Earnings Call: H1 2020

Jul 30, 2020

Ladies and gentlemen, thank you for standing by, and welcome to Navigate Company's First Half twenty twenty Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, today's conference is being recorded. I would now like to turn the call over to Mrs. Johanna Appleton, Director of Investor Relations. Joanna, please go ahead. Thank you, and welcome to Navigator's company conference call and webcast for the first half and second quarter of twenty twenty results. So participating in this call today are the following members of the Board: Antonio Oglondo Adrian Silvara, Jerome Paulo Vilara, Fernando Raul and Nuno Sanch. So we will start as usual with a brief presentation of the main highlights for the period and we'll have a Q and A session at the end. Antonio will start now with a comment on the May figures recorded in the period. Antonio, please? Good afternoon, ladies and gentlemen, and thank you for joining us today in this wonderful Sandvik center of our service business. I will start by making an overview on Q2 2020 and of course one of the most challenging quarters in the group system. This was of course a global phenomenon where people envisage the world felt the impact of COVID-nineteen pandemic and related to lockdown. And the COVID-nineteen lockdown clearly impacted market demand for some of our products. Estimates point to a construction of the European Q3 market of around 25% in the Q2 as compared to 4.1 percent in the Q1 of 2020. And when we look at the U. S. Market, its contraction is estimated to have been even larger and over 30%. The shifted paper business particularly for graphic use was the harvest with advertising and commercial printing severely affected by the economic lockdown. The real business proved to be more resilient and has been more facile in terms of uncovency application. The low level of demand for printing and writing paper during the pandemic forced many manufacturers on every continent who kept the best. Navigator was not an exception and it measures managed output of uncoated paper over April, May June in line with the volatile demand thereby controlling stock level between late March to late June. In Distributed Group, reduced its stock by around 19%, while industry is estimated to have declined around only 6%. This supply management also allowed to avoid further price erosion down the road and to preserve working capital. We were able to mitigate the impact of the reduction in pepper snow with our 2 other businesses, pulp and On the pulp side, performance was quite different as we managed to increase significantly our sales, expanding commercial opportunities, diversifying into new regions and taking advantage of the increased availability of market pulp due to the reduction in Pega integration. Therefore, we sold 100 and 10,000 tons of market pulp, an increase of almost 80% year on year in what was the best quarter suit for the impact. Time. On the tissue business, we see sales volume by about 9% versus Q2 2019 as the ramp up of new capacity continues to evolve positively. In terms of prices, paper remained pressured. New costs continued to fall and paper demand losses. The lower pulp and paper price impact was partially offset by the recovering pulp and tissue volumes and by a significantly dilutive cost performance. We managed to achieve important reductions on both variable fixed costs that allow to protect our EBITDA now. So in the context of sharper construction demand and the significant deterioration in the end of the stream market, Medi later succeeds in recording growth in other business areas and implemented the sales of forceful measures to control costs. Finally, I would like to point out the significant amount of free cash flow recovery in the quarter of almost €100,000,000 We will give some details further ahead. This is the result of this CapEx and a very efficient working capital management. If you can please now turn to Page 5, you can note that the turnover reached €696,000,000 in the first half of twenty 20 with paper sales accounting for around 7% of the logo versus 72% on the first half of last year. Pulp sales achieved 11%, against 9% last year. Tissue sales 10% compared with 8% last year and energy fell also stood at 10% in the same level last year. When comparing with the first half of 'nineteen, Permianovo fell 19% as a result of lower paper volumes and lower pulp and paper prices. Market pulp volumes grew significantly over 50% and tissue volumes also performed well increasing 10% in revenue. The improvement in production costs, both stable and fixed, was key to maintain margins resilient. EBITDA totaled 1000000 with an EBITDA margin above 20%. So free cash flow generation in the first half was also significant and stood at €114,000,000 and improvement ratio mainly in Q2, as I've just referred. Net debt was reduced to €700,000,000 by the end of June, down €50,000,000 over the end of year and €96,000,000 over the end of June 2019. Therefore, net debt to EBITDA remained at a very profitable level at 3.5 times. On Slide 6, we have an overview of last 6 points with the clear impact of the COVID-nineteen pandemic reflected on Q2 2020 performance. Besides the pandemic, Q2 reflects lower total freight prices. Vector prices declined around 7% against Q1 'nineteen and about 2% against Q1 'twenty. Coal prices fell 26 percent quarter over quarter and were flat versus Q1 2020. Even in this backdrop, EBITDA totaled 5 50 slide. So EBITDA in Q2 totaled $52,000,000 compared to $102,000,000 in Q2 2019, impacted mainly by lower prices in low of our previous debt. And Control 3 both decisions. We have to take into consideration that the comparison is hampered by the input of 3 paper prices that increased and this increase was implemented last year during H1 of 'nineteen. Of course, lower sales performance also impacted Q2 'twenty performance due to the production reduction following the economic quarter. We managed to offset the 37% reduction in paper volume with a 79% increase in pulp volume and 10% in business issue, but still the overall volume and backlog negative. One of the key aspects to mitigate the negative impact of the pandemic was cost improvement, which occurred with variable costs, namely external fibers, both softening and recycling, wood and chemicals, but also in fixed costs, especially in what we call sanctioning our costs. Looking at the overall semester on Slide number 8, EBITDA on the first half totaled 140,000,000 as I said before versus 207,000,000 in the first half of 'nineteen. We reached 88,000,000 in Q1 52,000,000 in Q2, with the main negative impact being clearly price defolns. During this first half, net pulp prices remained at a very low level, while paper and tissue prices showed a higher resilience, but those fuel impacted negative. Average pulp prices fell about 34% year on year. Average paper prices were down around 7% and tissue had a minimum decrease, showing its resilience of less than 3%. The strong volumes in pulp and tissue balance the decline in paper sales and also the positive performance in costs was key through this first half performance. The main factors optimizing variable costs were those of external fibers, thanks not only to price reductions on fibers, but also to production specific consumption in the expenditure on wood due in particular to lower specific consumption in the period as well as in lower costs for chemicals, especially due to lower prices for certain products and mainly reduced specific consumption in areas of the mills. Significant work has been done to reduce levels of consumption over the period, taking advantage of the slower pace of production despite the shift downs and changes in operating speed can cost. We have also achieved some gains in renegotiating contracts of raw materials and the facility materials. On the fixed cost front, we managed to achieve a reduction of around $22,000,000 below the level recorded in the same period in 'nineteen with positive results in personnel costs and sanctioned corporate costs, in particular in the costs of these mentioned aforementioned corporate areas. This evolution was in line with cost reduction plan announced in the Q1 for an estimated transaction of $46,000,000 in 2020. I will now ask Nuno Santos to give us a few words on the market conditions. Nuno, please? Thank you, Antonio. Good afternoon to all. On the slide 10, we have an overview of both the paper price evolution over the last years for the main price index Phase 4 b copy and then each card will crack for news. The slide is quite clear showing the current phase we are in. Oil prices are at their lowest. With market discounts increasing in recent years, prices are probably at the lowest level since the end of the call to make. Paper prices on the other hand remain quite resilient as our net realized down 6% to 0.1%. So going over to Slide 11, we have a brief overview of the pulp market. The pulp market was quite busy during the first half of fiscal year, demand and supply affected by several events. On the demand side, worldwide cost demand grew 8% year to date until May 2020 versus same period last year. We significant increase in Latin America, 30 2 percent growth Africa, 18%, Eastern Europe, 10% China. Most of the growth due to hardwood pulp which grew 13. On the supply side, there was a strong rebalancing reduction of producer stocks, which started at the end of 2019 from 65 days of stock in June of last year to 49 days of stock in June this year. There were various and planned stoppages and production cuts, for example, in short fiber plants from Asia producers and in fueling major strikes in the North and Asia. Overall, prices were mostly stable during the stress to net. Net. The fixed benchmark for mixed hardwood kraft pulp dollars remained stable in the Q2 at $6.80 per jet, equal to the Q1 of this year, as Thank you, Nuno. If we now go to Slide 12, we have an overview of the uncoated wood free market during this first half of the year. We have seen that the uncoated wood free has been severely hit by the impacts of the lockdown measures implemented across the world. Estimates point out to an accumulated down of approximately 13% year to date May in the global uncoated woodfree market with particularly sharp reductions in April May, accounting 24%. In Europe, the estimated accumulated reduction is 14% and in the United States, the figures point to a more significant downturn of around 20%. May appears to have been the worst month in the terms of falling in coated wood free demand, down to 34% year on year with a tendency for recovery already visible in June, down 19% year on year. Steel uncoated wood free demand was more resilient than demand for other types of graphic papers, with coated and mechanical grades falling 18% 19% respectively. Despite the strict lockdown imposed, working from home and homeschooling, the severest impact was held by the printing industry segment with a downturn in advertising and commercial printing, which particularly penalized sheet business. Real business proved more resilient and has been more resettled than terms of uncoated woodfree applications. There were also significant variations between European markets. Construction fell less in countries where measures were not as severe, such as Germany, Sweden and Holland than those where strict lockdowns were enforced such United Kingdom, Spain and Portugal. So many producers across the world reduced paper production during this period and that included Navigator. We decided to manage our paper output over April, May June in line with the downturn in demand, thereby controlling our stock levels. Between late March late June, we managed to reduce our stocks by around 19% versus 6% among our competitors. Paper prices remained pressured throughout this period by the low pulp level as well as by market conditions. The benchmark index for A 4 showed a downward adjustment of 6.4% year on year to an average price of €8.55 per ton as compared to €903.13 per ton in the first half of twenty nineteen. Price fell 2.2% from Q1 to Q2 in 2020. Let's go over to Slide 13 with the group's paper and pulp performance. Uncoated woodfree sales dropped 17% year on year and 37% quarter on quarter, following the referred production curtailments. With paper prices down as we just saw, paper turnover totaled $468,000,000 reflecting a 23% fall year on year. We believe the bottom of this crisis was reached in May and already in June, we started to see some improvement in market conditions. We reacted very swiftly and adopted large package of innovative measures to support our wholesalers and their sales teams in different parts of Europe and around the world. These measures proved to be successful as we ended the first half with an order book of 30 days, which compares to an estimated average of 18 days from European competitors. Our current order book continues to improve in the last weeks and we have now an order book representing 1 of the highest levels for this seasonal period in the past 11 years. So to comment on the total performance, I will hand over to Nuno again. Thank you, Jean Paul. Our market sales volume in the first half reached 193,000 tons and this was actually the highest level since 2010 after we started the 4th paper machine in Satubal and the site became fully integrated into paper. At the time we decided to maintain our drying capacity and this has proven to be a sound decision as in the context of adverse market for paper we had the flexibility to increase our pulp market sales. We were able to reactivate our clients and recover sales in Europe and in new regions, exploiting opportunities in the tissue and packaging segments. Sales turnover reached almost €80,000,000 improving around 3% year on year amidst the context of low price environment with price falling 27% year on year as mentioned previously. Let's take a look at the tissue performance on Slide 14. Global sales stood at 52,000 tons in the first half reflecting a 10% year on year increase. This was sustained by strong sales in wheels which offset the decline in finished products impacted by the contraction of the away from home segment due to the COVID-nineteen pandemic. We reached €70,000,000 in sales turnover for the first half growing 7% year on year. Prices showed a significant resilience throughout this first half and when comparing second quarter against first quarter, prices for both finished products and reels actually increased. The average price between quarters is affected by the mix effect for the increase of weight in reels versus finished products. In terms of industry activity, we had a good performance in the period in both Via Verde and Vela de Huddle Mill. So we managed to improve our fixed costs. The margin in our tissue business in each different segment is now clearly closer to what we believe we can achieve in this. I will now hand over to Adriano who will comment on the CapEx side. Thank you, Nono and good afternoon to all of you. On Slide 15, we have an overview of the CapEx in the first half. In our previous call, we referred that we would revise our CapEx plan for 2020 significantly down from €158,000,000 to around €70,000,000 This represents a very significant reduction as we only have maintained maintenance and projects that in the previous year. So in this first half we recorded around 48 €1,000,000 of CapEx. Actually this amount includes some payments referred to 2019 projects. Multinational's efficiency improvements and other spot items represents 24,000,000 dollars Investments in environment totally €13,000,000 and we also registered around 12,000,000 in core business improvement. The most significant environmental CapEx project in 2020 have included construction of a new biomass boiler in Figueres de force and related equipment with a total investment of €55,000,000 over 2019 2020. The new boiler is due to start operation in the second half of twenty twenty, actually in August 2020. This project will make it possible to cut CO2 emissions at this unit by 81% and by 20% for Navigator as a whole, reduction in the order of 155 1,000 tons of CO2 per year. As a result, the electricity consumption in the mill will be 100% based on renewables. I will ask Fernando to make the next comment. Fernand, please. Thank you, Adriano. On slide 16, we have an overview over the free cash flow evolution, which was particularly strong in the semester and reached €114,000,000 Cons Considering that free cash flow in the Q1 of this year as to the 50,000,000, the increase to 99,000,000 in the 2nd quarter was significant, precisely at the time when the full impact of the pandemic was being felt. As already highlighted, this was achieved through highly effective management of working capital, which combined with strong ability to convert accounts into cash and a careful mention of suppliers where extension of certain payments periods was combined with the provision of financial solutions to support the liquidity of our partners. The lower CapEx as well was important, it was important as well, but the most relevant factor was the conversion of plant receivables. We also work in reduction inventories of pulp and paper products and actually increase wood stocks in approximately 25,000,000 in order to support forest producers in Portugal and mitigate the impact of the reduction in net GDP during the more difficult times of the pandemic. The main trend in the evolution of free cash flow over the first half of twenty twenty is quite aligned with the Q2 as you can see on Slide 17. This strong free cash flow generation translates into a significant reduction in net debt over the period. As you can see on Slide 18, at the end of June, net debt totaled 700,000,000 excluding the impact of IFRS 16, representing an increase of 15,000,000 over year end 2019, but almost 100,000,000 versus quarter 1 2020. The net debt to EBITDA ratio remains at the conservative level of 2.3x excluding the impact of IFRS 16. The group's net profile is referred on the next slide. Our short term liquidity was increased to 3.17000000 by the end of June. We have already repaid some of the short term lines contracted in March April and have 95,000,000 euros in additional backup lines available currently. We have no significant repayments before 2021 and have already secured the funds needed for those repayments. Our average cost of debt remains very competitive at 1.58% and most of our debt has a fixed rate. We believe that Navigator maintains a strong financial strength. I will now hand back to Anton. Anton. So going to Slide 21, we have an overview of the first half and I'd like to emphasize a couple of items. The pandemic situation has a significant impact across the world and caused a severe decline in search. We reacted swiftly by managing our production of goods, avoiding inventory buildup, driving further price erosion and preserving working capital, but also making the working growth even closer with our key distribution partners, while achieving innovative tools and innovative incentive mechanisms to help them selling our own products. We have also proven to have a more diverse business model than before that has proven to be quite resilient to averse market condition has remained restricted activity in the open niche. We have acted decisively on the cost side and protected our margins, generating once again a significant amount of cash. We maintained a strong financial standing as Fernando just said and we are seeing good growth in the market and we believe we are well prepared for the First and foremost, our priority was the health and welfare of all other people and we are proud to say that we did catch this taken very early already in February, they proved to be effective and the level of positive cases within our growth was extremely low. Also, the commitment of all our employees and key suppliers was exemplary and thanks to the hard work and dedication of the entire workforce as well as the work of our partners, it was popular to react swiftly to consumers. We established 4 sided actions to protect our business that were presented in the last group, both forest owners and service providers, and as Fernando referred, actually increased group stocks in approximately €25,000,000 in order to mitigate the impact of the reduction activity during the more difficult times of the pandemic. We increased our liquidity in March and the coming June with an amount of over €350,000,000 cash and cash equivalents. Equivalents. We have new items renegotiated and we have already paid the short term loans. We have also We registered almost €49,000,000 on CapEx in the first half of the year, although part of that amount was related to CapEx in voice in 'nineteen. This. This implies that the rate of CapEx in H2 is expected to be lower than H1. We also reinforced the targets of our cost reduction programs defining an ambitious fixed cost target reduction of €46,000,000 in in 2018. And the first half, as we have seen, we have already achieved 32,000,000,000, improving that we are committed to achieve this target. We will also work on our variable costs, including specific consumption and negotiating prices of inputs, and we'll try to continue to do so in the next semester. Semester. Finally, a few words on the outlook for the rest of it on Slide 23. We are seeing a progressive recovery in the Thank you. We are now at the end of the presentation and we are now open for the Q and A session. Our first question comes from Bruno Bessa from Caixabank. Bruno, please go ahead. Your line is now open. Yes. Good afternoon. Thank you very much for taking my questions. I will start with the CO2 emissions and the investment you made in Insturro. I think you've mentioned that this investment will allow the unit to reduce by 81% the CO2 emissions and by 20% for Navigator as a whole. And my question is considering the new legislation in terms of CO2 emissions to come in force in 2021 with an expected reduction in terms of the CO2 allowances for each company. And do you believe that these investments may then the 20% decline in terms of CO2 emissions expected at the consolidated level will be able will be enough to offset the change in the legislation? Or do you think that you will still be impacted by this change in the legislation? This will be my first question. And the second question regarding the improvement that you've seen in terms of backlog until the month of July. If you could provide us a little bit more visibility on the drivers behind this improvement in terms of backlog because it's true that the worst of the pandemic seems to be behind, but with schools still closed and many people still working from home, I imagine that paper demand is not quite, quite barely enough in order to support this backlog improvement. So if you could provide a little bit more visibility on this, it will be appreciated. And also last question, if I may, regarding the tariffs in the U. S, we have been many, many changes in the tariff applied to Navigator. My question is, what will be the next chapter in terms of the U. S. Tariff? And what will be your expectations in terms of any potential changes in the tariff currently in place? This will be my 3 questions. Thank you very much. Okay. Thank you very much for your questions. I will make some really introductory comments to the 3 questions and then I will ask my colleagues to provide a bit more detail knowing of course that we cannot see anything. Regarding fuel to emissions, I'll just correct you, what we have mentioned is biomass oil in Chigere not in Suburban as you have said. So what we are finalizing and starting very soon is the biomass. I would also like to remember that we have announced last year decarbonization plan to reduce our CO2 emissions until 2,035, so 15 years below the announced commitments from Europe. And then we are keeping on the same plan, so we are pursuing a plan to achieve the same result in 20, 30, 35. And my colleague, Wes Aron, will give you further comments on this. Regarding the improvements on backlog, I'd like to remember the following, the discussion that we had in previous sessions. The paper supply chain is relatively low. And the impact of demand on the end consumer is typically amplified upwards and downwards by distribution channels. And what we are seeing now, we believe, distribution channels. And what we are seeing now, we believe, is not only a recovery in demand on the end consumer, on end use, but also the fact that the distribution stocks need to be replenished because during the period of lockdown and the fact that during many weeks we were not supplying, we were not even close to the volumes that were normal. The stocks of our distributors went down. So part of this should be stock replenishment and the other part of course is recovery of demand. Again, my colleague will probably give you further comments down in a few seconds. Regarding tariffs, the next chapter, as you probably know, this is a process of at least 5 years. We are now entering. We are starting the last of the 5 years period. And then after each 5 years period, there is a sunset review. So we are looking forward to the sunset review which will happen next year, so when we conclude the 1st 5 years. So we never know what is the tariff year on year. It's calculated based on the analysis made by the Department of Commerce. So we never know what is what's advertised. What we know is the following. The U. S. Rule of law and the system works is a country where the rule of law works, is a country where the system works. And every time we have been able to prove that we don't feel the fair level of first of all, we don't accept that we are dumping paper into the States. States is by far a country with our highest prices in the world. So we completely refuse that we are dumping paper into the States. And every time DOC has applied a tariff, we have been able to prove that the tariff in the end is actually lower than what was initially at Aplife. We expect to keep this track record for the future. But I would like to ask Adrian to make some comments on CO2 emissions for the future and maybe 2021 please. Okay. So as Antonio said, what the Biomat product is implemented in the beginning of course meal and will allow us to put on hold, so not operate CHP plant based on natural gas. And with that, we'll reduce very much the emissions on that. We have also this decarbonization plan which allow us to be carbon neutral in 2,035. So we will reduce from 730,000 tons of CO2 per year in 2020 to less than 100,000 tons in 2,035 and these emissions will be mitigated by our actions mainly in forest side. Jean Paul, do you want to comment something further on the order book, please? Yes, we have we entered the COVID impact in March with the highest order book or one of the highest order books ever and that helped us to go through the month of April May. Meanwhile, we have implemented some incentive schemes, mainly supporting our customers in this very difficult phase. And the customers rewarded us with new orders that brought our order book to a level that is again one of the highest for the season. Normally at this time of the year, there is a slow run-in terms of market, but we are experiencing a good return, of course, not knowing whether this will be stable or not because no one knows what the future will be. But at the moment, we are seeing positive upward trend. Thank you, RuPaulo. And then on Terex? Terex, the only thing I should add is the fact that we always have we are monitoring the tariffs that we supply each month. It means in our accounts we have some conclusions and we try to calculate the impact on those tariffs on the accounts, first thing. Second thing is the fact that the new regulatory department has established some rates that we think it's higher than our rate. We try to decide on the grounds of the law. And fortunately, we're going to proceed on the 1st period of reference that are already closed. The BOR line, you remember that we start with 0 that after this increase to 57.39, I think, and we pushed to 1.75, but finally was close with 1.6 3%. This means the last decision was the decision of the court. The court could be this decision could be fight against by our competitors, they have 60 based fluids and provided that content will receive in the next 6 months the amount already provided as a caution as anticipated deposit and this will benefit our cash flow of €25,000,000 This is depending on the fact that the competitors will contact or not and based on our expectation of 6 months, this will impact our accounts only next year for the time needs our guest. In what concerns the PRO2, once again, the rates established by the Department of Commerce were higher than the final rate. Final rate was 37%. It starts with 5% to 96 percent. This means that we are in conditions to fight. We have grounds to fight and we believe on the courts and the restrictive authorities of U. S. Now we are giving information about the POR III. POR III starts in 1st March 2018 and ends 28 February 2019, we are expecting the decision and we have only last month to provide the information request by the administrative authorities. By the end of 2020 February and the PLR4, we are once the tax authorities, the administrative authorities ask us, we will be supplying information. Now last February, the 5th period of reference and after this we try to apply for a sunset but normally this doesn't the companies cannot achieve this but nevertheless we have to refocus for the next year if needed. But I want to say it's we have this fully provided in the accounts and we will provide that there is no surprises or if there are surprises we are Next, we have a question from Antonio Saladas from AS Independent Research. Antonio, please go ahead. Your line is open. Hi, good afternoon. Thank you for the presentation. My question is related with your pulp volumes sold. So they have been increasing for last 2 or 3 quarters. So my question is, should we see more of this in the future? Or that was just related because now you are selling less paper, less office paper, and now you are taking these opportunities to sell pulp. So should we see more of this in the future? Or it's just an opportunistic way to sell pulp that is not implied in paper office in office paper. Thank you and for your question, I will make an introduction and then we will take it from there. And as we try to explain on the call, the very significant increase in post sales was, of course, the reaction of the fact that we have our paper machines shut, some of them, gradually shut And this has generated some length, surplus of both. And as it was also mentioned, we can do it because we have drying capacity kept our drying capacity. So we are I think we proved that we are able to sell coal if needed. But of course, our model is to open to paper and tissue. So if ever we increase the difficulties to sell paper or tissue, we will be able to sell more folks into the market because we don't integrate that thought. I think you said it all. I think it's clear. So as you said, we are ready. You know that our pulp business is a little bit we will solve this if we will solve the pulp if we are not able to integrate it to a polysilicon free paper and tissue paper and as long as we hope to get to normal outputs on both businesses, we will probably not reach the same level of output in the policy that we have seen in the first matter. But I think that's it. Okay. So it means that you haven't taken a decision because my question is related with, I believe, that there's an excess of office paper capacity installed. So and probably that is one of something that we have to think about. So and of course, one way to go to keep Boeing is to not convert pulp on paper, but just keep it and just selling as it is. Do you like to add more on this? Or there are also some these movements from plastic to paper and so on. Do you want to share with us more of this I think well, more information about this? Or you think that it's but it is, is enough? Okay. Let me try to share what we can share at this stage. Again, I'm probably going to repeat a bit myself. We have our model in between the production of pulp we have and the production of paper we have. So we have thought to integrate into all our paper operations, Encoated and Tissue. And depending on the years, depending on the output of top line, depending on the maintenance programs, we have an excess of £750,000 of hope plus minus 30, €40,000,000,000,000,000,000, again, as I said, the output of the lines and the maintenance problems industry. And so our model is to increase value to the pulp we sell by selling it under the form of paper and under the form of tissue. Cost curve. We have been working in the last 6 months furthermore in increasing our competitiveness in the cost curve, as we explained, both working on variable costs and fixed costs. And just a comment probably was not clear, but the 10 countries free segment that suffered the loss during the pandemic was not office papers, was actually graphic papers or folding papers for graphic application. So office paper was actually a bit more resilient than graphic papers and holes were actually the more resilient of all. So, we still look positively to the evolution of the uncontrolled free market and to our competitive position. I mean, it's no secret from the publication of results of some of our competitors that we have some of our competitors actually in both sides of the plant. We have some of our competitors with very big difficulties, some of some with EBITDA negative and at least one with EBITDA negative. And not like than yesterday, we have another call, the Encompeteluci competitor from another region that gave us production of Encompetitor. So again, we believe we have a word to say on the Encompetitor 3 and we are working very hard to keep our operations very compact. Having said that, also going back to information that we have shared in previous calls, we have been working in the past few years and we have been actually accelerating that work in the last few months exactly on the sales of the SACI. So this is a possible way to go. It's yet too soon to share details. But indeed, we are already selling paper, producing our paper machines to applications that move away from the traditional and go to look for application. And at this stage, I'm sure you understand that we cannot say more. Okay. Thank you very much for your concern. Okay. Yes, we have a question that was put on the platform, but I believe it's already been entered. Really that far. It comes from the group Petercam. He said in terms of product mix, should we expect a further increase in pulp volumes of paper? And are you planning to shut down some paper equipment or is that not on the table? So I believe it's a financial, but I can see if it works to Antonio again. No, I think the financials as we said, again, what we emphasize, we believe that we have the best set of assets in the whole industry. And of course, they are not all equal. And the ones that we feel that are within our group of assets are a bit less competitive, we are working on them to add something. In fact, some of the shopping bags You can see on the mark made with our paper, with based on the paper we do but with some modifications it keeps stronger and adapt to that function. So we are working on that. We continue. Jessela, I think that at the root of your question is a little bit a concern over the importance of flexibility of our portfolio. Before this crisis I think we were already quite comfortable with the flexibility and the reason for the debt our portfolio of assets have. Actually, there is one positive thing over this period over the last few months is that we learned that in fact we had a resilient and very flexible So in sum, our pulp can be feed into head into the unquoted free paper which as I mentioned, we are confident to go back to previous volumes. We can actually grow in tissue as you know we have plans for future growth and we're going to basically be pushing in the future. We can sell it in the market with greater sales than we've done over the last few months. And 4th, but also this, you can consider new applications of pulp as as Tony mentioned. But at the end of the day, we're very comfortable and became actually more comfortable over the last few months over the portfolio over the flexibility and resilience of our portfolio. Our next question comes from Joao Pinto. Just a follow-up on the new applications for the U. S. Paper that you produce regarding the substitution of plastics. Do you see potential in here for those type of products represent a significant part of yourself? Or we are talking about a niche market? They today represent I won't say niche, but they today represent already a sizable segment of the market, which we believe will significantly increase in the future, namely because of plastic distribution. But we are looking to different applications. So again, it's yet too soon to make any further comments. And now we have a question from Cole Hathorn from Jefferies. Cole, please go ahead. Your line is open. Good afternoon. Thanks for taking my question. I just like a bit more color around the uncoated woodfree industry. When do you think you will have kind of more information when you've got a better feel of demand coming back, people returning to offices, etcetera, that the wider industry, and I'm thinking more the unintegrated players, will pull the trigger to start closing capacity permanently? When do you think we'll start seeing those announcements across the industry? And then on pricing, I know you talked about pricing, edging down a little bit in uncoated woodfree. Do you have any views of that going forward as I imagine people won't close capacity permanently immediately, they're first going to compete for some volumes to try and stay afloat? Thank you. Well, your question has the basic answer, the same root cause, demand and pulp prices. So we don't know what's going to happen to pulp prices. So it's very difficult to have to take a sense on that. So we look to pulp prices, I guess. And when we look to the analysis made by the researchers and consultants of the sector and our view is every of their view. And the future portion of core prices is going to be key to understand the work of the non integrated suppliers, namely what you referred to, being opportunistic to operating when coal prices are low and exiting the market when coal prices are high. If I understand your reason, we cannot comment with OpEx exactly how prices are going to be sold. Regarding demand, we actually we are right now trying to evaluate from the end user perspective their views on future demand and the feedback we have is yet too soon because nobody knows exactly what is going to be the first telework and remote schooling has an impact on paper demand. Nobody knows exactly how this will evolve in the fall, namely if we have a second wave. So it's very difficult to predict. And secondly, as we refer to the area of the business that we felt was more impacted was actually commercial painting, and commercial painting is very much linked with economic activity. So economic activity, we hope to restart, but we believe we have a few quarters ahead of us that are going to be data. So we are continuously monitoring both price evolutions and industry and as well as the demand and this has some changes on consumer behavior patterns. That's probably the last element of the answer I'd like to give you is the following. What we saw very often in the industry is that the mills that move away are not necessarily small machines, non integrated, then can opt in and opt out depending on pulp prices. The movements of exiting the industry, the most relevant moves look for instance what's happening right now in the coated side are large machines owned by companies that have a diversified portfolio and can move and repurchase those machines to other products. Great. Thanks for the color there. Can I just have one last follow-up? You've done a good job on the operational side to manage your production to demand. Can you just give me a little bit more color how you think about when you take downtime on your machines and when you ramp up to make a little bit more pulp? Just from an operational perspective, how do you monitor that internally? Well, we monitor that using different key indicators. We look to order books, we look to our spot levels. Actually, I invite you all to come and visit our mills. Our mills have been designed our terminals have been designed not to carry inventory. So when the market conditions become tough, we need to adjust because we don't have to produce we have to put stock and we don't like corporate stocks. We typically our stock levels are typically 1 third of the stocks of the industry historically, it's not now. So we look of course to order books, demand, stock levels and as we said before, we can float our machines, we can temporarily shut machines and restart them again. And by doing that, we have the option to produce more. Thank you. It seems we have no further questions on the audio line, Joanna. So I'll just hand it back over to you. Okay. Thank you. This ends our conference call today. Thank you very much for listening. Ladies and gentlemen, Navigators First Half twenty twenty results conference call is over now. You may disconnect your lines and thank you very much for joining us.