Good afternoon. We welcome you to The Navigator Company Q3 results presentation. During the presentation, all participants will be on a listen only mode. There will be an opportunity to ask questions after the presentation. If you wish to ask the question during the Q&A session, you may do so by pressing the star followed by five on your telephone keypad. I now hand the conference over to Ana Faria. Please go ahead.
Ladies and gentlemen, welcome to The Navigator Company's conference call and webcast for the third quarter and nine months results 2023. Joining us today are the following members of the board: António Redondo, Fernando Araújo, António Quirino, Dorival Almeida, João Lé, and Nuno Santos. As usual, we will start with a brief presentation and we will have Q&A session at the end. The presentation can be accessed through the links available on the website, and questions may be addressed also through the web, webcast platform. António will start with a comment on the main highlights of the quarter. I will now hand over to António.
Thank you, Ana. Good afternoon, and thank you for joining us today. I am very happy to be here and share with you our third quarter and first nine months results. Over the course of the first half of this year, the stocking of paper and packaging along the distribution chain was slower than expected. As a result, the order inflow in these segments stood at historically low levels. In the third quarter, and especially in the second half of the third quarter, as we have anticipated in a previous call, the market is showing signs that the de-stocking throughout the supply chain is now gradually phasing out with normalized inventories. However, there is some outlook and predictability due to the current geopolitical environment and global economic slowdown.
In this context, rigorous cash cost control measures, namely by increased efficiency in specific consumption of key cost inputs, as well as by renegotiating their acquisition prices, combined with production planning management, have been crucial in delivering Q3 operational results. We remain committed to our plans for investment and innovation in all segments where we operate, and continue to explore growth opportunities with differentiation in tissue, packaging, and energy. The resilience of Navigator's business model and our strong financial position enable us to present consistent results, even under very adverse market conditions. I will start with slide number 4 for a global overview of the quarter. As mentioned in my introductory comments, in this last quarter, demand started to gradually recover in line with the de-stocking phasing out.
Tissue segment continues to perform well, with growing sales driven by the integration of Tissue Ejea, that is delivering better than expected synergies and as well, significant market price resilience. The cash cost evolution we previously committed to continued its downward trend. In fact, the evolution of cash costs was quite significant, with a sharp drop in cost in all segments between 20% and 28% in the pulp and paper segments, and close to 17% in tissue when compared with last quarter of 2022. EBITDA increased by 1% to EUR 124 million, with an EBITDA margin of 25.7%, at 1 percentage points on the previous quarter.
To highlight also is the strong CapEx over the first nine months, more than EUR 140 million, of which 61% ESG related, aiming at both decarbonization targets and efficiency gains. Strong financial position with a net debt EBITDA ratio still below one, and in spite of the first nine months outflows, namely with the acquisition of Tissue, the payment of EUR 20 million, the tax outflows owing to the 2022 results, and the strong CapEx. Summing up strong results in a quite difficult context. If you now are so kind to turn to slide number 5, with third quarter financial results. Navigator recorded an increase of turnover to EUR 481 million. Positive cash flow of EUR 22 million, impacted mainly by strong CapEx investment and the tax outflows based on the 2022 results I just mentioned.
Net debt stands at EUR 550 million, reflecting, as expressed before, the Tissue acquisition in first quarter, the EUR 200 million distribution in dividends in May, the strong CapEx of EUR 140 million, EUR 150 million, and the tax outflows. If we turn to slide 6, we have an overview of the quarter evolution. This quarter, we recorded an increase of paper volumes at 6% on Q2, on the back of the first signs in demand improvement, aligned with the stabilization in the de-stocking movement. The decrease in paper volumes from 2022 levels is partially compensated by higher pulp volumes that were up 25% on Q2 and up 191% on Q3 2022.
As mentioned in previous quarters, the decreased integration to paper and packaging in 2023 resulted in more pulp being available for sale, which was quickly absorbed, thanks to its reputation and distinctive properties, highly valued by the market. Regarding tissue volumes, they have increased by 11% on Q2, and that's 54% on Q2- on Q3, 2022, driven by the new capacity added by Navigator Ejea. My colleagues will give more detail on the different business performance. Fernando will start with the analysis of the EBITDA evolution, and Fernando Defoi, it's yours.
Thank you, Antonio. Turning to slide 7, we can take a closer look at the main impacts on EBITDA year-on-year comparison. Despite the downward trend in the pulp and in coated woodfree market price, and coated woodfree has been significantly more resilient than pulp, and tissue continues above 2022, up 12%. The cash costs are also comparing well with those recorded in the same period last year, with an average reduction of 4% in both pulp and paper segments, and close to 2.5% in the tissue segment. Total fixed costs grew by approximately 1% year-on-year, due in part to lower personnel costs and modest rise in running and maintenance costs, which increased well below inflation over the last two years.
In this context, Navigator achieved EBITDA of EUR 377 million in the first nine months, and an EBITDA margin of 25.7%, down 4.5 percentage points year-on-year. Turning to slide 8, with the EBITDA quarter-on-quarter analysis. On a quarter-on-quarter basis, the downward trend on market price was offset by the increased volumes and the significant reduction of cash costs in all segments. As Antonio mentioned, we recorded a sharp drop in cash costs, again, in all segments, with managed cash costs in both pulp and paper segments declining 6%-12%, and tissue reducing 9%. This quarter, we also increased sales volumes across all segments due to an increase in the ordering flow, with the de-stocking gradually phasing out. Turning to slide 9, we have an EBITDA analysis versus last year.
Comparing quarter three with the same quarter last year, downward trend on market price is evident, particularly in pulp, with a 49% drop in average price. But it's also evident a significant cash cost positive evolution, with a sharp drop in costs in all segments, a decrease between 16% and 18% in the pulp and paper segments, and close to 13% in tissue. Nuno Santos will now comment on pulp evolution. Nuno, please.
Thank you, Fernando. Thank you, Fernando. On slide 11, we have pulp and paper prices evolution. The benchmark index for short fiber hardwood in Europe, PIX BHKP in dollars, rose to record levels in 2022, $1,380, and started to adjust downwards in the first quarter of 2023, falling more sharply in the second and third quarter, reaching in August the lowest $800. That represents a drop of 42% from the peak of $1,380, recorded in January this year. By the end of September, it recovered back to $820. The benchmark index in China for hardwood pulp fell to their lowest levels in May, $475 per ton, down by 45% from the level of $866 per ton, recorded in September last year.
This quarter, it rose 9% in relation to the end of June, standing at $553 per ton at the end of September. The benchmark index for office paper in Europe stood at EUR 1,127 per ton at the end of September, versus EUR 1,204 per ton at the end of June. Despite the downward trend over the first nine months of 2023, the benchmark price index for paper has proved resilient, with the average price in the first nine months of 2023 still 6% higher than in the same period of 2022. Also significantly, the reduction in the index since the start of the year has been 16%, while the pulp index has dropped by more than 40%.
To be noted that since the beginning of 2023 until June, paper prices dropped 10%. In the third quarter, prices started to drop at a slower pace, dropping 6% from the end of quarter. On slide 12, we have an update on the pulp market. As I've just mentioned, the first nine months of 2023 witnessed a significant price reduction in pulp, down from the all-time highs of 2022.
This was driven by the downturn in global demand, in particular in Europe, the rising stocks along the supply chain in late 2022 and early 2023, the easing of the logistical constraints experienced during 2022, and finally, the new capacity in Latin America for short fiber... MAPA in Chile, that added 1.3 million tons, which started up in December 2022, and Paso de los Toros in Uruguay, which added 2.1 million ton and started up in April this year. In the third quarter of 2023, global demand for eucalyptus pulp performed better than in the first half of the year, up 11% this quarter. China has been the main driver with restocking after prices fell to their lowest level in May, making demand increase by 20%.
The strong performance of the Chinese market more than compensated for the reduced demand in Europe, 19% lower than the same period in 2022. This fairly positive movement in the pulp market was due to the effect of restocking in China, but also to an apparently strong upturn in printing, packaging, paper and tissue production in China. August was the second best month in the past three years in terms of output of paper and tissue from virgin fiber. The upswing explains the increase in price for November in China, which reached $630 per ton, up 33% from May, and in Europe, which reached $980 per ton in November, announced by Suzano. PIX BHKP on the 24th of October was at $847.
Pulp stocks in Europe, in European ports increased, reaching 1.8 million tons in May, starting to decrease in July, reaching on September 1.4 million tons, already below the average of the last five years, which is 1.5 million tons. While in China, the pulp stocks are in line with the last five years average, 1.8 million tons. Antonio Quirino will now give some market context on paper.
Thank you very much, Nuno. If we move to slide 13, we have summarized the main developments in uncoated woodfree markets. In a global context of sharply falling printing and writing apparent demand, which was down 11%, uncoated woodfree papers remains the most resilient papers, with a reduction of 6% year-on-year, compared to a reduction of 18% in coated woodfree papers and a reduction of 21% in the chemical. Specifically in Europe, apparent demand for uncoated woodfree papers fell by 21% in the first nine months. In the U.S., apparent demand fell 13%, and in other regions of the world, decreased by 2% year-on-year. While in China, posted a growth of 3% year-on-year, slightly down from the 4% annual growth in recent years.
As Antonio mentioned, 2023 is marked by a slower than expected restocking process, essentially due to the economic slowdown. But in late third quarter, we recorded an improvement in line with the decrease in inventories, as already anticipated in our last call for the Q2 results. If we now turn to slide 14, we have a few remarks on our group's paper performance. Despite challenging market conditions, Navigator was able to maintain its high market share in Europe. Navigator succeeded to maintaining the focus on new brands and new and premium segments. Specifically, our new brands accounted for nearly 80% of our sales since the start of the year. That compares with an average of 65% in the period of 2012 to 2021.
Our premium products also continue to represent a large share of our business, with 58% share, compared to historical average, 53%, in the same 10-year period referred above. The operating rates in the industry have fallen sharply during 2023. Navigator also adjusted pace of production, although it maintained an average operate rate this year at 75%, which compares with an average of our competitors of 66%. As already mentioned by Nuno, the paper industry, namely, mainly by holding prices and working on cash costs, also endured better in this cycle, managing to protect margins. I return the word to Nuno to comment on the tissue business.
Thank you, Quirino. Looking into tissue performance on slide 15. As António mentioned, the tissue segment continues to perform well, driven by the integration of Tissue Ejea, with better than expected synergies and significant price resilience. The growth of finished products was achieved above all in the at-home channel, thanks to new clients and a stronger position in the pre-existing client base, and through increased sales, mostly to France and Spain. The volume of tissue increased 32% year-on-year, and driven by the price level and improved mix, sales presented growth of approximately 51% year-on-year. This increase was driven by the integration of the new tissue mill, Navigator Tissue Ejea, in the second quarter, starting April first, bringing the company a diversified client base and platform for growing sales.
The focus on innovation and product differentiation, especially through the exclusive use of these innovations in our mill brands, continues to enable Navigator to extend its position with customers. In the first nine months, our mill brands accounted for 24% of the total value of sales of finished products, resulting from growth of 26% year-on-year in the sales volume. It should be noted that this ratio now includes tissue and paper sales, which had historically a very low percentage of mill brands. António Quirino will now give some color on packaging.
Thank you, Nuno. Then moving to slide 16, we have an update on our packaging. Packaging segment saw a sharp downturn in demand during this year, as mentioned in the last quarter, in the context of a wider economic slowdown, high inflation, and destocking, justifying this trend. In addition, consumption of retail packaging in bags has been hit by new ways of taxing packaging across the board, failing to take into account the sustainability of products and applying the same rules, natural, renewable, biodegradable, possible types of products, as to other packaging products obtained from fossil and/or other finite resources. Even though retail bags and flexible packets posted so far this year, apparent demand declines overall, 30%-40%, there have been encouraging signs of some recovery in recent months, and the packaging segment continues to hold promise for Navigator's future development.
Therefore, Navigator remains committed to packaged papers, essentially in the paper bags, retail, flexible packaging, and food and beverage packaging markets, where its innovative introduction of quality offered by eucalyptus fibers has proved very successful for these ends. As well as other projects in progress to expand its market offering, Navigator has been working since early 2023 on developing new product ranges, aimed not only at the food industry, but also aimed at other industries and a variety of consumer products. These are currently being trialed and launched on the market, and will soon open the door to other segments with potential for high added value. The project for integrated production of eucalyptus bag, molded pulp products, designed to substitute single-use plastic packaging in the food service and food packaging market, continues to progress as planned.
The project is now 75% executed, and production is planned to start up by the end of first half of 2024. Dorival will now comment on the CapEx. Dorival, please.
Thank you, Quirino. Let's go to slide 17. In the first nine months, CapEx reached EUR 142 million, and among the investment projects, we highlight the new recovery boiler in Setúbal, the new GR in Figueira, the wastewater treatment plant re-expand in Setúbal, the new molded pulp production unit in Aveiro, fiber line adjustments for the production of high-tech pulp for packaging, and the treatment of fly ash from the Aveiro recovery boiler. As already mentioned last quarter, we are starting an ambitious investment cycle over the next three years in order to anticipate our decarbonization targets, improve the environmental performance of our sites, and implement our strategy for developing a packaging business, taking advantage of the European Union's Next Generation EU funds that is mandatory to be completed by the end of 2025.
João Lé will give further detail on our achievements in our roadmap for carbon neutrality. To give more color on our investments on decarbonization, they are the result of obtaining more than EUR 67 million incentives from the next generation funds, with the approval of five environmental projects at Navigator, representing total investment of EUR 158 million. This will be spread over 14 initiatives at the Figueira da Foz Mill, Setúbal, and Aveiro over the next two years. One large project is the new high efficiency recovery boiler in Setúbal, with investment in incineration of non-condensable gas, but also the investment in converting lime kilns to biomass at the Setúbal, Figueira da Foz, and Aveiro sites, and a new high efficiency biomass cogeneration plant in Aveiro and Figueira da Foz.
Equally significant is the project to replace fuel oil with hydrogen and natural gas in all three recovery boilers and Setúbal biomass boiler. The fuel oil currently used has environmentally significant emissions, meaning that this is an important step towards reducing our environmental footprint. To be noted as well, that the solutions adopted for more efficient use of energy reserves between 2018 and 2022, with a total CapEx of circa EUR 8 million, have yielded an annual in energy costs in order of EUR 6 million. The changes have been made in different areas of its four industrial complexes, in particular, to improve efficiency in production of compressed air, optimization of cooling systems, LED lighting, industrial buildings and thermal efficiency.
This is an important breakthrough in the company's sustainability policy as well, that has resulted in energy savings in the order of 100 GWh per year, avoiding the emission of approximately 23,000 tons of CO2. To conclude, these investments embrace our sustainability commitment, but also our innovation efforts to improve efficiency and deliver better results. João Lé will give some color on this impact in our sustainability.
Thank you, Dorival. Let's go to slide 18, please. Dorival just mentioned the strong CapEx delivered this first nine months, of which EUR 86 million, which represents 61% of total CapEx, are dedicated to ESG investments. One of our ambitious goals is accelerating towards decarbonization. In fact, Navigator has brought forward by three years its interim target for direct emissions, and expects to achieve by the end of 2026, the goals initially set for 2029 in its roadmap for carbon neutrality. This means that by 2026, the company aims to achieve a level representing less than half of the emissions recorded in 2018. The optimization of production processes resulting from implementation of energy efficiency measures, has also made it possible to optimize energy consumption from primary sources per ton of output.
By signing up to the Science-Based Targets initiative, SBTi, Navigator has strengthened its commitment to reducing CO2 direct emissions, now encompassing the company's scope 3, 2 and 3 emissions inventory. Regarding scope 2, gradual elimination of consumption of fossil-based energy and investment in alternative and renewable energy sources are planned, such as photovoltaic solar. If we turn to slide 19, we can see the energy generation through renewable energy sources constitutes one of the company's strategic axes. And this, this is shown through a relevant investment in solar plants in a self-consumption regime. The current solar energy capacity reaches 12 MW. Turning to slide 20, please. This quarter, we started the building work of the new solar power facilities for the group's self-consumption at the industrial sites in Figueira da Foz, Aveiro and Vila Nova de Gaia.
This will triple the solar capacity installed on our sites from 12 MW at present to close 38 MW. As part of its 2030 agenda, the responsible business strategy designed by Navigator to address the challenges of the decade and increase its creation of sustainable value, the company has committed itself to promoting efficient use of resources, minimizing our ecological footprint. We are a bio industry in the right side of future. Fernando will now comment on our financial position.
Thank you, João. Let's go to slide 21 with the overview of free cash flow generation. Free cash flow generation in the first half stood at approximately EUR 33 million, reflecting the impact of tissue acquisition in the first quarter. The amount of CapEx expressed before and the amount in corporate tax payments versus 2022, reflecting the exceptional level of profits in the previous year. The level of investment in working capital was again contained, and at the end of quarter, the value of inventories, which had been rising, began to fall, confirming by a reduction in the balance of accounts receivable. On slide 22, we have the net debt evolution.
Net debt stands at EUR 550 million, reflecting that was already mentioned regarding the tissue acquisition in the first quarter and the tax payments, as well as the distribution of EUR 200 million in dividends in the second quarter. As a result, the ratio of net debt to EBITDA stood at 0.98 times, confirming our financial strength. On slide 23, the debt maturity profile. Group's debt profile continues conservative. Navigator has well-balanced debt maturities, with 94% of the total debt issued on a fixed rate basis, allowing the average cost of debt to remain low... Also worth notice that the company has a solid balance sheet of more than EUR 250 million of liquidity, both as long-term and use credit lines and cash on hand. I will now return the floor to António.
Thank you, Fernando. Let's please turn to slide 24 with a wrap-up. As you can see, we recorded again solid quarterly results despite the very challenging market conditions. In this quarter, we registered the gradual recovery in demands in line with the stocking phasing out, as we have previously anticipated, as well as a significant drop on cash costs once again. The company reinforced cost control measures, namely by optimizing production levels, reducing the specific consumption of main raw materials, by further renegotiating prices of key inputs with supplying partners, and by tight management of our fixed cost base, while continuing to proceed with our diversification plan. Navigator Tissue integration has been so far successful, with growing sales and better than expected synergy results. We kept innovating in packaging with ongoing development projects on new types of paper applications and proceeding as planned with molded pulp projects.
As we continue to demonstrate the consistency of our conservative financial policies while keeping our sustainability and investment commitments. Finally, a few words on the outlook on slide 26. The increasingly unstable geopolitical situation and the noticeable global economic slowdown make market outlook particularly uncertain. That said, in the fourth quarter and at least into Q1 2024, pulp business is expected to continue to recover gradually, as already observed, particularly during the third quarter. Although, under this uncertainty is not known in what extent this recovery cycle is sustained through all 2024, namely due to the difficulty in forecasting variables such as energy prices, inflation, the pace of economic recovery, and central bank monetary policy. Also, due to the difficulty to understand how the past volatility in the Chinese market will evolve, and this has been the main driver of pulp consumption, which also brings increasing uncertainty.
Although it seems reduced, the duration of the recent order improvements for printing and writing papers across the world is difficult to anticipate. Under this overall market framework, the new capacity entry of 2.6 million tons by middle next year will have an unknown impact. Having said that, we remain cautiously positive for the medium term due to the availability of pulp woods, that will likely limit the number of new projects for at least three-four years after the startup in Brazil next summer. The continued increase on the consumer class at a range of 120-140 million new consumers per year until 2030, particularly in Asia, will increase the demand on cellulose-based products. The absolute need to fight against single-use plastic that will also support cellulose-based products.
The decrease in paper consumption in the Western world will also reduce the amount of and quality of paper waste available that may lead to increased demand for virgin fiber in packaging and other grades that traditionally use recycled fibers. Altogether, this will likely support high operating rates, high operating rates for the industry beyond 2024. In the short term, in the paper segment, order books are expected to improve in the fourth quarter and at least in the first quarter of 2024. In line with the trend we have observed as from late August, early September, in addition to growing orders, delivery times from mills to distributors have also increased, standing at 2021 levels.
Although the economic slowdown in Europe, paper prices could benefit from a more balanced market structure, with improvement in demand and reduction of supply, that, combined with the strong pressure on costs, will likely result in a reversal of the fall of paper prices in Europe and even in international markets. In fact, temporary and definitive reductions in capacity have been announced in the paper sector in Europe. In 2023 and 2024, Europe has and will lose almost 600,000 tons of uncoated woodfree production capacity. Some manufacturers have announced the permanent closures of operations, while others have announced the conversion of capacity to some packaging grade.
To highlight that, Navigator just announced a price increase for all uncoated woodfree papers by 5%-7% in Europe from the first of December onwards, following a previous announcement already implemented of $30-$50 in the Middle East and North Africa region. These price adjustments are necessary due to the structurally higher price of most input costs, essential for paper manufacturing, that makes current price levels unsustainable. Additionally, and more recently, pulp and energy have experienced significant increases. The recovery in demand visible in the global markets also contribute to this price adjustment. In contrast, China has recorded a net increase of 3 million tons in 2023, and a further 2.8 million tons of net new capacity is expected to come online in the next few years, although 2 million tons of this are still uncertain.
This movement could be positive for the pulp market, but it will nonetheless put pressure on the paper markets, not so much in Europe, but also, but mainly in overseas regions. In the tissue segment, demand is forecasted to present interesting rates of growth. The group continues to leverage synergies driven by business growth, in particular, the acquisition of Navigator Tissue Ejea. However, there is growing pressure on margins as a result of recent significant spikes in pulp and energy prices that I just alluded to, the main costs in the tissue segment. There is also production planning management. The assertive sales strategies, sales strategies focused on diversifying products and geographies, combined with the rigorous programs to control costs and achieve efficiency in specific consumption levels, as well as the company's strong financial position, have enabled us to deliver consistent, strong, and stable results in the changing market context.
We are confident that all these factors will continue to point to the resilience of Navigator's business model. Thank you.
Thank you, Antonio. This ends our presentation. We are now open for the Q&A session.
Thank you. Ladies and gentlemen, we will now begin the Q&A session. If you'd like to ask the question, please press star five on your telephone keypad. If you change your mind, please press star five again. Please ensure that your devices are muted locally before proceeding with your question. Our first question comes from the line of Enrique Parrondo from JB Capital. Please go ahead.
Hi, good afternoon. Thank you for the presentation and for taking my questions. So I have two, if I may. Although the first two are mainly related to this morning's announcement on price increases. So the first one on this announcement, I was wondering if you could comment on your view for midterm and long-term prices. Should we think that EUR 1,000 per ton as the new normal, and what are the drivers behind this? Second one, and a second that related to the first one. You mentioned on the... or at least news related to this article mentioned that this increasing prices was partially driven by rising costs of paper production. Yet peers of yours are commenting decreases in variable costs and consequently wood in Iberia.
So I was wondering if you could comment your view on this driver behind the price increase. And finally, on volumes, you commented you have seen an increase in demand and an uptick in order goods. Maybe could you guide us for the outlook, in the fourth quarter of the year in terms of volumes by division? Thank you very much.
Thank you, Enrique, for your questions. For the sake of clarity, I will try to rephrase them and repeat them just to make sure that we fully understood them. Your first question refers to prices and to our price increase, and you'd like to understand if we can share a view, where is the new normal, that if I understand correctly, you believe to be at around EUR 1,000?
Yeah, that's correct.
Your second question is about the cost, which has been one of the reasons why we have announced this price increase, and specifically, how we see wood prices in Iberia evolving.
Yeah, that's correct.
The third question is about what we have recently witnessed as ordering flow increase, and how do we expect this to follow in the near future?
Correct. Thank you very much.
Okay. I'm going to give a first elements of to answer to question number one and number, and number two and number three. Then number one and number three, António Quirino Soares will further develop. And sorry, number one and number two, and number three, sorry, I will say right. Number one and number three, and number two, João Lé will comment. So starting on number one and then moving to number three, prices. I think it's extremely difficult to forecast what is a new normal.
I think what we can say with a certain degree of certainty is there is a new normal, and the prices that we have witnessed, pre-pandemic levels, will be very difficult to reach again, just because the cost base of the industry, I'm not referring to ours, the cost base of the industry has significantly increased in all costs that you can think about. The cost of raw materials, chemicals, energy, I will come and include later on. The cost of logistics that although being reduced, vis-a-vis the peak in the late 2021 and through all year of 2022, the cost of logistics, particularly in Europe, is higher than the pre-pandemic levels.
So overall, the cost, the cost base of the industry is higher than it was before, so we cannot expect prices to converge for what were the pre-pandemic prices. The level itself, I don't know. I'm pretty sure that your figure is more educated than mine. Vis-à-vis, and go to three volumes, and we have witnessed a significant increase in the last probably eight, 10, 12 weeks.
We see a significant demand in the coming weeks still, and typically, Q1 is a very strong quarter in Europe. So we would expect that at least until the end of Q1, hopefully more than that, but at least until the end of Q1, we will see a rebound of volumes that is becoming, I'll say, not far from normal, if we take into consideration orders coming from Europe and outside Europe. I will stop here just to see if Quirino wants to add something else.
Just to add that, I agree, we cannot really try to have an estimation of what is the new trend price for paper. So in Europe, we're just announcing 5%-7% increase from December. I recall that, it was mentioned by Nuno, currently, the index in Europe is at 1,000 USD, so $100 per ton in Europe on copy paper. So we see this as structurally non-sustainable, and today we face energy and pulp price increases, so that this leads really to readjust to make business more sustainable to the future.
And on volumes, I would just add that if you look at the last 8 weeks or the last two months, we are getting, we and the industry, so the sector, in Europe, we are getting basically the same volumes as we had during an average of 16-21 in the same period of time. So we don't know how sustainable this is going to be forward. But of course, as António mentioned, typically Q1 is a strong seasonal period, so we expect this good momentum to last at least until the end of Q1.
Thank you, Quirino. Regarding the, the, your question about the last cost and particularly cost of wood, we saw already a slight decrease of wood costs in Iberia. Unfortunately, didn't follow the same path, the same pattern of our total cash cost reduction. We mentioned that we had cash cost reductions above 20% for pulp and paper, close, but below 20% for tissue. All other costs have decreased significantly. Costs of wood started to decrease, but not by no means at the same, at the same level that we saw the decrease of other costs. I remember that the cost of wood in Portugal, I already shared previously, the cost of wood in Portugal, between 2016 and early 2023, increased over 40%.
So they have now adjusted, a bit, but, by no means a significant adjustment. And, it remains to be seen, but I wouldn't expect cost of wood to adjust at the same level that the other costs have been adjusting so far. João?
Yes, sir. In line with what Antonio said, we've assisted some price adjusted adjustments in Portugal, but mainly we are talking about top-ups and not the base price at the pulp mills. But now what we see is some kind of stabilization of wood prices in Portugal. In Galicia, we assisted the downward trends in terms of prices. I believe we are also going to see some stabilization of those prices in the following months. So no, we are not expecting further decreases in terms of total costs of wood, as Antonio mentioned previously.
You know, just, just to complement, and part of wood cost is logistics related. So that is the part that probably will adjust quicker, depending, of course, on the cost of energy and particularly cost of diesel.
Thank you. That was super helpful.
Thank you. The next question comes from the line of Bruno Bessa from Caixa Bank BPI. Please go ahead.
Hello, and good afternoon. So, three questions from my side. The first one regarding the price increase that you announced. I understand the reversion of the destocking trend and the improvement that you are seeing in terms of demand until at least the end of Q1. My question here is, it seems like both prices are at least close to a cap, if we can say it like that, considering the evolution of the new capacity that will come to the market. So my question here is, how easy do you expect to implement these price increases, which might come in countercycle to the evolution of the pulp grade? So this will be the first question.
The second question, when looking to the earnings evolution in Q3, according to my calculations, it seems like the average price for tissue went down on a quarter-on-quarter basis in Q3. Just wondering, what is the reason behind it, if there was, for instance, longer maintenance shutdown from new company acquired that led you to worsen a bit the mix during the quarter, or if there is any kind of falling trend in terms of prices against the previous quarter. So some color on this would be much appreciated. And the last one, if I may, if you could just make an update on the capacity closures or conversion in the UWF paper in Europe.
And I remember you mentioning that Sappi and M&M bought in paper. So if you could give us an update on the timings for this planned shutdowns or conversions will also be appreciated. Thank you very much.
Okay, Bruno, thank you very much for your questions. Again, for sake of clarity, your first question is related to the pricing of uncoated woodfree, and we'd like to understand how easy you expect to implement this price increase in light what, what you have said to be a downward trend on pulp prices. Did I get it right?
Yes, correct.
Okay. Second number, question number 2 is the average prices for tissue. You believe the Q2 - the Q3 average prices for tissue has been slightly lower than Q2, and you'd like to understand what are the main drivers for that, mainly if this is mix related.
Correct.
The third question is about update on closures or conversions on the European uncoated woodfree market.
That's correct. Thank you very much.
Okay. So I'll start with question number one and number three, and I will pass to Quirino. I will answer then question number two, and we'll pass to Nuno for further verification. So regarding the price increase, it is never easy to pass a price increase in whatever business, in whatever sector, in, I mean, within pulp and paper. However, I don't think we share your view that we are seeing pulp prices going down. I think we are seeing pulp prices going up. We are seeing energy prices going up, and both will be important drivers to sustain a price increase on uncoated woodfree.
On top of that, we are seeing an increase in demand, a recent increase in demand mainly in the second part of Q3. And we don't see an increase in supply. On the contrary, we see a decrease in supply. Probably, I will comment imports, which is something that has been always part of our conference call, the questions regarding imports. And what we see is that imports year-to-date and coated woodfree imports year-to-date, August 2023, they are significantly below imports year-to-date, August 2022. And annualized, we do believe that 2023 is going to be below the last few years, with probably the exception of 2021.
Very often we analyze imports looking to Asia, and Asia has been growing from 2021 to 2022, but is not growing from 2022 to 2023. On top of that, all the other sources, namely from Latin America to North America to Middle East and of course to Russia, has significantly decreased. So on top of the reduction of capacity in Europe, the pressure of imports has significantly eased. Of course, we know that when imports reach Europe, they reach with a total different price. So the price reference is there, but the volume of imports was significantly reduced. I think we mentioned the capacity conversions of the exits in uncoated woodfree.
There are top of mind two large mills that have been exiting the market. One announced over the summer in Austria, which is quite relevant because it's a historical paper machine for the development of office papers in Europe. And more recently the one that you referred in Germany, and there are a couple of few others. So in total, top of mind, but Quirino will correct me, we are seeing an impact of in full impact, probably in 2024 of 600,000 tons. Quirino?
Exactly. So with some public information, what we expected still to impact the market going forward is a closure of a relevant factory in the center of Europe, in Germany, quite specialized in graphic products. So after the consultation period, now it's confirmed the closure during Q1 next year. So on top of this, another one in the eastern part of Europe, in Poland, is expected still to be converted during next year. Although timing more uncertain, away from uncoated woodfree papers and to packaging papers. So in total, annualized impact when fully implemented, will be around two.
And this is quite relevant because again, top of mind, this will be easily 12% of the installed capacity in Europe. So it's rather relevant. And if on top of that, I insist, we don't see an increase, rather a decrease on imports, these ingredients, together with the pressure on the cost side, will help to implement the much needed price increase. Regarding your question on tissue, our average price of tissue on Q3, yes, was slightly below our average price of tissue on Q2. This was done both by price negotiations with our customers, less prices down, but also a mixed evolution that didn't favor a price. We didn't favor prices. But I will ask Nuno to complement and comment.
Okay. Just yes, as everybody mentioned, in fact, we sold a bit more rolls in Q3 versus the first semester. In fact, we almost sold the same volume in terms of rolls in the third quarter than versus the second semester, but this is not the main explanation. I think we basically saw the natural, normal trends and dynamics of the market. You had a question on if this was influenced by the operation in Spain. It was not. In fact, the Spanish operation they have an average price that is slightly higher, 4 or 5% than our historical operation. Having said that, our historical operations have sold the same as basically more or less the same average price that we have in Spain.
So, in fact, if anything, the Spanish operation helped us raise slightly our prices, our average price, and we basically. And what you've seen in the market is basically the result of the market dynamics. Having said that, we should say that our in margin, EBITDA margin percentage-wise, in the third quarter, the issue was actually slightly higher than in the first semester. So, everything okay from this end.
That's very clear. Thank you very much. Thank you. The next question comes from the line of Antonio Salas from AS Independent Research. Please go ahead.
Hi, good afternoon. Thank you for taking my questions. It's two. The first one is related with the price increase. Sorry to come to this issue again, but my surprise was because your operating rates are still low in historical terms, 75%. Nevertheless, even after price increase, I guess that your operating rates will increase in the coming future, or at least through the first quarter of 2024. However, taking in consideration that they are so low, should we start to see Navigator working with low operating rates, something between 80%-85%, instead of 90%-95%? That is the first question. Second question, related with packaging.
You have mentioned that the sector has been in a negative phase, so it is already over or there are some signals of improvement or not? Thank you very much.
Okay. Thank you, Antonio, for your questions. Again, trying to make sure that we have fully understood them. Your first question is regarding, you mentioned price increase, but I think the main point is operating rates.
Exactly.
You say they are still low, and you'd like to understand if we intend to keep on operating with low operating rates or returning to more normal operating rates.
Exactly.
Your second question is on packaging, if the same signs of improvement that we are seeing on ANCO 2, 3, if we are seeing those signs of improvement on packaging as well?
Yes.
Yeah. Thank you.
Yeah.
First question, I think this is rather easy to answer. No, we don't intend to keep on these operating rates. We intend to improve our operating rates. If the market allows that, we will for sure improve our operating rates. We will do it in a responsible way to make sure that we manage correctly and adequately our margins, and that we don't allow stocks to build up on our pipeline. So there's always an equilibrium between the margins, the volumes of outputs and the stocks on the pipeline. But our expectation is that we will gradually return to a more normal level of operating rates. Regarding your second question on packaging.
Indeed, and I think we referred that, we also saw improvements on packaging. But I probably say that, and I'm not referring now to us, Navigator, I'm referring to the market. The most surprising effect we saw during 2023 was exactly the evolution of packaging. All grades of packaging, mainly in Europe, in the States, in Latin America, and until recently in Asia. Also, Asia saw signs of improvement. Packaging saw a significant decrease, and we believe this was the drivers of this situation were mainly two. Again, a huge amount of pipeline stock that was accumulated during the last year and a half.
So from the second half of 2021 to the end of 2022, and at the same time, a very severe, probably more severe than what people anticipated six months ago, a very severe economic turn in the major economies. So these things together decrease the packaging consumption significantly. Packaging was only, within pulp and paper, was only the star performance in terms of growth. And for the first time I remember, we saw a negative growth, and it's not a small negative growth. We saw a negative growth of 10%-15%.
Actually, in the segments where we are more present, and I think we have also alluded to that, retail, retail banks and flexible packaging decreased of 30%-40%. Hopefully, with the pipeline stocks being more normalized and the economy recovering going forward, this will also allow growth, growth, climate also on packaging in the coming, in the coming future.
Thank you very much. Thank you very much.
Thank you. The next question comes from the line of Luis de Toledo from Oddo. Please go ahead.
Yes, good afternoon. Two questions on my side. The first one referring to the reduction of specific consumption in different raw materials. I mean, I would like if you could elaborate, and basically, the question would be, if those savings, do you consider them sustainable, structural, or are more of the result of the production planning that you've been applying lately? The second question would refer to the investments on decarbonization. I mean, if you could provide some clues regarding the potential future impact on margins, the return on investments of those investments. And we assume that obviously they're aimed at the decarbonization and environmental and bringing forward your decarbonization goals, but I don't know if you could provide some economic impact as well.
I would also like to understand the degree of public funding that you're aiming for. You mentioned those EUR 158 million of investment projects, but you also mentioned another amount. I don't know if that was referred to the financing support that you were speaking. Thank you.
Okay. Let me try to rephrase to make sure we understood. Your first question is to try to understand the drivers of specific consumption reduction and if they are sustainable going forward. Your second question is about the decarbonization and the future impact of margins. And your third question is about the funding for these EUR 158 million of the decarbonization projects that we have referred to. Is that correct?
That's correct. Correct. Thanks.
Okay, very good. Regarding the reduction of the consumption of different raw materials. Actually, we mentioned two impacts. One impact was specific reduction, the other impact was price negotiation with our supplying partners. Referring to the first one, specific reduction, I would say that some are sustainable, some, and therefore are structural, some are conjuncture because we have reduced the output of our paper machines. I probably give you one or two examples. We have worked on the specific consumption of wood, mainly because of some investments we did in our wood yard plants and some that we'll keep on doing in our wood yard plants. They are very much dependable on the mix of woods.
But if for the same mix of woods, we believe that the level that we achieved today, that is significantly lower than what we had five, six years ago, for the same mix of wood, they are probably sustainable. The other example I can give you is, for instance, using long fiber in high-speed machines. Long fiber in high-speed machines is easy to decrease, although we have been working on decreasing on the last four or five years, regardless of the speed. They are easy to sustain when the speed is low, are more difficult to sustain when the speed is high.
On top of that, all the starch and PCC, OBAs, so brightening agents, dyes, this is an ongoing project at our mills to make sure that we are more efficient year by year, and we have problems with the efficiency year by year, regardless of the speed of the paper machines. I would like to know if Dorival wants to add something before moving to the other questions.
I don't have much to add. Basically, what you said. We are reducing chemicals and fiber and working to improve our efficiency. And some of these initiatives are sustainable, and some of them are related to the low paper machine speed. And when we have the orders in a more normal condition, we will have some adjustments to make.
Okay. Thank you, Dorival. Regarding your second question about the decarbonization and future impact of margin, I cannot, and I will not give you any specific guidance regarding the future impact of these projects. Probably, I can share with you something that is from the past. We initiated our investments on decarbonization on 2020, with the start up of a large biomass boiler in Figueira da Foz. And when starting up this boiler, we have talking primarily two main drivers to improve margins. One was the reduction, the improvements of fuels, the fuel mix, so we will cut more expensive fuels and use biomass, which in spite of require a higher quantity for our quantity of volume for the same calories, it was less expensive.
So one driver was this, the reduction of the fuel combustible cost. The other one was CO2. On CO2, we have one figure in mind that we will be able to reduce in terms of EUR per year, and because of the elimination of the CO2 emissions. I can tell you that when we compare the figures of 2020 that were supported in our investment decision, and the figures that we have actually achieved in 2022, only on CO2, we have multiplied by 5 the savings. So we strongly believe that all these projects are justifiable, economically justifiable, and the impact in this specific case was very, very significant. So we expect the other one also to be quite significant.
Regarding your third question about public funding. What we refer to in decarbonization is that we have applied for the first call of the, what we call the C-eleven, the component C-eleven of the Portuguese Recovery and Resilience Plan. We have applied with EUR 158.3 million of CapEx, and we have been granted with EUR 67.3 million grants, which implies an incentive of 42.5%.
Thank you-
We have also applied for a second call, but we have not yet the results. We expect on second call, if the second call is granted, to be in line or even slightly above the value that I just give you for the tax rate of incentives.
So it is at the end of September, none of these grants were received yet. Nowadays, but at the end of September, zero.
Okay, thank you very much.
Please be reminded that if you wish to ask a question, you may press star five on your telephone keypad. There are no further questions for the telephone at this time, so we move to the webcast ones. The first one comes from Emmanuel de Figueiredo, from LBP, and he asks: On the ESG investments, which is the nine months amounted to EUR 86 million, what is typically paid by Navigator and how much from the EU funds? Going forward on the ESG investments till end of 2025, what will be roughly be the percentage of the CapEx, CapEx paid from EU funds? Are they all grants or some sort of favorable finance? Thank you.
Thank you. I think the question was basically answered on the previous question from Udo. I can repeat the figures. So this C11, which was the first call for decarbonization, we have submitted projects on a total CapEx of EUR 158.3 million, and we have—they are all grants, and we have grants that represent a rate of 42.5%. And this covers all the projects on the first call of decarbonization from 2023 to 2025. But probably Fernando can complement with a different angle of his own.
Only to say that at the end of September, we have already spent more or less EUR 60 million on this line. And we tend to engage with European Investment Bank to get some, I would say, good interest rate on this investment. And as you can see, up to the moment, despite the lack of investment, we have generated funds to support this, and we will do probably future for certainly.
There are no further questions from the webcast at this time. I hand back to you.
Thank you for your time. As always, we are available for additional clarification to our usual contacts. Have a great evening. You can disconnect now.