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.
Ladies and gentlemen, welcome to the call. We are sorry for to start late, we had some technical issues regarding the start of the call. We will now start the call for the first quarter 2020 results. Participating in the call today are the following members of the board: António Redondo, Adriano Silveira, João Paulo Oliveira, João Lé, Fernando Araújo, and Nuno Santos. We will start, as usual, with a brief presentation of the main highlights for the period, we will have a Q&A session at the end. The presentation can be accessed through the links available on the website, questions may be also addressed through the webcast platform. António will start now with a comment on the main figures recorded in the period, follow with an overview of the paper market.
Rui Santos will comment on the pulp and tissue business, and Fernando will address the main financial issues. Adriano Silveira will detail some of the group's initiatives in light of the COVID-19, and António will close the presentation with the outlook for 2020. I will now hand over to António, please.
Thank you, Joana. Good morning, everyone. 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. Please go to slide number four, where we compare Q1 2020 with Q4 2019. Prices in this comparison are relatively aligned. 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 EUR 914 per ton, the highest price for a quarter in the last 16 years since Q2 2003.
For Navigator, the year 2020 actually start 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 one of the highest levels ever for a similar period, with an order book over 50 days. Actually, we feel that if this pickup in demand and the price stabilization had not been interrupted by the current pandemic situation, we could have seen a recovery in prices starting already in Q2. Of course, as we all know, at the end of the quarter, external conditions changed very quickly, and we were faced with a totally different context.
Yet our first quarter performance was almost not affected by the impact of the COVID-19 pandemic, and we managed to increase significantly our volume sold across all our businesses, and uncoated wood-free, 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. The main aspect I would like to enhance about Navigator's first quarter 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. Important to enhance in the period is the payment made in early January of EUR 100 million in reserves to our shareholders. At the end of March, our leverage was still comfortable with a net debt EBITDA ratio of 2.5 times.
As the COVID-19 pandemic started to evolve, we decided to increase our immediate liquidity by almost to EUR 165 million to EUR 256 million. That was further enhanced in April and May. We have all our financial needs for 2020 completely assured. One of the many decisions taken was to review once again and further extend our cost reduction plan established for 2020, also to develop another set of even more decisive cost-cutting measures. We will go over the measures and actions taken by the company within the COVID-19 pandemic in more detail further ahead in the presentation. Now let's go, please, to slide number five with the main financial highlights for the quarter. 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.
I 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 EUR 88 million, which represents an increase of 22% 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 period was under EUR 22 million, which compares to EUR 33 million in Q1 2019. EUR 10 million 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 EUR 50 million.
Our net debt at the end of the period stood at EUR 800 million. The net debt ratio remained at a conservative level of 2.25 times, excluding the impact of IFRS 16. Next slide on page six shows the evolution of the last five 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 seven.
EBITDA, as mentioned before, totaled EUR 88 million in Q1, a very significant improvement of 22% vis-à-vis the EUR 72 million 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 aligned 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 reserves and stocks, and anti-dumping adjustments. Going to slide number eight, we have the evolution of EBITDA in Q1 2020 versus Q1 2019, when EBITDA stood at EUR 105 million.
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 had 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 converted reels were actually slightly lower. These declining prices from historical high levels was offset by both the positive impact from volumes across all businesses, + 4% in paper, plus 34% in pulp, and + 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 done to reduce consumption of chemicals at the bleaching stage. As well as external fibers, thanks to falling prices for both long and short fiber, and the optimization of the fiber mix we did, leading to a better specific consumption. The variable production cost fell about 2% year-on-year and close to 4% quarter-on-quarter. Fixed costs in the quarter also improved circa 8% over the first quarter of 2019 and over 20% quarter-on-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 a reduction in the head count, 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 Foz and Setúbal, shutdowns which took place in the first quarter of 2019. Other items totaling EUR 11 million impacted negatively EBITDA, and were essentially due to three main factors: impact of anti-dumping tax recognized in the accounts, which had a positive impact of EUR 2 million in 2019, and a negative one of EUR 2.4 million in 2020. The insurance indemnity of circa EUR 1 million recognized at the end of Q1 2019, and change in biological assets as well with circa EUR 1 million. 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 three, period of review four, and even period of review five, with one amendment 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 anti-dumping rate to be applied retroactively on paper sales to the U.S. for the second 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 U.S. Customs and Border Protection has already processed the refunds in relation to part of POR2 with an initial total value of EUR 4.7 million, refunds and interest due, which we expect to receive before the end of the first half of 2020. This is an update from the previous report, as we have just received over EUR 2.3 million of the total 4.7 just mentioned. In relation to the first period of review, POR1, the matter is currently before the United States Court of International Trade. Just to give you some background, the final 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 DOC to review that outcome.
The DOC had 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%. Proceedings at the court are taking the normal course. I will now ask Nuno Santos to comment on the pulp and paper market. Nuno, please.
Thank you, António. Let's go to slide 10 of the presentation, which shows the evolution of the PIX index in dollars and in euros. The US dollar price of hardwood in Europe was stable over the quarters, at $680 per ton. It was 31% down from the price of $991 per ton recorded in the first quarter of 2019. The price of hardwood pulp in euros dropped by around 29% to EUR 616 per ton in the quarter, as compared to EUR 872 per ton in the first quarter of 2019. When compared to quarter-on-quarter, price of hardwood in dollars fell 1.6% and 1.3% in euros.
More important, when compared to the last six 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. 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 the first quarter 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 three-week strike by forestry pulp and paper workers in Finland.
In addition, the COVID-19 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 and May in the main pulp consumption regions and are still under negotiation. Regarding hardwood capacity, it should remain relatively stable during 2020 and first half of 2021, until start-up of a new unit in Chile. João Paulo Oliveira will comment the paper market. João Paulo, please.
Hello, good morning. Thank you, Nuno. On slide 12, we can see the evolution of paper price. The benchmark index for A4 showed a downward adjustment of 6% year- on- year to an average price of EUR 864 per ton, as compared with EUR 914 per ton in the first quarter of 2019. As already stated by António, 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. Current price of EUR 844 per ton is above the average price of the period between 2014 and 2018 of EUR 832 per ton. When compared Q1 2020 with Q4 2019, the A4 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 offload on the mill in the first quarter, 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 Navigator's very high order book in the first months of the year. Minimize 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 wood-free appears to be one of the least affected grades among printing and writing, as coated wood-free and mechanical grades experienced double-digit reductions of 11% and 13% respectively. Still, the adjustment in demand may not have been so harsh as apparent consumption seems to estimate, as the fall in imports 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-19 pandemic, has led the large majority of producers to announce temporary downtimes in reduction in production across the world for April, May, and June, and occasionally for longer periods of time. The known 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 first quarter 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 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 mill brand sales also rose to 71% of total. Despite the increase of 4% in sales volume, the sales value in the group's uncoated wood-free business was impacted by falling prices over the period, and the sales dropped in value by around 2% to EUR 293 million. 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 four increases over the course of 2019. I will now ask Nuno to comment on pulp and tissue business.
Nuno, please.
Thank you, João Paulo. 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 tons, 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 Figueira da Foz mill and the return to good operating performance over the quarter. Still, due to the downward trend in pricing, the value of pulp business sales stood at EUR 35 million as compared to EUR 40 million in the first quarter 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 EUR 36 million, 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 first quarter, 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 first quarter of 2019. The group operation succeeded in reacting positively, sizing the opportunity offered by the peak in demand triggered by the COVID-19 for at home products.
The Aveiro and Vila Nova de Ródão 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-19 situation. These products are aimed to a larger extent to HoReCa 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 reels. In terms of geographic distribution, Portugal remained the main market, but sales to outside Iberia increased significantly, namely to France and the U.K. Fernando will now comment the CapEx plan.
Thank you, Nuno. Let's go now to slide 16, where we have an overview of the CapEx registered in the first quarter of 2020. Navigator record total investment of almost EUR 23 million versus EUR 33 million in quarter one 2019. This figure includes a sum of approximately EUR 14 million invested in maintenance, efficiency, and others, EUR 7 million in improvements to our core business assets, and around EUR 2 million on environmental projects, in particular, the new biomass boiler at the Figueira da Foz plant. As you recall, the reconstruction of a new biomass boiler at Figueira da Foz site to replace the existing boiler and natural gas combined cycle power plant, will make it possible to reduce fossil CO2 emissions at the mill site. This is a project that started in 2019. We expect it to be concluded by the end of Q3 this year.
This project is linked to our aim to have our industrial operations carbon neutral that the group disclosed in 2019. On slide 17, cash flow from operations generated in the quarter was EUR 71 million compared to EUR 88 million in Q1 2019. Free cash flow totaled EUR 15 million in the first quarter as compared with EUR 10 million in the same period a year ago. It should be recalled that sizable annual payments traditionally are made on the first 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 seen in clients is mainly due to the significant reduction of the item by year-end 2019, where an effort was made to anticipate 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 a traditional low period for stocks at the end of Q1 2020, reflects the increase in line with previous periods. Now on slide 18. As a result, at the end of March, Navigator interest-bearing debt totaled EUR 800 million, up by EUR 85 million in relation to year-end 2019, after the group paid around EUR 100 million in reserves to shareholders. The net debt 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, immediate stood at EUR 256 million from EUR 160 million at the end of the year. To which should be at the continuing existing of sizable unused medium long-term backup facilities, coming at EUR 75 million at the end of the period, as well as short-term facilities of EUR 20 million. Our average cost of debt at the end of the period was extremely competitive at 1.5%. We maintain an adequate proportion of fixed, 67%, and variable debt, 33%. The group has maintained a sound financial position, enabling to face comfortably the current situation with all its financial needs for 2020 assured.
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 EUR 45 million, which in combination with the 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-19 pandemic situation. 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, an essential tool in aligning the entire company towards this effort of 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 disinfection actions and materials in workplaces, distribution of protective equipment to internal and external personnel, restrictions on access of non-company personnel, of course, the organization of homework for around 940 employees. I am proud to say that so far we have detected only four positive cases of COVID-19 in our facilities. Two among external providers and two in our own employees. In a universe of approximately 4,500 employees, 3,200 direct and 1,300 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.
When we consider that two of our mill sites are located in areas where there is a very high number of cases, like Aveiro and Setúbal. 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 Figueira da Foz Hospital, and repeated donations of a range of protective materials to hospitals in Setúbal and Aveiro. We also launched several initiatives through paper donations, mainly to 3,600 children from needy families, in order to support their school activities. Navigator also joined the largest distributor of newspapers and magazines in Portugal in order to allow 1,500 points of sales to be able to print their customers' documents during the containment phase.
As part of this initiative, entitled Soldados de Papel, meaning paper soldiers, 100,000 paper bags 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 mid-sized companies, allowing them to continue to operate in this difficult environment, keeping their ability to remain as our business partners and as providers of the Portuguese economy. If we go to slide 24, we have some of the actions undertaken regarding our business continuity plan.
In parallel of the contingency plan, the group implemented a crisis office in charge of managing the evolution of the COVID-19, with the involvement of the executive board 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 outsourcing services. 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 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-19, we postponed maintenance shutdowns for Q2 and Q3. As Fernando 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-19 at the end of the quarter. I will pass the floor to António Redondo.
Thank you, Adriano. We can now move to slide 25, please. In April, we started to see some of the real impact in our business. 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 uncoated wood-free paper consumption and demand. Navigator accordingly decided to cut its output by approximately 750,000 tons a day for a period of 30 days. On May 20th, considering the visible signs related to paper orders, the company decided to extend the cut 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 the related 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 uncoated wood-free paper, and also to alter the shortened 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 1,200 workers will be impacted by these layoff measures, 97 of which will be in full layoff, with impacts as of June 1st onwards. In terms of full-time equivalents, these represent 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 component associated to the actual provision of work.
Considering 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, Navigator has already paid to shareholders an amount of approximately EUR 100 million related to reserves in January 2020, and the proposal that is being withdrawn referred to an additional distribution of approximately EUR 99 million. The company will issue a new convening notice for the general meeting with the discussion 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 the sole item in the agenda.
Accordingly, operations at our integrated pulp mills have been adjusted, with the available pulp mill working under business as usual. The tissue mills located in Aveiro and Vila Velha de Ródão continue to produce without any restrictions. In order to offset this cut in paper production and consequently the impact in revenues, Navigator 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 EUR 160 million. In addition to CapEx allocated to maintenance and efficiency gains, this sum also includes environmental investments, major repairs, and other CapEx projects for reconditioning assets, which will now be cut very significantly by around EUR 88 million to close to EUR 70 million.
As announced in our Q4 2019 results, we have launched a new cost optimization and operational efficiency plan at the start of the year, involving 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-19 pandemic, the group has had to review and extend the scope and depth of the cost reduction initiatives originally envisaged, and to contemplate a thorough reformulation 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 EUR 46 million 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's sustainability in the immediate future and the long term. 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 of lockdown measures. Specifically in paper, since the start of the COVID-19 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 uncoated wood-free sales volume fell by about 20% in April in relation to the same month in the previous year, while the combined drop in the first four 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, uncoated wood-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 uncoated wood-free is being less affected, although very much affected, than demand for other printing papers. The year-on-year percentage drop in the maxi sales by European producers in uncoated wood-free has been around half of that for coated wood-free.
The dynamism of the uncoated wood-free 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 a 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 folio paper and reels will depend on the revival of the publishing and advertising sectors. Significant drops in demand are therefore expected in the second quarter, most acutely in the key European markets and in the U.S., and a gradual recovery is then anticipated until the year ends.
In pulp, Navigator expects to achieve a slight increase in sales of pulp to the market, in particular in the second quarter, in line with budget projections. At the Figueira da Foz mill, the capacity expansion implemented in 2018, combined with reduced needs for integration with paper and the current drying capacity, will enable the company to free up some pulp capacity for the market, in addition to sales from Aveiro mill. 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-19 had a positive effect on first quarter 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. I would like just to point out that recent investments made over the last 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 uncoated wood-free business. The uncoated wood-free business, though, is a resilient and sound business, of course, but is not immune to the extraordinary situation we are currently living. Thank you very much.
Thank you, António. This concludes our comments on results. We are now ready for the Q&A session.
Thank you. Ladies and gentlemen, if you wish to ask a question on the audio, please press zero one on your telephone keypad. Alternatively, if you're connected on the webcast, please type in the question-and-answer window your questions. As a reminder on the audio, if you wish to ask a question, please press zero one on your telephone keypad. The first question we have is from the line of João Pinto from JB Capital Markets. Please go ahead.
Hi. Good morning, everyone. Thanks for taking my question. The first one on paper volumes, how much can we expect them to fall in the second quarter? Could you give us an indication of the magnitude? 30%, 40%? If you could give us some color, it 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, will clients have to purchase? Following this, as lockdowns are starting to ease, 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, João, thank you for your questions. I would ask you if you can repeat them. Sorry, because we have some issues on the line. If you can go over them again. I believe you started with the paper volume question. If you can please rephrase the question again.
Yes. 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?
Okay.
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? Once the economy returns to normality, will clients have to purchase paper? 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? 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. I'm going to give you some elements for the first questions, and I will ask then my colleagues to complement my thoughts. Okay? Regarding paper volumes, our view is that paper volumes for the year, rather than for the second quarter, will probably drop not far from 15%. The drop in 2020 vis-à-vis 2019 in coated wood-free in the main markets, Europe and USA, we expect to be around 15%. It is more difficult to comment quarter by quarter, but we expect the figures on the second quarter to be worse than on the third, and the third to be worse than on the fourth. Total for the year, about 15%. On the inventory levels of our clients, we do believe that the inventory levels as we speak are at very high levels.
We have developed a set of new tools, and I would say innovative tools, to help our clients to sell more speedily 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 initial positive order flow. Yes, we saw them. We saw them for about three weeks now, including this week. We expect things to go up again soon, we cannot forget that we are now in the period of Ramadan, of the festivities after Ramadan. Orders from markets outside Europe and USA are at a quite low level. We expect them to pick up significantly after the end of the festivities. Our expectation 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 fourth question, which is of a different nature, I will ask my colleague, João Paulo Oliveira, if he wants to add something on these three first questions. João Paulo, please.
António, I think you gave the answers that are known to us at the moment. Nothing to add. Thank you.
Okay. 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. The best way to manage uncertainty in our view is to build scenarios. When this pandemic situation started by the end of Feb, we built several scenarios from very stressful scenarios to more normal operational scenarios. I think we mentioned during the call that the periods where we expect things to be worse is now the period somewhere in between April and June, so the second quarter. 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. We kept that possibility. Because of the uncertainty and because of the prudence, we have decided to extend the shutdowns of the machines or reduction of capacities and entering into layoff. When we enter into layoffs, 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 three of our general shareholders assembly and to make sure that the amount we cause is referred to, is passed to reserves.
Again, the situation we are having today and as we see it 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 it at the end of the year, provided that the shareholders ask that on a special general assembly meeting, like in the other years. The board could distribute the results, cannot distribute reserves. In that case, it would 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 of CaixaBank BPI. 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 were 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. The second question on your cost savings plan for this year. You mentioned EUR 46 million savings. My question is, what are your estimated one-off costs in order to reach these savings? If you are expecting any kind of one-off costs during the year related with the adopted measures to fight the pandemic. This will be my second question. Third question, you have canceled the dividends 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 question. I would just repeat the first two so we can be sure that we have heard properly.
Sure.
The first has to do with the career plan negotiations.
Yes
with employee, and you want to have an update on that, correct?
An update, yes, that's correct.
Right.
The second one-
The second, yes.
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?
You want to know if there are one-off costs regarding the pandemic of the COVID?
The pandemic or the cost savings plan.
Okay. Give us just a second, okay? Thank you.
Sure.
Thank you for your questions. I will give a few elements for this question number two. Fernando will answer first question, third question, and we'll have something on question number two. On the cost savings. The plan of cost savings, as we try to explain, is across the board, both variable costs, fixed costs, corporate costs at the mill. 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 did so far to adapt. I would not say that this will represent any specific significant one-off costs. It will be distributed normally throughout the year. 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. I'll now hand over to Fernando to answer you question number one, question number three, and to add on question number two. Thank you.
Regarding question number one, yes, we have considered that probably in February we could close the negotiations with the unions. As normally happens, this was postponed. During March, at the end of March, both sides considered 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. 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 I would like to have for question number one. 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 the organizations that represent the workers is quite innovative in the country. It was interesting to witness that even the head of the unions, the central of the unions, referred that. Thank you.
Okay, thank you very much.
The next question we have is from the line of Carlos Sousa from CaixaBank. Go ahead, Carlos.
Hello. Good morning, Joana, gentlemen. I have some questions this Sunday. 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. On pulp prices, do you see the latest hardwood price increases announcements in Asia being accepted? When do you anticipate that the same move could be implemented in Europe? 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.
Yeah
be sure that we have heard them properly. The first question is regarding the working capital needs.
Yes
that we may have for Q2 and probably Q3. Right?
Mm-hmm. Yeah.
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.
Yes
perhaps-
When you see the same being implemented in Europe. Yeah.
In Europe. Okay. The third is regarding the tissue and possibility of having a stockpiling regarding the at-home segment.
Yes
after the pandemic has passed. Correct?
Yeah. Yes, correct.
Okay. Thank you very much.
Thank you.
Give the phone now to Fernando. He will address the first question, okay?
Yeah. Thank you.
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 would stood at a ratio that a bit far below 2.5 or at least at 2.5. Nevertheless, like we have done, we have enough liquidity. We are considering the client and the supply side, conducting this rigorously. In what concerns inventories, we are trying to reduce those inventories, especially on the pulp side.
Hello. Regarding pulp prices, the jury is still out there regarding what's going to be the outcome of the recent announcements of price increases. We'll see what will happen over the next few days, few weeks. We do not exactly know what will happen. We see fundamentals strong, but later in the second half of the year for price increases in pulp. Until there, more or less, we will 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 anecdotic peak in demand in March.
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 a reduction in demand in the away from home segment and an increase in demand in the at-home segment. We do not have a 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 António Seladas from AS Independent Research. Please go ahead, António.
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 all that stuff. You can share with us the balance between supply and demand, and if there will be structural shutdowns on paper. Second question is related with cost. The EUR 46 million I'm assuming that fixed costs, and so they will be reduced this year and in the coming years, so they will not be there on the coming years. The last question is related with 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, António, 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 downtimes that have been announced. Is that it?
Yes, exactly. Downtimes that were structurally announced, and if after the pandemic crisis, we will see less supply or not.
Okay. Can you give us just a minute? I will ask António to answer the first question. Thank you.
Thank you for your question. I will try to give you elements for the first and the third question at the same time because I do believe they are related. Fernando will comment more in detail regarding the fixed costs and the likelihood of this fixed costs program to keep on for the following years. The truth is, it's too soon to say, too soon to call about what is going to happen structurally in the uncoated wood-free market. We don't know exactly the impacts of teleworking. We don't know exactly if in the future, schools will be a mixture of online and inside lectures. 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. It's yet too soon to call. What we can say is probably the following. We are comfortable with our cost position on uncoated wood-free 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. 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. As you probably are aware of, there are somehow related, but not necessarily related to traditionally mass market uncoated wood-free products that we already produce in some of our paper machines.
Those products represented, three years ago, less than 2% of our portfolio, and they represent now 4.5% approximately of our portfolio. The development of those grades will be for sure further strengthened in the coming years. 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. The strategy will be to continue to be as efficiently as possible in our core business, uncoated wood-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 uncoated wood-free, but not necessarily purely uncoated wood-free products.
Our three largest machines are, we do believe, very competitive and will remain very competitive in the uncoated wood-free 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. 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 a saving of EUR 6 million this quarter. These savings are spread between payroll, maintenance, and functional costs. Mainly 50% of these savings are on functional costs. This is not a surprise because last year we have developed a program on this, what we call Zero-Based Budgeting. We had done this after the COVID-19. We enlarged our targets. At the end of the year, we expect to have a saving cost at least EUR 46 million 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 EUR 20 million, but during the four quarters, the average or the sum will be EUR 46 million 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 Luis de 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 EUR 70 million. Do you believe it could be sustainable for the next years after five years of heavy investment? Do you think that with EUR 70 million of investments, you would be able to sustain your earnings power? Thank you.
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.
Yeah.
Can you say it again, please?
On CapEx and the new level you're budgeting for this year, EUR 70 million. If you think that in the future, regardless of new projects, with that level of investment, you would be able to sustain the earnings power of the company within the current portfolio operations. If you have any view?
Okay. Thank you
on future CapEx post 2020.
Okay. Just a second, Luis. Thank you.
Thank you, Luis, for your question. Some of the CapEx that we have cut this year, obviously we need to do it next year. Some of the CapEx that was planned for next year, we need to postpone it further. We expect to have a significant reduction of the planned 2020 CapEx this year. Some will pass to 2021, we don't expect 2021 CapEx to be very much different from what was originally planned for the year 2020 and that was actually done in 2019.
Okay. Thank you very much for the clear.
Thank you. At this time, there are no further questions in queue. I'll hand back to the speakers if there's any closing comments.
Thank you. We had another question on the chat, but I believe it has been already answered regarding the dividends. 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.