Earnings Call: H2 2019

Feb 12, 2020

Ladies and gentlemen, welcome to the Navigator Company Conference Call. I will now hand over to Joanna Apatone. Please go ahead. Thank you. Ladies and gentlemen, welcome to the Navigators Company conference call and webcast for the full year 2019 and Q4 results. Participating in your call today are the following members of the Board, Jean Pierre Ferrand, Antonio Francois Laurus, Ron Sanchez and Jean Paul Lebarand. As usual, we will start with a brief presentation of the main highlights of the period and then we will have a Q and A session at the end. Presentation can be accessed through the links available on the website, and questions may be addressed also through the webcast platform. Ron will start with a comment on the main figures reported in this period and Antonio will follow with an overview of the pulp and paper market. Rune Sajes will comment on the Tissue business and Jean Paul Herrera on CapEx. Fernand will address the main financial issues. Antonio will close the presentation with the outlook for 2020 and its priorities for the Navigator Company. I will now hand over to Joao. Joao, please. Good morning and thank you for joining us today. I will start by making some brief comments on the overall results of the year. As discussed in previous quarterly results presentations, 2018 has been a record year in terms of pulp prices and therefore results for the industry. And Navigator has been no exception with record results as well. Unfortunately, in 2019, market projects turned around and has been particularly difficult with a significant decrease in pulp prices throughout the year, depressed demand in Europe and the severe destocking process across the paper supply chain. In parallel, economic conditions were also unfavorable with high geopolitical instability, severe increase in major cost sectors and softening of economic growth. This last aspect being of particular importance for the consumption of paper. So external conditions have been very difficult. And on top of this, our operating performance also experienced some issues. We had several strikes across the year in several mills, some prolonged stoppage and some non recurring issues that affected our production levels and costs. We believe most of the issues that are within our scope have been identified and dealt with. As to market conditions, we expect to be at the lower end of the price cycle, but we cannot at this point anticipate how fast the market will recover. That said, we remain very confident that Navigator's integrated business model will continue to improve its strong resilience and sustainability in these market conditions. So let's start with the presentation and go over to Slide 4, where we have an overview of the main figures for 2019. Navigator registered a stable turnover over the period of EUR 1.6 €688,000,000 of sales. Decline paper volumes were partially offset by higher pulp and tissue volumes. EBITDA totaled $372,000,000 declining 18% and margin EBITDA sales over sales stood at 22%, reflecting a market context of higher production costs and declining pulp price. As you will be able to notice, these developments are not uncommon to the rest of the industry and again reflect a market of record pulp prices in 2018 and quite the reverse towards the second half of twenty nineteen. We maintained a strong generation of free cash flow in the period with $186,000,000 comparing to an adjusted free cash flow without balance of $143,000,000 in 2018. Over the course of the year, we paid dividends in the amount of $200,000,000 dollars a similar amount to the one paid in 2018. And we have also proceeded with a share buyback of approximately 5,500,000 own shares, investing around $18,000,000 a clear sign of confidence in our stock. If we turn now to Slide 5, we have a summary of the main highlights for Q4 2019. The Navigator company registered a turnover of EUR 414,000,000 in the quarter, 1.6% below turnover registered in Q3 2019. The increase in pulp volumes was not enough to offset the reduction in tissue volumes and the decrease in pulp price. Also industrial performance was particularly impacted in this quarter by a series of operational issues that I will detail on the next slide. EBITDA in the quarter totaled EUR 72,000,000, reflecting the context of continuing lower pulp prices and especially higher costs and fixed cost bookings. Let's therefore turn to Slide 6 with a little more detail on Q4 performance. The market conditions remained tough throughout the quarter with weak European demand for both pulp and paper. Percent over Q3 2019. And the benchmark for paper prices also came down, but of course in a more contained manner declining 2 percent in Q4 versus Q3. In this context, we have also experienced a 9% lower than practically stable paper price with a slight decline of 0.8% Q on Q. In terms of volume sold and in spite of the adverse market conditions, we have actually experienced a 10% Q on Q increase in pulp volumes and stable paper volumes. Beyond pulp prices, therefore, Medigate's Q for performance was essentially hampered by 2 short term cost effects. Operational instability due to the global strike that impacted our pulp and paper mills in Figueira de Porz and Stuvo as well as the tissue mill at Villa Velo Toro and the prolonged maintenance at the Avelo Tissue Mill around 22 days. These situations explain adverse Q on Q cost effects associated with higher specific consumption of energy and chemicals. Additionally, fixed cost booking effects also have a relevant impact on Q on Q EBITDA evolution. Free cash flow generation over the quarter was actually quite strong, backed by our sustained working capital management effort. Let us go now to Slide 7, where we have some detail of the EBITDA evolution over the year. As mentioned, we had we registered EUR 372,000,000 of EBITDA versus €455,000,000 last year or 2018. When looking at the delta between these two periods, we see that the overall price impact was negative and excludes more than 60% of the EBITDA decline year on year. This was mainly due to the severe decline in pulp price, minus 30 percent, not so paper prices, which have actually remained stable versus 2018, actually a slight increase of 0.4%. This, of course, reflects an average number on a declining trend, which has nevertheless remained remarkably resilient in spite of market conditions. In tissue, price for converted products and tissue reels evolved positively by 3% and 2%, respectively. The 2 to product mix effects impacted by an expected increase in sales of reels. Average price for tissue products presented at 4% reduction year on year. Overall volume performance had a positive impact, namely from pulp and tissue, which outbalanced the impact of decreased paper volume. We registered strong volumes in pulp, plus 24% and tissue plus 52%, sustained on the capacity increases completed in 2018 for both business. This increase is outbound to the reduction in paper fuel volumes in the period of around minus 4%. And the overall volume impact as said has been actually positive. The other element that relevant explains Navigator's EBITDA evolution year on year are costs. Most of these have to do with the market context of some of our main variable cost factors. A lesser factor, however, has also been related with the cost impact of operational instability and labor related stoppage in some of our plants. More specifically, the cost of acquisition of electricity and natural gas suffered significantly increased in 2019 compared to 2018, about 17% in the unit cost of electricity and 25% in the unit cost of natural gas, essentially resulting from the increase in Brent prices and COP's CO2 emission license with a strong impact on electricity pricing. COP licenses increased from €60 to €25 per ton over the period. Also in 2019, there was a drastic price increase for the main raw material required for OVH production, EAS. These are optical brightness used in production of paper. Since early January 2019, the price of this material has increased by around 300%, driving the prices of different OVAs up to 90% as BAS is incorporated into each type of OVA. The reasons for this increase are related to measures taken by the Chinese government as well as the opportunistic behavior of the main suppliers of the Southern Europe. Navigator's product mix bias towards high priced premium products is more impacted than others. The U. S. Euro rates also impacted was at 1.12 comparing with 1.18 in 2018, considering that several input costs are purchased in U. S. Dollars, non Iberian wood and certain chemicals, valuation of the U. S. Dollar against Europe also contributed to cost inflation. There were some positive evolutions in terms of costs, namely in external fiber related to purchases of softwood pulp and also hardened pulp in the OEI and OEI and OEI and OEI and OEI and OEI and OEI. Fixed costs evolved negatively with an increase of approximately 3% with negative performance in operating and maintenance costs offsetting the improvement in personnel costs. So just to wrap up, 2018 was a year when we were faced with several challenges, both external and external to the group. Externally, we and the industry have had a period of quite challenging market conditions following a record year, with seriously declining pulp prices and weak demand in our core markets. Yet, we managed to have a good commercial performance, particularly in paper, where we were able to manage the impact on prices and partially offset declining volumes. Internally, we had to deal with operational instability and labor issues and the repercussion of this production instability in terms of costs. We also had to deal with external factors that impacted our profitability, such as higher prices for wood chips, energy and chemicals. Moving forward, we expect 2020 to remain a demanding year, although on the internal front, a lot of the groundwork has been laid out. We have been working on the labor issues, and we have identified and are dealing with the operational issues. We are also undertaking an even stronger focus on cost reduction measures, and we expect to see some results already in 2020 as will be explained later. Regarding market conditions, we also expect a challenging year albeit witnessing recurrently some favorable signs in terms of our auditors. So I will end my presentation now and hand over to Antonio Rudolfo, who, as you all know, is from January 1, 2020, the new CEO of the company. I believe Antonio needs no introduction. He has been with the company for many years, working in different areas, in the industrial sites, in marketing and sales as well as in supply chains and logistics, product development and revenue management departments. He has a deep knowledge of the company and a deep knowledge of the pulp and paper industry and has been a fan of the Board of Directors of the company since 2000 and 7. I know that Antonio and the ex co are off to a great start this year, and I'm sure it will be up to the challenges that are facing all of us. I wish him and the whole team the best of work. Antonio, please. Thank you, Joao, and good morning, everyone. I would like to start by adding a few words on both prices and take a look at the fixed graph the index in U. S. Dollars has declined to approximately $680,000,000 at the end of December, a 34% correction versus the price of $10.24 reached at the end of last year or actually end of 2018. Fuel average prices in 2019 for both U. S. Dollars and euros in Europe is above the average pulp price in the last 5 years. The average for coal prices between 2014 2018 in U. S. Dollars was around 8.20 dollars while the average price in 2019 was $855,000,000 The PIKS index for ARPU in China actually started to decline significantly in Q4 2018 and then experienced another significant fall in Q2 and Q3 last year, which forced a correction in European prices as well. So pigs index for hardwood in Europe corrected significantly in Q3 last year and continued to decrease throughout Q4 stabilizing in December. So let's take a closer look at what has happened in the last month in the pulp market by going please to Slide number 10. We believe that the intensification of trade war tensions coupled with higher uncertainty was reflected in a slowdown in economic activity in China, which led to a significant reduction in consumption. In Q4 2018 alone, demand for global bleach chemical market pulp decreased 1,700,000 tons year on year, with China representing 91% of its reduction and Western Europe following suit, about 200,000 tons reduction in Q4 2018. With Chinese buyers reducing pulp purchases, prices began to fall and producer stocks start to build up at Chinese and actually European ports. In the Q1 of 2019, Chinese chemical pulp buyers reduced significantly their purchase, releasing about 400,000 tons and used significant part of their own inventories, while producer stock continued to increase. In Western Europe, the Q1 demand drop was even worse, with demand dropping almost 500,000 tons versus Q1 2018. With high level of stocks, namely sitting in Chinese and European pork, and this demand dropped, big producers had to limit production and ultimately were forced to significantly decrease price. As mentioned before, from the peak in 2018, short fiber declined about USD 3.70 in Europe, 35% from the peak of $10.50 and $3.15 in China, 41% from $7.72 in mid-twenty 18 to $457,000,000 at the end of last year. From Q2 onwards, demand in China strongly picked up. And from January to November, we saw softwood demand increasing 18% or about 1,200,000 tonnes and hardwood growing 8% around 900,000 tons. China hardwood demand should have ended 2019 growing somewhere between 1,200,000 and 1,400,000 tons year on year. That means that its average growth between 2017 2019 is actually 10% to 15% higher than what was from 2012 to 2016. Hence, there is no reason to believe that there is some kind of structural problem in Chinese demand. In Europe, there was a demand decrease for output in the 1st 3 quarters of 2019, but with some improvement throughout the year. In the second half of last year, producers inventories decreased in face of stronger demand and production cuts, mainly from major top suppliers in Latin America and Asia. Still, at the end of 2019, stock levels at producers remained above normal and stock levels at the ports from which it is not known if there are producers or buyers stock remain very high when compared to normal levels, totaling 3,300,000 tons in Europe and China at the end of December versus 1,500,000 tons average levels in between 2015 2017. Although, we remain positive that the bottom of the price cycle has been reached. Benchmark prices in Europe are stable for some weeks now. In China, benchmark prices have already shown some positive signs as well, about $5 increase from week 52 last year to week 5 this year. Also since early Q4, we are seeing some upward price adjustments in our own pulp operations. Of course, this recovery is subject to Chinese and the rest of the world economic activity pickup. And at the moment, we don't know yet how the coronavirus will impact in terms of economic activity. So wrapping up on the pulp market and working to the current and future market situation, we will say on the supply side, we are seeing some unexpected events cutting pulp availability to the market related with strikes, capacity shuts, grade swings and environmental constraints. And this adds to the fact that there is no new relevant capacity coming to the market before the second half of next year. On the demand side, we believe medium term fundamentals remain solid. Market crop demand will continue to be driven by ongoing tissue investments and underlying demand growth with industry consultants forecasting a net increase in tissue capacity of about 1,400,000 tons during this year. Half of this growth is occurring in China, where fine paper printing and writing grades seem to have recovered production levels in the last months. Let's go now to Slide 11, please. With an update on the paper market, global demand for printing and writing papers decreased 4,600,000 tons year on year, representing over 6% fall year to date November, with uncoated woodfree falling 2.6%, although significant less than remaining paper grades. 2019 demand decline is clearly above the trend for the past 5 years, when average reduction was 2.3 for global printing and writing papers and only 0.3 for encoding 3. Besides the global cooldown in economic activity, we have observed a significant destocking movement in key markets for Navigator, mainly due to uncertainty regarding pulp and paper price. In the case of Europe, there are indications of a strong pipeline destocking of sheets during 2019 after the opposite movement in 2018. This brought extra negativity to the apparent demand figures we saw this year, actually last year, but is also positive to the extent that real end user demand in Europe may not have been as bad as figures show. Also, we are currently seeing a need to build up some stocks across the supply chain, which is very positive for the mills. Let us also point out that the foreign demand in the second half of last year was particularly harsh in USA and also in some international markets, but with some recovery as well at the very end of last year. Let's take a look at paper prices on Slide 12 now. As you can see, the index for A-4B copy price fell to €820 at the end of December, declining less than €20 during Q4. Still, average price for 2019 was €903, 3.4% above average price for 2018. This average price is well above the average for the last 5 years, which stood at $8.32 and is also above the average of the last 10 years. Let's go please to Slide 13 now with a wrap up of the EMEA293 market conditions. Starting with pulp, we have seen that prices have stabilized in China and Europe since the end of last year beginning of this year. And as said before, there are some early signs of price increases. As you all know, paper prices follow pulp prices with a certain lag in time and present much less volatility with a more stable and constant evolution. Paper prices have eased from the high level at the start of 2019 and have adjusted downwards over the last month. Still, prices remain high and this stability is a clear reflection of the resilience of the uncoated free paper. Paper supply has been growing in Asia and Middle East, but closures and conversions are occurring or has been announced at the same time in other regions of the world, namely in U. S, Europe and Asia. From 2018 to 2020, the net balance between increases and decreases in paper supply is actually neutral based on consultants and companies' announcements. Even though the average price in 2019 for the paper benchmark was €903 at the end of the year, the price stood at €808 and we have continued to see some pressure on the benchmark price index in the beginning of 2020 with the index standing currently at 8.65 Going now to Navigate performance in the Better and Pop business, please turn to Slide 14. Paper sales in the period totaled 1,447,000 tons, down 4.4% year on year and were hampered by deteriorating market conditions and thereby a drop in output. Also, the group's performance reflects a sales strategy, which was sought to protect prices in Europe and U. S, regions where the group records most of its sales with active control of over both price and total quantity supplies with some volumes being redirected out of these geographies. Accordingly, the group's average sales price in Europe evolved in line with the benchmark, meaning actual increase, and the average price in U. S. A. Also evolved positively with the initial tailwind from U. S. Dollar exchange rate. In other markets, what we call overseas, the product mix reflects an increased new sales of rails and standard and economy products linked with a normal market evolution in this period of time. In this context, the group managed to increase its market share in Europe and increase the weight of all brands sold. Actually, last year, our new brands progressed a little more and represented 70% of our shifted product sales. So in 2019, the group's global average sales price remained €3 above the average price in 2018, and sales in value stood at €1,198,000,000 versus €1,248,000,000 Total peso by Navigator during 2019 was down 6% versus 2018 due to a series of factors, including the strikes in the first half at PM4 in Surtober and in November at both Surtober and Ferre Dafarge Mills as well as due to a careful management of production levels in view of current market conditions. Over the course of 2019, Navigator has optimized operations and quality for new products on its paper mill insatubo, Tn3, in order to ensure it offers heavyweight products that meet the highest global policy standards. Notwithstanding this process optimization requires a series of planned trials and tests, which necessarily entail reduction output from PM3. As Rob mentioned previously, Q4 last year was particularly difficult with a drop in N. 22% in Europe and an even greater fall in U. S. A. As a result of a significant reduction in stock across the supply chain. In this context of intense pressure on prices, Navigator recorded a volume of paper sales slightly higher than in the previous quarter, about 0.6%, which combined with the sales price similar in the pressure, resulted in sales in value of EUR 2.93 €1,000,000 in line with Q3 2019. During Q4, both business continued to see significantly worsening of market conditions, reflected in a drop of almost 14% in the standard BHKP price index and sharp contraction in demand in European market. Sales of pulp were therefore marked by a drop in the average stock price, which was nonetheless offset by the substantial increase in volumes, which stood at 990,000 tons at 10% and value of sales was €44,000,000 in line with the previous quarter. In 2019, coal production was down about 2% on opcode vis a vis 2018, constrained by major maintenance shutdown at the Stouvall and Cassia plants in April May and in Figueira Forest in September. The strike that occurred in November with Stougo and Figueira, which stopped production at both mills during 4 days, were also another factor that limited pulp output. Even so, the quantity of pulp available for sale was greater than in the previous year due to the capacity expansion completed in 2018 and the smaller volume of pulp incorporated into paper, making it possible to record an increase of pulp sales of 24% to 314,000 tonnes. It is important to point out that this increase in volume was then considering a careful management of pulp supply to the market as the group could have registered even higher sales. I will now let Nuno make some comments on the tissue market. Please, Nuno. Thank you, Antonio. Going to Slide 15, the tissue business sales in 2019 were EUR 132,000,000 euros and represent currently 8% of the group's turnover. There was a significant increase of 52% in the sales volume to 96,000 tons as a result of the start up of the new tissue plant in Alpeiro. This growth in volume reflects 2 distinct changes to the business. On the one hand, sales of finished products grew by around 22% to 75,000 tons. And on the other hand, the group sales of mother rills, which had been negligible in the same period of 2018, increased 11 times to 21,000 tons, in line with current installed capacity and balance between mother reels production and converting capacity. As a result, there was a significant increase in terms of the weight of reels sold in 2019 to 2019 versus 2018. In terms of geography, we have now increased considerably the weight of sales outside Portugal and Spain, while our markets such as France. Both finished products and riddles benefit from price rises in 2019 versus 2018, which was vital to offset the increase in costs, especially in terms of chemicals, logistics and energy. However, the faster growth in the Renewal business changed the mix of products sold, which had an impact on the average sales price. Joao Paulo will now comment on the next slide referring to investments. Thank you, Bruno. Let's go to Slide 16, where we have an overview of the capital registered in 2019. Navigate recorded total investment of dollars 16,000,000 on competition of the new TC-1,000,000 and the gold capacity increase in the Quesrat launch and the final stage of investment in heavyweight products as well as $24,000,000 in environmental CapEx. In the latest category, the main project currently underway is the construction of the new biomass boiler at the scheduled wash site to replace the existing boiler and the natural gas combined hydropower plant, which will make it possible to reduce hostile steel swing issues at the mill site. This project is linked to our aim to have an industrial operation carbon neutral that I would like to address on Slide 17. The environmental CapEx projects mentioned are part of the wider progress of improvement to the environmental performance and sustainability of the group's yields and are in line with Navigator's commitment to achieving carbon neutrality in 2,035 in our industrial operations. This makes the Navigator company the 3rd Fortune Corporation and one of the first in the world to make a commitment to sustaining carbon neutrality 15 years early, which will enable all industrial complex to be carbon neutral by 2,035. In order to support this mission, Navigator has announced a total investment of €108,000,000 The challenge of climate change is the priority, and navigator has therefore drawn up its and navigator has therefore drawn up its own roadmap to carbon neutrality, involving an additional series of CapEx projects in renewable energy and in new technology, which will allow it to cut steel emission as well as 4 20 to offset residual provisions, which cannot be eliminated. It is important to stress that the forest and the dominated company management in Portugal represent a currency swap equivalent to 5 point 3,000,000,000 tons of CO2, excluding carbon retained in the zone. This is equivalent to the emissions generated by 1,500,000,000 cars driving at a distance equivalent to the cyclical trend of the weather. Thank you. On Slide 18, cash flow from operations generated in 2019 was €307,000,000 which compared to €377,000,000 in 2018. Free cash flow totaled BRL 196,000,000 comparing to BRL143,000,000 net of BRL 68,000,000 in flow from the pellets business sales in 2018. This improvement in free cash flow reflects a relevant reduction in CapEx from DKK216,000,000 in 20.18 to DKK158,000,000 in 20.19 and also a strong improvement in working capital management as well a reduction in inventories. So the group operation's performance in Everly once again to record the robust capacity to generate funds that it has displayed constantly over recent years. So now on Slide 19. As a result, at the end of December, navigator interest bearing debt totaled $750,000,000 up by $32,000,000 in relation to year end 2018 in a period when the group paid $200,000,000 in dividend and acquired $18,000,000 in treasure shares. The net debt to EBITDA ratio remains at the conservative value of 1.92x without IFRS 16 effect. I would like to spend some minutes on Slide 20 and go over the debt restructuring accomplished in the period in view of the approaching maturity of a substantial portion of our debt, which was due in 2020, we decided to undertake restructuring process. Following this restructure, where we managed to increase our average tenure and diversify our source of funding, Average term of the group's debt was 3.5 years at the end of December with a cost of debt of 1.70% and with a proportion of fixed debt of 85%. To finish the comments for the quarter, I will give the floor back to Antares. Thanks. Just a few words on the outlook for 2019 on Slide 22. I think we can all agree that 2019 has been dominated by severe geopolitical and significant trade tensions globally, with euros long affected in particular by instability regarding Brexit and slowing money flows. In both, 2019 started with a very difficult market environment with depressed demand and the significant buildup of inventories. In 2020, there are signs of some pickup in pulp prices with some producers announcing already price increases for softwood and hardwood in China, Europe and North America. We believe the fundamentals of the industry are strong as demand for coal will be sustained by new tissue and somehow new and CO2 free capacity in 2020 in China. Still uncertainty remains over economic impact of coronavirus virus and the trade war's evolution. In paper, the downward pressure on prices seen at the end of last year may continue through Q1 in some regions and in some specific products in Europe. Yet, we estimate that at the end of 2019, the pipeline stop at some key markets for navigator were at very low levels, and we have seen a very relevant growth in other books across the industry at year end and beginning of this year. Another fact that may have an impact in paper supply this Q1 is the strike at the Pope and Paper Mills in theory that started on January 6 and just ended on February 10, stopping production during about 14 days. According to our estimates, this could represent approximately 40,000 tons of production loss in April 23 and 180,000 tons from market pulp. Still, global geopolitical uncertainty remains a concern as due to the stability in Middle East and market disruption against trade wars may impact negatively demand. In tissue business, demand continues to grow at interesting levels, albeit against the backdrop of new production capacity coming online in the Iberian Peninsula. For Navigator, 2020 remains the year of positive recent investments with a view to increasing top off sales. The main aim is to achieve sizable gains in sales of finished products as the industrial operation reduce and our share of target market growth. Before ending this presentation, I would like to take this opportunity to recap the current priorities of Navigator's Executive Committee. So I will ask you to go to Slide 23, please. 1st and foremost, we want to refocus on the core. And by this, we mean improve operational efficiency and implement transversal cost reduction progress also enhance forest protection and productivity develop a CapEx program geared to process optimization, asset performance and environmental protection further develop commercial excellence programs to protect margins promote a digital agenda on both corporate and operations and enhance labor climate at our mills. While focusing on our core business, we also ensure the pursuit of growth opportunities. We will not only strive to consolidate, optimize and further develop our tissue business as a natural growth option, but we are also evaluating other synergistic possibilities related with our core business. Additionally, we want to refocus our R and D, our R and D and innovation capabilities, support the existing operations and sustain new product development. Because we know that sustainability is part of our nature and has always been at the very core of our business, we will continue to reinforce our sustainability agenda mainly by promoting the following objectives: define and implement a sense of purpose that matches social impact with shareholder return pursue sustainability as a source of competitive advantage aligned with our business positioning continue to protect forest and biodiversity, promote the role of forest on both climate change and wealth creation for rural communities and pursue our goal to become carbon neutral by 2,035 in all sites and develop initiatives that address health and safety and environmental impact immunization throughout all our operations. With this, I end the presentation for today. Thank you. The first question comes from Joao Pinto from JB Capital Markets. Please go ahead. Hi, good morning everyone. Thanks for taking my questions. Starting with margins, is it possible to quantify an estimated impact from the strikes in full year results, just to have an idea of this abnormal effect? Also on margins, could you give us some color on how much you aim to get from efficiency programs in 2020? Also regarding the effect from coronavirus outbreak in China, I understand this is still an early stage, but do you expect more competition in Europe from international players? Could this impact volumes in Europe for Navigator? And finally, could you repeat your estimates for the impact from the strike in Finland? I understood 40 ks in UWS paper. Is that correct? Thank you. Let me just rephrase to make sure we understand all your questions because the connection is far from great. Starting from the last one, you'd like us to estimate the impact of the strike in China to repeat our own internal estimates, correct? Yes. Dan, you would like to understand if we expect further competitiveness in Europe for ENCOTL3 during 2020? Yes. It's the coronavirus. Okay. The other question was about efficiency programs. If we could estimate a ballpark figure for efficiency program? Yes, in 2020. And the first question was about estimating the impact of the strikes? That's correct. Okay. So I will address the fracking fuel and the volume impact, And I will ask Fernando to speak about efficiency process impact and Juan Pablo to estimate the impact on the strike, okay? So starting with the strike in Finland. Our own estimate based on the capacity and normal operating rates is that this should have impacted about 40,000 tonnes of production loss in Encoding Wood 3 and 180,000 tons in market pulp. Regarding the impact in Europe related to the coronavirus, I would say that it's yet too soon to anticipate any significant impact, but we are not considering this impact to be of any relevance because also in Asia, outside China and outside China, this quarter is typically a seasonally strong quarter. So we don't anticipate any significant impact. I will ask now Fernando to speak about efficiency programs, please. Okay. In efficiency programs, we expect to have in 2020 a savings around in excess of EUR 10,000,000. And we expect a similar figure for 2021. I want to recall that we have launched SHM2 in 2016, where we are aiming to achieve 100,000,000 savings during the following 5 years. At the moment, we have achieved more or less 30% of this amount, and we intend to continue with this program. Regarding the strikes, I think Rafael is in the best place to give you the figures. So the impact on the coated woodfree production was approximately 30,000 tons and in pulp was approximately 15,000. Just a follow-up. In terms of, I think, the last question, not about tons but about the impact on costs, Do you have any estimate that you could give us? No. We did not calculate that information specifically. Okay. Thank you. Thank you. Thank you. The next question comes from Joao Collazo from BIC. Please go ahead. Hello. Thank you for taking my question. I would like to start with the production. So regarding strikes, I thought this was a problem behind us. Apparently, you'll see some strikes. What is your outcome of this? What is the main question that is being asked by the workers that you cannot fulfill or that they keep asking for more and doing strike? And apart thinking to that, can you explain us a little bit more in detail the decrease in the total amount of salaries from 2018 to 2019? And maybe I'll also link to this if you think the production will get back to the levels of 2018 in 2020 or if these levels will Just to try to rephrase if you understand the super question. The first question is to try to understand the nature of the labor dispute. Yes, this strike, yes. The second question is to understand why the total salaries decreased 2019 vis a vis 2018. Yes. And the last question is if we expect possession to return to normal levels, the levels of 2018, you mean. So I will take the last question, and Fernando will take the first two questions. Regarding the production we get back to the positive levels, what we can tell you is that we have done during 2019 and already, of course, this year, a lot of work to recover. And as I explained before, a big part of our CapEx program is geared to asset performance and operational efficiency. So we do expect to return to normal levels, and we have a considerable level of ambition in our budget for the 2020 on total total. Remember? Okay. In what concerns the strikes and the reason for the strikes? In fact, what the unions and the laborers, the labor people are asking, it's a career plan. And the fact we have the last career plan, the career plan that is in place dates from back in 2008, 10 years after, they want to renegotiate a new career plan. We have started that in April last year, but it's a tough discussion. And because the discussions took more time than the labor unions were expecting, This give us to a track. After that, we try to improve and to put more fire on this. I think our planning in the beginning is to finish the conversations by the end of February. At this time, we think that we'll not finish those conversations before the end of the month. But it seems that they are progressing quietly and in the interest of both parts. And in the Q1, for sure, we'll have a planning to be discussed between the Board as well between the planning of the people. Regarding the reduction on on payroll, it seems that it's all more than 50% is related to our very old remuneration. In fact, we have a program where we distribute to our employees part of the profit. This is based on target EBITDA. And because the target EBITDA for 2019 was not achieved, the very old remuneration regarding the rules for this year is 0. That's why there is a significant reduction on payroll. In addition to that, we have what we call a rejuvenation program, which means that we allow in the interest of the country if the people want to retire early, which is important in a company where we have people working 20 hours per day. This means they when they achieve 61 years old, they are very tired. We allow to be retire early and we substitute for the work people. I want also to stress in the first question the fact that we are taking some problems because in the past we have done an insourcing program. This means the people that are outsourced, we have incorporated in our payroll. And because the difference of salaries are higher compared to the people that are within with us for more years. There is a difference, I guess, that it's also something that is being in dealing in the conversation. And that's one of the reasons why our EBITDA for the quarter was lower because we have to improve some salaries for those people in order to reduce that gap. Just a follow-up on the strike detail. May you give us a little bit more visibility on what is the real issue The salary question? I think I give you all the dialogue. I talked about the gap in salaries. I talked about the accruing plan. I have nothing more to add. Okay. It's a gap in summary. Thank you very much. Thank you. The next question comes from Bruno Beza from Caixabank BPI. Please go ahead. Hello. Good morning. So some questions from my side. The first on the cost savings plan that you have announced with a reduction in terms of say fixed and variable costs. My question is, if this could exacerbate the social unrest that you are seeing at your plants at this stage? And also related with this, if you could provide us an estimation of one off costs related with the implementation of this cost savings plan. This will be my first question. My second question regarding CapEx, if you could provide visibility on your expectations in terms of CapEx for 2020, it would be appreciated. And the third question, well, with the paper prices at relatively high levels during 2019, margins reached the lowest level of the last 5 years. So my question will be, what would be needed for the company to get back to historical levels of 24%, 25% EBITDA margin over the coming years? And last question, if I may, regarding your dividend policy. And if you are comfortable with your balance sheet in order to maintain the current level of dividends paid over the last couple of years? Thank you very much. Okay. Thank you for your questions. I will take the question regarding what we see on prices and margin evolution. And I will ask Fernando to comment on dividend and the cost savings related to the social unrest and as well as the all off costs. On that, as well, Paul, we're ready to speak about the CapEx plan for Townsend. So regarding margins, let's not forget that we have several components here. We have a component of coal price, and coal prices have reached the lowest or one of the lowest levels over the last decade or so. So the pulp price recovery will be key to push the margins to the right direction. Secondly, on the cost side, as it was explained, we have an impact on costs on both wood, energy and chemicals. We are working on these three components, and we do believe that both on chemicals and energy, we might have a better environment in 2020. On paper prices, the margins are also very much related with the mix of sales, both geographical and product mix. And the first indications we have for the global trends as well is the possibility that we believe we'll have to implement both public mix and the geographical geographic organic. So altogether, this is what will help us to grow for better margins. We're not forgetting as well, and this relates to the question that Fernando will answer not forgetting as well, our focus on reducing fixed costs. Fernando? Okay. Then the first one, easy one, it's about the dividend. This is a shareholder's decision. It's not related to us, it's related to them. But I would say that our guess, it's the dividends will not be maintained at this level in the following years. This means that the BRL 200,000,000 is not our goal for the next years or at least it's what we expect to be a reduction taking in consideration the profit of this year. In what concerns the potential impact on social side, I would like to say that on ZBB, we concentrate our efforts on corporate side, and we have a base line of $100,000,000 We expect to save, like I have said, dollars 10,000,000 But those savings are more and something that is not related with the headcount or to salaries related issues. This means it's more on consultancy fees, it's more on travel and other supplier, external suppliers and not payroll. Nevertheless, I would say that this could impact on the well-being or impact on the perception of the person. But I would say that it's not related for sure with the strikes because on the strikes we are dealing more with issues, more contacts and more dialogue and with impact to come on strikes, we really do not expect. Okay. Concerning your CapEx question, we will invest more or less the same amount as we did invest in 2019. As we said before, most of our investments are concerning improvement and maintenance of industrial facilities with the aim to increase the performance of our assets. And additionally to that, we have a strong focus on environmental investments as well. Thank you. The next question comes from Antonio Celades from Independent Research. Please go ahead. Hi, good morning. I have three questions. First one is related with costs. You already talked about a lot about margins. So if you can provide us some color on what kind of increase the external supply and service will have in 2020, low single digit increase, mid single digit increase, double digit as it was in 20 last year? Second question is related with CapEx. Just to clarify, if you mentioned some amount as 2019, it means €150,000,000, €160,000,000 And third question is related with your priorities for Navigator on Slide 23. You mentioned the growth outlook. You talk about tissue and R and D. If you can be more precise, what will be the measures that we'll take to well, to offset to compensate the decrease on demand on pipe power? Thank you very much. I'm going to ask you, if you don't mind, to repeat the first two questions, which was not very clear on this side of the call. Okay. So costs, I think there's a problem in 2019 last year were costs on chemicals and energy, so external supplies and service costs. If you can provide some guidance, some color, some guidance for 2020, what should we expect in terms of increase, low single digit, mid single digit or higher? And the second question is related with CapEx. If you could clarify, you mentioned on the prior question on the prior answer that it will be the same March 2019. If that means EUR 150,000,000, EUR 160,000,000 And the last question is related with strategy, issue growth outlook on Slide 23, if you can be more if you can provide more color because you mentioned about tissue R and D, but if you can provide more color on it. Okay. I will try to answer these three questions. On the cost side, actually what we were saying is that we intend to decrease costs, not to increase costs. So an increase that we are foreseeing and preparing for automotive is a decrease. And the year will balance, albeit will be decreased. It's definitely a decrease, not an increase. On CapEx, your ballpark figure is probably not far from reality. Regarding the growth priorities, what we said and what we mean is the following. We have a growth rate which is tissue. As it was explained, there are still room for improvement as well in our tissue operations to make sure that we have our tissue operations at a level that they can be a growth platform for the future. On top of that, we have as we probably know quite an increased R and D and innovation facilities with a large group of people working on R and D innovation. And we do want to refocus them on our existing business that we have today, so meaning, pulp, paper and tissue. Regarding the short term developments on our growth plan, yes, we are studying other possibilities. As I said, that's in the synergies and related to our liquidity and business assets, but it is yet to sort of give you more color than this. Okay. So just to confirm, so external supplies and services in 2020 should come down versus 2019? That's the plan. Okay. Thank you very much. Thank you. The next question comes from Carlos de Sous from Caixa B. Please go ahead. Hello, good morning. Just to come back to the dividend policy question. Can you or are you able to give us just a bit more clarity on how much of a reduction we should expect if there is any guidance in terms of goal, in terms of payout ratio or something like that just for us to have a more clear idea of the magnitude of the reduction. Sorry if there is any information on the presentation, but I'm not able to access it. I'm having some problems here in my firewall. But anyway, I would just like to know this issue about the dividend. And my second question was a bit was already somewhat answered. It was about the growth path that you are focusing on in the future. For my understanding, just to confirm, you are focusing on your core business on reductions of cost from more efficiency. Is there any idea or any more material focus on the Mozambique issue still? Is this still on your idea for the coming years? Or is it been completely put on hold for the foreseeable future? Thank you. Well, I'll probably take the last question, and then I'll ask Sven to answer your first question. Regarding Mozambique, there is no further news on Mozambique. I mean, I think we have proven that there are possibilities to develop a productive forest in Mozambique. I think we have proven that the growth of the forest is equal to what we can see in good locations in the Guatia, Erika. I think it's very clear that Africa will be, in the future, the supply of wood raw materials to the world. It's very clear that it's So all these are policy signs for a project like Mozambique. Although this project cannot work alone and cannot without an infrastructure base. So the issue that we have keep on discussing with the local government is exactly the plan for infrastructure. So as soon as the infrastructure plan mainly bought are qualified, we'll be able to reenergize the project. I won't say the project is or knows, but the project is being sold out, matching the present situation of the anti government. I want now to speak about dividend policy. Okay. About dividend policy, you know that based on international companies' scope, what the Board can decide is on the profit of the year. This means the profit of the year is $168,000,000 I would say that we cannot distribute more than that unless the shareholders want to distribute return reserves like they have done this year. The policy of the group is to distribute 50% of the profit. This means that I would expect there to be a reduction of €200,000,000 for the coming years, but I will not expect a drastic reduction because the shareholders demand shareholder also needs some cash. But that question should be not addressed to us, should be addressed to the shareholder, the main shareholder. Okay. Thank you. Just if I may, just a follow-up on Mozambixo. As I understand, one of the hypothesis, one of the ideas is to make more Mozambique, if all else fails in terms of infrastructures and the conversations with the Mozambique government, to make Mozambique a source for fiber, a source for wood in order to export? Is that it? Thank you. A pulp and paper project always starts by being a wood project. Yes. Thank you. The next question comes from Joao Pinto from JB Capital Markets. Please go ahead. Yes, very quick one. I recall that UWS Piper demand in Europe fell 5% in year on year in Q3. Do you have the figure for the Q4? Thank you. To be completely clear, I don't have it in front of me. I don't have it by heart. I will tell you the following. The reduction of demand in Europe in the second half of the year, so third and fourth quarter, was much aligned with the Q1, okay? And probably more important is the following. When we speak about operating consumption, This does not take into consideration pipeline effects. We do believe that the pipeline effect was very strong, both in the first and the Q4. So the real decrease in demand, we believe, in Europe was much less than what the planned consumption figures show. Proving this is the fact that we have, as we speak, one of the highest order books ever for our company. So the customers are restocking again, confident most likely that demand will be better and confident most likely prices will have a different evolution in Thank you. I will now give the floor to the speakers.