where the applicable Notes were presented (where presentation is required) for payment by or on behalf of a Holder who would have been able to avoid such withholding or deduction by presenting the Notes to any other paying agent in a European Union Member State, or (c) where the payment could have been made without such deduction or withholding if the Notes had been presented for payment (where presentation is required) within 30 days after (i) the date on which such payment became due and payable, or (ii) the date on which payment thereof is duly provided for, whichever is later (except to the extent that the Holder would have been entitled to Additional Amounts had the Notes been presented during such 30-day period); (4) any Taxes imposed with respect to any payment of principal of (or premium, if any, on) or interest on the Notes by a Payor to any Holder who is a fiduciary or partnership or any Person other than the sole beneficial owner of such payment, to the extent that a beneficiary or settlor with respect to such fiduciary, a member of such a partnership or the beneficial owner of such payment would not have been entitled to the Additional Amounts had such beneficiary, settlor, member or beneficial owner been the actual Holder of such Notes; (5) any Taxes that are payable other than by deduction or withholding from payments made under or with respect to the Notes or any Guarantee; (6) any Taxes that would not have been imposed but for the failure of the Holder or beneficial owner to comply with the Payors or the paying agents reasonable and timely request, in accordance with the Notices provision herein, to the Holder to provide certification, documentation, information or other evidence concerning the nationality, residence for tax purposes, identity or connection with the Relevant Taxing Jurisdiction of the Holder or beneficial owner of such Notes or to make any valid or timely declaration or similar claim or satisfy any other reporting requirement relating to such matters, whether required or imposed by law, statute, treaty, regulation or administrative practice of the Relevant Taxing Jurisdiction, as a precondition to exemption from, or reduction in the rate of withholding or deduction of, Taxes imposed by the Relevant Taxing Jurisdiction; (7) any Taxes imposed because the Company or the Guarantor, as the case may be, does not receive such information as may be necessary to allow payments on such Notes to be made free and clear of Spanish withholding taxes, including a duly executed and completed Payment Statement from the Paying Agent, pursuant to the Kingdom of Spains Law 13/1985 of 25 May, Royal Decree 1065/2007 of 27 July, as amended by Royal Decree 1145/2011 of 29 July, and any implementing legislation or regulation thereof; (8) any Taxes imposed on, or on a third party on behalf of, a Spanish-resident legal entity subject to Spanish Corporate Income Tax if the taxing authorities of the Kingdom of Spain determine that the Notes do not comply with exemption requirements specified in any applicable tax law, including the ruling of the General Directorate for Taxation (Direcci on General de Tributos) dated 27 July 2004, or any legislation or regulation implementing or complying with, or introduced in order to conform to, such applicable law or such ruling, which law, ruling, legislation or regulation requires a withholding to be made; or (9) any combination of any of the above. Such Additional Amounts also will not be payable where, had the beneficial owner of the Note been the Holder, it would not have been entitled to payment of Additional Amounts by reason of clauses (1) to (9) inclusive above. The Payor will (i) make any required withholding or deduction and (ii) remit the full amount deducted or withheld to the Relevant Taxing Jurisdiction in accordance with applicable law. The Payor will use all reasonable efforts to provide the Trustee with certified copies of tax receipts (or, if such certified copies are not available using all reasonable efforts, such other evidence reasonably acceptable to the Trustee in its discretion), evidencing the payment of any Taxes so deducted or withheld from each Relevant Taxing Jurisdiction imposing such Taxes. The Payor will attach to each certified copy (or other documentation) a certificate stating (x) that the amount of such Tax evidenced by the certified copy (or other documentation) was paid in connection with payments in respect of the Notes then outstanding and (y) the amount of such Tax paid per e1,000 of principal amount of the Notes. At least 30 days prior to each date on which any payment under or with respect to the Notes or any Guarantee, as the case may be, is due and payable (unless such obligation to pay 159

Additional Amounts arises shortly before or after the 30th day prior to such date, in which case it shall be promptly thereafter), if the Payor will be obligated to pay Additional Amounts with respect to such payment, the Payor will deliver to the Trustee an Officers Certificate stating the fact that such Additional Amounts will be payable and the amounts so payable and will set forth such other information necessary to enable the paying agent to pay such Additional Amounts to Holders of the Notes on the payment date. The Trustee shall be entitled to rely upon each such Officers Certificate as conclusive proof that such payments are necessary. Whenever in the Indenture there is mentioned, in any context: (1) (2) (3) (4) the payment of principal; redemption prices or purchase prices in connection with a redemption or purchase of Notes; interest; or any other amount payable on or with respect to any of the Notes or Guarantees,

such reference will be deemed to include payment of Additional Amounts as described under this heading to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. The Company will pay any present or future stamp, court or documentary Taxes or any other excise or property Taxes (other than net wealth Taxes or similar Taxes imposed on the Holder irrespective of such Holders investment in the Notes and based on the total net value of the Holders property), charges or similar levies that arise in any Relevant Taxing Jurisdiction from the execution, delivery, enforcement or registration of the Notes, the Guarantees, the Indenture or any other document or instrument in relation thereto (other than a transfer of the Notes) except, for Luxembourg registration duties purposes, in case of a voluntary registration by a Holder, where such registration is not necessary to enforce, maintain or preserve its rights. The obligations described under this heading will survive any termination, defeasance or discharge of the Indenture or any Guarantee. Optional Tax Redemption The Company may at its option, upon not less than 30 nor more than 60 days prior notice (which notice shall be irrevocable), redeem at any time as a whole, but not in part, the Notes at 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of the Notes on the relevant record date to receive interest due on the relevant interest payment date), in the event the Company or Guarantor, as the case may be, has become or would become obligated to pay, on the next date on which any amount would be payable with respect to the Notes, Additional Amounts as a result of: (1) (2) a change in or an amendment to the laws (including any regulations promulgated thereunder) of a Relevant Taxing Jurisdiction affecting taxation; or any change in or amendment to any official position regarding the application or interpretation of such laws or regulations (each of (1) and (2) a Change in Tax Laws),

which change or amendment becomes effective on or after the date hereof and the Company or Guarantor (as the case may be) cannot avoid such obligation by taking reasonable measures available to it. No such notice of redemption may be given earlier than 90 days prior to the earliest date on which the Company or Guarantor (as the case may be) would be obligated to pay such Additional Amounts were a payment in respect of the Notes then due and payable. Before the Company publishes or mails notice of redemption of the Notes as described above, it will deliver to the Trustee (i) an Officers Certificate to the effect that the Company or any Guarantor, as the case may be, cannot avoid its obligation to pay Additional Amounts by taking reasonable measures available to it and (ii) an Opinion of Counsel by an independent tax counsel in form and substance reasonably satisfactory to the Trustee stating that the Company or Guarantor, as the case may be, is or would be obligated to pay Additional Amounts as a result of a Change in Tax Laws. The Trustee shall be entitled to accept such Officers Certificate and Opinion

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of Counsel as sufficient existence of the satisfaction of the conditions precedent described above, in which event it will be conclusive and binding on the Holders. The foregoing provisions will apply mutatis mutandis to any successor person to the Company or Guarantor after such successor person becomes a party to the Indenture. For so long as the Notes are listed on the Official List of the Luxembourg Stock Exchange and admitted for trading on the Euro MTF Market of the Luxembourg Stock Exchange, and to the extent the rules of the Luxembourg Stock Exchange so require, the Company will provide a copy of any such notice to the Luxembourg Stock Exchange. Notices of redemption will be given in accordance with the provisions set forth under Selection and Notice of Redemption. Credit Enhancement Overview Credit enhancement for the Notes will include the guarantees (the Guarantees) to be granted on the Issue Date by the following Subsidiaries (the Guarantors): Celulosa Energ a, S.A.U. Celulosas de Asturias, S.A.U. Norte Forestal, S.A.U. Silvasur Agroforestal, S.A.U. Each Guarantee will be secured by certain of the assets of the Guarantor issuing that Guarantee. Not all of the Subsidiaries of the Company will guarantee the Notes, and the Guarantees will be subject to significant limitations. On a aggregated basis for the nine months ended September 30, 2012, the Issuer and the Guarantors together represented 88.7% of the revenue and 97.4% of the EBITDA of the Issuer and its consolidated subsidiaries. The credit enhancement arrangements for the Notes and the Guarantees vary from Subsidiary to Subsidiary depending on applicable legal restrictions and other factors. Moreover, these arrangements may be limited in amount and scope, and those limitations are significant. An overview of the credit enhancement arrangements by Subsidiary is attached to this Offering Memorandum as Annex A, and you are urged to review that appendix in connection with making your investment decision. Guarantees Each Guarantor will jointly and severally guarantee, subject to limitations described in Risk FactorsRisks Relating to the Notes and Our StructureThe Guarantees are significantly limited by applicable laws and are subject to certain limitations or defenses and in Annex A to this Offering Memorandum attached hereto, as a general unsubordinated obligation, and as a primary obligor and not merely as a surety, the Companys obligations under the Notes and the Indenture. In addition, each Guarantor will agree to pay any and all costs and expenses (including counsel fees and expenses) incurred by the Trustee or the Holders in enforcing any rights under the Guarantees. The Guarantee of the Notes by each Guarantor will be a general senior secured obligation of such Guarantor and: will rank at least pari passu in right of payment with any existing and future Debt that is not subordinated to such Guarantee; and will rank senior in right of payment to any existing and future subordinated obligations of such Guarantor; and will be secured by a security interest in certain of its assets, including shares in certain Subsidiaries, but not all assets and no real property; and will be effectively subordinated to any existing and future Debt of such Subsidiary that is secured with assets that do not secure such guarantee, to the extent of the value of the assets securing such Debt. The obligations of each Guarantor under its Guarantee will be limited to an amount that can be guaranteed under applicable laws, including corporate benefit laws and financial assistance,

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fraudulent conveyance or fraudulent transfer restrictions under applicable insolvency laws, and will not apply to the extent a Guarantee would be illegal or unenforceable under applicable local laws. Please see Risk FactorsRisks Relating to the Notes and Our StructureThe Guarantees are significantly limited by applicable laws and are subject to certain limitations or defenses elsewhere in the Offering Memorandum and Annex A to the Offering Memorandum attached hereto. The Guarantees will provide that, in the event of default in the payment of principal of or premium, if any, interest, Additional Amounts, if any, and any other payment obligations in respect of the Notes (including any obligation to repurchase the Notes), the Trustee may institute legal proceedings directly against the relevant Guarantor without first proceeding against the Company. The Trustee (acting of its own volition or on the direction of the Holders of a majority in aggregate principal amount of the outstanding Notes), and not the Holders of the Notes individually, may enforce the Guarantees and provide directions to the Security Agent pursuant to the Intercreditor Agreement to enforce the security for the Guarantees. Security The Company and the Guarantors will execute the Security Documents, and where applicable, make the relevant public filings within 45 days from the Issue Date in respect of the following (the Collateral), as set forth in further detail in Annex A to the Offering Memorandum attached hereto: (a) (b) all present and future shares of Capital Stock of each of the Guarantors; all present and future Debt of the Company or a Restricted Subsidiary owing to and held by the Company or any of the Guarantors (other than any Debt owed by any Biomass Subsidiary to the Company or any of the Guarantors); all present and future Receivables (other than Receivables subject to or to be subject to a Permitted Lien under clause (9) of Certain DefinitionsPermitted Liens) that are owed to the Company or any of the Guarantors, provided that (A) the Company or any Guarantor will not be required to grant security over any Receivables unless the aggregate amount of such Receivables over which the Company or such Guarantor would be required to grant security would not exceed e2.5 million, and (B) for so long as the aggregate amount of Receivables over which security has been granted exceeds 75% of all Receivables of the Company and its Restricted Subsidiaries (other than Receivables subject to or to be subject to a Permitted Lien under clause (9) of Certain DefinitionsPermitted Liens) as of the end of the most recently completed fiscal year after the Issue Date, then only Receivables pursuant to contracts governed by Spanish law must become Collateral; and all present and future cash and Cash Equivalents held in bank or investment accounts of the Company or any of the Guarantors.

(c)

(d)

In the event that the aggregate amount of Receivables over which security has been granted as of the most recently completed fiscal year after the Issue Date does not exceed 75% of all Receivables of the Company and its Restricted Subsidiaries (other than Receivables subject to or to be subject to a Permitted Lien under clause (9) of Certain DefinitionsPermitted Liens, then, subject to the Security Limitations, the Company and its Restricted Subsidiaries will be required to grant a pledge on a first priority basis over additional Receivables that are owed to the Company or any of the Guarantors within 90 days of the delivery of the Companys audited annual financial statements to the Trustee pursuant to the Indenture, such that pro forma for the granting of such pledge the aggregate amount of Receivables over which the Company and the Guarantors would have granted security as of the most recently completed fiscal year after the Issue Date would have exceeded 75% of all Receivables of the Company and its Restricted Subsidiaries (other than Receivables subject to or to be subject to Permitted Liens under clause (9) of Certain DefinitionsPermitted Liens). The perfection of the security over the Collateral described in clauses (b) and (c) of the immediately preceding paragraph will require its registration in public records, which may take up to two months from the date on which the Company has made the relevant public filing. Following the execution of the Security Documents and, where applicable, the registration in the relevant public register, the Notes, and the Guarantees will benefit from security over the Collateral on a first priority basis, subject to the grant of further Permitted Collateral Liens. In addition, if Sierras Calmas, S.A. or any successor thereof becomes an additional Guarantor as described under Additional Guarantees and Security, the Notes and the Guarantees will also

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benefit from a pledge to the Security Agent (or another security agent to be appointed for this purpose) on a first priority basis over the present and future shares of Capital Stock owned by the Company of, the present and future Debt owing to and held by, the present and future Receivables (other than Receivables subject to or to be subject to a Permitted Lien under clause (9) of Certain DefinitionsPermitted Liens) that are owed to and the present and future cash and Cash Equivalents held in bank or investment accounts of Sierras Calmas, S.A. or any successor thereof, as set forth in further detail in Annex A to the Offering Memorandum attached hereto. Notwithstanding the foregoing, if (A) providing such security would be prohibited by applicable law, general statutory limitations, financial assistance, corporate benefit, fraudulent preference, thin capitalization rules or similar matters, or (B) providing security would be outside the applicable pledgors capacity or conflict with fiduciary duties of its officers or directors or cause material risk of personal or criminal liability after using commercially reasonable efforts to overcome such obstacles, or (C) providing such security would require the Company or any Guarantor to incur aggregate costs in excess of e100,000, or (D) the aggregate amount of Receivables over which the Company or any Guarantor would be required to grant security does not exceed e2.5 million, or (E) the aggregate amount of Receivables over which security has been granted exceeds 75% of all Receivables of the Company and its Restricted Subsidiaries (other than Receivables subject to or to be subject to a Permitted Lien under clause (9) of Certain DefinitionsPermitted Liens) (the Security Limitations); then, in respect of (D) the Receivables that are owing to the Company or such Guarantor may not be pledged (or the Liens not perfected); in respect of (E) the Receivables pursuant to contracts governed by a law other than Spanish law may not be pledged (or the Liens not be perfected); and with respect to (A), (B) or (C) certain assets may not be pledged (or the Liens not perfected). Please see Risk FactorsRisks Relating to the Notes and Our Structure Fraudulent conveyance laws may limit your rights as a holder of Notes. The ability of Holders of the Notes to realize upon the Collateral will also be subject to various bankruptcy law limitations in the event of the bankruptcy of the Company or the Guarantors. Please see Risk FactorsRisks Relating to the Notes and Our StructureThe ability of the Security Agent to enforce the Collateral may be restricted by Spanish law. Neither the Trustee nor the Security Agent nor any of their respective officers, directors, employees, attorneys or agents will be responsible or liable for the existence, genuineness, value, or protection of any property securing the Notes or any Note Guarantee, for the legality, enforceability, effectiveness or sufficiency of the Security Documents, for the creation, perfection, priority, sufficiency or protection of any Lien, or for any defect or deficiency as to any such matters, or for any failure to demand, collect, foreclose or realize upon or otherwise enforce any of the Liens or Security Documents or any delay in doing so. The Collateral will be administered by the Security Agent for the benefit of the Trustee and the Holders of the Notes. Subject to the terms of the Security Documents, the Company and the Guarantors will have the right to remain in possession and retain exclusive control of the Collateral securing the Notes (other than as set forth in the Security Documents), to freely operate the Collateral and to collect, invest and dispose of any income and profits therefrom. Pursuant to the various Security Documents, security will also be granted over income and profits on the Collateral, if any. No appraisals of the Collateral have been prepared by or on behalf of the Company in connection with the issuance of the Notes. There can be no assurance that the proceeds from the sale of the Collateral would be sufficient to satisfy the obligations owed to the Holders of the Notes. By its nature, some or all of the Collateral will be illiquid and may have no readily ascertainable market value. Accordingly, there can be no assurance that the Collateral would be able to be sold in a short period of time, if at all. Intercreditor Agreement On the Issue Date, the Trustee shall enter into an Intercreditor Agreement with, among others, the agent under the Revolving Credit Facility and the Security Agent, as described under Description of Other IndebtednessIntercreditor Agreement. The Security Documents and the Collateral will be administered by the Security Agent pursuant to the Intercreditor Agreement for the benefit of the Trustee and the Holders of the Notes and the creditors under the Revolving Credit Facility and other secured parties under the Intercreditor Agreement, which are each secured by the same Collateral. Pursuant to the terms of the Intercreditor Agreement, (i) any liabilities in respect of

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obligations relating to any interest rate and currency swap hedging in respect of debt, (ii) obligations under the Revolving Credit Facility and (iii) certain other hedging arrangements provided that the amount of such hedging arrangements secured (or portion thereof) does not exceed e95.0 million less the principal amount of the Revolving Credit Facility at the relevant time, will receive priority with respect to any recoveries received upon enforcement over any such Collateral. After all obligations under the Revolving Credit Facility and such hedging arrangements have been repaid from such recoveries, any remaining recoveries received upon enforcement over any such Collateral will be applied pro rata in repayment of all obligations under the Indenture, the Notes, the Guarantees and any other indebtedness of the Company and the Restricted Subsidiaries permitted to be Incurred and secured by the Collateral pursuant to the Indenture and the Intercreditor Agreement. The Trustee and the creditors under the Revolving Credit Facility and the other secured parties under the Intercreditor Agreement have, and by accepting a Note, each Holder will be deemed to have, irrevocably appointed Deutsche Bank AG, London Branch, as Security Agent to act as its security agent under the Intercreditor Agreement, the Notes, the Indenture, including the Guarantees, and the Security Documents (together, the Finance Documents). The Trustee and the creditors under the Revolving Credit Facility and the other secured parties under the Intercreditor Agreement will have, and by accepting a Note, each Holder will be deemed to have, irrevocably authorized the Security Agent to: (i) perform the duties and exercise the rights, powers and discretions that are specifically given to it under the Intercreditor Agreement or other Finance Documents, together with any other incidental rights, power and discretions; and (ii) execute each Finance Document expressed to be executed by the Security Agent on its behalf. Release of Guarantees Pursuant to the Indenture, the Capital Stock of a Guarantor may be sold, leased, transferred or otherwise disposed of to another Person under the covenant described under Certain CovenantsLimitation on Sales of Assets and Restricted Subsidiary Stock. Upon any sale or disposition (including, without limitation, by way of merger, consolidation or otherwise) of: (i) Capital Stock of a Guarantor following which such Guarantor is no longer a Restricted Subsidiary of the Company; (ii) all or substantially all of the properties and assets of such Guarantor to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company; (iii) all or substantially all of the properties and assets of such Guarantor to another Guarantor in connection with a liquidation or dissolution of such Guarantor or merger or consolidation with such other Guarantor (provided that such other Guarantor expressly assumes in writing, in a form satisfactory to the Trustee in its sole discretion, all the obligations of such Guarantor under the Indenture); or (iv) all or substantially all of the properties and assets of such Guarantor to the Company in connection with a liquidation or dissolution of such Guarantor or merger or consolidation with the Company, and so long as, in any of the foregoing cases, the sale or disposition either does not constitute an Asset Disposition or complies with clauses (i) and (ii) of the covenant described in Certain CovenantsLimitation on Sales of Assets and Restricted Subsidiary Stock, the Guarantee of any such Restricted Subsidiary will be released; provided, however, that such release is in accordance with the terms of the Intercreditor Agreement. Please see Description of Other IndebtednessIntercreditor Agreement. The Guarantee provided by a Guarantor also will be released under the Indenture: (i) (ii) upon the valid designation of such Guarantor as an Unrestricted Subsidiary; if the Company exercises its legal defeasance option or covenant defeasance option as described under Defeasance or if its obligations under the Indenture are discharged in accordance with the terms of the Indenture, in each case in accordance with the terms and conditions in the Indenture and the Intercreditor Agreement; upon repayment in full of the Notes; upon a sale or other disposition (including by way of consolidation or merger) of all of the Capital Stock of the applicable Guarantor (or any parent of such Guarantor) pursuant to an enforcement action under the Intercreditor Agreement;

(iii) (iv)

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(v)

in the event that the continued obligations of such Guarantor or the continued existence of such Guarantor could reasonably be expected to give rise to or result in (now or in the future): (a) any violation of applicable law or (b) any personal liability for the officers or directors of such Guarantor; which in each case of (a) and (b) cannot be avoided or otherwise prevented through measures reasonably available to the Company and the Guarantor; and as described under Amendments and Waivers.

(vi)

Upon request and direction and at the cost of the Company, or, as the case may be, the relevant Guarantor and upon delivery by the Company to the Trustee of an Officers Certificate and an Opinion of Counsel to the foregoing effect, the Trustee will execute any documents reasonably requested by the Company or the relevant Guarantor, as the case may be, in writing in order to evidence the release, discharge and termination in respect of any Guarantee to be released as described above. Release of Collateral The Collateral created by the Security Documents shall be released and the Security Agent in its own behalf and on behalf of the remaining secured parties, shall disclaim and give up any and all rights that the secured parties have in or to the Collateral, and any rights the secured parties have under the Security Documents: (i) (ii) if the Collateral is an asset of, or the Capital Stock of, a Guarantor (or any of its Subsidiaries), upon designation of such Guarantor as an Unrestricted Subsidiary; if the Company exercises its legal defeasance option or covenant defeasance option as described under Defeasance or if its obligations under the Indenture are discharged in accordance with the terms of the Indenture, in each case in accordance with the terms and conditions in the Indenture and the Intercreditor Agreement; upon repayment in full of the Notes; upon the surrender of all outstanding Notes issued under the Indenture to the Trustee for cancellation; upon foreclosure on Collateral pursuant to an enforcement action under any Security Document or otherwise in accordance with the terms of the Intercreditor Agreement; upon the release of the Collateral in accordance with the paragraph below;

(iii) (iv) (v) (vi)

(vii) in the event that the continued obligations under the Liens on the Collateral could reasonably be expected to give rise to or result in (now or in the future): (a) any violation of applicable law or (b) any personal liability for the officers or directors of the pledgor of the Collateral; which in each case of (a) and (b) cannot be avoided or otherwise prevented through measures reasonably available to the Company and the pledgor; (viii) as described under Amendments and Waivers; (ix) (x) as described under Certain CovenantsLimitation on Liens; or upon any other valid release of the Collateral as security for obligations of the Company or a Guarantor under the Indenture;

provided, such release is permitted by and does not violate the terms of the Intercreditor Agreement. Each of the releases set forth above shall be effected by the Security Agent, if necessary, without the consent of the Holders or any action on the part of the Trustee. Upon request and direction of the Company or any Guarantor, as applicable, in connection with any sale, lease, sale and leaseback, assignment, conveyance, transfer, merger, consolidation, amalgamation (including a merger of any Guarantor with another Guarantor or the Company) or other disposition of assets or property not prohibited by the Indenture (including, without limitation, the covenants described in Certain CovenantsLimitation on Sales of Assets and Restricted Subsidiary Stock and Certain CovenantsConsolidation, Merger and Sale of Assets), the Intercreditor Agreement and the Security Documents, the Security Agent shall (without notice to, or

165

vote or consent of, any Holder) take such actions as shall be required to release its security interest in any Collateral being disposed in such disposition, to the extent necessary to permit consummation of such disposition in accordance with the Indenture, the Intercreditor Agreement and the Security Documents (or to release any security interest over shares in a Guarantor where all or substantially all of the assets of such Guarantor are being disposed of or where such Guarantor is being merged or amalgamated with another Guarantor or the Company and such Guarantor is not the surviving entity in accordance with the Indenture, the Intercreditor Agreement and the Security Documents), and the Security Agent shall receive full payment therefor from the Company for any costs incurred thereby. In all cases of a disposition involving a release of Collateral, the Company shall deliver to the Security Agent an Officers Certificate and an Opinion of Counsel certifying compliance with the requirements of release under the Indenture. The Security Agent shall be entitled to rely upon such Officers Certificate and Opinion of Counsel as conclusive proof that such release complies with the Indenture and the Intercreditor Agreement. At the request of the Company, the Security Agent shall execute and deliver an appropriate instrument evidencing such release (in the form provided by the Company and agreed by the Security Agent). Any release of Collateral made in compliance with the provisions set forth in Release of Collateral shall not be deemed to impair the Lien under the Security Documents or the Collateral thereunder in contravention of the covenant described in Certain CovenantsImpairment of Security Interest. Change of Control If a Change of Control occurs, the Company will, within 30 days after the occurrence of such Change of Control, notify each Holder of the Notes in accordance with the provisions set forth under Notices, with a copy of such notice to the Trustee in writing, of the occurrence of the Change of Control and will make an offer to purchase (the Change of Control Offer) the Notes, in whole or in part, in principal amounts of e100,000 and integral multiples of e1,000 in excess thereof at a purchase price equal to 101% of the principal amount thereof, plus any accrued and unpaid interest thereon to the Change of Control Purchase Date (such price, together with such interest, the Change of Control Purchase Price), on or before the date specified in such notice, which date (the Change of Control Purchase Date) shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed, or such later date as may be required by law or any applicable requirements of any securities exchange on which such Notes are listed. The Change of Control Offer is required to remain open for at least 20 Business Days. The Company will purchase all Notes properly tendered in the Change of Control Offer and not withdrawn in accordance with the procedures set forth in such notice. The Change of Control Offer will state, among other things, the procedures that Holders of the Notes must follow to accept the Change of Control Offer. The Revolving Credit Facility will have similar provisions requiring the Company or borrowers under the Revolving Credit Facility to offer to repay the Revolving Credit Facility. No assurance can be given that the Company will have sufficient liquidity to comply with such provisions and to make the Change of Control Offers required by the Indenture, or a similar offer required by the Revolving Credit Facility. The Company will not be required to make a Change of Control Offer following a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer or (2) a notice of redemption has been given pursuant to the Indenture as described above under the caption Optional Redemption, unless and until there is a default in payment of the applicable redemption price. Notwithstanding anything to the contrary contained herein, a Change of Control Offer may be made in advance of a Change of Control, conditioned upon the consummation of such Change of Control, if a definitive agreement is in place for the Change of Control at the time the Change of Control Offer is made. The occurrence of certain of the events which would constitute a Change of Control would require mandatory prepayment of Debt outstanding under the Revolving Credit Facility and might constitute a default under, or require prepayment of, future Debt of the Company or its Subsidiaries. The occurrence of a Change of Control would also trigger an obligation of the Company to repurchase the Notes, which may in turn lead to a default under the Notes if the Company cannot

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finance such a repurchase. In addition, the exercise by the Holders of the Notes of their right to require the Company to repurchase the Notes could cause a default under the Debt of the Company or its Subsidiaries, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, if a Change of Control Offer is made, there can be no assurance that the Company will have sufficient funds or other resources to pay the Change of Control Purchase Price for all the Notes that might be delivered by Holders thereof seeking to accept the Change of Control Offer. Please see Risk FactorsRisks Relating to the Notes and Our StructureWe may not have the ability to raise the funds necessary to finance a change of control offer and Risk FactorsRisks Relating to the Notes and Our StructureOur substantial indebtedness may make it difficult for us to service our debt, including the Notes, and to operate our business. The Change of Control provisions described above may deter certain mergers, tender offers and other takeover attempts involving the Company and, thus, the removal of incumbent management. One of the events that constitutes a Change of Control under the Indenture is a sale, conveyance, transfer or lease of all or substantially all the assets of the Company and its Subsidiaries, taken as a whole. The phrase all or substantially all is subject to judicial interpretation depending on the facts and circumstances of the subject transaction. The Indenture will be governed by New York law and, although there is limited case law interpreting the phrase substantially all, there is no established quantitative definition under New York law of the phrase substantially all. Accordingly, in certain circumstances, it may be unclear whether a Change of Control has occurred and whether the Company may therefore be required to make a Change of Control Offer. In addition, case law suggests that, in the event that incumbent directors are replaced as a result of a contested election, the Company may nevertheless avoid triggering a Change of Control under a clause similar to clause (c) of the definition of Change of Control, if the outgoing directors were to approve the new directors for the purpose of such change of control clause. If at the time of such Change of Control, the Notes are listed on the Official List of the Luxembourg Stock Exchange and admitted for trading on the Euro MTF Market of the Luxembourg Stock Exchange, to the extent required by the rules of the Luxembourg Stock Exchange, the Company will notify the Luxembourg Stock Exchange that a Change of Control has occurred and any relevant details relating to such Change of Control. The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the U.S. Securities Exchange Act of 1934, as amended (the U.S. Exchange Act), and any other securities laws or regulations in connection with the repurchase of Notes pursuant to any Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with provisions relating to the Change of Control Offer, the Company will comply with applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control covenant by virtue thereof. Certain Covenants The Indenture will contain, among others, the following covenants: Limitation on Debt The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Debt (including Acquired Debt) other than Permitted Debt; provided, however, that the Company may, and may permit any Restricted Subsidiary to, Incur Debt if (i) no Default or Event of Default shall have occurred and be continuing at the time of such Incurrence or would occur as a consequence of such Incurrence and (ii) after giving pro forma effect to such Incurrence, the Consolidated Coverage Ratio as of the date of the Incurrence of such Debt would exceed 2.50 to 1.00. Permitted Debt is defined as follows: (i) Debt (a) of the Company evidenced by the Notes issued on the Issue Date (not including Additional Notes), (b) of the Guarantors in respect of the Guarantees, including any Additional Guarantees, and (c) any parallel debt obligations created under the Indenture, the Intercreditor Agreement or the Security Documents in respect of clauses (a) and (b);

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(ii)

Debt of the Company or any of its Restricted Subsidiaries (x) Incurred under Credit Facilities (including, without double counting, any Debt to the extent backed by letters of credit, guarantees or bonds issued under Credit Facilities), (y) any Refinancing Debt, and (z) any parallel debt obligations created under the Intercreditor Agreement or the Security Documents Incurred in respect of Debt under (x) and (y), provided, that the aggregate principal amount of all such Debt under (x) and (y) of this clause (ii) at any one time outstanding does not exceed e95 million; Incurrence by one or more Biomass Subsidiaries of (x) Biomass Project Finance Debt pursuant to Biomass Financing Agreements up to an aggregate principal amount at any one time outstanding not to exceed e100 million, and (y) any Refinancing Debt in respect of Debt under (x); Debt of the Company owing to and held by any of its Restricted Subsidiaries and Debt of any Restricted Subsidiary of the Company owing to and held by the Company or any Restricted Subsidiary; provided, however, that if such Debt is owed by the Company or a Guarantor, then it shall be expressly subordinated to the prior payment in full in cash of all obligations with respect to the Notes; and provided, further, that any subsequent transfer of any such Debt (except to the Company or to any of its Restricted Subsidiaries), shall be deemed, in each case, to constitute the Incurrence of such Debt by the issuer thereof; Debt (other than Debt permitted by the immediately preceding paragraph or elsewhere in this paragraph) in an aggregate principal amount outstanding at any time not to exceed e50 million; the Incurrence by the Company or any of its Restricted Subsidiaries of Debt represented by Capitalized Lease Obligations, mortgage financings or purchase money obligations, in each case, Incurred for the purpose of financing or refinancing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, not to exceed e20 million at any time outstanding;

(iii)

(iv)

(v)

(vi)

(vii) Debt Incurred pursuant to the factoring of Receivables arising in the ordinary course of business pursuant to customary arrangements, provided, that either (a) no portion of such Debt has, directly or indirectly, contingent or otherwise, recourse to any property or assets of the Company or any of its Restricted Subsidiaries (other than the Receivables that are the subject of the factoring), or (b) if such Debt has recourse to any property or assets of the Company or any of its Restricted Subsidiaries, only the portion of such Debt that is not recourse to any property or assets of the Company or any of its Restricted Subsidiaries (other than the Receivables that are the subject of the factoring) may be considered as Permitted Debt under this clause (vii); (viii) Debt under Hedging Obligations that are Incurred in the ordinary course of business (1) for the purpose of fixing or hedging interest rate risk with respect to any Debt Incurred without violation of the Indenture; (2) for the purpose of fixing or hedging currency exchange rate risk with respect to any currency; or (3) for the purpose of fixing or hedging commodity price risk with respect to any commodities and, in each case, (x) not for speculative purposes, and (y) with respect to any Hedging Obligations with a credit support annex, for a maximum maturity period of 36 months; (ix) Debt in connection with one or more standby letters of credit, bank guarantees, bankers acceptances or performance, bid, surety, judgment, appeal, customs, VAT or other tax guarantees or similar bonds or completion guarantees provided by the Company or any of its Restricted Subsidiaries and issued in the ordinary course of business or pursuant to self-insurance obligations and not in connection with the borrowing of money or the obtaining of advances of credit; Debt arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds, overdrafts or cash pooling arrangements in the ordinary course of business; provided, however, that any such Debt that arises is extinguished within six Business Days of Incurrence;

(x)

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(xi)

Debt of the Company or any of its Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business;

(xii) Debt arising from agreements of the Company or any of its Restricted Subsidiaries providing for indemnification, adjustment of purchase price, earn out or similar obligations, in each case, Incurred in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Debt Incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided, that the maximum aggregate liability in respect of all such Debt shall at no time exceed the gross proceeds actually received by the Company and such Restricted Subsidiary in connection with such disposition; (xiii) guarantees by the Company or any of its Restricted Subsidiaries of Debt Incurred by the Company or such Restricted Subsidiary so long as the Incurrence of such Debt by the Company or any such Restricted Subsidiary is otherwise permitted by the terms of the Indenture; provided, that the only guarantees that are permitted to be Incurred by the terms of the Indenture by the Company or any of its Restricted Subsidiaries of Debt Incurred by a Biomass Subsidiary are Biomass Contingent Obligations; (xiv) guarantees by the Company or any of its Restricted Subsidiaries of Debt Incurred by Joint Ventures that does not exceed e5 million in the aggregate at any one time outstanding; (xv) Debt of a Person existing at the time that Person becomes a Restricted Subsidiary of the Company or is merged, consolidated, amalgamated or otherwise combined with (including pursuant to any acquisition of assets and assumption of related liabilities) the Company or any Restricted Subsidiary of the Company and not Incurred in connection with or in anticipation of, such Person becoming a Restricted Subsidiary of the Company; provided, that the holders of any such Debt do not, at any time, have direct or indirect recourse to any property or assets of the Company or any of its Restricted Subsidiaries other than the property or assets of such acquired Person; provided, further, that on the date of such acquisition or such other transaction and after giving pro forma effect thereto, either (1) the Company would have been able to Incur at least e1.00 of additional Debt pursuant to the immediately preceding paragraph or (2) the Consolidated Coverage Ratio would be greater than or equal to the Consolidated Coverage Ratio immediately prior to giving pro forma effect to such acquisition; (xvi) Debt of the Company or any of its Restricted Subsidiaries Incurred pursuant to an obligation imposed by law to transfer employee benefit obligation to a third party; (xvii) Debt of the Company or any of its Restricted Subsidiary (1) for money borrowed from government, quasi-governmental entities, local authorities or other statutory, public or quasi-public entities for the purposes of funding research, development and innovation, provided, that (a) such Debt is borrowed on terms that are, in the good faith judgment of a responsible financial officer of the Company, more favorable to the Company or such Restricted Subsidiary than could be obtained by it from commercial banks on arms length terms at the time of Incurrence, and (b) the aggregate amount at any one time outstanding under this clause (xvii) does not exceed e10 million, and (2) any Refinancing Debt in respect of Debt under (1); (xviii) Debt of the Company or any of its Restricted Subsidiaries not otherwise described in clauses (i) through (xvii) above (1) outstanding on the Issue Date and disclosed in the Offering Memorandum and (2) any Refinancing Debt Incurred in respect thereof; and (xix) Refinancing Debt Incurred in respect of Debt Incurred under the first paragraph of this covenant or under clauses (i) or (xv) hereof, provided, however, that, for purposes of determining the compliance of any non-euro-denominated Debt Incurred under clauses (ii), (iii), (v), (vi), (xiv), (xv) or (xvii) above with the euro-denominated restriction contained therein, the euro-equivalent principal amount of such Debt Incurred pursuant thereto will be calculated based on the relevant currency exchange rate in effect on the date such

169

Debt was Incurred, in the case of term Debt, or first committed, in the case of revolving credit Debt; provided, that (i) the euro-equivalent principal amount of any such Debt outstanding on the Issue Date under clause (ii) above (other than term Debt) will be calculated based on the relevant currency exchange rate in effect on the date thereof and (ii) (A) any Refinancing Debt Incurred to refinance non-euro-denominated Debt previously Incurred which would cause the euro-denominated restriction under such clause to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing (the Initial Refinancing Rate) will be deemed not to exceed such euro-denominated restriction under such clause so long as the principal amount of such Refinancing Debt does not exceed the principal amount of the Debt being refinanced, and (B) all subsequent Incurrences of Refinancing Debt subject to the euro-denominated restriction under such clause will be determined as if the relevant currency exchange rate applied to any subsequent Refinancing Debt was the Initial Refinancing Rate; provided, however, that the principal amount of any such subsequent Refinancing Debt, if Incurred in a currency other than the currency of the Debt being refinanced, will be calculated based on the currency exchange rate applicable to the currency or currencies in which such proposed Refinancing Debt is denominated on the date of such refinancing. For purposes of determining any particular amount of Debt under this Limitation on Debt covenant, accrual of interest, accrual of dividends, the accretion of accreted value, the obligation to pay commitment fees and the payment of interest in the form of additional Debt shall not be treated as Debt. In addition, for purposes of determining compliance with this Limitation on Debt covenant, in the event that an item of proposed Debt meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xix) above, or is entitled to be Incurred pursuant to the first paragraph of this covenant, the Company shall be permitted to classify such item of Debt on the date of its Incurrence and, except with respect to Debt Incurred under clause (ii) above, reclassify such item of Debt, in each case in any manner that complies with this covenant. Limitation on Restricted Payments The Company will not make, and will not permit any of its Restricted Subsidiaries to make, directly or indirectly, any Restricted Payment if at the time of, and after giving effect to, such proposed Restricted Payment, (a) (b) (c) a Default or Event of Default shall have occurred and be continuing, or the Company could not Incur at least e1.00 of additional Debt pursuant to the first paragraph of the covenant described under Limitation on Debt, or the aggregate amount of such Restricted Payment and all other Restricted Payments (excluding Restricted Payments permitted by clauses (b), (c), (d), (f) and (g) of the next paragraph) declared or made since the Issue Date (the amount of any Restricted Payment, if made other than in cash, to be based upon Fair Market Value) would exceed an amount equal to the sum of: (i) 50% of the aggregate Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the most recently completed fiscal quarter of the Company before the Issue Date to the end of the Companys most recently completed fiscal quarter for which internal financial statements are available at the time of such proposed Restricted Payment (or, in case such Consolidated Net Income is a deficit, minus 100% of such deficit), Capital Stock Sale Proceeds and (without duplication of any amounts included in Capital Stock Sale Proceeds) Capital Stock Contributions, and the amount by which Debt of the Company or any of its Restricted Subsidiaries is reduced on the Companys balance sheet upon the conversion or exchange (other than by a Subsidiary) subsequent to the Issue Date of any Debt of the Company or any of its Restricted Subsidiaries convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash or other property distributed by the Company or any of its Restricted Subsidiaries upon such conversion or exchange).

(ii) (iii)

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Notwithstanding the foregoing limitation, the Company and any of its Restricted Subsidiaries may: (a) pay dividends on its Capital Stock within 60 days of the declaration thereof if, on said declaration date, such dividends could have been paid in compliance with the Indenture; provided, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; redeem, repurchase, defease, acquire or retire for value, any Subordinated Obligation of the Company with the proceeds of any Refinancing Debt in respect of such Subordinated Obligation; provided, however, that the proceeds of any such Refinancing Debt that is used for any such redemption, repurchase, defeasance or other acquisition or retirement for value shall be excluded from clause (c)(ii) of the preceding paragraph; make any Restricted Payment by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company issued after the Issue Date (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees) or Capital Stock Contributions; provided, however, that the Net Cash Proceeds from such sale or contribution shall, to the extent so used to acquire, redeem or retire Capital Stock of the Company or Subordinated Obligations of the Company, be excluded from clause (c)(ii) of the preceding paragraph; make cash payments in lieu of issuing fractional shares pursuant to the exercise or conversion of any exercisable or convertible securities; make payments or distributions to dissenting shareholders pursuant to applicable law in connection with or in contemplation of a merger, consolidation or transfer of assets that complies with the covenant described under Certain CovenantsConsolidation, Merger and Sale of Assets; make payments of dividends on Disqualified Stock issued in accordance with the covenant described under Limitation on Debt; so long as no Default or Event of Default has occurred and is continuing or would be caused thereby and the Free Float Percentage exceeds 20%, make payments of dividends on, or repurchase, redeem or otherwise acquire or retire for value, the Capital Stock of the Company up to 5% per annum of the Market Capitalization of the Company; provided, that if the aggregate amount of such Restricted Payments exceeds e5 million in any twelve-month period, then any such Restricted Payment may only be made if after giving pro forma effect to such payment on that date the Leverage Ratio of the Company and its Restricted Subsidiaries shall be no greater than 2.50 to 1.00; and so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, make additional Restricted Payments in an aggregate amount not to exceed e60 million since the Issue Date (net of, with respect to Investments in Listed Shares made in reliance on this clause (h), the Net Cash Proceeds thereon received after the Issue Date as a result of any sale or other realization of Investments in Listed Shares, not to exceed the amount of Investments made after the Issue Date in reliance on this clause (h)).

(b)

(c)

(d) (e)

(f) (g)

(h)

Transactions with Affiliates The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into any transaction or series of related transactions (including the purchase, sale, transfer, assignment, lease, conveyance or exchange of any property or the rendering of any service) with, or for the benefit of, any Affiliate of the Company (an Affiliate Transaction) involving aggregate payments or consideration in excess of e2 million, unless (a) the terms of such Affiliate Transaction are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained in a comparable arms length transaction with a Person that is not an Affiliate of the Company or such Restricted Subsidiary, (b) with respect to an Affiliate Transaction involving aggregate payments or value in excess of e5 million, the terms of such

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Affiliate Transaction are set forth in writing and the Board of Directors (including a majority of the disinterested members of the Board of Directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clause (a) of this paragraph, and (c) with respect to an Affiliate Transaction involving aggregate payments or value in excess of e20 million, the terms of such Affiliate Transaction are set forth in writing and the Company obtains a written opinion from an Independent Appraiser to the effect that such Affiliate Transaction is fair, from a financial point of view, to the Company or is not less favorable to the Company or such Restricted Subsidiary than could have been obtained in a comparable arms length transaction with a Person that is not an Affiliate of the Company or any of its Restricted Subsidiaries. The foregoing covenant will not prohibit: (A) (B) Permitted Investments and any Restricted Payment permitted to be paid as described above under Limitation on Restricted Payments; any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of or other transactions pursuant to, employment arrangements, stock options and stock ownership plans approved by the Board of Directors of the Company; loans or advances to directors, officers or employees of the Company in the ordinary course of business; the payment of reasonable fees, compensation and employee benefit arrangements, customary insurance and indemnities to directors, officers, managers, employees or consultants of the Company and of any of its Restricted Subsidiaries; any transaction between the Company and any of its Restricted Subsidiaries or between Restricted Subsidiaries of the Company; the performance of any agreement as in effect on the Issue Date which is disclosed to Holders of the Notes in the Offering Memorandum under the heading Certain Relationships and Related Party Transactions or any amendment or renewal thereto or any transaction contemplated thereby or in any replacement agreement thereto so long as any such amendment or renewal or replacement agreement is not more disadvantageous to the Holders of Notes (as determined by the Board of Directors of the Company in their reasonable and good faith judgment) in any material respect than the original agreement;

(C) (D)

(E) (F)

(G) transactions between the Company or any of its Restricted Subsidiaries and any Person that is an Affiliate of the Company solely as a result of the ownership by the Company or any of its Restricted Subsidiaries of Capital Stock of such Person; (H) transactions with customers, clients, suppliers or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture which are fair to the Company or its Restricted Subsidiaries, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party, in each case in the reasonable determination of the Board of Directors of the Company or the senior management thereof; or any issuance of Capital Stock (other than Disqualified Stock) of the Company to an Affiliate of the Company.

(I)

Limitation on Liens The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, Incur or suffer to exist any Lien, in each case, to secure any Debt on any asset or property, whether owned on the date of the Indenture or acquired after that date, of the Company or its Restricted Subsidiaries (including Capital Stock of Restricted Subsidiaries of the Company), or any income, profits or proceeds therefrom, or assign or convey any right to receive income, profits or proceeds therefrom, except: (x) Permitted Liens, in the case of property or assets that do not constitute Collateral; and

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(y)

Permitted Collateral Liens, in the case of property or assets that do constitute Collateral.

Additional Guarantees and Security The Company shall cause any of its Restricted Subsidiaries (excluding (a) any Biomass Subsidiary, (b) any Restricted Subsidiaries of the Company of which the Company and its Restricted Subsidiaries do not own, directly or indirectly, greater than 90% of the Capital Stock, or (c) any Restricted Subsidiary for so long as such Restricted Subsidiary is not engaged, and does not undertake, any business activity other than holding Capital Stock of any Biomass Subsidiary and any activity ancillary to such holding activity) of which the EBITDA for the most recently completed fiscal year after the Issue Date represent the greater of (x) 5% or any greater percentage of the consolidated EBITDA of the Company and its Restricted Subsidiaries, or (y) e5 million, to execute and deliver a supplemental indenture and supplemental intercreditor agreement providing for the Guarantee of the Notes by such Restricted Subsidiary on the same terms as the Guarantees granted by the other Guarantors hereunder. In addition, the Company shall cause Sierras Calmas, S.A. to execute and deliver a supplemental indenture and a supplemental intercreditor agreement providing for the Guarantee of the Notes on the same terms as the Guarantees granted by the other Guarantors hereunder, if Sierras Calmas, S.A. or any successor thereof (x) continues to be a Subsidiary of the Company after December 31, 2013, and (y) has not sold all or substantially all of its assets and has not distributed the net proceeds of such sale to the Company. For so long as the Notes are listed on the Official List of the Luxembourg Stock Exchange and traded on the Euro MTF market and the rules of this exchange so require, the Company will publish a notice of such additional guarantees in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the website of the Luxembourg Stock Exchange at www.bourse.lu. The Company will not permit, directly or indirectly, any of its Restricted Subsidiaries that is not a Guarantor, other than a Biomass Subsidiary, to guarantee, assume or in any other manner become liable for the payment of any Debt of the Company or a Guarantor under any Debt unless such Incurrence is permitted by the covenant entitled Certain CovenantsLimitation on Debt, and: (1) (A) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture and supplemental intercreditor agreement providing for a Guarantee of payment of the Notes by such Restricted Subsidiary on the same terms and conditions as those set forth in the Indenture, the Intercreditor Agreement and any Additional Intercreditor Agreement and which Guarantee of the Notes will be senior to or pari passu with such Restricted Subsidiarys guarantee of such other Debt; and with respect to any guarantee of Subordinated Obligations by such Restricted Subsidiary, any such guarantee will be subordinated to such Restricted Subsidiarys Guarantee at least to the same extent as such Subordinated Obligations are subordinated to the Notes; and

(B)

(2)

such Restricted Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other of its Restricted Subsidiaries as a result of any payment by such Restricted Subsidiary under its Guarantee.

Notwithstanding the foregoing, the Company shall not be obligated to cause any such Restricted Subsidiary (including Sierras Calmas, S.A.) to guarantee the Notes to the extent that such Guarantee would reasonably be expected to give rise to or result in (i) any violation of applicable law, rule, regulation or order that cannot be avoided or otherwise prevented through measures reasonably available to the Company or such Restricted Subsidiary or (ii) any liability for the officers, directors or shareholders of such Restricted Subsidiary and obligations of each Guarantor under its Guarantee will be limited to an amount that can be guaranteed under applicable laws, including corporate benefit laws and financial assistance, fraudulent conveyance or fraudulent transfer restrictions under applicable insolvency laws (the Guarantee Limitations). Please see Risk FactorsRisks Relating to the Notes and Our StructureFraudulent conveyance laws may limit your rights as a holder of Notes elsewhere in the Offering Memorandum.

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In addition, notwithstanding the foregoing and the other provisions of the Indenture, any Guarantee issued pursuant to this covenant by a Restricted Subsidiary of the Company shall provide by its terms that it shall be automatically and unconditionally released and discharged in the circumstances described under Credit EnhancementRelease of Guarantees. Concurrently with the provision of any additional Guarantees as described above, subject to the Intercreditor Agreement and the Security Limitations, the Company will also grant a pledge on a first priority basis over the present and future shares of Capital Stock of any such additional Guarantor, and any such additional Guarantor will also grant a pledge on a first priority basis directly over any present and future Debt owed to and held by such additional Guarantor, over the present and future Receivables (other than Receivables to be subject to a Permitted Lien under clause (9) of Certain DefinitionsPermitted Liens) that are owed to such additional Guarantor, and over such additional Guarantors present and future cash and Cash Equivalents held in bank or investment accounts. Accordingly, for the avoidance of doubt, if Sierras Calmas, S.A. or any successor thereof becomes an additional Guarantor as described above, the Company will grant a pledge to this Security Agent (or another security agent to be appointed for this purpose), on a first priority basis over its present and future shares of Capital Stock, and Sierras Calmas, S.A. will grant a pledge to this Security Agent (or another security agent to be appointed for this purpose), on a first priority basis over any present and future Debt owed to and held by Sierras Calmas, S.A., over the present and future Receivables (other than Receivables subject to or to be subject to a Permitted Lien under clause (9) of Certain DefinitionsPermitted Liens) that are owed to Sierras Calmas, S.A., and over Sierras Calmas, S.A.s present and future cash and Cash Equivalents held in bank or investment accounts, as described under Security. Limitation on Restrictions on Distributions from Restricted Subsidiaries The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any of its Restricted Subsidiaries to (a) pay dividends or make any other distributions on its Capital Stock, (b) make any loans or advances to the Company or any other of its Restricted Subsidiaries or (c) transfer any of its property or assets to the Company or any other of its Restricted Subsidiaries, except: (i) any encumbrance or restriction which is in effect at or entered into on the Issue Date, including, without limitation, pursuant to the Revolving Credit Facility, and which is disclosed in the Offering Memorandum under the heading Description of Other Indebtedness; any encumbrance or restriction with respect to a Restricted Subsidiary of the Company or property or assets pursuant to an agreement on or prior to the date on which such Restricted Subsidiary or property or assets was acquired by the Company or any of its Restricted Subsidiaries (other than Debt Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company or any of its Restricted Subsidiaries or the property or assets were acquired by the Company or any of its Restricted Subsidiaries) and outstanding on such date; any encumbrance or restriction pursuant to an agreement effecting an amendment, modification, restatement, renewal, increase, supplement, refund, replacement or refinancing of an agreement referred to in clauses (i) or (ii) of this covenant or this clause (iii); provided, however, that the encumbrances and restrictions contained in any such agreement or amendment, taken as a whole, are no less favorable to the Holders of the Notes than encumbrances and restrictions contained in such predecessor agreements; any encumbrance or restriction (A) consisting of customary provisions restricting subletting or assignment of leases and customary provisions in other agreements that restrict assignment of such agreements or rights thereunder or customary restrictions contained in asset sale agreements limiting the transfer of such property pending the closing of such sale, (B) arising by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any of its

(ii)

(iii)

(iv)

174

Restricted Subsidiaries not otherwise prohibited by the terms of the Indenture, or (C) arising or agreed to in the ordinary course of business and that does not, individually or in the aggregate, detract from the value of property or assets of the Company and its Restricted Subsidiaries, taken as a whole, in any manner material to the Company and its Restricted Subsidiaries, taken as a whole; (v) in the case of clause (c) above, restrictions contained in Capitalized Lease Obligations, security agreements or mortgages securing Debt of a Restricted Subsidiary of the Company to the extent such restrictions restrict the transfer of the property subject to such Capitalized Lease Obligations, security agreements or mortgages; any restriction with respect to a Restricted Subsidiary of the Company imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition;

(vi)

(vii) any encumbrance or restriction imposed pursuant to any Interest Rate Protection Agreement, Currency Exchange Protection Agreement or Commodity Agreement, in each case, entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and not for speculative purposes; (viii) any encumbrance or restriction imposed by applicable law, rules, regulations or orders; (ix) (x) (xi) any encumbrances or restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; any encumbrances or restrictions Incurred in accordance with the covenant described under Limitation on Liens; any encumbrance or restriction imposed pursuant to, or required by, a Biomass Financing Agreement or any other financing document ancillary to a Biomass Project Financing Agreement; and

(xii) customary encumbrances or restrictions imposed pursuant to, or required by, Permitted Joint Venture Transactions, shareholder agreements or similar agreements governing the rights and obligations of the holders of Capital Stock of a Restricted Subsidiary (including any encumbrance or restriction included in the corporate by-laws or organizational documents as required by any such joint venture agreement, shareholder agreement or similar agreement). Limitation on Sales of Assets and Restricted Subsidiary Stock The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Disposition unless: (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Disposition at least equal to the Fair Market Value of the assets subject to such Asset Disposition; at least 75% of such consideration consists of cash or Cash Equivalents, and is received at the time of the Asset Disposition; and an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company or such Restricted Subsidiary, as the case may be: (A) first, to the extent the Company or such Restricted Subsidiary elects, to make an investment in, or expenditures for, properties and assets which are Additional Assets (including by means of an investment in Additional Assets by a Restricted Subsidiary of the Company with Net Available Cash received by the Company or another of its Restricted Subsidiaries) within twelve months from the later of such Asset Disposition or the receipt of such Net Available Cash or pursuant to arrangements in place within the twelve-month period (to the extent such arrangements are completed within 180 days after execution of such arrangement); second, to the extent such Net Available Cash derives from an Asset Disposition in respect of an asset which, immediately prior to such Asset Disposition constituted

(ii) (iii)

(B)

175

Collateral, and after application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects (or is required by the terms of its Debt), to prepay, repay or purchase Senior Debt (other than Debt owed to the Company or an Affiliate of the Company) within twelve months from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to the extent such Net Available Cash derives from an Asset Disposition in respect of an asset which, immediately prior to such Asset Disposition did not constitute Collateral, and after application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects (or is required by the terms of its Debt), to prepay, repay or purchase Senior Debt or Debt of a Subsidiary of the Company that is not a Guarantor (in each case other than Debt owed to the Company or an Affiliate of the Company) within twelve months from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), to the extent the Company elects, to purchase Notes; fifth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B), (C) and (D), to make a Prepayment Offer (as defined below) to purchase Notes pursuant to and subject to the conditions described below; and sixth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B), (C), (D) and (E), for any purpose permitted by the Indenture,

(D)

(E)

(F)

provided, however, that, in connection with any investment in, or expenditures for, properties and assets pursuant to clause (A), if the assets sold constituted Collateral, the Company will, subject to the Security Limitations, also grant a pledge, or will cause a pledge to be granted, on, as more fully described under Credit EnhancementSecurity, a first priority basis over any acquired shares of Capital Stock (other than of a Biomass Subsidiary) and over any acquired Debt owing to and held by it, any Receivables and any cash and Cash Equivalents held in bank or investment accounts pursuant to clause (A) (in each case, of a Restricted Subsidiary other than a Biomass Subsidiary) as additional Collateral; and provided, further, that in connection with any prepayment, repayment or purchase of Debt pursuant to clause (B), (C), (D) or (E), the Company or such Restricted Subsidiary will retire such Debt and will cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions, the Company and its Restricted Subsidiaries will not be required to apply any Net Available Cash in accordance with such foregoing provisions to the extent that such Net Available Cash does not exceed e10 million during any fiscal year, except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with the foregoing provisions exceeds e20 million. Pending application of Net Available Cash pursuant to this provision, such Net Available Cash may be used to temporarily reduce revolving credit borrowings or otherwise invested in any manner that is not prohibited by the terms of the Indenture. In the event of any Asset Disposition that requires the purchase of Notes pursuant to clause (E), the Company will be required to purchase Notes tendered pursuant to any offer by the Company for Notes (the Prepayment Offer) at a purchase price of 100% of their principal amount plus accrued interest (if any) to the Purchase Date (as defined below) in accordance with the procedures set forth in the Indenture. The Company will not be required to make a Prepayment Offer for Notes if the Net Available Cash available therefor (after application of the proceeds as provided in clauses (A), (B), (C) and (D)) is less than e10 million for any particular Asset Disposition (which lesser amounts will be carried forward for purposes of determining whether a Prepayment Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). Promptly, and in any event within ten days after the Company becomes obligated to make a Prepayment Offer, the Company will deliver to the Trustee and to each Holder of the Notes in accordance with the provisions set forth under Notices a written notice stating that such Holder may elect to have its Notes purchased by the Company, either in whole or in part (subject to

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prorating in the event the Prepayment Offer is oversubscribed) and in principal amounts of the minimum denomination of the Notes and integral multiples of e1,000 in excess thereof at the applicable purchase price. The notice will specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the Purchase Date) and will contain information concerning the business of the Company which the Company in good faith believes will enable Holders of the Notes to make an informed decision and will contain all instructions and material necessary to tender Notes pursuant to the Prepayment Offer and the procedures for withdrawing such a tender (such procedures as set forth in the Indenture). After consummation of any Prepayment Offer, Net Available Cash shall be reset to zero. The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the U.S. Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes as described above. To the extent that the provisions of any securities laws or regulations conflict with provisions relating to the Prepayment Offer, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations described above by virtue thereof. For the purposes of the provisions described under Limitation on Sales of Assets and Restricted Subsidiary Stock, each of the following will be deemed to be cash: (a) any liabilities, as recorded on the balance sheet of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are Subordinated Obligations), that are assumed by the transferee of any such Asset Disposition and as a result of which the Company and its Restricted Subsidiaries are no longer obligated with respect to such liabilities; (b) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from the transferee of any such Asset Disposition that are converted by the Company or such Restricted Subsidiary into cash or Cash Equivalents within 180 days following the closing of such Asset Disposition, to the extent of the cash or Cash Equivalents received in that conversion; (c) any Capital Stock or assets of the kind referred to in clause (A) of the first paragraph of this covenant; (d) Indebtedness (other than Subordinated Obligations) of any Restricted Subsidiary of the Company that is no longer a Restricted Subsidiary of the Company as a result of such Asset Disposition, to the extent that the Company and each other Restricted Subsidiary are released from any guarantee of such Indebtedness in connection with such Asset Disposition; and (e) consideration in connection with such Asset Disposition consisting of Indebtedness of the Company or any Guarantor (other than Subordinated Obligations) received from Persons who are not the Company or any of its Restricted Subsidiaries. No Monitoring by the Trustee The Trustee shall have no responsibility for monitoring any of the covenants described in this section Certain Covenants and shall be entitled to assume, unless it receives written notice to the contrary, that the Company and any of its Restricted Subsidiaries are all complying with their covenant obligations described herein. The Company shall, pursuant to the Indenture, provide to the Trustee a certificate of compliance on an annual basis certifying compliance (or not, as applicable) with such covenants, and the Trustee will be entitled to rely on such certificates absolutely and without further enquiry. Reports to Holders For so long as any Notes are outstanding, the Company will provide to the Trustee the following reports: (a) within 120 days after the end of the Companys fiscal year, annual reports, in a level of detail that is comparable in all material respects to that included in the Offering Memorandum (with appropriate revisions, as reasonably determined by the Company, to reflect changes in segment reporting, and except that the Company shall not be required to commission expert reports as part of any description of the industry), containing, to the extent applicable, the following information: (i) audited consolidated balance sheets of the Company as of the end of the two most recently completed fiscal years and audited consolidated income statements and statements of cash flow of the Company for the two most recently completed fiscal years, including complete footnotes to such financial statements and the report of the independent auditors on the financial

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statements; (ii) pro forma income statement and balance sheet information of the Company (which need not comply with Article 11 of Regulation S-X under the U.S. Exchange Act) together with explanatory footnotes, for any material acquisitions, dispositions or recapitalizations that have occurred since the beginning of the most recently completed fiscal year unless pro forma information has been provided in a previous report pursuant to clause (b)(ii) or (b)(iii) below (provided, that an acquisition, disposition or recapitalization that has occurred less than 75 calendar days prior to the date such report is to be provided, such acquisition, disposition or recapitalization shall be included in the report for the next fiscal quarter); (iii) an operating and financial review of the audited financial statements, including a discussion of the results of operations, financial condition, and liquidity and capital resources of the Company, and a discussion of material commitments and contingencies and critical accounting policies; (iv) a description of the business, management and shareholders of the Company, all material affiliate transactions and a description of all material contractual arrangements, including material debt instruments; (v) a description of material risk factors and material recent developments; (vi) earnings before interest, taxes, depreciation and amortization; (vii) capital expenditures; (viii) depreciation and amortization; and (ix) operating profit (loss) in IFRS; (b) within 60 days following the end of the first three fiscal quarters in each fiscal year of the Company, quarterly financial statements of the Company containing the following information: (i) an unaudited condensed consolidated balance sheet as of the end of such quarter and unaudited condensed statements of income and cash flow for the most recently completed quarter and year-to-date periods ending on the unaudited condensed balance sheet date, and the comparable prior year period, together with condensed footnote disclosure; (ii) pro forma income statement and balance sheet information of the Company, together with explanatory footnotes, for any material acquisitions, dispositions or recapitalizations that have occurred since the beginning of the most recently completed fiscal year unless pro forma information has been provided in a previous report pursuant to clause (b)(i) or (b)(iii) (provided, that an acquisition, disposition or recapitalization that has occurred less than 75 calendar days prior to the date such report is to be provided, such acquisition, disposition or recapitalization shall be included in the report for the next fiscal quarter or the current fiscal year, whichever occurs first); (iii) an operating and financial review of the unaudited financial statements, including a discussion of the results of operations, financial condition, and liquidity and capital resources of the Company; and (iv) any event reported pursuant to clause (c) of this paragraph; and promptly after the occurrence of any event that the Company announces to the securities and exchange commission in Spain (Comisi on Nacional del Mercado de Valores) or, if the Company ceases to be publicly listed on a recognized exchange in Spain, promptly after any material acquisition, disposition or restructuring of the Company and its Restricted Subsidiaries, taken as a whole, or any senior executive officer changes at the Company or change in auditors of the Company, or any other material event that the Company or any of its Restricted Subsidiaries announces publicly, a report containing a description of such event.

(c)

At any time that any of the Companys Subsidiaries are designated as Unrestricted Subsidiaries, then the quarterly and annual financial information required by (a) and (b) above will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries. All the financial statements and pro forma financial information shall be prepared in accordance with IFRS on a consistent basis for the periods presented. Except as provided for above, no report need include separate financial statements or information for the Company or Subsidiaries of the Company or any disclosure with respect to the results of operations or any other financial or statistical disclosure not of a type included in the Offering Memorandum.

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Contemporaneously with the furnishing of each such report discussed above, the Company will also post such reports on the Companys website. The reports and press releases that the Company will need to provide or file in accordance with the Indenture, will be in English. In the event that the Company becomes subject to the reporting requirements of Section 13(a) or 15(d) of the U.S. Exchange Act, or elects to comply with such provisions, the Company will, for so long as it continues to file the reports required by Section 13(a) with the SEC, make available to the Trustee the annual reports, information, documents and other reports that the Company is required to file with the SEC pursuant to such Section 13(a) or 15(d). Upon complying with the foregoing requirement, the Company will be deemed to have complied with the provisions contained in the preceding three paragraphs. So long as any Notes are listed on the Official List of the Luxembourg Stock Exchange and admitted to trading on the Euro MTF Market of the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, the Company will also provide a copy of all reports and press releases that the Company will need to provide or file in accordance with the Indenture to the Luxembourg Stock Exchange. The Indenture will also provide that, so long as any of the Notes remain restricted securities within the meaning of Rule 501 under the U.S. Securities Act and during any period during which the Company is not subject to Section 13 or 15(d) of the U.S. Exchange Act nor exempt therefrom pursuant to Rule 12g3-2(b), the Company will make available to any prospective purchaser of the Notes or beneficial owner of Notes in connection with any sale thereof the information required by Rule 144A(d)(4) under the U.S. Securities Act. The Company will also make any of the foregoing information available during normal business hours at the offices of the listing agent in Luxembourg if and so long as the Notes are listed on the Official List of the Luxembourg Stock Exchange and the rules of that exchange so require. Consolidation, Merger and Sale of Assets The Company will not merge or consolidate with or into any other entity (other than a merger or consolidation of a Restricted Subsidiary of the Company into the Company, or the Company into one of its Restricted Subsidiaries (except that such merger or consolidation shall comply with clauses (b) and (e) below) or sell, transfer, assign, lease, convey or otherwise dispose of all or substantially all of its property or assets in any one transaction or series of transactions unless the following requirements are satisfied: (a) the Company shall be the surviving Person or the surviving Person (if other than the Company), formed by such consolidation or merger or the Person to which such sale, transfer, assignment, lease, conveyance or disposition is made shall be a corporation organized and existing under the laws of the United States of America or a State thereof or the District of Columbia or any European Union Member State (any such Person, the Surviving Person); the Surviving Person (if other than the Company) expressly assumes, by a supplemental indenture in form satisfactory to the Trustee, executed and delivered to the Trustee by such Surviving Person, all the obligations of the Company, including the due and punctual performance and observance of all the covenants and conditions, including covenants relating to payment of principal, interest, premium and Additional Amounts, of the Indenture to be performed by the Company; immediately before and after giving effect to such transaction or series of transactions on a pro forma basis (and treating any Debt which becomes, or is anticipated to become, an obligation of the Surviving Person or any of its Restricted Subsidiaries as a result such transaction or series of transactions as having been Incurred by the Surviving Person or such Restricted Subsidiary at the time of such transaction or series of transactions), no Default or Event of Default shall have incurred and be continuing; immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any Debt which becomes, or is anticipated to become, an obligation of the Surviving Person or any of its Restricted Subsidiaries as a result of such transaction or series of transactions as having been Incurred by the Surviving Person or such Restricted Subsidiary at the time of such transaction or series of transactions), (i) the Company or the Surviving Person (if other than the Company) would be able to Incur at least e1.00 of additional Debt under the first paragraph of the covenant

(b)

(c)

(d)

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described under Certain CovenantsLimitation on Debt, or (ii) the Consolidated Coverage Ratio would be greater than or equal to the Consolidated Coverage Ratio immediately prior to giving pro forma effect to such transaction or transactions; and (e) in connection with any consolidation, merger, transfer or other transaction contemplated by this provision, the Company shall deliver, or cause to be delivered, to the Trustee, in form satisfactory to the Trustee, an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, merger, transfer or other transaction and the supplemental indenture in respect thereto comply with this provision and that all conditions precedent herein provided for relating to such transaction or transactions have been complied with and that the supplemental indenture, the Indenture and the Notes will be the legal, valid and binding obligations of the Surviving Person or Company, enforceable in accordance with their terms.

Notwithstanding anything in this covenant to the contrary: (i) the Company (A) may merge with an Affiliate that has no material assets or liabilities and that is incorporated or organized solely for the purpose of reincorporating or reorganizing the Company in any state of the United States, the District of Columbia or any state which is a European Union Member State and (B) may otherwise convert its legal form under the laws of its jurisdiction of organization, in each case, without complying with clause (d) of the preceding paragraph and (ii) any transaction characterized as a merger under applicable law where each of the constituent entities survives, shall not be treated as a merger for purposes of this covenant, but shall instead be treated as (x) an Asset Disposition, if the result of such transaction is the transfer of assets by the Company or any of its Restricted Subsidiaries, or (y) an Investment, if the result of such transaction is the acquisition of assets by the Company or any of its Restricted Subsidiaries. Upon assumption by the Surviving Person of the obligations of the Company under the Indenture, the Surviving Person will succeed to, and be substituted for, and may exercise every right and power of the Company under the Indenture, and the predecessor (except in the case of a lease) and the Company will be released from its obligations under the Indenture. Restricted and Unrestricted Subsidiaries The Board of Directors of the Company may designate or re-designate any Subsidiary of the Company or any of its Restricted Subsidiaries to be an Unrestricted Subsidiary if: (i) the Subsidiary to be so designated does not own any Capital Stock, Redeemable Stock or Debt of, or own or hold any Lien on any property or assets of, the Company or any other of its Restricted Subsidiaries; (ii) the Subsidiary to be so designated is not obligated by any Debt, Lien or other obligation that, if in default, would result (with the passage of time or notice or otherwise) in a default on any Debt of the Company or any of its Restricted Subsidiaries; and (iii) such designation complies with the covenant described under Certain CovenantsLimitation on Restricted Payments. For purposes of the covenant described under Certain CovenantsLimitation on Restricted Payments, Investment will include the portion (proportionate to the Companys equity interest in any of its Restricted Subsidiaries to be designated as an Unrestricted Subsidiary) of the Fair Market Value of the net assets of such Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a re-designation of such Subsidiary as a Restricted Subsidiary, the Company will be deemed to continue to have a permanent Investment in an Unrestricted Subsidiary in an amount (if positive) equal to (a) the companys Investment in such Subsidiary at the time of such re-designation less (b) the portion (proportionate to the Companys equity interest in such Subsidiary) of the Fair Market Value of the net assets (as conclusively determined by the Board of Directors of the Company in good faith) of such Subsidiary at the time that such Subsidiary is so re-designated a Restricted Subsidiary. Unless so designated as an Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company or of any of its Restricted Subsidiaries will be classified as a Restricted Subsidiary. Except as provided in the first sentence of this paragraph, no Restricted Subsidiary of the Company may be re-designated as an Unrestricted Subsidiary. Any such designation by the Board of Directors of the Company will be evidenced to the Trustee by the Company by promptly filing with the Trustee a copy of the resolution of such Board giving effect to such designation and delivering an Officers Certificate, in form satisfactory to the Trustee, certifying that such designation complies with the foregoing provisions.

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The Company will not, and will not permit any Unrestricted Subsidiary to, take any action or enter into any transaction or series of transactions that would result in a Person becoming a Restricted Subsidiary of the Company (whether through an acquisition, the re-designation of an Unrestricted Subsidiary or otherwise) unless after giving effect to such action, transaction or series of transactions, on a pro forma basis, (i)(a) the Company could Incur at least e1.00 of additional Debt pursuant to the first paragraph of the covenant described under Certain Covenants Limitation on Debt, or (b) the Consolidated Coverage Ratio would be greater than or equal to the Consolidated Coverage Ratio immediately prior to giving pro forma effect to such transaction or transactions and (ii) no Default or Event of Default would occur or be continuing. Impairment of Security Interest (a) Subject to paragraph (b) below, the Company will not, and will not permit any of its Restricted Subsidiaries to, take, or knowingly or negligently omit to take, any action, which action or omission might or would have the result of materially impairing the security interest with respect to the Collateral (it being understood that none of (i) the discharge and release of Collateral in accordance with the Indenture or (ii) the Incurrence of Permitted Liens or Permitted Collateral Liens will, under any circumstances, be deemed to materially impair the Security Interest with respect to the Collateral) for the benefit of the Holders of the Notes, and the Company will not, and will not permit any of its Restricted Subsidiaries to, grant to any Person other than the Trustee or the Security Agent, for the benefit of the Holders, the Trustee, the Security Agent and the other beneficiaries described in the Security Documents, any interest whatsoever in any of the Collateral, except as permitted in the Security Documents. At the direction of the Company and without the consent of the Holders, the Security Agent will from time to time enter into one or more amendments to the Security Documents to: (i) cure any ambiguity, omission, defect or inconsistency therein, (ii) provide for Permitted Liens or Permitted Collateral Liens, (iii) add to the Collateral, (iv) provide for the discharge and release of the Collateral in accordance with the Indenture or (v) make any other change thereto that does not adversely affect the Holders in any material respect (including to permit the Incurrence of Debt by the issuance of Additional Notes permitted to be Incurred pursuant to the covenant described under Limitation on Debt (any such issuance, an Additional Notes Issuance)); provided, however, that no Security Document may be amended, extended, renewed, restated, supplemented or otherwise modified or replaced, unless in compliance with the Intercreditor Agreement and contemporaneously with such amendment, extension, renewal, restatement, supplement, modification or replacement, the Company delivers to the Trustee either: (1) a solvency opinion, in form and substance reasonably satisfactory to the Trustee from an Independent Appraiser confirming the solvency of the Company and its Restricted Subsidiaries, taken as a whole, after giving effect to any transactions related to such amendment, extension, renewal, restatement, supplement, modification or replacement; (2) a certificate from the board of directors or chief financial officer of the Company (acting in good faith) that confirms the solvency of the Person granting such Lien after giving effect to any transaction related to such amendment, extension, renewal, restatement, replacement, supplement, modification or release; or (3) an Opinion of Counsel, subject to customary limitations, in form and substance satisfactory to the Trustee confirming that, after giving effect to any transactions related to such amendment, extension, renewal, restatement, supplement, modification or replacement, the Lien or Liens (other than in respect of Liens on assets that have been added to the Collateral as a result of such amendment, extension, renewal, restatement, supplement, modification or replacement) securing the Notes (other than any Additional Notes) created under the Security Documents so amended, extended, renewed, restated, supplemented or otherwise modified or replaced are valid and perfected Liens not otherwise subject to any limitation, imperfection or new hardening period (other than in the case of an Additional Notes Issuance), in equity or at law, that such Lien or Liens were not otherwise subject to immediately prior to such amendment, extension, renewal, restatement, supplement, modification or replacement. For the avoidance of doubt, closure of a secured bank account shall not be considered an impairment of security.

(b)

181

Suspension of Certain Covenants When Notes Rated Investment Grade If on any date following the date of the Indenture, (1) the Notes are rated (a) Baa3 or better by Moodys and (b) BBB or better by S&P (or, if either Moodys or S&P ceases to rate the Notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from Fitch Ratings or, in the absence of such, any other nationally recognized statistical rating organization within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the U.S. Exchange Act selected by the Company as a replacement agency so that the Notes are so rated by at least two such credit rating agencies); and (2) no Default or Event of Default shall have occurred and be continuing, the Company shall notify the Trustee and then, beginning on that day and subject to the provisions of the following paragraph, the covenants specifically listed under the following captions in the Offering Memorandum will be suspended: (1) (2) (3) (4) (5) (6) (7) Limitation on Debt; Limitation on Restricted Payments; Transactions with Affiliates; Limitation on Guarantees of Debt by Restricted Subsidiaries; Limitation on Restrictions on Distributions from Restricted Subsidiaries; Limitation on Sales of Assets and Restricted Subsidiary Stock; and clause (d) of the first paragraph of the covenant described under Consolidation, Merger and Sale of Assets.

During any period that the foregoing covenants have been suspended, the Companys Board of Directors may not designate any of its Subsidiaries as Unrestricted Subsidiaries pursuant to the covenant described above under the caption Certain CovenantsRestricted and Unrestricted Subsidiaries. Notwithstanding the foregoing, if the rating assigned by any such Rating Agency should subsequently decline to below Baa3 or BBB, as applicable, the foregoing covenants will be reinstituted as of and from the date of such rating decline, and, upon any such event, the Company shall promptly notify the Trustee. Such covenants will not, however, be of any effect with respect to actions properly taken during the period of suspension. Calculations under the reinstated Certain CovenantsLimitation on Restricted Payments covenant will be made as if the Certain CovenantsLimitation on Restricted Payments covenant had been in effect since the date of the Indenture, except that no default will be deemed to have occurred by reason of a Restricted Payment made while that covenant was suspended. There can be no assurance that the Notes will ever achieve an investment grade rating or that any such rating will be maintained. The Company shall notify the Trustee that the conditions set forth in the first paragraph under this caption have been satisfied, provided that such notification shall not be a condition for the suspension of the covenants described under this caption to be effective. Events of Default An Event of Default will occur under the Indenture if: (i) the Company fails to make any payment of interest (including Additional Amounts) on any Note when the same shall become due and payable, and such failure continues for a period of 30 days; the Company fails to make the payment of the principal or premium, if any, on any Note when the same becomes due and payable at its Stated Maturity, upon declaration, redemption, acceleration, required purchase or otherwise; the Company fails to comply with any of its respective covenants or agreements described under Certain CovenantsConsolidation, Merger and Sale of Assets; the Company fails to comply with its obligations under the covenants described under Change of Control above or under the covenants described under Certain Covenants (other than a failure to purchase Notes which will constitute an Event of Default under clause (ii) and other than a failure to comply with Certain Covenants

(ii)

(iii) (iv)

182

Consolidation, Merger and Sale of Assets which will constitute an Event of Default under clause (iii)) and such failure continues for a period of 30 days after the notice specified below; (v) the Company fails to comply with any of the covenants in the Indenture (other than those specified in clauses (i), (ii), (iii) and (iv)) and such failure continues for a period of 60 days after the notice specified below; there is a default under any Debt for money borrowed of the Company or any of its Restricted Subsidiaries (other than a Biomass Subsidiary) if that default: a. b. is caused by a failure to pay principal of such Debt prior to the expiration of any applicable grace period provided in such Debt (Payment Default), or results in the acceleration of such Debt prior to its express maturity,

(vi)

and, in each case, the aggregate principal amount of such Debt, together with the principal amount of any other Debt under which there has been a Payment Default, or the maturity of which has been so accelerated, exceeds e20 million or its equivalent; (vii) any final, non-appealable judgment or decree aggregating in an uninsured amount in excess of e20 million or its equivalent at the time is rendered against the Company or any of its Restricted Subsidiaries (other than a Biomass Subsidiary) and there is a period of 60 days following the entry of such judgment or decree during which such judgment or decree is not discharged, waived or the execution thereof stayed or is not covered by indemnities or third party insurance as to which the Person giving such indemnity or such insurer has not discharged coverage and such default continues for ten days after the notice specified below; (viii) the Company or any of its Significant Restricted Subsidiaries pursuant to or within the meaning of any Bankruptcy Law (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for any substantial part of its property or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any laws relating to insolvency or laws having a similar effect for creditors; (ix) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any of its Significant Restricted Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or any of its Significant Restricted Subsidiaries or for any substantial part of its property, or (C) orders the winding up or liquidation of the Company or any of its Significant Restricted Subsidiaries; or any similar relief is granted under any foreign laws, and, in each case, the order or decree remains unstayed and in effect for 60 days; any Guarantee ceases to be, or is asserted by any Guarantor, or any Person acting on behalf of any Guarantor, not to be in full force and effect or enforceable in accordance with its terms (other than as provided for in the Indenture or any Guarantee or as permitted by the Intercreditor Agreement) and any such Default continues uncured for a period of 21 days; or the security interest purported to be created under any Security Document, at any time, ceases to be in full force and effect and to constitute a valid and perfected Lien with the priority required by the applicable Security Document or the Intercreditor Agreement for any reason other than the satisfaction in full of all obligations under the Indenture and discharge of the Indenture or in accordance with the terms of the Indenture and the Intercreditor Agreement or any security interest purported to be created under any Security Document is declared invalid or unenforceable or any Person granting any such security interest asserts in any pleading in any court of competent jurisdiction that any such security interest is invalid or unenforceable and (but only in the event that such failure to be in full force and effect or such assertion is capable of being cured without imposing any new hardening period, in equity or at law, that such security interest was not otherwise subject immediately prior to such failure or assertion) such failure to be in full force and effect or such assertion has continued uncured for a period of 21 days; provided, however, that any such cessation, declaration, or assertion shall not constitute

(x)

(xi)

183

a Default hereunder unless it shall adversely affect in a material respect the condition or the value of the Collateral, taken as a whole. A Default under clause (iv) or (v) will not be an Event of Default until the Trustee notifies the Company or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding notify the Company and the Trustee in writing of the Default and the Company does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a Notice of Default. For the avoidance of doubt, the voluntary liquidation or dissolution of a Significant Restricted Subsidiary of the Company in connection with the transfer of all or substantially all of the properties and assets of such Significant Restricted Subsidiary to another Significant Restricted Subsidiary of the Company in compliance with the terms of the Indenture shall not constitute an Event of Default. The Company will deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers Certificate of any event which, with the giving of notice and the lapse of time, would become an Event of Default under clause (iv) or (v), its status and what action the Company is taking or proposes to take with respect thereto. If an Event of Default (other than an Event of Default specified in clause (viii) or (ix)) occurs and is continuing, the Trustee, by notice in writing to the Company, or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding by notice to the Company and the Trustee, may, and the Trustee, if directed by Holders of at least 25% in aggregate principal amount of the Notes then outstanding, shall declare the principal of, premium, if any, and accrued interest on all Notes to be due and payable and instruct the Security Agent to enforce the transaction security. Upon such declaration, such principal accrued interest will be due and payable immediately. If an Event of Default specified in clause (viii) or (ix) occurs, the principal of and interest on all the Notes will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders of the Notes and the transaction security will ipso facto become immediately enforceable. After any such acceleration, but before a judgment or decree based on such acceleration is obtained by the Trustee, the registered Holders of a majority in aggregate principal amount of the Notes then outstanding may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the nonpayment of accelerated principal, premium or interest, have been cured or waived as provided in the Indenture. The Holders of a majority in aggregate principal amount of the Notes by notice to the Trustee may waive an existing Default and its consequences except (i) a Default in the payment of the principal of, premium if any, or interest on a Note or (ii) a Default in respect of a provision that cannot be amended without the consent of Holders of a percentage higher than 50.1% of the aggregate principal amount of Notes affected. When a Default is waived, it is deemed cured, but no such waiver will extend to any subsequent or other Default or impair any consequent right. The Holders of a majority in aggregate principal amount of the Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of other Holders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action under the Indenture, the Trustee will be entitled to indemnification or security (including by way of pre-funding) satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. A Holder of the Notes may not pursue any remedy with respect to the Indenture or the Notes unless: (i) such Holder gives to the Trustee written notice stating that an Event of Default is continuing; (ii) Holders of at least 25% in aggregate principal amount of the Notes then outstanding make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Trustee security or indemnity (including by way of pre-funding) satisfactory to it against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity (including by way of pre-funding); and (v) the Holders of a majority in principal amount of the Notes do not give the Trustee a written direction inconsistent with the request during such 60-day period.

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Notwithstanding the foregoing, the Guarantees and Security Documents may only be enforced by, or at the discretion of, the Trustee (acting of its own volition or on the direction of the Holders of a majority in principal amount of the outstanding Notes) and the Security Agent, as the case may be (please see Credit Enhancement). Amendments, Supplements and Waivers Subject to certain exceptions, the Indenture, the Notes, the Intercreditor Agreement and the Security Documents may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including consents obtained in connection with a consent solicitation, tender offer or exchange for the Notes) and any existing or past default or compliance with any provisions may be waived with the consent of the Holders of at least a majority in an aggregate principal amount of the Notes then outstanding, provided, that, if any amendment, waiver or other modification will only affect one series of the Notes, only the consent of a majority in principal amount of the then outstanding Notes of such series shall be required. However, without the consent of Holders of at least 90% of the aggregate principal amount of the outstanding Notes affected thereby, no amendment may, among other things: (i) (ii) (iii) (iv) (v) (vi) reduce the amount of Notes whose Holders must consent to an amendment, supplement or waiver; reduce the rate of or extend the time for payment of interest on any Note; reduce the principal of or extend the Stated Maturity of any Note; reduce the premium payable upon the redemption of any Note or change the time or times at which any Notes may or shall be redeemed; make any Note payable in money other than that stated in the Note; or impair the right of any Holder of the Notes to institute suit for the enforcement of any payment on or with respect to any Notes.

Notwithstanding the foregoing, the Indenture may be amended with the consent of Holders of 6623% of the aggregate principal amount of the outstanding Notes to release a Guarantee (if such consent is required by the Indenture) or to release any security that may have been granted in respect of the Notes other than pursuant to the terms of the Security Documents, the Intercreditor Agreement or as otherwise permitted under the Indenture. Notwithstanding the foregoing, without the consent of any Holder of the Notes, the Company, the Guarantors, the Security Agent and the Trustee (as applicable) may, among other things, amend or supplement the Indenture, the Notes, the Intercreditor Agreement and the Security Documents to cure any ambiguity, omission, defect or inconsistency, to provide for the assumption by a Surviving Person of the obligations of the Company under the Indenture, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture (including for the issuance of Additional Notes denominated in U.S. dollars) and to make such changes as may be required to the Security Documents to accommodate and implement such issuance of Additional Notes, to the extent necessary to provide for the granting of a security interest for the benefit of any Person; provided, that the granting of such security interest is not prohibited under the Indenture, to provide for uncertificated Notes in addition to or in place of certificated Notes, evidence and provide for the acceptance and appointment under the Indenture of a successor trustee pursuant to the requirements thereof, to comply with the rules of any applicable securities depository, to conform the text of the Indenture, the Notes, the Guarantees, the Intercreditor Agreement or the Security Documents to any provision of this Description of the Notes to the extent that such provision in the Description of the Notes was intended to be a verbatim recitation of a provision of the Indenture, the Notes, the Guarantees, the Intercreditor Agreement or the Security Documents, to add Guarantees with respect to the Notes or to release a Guarantor upon its designation as an Unrestricted Subsidiary or as otherwise permitted by the Indenture; provided, however, that the release is in accord with the applicable provisions of the Indenture, to secure the Notes and to amend the mechanical provisions to facilitate the release of all or any portion of the Collateral pursuant to the terms of the Indenture, to add to the covenants of the Company for the

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benefit of the Holders of the Notes or to surrender any right or power conferred upon the Company, or to make any change that does not adversely affect the rights of any Holder of the Notes. The consent of the Holders of the Notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. A consent to any amendment or waiver under the Indenture by any Holder of Notes given in connection with a tender of such Holders Notes will not be rendered invalid by such tender. After an amendment under the Indenture becomes effective, the Company is required to mail to each registered Holder of the Notes at its address appearing in the security register a notice briefly describing such amendment. However, the failure to give such notice to all Holders of the Notes, or any defect therein, will not impair or affect the validity of the amendment. Additional or Amended Intercreditor Agreements The Indenture will provide that, at the direction of the Company and without the consent of the Holders of Notes, the Trustee and the Security Agent shall from time to time enter into an additional intercreditor agreement (each an Additional Intercreditor Agreement) on terms substantially similar to the Intercreditor Agreement or one or more amendments to the Intercreditor Agreement or any Additional Intercreditor Agreement to (A) cure any ambiguity, omission, defect or inconsistency of the Intercreditor Agreement or any Additional Intercreditor Agreement, (B) increase the amount of Debt of the types covered by the Intercreditor Agreement or any Additional Intercreditor Agreement that may be Incurred by the Company or a Guarantor that is subject to the Intercreditor Agreement (including the addition of provisions relating to new Debt ranking equal to or junior in right of payment to the Notes or the Guarantees, as applicable), (C) add Guarantors to the Intercreditor Agreement or any Additional Intercreditor Agreement, (D) further secure the Notes (including Additional Notes), or (E) make any other such change to the Intercreditor Agreement or any Additional Intercreditor Agreement that does not adversely affect the Holders of Notes in any material respect. The Company shall not otherwise direct the Trustee or the Security Agent to enter into any Additional Intercreditor Agreement or amendment to the Intercreditor Agreement or any Additional Intercreditor Agreement without the consent of the Holders of the majority in aggregate principal amount of the Notes then outstanding, except as otherwise permitted under this covenant, and the Company may only direct the Trustee and the Security Agent to enter into any amendment to the extent that such amendment does not impose any personal obligations on the Trustee or the Security Agent or adversely affect the rights, duties, liabilities or immunities of the Trustee or the Security Agent under the Indenture or the Intercreditor Agreement or any Additional Intercreditor Agreement. Each Holder of the Notes, by accepting a Note, shall be deemed to have agreed to and accepted the terms and conditions of, and to have directed the Trustee and the Security Agent to enter into, the Intercreditor Agreement or any Additional Intercreditor Agreement (whether then entered into or entered into in the future pursuant to the provisions described herein) and the Trustee or the Security Agent will not be required to seek the consent of any Holder of the Notes to perform its obligations under, and in accordance with, the Intercreditor Agreement or any Additional Intercreditor Agreement. A copy of the Intercreditor Agreement or any Additional Intercreditor Agreement shall be made available for inspection during normal business hours on any Business Day upon prior written request at the offices of the Trustee and, for so long as any Notes are listed on the Official List of the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, at the offices of the Listing Agent in Luxembourg. All references in this Description of the Notes to the Intercreditor Agreement shall, where appropriate, also refer to any Additional Intercreditor Agreement. Satisfaction and Discharge The Indenture (and all Liens on Collateral created pursuant to the Security Documents applicable to the Indenture), any supplemental indenture and each of the Guarantees applicable to the Indenture will be discharged and will cease to be of further effect (except as otherwise expressly provided for in the Indenture) when either: (i) all outstanding Notes issued pursuant to the

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Indenture have been delivered (other than lost, stolen or destroyed Notes which have been replaced) to the paying agent for cancellation; or (ii) all outstanding Notes issued pursuant to the Indenture not theretofore delivered to the paying agent for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable by reason of the making of a notice of redemption or otherwise within one year and the Company has irrevocably deposited with the Trustee, or such other entity designated by the Trustee for this purpose, cash in euro or euro-denominated European Government Obligations or a combination thereof sufficient to pay at maturity or upon redemption all outstanding Notes issued pursuant to the Indenture, including interest thereon (other than lost, stolen or destroyed Notes which have been replaced), and, in either case, the Company has paid all sums payable by it under the Indenture. The Trustee will be required to acknowledge satisfaction and discharge of the Indenture on written demand of the Company accompanied by an Officers Certificate at the cost and expense of the Company. Defeasance The Company may, at any time, terminate: (i) all obligations under the Notes, the Guarantees and the Indenture (legal defeasance option); or (ii) obligations to comply with certain restrictive covenants, including certain of the covenants described under Certain Covenants (covenant defeasance option). The Company may exercise its legal defeasance option notwithstanding any prior exercise of their covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of certain Events of Default described under Defaults (not including, among others, Events of Default relating to non-payment, bankruptcy and insolvency events) or because of the failure of the Company to comply with certain covenants specified in the Indenture. If the Company exercises its legal defeasance option or its covenant defeasance option, each Guarantor will be released from all of its obligations with respect to its Guarantee and the Collateral will be released as security for the Notes. The Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee, or such other entity designated by the Trustee for this purpose, cash in euro or euro-denominated European Government Obligations or a combination thereof, for the payment of principal of and interest on the Notes to maturity or redemption, as the case may be; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent certified public accountants expressing their opinion that the payments of principal and interest when due and without reinvestment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Notes to maturity or redemption, as the case may be; (3) the deposit does not constitute a default under any other agreement or instrument binding on the Company; (4) the Company delivers to the Trustee an Opinion of Counsel satisfactory to the Trustee in its sole discretion to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the U.S. Investment Company Act of 1940, as amended; (5) in the case of the legal defeasance option, the Company delivers to the Trustee an Opinion of Counsel satisfactory to the Trustee in its sole discretion stating that (i) the Company has received from, or there has been published by, the U.S. Internal Revenue Service a ruling, or (ii) since the date of the Indenture there has been a change in the applicable U.S. federal income tax law, to the effect, in either case, that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred, provided, however, that such Opinion of Counsel shall not be required if all the Notes will become due and payable on the Maturity Date within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee; (6) in the case of the covenant defeasance option, the Company delivers to the Trustee an Opinion of Counsel satisfactory to the Trustee in its sole discretion to the effect that the Holders of the Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such covenant defeasance and will be subject to U.S. federal income tax on the same amounts, in the same

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manner and at the same times as would have been the case if such covenant defeasance had not occurred; (7) the Company delivers to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the defeasance and discharge of the Notes have been complied with as required by the Indenture; and (8) the Company delivers to the Trustee an Officers Certificate stating that the deposit was not made by the Company with the intent of defeating, hindering, delaying, defrauding or preferring any creditors of the Company. Notices Notices to Holders of the Notes (while any Notes are represented by one or more global notes) shall be delivered to Euroclear and Clearstream for communication to entitled account holders, or in the case of definitive Notes, shall be given by mail to the addresses of Holders of such Notes appearing on the register for such Note, and in each case shall be published (so long as the Notes are listed on the Official List of the Luxembourg Stock Exchange and the rules of that exchange so require) in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the website of the Luxembourg Stock Exchange at www.bourse.lu. No Personal Liability of Directors, Officers, Employees and Shareholders No past, present or future director, officer, employee, incorporator, promoter, advisor or shareholder of the Company or any Guarantor, as such, will have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture, the Guarantees, the Security Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Concerning the Trustee Deutsche Trustee Company Limited will be the Trustee under the Indenture. The Trustees current specified address is Winchester House, 1 Great Winchester Street, London EC2N 2DB. The Indenture will provide that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture (including, without limitation, directing the Security Agent to enforce any of the Security Documents) at the request of any Holder of Notes, unless such Holder has offered to the Trustee security or indemnity (including by way of pre-funding) satisfactory to it against loss, liability or expense as provided in the Indenture. The Indenture will provide for the indemnification of the Trustee and for its relief from responsibility in connection with its actions under the Indenture. The Intercreditor Agreement will provide that the Trustee is entitled to be paid amounts in respect of its fees, costs and expenses and claims under any indemnity in priority to payments to other creditors, including Holders of the Notes. The Indenture will provide that the Trustee may rely absolutely, without further enquiry, on any certificates, reports, opinions or other documents (whether or not any such document contains any limit on liability) from the Company, its Subsidiaries, legal counsel, auditors, valuers or any other experts. The Trustee or the Security Agent will not be responsible for the adequacy or fitness of any of the Collateral as security in relation to the Notes. The Trustee will not be responsible for any loss, expense or liability which may be suffered as a result of any inadequacy of the Collateral. The Indenture will provide that the Trustee will be permitted to engage in other transactions with the Company; provided, that if the Trustee acquires any conflicting interest in its capacity as Trustee, it must eliminate such conflict or resign. No Standing Committee of Holders of Notes and No Commissioner As a consequence of the Notes, the Guarantees and the Indenture being governed by New York law, a Holder of the Notes will not benefit from the constitution of a standing committee of

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Holders of the Notes (sindicato de obligacionistas) or the appointment of a commissioner (comisario) pursuant to Chapter X, Section 4 of the Spanish Corporations Law (Ley de Sociedades de Capital). By purchasing a Note, the Holder of such Note will be deemed: (i) to have expressly agreed that no such standing committee of Holders of the Notes is required to be constituted and that no such commissioner is required to be appointed with respect to this Offering; (ii) to have expressly agreed that the lack of such standing committee of Holders of the Notes and such commissioner does not affect the validity of the Notes or the Guarantees; and (iii) to have irrevocably instructed the Trustee to take any action or to sign or execute and deliver any documents or notices that may be necessary or desirable to comply with and give effect to clause (i) and (ii) or to appoint a commissioner if required to do so pursuant to an order of a court of competent jurisdiction. Notwithstanding the foregoing, the effectiveness of certain amendments, consents, waivers or other actions of the Holders of the Notes taken pursuant to the Indenture or the lack of a standing committee of Holders of the Notes or of an express appointment of a commissioner may be challenged under Spanish law. Please see Risk FactorsRisks Relating to the Notes and Our StructureThere are certain risks relating to the interplay between certain provisions of U.S. and Spanish law. Paying Agent and Registrar for the Notes The Company will maintain a paying agent for the Notes in the City of London. The Company will undertake to maintain a paying agent in a European Union Member State that is not obligated to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of November 26 and 27, 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive. The initial paying agents will be Deutsche Bank AG, London Branch, in London. The Company will also maintain one or more registrars (each, a Registrar) and a transfer agent with offices in Luxembourg. The initial Registrar will be Deutsche Bank Luxembourg, S.A. The initial transfer agent will be Deutsche Bank Luxembourg, S.A. The Registrar in Luxembourg will maintain a register reflecting ownership of certificated securities (the Definitive Registered Notes) outstanding from time to time and will make payments on and facilitate transfers of Definitive Registered Notes on behalf of the Company. Each transfer agent shall perform the functions of a transfer agent. The Company may change any paying agent, Registrar or transfer agent for the Notes without prior notice to the Holders of such Notes. However, for so long as the Notes are listed on the Euro MTF Market of the Luxembourg Stock Exchange and its rules so require, the Company will deliver notice of the change in a paying agent, Registrar or transfer agent on the website of the Luxembourg Stock Exchange at www.bourse.lu. The Company or any of its Restricted Subsidiaries may act as paying agent or Registrar in respect of the Notes. Consent to Jurisdiction and Service of Process The Indenture will provide that the Company and each Guarantor will irrevocably appoint CT Corporation Systems as their agent for service of process in any suit, action or proceeding with respect to the Indenture, the Notes or any Guarantee brought in any U.S. federal or state court located in the Borough of Manhattan, City and State of New York and that each of the parties submit to the jurisdiction thereof. Governing Law The Indenture will provide that they, each Guarantee and the Notes will be governed by, and construed in accordance with, the laws of the State of New York. The due authorization of the Notes is governed by, and construed in accordance with, Spanish law. The Intercreditor Agreement is governed by, and construed in accordance with, English law. The Security Documents will be governed by, and construed in accordance with the laws of the jurisdictions in which the assets subject to those agreements are located. Certain Definitions Acquired Debt means Debt: (i) of any Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company; or (ii) assumed in connection with

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the acquisition of assets from such Person, in each case whether or not Incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition. Acquired Debt shall be deemed to have been Incurred, with respect to clause (i) of the preceding sentence, on the date such Person became a Restricted Subsidiary of the Company and, with respect to clause (ii) of the preceding sentence, on the date of consummation of such acquisition of assets. Additional Assets means any: (i) property or assets (other than Debt and Capital Stock) that are used or useful in a Related Business; (ii) Capital Stock of a Person that becomes a Restricted Subsidiary of the Company as a result of the acquisition of such Capital Stock by the Company or another of its Restricted Subsidiaries; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary of the Company; provided, however, that in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Related Business. Additional Guarantee means a guarantee on the terms set forth in the Indenture of the Companys obligations under the Notes and the Indenture issued by a company that becomes a Guarantor (as defined in the Indenture) in accordance with the terms of the Indenture. Affiliate of any specified Person means (i) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person or (ii) any other Person who is a director or officer (A) of such specified Person, (B) of any Subsidiary of such specified Person or (C) of any Person described in clause (i) above. For the purposes of this definition, control when used with respect to any Person will mean the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing. For purposes of Certain CovenantsTransactions with Affiliates, Certain CovenantsLimitation on Sales of Assets and Restricted Subsidiary Stock and the definition of Free Float Percentage only, Affiliate will also mean any beneficial owner of shares representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of such specified Person or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. Notwithstanding the foregoing, Liberbank, S.A. and its Subsidiaries shall not be considered Affiliates of the Company and its Restricted Subsidiaries for so long as they hold less than 10% of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable). Applicable Redemption Premium means, with respect to any Note on any redemption date, the greater of: (a) (b) 1.0% of the principal amount of the Note; and with respect to any Note the excess of: a. the present value at such redemption date of: (x) the redemption price of such Note at , 2016 (such redemption price being set forth in the table appearing below the caption Optional RedemptionOptional Redemption On and After , 2016); plus (y) all required interest payments that would otherwise be due to be paid on such Note during the period between the redemption date and , 2016 (excluding accrued but unpaid interest), computed using a discount rate equal to the Bund Rate at such redemption date plus 50 basis points; over the outstanding principal amount of such Note,

b.

as calculated by the Company or on behalf of the Company by such Person as the Company shall designate. For the avoidance of doubt, calculation of the Applicable Redemption Premium shall not be a duty or obligation of the Trustee or any Paying Agent. Asset Disposition means any direct or indirect sale, lease, transfer or other disposition (or series of sales, leases, transfers or dispositions) by the Company or any of its Restricted Subsidiaries, including any disposition by means of a merger, consolidation or other similar

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transaction (each referred to for the purposes of this definition as a disposition), of (i) any shares of Capital Stock of a Restricted Subsidiary of the Company (other than directors qualifying shares or shares required by applicable law to be held by a Person other than the Company or any of its Restricted Subsidiaries), (ii) all or substantially all the assets of any division or line of business of the Company or any of its Restricted Subsidiaries, or (iii) any other assets of the Company or any of its Restricted Subsidiaries outside of the ordinary course of business of the Company or such Restricted Subsidiary, other than, in the case of (i), (ii) and (iii) above: (1) (2) a disposition by a Restricted Subsidiary of the Company to the Company or by the Company or any of its Restricted Subsidiaries to a Restricted Subsidiary of the Company, for purposes of the covenant described under Certain CovenantsLimitation on Sales of Assets and Restricted Subsidiary Stock only, a disposition that constitutes a Restricted Payment permitted by the covenant described under Certain Covenants Limitation on Restricted Payments, a disposition of Listed Shares, disposition of assets with a Fair Market Value in any calendar year of less than e10 million, sales or grants of licenses to use the patents, trade secrets, know-how and other intellectual property of the Company or any of its Restricted Subsidiaries to the extent that such license does not prohibit the Company or any of its Restricted Subsidiaries from using the technologies licensed (other than pursuant to exclusivity or non-competition arrangements negotiated on an arms length basis) or require the Company or any of its Restricted Subsidiaries to pay any fees for any such use, the sale, lease, conveyance, disposition or other transfer (A) of all or substantially all of the assets of the Company as permitted under the covenant Certain Covenants Consolidation, Merger and Sale of Assets, (B) of any Capital Stock or other ownership interest in or assets or property, including Debt, of an Unrestricted Subsidiary or the Uruguayan Subsidiaries, (C) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of the Company or any Subsidiary of the Company with a Lien on such assets, which Lien is permitted under the Indenture; provided, that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any bankruptcy law, (D) involving only inventory in the ordinary course of business or obsolete or worn out property or property that is not or no longer useful in the conduct of the business of the Company or its Restricted Subsidiaries (in the reasonable and good faith judgment of the Board of Directors of the Company) or cash or Cash Equivalents or (E) including only the lease or sub-lease of any real or personal property in the ordinary course of business, Permitted Investments, sale of timber to any Person in connection with the substantially concurrent acquisition of an approximately equivalent Fair Market Value of timber from such Person (or any Affiliate thereof), sale of forestry assets to any Person with a Fair Market Value in any calendar year of less than e5 million provided that the Company or a Restricted Subsidiary of the Company enters into a substantially concurrent contract with such Person or its Affiliate for the purchase of substantially all of the wood to be harvested in at least the next cutting of such forestry assets, and

(3) (4) (5)

(6)

(7) (8)

(9)

(10) sales or dispositions of Receivables in connection with any factoring transaction arising in the ordinary course of business pursuant to customary arrangements provided, that any Debt Incurred in relation thereto is permitted to be Incurred by clause (vii) of the second paragraph of the covenant described under Certain CovenantsLimitation on Debt. Average Life means, as of the date of determination, with respect to any Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years (rounded to the nearest one-twelfth of one year) from the date of determination to the dates of each

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successive scheduled principal payment of such Debt or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. Bankruptcy Law means Title 11, United States Code, or any similar U.S. federal or state law for the relief of debtors, or any analogous law of any other jurisdiction or any political subdivision thereof or therein. Biomass Contingent Obligations means any covenant, indemnity or guarantee of performance entered into by the Company or any of its Restricted Subsidiaries, which the Company has determined in good faith to be customary in a Credit Facility to provide Biomass Project Finance Debt to a Biomass Subsidiary or a Joint Venture, in each case, in relation to a Biomass Project, whether generally customary for project financings, customary in the specific jurisdiction in which the relevant Biomass Project will be located or where any project finance provider is located or customary for project financings of that particular type, value or nature. Biomass Financing Agreement means a Credit Facility entered into by a Biomass Subsidiary the aggregate principal amount of such Credit Facility could have been Incurred under the first paragraph of the covenant described under Certain CovenantsLimitation on Debt, on the date on which it was entered into. Biomass Project means the projects for the generation and sale of biomass renewable rida Biomass Subsidiary and any additional energy by the Huelva Biomass Subsidiary and the Me such project initiated after the Issue Date, but excluding, for the avoidance of doubt, any co-generation projects associated with the other activities of the Company and its Subsidiaries conducted before or after the Issue Date. Biomass Project Finance Debt means Debt Incurred for the purpose of financing all or part of the purchase price or cost of construction or improvement of a Biomass Project by a Biomass Subsidiary or by a Joint Venture and any related expenses, which, other than for any Biomass Contingent Obligations, are neither secured by assets of, nor guaranteed by, the Company or any of its Restricted Subsidiaries, other than (A) the assets of such Biomass Subsidiary, (B) Liens over the shares of Capital Stock of such Biomass Subsidiary, (C) Liens over Debt of a Biomass Subsidiary owing to and held by the Company or any Restricted Subsidiary of the Company, and (D) cash collateral arrangements in support of any Biomass Contingent Obligation. Biomass Subsidiary means the Huelva Biomass Subsidiary, the M erida Biomass Subsidiary and any newly established or acquired special purpose Restricted Subsidiary of the Company so designated by the Board of Directors, which (i) engages or is to be engaged in no activity other than a Biomass Project and any activities related or incidental thereto, (ii) does not own any Capital Stock of any other Restricted Subsidiary and does not hold any material assets other than those required, related or incidental to a Biomass Project, (iii) does not have the benefit, directly or indirectly, of any guarantee, keep well undertaking, net worth commitment or other credit support from the Company or any of its other Restricted Subsidiaries and (iv) is not obligated by any Debt, Lien or other obligation that, if in default, would result (with the passage of time or notice or otherwise) in a default on any Debt of the Company or any of its Restricted Subsidiaries (other than a Biomass Subsidiary), except in the case of (iii) and (iv) for Biomass Contingent Obligations. Board of Directors means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. Bund Rate means, as selected by the Company, with respect to any redemption date, the rate per annum equal to the equivalent yield to maturity as of such redemption date of the Comparable German Bund issue, assuming a price for the Comparable German Bund Issue (expressed as a percentage of its principal amount) equal to the Comparable German Bund Price for such redemption date, where: (a) Comparable German Bund Issues means the German Bundesanleihe security selected by any Reference German Bund Dealer as having a fixed maturity most nearly equal to the period from such redemption date to , 2016 and that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of Euro-denominated corporate debt securities in a principal amount approximately equal to the then outstanding principal amount of the Notes and of a

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maturity most nearly equal to , 2016; provided, that if the period from such redemption date to , 2016, is less than one year, a fixed maturity of one year shall be used; (b) Comparable German Bund Price means, with respect to any redemption date, the average of the Reference German Bund Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference German Bund Dealer Quotations, or if the Company obtains fewer than four such Reference German Bund Dealer Quotations, the average of all such quotations; Reference German Bund Dealer means any dealer of German Bundesanleihe securities appointed by the Company in consultation with the Trustee; and Reference German Bund Dealer Quotations means, with respect to each Reference German Bund Dealer and any redemption date, the average as determined by the Company of the bid and offered prices for the Comparable German Bund issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference German Bund Dealer at 3:30 p.m. Frankfurt, Germany time on the third business day preceding such redemption date.

(c) (d)

Business Day means each day that is not a Saturday, Sunday or other day on which banking institutions in any of London, United Kingdom, Madrid, Spain, New York City, New York, United States of America or Luxembourg are authorized or required by law to close, and that is also a TARGET2 settlement day for settlement of payments in euro. Capital Stock Contribution means the aggregate Net Cash Proceeds received by the Company as a contribution (other than from a Subsidiary or an employee stock ownership plan or trust established by the Company or any Subsidiary) in respect of any class of its Capital Stock (other than Disqualified Stock and Capital Stock of the Company held by the Company on or prior to the Issue Date) after the Issue Date. Capital Stock Sale Proceeds means the aggregate Net Cash Proceeds received by the Company from the issue or sale (other than to a Subsidiary or an employee stock ownership plan or trust established by the Company or any Subsidiary) by the Company of any class of its Capital Stock (other than Disqualified Stock and Capital Stock of the Company held by the Company on or prior to the Issue Date) after the Issue Date. Capital Stock means, with respect to any Person, any and all shares or other equivalents (however designated) of corporate stock, partnership interests or any other participation, right, warrant, option or other interest in the nature of an equity interest in such Person, but excluding any debt security convertible or exchangeable into such equity interest. Capitalized Lease Obligations means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with IFRS; and the amount of Debt represented by such obligation will be the capitalized amount of such obligation determined in accordance with IFRS; and the Stated Maturity thereof will be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. For purposes of Certain CovenantsLimitation on Liens, a Capitalized Lease Obligation shall be deemed secured by a Lien on the property or assets being leased. Cash Equivalents means: (1) direct obligations of the United States of America or any European Union Member State or any agency thereof or obligations guaranteed by the United States of America or any European Union Member State, or any agency thereof, in each case denominated in U.S. dollars, euro or pounds sterling and with maturities not exceeding two years from the date of acquisition; certificates of deposit, time deposits and eurodollar time deposits with maturities of 12 months or less from the date of acquisition, bankers acceptances with maturities not exceeding 12 months and overnight bank deposits, in each case, with any lender party to the Revolving Credit Facility or with any commercial bank having capital and surplus in

(2)

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excess of e500 million and whose long-term debt is rated BBB or higher by S&P or Baa3 or higher by Moodys; (3) repurchase obligations with a term of not more than 30 days for underlying securities or the types described in clauses (1) and (2) above entered into with any financial institution meeting the qualifications specified in clause (2) above; commercial paper maturing within 12 months after the date of acquisition and having a rating of at least A1 from Moodys or P-1 from S&P; securities with maturities of two years or less from the date of acquisition issued or fully guaranteed by any State, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, or any European Union Member State, or any political subdivision thereof, and, in each case, having one of the five highest ratings categories obtainable from S&P or Baa by Moodys; investment funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition; and indebtedness issued by Persons with a rating of at least A by S&P and A2 by Moodys, in each case with maturities of 12 months or less from the date of acquisition.

(4) (5)

(6) (7)

Change of Control means any of the following events: (a) any Person or group (as such terms are used in Sections 13(d)(3) and 14(d)(2) of the U.S. Exchange Act or any successor provision to either of the foregoing, including any group acting for the purpose of acquiring, holding, voting or disposing of securities within the meaning of rule 13d-5(b)(1) under the U.S. Exchange Act), other than an underwriter engaged in a firm commitment underwriting in connection with a public offering of any shares of Voting Stock of the Company, is or becomes the ultimate beneficial owner (as defined in Rule 13d-3 under the U.S. Exchange Act, except that a Person will be deemed to have beneficial ownership of all shares that any such Person has the right to acquire within 365 days of the date of determination, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 50% or more of the total voting power of all classes of the Voting Stock of the Company; or the sale, assignment, lease, conveyance, disposition or transfer, directly or indirectly, of all or substantially all the assets of the Company and its Subsidiaries, taken as a whole (other than a transfer of such assets as an entirety or virtually as an entirety to one or more Restricted Subsidiaries of the Company), occurs, or the Company amalgamates, consolidates or merges with or into any other Person or any other Person amalgamates, consolidates or merges with or into the Company, pursuant to a transaction in which the outstanding Voting Stock of the Company is reclassified into or exchanged for cash, securities or other property, other than any such transaction, where (i) the outstanding Voting Stock of the Company is reclassified into or exchanged for Voting Stock of the surviving corporation and (ii) the holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the Voting Stock of the surviving corporation immediately after such transaction and in substantially the same proportion as before the transaction; or during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election or appointment by such board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or the shareholders of the Company approve any plan of liquidation or dissolution of the Company.

(b)

(c)

(d)

Clearstream means Clearstream Banking, soci et e anonyme as currently in effect or any successor clearing agency.

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Commodity Agreement means, in respect of any Person, any commodity purchase contract, commodity futures or forward contract, commodities option or other similar agreement or arrangement designed to protect such Person against fluctuations in commodity prices, including, without limitation, in respect of pulp, natural gas, fuel and CO2. Consolidated Coverage Ratio means, as of any date of determination, the ratio of (i) the aggregate amount of EBITDA for the period of the most recently completed four consecutive fiscal quarters ending prior to the date of such determination for which internal consolidated financial statements of the Company are available to (ii) the aggregate Consolidated Interest Expense for such four fiscal quarters; provided, however, that: (1) if the Company or any of its Restricted Subsidiaries has Incurred any Debt during such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Debt, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Debt as if such Debt had been Incurred on the first day of such period and the discharge of any other Debt repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Debt as if such discharge had occurred on the first day of such period; if during such period the Company or any of its Restricted Subsidiaries shall have made any Asset Disposition or disposed of any company, division, operating unit, segment, business, group of related assets or line of business (Disposal) or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is such a Disposal, both EBITDA for such period shall be reduced by an amount equal to EBITDA (if positive) directly attributable to the assets which are the subject of such Disposal for such period, or increased by an amount equal to EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to Consolidated Interest Expense directly attributable to any Debt of the Company or any of its Restricted Subsidiaries repaid, repurchased, defeased or otherwise discharged with respect to the Company and the continuing Restricted Subsidiaries of the Company in connection with such Disposal for such period (or, if the Capital Stock of any of its Restricted Subsidiaries is sold, Consolidated Interest Expense for such period directly attributable to the Debt of such Restricted Subsidiary to the extent the Company and the continuing Restricted Subsidiaries of the Company are no longer liable for such Debt after such Disposal); if during such period the Company or any of its Restricted Subsidiaries (by merger or otherwise) shall have made an Investment in any of its Restricted Subsidiaries (or any Person which becomes a Restricted Subsidiary of the Company) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Debt) as if such Investment or acquisition occurred on the first day of such period; and if during such period any Person (that subsequently became a Restricted Subsidiary of the Company or was merged with or into the Company or any of its Restricted Subsidiaries during such period) shall have made any Disposal or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) if made by the Company or a Restricted Subsidiary of the Company during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Disposal or Investment or acquisition of assets occurred on the first day of such period.

(2)

(3)

(4)

For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Debt Incurred in connection therewith, the pro forma calculations will be as determined in good faith by a responsible financial or accounting officer of the Company and may include pro forma expenses and cost reductions and cost synergies that have occurred or are reasonably expected to occur in the good faith judgment of a responsible financial or accounting

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officer of the Company, and if any Debt bears a floating rate of interest and is being given pro forma effect, the interest expense on such Debt shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Protection Agreement applicable to such Debt for a period equal to the remaining term of such Interest Rate Protection Agreement). Consolidated Interest Expense means, for any period, the total interest expense of the Company and its consolidated Subsidiaries, (X) plus, to the extent not included in such interest expense, (i) interest expense attributable to capital leases, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expense, (v) accrued interest, (vi) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers acceptance financing, (vii) interest actually paid by the Company or any such Subsidiary under any guarantee of Debt or other obligation of any other Person, (viii) net costs associated with Interest Rate Protection Agreements (including amortization of fees), (ix) the interest portion of any deferred obligation (other than any Trade Payables), (x) Preferred Stock dividends paid in respect of all Preferred Stock of Subsidiaries of the Company and Disqualified Stock of the Company held by Persons other than the Company or a Wholly Owned Subsidiary, and (xi) cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Debt Incurred by such plan or trust and (Y) minus interest income; provided, however, that there shall be excluded therefrom (A) any non-cash interest expense recognized upon the amortization of previously unamortized debt issuance costs Incurred with respect to Debt being refinanced with the proceeds of the Notes, (B) any non-cash unrealized gains or losses arising from Hedging Obligations existing on the Issue Date and relating to Listed Shares, (C) any such interest expense of any Unrestricted Subsidiary to the extent the related Debt is not guaranteed or paid by the Company or any of its Restricted Subsidiaries, and (D) any expense relating to anticipated payments by customers. Consolidated Net Debt means, with respect to any Person, (x) the sum of the aggregate outstanding Debt of that Person and its Restricted Subsidiaries as of the relevant date of calculation, less (y) the amount of cash and Cash Equivalents that would be stated on the balance sheet of such Person and its Restricted Subsidiaries as of such date, in each case determined in accordance with IFRS. Consolidated Net Income means, for any period, the net income (loss) of the Company and its consolidated Subsidiaries; provided, however, that there shall be excluded therefrom (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary of the Company, except that (A) the Companys equity in the net income of any Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or any of its Restricted Subsidiaries as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary of the Company, to the limitations contained in clause (iii)) and (B) the Companys equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period shall be included in determining such Consolidated Net Income, (ii) any net income (loss) of any Person acquired by the Company or a Subsidiary of the Company in a pooling of interests transaction for any period prior to the date of such acquisition, (iii) any net income (loss) of any Restricted Subsidiary of the Company, other than a Guarantor, if such Subsidiary is subject to any consensual restriction or encumbrance (other than pursuant to Biomass Financing Agreements), directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) the Companys equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another of its Restricted Subsidiaries as a dividend or other distribution (subject, in the case of a dividend or other distribution to another of its Restricted Subsidiaries, to the limitation contained in this clause), and (B) the Companys equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income, (iv) any gain (loss) realized upon the sale or other disposition of any property, plant or equipment of the Company or its consolidated Subsidiaries, which is not sold or otherwise disposed of in the ordinary course of business and any gain (loss) realized upon the sale or other disposition of any Capital Stock of any Person, (v) any extraordinary, exceptional, unusual

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or nonrecurring gain, loss, charge or expense; or any charges, expenses or reserves in respect of any restructuring, redundancy or severance; or any expenses, charges, reserves, gains or other costs related to the Notes, as well as the tax effects thereof and all reasonable expenses Incurred in connection therewith, (vi) any goodwill or other intangible asset impairment charge or write-off and (vii) the cumulative effect of a change in accounting principles. Credit Facility means one or more debt facilities (including the Revolving Credit Facility), overdraft facilities or commercial paper facilities with banks or institutional lenders providing for revolving credit loans, term loans, performance guarantees, Receivables financing (including through the sale of Receivables to such institutions or to special purpose entities formed to borrow from such institutions against such Receivables), letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced, restructured, refinanced, repaid, increased or extended in whole or in part from time to time (and whether or not with the original administrative agent and lenders or another administrative agent or agents or other lenders and whether provided under the Revolving Credit Facility or one or more other credit or other agreements, financing agreements or otherwise) and, in each case, including all agreements, instruments and documents executed and delivered pursuant to or in connection with the foregoing (including any letters of credit issued pursuant thereto and any guarantee and collateral agreement, patent and trademark security agreement, mortgages or letter of credit applications and other guarantees, pledges, agreements, security agreements and collateral documents). Without limiting the generality of the foregoing, the term Credit Facilities shall include any agreement or instrument (i) changing the maturity of any Debt Incurred thereunder, (ii) adding Subsidiaries of the Company as additional borrowers, issuers or guarantors thereunder, (iii) increasing the amount of Debt Incurred thereunder or available to be borrowed thereunder or (iv) otherwise altering the terms and conditions thereof. Currency Exchange Protection Agreement means, in respect of any Person, any foreign currency exchange contract, currency swap agreement, currency option or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates. Custodian means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. Debt means, with respect to any Person on any date of determination (without duplication): (i) (ii) (iii) (iv) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money; the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; all Capitalized Lease Obligations of such Person; all obligations of such Person to pay the deferred and unpaid purchase price of property or services (other than Trade Payables and other accrued liabilities arising in the ordinary course of business that are not overdue by 180 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted); all obligations of such Person in respect of letters of credit, bank guarantees, bankers acceptances or other similar instruments or credit transactions (including reimbursement obligations with respect thereto), other than obligations with respect to letters of credit or bank guarantees securing obligations (other than obligations described in clauses (i) through (iv)) entered into in the ordinary course of business of such Person to the extent such letters of credit or bank guarantees are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the 30th Business Day following receipt by such Person of a demand for reimbursement following payment of any such letter of credit, in each case only to the extent that the underlying obligation in respect of which the instrument was issued would be treated as Debt; the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock (but excluding any accrued dividends);

(v)

(vi)

(vii) all Debt of other Persons secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person; provided, however, that the amount of such Debt

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shall be the lesser of (A) the Fair Market Value of such asset at such date of determination and (B) the amount of such Debt of such other Person; (viii) all Debt of other Persons to the extent guaranteed by such Person; and (ix) net obligations of such Person in respect of Hedging Obligations (the amount of any such obligations to be equal at any time to the termination value of such agreement or arrangement giving rise to such obligation that would be payable by such Person at such time).

For purposes of this definition, the maximum fixed redemption, repayment or repurchase price of any Disqualified Stock that does not have a fixed redemption, repayment or repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or repurchased on any date on which Debt shall be required to be determined pursuant to the Indenture; provided, however, that if such Disqualified Stock is not then permitted to be redeemed, repaid or repurchased, the redemption, repayment or repurchase price shall be the book value of such Disqualified Stock as reflected in the most recently completed financial statements of such Person. The amount of Debt of any Person at any date will be the outstanding principal amount at such date of all unconditional obligations as described above. Notwithstanding the foregoing, Debt shall not include (i) advances paid by customers in the ordinary course of business for services or products to be provided or delivered in the future; (ii) deferred taxes; (iii) post-closing payment adjustments to which a seller may become entitled to the extent such payment is determined by a final closing balance sheet or such payment depends on the performance of such business after such closing; (iv) contingent obligations in the ordinary course of business; and (v) any Biomass Contingent Obligations. For the avoidance of doubt, if a change to IFRS occurs after the Issue Date and such change results in a re-characterization of a provision into Debt, such re-characterization shall be disregarded for purposes of the Indenture and such item shall not be classified as Debt solely as a result of such reclassification. Default means any event which is, or after notice or passage of time or both would be, an Event of Default. Disqualified Stock of a Person means Redeemable Stock of such Person as to which the maturity, mandatory redemption, conversion or exchange or redemption at the option of the holder thereof occurs, or may occur, on or prior to the first anniversary of the Stated Maturity of the Notes, provided, however, that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date will be deemed to be Disqualified Stock; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such person to purchase or redeem such Capital Stock upon the occurrence of a change of control occurring prior to the first anniversary of the Stated Maturity of the Notes shall not constitute Disqualified Stock if (1) the change of control provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the terms applicable to the Notes and described under the caption Change of Control, and (2) any such requirement only becomes operative after compliance with such terms applicable to the Notes, including the purchase of any Notes tendered pursuant thereto. EBITDA for any period means the sum of Consolidated Net Income, plus Consolidated Interest Expense plus the following to the extent deducted in calculating such Consolidated Net Income: (a) all income tax expense of the Company and its consolidated Restricted Subsidiaries, (b) depreciation expense of the Company and its consolidated Restricted Subsidiaries, (c) amortization expense of the Company and its consolidated Restricted Subsidiaries (excluding amortization expense attributable to a prepaid cash item that was paid in a prior period) and (d) all other non-cash charges of the Company and its consolidated Restricted Subsidiaries (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period), in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and non-cash charges of, a Restricted Subsidiary of the Company shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the

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Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements (other than Biomass Financing Agreements), instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its shareholders. Equity Offering means any sale of Capital Stock (other than Disqualified Stock) of the Company. Euroclear means Euroclear Bank SA/NV as currently in effect or any successor securities clearing agency. European Government Obligations means direct obligations (or certificates representing an ownership interest in such obligations) of any country that is a European Union Member State (including any agency or instrumentality thereof) and which are not callable at the issuers option. European Union Member State means any country that is a member of the European Union as of the date of determination. Fair Market Value means with respect to any property or asset, the price which could be negotiated in an arms length free market transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Free Float Percentage means a fraction expressed as a percentage, the numerator of which is the total number of Listed Shares less all Listed Shares held by the Company or any Affiliate of the Company, and the denominator of which is the total number of Listed Shares. guarantee means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Debt of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Debt of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term guarantee will not include endorsements for collection or deposit in the ordinary course of business. Each of the terms guarantee, guarantees and guaranteed shall have a corresponding meaning. Hedging Obligations of any Person means the obligations of such Person pursuant to any Interest Rate Protection Agreement, Currency Exchange Protection Agreement, Commodity Agreement or other similar agreement or arrangement. Holder means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the registrar pursuant to the provisions of the Indenture. IFRS means International Financial Reporting Standards as in effect as of the Issue Date. Except as otherwise expressly provided in the Indenture, all ratios and calculations based on IFRS contained in the Indenture shall be computed in conformity with IFRS. Incur means issue, assume, guarantee, incur or otherwise become liable for, provided, however, that any Debt or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) or is merged into a Subsidiary will be deemed to be Incurred by such Subsidiary at the time it becomes or is merged into a Subsidiary. Each of the terms Incurrence, Incurs and Incurred shall have a corresponding meaning. Independent Appraiser means an investment banking firm of international standing or any third party appraiser of international standing; provided, however, that such firm or appraiser is not an Affiliate of the Company. Intercreditor Agreement means the intercreditor deed, dated on or about the Issue Date, among others, the Company, the Guarantors, the Trustee and the Security Agent, as amended from time to time. Interest Rate Protection Agreement means, in respect of any Person, any interest rate swap agreement, interest rate option agreement, interest rate cap agreement, interest rate collar

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agreement, interest rate floor agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in interest rates. Investment in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as Receivables) or other extensions of credit (including by way of guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Debt or other similar instruments issued by such Person. The amount of any investment in respect of any property or assets other than cash will be its Fair Market Value at the time of such Investment. For purposes of the definition of Unrestricted Subsidiary, the definition of Restricted Payment and the covenant described under Certain CovenantsLimitation on Restricted Payments, (i) Investment shall include the portion (proportionate to the Companys equity interest in such Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a re-designation of such Subsidiary as a Restricted Subsidiary of the Company, the Company shall be deemed to continue to have a permanent Investment in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the Companys Investment in such Subsidiary at the time of such re-designation less (y) the portion (proportionate to the Companys equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such re-designation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer. Investment Grade means a rating of BBB minus or higher by S&P or Baa3 or higher by Moodys or the equivalent of such ratings by S&P or Moodys or by any other Rating Agency selected by the Company as provided by the definition thereof. Issue Date means the date on which the Notes are originally issued. Joint Venture means any joint venture entity, whether a company, unincorporated firm, undertaking, association, joint venture or partnership that is not a Restricted Subsidiary of the Company in which the Company or any Subsidiary has an interest from time to time. Leverage Ratio means, for any Person, as of any date of determination, the ratio of (x) Consolidated Net Debt at such date to (y) the aggregate amount of EBITDA for the period of the most recently completed four consecutive fiscal quarters ending prior to the date of such determination for which internal consolidated financial statements of that Person are available; provided, however, that, for the purposes of calculating EBITDA for such period, if, as of such date of determination: (1) during such period such Person or any Restricted Subsidiary thereof will have disposed of any company, any business, or any group of assets constituting an operating unit of a business (any such disposition, a Sale), or if the transaction giving rise to the need to calculate the Leverage Ratio is such a Sale, EBITDA for such period will be reduced by an amount equal to the EBITDA (if positive) attributable to the assets which are the subject of such Sale for such period, or increased by an amount equal to the EBITDA (if negative) attributable thereto for such period; during such period such Person or any Restricted Subsidiary thereof (by merger or otherwise) will have made an Investment in any Person that thereby becomes a Restricted Subsidiary, or otherwise acquires any company, any business, or any group of assets constituting an operating unit of a business (any such Investment or acquisition, a Purchase) including any such Purchase occurring in connection with a transaction causing a calculation to be made hereunder, EBITDA for such period will be calculated after giving pro forma effect thereto as if such Purchase occurred on the first day of such period; and during such period any other Person (that became a Restricted Subsidiary or was merged with or into the first Person or any Restricted Subsidiary thereof since the beginning of such period) will have made any Sale or any Purchase that would have required an adjustment pursuant to clause (1) or (2) above if made by the first Person or a Restricted Subsidiary thereof during such period, EBITDA for such period will be

(2)

(3)

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calculated after giving pro forma effect thereto as if such Sale or Purchase occurred on the first day of such period. For purposes of this definition, (i) whenever pro forma effect is to be given to any transaction or calculation under this definition, the pro forma calculations will be as determined in good faith by a responsible financial or accounting officer of the relevant Person and may include pro forma expense and cost reductions and cost synergies that have occurred or are reasonably expected to occur in the good faith judgment of the responsible financial or accounting officer of the relevant Person, (ii) in determining the amount of Debt outstanding on any date of determination, pro forma effect shall be given to any Incurrence, repayment, repurchase, defeasance or other acquisition, retirement or discharge of Debt on such date, and (iii) in determining Consolidated Net Debt, (x) no cash shall be included that is the proceeds of Debt in respect of which the pro forma calculation is to be made, and (y) any Hedging Obligation with a credit support annex of the Company or its Restricted Subsidiaries will not constitute Debt to the extent of the cash that the Company or its Restricted Subsidiaries has deposited for the purposes of collateralizing such Hedging Obligation with a credit support annex of the Company or its Restricted Subsidiaries and which cash deposited by the Company its Restricted Subsidiaries is not deemed cash and cash equivalents under IFRS. Lien means any mortgage, pledge, security interest, encumbrance, easement, restriction, covenant, right-of-way, servitude, lien, charge or adverse claim of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof) and includes any cash collateral arrangements. Listed Shares means, in respect of each class of shares of the Capital Stock of the Company, the issued shares of such class of Capital Stock of the Company which are listed on an internationally recognized exchange or traded on an internationally recognized market. Market Capitalization means an amount equal to (i) the total number of Listed Shares on the date of the declaration of the relevant dividend or repurchase, redemption or otherwise acquisition or retirement for value of Listed Shares multiplied by (ii) the arithmetic mean of the closing prices per Listed Share for the 60 consecutive trading days immediately preceding the date of declaration of such dividend or repurchase, redemption or otherwise acquisition or retirement for value of the Listed Shares. Moodys means Moodys Investors Service, Inc. and its successors. Net Available Cash from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received) therefrom, in each case net of (i) all legal, title, recording, refinancing, consultancy, brokerage and banking fees and tax expenses, commissions and other fees and expenses Incurred, and all U.S. federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under IFRS as a consequence of such Asset Disposition, (ii) all payments made on any Debt which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or Joint Ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with IFRS, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any of its Restricted Subsidiaries after such Asset Disposition. Net Cash Proceeds with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale, net of attorneys fees, accountants fees, underwriters or placement agents fees, discounts or commissions and brokerage, consultant and other fees actually Incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. Offering Memorandum means the offering memorandum in relation to the Notes. Officers Certificate means a certificate signed by an officer or director of the Company.

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Opinion of Counsel means a written opinion from legal counsel who is reasonably acceptable to the Trustee, which opinion may be subject to customary qualifications and assumptions. Permitted Collateral Liens means (v) Liens on the Collateral (i) arising by operation of law that are described in one or more of clauses (4), (5), (6), (13) and (16) to (22) of the definition of Permitted Liens and that, in each case, would not materially interfere with the ability of the Security Agent to enforce the Liens on the Collateral or (ii) that are Liens granted to cash management banks securing cash management obligations; (w) Liens on the Collateral to secure Debt of the Company or any of its Restricted Subsidiaries that is permitted to be Incurred under clauses (i) (if and to the extent so secured on the Issue Date and including any Refinancing Debt in respect thereof), and (v) (including any Refinancing Debt in respect thereof) of the second paragraph of the covenant described under Certain CovenantsLimitation on Debt, and Hedging Obligations that are Incurred for the purposes of fixing or hedging interest rate or currency risk with respect to any Debt, (w) Liens on the Collateral to secure Debt of the Company or any of its Restricted Subsidiaries that is permitted to be Incurred under clause (ii) of the second paragraph of the covenant described under Certain CovenantsLimitation on Debt, (x) Hedging Obligations Incurred under clause (viii) of the second paragraph of the covenant described under Certain CovenantsLimitation on Debt, provided that the close-out amount or termination value (or any portion thereof) of such Hedging Obligations secured under this clause (x) does not exceed the aggregate of e95 million less the aggregate principal amount of Debt secured under clause (w) of this definition, and (y) Liens on the Collateral securing Debt Incurred under the first paragraph of the covenant described under Certain CovenantsLimitation on Debt; provided, that in the case of this clause (y), if such Lien is senior to or pari passu with the Lien securing the Notes after giving pro forma effect to such Incurrence on that date and the application of the proceeds thereof, the Secured Leverage Ratio of the Company and its Restricted Subsidiaries (excluding any Biomass Subsidiary) shall be no greater than 2.00 to 1.00; and (z) Liens that are junior to the Liens securing the Notes, or securing Subordinated Debt; provided, that the representatives of such Subordinated Debt have acceded to the Intercreditor Agreement. Notwithstanding the foregoing, only (1) Debt secured pursuant to clauses (w) and (x) of this definition, and (2) Hedging Obligations that are Incurred for the purposes of fixing or hedging interest rate or currency risk with respect to any Debt, shall have equal priority with the Revolving Credit Facility over other Debt in relation to recoveries from security enforcement under any Intercreditor Agreement. Permitted Investment means an investment by the Company or any of its Restricted Subsidiaries in: (i) the Company, any of its Restricted Subsidiaries (other than a Uruguayan Subsidiary) or a Person which will, upon the making of such Investment, become a Restricted Subsidiary of the Company; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or any of its Restricted Subsidiaries (other than a Uruguayan Subsidiary), provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (A) cash or Cash Equivalents or (B) deposits with registered banks or credit institutions; Receivables owing to the Company or any of its Restricted Subsidiaries, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; loans or advances to employees and officers of the Company or such Restricted Subsidiary made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary, as the case may be, or as required by law and owing to the Company or any of its Restricted Subsidiaries or in satisfaction of judgments;

(ii)

(iii) (iv)

(v)

(vi)

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(vii) stock, obligations or securities received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any debtors of the Company or any of its Restricted Subsidiaries or received in settlement of Debt created in the ordinary course of business and owing to the Company or any of its Restricted Subsidiaries or in satisfaction of judgments; (viii) non-cash consideration received in connection with an Asset Disposition consummated in compliance with Certain CovenantsLimitation on Sales of Assets and Restricted Subsidiary Stock or in connection with the sale of any Uruguayan Subsidiary; (ix) guarantees and other contingent obligations (including Biomass Contingent Obligations) not prohibited by the covenant described under Certain CovenantsLimitation on Debt; Investments in Unrestricted Subsidiaries or Joint Ventures not to exceed (A) the aggregate net after-tax amount returned in cash on or with respect to any Investments made in Unrestricted Subsidiaries and Joint Ventures whether through interest payments, principal payments, dividends or other distributions or payments on account of such Investment, (B) the net after-tax cash proceeds received by the Company or any Restricted Subsidiary from the disposition of all or any portion of such Investments (other than to a Restricted Subsidiary of the Company), and (C) upon re-designation of an Unrestricted Subsidiary as a Restricted Subsidiary of the Company, the Fair Market Value of such Subsidiary; provided, however, that the net after-tax amount has not been included in Consolidated Net Income for the purpose of calculating clause (c)(i) in the covenant described under Certain CovenantsLimitation on Restricted Payments; Investments existing on the Issue Date;

(x)

(xi)

(xii) Investments described in clauses (B), (C) and (D) of the proviso under Certain CovenantsTransactions with Affiliates above; (xiii) Investments in Permitted Joint Venture Transactions in an aggregate principal amount at any time outstanding not in excess of e50 million in the aggregate; (xiv) Receivables owing to the Company or any of its Restricted Subsidiaries, if created or acquired in the ordinary course of business pursuant to customary arrangements; (xv) any Investment made in the ordinary course of business and on arms length terms in or to (including any guarantee of any obligation of) suppliers of forestry services to the Company or any Restricted Subsidiary of the Company to support the acquisition by such suppliers of equipment or machinery used in connection with services provided to the Company or any such Restricted Subsidiary; and (xvi) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, additional Investments which, when taken together with all other Investments made pursuant to this clause (xvi) and outstanding on the date such Investment is made, do not exceed e15 million. Permitted Joint Venture Transactions means any Joint Venture transaction pursuant to which the Company or any of its Restricted Subsidiaries enters into, acquires or subscribes for any shares, stock, securities or other interest in or transfers any assets to any Joint Venture; provided, however, that (i) the primary business of such Joint Venture is a Related Business and (ii) such Joint Venture is a limited liability company or is owned, directly or indirectly, by the Company or such Restricted Subsidiary through a limited liability company which is itself a party to such Joint Venture. Permitted Liens means, with respect to any Person or asset: (1) (2) any Lien that is a Permitted Collateral Lien, or a Lien in favor of the Notes and the Guarantees, including the Security Documents; Liens in favor of the Company or a Restricted Subsidiary on assets of any Restricted Subsidiary (other than Liens in favor of a Restricted Subsidiary that is not a Guarantor on the assets of any Guarantor);

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(3)

Liens existing on the Issue Date and any Liens incurred in connection with any Refinancing Debt, which has been secured by a Lien not prohibited under the Indenture; provided, that such Liens do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries other than that pledged under the Liens securing the Debt being refinanced; pledges or deposits by such Person under workmens compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of borrowed money) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits or cash or government bonds to secure surety, judgment or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; Liens imposed by law, including carriers, warehousemens and mechanics Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings or other Liens arising out of judgments or awards against such Person with respect to which such Person will then be proceeding with an appeal or other proceedings for review and Liens arising solely by virtue of any statutory or common law provision relating to bankers Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided, however, that, in the case of the Company, such deposit account is not a dedicated cash collateral account subject to restrictions against access by the Company in excess of those customarily applied to deposit accounts not intended by the Company or any Restricted Subsidiary to provide collateral to the relevant bank; Liens for taxes, assessments or other governmental charges or claims that are extinguished within 60 days notice of their existence, that are not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings; provided, that in the case of the Company, appropriate reserves have been taken on the books of the Company; Liens in favor of issuers of surety bonds, performance bonds or standby letters of credit (not issued to support Debt, other than Debt permitted to be Incurred pursuant to clause (ix) of the covenant entitled Certain CovenantsLimitations on Debt), entered into in the ordinary course of business; Liens securing Debt permitted to be Incurred pursuant to clause (xviii) of the covenant entitled Certain CovenantsLimitation on Debt; Liens in respect of factoring of Receivables arising in the ordinary course of business pursuant to customary arrangements, provided, that any Debt Incurred in relation thereto is permitted to be Incurred by clause (vii) of the second paragraph of the covenant described under Certain CovenantsLimitation on Debt;

(4)

(5)

(6)

(7)

(8) (9)

(10) Liens over cash and Cash Equivalents securing Hedging Obligations with credit support annexes which cash and Cash Equivalents are deemed to be the property of such Person under the relevant ISDA documentation; (11) Liens for the purpose of securing the payment (or the refinancing of the payment) of all or any part of any Debt relating to assets or property acquired or constructed directly or indirectly, provided, that (A) the aggregate principal amount of Debt secured by such Liens will not exceed the cost of the assets or property so acquired or constructed and (B) such Liens will not encumber any other assets or property of the Company or any Restricted Subsidiary other than such assets or property and assets affixed or appurtenant thereto; (12) Liens arising from precautionary Uniform Commercial Code financing statement filings, or comparable filings in other jurisdictions, regarding operating leases entered into by the Company or its Subsidiaries in the ordinary course of business; (13) Lien securing Biomass Project Finance Debt over (A) the assets of a Biomass Subsidiary, (B) the shares of Capital Stock of a Biomass Subsidiary or of a Joint Venture involved in

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a Biomass Project, (C) Debt of a Biomass Subsidiary or of a Joint Venture involved in a Biomass Project owing to and held by the Company or any Restricted Subsidiary of the Company, and (D) cash collateral arrangements in support of any Biomass Contingent Obligation, in each case in favor of the lenders of Biomass Project Finance Debt; (14) Liens on property, shares of Capital Stock or Debt of a Person existing at the time such Person is merged with or into or consolidated with or acquired by the Company or any Subsidiary of the Company; provided, that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition and do not extend to any assets other than those of the Person merged into, consolidated with or acquired by the Company or the Subsidiary (other than assets and property affixed or appurtenant thereto); (15) Liens to secure the performance of statutory, performance bonds or other obligations of a like nature Incurred in the ordinary course of business; (16) easements (including reciprocal easement agreements), rights-of-way, building, zoning and similar restrictions, utility agreements, covenants, reservations, restrictions, encroachments, charges and other similar encumbrances or title defects Incurred, or leases or sub-leases granted to others, in the ordinary course of business, that do not in the aggregate materially detract from the aggregate value of the properties of the Company and its Subsidiaries, taken as a whole, or in the aggregate materially interfere with or adversely affect in any material respect the ordinary course of the business of the Company and its Subsidiaries on the properties subject thereto, taken as a whole; (17) Liens arising by operation of law (or by agreement to the same effect) in the ordinary course of business and not as a result of any default or omission on the part of the Company or any Restricted Subsidiary; (18) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any Restricted Subsidiary in the ordinary course of business; (19) Liens arising by reason of any judgment, decree or order of any court so long as such Lien is adequately bonded and any appropriate legal proceedings that may have been duly initiated for the review of such judgment, decree or order shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (20) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (21) any interest or title of a lessor in the property subject to any lease other than a Capitalized Lease Obligation; (22) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Persons obligations in respect of bankers acceptances issues or credit for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (23) Liens granted to the Trustee (or any other trustee) for its compensation and indemnities pursuant to the Indenture, the Intercreditor Agreement or the Notes; (24) Liens granted to the Security Agent (or any other security agent) for its compensation and indemnities pursuant to the terms governing the Notes or the Intercreditor Agreement; and (25) any extension, renewal or replacement, in whole or in part, of any Lien described in the foregoing clauses; provided, that any such extension, renewal or replacement shall be no more restrictive in any material respect than the Lien so extended, renewed or replaced and shall not extend to any additional property or assets. Person means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

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Preferred Stock, as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution or such Person, over shares of Capital Stock of any other class of such Person. Public Equity Offering means, with respect to any Person, a bona fide underwritten public offering of the ordinary shares or common equity of such Person, either: (1) pursuant to an offering on the main market of the Madrid Stock Exchange (Bolsa de Madrid) or on the main market of any other nationally recognized regulated stock exchange or listing authority in a European Union Member State; or pursuant to an effective registration statement under the U.S. Securities Act (other than a registration statement on Form S-8 or otherwise relating to Capital Stock issued or issuable under any employee benefit plan).

(2)

Rating Agency means S&P and Moodys or, if one or more of S&P and Moodys shall not make a rating on the Notes publicly available, a nationally recognized statistical rating organization or organizations (as defined in Section 3(a)(62) of the U.S. Exchange Act), as the case may be, then making a rating on the Notes publicly available selected by the Company which shall be substituted for S&P or Moodys, as the case may be. Receivable means a right to receive payment arising from a sale or lease of goods or services by a Person pursuant to an arrangement with another Person pursuant to which such other Person is obligated to pay for goods or services under terms that permit the purchase of such goods and services on credit, as determined in accordance with IFRS. Redeemable Stock means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable for cash pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Debt or Disqualified Stock (excluding Capital Stock that is convertible or exchangeable solely at the option of the Company or any of its Restricted Subsidiaries) or (iii) is or may become redeemable or repurchaseable for cash or in exchange for Debt at the option of the holder thereof, in whole or in part. Redemption Price means the price to redeem a Note, expressed as a percentage of the principle amount set forth in Optional Redemption or Optional Tax Redemption, as applicable. Refinancing Debt means Debt Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, refinances, refinanced and refinancing shall have a correlative meaning) any Debt existing on the Issue Date or Incurred in compliance with the Indenture (including Debt of the Company that refinances Debt of any of its Restricted Subsidiaries and Debt of any Restricted Subsidiary of the Company that refinances Debt of another Restricted Subsidiary of the Company) including Debt that refinances Refinancing Debt; provided, however, that (i) (x) if the Stated Maturity of the Debt being refinanced is earlier than or equal to the Stated Maturity of the Notes, the Refinancing Debt has a Stated Maturity no earlier than the Stated Maturity of the Debt being refinanced and (y) if the Stated Maturity of the Debt being refinanced is later than the Stated Maturity of the Notes, the Refinancing Debt has a Stated Maturity later than the Stated Maturity of the Notes, (ii) the Refinancing Debt has an Average Life at the time such Refinancing Debt is Incurred that is equal to or greater than the Average Life of the Debt being refinanced, (iii) such Refinancing Debt is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Debt being refinanced plus any premium payable thereon and any expenses or fees Incurred in connection therewith, (iv) if the Debt being refinanced was Incurred under clauses (ii), (iii) or (xviii) of the second paragraph of the covenant Limitations on Debt, than the Refinancing Debt may only be Incurred pursuant to the corresponding clause under which the Debt being refinanced was originally Incurred, and (v) if such Debt being refinanced is subordinated in right of payment in any respect to the Notes, such Refinancing Debt shall be subordinated in right of payments to the Notes, with terms no less favorable to the Holders of the Notes than those contained in the documentation governing the Debt being refinanced; provided, further, however, that Refinancing Debt shall not include (x) Debt of a Subsidiary of the Company

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that refinances Debt of the Company or (y) Debt of the Company or any of its Restricted Subsidiaries that refinances Debt of an Unrestricted Subsidiary. Related Business means a business related to forestry management, the manufacturing and distribution of pulp and any renewable energy generation business. Restricted Payment with respect to any Person means (i) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and dividends or distributions payable solely to such Person or any of its Restricted Subsidiaries, and other than pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority shareholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of such Person or any of its Restricted Subsidiaries held by any Person (other than such Person or any of its Restricted Subsidiaries), (iii) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations of the Company or any of its Restricted Subsidiaries (other than (A) such Person or any of its Restricted Subsidiaries or (B) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case, due within one year of the date of such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value), or (iv) the making of any Investment in any Person (other than a Permitted Investment). Restricted Subsidiary means any direct or indirect Subsidiary of the Company, other than an Unrestricted Subsidiary. Revolving Credit Facility means the revolving credit facility, dated on or about the Issue Date, including any ancillary agreements entered into in connection therewith, and any amendment, modification, renewal, extension, refunding, restatement, supplement, refinancing or other modification thereof from time to time. S&P means Standard & Poors Rating Services, a division of the McGraw Hill Companies, Inc. and its successors. Secured Leverage Ratio means the Leverage Ratio, but calculated (i) by reducing Consolidated Net Debt by an amount equal to all Debt that is not secured by a Lien, and (ii) by increasing Consolidated Net Debt by an amount equal to all cash and Cash Equivalents in excess of e2 million that do not constitute Collateral. Security Documents means those deeds, pledges, security trusts, assignments or other documents that create security over the Collateral in favor of the Trustee and the Holders of the Notes and the other secured parties under the Intercreditor Agreement, and that will be listed in a schedule of security documents attached to the Indenture. Senior Debt means Debt of the Company or any Guarantor that is not subordinated in right of payment to the Notes or the Guarantee of such Guarantor, as the case may be. Significant Restricted Subsidiary means: (i) (ii) each of the Guarantors from time to time; any Restricted Subsidiary of the Company (other than a Biomass Subsidiary) (a) the pre-tax profits of which represent 10% or any greater percentage of the consolidated EBITDA of the Company and its Restricted Subsidiaries, or (b) the book value of the gross assets of which is 10% or more of the consolidated gross assets of the Company, determined in accordance with IFRS or (c) the aggregate sales of which to third parties in any fiscal year, calculated on a consolidated basis in accordance with IFRS (and excluding VAT or sales tax) have been or are budgeted to be at least 10% or more of the aggregate sales of the Company to third parties (calculated on the same basis), in each case for the most recently completed fiscal year after the Issue Date; provided, that in the case of a Restricted Subsidiary of the Company which itself has Subsidiaries, such

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calculation shall be made by using the consolidated pre-tax profits or gross assets or aggregate sales, as the case may be, of such Restricted Subsidiary and its Subsidiaries; and the calculation of consolidated pre-tax profits or gross assets or aggregate sales shall be made by reference to the most recently completed accounts of the Company or any such Restricted Subsidiary (or, as the case may be, a consolidation of the accounts of such Restricted Subsidiary and its Subsidiaries) provided to the Trustee in accordance with Certain CovenantsReports to Holders; and (iii) any Restricted Subsidiary of the Company (other than a Biomass Subsidiary) not otherwise constituting a Significant Restricted Subsidiary hereunder to which any Significant Restricted Subsidiary transfers (in any fiscal year) any fixed assets in any transaction or series of transactions (related or unrelated) with an aggregate book value or Fair Market Value in excess of e15 million (and the Subsidiary from which such assets were transferred shall be deemed to continue to be a Significant Restricted Subsidiary of the Company).

Stated Maturity means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the Company unless such contingency has occurred). Subordinated Obligation means any Debt (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Guarantees or the Notes pursuant to a written agreement. Subsidiary of any specified Person means any corporation, partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (a) in the case of a corporation, of which more than 50% of the total voting power of the Voting Stock is held by such first-named Person or any of its Subsidiaries and such first-named Person or any of its Subsidiaries has the power to direct the management, policies and affairs thereof; or (b) in the case of a partnership, joint venture, association, or other business entity, with respect to which such firstnamed Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise, if in accordance with IFRS such entity is consolidated with the first-named Person for financial statement purposes. Trade Payables means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors (or any assignee thereof) created, assumed or guaranteed by such Person arising in the ordinary course of business of such Person in connection with the acquisition of goods or services. Unrestricted Subsidiary means each Subsidiary of the Company that the Company has designated pursuant to the covenant described under Restricted and Unrestricted Subsidiaries of the Company as an Unrestricted Subsidiary and any Subsidiary of an Unrestricted Subsidiary. Uruguayan Subsidiaries means Maderas Aserradas del Litoral, S.A. and Sierras Calmas, S.A., provided, that each of these Persons will cease to be considered a Uruguayan Subsidiary after the earlier of (A) December 31, 2013, (B) the date on which such Person ceases to be a Subsidiary and (C) the date on which such Person has sold all or substantially all of its assets and has distributed the net proceeds of such sale to the Company. Voting Stock of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. Wholly Owned Subsidiary means a Restricted Subsidiary of the Company, all the Capital Stock of which (other than directors qualifying shares or shares required by applicable law to be held by a Person other than the Company or any of its Restricted Subsidiaries) is owned by the Company or another Wholly Owned Subsidiary.

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BOOK-ENTRY, DELIVERY AND FORM General Notes sold to qualified institutional buyers in reliance on Rule 144A under the U.S. Securities Act will initially be represented by a global note in registered form without interest coupons attached (the Rule 144A Global Note). Notes sold to non-U.S. persons outside the United States in reliance on Regulation S under the U.S. Securities Act will initially be represented by a global note in registered form without interest coupons attached (the Regulation S Global Note and, together with the Rule 144A Global Note, the Global Notes). The Global Notes will be deposited, on the Issue Date, with a common depositary and registered in the name of the nominee of the common depositary for the accounts of Euroclear and Clearstream. Ownership of beneficial interests in the Rule 144A Global Note (the Rule 144A Book-Entry Interests) and ownership of beneficial interests in the Regulation S Global Note (the Regulation S Book-Entry Interests and, together with the Rule 144A Book-Entry Interests, the Book-Entry Interests) will be limited to persons that have accounts with Euroclear and/or Clearstream or persons that hold interests through such participants. Euroclear and Clearstream will hold interests in the Global Notes on behalf of their participants through customers securities accounts in their respective names on the books of their respective depositories. Except under the limited circumstances described below, Book-Entry Interests will not be issued in definitive form. Book-Entry Interests will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream and their participants. Except under the limited circumstances described below, the Notes will not be issued in definitive form. The laws of some jurisdictions, including certain states of the United States, may require that certain purchasers of securities take physical delivery of those securities in definitive form. The foregoing limitations may impair your ability to own, transfer or pledge Book-Entry Interests. In addition, while the Notes are in global form, holders of Book-Entry Interests will not be considered the owners or holders of Notes for any purpose. So long as the Notes are held in global form, Euroclear and/or Clearstream (or the nominee of the common depositary), as applicable, will be considered the sole holders of the Global Notes for all purposes under the Indenture. In addition, participants must rely on the procedures of Euroclear and Clearstream, and indirect participants must rely on the procedures of Euroclear and Clearstream and the participants through which they own Book-Entry Interests, to transfer their interests or to exercise any rights of holders of Notes under the Indenture. Neither we, the Paying Agent, the Transfer Agent, the Registrar nor the Trustee will have any responsibility, or be liable, for any aspect of the records relating to the Book-Entry Interests. Action by Owners of Book-Entry Interests Euroclear and Clearstream have advised us that they will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described above) only at the direction of one or more participants to whose account the Book-Entry Interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. Euroclear and Clearstream will not exercise any discretion in the granting of consents or waivers or the taking of any other action in respect of the Global Notes. However, if there is an Event of Default under the Notes, Euroclear and Clearstream at the request of the holders of the Notes, reserve the right to exchange the Global Notes for definitive registered Notes in certificated form (the Definitive Registered Notes), and to distribute such Definitive Registered Notes to their participants. Definitive Registered Notes Under the terms of the Indenture, owners of the Book-Entry Interests will receive Definitive Registered Notes only: (1) (2) if Euroclear or Clearstream notifies us that it is unwilling or unable to continue to act as depositary and a successor depositary is not appointed by the Issuer within 120 days; or if the owner of a Book Entry Interest requests such exchange in writing delivered through Euroclear or Clearstream following an Event of Default under the Indenture.

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In such an event, the Registrar will issue Definitive Registered Notes, registered in the name or names and issued in any approved denominations, requested by or on behalf of Euroclear or Clearstream (in accordance with their respective customary procedures and based upon directions received from participants reflecting the beneficial ownership of Book-Entry Interests), and such Definitive Registered Notes will bear the restrictive legend as provided in the Indenture, unless that legend is not required by the Indenture or applicable law. To the extent permitted by law, we, the Trustee, the Paying Agent and the Registrar shall be entitled to treat the registered holder of any Global Note as the absolute owner thereof and no person will be liable for treating the registered holder as such. Ownership of the Global Notes will be evidenced through registration from time to time at the registered office of the Issuer, and such registration is a means of evidencing title to the Notes. We will not impose any fees or other charges in respect of the Notes; however, owners of the Book-Entry Interests may incur fees normally payable in respect of the maintenance and operation of accounts in Euroclear and Clearstream. We will not be required to register the transfer or exchange of Definitive Registered Notes for a period of 15 calendar days preceding (i) the record date for any payment of interest on the Notes, (ii) any date fixed for redemption of the Notes or (iii) the date fixed for selection of the Notes to be redeemed in part. Also, we are not required to register the transfer or exchange of any Notes selected for redemption or which the holder has tendered (and not withdrawn) for repurchase in connection with a change of control offer or asset sale offer. In the event of the transfer of any Definitive Registered Note, the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents as described in the Indenture. We may require a holder to pay any transfer taxes and fees required by law and permitted by the Indenture and the Notes. If Definitive Registered Notes are issued and a holder thereof claims that such a Definitive Registered Note has been lost, destroyed or wrongfully taken, or if such Definitive Registered Note is mutilated and is surrendered to the Registrar or at the officer of a transfer agent, we will issue and the Trustee will authenticate a replacement Definitive Registered Note if such Trustees and our requirements are met, upon receipt of an authentication order from the Issuer. We or the Trustee may require a holder requesting replacement of a Definitive Registered Note to furnish an indemnity bond sufficient in the judgment of both to protect themselves, the Trustee or the Paying Agent appointed pursuant to the Indenture from any loss which any of them may suffer if a Definitive Registered Note is replaced. We may charge for any expenses incurred in replacing a Definitive Registered Note. In case any such mutilated, destroyed, lost or stolen Definitive Registered Note has become or is about to become due and payable, or is about to be redeemed or purchased by us pursuant to the provisions of the Indenture, we, in our discretion, may, instead of issuing a new Definitive Registered Note, pay, redeem or purchase such Definitive Registered Note, as the case may be. Definitive Registered Notes may be transferred and exchanged only after the transferor first delivers to the Trustee a written certification (in the form provided in the Indenture) to the effect that such transfer will comply with the transfer restrictions applicable to such Notes. Redemption of the Global Notes In the event that any Global Note (or any portion thereof) is redeemed, Euroclear and/or Clearstream will redeem an equal amount of the Book-Entry Interests in such Global Note from the amount received by them in respect of the redemption of such Global Note. The redemption price payable in connection with the redemption of such Book-Entry Interests will be equal to the amount received by Euroclear and Clearstream in connection with the redemption of such Global Note (or any portion thereof). We understand that, under the existing practices of Euroclear or Clearstream, if fewer than all of the Notes are to be redeemed at any time, Euroclear and Clearstream will credit their participants accounts on a proportionate basis (with adjustments to prevent fractions), by lot or on such other basis as they deem fair and appropriate; provided, however, that no Book-Entry Interest of less than e100,000 principal amount may be redeemed in part.

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Payments on Global Notes We will make payments of any amounts owing in respect of the Global Notes (including principal, premium, if any, interest and Additional Amounts, if any) to the Paying Agent. The Paying Agent will distribute such payments to Euroclear and/or Clearstream in accordance with directions from the common depositary in accordance with their customary procedures. We will make payments of all such amounts without deduction or withholding for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature, except as may be required by law and as described under Description of the NotesAdditional Amounts. If any such deduction or withholding is required to be made, then, to the extent described under Description of the NotesAdditional Amounts, we will pay Additional Amounts as may be necessary in order for the net amounts received by any holder of the Global Notes or owner of Book-Entry Interests after such deduction or withholding to equal the net amounts that such holder or owner would have otherwise received in respect of such Global Note or Book-Entry Interest, as the case may be, absent such withholding or deduction. We expect that standing customer instructions and customary practices will govern payments by participants to owners of Book-Entry Interests held through such participants. Under the terms of the Indenture, we, the Paying Agent, the Transfer Agent, the Registrar and the Trustee will treat the registered holders of the Global Notes (e.g., Euroclear, Clearstream or the nominee of the common depositary) as the owner thereof for the purpose of receiving payments and for all other purposes. Consequently, neither we, the Paying Agent, the Transfer Agent, the Registrar nor the Trustee or any of their respective agents has or will have any responsibility or liability for: any aspect of the records of Euroclear or Clearstream or any participant or indirect participant relating to, or payments made on account of, a Book-Entry Interest or for maintaining, supervising or reviewing the records of Euroclear and Clearstream or any participant or indirect participant relating to, or payments made on account of, a Book-Entry Interest; any other matter relating to the actions and practices of Euroclear, Clearstream or any participant or indirect participant; or the records of the common depositary. Currency of Payment for the Global Notes The principal of, premium, if any, and interest on, and all other amounts payable in respect of, the Global Notes will be paid to holders of interests in such Notes through Euroclear or Clearstream in euro. Transfers Transfers between participants in Euroclear or Clearstream will be effected in accordance with Euroclears and Clearstreams rules and will be settled in immediately available funds. If a holder of Notes requires physical delivery of Definitive Registered Notes for any reason, including to sell Notes to persons in states that require physical delivery of such securities or to pledge such securities, such holder of Notes must transfer its interests in the Global Notes in accordance with the normal procedures of Euroclear and Clearstream and in accordance with the procedures set forth in the Indenture governing the Notes. The Global Notes will bear a legend to the effect set forth under Notice to Investors. Book-Entry Interests in the Global Notes will be subject to the restrictions on transfers and certification requirements discussed under Plan of Distribution and Notice to Investors. Transfers of Rule 144A Book-Entry Interests to Persons Wishing to Take Delivery of Rule 144A Book-Entry Interests Will at All Times Be Subject to Such Transfer Restrictions Rule 144A Book-Entry Interests may be transferred to a person who takes delivery in the form of a Regulation S Book-Entry Interest only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made in accordance

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with Regulation S or Rule 144 under the U.S. Securities Act or any other exemption (if available under the U.S. Securities Act). Regulation S Book-Entry Interests may be transferred to a person who takes delivery in the form of a Rule 144A Book-Entry Interest only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made to a person who the transferor reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the U.S. Securities Act in a transaction meeting the requirements of Rule 144A under the U.S. Securities Act or otherwise in accordance with the transfer restrictions described under Notice to Investors and in accordance with any applicable securities laws of any other jurisdiction. In connection with transfers involving an exchange of a Regulation S Book-Entry Interest for a Rule 144A Book-Entry Interest, appropriate adjustments will be made to reflect a decrease in the principal amount of the Regulation S Global Note and a corresponding increase in the principal amount of the Rule 144A Global Note. Definitive Registered Notes may be transferred and exchanged for Book-Entry Interests in a Global Note only as set forth in the Indenture and, if required, only if the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such Notes. Please see Notice to Investors. Any Book-Entry Interest in one of the Global Notes that is transferred to a person who takes delivery in the form of a Book-Entry Interest in any other Global Note will, upon transfer, cease to be a Book-Entry Interest in the first mentioned Global Note and become a Book-Entry Interest in such other Global Note, and accordingly will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to Book-Entry Interests in such other Global Note for as long as it remains such a Book-Entry Interest. Information Concerning Euroclear and Clearstream All Book-Entry Interests will be subject to the operations and procedures of Euroclear and Clearstream. We provide the following summaries of those operations and procedures solely for the convenience of investors. The operations and procedures of the settlement system are controlled by the settlement system and may be changed at any time. Neither we nor the Initial Purchasers are responsible for those operations or procedures. We understand as follows with respect to Euroclear and Clearstream: Euroclear and Clearstream hold securities for participating organizations. They facilitate the clearance and settlement of securities transactions between their participants through electronic book-entry changes in the accounts of such participants. Euroclear and Clearstream provide various services to their participants, including the safekeeping, administration, clearance, settlement, lending and borrowing of internationally traded securities. Euroclear and Clearstream interface with domestic securities markets. Euroclear and Clearstream participants are financial institutions such as underwriters, securities brokers and dealers, banks, trust companies and certain other organizations. Indirect access to Euroclear and Clearstream is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Euroclear or Clearstream participant, either directly or indirectly. Because Euroclear and Clearstream can only act on behalf of participants, who in turn act on behalf of indirect participants and certain banks, the ability of an owner of a beneficial interest to pledge such interest to persons or entities that do not participate in the Euroclear and/or Clearstream system, or otherwise take actions in respect of such interest, may be limited by the lack of a definitive certificate for that interest. The laws of some jurisdictions require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer beneficial interests to such persons may be limited. In addition, owners of beneficial interests through the Euroclear or Clearstream system will receive distributions attributable to the Rule 144A Global Notes only through Euroclear or Clearstream participants.

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Special Timing Considerations You should be aware that investors will only be able to make and receive deliveries, payments and other communications involving the Notes through Euroclear or Clearstream on days when those systems are open for business. In addition, because of time-zone differences, there may be complications with completing transactions involving Euroclear and/or Clearstream on the same business day as in the United States. U.S. investors who wish to transfer their interests in the Notes, or to receive or make a payment or delivery of Notes, on a particular day, may find that the transactions will not be performed until the next business day in Brussels, if Euroclear is used, or in Luxembourg, if Clearstream is used. Global Clearance and Settlement Under the Book-Entry System The Notes represented by the Global Notes are expected to be listed on the Official List of the Luxembourg Stock Exchange and admitted for trading on the Euro MTF Market thereof. Transfers of interests in the Global Notes between participants in Euroclear or Clearstream will be effected in the ordinary way in accordance with their respective systems rules and operating procedures. Although Euroclear and Clearstream currently follow the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants in Euroclear or Clearstream, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued or modified at any time. None of us, any Guarantor, the Trustee or the Paying Agent will have any responsibility for the performance by Euroclear or Clearstream or their participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Initial Settlement Initial settlement for the Notes will be made in euro. Book-Entry Interests owned through Euroclear or Clearstream accounts will follow the settlement procedures applicable to conventional bonds in registered form. Book-Entry Interests will be credited to the securities custody accounts of Euroclear and Clearstream holders on the business day following the settlement date against payment for value of the settlement date. Secondary Market Trading The Book-Entry Interests will trade through participants of Euroclear or Clearstream and will settle in same-day funds. Since the purchase determines the place of delivery, it is important to establish at the time of trading of any Book-Entry Interests where both the purchasers and the sellers accounts are located to ensure that settlement can be made on the desired value date.

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PLAN OF DISTRIBUTION We intend to offer the Notes through the Initial Purchasers. Subject to the terms and conditions contained in the purchase agreement among us, the Guarantors and the Initial Purchasers dated January , 2013 (the Purchase Agreement), we have agreed to sell to the Initial Purchasers, and the Initial Purchasers have severally agreed to purchase from us, the entire principal amount of the Notes. The obligations of the Initial Purchasers under the Purchase Agreement, including their agreement to purchase Notes from us, are several and not joint. The Purchase Agreement provides that the Initial Purchasers will purchase all of the Notes being sold pursuant to the Purchase Agreement if any of them are purchased. The following table sets forth the amount of Notes to be purchased by each Initial Purchaser in the Offering:
Initial Purchasers Principal amount of Notes

Deutsche Bank AG, London Branch . Banco Bilbao Vizcaya Argentaria, S.A. Banco Espa nol de Cr edito, S.A. . . . . Banco de Sabadell, S.A. . . . . . . . . . Bankia, S.A. . . . . . . . . . . . . . . . . . . Bankinter, S.A. . . . . . . . . . . . . . . . . Barclays Bank PLC . . . . . . . . . . . . . Citigroup Global Markets Limited . . . .

.. . .. .. .. .. .. ..

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. . . . . . . .

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. . . . . . . .

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. . . . . . . .

. . . . . . . .

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. . . . . . . .

. . . . . . . .

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. . . . . . . .

e e e e e e e e e250,000,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Initial Purchasers initially propose to offer the Notes for resale at the offering price that appears on the cover page of this Offering Memorandum. After the initial Offering, the Initial Purchasers may change the offering price and any other selling terms without notice. The Initial Purchasers may offer Notes through certain of their affiliates. Sales in and outside of the United States may be made through certain affiliates of the Initial Purchasers listed above or through U.S. registered broker dealers, as appropriate. Persons who purchase Notes from the Initial Purchasers may be required to pay stamp duty, taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price set forth on the cover page of this Offering Memorandum. The Purchase Agreement provides that the obligations of the Initial Purchasers to pay for and accept delivery of the Notes are subject to customary closing conditions. In particular, in the Purchase Agreement, we have agreed that: The obligations of the Initial Purchasers to pay for and accept delivery of the Notes are subject to the delivery of certain opinions by their and our counsel. The Issuer and any of the Guarantors will not, for a period of 90 days following the date of the Purchase Agreement, without prior written consent, offer, sell or otherwise dispose of any debt instruments having a tenor of more than one year (other than the Notes). We will indemnify the Initial Purchasers against certain liabilities, including liabilities under the U.S. Securities Act, or contribute to payments that the Initial Purchasers may be required to make in respect of those liabilities. The Notes have not been and will not be registered under the U.S. Securities Act or the securities laws of any other jurisdiction. In the Purchase Agreement, each Initial Purchaser has agreed that: The Notes have not been registered under the U.S. Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in transactions not subject to, the registration requirements of the U.S. Securities Act.

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 It has offered and sold the Notes, and will offer and sell the Notes (A) as part of their initial distribution at any time and (B) otherwise until 40 days after the later of the commencement of the Offering of the Notes and the Issue Date only in accordance with Regulation S or Rule 144A or any other available exemption from registration under the U.S. Securities Act. It will not initially offer or sell the Notes in Spain. In relation to each Relevant Member State, each Initial Purchaser has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State it has not made and will not make an offer of Notes that are the subject of the Offering contemplated by this Offering Memorandum to the public in that Relevant Member State other than: (a) (b) (c) to any legal entity that is a qualified investor as defined in the Prospectus Directive; to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive; or in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of Notes shall require the Issuer or any Initial Purchaser to publish a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this section, the expression an offer of Notes to the public in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the Offering and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State. The expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU). In the Purchase Agreement, each Initial Purchaser has represented and agreed that: it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issuance or sale of the Notes in circumstances in which Section 21(1) of the FSMA does not apply to us; and it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom. No action has been taken in any jurisdiction, including in the United States, the United Kingdom, Spain, France, Germany or the Netherlands, by us or the Initial Purchasers that would permit a public offering of the Notes or the possession, circulation or distribution of this Offering Memorandum or any other material relating to us or the Notes in any jurisdiction where action for this purpose is required. Accordingly, the Notes may not be offered or sold, directly or indirectly, and neither this Offering Memorandum nor any other offering material or advertisements in connection with the Notes may be distributed or published, in or from any country or jurisdiction, except in compliance with any applicable rules and regulations of any such country or jurisdiction. This Offering Memorandum does not constitute an offer to sell or a solicitation of an offer to purchase in any jurisdiction where such offer or solicitation would be unlawful. Persons into whose possession this Offering Memorandum comes are advised to inform themselves about and to observe any restrictions relating to the Offering of the Notes, the distribution of this Offering Memorandum and resale of the Notes. Please see Notice to Investors. The Notes are a new issue of securities, and there is currently no established trading market for the Notes. In addition, the Notes are subject to certain restrictions on resale and transfer as described under Notice to Investors. We have applied, through our listing agent, to list the Notes on the Official List of the Luxembourg Stock Exchange and trade the Notes on the Euro MTF Market thereof; however, we cannot assure you that such listing will be accepted or maintained.

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In connection with the Offering, Deutsche Bank AG, London Branch (or persons acting on its behalf) may purchase and sell Notes in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by Deutsche Bank AG, London Branch of a greater number of Notes than it is required to purchase in the Offering. It is expected that delivery of the Notes will be made against payment therefor business days following the date of pricing of the Notes (such settlement cycle being referred to as T+ ). Trading of the Notes on the date hereof or the next succeeding business days may be affected by the T+ settlement. Purchasers of the Notes who wish to make such trades should consult their own advisors. The Initial Purchasers and their respective affiliates are full-service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The Initial Purchasers or their respective affiliates from time to time have provided in the past and may provide in the future investment banking, financial advisory and commercial banking services to us and our affiliates in the ordinary course of business for which they have received or may receive customary fees and commissions. Certain affiliates of Deutsche Bank AG, London Branch may act as arrangers, agents of and/or lenders under the Revolving Credit Facility, as well as Security Agent under the Security Documents, the Revolving Credit Agreement and the Intercreditor Agreement, and the other Initial Purchasers may act as arrangers and/or lenders under the Revolving Credit Facility. In connection therewith, such entities will receive customary fees and commissions. Please see Use of Proceeds.

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NOTICE TO INVESTORS General The Notes and the Guarantees have not been and will not be registered under the U.S. Securities Act or the securities laws of any jurisdiction and, therefore, the Notes may not be offered, sold or otherwise transferred within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws. Accordingly, the Notes are only to be offered and sold to: QIBs in compliance with Rule 144A; and non-U.S. persons in offshore transactions outside the United States in reliance upon Regulation S. Terms used in this Notice to Investors that are defined in Rule 144A or Regulation S are used herein as defined therein. Important Information About this Offering If you purchase Notes, you will be deemed to have represented and agreed as follows: (1) You understand and acknowledge that the Notes have not been registered under the U.S. Securities Act or any other applicable securities laws and that the Notes are being offered for resale in transactions not requiring registration under the U.S. Securities Act or any other securities laws, including sales pursuant to Rule 144A, and, unless so registered, may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the U.S. Securities Act or any other applicable securities laws, pursuant to an exemption therefrom, or in a transaction not subject thereto, and in each case in compliance with the conditions for transfer set forth in paragraph (4) below. You are not our affiliate (as defined in Rule 144 under the U.S. Securities Act), you are not acting on our behalf and you are either: (a) a QIB and are aware that any sale of the Notes to you will be made in reliance on Rule 144A, and such acquisition will be for your own account or for the account of another QIB; or not a U.S. person or purchasing for the account or benefit of a U.S. person (other than a distributor), and you are purchasing notes in an offshore transaction in accordance with Regulation S.

(2)

(b)

(3)

You acknowledge that neither the Issuer, any Guarantor, the Initial Purchasers nor any other person has made any representation to you with respect to us or the offer or sale of any of the Notes, other than the information contained in this Offering Memorandum, which Offering Memorandum has been delivered to you and upon which you are relying in making your investment decision with respect to the Notes. You acknowledge that no person other than the Issuer makes any representation or warranty as to the accuracy or completeness of this Offering Memorandum. You have had access to such financial and other information concerning us and the Notes, including an opportunity to ask questions of, and request information from, us and the Initial Purchasers. You are purchasing the Notes for your own account, or for one or more investor accounts for which you are acting as a fiduciary or agent, in each case for investment, and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the U.S. Securities Act, subject to any requirement of law that the disposition of your property or the property of such investor account or accounts be at all times within your or their control and subject to your or their ability to resell such Notes pursuant to Rule 144A, Regulation S or any other available exemption from registration available under the U.S. Securities Act. You agree on your own behalf and on behalf of any investor account for which you are purchasing the Notes, and each subsequent holder of the Notes by its acceptance thereof will agree, to offer, sell or otherwise transfer such Notes prior to (x) the date which is one year (in the case of Rule 144 Notes) or 40 days (in the case of Regulation S Notes) after the later of the date of the original issue of the Notes and the last date on which the Issuer or any of its affiliates was

(4)

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the owner of such Notes (or any predecessor thereto) or (y) such later date, if any, as may be required by applicable law (the Resale Restriction Termination Date) only: (a) (b) (c) to us; pursuant to a registration statement which has been declared effective under the U.S. Securities Act; for so long as the Notes are eligible for resale pursuant to Rule 144A, to a person you reasonably believe is a QIB that purchases for its own account or for the account of another QIB to whom you give notice that the transfer is being made in reliance on Rule 144A; pursuant to offshore transactions to non-U.S. persons occurring outside the United States within the meaning of Regulation S in reliance on Regulation S; or pursuant to any other available exemption from the registration requirements of the U.S. Securities Act,

(d) (e)

subject, in each of the foregoing cases, to any requirement of law that the disposition of the sellers property or the property of an investor account or accounts be within the sellers or accounts control, and in compliance with any applicable state securities laws. You acknowledge that the Issuer, the Trustee, the applicable registrar and the applicable Transfer Agent reserve the right prior to any offer, sale or other transfer of the Notes (i) pursuant to clause (d) or clause (e) above prior to the Resale Restriction Termination Date of the Notes to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to us, the Trustee, the applicable registrar and the applicable Transfer Agent, and (ii) in each of the foregoing cases, to require that a certificate of transfer in the form appearing on the reverse of the security is completed and delivered by the transferor to the Trustee. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. Each purchaser acknowledges that each Note will contain a legend substantially in the following form: THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT (RULE 144A) OR (B) IT IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION PURSUANT TO RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (2) AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO (X) THE DATE THAT IS, [IN THE CASE OF RULE 144A NOTES: ONE YEAR] [IN THE CASE OF REGULATION S NOTES: 40 DAYS] AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW (THE RESALE RESTRICTION TERMINATION DATE) ONLY (A) TO THE ISSUER, THE GUARANTORS OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (RULE 144A), TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS

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AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a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ou acknowledge that the Registrar will not be required to accept for registration of transfer any Notes acquired by you, except upon presentation of evidence satisfactory to us and the registrar that the restrictions set forth herein have been complied with. You acknowledge that: (a) the Issuer, the Initial Purchasers and others will rely upon the truth and accuracy of your acknowledgements, representations and agreements set forth herein, and you agree that, if any of your acknowledgements, representations or agreements herein cease to be accurate and complete, you will notify us and the Initial Purchasers promptly in writing; and if you are acquiring any Notes as fiduciary or agent for one or more investor accounts, you represent with respect to each such account that: (i) (ii) (7) you have sole investment discretion; and you have full power to make the foregoing acknowledgements, representations and agreements.

(6)

(b)

You agree that you will, and each subsequent holder is required to, give to each person to whom you transfer the Notes notice of any restrictions on the transfer of the Notes, if then applicable. If you are a purchaser in a sale that occurs outside the United States within the meaning of Regulation S, you acknowledge that until the expiration of the distribution compliance period (as defined below), you shall not make any offer or sale of the Notes to a U.S. person or for the account or benefit of a U.S. person within the meaning of Rule 902 under the U.S. Securities Act. The distribution compliance period means the 40-day period following the Issue Date for the Notes. You acknowledge that until 40 days after the commencement of this Offering, any offer or sale of the Notes within the United States by a dealer (whether or not participating in this Offering) may violate the registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A under the U.S. Securities Act.

(8)

(9)

(10) You understand that no action has been taken in any jurisdiction (including the United States) by the Issuer or the Initial Purchasers that would permit a public offering of the Notes or the possession, circulation or distribution of this Offering Memorandum or any other material

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relating to the Issuer or the Notes in any jurisdiction where action for that purpose is required. Consequently, any transfer of the Notes will be subject to the selling restrictions set forth in this section of the Offering Memorandum and/or in the front of this Offering Memorandum under Notice to Certain European Investors, Notice to New Hampshire Residents Only and Plan of Distribution. (11) Each purchaser and subsequent transferee of a Note will be deemed to have represented and warranted that either (i) no portion of the assets used by such purchaser or transferee to acquire and hold the Notes constitutes assets of any employee benefit plan subject to Title I of ERISA, any plan, individual retirement account or other arrangement subject to Section 4975 of the Code (as defined herein) or provisions under any federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of ERISA or the Code (as defined herein) (collectively, Similar Law), or any entity whose underlying assets are considered to include plan assets of any such plan, account or (ii) the purchase and holding of the Notes will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (as defined herein) or a violation under any applicable Similar Law.

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CERTAIN TAX CONSIDERATIONS EU Directive on the Taxation of Savings Income On June 3, 2003, the EU Council of Economics and Finance Ministers adopted a directive (European Council Directive 2003/48/EC) on the taxation of savings income (the EU Savings Directive). Under the EU Savings Directive, Member States are required to provide to the tax authorities of another Member State details of payments of interest (and other similar income) paid by a person within its jurisdiction to an individual resident in, or a Residual Entity (as defined in article 4.2 of the EU Savings Directive) established in, such other Member State. However, for a transitional period, Luxembourg and Austria will instead operate (unless during such transitional period they elect otherwise) a withholding system in relation to such payments (with the ending of such transitional period dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). On September 15, 2008, the European Commission issued a report to the Council of the European Union on the operation of the EU Savings Directive, which included the European Commissions advice on the need for changes to the EU Savings Directive. On November 13, 2008, the European Commission published a more detailed proposal for amendments to the EU Savings Directive, which included a number of suggested changes. If any of those proposed changes are made in relation to the EU Savings Directive, they may amend or broaden the scope of the requirements described above. U.S. Federal Income Tax Considerations TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, PROSPECTIVE INVESTORS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS OFFERING MEMORANDUM IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE); (B) SUCH DISCUSSION IS INCLUDED HEREIN BY THE ISSUER IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) PROSPECTIVE INVESTORS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. The following discussion is a general summary of certain U.S. federal income tax considerations relevant to the purchase, ownership and disposition of the Notes. This discussion is generally limited to U.S. holders (as defined below) who purchase the Notes in this Offering at their issue price (as defined below) and will hold the Notes as capital assets. It does not address the special situations that may apply to particular holders including, but not limited to, tax-exempt entities, holders subject to the U.S. federal alternative minimum tax, U.S. expatriates, dealers in securities, traders in securities who elect to apply a mark-to-market method of accounting, financial institutions, insurance companies, regulated investment companies, partnerships or other pass-through entities, U.S. holders whose functional currency is not the U.S. dollar and persons who hold the Notes in connection with a straddle, hedging, conversion or other risk-reduction transaction. This discussion does not address the tax considerations relevant to holders of the Notes under any state, local or non-U.S. tax laws or any other tax laws other than the U.S. federal income tax laws. The discussion below is based upon the Code, Treasury regulations promulgated thereunder, court decisions, revenue rulings and administrative pronouncements of the Internal Revenue Service (the IRS) currently in force, all as of the date of this Offering, and all of which are subject to change or changes in interpretation. Prospective investors should particularly note that any such change or changes in interpretation could have retroactive effect so as to result in U.S. federal income tax consequences different from those discussed below. As used herein, the term U.S. holder means a beneficial owner of Notes that is for U.S. federal income tax purposes: an individual who is a citizen or resident of the United States;

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 a corporation (or any other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state or political subdivision thereof or the District of Columbia; an estate the income of which is subject to U.S. federal income taxation regardless of its source; or a trust, if (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons control all of the substantial decisions of the trust or (2) a valid election is in place to treat the trust as a U.S. person. If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the Notes, the U.S. tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A holder of the Notes that is a partnership and partners in such partnership should consult their own tax advisors regarding the U.S. federal income tax consequences of holding and disposing of the Notes. We believe that none of the contingencies applicable to the Notes should cause the Notes to be treated as contingent payment debt instruments (CPDIs) for U.S. federal income tax purposes, and this disclosure assumes that our view is correct. U.S. holders should consult their own tax advisors regarding how their tax consequences would differ if the CPDI rules were to apply to the Notes. The issue price of a Note is the first price at which a substantial amount of the Notes is sold to the public (not including bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers) for money. Prospective investors are urged to consult their own tax advisors with respect to the particular tax consequences to them of the purchase, ownership and disposition of the Notes, including the tax consequences under any state, local, foreign and other tax laws. Payments of Stated Interest Payments of stated interest, any Additional Amounts and any tax withheld from such payments on a Note will be taxable to a U.S. holder as ordinary interest income at the time it is received or accrued, depending on the U.S. holders method of accounting for U.S. federal income tax purposes. Interest (including Additional Amounts) received by a U.S. holder will generally be treated as foreign source income and generally will be considered passive category income in computing the foreign tax credit allowable to U.S. holders under U.S. federal income tax laws. The rules relating to foreign tax credits and the timing thereof are complex. U.S. holders are urged to consult their own tax advisors regarding the application of the foreign tax credit rules to their investment. A U.S. holder who uses the cash method of accounting and who receives a payment of stated interest in euro (including a payment attributable to accrued but unpaid stated interest upon the sale, exchange, redemption, retirement or other disposition of a Note) will be required to include in income the U.S. dollar value of the euro payment received (determined based on the spot rate on the date the payment is received), regardless of whether the payment is in fact converted to U.S. dollars at that time. A cash basis U.S. holder will not realize foreign currency gain or loss on the receipt of stated interest income but may recognize foreign currency gain or loss attributable to the actual disposition of the euro received. A U.S. holder who uses the accrual method of accounting will, unless the election described below is made, accrue euro-denominated stated interest income in euro and translate that amount into U.S. dollars based on the average spot rate of exchange in effect for the accrual period or, with respect to an accrual period that spans two taxable years, at the average spot rate for the partial period within the applicable taxable year. Alternatively, an accrual method U.S. holder may elect to translate stated interest income received in euro into U.S. dollars at the spot rate on the last day of the interest accrual period (or, in the case of a partial accrual period, the spot rate on the last day of such partial accrual period) or, if the date of receipt is within five business days of the last day of the interest accrual period, the spot rate on the date of receipt. A U.S. holder who makes this election must apply it consistently to all debt instruments from year to year and cannot change the election without the consent of the IRS. A U.S. holder who uses the accrual method will recognize

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foreign currency gain or loss with respect to accrued euro-denominated stated interest income on the date the interest payment (or proceeds from a sale, exchange, redemption, retirement or other disposition attributable to accrued interest) is actually received. The amount of foreign currency gain or loss recognized will equal the difference between the U.S. dollar value of the euro payment received (determined based on the spot rate on the date the payment is received) in respect of the accrual period and the U.S. dollar value of stated interest income that has accrued during the accrual period (as determined above), regardless of whether the payment is in fact converted into U.S. dollars. Foreign currency gain or loss generally will be treated, for U.S. foreign tax credit purposes, as U.S. source ordinary income or loss, and generally will not be treated as an adjustment to interest income or expense. Disposition of a Note Upon the sale, exchange, redemption, retirement or other taxable disposition of a Note, a U.S. holder generally will recognize taxable gain or loss equal to the difference between the amount realized on such disposition (except to the extent any amount realized is attributable to accrued but unpaid stated interest, which is taxable as described under Payments of Stated Interest) and the U.S. holders adjusted tax basis in the Note. A U.S. holders adjusted tax basis will generally be the U.S. dollar value of the euro paid for the Note, determined on the date of purchase. The amount realized on the sale, exchange, redemption, retirement or other disposition of a Note for an amount of foreign currency will generally be the U.S. dollar value of such foreign currency based on the spot exchange rate on the date the Note is disposed of; provided, however, that if the Note is traded on an established securities market, a cash basis taxpayer (and if it elects, an accrual basis taxpayer) will determine the U.S. dollar value of such foreign currency on the settlement date of the disposition. If an accrual method taxpayer makes the election described above, such election must be applied consistently to all debt instruments from year to year and cannot be changed without the consent of the IRS. If a Note is not traded on an established securities market (or, if a Note is so traded, but a U.S. holder is an accrual basis taxpayer who has not made the settlement date election), a U.S. holder will recognize foreign currency gain or loss (which is generally taxable as U.S. source ordinary income or loss) to the extent that the U.S. dollar value of the euro received (based on the spot rate on the settlement date) differs from the U.S. dollar value of the amount realized. Except as discussed below with respect to foreign currency gain or loss, any gain or loss realized by a U.S. holder on the disposition of a Note will generally be U.S. source capital gain or loss and will be treated as long-term capital gain or loss if the Note has been held for more than one year at the time of the disposition of the Note. For certain non-corporate holders (including individuals), any such long-term capital gain is currently subject to U.S. federal income tax at preferential rates. The deductibility of capital losses is subject to limitations. Gain or loss realized upon the sale, exchange, retirement, redemption or other taxable disposition of a Note that is attributable to fluctuations in currency exchange rates will be ordinary income or loss which will not be treated as interest income or expense. Gain or loss attributable to fluctuations in currency exchange rates generally will equal the difference between (i) the U.S. dollar value of your purchase price for the Note, determined on the date the Note is retired or disposed of, and (ii) the U.S. dollar value of your purchase price for the Note, determined on the date you acquired the Note (or, in each case, determined on the settlement date if the Notes are traded on an established securities market and the holder is either a cash basis or an electing accrual basis holder). Payments received that are attributable to accrued interest will be treated in accordance with the rules applicable to payments of interest described above. Exchange of Foreign Currencies A U.S. holders tax basis in any euro received as interest on or on the disposition of a Note will be the U.S. dollar value of such euro at the spot rate in effect on the date of receipt of the euro. As discussed above, if the Notes are traded on an established securities market, a cash basis U.S. holder (and, if it elects, an accrual basis U.S. holder) will determine the U.S. dollar value of the euro by translating the amount received at the spot rate of exchange on the settlement date of the disposition of a Note. Accordingly, such U.S. holders basis in the euros received would be equal to the spot rate of exchange on the settlement date. Any gain or loss recognized by a U.S. holder on

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a disposition of the euros will be ordinary income or loss and generally will be U.S. source income or loss for U.S. foreign tax credit purposes. Tax Return Disclosure Requirements A U.S. holder may be required to report a sale or other disposition of its Notes on IRS Form 8886 (Reportable Transaction Disclosure Statement) if it recognizes exchange loss that exceeds US$50,000 in a single taxable year from a single transaction, if such U.S. holder is an individual or trust. Higher minimum amounts apply for other non-individual U.S. holders. U.S. holders are urged to consult their tax advisers in this regard. Information with Respect to Foreign Financial Assets Individuals that own specified foreign financial assets with an aggregate value in excess of US$50,000 (and in some circumstances, a higher threshold) may be required to file an information report with respect to such assets with their U.S. federal income tax returns. Specified foreign financial assets include any financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons; (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties; and (iii) interests in foreign entities. The Notes may be subject to these rules. Persons required to file U.S. tax returns are urged to consult their tax advisers regarding the application of this legislation to their ownership of the Notes. Backup Withholding and Information Reporting Backup withholding and information reporting requirements may apply to certain payments to U.S. holders of interest on the Notes and to the proceeds of a sale, exchange, redemption, retirement or other disposition of a Note. Backup withholding (currently at a rate of 28%) may be required if the U.S. holder fails (i) to furnish the U.S. holders taxpayer identification number, (ii) to certify that such U.S. holder is not subject to backup withholding or (iii) to otherwise comply with the applicable requirements of the backup withholding rules. Certain U.S. holders (including, among others, corporations) are not currently subject to the backup withholding and information reporting requirements. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a U.S. holder generally may be claimed as a credit against such U.S. holders U.S. federal income tax liability and any excess may result in a refund, provided that the required information is timely furnished to the IRS. Spanish Tax Considerations The information provided below does not purport to be a complete analysis of the tax law and practice currently applicable in Spain and does not purport to address the tax consequences applicable to all categories of investors, some of which may be subject to special rules. Prospective purchasers of the Notes are advised to consult their own tax advisors as to the tax consequences, including those under the tax laws of the country of which they are resident, of purchasing, owning and disposing of Notes. This tax section is based on Spanish law as in effect on the date of this Offering Memorandum as well as on administrative interpretation thereof, and is subject to any change in such law that may take effect after such date. This information has been prepared in accordance with the following Spanish tax legislation in force at the date of this Offering Memorandum: (i) of general application, Additional Provision Two of Law 13/1985 of May 25 on investment ratios, own funds and information obligations of financial intermediaries, as amended by Law 19/2003 of July 4 on legal rules governing foreign financial transactions and capital movements and various money laundering prevention measures, Law 23/2005 of November 18 on certain tax measures to promote productivity, Law 4/2008 of December 23 that abolishes the Net Wealth Tax, generalizes the VAT monthly refund system and introduces other tax measures, Law 6/2011 of April 11 and Royal Decree-Law 24/2012 of August 31 (Law 13/1985), as well as Royal Decree 1065/2007 of July 27, approving the General

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Regulations of the tax inspection and management procedures and developing the common rules of the procedures to apply taxes, as amended by Royal Decree 1145/2011, of July 29; (ii) for individuals resident for tax purposes in Spain which are subject to the Individual Income Tax (IIT), Law 35/2006 of November 28 on the IIT Law and on the partial amendment of the Corporate Income Tax Law, the Non-Resident Income Tax Law and the Net Wealth Tax Law, as amended, and Royal Decree 439/2007 of March 30, promulgating the IIT Regulations, along with Law 19/1991 of June 6, on the Net Wealth Tax and Law 29/1987 of December 18 on Inheritance and Gift Tax; for legal entities resident for tax purposes in Spain which are subject to the Corporate Income Tax (CIT), Royal Legislative Decree 4/2004 of March 5 promulgating the Consolidated Text of the CIT Law, as amended, and Royal Decree 1777/2004 of July 30 promulgating the CIT Regulations; and for individuals and entities who are not resident for tax purposes in Spain which are subject to the Non-Resident Income Tax (NRIT), Royal Legislative Decree 5/2004 of March 5 promulgating the Consolidated Text of the NRIT Law, as amended, and Royal Decree 1776/2004 of July 30 promulgating the NRIT Regulations, along with Law 19/1991 of June 6, on the Net Wealth Tax and Law 29/1987 of December 18 on Inheritance and Gift Tax.

(iii)

(iv)

Whatever the nature and residence of the noteholder, the acquisition and transfer of Notes will be exempt from indirect taxes in Spain, i.e., exempt from Transfer Tax and Stamp Duty, in accordance with the Consolidated Text of such tax promulgated by Royal Legislative Decree 1/1993 of September 24 and exempt from Value Added Tax, in accordance with Law 37/1992 of December 28 regulating such tax. Individuals with Tax Residency in Spain Individual Income Tax (Impuesto sobre la Renta de las Personas F sicas) Both interest periodically received and income derived from the transfer, redemption or repayment of the Notes constitute a return on investment obtained from the transfer of a persons own capital to third parties in accordance with the provisions of Section 25.2 of the IIT Law, and must be included in the investors IIT savings taxable base and taxed at a flat rate of 21% on the first e6,000, 25% on the following e18,000 and 27% for any amount in excess of e24,000. No withholding on account of IIT will be imposed on interest as well as on income derived from the redemption or repayment of the Notes, by individual investors subject to IIT provided that certain requirements are met (including that the Paying Agent provides the Issuer, in a timely manner, with a duly executed and completed Payment Statement). Please see Compliance with Certain Requirements in Connection with Income Payments. However, income derived from the transfer of the Notes may be subject, under certain circumstances, to a withholding on account of IIT at the rate of 21%. In any event, the individual holder may credit the withholding against his or her final IIT liability for the relevant tax year. Net Wealth Tax (Impuesto sobre el Patrimonio) For tax year 2013, Spanish resident tax individuals are subject to Spanish Net Wealth Tax (Spanish Law 19/1991), which imposes a tax on property and rights in excess of e700,000 held on the last day of any year. Spanish tax resident individuals whose net worth is above e700,000 and who hold Notes on the last day of any year would therefore be subject to Spanish Net Wealth Tax for such year at marginal rates varying between 0.2% and 2.5% of the average market value of the Notes during the last quarter of such year. Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones) Individuals who are resident in Spain for tax purposes who acquire ownership or other rights over any Notes by inheritance, gift or legacy will be subject to the Spanish Inheritance and Gift Tax in accordance with the applicable Spanish regional and state rules. The applicable tax rates range between 7.65% and 81.6% for 2013, depending on relevant factors.

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Legal Entities with Tax Residency in Spain Corporate Income Tax (Impuesto sobre Sociedades) Both interest periodically received and income derived from the transfer, redemption or repayment of the Notes are subject to CIT (at the current general flat tax rate of 30% for 2013) in accordance with the rules for this tax. No withholding on account of CIT will be imposed on interest as well as on income derived from the redemption or repayment of the Notes, by Spanish CIT taxpayers provided that certain requirements are met (including that the Paying Agent provides the Issuer, in a timely manner, with a duly executed and completed Payment Statement). Please see Compliance with Certain Requirements in Connection with Income Payments. With regard to income derived from the transfer of the Notes, in accordance with Section 59.s of the CIT regulations, there is no obligation to withhold on income obtained by Spanish CIT taxpayers (which, for the sake of clarity, include Spanish tax-resident investment funds and Spanish tax resident pension funds) from financial assets traded on organized markets in OECD countries. We will make an application for the Notes to be listed on the Luxembourg Stock Exchange and to be admitted to trading on the Euro MTF Market thereof and, upon admission to trading on the Euro MTF Market, the Notes will fulfill the requirements set forth in the legislation for exemption from withholding. The Directorate General for Taxation (Direcci on General de Tributos), on July 27, 2004, issued a ruling indicating that in the case of issuances made by entities resident in Spain, as in the case of the Issuer, application of the exemption requires that, in addition to being traded on an organized market in an OECD country, the Notes be placed outside Spain on another OECD country. We believe that the issue of the Notes will fall within this exemption because the Notes are to be sold outside Spain and on the international capital markets. Consequently, no withholding on account of CIT should be made on income derived from the transfer of the Notes by Spanish CIT taxpayers who or that provide relevant information to qualify as such. Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones) Legal entities resident in Spain for tax purposes that acquire ownership or other rights over the Notes by inheritance, gift or legacy are not subject to the Spanish Inheritance and Gift Tax but must include the market value of the Notes in their taxable income for CIT purposes. Individuals and Legal Entities that Are Not Tax Resident in Spain Nonresident Income Tax (Impuesto sobre la Renta de no Residentes) (i) Non-Spanish tax-resident investors acting through a permanent establishment in Spain If the Notes form part of the assets of a permanent establishment in Spain of a person or legal entity who is not resident in Spain for tax purposes, the tax rules applicable to income deriving from such Notes are, generally, the same as those set out above for Spanish CIT taxpayers. Please see Legal Entities with Tax Residency in SpainCorporate Income Tax (Impuesto sobre Sociedades) above. Ownership of the Notes by investors who are not resident in Spain for tax purposes will not in itself create the existence of a permanent establishment in Spain. (ii) Non-Spanish tax-resident investors not acting through a permanent establishment in Spain Both interest payments periodically received and income derived from the transfer, redemption or repayment of the Notes, obtained by individuals or entities who are not resident in Spain for tax purposes and do not act, with respect to the Notes, through a permanent establishment in Spain, are exempt from NRIT and therefore no withholding on account of NRIT will be levied on such income provided certain requirements are met. In order to be eligible for the exemption from NRIT, certain requirements must be met (including that the Paying Agent provides the Issuer, in a timely manner, with a duly executed and completed Payment Statement), as set forth in Section 44 of Royal Decree 1065/2007 of July 27, as amended by Royal Decree 1145/2011 of July 29. Please see Compliance with Certain Requirements in Connection with Income Payments. If the Paying Agent fails or for any reason is unable to deliver a duly executed and completed Payment Statement to the

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Issuer in a timely manner in respect of a payment of income under the Notes, the Issuer will withhold Spanish withholding tax at the then-applicable rate (currently 21%) on such payment of income on the Notes and the Issuer will not pay Additional Amounts with respect to any such withholding tax. Beneficial owners not resident in Spain for tax purposes and entitled to exemption from NRIT, but the payment to whom was not exempt from Spanish withholding tax due to the failure by the Paying Agent to deliver a duly executed and completed Payment Statement, will receive a refund of the amount withheld, with no need for action on their part, if the Paying Agent provides the Issuer with a duly executed and completed Payment Statement no later than the 10th calendar day of the month immediately following the relevant payment date. In addition, following the 20th calendar day of the month immediately following the relevant payment date, beneficial owners may apply directly to the Spanish tax authorities for any refund to which they may be entitled pursuant to the Direct Refund from Spanish Tax Authorities Procedures set forth in Annex B hereto. Beneficial owners who have been subject to Spanish withholding tax on income derived from the repayment of principal at the Maturity Date or any earlier date of redemption of Notes issued below par with an original issue discount may obtain a refund of the amount withheld directly from the Spanish tax authorities. Beneficial owners are advised to consult their own tax advisors regarding their eligibility to claim a refund from the Spanish tax authorities and the procedures to be followed in such circumstances. Net Wealth Tax (Impuesto sobre el Patrimonio) For tax year 2013 Spanish non-resident tax individuals are subject to Spanish Net Wealth Tax (Spanish Law 19/1991), which imposes a tax on property and rights in excess of e700,000 that are located in Spain, or can be exercised within the Spanish territory, on the last day of any year. However, to the extent that income derived from the Notes is exempt from NRIT, individual beneficial owners not resident in Spain for tax purposes who hold Notes on the last day of any year will be exempt from Spanish Net Wealth Tax. Furthermore, beneficial owners who benefit from a convention for the avoidance of double taxation with respect to wealth tax that provides for taxation only in the beneficial owners country of residence will not be subject to Spanish Net Wealth Tax. If the provisions of the foregoing paragraph do not apply, non-Spanish tax-resident individuals whose net worth related to property located, or rights that can be exercised, in Spain is above e700,000 and who hold Notes on the last day of any year would therefore be subject to Spanish Net Wealth Tax for such year at marginal rates varying between 0.2% and 2.5% of the average market value of the Notes during the last quarter of such year. Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones) Individuals not resident in Spain for tax purposes who acquire ownership or other rights over the Notes by inheritance, gift or legacy, will be subject to the Spanish Inheritance and Gift Tax in accordance with the applicable Spanish regional and state rules, unless they reside in a country for tax purposes with which Spain has entered into a convention for the avoidance of double taxation in relation to Inheritance and Gift Tax. In such a case, the provisions of the relevant convention for the avoidance of double taxation will apply. Spain and the United States have not entered into such a convention. Non-Spanish tax-resident legal entities which acquire ownership or other rights over the Notes by inheritance, gift or legacy are not subject to the Spanish Inheritance and Gift Tax. Such acquisitions will be subject to NRIT (as described above), without prejudice to the provisions of any applicable convention for the avoidance of double taxation entered into by Spain. In general, conventions for the avoidance of double taxation provide for the taxation of this type of income in the country of tax residence of the beneficiary.

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Tax Rules for Notes Not Listed on an Organized Market in an OECD Country Withholding on Account of IIT, NRIT and CIT If the Notes are not listed on an organized market in an OECD country on any date on which income in respect of the Notes will be paid, payments of income to beneficial owners in respect of the Notes will be subject to Spanish withholding tax at the then-applicable rate (currently 21%) except in the case of beneficial owners that are: (A) residents of a European Union an EU Member State other than Spain and obtain such income either directly or through a permanent establishment located in another Member State, provided that such beneficial owners (i) do not obtain such income on the Notes through a permanent establishment in Spain and (ii) are not resident of, are not located in, nor obtain income through, a tax haven (as defined by Royal Decree 1080/1991 of July 5 as amended); or (B) residents for tax purposes in a country that has entered into a convention for the avoidance of double taxation with Spain which provides for an exemption from Spanish tax or a reduced withholding tax rate with respect to income payable to any beneficial owner. Individuals and entities that may benefit from such exemptions or reduced tax rates should apply directly to the Spanish tax authorities for any refund to which they may be entitled pursuant to the Direct Refund from Spanish Tax Authorities Procedures set forth in Annex B hereto. Tax Havens Pursuant to Royal Decree 1080/1991 of July 5, as amended, the following are each considered to be a tax haven at the date of this Offering Memorandum: Anguilla Antigua and Barbuda, Islands of Bermuda British Virgin Islands Cayman Islands Channel Islands (Jersey and Guernsey) Falkland Islands Fiji Islands Gibraltar Grenada Hashemite Kingdom of Jordan Isle of Man Kingdom of Bahrain Macau Marianas Islands Mauritius Montserrat Principality of Liechtenstein Principality of Monaco Republic of Cyprus Republic of Dominica Republic of Lebanon Republic of Liberia Republic of Nauru Republic of Seychelles Republic of Vanuatu Saint Lucia Saint Vincent & the Grenadines Solomon Islands Sultanate of Brunei Sultanate of Oman The Cook Islands Turks and Caicos Islands, and United States Virgin Islands

Tax Rules for Payments Made by the Spanish Guarantors Payments made by the Spanish Guarantors to beneficial owners will be subject to the same tax rules previously set forth for payments made by the Issuer. Compliance with Certain Requirements in Connection with Income Payments As described under Individuals and Legal Entities that Are Not Tax Resident in Spain, Legal Entities with Tax Residency in SpainCorporate Income Tax (Impuesto sobre Sociedades) and Individuals with Tax Residency in SpainIndividual Income Tax (Impuesto sobre la Renta de las Personas F sicas), provided the conditions set forth in Law 13/1985 of May 25 are met (including that the Paying Agent provides the Issuer, in a timely manner, with a duly

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executed and completed Payment Statement), income paid in respect of the Notes for the benefit of non-Spanish tax-resident investors, or for the benefit of Spanish CIT or IIT taxpayers, will not be subject to Spanish withholding tax. In accordance with subsection 5 of Section 44 of Royal Decree 1065/2007, as amended by Royal Decree 1145/2011, a duly executed and completed Payment Statement must be submitted to the Issuer by the Paying Agent at the time of each relevant payment date. In accordance with the form attached as Annex to Royal Decree 1145/2011, the Payment Statement shall include the following information: (a) (b) (c) (d) the identification of the Notes; the payment date; the total amount of income to be paid on the relevant payment date; and the total amount of income corresponding to Notes held through each clearing system located outside Spain (such as Euroclear and Clearstream).

In light of the above, the Issuer and the Paying Agent will enter into a paying agency agreement which, among other things, will provide for the timely provision by the Paying Agent of a duly executed and completed Payment Statement in connection with each income payment under the Notes and set forth certain procedures agreed by the Issuer and the Paying Agent which aim to facilitate such process, along with a form of the Payment Statement to be used by the Paying Agent. Prospective investors should note that none of the Issuer or the underwriters accept any responsibility relating to the procedures established for the timely provision by the Paying Agent of a duly executed and completed Payment Statement in connection with each payment of income under the Notes. Accordingly, neither the Issuer nor the Initial Purchasers will be liable for any damage or loss suffered by any beneficial owner who would otherwise be entitled to an exemption from Spanish withholding tax but whose income payments are nonetheless paid net of Spanish withholding tax because these procedures prove ineffective. Moreover, the Issuer will not pay any Additional Amounts with respect to any such withholding tax. Please see Risk FactorsRisks Relating to the Notes and Our StructureThere are risks related to withholding tax in Spain, including in conjunction with the collection of certain documentation from the Paying Agent. If the Paying Agent fails or for any reason is unable to deliver a duly executed and completed Payment Statement to the Issuer in a timely manner in respect of a payment of income under the Notes, such payment will be made net of Spanish withholding tax, currently at the rate of 21%. If this were to occur, affected beneficial owners will receive a refund of the amount withheld, with no need for action on their part, if the Paying Agent submits a duly executed and completed Payment Statement to the Issuer no later than the tenth calendar day of the month immediately following the relevant payment date. In addition, following the 20th calendar day of the month immediately following the relevant payment date, beneficial owners may apply directly to the Spanish tax authorities for any refund to which they may be entitled pursuant to the Direct Refund from Spanish Tax Authorities Procedures set forth in Annex B hereto.

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SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES The Issuer and all of the Guarantors are incorporated under the laws of Spain and all of the directors and executive officers of the Issuer (or certain other persons named in this Offering Memorandum) and the Guarantors are non-residents of the United States. Furthermore, a substantial portion of the assets of the Issuer and the Guarantors and a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon those persons, the Issuer or the Guarantors, or to enforce against them judgments of U.S. courts predicated upon the civil liability provisions of U.S. federal or state securities laws. Spain Any judgment obtained against the Issuer or any of the Guarantors outside of Spain (and, in particular, in the United States) would be recognized and enforced in accordance with the Spanish Law of Civil Procedure 1/2000 of January 7, 2000 by the courts of Spain (unless such judgment contravenes principles of Spanish public policy) in the following three situations: according to the provisions of any applicable treaty, there being none currently in existence between Spain and the United States for these purposes; in the absence of any such treaty, if it could be proven that the jurisdictions in which the foreign judgments were rendered (in this case, in the United States) recognize Spanish judgments on a reciprocal basis (positive reciprocity) and provided that certain minimum conditions are met (among others, that the matter is not exclusively subject to Spanish jurisdiction, does not infringe public policy and does contradict a previous Spanish judgment). However, if the U.S. jurisdiction in which the judgment was obtained does not recognize judgments issued by Spanish courts, then the Spanish courts would not recognize the U.S. judgment in Spain (negative reciprocity); or in the absence of any such treaty and where reciprocity has not been evidenced (even if a positive reciprocity has been evidenced in accordance with certain court precedents), the judgment would be enforced in Spain if it satisfies all of the following requirements in compliance with Article 954 of the Spanish Civil Procedure Law of 1881 as interpreted by case law, in particular: (i) (ii) (iii) (iv) (v) the judgment was not issued in the exercise of an in rem action; the judgment must be final (literal and authentic copy), sworn, translated into Spanish and apostilled; the judgment shall not be contrary to Spanish public policy; there shall not be a pending proceeding between the same parties and in relation to the same issues in Spain; there shall not be a judgment rendered between the same parties and for the same cause of action in Spain or in another country provided that in this latter case the judgment has been recognized in Spain; where rendering the judgment, the courts rendering it must have not infringed an exclusive ground of jurisdiction provided for in Spanish law or have based their jurisdiction on exorbitant grounds;

(vi)

(vii) the rights of defense of the defendant should have been protected where rendering the judgment, including, but not limited to, a proper service of process carried out with sufficient time for the defendant to prepare its defense; and (viii) the obligation that the petitioner tries to execute has to be lawful in Spain. Any party wishing to have a U.S. ruling recognized or enforced in Spain must file an application seeking declaration of the enforceability of the U.S. resolution (exequatur) which must be filed with the relevant Spanish First Instance Court. The Spanish courts may express any such order in a currency other than euro in respect of the amount due and payable by the Issuer or a Guarantor but such order may be issued expressed in euro by reference to the official rate of exchange prevailing on the date of issue of such order. Any judgment obtained against the Issuer or any of the Guarantors in any country bound by the provisions of EU Regulation number 44/2011 of the Council on jurisdiction and enforcement of judgments in civil and commercial matters would be recognized and enforced in accordance with the terms set forth thereby. 230

CERTAIN INSOLVENCY LAW AND ENFORCEABILITY CONSIDERATIONS The validity and enforceability of the Guarantees and the Collateral will be subject to certain limitations on enforcement and may be limited under applicable law or subject to certain defenses that may limit their validity and enforceability. The following is a summary description of certain limitations on the validity and enforceability of the Guarantees and the Collateral, and a summary of certain insolvency law considerations in the jurisdictions in which the Issuer, the Guarantors and the providers of Collateral are organized. In the event that any one or more of the Issuer, the Guarantors and the providers of Collateral experience financial difficulties, it is not possible to know with certainty in which jurisdiction or jurisdictions insolvency or similar proceedings would be commenced or what the outcome of such proceedings would be. Applicable insolvency laws may affect the enforceability of the obligations of the Issuer, the Guarantors and the providers of the Collateral. The descriptions below are only a summary and do not purport to be complete or to discuss all of the limitations or considerations that may affect the validity and enforceability of the Guarantees and the Collateral. If additional Guarantees and/or Collateral are required to be granted pursuant to the Indenture in the future, such Guarantees and/or Collateral will also be subject to limitations on enforceability and validity, which may differ from those discussed below. Please see Risk FactorsRisks Relating to the Notes and Our StructureThe enforcement of the Collateral may be restricted by Spanish law. European Union European Union Insolvency Law Pursuant to Council Regulation (EC) No. 1346/2000 on insolvency proceedings (the EU Insolvency Regulation), the court that shall have jurisdiction to open insolvency proceedings in relation to the Issuer or any Guarantor the centre of main interests of which is located in a Member State (except for Denmark) will be the court of the Member State where the entity concerned has its centre of main interests (as that term is used in Article 3(1) of the EU Insolvency Regulation). The determination of where the Issuer or any Guarantor has its centre of main interests would be a question of fact on which the courts of the different Member States may have differing and even conflicting views. It should also be noted that, even though certain decisions have been taken in cases that have been brought before the European Court of Justice, substantial uncertainty remains in relation to questions of interpretation or the effects of the EU Insolvency Regulation throughout the European Union. Furthermore, centre of main interests is not a static concept and may change from time to time. Although under Article 3(1) of the EU Insolvency Regulation there is a rebuttable presumption that the Issuer or a Guarantor would have its centre of main interests in the Member State in which it has its registered office, Preamble 13 of the EU Insolvency Regulation states that the centre of main interests of a debtor should correspond to the place where the debtor conducts the administration of its interests on a regular basis and is therefore ascertainable by third parties. In that respect, factors such as the place in which the Issuer or a Guarantor holds board meetings or the place where the Issuer or a Guarantor conducts the majority of its business may all be relevant in the determination of the place where the Issuer or a Guarantor has its centre of main interests. If the centre of main interests of the Issuer or a Guarantor is and will remain located in the state in which it has its registered office, the main insolvency proceedings in respect of the Issuer or a Guarantor under the EU Insolvency Regulation would be commenced in such jurisdiction and accordingly a court in such jurisdiction would be entitled to commence the types of insolvency proceedings referred to in Annex A to the EU Insolvency Regulation. Insolvency proceedings opened in one Member State under the EU Insolvency Regulation are to be recognized in other Member States (other than Denmark), although secondary proceedings may be opened in another Member State. If the centre of main interests of a debtor is in one Member State (other than Denmark) under Article 3(2) of the EU Insolvency Regulation, the courts of another Member State (other than Denmark) may open territorial proceedings in the event that such debtor has an establishment in the territory of such other Member State. If a debtor does not have an establishment in any other Member State, no court of any other Member State shall have the ability to open territorial proceedings in respect of such debtor under the EU Insolvency Regulation. In the event that any of the Issuer, the Guarantors of any of their respective subsidiaries experience financial difficulty, it is not possible to predict with certainty in which jurisdiction or

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jurisdictions insolvency or similar proceedings would be commenced or the outcome of such proceedings. Applicable insolvency laws may affect the enforceability of the obligations of the Issuer and of the Guarantors. Spain Spanish Insolvency Law The Issuer and the Guarantors are all organized under the laws of Spain and will guarantee certain obligations under the Notes. Under the current Spanish Insolvency Law, a debtor is considered insolvent when it cannot possibly comply with its due obligations on a regular basis or when it expects that it will shortly be unable to do so. As a general rule, a debtor must file for insolvency within two months of the date when such petitioner becomes aware, or should have become aware, of its insolvency (unless the company has made a pre-insolvency filing in accordance with Article 5.bis of the Spanish Insolvency Law). In addition, the declaration of insolvency may be requested by any creditor thereof and certain interested third parties. If filed by the debtor, the insolvency is deemed voluntary (concurso voluntario) and, if filed by a third party, the insolvency is deemed mandatory (concurso necesario). In the case of voluntary insolvency, as a general rule, the debtor retains the management and full powers of disposal over its assets, although it is subject to the intervention (intervenci on) of the insolvency administrators (administradores concursales). In the case of mandatory insolvency, as a general rule, the debtors management powers are suspended, and managements former power, including the power to dispose of assets, is conferred solely upon the insolvency administrators (sustituci on). The time between the petition and the insolvency declaration by the court will depend upon a number of factors, including whether the filing has been made by the debtor or the creditor (and, in turn, whether the debtor has challenged the petition made by the creditor), whether all appropriate documentation has been submitted on a timely basis or is incomplete, and the workload of the court. There is no clawback date by operation of law. Therefore, there are no prior transactions that automatically become void as a result of the initiation of insolvency proceedings but instead the insolvency administrators must expressly challenge those transactions. In addition, creditors who have applied to exercise any clawback action (stating the specific action they aim to contest or revoke and their grounds), shall be entitled to exercise such action if the insolvency administrators do not do so within the two months following their request. Under the current Spanish Insolvency Law, upon declaration of insolvency, acts detrimental (perjudiciales) to the debtors estate carried out during the two years prior to the date the insolvency is declared may be rescinded, regardless of fraudulent intention (transactions taking place earlier than two years before insolvency has been declared are subject to the general regime of avoidance in accordance with Article 71.7 of the Spanish Insolvency Law). Article 71 of the Spanish Insolvency Law contains an irrefutable presumption that those acts where no consideration is received for a disposed asset and acts that result in the early repayment or settlements of obligations which would have become due after the declaration of insolvency (unless such obligations were secured by means of an in rem security) are detrimental. In addition, unless the debtor or another affected party (such as a creditor) can prove otherwise to the courts satisfaction, a disposal made in favor of a related person or entity (as defined in the Spanish Insolvency Law) as well as the creation of a security interest securing a preexisting obligation or a new obligation that replaces an existing one, and those payments or other acts extinguishing obligations that would have become due after the declaration of insolvency and which are secured by means of an in rem security, are presumed to be detrimental. In the case of actions not covered by the presumptions above, the burden of proof is on the person bringing the action of rescission. Acts deriving from the debtors ordinary course of business made at arms length and some kinds of refinancing arrangements (acuerdos de refinanciaci on) meeting certain legal requirements set forth in Article 71.6 of the Spanish Insolvency Law, as well as the business, acts and payments made in the ordinary course of business and the security created in connection therewith, may not be rescinded. Accordingly, a Guarantors acts of disposal with a related person or entity (such as the Issuer), as defined in the Spanish Insolvency Law, are presumed to be detrimental unless proved otherwise. The general principle of no termination effect is also established such that all agreements remain effective at the time of the insolvency.

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Creditors may apply for a joint insolvency declaration of two or more of its debtors if either (i) there is a confusion of assets among them, or (ii) they form part of the same group of companies. Therefore, the request for the joint insolvency of two or more legal entities may only be filed by a common creditor of the relevant companies and each of the affected companies must in fact be separately insolvent. Joint insolvency may also be requested by the companies themselves, provided that they form part of the same group. Any of the insolvent debtors, or any of the insolvency administrators, as the case may be, may apply for the accumulation of insolvency proceedings already declared under certain circumstances (and, in particular, if the insolvent debtors form part of the same group of companies). In addition, creditors may apply for the accumulation of the insolvency proceedings of two or more of its debtors already declared if either (i) there is a confusion of assets among them, (ii) they form part of the same group of companies, or (iii) they are managers, shareholders, partners or members personally liable for the debts of the debtor if it is a legal entity, provided that a petition has not been submitted by any of the insolvent debtors or by the insolvency administrators. Insolvency proceedings declared jointly or accumulated are processed in coordination, without consolidation of the estate of the insolvent debtors. As a result, and as a general rule, a group insolvency does not lead to a commingling of the debtors assets and creditors of such group. This means that the creditors of one company of the group will not have recourse against other companies of the same group (except where cross-guarantees exist). The current system is basically a procedural one, aimed at making the insolvency proceedings as time and cost efficient as possible. However, exceptionally, and for the purpose of the drafting of the insolvency report by the insolvency administrators only, assets and liabilities amongst the companies declared insolvent may be consolidated where there is a confusion of states, and assets and liabilities belonging to each of the companies cannot be identified. In any event, set-off is prohibited unless the requirements for the set-off were satisfied prior to the declaration of insolvency or the claim of the insolvent is governed by a law that permits set-off. The current Spanish Insolvency Law also makes a distinction between general debts under insolvency proceedings and debts against the insolvency estate (cr editos contra la masa). Debts against the insolvency estate, which include, among others, (i) certain amounts of the employee payroll, (ii) costs and expenses of the insolvency proceedings, (iii) certain amounts arising from services provided by the insolvent debtor under reciprocal contracts and outstanding obligations that remain in force after insolvency proceedings are declared and deriving from obligations to return and indemnify in cases of voluntary termination or breach by the insolvent debtor, (iv) those that derive from the exercise of a clawback action within the insolvency proceedings of acts performed by the insolvent debtor and correspond to a refund of consideration received by it (except in cases of bad faith), (v) certain amounts arising from obligations created by law or from the noncontractual liability of the insolvent debtor after the declaration of insolvency and until its conclusion, (vi) 50% of the funds lent under a refinancing arrangement entered into in compliance with the requirements set forth in Article 71.6 of the Spanish Insolvency Law and (vii) certain debts incurred by the debtor following the declaration of insolvency, are not considered part of the debtors general debt and are payable when due according to their own terms (and, therefore, are paid before other debts under insolvency proceedings). The Spanish Insolvency Law establishes a single insolvency procedure (concurso), applied to any insolvent debtor, which includes a common phase (during which, among others, insolvency administrators are appointed, an inventory of the assets and a list of creditors is prepared and claims ranked) and two potential results: (i) a composition agreement between the creditors and the debtor (CVA) or (ii) the debtors liquidation. Creditors are required to report their claims to the insolvency administrators within one month from the last official publication of the Court order declaring the insolvency, providing original documentation to justify such claims. Based on the documentation provided by the creditors and documentation held by the debtor, the insolvency administrators draw up a list of acknowledged creditors/claims and classify them according to the categories established in the Spanish Insolvency Law: Creditors benefiting from special privileges, representing security on certain assets (essentially, in rem security). These privileges may entail separate proceedings, though

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subject to certain restrictions derived from a waiting period that may last up to one year. Privileged creditors are not subject to the CVA, except if they give their express support by voting in favor of the CVA. In the event of liquidation, they are the first to collect payment against the assets on which they are secured. However, the insolvency administrator has the option to halt any enforcement of the securities and pay these claims under specific payment rules. Creditors benefiting from a general privilege, including, among others, specific labor claims and specific claims brought by public entities or authorities. Debts with public entities or authorities corresponding to tax debts and social security obligations are recognized as privileged for half (50%) of their amount; debts held by the creditor applying for the corresponding insolvency proceedings, to the extent such application has been approved, for up to half (50%) of the amount of such debt; and the funds lent under a refinancing arrangement entered into in compliance with the requirements set forth in Article 71.6 of the Spanish insolvency law in the amount not admitted as a debt against the insolvency estate. The holders of general privileges are not to be affected by the CVA if they do not agree to the said CVA and, in the event of liquidation, they are the first collecting payment, in accordance with the ranking established under the Spanish Insolvency Law. Ordinary creditors (non-subordinated and non-privileged claims) will be paid pro rata. Subordinated creditors (those subordinated to all ordinary creditors by virtue of an agreement or pursuant to law), include, among others, credits communicated late (outside the specific one-month period mentioned above); credits that are contractually subordinated vis-` a-vis all other credits of the debtor; credits relating to surcharge and unpaid interest claims (including default interest) except for those credits secured with an in rem right up to the secured amount; fines; creditors that are specially related parties to the insolvent debtor; claims resulting from acts that were set aside where the creditor was declared in the judgment to have acted in bad faith; and certain credits deriving from contracts with reciprocal obligations if the creditor attempts to prevent the fulfillment of the contract to the detriment of the insolvency interests. Subordinated creditors are second-level creditors; they do not have the right to vote at the creditors meeting (whereby the CVA is approved or rejected) and have very limited chances of collection, according to the ranking established by Spanish Insolvency Law. In the case of a legal entity, the following shall be deemed to be specially related parties: (i) shareholders with unlimited liability; (ii) limited liability shareholders holding 10% or more of the insolvent companys share capital (or 5% if the company is listed, as is the case of the Issuer) by the time the credit right under dispute in the insolvency scenario arises; (iii) directors (including shadow directors), liquidators and those holding general powers of attorney from the insolvent company, as well as such individuals holding such positions within two years prior to the declaration of insolvency; and (iv) companies pertaining to the same group as the debtor and their common shareholders provided such shareholders meet the minimum shareholding requirements set forth in (ii) above. In addition, it is established in the Spanish Insolvency Law the refutable presumption that the assignees of the above are also specially related persons if the assignment has occurred within two years prior to the declaration of insolvency. As a general rule, insolvency proceedings are not compatible with other enforcement proceedings. When compatible, in order to protect the interests of the debtor and creditors, the Spanish Insolvency Law extends the jurisdiction of the court dealing with insolvency proceedings, which is then legally authorized to handle any enforcement proceedings or interim measures affecting the debtors assets (whether based upon civil, labor or administrative law). The declaration of insolvency does not impair the existence of the contracts entered into by the debtor, which would remain in force. Any contractual arrangements establishing the termination of a contract and/or entitling the relevant creditor to terminate it in the event of the declaration of insolvency of the debtor will be unenforceable. Applicable Jurisdiction The applicable jurisdiction to conduct an insolvency proceeding is the one in which the insolvent party has its centre of main interests. This centre of main interests is deemed to be

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where the insolvent party conducts the administration of its interests on a regular basis and which may be recognized as such by third parties. Insolvency proceedings conducted by the court of the centre of main interests are considered the principal insolvency proceedings and have universal reach affecting all the assets of the insolvent party worldwide. If the centre of main interests is not in Spain, but the insolvent party has a permanent establishment in Spain, Spanish courts will only have jurisdiction over the assets located in Spain (the territorial insolvency proceedings). In the event Spanish courts have jurisdiction (upon a judicial consideration that the Issuers centre of main interests is in Spain), Article 87.6 of the current Spanish Insolvency Law would apply to the Issuer. Article 87.6 provides that creditors holding a third-party guarantee will be recognized in the insolvency proceedings in their full amount without any limitation and without prejudice to the fact that if the guarantor is subrogated in the creditors place, where the guarantee is enforced the claim of the guarantor will be classified in accordance with the ranking corresponding to the creditor or the guarantor whatever is better for the insolvents state interest. In the event that any of the Guarantors becomes insolvent and is subject to the current Spanish Insolvency Law, its Guarantee will be treated as ordinary debt unless it is subordinated by application of any of the criteria indicated above. In addition, creditors may seek repayment directly from the insolvent entitys directors or attorneys-in-fact if a court determines that the bankruptcy resulted from their negligence (concurso culpable), if some legal requirements are met. Under the current Spanish Insolvency Law, the intercompany loans between the Spanish Guarantors and the Issuer would be treated as subordinated debt. Moratorium The current Spanish Insolvency Law imposes a moratorium on the enforcement of secured creditors rights (in rem security) in the event of insolvency. The moratorium would take effect following the declaration of insolvency until the earlier of (i) one year from the declaration of the insolvency if the insolvent company has not been placed in liquidation or (ii) the date the creditors reach an agreement that does not affect the exercise of the rights granted by the security interest. The current Spanish Insolvency Law only came into effect in September 2004, and as such, there is only a limited history of its application by Spanish courts. Limitation on Validity and Enforcement of Guarantees and Security Interests Granted by Any Spanish Subsidiary. Under Spanish law, claims may become time-barred (15 years being the general term established for obligations in personam under Article 1,964 of the Spanish Civil Code (C odigo Civil)) or may be or become subject to the defense of set-off or counterclaim. The terms enforceable, enforceability, valid, legal, binding and effective (or any combination thereof) mean that all of the obligations assumed by the relevant party under the relevant documents are of a type enforced by Spanish courts; the terms do not mean that these obligations will necessarily be enforced in all circumstances in accordance with their terms. Enforcement before the courts will in any event be subject to: the nature of the remedies available in the courts; and the availability of defenses such as (without limitation) set-off (unless validly waived), circumvention of law (fraude de ley), abuse in the exercise of rights (abuso de derecho), misrepresentation, force majeure, unforeseen circumstances, undue influence, duress, abatement and counterclaim. In general terms, under Spanish law, any guarantee, pledge or mortgage must guarantee or secure another obligation to which it is ancillary, which must be clearly identified in the relevant guarantee or security agreement. Therefore, the guarantee or security interest follows the underlying obligation in such a way that nullity of the underlying obligation entails nullity of the guarantee or security and termination of the underlying obligation entails termination of the guarantee or security. In the event that the security providers are able to prove that there are no existing and valid guaranteed obligations, Spanish courts may consider that the security providers obligations under the relevant guarantees or securities are not enforceable.

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The obligations under Guarantees granted by the Guarantors: shall not extend to any use of the proceeds of the Notes for the purpose of acquiring shares representing the share capital of such Guarantor or shares representing the share capital of its holding company, or refinancing a previous debt incurred for the acquisition of shares representing the share capital of such Guarantor or shares representing the share capital of its holding company; and shall be deemed not to be undertaken or incurred by the Guarantor to the extent that the same would constitute unlawful financial assistance within the meaning of Article 150 of the Spanish Companies Law, and, in that case, all provisions of such Guarantee shall be construed accordingly in the sense that in no case can any Guarantee or security given by the Guarantor secure repayment of the above-mentioned funds.

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LEGAL MATTERS Certain legal matters relating to the validity of the Notes will be passed upon for us by Shearman & Sterling (London) LLP in respect of U.S. federal and New York state law by and by Ur a Men endez Abogados, S.L.P . with respect to Spanish law. Certain legal matters relating to this Offering will be passed upon for the Initial Purchasers by Simpson Thacher & Bartlett LLP with respect to U.S. federal and New York state law and by Clifford Chance, S.L. with respect to Spanish law. INDEPENDENT AUDITORS The consolidated financial statements of the Issuer and its consolidated subsidiaries as of and for the year ended December 31, 2011 included in this Offering Memorandum have been audited by PricewaterhouseCoopers Auditores, S.L., independent auditors, as stated in their report appearing herein. The consolidated financial statements of the Issuer and its consolidated subsidiaries as of and for the years ended December 31, 2009 and December 31, 2010 included in this Offering Memorandum have been audited by Deloitte, S.L. as stated in their respective reports appearing herein. The consolidated financial statements of the Issuer and its consolidated subsidiaries as of and for the years ended December 31, 2007 and December 31, 2008, which are not included in this Offering Memorandum, have been audited by Deloitte, S.L. in conjunction with certain other auditing firms. Deloitte, S.L. has not performed any audit or review work on the Issuers financial statements for any period subsequent to December 31, 2010. Deloitte, S.L. and PricewaterhouseCoopers Auditores, S.L. are registered in the professional association of independent auditors (Registro Oficial de Auditores de Cuentas) of Spain.

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WHERE YOU CAN FIND MORE INFORMATION We are not currently subject to the periodic reporting and other information requirements of the U.S. Exchange Act. However, pursuant to the Indenture, and so long as the Notes are outstanding, the Issuer will agree to furnish periodic information to holders of the Notes. Please see Description of the NotesCertain CovenantsReports. Each purchaser of the Notes from the Initial Purchasers will be furnished with a copy of this Offering Memorandum and, to the extent provided to the Initial Purchasers by us for such purpose, any related amendments or supplements to this Offering Memorandum. Each person receiving this Offering Memorandum and any related amendments or supplements to this Offering Memorandum acknowledges that: (i) such person has been afforded an opportunity to request from us, and to review and has received, all additional information considered by it to be necessary to verify the accuracy and completeness of the information here; such person has not relied on the Initial Purchasers or any person affiliated with the Initial Purchasers in connection with its investigation of the accuracy of such information or its investment decision; and except as provided pursuant to (i) above, no person has been authorized to give any information or to make any representation concerning the Notes offered hereby other than those contained herein and, if given or made, such other information or representation should not be relied upon as having been authorized by us or the Initial Purchasers.

(ii)

(iii)

For so long as any of the Notes remain outstanding and are restricted securities within the meaning of Rule 144(a)(3) under the U.S. Securities Act, we will, during any period in which we are not subject to Section 13 or 15(d) under the Exchange Act, or exempt from reporting pursuant to Rule 12g3-2(b) of the Exchange Act, make available to any holder or beneficial holder of a Note, or to any prospective purchaser of a Note designated by such holder or beneficial holder, the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the U.S. Securities Act upon the written request of any such holder or beneficial owner. All of the above documents will be available at the offices of the Listing Agent Luxembourg. For so long as either series of the Notes is listed on the Official List of the Luxembourg Stock Exchange and admitted for trading on the Euro MTF Market thereof and the rules of that exchange so require, copies of the Issuers organizational documents, the Indentures, the Intercreditor Agreement and the Issuers most recent consolidated financial statements published may be requested from the Issuer at Paseo de la Castellana, 35, 28046 Madrid, Spain. Please see Listing and General Information.

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LISTING AND GENERAL INFORMATION Listing The Issuer was initially incorporated in Spain in 1968 as a sociedad an onima under the name Empresa Nacional de Celulosa, S.A. It changed its name to Grupo Empresarial ENCE, S.A. in 1999 and then to ENCE Energ a y Celulosa, S.A. in April 2012. The Issuers principal executive offices are located at Paseo de la Castellana, 35, 28046 Madrid, Spain. It is intended that an application has been made for the Notes to be listed on the Official List of the Luxembourg Stock Exchange and that the Notes will be admitted to trading on the Euro MTF Market thereof in accordance with the rules of that exchange. For so long as the Notes are listed on the Euro MTF Market of the Luxembourg Stock Exchange and the rules of the Official List of the Luxembourg Stock Exchange so require, copies of the following documents (together with English translations thereof, as applicable) may be inspected and obtained by holders at the specified office of the listing agent in Luxembourg during normal business hours on any weekday: the organizational documents of the Issuer; the organizational documents of each of the Guarantors; our most recent audited consolidated financial information, and any interim financial information published by us; the Indenture (which includes the form of the Notes); the Intercreditor Agreement and the documents creating the security interests in the Collateral as contemplated by the Indenture; and other material agreements described in this Offering Memorandum as to which we specify that copies thereof will be made available. We accept responsibility for the information contained in this Offering Memorandum. To the best of our knowledge, the information contained in this Offering Memorandum is in accordance with the facts and does not omit anything likely to affect the import of this Offering Memorandum. The Issuer will maintain a paying and transfer agent in Luxembourg for as long as any of the Notes are listed on the Official List of the Luxembourg Stock Exchange. The Issuer reserves the right to vary such appointment (and will make available any notices, including financial notices) in a newspaper having general circulation in Luxembourg or on the website of the Official List of the Luxembourg Stock Exchange, at www.bourse.lu, or by any other means considered equivalent by the Luxembourg Stock Exchange. Application may also be made to the Euro MTF Market to have the Notes removed from listing on the Euro MTF Market, including if necessary to avoid any new withholding taxes in connection with the listing. Except as disclosed herein, there has been no material adverse change in our consolidated financial position since September 30, 2012, and there has been no material adverse change in the financial position of the Issuer since its incorporation. The Issuer accepts responsibility for the information contained in this Offering Memorandum. The Issuer declares that, having taken all reasonable care to ensure that such is the case, to the best of its knowledge, the information contained in this Offering Memorandum is in accordance with the facts and does not omit anything likely to affect its import. This Offering Memorandum may only be used for the purposes for which it has been published. Clearing Information The Notes have been accepted for clearance through the facilities of Euroclear and Clearstream. The common codes for the Notes sold pursuant to Regulation S and Rule 144A are and , respectively. The ISIN for the Notes sold pursuant to Regulation S is and the ISIN for the Notes sold pursuant to Rule 144A is .

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GLOSSARY OF SELECTED TERMS The following terms used in this Offering Memorandum have the meanings assigned to them below: BEKP . . . . . . . . . . . . . . . . . . . . . BHKP . . . . . . . . . . . . . . . . . . . . . biomass . . . . . . . . . . . . . . . . . . . Bleached Eucalyptus Kraft Pulp. all grades of Bleached Hardwood Kraft Pulp, including BEKP , birch, SMHW and NMHW. all materials of biological origin excluding those which have been encompassed in geological formations undergoing a mineralization process, which include coal, oil and gas (in accordance with European Technical Specification CEN/TS 14588). Bleached Softwood Kraft Pulp. Elemental Chlorine Free. Ethylenediaminetetraacetic acid. Engineering, procurement and construction. the depreciation of biological assets (plantations) as related to the harvesting of pulp plantations. the process for the conversion of wood into almost pure cellulose fibers through the use of sodium sulfate, which breaks the bonds that link lignin to the cellulose. thousands of tonnes per annum. the elimination of economic incentives for the implementation of special regime energy production facilities and the suspension of the proceedings for registration with the pre-allocation registries, vested by the Royal Degree Law 1/2012. Northern Mixed Hardwood (kraft) pulp. all Mixed Hardwood kraft pulp produced in the United States. Totally Chlorine Free.

BSKP . . . . . . . . . . . . . . . . . . . . . ECF . . . . . . . . . . . . . . . . . . . . . . EDTA . . . . . . . . . . . . . . . . . . . . . EPC . . . . . . . . . . . . . . . . . . . . . . Forestry depletion . . . . . . . . . . . . Kraft process . . . . . . . . . . . . . . . .

Ktpa . . . . . . . . . . . . . . . . . . . . . . Moratorium . . . . . . . . . . . . . . . . .

NMHW . . . . . . . . . . . . . . . . . . . . SMHW . . . . . . . . . . . . . . . . . . . . TCF . . . . . . . . . . . . . . . . . . . . . .

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ANNEX A NOTES GUARANTEE AND SECURITY PACKAGE This Annex A describes the Guarantees of the Notes and the associated limitations of such Guarantees as of the Issue Date. It also describes the Collateral securing the Notes, as expected to be fully granted and perfected as set forth under the heading Description of the NotesSecurity. In addition, if Sierras Calmas, S.A. or any successor thereof (x) continues to be a subsidiary of the company after December 31, 2013, and (y) has not sold all or substantially all of its assets and has not distributed the net proceeds of such sale to the Company, Sierras Calmas, S.A. will, subject to certain limitations, be expected to become a Guarantor and to provide additional Collateral securing the Notes. For additional information regarding credit enhancement and any limitations on credit enhancement, please see Description of the Notes, Risk FactorsRisks Relating to the Notes and Our Structure, and Certain Insolvency Law and Enforceability Considerations.
Company Guarantee Collateral

ENCE Energ a y Celulosa, S.A. (ENCE)

N/A

Security to secure ENCEs indebtedness under the Notes over: (i) all present and future shares of Capital Stock held by ENCE in Cener, Ceasa, Norfor and Silvasur; (ii) all present and future Debt of ENCE or a Restricted Subsidiary owing to and held by ENCE (other than any Debt owed by any subsidiary engaged in independent biomass energy generation); (iii) all present and future Receivables (other than Receivables subject to a Permitted Lien in respect of the factoring of Receivables arising in the ordinary course of business pursuant to customary arrangements) that are owed to ENCE; and (iv) all present and future cash and Cash Equivalents held in banks or investment accounts of ENCE. If providing such security would be prohibited by applicable law, general statutory limitations, financial assistance, corporate benefit, fraudulent preference, thin capitalization rules or similar matters or providing security would be outside ENCEs capacity or conflict with fiduciary duties of its officers or directors or cause material risk of personal or criminal liability after using commercially reasonable efforts to overcome such obstacles or if providing such security would require the incurrence of costs in excess of e100,000, certain assets may not be pledged (or the liens not perfected). In addition, ENCE will not be required to grant any security over Receivables if the aggregate amount of Receivables over which ENCE would be required to grant security does not exceed

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Company

Guarantee

Collateral

e2.5 million and over Receivables pursuant to contracts governed by laws other than the laws of Spain for so long as the aggregate amount of Receivables over which security has been granted by ENCE and the Guarantors exceeds 75% aggregate amount of all Receivables of ENCE and its Restricted Subsidiaries (other than Receivables subject to a Permitted Lien in respect of the factoring of Receivables arising in the ordinary course of business pursuant to customary arrangements). The ability of Holders of the Notes to realize upon the Collateral will also be subject to various bankruptcy law limitations in the event of the bankruptcy of ENCE. Celulosa Energ a, S.A.U. (Cener) Direct guarantee, provided that the obligations of Cener under its Guarantee will be limited to an amount that can be guaranteed under applicable laws, including corporate benefit laws and financial assistance, fraudulent conveyance or fraudulent transfer restrictions under applicable insolvency laws, and will not apply to the extent its Guarantee would be illegal or unenforceable under applicable local laws. Security to secure the guarantee obligations of Cener over: (i) all present and future Debt of Cener or a Restricted Subsidiary owing to and held by Cener (other than any Debt owed by any subsidiary engaged in independent biomass energy generation); (ii) all present and future Receivables (other than Receivables subject to a Permitted Lien in respect of the factoring of Receivables arising in the ordinary course of business pursuant to customary arrangements) that are owed to Cener; and (iii) all present and future cash and Cash Equivalents held in bank or investment accounts of Cener. If providing such security would be prohibited by applicable law, general statutory limitations, financial assistance, corporate benefit, fraudulent preference, thin capitalization rules or similar matters or providing security would be outside Ceners capacity or conflict with fiduciary duties of its officers or directors or cause material risk of personal or criminal liability after using commercially reasonable efforts to overcome such obstacles or if providing such security would require the incurrence of costs in excess of e100,000, certain assets may not be pledged (or the liens not perfected). In addition, Cener will not be required to grant any security over Receivables if the aggregate amount of Receivables

242

Company

Guarantee

Collateral

over which Cener would be required to grant security does not exceed e2.5 million and over Receivables pursuant to contracts governed by laws other than the laws of Spain for so long as the aggregate amount of Receivables of ENCE and the Guarantors over which security has been granted exceeds 75% of the aggregate amount of all Receivables of ENCE and its Restricted Subsidiaries (other than Receivables subject to a Permitted Lien in respect of the factoring of Receivables arising in the ordinary course of business pursuant to customary arrangements). The ability of Holders of the Notes to realize upon the Collateral will also be subject to various bankruptcy law limitations in the event of the bankruptcy of Cener. Celulosas de Direct guarantee, provided that the Asturias, S.A.U. (Ceasa) obligations of Ceasa under its Guarantee will be limited to an amount that can be guaranteed under applicable laws, including corporate benefit laws and financial assistance, fraudulent conveyance or fraudulent transfer restrictions under applicable insolvency laws, and will not apply to the extent its Guarantee would be illegal or unenforceable under applicable local laws. Security to secure the guarantee obligations of Ceasa over: (i) all present and future Debt of Ceasa or a Restricted Subsidiary owing to and held by Ceasa (other than any Debt owed by any subsidiary engaged in independent biomass energy generation); (ii) all present and future Receivables (other than Receivables subject to a Permitted Lien in respect of the factoring of Receivables arising in the ordinary course of business pursuant to customary arrangements) that are owed to Ceasa; and (iii) all present and future cash and Cash Equivalents held in banks or investment accounts of Ceasa. If providing such security would be prohibited by applicable law, general statutory limitations, financial assistance, corporate benefit, fraudulent preference, thin capitalization rules or similar matters or providing security would be outside Ceasas capacity or conflict with fiduciary duties of its officers or directors or cause material risk of personal or criminal liability after using commercially reasonable efforts to overcome such obstacles or if providing such security would require the incurrence of costs in excess of e100,000, certain assets may not be pledged (or the liens not perfected). In addition, Ceasa will not be required to

243

Company

Guarantee

Collateral

grant any security over Receivables if the aggregate amount of Receivables over which Ceasa would be required to grant security does not exceed e2.5 million and over Receivables pursuant to contracts governed by laws other than the laws of Spain for so long as the aggregate amount of Receivables of ENCE and the Guarantors over which security has been granted exceeds 75% of the aggregate amount of all Receivables of ENCE and its Restricted Subsidiaries (other than Receivables subject to a Permitted Lien in respect of the factoring of Receivables arising in the ordinary course of business pursuant to customary arrangements). The ability of Holders of the Notes to realize upon the Collateral will also be subject to various bankruptcy law limitations in the event of the bankruptcy of Ceasa. Norte Forestal, S.A.U. (Norfor) Direct guarantee, provided that the obligations of Norfor under its Guarantee will be limited to an amount that can be guaranteed under applicable laws, including corporate benefit laws and financial assistance, fraudulent conveyance or fraudulent transfer restrictions under applicable insolvency laws, and will not apply to the extent its Guarantee would be illegal or unenforceable under applicable local laws. Security to secure the guarantee obligations of Norfor over: (i) all present and future Debt of Norfor or a Restricted Subsidiary owing to and held by Norfor (other than any Debt owed by any subsidiary engaged in independent biomass energy generation); (ii) all present and future Receivables (other than Receivables subject to a Permitted Lien in respect of the factoring of Receivables arising in the ordinary course of business pursuant to customary arrangements) that are owed to Norfor; and (iii) all present and future cash and Cash Equivalents held in banks or investment accounts of Norfor. If providing such security would be prohibited by applicable law, general statutory limitations, financial assistance, corporate benefit, fraudulent preference, thin capitalization rules or similar matters or providing security would be outside Norfors capacity or conflict with fiduciary duties of its officers or directors or cause material risk of personal or criminal liability after using commercially reasonable efforts to overcome such obstacles or if providing such security would require the incurrence of costs in excess of e100,000, certain assets may not be

244

Company

Guarantee

Collateral

pledged (or the liens not perfected). In addition, Norfor will not be required to grant any security over Receivables if the aggregate amount of Receivables over which Norfor would be required to grant security does not exceed e2.5 million and over Receivables pursuant to contracts governed by laws other than the laws of Spain for so long as the aggregate amount of Receivables of ENCE and the Guarantors over which security has been granted exceeds 75% of the aggregate amount of all Receivables of ENCE and its Restricted Subsidiaries (other than Receivables subject to a Permitted Lien in respect of the factoring of Receivables arising in the ordinary course of business pursuant to customary arrangements). The ability of Holders of the Notes to realize upon the Collateral will also be subject to various bankruptcy law limitations in the event of the bankruptcy of Norfor. Silvasur Agroforestal, S.A.U. (Silvasur) Direct guarantee, provided that the obligations of Silvasur under its Guarantee will be limited to an amount that can be guaranteed under applicable laws, including corporate benefit laws and financial assistance, fraudulent conveyance or fraudulent transfer restrictions under applicable insolvency laws, and will not apply to the extent its Guarantee would be illegal or unenforceable under applicable local laws. Security to secure the guarantee obligations of Silvasur over: (i) all present and future Debt of a Silvasur or Restricted Subsidiary owing to and held by Silvasur (other than any Debt owed by any subsidiary engaged in independent biomass energy generation); (ii) all present and future Receivables (other than Receivables subject to a Permitted Lien in respect of the factoring of Receivables arising in the ordinary course of business pursuant to customary arrangements) that are owed to Silvasur; and (iii) all present and future cash and Cash Equivalents held in banks or investment accounts of Silvasur. If providing such security would be prohibited by applicable law, general statutory limitations, financial assistance, corporate benefit, fraudulent preference, thin capitalization rules or similar matters or providing security would be outside Silvasurs capacity or conflict with fiduciary duties of its officers or directors or cause material risk of personal or criminal liability after using commercially reasonable efforts to overcome such obstacles or if providing such security would require

245

Company

Guarantee

Collateral

the incurrence of costs in excess of e100,000, certain assets may not be pledged (or the liens not perfected). In addition, Silvasur will not be required to grant any security over Receivables if the aggregate amount of Receivables over which Silvasur would be required to grant security does not exceed e2.5 million and over Receivables pursuant to contracts governed by laws other than the laws of Spain for so long as the aggregate amount of Receivables of ENCE and the Guarantors over which security has been granted exceeds 75% of the aggregate amount of all Receivables of ENCE and its Restricted Subsidiaries (other than Receivables subject to a Permitted Lien in respect of the factoring of Receivables arising in the ordinary course of business pursuant to customary arrangements). The ability of Holders of the Notes to realize upon the Collateral will also be subject to various bankruptcy law limitations in the event of the bankruptcy of Silvasur.

246

ANNEX B PROCEDURES FOR DIRECT REFUND FROM THE SPANISH TAX AUTHORITIES (1) Beneficial owners entitled to receive income payments in respect of the Notes free of any Spanish withholding taxes but in respect of whom income payments have been made net of Spanish withholding tax may apply directly to the Spanish tax authorities for any refund to which they may be entitled, following the 20th calendar day of the month immediately following the relevant payment date. Beneficial owners may claim the amount withheld from the Spanish Treasury within the first four years following the last day on which the Issuer may pay any amount so withheld to the Spanish Treasury (which is generally the 20th calendar day of the month immediately following the relevant payment date), by filing with the Spanish tax authorities (i) the relevant Spanish tax form, (ii) proof of beneficial ownership and (iii) a certificate of residency issued by the tax authorities of the country of tax residence of such beneficial owner, among other documents.

(2)

247

INDEX TO FINANCIAL STATEMENTS Page Unaudited Condensed Consolidated Interim Financial Statements of ENCE Energ a y Celulosa, S.A. and Subsidiaries as of and for the Nine Months Ended September 30, 2012 Condensed Consolidated Interim Balance Sheet as of September 30, 2012 and December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Condensed Consolidated Interim Income Statements for the Nine Months Ended September 30, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Condensed Consolidated Interim Statements of Comprehensive Income for the Nine Months Ended September 30, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Condensed Consolidated Interim Statements of Changes in Equity for the Nine Months Ended September 30, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Condensed Consolidated Interim Cash Flow Statements for the Nine Months Ended September 30, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Explanatory Notes to the Unaudited Condensed Consolidated Interim Financial Statements . Audited Consolidated Annual Accounts of ENCE Energ a y Celulosa, S.A. and Subsidiaries (formerly Grupo Empresarial ENCE, S.A.) as of and for the Year Ended December 31, 2011 Auditors Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheet as of December 31, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . Consolidated Income Statements for the Years Ended December 31, 2011 and 2010 . . . . . . Consolidated Statements of Recognised Income for the Years Ended December 31, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Changes in Equity for the Years Ended December 31, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Cash Flow Statements for the Years Ended December 31, 2011 and 2010 . . . Notes to the Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Directors Report for the Year 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audited Consolidated Annual Accounts of ENCE Energ a y Celulosa, S.A. and Subsidiaries (formerly Grupo Empresarial ENCE, S.A.) as of and for the Year Ended December 31, 2010 Auditors Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheet as of December 31, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . Consolidated Income Statements for the Years Ended December 31, 2010 and 2009 . . . . . . Consolidated Statements of Recognised Income for the Years Ended December 31, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Changes in Equity for the Years Ended December 31, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Cash Flow Statements for the Years Ended December 31, 2010 and 2009 . . . Notes to the Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Directors Report for the Year 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audited Consolidated Annual Accounts of ENCE Energ a y Celulosa, S.A. and Subsidiaries (formerly Grupo Empresarial ENCE, S.A.) as of and for the Year Ended December 31, 2009 Auditors Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheet as of December 31, 2009 and 2008 . . . . . . . . . . . . . . . . . . . . Consolidated Income Statements for the Years Ended December 31, 2009 and 2008 . . . . . . Consolidated Statements of Recognised Income for the Years Ended December 31, 2009 and 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Changes in Equity for the Years Ended December 31, 2009 and 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Cash Flow Statements for the Years Ended December 31, 2009 and 2008 . . . Notes to the Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Directors Report for the Year 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-3 F-4 F-5 F-6 F-7 F-8

F-33 F-34 F-35 F-36 F-37 F-38 F-39 F-96

F-102 F-103 F-104 F-105 F-106 F-107 F-108 F-164

F-174 F-175 F-176 F-177 F-178 F-179 F-180 F-237

F-1

ENCE Energ a y Celulosa, S.A. and Subsidiaries Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 prepared in accordance with International Financial Reporting Standards

F-2

ENCE ENERG IA Y CELULOSA, S.A. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AT 30 SEPTEMBER 2012 AND 31 DECEMBER 2011
(Thousands of euros) Notes 30/09/2012(*) 31/12/2011

NON-CURRENT ASSETS Intangible assets . . . . . . . . . Property, plant and equipment Investment property . . . . . . . Biological assets . . . . . . . . . Other financial assets . . . . . . Deferred tax assets . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

3 4 5 13

5,695 756,349 2,106 173,365 3,620 35,091 976,226

8,127 770,142 2,190 180,586 4,065 42,653 1,007,763 16,544 112,462 122,789 13,005 867 22,824 71,629 911 361,031 1,368,794 232,212 254,328 106,630 102,454 33,155 41,192 (591) (49,217) 720,163 720,163 23,185 274,186 20,244 25,466 9,183 28,289 380,553 12,322 20,452 34,610 574 181,964 365 17,655 136 268,078 1,368,794

CURRENT ASSETS Non-current assets classified as held for sale Inventories . . . . . . . . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . . . . . . . . Receivable from public authorities . . . . . . . Current financial assets Derivatives . . . . . . . . . . . . . . . . . . . . . . Other financial assets . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

12 7 8 13 6 1-f

68,320 93,405 117,651 21,638 1,947 9,535 76,289 4,721 393,506 1,369,732 225,245 225,824 104,336 112,543 47,228 28,803 (615) (8,145) 735,219

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EQUITY: Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . Reserves of the Parent Company . . . . . . . . . . . . . . Reserves of fully consolidated companies . . . . . . . . Valuation adjustments . . . . . . . . . . . . . . . . . . . . . . Profit for the year attributable to the Parent Company Translation differences . . . . . . . . . . . . . . . . . . . . . . Treasury shares of the Parent Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 10 11 6 13

Equity attributable to shareholders of the Parent Company . . . . . . . TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NON-CURRENT LIABILITIES: Provisions . . . . . . . . . . . . . . . Bank borrowings . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . Derivative financial instruments . Other financial liabilities . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

735,219 12,442 268,040 21,192 32,536 8,389 28,714 371,313

CURRENT LIABILITIES: Liabilities associated with non-current assets classified as held for sale Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivative financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other accounts payable to public authorities . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . .

12 11 6 8 13 13

2,360 26,943 2,534 652 214,726 9,948 5,539 498 263,200 1,369,732

TOTAL EQUITY AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . .

(*) Unaudited

The accompanying Notes 1 to 18 are an integral part of the condensed consolidated balance sheet at 30 September 2012.

F-3

ENCE ENERG IA Y CELULOSA, S.A. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS FOR THE NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2012 AND 2011
Thousands of Euros Notes 30/09/2012(*) 30/09/2011(*)

Continuing operations: Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains or losses on hedging transactions . . . . . . . . . . Changes in inventories of finished goods and work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Procurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Group work on non-current assets . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . . . Grants related to assets transferred to income . . Personnel expenses . . . . . . . . . . . . . . . . . . . . . Depreciation and amortisation charge . . . . . . . . Impairment and gains or losses on disposals of non-current tangible and intangible assets . . . Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.... .... .... .... . . . . . . . . . . . . . . . . . . . .

14 6

603,443 (21,930) 2,658 (302,318) 281,853 23,053 1,784 3,193 (59,513) (45,618) 2,389 (147,715) 59,426 572 2,758 (18,237) (1,402) (16,309) 43,117 (14,314) 28,803 28,803 0.11 0.11

627,437 (11,198) 5,274 (296,086) 325,427 22,686 2,264 5,506 (66,844) (45,790) 4,048 (174,326) 72,971 1,072 1,486 (21,663) 717 (18,388) 54,583 (16,276) 38,307 38,307 0.15 0.15

14

GROSS MARGIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14 3, 4 and 5

........ ........ . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

PROFIT FROM OPERATIONS . . . . . . . . . . . . . . . . . . . Finance income . . . . . . . . . . . . . . . . . . . . . . . . . Changes in the fair value of financial instruments . Other finance costs . . . . . . . . . . . . . . . . . . . . . . Exchange differences . . . . . . . . . . . . . . . . . . . . .

FINANCIAL LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT BEFORE TAX . . . . . . . . . . . . . . . . . . . . . . . . . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT FOR THE YEAR . . . . . . . . . . . . . . . . . . . . . . . Earnings per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(*) Unaudited

13

The accompanying Notes 1 to 18 are an integral part of the condensed consolidated income statement for the nine-month period ended 30 September 2012.

F-4

ENCE ENERG IA Y CELULOSA, S.A. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2012 AND 2011
Thousands of Euros Note 30/09/2012(*) 30/09/2011(*)

PROFIT PER CONSOLIDATED INCOME STATEMENT (I) . . . . . Income and expenses recognised Cash flow hedges . . . . . . . . . . . Translation differences . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . directly in equity ...................... ...................... ......................

28,803 (3,798) (24) 1,140

38,307 (22,282) 6,685 (15,597) 13,653 (4,096) 9,557 32,267

TOTAL INCOME AND EXPENSE RECOGNISED DIRECTLY IN CONSOLIDATED EQUITY (II) . . . . . . . . . . . . . . . . . . . . . . . . Transfers to consolidated profit or loss Arising from cash flow hedges . . . . . . . . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL TRANSFERS TO CONSOLIDATED PROFIT OR LOSS (III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL RECOGNISED CONSOLIDATED INCOME AND EXPENSE (I+II+III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(*) Unaudited

(2,682) 23,900 (7,169)

16,731 42,852

The accompanying Notes 1 to 18 are an integral part of the condensed consolidated statement of comprehensive income for the nine-month period ended 30 September 2012.

F-5

ENCE ENERG IA Y CELULOSA, S.A. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2012 AND 2011
Recognised Capital Distribution of Treasury Distribution income/ increases/ prior years Distribution of share of treasury Balance at (expense) decreases profit dividends transactions shares 30/09/2012(*)

Thousands of Euros

Balance at Note 01/01/2012

Share capital . . . . . Share premium . . . . Legal reserve . . . . . Other reserves of the Parent Company . . Reserves of fully consolidated companies . . . . . Prior years losses . . Translation differences Treasury shares of the Parent Company . . Valuation adjustments Profit for the year attributable to the Parent Company . .

. . . . . . . .

232,212 254,328 39,766 66,864

(6,967) (9,862)

3,110 27,993

(14,484) (23,203)

(332)

(14,020)

225,245 225,824 42,876 61,460

. . . . . . . . . .

102,454 (591) (49,217) 33,155

(24) 14,073

16,829

10,089

21,173

(10,950)

14,020

112,543 (615) (8,145) 47,228

. .

41,192 720,163

28,803 42,852

(41,192)

(16,514)

(11,282)

28,803 735,219

Thousands of Euros

Balance at Note 01/01/2011

Recognised Capital Distribution of Treasury Distribution income/ increases/ prior years Distribution of shares of treasury Balance at (expense) decreases profit dividends transactions shares 30/09/2011(*)

Share capital . . . . . Share premium . . . . Legal reserve . . . . . Other reserves of the Parent Company . . Reserves of fully consolidated companies . . . . . Prior years losses . . Translation differences Treasury shares of the Parent Company . . Valuation adjustments Profit for the year attributable to the Parent Company . .

. . . . . . . .

232,212 254,328 31,482 150,341

8,284 (83,644)

147

232,212 254,328 39,766 66,844

. . . . . . . . . .

120,583 (132,400) (2,434) 47,533

(6,040)

(18,129) 132,400

(40,811)

102,454 (43,245) 41,493

. .

64,711 766,356

38,307 32,267

(64,711) (25,800)

(40,664)

38,307 732,159

(*)

Unaudited

The accompanying Notes 1 to 18 are an integral part of the condensed consolidated statement of changes in equity for the nine-month period ended 30 September 2012.

F-6

ENCE ENERG IA Y CELULOSA, S.A. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2012 AND 2011
Thousands of Euros CASH FLOWS FROM OPERATING ACTIVITIES: Consolidated profit for the year before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments for Depreciation of tangible assets . . . . . . . . . . . . . . . . Depletion of forestry reserve . . . . . . . . . . . . . . . . . Amortisation of intangible assets . . . . . . . . . . . . . . . Changes in provisions and other deferred charges (net) Gains/Losses on disposal of non-current assets . . . . . Finance income . . . . . . . . . . . . . . . . . . . . . . . . . Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . Accrual accounts . . . . . . . . . . . . . . . . . . . . . . . . Grants transferred to profit or loss . . . . . . . . . . . . . . Changes in working capitalTrade and other receivables . . . . Current financial and other assets Current liabilities . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . Other cash flows from operating Interest paid . . . . . . . . . . . Interest received . . . . . . . . Income tax recovered (paid) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,117 40,621 4,258 739 622 (2,629) (572) 15,852 (3,140) (957) 54,794 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,253 13,634 (13,923) 12,586 16,550 activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,749) 561 (1,054) (16,242) Net cash flows from operating activities (I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CASH FLOWS FROM INVESTING ACTIVITIES: Investments: Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals: Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flows from investing activities (II) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CASH FLOWS FROM FINANCING ACTIVITIES: Collections and payments relating to equity instruments Proceeds from issue of equity instruments, net of capital increase expenses . . . . . . . . Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposal of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds and payments relating to financial liabilities: Increase/(Decrease) in bank borrowings, net of arrangement costs . . . . . . . . . . . . . . . Grants received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends and returns on other equity instruments paid Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial instruments (equity swaps) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Translation differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flows from financing activities (III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (I+II+III) . . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (*) Unaudited (12,039) 751 (11,288) (3,156) 0 (3,156) (16,513) (3,280) (19,793) 3 (34,234) 4,660 71,629 76,289 (47,639) 7,040 (40,599) 31,948 5,918 37,866 (25,801) (25,801) (28,534) (17,348) 70,983 53,635 (60,254) 0 (346) (60,600) 361 914 1,275 (59,325) (76,802) (356) 1,876 (75,282) 3,741 3,741 (71,541) 98,218 54,583 38,744 6,271 775 2,268 (4,339) (1,072) 19,460 (1,362) (577) 60,168 16,237 2,634 (24,401) (8,595) (14,125) (19,550) 1,651 (17,899) 82,727 30/09/2012(*) 30/09/2011(*)

The accompanying Notes 1 to 18 are an integral part of the condensed consolidated statement of cash flows for the nine-month period ended 30 September 2012.

F-7

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012

1. a)

Introduction, basis of presentation of the condensed consolidated financial statements for the nine-month period ended on 30 September 2012 and other disclosures Introduction

ENCE Energ a y Celulosa, S.A. (hereinafter ENCE or the Parent Company) was incorporated in 1968 under the name Empresa Nacional de Celulosas, S.A. and has its registered offices at Paseo de la Castellana 35, Madrid. On 26 April 2012, the shareholders at the Annual General Meeting of the Parent Company, formerly Grupo Empresarial ENCE, S.A., resolved to adopt the current company name. Its corporate purpose, as established in its bylaws, is as follows: a) The manufacture of cellulose pulp and related by-products, obtainment of the necessary products and items therefore, and use of any sub-products arising from the aforementioned activities; The production, by any means, sale and use of electricity, as well as of other energy sources, and of the raw materials and primary energy sources required for its generation, in accordance with the provisions of prevailing legislation; and its marketing, sale and supply in any of the ways permitted by law. The cultivation, exploitation and use of forests and timberland, forest plantation work and specialist forestry work and services. The preparation and transformation of forestry products. Commercial use, exploitation and marketing of forest products of all kinds (including biomass and forest energy crops), and their derivatives and by-products. Forestry studies and projects. The design, promotion, development, construction, operation and maintenance of the installations referred to in paragraphs a), b) and c) above.

b)

c)

d)

The ENCE Groups principal activity is the production of BEKP (Bleached Eucalyptus Kraft Pulp) cellulose pulp with ECF (elemental chlorine free) and TCF (totally chlorine free) bleaching based on eucalyptus. In order to carry out its activities, the Group operates three mills in Spain, located in the provinces of Asturias, Pontevedra and Huelva, which have combined production capacity of approximately 1.3 million metric tons per year. In addition to its cellulose pulp production, the Group also generates electricity from biomass and bio-fuels obtained from the pulp production process (mainly lignin), and to a lesser extent using gas and fuel oil. The generating capacity currently in use totals approximately 230 megawatts per year from 6 power plants. Two additional mills are also under construction: a mill in Huelva with a capacity of 50 Mw, which is scheduled to come into service in December 2012, and a mill in M erida with a capacity of 20 Mw, which is scheduled to come into service in October 2014. In order to assure timber supplies for the paper pulp manufacturing process, the Group has 115,322 hectares of managed forest land, of which it owns 77,669 hectares. The Group made the decision to recover the value of the majority of the assets it holds in Uruguay by selling them. These assets include mainly 25,816 hectares of eucalyptus plantations, as well as a woodchip plant in the Pe narol region. The Parent Companys shares are listed on the Madrid stock exchange. b) Basis of presentation of the condensed consolidated financial statements for the nine-month period ended on 30 September 2012 under IFRSs as adopted by the European Union

The consolidated financial statements for 2011 were obtained from the accounting records and financial statements of the Parent Company and the Group companies, and were prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European

F-8

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

1.

Introduction, basis of presentation of the condensed consolidated financial statements for the nine-month period ended on 30 September 2012 and other disclosures (Continued)

Union, in conformity with Regulation (EC) no. 1606/2002 of the European Parliament and with Law 62/2003, of 30 December, on tax, administrative, labour and social security measures, so that they present fairly the Groups consolidated equity and financial position at 31 December 2011 and the results of its operations, the changes in consolidated equity and the consolidated cash flows in the Group in the year then ended. The Groups consolidated financial statements for 2011 were approved by the shareholders at the Annual General Meeting of the Company held on 26 April 2012. These condensed consolidated financial statements as of and for the nine-month period ended September 30, 2012 are presented in accordance with that established in IAS 34 on Interim Financial Reporting and have been prepared by ENCE Group management on February 21, 2013. In accordance with IAS 34, interim financial information is prepared solely to update the content of the most recent consolidated financial statements prepared by the Group, focusing on new activities, events and circumstances arising during the nine-month period, and does not duplicate the information previously reported in the consolidated financial statements for 2011. Consequently, in order to be able to properly comprehend the information included in these condensed consolidated interim financial statements, they should be read together with the Groups consolidated financial statements for 2011. The consolidated results and the determination of consolidated equity are sensitive to the accounting policies, measurement bases and estimates used by Group management in preparing the condensed consolidated interim financial statements. In this regard, the principal accounting policies and measurement based used relate to those applied in the consolidated financial statements for 2011, except for the following standards and interpretations which entered into force during the first nine months of 2012. Entry into force of new accounting standards During the first nine months of 2012, the following accounting standards entered into force, which were taken into consideration in the preparation of these condensed consolidated financial statements for the nine-month period ended 30 September 2012; IFRS 1First-time Adoption of IFRSs, IFRS 7Financial instruments, IAS 12Income tax. The application of these standards did not have a material effect on these financial statements. c) Responsibility for the information and use of estimates

In preparing these condensed consolidated interim financial statements for the nine-month period ended 30 September 2012 estimates were used in order to quantify certain of the assets, liabilities, income, expenses and obligations reported herein. These estimates relate basically to the following: The assessment of possible impairment losses on certain assets. The useful life of property, plant and equipment and intangible assets. The fair value of certain assets, mainly financial instruments. The assumptions used in the actuarial calculation of pension and other obligations to employees. The calculation of the provisions necessary to cover the risks related with ongoing litigation and insolvencies. The recoverability of deferred tax assets.

F-9

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

1.

Introduction, basis of presentation of the condensed consolidated financial statements for the nine-month period ended on 30 September 2012 and other disclosures (Continued)

These estimates were made based on the best information available at 30 September 2012. However, events that take place in the future might make it necessary to change these estimates. Any such changes would be applied prospectively in accordance with the requirements of IAS 8. d) Contingent liabilities

Note 22 to the Groups consolidated financial statements for the year ended 31 December 2011 includes information on the contingent liabilities at that date. There were no significant changes in the Groups contingent liabilities in the first nine months of 2012. e) Comparative information

The information contained in these condensed consolidated interim financial statements for the first nine months of 2011 is presented solely for the purposes of comparison with the information for the nine-month period ended 30 September 2012. f) Seasonality of the Groups transactions

In view of the business activities in which the Group companies engage, their transactions are not of a cyclical or seasonal nature. Accordingly, no specific disclosures in this connection are provided in these explanatory notes to the condensed consolidated financial statements for the period ended 30 September 2012. Nevertheless, the production of wood pulp requires shutdowns in the production process for periods that range from 10 to 15 days to carry out maintenance work. The Groups three pulp plants intended for this activity carried out their annual shutdown in the first half of 2012. In this regard, Other current assets in the condensed consolidated balance sheet at 30 September 2012 included EUR 3,748 thousand relating to fixed expenses incurred during the shutdown which, in accordance with the policy of matching income and expenses, will be recognised in the income statement in the fourth quarter of 2012. g) Materiality

In accordance with IAS 34, in evaluating the information to be disclosed in these explanatory notes of the condensed consolidated financial statements for the period ended 30 September 2012, the Group took into account its materiality in relation to the financial statements themselves. h) Events after the reporting period

No significant events took place from 30 September 2012 to the date on which these condensed consolidated interim financial statements were prepared that have not already been included in these interim financial statements (see Note 18). 2. Changes in the Groups scope of consolidation

The scope of consolidation of ENCE Energ a y Celulosa, S.A. did not change during the first nine months of 2012.

F-10

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

3.

Intangible assets

The changes in the first nine months of 2012 in the various intangible asset accounts and in the related accumulated amortisation were as follows:
Thousands of euros Balance at 01/01/2012 Additions or charge for the year Disposals or reductions Exchange differences Held for sale (Note 12) Balance at 30/09/2012

Computer software . . . . Emission rights . . . . . . . Other intangible assets(*) . . . . . . . . . . Total cost . . . . . . . . . Computer software . . . . Other intangible assets . Total accumulated amortisation and impairments . . . . . Total . . . . . . . . . . .
(*)

14,361 5,253 10,405 30,019 (13,744) (8,148)

4,112 3 4,115 (167) (571)

(110) (5,830) (1,192) (7,132) 110 1,192

1 2 3 (2)

(25) 1,420 1,395 (24) (1,351)

14,227 3,535 10,638 28,400 (13,827) (8,878)

(21,892) 8,127

(738)

1,302

(2)

(1,375)

(22,705) 5,695

Includes mainly development costs

The Group receives greenhouse gas emission rights annually and free of charge in accordance with the 2008-2012 National Assignment Plan, relating to 657,970 tons of CO2 annually. On 3 June 2008, the Group entered into an agreement to sell greenhouse gas emission rights equal to 657,970 tons of CO2, received free of charge in 2008, at a price of EUR 25.4 per ton. On this same date, the Group entered into an agreement to purchase emission rights amounting to 506,202 tons of CO2 at an average price per right of EUR 24.65. Given that the purposes of this purchase agreement is to meet future needs of emission rights consumption in the production process, it will be recognised when the purchase takes place in December 2012. In the first nine months of 2012, the Group allocated 92,368 tons of CO2, of those that were assigned thereto for 2012, to return the rights consumed in 2011. The 565,602 tons of CO2 remaining for 2012 are recognised under Emission rights amounting to EUR 3,535 thousand. Accordingly, Non-current liabilitiesProvisions in the accompanying consolidated balance sheet includes EUR 2,255 thousand relating to the liability arising from the consumption of 353,421 tons of CO2 in the first nine months of 2012 (see Note 10).

F-11

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

4.

Property, plant and equipment

The changes in the first nine months of 2012 in Property, plant and equipment in the consolidated balance sheet and the related accumulated depreciation were as follows:
Thousands of euros Balance at 01/01/2012 Additions or charge for Disposals or Exchange Held for sale the year reductions Transfers differences (Note 12) Balance at 30/09/2012

Forest land . . . . . . . . . 154,317 Other land . . . . . . . . . . 6,377 Buildings . . . . . . . . . . . 138,977 Plant and machinery . . 1,020,297 Other items of property, plant and equipment . 30,652 Advances and Tangible assets in progress . . 123,380 Total cost . . . . . . . . 1,474,000 Buildings . . . . . . . . . . . Plant and machinery . . Other items of property, plant and equipment . Total accumulated depreciation . . . . . Land and buildings . . . Plant and machinery . . Impairment losses . . Total, net . . . . . . . . . (77,854) (596,277) (18,570)

4 254 57 108 332 56,956 57,711 (3,260) (36,357) (920)

(13) (2) (45) (49) (8) (117) 2 4 49 55 2,220 2,220

1,931 8,359 828 (11,118) 224 56 (280)

20 1 42 111 7 3 184 (8) (68) (2) (78) (1) 1

(29,002) (256) (3,183) 807 945 (102) 854 (1,004) (758) (908) (1,532) (1,532)

125,326 6,376 137,822 1,029,637 32,715 169,111 (80,042) (633,646) (20,481) (734,169) (4,985) (5,484) (10,469) 756,349

(30,791) 1,500,987

(692,701) (40,537) (4,984) (6,173) (11,157) 770,142

Additions In the first nine months of 2012 the Group made investments in all of its plants in order to improve the efficiency of the paper pulp production process and optimise the generation of electricity. The investments made in the Pontevedra, Huelva and Navia plants during this period of 2012 amounted to EUR 2,374 thousand, EUR 4,071 thousand and EUR 4,269 thousand, respectively. Similarly, in the first nine months of 2012, investments were made amounting to EUR 44,274 thousand in relation to the projects for generating electricity with biomass that the Group is carrying out in Huelva and M erida. On 1 August 2012, the Group entered into a turnkey contract, through its subsidiary, ENCE Energ a Extremadura, S.A.U., for the construction of a biomass renewable energy power plant with an install capacity of 20 megawatts. The plant is located in M erida (Badajoz) and will enter into service in October 2014. The investment envisaged for this project amounts to EUR 80.7 million, of which EUR 48.2 million will be financed by a bank syndicate through Project Finance (see Note 11). Cumulative investment at 30 September 2012 amounted to EUR 19.5 million. The Group capitalised EUR 3,523 thousand, as a decrease in finance costs in the condensed consolidated income statement at 30 September 2012, relating to finance costs incurred in this period and allocated to financing the various investment projects. The capitalisation rate used for finance costs is the weighted average rate of the funding through the Project Finance of Huelva and M erida.

F-12

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

4.

Property, plant and equipment (Continued)

Impairment losses There were no material impairment losses on property, plant and equipment in the first nine months of 2012. Public land concession The public maritime land concession relating to the land on which the Pontevedra factory is located was awarded to the Company by a Ministerial Order of 13 June 1958. Although the concession charter did not establish any term, Article 66 of the 1988 Spanish Coasts Law subsequently established that the maximum term of the public maritime land concessions would be 30 years. Transitional Provision 14.3 of the Coastal Regulations stipulated that concessions granted prior to the entry into force of the Spanish Coasts Law (as in the case at hand), irrespective of the term appearing on the concession deed, will be deemed to have been granted for a maximum period of thirty years from the date of entry into force of the Spanish Coasts Law (the Law came into force on 29 July 1988 and, therefore, the concession would expire on 29 July 2018). The carrying amount of all the assets associated with this land at 30 September 2012 was EUR 76,970 thousand. On 19 October 2012, the draft law on the protection and sustainable use of the coastline and amending Spanish Coasts Law 22/1988, of 28 July, was published in the Official Journal of the Spanish Parliament. The amendments to the Coasts Law considered by the draft law include the possibility of extending the public maritime land concessions prior to the amendmentas is the case with ENCEs concession in Pontevedrato a period of 75 years. On 19 May 2011, the Judicial Review Chamber of the National Appellate Court issued a ruling on the appeal filed by the Salvemos Pontevedra Association. This judgment did not enter into the merits of the case, and did not find that ENCE had breached any of the terms of the concession, as the claimant Association had sought. The judgment merely ordered the Administration to open proceedings in connection with the expiration of the concession and adopt the existing legal measures to stop the activities and the use and operation of the facilities. This judgment also does not prejudge the outcome of these proceedings which would, where applicable, be conducted as full administrative proceedings, whereby the final decision could be appealed before the judicial review board. Both the Administration and ENCE have filed an appeal against the judgment, which is not enforceable while the appeal proceedings continue. Insurance policy The Group takes out insurance policies to cover the possible risks to which its property, plant and equipment are subject. ENCE Group management considers that these risks were sufficiently insured at 30 September 2012. 5. Biological assets

The detail of the Groups standing timber included under Biological assets at 30 September 2012 and 31 December 2011 is as follows:
Thousands of euros 30/09/2012 31/12/2011

Standing timberIberian Peninsula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standing timberUruguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-forest standing timberIberian Peninsula . . . . . . . . . . . . . . . . . . . . . . TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

172,622 743 173,365

160,520 19,294 772 180,586

F-13

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

5.

Biological assets (Continued) The changes in the first nine months of 2012 are as follows:
Thousands of euros Balance at 01/01/2012 Additions or charge for the year Disposals and transfers Exchange differences Held for sale (Note 12) Balance at 30/09/2012

Biological assets: Standing timber . . . . . . Depletion of forestry reserve . . . . . . . . . . . Impairment and other losses . . . . . . . . . . .

273,387 (91,704) (1,097) 180,586

19,531 (4,257) (1,638) 13,636

(215) (215)

17 (4) 13

(26,332) 5,677 (20,655)

266,388 (90,288) (2,735) 173,365

The Group capitalised EUR 1,116 thousand (EUR 1,949 thousand at 30 September 2011), as a decrease in finance costs in the condensed consolidated income statement at 30 September 2012, relating to finance costs incurred in this period as a greater value of standing timber. The capitalisation rate used for finance costs is the weighted average rate of the Group borrowings. In the first nine months of 2012, the Group planted 1,359 hectares and carried out conservation and forestry work on 31,286 hectares. 6. Derivative financial instruments

In accordance with the risk management policy described in Note 5 of the Groups consolidated financial statements for 2011, the Group arranges derivatives mainly to hedge risks arising from changes in interest rates, exchange rates, cellulose pulp prices, and the prices of gas, fuel oil and electricity used in the production process. The most commonly used interest rate derivatives are interest rate swaps. Exchange rate derivatives and derivatives of certain energy products are mainly swaps and options. The Company classifies its derivatives into three types: 1. 2. 3. Derivatives designated as cash-flow hedges: derivatives that mainly enable cash flows, interest payments, collections and payments in foreign currencies, etc. to be hedged. Derivatives designated as fair value hedges: derivatives that enable the fair value of assets and liabilities in the consolidated balance sheet to be hedged. Other derivatives: derivatives that have not been designated as hedges or which do not meet the requirements established in the accounting standards to be classified as hedging instruments.

All financial instruments were measured after initial recognition with reference to observable market data for assets and liabilities, whether directly (i.e. via prices) or indirectly (i.e. via price derivatives).

F-14

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

6.

Derivative financial instruments (Continued)

The detail of this heading in the consolidated balance sheet at 30 September 2012 and 31 December 2011 is as follows:
Current assets 30/09/2012 31/12/2011 Thousands of euros Non-current liabilities 30/09/2012 31/12/2011 Current liabilities 30/09/2012 31/12/2011

Liabilities / Assets

IR SwapCorporate borrowings . . . . . . . . . . IR SwapProject finance, 50 megawatts . . . . . . . . IR SwapProject finance, 20 megawatts . . . . . . . . Equity swap . . . . . . . . . . . Foreign currency hedges . Pulp price hedges . . . . . .

.. .. . . . . . . . .

1,947 1,947

867 867

12,917 10,190 1,051 8,378 32,536

18,851 6,615 25,466

2,426 108 2,534

12,386 22,224 34,610

Total . . . . . . . . . . . . . . . . Foreign exchange hedges

In order to hedge the risks to which the Group was exposed as a result of fluctuations in the US dollar/euro exchange rate that significantly affect the sale price of the paper pulp, the Parent Company arranged forward US dollar sale transactions in order to hedge its revenue from future sales. At 30 September 2012, the notional amounts of these hedges amounted to USD 340.5 million. These contracts meet the requirements established in the relevant accounting standards to qualify as effective hedges. The market value of these instruments at 30 September 2012 amounted to EUR 1,947 thousand, and was recognised under Current assetsDerivative financial instruments in the consolidated balance sheet with a balancing entry, net of the tax effect, under Equity Valuation adjustments in the consolidated balance sheet. Gains or losses on hedging operations in the consolidated income statement for the nine-month period ended 30 September 2012 includes an expense of EUR 21,014 thousand relating to hedges settled during this reporting period. Pulp price hedges In order to hedge the risks to which the Group is exposed due to fluctuations in the price of BEKP pulp, which significantly affect the amount of its sales, the Parent Company arranged swaps relating to BEKP pulp prices maturing in 2012 in order to hedge its sales revenue. At 30 September 2012, the notional amounts of these hedges amounted to 12,000 tons of cellulose pulp. These contracts meet the requirements established in the relevant accounting legislation to qualify as effective hedges. These instruments are recognised in the accompanying consolidated balance sheet at fair value. At 30 September 2012, the negative fair value of these financial liabilities amounted to EUR 108 thousand, which was recognised under Current liabilitiesDerivative financial instruments with a balancing entry, net of the tax effect, under EquityValuation adjustments in the consolidated balance sheet. Gains or losses on hedging operations in the consolidated income statement for the nine-month period ended 30 September 2012 includes an expense of EUR 916 thousand relating to hedges settled during this reporting period.

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ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

6.

Derivative financial instruments (Continued)

Interest Rate Swap The Group hedges the interest rate risk to which its floating rate financial liabilities denominated in euros are exposed using interest rate swaps. The aim of these transactions is to neutralise the fluctuations in cash outflows in respect of payments tied to floating interest rates (Euribor) on the Groups borrowings. The interest rate derivatives arranged by the Group and in force at 30 September 2012 are as follows:
Thousands of euros Balances at end of: 2014 2015 2016

Fair Value

2012

2013

2017

2018

2019

IR SwapCorporate borrowings . . . . . . . . 12,917 203,947 194,498 IR SwapProject, 50 megawatts (Note 11) . . . . . . . . . 10,190 65,441 75,982 74,874 69,933 63,997 57,502 50,584 43,563 IR SwapProject, 20 megawatts (Note XX) . . . . . . . . . 1,051 2,971 15,628 34,334 44,908 42,036 38,981 35,928 32,685 On 29 May 2008, the Parent Company instrumented an interest rate swap intended to hedge approximately 60% of its bank borrowings drawn down at that time. This debt changed substantially in 2009, which caused the interest rate swap to no longer meet the requirements to qualify for hedge accounting on 16 October 2009. Since that date, changes in the value of this instrument have been recognised in the consolidated income statement for the related year. In this regard, Changes in the fair value of financial instruments in the consolidated income statement for the nine-month period ended 30 September 2012 includes profits of EUR 5,934 thousand arising from the change in value of the instrument in this period. Similarly, an expense associated with the settlements received in 2012 as a result of this instrument was incurred amounting to EUR 8,244 thousand, which was included under Other finance costs. The value of the hedging instrument that was recognised in consolidated equity and associated with the hedged item that was not cancelled, amounting to EUR 1,586 thousand before considering the related tax effect, will be recognised prospectively in the consolidated income statement until 2013, the period in which the hedged item will affect the Groups results, in accordance with the following:
Thousands of euros

Fourth quarter of 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter of 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

511 1,075 1,586

The IRSs associated with the financing for the Huelva50 megawatts and M erida 20 megawatts projects meet the requirements established to qualify as effective hedges. Equity swap By the latest part of 2007, the Parent Company arranged an equity swap maturing at 30 June 2012 to hedge the impact of the 2008-2011 Special Variable Executive Compensation Plan of ENCE Energ a y Celulosa, S.A. on the consolidated income statement.

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ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

6.

Derivative financial instruments (Continued)

These instruments do not meet the requirements established in the relevant accounting legislation to qualify as effective hedges. On 28 June 2012, the Parent Company arranged a novation of this instrument in order hedge the 2015-2015 Long-term incentive plan of ENCE, Energ a y Celulosa, S.A. This change, made on a nominal amount of 3,850,000 shares, extends the maturity date to 15 December 2012 for 1,025,000 shares, to 15 December 2013 for 1,025,000 shares and to 15 March 2015 for 1,800,000 shares, and establishes an interest rate of 6-month Euribor plus 2.30%. The negative fair value of the equity swap at 30 September 2012 amounted to EUR 10,804 thousand. This amount was recognised, by maturity, under Current liabilities Derivative financial instruments and Non-current liabilitiesDerivative financial instruments in the accompanying consolidated balance sheet. Other hedges The Group is exposed to fluctuations in the prices of certain energy products consumed in the production process, which can significantly affect production costs. This risk is partially hedged using commodity swaps, which comply with hedge accounting requirements to qualify as effective hedges. At 30 September 2012, the Group did not have any hedging agreement in force for energy products used in the production process. 7. Inventories

The detail of the Groups inventories at 30 September 2012 and 31 December 2011 is as follows:
Thousands of euros 30/09/2012 31/12/2011

Wood . . . . . . . . . . . . . Other raw materials . . . Spare parts . . . . . . . . Work in progress . . . . Semi-finished goods . . Finished goods . . . . . . Advances to suppliers . Impairment losses(*) . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

50,714 5,455 23,189 4,133 441 20,780 1,662 (12,969) 93,405

70,759 4,921 22,889 441 17,601 3,396 (7,545) 112,462

(*)

Related to spare parts and construction work in progress

There no restrictions on the disposability of inventories. The Group takes out insurance policies to cover the possible risks to which its inventories are subject, and it is considered that the insurance coverage for these risks was sufficient at 30 September 2012.

F-17

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

8.

Trade and other accounts receivable / payable

The breakdown of Trade and other accounts receivable on the asset side of the consolidated balance sheet at 30 September 2012 and 31 December 2011 is as follows:
Thousands of euros 30/09/2012 31/12/2011

Trade receivables for sales . Sundry accounts receivable . Employee receivables . . . . . Impairment loss . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

116,484 6,280 (5,113) 117,651

120,471 5,392 256 (3,330) 122,789

The average credit period taken on sales of goods ranges from 60 to 70 days. The detail of Trade and other accounts payable on the liability side of the consolidated balance sheet at 30 September 2012 and 31 December 2011 is as follows:
Thousands of euros 30/09/2012 31/12/2011

Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current asset suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remuneration payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

175,076 32,574 7,076 214,726

162,144 12,408 7,412 181,964

The average payment period for purchases of goods and services is between 70 and 85 days. The Group arranged various non-recourse reverse confirming agreements with an available limit and an amount drawn down at 30 September 2012 of EUR 76,500 thousand and EUR 66,005, respectively. 9. Equity

Share capital The share capital of ENCE Energ a y Celulosa, S.A. at 30 September 2012 was represented by 250,272,500 fully subscribed and paid bearer shares of EUR 0.9 par value each. At 30 September 2012, the shareholder structure was as follows:
30/09/2012 31/12/2011

Retos Operativos XXI, S.L. Alcor Holding, S.A. . . . . . . Liberbank, S.A. . . . . . . . . Fidalser, S.L. . . . . . . . . . . Treasury shares . . . . . . . . Free Float . . . . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

24.5 21.0 6.3 5.4 1.6 41.2 100.0

22.2 20.4 6.3 5.0 7.8 38.3 100.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The shares of the Parent Company are listed on the continuous market of the Spanish stock exchanges and all carry the same voting and dividend rights.

F-18

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

9.

Equity (Continued)

Dividends At the Annual General Meeting of ENCE Energ a y Celulosa, S.A. held on 26 April 2012 the shareholders approved the distribution of dividends totalling EUR 16,514,432, representing a gross EUR 0.07 per share, out of the profit for 2011. The dividend was paid on 8 May 2012. In addition, at this Annual General Meeting of ENCE Energ a y Celulosa, S.A., the shareholders agreed to the distribution in kind of a portion of the share premium through the delivery of ENCE Energ a y Celulosa, S.A. treasury shares, at a ratio of 1 share to every 26 shares outstanding, thereby delivering 9,052,679 treasury shares of the Parent Company that had a market value at the time of the agreement of EUR 14,484 thousand and an average cost of acquisition of EUR 21,173 thousand. At the Extraordinary General Meeting held on 24 July, the Companys shareholders resolved to reduce the Companys share capital by EUR 6,966,351 through the retirement of 7,740,390 treasury shares, as well as the distribution in kind of the share premium through the delivery to the shareholders of ENCE Energ a y Celulosa, S.A. treasury shares at a ratio of 1 share to every 37 shares outstanding, i.e. a maximum of 6,559,952 treasury shares. Basic and diluted earnings/(loss) per share at 30 September 2012 were determined as follows:
Net Earnings per Share 30/09/2012

Consolidated net profit/(loss) for the year attributable to ordinary shares (thousands of euros) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ordinary shares outstanding at 31/12/2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of ordinary shares at 30/09/2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average number of ordinary shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

28,803 258,012,890 250,272,500 256,091,917 0.11 0.11

Basic earnings/(loss) per share (euros) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings/(loss) per share (euros) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of the Parent Company

The changes in Treasury shares in the accompanying consolidated balance sheets in the first nine months of 2012 were as follows:
Number of shares Thousands of euros

At beginning of period . . . . . Purchases . . . . . . . . . . . . . . Distribution in kind of treasury Retirement . . . . . . . . . . . . . . Sales . . . . . . . . . . . . . . . . . .

...... ...... shares ...... ......

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

20,211,000 7,426,228 (15,554,852) (7,740,390) (453,110) 3,888,876

49,217 12,017 (35,193) (16,829) (1,067) 8,145

At end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The shares of the Parent Company held at 30 September 2012 represented 1.56% of share capital (7.8% at 31 December 2011) with a total par value of EUR 3,500 thousand (EUR 18,190 thousand at 31 December 2011). The average acquisition price was EUR 2.0944 per share. The shares of the Parent Company held by the Group are intended for trading on the market.

F-19

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

9.

Equity (Continued)

Valuation adjustmentsValuation adjustments under consolidated equity includes changes in the fair value of hedging transactions (see Note 6) and the reserve set up to account for forest land at fair value at 1 January 2004 amounting to EUR 54,912 thousand. This reserve is unrestricted. The breakdown of changes in the fair value of hedging instruments at 30 September 2012 is as follows:
Thousands of euros 30/09/2012 Fair value Valuation in equity Tax effect adjustments

IR Swapcorporate borrowings (Note 6) Balance at 01/01/2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers to profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other changes in value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at 30/09/2012 . . . . . . . . . . . . . . IR SwapProject, 50 Megawatts (Note 6) Balance at 01/01/2012 . . . . . . . . . . . . . . Transfers to profit or loss . . . . . . . . . . . . Other changes in value . . . . . . . . . . . . . Balance at 30/09/2012 . . . . . . . . . . . . . . IR SwapProject, 20 Megawatts (Note 6) Balance at 01/01/2012 . . . . . . . . . . . . . . Transfers to profit or loss . . . . . . . . . . . . Other changes in value . . . . . . . . . . . . . Balance at 30/09/2012 . . Exchange rate (Note 6) Balance at 01/01/2012 . . Transfers to profit or loss Other changes in value . ................ ................ ................ ................ ................ ................ ................ ................

(3,120) 1,533 (1,587) (6,615) 437 (4,012) (10,190) 0 0 (1,051) (1,051) (22,226) 21,013 3,160 1,947 867 917 (1,896) (112) (10,992)

(936) 460 (476) (1,984) 131 (1,204) (3,057) 0 0 (315) (315) (6,668) 6,304 948 584 260 275 (569) (34) (3,297)

(2,184) 1,073 (1,111) (4,631) 306 (2,808) (7,133) 0 0 (736) (736) (15,558) 14,709 2,212 1,363 607 642 (1,327) (78) (7,695)

............................ ............................ ............................ ............................

Balance at 30/09/2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Price of the pulp (Note 6) Balance at 01/01/2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers to profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other changes in value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at 30/09/2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-20

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

10. Provisions The detail of Provisions in the consolidated balance sheets at 30 September 2012 and 31 December 2011 is as follows:
Thousands of euros 30/09/2012 31/12/2011

Third-party liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Emission rights (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,141 2,255 1,046 12,442

16,335 5,845 1,005 23,185

The detail of the provision for third-party liability is as follows:

Thousands of euros 30/09/2012 31/12/2011

Provisions for third-party liability Decontamination Agreement, Galicia . Pontevedra river charges for effluents . 2002-2008 VAT audit, Germany . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

5,357 3,146 67 571 9,141

5,357 6,565 2,898 1,515 16,335

EUR 3,693 thousand were settled during the first nine months of 2012 that related to charges for effluents yet to be paid to Aguas de Galicia for 2004 to 2007. In 2011 the German tax authorities completed a review on the ENCE Groups method for accounting for Value Added Tax (VAT) for tax purposes in its commercial operations in Germany from 2002 to 2008. As a result of this review, the tax authorities issued assessments claiming payments amounting to EUR 12,692 thousand and interest of EUR 2,829 thousand, which was paid in 2012. The VAT payments are being recovered from the customers. 11. Bank borrowings The detail, by maturity, of bank borrowings at 30 September 2012 and 31 December 2011, relating to loans, credit facilities and discount lines, is as follows:
Thousands of euros 30/09/2012 31/12/2011

Loans and credit lines . . . . . . Project finance, 50 megawatts Project finance, 20 megawatts Origination fees . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

205,927 65,018 4,000 (6,905) 268,040 24,903 739 1,301 26,943 294,983

224,169 57,256 (7,239) 274,186 19,346 1,106 20,452 294,638

Total non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and credit lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Project finance, 50 megawatts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest payable and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Credit facilities and loans (except for the syndicated loan) accrued interest at an average rate of 3.91% in the first nine months of 2012.

F-21

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

11. Bank borrowings (Continued) The detail, by maturity, of bank borrowings at 30 September 2012, relating to loans, credit facilities and discount lines, is as follows:
Thousands of euros Loans and Project credit lines finance Total

Maturity

Available limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal 2012 . . . . . 2013 . . . . . 2014 . . . . . 2015 . . . . . Subsequent ..... ..... ..... ..... years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

291,625 6,661 24,520 197,458 616 1,575 368 (2,570) 228,628

162,001 1,477 6,621 8,168 53,491 933 (4,335) 66,355

453,266 6,661 25,997 204,079 8,784 55,066 1,301 (6,905) 294,983

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Origination fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Syndicated loan On 14 October 2010, the Company arranged a syndicated loan for a maximum amount of EUR 176,393 thousand after the cancellation of bilateral financing, and arranged the modifying novation of the previous syndicated loan to establish an available limit of EUR 121,229 thousand. The syndicated loan is structured in three tranches: tranche A, which has a limit of EUR 112,255 thousand, to finance the repayment and cancellation of the bilateral loans arranged by the Group with various financial institutions; tranche B, which has a limit of EUR 56,928 thousand, to cover the Groups working capital requirements in addition to the amount granted under tranche A; and tranche C, which is in turn structured in two parts, the first with a limit of EUR 28,464 thousand to cover the Groups working capital needs, and the second with a limit of EUR 29,183 thousand that will become available in order to finance biomass generating projects only where the first part is fully drawn down. These borrowings accrue interest at an annual rate tied to the Euribor with a margin of 300 basis points, with a grace period of 18 months and maturing on 14 January 2014. The main collateral for the syndicated loan agreement renewed in 2010 is a pledge over the shares of Silvasur Agroforestal, S.A.U., Norte Forestal, S.A.U., and Iberflorestal Comercio e Servi cos Florestais, S.A.U. Accordingly, the main guarantees for the new syndicated loan agreement consist of a second pledge on the shares of the aforementioned companies, the personal guarantee of the subsidiary Celulosas de Asturias, S.A. and a mortgage taken out on the production plant located in Navia (Asturias) owned by Celulosas de Asturias, S.A., subject to the condition that the Financial Debt / EBITDA ratio does not exceed a specified limit. This guarantee is subordinate to the others provided. Both syndicated loans include certain obligations relating basically to the compliance of certain economic and financial ratios associated with the consolidated financial statements of the ENCE Group, and the early repayment of 25% of the free cash flow generated each year provided that bank borrowings are more than EUR 265 million. The loan agreements also establish certain restrictions, mainly related to guarantees granted to third parties, acquisition of treasury shares, realization of recurring investments, financing of future energy generation projects using biomass and asset disposals.

F-22

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

11. Bank borrowings (Continued) Huelva Project finance, 50 megawatts On 21 June 2011, the Group entered into a syndicated Project Finance loan agreement with seven financial institutions in order to finance a biomass electricity generation plant (see Note 4). The financing available amounts to EUR 101,309 thousand, the repayment of which will begin on 22 June 2013, and matures on 22 December 2022. This loan bears interest annually at floating rates tied to the Euribor with a margin that ranges from 3.25% to 3.75% based on the repayment amount. The fees paid in 2011 as a result of this financing totalled EUR 3,483 thousand. This loan is backed mainly by a pledge on the shares of ENCE Energ a Huelva, S.L.U. and current and future assets and collection rights. ENCE Energ a y Celulosa, S.A. has also arranged guarantees in relation to the planting of crops and stocks for the future supply of the plant, the date of entry into service, the price applicable to the power produced when the plant enters into operation, and the operation and availability of the plant. These guarantees are partially covered by guarantees given to ENCE Energ a y Celulosa, S.A. by the constructor of the plant. This loan also includes certain obligations related basically with the provision of certain operational and financial information, compliance with economic and financial ratios associated with the financial statements of ENCE Energ a Huelva, S.L.U., holding of a given volume of standing and cut biomass, the early repayment of 50% of surplus cash until 50% of the financing is repaid, and the early repayment of 25% of surplus cash until 65% of the financing is repaid. The loan agreement also establishes certain restrictions, mainly in relation to the distribution of dividends and the arrangement of new borrowings. In order to hedge the risk arising as a result of the arrangement of this loan at a floating interest rate, the Group entered into interest rate hedges with six of the lenders financing the project, the notional amount on which is equal to 75% of the estimated amounts drawn down over the term of the loan (see Note 6). M erida Project finance, 20 megawatts On 1 August 2012, the Group entered into a syndicated Project Finance loan agreement with three financial institutions in order to finance a biomass electricity generation plant (see Note 4). The financing available amounts to EUR 60,692 thousand, the repayment of which will begin on 15 December 2014, and matures on 15 June 2027. This loan accrues interest at an annual floating rate tied to the Euribor with a margin that ranges from 3.5% to 4.0% based on the repayment amount. The fees paid in 2012 as a result of this financing totalled EUR 1.7 million. This loan is backed mainly by a pledge on the shares of ENCE Energ a Extremadura, S.L.U. and on its current and future assets and collection rights, as well as the mortgage guarantee on the biomass plant. ENCE Energ a y Celulosa, S.A. has also arranged guarantees in relation to its registration in the Administrative Registry of Special Regime Facilities, the planting of crops and stocks for the future supply of the plant, the date of entry into service, the price applicable to the power produced when the plant enters into operation, and costs not related to the project, and the operation and availability of the plant. These guarantees are partially covered by guarantees given to ENCE Energ a y Celulosa, S.A. by the constructor of the plant. This loan also includes certain obligations related basically with the provision of certain operational and financial information, compliance with economic and financial ratios associated with the financial statements of ENCE Energ a Extremadura, S.L.U., holding of a given volume of standing and cut biomass, the early repayment of a variable percentage of surplus cash that will range from 30% to 50% based on the years elapsed of the financing. The loan agreement also establishes certain restrictions, mainly in relation to the distribution of dividends and the arrangement of new borrowings.

F-23

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

11. Bank borrowings (Continued) In order to hedge the risk arising as a result of the arrangement of this loan at a floating interest rate, the Group entered into interest rate hedges with the lenders financing the project, the notional amount on which is equal to 75% of the estimated amounts drawn down over the term of the loan (see Note 6). Cash and cash equivalents Cash and cash equivalents includes the Groups cash and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. Non-recourse factoring The Group entered into various non-recourse factoring agreements, under which all inherent risks are transferred to the factor, with an available limit and an amount drawn down at 30 September 2012 of EUR 60,000 thousand and EUR 38,551 thousand, respectively (EUR 51,000 thousand and EUR 35,072 thousand at 31 December 2011). The financial cost associated with the receivables transferred is Euribor at 3 months plus a spread of 1.7%. 12. Non-current assets and liabilities classified as held for sale The Group classifies a non-current asset or disposal group classified as held for sale when it has taken the decision to sell it and the sale is expected to be completed within twelve months. These assets are measured at the lower of their carrying amount or their fair value less costs to sell. Non-current assets classified as held for sale and Liabilities associated with non-current assets classified as held-for-sale include assets and liabilities of the Group companies located in Uruguay, Sierras Calmas, S.A. and Maderas Aserradas del Litoral, S.A., on which the decision to sell was taken. Sierras Calmas, S.A. carries out forest management tasks and has 28,120 hectares of managed forest land, of which it owns 25,816 hectares. Maderas Aserradas del Litoral, S.A., on the other hand, is inactive. The assets that are included in these companies are measured at acquisition cost since their fair value is not considered to differ significantly from their cost (Note 18) The detail of the assets and liabilities contributed by Sierras Calmas, S.A. and Maderas Aserradas del Litoral, S.A.U. to the Group at 30 September 2012 is as follows:
Thousands of euros Thousands of euros

NON-CURRENT ASSETS . . . Intangible assets . . . . . . . . . . Property, plant and equipment Biological assets . . . . . . . . . . Deferred tax assets . . . . . . . .

. . . . .

. . . . .

. . . . .

55,479 48 33,580 20,655 1,196 12,841 6,474 2,663 1,114 2,590 68,320 CURRENT LIABILITIES . . Trade and other payables Other accounts payable to authorities . . . . . . . . . . ...... ...... public ...... 2,360 1,276 1,084 2,360

CURRENT ASSETS . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . Receivable from public authorities Cash and cash equivalents . . . . . TOTAL ASSETS . . . . . . . . . . .

TOTAL LIABILITIES . . . . . . . . .

F-24

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

12. Non-current assets and liabilities classified as held for sale (Continued) The assets and liabilities of Sierras Calmas, S.A. and Maserlit, S.A. were included in the Forest management and Forestry and other services segments of operation, respectively. Accordingly, in June 2011 the decision was taken to sell the ownership interest held by the Group in Ibersilva, S.A. and, therefore, the associated assets and liabilities were classified as held for sale. One year after this decision was taken, market conditions had changed substantially, significantly reducing the opportunities for sale, events that caused the assets and liabilities included in this subsidiary to no longer be classified as held for sale at 30 June 2012. A detail of the assets and liabilities contributed by this company to the Group at 31 December 2011 and 30 June 2012 is as follows:
Thousands of euros 30/06/2012 31/12/2011 Thousands of euros 30/06/2012 31/12/2011

NON-CURRENT ASSETS . . . . . . . . . . CURRENT ASSETS . . . Inventories . . . . . . . . . Trade and other receivables . . . . . . . . Current financial assets Cash and cash equivalents . . . . . . . . . . . . .

3,330 11,433 672 8,314 1,056 1,391 14,763

3,468 13,076 876 9,265 817 2,118 16,544

NON-CURRENT LIABILITIES . . . . . . . . CURRENT LIABILITIES . Bank borrowings Trade and other payables . . . . . . . . . . Payable to public authorities and other payables . . . . . . . . . . TOTAL LIABILITIES . .

90 13,391 631 11,959

90 12,232 257 11,104

801 13,481

871 12,322

TOTAL ASSETS . . . . .

The effects from the classification of the assets and liabilities of Ibersilva, S.A. as held for sale in the income statement for 2012 were not significant. 13. Tax matters The detail of tax receivables and tax payables at 30 September 2012 and 31 December 2011 is as follows:
Thousands of euros 30 September 2012 31 December 2011 Tax Tax Tax Tax receivables payables receivables payables

Non-current items Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current items VAT refundable/payable . . . . . . . . . . . . . . . . . . . . . . . Current income tax . . . . . . . . . . . . . . . . . . . . . . . . . . Personal income tax and other taxes payable . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35,091 35,091 18,611 1,100 1,927 21,638

28,714 28,714 2,448 9,948 3,091 15,487

42,653 42,653 9,840 1,687 1,478 13,005

28,289 28,289 14,796 365 2,859 18,020

F-25

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

13. Tax matters (Continued) Income tax Income tax is recognised on the basis of the estimate made by management of the weighted average tax rate for the full fiscal year, which is around 30%. Similarly, this heading in the income statement includes the differences between the estimated income tax for 2011 and the amount finally filed to the tax authorities. This difference arose as a result of the Uruguayan companies and represents an expense of EUR 1.6 million. In 2012 significant changes were made to the tax regulations included in Royal Decree Laws 12/2012 and 20/2012. The changes included temporarily reduce the capacity to use tax loss carryforwards in previous years at 25% of the tax base, eliminate the possibility of accelerated amortisation of investments in new assets, and establish limits to the deductibility of finance costs. Deferred tax assets recognised The changes in Deferred tax assets during the period were as follows:
Thousands of euros

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in the value of derivative financial instruments and other changes Reclassification to available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

42,653 (3,996) (6,030) 2,167 297 35,091

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The deferred tax assets were recognised in the consolidated balance sheet because the directors of the Group companies consider that, on the basis of best estimates of the future earnings of the entities forming the consolidated tax group, it is highly likely that the assets will be recovered within the period established by prevailing tax legislation. In accordance with Spanish legislation, the aforementioned tax losses available for offset and generated in 2009, may be offset against the future profits obtained by Consolidated Tax Group No. 149/02 in the eighteen annual tax periods immediately succeeding the year in which the loss was incurred. The deferred tax assets arising from equity at 30 September 2012 amount to EUR 3,297 thousand (EUR 9,328 thousand at 31 December 2011). See Note 9. 14. Income and expenses a) Sales

The breakdown of the Groups revenue from its ordinary business activities in the first nine months of 2012 and 2011 is as follows:
Thousands of euros 30/09/2012 30/09/2011

Pulp sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electricity sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wood and forestry services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

436,606 148,274 18,563 603,443

456,517 133,714 37,206 627,437

F-26

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

14. Income and expenses (Continued) Virtually all sales of electricity were made in Spain. The distribution by geographical market of the revenue relating to pulp sales is as follows:
By Geographical Market Percentage of sales 30/09/2012 Percentage of sales 30/09/2011

Germany . . . . . Italy . . . . . . . . . Spain . . . . . . . . France . . . . . . . Austria . . . . . . . China . . . . . . . Sweden . . . . . . Poland . . . . . . . Turkey . . . . . . . United Kingdom Netherlands . . . Slovenia . . . . . . Switzerland . . . Israel . . . . . . . . Other . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

21.8 16.5 13.6 9.9 6.8 4.5 3.7 3.0 2.9 2.6 2.5 2.4 2.0 1.8 6.0 100

22.9 16.9 15.5 11.2 4.4 3.1 2.1 5.1 2.9 2.2 1.7 3.0 2.8 1.4 4.8 100

b)

Procurements

The detail of the raw materials and other consumables used in the first nine months of 2012 and 2011 is as follows:
Thousands of euros 30/09/2012 30/09/2011

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in raw materials, supplies and merchandise . . . . . . . . . . . . . . . . . Other external expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

243,461 17,359 41,498 302,318

261,351 2,234 32,501 296,086

Procurements mainly includes the cost of timber, chemicals, fuel and other variable costs incurred in the process for producing cellulose pulp. c) Personnel expenses Personnel expenses incurred in the first nine months of 2012 and 2011 are as follows:
Thousands of euros 30/09/2012 30/09/2011

Wages and salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Termination benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45,212 1,583 12,718 59,513

47,741 4,996 14,107 66,844

F-27

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

14. Income and expenses (Continued) The detail of the Groups average headcount at 30 September 2012 is as follows:
Professional Category Men Women Total

Executives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employees with individual contracts . . . . . . . . . . Employees subject to collective labour agreement Temporary employees . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

6 208 672 202 1,088

1 54 109 24 188

7 262 781 226 1,276

At 30 September 2012, the Board of Directors was composed of thirteen directors, all of whom were men. d) Other operating expenses

The detail of Other operating expenses in the consolidated income statements for the first nine months of 2012 and 2011 is as follows:
Thousands of euros 30/09/2012 30/09/2011

External services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Emission rights (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes other than income tax and other management expenses Changes in operating allowances and other . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

137,556 2,240 4,831 3,088 147,715

162,852 4,724 3,244 3,506 174,326

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The breakdown of expenses for external services at 30 September 2012 and 2011 is as follows:
Thousands of euros 30/09/2012 30/09/2011

Transport, freight and marketing costs . . Utilities and supplies . . . . . . . . . . . . . . . Repairs and upkeep (maintenance) . . . . Rent and royalties . . . . . . . . . . . . . . . . . Insurance premiums . . . . . . . . . . . . . . . Independent professional services . . . . . Banking and similar services . . . . . . . . . Advertising, publicity and public relations Research and development expenditure: Other services . . . . . . . . . . . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

46,138 45,864 11,168 5,946 5,089 5,037 1,789 762 31 15,732 137,556

64,212 46,807 13,256 6,909 5,067 3,600 1,828 709 90 20,374 162,852

15. Related parties Liberbank, one of the financial institutions granting the Groups corporate financing, with an outstanding amount yet to be returned of EUR 5,145 thousand, is a related party. Finance costs incurred in 2012 and associated with this financing amount to EUR 186 thousand.

F-28

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

16. Remuneration and other benefits of directors and senior executives of the Parent Company Note 23 to the Groups consolidated financial statements for the year ended 31 December 2011 includes the detail of the agreements relating to remuneration and other benefits of the directors of the Company and senior executives. The summary of the most significant disclosures on the aforementioned remuneration and benefits for the nine-month period ended 30 September 2012 is as follows:
Thousands of euros

Members of the Board of Directors: Type of remuneration Fixed remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attendance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executives: Total remuneration received by executives . . . . . . . . . . . . . . . . . . . . . . . . . . . .

373 313 90 776 2,636 3,412

17. Operating segments The manufacture of cellulose pulp is closely tied to generate electricity by using waste generated from the pulp production process as fuel. Furthermore, the Group has plants that are specifically designed to generate electricity using biomass and other fuels, and it also owns forests and timber land providing the raw material for the production of cellulose pulp. In this context, the results of the activities conducted by the departments managing the production of cellulose pulp and electricity are analysed jointly by the Management Committee, and the financial information produced only distinguishes between the revenues earned. In addition, the Committee independently analysed the forest management activities relating to the cellulose pulp plantations it owns or manages, the investments currently in progress in electricity generation plants located outside the cellulose pulp plants that include the forestry assets necessary for supply, which include wood for the production of paper pulp as well as energy crops and other minor activities.

F-29

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

17. Operating segments (Continued) The detail of the information on results by segment for the first nine months of 2012 and 2011, based on the management information available that is used periodically, is as follows: 30 September 2012
Thousands of euros Forestry and other services Subtotal

Income statement

Cellulose and energy

Forest management

Consolidation adjustments

Total

Revenue: External . . . . . . . . . . . . . . . Inter-segment . . . . . . . . . . Total revenue . . . . . . . . . . Results: Profit (Loss) from operations . . . . . . Finance income . . . . Finance costs . . . . . Exchange differences Taxes . . . . . . . . . . .

584,879 1,164 586,043

7,114 95,958 103,072

11,450 7,371 18,821

603,443 104,493 707,936

(104,493) (104,493)

603,443 603,443

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

58,070 13,756 (23,202) (1,677) (13,855) 33,092

(772) 23 (4,831) 304 (26) (5,302)

2,128 44 (697) (29) (433) (1,013)

59,426 13,823 (28,730) (1,402) (14,314) 28,803

(9,360) 9,360

59,426 572 (15,479) (1,402) (14,314) 28,803

Profit / (Loss) for the period . . . . . . . . . . . . . . 30 September 2011

Income statement

Cellulose and energy

Forest management(*)

Thousands of euros Forestry and other services Subtotal

Consolidation adjustments(*)

Total

Revenue: External . . . . . . . . . . . . Inter-segment . . . . . . . . Total revenue . . . . . . . . Results: . . . . . . . . . . Profit (Loss) from operations . . . . . . . Finance income . . . . . Finance costs . . . . . . Exchange differences . Taxes . . . . . . . . . . . . .. . . . . . . . . . .

590,231 8 590,239

21,632 357,594 379,226

15,574 8,826 24,400

627,437 366,428 993,865

(366,428) (366,428)

627,437 627,437 ,

60,570 15,402 (27,987) 1,333 (16,237) 33,081

15,558 177 (5,872) (556) (1,270) 8,037

(3,157) 42 (867) (60) 1,231 (2,811)

72,971 15,621 (34,726) 717 (16,276) 38,307

(14,549) 14,549

72,971 1,072 (20,177) 717 (16,276) 38,307

Profit / (Loss) for the year . . . . . . . . . . . . .

(*)

In 2011 and 2012 this activity includes forest management relating to the pulp plantations it owns or manages. Additionally in 2011 this activity includes purchases of wood sold to the Cellulose and Energy activity amounting to EUR 207, 207 thousands (these purchases have been done in 2012 by Cellulose and Energy activity).

In the first nine months of 2012, there were no significant changes in the composition and distribution by segment of the Groups assets, except for the specific facilities designed to generate electricity using biomass, which includes investments in non-current assets at 30 September 2012 and 2011 amounting to EUR 196,226 thousand and EUR 131,067 thousand, respectively.

F-30

ENCE Energ a y Celulosa, S.A. and Subsidiaries Explanatory notes to the Condensed Consolidated Financial Statements for the nine-month period ended 30 September 2012 (Continued)

18. Events after the reporting period The Group has agreed to sells its forestry assets in Uruguay, approximately 27,780 hectares of forest land with eucalyptus plantations in the southwest of Uruguay as well as sawmills and woodchip plants for USD 77,3 million. The transaction requires the approval of the Uruguayan Forestry Authorities. These assets are classified as held for sale at 30 September 2012 (see Note 12). The fair value of these assets considering the agreement and sales costs does not differ significantly from their book value. On 7 December 2012, the Parent Company acquired a total 12,815,353 treasure shares, representing 5.12% of its share capital, from the shareholder Fidalser, S.L. for EUR 25,246 thousand. The company will keep the shares as treasury shares until the Board of Directors decides on a better alternative for their use in order to maximise the creation of value for shareholders. On December 20, 2012, the Group entered into an agreement to acquire the energy cropsrelated technology of ENCE Groups related parties Foresta Capital S.L. and Foresta Mantenimiento de Plantaciones S.L. (the Foresta Group), including certain technology related to research and development, in vitro technology and a poplar clone known as Variato. The agreement, which also includes provisions related to the transfer of seven employees of the Foresta group to our subsidiary ENCE Investigaci on y Desarrollo, S.A.U., provided for an initial payment of approximately e3.4 million to be paid at signing, with up to e1.9 million in additional consideration to be paid within two years of signing, subject to certain customary terms and conditions. On January 1, 2013, a new change in law became effective (the Energy Tax Law). This change has had an impact on the project financing for M erida biomass energy facility. The availability under such facility is calculated by formula that includes tax as an input. The change in tax has had the effect of reducing the availability under this facility from e60.7 million to e50.7 million. It is believed that ENCE has sufficient liquidity to complete this project without any change of, or significant new financing demands on the Group.

F-31

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated Financial Statements for 2011 prepared in accordance with the International Financial Reporting Standards adopted by the European Union and consolidated Directors Report, together with the Independent Auditors Report

F-32

6APR201207033016
AUDITORS REPORT ON CONSOLIDATED ANNUAL ACCOUNTS This version of our report is a free translation from the original, which was prepared in Spanish. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation To the shareholders of Grupo Empresarial ENCE, S.A.: We have audited the consolidated annual accounts of Grupo Empresarial ENCE, SA. (the Company) and its subsidiaries (the Group), consisting of the consolidated balance sheet at 31 December 2011, the consolidated income statement, the consolidated statement of other comprehensive income, the consolidated statement of changes in equity, the consolidated cash flow statement and related notes to the consolidated annual accounts for the year then ended. As explained in Note 3.1. the Directors of the Company are responsible for the preparation of these consolidated annual accounts in accordance with the International Financial Reporting Standards as endorsed by the European Union, and other provisions of the financial reporting framework applicable to the Group. Our responsibility is to express an opinion on the consolidated annual accounts taken as a whole, based on the work performed in accordance with the legislation governing the audit practice in Spain, which requires the examination, on a test basis, of evidence supporting the consolidated annual accounts and an evaluation of whether their overall presentation, the accounting principles and criteria applied and the estimates made are in accordance with the applicable financial reporting framework. In our opinion, the accompanying consolidated annual accounts for 2011 present fairly, in all material respects, the consolidated financial position of Grupo Empresarial ENCE, S.A. and its subsidiaries at 31 December 2011 and the consolidated results of its operations and the consolidated cash flows for the year then ended in accordance with the International Financial Reporting Standards as endorsed by the European Union, and other provisions of the applicable financial reporting framework The accompanying consolidated Directors Report for 2011 contains the explanations which the Directors of Grupo Empresarial ENCE, S.A. consider appropriate regarding the Groups situation, the development of its business and other matters and does not form an integral part of the consolidated annual accounts. We have verified that the accounting information contained in the consolidated Directors Report is in agreement with that of the consolidated annual accounts for 2011. Our work as auditors is limited to checking the consolidated Directors Report in accordance with the scope mentioned in this paragraph and does not include a review of information other than that obtained from the accounting records of Grupo Empresarial ENCE, S.A. and its subsidiaries. PricewaterhouseCoopers Auditores, S.L.

14JAN201312054011
Mar Gallardo partner 29 February 2012 PricewaterhouseCoopers Auditores, S.L., Torre PwC, P de la Castellana 259 B, 28046 Madrid, Espa na Tel: +34 915 684 400 /+34 902 021 111, Fax: +34 913 083 566, www.pwc.es
R.M. Madrid, hoja 87 250-1. folio 75. tomo 9.267, libro 8.054, secci on 3a Inscrita en el R.O.A.C. con el n umero S0242 - CIF: B-79 031290

F-33

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2011 AND 2010
Thousands of Euros Note 12/31/2011 12/31/2010

NON-CURRENT ASSETS: Intangible assets . . . . . . . . . . Property, plant and equipment . Investment property . . . . . . . . Biological assets . . . . . . . . . . . Other financial assets . . . . . . . Deferred tax assets . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

6 7 4.c 8 16 18

8,127 770,142 2,190 180,586 4,065 42,653 1,007,763 16,544 112,462 122,789 13,005 867 22,824 71,629 911 361,031 1,368,794 232,212 254,328 106,630 102,454 33,155 41,192 (591) (49,217) 720,163 720,163

6,534 747,140 2,302 166,187 5,788 49,881 977,832 105,911 139,953 20,119 786 14,586 70,983 1,535 353,873 1,331,705 232,212 254,328 48,470 121,536 47,533 64,711 (2,434) 766,356 766,356 23,833 242,962 9,960 36,562 8,321 23,649 345,287 6,277 4,591 704 201,063 2,188 4,893 346 220,062 1,331,705

CURRENT ASSETS: Non-current assets classified as held for sale Inventories . . . . . . . . . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . . . . . . . . Receivable from Public Authorities . . . . . . . . Current financial assets Derivatives . . . . . . . . . . . . . . . . . . . . . . . Other financial assets . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

20 11 12 18 10 16 16

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EQUITY: Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Parent Company reserves . . . . . . . . . . . . . . . . . . . . . . . . . . Reserves in fully consolidated companies . . . . . . . . . . . . . . . Valuation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit for the year attributed to the Parent Company . . . . . . . Translation differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity attributable to shareholders of the Parent Company TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NON-CURRENT LIABILITIES: Provisions . . . . . . . . . . . . . . . Financial debt . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . Derivatives . . . . . . . . . . . . . . . Other financial liabilities . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16 14 10 17 18

23,185 274,186 20,244 25,466 9,183 28,289 380,553 12,322 20,452 34,610 574 181,964 365 17,655 136 268,078 1,368,794

CURRENT LIABILITIES: Liabilities associated with non-current assets classified as held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Income Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . Other accounts payable to Public Authorities . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . .

. . . . . . . .

20 16 10 17 12 18 18

TOTAL EQUITY AND LIABILITIES . . . . . . . . . . . . . . . . . . . . .

The accompanying Notes 1 to 25 are an integral part of the consolidated balance sheet at 31 December 2011.

F-34

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS FOR 2011 AND 2010
Thousands of Euros Note 2011 2010

Continuing operations: Revenue . . . . . . . . . . . . . . . . . . . . . . . Gains or losses on hedging operations . Changes in inventories of finished goods Procurements . . . . . . . . . . . . . . . . . . . .

................ ................ and work in progress ................ ........... ........... ........... ........... ........... ........... of non-current ........... ........... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . .

19.a 10 19.b 8 14 19.c 6, 7 and 8 7 19.e

825,451 (10,434) (1,688) (390,759) 422,570 27,236 5,173 7,431 (89,413) (63,460) 4,392 (233,850) 80,079 5,296 1,554 (32,000) 2,085 (23,065) 57,014 (15,822) 41,192

830,758 (4,852) 4,840 (367,034) 463,712 27,814 3,549 7,247 (84,317) (61,206) 222 (239,744) 117,277 2,016 2,463 (31,482) 62 (26,941) 90,336 (25,625) 64,711 64,711 0.27 0.27

GROSS MARGIN . . . . . . . . . . . . . . . . . . Group work on non-current assets . . . . . . . . Other operating income . . . . . . . . . . . . . . . Capital grants transferred to profit and loss . Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortisation charge . . . . . Impairment and gains or losses on disposals assets . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . PROFIT FROM OPERATIONS . . . . . . . . Finance income . . . . . . . . . . . . . . . . . . . . Change in fair value of financial instruments Finance costs . . . . . . . . . . . . . . . . . . . . . . Exchange differences . . . . . . . . . . . . . . . . . . . . .

... ... . . . . . . . . . . . . . . .

10 19.f

FINANCIAL LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT BEFORE TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT FOR THE YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.g 13 13 18

41,192 0.16 0.16

The accompanying Notes 1 to 25 are an integral part of the consolidated statement of income for the year ended 31 December 2011.

F-35

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR 2011 AND 2010
Thousands of Euros Note 2011 2010

PROFIT PER CONSOLIDATED INCOME STATEMENT (I) . . . . . . . . . . . Income and expenses recognised directly in equity Cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL INCOME AND EXPENSES RECOGNISED DIRECTLY IN CONSOLIDATED EQUITY (II) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers to consolidated profit or loss Arising from cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL TRANSFERS TO CONSOLIDATED PROFIT AND LOSS (III) . . . . TOTAL CONSOLIDATED RECOGNISED INCOME AND EXPENSE (I+II+III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13

41,192 (34,608) (591) 10,382

64,711 (7,892) 2,367 (5,525) 8,014 (2,404) 5,610 64,796

13

(24,817) 14,068 (4,220)

13

9,848 26,223

The accompanying Notes 1 to 25 are an integral part of the consolidated statement of recognised income and expense for 2011.

F-36

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR 2011 AND 2010 STATEMENT OF CHANGES IN TOTAL CONSOLIDATED EQUITY
Recognised Distribution of Treasury Balance at Income / Capital Prior Years Distribution of Shares Balance at Note 1-1-2011 (Expense) Increase Profit Dividends Transactions Transfers 31-12-2011

2011Thousands of Euros

Share capital . . . . . . . . Share premium . . . . . . . Legal reserve . . . . . . . . Other Parent Company reserves . . . . . . . . . . Reserves in fully consolidated companies . . . . . . . . Prior years losses . . . . . Translation differences . . Treasury shares . . . . . . Valuation adjustments . . Profit for the year attributed to the Parent Company . . . . . . . . .

232,212 254,328 31,482 150,341

8,284 74,556

(25,801)

168

(132,400)

232,212 254,328 39,766 66,864

120,583 (132,400) (2,434) 47,533

(591) (14,378)

(18,129)

(46,783)

132,400

102,454 (591) (49,217) 33,155

64,711 766,356

41,192 26,223

(64,711)

(25,801)

(46,615)

41,192

720,163

2010Thousands of Euros

Recognised Distribution of Treasury Balance at Income / Capital Prior Years Distribution of Shares Balance at Note 1-1-2010 (Expense) Increase Profit Dividends Transactions Transfers 31-12-2010

Share capital . . . . . . . . Share premium . . . . . . . Legal reserve . . . . . . . . Other Parent Company reserves . . . . . . . . . . Reserves in fully consolidated companies . . . . . . . . Prior years losses . . . . . Translation differences . . Treasury shares . . . . . . Valuation adjustments . . . Profit for the year attributed to the Parent Company . . . . . . . . .

157,410 199,058 31,482 153,751

74,802 55,270 (3,608)

198

232,212 254,328 31,482 150,341

147,469 (4,715) (435) 47,448

85

(26,886) (127,685)

(1,999)

120,583 (132,400) (2,434) 47,533

(154,571) 576,897

64,711 64,796

126,464

154,571

(1,801)

64,711 766,356

The accompanying Notes 1 to 25 are an integral part of the statement of changes in consolidated equity for 2011.

F-37

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR 2011 AND 2010
Thousands of Euros CASH FLOWS FROM OPERATING ACTIVITIES: Consolidated profit for the year before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments for Depreciation and amortisation charge . . . . . . . . . Exhaustion of forestry reserve . . . . . . . . . . . . . . Amortisation of intangible assets . . . . . . . . . . . . Changes in provisions and other deferred expenses Gains/Losses on disposal of non-current assets . . . Finance income . . . . . . . . . . . . . . . . . . . . . . . Finance costs . . . . . . . . . . . . . . . . . . . . . . . . Grants and subsidies transferred to profit and loss . Changes in working capitalTrade and other receivables . . . . Current financial and other assets Current liabilities . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,014 53,736 8,455 1,269 (3,565) (4,224) (5,296) 29,291 (1,124) 78,542 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,953 (10,823) (7,974) (8,332) 824 Other cash flows from operating activitiesInterest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax recovered (paid) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,036) 5,296 (2,907) (25,647) Net cash flows from operating activities (I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CASH FLOWS FROM INVESTING ACTIVITIES: Investments: Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals: Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (94,895) (447) (95,342) 4,338 1,682 6,020 Net cash flows from investing activities (II) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds and payments relating to equity instruments: Proceeds from issue of equity instruments, net of share issue costs . . . . . . . . . . . . . . . . . . . . . Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposal of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds and payments relating to financial liability instruments: Increase / (decrease) in bank borrowings, net of loan arrangement costs . . . . . . . . . . . . . . . . . . . Grants and subsidies received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends and returns on other equity instruments paid Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53,708) 7,164 (46,544) 43,057 8,523 51,580 (25,801) (25,801) Net cash flows from financing activities (III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NETNET INCREASE / DECREASE IN CASH AND CASH EQUIVALENTS (I+II+III) . . . . . . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,765) 646 70,983 71,629 124,920 (11,753) 10,038 123,205 (94,233) 1,710 (92,523) 30,682 21,851 49,132 70,983 (89,322) (96,918) (1,614) (294) (98,826) (98,826) 110,733 90,336 49,158 10,671 1,377 10,562 (750) (2,016) 28,956 (887) 187,407 (60,004) (12,663) 25,728 (22,031) (68,970) (30,290) 1,848 (28,442) 89,995 2011 2010

The accompanying Notes 1 to 25 are an integral part of the consolidated statement of cash flows for 2011.

F-38

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011

1. Activity of the Group and Strategic Plan Grupo Empresarial ENCE, S.A. (hereinafter ENCE or the Parent Company) was incorporated in 1968 under the name Empresa Nacional de Celulosas, S.A. It has its registered offices at Paseo de la Castellana 35, Madrid. The corporate purpose established in the by-laws consists of: a) b) Manufacture of cellulose pulp and related by-products, obtaining necessary products and items, and exploitation of any sub-products arising from the aforementioned activities. Generation by any means, sale and usage of electricity and of other energy sources, and of the raw materials and primary energy sources required for generating, in accordance with the provisions of prevailing legislation; and marketing, sale and supply of power in any way permitted by law. The Company may not conduct any of the aforementioned activities where prevailing legislation establishes special requirements or limitations, unless it complies with such conditions. Cultivation, exploitation and use of forests and timberland, forest plantation work and specialist forestry work and services. Preparation and transformation of forestry products. Commercial use, exploitation and marketing of forest products of all kinds (including biomass and forest energy crops), and their derivatives and by-products. Forestry studies and projects. Design, promotion, development, construction, operation and maintenance of the installations referred to in paragraphs a), b) and c) above.

c)

d)

The Groups principal activity BEKP (Bleached Eucalyptus Kraft Pulp) cellulose pulp production with ECF (elemental chlorine free) and TCF (totally chlorine free) bleaching based on eucalyptus. In order to carry out its activities, the Group operates three mills in Spain, located in the provinces of Asturias, Pontevedra and Huelva, which have combined production capacity of approximately 1.3 million metric tonnes per year. In addition to its cellulose pulp production, the Group also generates electricity from biomass and bio-fuels obtained from the pulp production process (mainly lignin), and to a lesser extent using gas and fuel oil. The generating capacity currently in use totals approximately 230 megawatts per year from 6 power plants. A further two plants with a combined capacity of 70 megawatts are currently under construction. In order to assure supplies of timber supplies for the paper pulp manufacturing process and meet the power plants demand for biomass, the Group has 114,534 hectares of managed forest land, of which it owns 77,687 hectares. The Parent Companys shares are listed on the Madrid Stock Exchange.

F-39

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

2. Group companies The following subsidiaries in which the Parent Company directly or indirectly owns 100% of share capital were fully consolidated in the consolidated financial statements for 2011: 2011
Thousands of Euros Equity of the Investee Company Profit / Share (Loss) for Capital Reserves the year

Company

Registered Office

Activity

SubsidiariesCelulosa Energ a, S.L.U.(a) . . . . . . . . . . . Celulosas de Asturias, S.A.U.(a) . . . . . . . . Silvasur Agroforestal, S.A.U.(a) . . . . . . . Ibersilva, S.A.U.(a) . . . . . . . . . . . . . . . Norte Forestal, S.A.U.(a) . . . . . . . . . . . Norfor Maderas, S.A.U.(a) . . . . . . . . . . Eucalipto de Pontevedra, S.A.U.(a) . . . . Iberflorestal, S.A.U.(a) . . . . . . . . . . . . . Las Pl eyades, S.A. (SAFI)(b)(a) . . . . . . . Maderas Aserradas del Litoral, S.A.(a)(b) Sierras Calmas, S.A.(a)(b) . . . . . . . . . . . ENCE Energ a S.L.U. . . . . . . . . . . . . . ENCE Energ a Huelva, S.L.U.(a) . . . . . .
(a) (b) Financial statements audited by PwC.

F-40

Ctra Madrid-Huelva Km. 630 (Huelva) Armental s/n Navia (Asturias) Avda de Andaluc a s/n. (Huelva) Avda de Alemania, 9 (Huelva) Marisma del Louriz an s/n (Pontevedra) Marisma del Louriz an s/n (Pontevedra) Pontecaldelas (Pontevedra) Lisbon (Portugal) Montevideo (Uruguay) Montevideo (Uruguay) Montevideo (Uruguay) Paseo de la Castellana, 35 (Madrid) Paseo de la Castellana, 35 (Madrid)

. . . . . . . . . . .

. . . . . . . . . . .

Electricity generating and sale of power Production and sale of paper pulp, electricity generating and sale of power Forest management Forestry services Forest management Forest management Lease of properties Purchase and sale of wood Export of wood Dormant Forest management Electricity generating and sale of power Electricity generating and sale of power

3,756 37,863 39,666 10,000 2,464 601 1208 55 2 5,661 1,569 6,774 6,757

26,609 23,896 7,409 (7,101) 17,630 449 (653) 1,943 2,412 (1,970) 7,529 26,595 27,016

7,319 25,348 (7,228) (11,298) 3,741 30 (11) 262 327 (1,950) 3,785 (383) (658)

Euro value translated at the year-end rate of exchange.

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

2. Group companies (Continued) 2010

Thousands of Euros Equity of the Investee Company Profit / Share (Loss) for Capital Reserves the year

Company

Registered Office

Activity

SubsidiariesCelulosa Energ a, S.L.U.(a) . . . . . . . . . . . Celulosas de Asturias, S.A.U.(a) . . . . . . . . Silvasur Agroforestal, S.A.U.(a) . . . . . . . Ibersilva, S.A.U.(a) . . . . . . . . . . . . . . . Norte Forestal, S.A.U.(a) . . . . . . . . . . . Norfor Maderas, S.A.U.(a) . . . . . . . . . . Eucalipto de Pontevedra, S.A.U.(a) . . . . Iberflorestal, S.A.U.(a) . . . . . . . . . . . . . Las Pl eyades, S.A. (SAFI)(b) . . . . . . . . Maderas Aserradas del Litoral, S.A.(a)(b) Sierras Calmas, S.A.(a)(b) . . . . . . . . . . . ENCE Energ a S.L.U. . . . . . . . . . . . . .
(a) (b) Financial statements audited by Deloitte.

Ctra Madrid-Huelva Km. 630. (Huelva) Armental s/n Navia (Asturias) Avda de Andaluc a s/n. (Huelva) Avda de Alemania, 9 (Huelva) Marisma del Louriz an s/n (Pontevedra) Marisma del Louriz an s/n (Pontevedra) Pontecaldelas (Pontevedra) Lisbon (Portugal) Montevideo (Uruguay) Montevideo (Uruguay) Montevideo (Uruguay) Paseo de la Castellana, 35 (Madrid)

. . . . . . . . . .

. . . . . . . . . .

Electricity generating and sale of power Production and sale of paper pulp, electricity generating and sale of power Forest management Forestry services Forest management Forest management Lease of properties Purchase and sale of wood Export of wood Sawmill Forest management Electricity generating and sale of power

3,756 37,863 39,666 10,000 2,464 601 1208 55 2 5,481 1,519 20

21,467 9,951 6,890 (988) 8,050 447 46 1,699 745 (1,477) (591) (1)

5,143 38,945 519 (6,121) 10,539 1 (700) 244 1,591 (431) 6,125 (419)

F-41

Euro value translated at the year-end rate of exchange.

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

2. Group companies (Continued) The Group also includes the following dormant companies, all of which are 100% owned by the Parent Company: Electricidad de Navia, S.L.U, Tis u de Louriz an, S.L.U, Ibercel Celulosa, S.L.U., Celulosas de MBopicu a, S.A., Las Pl eyades Argentina, S.A., Las Pl eyades Uruguay, S.A., and Zona Franca MBopicu a, S.A. The Group holds minority shareholdings in certain other companies which were not consolidated because the effect would not have been material. These are: Transporte de Celulosa y Madera, S.A., in which the Group holds a 40% ownership interest; Imacel, A.E.I.E., a dormant entity in which the Group holds a 50% ownership interest; Sociedad Andaluza de Valorizaci on de la Biomasa, S.L. (6% ownership interest); and Electroqu mica de Hernani, S.A., (5% ownership interest). 3. Bases of presentation of the consolidated financial statements 3.1 Basis of presentation The consolidated financial statements for 2011 were obtained from the accounting records and individual financial statements of the Parent Company and the Group companies. The consolidated financial statements were prepared in accordance with the applicable regulatory framework for financial reporting and, in particular, in accordance with the International Financial Reporting Standards (IFRS) adopted by the European Union pursuant to Regulation (EU) 1606/2002 of the European Parliament and Spanish Law 62/2003, of 30 December establishing tax, administrative and social measures and, accordingly, they present fairly the Groups equity and financial position at 31 December 2011 and the consolidated results of its operations, changes in equity and cash flows for the year then ended. The main standards and measurement bases applied in the preparation of the Groups consolidated financial statements in accordance with EU-IFRS at 31 December 2011 may differ from the policies applied by some of the Group companies (local accounting standards). Where this was the case, the necessary adjustments and reclassifications were made in the consolidated process to harmonise the local accounting standards with EU-IFRS. These consolidated financial statements, which were formally prepared by the Parent Companys directors, will be submitted for approval by the shareholders at the Annual General Meeting. It is considered that they will be approved without any changes. The Groups consolidated financial statements for 2010 were approved by the shareholders at the Annual General Meeting of the Parent Company held on 29 April 2011. 3.2 Key decisions in relation to IFRS The Group adopted the following key decisions in relation to the presentation of the consolidated financial statements and the additional information disclosed in the notes thereto: a. b. The euro is the Groups functional currency, and the consolidated financial statements are therefore expressed in euros. The assets and liabilities recognised in the accompanying consolidated balance sheet are classified as current (short term) and non-current (long term). The items in the accompanying consolidated income statement are presented according to their nature. The Group has opted to present the consolidated cash flow statement using the indirect method.

c.

F-42

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

3. Bases of presentation of the consolidated financial statements (Continued) 3.2.1 Standards and interpretations taking effect in the current year The following new standards, amendments and interpretations entered into force on 1 January 2011:
Standard Contents Mandatory application in years commencing as of

Amendment of IAS 32 Financial instruments: PresentationClassification of rights over shares Revision of IAS 24Relatedparty disclosures

Amends the accounting treatment of rights, options and warrants denominated in a currency other than the functional currency Amends the definition of a related party and reduces disclosure requirements in the case of entities under a relationship of control, joint control or significant influence over governance Amendments to a series of standards Prepayment of contributions under minimum funding requirements can give rise to an asset Treatment of the extinction of financial liabilities through the issue of shares

Annual periods commencing as of 1 February 2010

Annual periods commencing as of 1 January 2011

Improvements to IFRS (published in May 2010) Amendment of IFRIC 14 Prepayments of a minimum funding requirement IFRIC 19 Extinguishing financial liabilities with equity instruments

The majority are mandatory for periods commencing as of 1 January 2011 Annual periods commencing as of 1 January 2011

Annual periods commencing as of 1 July 2010

3.2.2 Standards and interpretations issued but not yet in force At the date of preparation of these consolidated financial statements, the main standards and interpretations published by the IASB but not yet adopted by the European Union and, therefore, not in force were:
Standard Contents Mandatory application in years commencing as of

IFRS 9 Financial instruments: Classification and measurement Amendment of IAS 12Income taxdeferred taxes related to investment property IFRS 10 Consolidated financial statements (published in May 2011)

Replaces the classification and measurement requirements established by IAS 39 for financial assets and liabilities Calculation of deferred taxes related to investment property based on the fair value model contained in IAS 40 Replaces the current consolidation requirements established in IAS 27

Annual periods commencing as of 1 January 2013

Annual periods commencing as of 1 January 2012

Annual periods commencing as of 1 January 2013

F-43

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

3. Bases of presentation of the consolidated financial statements (Continued)

Mandatory application in years commencing as of

Standard

Contents

IFRS 11 Joint arrangements (published in May 2011) IFRS 12 Disclosure of interests in other entities (published in May 2011)

Replaces the current IAS 31 on interests in joint ventures Separate standard establishing disclosure requirements for ownership interests in subsidiaries, associates, jointly controlled entities and non-consolidated entities Establishes the framework for fair value measurement Revision of the standard, which will henceforth comprise only an entitys separate financial statements following the issuance of IFRS 10 Parallel review in relation to the issue of IFRS 11- Joint ventures Minor amendment in relation to the presentation of Other Comprehensive Income Amendments basically affect defined benefits plans, as one of the key changes is the elimination of the fluctuation corridor Postponement of the effective date of IFRS 9 and changes to transition requirements and disclosures The International Financial Reporting Interpretations Committee addresses the accounting treatment of the cost of eliminating waste materials in surface mines

Annual periods commencing as of 1 January 2013 Annual periods commencing as of 1 January 2013

IFRS 13 Fair value measurement (publishing in May 2011) IAS 27 (Revised) Separate financial statements (published in May 2011)

Annual periods commencing as of 1 January 2013 Annual periods commencing as of 1 January 2013

IAS 23 (Revised) Investments in associates and joint ventures (published in May 2011) Amendment of IAS 1 Presentation of Other Comprehensive Income (published in June 2011) Amendment of IAS 19 Employee benefits (published in June 2011)

Annual periods commencing as of 1 January 2013

Annual periods commencing as of 1 January 2013

Annual periods commencing as of 1 January 2013

Amendment of IFRS 9 and IFRS 7 Effective date and transition disclosures (published in December 2011) IFRIC 20: Stripping costs in the production phase of a surface mine (published in October 2011)

N/A

Annual periods commencing as of 1 January 2013

F-44

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

3. Bases of presentation of the consolidated financial statements (Continued) 3.3 Responsibility for information and estimates madeCertain estimates were made in preparing the consolidated financial statements for 2011, in order to measure certain of the assets, liabilities, income, expenses and obligations reported herein. These estimates relate basically to the following: The assessment of possible impairment losses on certain assets. The useful life of property, plant and equipment and intangible assets. The fair values of certain assets, basically comprising financial instruments. The assumptions employed in the calculation of certain commitments with employees. Calculation of the provisions necessary to cover the risks related with ongoing litigation and insolvencies. The recoverability of deferred tax assets. These estimates were made on the basis of the best information available at 31 December 2011 and 2010. However, events that take place in the future might make it necessary to change them. Any such changes in accounting estimates would be applied prospectively in accordance with IAS 8. 3.4 Consolidated principles3.4.1 Subsidiaries Subsidiaries are defined as companies over which the Parent Company has the capacity to exercise effective control; control is, in general but not exclusively, presumed to exist when the Parent owns directly or indirectly half or more of the voting power of the investee or, even if this percentage is lower or zero, when, for example, there are agreements with other shareholders of the investee that give the Parent control. Control is the power to govern the financial and operating policies of a company so as to obtain benefits from its activities. The financial statements of the subsidiaries are fully consolidated with those of the Parent Company. Accordingly, all material balances and effects of the transactions between consolidated companies are eliminated on consolidation. 3.4.2 Associates Associates are companies over which the Parent Company is in a position to exercise significant influence, but not control or joint control. The capacity to exercise significant influence usually exists because the Parent Company directly or indirectly holds 20% or more of the voting power of the investee. 3.4.3 Changes in the scope of consolidation and percentage ownership interests 2011 ENCE Energ a Huelva, S.L.U. was consolidated for the first time in 2011. This Company was incorporated in 2009, and in 2011 it acquired the project for the construction of an electricity generating plant with installed capacity of 50 megawatts. 2010 There were no significant changes in the scope of consolidation in 2010.

F-45

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

3. Bases of presentation of the consolidated financial statements (Continued) 3.5. Comparative information The information contained in these notes to the 2011 financial statements is presented together with comparative figures for 2010. 3.6 Seasonality of the Groups transactions Given the activities conducted by the Group companies, transactions are not affected by cyclical or seasonal factors. Accordingly, these notes to the consolidated financial statements do not include any specific disclosures in this regard. Nevertheless, the production of wood pulp requires stoppages in the production process for period of between 10 and 15 days to undertake maintenance work. All of the Groups three pulp plants made their annual stoppage in the first half of 2011. 3.7 Events after the end of the reporting period No significant events occurred between 31 December 2011 and the date of preparation of these consolidated financial statements that are not referred to herein, and no specific disclosures are therefore presented in this regard. 4. Accounting policies The principle accounting standards and measurement bases employed to prepare the consolidated financial statements of the Group in accordance with IFRS prevailing at the reporting date were as follows: a) Intangible assets

Intangible assets are initially recognised at cost of acquisition or production. After initial recognition, these assets are carried at cost less the amount of accumulated amortisation and any impairment losses incurred. The Groups intangible assets are considered to have finite useful lives and are amortised on the straight-line basis over the period representing the best estimate of the said useful lives. Development costsDevelopment costs are capitalised annually providing the amounts concerned are separately identified for each project, and there are sound reasons to expect projects to succeed technically and generate financial returns. These costs are amortised on the straight-line basis over 5 years. Computer softwareThe Group recognises the costs incurred in the acquisition of computer software and software licences under this caption. Computer software maintenance costs are recognised with a charge to the consolidated income statement for the year in which they are incurred. Computer software is amortised on a straight-line basis over 5 years. Greenhouse gas emission rightsThe greenhouse gas emission rights obtained free of charge by the Group under the Spanish National Allocation Plan pursuant to Law 1/2005 governing the trade in emission rights are recognised upon allocation under Intangible assetsGreenhouse gas emission rights at their residual value, and a non-repayable capital grant is simultaneously recognised for the same amount.

F-46

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

4. Accounting policies (Continued) After initial recognition, emission rights are carried at cost less the amount of any cumulative impairment losses recognised, but they are not amortised. The costs associated with the greenhouse gases consumed in the period are recognised with a charge to Other operating expenses under Non-current provisions in the accompanying consolidated balance sheet at the amount for which any available emission rights were granted, or as measured based on best estimates of the possible cost it would be necessary to incur to cover any shortfall in the said rights. The provision made and the intangible asset recognised when the emission rights were received will be cancelled upon redemption of the rights. The non-repayable grants associated with the emission rights acquired free of charge are recognised under Capital grants transferred to profit and loss in the accompanying consolidated income statement in line with the recognition of expenses associated with emissions of the gases related with the subsidised emission rights. b) Property, plant and equipment

Property, plant and equipment are initially recognised at acquisition or production cost, and are subsequently presented net of accumulated depreciation and any impairment losses incurred, where appropriate, in accordance with the criteria described in this Note 4.b. The costs of expansion, modernisation or improvements leading to increased productivity, capacity or efficiency, or to a lengthening of the useful lives of the assets are capitalised. Upkeep and maintenance expenses are recognised in the consolidated income statement for the year in which they are incurred. For non-current assets that necessarily take a period of more than one year to get ready for their intended use, the capitalised costs include such borrowing costs as might have been incurred before the assets are ready to enter service and were charged by the supplier or relate to loans or other specific-purpose or general-purpose borrowings directly attributable to the acquisition or production of the assets. Group work on non-current assets is measured at accumulated cost, which is calculated as external costs plus in-house costs, determined on the basis of in-house warehouse materials consumption, and manufacturing costs allocated using hourly absorption rates similar to those used for the measurement of inventories. The Group capitalised finance costs totalling EUR 2,678 thousand incurred in 2011, basically in respect of project finance indebtedness (EUR 1,148 thousand at 31 December 2010). The Group companies depreciated their property, plant and equipment by the straight-line basis method at annual rates based on the years of estimated useful life of the assets (land is understood to have an indefinite useful life and is therefore not depreciated), as follows:
Estimated Years of Useful Life

Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . Plant and machinery . . . . . . . . . . . . . . . . . . Other fixtures, tools and furniture . . . . . . . . . Other items of property, plant and equipment

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

20 - 40 11 - 16 11 11

Investments made in buildings constructed on land granted under administrative concessions are recognised under Buildings. This cost, and the cost of any other permanent fixtures located on concession land, is depreciated over the shorter of the assets useful life or the term of the concession.

F-47

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

4. Accounting policies (Continued) Impairment of intangible assets and property, plant and equipment Whenever there are indications of impairment, the Group tests tangible and intangible assets for impairment to determine whether the recoverable amount of the assets has been reduced to below their carrying amount. Recoverable amount is the higher of fair value less costs to sell and value in use. The directors of the Parent Company perform impairment tests as follows: The recoverable amounts are calculated for each cash-generating unit, which comprise the plants operated by the Group. Each year, the Group prepares a business plan for each cash-generating unit, generally covering a period of three years. The business plans consists of financial projects prepared on the basis of past experience and the best available estimates of earnings, investments and working capital. The business plans prepared are reviewed by the Parent Companys Board of Directors. In order to calculate value in use, the cash flows so estimated are discounted applying a discount rate representing the cost of capital, taking into account the cost of borrowing and business risks. Where it is estimated that the recoverable amount of an asset is less than its carrying amount, the latter is written down to the recoverable amount and an impairment loss is recognised in the consolidated income statement. Where an impairment loss subsequently reverses, the carrying amount of the cash-generating unit is increased to the revised estimate of the recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. A reversal for an impairment loss is recognised as income. The directors of the Parent Company consider that the carrying amounts of assets do not exceed their recoverable amounts calculated based on the procedure described in this section. c) Investment property

In accordance with IAS 40, Investment property reflects the values of the land and buildings leased by the Group, which are measured at acquisition cost, less the appropriate accumulated depreciation. d) Biological assets

A part of the Groups activity involves the cultivation of various species of trees for use as raw material in the production of wood pulp and energy. At 31 December 2011, the Group had various forests and timberland areas used in this activity. Standing timber is treated as a biological asset. Forest land is measured in accordance with IAS 16 Property, plant and equipment and is recognised under Property, plant and equipment in the consolidated balance sheet (see Note 7). There are currently no active markets for the tree species grown in Spain and Uruguay, the markets of origin, and it is not possible to determine their fair value. Also, standing timber matures in an average period of up to 40 years including between 2 and 4 cycles, and a range of other variables may affect valuation using the discounted cash flows measurement, so that it is not possible to calculate fair value reliably using this method. As a consequence of the foregoing, the Group has opted to recognise standing timber at historic cost (i.e. cost less accumulated depreciation, less any accumulated impairment losses). Also, sensitivity analyses are performed to test the value of these assets based on certain indicators. The results of these analyses confirm the measurement criteria currently applied. Therefore, investments in forestry assets are measured by

F-48

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

4. Accounting policies (Continued) allocating all costs directly incurred in the acquisition and development of the assets, including leases, clearing and preparation of land, planting, fertilisers, care and upkeep. Furthermore, a variable and individualised percentage of the carrying amount of standing timber is capitalised as interest up to the limit of its estimated realizable value. A total of EUR 2,575 thousand was capitalised in this respect in 2011 (EUR 2,552 thousand in 2010). This amount was included under Group work on non-current assets. The cost allocation method applied to felled timber is based on the total costs incurred to the date of felling and the residual value of the plantation. Timber disposals from the Groups forestry assets totalled EUR 8,635 thousand in 2011 (EUR 10,671 thousand in 2010). These amounts are included under Depreciation and amortisationDepletion of forestry reserves in the accompanying consolidated income statement (see Note 8). e) Leases

The Group leases certain assets. All of the leases concluded by the Group have been classified as operating leases based on the substance of the contracts, which under no circumstances transfer ownership of the leased assets or any of the rights and risks inherent therein. Expenses from operating leases are recognised in the consolidated income statement in the year in which they are accrued. f) Financial instruments

f.1) Financial assets The financial assets held by the Group are classified into the following categories: Loans and receivables: trade receivables and financial assets with fixed or determinable payments arising from non-trade operations arising on the sale or goods or the provision of services. Available-for-sale financial assets: these include debt securities and equity instruments of other companies that are not classified in any other category. Initial recognitionFinancial assets are initially recognised at the fair value of the consideration given plus any directly attributable transaction costs. Subsequent measurementLoans and receivables are measured at amortised cost. The Group also recognises impairment losses in the consolidated income statement where it considers that the financial assets affected present recoverability risks. Available-for-sale financial assets are measured at fair value, and the gains and losses arising from changes in fair value are recognised in consolidated equity until the asset is disposed of or it is determined that it has become (permanently) impaired, at which time the cumulative gains or losses previously recognised are taken to the net consolidated profit or loss for the year. DerecognitionThe Group derecognises a financial asset when it expires or when the rights to the cash flows from the financial asset have been transferred and substantially all the risks and rewards of ownership have been transferred.

F-49

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

4. Accounting policies (Continued) However, the Group does not derecognise financial assets, and recognises a financial liability for an amount equal to the consideration received, in transfers of financial assets in which substantially all the risks and rewards of ownership are retained. f.2) Financial liabilities Financial liabilities include accounts payable by the Group that have arisen from the purchase of goods and services in the normal course of its business, and those which, not having commercial substance, cannot be classed as derivative financial instruments. Accounts payable are initially recognised at the fair value of the consideration received, adjusted by the directly attributable transaction costs. These liabilities are subsequently measured at amortised cost. The Group derecognises financial liabilities when the obligations giving rise to them cease to exist. f.3) Derivative financial instruments and hedge accounting The Groups activities expose it mainly to financial and market risks arising from changes in the US dollar/euro exchange rate, which mainly affect its sales because the price of pulp is quoted in US dollars in the international market, and exchange rate fluctuations affecting sales made in foreign currency, as well as changes in the prices of fuel oil, gas and electricity, as these are necessary inputs for the production process. The Group is also exposed to the impact of variations in interest rates on its financial liabilities. The Group uses financial derivative instruments to hedge these exposures. These financial instruments are initially recognised at their cost of acquisition and the necessary valuation adjustments are subsequently made to reflect their fair value at any given time. Write-downs are recognised under Derivatives in the consolidated balance sheet, and any eventual write-backs are recognised in Financial assetsDerivatives. The gains or losses on these changes in value are recognised in the consolidated income statement, unless the derivative has been designated as a hedging instrument, in which case it is recognised as follows: 1. Fair value hedges: both the hedged item and the hedging instrument are measured at fair value, and any changes in the value of either are recognised in the consolidated income statement. Effects are offset in the same caption of the consolidated income statement. Cash flow hedges: Changes in the fair value of financial derivatives are recognised in EquityValuation adjustments. The cumulative loss or gain recognised under this heading is transferred to the consolidated income statement to the extent the underlying has an impact on the consolidated income statement, so that both effects are offset.

2.

In order for these financial instruments to qualify for hedge accounting, they are initially designated as such and the hedging relationship is documented. The Group also verifies, both at inception and periodically over the term of the hedge, that the hedging relationship is effective, i.e. that it is prospectively foreseeable that changes in the fair value or cash flows of the hedged item (attributable to the hedged risk) will be almost fully offset by those of the hedging instrument, and that, retrospectively, the gain or loss on the hedge was within a range of 80-125% of the gain or loss on the hedged item. The part of the hedging instrument that is determined to be ineffective is immediately recognised through the consolidated income statement. The fair values of the different financial derivative instruments is calculated by discounting expected cash flows based on conditions in both spot and futures markets at the calculation date. All of the methods used are generally accepted by financial instrument analysts.

F-50

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

4. Accounting policies (Continued) Hedge accounting is discontinued when the hedge is no longer highly effective. In this case, the cumulative gain or loss arising on the hedging instrument that was recognised directly in equity is maintained until the expected commitment or transaction materialises, when it is transferred to the consolidated income statement. Where the commitment or transaction envisaged is not expected to occur, any accumulated gain or loss previously recognised in equity is taken to the consolidated income statement. Estimation of fair value The fair value of financial instruments of this kind which are not traded on an active market is calculated applying measurement techniques that maximise the use of observable market data, and to a lesser extent estimates. On this basis, the measurement techniques applied to derivative financial instruments are, in general, second level methods, as the key data employed to calculate fair value (interest rate curves and the cellulose pulp price curve) are observable (see Note 10). f.4) Equity instruments An equity instrument represents a residual ownership interest in the equity of the Parent Company once all of its liabilities have been deducted. The equity instruments issued by the Parent Company are recognised in equity for the amount of the proceeds received, net of issue costs. Treasury shares acquired by the Parent Company are recognised at the value of the consideration paid and are presented as a reduction in equity. The gain or loss arising on the purchase, sale, issue or redemption of treasury shares are recognised directly in equity. No amounts are recognised in the income statement in this respect. g) Inventories

Stocks of raw materials, finished products and work in progress are measured at the lower of cost of acquisition, production cost or market value. Production costs is determined by including the cost of materials, labour, and direct and indirect manufacturing overheads. The Group uses the weighted average cost method to assign value to its inventories. Net realizable value is the estimated selling price less the estimated costs of completion and costs to be incurred in marketing, selling and distribution. The Group recognises the appropriate write-downs as an expense in the consolidated income statement when the net realizable value of the inventories is lower than acquisition (or production) cost thereof. h) Cash and cash equivalents

Cash comprises both cash and demand bank deposits. Cash equivalents are highly liquid, short-term investments that are easily converted into cash, have an original maturity of no more than three months and are not subject to any significant risk of change in value. i) Income tax

Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income). The current income tax expense is the amount payable by the Group as a result of income tax settlements for a given year. Tax credits and other tax benefits, excluding tax withholdings and

F-51

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

4. Accounting policies (Continued) pre-payments, and tax loss carryforwards from prior years effectively offset in the current year reduce the current income tax expense. The deferred tax expense or income relates to the recognition and derecognition of deferred tax assets and liabilities. These include temporary differences measured at the amount expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carryforwards. These amounts are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability settled. Deferred tax liabilities are recognised for all taxable temporary differences, except for those arising from the initial recognition of goodwill or of other assets and liabilities in a transaction that is not a business combination and affects neither accounting profit (loss) nor taxable profit (tax loss). Deferred tax assets are recognised to the extent that it is considered probable that the Group will have taxable profits in the future against which the deferred tax assets can be utilised. Deferred tax assets and liabilities arising from transactions charged or credited directly to equity are also recognised in equity. The deferred tax assets recognised are reassessed at the end of each reporting period and the appropriate adjustments are made to the extent that there are doubts as to their future recoverability. Also, unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that they will be recovered through future taxable profits. The Parent Company and the rest of its subsidiaries registered in Spain in which the Parent owns interests in share capital equal to or exceeding 75% file consolidated tax returns under the regime established in Chapter VII, Title VIII of the Spanish Corporate Income Tax Law. j) Income and expenses

Income is measured at the fair value of the consideration received or receivable and is recognised when the Group is likely to receive the economic benefits of the transaction and the amount thereof can be reliably measured. Sales are recorded net of VAT and discounts. Revenues from the sale of goods is recognised when the goods are delivered and all of the risks and rewards inherent in ownership have been transferred. Dividend income is recognised when the shareholders right to receive payment is established. Expenses are recognised in the consolidated income statement when there is a decrease in future economic benefits relating to a reduction in an asset or an increase in a liability which can be reliably measured. This implies that an expense is recognised at the same time as an increase in a liability or a reduction in an asset. Expenses derived from the receipt of goods or services are recognised at the moment in which they are received. An expense is recognised immediately when a payment does not generate future economic benefits, or when it does not meet the requirements for recognition as an asset. k) Provisions and contingencies

The consolidated financial statements include all provisions with respect to which it is considered likely that an obligation will have to be settled. Contingent liabilities are not recognised in the consolidated financial statements but rather are disclosed in the accompanying notes, unless the possibility of an outflow in settlement is not considered remote.

F-52

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

4. Accounting policies (Continued) Provisions, including variable employee remuneration, are measured based on the present value of the best estimate possible of the sum necessary to cancel or transfer the obligation, taking into account the information available on the event and its consequences. Adjustments to provisions are recognised as finance costs as they are accrued. At 31 December 2011, various legal actions and claims were in progress against the Group. Both the Parent Companys legal advisers and its directors consider that the conclusion of these proceedings and claims will not have a material effect on these consolidated financial statements. l) Termination benefits

Under current legislation, the Group is required to pay termination benefits to employees terminated under certain conditions. Therefore, termination benefits that can be reasonably quantified are recognised as an expense in the year in which the decision to terminate the employment relationship is taken. The Group recognised an allowance of EUR 251 thousand for this item under Trade and other payablespayable to employees in the consolidated balance sheet at 31 December 2011 (EUR 2,270 thousand at 31 December 2010) in order to cover incentivised terminations expected at the end of the reporting period. At 31 December 2011 the directors of the Parent Company do not foresee any terminations might require the recognition of provisions in addition to those recorded in these consolidated financial statements. m) Environmental assets and liabilities

Environmental assets are deemed to be assets used on a lasting basis in the Groups operations whose main purpose is to minimise environmental impact and protect and improve the environment, including the reduction or elimination of future pollution. Environmental expenses Environmental expenses comprise amounts incurred in the management of the environmental effects of the Groups operations, and those arising from existing environmental commitments. These include expenses arising from the prevention of pollution, treatment of waste and discharges, decontamination, restoration, environmental management and environmental audits (see Note 27). Provisions relating to probable or certain environmental responsibilities, litigation and compensation or obligations payable for indeterminate amounts that are not covered by the insurance policies arranged are set aside, where appropriate, at the time the responsibility or obligation determining compensation or payment arises. Environmental assets Items included in the Groups assets for permanent use in its operations, the purpose of which is to minimise environmental impacts or to protect and improve the environment, including the reduction or elimination of future pollution, are recognised under Property, plant and equipment in the accompanying consolidated balance sheet. For these purposes, the assets are recognised, the cost of acquisition or production is determined and the depreciation and impairment criteria are established in accordance with the policies described in Notes 4.a) and 4.b) above.

F-53

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

4. Accounting policies (Continued) n) Pension obligations

Certain group companies have established the following commitments for retirement, widows, orphans and ancestors pensions, to supplement the Social Security benefits due to employees and members of their families: 1. Current employees

Commitment to current employees at 31 December 2011 whereby the Company and the employee concerned contribute a pre-established percentage of salary for pension purposes to the ENCE Groups Joint Promotion Pension Plan promoted in accordance with article 40.d) of the Pension Plans and Funds Regulations (defined contributions). This pension plan is included in the SERVIRENTA II F.P . Pension Fund. 2. Retired employees

In December 1997 the Parent Company arranged a single premium insurance policy with an insurance company to guarantee the contingencies covered by the aforementioned fund. Payments made by the insurance company constitute a tax deductible expense when they are settled. o) Share-based payments

On 30 March 2007 the Annual General Meeting of the Parent Company approved a Special Variable Executive Compensation Plan for 2007-2011. This Plan refers to persons who perform executive functions and report directly to the Board of Directors or the Chief Executive Officer of the Parent Company, including the CEO himself. The Parent Companys Annual General Meeting held on 22 June 2010 resolved to modify the aforementioned plan, and to delegate its development and implementation to the Board of Directors. This change was approved on 30 November 2010 and was included in the Grupo Empresarial ENCE, S.A. Long-Term Incentive Plan for 2010-2015 (the Plan). The Plan is designed to incentivise the achievement of the objectives established by the Board of Directors for 2010, 2011 and 2012 through the benefits offered. The maximum amount of stock options eligible for distribution is 3,850,000 shares, representing 1.49% of share capital. At 31 December 2011, a total of 539,079 had been granted. These options may be exercised two years after they are granted, provided that: 1. 2. the beneficiary continues to serve ENCE under an employment or commercial relationship, unless service was discontinued as a consequence of unfair dismissal; and the Parent Company has specified a regular dividend policy at the time the options are exercised.

At the Annual General Meeting held on 29 April 2011, the shareholders resolved to extend the term of the aforementioned Grupo Empresarial ENCE, S.A. Long-Term Incentive Plan for 2010-2015 for the Chief Executive Officer, to allow him to be assigned the unallocated options under the Plan in 2013 up to the maximum number of options authorised for the CEO. The strike price of the options assigned prior to 31 March 2011 is EUR 2.44 per share. The strike price for the allocations made in the second and third periods will be equal to the average closing price for the shares in the first 20 days of March 2012 and 2013, respectively. The stock options will be settled in cash. Consequently, a liability is recognised in this respect at the date of each consolidated balance sheet equal to the portion of services received at the current fair value thereof.

F-54

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

4. Accounting policies (Continued) The fair value of the Special Variable Executive Compensation Plan has been determined using the Black-Scholes method, which is generally accepted for financial instruments of this type. Following this valuation method, the expense incurred in this respect in 2011 and 2010 was nil. On 25 October 2007, the Parent Company arranged an equity swap with Bankia, as one of the requirements established in the terms and conditions of the Special Variable Executive Compensation Plan made on that date. This equity swap was renewed on 18 June 2008 by terminating the initial contract and entering into a new one based on the Parent Companys listed share price at that date. The equity swap was renewed for a second time on 14 October 2010 to bring it into line with the modification made to the Long-Term Incentives Plan. The aforementioned equity swap was contracted for a total of 5,100,000 shares of the Parent Company at a base price of EUR 4.11 per share. The benchmark interest rate for this investment is Euribor at 12 months plus an additional spread of 0.05%, settled annually. Initial maturity is scheduled for 30 June 2012. The Special Variable Compensation Plan does not include any share buy-back agreement and expressly mentions that the shares will not return to the Group. Any shares remaining at the end of the 5-year period will be placed directly in the market by Bankia, thereby ensuring that they do not have to be recognised as treasury shares. This instrument does not meet the criteria to qualify as a hedging instrument, and changes in fair value must therefore be recognised in the consolidated income statement as they occur. The fair value of the equity swap is calculated based on the discounted cash flows of the share component (present value of dividends plus the final share price, less EUR 4.11) and the discounted cash flows generated by the accrual of interest. The fair value of this instrument was negative by EUR 12,386 thousand at 31 December 2011 (EUR 9,444 thousand at 31 December 2010). This amount and has been recognised as a current liability under Derivatives in the accompanying consolidated balance sheet (see Note 10). p) Grants The Group accounts for grants received as follows: a) Non-refundable capital grants: these are measured at the fair value of the amount or the asset received, based on whether or not they are monetary grants, and they are taken to income in proportion to the period depreciation taken on the assets for which the grants were received or, where appropriate, on disposal of the asset or on the recognition of an impairment loss. Grants related to income: these are charged to the consolidated income statement when they are awarded, unless the award is made to finance specific expenses, in which case the grant is recognised in line with the accrual of the subsidised expenses.

b)

q)

Consolidated cash flow statement

The following terms are used in the consolidated cash flow statements (prepared using the indirect method) with the meanings specified: 1. Cash flows: inflows and outflows of cash and cash equivalents, the latter being understood as highly liquid current financial instruments with a low risk of fluctuations in value. Operating activities: the principal revenue-producing activities of the entities forming the consolidated Group and other activities that are not investing or financing activities. Investing activities: activities involving the acquisition, sale or disposal in any other way of non-current assets or other investments not included in cash and cash equivalents.

2. 3.

F-55

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

4. Accounting policies (Continued) 4. Financing activities: activities that result in changes in the size and composition of the equity and borrowings of the Group companies that are not operating activities.

r)

Related party transactions The Group performs all transactions with related parties on an arms length basis.

s)

Balances and transactions in currencies other than the euro

The consolidated financial statements are presented in euros, which the Groups functional and presentation currency. Translation of transactions and balancesThe Group converts balances receivable and payable expressed in currencies other than the euro applying the exchange rates ruling at the transaction date. Receivables and balances are measured at this exchange rate until they are settled. Exchange gains or losses arising on the collection of receivables and payment of liabilities in currencies other than the euro, and differences arising from year-end measurement of non-euro receivables and payables at the exchange rates ruling at the end of the reporting period, are recognised in the consolidated income statement in which they arise. Translation of the financial statements of Group companiesThe earnings and financial position of all Group companies using a presentation currency other than the euro (none of which is the currency of a hyperinflationary economy) are translated to euros as follows: assets and liabilities are converted at the year-end rate ruling at the reporting date; equity is translated at historic rates of exchange; and revenues and expenses are converted at the average rate for the period. All exchange differences arising are recognised in equity. Long-term loans granted by the Parent Company to consolidated establishments and companies using a functional currency other than that of the Group are treated as net financial assets held abroad. All resulting exchange differences arising are recognised in equity. t) Non-current assets held for sale and discontinued operations

A non-current asset or a group of assets earmarked for disposal is classified as a held-for-sale asset where its value will be recovered basically as a result of sale, providing the sale is considered highly likely. These assets are measured at the loser of the carrying amount and fair value less costs to sell. The captions Non-current assets held for sale and Liabilities associated with non-current assets held for sale comprise the assets and liabilities of Ibersilva, S.A.U., the activity of which consists of landscape gardening, forestry and development projects and services (see Note 20). A discontinued operation is any component of the Group which has been sold or otherwise disposed of, or which has been classified as held for sale and, among other conditions, represents a line of business or a significant area which may be regarded as separate from the rest. For these types of operations, the Group includes both the after-tax profit or loss from discontinued operations and the after-tax profit or loss recognised on measurement at fair value less costs to sell, or on the disposal of the assets comprising the discontinued activity in a separate line of the consolidated income statement under the caption Profit or loss for the year from discontinued operations net of tax. When operations are classified as discontinued, the Group presents the prior years amount in respect of the discontinued operations at the reporting date for the year to which the consolidated financial statements refer in the aforementioned caption.

F-56

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

5. Exposure to risk Assisted by senior management, the Board of Directors defines the Groups risk management criteria and approves the specific policies applied to manage exchange rate, interest rate, credit and liquidity risks, and to the use of derivative financial instruments for risk management purposes. The internal audit department assures appropriate implementation of the risk management criteria and policies established by the Board of Directors. The main financial risks affecting the Group and the policies and controls adopted to mitigate them are as follows: Market riskPulp priceThe price of BEKP cellulose pulp is established in an active market, the evolution of which significantly conditions the volume of the Groups revenues and its earnings. Changes in cellulose pulp prices modify the cash flows obtained from sales. Cellulose pulp price display a marked cyclical nature, and there has been considerable price volatility in recent years. The behaviour of the price is associated basically with changes in volumes or the conditions dictating supply and demand, as well as the financial situation of firms operating in the market. In order to mitigate this risk, the Group has made significant investments in recent years to raise productivity and improve the quality of the product it markets. It also continually assesses the possibility of hedging pulp prices for future sales (see Note 10). A 5% increase in the international pulp price in euros would increase the Groups revenues by approximately 3.9%. Timber suppliesEucalyptus timber is the main input for the production of cellulose pulp, and its price is subject to fluctuations due to regional changes in the balance of supply and demand and the need to access markets in other regions, resulting in the consequent logistics overheads, when more local supplies are insufficient to meet demand. Furthermore, the Group maximises the value added in its products inter alia by increasing its use of certified timber, which is more costly. A 5% increase in the price per cubic metre of eucalyptus timber used in the production process would reduce the operating margin by approximately 15%. RegulationEnvironmental regulation in the European Union has raised restrictions on the emission of effluents, CO2, etc. Future regulatory changes could increase the costs necessary to comply with environmental requirements. Electricity generating operations have become increasingly important to the Group in recent years, as this business complements cellulose pulp production by using biomass as an input for some plants, while the stability of electricity prices allows effective management of the intrinsic cyclicality of the pulp business. Future regulatory changes could therefore affect revenues. A 5% increase in the prices determining revenues from electricity generating operations would raise the Groups total revenues by approximately 1%. On 27 January 2012, the Spanish Council of Ministers approved Royal Decree Law 1/2012, temporarily suspending the procedures for pre-allocation of remuneration and removing financial

F-57

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

5. Exposure to risk (Continued) incentives for new power plants using cogeneration, renewable energy sources and waste. However, this legislation also allows the Government to regulate specific financial regimes covering certain special regime power plants, and it also establishes the right of cogeneration plants and other power plants using primary energy sources, non-consumable and non-hydraulic renewable energy, biomass, bio-fuels and agricultural waste to receive remuneration under a specific financial regime. This legislation confirms that current electricity price levels will be maintained for the generating and cogeneration plants currently operated by Grupo ENCE, and others like the two which the Group has under construction, which had already been included in the pre-allocation register when the Royal Decree came into force. However, it introduces uncertainty with regard to the development of new plants, as the suspension period is open-ended. Exchange rateWhile the majority of the Groups sales are made in the European market, revenues from sales of cellulose pulp are affected by the USD/Euro exchange rate, because the benchmark sale price on the international market is in USD per ton. Insofar as the Groups cost structure is mainly in euros, changes in the dollar exchange rate can have a significant impact on earnings volatility. In order to mitigate this risk, the Groups policy is to lock in the exchange rate in parallel with its management of the risks inherent in the evolution of cellulose pulp prices. Accordingly, it continuously assesses the possibility of using exchange rate hedges for foreseeable future sales (see Note 10). A 5% increase in the dollar would increase the Groups revenues by approximately 4%. Credit riskThe Group is exposed to credit risk in respect of outstanding balances receivable from customers. This risk is mitigated mainly by arranging credit insurance policies, which assign credit limits based on credit quality as determined by the insurer and provide cover for between 75% and 90% of trade receivables associated with sales of cellulose pulp. Provision is made for overdue balances where there is evidence of impairment, and for all receivables overdue by more than 12 months that are not covered by credit insurance policies. Revenues associated with the electricity generating business are obtained from the electricity system, which is backed by the Spanish state. Interest rate riskThis risk arises from exposure to changes in the interest rates of the Companys financial assets and liabilities, which can have an adverse impact on the income statement and on cash flows. The objective of interest rate risk management is to achieve a balance in the debt structure to minimise the cost of debt over a time horizon of several years with low volatility in the consolidated income statement. The hedging instruments contracted are assigned to specific financial operations, and the derivatives are appropriately aligned with the timing and amount of the financing concerned. At 31 December 2011 the Group held hedging instruments covering all financial debt contracted at floating rates of interest. LiquidityAsset Management Risk Exposure to adverse situations in the debt and capital markets can hinder or prevent the Group from covering financial needs related with operations and the future Business Plan.

F-58

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

5. Exposure to risk (Continued) This is one of the risks that is most closely tracked by the ENCE Group, and a series of key objectives has been established: 1) to assure the continuity of operations and the capacity for growth of the businesses conducted by maintaining a sound capital structure; and 2) to keep net indebtedness at levels that do not exceed the gross operating profit generated by more than 2.5 - 3 times, based on the average cellulose pulp price for the cycle. Management of this risk includes detailed monitoring of the maturities of bank borrowings; proactive management and continuance of credit facilities and other sources of finance to cover forecast cash requirements; determination of the dividends to be distributed; and the issue of new shares, where appropriate. The information necessary for analysis of the maturities of the financial liabilities referred to in IFRS 7 is provided in Notes 10 and 16 below. 6. Intangible assets Changes in intangible assets and the related accumulated amortization in 2011 and 2010 were as follows:
Thousands of Euros Transfers to Additions or Retirements held-for-sale Balance at Charge for or Transfers Exchange assets Balance at 01/01/2011 the year disposals (Note 7) differences (Note 20) 31/12/2011

2011

Computer software . . . . Emission rights . . . . . . . Other intangible assets(*) Total cost . . . . . . . . . Computer software . . . . Other intangible assets(*) Total . . . . . . . . . . .
(*)

14,329 2,544 11,867 28,740 (13,532) (8,674) 6,534

144 9,099 291 9,534 (319) (941) (1,260)

(6,390) (16) (6,406) 15 15

(317) (317) 101 101

(2) (2) (3) (3)

(110) (1,420) (1,530) 110 1,351 1,461

14,361 5,253 10,405 30,019 (13,744) (8,148) (21,892) 8,127

Total amortisation . . . (22,206)

Mainly comprising development costs Thousands of Euros Additions or Retirements Charge for or Transfers the year disposals (Note 7)

2010

Balance at 01/01/2011

Balance at 31/12/2011

Computer software . . . . . . . . . . . . . . . . Emission rights . . . . . . . . . . . . . . . . . . Other intangible assets(*) . . . . . . . . . . . . Cost . . . . . . . . . . . . . . . . . . . . . . . . Computer software . . . . . . . . . . . . . . . . Other intangible assets(*) . . . . . . . . . . . . Amortisation . . . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . .
(*) Mainly comprising development costs

14,271 1,053 11,003 26,327 (13,339) (7,937) (21,276) (79) 4,972

19 8,421 1,111 9,551 (393) (984) (1,377)

(200) (6,930) (247) (7,377) 200 247 447 79

239 239

14,329 2,544 11,867 28,740 (13,532) (8,674) (22,206) 6,534

F-59

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

6. Intangible assets (Continued) Additions and disposalsThe main additions in 2011 and 2010 comprised capitalised development costs related with forest projects carried out internally in Spain, as well as emission rights received. On 3 June 2008 the Group concluded an agreement to sell greenhouse gas emission rights equal to 657,970 tons of CO2 received free of charge in 2008 at a price of 25.4 euros per ton. On the same date, the Group entered into an emission rights purchase commitment for a total of 506,202 tons of CO2 at an average price of EUR 24.65 per right, representing the Groups forecast consumption for 2012. As the purpose of the purchase undertaking is to meet the rights consumption requirements arising from the production process in 2012, the impact on the consolidated income statement will be recognised in that year. In 2011 the Group used 278,121 tons of CO2 assigned for 2011 to redeem rights consumed in 2010. The remaining 379,849 tons of CO2 for 2011 were recognised in Emission rights for a total of EUR 5,253 thousand. The Group has also arranged various emission rights purchase commitments for a total of 601,000 tons of CO2 at an average price of EUR 14.85, maturing in 2012, to cover a part of expected consumption as from 2013, the year in which the current National Allocation Plan ends. Non-current provisions in the accompanying consolidated balance sheet include EUR 5,845 thousand in respect of the liability represented by the consumption of 470,120 tons of CO2 in 2011 (see Note 15). Fully amortised intangible assetsAt 31 December 2011, fully amortised intangible assets, mainly consisting of development costs and computer software, totalled EUR 15,659 thousand (EUR 16,275 thousand at 31 December 2010).

F-60

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued) 7. Property, plant and equipment Changes in the property, plant and equipment carried in the consolidated balance sheet and the related accumulated depreciation in 2011 and 2010 were as follows:
Thousands of Euros Transfers to Additions or held-for-sale Charge for Retirements Transfers Exchange assets Balance at the year or disposals (Note 6) differences (Note 20) 31/12/2011

2011

Balance at 01/01/2011

Forest land . . . . . . . Other land . . . . . . . . Buildings . . . . . . . . . Plant and machinery Other items of property, plant and equipment . . . . . . Advances and non-current assets under construction

. 153,516 . 7,598 . 145,081 . 1,001,898 . . 28,989 80,320 (74,080) (548,988) (22,510) (13,289) (11,395) (24,684) 747,140

477 448 7,512 1,659 66,059 76,155 (4,442) (48,090) (1,144) (819) (819)

(1,212) (8,283) (2,363) (1,498) (263) (13,619) 660 (2,860) 4,236 2,036 8,305 4,509 12,814

1,793 18,609 2,643 (22,728) 317 1 (60) (41) (100) (1) (1)

324 (9) (34) 109 (2) (5) 383 (11) (55) (2) (68)

(28) (5,468) (1,139) (3) (6,638) 18 3,776 891 4,685 1,533 1,533

154,317 6,377 138,977 1,020,297 30,652 123,380 1,474,000 (77,854) (596,277) (18,570) (692,701) (4,984) (6,173) (11,157) 770,142

Cost . . . . . . . . . . . 1,417,402 Buildings . . . . . . . . . . Plant and machinery . Other items of property, plant and equipment . . . . . . . Depreciation . . . . . Land and buildings . . Plant and machinery . Other items of property, plant and equipment . . . . . . . Impairments . . . . . Total . . . . . . . . . .

(645,578) (53,676)

F-61

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

7. Property, plant and equipment (Continued)

Thousands of Euros Additions or Retirements Charge for the or Transfers year disposals (Note 6)

2010

Balance at 01/01/2010

Balance at 31/12/2010

Forest land . . . . . . . . . . . . . . . . . Other land . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . Plant and machinery . . . . . . . . . . Other items of property, plant and equipment . . . . . . . . . . . . . . . Advances and non-current assets under construction . . . . . . . . . .

. . . .

. . . .

153,463 8,958 139,404 940,470 26,821 98,407 1,367,523 (70,265) (510,883) (22,271) (603,419) (13,289) (12,804) (204) (26,297) 737,807

65 2,277 17,317 1,368 36,326 57,353 (3,882) (42,704) (1,461) (48,047) (224) (224)

(12) (210) (25) (5,455) (548) (985) (7,235) 67 3,869 1,222 5,158 2,363 204 2,567

(1,150) 3,425 49,566 1,348 (53,428) 730 730 (730) (730)

153,516 7,598 145,081 1,001,898 28,989 80,320 (74,080) (548,988) (22,510) (645,578) (13,289) (11,395) (24,684) 747,140

.. ..

Cost . . . . . . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . . . Plant and machinery . . . . . . . . . . . . Other items of property, plant and equipment . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . Land and buildings . . . . . . . . . . . . . Plant and machinery . . . . . . . . . . . . Other items of property, plant and equipment . . . . . . . . . . . . . . . . . Impairments . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . Additions-

(239) 1,417,402

The Group has made investments at all of its facilities to improve the efficiency of the paper pulp production process, optimise electricity generating and improve environmental protection. Details by plant are as follows:
Thousands of Euros 31/12/2011 31/12/2010

Navia . . . . . Huelva(*) . . . Pontevedra . Other(**) . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

11,321 51,389 6,224 7,221 76,155

19,236 22,479 7,310 8,328 57,353

(*) (**)

Includes investment in a 50 megawatt generating plant. Includes mainly investments in irrigation equipment for plantations of energy crops and capitalised costs incurred in the development of energy projects.

On 21 June 2011, the ENCE Group concluded a turnkey construction contract for a biomass renewable energy generating plant with install capacity of 50 megawatts via the subsidiary, ENCE Energ a Huelva, S.A.U. This plant will be located on site at the Groups facility in Huelva, and it is scheduled to enter service in the last quarter of 2012. The total planned investment in this project is EUR 135 million, of which EUR 101.3 million will be financed by a syndicate of banks via Project Finance arrangements (see Note 16). The cumulative investment made at 31 December 2011 was EUR 99.5 million, of which EUR 42.6 million were invested in 2011.

F-62

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

7. Property, plant and equipment (Continued) Retirements and disposalsOn 11 September 2011 the Group sold certain land in Uruguay owned by Sociedad Zona Franca de MBopic ua, S.A. for a total of USD 5,000 thousand (EUR 3,741 thousand). This transaction generated a profit of EUR 2,690 thousand, which was recognised in the accompanying consolidated income statement under Impairment and gains or losses on disposals of non-current assets. Fully depreciated property, plant and equipmentAt 31 December 2011 and 2010 the Group had fully depreciated items of property, plant and equipment still in use as follows:
Thousands of Euros 2011 2010

Buildings . . . . . . . . . Machinery . . . . . . . . Equipment and tools Furniture . . . . . . . . . Other . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

41,945 374,196 473 2,251 10,197 429,062

41,829 356,940 467 1,001 10,063 410,300

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grant of public land-

The maritime-terrestrial public concession relating to the land on which the Pontevedra factory is sited was awarded to the Parent Company under a Ministerial Order issued on 13 June 1958. The concession deed did not specify any fixed term, but article 66 of the subsequent Coasts Act, 1988, established a maximum term of 30 years for maritime-terrestrial public concessions. In accordance with Transitional Provision 14.3 of the Coasts Regulations, moreover, the holders of concessions granted prior to the entry into force of the Coasts Act (as in the present case) should understand that the same are granted for a maximum period of thirty years as from the entry into force of the Coasts Act, whatever the term established in the concession deed (the Act came into force on 29 July 1988, and the concession will therefore expire on 29 July 2018). The carrying amount of all assets associated with land at 31 December 2011 was EUR 80,073 thousand (EUR 87,073 thousand at 31 December 2010). On 19 May 2011, the Administrative Disputes bench of the Spanish High Court issued a ruling on the appeal filed by the Association, Salvemos Pontevedra. This judgment did not enter into the merits of the case, and it therefore did not find that ENCE had breached any of the terms of the concession, as the claimant Association had sought. Rather, the Court confined itself to ordering the Administration to open proceedings in connection with the expiration of the concession and the adoption of legal measures to halt activity and the use and operation of the facility. This judgment does not prejudge the outcome of these proceedings which would, where applicable, be conducted as a full administrative process leading to a final decision that would be open to appeal in the administrative disputes jurisdiction. Both the Administration and ENCE have appealed against the judgment, which is not enforceable while the appeal proceedings continue. RevaluationsAs of 1 January 2004, the date of transition to EU-IFRS, forest land was revalued at fair value. The fair value was determined by specialist independent appraisers and is considered to be a reference historical cost as permitted by International Accounting Standards. The revaluation surplus of EUR 54,920 thousand, net of deferred tax liabilities totalling EUR 23,718 thousand, was

F-63

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

7. Property, plant and equipment (Continued) recognised in equity under Valuation adjustments. This market value is treated as the historical cost reference at subsequent dates. Insurance and other mattersThe Group arranges insurance policies to cover the possible risks to which its property, plant and equipment are exposed. The Parent Companys directors consider that the insurance cover for these risks is adequate at 31 December 2011. Assets located outside Spain, mainly in Uruguay, amounted to EUR 37,928 thousand at 31 December 2011 (EUR 38,836 at 31 December 2010). 8. Biological assets Biological assets comprise basically the Groups standing timber (forest land owned by the Group is presented in Property, plant and equipmentforest land), as follows:
Thousands of Euros 31/12/2011 31/12/2010

Standing timberIberian Peninsula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standing timberUruguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other standing cropsIberian Peninsula . . . . . . . . . . . . . . . . . . . . . . . . . .

160,520 19,294 772 180,586

143,895 21,572 720 166,187

Changes in 2011 and 2010 were as follows:

Balance at 01/01/2011 Thousands of Euros Additions or Exchange Allowances differences Balance at 31/12/2011

2011

Biological assets: Forest land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forestry reserve depletion . . . . . . . . . . . . . . . . . . . Impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

249,651 (82,937) (527) 166,187

24,921 (8,635) (570) 15,716

(1,185) (132) (1,317)

273,387 (91,704) (1,097) 180,586

2010

Balance at 01/01/2010

Thousands of Euros Disposals Additions or and Allowances Transfers

Balance at 31/12/2010

Biological assets: Forest land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forestry reserve depletion . . . . . . . . . . . . . . . . . . . Impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

227,412 (72,174) 155,238

22,959 (10,671) (527) 11,761

(720) (92) (812)

249,651 (82,937) (527) 166,187

The Group planted 6,664 hectares in 2011 (5,109 ha. in 2010), and it carried out conservation and forestry work on a further 55,481 ha. (58,183 ha. in 2010).

F-64

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

8. Biological assets (Continued) Details of standing timber at 31 December 2011 and 2010 are as follows: 2011
Iberian Peninsula Thousands Hectares of Euros Productive Carrying land (Ha.) Amount Uruguay Thousands Hectares of Euros Productive Carrying land (Ha.) Amount

Age in years

> 17 . . . . . . . 16 . . . . . . . . . 15 . . . . . . . . . 14 . . . . . . . . . 13 . . . . . . . . . 12 . . . . . . . . . 11 . . . . . . . . . 10 . . . . . . . . . 9.......... 8.......... 7.......... 6.......... 5.......... 4.......... 3.......... 2.......... 1.......... 0.......... Deferred costs

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

1,062 255 83 365 863 2,707 2,109 3,053 2,918 2,750 4,773 7,494 7,045 5,021 5,927 6,641 7,833 7,805 68,704

1,598 339 60 1,534 2,582 7,384 7,184 9,815 6,407 6,028 14,177 23,305 20,073 10,792 12,661 12,964 13,704 7,636 2,277 160,520

180 5 51 98 69 324 1,390 537 201 654 1,662 2,410 2,027 844 1,353 1,622 3,009 16,436

288 9 74 147 105 456 1,967 686 324 1,068 1,827 3,153 2,560 1,097 2,194 1,551 1,788 19,294

2010
Iberian Peninsula Thousands Hectares of Euros Productive Carrying land (Ha.) Amount Uruguay Thousands Hectares of Euros Productive Carrying land (Ha.) Amount

Age in years

> 17 16 . . 15 . . 14 . . 13 . . 12 . . 11 . . 10 . . 9... 8... 7... 6... 5... 4... 3... 2... 1... 0...

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

1,266 154 441 186 327 965 1,901 3,964 3,270 3,265 2,754 3,151 8,383 6,491 6,579 6,032 6,166 7,263 62,558

2,160 732 769 507 1,274 2,114 6,276 10,796 10,125 6,235 5,546 8,955 24,535 16,669 14,145 10,037 16,770 6,250 143,895

223 402 414 1,654 865 152 403 2,161 572 206 654 1,662 2,394 2,027 841 1,414 496 16,540

119 742 170 1,420 567 260 666 3,232 787 325 1,398 1,875 3,644 2,639 1,338 1,794 596 21,572

F-65

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

9. Leases At 31 December 2011 the Group had contracted the following lease instalments with certain lessors under leases currently in force, not including common expenses, future increases for inflation or future contractual rent rises:
Thousands of Euros Thousands of Euros

Less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Between one and five years . . . . . . . . . . . . . . . . . . . . . . . . Over five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,545 8,690 22,301 34,536

3,783 14,208 17,925 35,916

The Group leased 28,419 hectares of forest land in 2011 (30,441 ha. in 2010) for the cultivation of standing timber. These leases have an average term of 30 years. 10. Derivative financial instruments In accordance with the risk management policy described in Note 26, the Group contracts derivatives to hedge risks arising from changes in interest rates, exchange rates, cellulose pulp prices, and the prices of gas, fuel oil and electricity used in the production process. The most commonly used derivatives are interest rate swaps. The exchange rate derivatives and instruments contracted to hedge fluctuations in the prices of cellulose pulp and energy products consist mainly of swaps and futures. The Group classifies derivatives in three categories: 1. 2. 3. Derivatives designated as cash flow hedges: these are used mainly to hedge cash flows, interest payments, collections and payments in foreign currencies, etc. Derivatives designated as fair value hedges: these are used to hedge the fair values of assets and liabilities carried in the consolidated balance sheet. Other derivatives: these comprise instruments that are not designated hedges or that do not meet the requirements established by the appropriate accounting standards to qualify for hedge accounting.

All financial instruments were measured after initial recognition with reference to observable market data, whether directly (i.e. via prices) or indirectly (i.e. via price derivatives). Details of the derivatives carried in the consolidated balance sheet at 31 December 2011 and 2010 are as follows:
Current Assets 2011 2010 Thousands of Euros Non-Current Liabilities Current Liabilities 2011 2010 2011 2010

Liability / Asset

IR SwapCorporate borrowings . . . . . . IR SwapProject finance, 50 megawatts Equity Swap . . . . . . . . . . . . . . . . . . . . Exchange rate hedges . . . . . . . . . . . . . Pulp price hedges . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

867 867

786 786

18,851 6,615 25,466

27,118 9,444 36,562

12,386 22,224 34,610

2,014 2,577 4,591

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-66

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

10. Derivative financial instruments (Continued) Exchange rate hedgesIn order to hedge the risks to which the Group is exposed due to fluctuations in the USD/Euro exchange rate, which can have a material impact on the sale price of cellulose pulp and on a significant part of purchases, the Parent Company proceeded to make forward sales of US dollars to hedge future revenues. The notional amount of these hedges was USD 516 million at 31 December 2010 (USD 143 million in 2010). These contracts meet the requirements established in the relevant accounting standards to qualify as effective hedges. The market value of these instruments at 31 December 2011 was negative by EUR 22,224 thousand, which was recognised in the accompanying consolidated balance sheet under Current liabilitiesDerivatives with an equivalent entry, net of the tax effect, in EquityValuation adjustments. Gains or losses on hedging operations in the accompanying consolidated income statement for 2011 includes a gain of EUR 465 thousand in respect of hedges settled during the reporting period. Based on the contractual terms and conditions prevailing at 31 December 2011, a 5% appreciation in the euro would have a positive impact of EUR 18,725 thousand on consolidated earnings for 2012. In contrast, a 5% depreciation in the euro would have a negative impact of EUR 20,691 thousand on consolidated earnings for 2012. Pulp price hedgesIn order to hedge the risks to which the Group is exposed due to fluctuations in BHKP pulp prices, which have a significant impact on the amount of sales, the Parent Company arranged BHKP pulp price swaps in 2011 maturing in 2012 in order to hedge sales revenues. The notional amount of these hedges was 48,000 tons of cellulose pulp at 31 December 2011 (333,300 tons in 2010). These contracts meet the requirements established in the relevant accounting standards to qualify as effective hedges. These instruments were recognised at fair value in the accompanying consolidated balance sheet. The fair value of these financial assets at 31 December 2011 was positive by EUR 867 thousand, which was recognised in the accompanying consolidated balance sheet under Current assetsDerivatives with an equivalent entry, net of the tax effect, in EquityValuation adjustments. Gains or losses on hedging operations in the accompanying consolidated income statement for 2011 includes a loss of EUR 10,899 thousand in respect of hedges settled during the reporting period. Based on the contractual terms and conditions prevailing at 31 December 2011 and the portfolio of hedging derivatives existing at that date, a 5% increase in the pulp price curve would have a negative impact of EUR 1,285 thousand on earnings for 2012. In contrast, a 5% decline in the pulp price curve would have a positive impact of EUR 1,286 thousand on earnings for 2012. Other hedgesThe Group is exposed to fluctuations in the prices of certain energy products consumed in the production process, which can significantly affect production costs. This risk is partially hedged using commodity swaps, which comply with hedge accounting requirements. At 31 December 2011 and 2010, the Group had no contracts in force to hedge the price of electricity or fuel oil. The Group contracted electricity and fuel oil commodity swaps in 2010.

F-67

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

10. Derivative financial instruments (Continued) Interest Rate SwapThe Group hedges the interest rate risk inherent in euro-denominated long-term floating rate financial liabilities using interest rate swaps. The purpose of these hedges is to neutralise fluctuations in cash outflows associated with floating interest rates (Euribor) on the Groups borrowings. The Group uses the discounted cash flows method to determine the fair value of interest rate derivatives (fixed rate swaps and options structures), based on implicit values determined by the Euribor interest rate curve according to market conditions at the measurement date. In the case of options, the Group also uses implicit market volatility as an input to determine fair value, applying Black-Scholes valuation techniques and variations applied to underlying interest rates. The interest rate derivatives contracted by the Group outstanding at 31 December 2011 and 2010 and their negative fair values at the reporting dates were as follows:
Thousands of Euros Notional amount at the end of 2014 2015 2016 2017

2011

Fair value

2012

2013

2018

2019

IR SwapCorporate borrowings . . . . . . . . . 18,851 232,298 194,498 IR SwapProject finance, 50 megawatts . . . . . . . 6,615 47,641 75,982 74,874 69,933 63,997 57,502 50,584 43,563
Fair value Thousands of Euros Notional amount at the end of 2011 2012 2013

2010

IR SwapCorporate borrowings . . . . . . . . . . . . . . . . . . . .

27,118

270,105

232,298

194,498

An analysis of the Groups liquidity for interest rate derivatives prepared at 31 December 2011 on the basis of undiscounted net cash flows is as follows:
Less than 1 Month Thousands of Euros 1-3 3 Months - 1 1-5 Months Year Years Over 5 years

IR SwapCorporate borrowings . . . . . . . . . . . . . IR SwapProject finance, 50 megawatts . . . . . . .

2,571

7,772 847

8,711 5,268

819

On 29 May 2008 the Parent Company contracted an interest rate swap to hedge approximately 60% of its bank debt. This debt changed substantially in 2009, with the result that the interest rate swap ceased to qualify for hedge accounting on 16 October 2009. Since that date, changes in the value of this instrument have been recognised through the consolidated income statement for the year. A gain of EUR 8,267 thousand was recognised in the consolidated income statement for 2011 under Changes in fair value of financial instruments in respect of the change in the value of the interest rate swap (EUR 6,227 thousand in 2010). The part of the value of the hedging instrument associated with the hedged item, which was recognised in consolidated equity for a total of EUR 3,120 thousand before the tax effect (EUR

F-68

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

10. Derivative financial instruments (Continued) 6,748 thousand in 2010), will be recognised prospectively through the consolidated income statement until 2013, the period in which the hedged item will affect the Groups results, as follows:
Thousands of Euros 2011 2010

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,045 1,075 3,120

3,628 2,045 1,075 6,748

The IRS associated with the financing arranged for the 50-megawatt power project meets the requirements to qualify as an effective hedge. Based on the contractual terms and conditions prevailing at 31 December 2011, a 5% increase in the Euribor interest rate curve would have a positive impact of EUR 647 thousand on consolidated earnings for 2012. In contrast, a 5% decline in the Euribor interest rate curve would have a negative impact of EUR 651 thousand on consolidated earnings for 2012. Equity swapThe Parent Company arranged an equity swap at the end of 2007 to hedge the impact on the consolidated income statement of the Grupo Empresarial ENCE, S.A. 2008-2011 Special Variable Income Plan. This was initially recognised as an asset at its fair value of EUR 14,429 thousand with an equivalent entry in the Share premium account in consolidated equity (see Note 4.o). The fair value of the equity swap was negative by EUR 12,386 thousand at 31 December 2011 (EUR 9,444 thousand at 31 December 2010). This amount has been recognised as a current liability under Derivatives in the accompanying consolidated balance sheet. A 10% rise in the Parent Companys share price would have a positive impact of EUR 890 thousand on consolidated earnings for 2012. In contrast, a 10% fall in the Parent Companys share price would have a negative impact for the same amount on consolidated earnings for 2012. 11. Inventories The detail of the Groups inventories at 31 December 2011 and 2010 is as follows:
Thousands of Euros 31/12/2011 31/12/2010

Wood . . . . . . . . . . . . . Other raw materials . . . Spare parts . . . . . . . . Work in progress . . . . Products in progress . . Finished goods . . . . . . Advances to suppliers . Impairments(*) . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

70,759 4,921 22,889 441 17,601 3,396 (7,545) 112,462

61,214 6,917 21,070 8,107 441 16,094 3,369 (11,301) 105,911

(*)

Mainly related to spare parts.

F-69

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

11. Inventories (Continued) There no restrictions on the disposability of inventories. The Group arranges insurance policies to cover the possible risks to which its inventories are exposed. The directors consider that the cover arranged for these risks is adequate at 31 December 2011 and 2010. 12. Trade and other accounts receivable / payable Trade and other receivables carried in the consolidated balance sheet at 31 December 2011 and 2010 were as follows:
Thousands of Euros 31/12/2011 31/12/2010

Trade receivables for sales . Sundry accounts receivable . Employee receivables . . . . . Impairments . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

120,471 5,392 256 (3,330) 122,789

141,337 3,531 183 (5,098) 139,953

The average collection period on sales of cellulose pulp is between 65 and 75 days. Trade and other payables carried in the consolidated balance sheet at 31 December 2011 and 2010 were as follows:
Thousands of Euros 31/12/2011 31/12/2010

Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Suppliers of non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remuneration payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

162,144 12,408 7,412 181,964

182,450 8,211 10,402 201,063

The average payment period for purchases of goods and services is between 65 and 75 days. The fair value of accounts receivable and payable does not differ materially from their carrying amounts. The Group has entered into various no-recourse confirming arrangements with an available limit of EUR 73,700 thousand at 31 December 2011, of which EUR 54,239 thousand had been utilised (limit of EUR 69,900 thousand at 31 December 2010, of which EUR 50,876 thousand had been utilised). Law 15/2010, of 5 July, on measures to combat default in commercial transactions, establishes certain disclosure requirements with regard to the operations carried out by companies. In this regard, payments made in respect of commercial transactions in 2011 and balances outstanding at the end of the reporting period were as follows:
Thousands of Euros %

Payments made within the maximum period permitted by law Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total payments made in the year . . . . . . . . . . . . . . . . . . . . Weighted average past due payments (days) . . . . . . . . . . . . Deferrals beyond the maximum legal period at the year-end(*)
(*) Deferrals totalled EUR 8,680 thousand at 31 December 2010.

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

559,315 32,841 592,156 23,98 7,298

94% 6% 100%

F-70

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

13. Equity Share capital The share capital of Grupo Empresarial ENCE, S.A. at 31 December 2011 was represented by 258,012,890 fully subscribed and paid bearer shares with a par value of EUR 0.9 each. The shareholders at 31 December 2011 and 2010 were as follows:
31/12/2011 31/12/2010

Retos Operativos XXI, S.L. . . Alcor Holding, S.A. . . . . . . . . Atalaya de Inversiones, S.R.L. Liberbank, S.A.(*) . . . . . . . . . Fidalser, S.L. . . . . . . . . . . . . Treasury shares . . . . . . . . . . Free Float . . . . . . . . . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

22.2 20.4 6.3 5.0 7.8 38.3 100.0

22.2 20.4 5.0 5.0 5.0 0.4 42.0 100.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(*) Ownership interest held by Caja de Ahorros de Asturias in 2010.

The Parent Companys shares are listed on the Madrid Stock Exchange. All shares have the same voting and profit-sharing rights. Legal reserveIn accordance with the Amended Spanish Limited Liability Companies Act, 10% of net profit for each year must be transferred to the legal reserve until the balance thereon reaches at least 20% of share capital. The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased share capital amount. Otherwise, until the legal reserve exceeds 20% of share capital, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose. Share premiumThe Amended Limited Liability Companies Act expressly allows use of the balance on the share premium account to increase share capital, and it does not establish any specific restrictions on disposal.

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Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

13. Equity (Continued) Reserves in fully consolidated companiesA breakdown of EquityReserves in fully consolidated companies by companies at 31 December 2011 and 2010 is as follows:
Thousands of Euros 31/12/2011 31/12/2010

Celulosas de Asturias, S.A.U. . . . . . Celulosa Energ a, S.L.U. . . . . . . . . . Norte Forestal, S.A.U. . . . . . . . . . . . Silvasur Agroforestal, S.A.U. . . . . . . Iberflorestal, S.A.U. . . . . . . . . . . . . . Ibersilva, S.A.U. . . . . . . . . . . . . . . . Norfor Maderas, S.A.U. . . . . . . . . . . Eucalipto de Pontevedra, S.A.U. . . . Electricidad de Navia Asturias, S.L.U. Maderas Aserradas del Litoral, S.A. . Celulosas de MBopicu a, S.A. . . . . . Zona Franca MBopicu a, S.A. . . . . . Las Pl eyades de Uruguay, S.A. . . . . Las Pl eyades, S.A. (SAFI) . . . . . . . . Las Pl eyades Argentina . . . . . . . . . . Sierras Calmas, S.A. . . . . . . . . . . . ENCE Energia, S.L.U. . . . . . . . . . . . Consolidation adjustments . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

45,079 36,560 13,314 7,809 1,941 (7,028) 450 (1,976) 2,845 (927) (73) 72 (83) 1,742 (93) 1,428 (420) 1,814 102,454

41,134 31,417 27,774 16,214 1,698 (907) 448 (1,276) 2,868 (672) (27) 184 (11) 97 (85) (566) (1) 3,247 121,536

Restricted reserves in consolidated companies totalled EUR 14,599 thousand at 31 December 2011 (EUR 12,216 thousand at 31 December 2011), basically comprising the legal reserves of the Group companies. Dividends At the Annual General Meeting of Grupo Empresarial ENCE, S.A. held on 29 April 2011 the shareholders approved the distribution of dividends totalling EUR 25,801,289, representing a gross EUR 0.10 per share, out of the profit for 2010. The dividend was paid on 9 May 2011. The calculation of basic and diluted consolidated earnings per share at 31 December 2011 and 2010 is as follows:
Net Earnings per Share 2011 2010

Consolidated net profit for the year attributed to ordinary shares (thousands of euros) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ordinary shares in circulation at 1 January . . . . . . . . . . . . . . . . Number of ordinary shares at 31 December . . . . . . . . . . . . . . . Weighted average number of ordinary shares . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

41,192 258,012,890 258,012,890 258,012,890 0.16 0.16

64,711 174,900,000 258,012,890 237,519,301 0.27 0.27

Basic earnings per share (euros) . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per share (euros) . . . . . . . . . . . . . . . . . . . . . . . . .

F-72

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

13. Equity (Continued) Treasury shares Changes in the treasury shares carried in the accompanying consolidated balance sheet in 2011 and 2010 were as follows:
Number of Shares 2011 Thousands of Euros Number of Shares 2010 Thousands of Euros

At beginning of year . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . . . . . . . . . . . At end of year . . . . . . . . . . . . . . . . . . . . .

995,000 22,067,678 (2,851,678) 20,211,000

2,434 53,777 (6,994) 49,217

159,879 4,806,457 (3,971,336) 995,000

435 11,753 (9,754) 2,434

The Parent Company shares held as treasury stock at 31 December 2011 represented 7.8% of share capital (0.4% at 31 December 2010) with a total par value of EUR 18,190 thousand (EUR 896 thousand at 31 December 2010). The average purchase price was EUR 2.435 per share. The Parent Company held are used for trading in the market. Valuation adjustmentsValuation adjustments carried in consolidated equity comprise changes in the fair value of hedging operations (see Note 10) and the reserve generated on the recognition of forest land at fair value at 1 January 2004 (see Note 7). This reserve is unrestricted. Changes in the fair value of derivative hedging instruments in 2011 and 2010 were as follows:
Fair value Thousands of Euros Valuation Tax effect adjustment

2011

IR Swapcorporate borrowings (Note 10) Balance at 1/01/2011 . . . . . . . . . . . . . . . . . Transfers to income statement . . . . . . . . . . Other changes in value . . . . . . . . . . . . . . . Balance at 31/12/2011 . . . . . . . . . . . . . . . . IR SwapProject Finance 50 Megawatts (Note Balance at 1/01/2011 . . . . . . . . . . . . . . . . . Transfers to income statement . . . . . . . . . . Other changes in value . . . . . . . . . . . . . . . Balance at 31/12/2011 . . . . . . . . . . . . . . . . Exchange rate hedges (Note 10) Balance at 1/01/2011 . . . . . . . . . . . . . . . . . Transfers to income statement . . . . . . . . . . Other changes in value . . . . . . . . . . . . . . . Balance at 31/12/2011 . . . . . . . . . . . . . . . . Pulp price hedges (Note 10) Balance at 1/01/2011 . . . . . . . . . . . . . . . . . Transfers to income statement . . . . . . . . . . Other changes in value . . . . . . . . . . . . . . . Balance at 31/12/2011 . . . . . . . . . . . . . . . . Energy price hedges (Note 10) Balance at 1/01/2011 . . . . . . . . . . . . . . . . . Transfers to income statement . . . . . . . . . . Other changes in value . . . . . . . . . . . . . . . Balance at 31/12/2011 . . . . . . . . . . . . . . . .

... ... ... ... 10) ... ... ... ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . .

(6,748) 3,628 (3,120) 307 (6,922) (6,615) (2,014) (465) (19,747) (22,226) (2,577) 11,071 (7,627) 867 786 (473) (314) (31,093)

(2,024) 1,088 (936) 92 (2,076) (1,984) (604) (139) (5,924) (6,667) (773) 3,321 (2,288) 260 235 (142) (94) (9,328)

(4,724) 2,541 (2,183) 215 (4,845) (4,630) (1,410) (326) (13,823) (15,559) (1,804) 7,750 (5,339) 607 551 (331) (220) (21,765)

F-73

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

13. Equity (Continued)

Thousands of Euros Valuation Tax effect adjustment

2010

Fair value

IR Swapcorporate borrowings (Note 10) Balance at 1/01/2010 . . . . . . . . . . . . . . Transfers to income statement . . . . . . . Other changes in value . . . . . . . . . . . . Balance at 31/12/2010 . . . . . . . . . . . . . Exchange rate hedges (Note 10) Balance at 1/01/2010 . . . . . . . . . . . . . . Transfers to income statement . . . . . . . Other changes in value . . . . . . . . . . . . Balance at 31/12/2010 . . . . . . . . . . . . . Pulp price hedges (Note 10) Balance at 1/01/2010 . . . . . . . . . . . . . . Transfers to income statement . . . . . . . Other changes in value . . . . . . . . . . . . Balance at 31/12/2010 . . . . . . . . . . . . . Energy price hedges (Note 10) Balance at 1/01/2010 . . . . . . . . . . . . . . Transfers to income statement . . . . . . . Other changes in value . . . . . . . . . . . . Balance at 31/12/2010 . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

(10,675) 3,927 (6,748) 5,276 (7,290) (2,014) (2,577) (2,577) (1,189) 1,975 786 (10,553)

(3,202) 1,178 (2,024) 1,583 (2,187) (604) (773) (773) (357) 592 235 (3,166)

(7,473) 2,749 (4,724) 3,693 (5,103) (1,410) (1,804) (1,804) (832) 1,383 551 (7,387)

14. Grants Changes in Grants in 2011 and 2010 were as follows:

Thousands of Euros Emission Grants rights Total

Balance at 1-1-2010 . . . . . . . . . . . . . . Increase due to new grants . . . . . . . . . 2010 Emission rights (Notes 6 and 15) Transfer to consolidated profit and loss Balance at 31-12-2010 . . . . . . . . . . . Increase due to new grants . . . . . . . . . 2011 Emission rights (Notes 6 and 15) Transfer to consolidated profit and loss

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

5,135 1,710 (887) 5,958 8,615 (1,124) 13,449

1,941 8,421 (6,360) 4,002 9,100 (6,307) 6,795

7,076 1,710 8,421 (7,247) 9,960 8,615 9,100 (7,431) 20,244

Balance at 31-12-2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Group has been awarded two non-refundable grants associated with the modernization plan for its mill in Navia (Asturias) under the measures established to correct regional economic imbalances established by the Spanish Regional Incentives Act (Law 50/1985, of 27 December). The total obtained net of expenses incurred to apply for the grants was EUR 8,882 thousand. The Group has also obtained soft loans from various public entities. These loans bear interest at below-market rates and mature in periods of up to ten years. The outstanding principal at 31 December 2011 was EUR 11,367 thousand (EUR 10,989 thousand at 31 December 2010) (see

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Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

14. Grants (Continued) Note 17). These loans were granted subject to certain undertakings in relation to jobs and investment. 15. Non-current provisions Changes in non-current provisions in 2011 and 2010 were as follows:
Thousands of Euros Emission Rights Liabilities (Note 6) Other

Total

Balance at 1/1/2010 . . Charge for the year . . Amounts used . . . . . . Balance at 31/12/2010 Charge for the year . . Amounts used . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

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. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

12,595 4,076 (602) 16,069 1,517 (1,251) 16,335

6,641 6,676 (6,698) 6,619 5,614 (6,388) 5,845

1,145 20,381 10,752 (7,300) 1,145 23,833 7,131 (140) (7,779) 1,005 23,185

Balance at 31/12/2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A detail of the provision for liabilities at 31 December 2011 and 2010 is as follows:
Thousands of Euros 2011 2010

Provision for liabilities: Sewage Agreement, Galicia . . . . . . . R a de Pontevedra Discharge Royalty VAT inspection, Germany, 2002-2008 Other . . . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

5,357 6,565 2,898 1,515 16,335

5,357 6,439 2,500 1,773 16,069

The Parent Company has provided for outstanding discharge royalties associated with its operations at the Pontevedra plant. In 2011 the German tax authorities completed their audit of the ENCE Groups treatment of Value Added Tax (VAT) charged on commercial transactions in Germany in 2002 and 2008. As a result of the inspection, the tax authorities raised additional tax assessments totalling EUR 12,692 thousand and arrears interest of EUR 2,829 thousand. Based on the analyses carried out together with the customers concerned in the transactions adjusted by the German tax authorities in their reports, the Parent Company considers that the taxes paid will not have a negative impact on the Groups financial statements, as they are recoverable by the customers. Emission rights comprise the expenses associated with greenhouse gas emissions during the reporting period, which are charged to Other operating expenses (see Note 19.e).

F-75

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

16. Bank borrowings, cash and cash equivalents Details of the Groups bank borrowings at 31 December 2011 and 2010 are as follows:
Thousands of Euros 2011 2010

Long-term Loans and credit facilities . . . . Project Finance-50 Megawatts Interest and other payables . . Opening fee . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

224,169 249,465 57,256 186 (7,239) (6,689) 274,186 19,346 1,106 20,452 294,638 242,962 5,608 669 6,277 249,239

Total long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total, short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bank borrowings at 31 December 2011 and 2010 comprise loans, overdraft facilities and discounting facilities. A breakdown classified by maturity is as follows:
Thousands of Euros 2011 Loans and credit facilities Project Finance 2010 Loans and credit facilities Other

Maturity

Total

Maturity

Total

Available limit Total . . . . . . . . . . . . 304,314 101,309 405,623 Principal2012 . . . . . 2013 . . . . . 2014 . . . . . 2015 . . . . . Subsequent ..... ..... ..... ..... years . . . . . . 19,346 . 24,520 . 197,451 . 624 . 1,574 623 (4,354) 239,784 19,346 1,477 25,997 6,588 204,039 7,914 8,538 41,277 42,851 483 (2,885) 1,106

Available limit Total . . . . . . . . . . . . 315,124 Principal2011 . . . . . 2012 . . . . . 2013 . . . . . 2014 . . . . . Subsequent ..... ..... ..... ..... years . . . . . . 5,608 . 18,897 . 24,520 . 197,451 . 8,597 540 (6,689)

315,124 129 5,737 115 19,012 37 24,557 34 197,485 8,597 540 (6,689)

Interest2012 . . . . . . . . . . . . Opening fee- . . . . . .

Interest2011 . . . . . . . . . . . .

(7,239) Opening fee- . . . . . .

54,854 294,638

248,924 315 249,239

The average interest charged on credit facilities and loans (except the syndicated loan) in 2011 was 4.78% (3.82% in 2010). Syndicated loanOn 2 April 2008m, the Parent Company arranged a syndicated loan structured in three tranches to fund the construction of a cellulose and generating plant in Punta Pereira (Uruguay), as well as certain investments included in the 2007-2011 Investment Plan and the reimbursement, repayment and cancellation of financing agreements arranged by the Parent Company with several financial institutions.

F-76

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

16. Bank borrowings, cash and cash equivalents (Continued) This loan was modified on 5 February 2009 and 16 October 2009 as a consequence of the decision to sell and the subsequent sale of the Uruguay project. These modifications significantly lowered the available limits and required application of the proceeds from the sale of the project, which totalled EUR 179,360 thousand, to repayment of the loan. One of the strategic objectives pursued by the Group in 2010 was to improve its financial position by substantially reducing its indebtedness as a basic measure to protect itself against business cycle contractions, and as a basis for investment projects designed to enhance industrial efficiency and expand biomass generating operations. In this context, the Company arranged a syndicated loan for a maximum total of EUR 176,393 thousand after the cancellation of bilateral financing on 14 October 2010, and at the same time it renewed and amended the terms of the existing syndicated loan to establish a limit for drawings of EUR 121,229 thousand. The syndicated loan is structured in three tranches: tranche A, which had an initial limit of EUR 112,255 thousand (the current limit is EUR 61,817 thousand), to finance the repayment and cancellation of the bilateral loans arranged by the Group with various financial institutions; tranche B, which has a limit of EUR 56,928 thousand, to cover the Groups working capital requirements in addition to the amount granted under tranche A; and tranche C, which is in turn structured in two parts, the first with a limit of EUR 28,464 thousand to cover the Groups working capital needs, and the second with a limit of EUR 29,183 thousand that will become available for utilization to finance biomass generating projects only where the first part is fully drawn down. Both syndicated loans bear interest at floating rates linked to Euribor plus a spread of 300 basis points, allow a grace period of eighteen months and mature on 14 January 2014. The fees paid on this refinancing process in 2010 totalled EUR 3,723 thousand. The main collateral for the syndicated loan agreement renewed in 2010 is a pledge over the shares of Silvasur Agroforestal, S.A.U., Norte Forestal, S.A.U., and Iberflorestal Comercio e Servi cos Florestais, S.A.U. The main guarantees for the new syndicated loan consist of a second order pledge over the shares of the aforementioned companies, the personal guarantee of the subsidiary Celulosas de Asturias, S.A. and a mortgage on the Celulosas de Asturias, S.A. production plant sited in Navia (Asturias), subject to the condition that the Financial Debt / EBITDA ratio does not exceed a specified limit. This guarantee is subordinate to the others. Both syndicated loans include certain covenants relating basically to compliance with certain economic and financial ratios associated with the consolidated financial statements of the ENCE Group, with which the Group is in compliance at 31 December 2011, and prepayment of 25% of the free cash flow generated each year in which net indebtedness with financial institutions is more than EUR 265 million. The loan agreements also establish certain restrictions, mainly related with guarantees granted to third parties, acquisition of treasury shares, realization of recurring investments, financing of future biomass generating projects and asset disposals. Project finance, 50 megawattsOn 21 June 2011 the Group arranged syndicated Project Finance with seven financial entities to fund a biomass electricity generating plant (see Note 7). The available amount of this financing was EUR 101,309 thousand and repayment will commence on 22 June 2013 with final maturity on 22 December 2022. This loan bears floating rate interest linked to Euribor with a spread of between 3.25 and 3.75% depending on the amount of repayment instalments. The fees paid on to arrange this financing in 2011 totalled EUR 3,483 thousand. This loan is backed principally by a pledge on the shares of ENCE Energ a Huelva, S.L.U. and current and future receivables. Grupo Empresarial ENCE, S.A. has also given undertakings in relation to crops and stocks for the future supply of the plant, the date it will enter service and the price applicable to the power produced when generating operations commence, as well as the

F-77

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

16. Bank borrowings, cash and cash equivalents (Continued) functioning and availability of the plant. These undertakings are partially covered by warranties given to Grupo Empresarial ENCE, S.A. by the builder of the plant. This loan also includes certain covenants related basically with the provision of certain operational and financial information, compliance with economic and financial rations associated with the financial statements of ENCE Energ a Huelva, S.L.U., holding of a given volume of standing and cut biomass, prepayment of 50% of surplus cash until 50% of the principal is repaid, and prepayment of 25% of surplus cash until 65% of the principal is repaid. The loan agreement also establishes certain restrictions, mainly in relation to the distribution of dividends and the arrangement of new borrowings. In order to hedge the risk arising as a result of the arrangement of this loan at a floating rate of interest, the Group has entered into interest rate hedges with six of the lenders financing the project, the notional amount on which is equal to 75% of the estimated drawings over the term of the loan (Note 10). Cash and cash equivalentsCash and cash equivalents include cash balances held by the Group and short-term deposits at banks with initial maturity of three months or less. The carrying amount of these assets approximates to their fair value, and the average return is 2.35%. Other financial assetsOther financial assets basically comprise deposits made to guarantee the obligations assumed under certain financial derivative contracts (see Note 10) and in the commitments entered into for future purchases of CO2 (see Note 6). No-recourse factoringThe Group has entered into various no-recourse confirming arrangements, under which all risks are transferred to the factor, with an available limit of EUR 51,000 thousand at 31 December 2011, of which EUR 35,072 thousand had been utilised (limit of EUR 64,000 thousand at 31 December 2010, of which EUR 45,781 thousand had been utilised). The financial cost associated with the receivables transferred is Euribor at 3 months plus a spread of 1-1.65%. 17. Other financial liabilities Other financial liabilities recognised in the accompanying consolidated balance sheet consist basically of repayable advances received from the Spanish Ministry of Industry, Tourism and Trade, normally at below-market interest rates or even interest free, by way of aid for projects undertaken by the Group to extend and increase the production capacity of its Huelva, Pontevedra and Navia plants, optimise its technologies and make environmental improvements.

F-78

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

17. Other financial liabilities (Continued) Maturities at 31 December 2011 and 2010 were as follows:
Thousands of Euros 2011 2010

2011 . . . . . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . 2016 and thereafter . . . . . . . Financial discount (Note 14) .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

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. . . . . . .

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. . . . . . .

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. . . . . . .

. . . . . . .

704 574 777 1,536 1,445 1,423 1,349 1,169 1,049 6,703 5,663 (1,648) (2,007) 9,757 9,025

These loans were measured at fair value at the time they were awarded, and the difference between the amount of the award and fair value was recognised as a grant and is transferred to the consolidated income statement in line with the depreciation of the fixed assets for which the financial aid was granted. The amount of the grant pending recognition through the consolidated income statement at 31 December 2011 was EUR 1,648 thousand (EUR 2,007 thousand at 31 December 2010). 18. Tax matters Current tax receivables and payables Tax receivables and balances at 31 December 2011 and 2010 were as follows:
Thousands of Euros 31 December 2011 31 December 2010 Receivables Payables Receivables Payables

Non-current itemsDeferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current itemsVAT balances receivable and payable . . . . . . . . . . . . Current income tax . . . . . . . . . . . . . . . . . . . . . . . . . Other tax receivables and payables . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reconciliation of accounting profit to the taxable profit Group companies resident in Spain for tax purposes-

42,653 42,653 9,840 1,687 1,478 13,005

28,289 28,289 14,796 365 2,859 18,020

49,881 49,881 17,893 2,226 20,119

23,649 23,649 221 2,188 4,672 7,081

The Parent Company files consolidated income tax returns in accordance with Chapter VII, Title VIII of the Amended Spanish Corporate Income Tax Act as the parent of Group No. 149/02, which was formed in the year ended 31 December 2002. This special tax regime is applicable for

F-79

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

18. Tax matters (Continued) an indefinite period of time until it is expressly discontinued, and it entails that the entities forming part of the tax group do not file individual income tax returns. These entities are as follows: Celulosas de Asturias, S.A.U. Celulosa Energ a, S.L.U. Silvasur Agroforestal, S.A. Norte Forestal, S.A. Ibersilva, S.A.U. Norfor Maderas S.A.U. Eucaliptos de Pontevedra, S.A.U. Electricidad de Navia Asturias, S.L.U. Ibercel Celulosa, S.L.U. Enersilva, S.L.U. ENCE Energ a, S.L.U. and subsidiaries

The nominal rate of corporate income tax is 30%. Group companies resident in Uruguay for tax purposesThe Group companies resident in Uruguay file their tax returns under the Uruguayan general Economic Activity Income regime (IRAE). The nominal tax rate is 25%, adjusted for tax purposes in accordance with applicable legislation. As an exception, Las Pl eyades, S.A. which is taxed under the special regime for Financial Investment Corporations (SAFI) at a rate of 0.3% of equity. Group companies resident in Portugal for tax purposesIberflorestal, S.A. files corporate tax returns in Portugal under the general corporate tax regime. The nominal rate of the Imposto sobre o Rendimiento das Pessoas Colectias is 25%. Taxable income is not determined on the basis of consolidated book earnings but of the separate taxable income generated by the companies forming the Group, determined in accordance with the applicable individual tax regimes. For these purposes, the individual tax bases of the companies resident in Spain for tax purpose are included in the taxable income of Consolidated Tax Group No. 149/02, which cannot be offset by tax losses incurred by non-resident companies. A reconciliation of accounting profit and taxable income at 31 December 2011 and 2010 is as follows:
Thousands of Euros 2011 2010

Accounting profit before tax(*) . Permanent differencesArising in profit and loss . . . . . Arising in equity . . . . . . . . . . . Temporary differencesArising in the year . . . . . . . . . Arising in prior years . . . . . . . . Arising in transfers from equity Consolidation adjustments . . . . . Tax losses offset . . . . . . . . . . . .

.................................. .................................. .................................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57,015 1,215

90,336 1,786 (5,151)

8,818 14,936 (37,099) (11,385) (161) (6,027) 1,002 (12,742) (86,405) 11,019 3,233 (4,555) (1,322) 5,119 1,721 467 2,188

Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross tax charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credits, withholdings and other amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax payable / (recoverable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(*) Generated from continuing operations in its entirety.

F-80

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

18. Tax matters (Continued) Permanent differences arising in profit and loss Permanent differences arising in profit and loss consist of expenses incurred that are not allowable for tax purposes. This heading includes fines and administrative sanctions, as well as the provision for impairment made for certain financial holdings. Temporary differences Temporary differences arise from divergences in the timing of revenue and expense recognition under accounting and tax rules for the calculation of book earnings and taxable income for the year, which will revert in future tax periods. Reconciliation of accounting profit to the income tax expense A reconciliation of accounting profit and taxable income at 31 December 2011 and 2010 is as follows:
Thousands of Euros 2011 2010

Accounting profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . Permanent differences arising in profit and loss . . . . . . . . . . . . . Elimination of accounting profit / loss of non-resident companies Eliminations / inclusions on consolidation . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

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. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

57,015 90,336 1,215 1,786 (4,646) (5,085) (6,025) 1,002 47,559 14,268 897 657 15,822 88,039 26,412 (661) (126) 25,625

Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deductions and adjustment for prior years tax effect . . . . . . . . . . . . . . . . . . . . . Adjustment for tax effect of non-resident companies . . . . . . . . . . . . . . . . . . . . . Corporate income tax expense / (rebate) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A breakdown of the corporate income tax expense for 2011 and 2010 is as follows:
Thousands of Euros 2011 2010

Current tax expense . . . . . . . . . . . . . . . . . Deferred tax expense . . . . . . . . . . . . . . . . . Adjustments for prior years and deductions . Other movements . . . . . . . . . . . . . . . . . . .

. . . .

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. . . .

17,105 27,101 (2,837) (689) 897 (661) 657 (126) 15,822 25,625

Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-81

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

18. Tax matters (Continued) Deferred tax assets and liabilities recognised Changes in deferred tax assets and liabilities in 2011 were as follows: Deferred tax assets recognised
Thousands of Euros Balance at 01/01/2011 Increases Decreases Balance at 31/12/2011

Deferred tax assets recognised in incomeDepreciation and amortisation of non-current assets Impairment of non-current assets . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of current assets . . . . . . . . . . . . . . . . . Non-resident companies . . . . . . . . . . . . . . . . . . . . Consolidation adjustments . . . . . . . . . . . . . . . . . . . Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets recognised in equityHedging instruments . . . . . . . . . . . . . . . . . . . . . . . Total
(*)
(*)

782 4,236 6,935 2,480 2,489 1,031 27,761 1,001 46,715 3,166 49,881

714 2,064 1,375 379 18 2,478 547 7,575 6,162 13,737

(321) (4,627) (4,540) (2,480) (654) (991) (2,868) (1,548) (18,029) (18,029)

461 323 4,459 1,375 2,214 58 27,371 36,261 9,328 45,589

...................................

Includes EUR 2,935 thousand classified as available-for-sale assets (see Note 20).

The deferred tax assets were recognised in the consolidated balance sheet because the directors of the Group companies understand, on the basis of best estimates of the future earnings of the entities forming the consolidated Tax Group, that it is highly likely that the assets will be recovered within the period established by prevailing tax legislation. The tax loss carryforwards recognised were generated in 2009. In accordance with Spanish legislation, the tax losses generated in a given year may be carried forward to be offset against the future profits obtained by consolidated Tax Group No. 149/02 in the eighteen annual tax periods immediately succeeding the year in which the loss was incurred. Deferred tax liabilities recognised
Thousands of Euros Balance at 01/01/2011 Increases Decreases Balance at 31/12/2011

Deferred tax liabilities recognised in incomeAccelerated depreciation . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities recognised in equityRevaluation of forest land (Note 13) . . . . . . . . . . . . Consolidation adjustments and other items . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23,515 134 23,649

3,106 2,100 5,206 5,206

(6) (560) (566)

3,106 2,100 5,206 23,509 (426) 28,289

F-82

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

18. Tax matters (Continued) Unrecognised deferred tax assets The Group has not recognised certain deferred tax assets in the accompanying consolidated balance sheet. Unrecognised deferred tax assets at 31 December 2011 and 2010 were as follows:
Unrecognised Deferred Tax Assets Thousands of Euros 2011 2010

Property, plant and equipment and intangible assets . . . . . . . . . . . . . . . . . . . . . . . Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total at end of reporting period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,921 2,880 5,801

2,108 4,257 6,365

All of the tax loss carryforwards relate to Group companies resident for tax purposes in Uruguay. In accordance with Uruguayan corporate income tax (IRAE) regulations, tax loss carryforwards generated after 31 December 2007 expire in five years. The amount of tax loss carryforwards is revised each year based on the change in the Uruguayan National Products Price Index (IPPN). Years open for review and tax audits The Spanish tax authorities are currently conducting an inspection of the Electricity Tax returns filed by various Group companies in 2008 and subsequent years. In accordance with prevailing tax legislation, tax returns cannot be considered definitive until they have been inspected by the tax authorities or the prescription period established in each tax jurisdiction has expired (four years in Spain and Portugal, and five years in Uruguay). The Parent Companys directors consider that no significant contingencies exist that could give rise to liabilities as a result of the inspection proceedings in progress or of a tax audit of the years open. 19. Income and expenses a) Sales The Groups net ordinary sales for 2011 and 2010 were distributed as follows:
Thousands of Euros 2011 2010

Pulp sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electricity sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wood and forestry services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

596,895 184,304 44,252 825,451

626,521 140,194 64,043 830,758

F-83

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

19. Income and expenses (Continued) Practically all sales of electricity were made in Spain. The distribution by geographical market of revenues from pulp sales was as follows:
Percentage of sales 2011 Percentage of sales 2010

Geographical Market

Germany . . . . . Italy . . . . . . . . . Spain . . . . . . . . France . . . . . . . China . . . . . . . . Austria . . . . . . . Poland . . . . . . . Slovenia . . . . . . Turkey . . . . . . . Switzerland . . . . Sweden . . . . . . United Kingdom Netherlands . . . Other . . . . . . . .

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23.1 16.4 14.6 10.1 6.5 4.8 4.5 2.8 2.8 2.5 2.1 2.0 1.9 5.9 100

21.9 16.4 19.1 9.3 5.8 5.3 3.2 0.4 3.8 2.4 6.2 2.3 3.9 100

b)

ProcurementsThe detail of raw and other materials consumed is as follows:

Thousands of Euros 2011 2010

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in inventories of raw materials, other materials and merchandise . . . . Other external expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

358,274 354,849 (10,914) (22,409) 43,399 34,594 390,759 367,034

Procurements basically comprise the cost of timber, chemicals, fuel and other variable costs incurred in the cellulose pulp manufacturing process. c) Employees The detail of Staff costs incurred in 2011 and 2010 is as follows:
Thousands of Euros 2011 2010

Wages and salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Social security taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension contributions and other employee benefit costs . . . . . . . . . . . . . . . . . . Termination benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

63,638 15,211 3,755 82,604 6,809 89,413

64,093 15,370 3,586 83,049 1,268 84,317

F-84

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

19. Income and expenses (Continued) The average headcounts for 2011 and 2010 were as follows:
Average Headcount Professional Category Men 2011 Women Total Men 2010 Women Total

Executives . . . . . . . . . . . . . . . . . . . . Employees with individual contracts . . Employees subject to collective labour Temporary employees . . . . . . . . . . . .

......... ......... agreement .........

. . . .

6 187 792 371 1,356

1 52 134 32 219

7 239 926 403 1,575

6 191 833 361 1,391

1 49 154 96 300

7 240 987 457 1,691

At 31 December 2011 the Group had 19 disabled employees (23 disabled employees at 31 December 2010). The distribution of employees by gender at 31 December 2011 and 2010, classified by professional category, was as follows:
Final Headcount Professional Category Men 2011 Women Total Men 2010 Women Total

Executives . . . . . . . . . . . . . . . . . . . . Employees with individual contracts . . Employees subject to collective labour Temporary employees . . . . . . . . . . . .

......... ......... agreement .........

. . . .

6 181 738 211 1,136

1 47 118 21 187

7 228 856 232 1,323

6 184 891 321 1,402

1 51 159 50 261

7 235 1,050 371 1,663

At 31 December 2011, the Board of Directors was composed of thirteen directors, all of whom were men (14 directors at 31 December 2010). d) Transactions in currencies other than the euro

The Group companies made sales totalling EUR 187,027 thousand in non-euro currencies, principally US dollars (EUR 170,978 thousand in 2010). e) Other operating expenses Details of other operating expenses in 2011 and 2010 are as follows:
Thousands of Euros 2011 2010

Outside services . . . . . . . . . . . . . . Emission rights used (Note 15) . . . . Other taxes and operating expenses Change in operating provisions . . .

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. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

214,732 5,614 4,969 8,535 233,850

215,580 6,912 4,138 13,114 239,744

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-85

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

19. Income and expenses (Continued) Details of Outside services in the consolidated income statements for 2011 and 2010 are as follows:
Thousands of Euros 2011 2010

Transport, freight and marketing costs . . . Utilities . . . . . . . . . . . . . . . . . . . . . . . . . Repairs and maintenance . . . . . . . . . . . . Leases and royalties . . . . . . . . . . . . . . . Insurance premiums . . . . . . . . . . . . . . . Independent professional services . . . . . Banking and similar services . . . . . . . . . Advertising, publicity and public relations Research and development expenses . . . Other services . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

87,844 64,392 18,734 8,577 6,131 5,769 2,475 817 98 19,895 214,372

82,205 52,310 18,902 8,572 7,065 7,134 2,652 1,627 352 34,761 215,580

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . f) Finance costs Finance costs in 2011 and 2010 were as follows:

Thousands of Euros 2011 2010

Syndicated loan . . . . . . . . . . . . . . . . . . . . . . Project finance, 50 megawatts . . . . . . . . . . . . Overdraft, factoring and confirming facilities . . Commissions charged to income . . . . . . . . . . Settlement of IR SwapCorporate borrowings Settlement of Equity Swap . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

10,478 1,426 2,562 4,335 11,708 332 1,159 32,000

6,139 7,258 1,975 15,088 436 586 31,482

g)

Other disclosures

The fees for financial audit and other services provided by the Groups auditor or by a firm related to the auditors by control, common ownership or management in 2011 and 2010 were as follows:
Thousands of Euros 2011 2010

Audit services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total audit and related services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax advisory services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

197 197 30 30

256 256 129 416 545

F-86

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

19. Income and expenses (Continued) g) Profit or loss by company

The contributions made by each of the consolidated companies to Group profit for 2011 and 2010 were as follows:
Thousands of Euros 2011 2010

Grupo Empresarial ENCE, S.A. . . Norte Forestal, S.A.U. . . . . . . . . . Silvasur Agroforestal, S.A.U. . . . . . Electricidad de Navia Asturias, S.L. Celulosa Energ a, S.L. . . . . . . . . . Iberflorestal , S.A.U. . . . . . . . . . . . Celulosas de Asturias, S.A.U. . . . . Ibersilva, S.A.U. . . . . . . . . . . . . . . Norfor Maderas, S.A.U. . . . . . . . . Eucalipto de Pontevedra, S.A.U. . . Maderas Aserradas del Litoral, S.A. Celulosas de MBopicu a, S.A. . . . Zona Franca MBopicu a, S.A. . . . . yades Uruguay, S.A. . . . . . Las Ple Las Pl eyades S.A.F.I. . . . . . . . . . . yades Argentina . . . . . . . . Las Ple Sierras Calmas, S.A. . . . . . . . . . . ENCE Energ a, S.L.U . . . . . . . . . . ENCE Energ a Huelva, S.L.U. . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .

35,472 12,362 3,741 10,538 707 1,596 (5) (23) 7,319 5,143 262 244 348 38,945 (11,031) (6,121) 30 1 (11) (700) (1,794) (256) (55) (46) 2,823 (111) 24 (72) 285 1,644 (82) (8) 4,199 1,994 (383) (419) (657) 41,192 64,711

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20. Non-current assets held for sale

The captions Non-current assets held for sale and Liabilities associated with non-current assets held for sale comprise the assets and liabilities of Ibersilva, S.A.U., the activity of which consists of landscape gardening, forestry and development projects and services. The directors have adopted the decision to sell the ownership interest held in this company. A detail of the assets and liabilities contributed by Ibersilva, S.A.U. to the Group at 31 December 2011 is as follows:
Thousands of Euros Thousands of Euros

NON-CURRENT ASSETS . . . . . . . . CURRENT ASSETS . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . . Current financial assets . . . . . . . . . . Cash and cash equivalents . . . . . . . TOTAL ASSETS . . . . . . . . . . . . .

3,467 13,076 876 9,265 817 2,118 16,544

NON-CURRENT LIABILITIES . . . . . CURRENT LIABILITIES . . . . . . Bank borrowings . . . . . . . . . . . Trade and other payables . . . . . Payable to public authorities and other payables . . . . . . . . . . . . . ... ... ... ...

91 12,232 257 11,104 871 12,322

TOTAL LIABILITIES . . . . . . . . . . . .

F-87

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

21. Operating segments The manufacture of cellulose pulp is closely tied to electricity generating operations using waste generated from the pulp production process as fuel. Furthermore, the Group has plants that are specifically designed to generate power using biomass and other fuels, and it also owns forests and timber land providing the raw material for the production of paper pulp and electricity. In this context, the results of the activities conducted by the cellulose pulp manufacturing and electricity generating business units are analysed jointly by the Management Committee, and the financial information produced only distinguishes between the revenues earned. The Committee also analyses forest management activities separately, as well as the investments currently in progress in electricity generating plants located outside pulp manufacturing facilities (see Note 7) and other minor activities. Segment information for 2011 and 2010 based on the regular management information produced by the Group is as follows: 2011Thousands of Euros Forestry and Forest other management services Consolidation adjustments between Segments

Balance Sheet

Pulp and Power

Total

Total

Assets Non-current . . . . . . . . . . . Current . . . . . . . . . . . . . . Liabilities Non-current . . . . . . . . . . . Current . . . . . . . . . . . . . . Total consolidated liabilities(a) . . . . . . . . .

(a)

934,636 269,022

348,050 141,567 489,617 179,866 114,119 293,985

8,539 25,831 34,370 23,345 16,958 40,303

1,291,225 436,420 1,727,645 590,858 343,467 934,325

(326,115) (75,389) (401,504) (238,594) (75,389) (313,983)

965,110 361,031 1,326,141 352,264 268,078 620,342

Total assets(a) . . . . . . . . . 1,203,658 387,647 212,390 600,037

Not including equity or deferred tax assets and liabilities.

F-88

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

21. Operating segments (Continued)

Thousands of Euros Forestry and Forest other management services Consolidation adjustments between Segments

Income Statement

Pulp and Power

Sub-total

Total

Revenue: External . . . . . . . . . . . . . . . Inter-segment . . . . . . . . . . . Total revenue: . . . . . . . . . . Profit / Loss Profit / (loss) from operations . . . . . . . . . . . Finance income . . . . . . . . Finance costs . . . . . . . . . . Exchange differences . . . . Taxes . . . . . . . . . . . . . . . . Profit / (loss) for the year Other information Investment(*) . . . . . . . . . . . Depreciation and amortization charge . . . . Accumulated depreciation and provisions . . . . . . . .
(*)

781,199 781,199

23,865 307,277 331,142

20,387 9,165 29,552

825,451 316,442 1,141,893

(316,442) (316,442)

825,451 825,451

. . . . . . . .

78,073 20,912 (38,211) 2,798 (20,033) 43,539 71,369 (52,466)

18,199 4,134 (10,454) (774) (379) 10,726 30,079 (9,703) (104,968)

(16,193) 65 (1,596) 61 4,590 (13,073) 62 (1,291) (5,300)

80,079 25,111 (50,261) 2,085 (15,822) 41,192 101,510 (63,460) (820,237)

(19,815) 19,815

80,079 5,296 (30,446) 2,085 (15,822) 41,192 101,510 (63,460) (820,237)

. (709,969)

Not including emission rights.

2010Thousands of Euros Forestry and other services Consolidation adjustments between Segments

Balance Sheet

Pulp and Power

Forest management

Total

Assets Non-current . . . . . . . Current . . . . . . . . . . Total assets(a) . . . . . Liabilities Non-current . . . . . . . Current . . . . . . . . . . Total consolidated liabilities(a) . . . . . .
(a)

642,869 892,298 1,535,167 317,697 586,477 904,174

341,879 121,815 463,694 3,239 291,954 295,193

7,720 36,741 44,461 702 38,612 39,314

992,468 1,050,854 2,043,322 321,638 917,043 1,239,041

(64,517) (696,981) (761,498) (696,981) (696,981)

927,951 353,873 1,281,824 321,638 220,062 541,700

Not including equity or deferred tax assets and liabilities.

F-89

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

21. Operating segments (Continued)

Thousands of Euros Forestry and other services Consolidation adjustments between Segments

Income Statement

Pulp and Power

Forest management

Sub-total

Revenue External . . . . . . . . . . . Inter-segment . . . . . . . Total revenue . . . . . . . Profit / Loss Profit / (loss) from operations . . . . . . . Finance income . . . . . Finance costs . . . . . . Exchange differences . Taxes . . . . . . . . . . . . Profit / (loss) for the year . . . . . . . . . . . Other information Investment(*) . . . . . . . Depreciation and amortization charge Accumulated depreciation and provisions . . . . . . .
(*)

761,863 232 762,095

38,230 376,189 414,419

25,813 10,822 36,635

825,906 387,243 1,213,149

(387,243) (387,243)

825,906 825,906

. . . . . . . .

101,648 5,279 (27,800) (979) (22,947) 55,201 54,625 46,904

25,185 443 (4,504) 849 (5,409) 16,564 26,258 12,103

(9,556) 71 (492) 191 2,732 (7,054) 560 2,199

117,277 5,793 (32,796) 61 (25,624) 64,711 81,443 61,206

(3,777) 3,777

117,277 2,016 (29,019) 61 (25,624) 64,711 81,443 61,206

(666,218)

(99,996)

(11,293)

(777,507)

(777,507)

Not including emission rights.

No customers account for more than 10% of the Groups revenues. 22. Guarantee commitments to third parties and other contingent liabilities At 31 December 2011 various financial institutions had extended guarantees, mainly relating to commercial operations, to various Group companies for a total of EUR 56,209 thousand (EUR 60,700 thousand at 31 December 2010). The directors do not expect that the guaranteed amounts or the guarantees given will give rise to significant liabilities. The Parent Company and its subsidiaries have arranged civil liability insurance. The directors consider that this policy reasonably covers the related contingencies.

F-90

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

23. Remuneration and other benefits paid to directors and senior executives of the Parent Company, and other information In 2011 and 2010 the directors of the Parent Company earned the following amounts in respect of the discharge of their duties as members of the Board of Directors:
Thousands of Euros Fixed Attendance Remuneration Fees

2011Director

Type

Total

Juan Luis Arregui Ciarsolo . . . . . . . Retos Operativos XXI, S.L. . . . . . . Jos e Manuel Serra Peris . . . . . . . . Pedro Barato Triguero . . . . . . . . . . Fernando Abril-Martorell Hern andez Gustavo Mat as Clavero . . . . . . . . . Jose Guillermo Zub a Guinea . . . . . Atalaya de Inversiones, S.R.L.(a) . . . Norte na Patrimonial, S.L. . . . . . . . Pedro Jos e L opez Jim enez . . . . . . Jos e Carlos de Alamo Jim enez . . . Pascual Fern andez Mart nez . . . . . Javier Echenique Landiribar(b) . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

. . . . . . . . . . . . .

Executive Nominee Independent Independent External Independent Independent Nominee Nominee Nominee Independent Nominee Nominee

113 31 31 28 31 31 31 14 31 31 31 31 31 465

72 28 37 26 42 30 71 16 26 26 26 30 42 472

185 59 68 54 73 61 102 30 57 57 57 61 73 937

(a) (b)

Directors standing down in 2011. Also in receipt of prior years remuneration amounting to EUR 10 thousand. Thousands of Euros Fixed Attendance Remuneration Fees

2010Director

Type
(c)

Total

Juan Luis Arregui Ciarsolo . . . . . Antonio Palacios Esteban(a) . . . . . . Ignacio de Colmenares y Brunet(b) . Retos Operativos XXI, S.L. . . . . . . Jos e Manuel Serra Peris . . . . . . . . Pedro Barato Triguero . . . . . . . . . . Fernando Abril-Martorell Hern andez Gustavo Mat as Clavero . . . . . . . . . Jose Guillermo Zub a Guinea . . . . . Atalaya de Inversiones, S.R.L. . . . . Norte na Patrimonial, S.L. . . . . . . . D. Fabio E. L opez Cer on(a) . . . . . . Pedro Jos e L opez Jim enez(b) . . . . . Jos e Carlos de Alamo Jim enez . . . Pascual Fern andez Mart nez . . . . . Javier Echenique Landiribar . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

Executive Executive Executive Nominee Independent Independent External Independent Independent Nominee Nominee Nominee Nominee Independent Nominee Nominee

80 22 22 22 22 22 22 22 22 4 18 22 22 22 344

69 46 34 28 79 50 51 38 20 4 24 28 51 30 552

149 68 56 50 101 72 73 60 42 8 42 50 73 52 896

(a) (b) (c)

Directors standing down in 2010. Directors appointed in 2010. Also in receipt of prior years remuneration amounting to EUR 332 thousand.

F-91

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

23. Remuneration and other benefits paid to directors and senior executives of the Parent Company, and other information (Continued) In 2011 the members of the Parent Companys Management Committee earned total remuneration of EUR 3,676 thousand (EUR 5,484 thousand in 2010) in respect of all items, including the duties of the Chief Executive Officer by way of services provided and termination benefits. No advances or loans have been granted to the directors of the Parent Company. The Parent Company has not contracted any pension or alternative life insurance obligations with its directors in their capacity as such. However, the Chief Executive Officer receives certain social benefits under his service agreement, which are included in the pertinent pensions contributions and payments. Pursuant to Article 229 of the Limited Liability Companies Act and in order to reinforce the transparency of public limited companies, it is hereby expressly stated that the directors did not hold any ownership interests at 31 December 2011 in the share capital of companies engaging in an activity that is identical, similar or complementary to that which constitutes the Companys object. Furthermore, they did not and do not currently perform any activities, as independent professionals or employees, that are identical, similar or complementary to the activity that constitutes the company object of the Parent Company, Except for Messrs. Arregui Ciarsolo and Abril-Martorell Hern andez, who indirectly own 90% and 10% respectively of Foresta Capital, S.L. Mr. Arregui Ciarsolo also holds a 0.577% ownership interest in the share capital of Iberdrola, S.A. 24. Transactions with related parties At 31 December 2011 and 2010 the Group companies had granted certain loans and overdraft or other credit facilities to related parties, as follows:
Year Carrying Amount Currency Interest Rate Maturity

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.452 11.852

EURO EURO

Euribor + 3% Euribor + 3%

2014 2014

The Group companies carried out the following transactions with related parties in 2011 and 2010:
Thousands of Euros 2011 2010

Related Party

Transaction

Liberbank, S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Atalaya Inversiones, S.R.L. . . . . . . . . . . . . . . . . . . . . . 25. Environment

Interest and banking fees Purchase of shares

481 26,389

676

The ENCE Industrial Group has three plants located in Huelva, Navia and Pontevedra, each of which has the pertinent Integrated Environmental Authorization to conduct its industrial activities and to generate electricity using biomass. In accordance with prevailing regulations, the Pulp Business Units mills have also obtained Greenhouse Gas Emission Authorization (CO2) and have been allocated a total of 657,970 annual emission rights for the period 2008-2012. The emissions generated in 2011 did not exceed the rights allocated and a surplus was generated. Also, the pertinent audits were performed by an authorised entity in connection with the emission rights application for the period 2013-2020, and the reports were presented to the competent authorities.

F-92

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

25. Environment (Continued) ENCE carries out its processes in accordance with the principles enshrined in the Management Policy established by the Company following a strategy of sustainability and continuous improvement. Consequently, the management system has been implemented taking a process-based approach which addresses quality and efficiency and health and safety issues, as well as respect for the environment and the prevention of pollution, from an integrated standpoint. The environmental management system at the plants is certified by accredited entities in accordance with the UNE-EN-ISO 14001:2004 Standard. The plants also keep records in conformity with the Eco-Management and Auditing Scheme (EMAS) as required by Regulation 1221/2009 of the European Union, and they were first in each of their respective Autonomous Communities to adhere to this demanding voluntary regime, which even today has been joined by relatively few firms. Regular analytic controls are carried out at the plants covering all discharge parameters, as well as atmospheric emissions, noise levels and the waste generated and managed. The effectiveness of the management system is reflected in the continuous improvement of the plants environmental performance, and the results achieved are confirmed annually in the Environmental Returns filed, which are validated in accordance with the EMAS regulations. These results are a consequence of the implementation of the best available techniques (BAT) and best environmental practices (BEP) defined in the sector BREF (Best Available Techniques in the Pulp and Paper Industry, 2001). ENCE also participates actively in the revision and updating of the BREF via ASPAPEL. In 2011 the Huelva mill progressed as planned with the 50 MW biomass generating project, which involves a boiler, a turbine and a biomass treatment plant. This project seeks to extract energy from biomass, thereby reducing the amount of fossil fuels burnt. Following the implementation of various measures, an 11% reduction in the water consumed by the plant was achieved in the second half of the year compared to the beginning of the year. An amendment of the Integrated Environmental Authorization was obtained in September in relation with the management of waste. This involved reclassification of certain waste products from the process (grit and ash from the biomass boiler, and ash from the recovery boiler) as by-products or secondary raw materials. This amendment opens the door to management procedures designed to extract value rather than dumping the waste produced. The majority of the most significant environmental investments made at the Huelva plant in 2011 comprise work carried out on the biomass boiler and the recovery boiler in order to improve emissions. Next in importance were investments made to improve effluent quality. The remaining investments were aimed at achieving energy efficiency gains and reducing the consumption of water. The total investments made amounted to EUR 1.7 million. In June 2011 the Navia mill obtained a revision of the Integrated Environmental Authorization for the facility, including a plan to reduce the liquid effluent associated with the extension of the current effluents treatment plant. This project will be carried out in 2012 and the extension is expected to enter service in 2013. The plant consolidated its pulp and energy output in 2011, optimising facilities and energy efficiency while reducing smells, noise and water consumption, and introducing improvements for the control of liquid effluent. The most significant environmental investments made at the Navia Plant consist of the optimization of the diluted smelly gases treatment system in order to reduce the olfactory impact of operations, and measurement instruments allowing control of immission in the environs of the Navia facility. In the area of improvements to liquid effluent, work was carried out this year to upgrade the internal effluent and rainwater channelling system and include systems to re-circulate internal flows

F-93

Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

25. Environment (Continued) in the digestion and washing stages in order to enhance internal use of organic materials and reduce their content in the final effluent. A system has also been put in place to recover digestion nodules and sand from the biomass boiler, allowing reuse of these materials in the production process and reducing levels of waste. The plan to soundproof sources of noise continued apace and was applied to the refrigeration and vacuum pumps in 2011. The total cost of all of these investments was EUR 0.82 million. The Integrated Environmental Authorization application process was undertaken at the Pontevedra plant. Authorization was obtained in December 2011. The plant achieved record average daily output of cellulose pulp and electricity generating using renewable sources in 2011 while maintaining its commitment to act as an environmental benchmark for the industry. It also continued to improve the efficiency of resource use, cutting water consumption, specific wood consumption and fuel consumption. Environmental investments in Pontevedra were made within the framework of the plan drawn up in collaboration with the University of Santiago de Compostela to eliminate the impact from bad smells. The planned proposals implemented included a gas washing tower and the biological system for the removal and elimination of smells from the pressing shop at the effluent treatment plant, which will enter service in February 2012. Investments were also made to improve atmospheric emissions by renewing electrofilters in the recovery boiler. Water consumption was reduced by the execution of phase II of the plant water supply pipes repair plan and replacement of certain items in the evaporator circuit refrigeration towers. Investments were also made to cut the use of fossil fuels, including improvements to the control of forest biomass used as fuel and the increased burning of hydrogen in lime kilns. Other investments include the replacement of equipment forming part of the ENCE Pontevedra air quality control network and the installation of new immission monitors and data collection and transmission equipment. The total investments made at the Pontevedra plant in 2011 amounted to EUR 1.06 million. Operating and environmental management expenses incurred at the three plants totalled EUR 4.0 million, including auto-control of gaseous emissions, calibration of control equipment, the discharge monitoring and control program, Legionnaires disease control and prevention measures, waste management, expenses incurred in the operation of environmental control installations and compliance with REACH. In January 2010 the Group completed the audit required to maintain the wood Chain of Custody management certificate, which covers the phase between delivery of the certified timber to the mills and delivery of certified pulp to customers under the FSC standard. After the official audit carried out by Bureau Veritas at the Pontevedra and Navia Mills, and the Head and Sales Office in Madrid, compliance with all technical and documentary requirements demanded by the FSC Forestry Certification System. The certificate covers the period from April 2010 until April 2015. The Group has continued with its forestry activities in 2011, making investments to maintain and expand forest assets. In environmental terms, the conservation and development of forest implies upkeep of biodiversity, improvements in the conservation of land and a global effect in the mitigation of climate change given the capacity of woodland to fix carbon. As part of their efforts to protect the environment, the Group companies that are primarily engaged in forestry activities have obtained and maintained certificates issued by duly authorised firms demonstrating the sustainable and responsible use of forests, boosting confidence in the consumption of forest products.

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Grupo Empresarial ENCE, S.A. Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2011 (Continued)

25. Environment (Continued) Silvasur Agroforestal, Norte Forestal and Ibersilva have maintained their Management System certification under the UNE-EN-ISO 14001:2004 Standard. Norte Forestal and Silvasur Agroforestal were the first forest managers in the Iberian Peninsula to obtain PEFC (Programme for the Endorsement of Forest Certification Schemes) sustainable forest management certification, and they have also obtained certification for their chain of custody, ensuring the traceability of timber throughout the process and guaranteeing that it does not come from conflictive sources. The Sustainable Forest Management certificate and the two subsidiaries chain of custody were unified under a single certificate issued in the name of ENCEForest Management Unit. Norte Forestal maintained its prevailing certification under the FSC forest management standard in 2011, which was extended with the certification obtained by Silvasur Agroforestal. Las Pl eyades (Uruguay), Sierras Calmas (Uruguay) and Iberflorestal (Portugal) maintained certification for their management of the Chain of Custody of wood under the FSC. Meanwhile, Las Pl eyades (Uruguay) and Sierras Calmas (Uruguay) also obtained PEFC chain of custody certification in 2011.

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Grupo Empresarial ENCE, S.A. Subsidiaries Consolidated Directors Report for the year ended 31 December 2011 ECONOMIC BACKGROUND AND OUTLOOK Hopes for an improvement in the economy in 2011 were dashed by the worsening of the euro crisis. High levels of indebtedness in the European economies, the continued absence of any signs of economic recovery and governments inability to apply monetary policy tools resulted in the approval of tough fiscal adjustment measures in the economies of southern Europe in order to cut the level of debt and lower public deficits. Indeed, the deficit problem was further aggravated by the impact of fiscal adjustment policies on growth, the rising cost of debt given the markets concerns about governments ability to implement their polices successfully, which significantly widened spreads, especially in the second half of the year. The difficulty of coordinating governments and the negative social response to the policy measures required meant that decisions were put off and implementation was delayed. Further adjustment is also needed in the financial sector, which continues to suffer the negative consequences of the property and derivatives bubbles that burst in 2008. Concerns about the viability of some institutions and doubts over the transparency of their accounts, regulators demands for banks to hold more capital and the exposure of their portfolios to the bonds of the peripheral nations have increased financing difficulties in the interbank and money markets as the rating agencies cut their credit scores. This situation means that the process of adjustment in the financial sector will have to continue with new mergers and the restructuring of balance sheets before credit can flow again between banks and into the wider market. The IMFs outlook for 2012 is for global GDP growth of +3.3%, slightly below the rate achieved in 2011 (+3.8%, again less than the 5.2% growth seen in 2010), although the trend is positive throughout the year. The forecast was reduced from the September estimate of 3.8%, mainly because of adverse developments in the Eurozone due to the negative impact of deleveraging in the financial sector and fiscal consolidation. The emerging economies will also see a certain slowdown (forecast GDP growth for 2012 is +6.2% compared to +7.3% in 2011) due to lower demand for their exports and domestic deceleration. A worldwide recovery to levels of +3.9% is expected for 2013. In this scenario, demand in the pulp market remained strong at the beginning of the year, allowing the absorption of additional capacity reopened in both Latin America and Indonesia, and the application of price rises of $30/t for short-fibre pulp (to $880/t) and $60/t for long-fibre pulp in April. However, Chinese buyers reduced their imports beginning in the second quarter in an effort to put downward pressure on prices, encouraged by the more restrictive monetary policies implemented by the Chinese government. This resulted in an increase in the volume of producers inventories to levels above the average for the cycle and a general contraction in demand in other areas given the expectation of falling prices and the opportunity to make savings by delaying purchases. Prices duly fell by $30/t in July, followed by a rapid contraction from September onwards coinciding with the worsening of the euro crisis and increasing instability in the financial system. Prices remained stable at the level of $650/t in the last part of the year, establishing a slightly higher floor than in earlier cycles. The announcement of price rises by numerous producers in January for both short- and long-fibre pulp combined with the absence of new expected capacity for 2012 and the correction of inventories at the end of 2011 provide a framework capable of supporting a recovery in prices at the beginning of the year. In the medium term, no new capacity is expected to come on stream until 2013 given the time necessary to develop and build new plants, and the time it takes to stabilise their operations. Meanwhile, the difficulty of obtaining financing for major projects in the current economic climate and the significant leverage of the main pulp producers have resulted in delays in the industrys project portfolios. In this light, the outlook for the coming years remains positive. BUSINESSES AND EARNINGS PERFORMANCE The ENCE Group had a good year in 2011 both from the standpoint of operations and in the pulp market, although prices were lower than in 2010, which saw record highs for short-fibre pulp

F-96

(in $/t). Overall, the Groups sales remained at very similar levels to 2010 with revenues of EUR 825 million. Sales of pulp totalled EUR 597 million in 2011, 5% less than 2010 despite volume growth of 7%, setting a new annual output record of 1,243,108 million tons of eucalyptus pulp. The average pulp price for the year was $799/t, 6% less than in 2010 against the backdrop of a 5% appreciation in the euro against the US dollar. The result was an 11% fall in net sales prices compared to 2010. Electricity sales also set record highs, in terms of both volumes and prices. Sales of power grew by 12% to 1,490,290 MWh as a result of upgrades made to generating turbines at the Pontevedra plant and increased production of pulp. This meant that the volume of power generated from renewable roses to 1,159,796 MWh representing 76% of the Groups total output. Prices per MWh grew by 12% compared to 2010 as pool prices held up strongly and the majority of the Groups plants qualify for premium prices. In accounting terms, electricity sales grew by 31% to EUR 184 million. Forestry and consulting sales shrank to EUR 44 million, a fall of 31% compared to 2010, due to the contraction of both businesses, which are the most severely affected by the current economic crisis and are the most dependent on government contracts. Operating profit (EBIT) was EUR 80 million, 32% less than in 2010 due to the fall in pulp prices from the record highs seen in the prior year. Falling prices were partially offset by efficiency gains, which allowed the Group not only to ramp up production but also to cut production costs per ton by an average of 3% in 2011. This reduction was achieved progressively over the course of the year, so that the Group will operate in 2012 with a more efficient cost structure than in the preceding years. A major effort has been made to increase the percentage of wood supplies through standing timber purchases by entering into agreements with forest proprietors associations. The benefits of these measures will crystallise over the coming years, allowing the Group to reduce its dependence on imported timber to supply rising consumption by its plants and to cut exploitation and transport costs through enhanced control and the modernization of this part of the supply chain. Investments in 2011 amounted to EUR 111 million. Close to 25% of this investment was made in biological assets, including both reforestation and forest improvement work in step with the growth in pulp output, and the development of energy crops to feed the new electricity generating plants. Industrial investments totalled EUR 76 million, more than 60% of which were applied to the projects related with the expansion of biomass electricity generating, principally the construction of the 50 MW plant in Huelva, and to a lesser extent to the development of new projects and to irrigation systems for plantations of energy crops. Consolidated equity was EUR 720 million at 30 June 2011 (EUR 766 million at 31 December 2010), equal to 53% of total assets. The fall in equity was due mainly to the recommencement of dividend payments in 2011 out of the profit earned in 2010. The objective of this measure was to ensure appropriate remuneration of the Groups shareholders at the same time as reducing leverage while ensuring that investment needs related with the new generating plants are met in a financial scenario of tight credit, and acquiring treasury shares. Ongoing Research, Innovation and Technology activities focused on the continuation of programmes aimed at achieving the genetic and silvicultural improvement of the eucalyptus tree, innovation and improvement of pulp processes, mechanical transformation of timber and the engineering of new projects, as described in the section Intangible Assets in the notes to the consolidated financial statements. ENVIRONMENT See Note 25 to the accompanying consolidated financial statements.

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RISK FACTORS ASSOCIATED WITH THE GROUPS ACTIVITY The risk factors identified affecting the ENCE Group and its activity are: 1. Cyclical nature of pulp sales

In addition to the sale of eucalyptus pulp to third parties, the Groups activity also encompasses electricity generating and sales. Pulp sales, the Groups traditional activity, account for the majority of sales (72% of sales in 2011), and earnings are therefore highly sensitive to changes in the price of cellulose pulp. The price of BEKP cellulose pulp is established in an active market, the evolution of which significantly conditions the volume of the Groups revenues and its earnings. Cellulose pulp price display a marked cyclical nature, and there has been considerable price volatility in recent years. The behaviour of the price is associated basically with changes in volumes or the conditions dictating supply and demand, as well as the financial situation of firms operating in the market. In order to mitigate this risk, the Group has made significant investments in recent years to raise productivity and improve the quality of the product it markets. It also continually assesses the possibility of hedging pulp prices for future sales. Leaving aside the cyclical nature of the pulp market, the pulp production and sale business conducted by the Group is subject to the industrial and commercial risks proper to the sector, and to the term of the concession for the site of the Pontevedra mill. 2. Currency risk

While the majority of the Groups sales are made in the European market, revenues from sales of cellulose pulp are affected by the USD/Euro exchange rate, because the benchmark sale price on the international market is in USD per ton. Insofar as the Groups cost structure is mainly in euros, changes in the dollar exchange rate can have a significant impact on earnings volatility. In order to mitigate this risk, the Groups policy is to lock in a part of the exchange rate in parallel with its management of the risks inherent in the evolution of cellulose pulp prices. Accordingly, it continuously assesses the possibility of using exchange rate hedges for foreseeable future sales. 3. Risks arising from the supply and cost of wood

Eucalyptus timber is the main input for the production of cellulose pulp, and its price is subject to fluctuations due to changes in the balance of supply and demand in the market where the plants are located and the need to access other markets, resulting in the consequent logistics overheads, when supplies in more local markets are insufficient to meet demand. Furthermore, the Group seeks to maximise the value added in its products basically by increasing its use of certified timber, which is more costly. The forest subsidiaries have a broad network for the procurement of wood from third parties on top of their own production, ensuring that the relevant quantities of raw materials are available to meet pulp manufacturing needs, given that the prices of these purchases are affected by the laws of supply and demand in the different local markets. 4. Environmental risks

The ENCE Groups plants are built and operate to the environmental standards applicable in each case in all relevant respects. These legal requirements are established by the European Union, the Spanish State, the Autonomous Communities and local authorities and they are applicable to all environmental impact vectors, such as liquid effluents, atmospheric emissions, waste and noise. Each plant has its own system for daily control and evaluation of environmental parameters for liquid effluents, atmospheric emissions, noise levels, waste, etc., as established and set out in the different procedures, instructions and standards comprising their Environmental Management

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System, which in all three cases is registered in the European Eco-Management and Audit Scheme (EMAS). This continuous control ensures that environmental risks are kept to a minimum. 5. Regulated electricity market

Electricity generating operations have become increasingly important to the Group in recent years, as this business complements cellulose pulp production by using biomass as an input for some plants, while the stability of electricity prices allows effective management of the intrinsic cyclicality of the pulp business. Future regulatory changes could therefore affect revenues. On 27 January 2012, the Spanish Council of Ministers approved Royal Decree Law 1/2012, temporarily suspending the procedures for pre-allocation of remuneration and removing financial incentives for new power plants using cogeneration, renewable energy sources and waste. However, this legislation also allows the Government to regulate specific financial regimes covering certain special regime power plants, and it also establishes the right of cogeneration plants and other power plants using primary energy sources, non-consumable and non-hydraulic renewable energy, biomass, bio-fuels and agricultural waste to receive remuneration under a specific financial regime. This legislation confirms that current electricity price levels will be maintained for the generating plants currently operated by Grupo ENCE, and others like the two which the Group has under construction, which had already been included in the pre-allocation register when the Royal Decree came into force. However, it introduces uncertainty with regard to the development of new plants, as the suspension period is open-ended. TRANSACTIONS WITH TREASURY SHARES The Parent Company carried out certain transactions with treasury shares in 2011. The Parent Company shares held as treasury stock at 31 December 2011 represented 7.8% of share capital (0.4% at 31 December 2010) with a total par value of EUR 18,190 thousand (EUR 896 thousand at 31 December 2010). The average purchase price was EUR 2.435 per share. EVENTS AFTER THE REPORTING PERIOD No significant events occurred after the end of the reporting period. CORPORATE GOVERNANCE Annex I to this directors report contains all documentation relating to the ENCE Groups annual Corporate Governance Report, prepared in accordance with the Spanish Transparency Act, ORDER ECO/3722/2003, of 26 December, concerning the annual corporate governance report and other reporting instruments of listed companies and other entities.

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The consolidated financial statements and directors report of Grupo Empresarial ENCE and subsidiaries prepared in accordance with IFRS as adopted by the European Union were formally prepared by the directors of the Parent Company on 28 February 2012. The financial and accompanying notes are set forth on 66 sheets of ordinary paper (numbered from 1 to 5 in the case of the consolidated financial statements, and from 1 to 61 in the case of the explanatory notes), the directors report on 4 sheets (numbered from 1 to 4), and in addition, the annual corporate governance report as an annex to the directors report. All of the aforementioned sheets of ordinary paper have been signed by the Secretary to the Board of Directors, and all of the directors have signed the present sheet.

Juan Luis Arregui Ciarsolo

Ignacio de Colmenares y Brunet

Javier Echenique Landiribar

Jos e Carlos del Alamo Jim enez

Jos e Guillermo Zubia Guinea

Gustavo Mat as Clavero

Pascual Fern andez Mart nez

Pedro Barato Triguero

Jos e Manuel Serra Peris

Fernando Abril-Martorell Hern andez

RETOS OPERATIVOS XXI, S.A., represented by Javier Arregui Abendivar

PATRIMONIAL, S.L., represented NORTENA by Mr. Jes us Ruano Mochales

Pedro Jos e L opez Jim enez

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Grupo Empresarial ENCE, S.A. and Subsidiaries 2010 Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union, and 2010 Consolidated Directors Report

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15JAN201315084791
AUDITORS REPORT ON CONSOLIDATED FINANCIAL STATEMENTS To the Shareholders of Grupo Empresarial ENCE, S.A.: We have audited the consolidated financial statements of Grupo Empresarial ENCE, S.A. and Subsidiaries, which comprise the consolidated balance sheet at 31 December 2010 and the related consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and notes to the consolidated financial statements for the year then ended. As indicated in Note 3.1 to the accompanying consolidated financial statements, the Parents directors are responsible for the preparation of the Groups consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and the other provisions of the regulatory financial reporting framework applicable to the Group. Our responsibility is to express an opinion on the consolidated financial statements taken as a whole based on our audit work performed in accordance with the audit regulations in force in Spain, which require examination, by means of selective tests, of the evidence supporting the consolidated financial statements and evaluation of whether their presentation, the accounting principles and policies applied and the estimates made comply with the applicable regulatory financial reporting framework. In our opinion, the accompanying consolidated financial statements for 2010 present fairly, in all material respects, the consolidated equity and consolidated financial position of Grupo Empresarial ENCE, S.A. and Subsidiaries at 31 December 2010, and the consolidated results of their operations and their consolidated cash flows for the year then ended, in conformity with International Financial Reporting Standards as adopted by the European Union and the other provisions of the regulatory financial reporting framework applicable to the Group. The accompanying consolidated directors report for 2010 contains the explanations which the directors of Grupo Empresarial ENCE, S.A. consider appropriate about the Groups situation, the evolution of its business and other matters, but is not an integral part of the consolidated financial statements. We have checked that the accounting information in the consolidated directors report is consistent with that contained in the consolidated financial statements for 2010. Our work as auditors was confined to checking the consolidated directors report with the aforementioned scope, and did not include a review of any information other than that drawn from the accounting records of Grupo Empresarial ENCE, S.A. and Subsidiaries. DELOITTE, S.L. Registered in ROAC under no. 50692

16JAN201315333038

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GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2010 AND 2009 (Thousands of Euros)
Year 2010 Year 2009

Notes

NON-CURRENT ASSETS . . . . . . . Intangible assets . . . . . . . . . . . . . . Property, plant and equipment . . . . Investment property . . . . . . . . . . . . Biological assets . . . . . . . . . . . . . . Other financial assets . . . . . . . . . . Deferred tax assets . . . . . . . . . . . . CURRENT ASSETS . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . . Current tax assets . . . . . . . . . . . . . Current financial assets Derivative financial instruments Other financial assets . . . . . . . Cash and cash equivalents . . . . . . Other current assets . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

6 7 8 18 11 12 18 10 16

977,832 6,534 747,140 2,302 166,187 5,788 49,881 353,873 105,911 139,953 20,119 786 14,586 70,983 1,535 1,331,705

980,154 4,972 737,807 3,413 155,238 5,494 73,230 244,072 88,844 90,546 12,260 1,913 49,132 1,377 1,224,226 157,410 199,058 30,270 148,586 149,131 47,448 (154,571) (435) 576,897 576,897 258,422 20,381 155,755 7,076 42,952 8,791 23,467 388,907 186,240 519 195,259 2,809 3,656 424 1,224,226

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . Share premium . . . . . . . . . . . . . . . . . . . . . . . . Reserves Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . Voluntary reserve . . . . . . . . . . . . . . . . . . . . . Reserve at fully consolidated companies . . . . Valuation adjustments . . . . . . . . . . . . . . . . . . . Result for year attributed to Parent Company . . Own shares . . . . . . . . . . . . . . . . . . . . . . . . . . Equity attributable to owners of the Company TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . NON-CURRENT LIABILITIES . . . . . . . . . . . . . Long-term provisions . . . . . . . . . . . . . . . . . . . . Non-current bank borrowings . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivative financial instruments . . . . . . . . . . . . . Other financial liabilities . . . . . . . . . . . . . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . . . . . CURRENT LIABILITIES . . . . . . . . . . . . . . . . . Current bank borrowings . . . . . . . . . . . . . . . . . Derivative financial instruments . . . . . . . . . . . . . Other financial liabilities . . . . . . . . . . . . . . . . . . Trade and other payables . . . . . . . . . . . . . . . . Current tax liabilitiescorporate income tax . . . Other debts with Public Authorities . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . .............. .............. .............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

232,212 254,328 30,808 17,662 121,536 47,533 64,711 (2,434) 766,356 766,356 345,287 23,833 242,962 9,960 36,562 8,321 23,649 220,062 6,277 4,591 704 201,063 2,188 4,893 346 1,331,705

15 16 14 10 17 18 16 10 17 12 18 18

TOTAL EQUITY AND LIABILITIES . . . . . . . . . . . . . . . . . . . .

The accompanying Notes 1 to 27 are an integral part of the consolidated balance sheet for the year ended at 31 December 2010.

F-103

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED AT 31 DECEMBER 2010 AND 2009 (Thousands of Euros)
Year 2010 Year 2009

Note

Continuing operations: Revenue . . . . . . . . . . . . . . . . . . . . . . . Profit/(loss) on hedges . . . . . . . . . . . . . Changes in inventories of finished goods Procurements . . . . . . . . . . . . . . . . . . . .

................ ................ and work in progress ................ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

19.a 10 19.b

830,758 (4,852) 4,840 (367,034) 463,712 27,814 3,549 7,247 (84,317) (61,206) 222 (239,744) 117,277 2,016 2,463 (31,482) 62 (26,941)

535,551 3,808 (17,422) (348,163) 173,774 34,438 3,006 8,238 (88,730) (46,812) (10,845) (145,570) (72,501) 2,438 (21,232) (25,995) 456 (44,333)

GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . Group work on non-current assets . . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . . . Asset-related grants transferred to profits or loss Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortisation charge . . . . . . . . Provisions for non-current assets . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . . . . PROFIT/(LOSS) FROM OPERATIONS . . . Finance income . . . . . . . . . . . . . . . . . . . . . Variation in fair value of financial instruments Other financel costs . . . . . . . . . . . . . . . . . . Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14 19.c 6, 7 and 8 7 19.e

10 16

FINANCIAL LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT/(LOSS) BEFORE TAX . . . . . . . . . . . . . . . . . . . . . . Corporate income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT/(LOSS) FOR THE YEAR FROM CONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations: Loss for the year from discontinued operations . . . . . . . . . . . . . PROFIT/(LOSS) FOR YEAR . . . . . . . . . . . . . . . . . . . . . . . . Earnings (loss) per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

90,336 (116,834) (25,625) 39,283 64,711 (77,551) (77,020) (154,571) (0.88) (0.88)

23 19.g 20 20

64,711 0.27 0.27

The accompanying Notes 1 to 27 are an integral part of the consolidated income statement for the year ended on 31 December 2010.

F-104

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR 2010 AND 2009 A) CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSES (Thousands of Euros)
Year 2010 Year 2009

Note

PROFIT/(LOSS) PER CONSOLIDATED INCOME STATEMENT (I) . . . . Income and expenses recognised directly in consolidated equity Arising from cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL INCOME AND EXPENSES RECOGNISED DIRECTLY IN CONSOLIDATED EQUITY (II) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers to consolidated income statement Arising from cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL TRANSFERS TO CONSOLIDATED INCOME STATEMENT (III) . TOTAL CONSOLIDATED RECOGNISED INCOME AND EXPENSES (I+II+III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13

64,711 (7,892) 2,367

(154,571) (9,158) 2,748 (6,410) 11,296 (3,388) 7,908 (153,073)

13

(5,525) 8,014 (2,404)

13

5,610 64,796

The accompanying Notes 1 to 27 are an integral part of the consolidated statement of recognised income and expenses for 2010.

F-105

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR YEARS 2010 AND 2009 B) STATEMENT OF TOTAL CHANGES IN CONSOLIDATED EQUITY (Thousands of Euros)
Profit/loss for year attributed to Parent Company 4,742 (154,571)

Note Balance as of 31 December 2008 . . . . . . . . . . . . . . . I. Total recognised income/ (expenses) . . . . . . . . . . II. Transactions with shareholders Payment of dividends . . . . Transactions with treasury stocks . . . . . . . . . . . . . III. Other changes in equity Transfers between equity accounts . . . . . . . . . . . . Other changes . . . . . . . . . 13

Share capital 157,410

Share Premium and Translation Reserves Differences 522,074 (740)

Treasury Valuation Stock adjustments 46,078 1,498

Equity 729,564 (153,073)

. .

100

(435)

(335)

. . 13

157,410

4,002 869 527,045

740

(4,742)

(435)

(128) 47,448 85

741 576,897 64,796

Balance at 31 December 2009 . . . . . . . . . . . . . . . I. Total recognised income/ (expenses) . . . . . . . . . . II. Operations with treasury stock Capital increases . . . . . . . Transactions with treasury stocks . . . . . . . . . . . . . III. Other changes in equity Transfers between equity accounts . . . . . . . . . . . . .

(154,571) 64,711

. .

74,802

51,662 198

(1,999)

126,464 (1,801)

. 13

232,212

(154,571) 424,334

154,571 64,711

(2,434)

47,533

766,356

Balance as of 31 December 2010 . . . . . . . . . . . . . . .

The accompanying Notes 1 to 27 are an integral part of the total statement of changes in consolidated equity for 2010.

F-106

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR 2010 AND 2009 (Thousands of Euros)
Year 2010 Year 2009

1.CASH FLOWS FROM OPERATING ACTIVITIES Consolidated profit/(loss) for the year before tax . . . . . . . . . . . . . Consolidation adjustments: Depreciation of property, plant and equipment . . . . . . . . . . . . Depletion of forestry reserve . . . . . . . . . . . . . . . . . . . . . . . . . . Amortisation of intangible assets . . . . . . . . . . . . . . . . . . . . . . Changes in provisions and other deferred charges (net) . . . . . Gains/losses on sale disposal of property, plant and equipment Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accruals adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants transferred to profit or loss . . . . . . . . . . . . . . . . . . . . . Changes in working capital Trade and other receivables . . Other current assets . . . . . . . . Current liabilities . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

90,336 49,158 10,671 1,377 10,562 (750) (2,016) 28,956 (887) (68,970) (60,004) (12,663) 25,728 (22,031) (28,442) (30,290) 1,848 89,995

(193,854) 35,470 9,744 1,598 11,376 3,784 (3,875) 48,208 (474) 77,020 116,237 34,877 (1,167) 26,828 55,699 (17,319) (20,474) 2,438 717 87,915

Other cash flows from operating activities Interests paid . . . . . . . . . . . . . . . . . . . . . Interests collected . . . . . . . . . . . . . . . . . Corporate income tax paid . . . . . . . . . . .

Net cash flows from operating activities (I) . . . . . . . . . . . . . . . . . . . . . . . . 2.CASH FLOWS FROM INVESTMENT ACTIVITIES Investments: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . Other financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(98,826) (170,304) (96,918) (163,930) (1,614) (2,446) (294) (3,928) (98,826) 123,205 124,920 (11,753) 10,038 229,360 229,360 59,056 (335) (6,132) 5,797

Disposals: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposal of Uruguay project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flows from investment activities (II) . . . . . . . . . . . . . . . . . . . . . . 3.CASH FLOWS FROM FINANCING ACTIVITIES Collections and payments from equity instruments: . . . Issue of equity instruments net of expansion expenses Purchases of treasury stock . . . . . . . . . . . . . . . . . . . Sales of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Collections and payments from financial liability instruments: . . . . . . . . . . Increase (decrease) in bank borrowings, net of arrangement expenses . . . . . Grants received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flows from financing activities (III) . . . . . . . . . . . . . . . . . . . . . . . NET INCREASE/DECREASE IN CASH AND EQUIVALENTS (I+II+III) . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . .

(92,523) (102,766) (94,233) (102,821) 1,710 55 30,682 21,851 49,132 70,983 (103,101) 43,870 5,262 49,132

The accompanying Notes 1 to 27 are an integral part of the consolidated cash flow statement for 2010.

F-107

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010

1. Group Activities and Strategic Business Plan Grupo Empresarial ENCE, S.A. (hereinafter ENCE or the Parent Company) was incorporated in 1968 with the company name of Empresa Nacional de Celulosas, S.A., and its registered office is located at Paseo de la Castellana, 35 de Madrid. Its objectives as a company, according to its bylaws, are as follows: a) the manufacture of cellulose pulp and related by-products, obtaining products and elements necessary for them and the exploitation of the sub-products arising from the former and the latter; the generation by any means, sale and usage of electricity and of other energy sources, and of the materials or primary energies required for the generation thereof, in accordance with the possibilities set out in applicable laws; and the commercialisation, trade and supply thereof, under any of the modalities allowed by legislation. The Company shall not carry out any of the activities indicated for which applicable laws demand specific conditions or limitations unless these are complied with exactly; the cultivation, exploitation and use of forests and timberland, foresting works, and the carrying out of specialised forest works and services. The preparation and transformation of forest products. The commercial use and exploitation and commercialisation of all kinds of forest products (including biomass and forest energy crops), their derivatives and sub-products. Forest studies and projects; the design, promotion, development, construction, operation and maintenance of the installations referred to in sections a), b) and c) above.

b)

c)

d)

In order to carry out its activities, the Group operates three mills located in Asturias, Pontevedra and Huelva, where it carries out cellulose pulp production with ECF (elemental chlorine free) and TCF (totally chlorine free) bleaching based on eucalyptus; the three plants have a joint capacity of approximately 1.3 million tons a year. In order to ensure timber supply in the paper pulp manufacturing process and in order to meet the biomass requirements of the energy generating plants, the Group has a managed asset surface area of 115,789 hectares, of which 77,612 hectares are under its direct ownership. In addition to its cellulose pulp production, the Group generates electricity largely using biofuels generated in the production process (biomass and lignin), and to a lesser extent using gas and fuel oil. The generating capacity is approximately 230 megawatts per annum distributed amongst 6 plants. The shares of the Parent Company are traded in the Madrid Stock Exchange.

F-108

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

2. Group Companies In these 2010 consolidated financial statements, the following subsidiariesin which the Parent Company has a direct or indirect holding of 100% have been consolidated using the global integration method:
thousands of euros Subsidiarys equity Profit (loss) Capital Reserves in FY

Company

Registered office

Activity

SubsidiariesCelulosa Energ a, S.L.U.(a) . . . . . . . . . . . F-109 Celulosas de Asturias, S.A.U.(a) . . . . . . . Silvasur Agroforestal, S.A.U.(a) . . . . . . . . Ibersilva, S.A.U.(a) . . . . . . . . . . . . . . . . . Norte Forestal, S.A.U.(a) . . . . . . . . . . . . . Norfor Maderas, S.A.U.(a) . . . . . . . . . . . . Eucalipto de Pontevedra, S.A.U.(a) . . . . Iberflorestal, S.A.U.(a) . . . . . . . . . . . . . . Las Pl eyades, S.A. (SAFI)(b) . . . . . . . . . Maderas Aserradas del Litoral, S.A.(a)(b) . Sierras Calmas, S.A.(a)(b) . . . . . . . . . . . ENCE Energ a S.L.U. . . . . . . . . . . . . .
(a) (b) Financial statements audited by Deloitte.

Ctra Madrid-Huelva Km. 630. (Huelva) Armental s/n Navia (Asturias) Avda de Andaluc a s/n. (Huelva) Avda de Alemania, 9 (Huelva) Marisma del Louriz an s/n (Pontevedra) Marisma del Louriz an s/n (Pontevedra) Pontecaldelas (Pontevedra) Lisbon (Portugal) Montevideo (Uruguay) Montevideo (Uruguay) Montevideo (Uruguay) Paseo de la Castellana, 35 (Madrid)

Production and sale of electric power Production and sale of cellulose pulp and electricity Forestry & forestation work Forestry services Forestry & forestation work Forestry & forestation work Leasing of properties Timber trade Timber exports Sawmill Forestry & forestation work Production and sale of electric power

3.756 37.863 39.666 10.000 2.464 601 1208 55 2 5.481 1.519 20

21.467 9.951 6.890 (988) 8.050 447 46 1.699 745 (1.477) (591) (1)

5.143 38.945 519 (6.121) 10.539 1 (700) 244 1.591 (431) 6.125 (419)

. . . . . .

Countervalue in euros converted at close-of-session exchange rate.

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

2. Group Companies (Continued) Furthermore, the following companiescurrently inactivein which the Parent Company owns 100% of their share capital are also part of the Group: Electricidad de Navia, S.L.U, Tis u de Louriz an, S.L.U, Ibercel Celulosa, S.L.U., Enersilva, S.L.U., Celulosas de MBopicu a, S.A., Las Pl eyades Argentina, S.A., Las Pl eyades Uruguay, S.A., Zona Franca MBopicu a, S.A. and Encell Limited. The Group also has minority shareholdings in certain companies which, because they are relatively insignificant, have not been consolidated: Transporte de Celulosa y Madera, S.A., with a 40% shareholding in its equity; Imacel, A.E.I.E., an inactive company, with a 50% shareholding in its equity; Sociedad Andaluza de Valorizaci on de la Biomasa, S.L., with a 6% shareholding in its equity; and Electroqu mica de Hernani, S.A., in which the Group has a 5% shareholding. 3. Basis of presentation of the consolidated financial statements 3.1 Basis of presentation The 2010 consolidated financial statements were prepared on the basis of the accounting records and financial statements of the Parent Company and the Group Companies. These consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union pursuant to (CE) Regulation no. 1606/2002, of the European Parliament, and Act 62/2003, of 30 December, on fiscal, administrative and corporate measures, so that they provide an accurate account of the Groups consolidated equity and financial position as of 31 December 2010, as well as the results of its operations, and the changes in consolidated equity and consolidated cash flows produced in the year ended on the aforementioned date. However, since the accounting policies and valuation criteria used in drawing up the Groups consolidated financial statements under IFRS-EU as of 31 December 2010 may differ from those used by some of the companies integrated therein (due to local regulations), the required adjustments and reclassifications have been made in the consolidated process in order to unify the policies and criteria used herein and to make them compliant with the IFRS-EU. The consolidated financial statements of the Group for the year ended 31 December 2010, drawn up by the Parents Administrators, will be submitted for the approval of the Annual General Meeting, and are expected to be approved without any changes. The consolidated financial statements of the Group for the year ended 31 December 2009 were approved by the Parent Companys Annual General Meeting on 22 June 2010. 3.2 Main decisions relating to IFRS The Group made the following decisions in relation to the presentation of the consolidated financial statements and the rest of the information contained in the consolidated report: a. b. The euro is the functional currency of the Group; the consolidated financial statements are thus expressed in euros. The consolidated balance sheet distinguishes between current items (short-term) and non-current items (long-term); furthermore, the consolidated income statement is presented according to the nature of the expense. The Group has chosen to draw up the consolidated cash flow statement using the indirect method.

c.

F-110

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

3. Basis of presentation of the consolidated financial statements (Continued) 3.2.1 Standards and effective interpretations this year Since 1 January 2010, the Group has applied the following standards, modifications or new interpretations: Review of IFRS 3 and Amendment to IAS 27Joint ventures, Amendment to IAS 39 Elements that can be designated as hedged items, Amendment to IAS 32Classification of rights issues and Amendment to IFRS 2Intra-group share-based payments. The content of these rules and interpretations is reflected in Note 3 to the 2009 annual report and its entry into force has not had any significant impact on the Group. 3.2.2 Standards and interpretations issued not in force At the date of preparation of these consolidated financial statements, the following standards and interpretations had been published by the IASB but had not come into force, either because

F-111

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

3. Basis of presentation of the consolidated financial statements (Continued) their date of effectiveness is subsequent to the date of the consolidated financial statements or because they have not been adopted by the European Union:
Standard Content Compulsory application in fiscal years initiated on

Approved for use in the EU: Amendment to IAS 32 Financial Instruments: PresentationClassification of Rights Issues Revision of IAS 24Disclosure of Related Party Transactions

Modifies the accounting treatment of rights issues, options and warrants in a currency different form the main currency of operation Modifies the definition of related party and reduces the disclosure requirements for entities that are related only because they are under the control, common control or subject to significant government influence. The pre-payment of contributions under a minimum funding requirement can give rise to an asset Treatment of the extinction of financial liabilities through the issue of shares

Fiscal years begun after 1 February 2010(a)

Fiscal years begun from 1 January 2011(a)

Amendment to IFRIC 14 Pre-payments of a Minimum Funding Requirement IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments Not approved for use in the EU(b): IFRIC 9 Financial Instruments: Classification and Valuation (released in November 2009 and October 2010) Improvements in IFRS (published in May 2010)

Fiscal years begun after 1 January 2011(a)

Fiscal years begun after 1 July 2010(a)

Supersedes the classification and valuation requirements covering financial assets and liabilities under IAS 39. Modifications of several standards

Fiscal years begun after 1 January 2013

Mostly compulsory for fiscal years begun after 1 January 2011; some are compulsory for fiscal years begun after 1 July 2010. Fiscal years begun after 1 July 2011

Amendment to IFRS 7 Financial Instruments: BreakdownsTransfers of Financial Assets (published in October 2010)
(a) (b)

Extends and reinforces the breakdown of financial asset transfers

Mandatory enforcement date in accordance with its approval in the Official Journal of the European Union, which differs from the original date of the IASB. Standards and interpretations not adopted by the European Union at the date of the drawing up of these consolidated financial statements.

The Board of Directors of the Parent Company considers that the enforcement of these standards will not give rise to significant effects on these consolidated financial statements.

F-112

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

3. Basis of presentation of the consolidated financial statements (Continued) 3.3 Responsibility for information and estimates made In the consolidated financial statements for the year ended 31 December 2010, estimates have been used to measure a number of assets, liabilities, income and expense items, and obligations reported herein. These estimates basically refer to: The assessment of possible impairment losses on certain assets. The useful life of tangible and intangible assets. The fair value of certain assets, mainly financial instruments. The assumptions used in the actuarial calculation of liabilities referring to pensions and other staff obligations. Calculation of the provisions necessary to cover risks arising from ongoing litigation and insolvencies. The recoverability of deferred tax assets. These estimates have been made on the basis of the best information available as of 31 December 2010 and 2009. However, it could be necessary for them to be modified as a result of possible events that might take place in the future, which, were they to occur, would be applied prospectively, in accordance with IAS 8. 3.4 Consolidation principles 3.4.1 Subsidiaries Subsidiaries are those over which the Parent Company has the capacity to exercise effective control. This capacity is generally, though not uniquely, shown by direct or indirect ownership of at least 50% of the voting rights of the investee entities or even, with its percentage being lower or null, if the Parent Company is awarded control following agreements with other shareholders thereof. Control is understood to mean the power to govern the financial and operational policies of a company with the aim of deriving profits from its activities. The financial statements of the subsidiaries are consolidated with those of the Parent Company by applying the global integration method. Therefore, all significant balances and effects of the transactions made between consolidated companies have been eliminated in the consolidation process. 3.4.2 Associates Entities over which the Parent Company is in a position to exercise a significant influence, albeit without control or joint control. This capacity is usually shown by a (direct or indirect) shareholding equal to or above 20% of the voting rights of the investee entity. 3.4.3 Conversion of non-euro currencies The Groups functional currency is the euro. The monetary-non-monetary exchange rate method has been used to convert the consolidated financial statements of the companies consolidated which do not use the euro as a currency; this is because the Group considers that the activities carried out by the aforesaid subsidiary companies can be considered to be an extension of the activities carried out by the Parent Company, from a financial, economic and organisational standpoint.

F-113

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

3. Basis of presentation of the consolidated financial statements (Continued) The main features of the monetary non-monetary method are outlined as follows: 1. The monetary items of the foreign subsidiaries balance sheets (cash and banks and all items representing collection rights and payment obligations) have been converted to euros at the exchange rate in force on the closing date of the consolidated balance sheet. Non-monetary items have been converted to euros at the historic exchange rates. Items of the consolidated income statement have been converted at the average exchange rate for the year, except those relating to non-monetary items, which have been converted at the historical exchange rate.

2. 3.

Exchange differences arising from the application of these procedures are recorded in the consolidated income statement. 3.4.4 Changes in the scope of consolidation and in shareholding percentages 2010 fiscal year During 2010, there were no significant variations in the scope of consolidation. 2009 fiscal year On 17 May 2009, the Parent Company announced that it had reached an agreement for the sale in cash of 100% of the shares and holdings held by ENCE in the Uruguayan companies Eufores, S.A., Celulosa y Energ a Punta Pereira, S.A. and Zona Franca Punta Pereira, S.A. (see Note 23) with the paper manufacturers Stora Enso Oyj and Celulosa Arauco y Constituci on S.A. Furthermore, the Parent Company acquired the holdings that it held via Eufores, S.A. in the following companies: Zona Franca de MBopicu a, S.A., Las Pl eyades de Uruguay, S.A., Las Pl eyades, S.A.F.I. and Maderas Aserradas Litoral, S.A. Furthermore, the companies Sierras Calmas, S.A., ENCE Energ a, S.L.U. and another four subsidiaries of this company were incorporated. 3.5. Comparison of information The information contained in this report referring to the 2009 fiscal year is presented in order to be compared with that of the 2010 fiscal year. 4. Accounting policies The main accounting policies used in preparing the Groups consolidated financial statements, in accordance with EU-IFRS in force at the date of the pertinent financial statements, are outlined as follows: a) Intangible assets

Assets included in this heading are initially valued at the acquisition or production cost. After initial recognition, they are measured at cost less any accumulated amortisation and any accumulated impairment loss. The Groups intangible assets have a finite useful life and are amortised on a straight-line basis over the period that represents the best estimate of their useful lives.

F-114

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

4. Accounting policies (Continued) Development expenditure Every year the costs incurred for this item are capitalised, providing that the aforesaid sums are specifically broken down by individual projects, and there are sound reasons to foresee the technical success and economic profitability of these projects. These costs are amortised over 5 years on a straight-line basis. Computer software In this account the Group records the costs incurred in the acquisition of new computer software and the rights of use thereof. The costs of maintaining the IT systems are recorded in the income statement of the year in which they are incurred. The computer software is amortised on a straight-line basis over a 5-year period. b) Property, plant and equipment

These assets are measured at their acquisition price or production cost, less any accumulated depreciation and any recognised impairment losses, if applicable, according to the accounting policies described in this same section. Costs relating to the expansion, modernisation or improvements leading to increased productivity, capacity or efficiency, or a lengthening of the useful lives of the assets, are capitalised as a higher cost of the corresponding assets. Maintenance and upkeep on expenses incurred during the year are charged to the consolidated income statement. For those fixed assets which need a period of more than one year to be ready for use, the capitalised costs include the financial costs which have accrued before the good was made available for use and which have been issued by the supplier or which correspond to loans or another type of outside financing, whether specific or generic, directly attributable to the acquisition or manufacture thereof. Group work on non-current assets is recognised at the accumulated cost arising from adding internal costs to the external costs, determined according to the in-house consumption of warehouse materials, and the manufacturing costs, allocated using hourly absorption rates similar to those used for the measurement of inventories. The Group companies depreciate their property, plant and equipment using the straight-line method, distributing the cost of the assets between the years of estimated useful life, assuming that land is deemed to have an indefinite useful life and is therefore not depreciated, as per the following details:
Years of Estimated Useful Life

Constructions . . . . . . . . . . . . . . . . . Plants and machinery . . . . . . . . . . . . Other installations, fixtures and fittings Other tangible assets . . . . . . . . . . . .

. . . .

. . . .

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. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

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. . . .

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. . . .

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20 - 40 11 - 16 11 11

The cost of buildings constructed on land assigned under an administrative concession regime is recorded under the Buildings account. This cost, together with the rest of the fixed installations located in the concession terrains, are amortised in accordance with their useful life, or over the period the concession is in force, whichever is lower.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

4. Accounting policies (Continued) Impairment of value of intangible assets and property, plant and equipment Whenever there are signs of that those assets might have suffered an impairment loss, the Group proceeds to estimate possible losses of value that reduce the recoverable value of the aforesaid assets to an amount lower than their carrying amount, using what is called the Impairment test. The recoverable sum is either the fair value less the cost of sale, or the value in use, whichever is higher. The Administrators of the Parent Company have implemented the following procedure for carrying out the aforesaid test: The recoverable values are calculated for each cash-generating unit, i.e. the plants operated by the Group. Every year, the Group draws up a business plan for each cash-generating unit, generally over a three-year period. The aforesaid business plan consists of a set of financial projections prepared using the basis of prior experience and in accordance with the best available estimates of results, investments and evolution of working capital. The business plans thus prepared are reviewed by the Board of Directors of the Parent Company. In order to calculate the value in use, the cash flows thus estimated are discounted to their present value using an adjustment rate representing the cost of capital and considering the cost of the liabilities and business risks. If it is estimated that the recoverable sum of an asset is below its carrying amount, the latter is reduced to its recoverable amount and the pertinent adjustment is recorded in the consolidated income statement. When an impairment loss is subsequently reverted, the carrying amount of the cash generating unit is increased in the revised estimate of its recoverable value, but in such a way that the increased carrying amount does not exceed the carrying amount which would have been determined if no impairment loss had been recorded in previous years. The aforesaid reversal of the impairment loss is recorded as income. The Directors of the Parent Company consider that the carrying amount of the assets is not higher than the recoverable value thereof, the latter being calculated based on what has been stated in this section. c) Investment property

In accordance with IAS 40, the Group records the value of the properties exploited by it valued at the cost of acquisition thereof, less the corresponding accumulated depreciation. d) Biological assets

Part of the Groups activity involves the cultivation of several forest species that are used as a raw material for cellulose pulp and energy production. At 31 December 2010, the Group had various forests and timberland areas used for this activity. In this regard, standing timber is considered to be a biological asset. Forest land is measured in accordance with IAS 16 Property, plant and equipment and is recorded in the Property, plant and equipment heading of the consolidated balance sheet (see Note 7). Since there are no public markets for the aforesaid forest species in their markets of origin, Spain and Uruguay, and because it is not possible to calculate the present value of the future of after-tax cash flows generated by the aforesaid biological assets, the Group has chosen to record standing timber in accordance with the historical cost (cost less accumulated depreciation less any accumulated impairment losses). Therefore, investments in forestry assets are measured by

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

4. Accounting policies (Continued) allocating all the costs directly incurred in the acquisition and development of the asset, plus leases, clearing and preparation of lands, plantations, fertilisation, care and upkeep. Furthermore, a variable and individualised percentage of the carrying amount of the standing timber is capitalised as interest up to the limit of its estimated realisable value. The capitalisation for this item amounted to 2,552 thousand euros in the 2010 fiscal year (2,365 thousand euros in 2009) and is included in the Group work on non-current assets item of the consolidated income statement. The method of allocating cost to felled timber is based on the total costs incurred at the date of the felling and the residual value of the plantation, which is estimated according to future net revenues. Timber disposals from the Groups forestry assets amounted to 10,671 thousand euros during the 2010 fiscal year and to 8,928 thousand euros during fiscal 2009. These amounts are included in the Depletion of forestry reserve account within the Depreciation and amortisation expenses item of the consolidated income statement attached hereto (see Note 8). e) Leases

The Group leases certain assets. All leasing arrangements concluded by the Group have been classified as operating leases given that because of their nature, under no circumstances is the ownership of the leased assets transferrednor, for that matter, are the rights and risks inherent thereto. Expenses arising from the operating lease agreements are recognized as an expense in the consolidated income statement in the year in which they are accrued. f) Financial Instruments

f.1) Financial assets: The financial assets owned by the Group are divided into the following categories: Loans and receivables: commercial credits, as well as credits deriving from non-commercial operations arising from the sale of goods or the rendering of services which are charged using a fixed amount or one that can be determined. Available-for-sale financial assets: includes debt securities and security instruments of other companies that have not been classified under any of the other categories. Initial valuation Financial assets are initially recorded at the fair value of the service or good delivered plus directly attributable transaction costs. Subsequent valuation Loans and receivables are measured at amortised cost. Furthermore, the Group records impairments losses in the consolidated income statement when it estimates that the aforesaid balances show recoverability risks. Available-for-sale financial assets are valued at fair value with the result of the changes in the aforesaid fair value recognised in the consolidated equity item, until the asset is sold or has undergone an impairment loss (of a stable or permanent kind), at which time the aforesaid accumulated results previously acknowledged in equity are then recognized in the consolidated income statement.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

4. Accounting policies (Continued) Registration of cancellations The Group cancels financial assets when they mature or the rights to the cash flow of the pertinent financial asset have been assigned to a third party or the risks and benefits inherent in the ownership thereof have been substantially transferred. On the other hand, the Group does not write off financial assets, and recognises a financial liability for a sum equal to the consideration received, in assignments of financial assets in which the risks and benefits inherent in the ownership thereof are substantially retained. f.2) Financial liabilities: Financial liabilities are the debts and items payable owned by the Group and which have arisen in the acquisition of goods and services from trading operations, or those which do not have a commercial origin but which are not considered to be derivative financial instruments. Bank borrowings and trade payables are initially recorded at the fair value of the service or good delivered plus the directly attributable transaction costs. The aforesaid liabilities are subsequently valued in accordance with their amortised cost. The Company eliminates financial liabilities when the obligations that have generated them expire. f.3) Financial hedging instruments and derivatives: The Groups activities basically expose it to financial and market risks arising from: changes in the dollar/euro exchange rates which mainly affect its sales, because the paper pulp price is quoted on the international market in dollars; he changes in the aforesaid paper pulp prices traded on the market; and changes in the price of fuel oil, gas and electricity, all of which are required in the production process. The Group is also exposed to the impact of changes in interest rates on its financial liabilities. The Group uses hedging derivative financial instruments to cover these exposures. The derivatives are initially recorded at their cost of acquisition on the consolidated balance sheet and subsequently the valuation corrections necessary to reflect their fair value at any given time are made, and are registered in the Derivative financial instruments item of the balance sheet if they are negative, and in Current financial assetsDerivative financial instruments if they are positive. The profits or losses from the aforesaid changes are recognised on the consolidated income statement, except if the derivative has been designated as a hedging instrument and is highly effective, in which case it is registered as follows: 1. Fair value hedging: both the hedged element and the hedging instrument are valued according to their fair value, and fluctuations in the value of both are recorded in the consolidated income statement, with the effects offset in the same heading of the consolidated income statement. Cash flow hedging: changes in the fair value of the derivative financial instruments are recorded in the EquityValuation adjustments item. The loss or gain accumulated in the aforesaid item is transferred to the consolidated income statement insofar as the underlying has an impact on the consolidated income statement, with both effects netted.

2.

In order for these instruments to be able to be classified as accounting hedges, they are initially designated as such, and the hedging relation is documented. The Group also verifies initially and on a regular basis throughout its life through what are called Efficiency tests that the hedging relation is effective, in other words, whether one can expect, prospectively, that changes in fair value or cash flow in the hedged item (attributable to hedged risk) will be compensated almost entirely by changes in the fair value or cash flow of the hedging instrument, and that,

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

4. Accounting policies (Continued) retrospectively, the results of the hedge have varied within a range of 80% to 125% of the result of the hedged item. Additionally, the part of the hedging instrument that is determined to be inefficient is immediately recognised on the consolidated income statement. The fair value of the different derivative financial instruments is calculated by means of the discount cash flows expected, based on conditions for both spot and futures markets at the calculation date. All methods used are generally accepted by financial instrument analysts. When hedging is no longer highly effective, the accounting of the hedging is broken off definitively. In this case, the accumulated gain or loss corresponding to the hedging instrument that has been directly recorded on the equity accounts is recorded within equity until the commitment or the foreseen operation arises. When the commitment or the envisaged operation is not expected to occur, any accumulated gain or loss previously recorded on equity is taken to the consolidated income statement. f.4) Equity instruments An equity instrument represents a residual holding in the equity of the Parent Company once all its liabilities have been deducted. The capital instruments issued by the Parent Company are recorded in the equity item using the amount received, net of issue expenses. Treasury stocks bought by the Parent Company are recorded using the value of the service or good delivered in exchange, directly as a lower value of equity. Any gain or loss obtained on the acquisition, sale, issue or amortisation of equity instruments is acknowledged directly in the equity item, without any result whatsoever being registered on the consolidated income statement, under any circumstances. g) Inventories

Stocks of raw materials and finished products and work in progress of manufacture are measured at their acquisition cost, at the production cost or at market value, whichever is lower. The production cost is determined by including the cost of materials, labour, and direct and indirect manufacturing expenses. The Group uses the weighted average cost method in assigning value to its inventories. The net realisable value represents the estimated sale price less all the estimated production costs and the estimated cost that will be necessary in the commercialisation, sale and distribution processes. In this regard, the Group carries out the pertinent valuation corrections, recognising them as an expense on the consolidated income statement when the net realisable value of inventories is lower than their acquisition price (or production cost). h) Cash and cash equivalents

Cash comprises both cash and demand bank deposits. Cash equivalents are short-term investments with high liquidity that are easily converted into cash, have a maturity of no longer than three months, and are subject to a negligible risk of change of value. i) Corporate income tax

The expense or income from income tax consists of a part referring to expense or income from current tax and a part referring to expense or income from deferred tax.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

4. Accounting policies (Continued) The current tax is the amount disbursed by the Group as a result of income tax payments made during the fiscal year. Bonuses and other tax credits in the amount of tax payable, not including withholdings and payments in advance, and the tax credits that could have been offset in previous fiscal years and are effectively applied in the present fiscal year, give rise to a lower amount of current tax. The deferred tax expense or income corresponds to recognition and cancellation of the deferred tax assets and liabilities. Deferred tax assets and liabilities include temporary differences, which are identified as the amounts expected to be payable or recoverable arising from the differences between the carrying amounts of the assets and liabilities and their related tax value, as well as the tax losses that have not been offset and tax credit carry forwards not fiscally applied. These amounts are recorded applying the time difference or credit corresponding to the tax rate at which they are expected to be recovered or settled. Deferred tax liabilities are acknowledged from deferred taxes for all taxable temporary differences, except those arising from the initial recognition of goodwill and of other assets and liabilities in an operation which does not affect the fiscal result or the book result and which is not a business combination, and those associated with investments in subsidiaries, associated companies and joint ventures in which the Group can control the time of reversal and they are unlikely to be reversed in the foreseeable future. Deferred tax assets are only recorded insofar as it is likely that the Group will have future tax gains against which they can be utilised. Deferred tax assets and liabilities, related to items directly recognised in equity accounts, are also recorded in the equity item. In each period, the deferred tax assets recorded are reconsidered, and the pertinent corrections are made thereto insofar as there are doubts about their future recoverability. Furthermore, in each period the deferred tax assets not recorded on the consolidated balance sheet are assessed and they are recognised insofar as it appears likely that they shall be recovered with future tax earnings. The Parent Company and part of its subsidiaries file consolidated tax returns under the tax regime set out in Chapter VII of Title VIII of the Revised Text of the Corporate Income Tax Act (Ley del Impuesto sobre Sociedades). The companies which make up the tax consolidation group are all those with registered addresses in Spain and in which the Parent Company has a shareholding equal to or higher than 75% of their share capital. j) Income and expenses

Incomes are measured at the fair value of the good or service payable or receivable and are recognised when the Group is likely to receive the economic benefits of the transaction and the amount thereof can be reliably measured. Sales are recorded net of VAT and discounts. Revenue from sales of goods is recorded when the goods have been delivered and the risks and rewards of the ownership of the aforesaid goods have been transferred. Dividend incomes are recorded when the shareholders right to receive payment is established. Expenses are recorded on the consolidated income statement when there is a decrease in the future economic benefits relating to a reduction of an asset, or an increase in a liability, which can reliably be measured. This implies that an expense is recorded at the same time as the recording of the increase in a liability or reduction of an asset.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

4. Accounting policies (Continued) Expenses derived from the receipt of goods or services are recognised at the moment in which they are received. An expense is recorded immediately when a payment does not generate future economic benefits or when it does not comply with the necessary requirements for it to be recorded as an asset. k) Provisions

The consolidated financial statements include all provisions for which it is estimated to be likely that an obligation will need to be met. Contingent liabilities are not recorded on the financial statements, but information is provided on them in the notes to the annual report, insofar as they are not considered as remote. Provisions are valued using the current value of the best possible estimate of the sum necessary for cancelling or transferring the obligation, taking into account the information available on the event and its consequences, and recording the adjustments which could arise from the adjustment of the aforesaid provisions as a financial expense as they are accrued. At the close of the 2010 fiscal year, several legal proceedings and claims were in progress against the Group. Both the legal advisors and the Directors of the Parent Company consider that the conclusion of these proceedings and claims will not have a significant effect on these consolidated financial statements. l) Provision for termination benefits

In accordance with labour regulations in force, the Group is compelled to pay compensation to employees with which it terminates its working arrangements under certain conditions. Therefore, severance compensation that can reasonably be quantified is recorded as an expense in the year in which the severance decision is made. The Group has established an allowance for this item amounting to 2,270 thousand euros, which is recorded in the Trade and other payablesPersonnel account of the consolidated balance sheet at 31 December 2010 (5,008 thousand euros as of 31 December 2009), in order to cover the terminations with incentives expected at the close of the year. As of 31 December 2010, the Directors of the Parent Company do not foresee any terminations that could require the registration of provisions additional to those recorded in these consolidated financial statements. m) Asset elements of an environmental nature

Environmental assets are considered to be goods which are used permanently in the Groups activity and whose main purpose is minimising environmental impact and protecting and improving the environment, including the reduction and elimination of future contamination. Environmental expenses Environmental expenses are considered to be amounts accrued for managing the environmental effects of the Groups operations, and those deriving from existing environmental commitments. These include expenses arising from preventing contamination, treatment of waste and spills, decontamination, restoration, environmental management or environmental auditing (see Note 27). Provisions relating to probable or certain responsibilities, litigation in progress and pending environmental compensation or obligations of an unknown amount not covered by subscribed

F-121

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

4. Accounting policies (Continued) insurance policies are established, if applicable, at the time the responsibility or obligation determining the compensation or payment arises. Environmental assets Elements incorporated in the Groups assets in order to be used permanently in its activity, and whose purpose is to minimise environmental impact and protect and improve the environment, including the reduction or elimination of future contamination, are recorded in the Property, plant and equipment heading of the consolidated balance sheet. For these purposes, the registration of the assets, the determination of the acquisition price or the cost of production and the amortisation criteria and valuation corrections to be made shall be recorded taking into account the valuation standards outlined in sections a) and b) of this same note. n) Provision for pensions and similar obligations

Certain Group companies have established the following commitments for retirements, complementary pensions for widows/widowers, orphans and ascendants, with the object of supplementing the Social Security benefits granted to employees and their relatives: 1. Current employees

A commitment to current employees at 31 December 2010, whereby the Company and the employee contribute a pre-established percentage of salary for pension purposes to the Joint Promotion Pensions Plan of Grupo ENCE promoted in accordance with article 40 d) of the Pension Plans and Funds Regulation. This pension plan is included in the SERVIRENTA F.P . II Pension Fund. 2. Retired employees

In December 1997, the Parent Company took out a single premium insurance policy with an insurance company to guarantee the contingencies covered by the aforementioned fund. The payments made by the insurance company constitute an expense that is tax deductible when they are made, giving rise to the related negative adjustment in the taxable profit or loss and therefore in the recovery of the deferred tax asset recognised in the past. o) Share-based payments

On 30 March 2007, the Annual General Meeting of the Parent Company approved a Special Variable Executive Compensation Plan for 2007-2011. This Plan refers to persons who perform executive functions directly dependent on the Board of Directors or the Chief Executive Officer of the Parent Company, including the Chief Executive Officer himself. The Parent Companys Annual General Meeting on 22 June 2010 voted to modify the aforesaid plan and to delegate its development and execution to the Board of Directors. The aforesaid modification was approved on 30 November 2010 and is detailed in the Grupo Empresarial ENCE S. A. Long-Term Incentive Plan for the 2010-2015 Period (the Plan). The Plan is designed to incentivise the achievement through benefits of the objectives set out by the Board of Directors during the 2010, 2011 and 2012 fiscal years. The maximum amount of stock options eligible for distribution is 3,850,000 shares, equivalent to 1.49% of share capital. The options can be exercised two years after they are granted, provided that: 1. the beneficiary continues to serve ENCE through a relationship of a working or commercial nature and

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

4. Accounting policies (Continued) 2. at the time of exercise, the Parent Company has specified a regular dividend policy.

The price of exercising options granted after 31 March 2011 will be 2.44 euros per share. In the case of allocations corresponding to the second and third period, the strike price will correspond to the share prices average closing price in the first 20 days of March 2012 and 2013, respectively. This amount will be paid in cash. They are therefore payments in shares settled in cash, thus recognising a liability equivalent to the portion of the services received at its current fair value determined on the date of each consolidated balance sheet. The fair value of the Special Variable Executive Compensation Plan has been determined using the Black-Scholes method, which is generally accepted amongst financial analysts as the optimum tool for valuing these financial instruments. Following the aforesaid valuation method, the expense accrued for this item in 2010 was virtually nil. On 25 October 2007, the Parent Company arranged an equity swap with Caja Madrid as a requirement agreed in the clauses of the Special Variable Executive Compensation Plan signed on that same date. On 18 June 2008, the aforesaid equity swap was renewed by cancelling the initial contract and subscribing a new contract whose value depends upon the Companys share price trading at the aforesaid date Likewise, on 14 October 2010 there was a second renewal in order to adapt the swap to a modification introduced into the Long-Term Incentive Plan. The aforesaid equity swap was arranged on a total of 5,100,000 shares of the Parent Company with a base price of 4.11 euros per share. The benchmark interest rate for this investment is 12 months Euribor plus an additional spread of 0.05%, settled annually, and it is scheduled to mature on 30 June 2012. There is no share repurchase agreement, and it is expressly stated that the aforesaid shares will never return to the Group, and that, in the event of there being shares remaining when the 5-year period ends, these would be directly placed in the market by Caja Madrid, thus preventing the aforesaid shares from being considered as Treasury Stock. This instrument does not comply with the criteria to be qualified as a hedging instrument, and therefore the changes in fair value must be recognised in the consolidated income statement as they occur. In order to determine the fair value of the equity swap, the Group has calculated the difference between the discounted cash flows of the share component (current value of dividends plus the final share price less 4.11 euros) and the discounted cash flows generated by the accrual of interests. The negative fair value of this instrument at 31 December 2010 amounted to 9,444 thousand euros (9,608 thousand euros at 31 December 2009) and is recognised in the Derivative financial instruments item of the non-current liabilities of the consolidated balance sheet attached hereto. p) Grants In order to recognise grants received, the Group adopts the following criteria: a) Non-refundable asset-related grants: They are measured using the fair value of the amount or good given, depending on whether or not they are of a monetary nature, and they are transferred to depreciation and amortisation expenses over the period for the granted elements or, if such is the case, when they are sold or subject to valuation correction due to impairment. Operating grants: They are charged to the income statement at the time they are granted, except when they become receivable for financing specific expenses, in which case they shall be recognised as the subsidised expenses are accrued.

b)

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

4. Accounting policies (Continued) q) Greenhouse gas emission rights

The greenhouse gas emission rights received by the Group free of charge under the Spanish National Assignment Plan pursuant to Act 1/2005 regulating the trading of the aforesaid rights are recorded at the time they are allocated in the Intangible assetsGreenhouse gas emission rights at their market value, recording at that time a non-refundable capital grant for the same amount. After they are initially recorded, the emission rights are valued at either the value given at the time they are received or their market value, whichever is lower (they are not amortised). The Long-term provisions item of the consolidated balance sheet recordscharged to the Other operating expenses itemthe amount of expenses associated with greenhouse gases consumed over the period valued by the amount at which they were granted if the aforesaid rights are available, or measured taking into account the best possible estimate of the cost to be incurred to cover the existing rights deficit. The provision thus established and the intangible assets recorded on receiving the rights shall be cancelled at the time they are returned. Non-refundable grants related to the emission rights received free of charge are recognised under Asset-related grants transferred to profit or loss of the consolidated income statement as the expenses arising from gas emissions related to the subsidised emission rights are charged to expense. r) Consolidated statement of cash flows

In the consolidated statement of cash flows, prepared using the indirect method, the following expressions are used with the meanings specified: 1. 2. 3. 4. Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to a low risk of changes in their value. Operating activities: activities typical of the entities composing the consolidated Group, and other activities which cannot be classified as investment or financing activities. Investment activities: the acquisition, sale and disposal by other means of long-term assets and other investments not included in cash and cash equivalents. Funding activities: activities that result in changes in the size and composition of the equity and liabilities that are not operating activities.

s)

Transactions with related parties The Group carries out all its operations with related parties at market values.

t)

Balances and transactions in non-euro currencies.

The Group converts credits and debits expressed in non-euro currencies into the euro applying the exchange rate in force at the time the pertinent transaction is carried out and continues to value them at the aforesaid exchange rate until the aforesaid balances are cancelled. The exchange differences arising from the collection or payment of credits or debts in non-euro currencies and those arising from valuing the accounts payable and receivable in a non-euro currency at the close of the year, according to the exchange rate in force at that time, are posted to the consolidated income statement of the year in which they arise.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

4. Accounting policies (Continued) u) Discontinued operations

A discontinued operation is any Group component which has been sold or which has been disposed of by another means, or which has been classified as held for sale, and, inter alia, represents a line of business or a significant area which can be considered to be separate from the rest. For these types of operations, the Group includes both the after-tax profit or loss from discontinued operations and the after-tax profit or loss recognised on the measurement to fair value less the sale costs, or on the disposal of the asset constituting the discontinued activity, in a single item on the income statement called Profit or loss for the year from discontinued operations net of taxes. Furthermore, when operations are classified as discontinued, the Group presents in the aforementioned accounting item the amount of the previous year corresponding to activities that are discontinued at the close of the year to which the consolidated financial statements refer. 5. Distribution of the Parent Companys results The Parent Companys Directors will propose for approval by the shareholders at the Annual General Meeting the distribution of earnings in fiscal year 2010 according to the following:
Thousands of euros

Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Voluntary reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

82.840 8.284 48.755 25.801 82.840

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

6. Intangible assets The changes in the 2010 and 2009 fiscal years in the various intangible fixed asset accounts and in the related accumulated amortisations were as follows: 2010
Thousands of euros Additions or Charge for Transfers the Year Disposals (Note 7)

Balance at 01/01/2010

Balance at 31/12/2010

Emission rights: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . . . . . . . . . . . Computer software: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . Development expenditure: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . Others: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . Total Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . .

1.053 1.053 14.271 (13.339) 932 8.588 (79) (6.905) 1.604 2.415 (1.032) 1.383 26.327 (79) (21.276) 4.972

8.421 8.421 19 (393) (374) 911 (591) 320 200 (393) (193) 9.551 (1.377) 8.174

(6.930) (6.930) (200) 200 (247) 79 247 79 (7.377) 79 447 (6.851)

239 239 239 239

2.544 2.544 14.329 (13.532) 797 9.252 (7.249) 2.003 2.615 (1.425) 1.190 28.740 (22.206) 6.534

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

6. Intangible assets (Continued) 2009

Thousands of euros Additions or Charge for the Year Elimination from the scope of consolidation

Balance at 01/01/2009

Disposals

Transfers

Balance at 31/12/2009

Emission rights: Cost . . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . Computer software: Cost . . . . . . . . . . . . . . . . . Accumulated amortisation . . Development expenditure: Cost . . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . Accumulated amortisation . . Others: Cost . . . . . . . . . . . . . . . . . Accumulated amortisation . . Total Cost . . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . Accumulated amortisation . . Total . . . . . . . . . . . . . . . Additions and disposals-

7.223 (7.223) 14.968 (13.056) 1.912 24.699 (196) (6.235) 18.268 2.396 (1.466) 930 49.286 (7.419) (20.757) 21.110

9.705 9.705 13 (582) (569) 2.669 (18.446) (890) (16.667) 16 (126) (110) 12.403 (18.446) (1.598) (7.641)

(8.652) (8.652) (18.446) 18.563 117 (27.098) 18.563 (8.535)

(7.223) 7.223 79 (445) (366) (334) 220 (114) 3 560 563 (7.475) 7.223 335 83

(789) 744 (45) (789) 744 (45)

1.053 1.053 14.271 (13.339) 932 8.588 (79) (6.905) 1.604 2.415 (1.032) 1.383 26.327 (79) (21.276) 4.972

The main additions in the 2010 and 2009 fiscal years correspond to the capitalisation of the development expenses relating to forest projects carried out internally in Spain. Due to the agreement reached by the Parent Company with the Stora Enso Oyj and Celulosa Arauco y Constituci on S.A. paper groups for the sale of certain assets located in Uruguay (see Note 23), in 2009 the Group eliminated the development costs incurred in previous fiscal years relating to the aforesaid project, which amounted to 18,446 thousand euros. On 3 June 2008, the Group concluded a contract whereby it sold greenhouse gas emission rights (equivalent to 657,970 tons of CO2) that it received in 2008 for free at a price of 25.40 euros per ton. On that same date, the Group signed an emission rights purchase undertaking for 506,202 tons of CO2 at an average price per right of 24.65 euros, corresponding to the consumption estimated by the Group in 2012. Given that the purpose of this purchase undertaking is to meet rights consumption requirements in the production process in 2012, its impact on the income statement will be recorded in that fiscal year. During the 2010 fiscal year, the Group used part of the 657,970 tons of CO2 allocated to it for the 2010 fiscal year to return the rights consumed in the previous 2009 fiscal year. The remaining 198,750 tons of CO2 are recorded in the Emission rights account and valued at 2,544 thousand euros.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

6. Intangible assets (Continued) The Long-term provisions item of the consolidated balance sheet includes the sum of 6,619 thousand euros corresponding to the liabilities arising from consumption over the 2010 fiscal year of 492,073 tons of CO2 (see Note 15). Fully amortised intangible assetsAs of 31 December 2010 and 2009, fully amortised intangible assets, consisting mainly of development expenses and IT applications, amounted to 16.275 and 15.983 thousand euros, respectively. 7. Property, plant and equipment The changes in 2010 and 2009 in the accounts of this item of the consolidated balance sheet and the related accumulated amortisations were as follows: 2010 fiscal year
Thousands of euros Aditions or Charge for Transfers the Year Disposals (Note 6)

Balance at 01/01/2010

Balance at 31/12/10

Land and buildings: Forest land . . . . . . . . . . . Other land . . . . . . . . . . . . Constructions . . . . . . . . . Impairment losses . . . . . . Accumulated amortisation

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

153.463 8.958 139.404 (13.289) (70.265) 218.271 940.470 (12.804) (510.883) 416.783 26.821 (204) (22.271) 4.346

65 2.277 (3.882) (1.540) 17.317 (224) (42.704) (25.611) 1.368 (1.461) (93)

(12) (210) (25) 67 (180) (5.455) 2.363 3.869 777 (548) 204 1.222 878

(1.150) 3.425 2.275 49.566 (730) 730 49.566 1.348 1.348

153.516 7.598 145.081 (13.289) (74.080) 218.826 1.001.898 (11.395) (548.988) 441.515 28.989 (22.510) 6.479

Plants and machinery: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment losses . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . Other tangible assets: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment losses . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . Property, plant and equipment in the course of construction: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Total: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment losses . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . .

98.407 98.407 1.367.523 (26.297) (603.419) 737.807

36.326 36.326 57.353 (224) (48.047) 9.082

(985) (985) (7.235) 2.567 5.158 490

(53.428) (53.428) (239) (730) 730 (239)

80.320 80.320 1.417.402 (24.684) (645.578) 747.140

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

7. Property, plant and equipment (Continued) 2009

Thousands of euros Elimination from scope of Balance at Charge for consolidation Translation Balance at 01/01/09 the Year Disposals Transfers (Note 23) Differences 31/12/09

Land and buildings: Forest land . . . . . . . . . . Other land . . . . . . . . . . . Constructions . . . . . . . . . Impairment losses . . . . . Accumulated amortisation

. . . . .

. . . . .

252.899 5.667 16.485 273 152.285 110 (19.703) (76.529) (75.176) (5.051) 326.790 (75.530) 692.142 652 (4.248) (7.845) (485.238) (31.584) 202.656 (38.777) 28.553 (102) (23.170) 5.281 1.286 (1.273) 13

(193) (38) 73.829 52 73.650 (4.247) 1.225 3.383 361 (206) 66 (140)

(4) (887) 18.746 (884) (197) 16.774 256.877 (1.936) 207 255.148 (168) (102) (112) (382)

(104.906) (6.914) (31.769) 9.998 10.115 (123.476) (5.148) 2.435 (2.713) (2.648) 2.220 (428)

1 70 (8) 63 194 (86) 108 4 (2) 2

153.463 8.958 139.404 (13.289) (70.265) 218.271 940.470 (12.804) (510.883) 416.783 26.821 (204) (22.271) 4.346

Plants and machinery: Cost . . . . . . . . . . . . . . . . . Impairment losses . . . . . . . Accumulated amortisation . . Other tangible assets: Cost . . . . . . . . . . . . . . . . . Impairment losses . . . . . . . Accumulated amortisation . . Property, plant and equipment in the course of construction: Cost . . . . . . . . . . . . . . . . .

299.916 299.916

116.642 116.642

(322) (273.442) (322) (273.442) (5.006) 75.054 3.501 73.549 1.122 (2.922) (102) (1.902)

(44.387) (44.387) (195.772) 9.998 14.770 (171.004)

269 (96) 173

98.407 98.407 1.367.523 (26.297) (603.419) 737.807

Total: Cost . . . . . . . . . . . . . . . . . 1.442.280 124.630 Impairment losses . . . . . . . (24.053) (84.374) Accumulated amortisation . . (583.584) (37.908) Total . . . . . . . . . . . . . . . 834.643 2.348

Forest land is included in the Land and buildings item of the above table. Standing timber is considered to be a biological asset (see Note 8). AdditionsIn 2010, the Group carried out investments in all of its plants designed to improve the efficiency of the paper pulp production process and optimise the generation of electric power. A total of 19,236 thousand euros were invested in the Navia mill over the course of the 2010 fiscal year (58,722 thousand euros in the 2009 fiscal year), mainly focused on assets associated with the expansion project that was completed in 2009. Investments undertaken at the Huelva plant in 2010, worth a total of 20,506 thousand euros (14,340 thousand euros in the 2009 fiscal year), were aimed at improving energy and productive efficiency, in addition to an investment in a new plant to generate electricity from biomass with a capacity of 50 megawatts. Investments made in Pontevedra in 2010, primarily focused on making the production process more efficient, amounted to 7,310 thousand euros (5,737 thousand euros in 2009). During the course of the 2009 fiscal year, certain assets were no longer usable as a result of the expansion of the Navia mill and an impairment of 11 million euros was recorded in respect of the aforesaid assets. In the Group work for its non-current assets item of the consolidated income statement, the Group has capitalised the financial expense incurred over the year amounting to 1,148 thousand

F-129

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

7. Property, plant and equipment (Continued) euros in debt used to finance different investment projects (4,822 thousand euros at 31 December 2009). Fully depreciated property, plant and equipmentAt 31 December 2010 and 2009, the Group owned fully amortised property, plant and equipment that was still in use, broken down as follows:
Thousands of euros 2010 2009

Constructions Machinery . . . Tooling . . . . . Furniture . . . . Others . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

41.829 356.940 467 1.001 10.063 410.300

41.514 346.452 493 1.643 11.123 401.225

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granting of public domain-

The public maritime-terrestrial concession relating to the land on which the Pontevedra factory is located was awarded to the Parent Company by a Ministerial Order dated 13 June 1958. Although the concession charter did not establish any term, Article 66 of the 1988 Coastal Law subsequently decreed that the maximum term of public maritime-terrestrial concessions would be 30 years. Transitional Provision 14.3 of the Coastal Regulations stipulated that concessions granted prior to the entry into force of the Spanish Coast Law (as in the case at hand), irrespective of the term appearing on the concession deed, will be deemed to have been granted for a maximum period of thirty years from the date of entry into force of the Spanish Coasts Law (the Law came into force on 29 July 1988 and, therefore, the concession would expire on 29 July 2018). At 31 December 2010, the net book value of all assets relating to this land was 87,073 thousand euros (91,665 thousand euros at 31 December 2009). RevaluationsAs of 1 January 2004, the date of transition to IFRS-EU, forest land was revalued at fair value. The fair value was determined by specialised independent appraisal companies and is considered to be a historical cost of reference in accordance with International Accounting Standards. The revaluation surplus, net of the related deferred taxes of 23,718 thousand euros, amounted to 55,343 thousand euros and is included in EquityValuation Adjustments. The fair value is considered to be a historical cost of reference in subsequent dates. Insurance policy and othersThe Groups policy is to take out insurance policies to cover the possible risks that could possibly affect its property, plant and equipment. The Parent Companys Directors consider that the coverage of these risks at 31 December 2010 is appropriate. The amount of the assets located outside Spain, mainly in Uruguay, amounts to 38,836 thousand euros at 31 December 2010 (41,993 thousand euros at 31 December 2009).

F-130

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

8. Biological assets Biological assets includes the Groups standing timber, broken down as follows:
Thousands of euros 31/12/2010 31/12/2009

Standing timberIberian Peninsula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standing timberUruguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-forest landIberian Peninsula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

143.895 21.572 720 166.187

131.410 23.040 788 155.238

Changes in 2010 and 2009 were as follows: 2010 fiscal year

Thousands of euros Aditions or Charge for Disposal or the Year Transfers

Balance at 01/01/2010

Balance at 31/12/10

Biological assets: Standing timber . . . . . . . . . . . . . . . . . . . . . . . . . . . Depletion of forestry reserve . . . . . . . . . . . . . . . . . . Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . .

227.412 (72.174) 155.238

22.959 (10.671) (527) 11.761

(720) (92) (812)

249.651 (82.937) (527) 166.187

2009
Thousands of euros Aditions or Charge for the Year Elimination from scope of consolidation (Note 23)

Balance at of 01/01/09

Disposal or Transfers

Balance at 31/12/09

Biological assets: Standing timber . . . . . . . . . . . . . . . Depletion of forestry reserve . . . . . .

347.632 (92.151) 255.481

30.539 (9.744) 20.795

(2.819) 344 (2.475)

(147.940) 29.377 (118.563)

227.412 (72.174) 155.238

In the 2010 and 2009 fiscal years, the Group carried out planting activities in 5,109 hectares and 13,348 hectares, respectively, and has carried out conservation and forestry tasks on 58,183 hectares and 123,330 hectares, respectively.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

8. Biological assets (Continued) The detail of standing timber at 31 December 2010 and 2009 was as follows: 2010
Iberian Peninsula Thousands of Hectares euros Affected Carrying hectares amount Uruguay Thousands of euros Hectares Carrying Net hectares amount

Years Age

> 17 16 . . 15 . . 14 . . 13 . . 12 . . 11 . . 10 . . 9 ... 8 ... 7 ... 6 ... 5 ... 4 ... 3 ... 2 ... 1 ... 0 ...

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

1.290 154 441 186 327 965 1.903 3.964 3.270 3.266 2.754 3.159 8.387 6.517 6.579 6.043 6.168 22.399 77.772

2.160 732 769 507 1.274 2.114 6.276 10.796 10.125 6.235 5.546 8.955 24.535 16.669 14.145 10.037 16.770 6.250 143.895

223 402 414 1.654 865 152 403 2.161 572 206 654 1.662 2.394 2.027 841 1.414 496 16.540

119 742 170 1.420 567 260 666 3.232 787 325 1.398 1.875 3.644 2.639 1.338 1.794 596 21.572

F-132

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

8. Biological assets (Continued) 2009

Iberian Peninsula Thousands of Hectares euros Affected Carrying hectares amount Uruguay Thousands of euros Hectares Carrying Net hectares amount

Years Age

> 17 16 . . 15 . . 14 . . 13 . . 12 . . 11 . . 10 . . 9 ... 8 ... 7 ... 6 ... 5 ... 4 ... 3 ... 2 ... 1 ... 0 ...

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

1.190 135 267 562 233 625 809 2.559 4.657 4.755 3.206 2.874 3.071 9.037 6.713 6.906 7.359 12.057 67.015

2.424 445 917 1.759 725 1.465 2.492 7.572 11.492 11.501 5.531 5.361 8.208 23.651 16.090 13.102 8.136 10.539 131.410

216 380 426 1.719 866 152 404 2.169 607 219 553 1.666 2.394 2.036 814 1.447 16.068

676 988 806 3.130 1.599 262 742 3.156 835 323 733 1.780 2.702 2.490 952 1.866 23.040

9. Leases At the close of the 2010 and 2009 fiscal years, the Group had contracted with certain leasers the following leases in respect of properties, according to the current agreements in force, without taking into account the effect of common expenses, future increases owing to CPI or future adjustments of rentals agreed by contract:
Thousands of euros

Less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Between one and five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.783 14.208 17.925 35.916

In 2010, the Group leased 30,441 hectares of woodland assets used for the generation of standing timber (30,646 hectares in 2009). These contracts have an average duration of 30 years. 10. Derivative financial instruments In accordance with the risk management policy outlined in Note 26, the Group mainly contracts derivatives to hedge risks arising from changes in interest rates, exchange rates, cellulose pulp prices and the prices of gas, fuel oil and electricity used in the production process. The most commonly used interest rate derivatives are interest rate swaps. Swaps and options account for the bulk of the exchange rate derivatives, derivatives designed to hedge cellulose pulp fluctuations and others to hedge the price of certain energy products.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

10. Derivative financial instruments (Continued) The Group has three types of derivatives: 1. 2. 3. Derivative financial instruments designated as cash flow hedging: mainly hedge cash flows from operating leases, sales of notes in non-euro currencies and fuel purchases. Derivative financial instruments designated as fair value hedging: used to hedge the market value of assets and liabilities on the consolidated balance sheet. Remaining derivatives: those which have not been designated as hedging or which do not comply with the requirements established by accounting standards for that purpose.

All contracted financial instruments have been valued after their initial registration using references to inputs which can be observed for assets or liabilities either directly (i.e., via prices) or indirectly (i.e., via derivatives on prices). The breakdown for this item on the consolidated balance sheet for 31 December 2010 and 2009 is as follows: 2010
Thousands of euros Long term Short term Asset Liability Asset Liability

Liability / Asset

Interest rate swap . Equity swap . . . . . Currency hedging . Pulp price hedges Others . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

27.118 9.444 36.562

786 786

2.014 2.577 4.591

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009

Liability / Asset

Thousands of euros Long term Asset Liability

Interest rate swap . Equity swap . . . . . Currency hedging . Others . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

33.344 9.608 42.952

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange rate hedging-

In order to hedge the risks to which the Group is exposed due to dollar/euro exchange rate fluctuations, which have a major impact on the sale price of cellulose pulp and a significant part of its purchases, the Parent Company has undertaken the forward sale of U.S. dollars as a way of hedging future revenues. These contracts comply with the requirements set out in regulations in order for them to be viewed as effective hedging. The negative market value of the aforesaid instruments as of 31 December 2010 was 2,014 thousand euros and is recorded in the Derivative financial instruments item in the current assets section of the consolidated balance sheet, with a balancing entry to be found, net of tax, in the EquityValuation adjustments item of the consolidated balance sheet.

F-134

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

10. Derivative financial instruments (Continued) The Profit/ (loss) on hedges item of the consolidated income statement for the 2010 fiscal year includes a gain of 4,852 thousand euros corresponding to hedging settled over the course of the aforesaid year. Considering contractual conditions as of 31 December 2010, a 5% increase in the value of the euro would have a positive impact of 4,632 thousand euros on the consolidated 2011 result. Alternatively, a 5% decrease in the value of the euro would have a negative impact of 5,141 thousand euros on the consolidated 2011 result. Pulp price hedgesIn order to hedge the risks to which the Group is exposed due to BHKP pulp price fluctuations that have a significant impact on the amount of sales, the Parent Company in 2010 took out swaps on the price of BHKP pulp that are due to mature over the course of 2011 in order to hedge its sales revenue. These contracts comply with the requirements set out in regulations in order for them to be viewed as effective hedging. These instruments are recorded at fair value in the attached consolidated balance sheet. The fair value of these financial liabilities as of 31 December 2010 was 2,577 thousand euros and is recorded in the Derivative financial instruments item in the current liabilities section of the consolidated balance sheet, with a balancing entry to be found, net of tax, in the EquityValuation adjustments item of the consolidated balance sheet. Taking into account the contractual terms at 31 December 2010 and the portfolio of hedging derivatives in effect as of the same date, a 10% increase in the pulp price curve would generate a negative impact of 5,697 thousand euros on consolidated profit for 2011. Alternatively, a 10% decrease in the pulp price curve would have a negative impact of 5,697 thousand euros on the 2011 profit. Other hedges The Group is exposed to fluctuations in the prices of certain energy products consumed in the production process, which can significantly affect production costs. This risk is partly hedged via commodity swaps that comply with the requirements set out in regulations in order for them to be considered effective hedging. In the 2010 fiscal year, the Group took out commodity swaps on electric power and fuel oil. At 31 December 2010, the Group did not have any fuel oil hedging contract in force. The position of the electricity hedging transactions (swaps) at 31 December 2010 was as follows:
Expiry in Year Average Price in Euros

Product

Currency

Unit

Amount

Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011 2011

Euros Euros

MWh MWh

25 15

37,75 49,07

The hedging contracts on electric power prices comply with the requirements established for them to be effective hedging. The market value of the aforesaid instruments as of 31 December 2010 was 786 thousand euros and is recorded in the Derivative financial instruments item in the current assets section of the consolidated balance sheet, with a balancing entry to be found, net of tax, in the EquityValuation adjustments item of the consolidated balance sheet.

F-135

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

10. Derivative financial instruments (Continued) Interest Rate SwapThe Group hedges the interest rate risk of its financial liabilities with a variable interest rate in euros through interest rate swaps and financial options. The objective of these hedges is to neutralise the fluctuations in cash outflows in respect of payment tied to floating interest rates (Euribor) on the Groups borrowings. In order to determine the fair value of the interest rate derivatives (fixed interest rate swaps and option structures), the Group uses the discounted cash flow method based on the implicit values determined by the Euribor interest rate curve according to market conditions on the valuation date. In the case of options, the Group also uses the implicit market volatility as an input to determine the fair value of the option, using Black-Scholes valuation techniques and variations thereof applied to underlying interest rates. The interest rate derivatives arranged by the Group and outstanding at 31 December 2010 and 2009 and their fair values at that date were as follows: 2010
Thousands of euros Notional value at close of: 2011 2012 2013

Fair Value

Swap with cancellation option . . . . . . . . . . . . . . . . . . . . . 2009

27.118

270.105

232.298

194.498

Fair Value

Thousands of euros Notional value at close of: 2010 2011 2012

2013

Swap with cancellation option . . . . . . . . . . . . . .

33.344

307.905

270.105

232.298

194.498

Shown below is an analysis of the Groups liquidity for its interest rate derivative, prepared using the undiscounted effective net flows:
Less than 1 Month Thousands of euros 1-3 3 Months - 1 1-5 Months Year Years Over 5 years

Interest rate swap . . . . . . . . . . . . . . . . . . . . . . .

3.701

8.429

16.164

On 29 May 2008, the Parent Company formalised an interest rate swap used to hedge approximately 60% of its bank debt. This level of debt underwent major changes in 2009 that, effective 16 October 2009, meant it ceased to meet the minimum requirements necessary to be considered an accounting hedge. Fluctuations in the financial instruments value from that date onwards are reflected in the income statement of the corresponding fiscal years consolidated balance sheet. In this regard, 6,227 thousand euros in profits have been recognised on the Variation in the fair value of financial instruments item of the 2010 consolidated income statement to reflect the change in the value of the instrument during the period (1,406 thousand euros in the 2009 fiscal year). The value of the hedging instrument recorded on equity and associated with the hedged item which has not been cancelled, amounting to 6,748 thousand euros before tax (10,675 thousand euros in the 2009 fiscal year), will be recognised on the consolidated income statement

F-136

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

10. Derivative financial instruments (Continued) prospectively until 2013, when the hedged item will affect the Groups result, as per the following details:
Thousands of euros

Year 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.628 2.045 1.075 6.748

Taking into account the contractual terms at 31 December 2010, a 5% increase in the Euribor interest rate curve would have a positive impact of 512 thousand euros on consolidated profit for 2011. On the other hand, a 5% decrease in the Euribor interest rate curve would have a negative impact of 514 thousand euros on the 2011 year consolidated profit. Equity swapThe Parent Company arranged an equity swap at the end of 2007 in order to hedge the impact of the 2008-2011 Special Variable Compensation Plan of Grupo Empresarial ENCE, S.A. on the consolidated income statement. This was initially recognised as an asset at its fair value, amounting to 14,429 thousand euros, with a credit under Share premium in the Equity item of the attached consolidated balance sheet (see Note 4-o). The negative fair value of the equity swap at 31 December 2010 amounts to 9,444 thousand euros (9,608 thousand euros at 31 December 2009). This amount is recorded on the Derivative financial instruments item under the long-term liabilities section of the attached consolidated balance sheet. A 10% increase in the Parents share price would have a positive impact of 1,214 thousand euros on the consolidated profit for 2011. On the other hand, a 10% decrease in the Parent Companys share price would have a negative impact of the same scale on 2011 profit. 11. Inventories The detail of the Groups inventories at 31 December 2010 and 2009 is as follows:
Thousands of euros 31/12/2010 31/12/2009

Wood . . . . . . . . . . . . . Other raw materials . . . Replacements . . . . . . . Work in progress . . . . Products in progress . . Finished goods . . . . . . Advances to suppliers . Impairment losses . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

61.214 6.917 21.070 8.107 441 16.094 3.369 (11.301) 105.911

39.654 7.317 19.821 8.457 441 10.904 7.167 (4.917) 88.844

At the close of the 2010 and 2009 fiscal years, there were no firm purchase or sale commitments or any limitations on the availability of the inventories. The Impairment of Value item mainly refers to replacements and work in progress.

F-137

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

11. Inventories (Continued) The Group takes out insurance policies to cover the possible risks to which its inventories are subject and it is considered that the insurance coverage for inventories against these risks was sufficient at 31 December 2010. 12. Trade and other receivables, and trade and other payables The balances of Trade and other receivables on the consolidated balance sheet at the close of the 2010 and 2009 fiscal years were as follows:
Thousands of euros 31/12/2010 31/12/2009

Trade receivables for sales . Sundry accounts receivable . Employee receivables . . . . . Impairment losses . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

141.337 3.531 183 (5.098) 139.953

81.290 11.885 210 (2.839) 90.546

The average credit period taken on sales of goods ranges from 70 to 80 days. An impairment loss has been recognised amounting to 2,467 thousand euros (923 thousand euros in 2009) to adjust these assets to their realisable value. The balances of Trade and other payables on the liabilities side of the accompanying consolidated balance sheet at the close of the 2010 and 2009 fiscal years is as follows:
Thousands of euros 31/12/2010 31/12/2009

Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed asset suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remuneration payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

182.450 8.211 10.402 201.063

154.140 27.043 14.076 195.259

The average payment on the purchases of goods and services ranges between 70 and 85 days. The Group has signed several non-recourse confirming contracts, with an available limit and amount arranged on 31 December 2010 of 69,900 thousand euros and 50,876 thousand euros, respectively. The amount of deferrals that as of 31 December 2010 exceeded the maximum legal limit decreed in Act 15/2010 of 5 July, which outlines specific measures to combat payment delays in commercial transactions, totals 8,680 thousand euros, equivalent to 4.8% of pending payments. 13. Equity Share Capital The share capital of Grupo Empresarial ENCE, S.A. at 31 December 2010 and 2009 was represented by 258,012,890 fully subscribed and paid bearer shares with a par value of 0.90 euros each. On 3 March 2010, the Board of Directors of Grupo Empresarial ENCE S.A. voted to raise the Parent Companys share capital by a par amount of 74,802 thousand euros though the issue and circulation of 83,112,890 ordinary shares with a par value of 0.90 euros each and with the same class and series as previous issues. The new shares were issued with an issue premium of

F-138

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

13. Equity (Continued) 0.665 euros per share, which implies a total premium of 55,270 thousand euros. The costs incurred as part of the transaction totalled 5,151 thousand euros on a pre-tax basis. The new shares began to trade on 1 April 2010. The shareholders as of 31 December 2010 and 2009 were as follows:
31/12/2010 31/12/2009

Retos Operativos XXI, S.L. . . Alcor Holding, S.A. . . . . . . . . Atalaya de Inversiones, S.R.L. Caja de Ahorros de Asturias . Fidalser, S.L. . . . . . . . . . . . . Free Float . . . . . . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

22,2 20,4 5,0 5,0 5,0 42,4 100

22,2 20,4 5,0 5,0 5,0 42,4 100

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

All the Parent Companys shares are admitted to official listing on the continuous market of the Spanish Stock Exchange, and all have the same voting and economic rights. Legal reserveIn accordance with the Revised Text of the Spanish Public Limited Companies Act, 10% of profit for the year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of the share capital. The legal reserve can be used to increase capital provided the remaining reserve balance does not fall below 10% of the increased share capital amount. Except for the previously mentioned objective, and until the legal reserve exceeds 20% of share capital, it can only be used to offset losses provided that sufficient other reserves are not available for this purpose. Share premiumThe Revised Text of the Spanish Companies Act expressly allows the use of the share premium balance to increase capital, and does not set any specific restriction on its availability.

F-139

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

13. Equity (Continued) Reserve at fully consolidated companiesThe breakdown by companies of the EquityReserve at fully consolidated companies item at 31 December 2010 and 2009 is as follows:
Thousands of euros 31/12/2010 31/12/2009

Celulosas de Asturias, S.A.U. . . . . . Celulosa Energ a, S.L.U. . . . . . . . . . Norte Forestal, S.A.U. . . . . . . . . . . . Silvasur Agroforestal, S.A.U. . . . . . . Iberflorestal, S.A.U. . . . . . . . . . . . . . Ibersilva, S.A.U. . . . . . . . . . . . . . . . Norfor Maderas, S.A.U. . . . . . . . . . . Eucalipto de Pontevedra, S.A.U. . . . Electricidad de Navia Asturias, S.L.U. Maderas Aserradas del Litoral, S.A. . Celulosas de MBopicu a, S.A. . . . . . Zona Franca MBopicu a, S.A. . . . . . Las Pl eyades de Uruguay, S.A. . . . . Las Pl eyades, S.A. (SAFI) . . . . . . . . Las Pl eyades Argentina . . . . . . . . . . Sierras Calmas, S.A. . . . . . . . . . . . ENCE Energ a, S.L.U. . . . . . . . . . . . Consolidation adjustments . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

41.134 31.417 27.774 16.214 1.698 (907) 448 (1.276) 2.868 (672) (27) 184 (11) 97 (85) (566) (1) 3.247 121.536

58.404 26.983 19.247 15.215 1.453 (216) 431 (1.222) 3.642 (662) (22) 247 (58) 41 25.648 149.131

The amount of reserves in consolidated companies of restricted use at 31 December 2010 amounts to 12,216 thousand euros (11,985 thousand euros at 31 December 2009). Treasury Stocks Variations in the Treasury Stock item on the consolidated balance sheet in the 2010 and 2009 years were as follows:
2010 year Number of Thousands of Shares Euros 2009 year Number of Thousands of Shares Euros

At beginning of year . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . At the year end . . . . . . . . . . . . . . . . . . . . . .

159.879 4.806.457 (3.971.336) 995.000

435 11.753 (9.754) 2.434

2.499.887 (2.340.008) 159.879

6.085 (5.650) 435

The shares of the Parent Company that it held as of 31 December 2010 equalled 0.4% of the share capital (0.09% at 31 December 2009) with an overall par value of 896 thousand euros (144 thousand euros at 31 December 2009). The average acquisition price for these shares is 2.446 euros per share. The shares of the Parent Company that it holds are used for trading on the market.

F-140

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

13. Equity (Continued) Valuation adjustmentsThe Valuation adjustments item under consolidated equity includes changes in fair value of hedging transactions (see Note 10) and the reserve generated to account for forest land at fair value at 1 January 2004 (see Note 7). The breakdown of the changes in the fair value of hedging instruments in 2010 and 2009 is as follows: 2010 fiscal year
Thousands of euros Adjustment Fair value Tax impact in Equity

Interest Rate Swap (Note 10) Balance 1/01/2010 . . . . . . . . . . . . Transfers to income statement . . . Other changes of value . . . . . . . . Balance 31/12/10 . . . . . . . . . . . . Exchange rate (Note 10) Balance 1/01/2010 . . . . . . . . . . . . Transfers to income statement . . . Other changes of value . . . . . . . . Balance 31/12/10 . . . . . . . . . . . . Pulp price (Note 10) Balance 1/01/2010 . . . . . . . . . . . . Transfers to income statement . . . Other changes of value . . . . . . . . Balance 31/12/10 . . . . . . . . . . . . Price of energy products (Note 10) Balance 1/01/2010 . . . . . . . . . . . . Transfers to income statement . . . Other changes of value . . . . . . . . Balance 31/12/10 . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

(10.675) 3.927 (6.748) 5.276 (7.290) (2.014) (2.577) (2.577) (1.189) 1.975 786 (10.553)

(3.202) 1.178 (2.024) 1.583 (2.187) (604) (773) (773) (357) 592 235 (3.166)

(7.473) 2.749 (4.724) 3.693 (5.103) (1.410) (1.804) (1.804) (832) 1.383 551 (7.387)

F-141

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

13. Equity (Continued) 2009 fiscal year

Thousands of euros Value Effect Adjustment Fair Tax in Equity

Interest Rate Swap (Note 10) Starting balance . . . . . . . . . . . . . Transfers to income statement . . . Other changes of value . . . . . . . . Final balance . . . . . . . . . . . . . . . . Pulp price (Note 10) Starting balance . . . . . . . . . . . . . Transfers to income statement . . . Other changes of value . . . . . . . . Final balance . . . . . . . . . . . . . . . . Price of energy products (Note 10) Starting balance . . . . . . . . . . . . . Transfers to income statement . . . Other changes of value . . . . . . . . Final balance . . . . . . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

(16.383) (4.915) 15.069 4.521 (9.361) (2.808) (10.675) (3.202) 3.729 1.119 (3.808) (1.143) 79 24 (160) 35 125 (48) 10 38

(11.468) 10.548 (6.553) (7.473) 2.610 (2.665) 55 (112) 25 87 (7.473)

(10.675) (3.202) 14. Grants

Variations in this item on the consolidated balance sheet in the 2010 and 2009 fiscal years were as follows: 2010 year
Thousands of euros Emission GrantsRights Total

Starting balance . . . . . . . . . . . . . . . . . . . Increase due to new grants . . . . . . . . . . . Emission rights assigned for 2010 (Notes 6 Amount taken to consolidated income . . . .

....... ....... and 15) . .......

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

5.135 1.710 (887) 5.958

1.941 8.421 (6.360) 4.002

7.076 1.710 8.421 (7.247) 9.960

2009 year
Thousands of euros Emission GrantsRights Total

Starting balance . . . . . . . . . . . . . . . . CDTI loans . . . . . . . . . . . . . . . . . . . . Increase due to new grants . . . . . . . . Emission rights assigned for 2009 . . . . Amount taken to consolidated income .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

3.160 2.397 52 (474) 5.135

9.705 (7.764) 1.941

3.160 2.397 52 9.705 (8.238) 7.076

F-142

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

14. Grants (Continued) The Group has benefited from several grants associated with fixed asset investments in its three plants. The Group has also obtained credits from various public entities at an interest rate below the market rate and with maturity dates of up to ten years. The balance pending return at 31 December 2010 amounts to 10,989 thousand euros (11,707 thousand euros as of 31 December 2009) (see Note 17). To be awarded these credits, the Group has to comply with certain requirements for maintaining employment and investment. 15. Long-term provisions Changes over the 2010 and 2009 fiscal years in the Long-term provisions account of the liabilities item on the consolidated balance sheet were as follows: 2010
Thousands of euros Emission Rights Responsibilities (Note 6) Others

Total

Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . Charge for the Year . . . . . . . . . . . . . . . . . . . . . . . . . . . Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at 31/12/10 . . . . . . . . . . . . . . . . . . . . . . . . . . 2009

12.595 4.076 (602) 16.069

6.641 6.676 (6.698) 6.619

1.145 1.145

20.381 10.752 (7.300) 23.833

Thousands of euros Emission Rights Responsibilities (Note 6) Others

Total

Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . Charge for the Year . . . . . . . . . . . . . . . . . . . . . . . . . . . Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at 31/12/09 . . . . . . . . . . . . . . . . . . . . . . . . . .

11.771 1.511 (687) 12.595

9.098 6.641 (9.098) 6.641

1.192 22.061 8.152 (47) (9.832) 1.145 20.381

The breakdown by items of the third party liability provision at 31 December 2010 and 2009 is as follows:
Thousands of euros 2010 2009

Provision for responsibilities: Xunta de GaliciaPiping Agreement R a Pontevedra Spills Charge . . . . . . Community VAT Revision . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

5.357 6.439 2.500 1.773 16.069

5.357 5.163 2.075 12.595

The Emission rights account records the amount of the expenses associated with greenhouse gases consumed over the period (see Note 19-e), charged to the Other operating expenses item of the consolidated income statement.

F-143

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

16. Bank borrowings, cash and other equivalent liquid assets The breakdown of bank borrowings is as follows:
Thousands of euros 2010 2009

Long termLoans and credit and discount facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest payable and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing arranged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total long term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and credit and discount facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest payable and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total short term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

249.465 158.513 186 216 (6.689) (2.974) 242.962 5.608 669 6.277 249.239 155.755 185.083 1.157 186.240 341.995

The breakdown of bank borrowings at 31 December 2010 and 2009, corresponding to loans, lines of credit and discount facilities, classified by maturity, is as follows:
Thousands of euros 2010 Loans and credit and discount facilities Loans and credit and discount facilities 2009

Maturity

Others

Total

Maturity

Others

Total

Available LimitTotal . . . . . . . . . . . . . Principal2011 . . . . . . . . . 2012 . . . . . . . . . 2013 . . . . . . . . . 2014 . . . . . . . . . Subsequent years . . . . . . . . . . . . . . . . . . . .

315.124 5.608 18.897 24.520 197.451 8.597

315.124 129 5.737 115 19.012 37 24.557 34 197.485 8.597 540 540

Available LimitTotal . . . . . . . . . . Principal2010 . . . . . . . . . . 2011 . . . . . . . . . . 2012 . . . . . . . . . . 2013 . . . . . . . . . . Subsequent years . Interest2010 . . . . . . . . . .

375.591 185.083 46.063 33.624 70.314 8.512

375.591 100 185.183 111 46.174 90 33.714 15 70.329 8.512 1.057 1.057

Interest2011 . . . . . . . . . . . . . Financing arrangement fees2011 . . . . . . . . . . . . .

255.073

(6.689)

Financing arrangement fees(6.689) 2010 . . . . . . . . . .

343.596

(2.974)

(2.974)

(5.834) 249.239

(1.601) 341.995

The Bank borrowings in the accompanying consolidated balance sheet shows a financing amount, after netting initial fees, that amounts to 6,689 thousand euros (2,974 thousand euros as of 31 December 2009). In 2010, the credit facilities and loans (except for the syndicated loan) bore an average interest rate of 3.82% (3.38% in 2009). The interests incurred during 2010 and 2009 due to these instruments amounted to 11,704 thousand euros and 18,943 thousand euros, respectively. Syndicated loanOn 2 April 2008, the Parent Company agreed to a lending program with a syndicate of financial institutions that is divided in three tranches and which is designed to fund: the construction of a pulp production and power generation plant in Punta Pereira (Uruguay); certain investments

F-144

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

16. Bank borrowings, cash and other equivalent liquid assets (Continued) outlined in the 2007-2011 Investment Plan; and the reimbursement, repayment and cancellation of funding agreements that the Parent had signed with several financial institutions. The aforesaid loan was modified on 5 February 2009 and 16 October 2009 due to the decision to sell and the subsequent sale of the Uruguay project (see Note 23). These modifications triggered significant reductions in the available limits and the destination of the 179,360 thousand euros in proceeds from the sale of the project to the repayment of the loan. One of the strategic objectives set out by the Group in the 2010 fiscal year was to improve its financial position by drastically slashing its level of debt, both as a basic measure to protect itself against business cycle contractions and as a foundation for developing its investment projects in industrial efficiency and achieving growth in the generation of energy from biomass. As part of this effort, on 14 October 2010 the Company signed a syndicated loan agreement for a maximum amount of financing, after the repayment of bilateral financing agreements, of 176,393 thousand euros, and renewed a modified version of the syndicated agreement in which the amount available was 121,229 thousand euros. The syndicated loan is structured into three tranches; tranche A, which features a credit limit of 112,255 thousand euros, will go to fund the reimbursement and cancellation of bilateral contracts the Group had signed with several financial institutions; tranche B, with a credit limit of 56,928 thousand euros, is set aside for, further to what was indicated for tranche A above, tending to the Groups treasury requirements; finally, tranche C is divided into two parts, the first of which features a limit of 28.464 thousand euros and will go to tend to the Groups treasury needs, whilst the second features a limit of 29.183 thousand euros and will only be available as long as the first is completely available and is designed to fund energy generation projects that use biomass. Both syndicated loans accrue a variable annual interest rate benchmarked to Euribor with a 300 basis point margin, an 18-month grace period and a maturity slated for 14 January 2014. The amount of fees paid during the 2010 fiscal year in relation to this refinancing totalled 3,723 thousand euros. The syndicated loan agreement renewed in 2010 is secured in the first instance by a guarantee on the shares of the following companies: Silvasur Agroforestal, S.A.U., Norte Forestal, S.A.U., and Iberflorestal Comercio e Servi cos Florestais, S.A.U. The main guarantees of the new syndicated loan agreement are a secondary surety on the shares of the aforesaid companies, a personal guarantee on the subsidiary Celulosas de Asturias, S.A., and a mortgage on the production plant located in Navia (Asturias), which belongs to Celulosas de Asturias, S.A., subject to the condition that the Financial Debt/ EBITDA ratio does not exceed a certain limit, and subordinate to the other provided sureties. Both syndicated loans feature certain obligations, chief amongst which is the compliance with certain economic and financial ratios associated with Grupo ENCEs consolidated annual reports and the advanced amortisation of 25% of the free cash flow generated annually if and when the financial gearing owed to lending institutions surpasses 265 million euros. Furthermore, they specify certain restrictions, mainly on the granting of guarantees to third parties, the purchase of treasury stock, the deployment of recurring investments, the structure of the financing of future energy generation projects using biomass, and asset disposals. Cash and cash equivalentsThe Cash and cash equivalents item includes the Groups cash and short-term bank deposits with an initial maturity of three months or less. The carrying amount of these assets is close to their fair value.

F-145

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

16. Bank borrowings, cash and other equivalent liquid assets (Continued) Non-recourse factoringThe Group has formalised several non-recourse factoring contracts, given that all risks implicit in the realisation of the asset are transferred to the factor, with a maximum amount and a drawn-down amount of 64,000 thousand euros and 45,781 thousand euros, respectively (70,500 thousand euros and 33,390 thousand euros at 31 December 2009). The financial cost associated with the financing lines is 3-month Euribor plus a spread of 1%. 17. Other financial liabilities The sum recorded in this item of the accompanying consolidated balance sheet corresponds to repayable advances awarded by the Ministry of Industry, Tourism and Trade to support projects undertaken by the Group for increasing and improving the production capacity of the Huelva, Pontevedra and Navia mills, as well as the technological optimisation and environmental improvement thereof. The detailed breakdown of maturities at 31 December 2010 and 2009 is as follows:
Thousands of euros 2010 2009

2010 . . . . . . . . . . . . . . . . 2011 . . . . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . . 2014 and following . . . . . . Financial update (Note 14)

. . . . . .

. . . . . .

. . . . . .

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. . . . . .

. . . . . .

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. . . . . .

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519 704 1.014 777 638 1.445 1.449 8.106 8.087 (2.007) (2.397) 9.025 9.310

When these credits were awarded, they were assessed at their fair value, recognising the difference between the amount granted and the aforesaid value as a grant posted to the consolidated income statement in proportion to the depreciation of the fixed assets which gave rise to the granting of the credit. The amount of the grant still to be recorded on the consolidated balance sheet at 31 December 2010 amounts to EUR 2,007 thousand euros (2,397 thousand euros as of 31 December 2009).

F-146

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

18. Tax matters Current tax receivables and payables Debit and credit balances with the different Public Authorities at 31 December 2010 and 2009 are as follows:
Thousands of euros 31 December 2010 31 December 2009 Tax Tax Tax Tax receivable payable receivable payable

Non-current items Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current items Value Added Tax receivable and payable . . . . . . . . . . . . . Current corporate income tax . . . . . . . . . . . . . . . . . . . . . Tax authorities as personal income tax and others . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reconciliation of accounting profit to taxable profit Group Companies resident in Spain for tax purposes

49.881 49.881 17.893 2.226 20.119

23.649 23.649 221 2.188 4.672 7.081

73.230 73.230 10.848 1.412 12.260

23.467 23.467 992 2.809 2.664 6.465

For the purposes of calculating taxation on corporate profits, the Parent Company files consolidated income tax returns in accordance with Chapter VII of Title VIII of Spanish Corporation Tax Law, as parent company of Group no. 149/02, created in the fiscal year ended on 31 December 2002. This special tax regime is applicable for an indefinite period of time unless it is expressly waived and entails that the Tax Group entities do not file individual corporate income tax returns: Celulosas de Asturias, S.A.U. Celulosa Energ a, S.L.U. Silvasur Agroforestal, S.A. Norte Forestal, S.A. Ibersilva, S.A.U. Norfor Maderas S.A.U. The nominal corporate tax rate is 30%. Group Companies resident in Uruguay for tax purposes. For income tax purposes, the Group companies located in Uruguay file returns under the Uruguayan general Economic Activity Income Tax regime (IRAE). The nominal tax rate is 25% of accounting profit adjusted for tax purposes in accordance with the applicable legislation, except for Las Pl eyades, S.A., which is taxed under the special Regime for Financial Investment Corporations (SAFIs) at a rate of 0.3% levied on its equity. Group Companies resident in Portugal for tax purposes For the purposes of corporate income tax in Portugal, Iberforestal, S.A. files income tax returns under the general regime known as Imposto sobre o Rendimiento das Pessoas Colectivas, which carries a nominal tax rate of 26.5%. The taxable profit is not determined on the basis of the Groups consolidated accounting profit, but rather on the individual taxable profit of its constituent companies, determined according Eucaliptos de Pontevedra, S.A.U. Electricidad de Navia Asturias, S.L.U. Ibercel Celulosa, S.L.U. Enersilva, S.L.U. ENCE Energ a, S.L.U. and its subsidiaries

F-147

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

18. Tax matters (Continued) to their respective individual tax regime. For these purposes, the individual taxable profit of the companies resident in Spain for tax purposes are included within the taxable profit of Tax Group no. 149/02, and cannot be offset against tax losses incurred by non-resident companies. The reconciliation of the accounting result to taxable profit at 31 December 2010 and 31 December 2009 is as follows:
Thousands of euros 2010 2009

Pre-tax accounting profit/ (loss) . . . . . . . . Continuing operations . . . . . . . . . . . . . . . . Discontinued operations (Note 23) . . . . . . . Permanent differences arising in results . . . Permanent differences arising in equity . . . . Temporary differences arising in the year . . Temporary differences arising in prior years Consolidation adjustments . . . . . . . . . . . . . Offsetting of tax losses . . . . . . . . . . . . . . .

. . . . . . . . .

. . . . . . . . .

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90.336 (213.134) 90.336 (116.834) (96.300) 1.786 777 (5.151) 14.936 24.072 (11.385) (11.387) 1.002 27.320 (86.405) 5.119 (172.352)

Taxable profit/ (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Permanent differences arising in results

Permanent differences arising in results relate to differences in the classification of income and expenses recognised for accounting purposes but declared non-deductible or non-allowable, respectively, by the relevant tax regulation, which furthermore does not provide for deduction or allowance in subsequent years. Temporary differences Temporary differences arise from differences in the temporary posting of income and expenses between accounting and fiscal rules for the purposes of calculating the accounting profit or loss and taxable profit or loss for the year, which will revert in future tax periods. Reconciliation between accounting profit/ (loss) and expenditure/(income) on corporate income tax The reconciliation of accounting profit or loss to taxable profit or loss at 31 December 2010 and 31 December 2009 is as follows:
Thousands of euros 2010 2009

Accounting profit/ (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Permanent differences arising in results . . . . . . . . . . . . . . . . . . . Elimination of accounting profit/ (loss) of non-resident companies Eliminations / inclusions on consolidation . . . . . . . . . . . . . . . . .

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90.336 1.786 (5.085) 1.002 88.039 26.412 (661) (126) 25.625

(213.134) 777 (7.117) 27.320 (192.154) (57.646) (1.571) 654 (58.563)

Taxable profit/ (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deductions and adjustment for previous years tax effect . . . . . . . . . . . . . . . . Adjustment for tax effect of non-resident companies and regularisations . . . . . . Corporate income tax expense/ (revenue) . . . . . . . . . . . . . . . . . . . . . . . . . .

F-148

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

18. Tax matters (Continued) The breakdown of corporate income tax on continuing operations recorded as expense/ (revenue) over the 2010 and 2009 fiscal years is as follows:
Thousands of euros 2010 2009

Corporate income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recognised deferred tax assets and liabilities recorded

25.625 25.625

(58.563) (39.283) (19.280)

The details of the balance of this account at 31 December 2010 and 2009 are as follows: Recognised Deferred Tax Liabilities Recorded
Thousands of euros 2010 2009

Starting balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net changes for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Final balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

73.230 17.272 (23.349) 55.958 49.881 73.230

In 2009, the Group recognised a tax credit worth 52,027 thousand euros, approximately, corresponding to tax losses pending set-off generated by Tax Consolidation Group no. 149/02 worth 173,423 thousand euros, approximately. The rest of the elements in this item of the consolidated balance sheet and which arise from the income statement correspond to accounting expenses that will be tax deductible in forthcoming years. In the current fiscal year, the Tax Consolidation Group has proceeded to partially offset the tax credit from losses pending offset in the amount of 25,921 thousand euros, approximately. The deferred tax asset has been recognised on the consolidated balance sheet because the Directors of the Group Companies consider that, on the basis of the best estimates of the future results of the Companies making up the Tax Consolidation Group, it is very likely that the aforesaid asset will be recovered within the period established by applicable laws. Pursuant to Spanish laws, the aforesaid losses pending set-off generated over the year can be offset by the positive incomes obtained by Tax Consolidation Group No. 149/02 in the tax periods ending within the fifteen years coming immediately and successively after the present year. Deferred tax assets arising from equity at 31 December 2009 amount to 3,166 thousand euros (3,202 thousand euros at 31 December 2009). Recognised Deferred Tax Liabilities Recorded
Thousands of euros 2010 2009

Starting balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net changes for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Final balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23.467 182 23.649

26.215 (2.748) 23.467

Deferred tax liabilities arise mainly from the adjustment to market values of the forest land carried out at 1 January 2004 (see Note 7).

F-149

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

18. Tax matters (Continued) Unrecognised deferred tax assets. The Group has not registered certain deferred tax assets on the attached consolidated balance sheets. Details of the aforesaid unrecorded assets at the end of 2010 and 2009 are as follows:
Thousands of euros 2010 2009

Unrecognised deferred tax assets

Tangible and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Final Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.108 4.257 6.365

1.549 3.339 14 4.902

All the prior years tax losses were incurred by Group companies resident in Uruguay for tax purposes. According to the tax regulations applicable to IRAE, tax losses incurred prior to 31 December 2007 have an expiry period of three years. The amount of the tax losses carried forward is updated every year in accordance with the change in the Domestic Goods Price Index (IPPN). Years open for review and tax audits. In accordance with current tax laws, tax returns cannot be considered definitive until they have been audited by the tax authorities or before the inspection period stipulated in each tax jurisdiction has expired: four years in Spain and Portugal, and five years in Uruguay. The Directors consider that there are no significant tax contingencies that might arise in the event of a tax audit of the years open to inspection. Furthermore, a review by German tax authorities of the Groups treatment of community VAT is still pending. The Board of Directors does not expect any negative impact on the equity of Group companies additional to the amount provisioned in these consolidated annual statements (see note 15). 19. Income and expenses a) Sales

The breakdown of the Groups revenue from ordinary operations in 2010 and 2009 is as follows:
Thousands of euros 2010 2009

Pulp sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electricity sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wood and forestry services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

626.521 140.194 64.043 830.758

361.035 126.901 47.615 535.551

F-150

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

19. Income and expenses (Continued) Practically all the electricity sales were carried out in Spain. The distribution, by geographical markets, of the revenue relating to pulp sales abroad is as follows:
Percentage of Sales 2010 Percentage of Sales 2009

Geographical breakdown

Germany . . . . . Spain . . . . . . . . Italy . . . . . . . . . France . . . . . . . United Kingdom Austria . . . . . . . Poland . . . . . . . Switzerland . . . . Slovenia . . . . . . Holland . . . . . . Turkey . . . . . . . Sweden . . . . . . Others . . . . . . .

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21,9 19,1 16,4 9,3 6,2 5,8 5,3 3,8 3,2 2,3 0,4 2,4 3,9 100

22,9 19,7 12,6 6,9 6,4 5,7 4,5 4,6 2,3 3,2 2,9 1,5 6,8 100

b)

Procurements

The breakdown of the consumption of raw materials and other consumable materials in 2010 and 2009 is as follows:
Thousands of euros 2010 2009

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in inventories of raw, auxiliary and commercial materials . . . . . . . . . . Other external expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

354.849 281.402 (22.409) 32.689 34.594 34.072 367.034 348.163

This item primarily includes costs of timber, chemical products, fuels and other variable costs incurred in the cellulose pulp production process. c) Employee Staff costs incurred in 2010 and 2009 broken down by items are as follows:
Thousands of euros 2010 2009

Wages and salaries . . . . . . . . . Social security costs . . . . . . . . Pension contributions and other Termination benefits . . . . . . . . .

............. ............. employee benefit .............

..... ..... costs .....

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64.093 15.370 3.586 1.268 84.317

62.749 15.215 3.524 7.242 88.730

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-151

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

19. Income and expenses (Continued) The average headcount for 2010 and 2009 is as follows:
Average number of employees 2010 2009 Women Total Men Women

Professional category

Men

Total

Executives . . . . . . . . . . . . . . Individual contracts . . . . . . . . Employee subject to collective Temporary employees . . . . . .

.............. .............. labour agreement ..............

6 191 833 361 1.391

1 49 154 96 300

7 240 987 457 1.691

6 171 1.008 394 1.579

1 41 174 67 283

7 212 1.182 461 1.862

At December 31 2010, the number of disabled employees came to 23, of which 2 are included in the category of individual contracts and the rest in the collective labour agreement category. Furthermore, the distribution of employees by gender at 31 December 2010 and 2009, respectively, classified by professional categories, is as follows:
Final number of employees 2010 2009 Women Total Men Women

Professional category

Men

Total

Executives . . . . . . . . . . . . . . Individual contracts . . . . . . . . Employee subject to collective Temporary employees . . . . . .

.............. .............. labour agreement ..............

6 184 891 321 1.402

1 51 159 50 261

7 235 1.050 371 1.663

6 170 906 319 1.401

1 41 156 55 253

7 211 1.062 374 1.654

At 31 December 2010, the Board of Directors was made up of fourteen directors, all of whom were men. d) Transactions in non-euro currencies

In 2010, the Group companies performed transactions in non-euro currencies, mainly the U.S. dollar, amounting to 170,378 thousand euros (80,368 thousand euros in 2009). e) Other operating expenses

The details of this item in the consolidated income statements for 2010 and 2009 are as follows:
Thousands of euros 2010 2009

Outside services . . . . . . . . . . . . . . . . . Emission rights used (Note 15) . . . . . . . Taxes and other management expenses Change in trading provisions and others

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

215.580 6.912 4.138 13.114 239.744

131.386 6.194 3.515 4.475 145.570

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-152

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

19. Income and expenses (Continued) The breakdown by items of the balance of Outside services in the consolidated income statements for 2010 and 2009 is as follows:
Thousands of euros 2010 2009

Transports, freight and commercial expenses Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . Repairs and maintenance . . . . . . . . . . . . . . . Leases and royalties . . . . . . . . . . . . . . . . . . Insurance premiums . . . . . . . . . . . . . . . . . . Independent professional services . . . . . . . . Banking and similar services . . . . . . . . . . . . Advertising publicity and Public Relations . . . Research and development expenses . . . . . . Other services . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

82.205 52.310 18.902 8.572 7.065 7.134 2.652 1.627 352 34.761 215.580

46.586 34.272 12.326 7.622 6.439 5.727 1.369 709 130 16.206 131.386

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . f) Other information

During the 2010 and 2009 fiscal years, the fees for audit services and other services provided by the Companys auditor, Deloitte, S.L., or a company related to the auditor via control, common ownership or management were as follows:
Thousands of euros 2010 2009

Audit services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total audit and related services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax advisory services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

256 256 129 416 545

239 239 93 119 212

F-153

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

19. Income and expenses (Continued) g) Profit or loss by companies

The contribution of each company included in the scope of consolidation to the consolidated profit or loss for the 2010 and 2009 fiscal years was as follows:
Thousands of euros 2010 2009

Grupo Empresarial ENCE, S.A. . . . . . . Norte Forestal, S.A.U. . . . . . . . . . . . . Silvasur Agroforestal, S.A.U. . . . . . . . . Electricidad de Navia Asturias, S.L. . . . Celulosa Energ a, S.L. . . . . . . . . . . . . Iberflorestal, S.A.U. . . . . . . . . . . . . . . Celulosas de Asturias, S.A.U. . . . . . . . Ibersilva, S.A.U. . . . . . . . . . . . . . . . . . Norfor Maderas, S.A.U. . . . . . . . . . . . Eucalipto de Pontevedra, S.A.U. . . . . . Maderas Aserradas del Litoral, S.A. . . Celulosas de MBopicu a, S.A. . . . . . . Celulosa Energ a Punta Pereira, S.A. . Zona Franca Punta Pereira, S.A. . . . . . Zona Franca MBopicu a, S.A. . . . . . . . yades Uruguay, S.A. . . . . . . . . Las Ple Las Pl eyades S.A.F.I. . . . . . . . . . . . . . Las Pl eyades Argentina . . . . . . . . . . . Sierras Calmas, S.A. . . . . . . . . . . . . . ENCE Energ a, S.L.U . . . . . . . . . . . . . Consolidation adjustments affecting the

.................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... Parent Company (Note 13)

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

12.362 10.538 1.596 (23) 5.143 244 38.945 (6.121) 1 (700) (256) (46) (111) (72) 1.644 (8) 1.994 (419) 64.711

(127.688) 8.527 999 (774) 4.434 245 (17.270) (691) 17 (54) (10) (5) (63) 47 56 (85) (566) (21.690) (154.571)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20. Earnings per share

The consolidated profit/ (loss) per basic and diluted share is calculated as follows:
Net earnings per share 2010 2009

Consolidated net profit/(loss) for the year attributable to ordinary shares (thousands of euros) . . . . . . . . . . . . . . . . . . . . . . . . . Ordinary shares outstanding on 1 January . . . . . . . . . . . . . . . . . Number of ordinary shares as of 31 December . . . . . . . . . . . . . Weighted average number of ordinary shares . . . . . . . . . . . . . . Basic earnings/ (loss) per share (euros) . . . . . . . . . . . . . . . . . . . Diluted earnings/ (loss) per share (euros) . . . . . . . . . . . . . . . . . 21. Operating segments

. . . . . .

. . . . . .

. . . . . .

. . . . . .

64.711 174.900.000 258.012.890 237.519.301 0,27 0,27

(154.571) 174.900.000 174.900.000 174.900.000 (0,88) (0,88)

The manufacture of cellulose pulp is closely tied to the generation of electricity because it employs waste produced in the pulp manufacturing process as a fuel for the generation of electric power. Furthermore, the Group has specific installations designed for electrical generation from biomass and other fuels, and also has forests and timberland which are subsequently used as a raw material in pulp and energy production. In this context, the results of the activities carried out by the pulp and energy manufacturing management areas are analysed jointly by the Management Committee; indeed, financial information is not differentiated except with regard to revenues. The

F-154

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

21. Operating segments (Continued) Committee also carries out an independent analysis of forest management and other minor activities. The information below shows the activity segments for the 2010 and 2009 fiscal years, based on the available management information used on a regular basis: 2010 fiscal yearThousands of euros Forestry Services and Others Consolidation Adjustments amongst Segments

Balance sheet

Pulp and Energy

Forestry Management

Total

Total(a)

Assets Non-current . . . . . . . Current . . . . . . . . . . Total assets(a) . . . . . Liabilities: Non-current . . . . . . . Current . . . . . . . . . . Total consolidated liabilities(a) . . . . .
(a)

642.869 892.298 1.535.167 317.697 586.477 904.174

341.879 121.815 463.694 3.239 291.954 295.193

7.720 36.741 44.461 702 38.612 39.314

992.468 1.050.854 2.043.322 321.638 917.043 1.239.041

(64.517) (696.981) (761.498) (696.981) (696.981)

927.951 353.873 1.281.824 321.638 220.062 541.700

The balance sheet does not include either equity or deferred tax assets and liabilities Thousands of euros Forestry Services and Others Consolidation adjustments between Segments

Income statement

Pulp and Energy

Forestry Management

Subtotal

Total

Revenue: External . . . . . . . . . . . Inter-segment . . . . . . . Total revenues: . . . . . Profit/ (loss): Profit/ (loss) from operations . . . . . . . Finance income . . . . Finance cost . . . . . . Exchange Differences Taxes . . . . . . . . . . . .

761.863 232 762.095

38.230 376.189 414.419

25.813 10.822 36.635

825.906 387.243 1.213.149

(387.243) (387.243)

825.906 825.906

. . . . .

101.648 5.279 (27.800) (979) (22.947) 55.201 54.625 46.904

25.185 443 (4.504) 849 (5.409) 16.564 26.258 12.103

(9.556) 71 (492) 191 2.732 (7.054) 560 2.199

117.277 5.793 (32.796) 61 (25.624) 64.711 81.443 61.206

3.777 (3.777)

117.277 9.570 (36.573) 61 (25.624) 64.711 81.443 61.206

Profit/ (loss) in Fiscal Year . . . . . . . . . . . . Other information Investment(*) . . . . . . . . Depreciation and amortisation charge . Accumulated depreciation and impairment losses . .
(*)

(666.218)

(99.996)

(11.293)

(777.507)

(777.507)

Does not include emission rights

F-155

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

21. Operating segments (Continued) 2009 fiscal yearThousands of euros Forestry Services and Others Consolidation Adjustments amongst Segments

Balance sheet

Pulp and Energy

Forestry Management

Total

Total(a)

Assets Non-current . . . . . . . . Current . . . . . . . . . . . Total assets(a) . . . . . . Liabilities: Non-current . . . . . . . . Current . . . . . . . . . . . Total consolidated liabilities(a) . . . . . . .
(a)

635.333 334.731 970.064 212.066 361.565 573.631

328.834 92.900 421.734 21.354 214.878 236.232

11.461 42.050 53.511 1.535 38.073 39.608

975.628 469.681 1.445.309 234.955 614.516 849.471

(68.704) (225.609) (294.313) (225.609) (225.609)

906.924 244.072 1.150.996 234.955 388.907 623.862

The balance sheet does not include either equity or deferred tax assets and liabilities Thousands of euros Forestry Services and Others Consolidation Adjustments between Segments

Income statement

Pulp and Energy

Forestry Management

Subtotal

Total

Revenue: External . . . . . . . . . . . . Inter-segment . . . . . . . . Total revenues: . . . . . . Profit/ (loss): Profit/ (loss) from operations . . . . . . . . Financial income . . . . . Finance cost . . . . . . . . Exchange Differences . . Net profit/ (loss) on disposal of non-current assets held for sale . . . . . . . Taxes . . . . . . . . . . . . . Losses after tax . . . . . Profit from discontinued operations . . . . . . . . Loss in fiscal year . . . Other information Investment(*) . . . . . . . . Depreciation and amortisation charge . . Accumulated depreciation and impairment losses . . .
(*)

492.131 1.366 493.497

14.280 245.332 259.612

32.948 8.352 41.300

539.359 255.050 794.409

(255.050) (255.050)

539.359 539.359

(87.637) 6.407 (46.604) 767

15.813 86 (4.058) (560)

(677) 184 (804) 249

(72.501) 6.677 (51.466) 456

(2.802) 2.802

(72.501) 3.875 (48.664) 456

43.996 (83.071) (90.490) (173.561) 121.396 35.341

(5.023) 6.258 13.470 19.728 36.206 9.948

310 (738) (738) 265 1.523

39.283 (77.551) (77.020) (154.571) 157.867 46.812

39.283 (77.551) (77.020) (154.571) 157.867 46.812

(624.733)

(88.441)

(10.454)

(723.628)

(723.628)

Does not include emission rights

F-156

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

21. Operating segments (Continued) No client accounts for more than 10% of the Groups total turnover. 22. Guarantees committed to third parties and other contingent liabilities At 31 December 2010, the Parent has not provided any guarantees to banks for subsidiaries, At 31 December 2009, the Parent had loaned the following guarantees to banks for subsidiaries:
Thousands of euros 2009

Bank

Subsidiary

Banco Santander . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sierras Calmas

2.587

Furthermore, at 31 December 2010 several banks had provided guarantees for various Group companies amounting to approximately 60,700 thousand euros (51,500 thousand euros as of 31 December 2009). The Board of Directors does not expect significant liabilities to arise from the amounts guaranteed or the guarantees provided. Furthermore, the Parent and its subsidiaries have taken out a third-party liability insurance policy. In the opinion of the Parents Directors, the aforesaid insurance policy reasonably covers the related contingencies. 23. Discontinued operations On 17 May 2009, the Parent reached an agreement with the paper groups Stora Enso Oyj and Celulosa Arauco y Constituci on S.A. for the cash sale of 100% of the shares and shareholdings held by Grupo Empresarial ENCE, S.A. in the Uruguayan companies Eufores, S.A., Celulosa y Energ a Punta Pereira, S.A. and Zona Franca Punta Pereira, S.A., companies owning the industrial manufacturing project for a new cellulose pulp production plant under construction in Uruguay and of 140,000 forest hectares in Uruguay. The agreement was definitively sealed on 16 October 2009 at a price of 229,360 thousand euros, and the result of the transaction was a loss amounting to 77,020 thousand euros (gross loss of 96,300 thousand euros and tax impact of 19,280 thousand euros) recognised in the Discontinued operationsProfit/ (loss) for the year from discontinued operations net of tax of the attached consolidated income statement for 2009. After this transaction, the Group continued to manage approximately 30,000 hectares of eucalyptus plantations in the Atlantic region of Uruguay, as well as the wood chipping and export plant in Pe narol (Montevideo). The Group is presently analysing the critical importance of this asset in the supply of timber to the Huelva plant and the alternatives thereto. The sale agreement includes certain obligations and guarantees which are customary in these kinds of transactions and will remain in force over the next four years. No significant liabilities are expected to arise from the Group from the aforesaid obligations and guarantees.

F-157

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

23. Discontinued operations (Continued) Details of the principal assets removed from the scope of consolidation or which are eliminated as a result of this transaction are as follows:
Thousands of euros

Intangible assets (Note 6) . . . . . . . . . . Property, plant and equipment (Note 7) Biological assets (Note 8) . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . . . . Short-term financial assets . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

18.492 171.004 118.563 12.977 10.919 7.288 339.243

The table below shows the details of the revenues and expenses recognised on the consolidated income statement for the 2009 fiscal year corresponding to the business sold, and which have been classified under the Discontinued operations item: Details of income and expenses from discontinued operations (thousands of euros)
Year 2009

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in inventories of finished goods and work in progress . . . . . . . . Group work on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Procurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deterioration and loss from disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT / (LOSS) FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FINANCIAL PROFIT/ (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT/ (LOSS) BEFORE TAX FROM DISCONTINUED OPERATIONS . . Corporate income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT/ (LOSS) FOR THE YEAR FROM DISCONTINUED OPERATIONS

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

28.315 9.790 (7.348) 1.163 (2.814) (32.310) (1.971) (88.531) (93.706) 2.848 (3.437) (2.005) (2.594) (96.300) 19.280 (77.020)

F-158

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

24. Remuneration and other benefits of directors and senior executives of the Parent Company, and other information In 2010, the Parent Company recognised the following amounts as remunerations earned by its Directors in relation to their duties as members of the Board of Directors:
Thousands of euros Fixed Attendance Remuneration Fees

Director

Type
(c)

Total

D. Juan Luis Arregui Ciarsolo . . . . . D. Antonio Palacios Esteban(a) . . . . . . D. Ignacio de Colmenares y Brunet(b) . Retos Operativos XXI, S.L. . . . . . . . . D. Jos e Manuel Serra Peris . . . . . . . . D. Pedro Barato Triguero . . . . . . . . . . D. Fernando Abril-Martorell Hern andez D. Gustavo Mat as Clavero . . . . . . . . D. Jose Guillermo Zub a Guinea . . . . Atalaya de Inversiones, S.R.L. . . . . . . Norte na Patrimonial, S.L. . . . . . . . . . D. Fabio E. L opez Cer on(a) . . . . . . . . D. Pedro Jos e L opez Jim enez(b) . . . . . D. Jos e Carlos de Alamo Jim enez . . . D. Pascual Fern andez Mart nez . . . . . D. Javier Echenique Landiribar . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

Executive Executive Executive Nominee Independent Independent External Independent Independent Nominee Nominee Nominee Nominee Independent Nominee Nominee

80 22 22 22 22 22 22 22 22 4 18 22 22 22 344

69 46 34 28 79 50 51 38 20 4 24 28 51 30 552

149 68 56 50 101 72 73 60 42 8 42 50 73 52 896

(a) (a) (c)

Directors who stood down from the Board in 2010. Directors who joined the Board in 2010. Furthermore, items of compensation worth 332 thousand euros from previous years have been disbursed

Furthermore, over the 2010 fiscal year the Parent recognised 6,292 thousand euros as remunerations earned by the members of the Management Committee for all items, including the duties of the Chief Executive officer for the leasing of services and termination benefits. The Parent Company has not granted any advances or loans to the directors. The Parent Company has not granted any obligations to its Directors, with regard to their position as such, or as far as pensions or alternative insurance systems are concerned. However, the Chief Executive Officer, in accordance with his service agreement, takes part in certain social benefits, including related pension contributions and payments. In accordance with the provisions of Article 229 of the Spanish Public Limited Companies Act, in order to enhance transparency of public limited companies, it is further noted that as of 31 December 2010 the members of the Companys Board of Directors have not held any shares in the capital of companies with activities similar, analogous or complementary to the ones that constitute the corporate purpose of the Company. Furthermore, no activities have been carried out as independent professionals or employees in any field of activity with the same, similar or complementary type of activity to that which is the Companys business purpose. The exceptions to the above statement are Messrs. Arregui Ciarsolo and Abril-Martorell Hern andez, who own indirect stakes of 90% and 10%, respectively, in the company Foresta Capital, S.L. and Mr. Jos e Carlos del Alamo Jim enez, who owns an indirect stake of 0.1% in the company Diel Silex Biomasa, S.A. Furthermore, Mr. Arregui Ciarsolo owns 0.552% of the share capital of Iberdrola, S.A.

F-159

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

25. Transactions with related parties As of December 31, 2010, Group companies had granted to related parties various loans and current accounts and diverse credit facilities:
Book value (thousands of euros)

Year

Currency

Interest Rate

Maturity

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.399 14.210

EURO EURO

4,05 4,43

2014 2010

In 2010 and 2009, the Group companies performed the following transactions with related parties:
Thousands of euros 2010 2009

Related Party

Transaction

Cajastur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26. Exposure to risk

Interest and banking fees

676

695

The Board of Directors and the Senior Management set out the policies for the management of the Companys financial risks. The main financial risks which have an impact on the Group and the pertinent policies and controls adopted to mitigate the aforesaid risks are indicated as follows: Market risksPulp priceChanges in cellulose pulp prices modify the cash flows obtained from their sale. Cellulose pulp is a commodity, and its benchmark price is shaped by supply-demand pressures on the international market. Furthermore, the cellulose pulp price has a marked cyclical nature, and has experienced considerable volatility in recent years. In order to mitigate this risk, the Company continually considers the possibility of using hedging on pulp prices for future sales (see Note 10). A 5% increase in the international pulp price in euros would prompt a rise of approximately 3.77% in the Groups revenues. Exchange rateAlthough the majority of the Groups sales are carried out in the European market, revenues arising from cellulose sales are affected by the USD/Euro exchange rate because the benchmark pulp sale price on the international market is in USD per ton. Insofar as the Groups cost structure is mainly in euros, changes in the exchange rate with the dollar have a significant impact on the volatility of the Groups results. In order to mitigate this risk, the Groups policy is to lock in the exchange rate and, in complementary fashion to the risk management of pulp prices, it continuously assesses the possibility of using exchange rate hedging on foreseeable future sales (see Note 10). A 5% increase in the dollar would lead to a rise of approximately 3.77% in the Groups turnover.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

26. Exposure to risk (Continued) CreditThe Group does not have any significant credit risk, given that between 75% and 90% of customer collections are guaranteed through the arrangement of credit insurance. The Parents Directors consider that the coverage of these risks at 31 December 2010 is sufficient. Interest rate riskRisk arising from the exposure to changes in interest rates of the Companys financial assets and liabilities which could have an adverse effect on its income statement and cash flows. The objective of interest rate risk management is to achieve a balance in the debt structure to minimise the cost of debt over a multi-annual horizon with low volatility on the consolidated income statement. Arrangements involving derivative instruments are assigned to a certain financing, adjusting the derivative to the temporary structure and to the amount of the financing. At 31 December 2010, the Group held hedging instruments which cover virtually all the banking debt contracted at a variable interest rate. Liquidity riskExposure to adverse situations on debt or capital markets can obstruct or impede the hedging of financial needs required for the adequate development of the Groups activities and its future Business Plan. Management of this risk includes the detailed monitoring of the calendar of expiries of bank borrowings, and the proactive management and maintenance of credit facilities and other sources of financing enabling expected cash needs to be covered. The refinancing process completed in the 2010 fiscal year and the progress of business has allowed the Company to mitigate this risk. 27. Environment ENCEs industrial activity is undertaken by the Pulp Business Unit, which has 3 plants located in Huelva, Navia and Pontevedra. Since April 2008, these factories employ the mandatory Integrated Environmental Authorisations for its activities of cellulose production and electric power generation from biomass. In compliance with current regulations, the mills of the Cellulose Business Unit have been awarded the Greenhouse Gas Emission Authorisation (CO2) and have been assigned 657,970 annual emission rights for the 2008-2012 period. The amounts of emissions generated in 2010 do not exceed the allocation of rights, thus giving rise to a surplus. As far as the global management of processes and activities is concerned, in its Pontevedra, Navia and Huelva mills, ENCE has an Integrated Management System which addresses environmental, quality and health and safety issues that affect people and sets the foundations for the achievement of total quality and business excellence. This system is designed to ensure compliance with legal requirements and others to which ENCE subscribes and, amongst other objectives, to reduce the environmental impact of its facilities. The aforesaid system is certified by AENOR in accordance with the UNE-EN ISO 14001:2004 Standard, and is registered in the Eco-Management and Auditing Scheme (EMAS) in accordance with Regulation 1221/2009 of the European Union in the Pontevedra and Huelva mills, and certified by Lloyds Register (LRQA) in the Navia mill. Environmental matters are integrated into a single Integrated Management System, which is also certified in accordance with the UNE-EN-ISO 9001:2007 Standard.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

27. Environment (Continued) To monitor the environmental performance of its facilities, ENCE carries out periodic analytical reviews of the parameters of potentially polluting elements in its discharges, as well as of the atmospheric emissions and waste that the company generates and manages. The plants have made investments aimed at reducing air emissions, noise and odours. Furthermore, in its production processes, the Group uses pulp-whitening systems that do not require the use of elemental chlorine, thus minimising the risk of organ chlorate wastes being generated. In 2009, the Huelva mill managed to obtain the certification for its Prevention of Occupational Hazards system in accordance with the requirements of the OHSAS 18001 standard of reference, a certification which was maintained in 2010. The Pontevedra plant confirmed the aforesaid certification for a further 3 years in 2009, and the Navia mill also maintained its certificate. The 3 factories have carried out an OHSAS monitoring audit and a PRL legal audit, and none of the findings jeopardise the certification, given that the mandatory certificates were received. The reduction of the environmental impact of the Groups installations is centred on investments geared towards reducing water consumption, consolidation of water treatment, and projects designed to reduce atmospheric emissions. For the Pontevedra plant, 2010 marked the continuation of a project designed to improve odour reduction in partnership with the University of Santiago de Compostela. The implementation of the proposals is already scheduled over the next 2 years. It has also continued to reduce water consumption by means of the recovery of clean waters that are led back into the process, as well as other investments designed to prevent contamination. In the Huelva plant, ongoing investments are being made to improve and optimise the use for energy purposes of biomass in order to reduce fossil fuel consumption. Actions have also been taken to reduce water consumption. After obtaining the AAI for the new facilities, the Navia mill has proceeded to optimise them after the launch of operations of the plant expansion at 500,000 ADt. The environmental investment plan has continued; its main objective is to optimise and reduce the consumption of water in the factory, assess solutions to minimise the acoustic impact of the new installations, study solutions to minimise the odoriferous impact through the capture of smelly gases diluted for final thermal treatment in the Recovery boiler, as well as improvements for the control of liquid effluent. In January 2010, the Group completed the auditing for the maintenance of the wood Chain of Custody management certification, which covers the phase between the reception of the certified timber in plants and the delivery of certified pulp to clients in accordance with the PEFC standard. After the official auditing carried out by Bureau Veritas on the Pontevedra mill, the Navia mill, Central Offices and Sales, the compliance with all technical and documentary requirements that are demanded by the Programme for Endorsement Forestry Certification (PEFC) system was verified. This certificate is valid from April 2010 to April 2015. During 2010, the Groups forest activities have continued, including investments in maintaining and expanding forest assets. Environmentally, the conservation and development of forest masses implies improvement in floor conservation, and a global effect on mitigating climate change, due to carbon fixing capacity. The different Group companies which primarily carry out forest activities with the purpose of protecting the environment, sustainability and efficiency have obtained, and maintain, the certificates demonstrating sustainable forest management, carried out by properly authorised companies, which helps increase confidence in the consumption of forest products. The companies Silvasur Agroforestal, Norte Forestal, Ibersilva and Eufores have maintained their Management System certification in accordance with the IS0 14001:2004 International Standard.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated financial statements for the fiscal year that ended 31 December 2010 (Continued)

27. Environment (Continued) Norte Forestal and Silvasur Agroforestal were the first forest management companies in the Iberian Peninsula to obtain the PEFC (Programme for the Endorsement of Forest Certification Schemes) sustainable forest management certification, and have also been awarded a certification for their chain of custody, ensuring the traceability of the timbers origin throughout the process and guaranteeing it does not derive from conflict areas. As far as sustainable forest management and the custody chain are concerned, the certifications were maintained in our subsidiaries in Spain in accordance with Sustainable Forest Management and the Chain of Custody as per the PEFC scheme for Silvasur Agroforestal and Norte Forestal. Also, Norte Forestal has obtained the FSC certification of the timberland areas it manages. Both Las Pl eyades (Uruguay) and Iberflorestal (Portugal) maintained their corresponding certification with regard to management of the Custody Chain in accordance with FSC. In 2009, the new forestry subsidiary Sierras Calmas (Uruguay) has obtained the corresponding CoC certification. Environmental investments in the Pontevedra mill led to the reform of the weak white liquor circuit, an improvement in effluent quality, as well as improvements the control of odours and air emissions (venting of tanks during the process, reduction in dissolving gases, completion of the installation of diluted gases and improvements in the effluent treatment plant). Also, there have been improvements in washing filters aimed at cutting down on the use of chemicals and modifying the vacuum and debugging system in the 1 and 2 pulp dryers, a measure designed to curtail power consumption. The total amount of these investments came to 1.77 million euros. Specific environmental expenditures (waste management, environmental controls and consulting, certifications, compliance with REACH regulations) came to a total of 1.05 million euros. The Huelva mill has carried out a range of environmental investments designed to control and prevent pollution; these investments have focused on introducing improvements in processes such as gas exhaust ducts, echo and biomass boiler superheaters, new pumps for rain water and intermediate sewage process water to avoid the risk of spills, sand filter improvements, or new blowers for a secondary treatment plant. The total amount of these investments came to 1.11 million euros. Specific environmental expenditures (waste management, environmental controls and consulting, certifications, compliance with REACH regulations) came to a total of 1.20 million euros. Furthermore, during the 2010 fiscal year a project was undertaken at the Huelva mill to reduce NOx emissions through the installation and commissioning of the Dry Low NOx (DLN) system, and the acquisition of a new monitor to control these emissions. This facility has drastically slashed emissions of nitrogen oxides. The amount of investment accounted for in 2010 came to 2.25 million euros. The most significant environmental investments made in the Navia mill involve the acoustic insulation of the boiler building and debarking drum, the refurbishment of the green liquor ash discharge system, and the refurbishment of outfall manholes in the factory in connection with ILAS, as well as the diluted odorous gas treatment system. All of these investments required a total investment of 2.88 million euros. Operating expenses, including self-monitoring of gaseous emissions, control equipment calibration, monitoring program and discharge control, control and prevention of Legionellosis, waste management, operating costs for environmental control facilities and enforcement of REACH regulations carried a total cost of 1.63 million euros.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated Directors Report for 2010 ECONOMIC BACKDROP The world economy once again experienced a difficult year in which a slow economic recovery that was kept alive by governmental shock plans and a progressive adjustment amongst financial institutions was succeeded by a series of budget crises in developed nations. The crisis was caused by the fiscal effort demanded by these shock plans, added to the bailouts of shaky financial institutions, both of which occurred at a period when the financial crisis sharply curtailed governments capacity to collect tax receipts. As a result, the risk spreads of the weakest eurozone countries soared against the Bund, which was buoyed by the ongoing German economic recovery throughout the year. This deterioration of public finances tested the cohesion of the eurozone due to the debates surrounding the reinforcement of the rescue fund and the purchase of public debt to underwrite the most indebted states. Another source of tension was the ability of the areas governments to address the structural reforms necessary to rebalance their accounts and secure the support of European institutions and the IMF. The expectations are that in 2011 there will be slightly slower growth than in 2010 (global GDP of +4.7% in 2010), albeit with a positive trend throughout the year on the back of a better performance amongst developed countries, particularly the United States. The recovery will depend upon the ability of governments to stabilise their economies through fiscal adjustments and structural reforms, as well as Chinas efforts to slam the brakes on its own growth in an attempt to control inflation and avoid overvaluation risks, especially in the real estate sector. For its part, the paper and cardboard industry demonstrated exceptional resilience throughout the year, due to capacity adjustments undertaken in 2008 and 2009, the downsizing of inventories to the lower reaches of its historical range, a pick-up in demand amongst mature markets and the maintenance of a high level of imports by China, a function of the dramatic increases in paper production capacity undertaken in 2010 and further expansions forecast over the next few years. The uptrend in the first half of the year was reinforced by the earthquake in Chile in late February, which temporarily paralysed 8% of market pulp capacity, in addition to strikes in Nordic countries and a difficult climate environment that interrupted the supply of wood to pulp producers. The confluence of all these factors opened the doors to the introduction of monthly hikes in the price of eucalyptus pulp, which reached a record high of $920/t (list price in Europe) in June from $700/t at which it closed 2009. From the middle of the year onwards, the price began to wobble slightly due to a slump in Chinese imports, the gradual recovery of Chilean output and an increase in supply that coincided with the launch of a new pulp mill in China and the reactivation of part of the capacity that was mothballed in recent years, due to the strong margin recovery. Consequently, in the second half of the year there was a recovery in global inventories to more normal levels and a limited correction in prices, which by the end of the year had settled back to $820/t. The recovery of the euro in the second half of the year helped to underpin dollar-denominated prices in Europe in the midst of an environment marked by a rally in paper prices. For 2011, the expectation towards late 2010 was that there would be a price correction, mainly in the first six months of the fiscal year, followed by a slight recovery in the second half. However, a pick-up in demand amongst emerging markets in late 2010, with the subsequent reduction in inventories, has propped up the price of eucalyptus pulp in the first two months of the year, which augurs higher average prices than initially expected. ENCE has intensified its focus on Forestry Certification and Sustainable Forest Management by obtaining the FSC Certification for 3,699 hectares of forests it manages in Galicia and Asturias, making it the first company to introduce this certification in both communities. Moreover, the company maintains a long-term investment policy to maximise self-sufficiency by expanding its forest assets in the Peninsula, strengthening R&D&i and implementing cutting-edge forestry techniques.

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BUSINESSES AND EARNINGS PERFORMANCE Grupo ENCEs core business, the manufacture of eucalyptus pulp, features the following highlights: the volume of tons of pulp sold in 2010 reached 1,147,043 tons and is 8.1% higher than the volume sold in 2009. Pulp production in 2010 came to 1,156,467 tons, which is a reduction of 15.9% compared to the previous year. Turning now to energy activity, the Group produced 1,354,593 Mwh of electricity during the fiscal year, 1% above the 2009 level. Furthermore, electricity sales came to 1,332,316 MWh, which accounted for 98% of production, 10% above the sales carried out in the same period of 2009. As far as forest-timber activity is concerned, in the 2010 fiscal year the forest subsidiaries reported total sales of roundwood, chippings and prepared products of 3,982 thousand m3, 32.5% higher than the figure for 2009. Consolidated revenue amounted to 831 million euros, a 55.1% increase in relation to the 2009 fiscal year, due to the positive evolution of international pulp prices (+50%), in addition to the growth in the volume of tons and megawatts sold compared to 2009. Recurrent consolidated operating profit (EBIT) came to 117.3 million euros of profits, compared with 72.5 million euros of profits in 2009. EBITDA in 2010 came in at 179 million euros. For its part, EBITDA calculated without incorporating the effect of hedging and non-recurring income amounted to 200 million euros. At the end of the year, the Groups consolidated equity stood at 766 million euros, equivalent to 58% of total assets. On 4 March 2010, the company announced the approval by the Board of Directors of a capital expansion worth a nominal amount of 74,801,601 euros though the issue and circulation of 83,112,890 ordinary shares with a par value of 0.90 euros each and an issue premium of 0.665 euros per each new share. The capital increase was designed to reduce debt and bolster the Companys shareholders equity and financial structure, and also fund several investment projects. NCE 3T10 The increase was fully subscribed, with an effective amount of 130,071,672.85 euros and shares that began to trade openly on 1 April 2010. The anchor shareholders represented on the Board subscribed to 52.66% of this expansion, in line with their shareholding in the company. On 11 June, the Ibex technical committee moved to include ENCE in the Ibex Medium Cap index and to remove it from the Ibex Small Cap after the increases in capitalisation and liquidity demonstrated by the company in recent months. Furthermore, from 22 March onwards, ENCEs stock became a member of the FTSE 4Good Ibex Index, an index of social and environmental responsibility developed by FTSE Group and BME (Bolsas y Mercados Espa noles) after the company met its inclusion criteria. Investments by Grupo ENCE in 2010 amounted to 81,443 million euros, with forest investments accounting for 28% of the total. Industrial investments carried out during the year focused on the 3 pulp production plants, with increased efforts in reforesting and upkeep of forest assets, and the extension thereof in order to ensure timber availability for future industrial development. The industrial investments included the following: in the Pontevedra mill, improvements have been made in the environmental area, in addition to improvements designed to obtain marginal increases in productivity, replenishments and improvement in working conditions; in the Huelva mill, the biomass boiler has been reformed, a new vapour turbo-group has been installed, and reforms have been made to increase the productivity of the plant, in addition to optimisations of the treatment of liquid effluents, and replacements and improvements to health and safety; in the Navia mill, production was boosted by 200,000 Tn. The Group is also forging ahead with a project to install a biomass-fuelled electrical generation plant with a capacity of 50 megawatts in Huelva. The Group successfully concluded on 14 October a new funding arrangement that replaces the syndicated loan and available short-term credit facilities. Under the new conditions, all of the

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debt tranches have extended their duration by 3.25 years with an 18-month grace period and future quarterly maturities have been cut to 6 million euros. At 31 December 2010, total employees stood at 1,663 persons vs. 1,654 at 31 December 2009. In the development of Research, Innovation and Technology activities, the Group has continued to carry out programs geared towards the genetic and sivilcultural improvement of the eucalyptus tree, to the innovation and improvement of pulp processes and products, the mechanical transformation of timber and the engineering of new products, duly specified in the Intangible Assets section of the consolidated annual report. ENVIRONMENT See Note 27 of the accompanying financial statements. RISK FACTORS ASSOCIATED WITH THE GROUPS ACTIVITY The risk factors identified affecting Grupo ENCE and its activity are as follows: 1. Cyclical nature of pulp sale activity

In addition to the sale of eucalyptus pulp to third parties, the Groups activity also encompasses energy generation and sale. Pulp sales, the Companys traditional activity, account for a majority percentage of sales (75% of sales in 2010), making results highly sensitive to variations in pulp prices. Pulp prices are of a cyclical nature. The difference between the peak price and the lowest price of the most recent cycles has become shorter and shorter, with an evident trend towards cycles with less pronounced differences in prices. In order to mitigate this cyclical phenomenon, hedging contracts have been instrumented in respect of pulp prices. At 31 December 2010 there were hedges at an average price of 549 euros covering a total of 303,300 tons maturing in 2011. Leaving aside the cyclical nature of the pulp market, the pulp production and sale business developed by the Company is subject to the industrial and commercial risks typical of this sector, and to the term of concession of the Pontevedra mill. 2. Foreign currency risk

Revenues arising from pulp sales are affected by the USD/Euro exchange rate because the benchmark pulp sale price on the international market is in USD per ton. Although most of Grupo ENCE sales are carried out in the European market, the price in euros per ton is a reflection of the aforesaid price in USD/ton. 3. Risks arising from supply and cost of wood

The main production cost in cellulose pulp production and sale activity refers to the acquisition of roundwood from third parties, or market wood, in the areas in which the Companys subsidiaries are established (Iberian Peninsula and Uruguay). The forest subsidiaries have a broad network for obtaining wood from third parties, on top of their own production, enabling quantities of raw materials necessary for pulp manufacture to be assured, given that prices used in these purchases are subject to the supply and demand laws of the different local markets. 4. Environmental risks

Grupo ENCEs installations are built and all their substantial aspects operate in accordance with the environmental standards applicable in each case. The aforesaid legal requirements are those established by European, national, autonomous and local laws applicable to vectors of environmental impact such as liquid effluents, atmospheric emissions, wastes and noise. Each plant has its own system for the control and daily assessment of the environmental parameters for their liquid effluents, atmospheric emissions, noises, waste, etc., established and set out in the different procedures, instructions and standards of their Environmental Management System, which in all three cases is registered in the European Eco-Management and Audit Scheme (EMAS) registry. Thanks to this continuous control, environmental risks can be kept to a minimum.

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5.

Regulated electricity market

The production and sale of electric power is subject to market regulations covering the sale price and the construction and operation of this type of installations (there are other standards relating to the acquisition and use of land, need to obtain administrative permits, standards regarding the conservation of landscape, environmental protection, congestion of transport and energy distribution networks, etc.). TRANSACTIONS WITH TREASURY STOCKS In 2010, the Parent Company carried out certain transactions for the purchase and sale of Treasury stocks. The aforesaid shares are registered at their average price, which amounts to 2,434 thousand euros, within the Treasury stocks item, taken off Equity. The impact of these operations on reserves, due to the profits or losses obtained, and the associated brokerage fees, amounted to 198 thousand euros. DISCLOSURES RELATING TO ART. 116 OF THE SECURITIES MARKET ACT a. Capital Structure

The share capital of the Parent Company as of 31 December 2010 amounts to 232,211,601 euros. The Parents share capital was divided into 258,012,890 fully subscribed and paid shares with a par value of 0.90 euros each, represented by book entries all of the same class and series. b. Restrictions on transferability of shares

There are no legal or statutory restrictions on the transferability of the shares representing the share capital. c. Significant ownership interest

Data on significant direct or indirect shares in the capital of the Company as of 31 December 2010 is outlined below. The percentage of shareholding at 31 December 2010 has not changed substantially as a result of the capital increase that took place in March 2010, given that all of the key shareholders subscribed to the shares allocated to them under the rights issue.
Shareholders 31/12/2010 31/12/2009

Retos Operativos XXI, S.L. . . . . . . . . . . . . . Alcor Holding, S.A.(a) . . . . . . . . . . . . . . . . . . Atalaya de Inversiones, S.R.L. . . . . . . . . . . . Caja de Ahorros de Asturias . . . . . . . . . . . . Cant abrica de Inversiones de Cartera, S.L.(b) Fidalser, S.L. . . . . . . . . . . . . . . . . . . . . . . .

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22,2 20,4 5,0 5,0 5,0 42,4 100,0

22,2 20,4 5,0 5,0 5,0 42,4 100,0

Free Float . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(a) (b)

The ownership interest held by Alcor Holding, S.A. includes the 8.2% indirectly owned by that company via Imverlin Patrimonio, S.L. The direct ownership interest held by Cant abrica de Inversiones de Cartera, S.L. is indirectly owned by Caja de Ahorros de Asturias.

d.

Restrictions on voting rights There are no restrictions on exercising voting rights.

e.

Side agreements The Company is not aware of the existence of any side agreements.

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f. 1.

Rules applicable to the appointment and replacement of members of the Board of Directors and amendment of the Companys Bylaws Appointment and replacement of members of the Board of Directors

Appointment of Directors: The directors shall be designated by the shareholders at the Annual General Meeting or by the Board of Directors, in conformity with the provisions laid down in the Spanish Public Limited Companies Act. Nominations of directors submitted by the Board of Directors for consideration by the Annual General Meeting and the appointment decisions adopted by this body by virtue of its powers of co-optation must be preceded by the corresponding proposal from the Nomination and Remuneration Committee. If the Board does not concur with the recommendations of this Committee, it must explain the reasons for its posture and document these reasons in the minutes. With regard to non-executive directors, the Board of Directors and the Nomination and Remuneration Committee shall ensure, within the scope of their respective powers, that persons of renowned solvency, competence and experience are elected as candidates, and shall exercise the utmost care when inviting persons to fill the position of independent director. The Board may not propose or designate as independent directors any persons whose independence may be impaired by their situation or present or past relationship with the Company, and, accordingly, the Board will previously consider the opinion of the Nomination and Remuneration Committee. Term of office and re-election The directors are appointed for a maximum period of 3 years, and they can be re-elected one or more times for terms of an equal maximum duration. For the purposes of computing the term of office of directors, the year is understood to begin and end on the day that the Annual General Meeting is held, or the last possible day in which it should have been held. Directors appointed by co-optation shall hold office until the date of the first Annual General Meeting. The proposals for the re-election of directors which the Board of Directors decides to submit to the Annual General Meeting shall be subject to a formal preparation process, which will necessarily include a report issued by the Nomination and Remuneration Committee assessing the quality of work and dedication to the post of the proposed directors during the previous mandate. Removal of directors: The directors shall cease to hold office when the term for which they were appointed elapses, or when the Annual General Meeting or Board of Directors so decide, by virtue of the powers conferred upon them. The directors who reach the age of 70 shall complete their mandate, but may not be proposed for re-election by the Board. The Chairman and the Executive Directors who reach the age of 65 shall cease to hold office when their respective mandates expire, unless the Board, by a majority of two-thirds, proposes or approves their re-election as Chairman or Executive Director, in which case they must be duly ratified in their respective positions on the Board with the indicated majority on an annual basis. The directors must place their office at the disposal of the Board and, if the Board sees fit, tender the related notice of resignation in the following cases: a) b) When they are subject to any applicable incompatibility or prohibition; When they are indicted or an order is issued to initiate a trial against them for any of the offences specified under Article 213 of the Spanish Public Limited Companies Act, which will be disclosed in the Annual Corporate Governance Report, or if they are penalised in disciplinary proceedings brought against them by the supervisory authorities as a result of serious or very serious misconduct;

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c) d) e)

When they have been seriously reprimanded by the Audit Committee for having infringed any of their obligations as directors; When their continuity on the Board may seriously jeopardise the Companys interests or when the reasons for which they were appointed cease to exist; or When, in the case of proprietary directors, the shareholder they represent or who proposed their appointment transfers its entire shareholding or reduces its shareholding to a level which requires the proportionate reduction of the number of its proprietary directors.

The Board of Directors shall not propose the removal of any independent director before the expiry of the statutory term of office for which he/she was appointed. However, the Board may propose such removal if, following a report from the Nomination and Remuneration Committee, it considers that there is just cause. In particular, just cause will be deemed to exist when the director (i) has failed to discharge the duties inherent to his/her position; (ii) is in one of the situations described in points a) to e) above; or (iii) is involved in any of the circumstances described in article 8 bis. 3 of the Regulations of the Board of Directors, disqualifying him/her as an independent director. The removal of an independent director may also be proposed as a result of takeover bids, mergers or other similar corporate transactions which involve a change in the Companys capital structure, to the extent that such removal is necessary in order to establish a reasonable equilibrium between proprietary and independent directors based on the ratio of the Companys stable capital to its floating capital. 2. Amendment of the Bylaws

In order to enable the Annual General Meeting or Extraordinary General Meeting to validly resolve to issue bonds, increase or reduce capital, transform, merge, spin off or dissolve the Company and, in general, to amend the bylaws in any way, it will be necessary, at first call, that the shareholders in attendance (either in person or represented) hold at least fifty per cent of the share capital with voting rights. At second call, the attendance of shareholders representing twenty-five per cent of this capital will suffice. When the shareholders attending the meeting represent less than fifty per cent of the share capital with voting rights, the resolutions referred to in the paragraph above may only be validly adopted with the affirmative vote of two-thirds of the share capital, either present or represented at the Meeting. g. Powers of the members of the Board of Directors and, in particular, those relating to the possibility of issuing or purchasing shares.

Powers of the Chief Executive Officer In accordance with Article 41 of the bylaws, the responsibility of representing the Company in court and out of it rests with the Board of Directors and shall extend to all matters pertaining to the Companys business or trade. These powers of representation must be understood in all cases as widely as possible and for all sorts of acts or businesses and without any restriction other than those expressly provided for in the bylaws and legislation. Powers of the Chairman Power of attorney granted in Madrid, on 7 March 2007, by way of a resolution of the Board of Directors on 24 January 2007, authorising the Chairman, inter alia, to purchase and sell all manner of corporate assets and shares, provided that such transactions have been approved by the Board of Directors. Powers of the Chief Executive Officer On 22 December 2010, the Board of Directors voted to appoint by co-optation D. Ignacio de Colmenares y Brunet as Chief Executive Officer and to permanently delegate to him all the powers

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of the Board relating to the representation of the Company, the conduct of its business and management of its activities, without any restrictions, with the exception of those powers which cannot be delegated by law, per the bylaws and per the regulations of the Board of Directors. Delegated power to issue shares On 25 June 2008 the Annual General Meeting of ENCE resolved to authorise the Board of Directors to increase share capital on one or several occasions and at any moment within a period of five years for a maximum amount of EUR 78,705,000, equal to half of the Companys share capital. In exercising this authority, the Board of Directors of ENCE on 3 March 2010 voted to increase ENCEs share capital in the amount of 74,801,601 euros of par value by issuing 83,112,890 shares of with a par value of 0.90 each. The Annual General Meeting, held on June 22, 2010, on first call nullified the authorisation described in the preceding paragraph and authorised the Board of Directors as provided in Article 153.1 b) of the Public Limited Companies Act and with delegation for the exclusion of the right of preferential subscription, if the interests of the Company so require, as provided in section 159 of the aforementioned Act, to increase the share capital one or more times and at any moment within five years from the date in which this Meeting is held, for the maximum par value of 116,105,800 euros, equivalent to half the current capital of the Company, thus annulling, in the unused portion, the authorisation granted by the Annual General Meeting dated 25 June 2008. Delegated powers to purchase shares: On 22 June 2010, the Annual General Meeting authorised the Board of Directors to acquire, at any time and as often as it may deem appropriate, on behalf of Grupo Empresarial ENCE, S.A. either directly, or through any subsidiaries of which it is the Parent, treasury shares, either through a purchase agreement or for any other legal consideration. The minimum acquisition price or consideration will be equal to the par value of the treasury shares acquired, and the maximum acquisition price or consideration will be equal to the quoted price of the treasury shares purchased in an official secondary market at the date of acquisition. Such authorisation is granted for a term of 18 months from the date of this Annual General Meeting and is expressly subject to the limitation that the par value of the treasury shares acquired under this authorisation, in addition to that of the shares already held by Grupo Empresarial ENCE, S.A. and any of its subsidiaries, may at no time exceed 5 percent of the Companys share capital on the date of acquisition. h. Significant agreements entered into by the Company which will come into force, be modified or terminate in the event of a change in control of the Company resulting from a takeover bid, and their effects, except when dissemination thereof may be seriously detrimental to the Company. This exception shall not apply when the Company is required by law to publish this information.

The Company has not entered into any agreements for an event of a change in the control of the Company resulting from a takeover bid. i. Agreements between the Company and its directors and executives or employees who are entitled to termination benefits when they resign or are dismissed without justification or if the employment relationship ends as a result of a takeover bid

Chief Executive Officer In accordance with the terms of his contract, the Chief Executive Officer shall be entitled to receive a termination benefit in the event of removal resolved by the Board of Directors, as well as in the case of resignation under certain circumstances (including significant change in the ownership structure of the Company). The amount of this termination benefit shall be equal to one years fixed remuneration plus the variable remuneration received in the prior year, or two years fixed remuneration, as the case may be. The Chief Executive Officer shall not be entitled to any termination benefits in the event of termination resulting from any breach of the law or the bylaws, or from serious and culpable breach of his contractual obligations.

F-170

General Managers The General Managers of the Cellulose, Forestry and Communications, Brand and Reputation Business Units have a guaranteed indemnity clause that features the following terms: in case of unilateral termination of employment on the part of the company during the first year of the contract, they shall be entitled to compensation equivalent to their annual gross fixed salary, except in case of lawful dismissal that is decreed via a court sentence, arbitration award or administrative resolution. Rights regulated in the Variable Remuneration Plan The Governing Council decided at its meeting on November 30, 2010 to approve the 2010-2015 Special Variable Compensation Plan of Grupo Empresarial ENCE S.A. This arrangement was made in accordance with the agreement of the Companys Annual General Meeting held on June 22, 2010 whereby it approved the modification of the previous 2007-2011 Special Variable Compensation Plan and authorised the Board of Directors to undertake any measures deemed necessary for the successful completion of its implementation, including the power to approve a new Variable Compensation Plan to replace the current one under the conditions set out in the agreement. If at any time during the term of the Plan there is a change in control of the Company, defined as the acquisition by an investor directly or indirectly of a percentage higher than 30% of the voting rights in the Company, either through the acquisition of shares or other securities, through shareholder agreements or by assumptions that the law considers to be of a similar nature, and as a result of which a tender offer of shares is held that involves the entirety of the Companys share capital, the beneficiary shall have the right to request the early disbursement of the long-term incentive. The same procedure will be followed when, in a merger, an investor obtains directly or indirectly 30% of the voting rights in the listed company and is not required to make a tender offer in accordance with current legislation. This request must be submitted within a period of three months from the moment the investor has notified the Company of the acquisition of the ownership interest determining the change of control. In case the change of control or merger referred to in the preceding paragraph occurs, the beneficiary shall also be entitled to the early exercise of 100% of the options granted to date. IMPORTANT EVENTS OCCURRING AFTER YEAR END No significant events worthy of note have occurred after year end. CORPORATE GOVERNANCE Together with this Directors Report, Grupo ENCE has included Annex I, which consists of all the documentation relating to the Annual Corporate Governance Report, consolidated in accordance with the Transparency Act, ORDER ECO/3722/2003 of 26 December on the Annual Corporate Governance Report and other information instruments of listed public limited companies and other entities. OUTLOOK The expectations are that in 2011 there will be slightly slower growth than in 2010 (global GDP of +4.7% in 2010), albeit with a positive trend throughout the year on the back of a better performance amongst developed countries, particularly the United States. The recovery will depend upon the ability of governments to stabilise their economies through fiscal adjustments and structural reforms, as well as Chinas efforts to slam the brakes on its own growth in an attempt to control inflation and avoid overvaluation risks, especially in the real estate sector. Forecasts for the paper and cardboard industry are robust throughout the year thanks to improvements in demand that will not be accompanied by increases in supply.

F-171

The financial statements and the consolidated directors report for the year ended 31 December 2010 of Grupo Empresarial ENCE and subsidiaries, prepared in accordance with IFRS adopted by the European Union, were drawn up by the Directors of the Parent Company on 28 February 2011 and are identified by presenting the financial statements on 62 sheets of ordinary paper (the financial statements appear on pages 1 to 5 and the explanatory consolidated report is numbered 1 to 57), the Directors Report on 9 sheets (numbered from 1 to 9), and, furthermore, as an attachment to the Directors Report, the annual corporate government report, which is presented in 70 pages numbered from 1 to 70. The Secretary of the Board of Directors has signed all the aforementioned sheets, and this last page bears the signature of all the Directors, who are as follows:

D. Juan Luis Arregui Ciarsolo

D. Ignacio de Colmenares y Brunet

D. Javier Echenique Landiribar

D. Jos e Carlos de Alamo Jim enez

D. Jos e Guillermo Zub a Guinea

D. Gustavo Mat as Clavero

D. Pascual Fern andez Mart nez

D. Pedro Barato Triguero

D. Jos e Manuel Serra Peris

ATALAYA DE INVERSIONES, S.R.L. represented by D. Gonzalo Su arez Mart n

RETOS OPERATIVOS XXI, S.A., represented by D. Javier Arregui Abendivar

PATRIMONIAL, S.L., represented by NORTENA D. Jes us Ruano Mochales

D. Pedro Jos e L opez Jim enez

D. Fernando Abril-Martorell Hern andez

F-172

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated Financial Statements for 2009 prepared in accordance with International Financial Reporting Standards as adopted by the European Union, and Consolidated Directors Report for 2009

F-173

15JAN201315084791
AUDITORS REPORT ON CONSOLIDATED FINANCIAL STATEMENTS To the Shareholders of Grupo Empresarial ENCE, S.A.: We have audited the consolidated financial statements of Grupo Empresarial ENCE, S.A. and Subsidiaries comprising the consolidated balance sheet at 31 December 2009 and the related consolidated income statement, consolidated statement of cash flows, consolidated statement of changes in equity and notes to the consolidated financial statements for the year then ended. The preparation of these consolidated financial statements is the responsibility of the Parents directors. Our responsibility is to express an opinion on the consolidated financial statements taken as a whole based on our audit work performed in accordance with generally accepted auditing standards in Spain, which require examination, by means of selective tests, of the evidence supporting the consolidated financial statements and evaluation of their presentation, of the accounting policies applied and of the estimates made. The accompanying consolidated financial statements for 2009 were prepared by the Parents directors in accordance with International Financial Reporting Standards as adopted by the European Union (EUIFRSs), which require, in general, that financial statements present comparative information. In this regard, as required by Spanish corporate and commercial law, for comparison purposes the Parents directors present, in addition to the consolidated figures for 2009 for each item in the consolidated balance sheet, consolidated income statement, consolidated cash flow statement, consolidated statement of changes in equity and notes to the consolidated financial statements, the figures for 2008. On 27 February 2009, we issued our auditors report on the 2008 consolidated financial statements, in which we expressed an unqualified opinion. In our opinion, the accompanying consolidated financial statements for 2009 present fairly, in all material respects, the consolidated equity and consolidated financial position of Grupo Empresarial ENCE, S.A. and Subsidiaries at 31 December 2009 and the consolidated results of their operations, the changes in the consolidated equity and their consolidated cash flows for the year then ended, and contain the required information, sufficient for their proper interpretation and comprehension, in conformity with International Financial Reporting Standards as adopted by the European Union applied on a basis consistent with that of the preceding year. The accompanying consolidated directors report for 2009 contains the explanations which the Parents directors consider appropriate about the Groups situation, the evolution of its business and other matters, but is not an integral part of the consolidated financial statements. We have checked that the accounting information in the consolidated directors report is consistent with that contained in the consolidated financial statements for 2009. Our work as auditors was confined to checking the consolidated directors report with the aforementioned scope, and did not include a review of any information other than that drawn from the accounting records of the Group companies. DELOITTE, S.L.

15JAN201317233973
F-174

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2009 AND 2008 (Thousands of Euros)
Year 2009 Year 2008

Notes

NON-CURRENT ASSETS . . . Intangible assets . . . . . . . . . . Property, plant and equipment Investment property . . . . . . . . Biological assets . . . . . . . . . . Other financial assets . . . . . . Deferred tax assets . . . . . . . .

. . . . . . .

. . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

6 7 8 18 11 12 18 10 16

980,154 4,972 737,807 3,413 155,238 5,494 73,230 244,072 88,844 90,546 12,260 1,913 49,132 1,377 1,224,226

1,133,590 21,110 834,643 3,525 255,481 1,559 17,272 328,302 158,504 120,287 28,334 4,949 6,768 5,262 1,554 2,644 1,461,892 157,410 199,058 31,482 152,740 138,794 46,078 4,742 (740) 729,564 729,564 340,788 22,061 250,610 3,160 27,427 11,315 26,215 391,540 215,140 1,380 161,078 6,909 6,598 435 1,461,892

CURRENT ASSETS . . . . . . . . . Inventories . . . . . . . . . . . . . . . . Trade and other receivables . . . . Current tax assets . . . . . . . . . . . Current financial assets Derivative financial instruments Other financial assets . . . . . . . Cash and cash equivalents . . . . Non-current assets held for sale . Other current assets . . . . . . . . .

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . Share premium . . . . . . . . . . . . . . . . . . . . . . . . Reserves Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . Voluntary reserve . . . . . . . . . . . . . . . . . . . . . Reserve at fully consolidated companies . . . . Valuation adjustments . . . . . . . . . . . . . . . . . . . Result for year attributed to Parent Company . . Translation Differences . . . . . . . . . . . . . . . . . . . Own shares . . . . . . . . . . . . . . . . . . . . . . . . . . Equity attributable to owners of the Company TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . NON-CURRENT LIABILITIES . Long-term provisions . . . . . . . . Bank borrowings . . . . . . . . . . . Deferred income . . . . . . . . . . . Derivative financial instruments . Other financial liabilities . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .............. .............. .............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16 14 10 17 18 16 10 17 12 18 18 13

157,410 199,058 30,270 148,586 149,131 47,448 (154,571) (435) 576,897 576,897 258,422 20,381 155,755 7,076 42,952 8,791 23,467 388,907 186,240 519 195,259 2,809 3,656 424 1,224,226

CURRENT LIABILITIES . . . . . . . Current bank borrowings . . . . . . . Derivative financial instruments. . . Other financial liabilities . . . . . . . . Trade and other payables . . . . . . Current tax liabilitiesIncome Tax Other debts with Public Authorities Other current liabilities . . . . . . . . .

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The accompanying Notes 1 to 27 are an integral part of the consolidated balance sheet for the year ended at 31 December 2009.

F-175

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS FOR THE YEAR ENDED AT 31 DECEMBER 2009 & 2008 (Thousands of Euros)
Year 2009 Year 2008

Note

Continuing Operations: Net revenue . . . . . . . . . . . . . . . . . . . . . Gains (losses) on hedges . . . . . . . . . . . Changes in inventories of finished goods Procurements . . . . . . . . . . . . . . . . . . . .

................ ................ and work in progress ................ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

19.a 10 19.b

535,551 3,808 (17,422) (348,163) 173,774 34,438 3,006 8,238 (88,730) (46,812) (10,845) (145,570) (72,501) 2,438 (21,232) (25,995) 456 (44,333)

656,617 (14,550) 7,124 (382,812) 266,379 32,377 15,138 19,825 (82,756) (36,313) (3,037) (164,085) 47,528 6,842 (25,473) (32,732) 3,534 (47,829) 6,429 6,128 2,174 8,302 (3,560) 4,742 0.03 0.03

GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . Group work on non-current assets . . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . . . Asset-related grants transferred to profits or loss Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortisation expenses . . . . . . Provisions for non-current assets . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . . . . PROFIT / (LOSS) FROM OPERATIONS . . Finance income . . . . . . . . . . . . . . . . . . . . . Variation in fair value of financial instruments Other finance costs . . . . . . . . . . . . . . . . . . Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14 19.c 6, 7 and 8 7 19.e

10 16

FINANCIAL LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net result from sale of non-current assets kept for sale . . . . . . . PROFIT / (LOSS) BEFORE TAX . . . . . . . . . . . . . . . . . . . . . Corporation tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT / (LOSS) FOR THE YEAR FROM CONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations: Loss for the year from discontinued operations . . . . . . . . . . . . . PROFIT / (LOSS) FOR YEAR . . . . . . . . . . . . . . . . . . . . . . . Earnings/(Loss) per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 19.g 20 20 18

(116,834) 39,283 (77,551) (77,020) (154,571) (0.88) (0.88)

The accompanying Notes 1 to 27 are an integral part of the consolidated income statement for 2009.

F-176

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES STATEMENT OF CHANGES IN EQUITY FOR THE 2009 AND 2008 FISCAL YEARS A) STATEMENT OF CONSOLIDATED RECOGNISED INCOME AND EXPENSES (Thousands of Euros)
Year 2009 Year 2008

Note

PROFIT/LOSS PER INCOME STATEMENT (I) . . . . . . . . . . . . . . . . . . . Income and expenses recognised directly in equity Arising from cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . Arising from translation differences . . . . . . . . . . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL INCOME AND EXPENSES RECOGNISED DIRECTLY IN EQUITY (II) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers to profit or loss account Arising from cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL TRANSFERS TO PROFIT OR LOSS ACCOUNT (III) . . . . . . . . TOTAL RECOGNISED INCOME AND EXPENSES (I+II+III) . . . . . . . . . 13 18 13 18

(154,571) (15,827) 4,748 (11,079)

4,742 (7,477) (740) 2,243 (5,974)

17,967 13,074 (5,390) (3,922) 12,577 (153,073) 9,152 7,920

The accompanying Notes 1 to 27 are an integral part of the statement of recognised income and expense for 2009.

F-177

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED AT 31 DECEMBER 2009 AND 2008 (Thousands of Euros)
Profit/(Loss) for Year Attributed Share to Premium and Translation Parent Treasury Valuation Minority Note Share capital Reserves Differences Company Stock adjustments Interests

Equity

Balance at 31 December 2007 . . 13 I. Total recognised income (expenses) . . II. Transactions with shareholders or owners Payment of dividends . . Purchase of investment in Eupon from minority interests . . . . . . . . . . III. Other changes in equity Transfers between equity accounts . . . . . . . . . Other changes . . . . . . . Balance at 31.12.08 . . . 13 I. Total recognised income (expenses) . . II. Operations with treasury stock Operations with treasury stock . . . . . . . . . . . . III. Other changes in equity Transfers between equity accounts . . . . . . . . . Other variations . . . . . Balance at 31.12.09 . . . 13

157,410

492,130

(740)

54,009 4,742

42,215 3,918

745,767 7,920

(24,136)

(24,136)

(3)

(3)

157,410

54,009 71 522,074

(740)

(54,009) 4,742 (154,571)

(55) 46,078 1,498

16 729,564 (153,073)

100

(435)

(335)

157,410

4,002 869 527,045

740

(4,742)

(128) 47,448

741 576,897

(154,571) (435)

The accompanying Notes 1 to 27 are an integral part of the consolidated statement of changes in equity for 2009.

F-178

GRUPO EMPRESARIAL ENCE, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2009 (Thousands of Euros)
Year 2009 Year 2008

1. CASH FLOWS FROM OPERATING ACTIVITIES Consolidated profit for the year before tax . . . . . . . . . . . . Adjustments for: Depreciation of property, plant and equipment . . . . . . . . Depletion of forestry reserve . . . . . . . . . . . . . . . . . . . . Amortisation of intangible assets . . . . . . . . . . . . . . . . . Changes in provisions and other deferred charges (net) . . . Gains/Losses ondisposal of property, plant and equipment . Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants transferred to profit or loss . . . . . . . . . . . . . . . . . . Loss Uruguay operation . . . . . . . . . . . . . . . . . . . . . . . Changes in working capital . Trade and other receivables . Other current assets . . . . . . . Current liabilities . . . . . . . . . Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

................ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(193,854) 35,470 9,744 1,598 11,376 3,784 (3,875) 48,208 (474) 77,020 116,237 34,877 (1,167) 26,828 55,699 (17,319) (20,474) 2,438 717 87,915

5,131 28,596 10,067 1,900 11,922 (8,008) (1,287) 59,341 (4,707) 0 (13,538) 13,941 (274) 44,257 (71,462) (24,279) (33,868) 1,287 8,302 65,138

Other cash flows from operating Interests paid . . . . . . . . . . . . . Interests collected . . . . . . . . . . Income tax paid . . . . . . . . . . .

activities . ........ ........ ........

Net cash flows from operating activities (I) . . . . . . . . . . . . . . . . . . . . . . . . . . 2. CASH FLOWS FROM INVESTMENT ACTIVITIES Investments: . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . Other financial assets . . . . . . . . . . . . . . . . . . . . . . Disposals: . . . . . . . . . . . . . . Property, plant and equipment . Intangible assets . . . . . . . . . . Available-for-sale assets . . . . . Divestment Uruguay project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(170,304) (300,243) (163,930) (291,375) (2,446) (21,667) (3,928) 12,799 229,360 229,360 59,056 (335) (6,132) 5,797 (102,766) (102,821) 55 (103,101) 43,870 5,262 49,132 30,909 16,712 14,197 (269,334) 226,418 227,088 (3) (667) (24,136) (24,136) 202,282 (1,914) 7,176 5,262

Net cash flows from investment activities (II) . . . . . . . . . . . . . . . . . . . . . . . . . 3. CASH FLOWS FROM FINANCING ACTIVITIES Collections and payments from equity instruments: . . . . . . . . . . . . . . . . . . . . Acquisition of own equity instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sale of own equity instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Collections and payments from financial liability instruments: . . . . Increase (decrease) in bank borrowings, net of arrangement expenses Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Payments from dividends and remuneration from other equity instruments: . . Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flows from financing activities (III) . . . . . . . . . . . . . . . . . . . . . . . . . NET INCREASE/DECREASE IN CASH AND EQUIVALENTS (I+II+III) . . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalent at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The accompanying notes 1 to 27 are an integral part of the consolidates statement of cash flows for the year ended 31 December 2009.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 1. Groups Activity and Strategic Plan Grupo Empresarial ENCE, S.A. (hereinafter ENCE or the Dominant Company) was incorporated in 1968 with the company name of Empresa Nacional de Celulosas, S.A., and its registered office is at Avenida de Burgos, n 8, B, Madrid. Its company objects, according to its By-Laws, are: a) the manufacturing of cellulose pulp and the related by-products, obtaining products and elements necessary for them and taking advantage of the sub-products arising from one and the other; the generation by any means, sale and usage of electricity and of other energy sources, and of the materials or primary energies required for the generation thereof, in accordance with the possibilities set out in laws applicable; and the commercialisation, purchase/sale and supply thereof, under any of the modalities existing in laws. The Company shall not carry out any of the activities indicated for which laws applicable demand specific conditions or limitations unless these are complied with exactly; the cultivation, exploitation and use of forests and timberland, foresting works, and the carrying out of specialised forest works and services. The preparation and transformation of forest products. The commercial use and exploitation and commercialisation of all kinds of forest products (including biomass and forest energy crops), their derivatives and sub-products. Forest studies and projects; the projecting, promotion, development, construction, operation and maintenance of the installations referred to in sections a), b) and c) above.

b)

c)

d)

To carry out this activity, the Group has three mills located in Asturias, Pontevedra and Huelva, where it carries out cellulose pulp production with ECF (elemental chlorine free) and TCF (totally chlorine free) based on eucalyptus with a joint capacity of approximately 1.3 million tons a year. In order to ensure timber supply in the paper pulp manufacturing process, the Group has a managed asset surface area of 115,885 hectares, of which 77,724 hectares are owned. In addition to its cellulose pulp production, the Group produces electricity largely using biofuels generated in the production process (biomass and lignin), gas and fuel-oil, with a capacity of 230 megawatts per annum, approximately. The shares of the Parent Company are traded in the Madrid Stock Exchange.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

2. Group Companies In these consolidated financial statements, the following subsidiaries, in which the Dominant Company has a direct or indirect holding of 100%, have been consolidated by the global integration method:
Thousands of euros Investee capital Profit / Issued (Loss) for Capital Reserves the year

Company

Address

Business Object

Subsidiaries Celulosa Energ a, S.L.U.(a) . . . . . . . . . . . Celulosas de Asturias, S.A.U.(a) . . . . . . . . Silvasur Agroforestal, S.A.U.(a) . . . . . . . . . Ibersilva, S.A.U.(a) . . . . . . . . . . . . . . . . . Norte Forestal, S.A.U.(a) . . . . . . . . . . . . . Norfor Maderas, S.A.U.(a) . . . . . . . . . . . . Eucalipto de Pontevedra, S.A.U.(a) . . . . Iberflorestal, S.A.U.(a) . . . . . . . . . . . . . Las Pl eyades, S.A. (SAFI)(b) . . . . . . . . Maderas Aserradas del Litoral, S.A.(a)(b) Sierras Calmas, S.A.(a) . . . . . . . . . . . .
(a) (b) Financial statements audited by Deloitte.

Ctra Madrid-Huelva Km. 630. Huelva Armental s/n Navia (Asturias) Avda de Andaluc a s/n. Huelva. Avda de Alemania, 9 (Huelva) Marisma del Louriz an s/n (Pontevedra) Marisma del Louriz an s/n (Pontevedra) Pontecaldelas (Pontevedra) Lisboa (Portugal) Montevideo (Uruguay) Montevideo (Uruguay) Montevideo (Uruguay)

. . . . .

. . . . .

Electricity generation and sale Production and sale of celullose pulp and electricity Performance of Forestry & Forestation work Performance of Forest works and Projects Performance of Forestry & Forestation work Performance of Forestry & Forestation work Leasing of properties Timber purchase/sale Timber export Sawmill Performance of Forestry & Forestation work

3,756 37,863 39,666 10,000 2,464 601 1208 55 2 6,418 20

17,033 62,221 15,891 (297) 24,523 430 100 95 634 (2,573)

4,434 (17,270) 1,885 (691) 8,527 17 (54) 245 55 (10) (566)

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Counter value in euros converted to closing exchange rate

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

2. Group Companies (Continued) Furthermore, the following companiescurrently inactivein which the Parent Company owns 100% of their share capital, also form part of the Group; Electricidad de Navia, S.L.U, Tis u de Louriz an, S.L.U, Ibercel Celulosa, S.L.U., Enersilva, S.L.U., ENCE Energ a, S.L.U. together with four subsidiaries of this company, Celulosas de MBopicu a, S.A., Las Pl eyades Argentina, S.A., Las Pl eyades Uruguay, S.A., Zona Franca MBopicu a, S.A. and Encell Limited. The Group also has minority shareholdings in certain companies which, because they are relatively insignificant, have not been consolidated: Transporte de Celulosa y Madera, S.A., with a 40% shareholding in its share capital, Imacel, A.E.I.E., an inactive company, with a 50% shareholding in its share capital, Sociedad Andaluza de Valorizaci on de la Biomasa, S.L., with a 6% shareholding in its share capital, and Electroqu mica de Hernani, S.A., in which the Group has a 5% shareholding. 3. Basis of presentation of the consolidated financial statements 3.1 Basis of presentation The consolidated financial statements for the year ended 31 December 2009 were prepared from the accounting records and from the financial statements of the Parent Company and of the Group Companies (detailed in Note2). These consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union pursuant to the (CE) Regulation no. 1606/2002, of the European Parliament, and Act 62/2003, of 30 December, on fiscal, administrative and corporate measures, so that they present fairly the Groups consolidated equity and financial position at 31 December 2009 and the results of its operations, and the changes in consolidated equity and consolidated cash flows produced in the year ended. However, since the accounting policies and measurement bases used in preparing the Groups consolidated financial statements under IFRS-EU at 31 December 2009 may differ from those used by certain of the companies integrated therein (local standards), the required adjustments and reclassifications have been made on consolidated to unify policies and bases used and to make them compliant with the IFRS-EU. The consolidated financial statements of the Group for the year ended 31 December 2009, prepared by the Parents Directors will be submitted for the approval of the General Shareholders, and are expected to be approved without any changes. The consolidated financial statements of the Group for the year ended 31 December 2009 were approved by the Annual General Meeting of Shareholders of the Parent Company on 29 June 2009. 3.2 Main decisions relating to IFRS The Group took the following decisions in relation to the presentation of the consolidated financial statements and the rest of the information contained in the consolidated report: a. b. The Euro is the functional currency of the Group; the consolidated financial statements are thus expressed in euros. The consolidated balance sheet is shown, distinguishing between current items (short-term) and non-current items (long-term); also the consolidated income statement is shown by nature. The Group has chosen to prepare the consolidated cash flow statement using the indirect method.

c.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

3. Basis of presentation of the consolidated financial statements (Continued) 3.2.1 Standards and effective interpretations this year Since 1 January 2009, the Group has applied the following standards, modifications or new interpretations: IFRS 8 Operating segments, Amendments to IAS 32 and IAS 1 amendments puttable Financial Instruments and IFRIC 16 Hedges of a net investment in a foreign operation. The following standards and interpretations have took effect in 2009: Amendment of IAS 23 Borrowing costs, Amendment of IFRS 2 Share-based payments, IFRIC 13 Customer loyalty programs, IFRIC 14 IAS 19The limit on a defined benefit asset, minimum contribution requirements and the interaction thereof, which do not affect the financial statements. Furthermore, the Group has applied IAS 1 Presentation of financial statementsRevised since it came into force on 1 January 2009. 3.2.2 Standards and interpretations issued not in force At the date of preparation of these consolidated financial statements, the following standards and interpretations had been published by the IASB but had not come into force, either because

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

3. Basis of presentation of the consolidated financial statements (Continued) their effectiveness date is subsequent to the date of the consolidated financial statements, or because they have not been adopted by the European Union:
Standards Modifications of standards and interpretations Effectiveness

Approved for use in the EU Amendments of IFRS 3 Amendments of IAS 27 Amendments Amendments IAS 32* IFRIC 12(1) IFRIC 15(1) IFRIC 17(1) IFRIC 18(1) Not approved for use in the EU(2) IFRS 9 Improvement plan 2009 Modification IFRS 2 Revision IAS 24 Modification IFRIC 14 IFRIC 19

Business combination Consolidated and separated Financial Statements Eligible Hedged Items Service concession arrangements Agreements for the construction of Real State Distribution of cash assets to owners Transfer of assets from customers

1 July 2009 1 July 2009 1 July 2009 1 February 2010 1 April 2009 1 January 2010 1 November 2009 1 November 2009

Financial instruments: Classification and valuation Non-urgent improvements to IFRS Group Cash-settled SharedBased payment Transactions Related parties Disclosures Prepayment of minimum funding requirements Exttinguishing of financial liabilities with equity instruments

1 January 2013 Several (mainly 1 January 2010) 1 January 2010 1 January 2011 1 January 2011 1 July 2010

(1) (2) *

Mandatory application date in accordance with its approval in the Official Journal of the European Union, which differs from the original date of the IASB. Standards and interpretations not adopted by the European Union at the date of the drawing up of these consolidated financial statements. Puttable financial instruments and Obligations arising on liquidation

The Board of Directors of the Parent Company considers that the application of these standards will not give rise to significant effects on these consolidated financial statements. 3.3 Responsibility for information and estimates made In the consolidated financial statements for the year ended 31 December 2009, estimates have been used to measure a number of assets, liabilities, income and expense items, and obligations reported herein. These estimates basically refer to: The assessment of possible impairment losses on certain assets. The useful life of tangible and intangible assets.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

3. Basis of presentation of the consolidated financial statements (Continued) The fair value of certain assets, largely Financial instruments. The assumptions used in the actuarial calculation of liabilities referring to pensions and other staff obligations. Calculation of the provisions necessary to cover risks arising from litigation in progress and insolvencies. The recoverability of deferred tax assets. These estimates have been made of the basis of the best information available at 31 December 2009 and 2008. However, it could be necessary for them to be modified as a result of possible events which might take place in the future, which, were they to occur, would be applied prospectively, in accordance with IAS 8. 3.4 Consolidation principles 3.4.1 Subsidiaries Subsidiaries are those over which the Parent Company has the capacity to exercise effective control. This capacity is generally, though not uniquely, shown by direct or indirect ownership of at least 50% of the voting rights of the investee entities or even, with its percentage being lower or null, if the Bank is given control following agreements with other shareholders thereof. Control is understood to mean the power to govern the financial and operational policies of a company with the aim of obtaining benefit from its activities. The financial statements of the subsidiaries are consolidated with those of the Parent Company by applying the global integration method. Therefore, all significant balances and effects of the transactions made between consolidated companies have been eliminated in the consolidation process. When necessary, adjustments are made to the financial statements of the subsidiaries in order to adapt the accounting policies to those used by the Group. (IFRS-EU). 3.4.2 Associates Entities over which the Parent Company in a position to exercise a significant influence, without control, nor joint control. This capacity is usually shown by a (direct or indirect) shareholding equal to or above 20% of the voting rights of the investee entity. 3.4.3 Conversion of non-Euro currency Groupss Functional currency is the Euro. The monetary-non-monetary exchange rate method has been used to convert the consolidated financial statements of the companies consolidated in 2009 which do not use the Euro as a currency; this is because the Group considers that the activities carried out by the aforesaid subsidiary companies can be considered to be an extension of the activities carried out by the Parent Company, from a financial, economic and organisational standpoint. Some of the Uruguayan companies consolidated in 2008 and which have been withdrawn from the consolidation perimeter in 2009, did so by applying the closing exchange rate. The main features of the monetary non-monetary method are outlined as follows: 1. The monetary items of the foreign subsidiaries balance sheets (cash and banks and all items representing collection rights and payment obligations) have been converted to euros at the exchange rate in force on the closing date of the consolidated balance sheet. Non-monetary items have been converted to euros at the historic exchange rates.

2.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

3. Basis of presentation of the consolidated financial statements (Continued) 3. Items of the consolidated income statement have been converted at the average exchange rate for the year, except those relating to non-monetary items, which have been converted to the historical exchange rate.

Exchange differences arising from the application of these procedures are registered in the consolidated income statement. 3.4.4 Changes in the scope of consolidation and in shareholding percentages The most significant changes over the 2009 and 2008 years which affect the year-on-year comparisons were as follows: Financial Year 2009
Removal Addition

Global IntegrationEufores, S.A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Celulosa y Energ a Punta Pereira, S.A. . . . . . . . . . . Zona Franca Punta Pereira, S.A. . . . . . . . . . . . . . . . Terminal Log stica MBopicu a S.A.(a) . . . . . . . . . . . . . El Esparragal Asociaci on Agraria de Responsabilidad Sierras Calmas, S.A. . . . . . . . . . . . . . . . . . . . . . . . ENCE Energ a, S.L.U and four subsidiaries . . . . . . .
(a) Percentage of indirect holding through Eufores, S.A.

..... ..... ..... ..... Ltda(a) ..... .....

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

100% 100% 100% 100% 100%

100% 100%

On 17 May, the Company announced that it had reached agreement for the sale in cash sale of 100% of the shares and holdings held by ENCE in the Uruguayan companies Eufores, S.A., Celulosa y Energ a Punta Pereira, S.A. and Zona Franca Punta Pereira, S.A. (see Note 23) with the paper groups Stora Enso Oyj and Celulosa Arauco y Constituci on S.A.. Furthermore, the Parent Company acquired from Eufores, S.A. its holdings in the companies Zona Franca de MBopicu a, S.A., Las Pl eyades de Uruguay, S.A., Las Pl eyades, S.A.F.I. and Maderas Aserradas Litoral, S.A. for 5,882 thousand euros. On 11 March 2009, the company Sierras Calmas, S.A. was incorporated, its registered address in Montevideo (Uruguay), with an initial capital of 720 thousand Uruguayan pesos, equivalent to 20 thousand euros, fully paid in by Grupo Empresarial ENCE, S.A. This subsidiary holds the Forestry assets of the group in the Atlantic Area of Uruguay. Furthermore, the companies ENCE Energ a, S.L.U. and another four subsidiaries of this company were incorporated. 2008 year During 2008, there were no significant variations in the scope of consolidation. 3.5 Comparison of information and modifications The information contained in this report referring to the 2008 year is presented in order to be compared with that of the 2009 year. As indicated in Note 23 on discontinued operations, during 2009 the Parent Company sold the shares and shareholdings held by the Uruguayan companies Eufores, S.A., Celulosa y Energ a Punta Pereira, S.A. and Zona Franca Punta Pereira, S.A.. In accordance with accounting standards applicable, the Group has modified the comparative on of the consolidated income statement for the 2008 year, recording the net result after tax corresponding to the business sold using single amount under the Discontinued operations heading. Consequently, the consolidated income

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

3. Basis of presentation of the consolidated financial statements (Continued) statement for the 2008 year included for comparison purposes in these consolidated financial statements differs from that included in the financial statements for the 2008 year. Furthermore, a sum of 11,044 thousand euros corresponding to the fair value of the Equity Swap contracted in the context of the Management Team Special variable remuneration plan (see Nota 4-o) has been presented in the Derivative financial instruments item non-current term liabilities of the consolidated balance sheet for the 2008 year. In the consolidated financial statements for the 2008 year, this amount was included in the Other financial liabilities heading of the consolidated balance sheet. The consolidated statement of cash flows for the 2008 year included in these consolidated financial statements for comparison purposes includes a lower amount in cash flow from operating activities and investing activities amounting to 32,581 thousand euros and 1,287 thousand euros, respectively, and a higher amount in the cash flows of financing activities of 33,868 thousand euros, against the cash flow statement included in the consolidated financial statements for the 2008 year. The aforesaid modification is due to considering investment income as a flow from operating activities and not from financing and investment. 4. Accounting policies The principal accounting policies used in preparing the Groups consolidated financial statements, in accordance with EU-IFRS in force at the date of the pertinent financial statements, are outlined as follows: a) Intangible assets

Assets included in this heading are initially valued at the acquisition or production cost. After initial recognition, they are measured at cost less any accumulated amortisation and any accumulated impairment loss. The Groups intangible assets have finited useful life and are amortised on a straight-line basis over the period that represents the best estimate of their useful lives. Development expenditure Every year the costs incurred for this item are capitalised, providing that the aforesaid sums are specifically individualised by projects, the Parents Directors have sound reasons to foresee the technical success and economic and commercial profitability of these projects. These costs are amortised over 5 years on a straight-line basis. Computer software In this account the Group records the costs incurred in the acquisition of new computer software and the rights of use thereof. The costs of maintaining the IT systems are recorded in the income statement of the year in which they are incurred. The computer software are amortised on a straight-line basis over a 5-year period. b) Property, plant and equipment

These assets are measurement at their acquisition price or production cost, less any accumulated depreciation and any recognised impairment losses, if applicable, according to the accounting policies described in this same section. Costs relating to the expansion, modernisation or improvements leading to increased productivity, capacity or efficiency, or a lengthening of the useful lives of the assets, are capitalised as a higher cost of the corresponding assets.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

4. Accounting policies (Continued) Maintenance and upkeep on expenses incurred during the year are charged to the consolidated income statement. For those fixed assets which need a period of over one year to be ready to use, the capitalised costs include the financial costs which could have been accrued before the good was made available for use and which may have been issued by the supplier or which correspond to loans or another type of outside financing, specific or generic, directly attributable to the acquisition or manufacture thereof. Group work on non-current assets is recognised at the accumulated cost arising from adding internal costs to the external costs, determined according to the in-house consumptions of warehouse materials, and the manufacturing costs, allocated using hourly absorption rates similar to those used for the measurement of inventories. The Group companies depreciate their property, plant and equipment by the straight-line method, distributing the cost of the assets between the years of estimated useful life, assuming that land is deemed to have an indefinite useful life and is therefore not depreciated, as per the following details:
Years of Estimated Useful Life

Buildings . . . . . . . . . . . . . . . . . . . . . Plant and machinery . . . . . . . . . . . . . Other installations, fixtures and fittings Other tangible assets . . . . . . . . . . . .

. . . .

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20 - 40 11 - 16 11 11

The cost of buildings constructed on land assigned under an administrative concession regime is recorded under the Buildings account. This cost, together with the rest of the fixed installations located in the concession terrains, are amortised in accordance with their useful life, or over the period the concession is in force, whichever is lower. Impairment of value of intangible and property, plant and equipment Whenever there are signs of that those assets might have suffered an impairment loss, the Group proceeds to estimate possible losses of value reducing the recoverable value of the aforesaid assets to an amount lower than their carrying amount, using what is called the Impairment test. The recoverable sum is either the fair value less the cost of sale, or the value in use, whichever is higher. The Directors have implemented the following procedure for carrying out the aforesaid test: The recoverable values are calculated for each cash-generating unit, i.e. the plants operated by the Group. Every year, the Group prepares a business plan for each cash-generating unit, generally over a three-year period. The aforesaid business plan consists of a set of financial projections prepared using the basis of prior experience and in accordance with the best available estimates of results, investments and evolution of working capital. The business plans thus prepared are reviewed and then approved by the Board of Directors. In order to calculate the value in use, the cash flows thus estimated are discounted to their present value using an adjustment rate representing the cost of capital, considering the cost of the liabilities and business risks. If it is estimated that the recoverable sum of an asset is below its carrying amount, the latter is reduced to its recoverable amount and the pertinent adjustment is recorded in the consolidated income statement. When an impairment loss is subsequently reverted, the carrying amount of the cash generating unit is increased by the revised estimate of its recoverable value, but in such a way that the increased carrying amount does not exceed the carrying amount which would have been determined if no impairment loss had been recorded in previous years. The aforesaid reversal of the impairment loss is recorded as income.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

4. Accounting policies (Continued) The Group Directors consider that the carrying amount of the assets is not higher than the recoverable value thereof, the latter being calculated based on what has been said in this section. c) Investment property

In accordance with IAS 40, the Group records the value of the properties exploited by it valued at the cost of acquisition thereof, less the corresponding accumulated depreciation. d) Biological assets

Part of the Groups activity consists of the cultivation of several forest species which are used as a raw material for cellulose pulp and energy production. At 31 December 2009, the Group had various forests and timberland areas used for this activity. In this regard, standing timber is considered to be a biological asset. Forest land is measured in accordance with IAS 16 Property, plant and equipment and is recorded in the Property, plant and equipment heading of the consolidated balance sheet (see Note 7). Since there are no public markets for the aforesaid forest species in their markets of origin, Spain and Uruguay, and because it is not possible to calculate the present value of the future of after-tax cash flows generated by the aforesaid biological assets, the Group has chosen to record standing timber in accordance with the historical cost (cost less accumulated depreciation less any accumulated impairment losses). Therefore, investments in forestry assets are measured allocating all the costs directly incurred in acquisition, plus leases, preparation of lands, plantations, allocating and upkeep and part of the cost of the Group companies forestry services per se. Furthermore, a variable and individualised percentage of the carrying amount of the standing timber is capitalised as interest up to the the limit of its estimated realisable value. The capitalisation for this item amounted to 2,365 thousand euros in the year ended 31 December 2009 (3,699 thousand euros at 31 December 2008) and is included in the Group work on non-current assets item of the consolidated income statement. The method of allocating cost to felled timber is based on the total costs incurred at the date of the felling and the residual value of the plantation, which is estimated according to future net revenues. Timber disposals from the Groups forestry assets amounted to 8,928 thousand euros during the year ended 31 December 2009 and to 7,334 thousand euros during the 2008 year. These amounts are included in the Depletion of forestry reserve account within the Depreciation and amortisation expenses item of the consolidated income statement attached hereto (see Note 8). e) Leases

The Group leases certain assets. All leasing arrangements concluded by the Group have been classified as operating leases given that because of their nature, under no circumstances is the ownership of the leased assets transferredand nor, for that matter, are the rights and risks inherent thereto. Expenses arising from the operating lease agreements are recognized as an expense in to the consolidated income statement in the year in which they are accrued. f) Financial instruments

f.1) Financial assets: The financial assets owned by the Group are divided into the following categories: Loans and receivables: financial assets and credits deriving from non-commercial operations arising from the sale of goods or the rendering of services for operations which are charged using a fixed amount or one that can be determined.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

4. Accounting policies (Continued) Available-for-sale financial assets: includes debt securities and security instruments of other companies which have not been classified under any of the other categories. Initial valuationFinancial assets are initially recorded at the fair value, which is cost of acquisition plus the transaction costs which are directly attributable. Subsequent valuationLoans and receivables are measured at amortised cost less any accumulated impairment losses. Available-for-sale financial assets are valued at their fair value, are recognised in equity the result of the changes in the aforesaid fair value, until the asset is sold or has undergone an impairment loss (of a stable or permanent kind), at which time the aforesaid accumulated results previously acknowledged in equity are then recognized in the consolidated income statement. Registration of cancellationsThe Group cancels financial assets when they mature or the rights to the cash flow of the pertinent financial asset have been assigned or the risks and benefits inherent to the ownership thereof have been substantially transferred. On the other hand, the Group does not cancel financial assets, and recognises a financial liability for a sum equal to the consideration received, in assignments of financial assets in which the risks and benefits inherent to the ownership thereof are substantially retained. f.2) Financial liabilities: Financial liabilities are the debts and items payable owned by the Company and which have arisen in the acquisition of goods and services from trading operations, or those which do not have a commercial origin but which are not considered to be derivative financial instruments. Bank borrowings and trade payables are initially recorded at the fair value of the service or good delivered plus the transaction costs which are directly attributable. The aforesaid liabilities are subsequently valued in accordance with their amortised cost. The Company eliminates financial liabilities when the obligations which have generated them are cancelled. f.3) Financial hedging instruments and derivative financial instruments: The Groups activities expose it basically to financial and market risks arising from the changes in the dollar/euro exchange rates which mainly affect its sales, because the paper pulp price is quoted on the international market in dollars, the changes in the aforesaid paper pulp prices traded on the market, and the changes in the price of fuel-oil, gas and electricity, elements required in the production process. The group is also exposed to the impact of changes in interest rates on its financial liabilities. The Group uses hedging derivative financial instruments to cover these exposures. The derivative financial instruments are initially recorded at their cost of acquisition on the consolidated balance sheet and subsequently the valuation corrections necessary to reflect their fair value at any given time are made, and are registered in the Derivative financial instruments item of the balance sheet if they are negative, and in Current financial assetsDerivative financial instruments if they are positive. The profits or losses from the aforesaid changes are recognized

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

4. Accounting policies (Continued) on the consolidated income statement, except if the derivative has been designated as a hedging instrument and is highly effective, in which case it is registered as follows: 1. Fair value hedges: changes in fair value of derivates that qualify as fair value hedges are recognised in the consolidated income statement together with changes in fair value of the hedged asset or liability. Cash flow hedging: changes in the fair value of the derivative financial instruments are recorded in the EquityValuation adjustments item. The loss or gain accumulated in the aforesaid item is transferred to the consolidated income statement insofar as the underlying has an impact on the consolidated income statement because of the risk hedged, netting the said effect in the same item of the consolidated income statement.

2.

In order for these instruments to be able to be classified as accounting hedging, they are initially designated as such, and the hedging relation is documented. The Group also verifies initially and on a regular basis throughout its life through what are called as Efficiency tests that the hedging relation is effective, in other words whether one can expect, prospectively, that changes in fair value or cash flow in the hedged item (attributable to hedged risk) will be compensated almost entirely by changes in the fair value or cash flow of the hedging instrument, and that retrospectively, the results of the hedge have varied within a range of 80% to 125% of the result of the hedged item. Additionally, the part of the hedging instrument which is determined to be inefficient is immediately recognised on the consolidated income statement. The fair value of the different derivative financial instruments is calculated by means of the discount cash flows expected, based on market conditions for both spot and futures at the calculation date. All methods used are generally accepted by financial instrument analysts. When hedging is no longer highly effective, the accounting of the hedging is broken off definitively. In this case, the accumulated gain or profit corresponding to the hedging instrument which has been directly recorded on the equity accounts is kept within equity until the commitment or the foreseen operation arises. When the commitment or the envisaged operation is not expected to occur, any accumulated gain or loss previously recorded on equity is taken to the consolidated income statement. f.4) Equity instruments An equity instrument represents a residual holding in the Equity of the Company once all its liabilities have been deducted. The capital instruments issued by the Parent Company are recorded on Equity using the amount received, net of issue expenses. Treasury stocks bought by the Parent Company are recorded using the value of the service or good delivered in exchange, directly as a lower value of equity. Any gain or loss obtained on the acquisition, sale, issue or amortisation of equity instruments are acknowledged directly in Equity, without any result whatsoever being registered on the consolidated income statement, under any circumstances. g) Inventories

Stocks of raw materials and finished products and work in progress of manufacture are measured at their average of acquisition cost, at the production cost or at net realisable value, whichever is lower. The production cost is determined by including the cost of materials, of labour and the direct and indirect manufacturing expenses. The Group uses the weighted average cost method in assigning value to its inventories.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

4. Accounting policies (Continued) The net realisable value represents the estimated sale price less all the estimated production costs and the estimated cost which will be necessary in the commercialisation, sale and distribution processes. In this regard, the Group carries out the pertinent valuation corrections, recognising them as an expense on the consolidated income statement when the net realisable value of inventories is lower than their acquisition price (or production cost). h) Cash and cash equivalents

Cash comprises of both cash and demand bank deposits. Cash equivalent are short-term investments with high liquidity which are easily converted into certain amounts of cash have a maturity of no longer than three months or less, and which are subject to an insignificant risk of change of value. i) Income Tax

The expense or income from Income Tax consists of a part referring to expense or income from current tax and a part referring to expense or income from deferred tax. The current tax is the amount paid by the Group as a result of the tax settlements for income tax relating to a year. The bonuses and other tax advantages in the tax payable, not including withholdings and payments in advance, and the tax credit effectively applied in the present year, give rise to a lower amount of current tax. The deferred tax expense or income corresponds to recognition and cancellation of the deferred tax assets and liabilities. Deferred tax assets and liabilities include temporary differences, which are identified as the amounts expected to be payable or recoverable arising from the differences between the carrying amounts of the assets and liabilities and their related tax value, and the tax credit carry forwards not fiscally applied. These amounts are recorded applying the time difference or credit corresponding to the tax rate at which they are expected to be recovered or settled. Deferred tax liabilities are acknowledged from deferred taxes for all taxable temporary differences, except those arising from the initial recognition of goodwill and of other assets and liabilities in an operation which does not affect the fiscal result or the book result and which is not a business combination profits, and those associated with investments in subsidiaries, associated companies and joint ventures in which the Group can control the time of reversal and they are unlikely to be reversed in the foreseeable future. Deferred tax assets are only recorded insofar as it is likely that the Group will have future tax profits against which they can be utilised. Deferred tax assets and liabilities, related to items directly recognized in equity accounts, are also recorded in equity. In each period, the deferred tax assets recorded are reconsidered, and the pertinent corrections are made thereto insofar as there are doubts about their future recoverability. Furthermore, in each period the deferred tax assets not recorded on the consolidated balance sheet are assessed and they are recognised insofar as it appears likely that they shall be recovered with future tax earnings. The Parent Company and part of its subsidiaries file consolidated tax returns under the tax regime set out in Chapter VII of Title VII of the Revised Text of the Income tax Act (Ley del Impuesto sobre Sociedades). The companies which make up the tax consolidation group are all those with registered addresses in Spain and in which the Parent Company has a shareholding of over or equal to 75% in their share capital.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

4. Accounting policies (Continued) j) Revenue and expenses

Incomes are measured at the fair value of the consideration received and are recognised when the Group is likely to receive the economic benefits of the transaction and the amount thereof can be reliably measured. Sales are recorded net of VAT and discounts. Revenue from sales of goods is recorded when the goods have been delivered and the risks and rewards of the ownership of the aforesaid goods have been transferred. Dividend incomes are recorded when the shareholders right to receive payment is established. Expenses are recorded on the consolidated income statement when there is a decrease in the future economic benefits relating to a reduction of an asset, or an increase in a liability, which can reliably be measured. This implies that an expense is recorded at the same time as the recording of the increase in a liability or reduction of an asset. An expense is recorded immediately when a payment does not generate future economic benefits or when it does not comply with the necessary requirements for it to be recorded as an asset. k) Provisions

The consolidated financial statements include all provisions for which it is estimated to be likely that an obligation will need to be met. Contingent liabilities are not recorded on the financial statements, but information is provided on them in the notes to the annual report, insofar as they are not considered as remote. Provisions are valued using the current value of the best possible estimate of the necessary sum for cancelling or transferring the obligation, taking into account the information available on the event and its consequences, and recording the adjustments which could arise from the adjustment of the aforesaid provisions as a financial expense as they are accrued. At the close of the year ended 31 December 2009, several legal proceedings and claims were in progress against the Group. Both the legal advisors and the Directors consider that the concluding of these proceedings and claims will not have a significant effect on these consolidated financial statements. l) Provision for termination benefits

In accordance with labour regulations in force, the Group is compelled to pay compensation to employees with which it terminates its working arrangements under certain conditions. Therefore, severance compensation which can reasonably be quantified is recorded as an expense in the year in which the severance decision is made. The Group has established an allowance for this item amounting to 5,008 thousand euros, which is recorded in the Trade and other payablesPersonnel account of the consolidated balance sheet at 31 December 2009, in order to cover the terminations with incentives established at the close of the year. In 2008, the Group recorded the reversal of an allowance for this item amounting to 3,251 thousand euros, included in the Other operating income item of the consolidated income statement for the 2008 year. At 31 December 2009, the Directors of the Parent Company do not foresee any terminations which could require the registration of provisions additional to those recorded in these consolidated financial statements.

F-193

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

4. Accounting policies (Continued) m) Asset elements of an environmental nature

Environmental assets are considered to be goods which are used permanently in the Groups activity, which have the main purpose of minimising the environmental impact and environmental protection and improvement, including reducing and eliminating future contamination. Environmental expenses Environmental expenses are considered to be amounts accrued for managing the environmental effects of the Groups operations, and those deriving from existing environmental commitments. These include the expenses arising from preventing contamination caused by current operating activities, the treatment of waste and spills, decontamination, restoration, environmental management or environmental auditing (see Note 28). Provisions relating to probable or certain responsibilities, litigation in progress and pending environmental compensation or obligations of an unknown amount, not covered by subscribed insurance policies, are established, if applicable, at the time the responsibility or obligation determining the compensation or payment arises. Environmental assets Elements incorporated in the Groups assets in order to be used permanently in their activity, and the main purpose of which is to minimise the environmental impact and environmental protection and improvement, including the reduction or elimination of future contamination deriving from the Groups activities, are recorded in the Property, plant and equipment heading of the consolidated balance sheet. For these purposes, the registration of the assets, the determination of the acquisition price or the cost of production and the depreciation criteria and valuation corrections to be made, shall be recorded taking into account the valuation standards outlined in sections a) and b) of this same note. n) Provision for pensions and similar obligations

Certain group companies have established the following commitments for retirements, complementary pensions for widows/widowers, orphans and ascendants, with the object of supplement the Social Security benefits to employees and their relatives: 1. Current employees

Related to current employees at 31 December 2009, whereby the Company and employee contribute a pre-established percentage of salary for pension purposes to the Joint Promotion Pensions Plan of Grupo ENCE promoted in accordance with article 40 d) of the Pension Plans and Funds Regulation. This pension plan is included in the SERVIRENTA F.P . II Pension Fund. 2. Retired employees

In December 1997, the Parent Company took out a single premium insurance policy with an insurance company to guarantee the contingencies covered by the aforementioned fund. Therefore, at 31 December 2009 there are no real nor contingent liabilities relating to this item. The payments made by the insurance company constitute an expense which is tax deductible when they are made, giving rise to the related negative adjustment in the taxable profit or loss and therefore in the recovery of the deferred tax asset recognised in the pasts.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

4. Accounting policies (Continued) o) Share-based payments

On 30 March 2007, the Annual General Meeting of the Parent Company approved a Special Variable Executive Composition Plan for 2007-2011. This Plan refers to persons who perform executive functions directly dependent on the Board of Directors or the Managing Director of the Parent Company, and aims to reinforce the commitment of the Groups senior management in complying with the targets set out in the 2007-2011 Strategic Plan, through creating incentives for the aforesaid directors actions, both individually and collectively. The Plan consists of long-term variable remuneration earned over 5 years and which is subject to the increased of the share price of the Parent Company to over 8.4 euros, to remaining within the Group and to meeting certain business targets. This amount will be paid in cash at the end of the five-year period. They are therefore payments in shares settled in cash, thus recognising a liability equivalent to the portion of the services received at its current fair value determined on the date of each consolidated balance sheet. The fair value of the Special Variable Executive Compensation Plan has been determined using the BlackScholes method, a method which is generally accepted amongst financial analysts for valuing financial options. Following the aforesaid valuation, in accordance with the estimated evolution of the share price updated to the date of maturity of the aforesaid Plan, the expense accrued for this item in 2009 was negligible. Furthermore, given that the share price at the close of 2009 was 2.71 euros, the intrinsic value for the counterpartys rights was zero. On 25 October 2007, the Parent Company arranged an equity swap with Caja Madrid, as a requirement agreed in the clauses of the Special Variable Executive Compensation Plan signed on the same date (on 18 June 2008 the aforesaid equity swap was renewed by cancelling the initial contract and subscribing a new contract depending on the Companys share price trading at the aforesaid date). This instrument thus has the same life as that of the aforesaid Plan, an its maturity date is 30 June 2012. The aforesaid equity swap was arranged on a total of 5,100,000 shares of the Parent Company with a base price of 4.40 euros per share. The benchmark interest rate for this in investment is 12 months Euribor plus an additional spread of 0.05%, settled annually. There is no share repurchase agreement, and it is expressly stated that the aforesaid shares will never return to the Group, and that in the event of there being shares remaining on finishing the 5-year period, these would be directly placed in the market by Caja Madrid, thus preventing the aforesaid shares from being considered as Treasury Stock. This instrument does not comply with the criteria to be qualified as a hedging instrument, and therefore the changes in fair value must be recognised in the consolidated income statement as they occur. In order to determine the fair value of the equity swap, the Group has calculated the difference between the discounted cash-flows of the share component (current value of dividends plus the final share price less 4.40 euros) and the discounted cash flows generated by the accrual of interests. The negative fair value of this instrument at 31 December 2009 amounted to 9,608 thousand euros (11,044 thousand euros at 31 December 2008) and is recorded in the Derivative financial instruments item of the non-current liabilities of the consolidated balance sheet attached hereto. p) Grants In order to recognise grants received, the Group adopts the following criteria: a) Non-refundable asset-related grants: They are measured using the fair value of the amount or good given, depending on whether or not they are of a monetary nature, and they are transferred to profit or loss on a systematic and rational basis over the useful

F-195

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

4. Accounting policies (Continued) lives of the related assets, or in the case they were sold or subject to valuation correction due to impairment. b) Operating grants: Are recognised as revenue at the time they are granted, except when they become receivable for financing specific expenses, in which case they shall be recognised as the subsidised expenses are accrued.

q)

Greenhouse gas emission rights

The greenhouse effect gas emission rights, received by the Group free of charge by virtue of the Spanish National Assignment Plan pursuant to Act 1/2005 regulating the trading of the aforesaid rights, are recorded at the time they are allocated in the Intangible assetsGreenhouse gas emission rights at their market value, recording at that time a non-refundable capital grant for the same amount. After they are recorded, the emission rights are valued at either the value given at the time they are received or their market value, whichever is lower (they are not amortised). The Long-term provisions item of the consolidated balance sheet recordscharged to the Other operating expenses itemthe amount of expenses associated with greenhouse gases consumed over the period valued by the amount at which they were granted if the aforesaid rights are available, or measured taking into account the best possible estimate of the cost to be incurred to cover the existing rights deficit. The allowance thus established and the intangible assets recorded on receiving the rights shall be cancelled at the time they are returned. Non-refundable grants related to the emission rights received free of charge are recognised under Asset-related grants transferred to profit or loss of the consolidated income statement as the expenses arising from gas emissions related to the subsidised emission rights are charged to expense. r) Consolidated statement of cash flows

In the consolidated statement of cash flows, prepared using the indirect method, the following expressions are used with the meanings specified: 1. 2. 3. 4. Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in their value. Operating activities: typical activities of the entities composing the consolidated Group, and other activities which cannot be classified as investment or financing activities. Investment activities: the acquisition, sale and disposal by other means of long-term assets and other investments not included in cash and cash equivalents. Financing activities: activities that result in changes in the size and composition of the equity and liabilities that are not operating activities.

s)

Transactions with related parties The Group carries out all its operations with related parties at market values.

t)

Balances and transactions in non-euro currencies.

The Group converts credits and debits expressed in non-euro currencies into the euro applying the exchange rate in force at the time the pertinent transaction is carried out, continuing to be valued at the aforesaid exchange rate until the aforesaid balances are cancelled. The exchange differences arising from the collection or payment of credits or debts in non-euro currencies and

F-196

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

4. Accounting policies (Continued) those arising from valuing the accounts in a non-euro currency at the close of the year, according to the exchange rate in force at that time, are posted to the consolidated income statement of the year in which they arise. The Groups policy is to contract foreign exchange insurance for transactions, mainly sales carried out in foreign currency. u) Non-current assets held for sale

Non-current assets are classified as held for sale when the asset is available to be sold immediately under its current terms and it is highly probable that it will be sold; for which the directors or the Directors have decided to sell the asset and have actively initiated a program to find a buyer and specify the aforesaid plan. Non-current assets classified as held for sale are measured at the lower of their previous carrying amount and less costs to sale. The assets classified as non-current and held for sale are not amortised, but at the date of each balance sheet they pertinent valuation corrections are made so that the carrying amount is lower than the fair value minus the sales costs. Income and expenses generated by non-current assets and disposal groups classified as, held for sale, are recorded in the corresponding consolidated income statement item according to their nature. v) Discontinued operations

A discontinued operation is any Group component which has been sold or which has been disposed of by another means, or which has been classified as held for sale, and, inter alia, represents a line of business or a significant area which can be considered to be separate from the rest. For these types of operations, the Group includes the post-tax profit or loss of discontinued operations and the post-tax loss or gain recognised on the measurement to fair value less the sale costs or on the disposal of the asset constituting the discontinued operation within the consolidated income statement and in a single item called Loss for the year from discontinued operations. Furthermore, when operations are classified as discontinuous, the Group presents in the aforementioned accounting item the amount of the previous year corresponding to activities which are discontinued at the close of the year to which the consolidated financial statements refer. 5. Allocation of loss of the Parent The Parents board of Directors will purpose for approval by the shareholders at the Annual General Meeting that the loss for 2009 incurred by Grupo Empresarial ENCE S.A. amounting to EUR127.688 thousand be allocated to prior years losses for offset in future years.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

6. Intangible assets The changes in the 2009 and 2008 in the various intangible fixed assets accounts and in the related accumulated amortisations were as follows: 2009
Thousands of euros Additions or Charge for the year Elimination from Scope of consolidation

Balance at 01/01/2009

Disposals

Transfers

Balance at 31/12/2009

Emission rights: Cost . . . . . . . . . . . . . . . . . Impairment losses . . . . . . . Computer software Cost . . . . . . . . . . . . . . . . . Accumulated amortisation . . Development expenses: Cost . . . . . . . . . . . . . . . . . Impairment losses . . . . . . . Accumulated amortisation . . Others: Cost . . . . . . . . . . . . . . . . . Accumulated amortisation . . Total Cost . . . . . . . . . . . . . . . . . Impairment losses . . . . . . . Accumulated depreciation . . Total . . . . . . . . . . . . . . .

7,223 (7,223) 14,968 (13,056) 1,912 24,699 (196) (6,235) 18,268 2,396 (1,466) 930 49,286 (7,419) (20,757) 21,110

9,705 9,705 13 (582) (569) 2,669 (18,446) (890) (16,667) 16 (126) (110) 12,403 (18,446) (1,598) (7,641)

(8,652) (8,652) (18,446) 18,563 117 (27,098) 18,563 (8,535)

(7,223) 7,223 79 (445) (366) (334) 220 (114) 3 560 563 (7,475) 7,223 335 83

(789) 744 (45) (789) 744 (45)

1,053 1,053 14,271 (13,339) 932 8,588 (79) (6,905) 1,604 2,415 (1,032) 1,383 26,327 (79) (21,276) 4,972

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

6. Intangible assets (Continued) 2008

Balance as of 01/01/2008 Additions or Allocations Thousands of euros Transfers Disposals (Note 7) Translations differences Balance as of 31/12/2008

Emission rights: Cost . . . . . . . . . . . . . . . Impairment losses . . . . . Computer software Cost . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . Development expenses: Cost . . . . . . . . . . . . . . . Impairment losses . . . . . Accumulated amortisation . . . . . . . Others: Cost . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . Total Cost . . . . . . . . . . . . . . . Impairment losses . . . . . Accumulated depreciation . . . . . . . Total . . . . . . . . . . . . . . Additions and eliminations-

10,066 (7,223) 2,843 14,596 (12,371) 2,225

15,133 15,133 31 (687) (656)

(17,976) (17,976)

343 343

(2) 2

7,223 (7,223) 14,968 (13,056) 1,912

18,744 (383) (5,299) 13,062 2,536 (1,346) 1,190 45,942 (7,606) (19,016) 19,320

5,964 187 (936) 5,215 (123) (123) 21,128 187 (1,746) 19,569

(9) (9) (137) (137) (18,122) (18,122)

343 343

(3) 3 (5) 5

24,699 (196) (6,235) 18,268 2,396 (1,466) 930 49,286 (7,419) (20,757) 21,110

The main additions in the 2009 and 2008 years correspond to the capitalisation of the development expenses relating to forest projects carried out internally in Spain. Furthermore, in 2008 the Group incurred development costs relating to the execution of a new pulp mill in Uruguay, amounting to 3,263 thousand euros. Due to the agreement reached by the Parent Company with the Stora Enso Oyj and Celulosa Arauco y Constituci on S.A. paper groups for the sale of certain assets located in Uruguay (see Note 23), in 2009 the Group cancelled the development costs incurred in previous years relating to the aforesaid project, which amounted to 18,446 thousand euros. In 2008, the Group recorded the greenhouse gas emission rights received free of charge pursuant to the National Allocation Plan 2008-2012, corresponding to 657,970 tons of CO2 and a market value at the time they were received of 23 euros per ton. On 3 June 2008, the Group concluded a contract whereby it sold these emission rights received at a price of 25.4 euros per ton. The profit earned with the sale amounted to

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

6. Intangible assets (Continued) 1,579 thousand euros, and is included in the Other operating income item of the consolidated income statement for the 2008 year. On that same date, the Group signed an emission rights purchase undertaking for 506,202 tons of CO2 at an average price per right of 24.65 euros, corresponding to the consumption estimated by the Group in 2012. Given that the purpose of this purchase undertaking is to meet rights consumption requirements in the production process in 2012, its impact on the income statement will be recorded in that year. In the year ended 31 December 2009, the Group used part of the 657,970 tons of CO2 allocated to it for the 2009 year to return the rights consumed in the 2008 year. The remaining 71,388 tons of CO2 are recorded in the Emission rights account and valued at 1,053 thousand euros. The Long-term provisions item of the consolidated balance sheet includes the sum of 6,641 thousand euros corresponding to the liabilities arising from consumption over the year ended 31 December 2009 of 526,406 tons of CO2 (see Note 15). Fully amortised intangible assetsAt 31 December 2009 and 2008 fully amortised intangible assets, referring mainly to development expense and IT applications, amounted to 15,893 and 13,363 thousand euros, respectively.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

7. Property, plant and equipment The changes in 2009 and 2008 in the accounts of this item of the consolidated balance sheet and the related accumulated amortisations were as follows: 2009
Thousands of euros Elimination Balance at Additions or from scope of Translation 01/01/2009 Allocations Disposals Transfers consolidation(Note 23) Differences 31/12/2009 Land and buildings: Forest land . . . . . . . Other land . . . . . . . Buildings . . . . . . . . Impairment losses . . Accumulated amortisation . . . . . 252,899 16,485 152,285 (19,703) (75,176) 326,790 Plant and machinery: Cost . . . . . . . . . . . Impairment of value . Accumulated depreciation . . . . . 5,667 273 110 (76,529) (5,051) (75,530) (193) (38) 73,829 52 73,650 (4) (887) 18,746 (884) (197) 16,774 (104,906) (6,914) (31,769) 9,998 10,115 (123,476) 1 70 (8) 63 153,463 8,958 139,404 (13,289) (70,265) 218,271

692,142 (4,248) (485,238) 202,656

652 (7,845) (31,584) (38,777)

(4,247) 1,225 3,383 361

256,877 (1,936) 207 255,148

(5,148) 2,435 (2,713)

194 (86) 108

940,470 (12,804) (510,883) 416,783

itmes of property, plant and equipment Cost . . . . . . . . . . . Impairment losses . . Accumulated amortisation . . . . .

28,553 (102) (23,170) 5,281

1,286 (1,273) 13

(206) 66 (140)

(168) (102) (112) (382)

(2,648) 2,220 (428)

4 (2) 2

26,821 (204) (22,271) 4,346

property, plant and equipment in the course of construction Cost . . . . . . . . . . . Total: Cost . . . . . . . . . . . Impairment of value . Accumulated depreciation . . . . . Total . . . . . . . . . 299,916 1,442,280 (24,053) (583,584) 834,643 116,642 124,630 (84,374) (37,908) 2,348 (322) (5,006) 75,054 3,501 73,549 (273,442) 1,122 (2,922) (102) (1,902) (44,387) (195,772) 9,998 14,770 (171,004) 269 (96) 173 98,407 1,367,523 (26,297) (603,419) 737,807

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

7. Property, plant and equipment (Continued) 2008

Balance at 01/01/2008 Additions or Allocations Thousands of euros Withdrawals or Reductions Transfers(a) Translation Differences Balance at 31/12/2008

Land and buildings: Forest land . . . . . . . Other land . . . . . . . . Buildings . . . . . . . . . Impairment losses . . Accumulated amortisation . . . . .

. . . . .

230,383 13,575 153,040 (21,167) (70,620) 305,211

17,651 163 (4,505) 13,309 1,388 (3,037) (22,635) (24,284)

(95) (1,181) 3,000 (129) 1,595 (3,404) 384 2,774 (246)

4,960 3,015 431 (1,538) 69 6,937 17,762 (1) 17,761

(105) (168) 2 9 (262) (257) 95 (162)

252,899 16,485 152,285 (19,703) (75,176) 326,790 692,142 (4,248) (485,238) 202,656

Plant and machinery: Cost . . . . . . . . . . . . . Impairment of value . . Accumulated depreciation . . . . . . items of property, plant and equipment Cost . . . . . . . . . . . . . Impairment losses . . . Accumulated amortisation . . . . . . property, plant and equipment in the course of construction Cost . . . . . . . . . . . . . Total: Cost . . . . . . . . . . . . . Impairment losses . . . Accumulated amortisation . . . . . . Total . . . . . . . . . . .
(a)

676,653 (1,595) (465,471) 209,587

26,885 (102) (21,938) 4,845

1,336 (1,512) (176)

(230) 276 46

569 569

(7) 4 (3)

28,553 (102) (23,170) 5,281

95,972 1,196,508 (22,864) (558,029) 615,615

224,268 244,806 (3,037) (28,652) 213,117

(30) (4,940) 3,384 2,921 1,365

(20,212) 6,525 (1,538) 68 5,055

(82) (619) 2 108 (509)

299,916 1,442,280 (24,053) (583,584) 834,643

EUR343 thousand transferred from Property, plant and equipment to IT applications, EUR4,960 thousand (see Note 8) transferred from Biological assets to Forest land and EUR438 thousand transferred from Inventories to Other assets.

Forest land is included in the Land and buildings item of the above table. Standing timber is considered to be a biological asset (see Note 8). AdditionsIn the year ended 31 December 2009, the Group carried out investments in all its mills geared towards making the paper pulp production process more efficient and optimising electrical generation; we may highlight the increase in production capacity carried out in the Navia mill, which

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

7. Property, plant and equipment (Continued) was carried out in the first half of 2009, consisting of an investment of 58,722 thousand euros over 2009 (130,755 thousand euros in the 2008 year). Investments made in the Huelva mill in 2009, for a sum of 14,340 thousand euros (28,728 thousand euros in the 2008 year) for the installation of a back pressure turbine, modifying the bed of the biomass boiler, the installation of a new turbine and expanding the recovery line to increase production. Investments made in Pontevedra in 2009, primarily focused on making the production process more efficient, amounted to 5,737 thousand euros (14,612 thousand euros in 2008). Furthermore, forest assets were increased by 51 hectares in 2009. Certain assets were no longer usable as a result of the expansion of the Navia mill; an impairment of 11 million euros was recorded in respect of the aforesaid assets. In 2007, the Group began to build a new biomass-fuelled production plant with a capacity of 50 megawatts. At 31 December 2009, accumulated investment amounts to 47,577 thousand euros (26,208 thousand euros invested in 2009 and 21,369 thousand euros in previous quarters). Furthermore, the investment which will be undertaken in future years associated with this investment amounts to 14,404 thousand euros. A total investment of 120 million euros is planned for this project. In the Group work for its non-current assets item of the consolidated income statement, the Group has capitalised the financial expense incurred over the year amounting to 4,882 thousand euros used to finance different investment projects (3,200 thousand euros at 31 December 2008). DisposalsOn 10 June 2008, the Group sold offices 1 and 2 on storeys 15,16 and 17 of the building located in Madrid, where the Groups headquarters are currently located, for 13,160 thousand euros, reporting a profit of 6,555 thousand euros from the sale included in the Net result from sale of non-current assets held for sale item of the consolidated income statement for the 2008 year. On the same date the Group also formalised a subsequent leasing contract with the buyer company, which cannot be considered to be for financial leasing, and the first monthly payment of which was paid in December 2008. Fully depreciated Property, plant and equipmentAt 31 December 2009 and 2008, t fully depreciated property, plant and equipment wich continued in use, made up as follows:
Thousands of euros 2009 2008

Buildings . Machinery Tooling . . Furniture . Others . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

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. . . . .

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. . . . .

. . . . .

. . . . .

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. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

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. . . . .

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. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

41,514 346,452 493 1,643 11,123 401,225

36,884 349,016 317 2,008 9,920 398,145

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granting of public domain

The public maritime land concession relating to the land on which the Pontevedra factory is located was awarded to the Parent by a Ministerial Order of 13 June 1958. Although the concession charter did not establish any term, Article 66 of the Spanish Courts law subsequently established that the maximum term of the public maritime land concessions would be 30 years. Transitional Provision 14.3 of the Coastal Regulations stipulated that concessions granted prior to the entry into force of the Spanish Coast Law (as in the case at hand), irrespective of the term appearing on the

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

7. Property, plant and equipment (Continued) concession deed, will be deemed to have been granted for a maximum period of thirty years from the date of entry into force of the Spanish Coasts Law (the Law came into force on 29 July 1988 and, therefore, the concession would expire on 29 July 2018). At 31 December 2009, the net book value of all assets relating to this land was EUR 91,665 thousand (EUR97,065 thousand at 31 December 2008). RevaluationsAt January 2004, the date of transition to IFRS-EU, forest land was revaluated at fair value. The fair value was determined by specialised independent appraisal companies and is considered to be a historical cost of reference in accordance with International Accounting Standards. The revaluation surplus, net of the related deferred taxes of EUR23,718 thousand, amounted to EUR55,343 thousand and is included in Equity-Valuation Adjustments. The fair value is considered to be a historical cost of reference in subsequent dates. Insurance policy and othersThe Groups policy is to take out insurance policies to cover the possible risks which could possibly affect their property, plant and equipment. The Parents Directors consider that the coverage of these risks at 31 December 2009 is appropriate. The amount of the assets located outside Spain, mainly in Uruguay, amounts to 41,993 thousand euros at 31 December 2009 (204,289 thousand euros at 31 December 2008). 8. Biological assets Biological assets includes the Groups standing timber, the detail begin as follows:
Thousands of euros 31/12/09 31/12/08

Standing timberIberian Peninsula Standing timberUruguay . . . . . . Non-forest landIberian Peninsula Nurseries and forward buying . . . . Unproductive hectares . . . . . . . . .

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. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

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. . . . .

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. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

131,410 23,040 788 155,238

122,684 120,894 781 10,565 557 255,481

Changes in 2009 and 2008 were as follows: -2009

Additions or Change for the year Thousands of euros Elimination from scope of Disposal consolidation or Transfers (Note 23)

Balance at 01/01/2009

Balance at 31/12/2009

Biological assets: Standing timber . . . . . . . . . . . . . . . . Depletion of forestry reserve . . . . . . .

347,632 (92,151) 255,481

30,539 (9,744) 20,795

(2,819) 344 (2,475)

(147,940) 29,377 (118,563)

227,412 (72,174) 155,238

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

8. Biological assets (Continued) 2008

Thousands of euros Additions or Change for Disposals and the year Transfers(a)

Balance at 01/01/2008

Balance at 31/12/2008

Biological assets: Standing timber . . . . . . . . . . . . . . . . . . . . . . . . Depletion of forestry reserve . . . . . . . . . . . . . . .

305,933 (81,212) 224,721

49,868 (10,958) 38,910

(8,169) 19 (8,150)

347,632 (92,151) 255,481

(a)

EUR4,960 thousands (see Note 7)were transferred to the Property, plant and equipmentforest land and EUR3,190 thousand transferred to Inventories.

In the 2009 and 2008 years, the Group performed plantation activities in 13,348 hectares and 44,810 hectares, respectively, and has carried out conservation and silviculture tasks on 123,330 hectares and 159,910 hectares, respectively. The detail of standing timber at 31 December 2009 and 2008 was as follows: 2009
Iberian Peninsula Thousands of Hectares euros Affected Carrying hectares amount Uruguay Thousands of euros Hectares Carrying Net hectares amount

Age (in years)

> 17 16 . . 15 . . 14 . . 13 . . 12 . . 11 . . 10 . . 9 ... 8 ... 7 ... 6 ... 5 ... 4 ... 3 ... 2 ... 1 ... 0 ...

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

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. . . . . . . . . . . . . . . . . .

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. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

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. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

1,190 135 267 562 233 625 809 2,559 4,657 4,755 3,206 2,874 3,071 9,037 6,713 6,906 7,359 12,057 67,015

2,424 445 917 1,759 725 1,465 2,492 7,572 11,492 11,501 5,531 5,361 8,208 23,651 16,090 13,102 8,136 10,539 131,410

216 380 426 1,719 866 152 404 2,169 607 219 553 1,666 2,394 2,036 814 1,447 16,068

676 988 806 3,130 1,599 262 742 3,156 835 323 733 1,780 2,702 2,490 952 1,866 23,040

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

8. Biological assets (Continued) 2008 yearIberian Peninsula Thousands of Hectares euros Affected Carrying hectares amount Uruguay Thousands of euros Hectares Carrying Net hectares amount

Age (in years)

> 17 16 . . 15 . . 14 . . 13 . . 12 . . 11 . . 10 . . 9 ... 8 ... 7 ... 6 ... 5 ... 4 ... 3 ... 2 ... 1 ... 0 ...

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

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. . . . . . . . . . . . . . . . . .

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. . . . . . . . . . . . . . . . . .

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. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . .

367 346 149 360 1,603 519 998 1,917 6,134 5,676 4,591 3,315 2,361 3,070 9,314 6,341 7,225 8,783 63,069

1,475 1,352 546 1,273 2,045 825 1,510 4,007 12,593 12,817 10,397 5,527 4,904 7,542 22,198 14,194 12,427 7,052 122,684

1,372 532 1,251 1,134 1,541 3,341 5,170 6,997 3,111 3,517 4,661 2,820 3,035 5,077 6,966 8,850 13,575 20,477 93,427

2,237 911 2,044 2,045 2,494 5,546 8,143 10,910 4,393 4,979 6,243 3,482 4,102 7,309 8,043 10,600 14,656 22,757 120,894

9. Leases At the close of the 2009 and 2008 years, the Group had contracted with certain leasers the following leases in respect of properties, according to the current agreements in force, without taking into account the effect of common expenses, future increases owing to CPI or future adjustments of rentals agreed by contract:
Thousands of euros 2009 2008

Minimum Sums

Less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Between one and five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,363 7,720 10,083

2,133 6,912 3,550 12,595

The Group also leases 30,646 hectares of proprietary woodland used for the generation of standing timber, with a leasing cost of 1,744 thousand euros in 2009. These contracts have an average duration of 30 years. 10. Derivative financial instruments. In accordance with the risk management policy outlined in Note 26, the Group mainly contracts derivatives to hedge risks arising from changes in interest rates, the cellulose pulp price and the price of gas, fuel-oil and electricity used in the production process.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

10. Derivative financial instruments. (Continued) The most commonly used interest rate derivative financial instruments are interest rate swaps. Swaps and options are the main derivative financial instruments for the price of cellulose pulp and of certain energy products. The Group has three types of derivatives: 1. 2. 3. Derivative financial instruments designated as cash flow hedging: mainly hedge cash flows from operating leases, sales of notes in non-euro currencies and fuel purchases. Derivative financial instruments designated as fair value hedging: used to hedge the market value of assets and liabilities on the consolidated balance sheet. Rest of derivative financial instruments: those which have not been designated as hedging or which do not comply with the requirements established by accounting standards for that purpose.

All financial instruments contracted have been valued after their initial registration using references to inputs which can be observed for assets or liabilities either directly (i.e., by prices) or indirectly (i.e., price derivative financial instruments). The breakdown for this item on the consolidated balance sheet in 2009 and 2008 is as follows: Year ended 31 December 2009
Thousands of euros Long-term Assets Liabilities

Liability / Asset

Interest Rate Swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 year

33,344 9,608 42,952

Liability / Asset

Thousands of euros Long-term Short-term Assets Liabilities Assets Liabilities

Interest Rate Swap . . . . . Equity Swap . . . . . . . . . paper pulp price hedges Others . . . . . . . . . . . . . Total . . . . . . . . . . . . . Pulp price hedges-

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16,383 11,044 27,427

3,729 1,220 4,949

1,380 1,380

In order to hedge the risks to which the Group is exposed due to fluctuations in BHKP pulp prices, 2-year and 3-year swaps were contracted in 2006 and 2007 in order to hedge its revenue from future sales. At 31 December 2009, the Group does not have any pulp price hedging contract in force. The position of the hedging transactions (swaps) at 31 December 2008 was as follows:
3 Year BHKP PIX Contract: Currency Tonnes Average Price Dollar/ Tonne

Expiry 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

USD

102,000

601.1

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

10. Derivative financial instruments. (Continued) At 31 December 2008, the fair value of these financial instruments was positive, by 3,729 thousand euros, and was recorded under the Current financial assetsDerivative financial instruments item of assets on the consolidated balance sheet. The changes in the fair value of these instruments are recognised directly in equity under Valuation adjustments. At 31 December 2008, the deferred tax arising from the recognition these instruments amounted to 1,119 thousand euros. These deferred taxes were also recognised with a charge of credit to equity accounts (see Notes 13 and 18). The Gain (losses) on hedges of the consolidated income statement for the year ended 31 December 2009 includes a gain of EUR3,808 thousand (loss of EUR14,550 thousand in 2008) corresponding to hedging settled over the course of the year. Other hedgesThe Group is exposed to the fluctuations in the prices of certain energy products, consumed in the production process, which can significantly affect production cost. This risk is partially hedged through Commodity Swaps. At 31 December 2009, the Group did not have any energy price hedging contract in force. The status of these hedging transactions at 31 December 2008 was as follows:
Product Expiry in Year Currency Unit Amount Average Price In Euros

Electricity . . . . . . . . . . . . . . . . . . . . . . . Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . Fuel-oil . . . . . . . . . . . . . . . . . . . . . . . . .

2009 2009 2009

Euro Euro Euro

MWh MWh TM

35 1,485,000 13,800

54.0 28.1 299.9

The electricity price hedging contracts comply with the requirements established for them to be effective hedging. In this regard, the fair value of the aforesaid instruments amounted to 1,220 thousand euros at 31 December 2008 and was recognised under the Current financial assetsDerivative financial instruments item of assets on the consolidated balance sheet, with a balancing entry to be found, net of tax, in the EquityValuation adjustments item of the consolidated balance sheet. Interest Rate SwapThe Group hedges the interest rate risk of its financial liabilities with a variable interest rate in euros through interest rate swaps and financial options. The objective of these hedges is to neutralise by contracting interest rate derivatives, the fluctuations in cash outflows in respect of payment tied to floating interest rates (Euribor) on the Groups borrowings. In order to determine the fair value of the interest rate derivatives (fixed interest rate swaps and structures), the Group uses the discounted cash flow method based on the implicit values determined by the Euro interest rate curve according to market conditions on the measurement date. In the case of options, the Group also uses the implicit market volatility as an input to determine the fair value of the option, using Black & Scholes valuation techniques and variations there of applied to interest rate underlyings.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

10. Derivative financial instruments. (Continued) The interest rate derivatives arranged by the Group and outstanding at 31 December 2009 and 2008, and their fair values at the date were as follows: 2009
Thousands of euros Notional value at close of: 2010 2011 2012

Fair Value

2013

Swap with cancellation option . . . . . . . . . . . . . . 2008

33,344

307,905

270,105

232,298

194,498

Fair Value

2009

2010

Thousands of euros Notional value at close of: 2011 2012 2013

2014

2015

Swap with cancellation option . . . . . . . . . . . . . . 16,383 198,170 228,191 231,000 216,150 200,288 184,088 167,213 Shown below is an analysis of the Groups liquidity for its interest rate derivative, prepared using the undiscounted effective net flows:
Less than 1 month Thousands of euros 1-3 3 months 1-5 months 1 years years Over 5 years

Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . .

3,702

8,836

21,879

On 29 May 2008, the Parent formalised an interest rate swap used to hedge approximately 60% of its bank debt. On 5 February 2009, the Company and the banking syndicate of the loan held by the former agreed to substantially modify the conditions thereof, basically by cancelling the A tranche, modifying the maximum amount available of C tranche, and bringing the expiry forward to 2013 (see Note 16). As a result of the aforesaid modification, the swap no longer complied with the requirements to be considered as hedging of accounts. Consequently, the negative fair value of the hedging recorded on equity at the time of the suspension, amounting to EUR 22,044 thousand before tax, began to be recognised on the consolidated income statement prospectively until 2013, when the hedged item was expected to affect the Groups result. In this regard, EUR 6,467 thousand have been recognised on the Variation in the fair value of financial instruments of the consolidated income statement for the year ended 31 December 2009 for this concept. The Group also recorded EUR 3,040 thousand associated with the ineffective part of the change in the value of the hedging instrument in the aforesaid item in 2009. On 25 March 2009, in order to adjust the hedging instrument to the new financing structure, the IRS was renewed in accordance with the conditions in force of the syndicated loan at that time. The new instrument complies with the requirements for it to be considered as hedging of accounts. On 16 October 2009, a second substantial modification of the syndicated loan held by the Parent Company was made due to the early repayment of EUR 179,630 thousand (see Note 16) following the sale of the Uruguay project (see Note 3.4.4). After this modification, the instrument again no longer complied with the requirements to be considered as hedging of accounts. Due to the early repayment of the loan, which acted as a hedged item of the interest rate swap contract, the Group recognised a higher financial expense of EUR 12,233 thousand (EUR 8,603 thousand corresponding to the initial instrument and EUR 3,630 thousand to the instrument renewed on 25 March 2009) in the Variation in the fair value of financial instruments

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

10. Derivative financial instruments. (Continued) item of the consolidated income statement; this amount was recognised as a reduction as equity Equity-Valuation adjustments. The changes in the fair value of the instrument from 16 October 2009, when the instrument no longer complied with the requirements for it to be considered as hedging, are recognised on the consolidated income statement. In this regard, EUR 929 thousand have been recognised on the Variation in the fair value of financial instruments item of the consolidated income statement for the change in the value of the instrument between that date and 31 December 2009. The value of the hedging instrument recorded on equity and associated with the hedged item which has not been cancelled, amounting to EUR 10,675 thousand before tax, will be recognised on the consolidated income statement prospectively until 2013, when the hedged item will affect the Groups result, as per the following details:
Thousands of Euros

Year Year Year Year

2010 2011 2012 2013

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. . . .

3,927 3,628 2,045 1,075 10,675

Taking into account the contractual terms at 31 December 2009, a 5% increase in the Euribor interest rate curve would have a positive impact of EUR 1,032 thousand on consolidated profit for 2010. On the other hand, a 5% decrease in the Euribor interest rate curve would have a negative impact of EUR 1,037 thousand on the 2010 year consolidated profit. Equity swapIn order to hedge the impact of the 2008-2011 Special Variable Compensation Plan of Grupo Empresarial ENCE, S.A., at the end of 2007 on the consolidated income statement, the Parent arranged an Equity Swap which at first was recognised as an asset at its fair value, amounting to EUR 14,429 thousand, with a credit to equity under Share premium in the accompanying of the attached consolidated balance sheet (see Note 4-o). In view of the positive performance of the Parents share price over 2009, (the benchmark variable for the Equity Swap), which amounted to EUR 2.71 per share at 31 December 2009, an impairment profit of EUR 1,437 thousand was recognised on this derivative financial instrument under Variation in the fair value of financial instruments in the consolidated income statement for 2009. The negative fair value of the Equity swap at 31 December 2009 amounts to EUR 9,608 thousand (11,044 thousand at 31 December 2008). This amount is recorded on the Long-term derivative financial instruments item of the attached consolidated balance sheet. A 10% increase in the Parents share price would have a positive impact of EUR 1,382 thousand on the consolidated profit for 2010. On the other hand, a 10% decrease in ENCEs share price would have a negative impact on the same scale of the same amount on the 2010 profit.

F-210

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

11. Inventories The detail of the Groups inventories at 31 December 2009 and 2008 is as follows:
Thousands of euros 31/12/2009 31/12/2008

Merchandise . . . . . . . . Raw materials . . . . . . . Other supplies . . . . . . Work in progress . . . . Finished goods . . . . . . Advances to suppliers . Impairment losses . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

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. . . . . . .

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. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

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. . . . . . .

. . . . . . .

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. . . . . . .

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. . . . . . .

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. . . . . . .

. . . . . . .

283 40,593 24,134 10,680 10,904 7,167 (4,917) 88,844

211 95,710 17,517 7,472 31,534 10,279 (4,219) 158,504

At 2009 and 2008 year-end there were no firm purchase or sale or limitations on the availability of the inventaries. The Group takes out insurance policies to cover the possible risks to which its inventaries are subject and it is considered that the insurance coverage for inventaries for these risks was sufficient at 31 December 2009. 12. Trade and other receivables, and Trade and other payables The balances of Trade and other receivables of assets on the consolidated balance sheet at the close of the 2009 and 2008 years is as follows:
Thousands of euros 31/12/2009 31/12/2008

Trade receivables for sales . Sundry accounts receivable . Employee receivables . . . . . Impairment losses . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

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. . . .

. . . .

81,290 11,885 210 (2,839) 90,546

103,941 19,200 205 (3,059) 120,287

The average credit period taken on sales of goods ranges from 50 to 60 days. An impairment losses has been recognised amounting to EUR 923 thousand (EUR 810 thousand in 2008) to adjust these assets to their realizable value. The balances of Trade and other payables on the liabilities side of the accompanying consolidated balance sheet at the close of the 2009 and 2008 years is as follows:
Thousands of euros 31/12/2009 31/12/2008

Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed asset suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remuneration payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

154,140 27,043 14,076 195,259

117,331 37,357 6,390 161,078

The average payment takes on the purchases of goods and services ranges between 100 and 110 days.

F-211

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

13. Equity Share CapitalThe Parents share capital at 31 December 2009 and 2008 was represented by 174,900,000 fully subscribed and paid bearer shares as EUR 0.9 per value each. The shareholders 31 December 2009 and 2008 were as follows:
Shareholders Percentage 2009 2008

Retos Operativos XXI, S.L. . . Alcor Holding, S.A. . . . . . . . . Atalaya de Inversiones, S.R.L. Caja de Ahorros de Asturias . Bestinver Gesti on, S.A. SGIIC Fidalser, S.L. . . . . . . . . . . . . Bestinver Bolsa,F.I. . . . . . . . . Free Float . . . . . . . . . . . . . . .

. . . . . . . .

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. . . . . . . .

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. . . . . . . .

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. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

22.15 20.39 5.01 5.00 5.02 42.43 100

22.15 20.39 5.01 5.00 5.03 5.02 3.0 34.4 100

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

All the parents shares are admitted to official listing on the continuous market of the Spanish Stock Exchange, and all have the same voting and economic rights. Legal reserveIn accordance with the Revised Text of the Spanish Public Limited Companies Act, 10% of profit for the year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of the share capital. At 31 December 2009, this reserve had been set aside in full. The legal reserve can be used to increase capital provide the remaining reserve balance does not fall below 10% of the increased share capital amount. Except for the previously mentioned objective, and until the legal reserve exceeds 20% of share capital, it can only be used to offset losses provided that sufficient other reserves are not available for this purpose. Share premiumThe Revised Text of the Spanish Companies Act expressly allows the use of the share premium balance to increase capital, and does not set any specific restriction on its availability.

F-212

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

13. Equity (Continued) Reserve at fully consolidated companiesThe breakdown by companies of the EquityReserve at fully consolidated companies item at 31 December 2009 and 2008 is as follows:
Thousands of euros 31/12/2009 31/12/2008

Celulosas de Asturias, S.A.U. . . . . . . Celulosa Energ a, S.L. U. . . . . . . . . . Norte Forestal, S.A. U. . . . . . . . . . . . Silvasur Agroforestal, S.A. U. . . . . . . Iberflorestal, S.A. U. . . . . . . . . . . . . . Eufores, S.A. . . . . . . . . . . . . . . . . . . Ibersilva, S.A.U. . . . . . . . . . . . . . . . . Norfor Maderas, S.A. U. . . . . . . . . . . Eucalipto de Pontevedra, S.A. U. . . . . Electricidad de Navia Asturias, S.L. U. Maderas Aserradas del Litoral, S.A. . . Celulosas de MBopicu a, S.A. . . . . . . Zona Franca MBopicu a, S.A. . . . . . . yades de Uruguay, S.A. . . . . . Las Ple Las Pl eyades, S.A.F.I. . . . . . . . . . . . . Sierras Calmas, S.A. . . . . . . . . . . . . Consolidation adjustments . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

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. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

58,404 26,983 19,247 15,215 1,453 (216) 431 (1,222) 3,642 (662) (22) 247 (58) 41 25,648 149,131

48,104 15,097 16,486 13,431 1,240 40,630 12 421 (847) 3,642 (6) 584 138,794

The amount of reserves in consolidated companies of restricted use at 31 December 2009 amounts to EUR 11,985 thousand. The Consolidation adjustments account includes EUR 24,926 thousand corresponding to the reserves generated in previous years from the companies withdrawn from the scope of consolidation in 2009. Treasury Stocks Changes in Treasury stocks in the accompanying consolidated balance sheet during the year ended 31 December 2009 were as follows:
Year ended 31 December 2009 Number of Thousands of Shares Euros

At beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At the year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,499,887 (2,340,008) 159,879

6,085 (5,650) 435

Treasury Stocks represent 0.09% of share capital at 31 December, with a global par value of EUR 144 thousand. The average acquisition price for the shares is EUR 2.723 per share. During 2008 year, the Group did not carry out any operations with Parents shares. At 31 December 2009, Parents share in its power are used for trading on the market.

F-213

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

13. Equity (Continued) Translation Differences The detail of translation differences at 31 December 2008 are as follows:
Company Thousands of euros

Celulosa Energ a Punta Pereira, S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Zona Franca Punta Pereira, S.A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

265 (1,005) (740)

Valuation adjustmentsValuation adjustments under consolidated equity includes the changes in fair value of hedgings (see Note 10) and the reserve set up to account for forest land at fair value at 1 January 2004 (see Note 7). The breakdown of the changes in the fair value of hedging instruments in 2009 and 2008 is as follows: 2009
Fair Value Thousands of euros Tax Adjustment in Effect Equity

Interest Rate Swap (Note 10) Initial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers to profit or loss account . . . . . . . . . . . . . . . . . . . . . . Other changes of value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Final balance . . . . . . . . . . . . . . . Pulp price (Note 10) Initial balance . . . . . . . . . . . . . . . Transfers to profit or loss account Other changes of value . . . . . . . . Final balance . . . . . . . . . . . . . . . Energy product prices (Note 10) Initial balance . . . . . . . . . . . . . . . Transfers to profit or loss account Other changes of value . . . . . . . . Final balance . . . . . . . . . . . . . . . ...................... ...................... ...................... ...................... ...................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(16,383) (4,915) 21,740 6,522 (38,701) (4,810) (33,344) (3,203) 3,729 1,119 (3,808) (1,143) 79 24 (160) 35 125 (48) 10 38

(11,468) 15,218 (11,222) (7,472) 2,610 (2,665) 55 (112) 25 87 (7,472)

(33,344) (3,203)

F-214

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

13. Equity (Continued) 2008

Fair Value Thousands of euros Tax Adjustment in Effect Equity

Interest Rate Swap (Note 10) Initial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers to profit or loss account . . . . . . . . . . . . . . . . . . . . . . Other changes of value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Final balance . . . . . . . . . . . . . . . Pulp price (Note 10) Initial balance . . . . . . . . . . . . . . . Transfers to profit or loss account Other changes of value . . . . . . . . Final balance . . . . . . . . . . . . . . . Energy product prices (Note 10) Initial balance . . . . . . . . . . . . . . . Transfers to profit or loss account Other changes of value . . . . . . . . Final balance . . . . . . . . . . . . . . . ...................... ...................... ...................... ...................... ...................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(16,383) (4,915) (16,383) (4,915) (18,412) (5,525) 13,074 3,923 9,067 2,721 3,729 (160) (160) 1,119 (48) (48)

(11,468) (11,468) (12,887) 9,151 6,346 2,610 (112) (112) (8,970)

(12,814) (3,844) 14. Non-current-grants and other deferred income

Changes in this item on the consolidated balance sheet in the 2009 and 2008 years are as follows: Year ended 31 December 2009Thousands of euros Emission Grants Rights Total

Begining balance . . . . . . . . . . . . . . . CDTI loans . . . . . . . . . . . . . . . . . . . . Increase due to new grants . . . . . . . . Emission rights assigned for 2009 . . . Amount taken to consolidated income 2008 year

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3,160 2,397 52 (474) 5,135

9,705 (7,764) 1,941

3,160 2,397 52 9,705 (8,238) 7,076

Thousands of euros Emission Grants Rights Total

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Emission rights assigned for 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount taken to consolidated income . . . . . . . . . . . . . . . . . . . . . . . .

7,851 (4,691) 3,160

16 15,133 (15,149)

7,867 15,133 (19,840) 3,160

F-215

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

14. Non-current-grants and other deferred income (Continued) The Group has been awarded several grants associated with fixed asset investments in its three plants. The Group has also obtained credits from various public entities at an interest rate below the market rate and maturity dates up to ten years. The balance pending return at 31 December 2009 amounts to 11,707 thousand euros (see Note 17). To be awarded these credits, the Group has to comply with certain requirements for maintaining employment and investment. When these credits were awarded, they were valued at their fair value, recognising the difference between the amount granted and its value as a grant posted to the consolidated income statement in proportion with the depreciation of the fixed assets which gave rise to the award of the credit. The amount of the grant still to be recorded on the consolidated balance sheet at 31 December 2009 amounts to EUR 2,397 thousand. 15. Long-term provisions Changes over the 2009 and 2008 years in the Long-term provisions account of liabilities on the consolidated balance sheet were as follows: Year ended 31 December 2009Third Party liability Thousands of euros Emission Rights (Note 6) Others

Total

Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . Period Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount taken to income . . . . . . . . . . . . . . . . . . . . . . Balance at 31.12.09 . . . . . . . . . . . . . . . . . . . . . . . . . 2008 year-

11,771 1,511 (687) 12,595

9,098 6,641 (9,098) 6,641

1,192 22,061 8,152 (47) (9,832) 1,145 20,381

Third Party liability

Thousands of euros Emission Rights Others

Total

Beginning Balance . . . . Period Provisions . . . . . Amount taken to income Others . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

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11,924 1,208 (1,358) (3) 11,771

2,827 9,098 (2,827) 9,098

1,267 16,018 10,306 (75) (4,260) (3) 1,192 22,061

Balance at 31.12.08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The breakdown by items of the third party liability provision at 31 December 2009 and 2008 is as follows:
Thousands of euros 2009 2008

Drainage levies Xunta de GaliciaPiping Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R a Pontevedra Spills Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,357 5,163 2,075 12,595

5,357 4,502 1,912 11,771

The Emission rights account records the amount of the expenses associated with greenhouse gases consumed over the period (see Note 19-e), charged to the Other operating expenses item of the consolidated income statement.

F-216

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

16. Bank borrowings The breakdown of bank borrowings is as follows:

Thousands of euros 2009 2008

Long-term Loans and credit and discount facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest payable and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing Arranged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total long term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and credit and discount facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest payable and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total short term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

158,513 257,000 216 537 (2,974) (6,927) 155,755 185,083 1,157 186,240 341,995 250,610 213,474 1,666 215,140 465,750

The breakdown of bank borrowings at 31 December 2009 and 2008, corresponding to loans, credit lines and discount facilities, classified by maturity, is as follows:
Thousands of euros 2009 Loans and discount facilities Others 2008 Loans and discount facilities Others

Maturity

Total

Maturity

Total

Available Limit Total . . . . . . . . . . . . . 375,591 Principal 2010 . . . . . 2011 . . . . . 2012 . . . . . 2013 . . . . . Subsequent ..... ..... ..... ..... years . . . . . . . . . . . 185,083 . 46,063 . 33,624 . 70,314 . 8,512

Available Limit 374,526 Total . . . . . . . . . . . . 672,264 Principal 100 185,183 2009 . . . . . . . . . . 111 46,174 2010 . . . . . . . . . . 90 33,714 2011 . . . . . . . . . . 15 70,329 2012 . . . . . . . . . . 8,512 Subsequent years 1,057 . . . . . . 213,474 . 22,912 . 16,554 . 1,124 . 216,410

672,264 213,474 100 23,012 108 16,662 42 1,166 287 216,697 1,666 1,666 (6,927)

Interests 2009 . . . . . . . . . . . . . Financing Arranging 2009 . . . . . . . . . . . . .

Interests 1,057 2008 . . . . . . . . . . . . Financing Arranging (2,974) 2008 . . . . . . . . . . . .

(2,974)

(6,927)

343,596 (1,601) 341,995

470,474 (4,724) 465,750

The Bank borrowings in the accompanying consolidated balance sheet shows the amount of the net financing amount of an financing arranged, amounting to 2,974 thousand. In 2009, the credit facilities loans (except for the syndicated loan) bore average interest rate of 3.38% (5.845% in 2008). The interests incurred during 2009 and 2008 due to these instruments amounted to 18,943 thousand euros and 20,385 thousand euros, respectively. Syndicated loanOn 2 April 2008, the Parent Company arranged a loan agreement with a syndicate of financial entities for a joint sum of 1,075,000 thousand euros, structured into three tranches; tranche A, with a credit limit of 940,000 thousand dollars, used to finance the construction of a pulp production and electrical generation plant at Punta Pereira (Uruguay), tranche B is for a maximum amount of EUR 225,000 thousand and used to finance certain investments set out in the 2007-2011 Investment Plan, and tranche C, for a maximum amount of EUR 160,000 thousand, used to finance the

F-217

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

16. Bank borrowings (Continued) repayment, amortisation and cancellation of the financing contracts held by the Parent Company with various financial entities. On 5 February 2009, the Parent Company rolled over the corporate financing agreements, cancelling Tranche A as a result of the sale of the Uruguay project (see Note 23), and reducing the maximum amount of Tranche C to 125,000 thousand euros. The arrangement fee for Tranche A and the commitments fees paid during the year for a total sum of 12.076 thousand euros, were recognised as an expense under Other financial expenses in the consolidates income statement for the year ended 31 December 2008. On 16 October 2009, as a result of the sale of formalisation of Uruguay project (see Note 23), a second modifying non-extinguishing novation has been carried of the syndicated loan, 179,360 thousand euros of the project sale price was repaid. At 31 December 2009, the Other financial expenses item of the attached consolidated income statement includes 3,296 thousand euros related to the repayment of the syndicated loan financing arranged in respect of the part corresponding to the cancelled debt. The main guarantee for this loan is a pledge over the shares of the companies Silvasur Agroforestal, S.A.U., Norte Forestal, S.A.U., and Iberflorestal Comercio e Servi cos Florestais, S.A.U., although the agreement per se provides for replacement of the aforesaid pledges by mortgages over the underlying forest assets owned by these companies. The aforesaid syndicated loan bears an annual floating interest rate tied to Euribor plus a spred wich varies between 75 and 250 basis points, depending on the magnitude reached by the Group in certain financial ratios. Tranche B matures on 15 December 2013, and tranche C on 15 September 2011. The syndicated loan also establish certain terms & conditions & covenants, such as, inter alia, complying with certain economic and equity ratios associated with Grupo ENCEs consolidated financial statements. It estimated that it was not in compliance with some of these obligations, on 23 December 2009 the Parent Company requested a waiver on its compliance, which was granted by the Banking Syndicate with effects from that date. In particular, the financial entities have granted a temporary waiver with respect to comply with the economic and equity ratios set out in the loan contract until 1 March 2011. Cash and cash equivalentsThe Cash and cash equivalents item includes the Groups cash and banks and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets is close to their fair value. A sum of 38,000 thousand euros of the amount recorded in the Cash and Banks item can be used only to finance certain investments in fixed assets, according to the terms & conditions of the syndicated loan agreement. Non-recourse factoringThe Group has formalised different invoice financing lines without recourse, given that all risks implicit in the realisation of the asset are transferred to the factor, with an maximum amount and a drawn down amount of 70,500 thousand euros and 33,390 thousand euros, respectively (40,000 thousand euros and 14,270 thousand euros at 31 December 2008). The financial cost associated with the financing lines is 3M Euribor plus a spread of 1%. 17. Other long-term financial liabilities The sum recorded in this item of the accompanying consolidated balance sheet corresponds to repayable advances awarded by the Ministry of Industry, Tourism and Trade to support projects

F-218

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

17. Other long-term financial liabilities (Continued) undertaken by the Group for increasing and improvement of the production capacity of the Huelva, Pontevedra and Navia mills, and the technological optimisation and environmental improvement thereof. Details by maturities at 31 December 2009 and 2008 are as follows:
Thousands of euros 2009 2008

2010 . . . . . . . . . . . . . . . . . . . 2011 . . . . . . . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . . . . . 2014 and subsequent years . . Financial adjustment (Note 14)

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519 1,014 638 1,449 8,087 (2,397) 9,310

582 593 494 1,048 8,598 11,315

In accordance with IAS 39, the Group carried out a financial adjustment of the aforesaid loans in the year ended 31 December 2009. 18. Tax Matters Current tax receivables and payables Debit and credit balances with the different Public Authorities at 31 December 2009 and 2008 are as follows:
Thousands of euros at 31 December 2009 31 December 2008 Tax Tax Tax Tax receivables payable receivables payable

Non-current items Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current items Tax Authorities: Value Added Tax receivable and payable Tax Authorities debit for other items to be offset . . . . . . . Current income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . Sundry tax: receivable and payable . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reconciliation of accounting profit to taxable profit Group Companies resident in Spain for fiscal purposes

73,230 73,230 10,848 1,412 12,260

23,467 23,467 992 2,809 2,664 6,465

17,272 17,272 23,111 176 2,255 2,792 28,334

26,215 26,215 2,078 2,347 6,909 2,173 13,507

The parent files consolidated income tax returns in accordance with Chapter VII of Title VIII of Spanish Corporation Tax Law, as parent company of Group no. 149/02, created in the year ended at 31 December 2002. This special tax regime, is applicable for an indefinite period of time unless it

F-219

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

18. Tax Matters (Continued) is expressly waived and entails that the following Tax Group entities do not file individual income tax returns: Celulosas de Asturias, S.A.U. Celulosa Energ a, S.L.U. Silvasur Agroforestal, S.A. Norte Forestal, S.A. Ibersilva, S.A.U. Norfor Maderas S.A.U. The nominal corporation tax rate is 30%. Group Companies resident in Uruguay for fiscal purposes For the Income tax purposes, the Group companies located in Uruguay file returns under the Uruguayan general economic activity income tax regime. The nominal tax rate is 25% of accounting profit adjusted for tax purposes in accordance with the applicable legislation, except for Las Pl eyades, S.A. which is taxed under the special Regime for Financial Investments Corporation (SARIs) at a tax rate of 0.3% on its shareholders equity. Group Companies resident in Portugal for fiscal purposes For the purposes of Income tax in Portugal, Iberflorestal, S.A. files income tax returns under general regime for the taxable profit Imposto sobre o Rendimiento das Pessoas Colectivas, at a nominal tax rate of 26.5%. The taxable profit is not determined on the basis of the Groups consolidated accounting profit, but of the individual taxable profit of its constituent companies, determined according to their respective individual tax regime. For these purposes, the individual taxable profit of the companies resident in Spain for fiscal purposes are included in the taxable profit of the Tax Group no. 149/02, and cannot be offset against tax losses incurred by non-resident companies. The reconciliation between the accounting profit or loss and the taxable profit or loss for Income tax purposes at 31 December 2009 and 31 December 2008 is as follows:
Thousands of euros 2009 2008

Eucaliptos de Pontevedra, S.A.U. Tis u de Louriz an, S.L.U. Electricidad de Navia Asturias, S.L.U. Ibercel Celulosa, S.L.U. Enersilva, S.L.U. ENCE Energ a, S.L.U. and its subsidiaries

Accounting Profit or (loss) . . . . . . . . . . . . Continuing operations . . . . . . . . . . . . . . . . Discontinued operations (Note 23) . . . . . . . Permanent differences arising in results . . . Permanent differences arising in equity . . . . Temporary differences arising in the year . . Temporary differences arising in prior years Consolidation adjustments . . . . . . . . . . . . .

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(213,134) 5,131 (116,834) 5,131 (96,300) 777 (19,205) 11,744 24,072 15,101 (11,387) (11,313) 27,320 13,739 (172,352) 15,197

Taxable profit or (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Permanent differences arising in results

Permanent differences arising in results relate to differences in the classification of income and expenses recognised for accounting purposes but declared non-deductible or non-allowable, respectively, for tax purposes, which does not provide for deduction or recognition in subsequent years. The main permanent differences arise in accounting expenses and losses which for tax purposes do not constitute deductible items or fiscally countable items which for accounting purposes are not going to be recorded.

F-220

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

18. Tax Matters (Continued) Temporary differences Temporary differences arise from differences in the temporary posting of income and expenses between accounting and fiscal purposes in the calculation of accounting result and taxable result for the year, which will revert in future tax periods. Reconciliation between book result and expenditure for Income tax The reconciliation of accounting result to taxable profit or loss at 31 December 2009 and 31 December 2008 is as follows:
Thousands of euros 2009 2008

Accounting result . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Permanent differences arising in results . . . . . . . . . . . . . . Elimination of accounting result of non-resident companies Eliminations/incluitions on consolidation . . . . . . . . . . . . Tax base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustment For prior years tax effect . . . . . . . . . . . . . . . . Adjustment for tax effect of non-resident companies . . . . .

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(213,134) 5,131 777 (13,498) (7,117) 2,329 27,320 13,739 (192,154) 7,701 (57,646) 2,310 (806) (1,571) (545) 775 (429) (58,442) 530

Income tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Income tax of continuing operations recorded as expense over the year is as follows:
Thousands of euros 2009 2008

Income tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recognised deferred tax assets and liabilities recorded

(58,442) 530 (121) (141) (58,563) (39,283) (19,280) 389 389

The details of the balance of this account at 31 December 2009 and 2008 are as follows: Recognised deferred Tax Assets
Thousands of euros 2009 2008

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net changes for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17,272 55,958 73,230

8,329 8,943 17,272

In 2009, the Group recognised a tax credit amounting to 52,027 thousand euros, approximately, corresponding to losses pending set-off generated over the present year by Tax Consolidation Group no. 149/02 of 173,423 thousand euros, approximately. The rest of the items making up this item of the consolidated balance sheet and which arise from the income statement correspond to accounting expenses which will be tax deductible in forthcoming years.

F-221

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

18. Tax Matters (Continued) The tax credit for losses to be offset for the aforesaid year has been recognised on the consolidated balance sheet because the Directors of the Group Companies consider that according to the best estimate on the future results of the Companies making up the Tax Consolidation Group, it is highly likely that the aforesaid asset will be recovered within the period established by applicable laws. Pursuant to Spanish laws, the aforesaid losses pending set-off generated over the year can be offset by the positive incomes obtained by Tax Consolidation Group No. 149/02 in the tax periods ending within the fifteen years coming immediately and successively after the present year. Deferred tax assets arising from equity at 31 December 2009 amount to 3,203 thousand euros (5,329 thousand euros at 31 December 2008). Recognised Deferred Tax Liabilities Recorded
Thousands of euros 2009 2008

Begining balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net changes for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26,215 23,865 (2,748) 2,350 23,467 26,215

Deferred tax liabilities arise mainly from the adjustment to market values of the forest land carried out at 1 January 2004. (see Note 7). Unrecognised deferred tax assets. The Group has not registered certain deferred tax assets on the attached consolidated balance sheets. Details of the aforesaid unrecorded assets at the end of 2009 and 2008 are as follows:
Thousands of euros 2009 2008

Unrecognised Deferred Tax Assets

Impairment losses on investments Tangible and intangible assets . . . losses . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . .

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1,549 3,339 14 4,902

6,400 5,980 1,526 (474) 13,432

Total at 31/12/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

All the prior years tax losses were incurred by Group companies resident in Uruguay for tax purposes. According to the tax regulations applicable to IRAE, tax losses incurred prior to 31 December 2007 have an expiry period of three years, while those incurred from that date onwards have a five-year expiry period. The amount of the tax losses carried forward is updated every year in accordance with the change in the Domestic Goods Price Index (IPPN). Years open for review and tax audits In accordance with current tax laws, tax returns cannot be considered definitive until they have been inspected by the tax authorities or before the inspection period stipulated in each tax jurisdiction has expired: four years in Spain and Portugal, and five years in Uruguay. Directors consider that there are no significant tax contingencies which might arise in the event of a tax audit of the open years.

F-222

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

19. Income and expenses a) Sales

The breakdown of the Groups revenue from ordinary operations in 2009 and 2008 is as follows:
Thousands of euros 2009 2008

Pulp sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electricity sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wood and forests services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

361,035 126,901 47,615 535,551

484,727 117,796 54,094 656,617

Practically all the electricity sales were carried out in Spain. The distribution, by geographical markets, of the revenue relating to pulp sales abroad is as follows:
Percentage of Sales 2009 Percentage of Sales 2008

By geographical markets

Germany . . . . . Spain . . . . . . . . Italy . . . . . . . . . United Kingdom Austria . . . . . . . France . . . . . . . Holland . . . . . . Switzerland . . . . Poland . . . . . . . Turkey . . . . . . . Sweden . . . . . . Others . . . . . . .

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22.9 19.7 12.6 6.4 5.7 6.9 3.2 4.6 4.5 2.9 1.5 9.1 100

24.4 18.7 11.1 10.7 6.7 8.0 4.4 3.8 4.0 2.4 1.9 3.9 100

b)

Procurements

The breakdown of the consumption of raw materials and other consumable materials in 2009 and 2008 is as follows:
Thousands of euros 2009 2008

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in inventories of raw materials, supplies and merchandise . . . . . . . . Other external expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

281,402 32,689 34,072 348,163

396,136 (53,639) 40,315 382,812

This item primarily includes costs of timber, chemical products, fuels and other variable costs incurred in the cellulose pulp production process.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

19. Income and expenses (Continued) c) Employees Staff costs incurred in 2009 and 2008 broken down by items are as follows:
Thousands of euros 2009 2008

Wages and salaries . . . . . . . . . Social security costs . . . . . . . . Pension contributions and other Termination benefits (net) . . . . .

............. ............. employee benefit .............

..... ..... costs .....

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62,749 15,215 3,524 7,242 88,730

62,795 15,875 3,653 433 82,756

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The average headcount for 2009 and 2008 is as follows:

Professional category

Men

Average number of employees 2009 2008 Women Total Men Women

Total

Executives . . . . . . . . . . . . . . Individual contracts . . . . . . . . Employee subject to collective Temporary employees . . . . . .

.............. .............. labour agreement ..............

6 171 1,008 394 1,579

1 41 174 67 283

7 212 1,182 461 1,862

6 167 974 512 1,659

1 39 195 120 355

7 206 1,169 632 2,014

Furthermore, the distribution of employees by gender at 31 December 2009 and 2008, respectively, classified by professional categories, is as follows:
Number of Employees at Year End 2009 2008 Women Total Men Women

Professional category

Men

Total

Executives . . . . . . . . . . . . . . Individual contracts . . . . . . . . Employee subject to collective Temporary employees . . . . . .

.............. .............. labour agreement ..............

6 170 906 319 1,401

1 41 156 55 253

7 211 1,062 374 1,654

7 175 989 430 1,601

1 40 198 107 346

8 215 1,187 537 1,947

At 31 December 2009, the Board of Directors was made up of fourteen directors, all of whom were men. d) Transactions in non-euro currencies

In 2009, the Group companies performed transactions in non-euro currencies amounting to EUR 80,368 thousand (EUR 78,041 thousand in 2008).

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

19. Income and expenses (Continued) e) Other operating expenses

The details of this item in the consolidated income statements for 2009 and 2008 are as follows:
Thousands of euros 2009 2008

Outside services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Emission rights used (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . Taxes other than income tax and other management expenses . Losses on non-current industrial assets . . . . . . . . . . . . . . . . . . Change in trading provisions and others . . . . . . . . . . . . . . . . .

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131,386 6,194 3,515 222 4,253 145,570

151,249 9,098 4,041 (303) 164,085

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The breakdown by items of the balance of Outside services in the consolidated income statements for 2009 and 2008 is as follows:
Thousands of euros 2009 2008

Transports, freight and commercial expenses Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repairs and maintenance . . . . . . . . . . . . . . . Leases and royalties . . . . . . . . . . . . . . . . . . Insurance premiums . . . . . . . . . . . . . . . . . . independent professionals services . . . . . . . . Banking and similar services . . . . . . . . . . . . Advertising publicity and Public Relations . . . Research and development expenses . . . . . . Other services . . . . . . . . . . . . . . . . . . . . . . .

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46,586 34,272 12,326 7,622 6,439 5,727 1,369 709 130 16,206 131,386

58,407 37,413 15,472 8,053 5,344 6,057 739 638 180 18,946 151,249

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . f) Other information

During the 2009 financial year, financial audit fees for services to the various Group companies by the principal auditors amounted to EUR239 thousand (EUR 180 thousand for the principal auditor and EUR 72 thousand by other auditors in 2008). Additionally, the fees relating to other professional services provided to the various Group companies by the principal auditor and by other companies related to the auditors during the year ended 31 December 2009 amounted to EUR 212 thousand (EUR 242 thousand for the principal auditor and EUR 64 thousand by other auditors in 2008).

F-225

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

19. Income and expenses (Continued) g) Result by companies

The contribution of each company included in the scope of consolidation to the consolidated profit for the 2009 and 2008 years were as follows:
Thousands of euros 2009 2008

Grupo Empresarial ENCE, S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . Norte Forestal, S.A.U. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Silvasur Agroforestal, S.A.U. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electricidad de Navia Asturias, S.L. . . . . . . . . . . . . . . . . . . . . . . . Celulosa Energ a, S.L. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Iberflorestal , S.A.U. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eufores, S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Celulosas de Asturias, S.A.U. . . . . . . . . . . . . . . . . . . . . . . . . . . . Ibersilva, S.A.U. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Norfor Maderas, S.A.U. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eucalipto de Pontevedra, S.A.U. . . . . . . . . . . . . . . . . . . . . . . . . . Maderas Aserradas del Litoral, S.A. . . . . . . . . . . . . . . . . . . . . . . . Celulosas de MBopicu a, S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . Celulosa Energ a Punta Pereira, S.A. . . . . . . . . . . . . . . . . . . . . . . Zona Franca Punta Pereira, S.A. . . . . . . . . . . . . . . . . . . . . . . . . . , S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . Zona Franca MBopicua Las Pl eyades Uruguay, S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Las Pl eyades S.A.F.I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Las Pl eyades Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sierras Calmas, S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidation adjustments affecting the Parent Company (Note 13)

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

(127,688) (4,712) 8,527 2,761 999 1,784 (774) 4,434 11,886 245 213 2,849 (17,270) 10,300 (691) (228) 17 10 (54) (375) (10) (656) (5) (606) 825 (180) (63) 47 56 (85) (566) (21,690) (19,129) (154,571) 4,742

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20. Earnings per share

The consolidated earning / (loss) per basic and diluted share is determined as follows:
Net Earnings per share Year ended 31 December 2009 2008 year

Net consolidated earnings / (loss) for year attributable to ordinary shares (thousands of euros) . . . . . . . . . . . . . . . . . . . . . . . . . . Ordinary shares outstanding at 1 January . . . . . . . . . . . . . . . . . . Number of ordinary shares at 31 December . . . . . . . . . . . . . . . . Weighted average number of ordinary shares . . . . . . . . . . . . . . . Basic earnings/ (loss) per share (euros) . . . . . . . . . . . . . . . . . Earnings/ (loss) diluted per share (euros) . . . . . . . . . . . . . . . . 21. Operating segments

. . . . . .

(154,571) 174,900,000 174,900,000 174,900,000 (0.88) (0.88)

4,742 174,900,000 174,900,000 174,900,000 0.03 0.03

Cellulose pulp manufacture is closely associated with electrical generation through the use of fuel for generation of the waste produced in the pulp manufacturing process. Furthermore, the Group has specific installations designed for electrical generation based on biomass and other fuels, and also has forests and timberland which are subsequently used as a raw material in pulp and energy production. In this context, the results of the activities carried out by the pulp and energy manufacturing management areas are analysed jointly by the Management Committee, indeed financial information is not differentiated except with regard to revenues. The Committee also carries out an independent analysis of forest management and other minor activities.

F-226

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

21. Operating segments (Continued) The information below shows the activity segments for the 2009 and 2008 years, based on the available management information used regularly: 2009Thousands of euros Forest Pulp and Forest services and Energy Management others Consolidation adjustments between segments

Balance sheet

Total

Total(a)

Assets Non-current . . . . . . . . . . . . . . 635,333 Current . . . . . . . . . . . . . . . . . 334,731 Total Assets(a) . . . . . . . . . . . . 970,064 Liabilities Non-current . . . . . . . . . . . . . . 212,066 Current . . . . . . . . . . . . . . . . . 361,565 Total Consolidated liabilities(a) . . . . . . . . . . . . . 573,631
(a)

328,834 92,900 421,734 21,354 214,878 236,232

11,461 42,050 53,511 1,535 38,073 39,608

975,628 469,681 1,445,309 234,955 614,516 849,471

(68,704) (225,609)

906,924 244,072

(294,313) 1,150,996 (225,609) (225,609) 234,955 388,907 623,862

The balance sheet does not include either equity or deferred tax assets and liabilities Thousands of euros Forest Pulp and Forest services and Energy Management others Consolidation Adjustments between segments

Income statement

Subtotal

Total

Revenue External . . . . . . . . . . . . . . . . . . . . . Inter-segment . . . . . . . . . . . . . . . . . Total revenues: . . . . . . . . . . . . . . . . Profit/ (loss) Profit / (Loss) from operations . . . Finance income . . . . . . . . . . . . . Finance cost . . . . . . . . . . . . . . . Exchange differences . . . . . . . . . Net profit/(loss) on disposal of non-current assets held for sale Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

492,131 1,366 493,497 (87,637) 6,407 (46,604) 767 43,996 (83,071) (90,490)

14,280 245,332 259,612 15,813 86 (4,058) (560) (5,023) 6,258 13,470 19,728 36,206 9,948 (88,441)

32,948 8,352 41,300 (677) 184 (804) 249 310 (738) (738) 265 1,523 (10,454)

539,359 255,050 794,409 (72,501) 6,677 (51,466) 456 39,283 (77,551) (77,020) (154,571) 157,867 46,812 (723,628)

(255,050) (255,050) (2,802) 2,802

539,359 539,359 (72,501) 3,875 (48,664) 456 39,283 (77,551) (77,020) (154,571) 157,867 46,812 (723,628)

... ...

Loss after tax . . . . . . . . . . . . . . . . . Loss from discontinued operations . . .

Loss for the year . . . . . . . . . . . . . . (173,561) Other information Investment(*) . . . . . . . . . . . . . . . . . 121,396 Depreciation and amortisation charge . 35,341 Accumulated depreciation and impairment losses . . . . . . . . . . . . . (624,733)
(*) Does not include additions from emission rights

F-227

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

21. Operating segments (Continued) 2008

Thousands of euros Forest Forest services and Management others Consolidation adjustments between segments

Balance sheet

Pulp and Energy

Total

Total(a)

Assets Non-current . . . . . . . . . . . . . 795,597 Current . . . . . . . . . . . . . . . . 400,918 Total Consolidated Assets(a) 1,196,515 Liabilities Non-current . . . . . . . . . . . . . Current . . . . . . . . . . . . . . . . Total Consolidated liabilities(a) . . . . . . . . . . .
(a)

555,692 159,438 715,130 41,763 300,130 341,893

12,157 44,824 56,981 4,593 37,288 41,881

1,363,446 605,180 1,968,626 314,573 668,418 982,991

(247,128) 1,116,318 (276,878) 328,302 (524,006) 1,444,620 (276,878) (276,878) 314,573 391,540 706,113

268,217 331,000 599,217

The balance sheet does not include either equity or deferred tax assets and liabilities Thousands of euros Forest Forest services and Management others Consolidation Adjustments between segments

Income statement

Pulp and Energy

Subtotal

Total

Revenue External . . . . . . . . . . . . . . . . . . . 588,063 Inter-segment . . . . . . . . . . . . . . . 10,438 Total revenues: . . . . . . . . . . . . . 598,501 Profit/ (loss) Profit / (Loss) from operations . . . Finance income . . . . . . . . . . . . . Finance cost . . . . . . . . . . . . . . . Exchange differences . . . . . . . . . Net profit/(loss) on disposal of non-current assets held for sale Taxes . . . . . . . . . . . . . . . . . . . . . Profits after tax . . . . . . . . . . . . . Profit from discontinued operations . . . . . . . . . . . . . . . Profit for the year . . . . . . . . . . . 29,512 11,059 (54,403) 3,760 6,429 3,833 190 (872) (682)

12,490 273,872 286,362 17,707 125 (6,709) 154 (1,919) 9,358 (2,688) 6,670

41,514 12,981 54,495 309 412 (1,847) (380) 260 (1,246) (1,246) 569 1,532 (9,843)

642,067 297,291 939,358 47,528 11,596 (62,959) 3,534 6,429 2,174 8,302 (3,560) 4,742 300,668 36,313 720,742

642,067 (297,291) (297,291) 642,067 (4,754) 4,754 47,528 6,842 (58,205) 3,534 6,429 2,174 8,302 (3,560) 4,742 300,668 36,313 720,742

Other information Investment(*) . . . . . . . . . . . . . . . 232,580 67,519 Depreciation and amortisation charges . . . . . . . . . . . . . . . . . 26,223 8,558 Accumulated depreciation and impairment losses . . . . . . . . . . (581,933) (128,966)
(*) Does not include additions from emission rights No client represents over 10% of the Groups total revenues.

F-228

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

22. Guarantees commitments to third parties and other contingent liabilities At 31 December 2009 and 2008, the Parent has provided the following guarantees to banks for subsidiaries:
Thousands of euros 2009 2008

Bank

Subsidiary

Banco Santander . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BBVA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Banco Santander . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sierras Calmas Eufores, S.A. Eufores, S.A.

2,587

3,547 3,966

Furthermore, at 31 December 2009 several banks had provided guarantees for various Group companies amounting to approximately EUR 51,500 thousand. The Board of Directors does not expect significant liabilities to arise from the amounts guaranteed or the guarantees provided. Furthermore, the Parent and its subsidiaries have taken out a third-party liability insurance policy. In the opinion of the Parents Directors, the aforesaid insurance policy reasonably covers the related contingencies. 23. Discontinued operations On 17 May 2009, the Parent reached an agreement with the paper groups Stora Enso Oyj and Celulosa Arauco y Constituci on S.A. for the cash sale of 100% of the shares and shareholdings held by Grupo Empresarial ENCE, S.A. in the Uruguayan companies Eufores, S.A., Celulosa y Energ a Punta Pereira, S.A. and Zona Franca Punta Pereira, S.A., companies owning the industrial manufacturing project for a new cellulose pulp production plant being carried out in Uruguay and of 140,000 forest hectares in Uruguay . The transaction was concluded on 16 October 2009, for 229,360 thousand euros. The result of the transaction was a loss amounting to EUR 77,020 thousand (gross loss of EUR 96,300 thousand and tax of EUR19,280 thousand) recognised in the Discontinued operationsLoss for the year from discontinued operations after tax of the attached consolidated income statement for 2009. After this operation, the Group continued management approximately 30,000 hectares of Eucalyptus plantations in the Atlantic region of Uruguay, and the wood chipping and export plant in Pe narol (Montevideo). The Group is presently analysing the critical importance of this asset in the supply of timber to the Huelva plant and the alternatives thereto. The purchase and sale agreement includes certain obligations and guarantees which are customary in these kinds of transactions, and which are in force over the next five years. No significant liabilities are expected to arise from the Group from the aforesaid obligations and guarantees. Details of the principal assets removed from the scope consolidation or which are eliminated as a result of this transaction are as follows:
Thousands of Euros

Intangible assets (Note 6) . . . . . . . . . . Property, plant and equipment (Note 7) Biological assets (Note 8) . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . . . . Short- term financial assets . . . . . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

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. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

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. . . . . .

. . . . . .

. . . . . .

. . . . . .

. . . . . .

18,492 171,004 118,563 12,977 10,919 7,288 339,243

F-229

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

23. Discontinued operations (Continued) The table below shows the details of the revenues and expenses recognised on the consolidated income statement for the 2009 and 2008 years corresponding to the business sold, and which have been classified under the Discontinued operations : Details of income and expenses from discontinued operations (Thousands of euros)
Year 2009 Year 2008

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in inventories of finished goods and Group work on non-current assets . . . . . . . . Procurements . . . . . . . . . . . . . . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expenses . . . . . . . . . . . . . . Depreciation of Fixed Assets . . . . . . . . . . . . Deterioration and loss from disposals . . . . . .

.... work .... .... .... .... .... .... ....

......... in progress ......... ......... ......... ......... ......... ......... .........

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

. . . . . . . . .

28,315 58,994 9,790 27,880 (7,348) (15,436) 1,163 1,637 (2,814) (3,881) (32,310) (57,627) (1,971) (4,250) (88,531) (93,706) 2,848 (3,437) (2,005) (2,594) (96,300) 19,280 (77,020) 7,317 408 (7,099) (1,624) (8,315) (998) (2,563) (3,560)

PROFIT / (LOSS) FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FINANCIAL LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LOSS BEFORE TAX FROM DISCONTINUED OPERATIONS . . . . . . . . . . . . . Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LOSS FOR THE YEAR FROM DISCOUNTINUED OPERATIONS . . . . . . . . . . .

F-230

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

24. Remuneration and other benefits of Directors and SeniorExecutives of the Parent, and other information In 2009, the Parent recognised the following amounts as remunerations earned by its Directors relating to their duties as members of the Board of Directors:
Thousands of euros Fixed Attendance Remuneration fees

Director

Type

Total

Juan Luis Arregui Ciarsolo . . . . . . . Antonio Palacios Esteban . . . . . . . Retos Operativos XXI, S.L. . . . . . . Jos e Manuel Serra Peris . . . . . . . . Pedro Barato Triguero . . . . . . . . . . Enrique Alvarez L opez(a) . . . . . . . . Fernando Abril-Martorell Hern andez Gustavo Mat as Clavero . . . . . . . . . Jose Guillermo Zub a Guinea . . . . . Atalaya de Inversiones, S.R.L. . . . . Norte na Patrimonial, S.L. . . . . . . . Fabio E. L opez Cer on . . . . . . . . . . Jos e Carlos de Alamo Jim enez(b) . . Pascual Fern andez Mart nez . . . . . Javier Echenique Landiribar . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

. . . . . . . . . . . . . . .

Executive Executive Nominee Independent Independent Independent External Independent Independent Nominee Nominee Nominee Independent Nominee Nominee

80 22 22 22 11 22 22 22 22 22 22 11 22 22 344

104 30 30 18 12 79 34 73 30 28 20 8 34 52 552

184 52 52 40 23 101 56 95 52 50 42 19 56 74 896

(a) (a)

Directors who stood down from the Board in 2009. Directors who stood down from the Board in 2009.

Furthermore, over the 2009 year the Parent recognised EUR 3,619 thousand as remunerations earned by the members of the Management Committee for all items, including the duties of the Chief Executive officer for the leasing of services. The Parent has not granted any advances or loans to the directors The Parent has not granted any obligations to its Directors, with regard to their position as such, or as far as pensions or alternative insurance systems are concerned. However, the Chief Executive Officer, in accordance with his service agreement, takes part in certain social benefits, included in the related pension contributions and payments. Pursuant to article 127 ter.4 of the Public Limited Companies Act, implemented by Act 26/2003, of 17 July, amending the Securities Market Act 24/1988, of 28 July, and the Revised Text of the Public Limited Companies Act, in order to strengthen the transparency of public limited companies, at 31 December 2009 the members of the Board of Directors of the Company have not held shareholdings in the capital of companies with the same, similar or complementary type of activity as the business purpose of the Company. Furthermore, no activities have been carried out on independent professionals or as employees in any field of activity with the same, similar or complementary type of activity to that which is the Companys business purpose. The only exception to the foregoing is Jos e Carlos del Alamo Jim enez, who have indirect ownership interests of 0.11% in the company Tecnoma Energ a Sostenible, S.A., in which he is also the Chairman (non-Executive), and where the business purpose partly matches that of the Group. Another exception to the above is Mr. Arregui Ciarsolo and Abril-Martorell Hern andez, who own indirect shareholdings of 90% and 10% respectively in the company Foresta Capital, S.L.; the business purpose of Foresta Capital, S.L. does not match the Companys but it carries out a complementary activity with the sector in which the Company operates. Furthermore, Mr. Arregui Ciarsolo owns

F-231

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

24. Remuneration and other benefits of Directors and SeniorExecutives of the Parent, and other information (Continued) 0.577% of the share capital of Iberdrola, S.A., an entity where he has the position of Deputy Chairman. 25. Transactions with related parties At 31 December 2009 and 2008, the group companies had various credit lines with related parties:
Book Value (Thousands of Euros) Interest Rate

Year

Currency

Expiry

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14,210 15,452

EUROS EUROS

4.43 5.50

2010 2009

In 2009 and 2008, the Group companies performed the following transactions with related parties:
Thousands of euros 2009 2008

Related Party

Transaction

Cajastur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cajastur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26. Exposure to risk

Dividends Interests

695

1,207 484

The Board of Directors and the Senior Management define the policies for the management of the Companys financial risks. The main financial risks which have an impact on the Group and the pertinent policies and controls adopted to mitigate the aforesaid risks are indicated as follows: Market risks Pulp priceChanges in cellulose pulp prices modify the cash flows obtained from their sale. Cellulose pulp is a commodity, and its price is formed by its reference price subject to pressures of supplydemand on the international market. Furthermore, the cellulose pulp price has a marked cyclical nature, and has experienced considerable volatility in recent years. In order to mitigate this risk, the Company continually considers the possibility of using hedging on pulp prices for future sales (see Note 10). As a general rule, 3 years is the maximum hedging period and the amount hedged varies given the scant liquidity existing on the cellulose pulp hedging market. A 5% increase in the international pulp price in euros, would prompt a rise of approximately 3.4% in the Groups revenues. Exchange rateAlthough the majority of the Groups sales are carried out in the European market, revenues arising from pulp sales are affected by the USD/Euro exchange rate given that the benchmark pulp sale price on the international market is in USD per ton. Insofar as the Groups costs structure is mainly in euros, changes in the exchange rate with the dollar have a significant impact on the volatility of the Groups results.

F-232

Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

26. Exposure to risk (Continued) In order to mitigate this risk, the groups policy is to assure the exchange rate of all its sales in foreign currency, and in complementary fashion to the risk management of pulp price, it continuously assesses the possibility of using exchange rate hedging on foreseeable future sales (see Note 10). A 5% increase in the dollar would lead to a rise of approximately 3.4% in the Groups turnover. CreditThe Group does not have any significant credit risk, given that between 75% and 90% of customer collections are guaranteed through the arrangement of credit insurance. The Parents Directors consider that, the coverage of these risks at 31 December 2009 is sufficient. Interest rate riskRisk arising from the exposure to changes in interest rates of the Companys financial assets and liabilities which could have an adverse effect on its income statement and cash flows. The objective of interest rate risk management is to achieve a balance in the debt structure to minimise the cost of debt over a multi-annual horizon with low volatility on the consolidated income statement. Derivative instruments arranged are assigned to a certain financing, adjusting the derivative to the temporary structure and to the amount of the financing. At 31 December 2009, the Group has hedging instruments which cover virtually all the banking debt contracted at a variable interest rate. Liquidity riskExposure to adverse situations on the debt or capitals markets can obstruct or impede the hedging of financial needs required for the adequate development of the Groups activities and its future Business Plan. Management of this risk includes the detailed monitoring of the calendar of expiries of bank borrowings, and the proactive management and maintenance of credit lines and other sources of financing enabling expected cash needs to be covered. At 31 December 2009, the Group had negative working capital of EUR 144,835 (63,238 negative at 31 December 2008), largely derived from the financing, with current liabilities, of non-current assets. This situation is a relevant factor associated with the liquidity risk which the company has managed, inter alia, through the renewal of the credit policies normally with short-term expiry. There are various factors which offset the aforesaid risk. In this regard: The business plan for 2010 and following years includes production capacities much higher than those used in 2009 for both pulp manufacturing and electrical generation, largely due to the important reforms carried out in the Navia mill over that year. The cost cutting program carried out in 2009 will enable the Group to achieve savings in pulp production in the region of 7%-10% in 2010. In the mid term, the international pulp price is expected to improve in keeping with prices already consolidated at the end of 2009. In this regard, the pulp price on the international markets went from $485 in April to $685 in December 2009, the latter already in line with average prices for 2008. Due to this set of factors, expected cash flow generation capacity for 2010 is expected to be around EUR 80-100 million.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

26. Exposure to risk (Continued) What is more, the cash and banks budget prepared by the Management for 2010 indicates that collections arising from operations and other financing sources will suffice to meet payments arising from operations and debt with credit entities expiring in 2010. The Group determines the necessary amount of financial resources with the twofold objective of ensuring that the Group companies are able to maintain their long-term activity and to maximise their profitability through optimising their own and outside resources. Overall, the Groups financial structure consists of the equity attributed to the shareholders of the Parent (consisting of share capital, share premium, accumulated results, and others), bank borrowings, and cash and other liquid assets. The Group regularly reviews this structure, considers the costs and risks associated with each kind of resource (debt or capital) and takes the pertinent decisions to achieve the aforesaid targets. The bank agent of the banking syndicate has stated that the syndicate does not intend to exercise its right to bring about the early cancellation of the loan held by the Parent over the next twelve months (see Note 16). In this context, the Groups capacity to continue its operations in the future is based on maintaining its current levels for the financing of working capital, on complying with the major principles of its business plan and, if necessary, on obtaining additional funds through debt or capital instruments. 27. Environment The Group carries out regular analytical controls of the pollution parameters of the spills it carries out, and performs investments geared towards reducing atmospheric emissions, noise and odours. In its production processes, the Group uses pulp whitening systems which do not require the use of elemental chlorine, thus minimising the risk of organ chlorate wastes being generated. Since April 2009, the Huelva, Navia and Pontevedra industrial complexes have had the mandatory Integrated Environmental Authorisations. Furthermore, the aforesaid industrial complexes have been awarded the Greenhouse Gas Emission Authorisation (CO2), and have been assigned 657,970 annual emission rights for the 2008-2012 period. Emissions corresponding to 2009 did not exceed the amount assigned, so that there is a surfeit of rights. As far as global management of processes and activities is concerned, in its Pontevedra, Navia and Huelva plants the Group has an Integrated Management System which addresses environmental, quality and health and safety questions. The aforesaid system, which complies with the aim of reducing the installations environmental impact, is certified by AENOR in accordance with the UNE-EN ISO 14001:2004 Standard, and is registered in the Eco-Management and Auditing Scheme (EMAS) in accordance with Regulation 761/2001 of the European Union in the Pontevedra and Huelva plants, and certified by Lloyds Register (LRQA) in the Navia mill. Environmental matters are integrated into a single Integrated Management System, which is also certified in accordance with the UNE-EN-ISO 9001:2007 Standard. The Huelva plant has obtained the certification for its Prevention of Occupational Hazards system in accordance with the requirements of the OHSAS 18001 standard of reference. The Pontevedra plant has confirmed the aforesaid certification for a further 3 years, and the Navia mill also maintains its certificate. The reduction of the environmental impact of the Groups installations is centred around investments geared towards reducing water consumption, consolidation of water treatment, and those designed to reduce atmospheric emissions. For the Pontevedra Industrial Complex, 2009 marked the beginning of a project for improving odour reduction, in partnership with the University of Santiago. Some of the proposalssuch as improvements in the gas and condensates exchange systemhave already been implemented. The

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

27. Environment (Continued) Group also made specific investments for improving the cleanliness and availability of the Recovery Boiler, improvement of burners and boilers instrumentation, as well as electro filters or electrostatic precipitators. It has also reduced water consumption by means of the recovery of clean water which is led back into the process, as well as other investments with the aim of preventing contamination. The total amount of the aforesaid investments was approximately 0.68 million euros. In the Huelva Industrial Complex, environmental investments have been carried out during 2009 designed to improve the control of atmospheric emissions and energy efficiency, by reforming the evaporators line (enabling the concentration of biofuel in the recovery boilers to be increased) and completing the reform of the biomass boiler, thus optimising the harnessing of biomass energy and thus reducing the consumption of fossil fuels. Actions have also been taken to reduce water consumption. In 2009, the Group consolidated the operation of the new drying plant for the sludge generated in effluent treatment, and the improvements necessary for the energy recycling of these sludges inside the installations, including the improvements in the biomass boiler, thus allowing a waste generated to be recycled and also reducing environmental effects outside the plant. The total sum of investments carried out in the Huelva mill amounted to 7.6 million Euros, approximately. In 2009, the Navia plant obtained the AAI corresponding to the new installations started up after the project for expanding the plant to 500,000 ADt. The Group continued with the environmental investment plan designed basically for: The optimisation and reduction of water consumption in the plant, through starting up cooling systems, Studying solutions for improving the acoustic impact of the new installations Studying solutions for minimising the impact of odour through capturing odorous gases diluted for their final thermal treatment in the Recovery boiler The Group has also continued to take steps for the incorporation of elements for the automatic control of environmental parameters and in the gradual adaptation of the plants installations for the improvement. The environmental initiatives carried out in Navia amounted to 0.6 million euros, approximately. In September 2009, the Group completed the auditing for the maintenance of the wood Chain of Custody management certification, which covers the phase between the reception of the timber certified in plants and the delivery of certified pulp to clients in accordance with the PEFC standard. After the official auditing carried out by AENOR on the Huelva mill, Pontevedra mill (Central Offices) and Sales, the compliance with all technical and documentary requirements which are demanded by the Programme for Endorsement Forestry Certification (PEFC) system was verified. This certificate is valid until 2013. During 2009, the external CoC auditing report was received from the FSC (Forest Stewardship Council), by the authorised company SGS which performed the audit, and the pertinent certificate for this multi-centre. During 2009, the Groups forest activities continued, including investments in maintaining and expanding forest assets. Environmentally, the conservation and development of forest masses implies improvement in floor conservation, and a global effect on mitigating climate change, due to carbon fixing capacity. The different Group companies which carry out primarily forest activities, with the purpose of protecting the environment, sustainability and efficiency, have obtained, and

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated annual report for the year ended on 31.12.09 (Continued)

27. Environment (Continued) maintain, the certificates demonstrating sustainable forest management, carried out by properly authorised companies, helping to increasing confidence in the consumption of forest products. The companies Silvasur Agroforestal, Norte Forestal, Ibersilva and Eufores have maintained their Management System certification in accordance with the ISO 14001:2004 International Standard. Norte Forestal and Silvasur Agroforestal were the first forest management companies in the Iberian Peninsula to obtain the PEFC (Programme for the Endorsment of Forest Certification Schemes) sustainable forest management certification, and have also been awarded certification for their chain of custody, ensuring the traceability of the timbers origin throughout the process, and guaranteeing it does not derive from sources of conflict. As far as sustainable forest management and the custody chain are concerned, the certifications were maintained in our subsidiaries in Spain in accordance with Sustainable Forest Management and the Chain of Custody following the PEFC scheme for Silvasur Agroforestal and Norte Forestal. Both Las Pl eyades (Uruguay) and Iberflorestal (Portugal) maintained their corresponding certification with regard to management of the Custody Chain in accordance with FSC. In 2009, the new forest subsidiary Sierras Calmas (Uruguay) has obtained the corresponding CC certification.

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Grupo Empresarial ENCE, S.A. and Subsidiaries Consolidated Directors Report for 2009 ECONOMIC BANCKDROP The global economy is experiencing an acute recession caused by a massive financial crisis and a serious loss of confidence, although the slowdown has tapered off starting from the second quarter of 2009. Only a gradual recovery is expected in 2010, with growth of 1.9%. Reactivation will depend on the efforts made to re-establish the health of the financial sector and by continuing to support demand with more expansive monetary and fiscal policies. It is the United States economy which has perhaps most suffered the consequences of the growing financial tensions and the continuous cooling in the real state sector, but western Europe and the advanced Asian economies have been strongly damaged by the collapse in world trade, the worsening of their own financial problems and the corrections in the real estate sector in certain domestic markets. The sharp cooling in global activity has happened at the same time as a rapid fall in inflationary pressures. Raw materials prices fell considerably. The paper and card industries have shown an uneven performance during 2009. The weakness in demand in the first half of the year is in contrast with the moderate recovery seen in the second half. The first half was shaped by the weakness of demand in the most developed economies, markets which account for 60% of pulp consumption, the surplus stock of pulp accumulated, the rapid fall in prices, similar to those seen in previous cycles, the mass entry of new low cost capacities in the southern hemisphere over the last two years and the concomitant loss of competitiveness of western products. During the first half of the year, the succession of extraordinary shutdowns and capacity closures in the older less efficient plants, focused on Northern Europe, in the Scandinavian countries, in Canada and in the United States, have prompted an adjustment in the supply of bleached pulp on the market of close to 10% of installed world capacity. This fall in demand, together with the solid growth in demand in China, is allowing pulp inventories to report a gradual fall, and this fall has been particularly marked in the months of May and June, partly due to the traditional seasonality of the industry in spring. In June, pulp manufacturers stocks have consolidated within the normal supply range. The weakening of the dollar and the greater balance between demand and available supply are favouring slow recovery in pulp prices, whose performance shows a change of trend similar to that seen in other (also cyclical) raw materials. In this context of recovery, pulp prices are experiencing widespread increases in all markets; in Europe, the eucalyptus pulp price has recovered 41% up from the floor reached in April until reaching $685/effective tons in December 2009. BUSINESSES AND EARNINGS PERFORMANCE With regard to the Core Business of Grupo ENCE, the manufacture of eucalyptus pulp, we may highlight the following parameters: the volume of tons of pulp sold in 2009 amounted to 1,061,489 tons, which is 0.5% lower than the sales volume in 2008. Pulp production in 2009 came to 998,010 tons, which is a reduction of 8.4% against the previous year. Turning now to energy activity, the Group produced 1,364,854 Mwh of electricity in 2009, 7% higher than in 2008. And in 2009 electricity sales came to 1,215,689 MWh, which accounted for 89% of production, 16% above the sales carried out in the new period of 2008. As far as forest-timber activity is concerned, in the 2009 year the forest subsidiaries reported total sales of roundwood, chippings and prepared products of 3,005,127 m3 , 16% lower than the figure for 2008.

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The consolidated revenue amounted to 536 million euros, 18.4% down in relation too the 2008 year, due to the adverse evolution of international pulp prices, given that sold tons fell by 0.5% against 2008. Recurrent consolidated operating profit (EBIT) came to 72.5 million euros of losses, compared with 48 million euros of profits in 2008. In 2009, the pulp price hedging program reported a profit of 4 million euros. At the end of the year, the Groups consolidated equity stood at 577 million euros, equivalent to 47% of total assets. Investments by Grupo ENCE in 2009 amounted to 157,867 million euros, with forest investments accounting for 23% of the total. Industrial investment carried out was focused on the 3 pulp production plants, with increased efforts in reforesting and upkeep of forest assets, and the extension thereof in order to ensure timber availability for future industrial development. The industrial investments included the following: in the Pontevedra mill improvements have been made in the environment, improvements designed to obtain marginal increases in productivity, replenishments and improvement in working conditions; in the Huelva mill, the biomass boiler has been reformed, a new vapour turbo-group has been installed, and reforms have been made for increasing the productivity of the installation, optimising the treatment of liquid effluents, replacements and improvements to health and safety; in the Navia mill, production has been increased by 200,000Tn. The Group is also forging ahead with the project to install a biomassfuelled electrical generation plant with a capacity of 50 megawatts in Huelva. At 31 December 2009, total employees stood at 1,654 persons vs. 1,947 at 31 December 2008. In the development of Research, Innovation and Technology activities, the Group has continued to carry out programs geared towards the genetic and sivilcultural improvement of the eucalyptus tree, to the innovation and improvement of pulp processes and products, the mechanical transformation of timber and the engineering of new products, duly specified in the Intangible Assets section of the consolidated annual report. ENVIRONMENT In 2009, Grupo ENCE continued to develop its Management Systems, integrating Quality, Prevention of Occupational Hazards, Environment and Sustainable Forest Management at all company levels and functions. The Group carries out regular analytical controls of the pollution parameters of the spills it carries out, and performs investments geared towards reducing atmospheric emissions, noise and odours. Furthermore, in its production processes, the Group uses pulp whitening systems which do not require the use of element chlorine, thus minimising the risk of organ chlorate wastes being generated. Since April 2009, the Huelva, Navia and Pontevedra industrial complexes have had the mandatory Integrated Environmental Authorisations. Furthermore, the aforesaid industrial complexes have been awarded the Greenhouse Gas Emission Authorisation (CO2), and have been assigned 657,970 annual emission rights for the 2008-2012 period. Emissions corresponding to 2009 did not exceed the amount assigned, so that there is a surfeit of rights. As far as global management of processes and activities is concerned, in its Pontevedra, Navia and Huelva mills the Group has an Integrated Management System which addresses environmental, quality and health and safety questions. The aforesaid system, which complies with the aim of reducing the installations environmental impact, is certified by AENOR in accordance with the UNE-EN ISO 14001:2004 Standard, and is registered in the Eco-Management and Auditing Scheme (EMAS) in accordance with Regulation 761/2001 of the European Union in the Pontevedra and Huelva mills, and certified by Lloyds Register (LRQA) in the Navia mill. Environmental matters are integrated into a single Integrated Management System, which is also certified in accordance with the UNE-EN-ISO 9001:2007 Standard. The Huelva mill has managed to obtain the certification for its Prevention of Occupational Hazards system in accordance with the requirements of the OHSAS 18001 standard of reference.

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The Pontevedra mill has confirmed the aforesaid certification for a further 3 years, and the Navia mill also maintains its certificate. The reduction of the environmental impact of the Groups installations is centred around on investments geared towards reducing water consumption, consolidation of water treatment, and those designed to reduce atmospheric emissions. For the Pontevedra Industrial Complex, 2009 marked the beginning of a project for improving odour reduction, in partnership with the University of Santiago. Some of the proposalssuch as improvements in the gas and condensates exchange systemhave already been carried out. The Group also made specific investments for improving the cleanliness and availability of the Recovery Boiler, improvement of burners and boilers instrumentation, as well as electro filters or electrostatic precipitators. It has also reduced water consumption by means of the recovery of clean waters which are led back into the process, as well as other investments with the aim of preventing contamination. In the Huelva Industrial Complex, environmental investments have been carried out during 2009 designed to improve the control of atmospheric emissions and energy efficiency, by reforming the evaporators line (enabling the concentration of bio-fuel in the recovery boilers to be increased) and completing the reform of the biomass boiler, thus optimising the harnessing of biomass energy and thus reducing the consumption of fossil fuels. Actions have also been taken to reduce water consumption. In 2009, the Group consolidated the operation of the new drying plant for the sludge generated in effluent treatment, and the improvements necessary for the energy recycling of these sludges inside the installations, including the improvements in the biomass boiler, thus allowing a waste generated to be recycled and also reducing environmental effects outside the plant. The Group continued with the environmental investment plan designed basically for: The optimisation and reduction of water consumption in the plant, through starting up cooling systems, Studying solutions for improving the acoustic impact of the new installations Studying solutions for minimising the impact of odour through capturing odorous gases diluted for their final thermal treatment in the Recovery boiler The group has also continued to take steps for the incorporation of elements for the automatic control of environmental parameters and in the gradual adaptation of the plants installations for the improvement. In September 2009, the Group completed the auditing for the maintenance of the wood Chain of Custody management certification, which covers the phase between the reception of the timber certified in plants and the delivery of certified pulp to clients in accordance with the PEFC standard. After the official auditing carried out by AENOR on the Huelva mill, Pontevedra mill (Central Offices) and Sales, the compliance with all technical and documentary requirements which are demanded by the Programme for Endorsement Forestry Certification (PEFC) system was verified. This certificate is valid until 2013. During 2009, the Groups forest activities continued, including investments in maintaining and expanding forest assets. Environmentally, the conservation and development of forest masses implies improvement in floor conservation, and a global effect on mitigating climate change, due to carbon fixing capacity. The different Group companies which carry out primarily forest activities, with the purpose of protecting the environment, sustainability and efficiency, have obtained, and maintain, the certificates demonstrating sustainable forest management, carried out by properly authorised companies, helping to increasing confidence in the consumption of forest products. As far as sustainable forest management and the custody chain are concerned, the certifications were maintained in our subsidiaries in Spain in accordance with Sustainable Forest Management and the Chain of Custody following the PEFC scheme for Silvasur Agroforestal and Norte Forestal.

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Both Las Pl eyades (Uruguay) and Iberflorestal (Portugal) maintained their corresponding certification with regard to management of the Custody Chain in accordance with FSC. In 2009, the new forest subsidiary Sierras Calmas (Uruguay) has obtained the corresponding CoC certification. RISK FACTORS ASSOCIATED WITH THE GROUPS ACTIVITY The risk factors identified affecting Grupo ENCE and its activity are as follows: 1. Cyclical nature of pulp sale activity

In addition to the sale of eucalyptus pulp to third parties, the Groups activity also encompasses energy generation and sale. Pulp sales, which is the Companys traditional activity, accounts for a majority percentage of sales (67% of sales in 2009), making results highly sensitive to variations in pulp prices. Pulp prices are of a cyclical nature. The difference between the peak price and the lowest price of the most recent cycles has become shorter and shorter, with an evident trend towards cycles with less pronounced differences in prices. In order to mitigate this cyclical phenomenon, hedging contracts have been instrumented in respect of pulp prices. At 31 December 2009, the Group did not have any pulp price hedging contract in force. On top of the cyclical nature of the pulp market, the pulp production and sale business developed by the Company is subject to the industrial and commercial risks typical of this sector of activity, and the term of concession of the Pontevedra mill. 2. Foreign currency risk

Revenues arising from pulp sales are affected by the USD/Euro exchange rate given that the benchmark pulp sale price on the international market is in USD per ton. Although most of Grupo ENCE sales are carried out in the European market, the price in euros per ton is a reflection of the aforesaid price in USD/ton. 3. Risks arising from supply and cost of wood

The main production cost in cellulose pulp production and sale activity refers to the acquisition of roundwood from third parties, or market wood, in the areas in which the Companys subsidiaries are established (Iberian Peninsula and Uruguay). The forest subsidiaries have a broad network for obtaining wood from third parties, on top of their own production, enabling quantities of raw materials necessary for pulp manufacture to be assured; the prices used in these purchases are subject to supply and demand laws of the different local markets. 4. Environmental risks

Grupo ENCEs installations are built and all their substantial aspects operate in accordance with the environmental standards applicable in each case. The aforesaid legal requirements are those established by European, national, autonomous and local laws applicable to vectors of environmental impact such as liquid effluents, atmospheric emissions, wastes and noise. Each plant has its system for the control and daily assessment of the environmental parameters for their liquid effluents, atmospheric emissions, noises, waste, etc., established and set out in the different procedures, instructions and standards of their Environmental Management System, which in all three cases is registered in the European Eco-Management and Audit Scheme (EMAS) registry. With this continuous control, environmental risks can be kept to a minimum. 5. Regulated electricity market

Electrical production and sale is subject to the market regulations in terms of the sale price, and the construction and operation of this type of installations (with other standards relating to the acquisition and use of terrains, need to obtain administrative permits, standards regarding the conservation of landscape, environmental protection, congestion of transport and energy distribution networks, etc).

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OPERATIONS WITH TREASURY STOCKS In 2009, the Parent Company has carried out certain operations for the purchase and sale of Treasury stocks. The aforesaid shares are registered at their average price, which amounts to 435 thousand euros, within the Treasury stocks item, taken off Equity. The impact of these operations on reserves, due to the profits or losses obtained, and the associated brokerage fees, amounted to 100 thousand euros. DISCLOSURES RELATING TO ART. 116 OF THE SECURITIES MARKET ACT a. Capital Structure

The Parents share capital, at 31 December 2009, amounts to EUR 157,410,000 and was divided into 174,900,000 fully subscribed and paid shares of EUR 0.9 per value each, represented by book entries all of the same class and series. b. Restrictions on transferability of shares

There are no legal, or statutory restrictions on the transferability of the shares representing the share capital. c. Significant ownership interest
31/12/09 % 31/12/08 %

Shareholders

Retos Operativos XXI, S.L. . . Alcor Holding, S.A. . . . . . . . Atalaya de Inversiones, S.R.L. Bestinver Gesti on, S.A. SGIIC Caja de Ahorros de Asturias . Cant abrica Inversiones(2) . . . . Fidalser, S.L. . . . . . . . . . . . . Bestinver Bolsa,F.I. . . . . . . . .

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22.2 20.4 5.0 5.0 5.0 42.4 100.0

22.2 20.4 5.0 5.0 5.0 5.0 3.0 34.4 100.0

Free float . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1) (2)

The ownership interest hold by Alcor Holding, S.A. includes the 8.4% owned by that company via Imverlin Patrimonio, S.L. The direct ownership interest held by Cant abrica de Inversiones en Cartera, S.L. is indirectly owned by Caja de Ahorros de Asturias.

d.

Restrictions on voting rights There are no restrictions on exercising voting rights.

e.

Side agreements The Company is not aware of the existence of any side agreements.

f.

Rules applicable to the appointment and replacement of members of the Board of Directors and amendment of the Companys By-Laws

1. Appointment and replacement of members of the Board of Directors Appointment of Directors: The directors shall be designated by the shareholders at the Annual General Meeting or by the Board of Directors, in conformity with the provisions laid down in the Spanish Companies Law. Nominations of directors submitted by the Board of Directors for consideration by the Annual General Meeting and the appointment decisions adopted by this body by virtue of its powers of co-optation must be preceded by the corresponding proposal from the Nomination and Remuneration Committee. If the Board does not concur with the recommendations of this Committee, it must explain the reasons for its posture and document these reasons in the minutes.

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With regard to non-executive directors, the Board of Directors and the Nomination and Remuneration Committee shall ensure, within the scope of their respective powers, that persons of renowned solvency, competence and experience are elected as candidates, and shall exercise the utmost care when inviting persons to fill the position of independent director. The Board may not propose or designate as independent directors any persons whose independence may be impaired by their situation or present or past relationship with the Company, and, accordingly, the Board will previously consider the opinion of the Nomination and Remuneration Committee. The proposals for the re-election of directors which the Board of Directors decides to submit to the Annual General Meeting shall be subject to a formal preparation process, which will necessarily include a report issued by the Nomination and Remuneration Committee assessing the quality of work and dedication to office of the proposed directors during the previous mandate. Removal of directors: The directors shall cease to hold office when the term for which they were appointed elapses, or when the Annual General Meeting or Board of Directors so decide, by virtue of the powers conferred upon them. The directors who reach the age of 70 shall complete their mandate, but may not be proposed for re-election by the Board. The Chairman and the Executive Directors who reach the age of 65 shall cease to hold office when their respective mandates expire, unless the Board, by a majority of two-thirds, proposes or approves their re-election as Chairman or Executive Directors, in which case they must be duly ratified in their respective positions on the Board with the indicated majority on an annual basis. The directors must place their office at the disposal of the Board and, if the Board sees fit, tender the related notice of resignation in the following cases: a) b) when they are subject to any applicable incompatibility or prohibition; when they are indicted or an order is issued to initiate a trial against them for any of the offences specified under Article 124 of the Spanish Companies Law, which will be disclosed in the Annual Corporate Governance Report, or if they are penalised in disciplinary proceedings brought against them by the supervisory authorities as a result of serious or very serious misconduct; when they have been seriously reprimanded by the Audit Committee for having infringed any of their obligations as directors; when their continuity on the Board may seriously jeopardise the Companys interests or when the reasons for which they were appointed cease to exist; or when, in the case of proprietary directors, the shareholder they represent or who proposed their appointment transfers its entire shareholding or reduces its shareholding to a level which requires the proportionate reduction of the number of its proprietary directors.

c) d) e)

The Board of Directors shall not propose the removal of any independent director before the expiry of the statutory term of office for which he/she was appointed. However, the Board may propose such removal if, following a report from the Nomination and Remuneration Committee, it considers that there is just cause. In particular, just cause will be deemed to exist when the director (i) has failed to discharge the duties inherent to his/her position: (ii) is in one of the situations described in points a) to e) above; and (iii) is involved in any of the circumstances described in article 8 bis. 3 of the Regulations of the Board of Directors, disqualifying him/her as an independent director. The removal of an independent director may also be proposed as a result of takeover bids, mergers or other similar corporate transactions which involve a change in the Companys capital structure, to the extent that such removal is necessary in order to establish a reasonable equilibrium between proprietary and independent directors based on the ratio of the Companys stable capital to its floating capital.

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2. Amendment of the Bylaws In order to enable the Annual General Meeting or Extraordinary General Meeting to validly resolve to issue bonds, increase or reduce capital, transform, merge, spin-off or dissolve the Company and, in general, to amend the bylaws in any way, it will be necessary, at first call, that the shareholders in attendance (either in person or represented) hold at least fifty per cent of the share capital with voting rights. At second call, the attendance of shareholders representing twenty-five per cent of this capital will suffice. When the shareholders attending the meeting represent less than fifty per cent of the share capital with voting rights, the resolutions referred to in the paragraph above may only be validly adopted with the affirmative vote of two-thirds of the share capital, either present or represented at the Meeting. g. Powers of the members of the Board of Directors and, in particular, those relating to the possibility of issuing or purchasing shares.

Powers of the Chairman Power of attorney granted in Madrid, on 7 March 2007, by way of a resolution of the Board of Directors on 24 January 2007, authorising the Chairman, inter alia, to purchase and sell all manner of corporate assets and shares, provided that such transactions have been approved by the Board of Directors. Powers of the Chief Executive Officer The Chief Executive Officer has been permanently delegated all the powers of the Board relating to the representation of the Company, the conduct of its business and management of its activities, without any restrictions, with the exception of those powers which cannot be delegated by law, per the Bylaws and per the Regulations of the Board of Directors. Delegated power to issue shares: On 25 June 2008 the Annual General Meeting of ENCE resolved to authorise the Board of Directors to increase share capital on one or several occasions and at any moment within a period of five years for a maximum amount of EUR 78,705,000, equal to half of the Companys share capital. Delegated powers to purchase shares: On 25 June 2008, the Annual General Meeting authorised the Board of Directors to acquire, at any time and as often as it may deem appropriate, on behalf of Grupo Empresarial ENCE, S.A. either directly, or through any subsidiaries of which it is the Parent-, treasury shares, either through a purchase agreement or for any other legal consideration. The minimum acquisition price or consideration will be equal to the par value of the treasury shares acquired, and the maximum acquisition price or consideration will be equal to the quoted price of the treasury shares purchased in an official secondary market at the date of acquisition. Such authorisation is granted for a term of 18 months from the date of this Annual General Meeting. Furthermore, it is expressly subject to the limitation that the par value of the treasury shares acquired under this authorisation, in addition to that of the shares already held by Grupo Empresarial ENCE, S.A. and any of its subsidiaries, may at no time exceed 5 percent of the Companys share capital at the acquisition date. h. Significant agreements entered into by the Company which will come into force, be modified or terminate in the event of a change in control of the Company resulting from a takeover bid, and their effects, except when dissemination thereof may be seriously detrimental to the Company. This exception shall not apply when the Company is required by law to publish this information.

The Company has not entered into any agreements for an event of a change in the control of the Company resulting from a takeover bid.

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The agreements between the Company and its directors and executives or employees who are entitled to termination benefits when they resign or are dismissed without justification or if the employment relationship ends as a result of a takeover bid.

Chief Executive Officer In accordance with the terms of his contract, the Chief Executive Officer shall be entitled to receive a termination benefit in the event of removal resolved by the Board of Directors, and in the case of resignation under certain circumstances (including significant change in the ownership structure of the Company). The amount of this termination benefit shall be equal to one years fixed remuneration plus the variable remuneration received in the prior year, or two years fixed remuneration, as the case may be. The Chief Executive Officer shall not be entitled to any termination benefits in the event of termination resulting from any breach or of the law of the bylaws, or from serious and culpable breach of his contractual obligations. General Manager in Uruguay In the discharge of his duties, the General Manager in Uruguay may unilaterally terminate the employment relationship in the event of a substantial change in his working conditions or any other serious breach by the employer, in accordance with Art. 50 of the Workers Statute. In such cases, he shall be entitled to a termination benefit equal to 45 days salary per year of service. General Industrial Operations Manager In the event of unilateral termination of his contract by the Company, the General Industrial Operations Manager shall be entitled to receive a net amount equal to two years gross remuneration by way of termination benefit. The above shall not apply in cases of dismissal with just cause duly declared in a final judgment, arbitration ruling or administrative resolution. The General Industrial Operations Manager shall not be entitled to any termination benefits in such cases. Vice-Chairman for Institutional Relations with South America In the case of unilateral termination of his contract by the Company, the Vice-Chairman for Institutional Relations with South America shall be entitled to receive an amount equal to 45 days salary per year of service by way of termination benefit. Under certain circumstances, this termination benefit may, at the discretion of the said Vice-Chairman, consist of a percentage of his fixed remuneration for a maximum period of two years. The above shall not apply in cases of dismissal with just cause duly declared in a final judgment, arbitration ruling or administrative resolution. The Vice-Chairman shall not be entitled to any termination benefits in such cases. Rights regulated in the Variable Remuneration Plan In accordance with section 8.2 of the Grupo Empresarial ENCE, S.A.s Special Variable Compensation Plan 2007-2011 approved by the Board of Directors at its meetings of 21 and 27 February 2007 and by the General Meeting of the Shareholders held on 30 March 2007, beneficiaries may request settlement of the variable remuneration in advance in the case of a change in control of the Company at any time during the term of the Plan. It shall be understood that a change of control has occurred when an investor directly or indirectly acquires a percentage exceeding 50% of the voting rights in the Company, and as a consequence a public takeover bid is launched for all of the shares of the Company. In such case, executives shall be entitled to seek settlement in advance within a period of three months as from the moment the investor has notified the Company of the acquisition of the ownership interest determining the change of control. The final value of each share for the purposes of calculating the remuneration established under the Plan shall be equal to the share price paid by the investor to acquire the ownership interest resulting in the change of control. IMPORTANT EVENTS OCCURRING AFTER YEAR END No significant events worthy of note have occurred after year end.

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CORPORATE GOVERNANCE Together with this Directors Report, Grupo ENCE has included Annexe I, which consists of all the documentation relating to the Annual Corporate Governance Report, consolidated in accordance with the Transparency Act, ORDER ECO/3722/2003 of 26 December on the Annual Corporate Governance Report and other information instruments of listed public limited companies and other entities. OUTLOOK The adjustment of prices seen in the second half of 2009 is expected to be gradually consolidated insofar as confidence and consumption levels recover following the macroeconomic measures taken by governments. Fiscal grants in the US industry and the entry of new production capacities in the southern hemisphere and the Iberian peninsula will logically have an impact on the industry, and can thus slow down this process in the sector. The announcements of further increases in Long Fibre prices of above $US700/t promise a certain degree of stability in the recovery initiated in the sector, whose sustainability will be conditioned to the evolution of demand in China during the second half of the year and the expected reactivation of the economy in the US and in Europe.

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The financial statements and the consolidated Directors Report for the year ended 31 December 2009 of Grupo Empresarial ENCE and subsidiaries, prepared in accordance with IFRS adopted by the European Union, have been drawn up by the Directors of the Parent Company on 25 February 2010 and are identified by having the financial statements presented on 66 sheets of ordinary paper (the financial statements numbered 1 to 5, and the explanatory consolidated report from 1 to 61), the Directors Report on 9 sheets (numbered from 1 to 9), and, additionally, as an annexe to the Directors Report, the annual corporate government report, presented on 71 pages numbered from 1 to 71. All the aforementioned sheets have been signed by the Secretary of the Board of Directors, and this last page bears the signature of all the Board Directors, who are as follows:

Juan Luis Arregui Ciarsolo

Antonio Palacios Esteban

Javier Echenique Landiribar

Jos e Carlos de Alamo Jim enez

Jose Guillermo Zubia Guinea

Gustavo Mat as Clavero

Pascual Fern andez Mart nez

Pedro Barato Triguero

Jos e Manuel Serra Peris

ATALAYA DE INVERSIONES, S.R.L. represented by Gonzalo Suarez Mart n

RETOS OPERATIVOS XXI, S.A., represented by Javier Arregui Abendivar

PATRIMONIAL, S.L., represented by NORTENA Jes us Ruano Mochales

Fabio E. L opez Cer on

Fernando Abril-Martorell Hern andez

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PRINCIPAL OFFICE OF THE ISSUER ENCE Energ a y Celulosa, S.A. Paseo de la Castellana, 35 28046 Madrid Spain

LEGAL ADVISORS TO THE ISSUER As to U.S. law Shearman & Sterling (London) LLP Broadgate West 9 Appold Street London EC2A 2AP United Kingdom As to Spanish law Ur a Men endez Abogados, S.L.P . Princ pe de Vergara, 187 Plaza de Rodrigo Ur a 28002 Madrid Spain

LEGAL ADVISORS TO THE INITIAL PURCHASERS As to U.S. law Simpson Thacher & Bartlett LLP CityPoint One Ropemaker Street London EC2Y 9HU United Kingdom As to Spanish law Clifford Chance, S.L. Paseo de la Castellana 110 28046 Madrid Spain

INDEPENDENT AUDITORS PricewaterhouseCoopers Auditores, S.L. Torre PwC Paseo de la Castellana, 259-B 28046 Madrid Spain

TRUSTEE Deutsche Trustee Company Limited Winchester House, 1 Great Winchester Street London EC2N 2DB United Kingdom

SECURITY AGENT AND PAYING AGENT Deutsche Bank AG, London Branch Winchester House, 1 Great Winchester Street London EC2N 2DN United Kingdom

REGISTRAR, TRANSFER AGENT AND LUXEMBOURG LISTING AGENT Deutsche Bank Luxembourg S.A. 2 Boulevard Konrad Adenauer L-1115 Luxembourg Luxembourg

OFFERING MEMORANDUM

g250,000,000

% Senior Secured Notes due 2020

18JAN201316360506

ENCE Energ a y Celulosa, S.A.

Joint Bookrunners

Deutsche Bank BBVA Banesto Bankia Barclays Citigroup

Co-Managers

Bankinter

Banco Sabadell

, 2013