Ladies and gentlemen, thank you for standing by, and welcome to Navigator Company's first-half 2020 results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. If you should require any assistance during this call, please press star zero. As a reminder, today's conference is being recorded. I would now like to turn the call over to Mrs. Joana Appleton, Director of Investor Relations. Joana, please go ahead.
Thank you, and welcome. N avigator Company conference call and webcast for the first half and second quarter of 2020 results. Participating in this call today are the following members of the board: António Redondo, Adriano Silveira, João Paulo Oliveira, Fernando Araújo, and Nuno Santos. We will start, as usual, with a brief presentation of the main highlights for the period, and we'll have a Q&A session at the end. António will start now with a comment on the main figures recorded in the period. António, please.
Good afternoon, ladies and gentlemen, and thank you for joining us today in this wonderful sunny summer afternoon here in Lisbon. I will start by making an overview on Q2 2020, what was one of the most challenging quarters in the group's history. This was, of course, a global phenomenon where people and businesses around the world felt the impact of COVID-19 pandemic and related lockdowns. The COVID-19 lockdowns clearly impacted market demand for some of our products. Estimates point to a contraction of the European uncoated woodfree market of around 25% in the second quarter as compared to 4.1% in the first quarter of 2020. When we look at the U.S. market, its contraction is estimated to be even larger and over 30%. The sheeted paper business, particularly for graphical grades, was the hardest hit, with advertising and commercial printing severely affected by the economic slowdown.
The reel business proved to be more resilient and has been more versatile in terms of uncoated woodfree application. The low level of demand for printing and writing paper during the pandemic forced many manufacturers on every continent to cut production. Navigator was not an exception, and it took measures to manage output of uncoated woodfree paper over April, May, and June, in line with the downturn in demand, thereby controlling stock levels between late March to late June. In this period, the group reduced its stocks 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 reduction in paper sales with our two other businesses, pulp and tissue.
On the pulp side, performance was quite different as we managed to increase significantly our sale, expanding commercial opportunities, diversifying into new regions, and taking advantage of the increased availability of market pulp due to the reduction in paper integration. Therefore, we sold 110,000 tons of market pulp, an increase of almost 80% year-on-year in what was the best quarter since 2010. On the tissue business, we increased sales volume by about 9% versus Q2 2019 as the ramp-up of new capacity continued to evolve the product. In terms of prices, paper remained pressured with pulp continuing to fall and paper demand weakening. The lower pulp and paper price impact was partially offset by the recovery in pulp and tissue volumes and by a significant improvement in cost performance. We managed to achieve important reductions on both variable and fixed costs that allowed to protect our EBITDA margin.
In the context of sharply contracting demand and a significant deterioration in the uncoated free market, Navigator succeeded in recording growth in other business areas and implemented a series of forceful measures to control costs. Finally, I would like to point out to the significant amount of free cash flow recorded in the quarter of almost EUR 100 million. We will give some details further ahead. This is the result of reduced CapEx and a very efficient working capital management. If you can please now turn to page five, you can note that the turnover reached EUR 696 million in the first half of 2020, with paper sales accounting for around 7% of turnover versus 17% on the first half of last year. Pulp sales achieved 11%, against 9% last year.
Tissue sales, 10%, comparing with 8% last year. Energy sales also stood at 10%, the same level last year. When comparing with the first half of 2019, turnover fell 19% as a result of lower paper volumes and lower pulp and paper price. Market pulp volumes grew significantly, over 50%. Tissue volumes also performed well, increasing 10% year-on-year. Improvement in production costs, both variable and fixed, was key to maintain margins resilience. EBITDA totaled EUR 140 million, with an EBITDA margin above 20%. Free cash flow generation in the first half was also significant and stood at EUR 114 million, an improvement registered mainly in Q2, as I've just discussed. Net debt was reduced to EUR 700 million by the end of June, down EUR 50 million over the end of the year and EUR 96 million over the end of June 2019.
Net debt to EBITDA remained at very comfortable level of 2.5. On slide six, we have an overview of last six quarters, with the clear impact of the COVID-19 pandemic reflected on Q2 2020 performance. Besides the pandemic, Q2 reflects lower pulp and paper prices. Paper prices declined around 7% against Q1 2019, and about 2% against Q1 2020. Pulp prices fell 26% quarter-on-quarter and were flat versus Q1 2020. Even in this backdrop, EBITDA totaled EUR 550 million and operational cash flow approximately EUR 50 million. Let us take a closer look at the EBITDA achieved on the quarter on slide seven. EBITDA in Q2 totaled EUR 52 million, compared to EUR 102 million in Q2 2019, impacted mainly by lower prices in all of our business sectors. NCG, pulp, and tissue.
We have to take into consideration that the comparison is hampered by the input of key paper prices that increased. This increase was implemented last month during H1 2019. Of course, lower paper volumes also impacted Q2 2020 performance due to the production reduction following the economic profile. We managed to offset the 37% reduction in paper volume with a 79% increase in pulp volume and 10% increase in tissue. Still, the overall volume impact was negative. One of the key aspects to mitigate the negative impact of the pandemic was cost improvement, which occurred in variable costs, namely external fibers, both soft and recycled, wood and chemicals, but also in fixed costs, especially in what we call functioning or corporate costs.
Looking at the overall semester on slide number eight, EBITDA on the first half totaled EUR 140 million, as I said before, versus EUR 207 million in the first half of 2019. We reached EUR 88 million in Q1 and EUR 52 million in Q2, with the main negative impact being clearly price performance. During this first half, net pulp prices remained at a very low level, while paper and tissue prices showed a high resilience but were still impacted negative. Average pulp prices fell about 34% year-on-year. Average paper prices were down around 7%. Tissue had a minimum decrease, showing its resilience of less than 3%. The strong volumes in pulp and tissue balanced the decline in paper sales. The positive performance in costs was key to 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 reduction in 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 recent activity shut downs and changes in operating speed controls. We have also achieved some gains in renegotiating contracts on raw materials and associated materials.
On the fixed cost front, we managed to achieve a reduction of around EUR 22 million below the level recorded in the same period in 2019, with positive evolution in personnel costs and function corporate costs, in particular in the costs of these aforementioned corporate areas. This evolution was in line with the cost reduction plan announced in the first quarter for an estimated reduction of EUR 46 million in 2020. I will now ask Nuno Santos to give us a few words on the market conditions. Nuno, please.
Thank you, António. Good afternoon to all. On slide 10, we have an overview of pulp and paper pricing evolution over the last six years for the main price indexes, A4 B-copy, and then each ton of graphical grades. The slide is quite clear, showing the current phase we are in. Pulp prices are at their lowest. With market discounts increasing in recent years, prices are probably at the lowest level since the end of 2009. Paper prices, on the other hand, remain quite resilient but are nevertheless down 6% year-over-year. Going over to slide 11, we have a brief overview of the pulp market. The pulp market was quite resilient during the first half of 2020 with demand and supply impacted by several events.
On the demand side, worldwide pulp demand grew 8% year to date May 2020 versus the same period last year, with significant increase in Latin America, Africa 18%, Eastern Europe 10%, and China 12%. Most of the growth is due to hardwood pulp, which grew 13% quarter-over-quarter. Overall, the growth in tissue more than compensated the reduction in the newsprint. 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 plant stoppages and production cuts. For example, in short fiber plants from Asian producers and in Finland, there were strikes in the pulp and paper industry. Overall, prices were mostly stable during the first semester.
The PIX benchmark for bleached hardwood kraft pulp in dollars remained stable in the second quarter at $680 per ton, equal to the first quarter of this year, falling 30% year-on-year. The demand erosion from the graphic paper industry and the reduction of tissue consumption in many countries has led to some uncertainty in current market conditions. Prices have been under pressure as the traditional weak summer period starts, although we do not anticipate significant changes in the short term. Current market prices are likely below cost for some marginal cost producers and below cost of integrated Chinese mills, signaling that the bottom has been reached. Several maintenance stoppages that were delayed through COVID-19 restrictions will remove capacity through the second half of this year, at a time Asian and Latin production starts to improve from their very low levels in the second quarter.
João Paulo will now comment the paper market.
Thank you, Nuno. If we now go to slide 12, we have an overview of the uncoated woodfree markets during this first half of the year. We have seen that the uncoated woodfree has been severely hit by the impact of the lockdown measures implemented across the world. Estimates point out to an accumulated downturn of approximately 13% year-to-date May, in the global uncoated woodfree market, with particularly sharp reductions in April and 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 terms of fall in uncoated woodfree demand, down to 34% year-on-year, with a tendency for recovery already visible in June, down 19% year-on-year.
Still, uncoated woodfree demand was more resilient than demand for other types of graphic papers, with coated and mechanical grades falling 18% and 19%, respectively. Despite the strict lockdowns imposed, working from home and homeschooling, the severest impact was felt by the printing industry segments, with the downturn in advertising and commercial printing, which particularly penalized sheeted business. Reel business proved more resilient and has been more versatile than in terms of uncoated woodfree applications. There were also significant variations between European markets. Consumption fell less in the countries where measures were not as severe, such as Germany, Sweden, and Holland, than those where strict lockdowns were enforced, such U.K., Spain, and Portugal. 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, and June in line with the downturn in demand, thereby controlling our stock levels. Between late March and 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 A4 showed a downward adjustment of 6.4% year-on-year to an average price of EUR 855 per ton as compared to EUR 913 per ton in the first half of 2019. 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 curtailment. With paper prices down as we just saw, paper turnover totaled EUR 468 million, 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 continued to improve in the last weeks, and we have now an order book representing one of the highest levels for this seasonal period in the past 11 years. To comment on the pulp performance, I will hand over to Nuno again.
Thank you, João Paulo. Our market sales volume in the first half reached 193,000 tons. This was actually the highest level since 2010, after we started the fourth paper machine in Setúbal, and the site became fully integrated into paper. At the time, we decided to maintain our drying capacity. This has proven to be a sound decision, as in the context of adverse markets 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 EUR 80 million, 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 reels, which offset the decline in finished products, impacted by the contraction of the away-from-home segments due to the COVID-19 pandemic. We reached EUR 70 million in sales turnover for the first half, growing 7% year-on-year. Prices showed a significant resilience throughout this first half. 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 of the increase of weight in reels versus finished products. In terms of industry activity, we had a good performance in the period in both Aveiro and Vila do Conde mill. 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, Nuno, 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 EUR 158 million to around EUR 70 million. This represents a very significant reduction as we only have maintained maintenance and projects start in the previous year. In this first half, we recorded around EUR 48 million of CapEx. Actually, this amount includes some payments referred to 2019 projects.
Maintenance efficiency improvements and other support items represents EUR 24 million. Investments in environment, totally, EUR 13 million. We also registered around EUR 12 million in core business improvements. The most significant environmental CapEx project in 2020 have included construction of a new biomass boiler in Figueira da Foz and related equipment with a total investment of EUR 55 million over 2019 and 2020.
The new boiler is due to start operation in the second half of 2020, 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 155,000 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. Fernando, 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 EUR 140 million. Considering that free cash flow in the first quarter of this year adds to that EUR 50 million, the increase to EUR 99 million in the second 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 customer accounts into cash and a careful management of suppliers, where extension of certain payment periods was combined with the provision of financial solutions to support the liquidity of our partners. The lower CapEx was important as well, but the most relevant factor was the conversion of client receivables.
We also work in reduction inventories of pulp and paper products. Actually increased wood stocks in approximately EUR 25 million in order to support forest producers in Portugal and mitigate the impact of the reduction in activity during the more difficult times of the pandemic. The main trends in the evolution of free cash flow over the first half of 2020 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 totaling EUR 700 million, excluding the impact of IFRS 16, representing an increase of EUR 50 million over year-end 2019, almost EUR 100 million versus quarter one 2020.
The net debt to EBITDA ratio remains at a conservative level of 2.3 times, excluding the impact of IFRS 16. The group's debt profile is referred on the next slide. Our short-term liquidity was increased to 317 million by the end of Q2. We have already repaid some of the short-term lines contracted in March and April and have EUR 95 million in additional backup lines available presently. 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 standing. I will now hand back to Adriano.
Thank you, Fernando. Going to slide 21, we have an overview of the first half, and I'd like to emphasize a couple of ideas. The pandemic situation had a significant impact across the world and caused a severe decline in paper consumption. We reacted swiftly by managing our production outputs, avoiding inventory build-up, avoiding further price erosion, and preserving working capital. Also, we have been working even closer with our key distribution partners, launching 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 adverse market conditions as we manage reduced activity in the pulp and niche. We have acted decisively on the cost side and protected our margins, generating, once again, a significant amount of cash flow.
We've maintained a strong financial standing, as Fernando just said, and we are seeing recovery signs in the market, and we believe we are well prepared for the full season that has just started. Let us go on to slide 22. This shows our reaction to the COVID-19 pandemic. First and foremost, our priority was the health and welfare of all our people, and we are proud to say that with the quick actions taken very early already in February, they proved to be effective, and the level of positive cases within our group 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 possible to react swiftly and efficiently.
We established four decisive actions to protect our business that were presented in the last slide. Regarding suppliers, we wanted to balance the wellbeing that also secured our supplier's equity. We did that by providing financial solutions to support the wellbeing of our suppliers. We had a special concern regarding our national suppliers of wood, both forest owners and service providers, and as Fernando referred, actually increased wood stocks in approximately EUR 25 million 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 again in June with an amount of over EUR 350 million cash and cash equivalent. We have new lines renegotiated, we have already paid the shortest term ones. We have also already secured our needs for the next repayments in 2021.
In terms of CapEx, we revised significantly down our initial plan for 2020 from EUR 158 million to around EUR 70 million, postponing non-critical CapEx. We invested almost EUR 49 million of CapEx in the first half of the year, although part of that amount was related to CapEx invoiced in H1. This implies that the rest of CapEx in H2 is expected to be lower than H1. We also reinforced the targets of our cost reduction programs in defining an ambitious fixed cost target reduction of EUR 46 million for 2020. In the first half, as we have seen, we have already achieved EUR 32 million, proving that we are committed to achieve this target. We will also work on our variable costs, improving specific consumption and renegotiating prices of input, we'll try to continue doing so in the next semester.
A few words on the outlook for the rest of the year on slide 23. We are seeing a progressive recovery in the end consumer business in Q2. Current environment is still very uncertain and very volatile, but our outlook is significantly better now, and we feel well prepared to face it. We will continue our commercial efforts on the pulp side, albeit we have less market pulp available as the paper mills are all back into normal operation. We expect to continue to deliver good operating and financial performance on the tissue front as well. Thank you very much.
Thank you. This ends the presentation, and we are now open for the Q&A session.
Ladies and gentlemen, if you would like to ask a question at this time, please press star one on your telephone keypad. To cancel your question, please press star two. We remind you that you can also submit your questions on the webcast platform, or if you're connected through a web browser, you may use the flag icon on your web browser screen. 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 Setúbal. 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. 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, do you believe that these investments made and the 20% decline in terms of CO2 emissions expected at the consolidated level 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.
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 is 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 barely enough in order to support this backlog improvement. If you could provide a little bit more visibility on this, it will be appreciated. Also last question, if I might, regarding the tariffs in the U.S. We have been many changes in the tariff applied to Navigator. My question is, what will be the next chapter in terms of the U.S. tariff?
What would be your expectations in terms of any potential changes in the tariff currently in place? This will be my three questions. Thank you very much.
Okay. Thank you very much for your questions. I will make some introductory comments to the three questions, then I will ask my colleagues to provide a bit more detail. Knowing, of course, that we cannot give any specific guidance. Regarding CO2 emissions, I would like just to correct something. What we have mentioned is the biomass boiler in Figueira da Foz, not in Setúbal, as you have said. What we are finalizing and starting very soon is the biomass boiler. I also would like to remember that we have announced last year a decarbonization plan to reduce our CO2 emissions until 2035, so 15 years below the announced commitments from Europe. We are keeping going with the same plan, so we are pursuing that plan to achieve the same result in 2035. My colleague later on 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 long, and the impact of demand on the end consumer is typically amplified upwards and downwards by distribution channels. 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. 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 in a few seconds.
Regarding tariffs, the next chapter, as you know, this is a process of at least five years. We are now starting the last of the five years period. Then after each five years period, there is a sunset review. We are looking forward to the sunset review, which will happen next year, when we conclude the first five years. We never know what is the tariff year-on-year. It is calculated based on the analysis made by the Department of Commerce. We never know what are the tariffs. What we know is the following. The U.S. rule of law and the system works. It is a country where the rule of law works. It is a country where the system works.
First of all, we don't accept that we are dumping paper into the states . States i s by far the country with our highest prices in the world. We completely refuse that we are dumping paper into the U.S. 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 applied. We expect to keep this track record for the future. I would like to ask Adriano to make some comment on CO2 emissions for the future and then in 2021 please.
Okay. As António said, the biomass boiler is implemented in Figueira da Foz mill and will allow us to put on hold, so not operate, a CHP plant based on natural gas. With that, we've reduced very much the emissions on that. We have also this decarbonization plan, which allow us to be carbon neutral in 2035. We will reduce from 730,000 tons of CO2 per year in 2020 to less than 100,000 tons in 2035. These emissions will be mitigated by our action mainly in forest time.
João Paulo, do you want to comment something further on the order book, please?
Yes. We entered the COVID impact in March with the highest order book or one of the highest order books ever. That helped us to go through the months of April and May. Meanwhile, we have implemented some incentive schemes, mainly supporting our customers, in this very difficult phase. 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. We are experiencing a good return. Of course, not knowing whether this will be stable or not because no one knows what the future road will be. At the moment, we are seeing positive upward trend.
Perfect, João Paulo. Fernando, on tariffs?
On tariffs, the only thing we should add, or I can add.
We are always monitoring the tariffs that is applied each month. It means in our accounts, we have some calculations, and we try to calculate the impact on those tariffs on the accounts, the first thing. The second thing is the fact that the U.S. Department of Commerce established some rates that we think it's higher than our rate. We tried to fight on the grounds of the law, and fortunately, we were able to succeed on the first period of reference that already closed. The POR1, you remember that we started with 0, that after raising it to 37.39, I think, and reduced to 1.75, and finally was closed with 1.62%. This means the last decision was the decision on the court. This decision could be fought against by our competitor.
They have 60 days to do it, and provided they don't contest, we'll receive in the next six months the amount already provided as a caution, as anticipated deposit, and this will benefit our cash flow of EUR 35 million. This is depending on the fact that the competitors will contest or not, and based on our expectation of six months, it will impact our accounts only next year. For the time being, it's our gain. In what concerns the POR2, once again, the rates established by the Department of Commerce were higher than the final rate. Final rate was 4.37%. It started with 5.96%. This means that we are in conditions to fight. We have grounds to fight, and we believe on the courts, on the restrictive authorities of the U.S. We are giving information about the POR3.
POR3 starts in 1st of March 2018 and ends 28th of February 2019. We are expecting the decision, and we have only last month provided the information requested by the administrative authorities. By the end of 2020, February, and POR4, once the administrative authorities ask us, we'll be supplying information. Now, last February starts the fifth period of reference, and after this, we'll try to apply for a sunset, but normally the companies cannot achieve this. Nevertheless, we are fully to fight for the next year if needed. What I want to say, we have this fully provided in the accounts, and we will provide that there is no surprises. If there are surprises, we are good to tackle.
Okay, thank you very much.
Next, we have a question from António Seladas from AS Independent Research. António, please go ahead. Your line is open.
Hi, good afternoon. Thank you for the presentation. My question is related with your pulp volume sold. They have been increasing for last two or three quarters. My question is, should we see more of this in the future, or that was just related because now you are selling less office paper, and now you are taking these opportunities to sell pulp? Should we see more of this in the future, or it's just an opportunistic way to sell pulp that is not employed in office paper?
Thank you, António, for your question. I will make an introduction, then Nuno will take it from there. As we tried to explain on the call, the very significant increase in pulp sale was of course, a reaction of the fact that we have our paper machines shut, some of them gradually shut. We didn't have both paper machines shut in the same month, it was in evolving periods. This has generated some surplus of pulp, as it was also mentioned, we can do it because we have the drying capacity. We kept our drying capacity. We proved that we're able to sell pulp if needed, of course, our model is to convert pulp into paper and tissue. If ever we increase the difficulties to sell paper or tissue as we saw, was actually quite a good half year.
If the difficulties on those businesses continue, yes, we will be able to sell more pulp into the market, because we don't integrate that pulp. Nuno.
I think you said it all. I think it's clear. As you said, we are ready. You know that our pulp business is a little bit, we will sell pulp if we are not able to integrate it to paper and tissue.
In tissue paper. 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 portion that we have seen in the first semester. I get it.
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. Probably that is one of something that we have to think about. Of course, one way to keep going is to not convert pulp and paper, but just keep it and just selling as it is. Would you like to add more on this? There are also these movements from plastic to paper and so on. Do you want to share with us more information about this, or you think what it is is enough?
Okay. Let me try to share what we can share at this stage. I'm probably going to repeat a bit myself. We have a balanced model in between the production of pulp we have and the production of paper we have. We have pulp to integrate into all our paper operations and coated and tissue. Depending on the years, depending on the output of the both lines, depending on the maintenance programs, we have an excess of 10,000-50,000 tons of pulp, plus or minus 30,000-40,000, depending again, as I said, the output of the lines and the maintenance programs. 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.
We are still relatively positive for the development of uncoated woodfree because we believe we are very well positioned in the cost curve. We have been working in the last six months, furthermore, in increasing our competitiveness in the cost curve, as we explained, both working on variable costs and the fixed cost. Just a comment, probably was not clear, but the uncoated woodfree segment that suffered the most during the pandemic was not office papers, was actually graphical grades or folio papers for graphical application.
Yeah.
Office paper was actually a bit more resilient than graphic papers, and rolls were actually the more resilient of all. We still look positively to the evolution of the uncoated free market and to our competitive position. 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 Atlantic. We have some of our competitors with very big difficulties, some with EBIT negatives, and at least one with EBITDA negative. Not later than yesterday, we had another uncoated free competitor from another region that gave up production of uncoated free. Again, we believe we have a word to say on the uncoated free, and we are working very hard to keep our operations very competitive.
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 you said, the substitution of plastics. This is a possible way to go. It's yet too soon to share details, but indeed we are already selling paper produced in our paper machines to applications that move away from the traditional uncoated free application. At this stage, I'm sure you understand we cannot say more.
Okay. Thank you very much for your answer.
Okay. Yes, we have a question that was put on the platform, but I believe it's already been answered. That cleared up well. It comes from the group, Peterc am. He says, "In terms of product mix, should we expect a further increase in pulp volumes with the paper? Are you planning to shut definitely some paper equipment, or is that not on the table?" I believe it's been answered, but I can give the word to António again.
No, I think they have been answered. As we said, again, like I said, we believe that we have the best set of assets of the old industry. Of course, they are not all equal. The ones that we feel that are within our group of assets are a bit less competitive, we are working on them for other. Araújo, do you want to add something?
Yes. In effect, some of the shopping bags you can see on the market are made with our paper. Based on the paper we do, but with some modifications, make it stronger and adapt to that function. We are working already on that and will continue.
Just where I think that at the root of your question is a little bit of concern over the importance, flexibility of our portfolio. Before this crisis, I think we were already quite comfortable with the flexibility and the resilience that our portfolio has itself. Actually, if there is one positive thing over this period, over the last few months, is that we learned that, in fact, we have a resilient and very flexible portfolio. To sum up, our pulp can be fed into the uncoated woodfree paper, which António 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 for potentially new machines in the future. We can sell it in the market with the greater sales as we've done over the last few months.
Fourth, but not least, we can consider new applications of pulp, as António mentioned. 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.
As a reminder, ladies and gentlemen, to place a question on today's call, simply press star one on your telephone keypad, or if you're connected through your web browser, please use the small flag icon on your screen. Our next question comes from Jaime Pinto. Jaime, please go ahead. Your line is now open.
Hi. Good afternoon, everyone. Just to follow up on the new applications for the UWF 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 your sales? We are talking about a niche market? Thank you.
They today represent, I will not say a 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 substitution. We are looking to different applications. Again, it is yet too soon to make any further comments.
Thank you.
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'd just like a bit more color around the uncoated woodfree industry. When do you think you will have more information when you've got a better feel of demand coming back, people returning to offices, et cetera, 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? 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 pricing. We don't know what is going to happen to pulp prices, so it's very difficult to have, to take a sense on that. We look to pulp prices, I guess the same way you look, we look to the analysis made by the researchers and consultants of the sector, and our view is the average of their view. The future evolution of pulp 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 pulp prices are low and exiting the market when pulp prices are high. I understand your reasoning. We cannot comment. We don't know exactly how pulp prices are going to evolve.
Regarding demand, actually, we are right now trying to evaluate, from the end user perspective, their views on future demand. 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 is going to evolve in the fall, namely if we have a second wave. It's very difficult to predict. Secondly, as we referred to, the area of the business that we felt was more impacted was actually commercial printing. Commercial printing is very much linked with economic activity. Economic activity, we hope to restart, but we believe we have a few quarters ahead of us that are going to be very tough.
We are continuously monitoring both pulp price evolutions and the impact this will have in the industry, and as well as the demand and if there are some changes on consumer behavior patterns. 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, those relevant moves, look, for instance, what's happening right now in the coated woodfree side, are large machines owned by companies that have a diversified portfolio and can move and repurpose 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?
We monitor that using different key indicators. We look to order books. We look to our stock levels. Actually, I invite you all to come and visit our mills. Our paper mills have been designed not to carry inventory. When the market conditions become tough, we need to adjust because we have to put stock and we don't like to work with stocks. Our stock levels are typically one-third of the stocks of the industry historically, is not now. We look, of course, to order books, demand, stock levels, and as I said before, we can slow down machines. We can temporarily shut machines and restart them again. By doing that, we have the option to produce more.
Thank you.
Ladies and gentlemen, that would be star one on your telephone keypad or submit a question through the webcast to place a question on today's call. It seems we have no further questions on the audio line, Joana, so I'll just hand it back over to you.
Okay. Thank you. This ends our conference call for today. Thank you very much for listening.
Ladies and gentlemen, Navigator's first half 2020 results conference call is over now. You may disconnect your lines, and thank you very much for joining us.