Earnings Call: Q1 2020

May 26, 2020

Ladies and gentlemen, thank you very much for your patience and welcome to today's call. I'm pleased to present the speakers. Please go ahead. Yes, ladies and gentlemen, welcome to the call. We are sorry for this to start late, but we had some technical issues regarding the start of the call. So we will now start the call for the Q, the Q1 2020 results. And participating in the call today are the following members of the Board, Antonio Rodondo, Adrienne Siavera, Jean Paul Divida, Jean Lea, Fernande Roulouge and Moon Franch. We will start as usual with a brief presentation of the main highlights for the period and we will have a Q and A session at the end. The presentation can be accessed through the links available on the website and questions may be also addressed through the webcast platform. So Antonio will start now with a comment on the main figures recorded in the period and follow with an overview of the paper market. Moonstone will comment on the Pulp and Tissue business and Fernando will address the main financial issues. Adrian Cuveira will detail some of the group's initiatives in light of the COVID-nineteen and Antonio will close the presentation with the outlook for 2020. I will now hand over to Antonio. Please? Thank you, Joanna. Good morning, everyone, and thank you for joining us today. Once again, our apologies for these technical difficulties to start the call on time. I will start the presentation by making some brief comments on the results for the quarter that we published last week. And please go to Slide number 4, where we compare Q1 2020 with Q4 2019. Prices in this comparison are relatively aligned, and we can see a clear positive overall evolution. The comparison year on year is tough as prices in Q1 2019 were still at high levels when compared to Q1 2020, especially paper prices as average paper prices in Q1 2019 was €914 per tonne, the highest price for a quarter in the last 16 years since Q2 2,003. For Navigator, the year 2020 actually starts off in a quite positive manner as we have registered a significant improvement in our operational performance across the mills without any relevant disruptions or stoppages throughout the quarter. We also registered a strong recovery in our paper order book, attaining 1 of the highest levels ever for a similar period with an order book over 50 days. Actually, we feel that if this kept in demand and the price realization have not been interrupted by the current pandemic situation, we would have seen a recovery in prices starting already in Q2. But of course, as we all know, at the end of the quarter, external conditions change very quickly and we were faced with a totally different context. Yet, our Q1 performance was almost not affected by the impact of the COVID-nineteen pandemic and we managed to increase significantly our volumes sold across all our businesses, Anchor Pastry Paper, Eucalyptus pulp and tissue. Noteworthy, our production costs also evolved quite positively throughout the quarter, both in terms of variable costs as well as fixed costs. I will return back to that later on. So the main aspect I would like to enhance about Navigator's Q1 results is the good operational performance and the recovery in volumes. This allow us to offset a part of the decline in prices already anticipated in our 2020 budget. Also important to enhance in the period is the payment made in early January of €100,000,000 in reserves to our shareholders. At the end of March, our leverage was still comfortable with net debt to EBITDA ratio of 2.5x. Of course, as the COVID-nineteen pandemic started to evolve, we decided to increase our remittance to liquidity by almost €265,000,000 to €256,000,000 That was further enhanced in April May. Consequently, we have all our financial needs for 2020 completely assured. 1 of the many decisions taken was to review once again and further extent our cost reduction plan established for 2020 and also to develop another set of even more diseases, cost cutting measures. We will go over the measures and actions taken by the company within the COVID-nineteen pandemic in more detail further ahead in the presentation. But now let's go please to Slide number 5 with the main financial highlights for the quarter. So turnover declined less than 2% quarter on quarter and close to 4% year on year as we have registered lower prices for pulp and paper as mentioned before. As said also previously, the lower prices were partially offset by higher volumes, more than 34% year on year in pulp, about 4% in paper and the EBITDA in the quarter totaled €88,000,000 which represents an increase of 23% when compared to Q4 2019 and a 16% fall when compared to Q1 2019. Margin EBITDA over sales was almost 22%, improving 4.4 percentage points over Q4, but comparing to 25% year on year. Our CapEx in the previous was under €23,000,000 which compares to €33,000,000 in Q1 2019. So €10,000,000 less and this was mainly focused on maintenance projects to improve the core business and environmental protection. The moderate pace in implementing our CapEx plan as well as a careful working capital management allowed to generate a free cash flow of around €50,000,000 And our net debt at the end of the period stood at €800,000,000 And the net debt ratio remained at a conservative level of 2.25x, excluding the impact of IFRS 16. Next slide on Page 6 shows the evolution of the last 5 quarters, and we can clearly see the recovery that occurred in this period. Our solid order book and the pickup in volumes allowed for a stable turnover and increase in earnings. Yet the impact of the decline in paper prices over the last quarters coming from a peak level in Q1 2019 is also evident. Let's please look at the EBITDA in more detail on Page number 7. So EBITDA, as mentioned before, totaled $88,000,000 in Q1, a very significant improvement of 23% visavis the $72,000,000 we achieved in Q4 2019, essentially due to the reduction in costs, mainly in fixed costs that reduced more than 20% and variable production costs as well that reduced about 4%. As Q1 2020 and Q4 2019 have more line prices for pulp and paper, the impact of prices was just slightly negative and the overall impact of volumes was positive, especially in the tissue business. The other items include change in biological assets with a positive impact in Q4, loss of resin stocks and anti dumping adjustments. Going to Slide number 8, we have the evolution of EBITDA in Q1 2020 versus Q1 2019 when EBITDA stood at $105,000,000 In this comparison, in EBITDA in Q1 2020 was mainly impacted by the decline in record high paper and pulp prices. In the tissue business, we actually have a positive evolution of the average selling price, mainly due to the mix improvement as we sold more converted products and less reels than in 2019. Prices for both convergent rues were actually slightly lower. These declining prices from historical high levels was offset by both the positive impact from volumes across all businesses, plus 4% in papers, plus 34% in pulp and plus 10% in tissue as well as by the positive impact of production costs. In variable costs, the main savings were related to wood due in particularly to lower specific consumption in the period. Chemicals, essentially because of lower prices, we were able to negotiate for certain chemicals and also the work then reduced consumption of chemicals at the dishing stage as well as external fibers, thanks to falling prices for both long and short fiber and the optimization of the fiber mix we leave, leading to a better specific consumption. The variable production costs fell about 2% year on year and close to 4% quarter on quarter. Fixed costs in the quarter also improved circa 8% over the Q1 of 2019 and over 20% quarter north quarter. With positive evolution in operating costs, in particular in the cost of corporate sectors, in line with the cost reduction plan announced last year in payroll, with the reduction in the headcount as well as the reduction of value of variable salaries and lower maintenance costs, which were positively influenced by the postponement of maintenance shutdowns at the pulp mills in Figueira da Forges and Sartougo, shutdowns which took place in the Q1 of 2019. Other items totaling €11,000,000 impacted negatively EBITDA and were essentially due to 3 main factors: impact of antidumping tax, recognizing the accounts, which had a positive impact of EUR 2,000,000 in 2019 and a negative EUR 1,000,000 of EUR 2,400,000 in 2020 the insurance indemnity of circa €1,000,000 recognized at the end of Q1 2019 and change in biological assets as well the circa EUR 1,000,000 Let me make a few comments on the anti dumping. The anti dumping impact on the accounts were related to small adjustments made to the rates of recent periods under review, period of review 3, period of review 4 and even period of review 5 with our management of March this year. On the anti dumping front, we actually have some very positive news that we have shared on our earnings release. As you may recall, the incident being rate to be applied retroactively on paper sales to the U. S. For the 2nd period of review, which ran from March 2017 to February 2018, initially set at 5.96%, was adjusted down to 4.37% at the end of 2019 by the United States Department of Commerce. As a result of this decision, the Customs and Border Protection Agency has already processed the resend in relation to part of POR 2 with an initial total value of US4.7 million dollars refunds and interests due, which we expect to receive before the end of the first half of twenty twenty. This is an update from the previous report as we have just received over US2.3 million dollars of the total US4.7 million dollars just mentioned. In relation to the 1st period of review, POR1, the matter is currently before the U. S. Court of International Trade. Just to give you some background, the standard rate for POR1 was reviewed by DOC from 37.3 to 1.75 in October 2019. The court, however, decided in November 2019 to request the VOC to review that outcome. The DOC held until February 2020 to submit its decision to the court, which it did, again recalculating rate, which is now set at a lower level of 1.63%. Receivings at the court are taking the normal course. I will now ask Nuno Santos to comment on the portfolio market. Nuno, please. Thank you, Antonio. Let's go to Slide 10 of the presentation, which shows the evolution of the peaks index in dollars and in euros. The U. S. Dollar price of hardwood in Europe was stable over the quarters at US680 dollars per tonne. That was 31% down from the price of $9.91 per tonne recorded in the Q1 of 2019. The price of hardwood pulp in euros dropped by around 29% to €616 per ton in the quarter as compared to €872 per ton in the Q1 of 2019. When compared to quarter on quarter, price of hardwood in dollars fell 1 point 6% and 1.3% in euros. More important, when compared to the last 6 years, it is clear that pulp prices are now at the bottom of the cycle and at the lowest level since 2014, especially when we consider the market discounts that market discounts have been increasing over the past years. So let's go to Slide 11 with a brief pulp market update. By the end of February, the global pulp market demand increased by approximately 13% year to date, And it is estimated that in Q1 2020, demand might have grown approximately by 15% year on year. On the supply side, there were a number of unplanned shutdowns and reductions in output. Above all, in the supply of short fiber from Asian producers as well as a reduction in available output of short and long fiber as a result of the 3 week strike by forestry pulp and paper workers in Finland. In addition, the COVID-nineteen pandemic resulted in very significant limitations on logistical operations in China, as from the Chinese New Year on January 25 throughout to March, severely limiting the dispatch of pulp from ports to mills. As we have just seen, prices remained at the bottom during most Q1, both in Europe and in China, creating pressure on producers who have attempted price increases in both softwood and hardwood. The latest announcements were made in April May in the main pulp conception regions and are still under negotiation. Regarding hardwood capacity, it should remain relatively stable during 2020 first half of twenty twenty one until start up of a new unit in Chile. Now, Juan Paolo Rivera will comment the paper market. Juan Paolo, please? Hello. Good morning. Thank you, Nuno. On Slide 12, we can see the evolution of paper price. The benchmark index for A four showed a downward adjustment of 6% year on year to an average price of €8.64 per ton as compared with €9.14 per ton in the first quarter of 2019. As already stated by Antonio, after a peak in Q1 2019, prices have come down progressively since Q2 2019 and are currently at the same level of the beginning of 2018. Still current price of €844 per ton is above the average price of the period between 20142018 of €832 per tonne. When compared Q1 2020 with Q4 2019, the A four index fell 2.3%. On Slide 13, we have an overview of the paper market. After the distribution chain ended 2019 with very low stock levels, by February 2020, we started to see the reverse phenomenon as the European industry experienced strong growth in orders. Navigator recorded a very high level of paper of load on the mill in the Q1 in excess of 50 days, one of the highest ever for this period of the year. In the final fortnight of March, as lockdowns were imposed in most European and Asian countries, the company began to receive some cancellations and above all postponement of orders by its clients. Despite this, it still ended the month with an order book of more than 40 days, a level 45% higher than its European counterparts. We believe that Navigay's very high order book in the 1st month of the year minimized the impact of the fall in demand that occurred at the end of the quarter. Figures for paper demand in Q1 2020 show an overall fall of 6.4%, which we believe is influenced by the significant reduction experienced in Asia in March as demand in Europe fell only 3.9%. However, due to a strong stock reduction which occurred in Europe during last quarter 2019 and considering its effect, real paper consumption was only 2.1% in line with our forecast. As seen in the past, uncoated woodfree appears to be one of the least affected grades among printing and writing, as coated woodfree and mechanical grades experienced double digit reduction of 11% 13% respectively. Still, the adjustment in demand may not have been so harsh as the parent consumption seems to estimate as the fall in import and the very low paper inventories at the beginning of 2020 may have influenced this figure. This global downturn in demand following the lockdown due to COVID-nineteen pandemic has led the large majority of producers to announce temporary downtime in reductions in production across the world for April, May June, and occasionally for longer periods of time. The known figures show The loan figures show a reduction of approximately 10% in Europe and the USA, but we actually believe the number is probably much higher as many producers do not announce these downtimes. Let's go now to Slide 14 with a view on Navigator's pulp and paper performance in the quarter. Our total output increased by an impressive 12% quarter on quarter and by 5% year on year. Navigator's sales volume for uncoated wood free paper rose by around 4% in relation to the Q1 of 2019 and were flat quarter on quarter. Our average price for Q1 2020 was in line with Q4 down, but 6% down versus Q1 in 2019, in line with the index. In geographical terms, sales outside Europe rose steeply, up to more than 10%. Premium segment sales accounted for 53% of total and new brand sales also rose to 71% of total. Despite the increase of 4% in sales volume, the sales value in the group's uncoated woodfree business was impacted by falling prices over the period and the sales dropped in value by around 2% to €293,000,000 As stated before, it is important to note that the year on year price comparison between quarters is hindered by the fact that Navigator implemented a price increase for uncoated wood free paper right at the start of 2019, following from further 4 increases over the course of 2019. I will now ask Noni to comment on pulp and business and tissue business. Noni, please. Thank you, Juan Pablo. Well, going over the quarter, Navigator succeeded in increasing its pulp output in tons by 8% quarter on quarter and by 7% year on year. We recorded a volume of sales of market pulp significantly higher than in the same quarter in 2019, up 34% in tonnes due to recovering sales in Europe and diversification of sales to other markets. This increase in sales is in line with expectations given the capacity expansions at the Figueroa force mill and the return to good operating performance over the quarter. Still, due to the downward trend in prices, the value of pulp business sales stood at €35,000,000 as compared to €40,000,000 in the Q1 of 2019. Going now to Slide 15, with the performance of the tissue business, we can see that tissue sales in the quarter amounted to over €36,000,000 growing 8% year on year and that the tissue business has increased its weight in the group's turnover to 9%. This is a result of the expansion and recent investments made in the tissue business by the company. Tissue business evolved very favorably over the Q1 with sales in volume reaching close to 26,000 tons, representing an increase of 20% versus the last quarter and 10% in relation to the Q1 of 2019. The group operations succeeded in reacting positively, sizing the opportunity offered by the peak in demand triggered by the COVID-nineteen for at home products. The Avero and Villareva Villa Vergardo Tissue Plants operated without any restrictions during the state of emergency, achieving an increase in output, especially on converting lines. However, it must be noted that increased sales in the at home segment were counterbalanced by evolution in the away from home segment, which was affected by the COVID-nineteen situation. These products are aimed to a larger extent to ORECA channels, hotels, restaurants and at companies which were severely affected by the lockdown measures implemented from mid March onwards. The sales mix improved in relation to the same quarter in the previous year, with a proportion of finished products rising to 86% as compared to 74% in 2019 to the detriment of reals. In terms of geographic distribution, Portugal remained the main market, but sales to outside Iberia increased significantly, namely to France and the UK. Fernando will now comment the CapEx plan. Thank you, Onono. Let's go now to Slide 16, where we have an overview of the CapEx we received in the Q1 of 2020. Navigator record total investment of almost €23,000,000 versus €33,000,000 in quarter 1 2019. This figure includes a sum of approximately BRL14 1,000,000 in best maintenance, efficiency and others, BRL 7,000,000 in improvements to our core business assets and around BRL 2,000,000 on environmental projects, in particular, the new biomass boiler at Figueredo Forest plant. As you recall, the reconstruction of a new biomass boiler at Figueredo Forest site to replace the existing boiler and natural gas combined with cycle power plant will make it possible to reduce fossil CO2 emissions at the mill site. This is a project that starts in 2019, and we expect it to be concluded by the end of P3 this year. This project is linked to our aim to have our industrial operations cover neutral that the group disclosed in 2019. On Slide 17, cash flow from operations generated in the quarter was $71,000,000 compared to $88,000,000 in Q1 2019. Free cash flow totaled $50,000,000 in the first quarter as compared with $10,000,000 in the same period a year ago. It should be recalled that sizable annual payments traditionally are made on the 1st quarter accounts like bonus insurance premiums joined this year by an additional tax assessment. This situation was handled smoothly, thanks to a careful policy of working capital management in which the extension of certain payment periods was coordinated with the implementation of complementary measures to support liquidity of our partners. The adoption of a significantly more moderate path in implementing our CapEx plan also contributes to this success. The step increase in clients is mainly due to the significant reduction of the EBITDA by year end 2019, where an effort was made 25 receivables. These amounts reflect the variation versus the end of the year and does not reflect an increase in the average collection period. In terms of inventories, the year end is also traditional low period for stocks at the end of Q1 2020, reflects the increase in line with previous periods. So now on Slide 18. As a result, at the end of March, Navigator interest bearing debt totaled $800,000,000 up by $85,000,000 in relation to year end 2019 after the group paid around $100,000,000 in reserves to shareholders. The net debt to EBITDA ratio still remains at a conservative value of 2.3 without IFRS 16 effect. I would like to spend some minutes on Slide 19 and go over to the recent initiatives taken to increase liquidity. At the end of the quarter, EMEA stood at $256,000,000 from $160,000,000 at the end of the year, to which should be at the continuous season of sizable unused medium long term backup facilities standing at $75,000,000 at the end of the period as well as short term facilities of 20,000,000 dollars Our average cost of debt at the end of the period was similarly competitive at 1.5%, and we maintained an adequate proportion of fixed 67% and variable debt 33%. So the group has maintained a sound financial position enabling to face comfortably the current situation with all its financial needs for 2020 assurance. I would like to add that the group continued to pursue this policy in April with the contract of additional short term finance with a value of $45,000,000 which in combination with implementation of new measures to manage working capital have made it possible to reinforce this liquidity position still further. I will now give the floor to Adriano. Thank you, Fernando. Thanks. I would like to go to Slide 21 with some of the key measures that have been implemented over the last month following the COVID-nineteen pandemic situation. We believe that faced with such unprecedented events, a prompt and decisive response was needed, with the main focus being, of course, the protection of our people. On Slide 22, we have highlighted some of the main initiatives taken. Our first priority was to protect the health of our employees, their families and our communities, as well as our suppliers and clients. This was achieved with a contingency plan drawn still in February and essential tool to in aligning the entire company towards this effort to our strict prevention and containment. Some of the measures taken to assure worker safety have included organizing working areas and shared areas so as to reduce the number of persons in the same space and the distance between the people, increasing the infection actions and materials in workplaces distribution of protective equipment to internal and external personnel, restrictions on excess of non company personnel and of course the organization of home work for around 9 40 employees. And I am proud to say that so far, we have detected only 4 positive cases of COVID-nineteen in our facilities, 2 among external providers and 2 in our own employees. In an universe of approximately 4,500 employees, 3,200 direct and 13 100 indirect. We believe this is clearly the result of the strict and quick action taken by the company and the overall efforts of every single employee. Essentially, when we consider that 2 of our new sites are located in areas where there is a very high number of gates like Avero and Secuba. Going to Slide 23, we have some of the main actions taken to support our community. The group launched a number of initiatives to support local people in the municipalities where it operates, in particular by jointly donating digital radiologic equipment to Frigida de Fosse Hospital and repeated donations to a range of protective materials to hospitals in Sotuba, Anave. We also launched several initiatives through paper donations, mainly to 3,600 children from needy facility families in order to support their school activities. Navigator also joined the largest distributor of newspapers and magazines in Portugal in order to allow 1500 points of sales to be able to print their customers' documents during the containment phase. As part of this initiative entitled Soldarz de Papel, meaning paper soldiers, 100,000 paper decks were distributed at points of sale with a message of encouragement to the Portuguese populations. We also provided support to our supply chain through the implementation of a plan for daily monitoring of supply risks in order to anticipate any interruptions of supply, originating from production units of our suppliers and from logistic transportation chains. So far, there has been no upstream or downstream disruptions. These initiatives were also a way to protect and support our relationship with our regular providers, most of which are small and midsized companies, allowing them to continue to operate in this difficult environment, keeping their agility to remain as our business partners and as providers of the Portuguese economy. If we hold to Slide 24, we have some of the actions undertaken regarding our business continuity plan. In parallel of the contingency plan, the group implemented Chris' office in charge of managing the evolution of the COVID-nineteen with the involvement of the executive boards on a permanent basis. The business continuity plan also includes a range of initiatives, namely monitoring the situation throughout the supply chain from suppliers of wood and raw and subsidiary materials, including logistics, to technical and support service provided by foreign companies and providers of outsourced service. Other measures adopted by the company were control of operations in the various industrial units and in different business, boosting the capacity of information systems, which has allowed almost 1,000 employees to work from home and stepping up security measures in the company's networks that so that telework could proceed safely and without any disruption. New control process for stock management has been implemented at our production sites, allowing them not only to streamline stocks of raw materials, but also to make rapid adjustments in orders in line with our real needs. In the current situation with COVID-nineteen, and we postponed maintenance shutdowns for Q2 and E3. As Fernand stated previously, we increased our immediate liquidity, maintaining a robust balance sheet. These have been some of our preventive actions when faced the huge uncertainty brought by the COVID-nineteen at the end of the quarter. So I will pass the floor to Antonio Redondo. Thank you, Adriano. If we can now move to Slide 25, please. In April, we started to see some of the real impact in our business. So as stated on this slide, on the market side, the sharp downturn in economic activity in most of the markets where the company operates has had a very significant impact on Enco 2 to 3 paper consumption and demand, and Navigator accordingly decided to cut its output by approximately 7 100 and 2,000 tons a day for a period of 30 days. On May 20, considering the visible signs related to paper orders, the company decided to extend the cat in production until the end of June, an action which will preserve a better balance between supply and demand and minimize risks of stock accumulating along the supply chain with relative consequences. In order to ensure operational normality and stability in stock levels, adjustments have been made to the pace of production at the mills producing pulp integrated into an coated roofing paper and also to alter the shorten the maintenance shutdowns planned for Q2. Following the situation, Navigator has decided to apply the simplified partial layoff measure in the form of a temporary suspension of employment contracts or reduction in work time provided by the Portuguese law. Approximately 1200 workers will be impacted by these layoff measures, 97 of which will be in full layoff with impacts as of June 1 onwards. In terms of full time equivalents, this represents less than 13% of the total number of workers within the group. It is noted that the company will maintain the full remuneration of these workers, excluding the components associated to the actual provision of work. Consistent recent developments for the sake of prudence and because of use of layoff measure, the Board of Directors has decided to withdraw the proposal related to the profit allocation in the agenda of the next general meeting to be held on May 28. As previously mentioned, Navigated has already paid to shareholders an amount of approximately €100,000,000 related to reserves in January 2020, and the proposal that is being withdrawn refer to an additional distribution of approximately €99,000,000 The company will issue a new convening notice for the general meeting with the discussion of the new proposal for allocation of net profits to be made by the Board of Directors for such profits to be fully applied into free reserves as a sole lightening agenda. Accordingly, operations at our integrated pulp mills have been adjusted with the Avelo pulp mill working under business as usual. The tissue mills located in Avelo and Villa Velo de Rodo continue to produce without any restrictions. So in order to offset this cut in paper production and consequently the impact in revenues, Navigated implemented a set of measures summarized on Slide 26. Besides the support to suppliers and the liquidity increase already mentioned, we have decided to reduce our 2020 CapEx plan, which in our budget were estimated at around €160,000,000 In addition to CapEx allocated to maintenance and efficiency gains, this sum also includes environmental investments, major repairs and other CapEx projects for recognitioning assets, which will now be kept very significantly by around €88,000,000 to close to €70,000,000 As announced in our Q4 2019 results, we have launched a new cost optimization and operational efficiency plan at the start of the year, evolving the entire organization and all its business areas as well as a new digital transformation project in the corporate sector. However, with the shift to a deep recession as a result of the measures to contain and mitigate the COVID-nineteen pandemic, the group has had to review and extend the scope and depth of cost reduction initiatives originally envisaged and to contemplate a thorough formulation and streamlining of the group's operating structure addressing fixed costs, variable and investment costs. This will make it possible to obtain very significant reductions, in particular in fixed costs, totaling €46,000,000 in 2020 in relation to 2019. Keeping our focus on boosting sales in business areas in this particularly challenging context, all of the group sectors are committed to the essential efforts to optimize costs as a way of preserving the group sustainability in the immediate future and the long term. So let's take a look on Slide 27, please, of the main challenges that lie ahead of us and what we can expect in terms of our short term outlook in Q2. Q2 will be very challenging and marked by great uncertainty and recovery will depend on the rhythm of reduction in the production of the stock on measures. Specifically in paper, since the start of the COVID pandemic, Navigator implemented models for monitoring and forecasting the likely impact on its core business. The sales volume has so far been in line with the projections initially made in March. The Nkotun free sales volume fell by about 20% in April in relation to the same month in the previous year, whilst the combined drop in the 1st 4 months of the year in relation to 2019 is only 2%. Demand for printing and writing papers is severely affected by a situation of social paralysis with schools, shops and offices all closed. Even so, Enkoto Root Free paper is more versatile in its final applications than other forms of printing and writing papers and continues to display a stronger level of resilience. Preliminary figures for April show that demand for Encode III is being less effective, although very much effective, than demand for other printing papers. The year on year percentage drop in the MAXI sales by European producers in Encode 2,000,000,000 has been around half of that for Encode 2,000,000. The dynamism of the Encode 2,000,000 market in the near future is dependent, like most economic sectors, on the success of the reopening of the economy, which is believed to be happening gradually alongside plans for ending lockdowns and the return to normality to the extent possible. The demand for office paper will be boosted in particular by the reopening of schools and universities, the return of employees working from home to an office environment and the resurgence of the service sector. Demand for portfolio paper and reels will depend on the revival of the publishing and advertising sectors. Significant drops in demand are therefore expected in the Q2, most actively in the key European markets and in United States, and the gradual recovery is then anticipated until the year end. In pulp, Navigator expects to achieve a slight increase in sales of pulp to the market, in particular in the Q2, in line with budget projection. At this year, the forge mill, the capacity expansion implemented in 2018, combined with reduced needs for integration with paper and the current drying capacity will enable the candidate to free up some pulp capacity for the market in addition to sales from Avelumil. We believe there are signs of improvement in global demand for pulp sustained by China and a recovery in Europe. In the tissue business, the COVID-nineteen had a positive effect on the Q1 sales and continued business growth is expected in the months ahead in line with Navigator's budget projections despite predictions of a slight downturn in demand in the tissue market as economic activity slows, especially in the tourism sector. As previously envisaged, tissue business will enjoy a positive impact from growing output and sales and from a more efficient cost structure combined with economies of scale. Finally, I would like just to point out that recent years in pulp and tissue capacity have allowed the group to increase its diversification, and we expect that during the most critical period of this pandemic, March to June, the increase in these two businesses will allow us to mitigate the impact felt in the Encore to do free business. The Enkoto DeFi business though is a resilient and salt business, of course, but is not immune to the extraordinary situation we are currently living. Thank you very much. Thank you, Antonio. This concludes our comments on results. We are now ready for the Q and A session. Thank you. The first question we have is from the line of Jayo Pinto from JB Capital Markets. Please go ahead. Hi. Good morning, everyone. Thanks for taking my questions. The first one on paper volumes. How much can we expect them to fall in the second quarter? Could you give us some indication of the magnitude, 30%, 40%, if you could give us some color, that would be great. Secondly, what's your view on the inventories level of your clients right now? Do they remain low? And once the economy returns to normality, your clients have to purchase? And following this, as work downs are starting to lead, are you already seeing initial signs of an increase in the order book for the upcoming months? Finally, my last question on the dividend. Will you consider the possibility of returning to this topic later in the year? I mean, once there is visibility in the market? Thank you. Okay. Joao, thank you for your questions. I would ask you if you can repeat them. Sorry, because we have some issues on the line. So if you can go over them again. I believe you started with the paper volume question. So if you can please rephrase the question again. Yes. So the first question is on paper volume. How much can we expect them to fall in the second quarter? Some indication about the magnitude, 30%, 40%, some color. Can you please be so kind to repeat all the questions because the line is dreadful and we got the first one, but if you are so kind to repeat the other ones, please. Okay. The second one is your view on the inventories level of your clients, do they remain low? And once the economy returns to normality, will clients have to purchase Cyprus? And following on this one, as we are seeing that lockdowns are starting to ease, are you already seeing initial positive signs as an increase in the order book for the upcoming months? And finally, my last question was on the dividend. Will you consider the possibility of returning to this topic later in the year once you have visibility in the market? Thank you. Okay. So I'm going to give you some elements for the first questions, and I will ask then my colleagues to complement my thoughts, okay? So regarding paper volumes, our view is that paper volumes for the year rather than for the Q2 will probably drop not far from 15%. So the drop in 2020 vis a vis 2019 in NCO2-three in the main markets, Europe and U. S. A, we expect to be around 15%. It's more difficult to comment quarter by quarter, but we expect the figures on the 2nd quarter to be worse than on the 3rd and the 3rd to be worse than on the 4th. Total for the year, about 15%. On the inventory levels of our clients, we do believe that inventory levels, as we speak, at the very high levels. Hence, we have developed a set of new tools and I would say innovative tools to help our clients to sell more speed our own products, reducing the inventories of our own products in order to be able to restock again in the weeks to come. Signs of the initiative of the initial positive order flow, yes, we saw them. We saw them for about 2 weeks now, including this week. Although we expect things to go up again soon, we cannot forget that we are now in the period of Ramadan, of the facilities after Ramadan. So orders from markets outside Europe and U. S. A. Are at quite low level. We expect them to be kept significantly after the end of the festivities. So our expectations is that the order flow will gradually return to more adequate levels. In spite of that and to make sure that we don't put more paper into the pipeline to increase stocks through the pipeline, we have decided to extend the reduction of capacity for another month. Before moving to the 4th question, which is of a different nature, I will ask my colleague to Juan Pablo Hivera to if he wants to add something on these three first questions. Juan Pablo, please? Antonio, I think you gave the answers that are known to us at the moment. So nothing to add. Thank you. Okay. So if I now move to the dividend question, I will also give some elements of answer, and I will ask Fernando to complement my thoughts. The first thing that I'd like to call your attention to is the fact that we live in times of great uncertainty, and these times of great uncertainty requires a prudent approach. We have the best way to manage uncertainty in our view is to build scenarios. And when this pandemic situation started by the end of Feb, we built several scenarios from very, very stressful scenarios to more normal operational scenarios. I think we mentioned during the call that the last the periods where we expect things to be worse is now the period somewhere in between April June, so the Q2. And so far, all the more drastic scenarios, all the more stressful scenarios are not confirmed. We are following what we call our operational forecast, which is much more optimistic than the stressful scenarios. Having said that, even in the most stressful scenarios, we do believe we will have a position to adequately pay our shareholders. So we kept that possibility. But because of the uncertainty and because of the prudence, we have decided to extend the shutdowns of the machines or the reduction of capacities and entering into layoff. When we enter into layoff, according to the Portuguese law, during a period of time, you are not allowed to pay dividends. Hence, we were obliged to change the point tree of our General Shareholders Assembly and to make sure that the amount we call is referred to is past due reserves. But again, the situation we are having today and the house we see today, we do believe that the company will have the possibility, if the shareholders so ask, to properly pay shareholders later on in the year. I think I cannot compliment much more, but it's to say that in our financial plans, we have considered the payment of dividends. This, for the time being, is postponed, but we consider to distribute that at the end of the year, provided that the shareholders are set on a special General Assembly meeting like in the other years because the Board could distribute the results, cannot distribute the reserves. In that case, it will be reserves. It will be a full decision of the shareholders. That was very clear. Thank you. Thank you. The next question is from Bruno Bessa from Taxia Bank BPI. Please go ahead, Bruno. Yes. Good morning. Thank you for taking my questions. The first one would be focused on the negotiations for the workers' career plan that in the last conference call you mentioned that was expected to be closed during February, if I'm not mistaken. If you could give us an update on this, it would be appreciated. And the second question on the on your cost savings plan for this year, you mentioned EUR 46,000,000 savings. My question is, what are your estimated one off costs in order to reach these savings? And if you are expecting any kind of one off costs during the year related with the adopted measures to fight the pandemic? So this will be my second question. And third question, you have canceled the dividend for this year. You already mentioned that you are under a comfortable balance sheet position if the shareholder asks for a distribution of reserves. My question is, would you consider a share buyback plan during the year? This will be my last question. Thank you very much. Okay. Bruno, thank you very much for your questions. I would just repeat the first two so I can we can be sure that we have heard properly. So the first has to do with the career plan negotiations with the employee and you want to have an update on that, correct? Yes, that's correct. The second one, if you are expecting any kind of one off costs related both with the cost savings plan that you are mentioning for this year or with any other measure that you are adopting to fight the pandemic during the year? So you want to know if they are one off costs regarding the pandemic of the COVID? The pandemic or the cost savings plan. Okay. Okay. Give us just a second, okay? Thank you. Sure, sure. Thank you for your questions. I will give a few elements for the question number 2, and then Fernando will answer one third question first question, third question, and we'll have something on question number 2. On the cost savings, so the plan of cost savings, as we try to explain, is across the board, both variable costs, fixed costs, corporate costs, costs at the mill. So it's relatively across the board. The cost of fighting the pandemic is obviously relevant from what we need to do internally and what we need so far to adapt. But I will not say that this will represent any specific significant one off costs that will be distributed normally throughout the year. So if we understand correctly your question, there is not a specific high cost that you need to incur to fight the pandemic. It's distributed all over the year, particularly now. And the cost savings program is across the business. So I'll now hand over to Fernando to answer you question number 1, question number 3 and to add on question number 2. Thank you. Regarding question number 1, yes, we have considered that probably in February, we could close the negotiations with the unions. But as normally happens, this was postponed. During March at the end of March, both sides consider that regarding the pandemic situation, it will be wiser to postpone the negotiations. The negotiations were postponed till last week. Last week, the unions asked us to come back and start again the negotiations. And we have done that last Friday, and we are in conditions to conclude. I will not say, if possible, during this semester, but at least we have started already the negotiations after the pandemic situation where we agreed to postpone. In what regards the share buyback, like we have said, we have no visibility for the year. It's a tough year. But nevertheless, we have considered the dividend for the end of the year on the share buyback, we are not considering that for the moment. Probably just one point that we would like to have for question number 1. A few months ago, the head of the new Union Central in Portugal, the largest Union Central in Portugal has mentioned publicly that what we are doing together on this negotiation with the unions of organizations that represent the workers is quite innovative in the country. So it was interesting to witness that even the head of the unions, the central of the unions refer that. Thank you. Okay. Thank you very much. The next question we have is from the line of Carlos Sous from Kaxia Bank. Go ahead, Carlos. Hello. Good morning, Joanna, gentlemen. I have some questions, if you can. Can you please provide your vision about working capital needs evolving in Q2, also in Q3, but most precisely in Q2 as it's the most endangered quarter. Also on pulp do you see the latest hardwood price increases announcements in Asia being accepted? And when do you anticipate that the same move would be implemented in Europe? And also in terms of tissue, is there any danger of stock accumulation in the at home segment with the reopening of the economies now? Thank you. Okay, Carlos. Thank you very much for your questions. I will just repeat them again so to be sure that we have heard them properly. So the first question is regarding the working capital needs that we may have for Q2 and probably Q3, right? The second question, as I understand, is regarding pulp prices and our vision of whether or not the latest hardwood pulp prices are close to be accepted in Asia and perhaps Yes. And when you see the same being implemented in Europe. In Europe, okay. And the third is regarding the tissue and possibility of having stockpiling regarding the S1 segment after the pandemic has passed, correct? Yes. Yes, it's correct. Okay. Thank you very much. So I will give the floor now to Fernando, and he will address the first question, okay? On the working capital, like we have said, we are very rigorous on the conduction of the working capital. We think that by the end of the quarter, we will stood at ratio net debt to EBITDA far below 2.5% or at least at 2.5%. Nevertheless, like we have done, we have enough liquidity. We are considering the clients and the supply side conducting this rigorously? And in what concerns inventories, we are trying to reduce those inventories, especially on the pulp side. Hello. So regarding pulp prices, the jury is still out there regarding what's going to be the outcome of the recent announcements of price increases. So we'll see what will happen over the next few days, few weeks. So we do not exactly know what will happen. We see fundamental strong, but later in the second half of the year for price increases in pulp until they're more or less, we'll see prices maybe not rising too much, but we will see what will happen over the next few weeks. On the tissue side, in terms of stock accumulating at home, We don't see risk. We see strong demand at home. There was, yes, kind of an ad hoc peak in demand in March. But over this month and the last month and the next few months, the fact that the away from home has been reduced and people are actually spending more at home, we see on one side reduction in demand in the away from home segment and an increase in demand in the at home segment. And so we do not have stock accumulation in at home. In fact, we have the opposite. We're short of stocks for selling to the at home segment. Okay. Thank you. Thank you. In the interest of time, the final question we have is from Antonio Salazar from FA Independent Research. Please go ahead, Antonio. Hi, good morning. Thank you for the presentation. Three questions for me. First one is related with if you can share with us how is the capacity in paper shutdowns and that starts. You can share with us the balance between supply and demand and if there will be structural shutdowns on pipeline. Second question is related to this cost. The EUR46 1,000,000 I'm assuming that fixed costs and so they will be reduced this year and in the coming year, so they will not be there on the coming years. And the last question is related to strategy. Should we see from now on more pulp and more tissue and less paper? Or do you still believe it's too early to reduce capacity in paper and you feel comfortable with the current installed capacities? Thank you very much. Okay. Thank you, Antonio, for your questions. Can I just confirm the first one is regarding the balance between supply and demand in terms of uncoated wood free, specifically regarding the downtime that have been announced? Is that it? Yes, exactly. So downtime that were structural announced. And if we after the pandemic crisis, we should see if we'll see less supply or not. Okay. Can you give us just a minute? I will ask Antonio to answer the first question. Thank you. Thank you for your question. I will try to give you helmets for the first and the third question at the same time because I do believe they are related and then Fernando will comment more in detail regarding the fixed costs and the likelihood of these fixed costs program to keep on for the the following years. The truth is, it's too soon to say, too soon to call about what is going to happen in structurally in the El Cortudu free market. We don't know exactly the impact of teleworking. We don't know exactly if in the future schools will be a mixture of online and inside lectures. So it's yet too soon to call. And basically, we are trying ourselves to figure out with a small market research until the end of the year what will likely be the habits of consumers as we go further. It's also difficult to anticipate if we are witnessing the end of the first wave and then there is the second wave. So it's yet too soon to call. What we can say is probably the following. We are comfortable with our cost position on NCO2-three, But this only means that we have time to adjust. We obviously are looking to other alternatives of developing our own business. Pulp is the most immediate alternative. And yes, indeed, we have the capability to be more present in the pulp market if needed. Tissue, yes, we still have the capability to further optimize our tissue operations. And as you probably are aware of, there are somehow related, but not necessarily related to traditionally mass market and Kotulphur products that we already produce in some of our paper machines. Those products represented 3 years ago less than 2% of our portfolio, and they represent now 4.5% approximately of our portfolio. And the development of those grades will be, for sure further strength in the coming years. So we want to play a role in the plastic substitution, And we do believe that some of our paper machines can be adapted easily for that. So the strategy will be to continue to be as efficiently as possible in our core business and control free pulp and tissue with the possibility to further develop pulp if needed. The need to further develop tissue because we still have the capability to extract more value from the tissue market, we do believe. And we need to be adaptive in our smallest paper machines that can do products that are somehow related to Nkotugo 3, but not necessarily purely Nkotugo 3 products. Our 3 largest machines are, we do believe, very competitive and will be remain very competitive in the nCo2-three arena, both in Europe and in some countries outside Europe. The supply and demand at this very moment, obviously, is very much affected because the production was significantly cut in Europe, in USA and even in Asia. So the supply demand is affected by this. We expect, as we said before, to be restored in the coming quarters. I will now hand over to Fernando that will make a few comments on fixed costs. Thank you. On the fixed costs, like we have said on the press release, we have saving of $6,000,000 this quarter. These savings are spread between payroll, maintenance and financial costs, mainly 50% of these savings are on transactional costs. This is not a surprise because last year, we have developed a program on this, what we call it, 0 basis GBB. On this, we have done this after the COVID, we in launch our targets. At the end of the year, we expect to have a saving cost at least EUR46 1,000,000 comparing with the 2019. And this will be mainly on personal and functional costs as well. This means, for instance, comparing the costs of this quarter with the last quarter of 2019, it will be savings. We are measuring savings of €20,000,000 But during the 2 quarters the 4 quarters, the average or the sum will be €46,000,000 savings that we are expecting to achieve. Okay. Thank you for the comprehensive answers and good luck. Thank you. The final question in the queue is from Louis D. Toledo from BBVA. Please go ahead, sir. Good morning. Just a final question on CapEx. The level you have budgeted for this year, there was €70,000,000 Do you believe it could be sustainable for the next years after 5 years of investments? Do you think that with EUR 70,000,000 of investments, you would be able to sustain your earnings power? Okay. Luis, thank you for your question. I'm sorry, I have to repeat it again. So in order to be sure that we understood it well. Can you say it again, please? On CapEx and the new level you're budgeting for this year, EUR 70,000,000 If you think that in the future, regardless of new projects, with that level of investment, you will be able to sustain the earnings power of the company within the current portfolio operations, if you have any thoughts on future CapEx post 2020. Okay. Just a second, Luis. Thank you. Thank you, Luis, for your question. So some of the CapEx that we have cut this year, obviously, we need to do it next year. But some of the CapEx that was planned for next year, we need to postpone it further. So we don't expect we expect to have a significant reduction of the planned 2020 CapEx this year. Some will pass to 2021, but then we don't expect 2021 CapEx to be very much different from what was originally planned for the year 2020 and for that was actually done in 2019. Okay. Thank you very much. Thank you. At this time, there are no further questions in queue. I'd like to hand back to the speakers if there's any closing comments. Thank you. We have another question on the chat, but I believe it has been already answered regarding the dividend. So thank you very much. We apologize for the delay, and we hope you have enjoyed the call. Thank you. Thank you. Ladies and gentlemen, that concludes your call for today. We thank you very much for joining and ask that you disconnect your lines. Have a great day ahead.