Earnings Call: Q3 2019

Oct 30, 2019

Ladies and gentlemen, welcome to Navios' company conference call and webcast Okay. Good morning and thank you for joining us today. I will start by making some brief comments on the overall results for the period. Given the current context of economic conditions with high instability, we increased the major cost factors, softening of economic growth and reverse market conditions in the pulp and paper industry, I would say that Navigator presented a resilient set of results with an EBITDA for the period above the average of the last 5 years, even if below last year's record results. In fact, in a significantly more challenging market context, we have managed to achieve a strong performance due to an integrated business model that has been resilient during industry cycles and able to deliver consistently higher returns over the years. So let's start with the presentation and go over to Slide 3. Here we have an overview of the main figures for the 1st 9 months of 2019. Navigator registered a 1.8 percent increase in turnover over the period to €1,000,000,000 to €274,000,000 paid on a higher paper price and higher volumes of pulp and tissue sold. Recurrence EBITDA excluding the pellet transaction impact last year declined 11.2% and margin EBITDA sales stood at 23.6%, reflecting a market context of higher production factor costs, declining pulp prices and paper demand. Steel EBITDA for the period totaled $300,000,000 the 3rd highest EBITDA recorded in a similar period. Also noteworthy is the strong generation of free cash flow in the period of €125,400,000 comparing to an adjusted free cash flow without the valid transaction of €93,500,000 in the 1st 9 months of 2018. Over the course of the year, we paid dividends in the amount of €200,000,000 dollars a similar amount as the one paid in 2018. And we also proceed with a share buyback of approximately 4,500,000 own shares, investing $18,200,000 in a clear sign of confidence in our stock in the wake of the severe price corrections occurred in the whole pulp and paper sector throughout the first half of the year up until August. If you turn now to slide 4, we have a summary of the main highlights for Q3 twenty 19. Navigator company registered a turnover of €420,000,000 in the quarter below turnover registered in Q2 2019 and Q3 2018, in spite of the increase in pulp and tissue volumes, which was not enough to offset the reduction in paper volumes and the decrease in pulp price. EBITDA in the quarter totaled $93,000,000 again reflecting a context of lower pulp price, lower paper volumes and higher production costs. In a traditionally slower period, Q3 2019 was particularly weak in terms of paper demand, namely in Europe, where we believe occurred a significant reduction in inventories throughout the entire supply chain. This of course had a reflection in terms of pressure in paper prices and Navigator responded with careful adjustment in its production level and the redirection of sales to market outside of Europe. There was a maintenance production stoppage instigated of course at the end of September for the pulp mill and the group decided to anticipate the stoppage of the paper machines, which impacted production volumes in Q3. Free cash flow generating during the Q2 stood at €25,000,000 lower than Q2 2019, but comparing favorably with Q3 2019. CapEx in Q3 was €200,000,000 and included mainly maintenance and recurrent items related to pulp, paper and tissue. Going now to slide 5, we have some detail on our EBITDA for the 1st 9 months. We registered €300,000,000 versus a comparable amount of €338,000,000 which is adjusted with the sale of the pellet business and antitumpling taxes. When looking at the delta between the two periods, we see the overall price impact was almost flat. With the positive performance in terms of average paper prices around 3% year on year, which was offset by the negative evolution of pulp price around minus 13% year on year. In the tissue business, price for converted products and reels evolved positively by 5% and 4% respectively, but due to product mix effect, mainly the increase in sales of reels, average price for fishing products presented a 4% reduction year on year. The overall volume effect was positive, induced mainly from growing volumes sold in pulp and tissue, which outbalanced the impact of decreased paper volumes. In fact, we registered strong volumes in pulp 21% year on year and tissue 64% year on year. Sustained on the capacity increases completed in 2018 for both businesses. These increases outbalance the reduction in paper volumes in the period, minus 5% year on year. As said, a consequence of declining paper demand strongly induced by destocking along the value chain induced among other effects by the prospect of declining pulp prices. Overall, the main negative element comes from cost increases, which were already visible in last quarter results and that reflects 2 elements. Some instability in our growth facilities, insituval and figures due to different technical reasons, which have an impact in energy and chemical specific consumption. But most of all, these cost increases reflect an unfavorable market context for many of our key cost factors. More specifically, the acquisition of price of electricity and natural gas suffered significant increases in the 1st 9 months compared to the same period of 2018, while 13% in the unit cost of electricity and 18% in unit cost of natural gas, essentially resulting from the increase in Brent prices and CO2 emission on asset base with a strong impact on electricity prices. TiO2 licensing increase also increased for €14 per ton to €25 per ton over the period. Also in 2019, there was a drastic price increase for the main raw material required for OVA production, BAS. These are optical brighteners used in the production of paper. Since early January 2019, the price of this material has increased by around 300%, driving the price of different OVAs up by 40% to 90% as DAS 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 this raw material. Navigator's product mix, buyer's stores high brightness premium products is more impacted than others. Also wood costs are also worth mentioning with a 4% increase year on year. This stems essentially from 2 factors: a specific and deliberate policy by the company to incentivize certified wood from outdoor and therefore pay for the difference, which went up from 41% to 52% of all our supply of wood in Portugal and the higher price from imported wood, which went up related to last year because of supply and demand in balance estimation. Finally, it's also worth mentioning the U. S. Euro rate. Average for the 1st 9 months of 2019, which was 1.12, comparing to 1.19 in the 1st 9 months of 2018. Considering that several input costs are purchased in both non Iberian wool and certain chemicals, the valuation of U. S. Dollar against fuel also contributed to cost inflation. There were positive evolutions in terms of cost as well, namely in external fiber of approximately 7,000,000 euros related to purchases of softwood pulp and also of hardwood pulp in fuel available for tissue. Fixed costs also evolved positively with a reduction of approximately 3%, with a decrease in personnel costs more than offsetting a negative performance in maintenance costs. When faced with these externalities, we have to act on the variables that we can and have the impact on. And that translates essentially into continuing to implement cost reduction and efficient measures throughout the country. So let's go to slide 6, where we have an overview of our M2 program, mainly geared towards optimizing our industrial and operational costs, which we have started in 2016 and where we continue to actively pursue these efforts. This year, we estimate it has obtained an impact of EBITDA of around $40,000,000 thus mitigating the negative impact of the aforementioned external cost sectors. In total, we have launched around 100 projects during the 1st 9 months, 76 of these with positive effects. In operational costs and asset performance. Some examples are projects related to optimization of wood consumption, maritime and road logistics, internal management containers, integrated negotiations for chemicals and improved energy efficiency in the Paper Machines Institute. As mentioned previously, we have also launched ZERO based budget efforts to address non industrial fixed costs. So far more than initiatives have been identifying for corresponding to at least $10,000,000 in savings, which we aim to fully capture in the coming year. Now I will ask Antonio Rodon to make a few comments on the market. Tony, please? Thank you, Jerome, and good morning, everyone. I would like to start by saying a few words on pulp prices and take a look at the peak graph for the HKP in euro and U. S. Dollars shown on Slide 8. You all have seen this graph before and you can see that the BHKP index in U. S. Dollars has declined to approximately US750 dollars at the end of September, a correction of almost 27% versus the price of US10.24 dollars at the end of December last year. Still, average prices in 2019 for both U. S. Solar and in Europe is clearly above the average pulp price in the last 5 years. The average for pulp price between $2014 $10.18 was 8.17 Average price year 2019 is USD 909. The PEIX index for Europe corrected significantly, although in July, August September. So let's take a closer look at what has happened in the last month in the pulp market by going to Slide number 9, please. New capacities coming on stream in China, both in tissue and printing and writing, severely increased competition and paper and tissue prices dropped severely in China from Q2 2018 onwards. In parallel, we believe the densification of trade war tensions and the consequent slowdown in economic activity in China led to a reduction in paper and board consumption, pushing prices further down. Hence, Chinese pulp consumers were sudden faced with an increase in their stocks, bought at record high prices and swiftly stopped further pulp price purchases in Q4 2018 through the end of Q1 2019. In fact, during Q4 2018, market pulp demand experienced a significant decrease, falling 1,700,000 tonnes year on year. China accounted for 90% of this reduction and Europe followed 2 to 3 months like that. With Chinese buyers reducing toll purchases, prices quickly fall and producer stock start to build up at Chinese and by the way European port. During Q1 2019, Chinese pulp buyers continued to significantly reduce their purchases, forcing new price reductions in the pulp prices of circa 28%. And producer stock continued to increase while buyers use a significant part of their own inventories. There is little visibility on how much inventories have declined at Chinese end users, but we strongly believe a significant part of the stock increase at Chinese ports represents a stock transfer from consumers to producers. Notwithstanding that, since Q2, demand in China seems to be back to normal and there are production cuts, maintenance and market driven for major pulp suppliers in Latin America and Asia announced for Q3 and coming in Q4 this year. Q3 demand likely stabilized year over year as a consequence of a difficult comparison with a record high Q3 in 2018. Also important is the fact that pulp production costs are increasing due to higher wood prices internationally and higher cost of chemicals. This means that high cost wood producers in China are now significantly pressured by lower pulp prices and with buyer stocks at low levels, restocking should occur soon upon price growth expectations. We remain positive that we are already at or very close to the bottom of the price cycle. We have adjusted our forecast for a rebound no later than the beginning of next year. Of course, this is subject to Chinese and rest of the world economic activity recap. We have just seen how buyers reacted to uncertainty brought by trade tensions. This is also dependent on pulp producers' production discipline, balanced stock level. We have seen some response and attitudes from producers controlling supply and we at the Navigator Company in our small market pulp scale have also made an effort in that supply discipline. So wrapping up on the pulp market, we believe medium term fundamentals remain sound as there is no new capacity coming to the market before second half of twenty twenty one. And on the demand side, macro pulp will be mainly driven by tissue investments and the demand growth as well as restocking of depleted stocks on the buyer side. With industry consultants forecasting an increase in tissue capacity of over 1,000,000 tons in 2020. Half of this growth is occurring in China, where fine paper printing and writing rates seem to have recovered production levels in the last months. Let's go now to Slide 10, please. With an update on the paper market, global paper demand has been impacted by economic activity and significant destocking, namely due to uncertainty regarding pulp prices. Global demand for printing and writing papers decreased 3,400,000 tons, representing over 6% fall year to date, August, with uncoated wood free still showing its resilience, but falling 2.6%. And this is clearly above the trend for the past 5 years. So we believe that this is due to the global economic slowdown and the reduction of inventories through the entire supply chain in all made printing and writing grades. Actually, the demand for mCo2 in Q3 experienced a particularly severe drop in Europe of over 5% and the USA of almost 8% vis a vis Q3 2018, well above levels recorded in previous years. I remember you that the average for the past 5 years was less than 2% in Europe, making this quarter a particularly difficult one. As already mentioned, we estimate that this decrease was the result of a significant reduction in stocks across the supply chain in the last few months. Still, the average of last 5 years is a reduction of 2.3% in demand for global printing and writing papers with ENCOTOVO3 showing, as previously mentioned, a significant resilience adjusting only 0.3%. This resilience is clear when we look at paper prices on Slide 12. As you can see, the index for A four price stood at €900 per ton at the end of September after experiencing an increase in the beginning of the year and the mild decline is now flat with average prices standing at €9.09 per ton. This average price is well above the average for the last 5 years, which stood at $8.32 and is also above the average for the last 10 years. So let's turn now to Slide 12 with a wrap up of uncoating free market conditions. Starting with pulp, we have seen that notwithstanding its correction, pulp prices remain high in spite of recent fall and we are still optimistic that there will be a rebound no later than the beginning of next year. 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 the year and have slightly adjusted over the last months, but will remain high. This stability is a clear reflection of the resilience of the encoders in 3 paper. Paper supply has been growing in Asia and Middle East, but closures and conversions are occurring or have been announced at the same time in other regions of the world, namely in U. S, Europe and Indonesia. In 2019, the net balance between increase and decrease in paper supply based on consultants and companies' announcements is actually supportive to the paper price environment. Going now to navigate the performance in the paper and pulp business on Slide 13, we can see that paper sales in the period totaled 1,080,002 tons, down 5% on the 1st 9 months of 2018, and we were hampered by deteriorating market conditions and by a drop in output. The demand for printing and writing paper has reflected not only a global economic slowdown, but also a sharp production in stocks within the supply chain with falling pulp prices dragging down paper prices. In this context, the group's performance reflects a sales strategy, which was sought to protect prices in Europe and USA, regions where the group records most of its sales, with control over the total quantity supplied and some volumes being redirected out of these geographical regions. This management of sales resulted in a change in the product mix with increased sales of reels, a reduction in premium products related with the current context of pressure on prices and stability in owned brands that still stands for 70% of our total mix. Despite the evolution in the product mix, the group's average sales price remained 2.4% above the average price of last year and sales value stood at €905,000,000 Total paper output by Navigator in the 1st 9 months of 2019 was down versus last year due to a series of factors affecting production, including the strikes in the first half at our largest paper mill in September, but also due to the management of production levels in view of current market conditions. The annual shutdown at the Siguil de Forage paper mill originally planned for October was accordingly brought forward to September to coincide with the shutdown of the pulp mill so that the supply could be managed more efficiently. Over the course of 2019, Navigator has optimized operations and quality for new products on its pay per millions approval, the M3, in order to ensure it offers heavyweights products that meet the highest global quality standards. Notwithstanding this process of optimization, it required a series of planned trials and tests, which necessarily entail reduction output from PM3. As I've mentioned previously, Q3 2019 was particularly difficult with a drop in MCO3 demand in Europe of over 5% and the USA of almost 8%, well above the levels recorded in previous years. Although it is estimated that decrease was the result of a significant reduction in stocks across the supply chain in the last few months as I've previously mentioned. In this context of intense pressure on prices, Navigator recorded a volume of paper sales around 1% lower than in the previous quarter, which combined with the sales price similarly under pressure resulted in sales in value of €294,000,000 During Q3, top business was also hit by a significant worsening of market conditions, reflected in a drop of almost 13% in the standard BHKP price index and a sharp contraction in demand in the European market. Sales of Coke were therefore marked by a drop in the average price, which was nonetheless more than offset by the substantial increase in volumes, which stood at 91,000 tons, 48% up. As a result, pulp sales were 16% up quarter on quarter. In the 1st 9 months of 2019, pulp production was down 1.2% on output vis a vis 2018, constrained by major maintenance shutdowns at Sapuval Garcia plants in April May and Fira 4 in September. Another limiting factor was management of supply in a market environment characterized by slowing economic activity and shrinking demand in the pulp and paper sector. Even so, the quantity of pulp available for sale was greater than in the previous year, thanks to the capacity expansion completed last year and the smaller volume of pulp incorporated into paper, making it possible to record an increased total sales to 214,000 tonnes. I will now let Nuno make some comments on the tissue market. Please, Nuno. Thank you, Antonio. Going to slide 14, I will make some brief comments on the tissue market as it is increasing its weight on our turnover and represents currently 8% of our sales or €102,000,000 Demand for tissue follows general economic activity. Euro area economic growth softened in the Q2 of 2019. Fuel GDP increased by 0.3% quarter on quarter on average in the 1st two quarters. Still, when looking in the medium term, tissue demand continues to present interesting growth rates from 20 17 until 2019, demand is estimated to grow 3.3% in Portugal and 3.7% in Spain. This demand growth has been followed by the startup of new capacity. In Portugal, as you know, we started a new tissue machine in Avero. And in Spain, other players are also starting new production, namely Sofitel and Tronquete. This brings additional commercial challenges that we believe that Navigator's new tissue mill is particularly well positioned quality and cost wise to serve the Iberian market as well as the French and U. K. Markets, the latter being the largest importer of tissue in Europe. On slide 15, on the tissue business, we can see there was a significant increase of 64% in the volume of sales to 74,000 tons as a result of the start up of the new tissue plant in Avero. The value of sales stood at €102,000,000 up 60% versus the 1st 9 months of 2018. This growth in volume reflects 2 distinct changes to the business. On the one hand, sales of finished products grew by around 26% to 56,000 tons. And on the other hand, the group sales of riled mother riled, which had been negligible in the same period of last year increased 24 times to 18,500 tons. Both finished products and reels benefit from price rises in relation to the 1st 9 months of 2018, which was vital to offset the increase in costs, especially in terms of chemicals, logistics and energy. However, the faster growth in the reels business typical of the early stages of production in a new tissue mill changed the mix of products sold which had an impact on the average sales price of the tissue business, even though the group made significant price increases on both products. In terms of geography, we have now increased considerably the weight of sales outside Portugal and Spain to other markets such as France. I will ask Joao Paulo to comment on the next slide. Thank you, Nuno. Let's go to slide 16, where we have an overview of the CapEx registered until September 2019. Navigator recorded total investment of €88,000,000 This figure includes €59,000,000 in maintenance, current and non current, €12,000,000 on completion of the new tissue plant in Avero, the PO3 project which was the pulp capacity increase in Figueres de Foz and the final stage of investment in heavyweights production as well as €17,000,000 in environmental CapEx. In the later category, the main project currently underway is the construction of a new biomass boiler at the Figueira D'Ofor site to replace the existing boiler and the natural gas combined cycle power plant, which will make it possible to reduce fossil CO2 emissions at the mill site. This project is linked to our project to become carbon neutral that I would like to address now on slide 17. The environmental CapEx projects mentioned are part of a wider program of improvements to the environmental performance and sustainability of the group builds and are in line with Navigator's commitment to achieve carbon neutrality in 2,035. This makes the Navigator company the 1st Portuguese corporation and one of the first in the world to make a commitment to attain carbon neutrality 15 years early, which will enable all its industrial complexes to be carbon neutral by 2,035. In order to support this mission, Navigator has announced total investment of €158,000,000 The challenge of the climate change is a priority and Navigator has therefore drawn up its own roadmap to carbon neutrality, involving an ambitious series of CapEx projects in renewable energy and new technologies, which will allow it to cut CO2 emissions as well as forest planting to offset residual emissions which cannot be eliminated. It is important to stress that the forest under the Navigator company management in Portugal represent the carbon stock equivalent to 5,400,000 tons of CO2, excluding carbon retained in the soil. This is equivalent to the emissions generated by 1,500,000 cars driving a distance equivalent to the circumference of the planet. I will now ask Fernando to comment on the next slides. Thank you. On slide 18, cash flow from operations generated in the 1st 9 months was $248,000,000 which compares to $268,000,000 in 2018. Free cash flow totaled $125,000,000 dollars comparing to $94,000,000 net of the $68,000,000 inflow from the pellets business side. In relation to operating cash flow generated in 2019, free cash flow was brought down by capital expanded of $88,000,000 versus $148,000,000 in 2018 and also by a significant increase in inventory, up by $16,000,000 especially in wood due to the replenishment of stocks to levels regarded as equated as well substantial growth in pulp stocks over the period. So the group's operational performance enabled its once again to record robust capacity to generate funds that is as displayed consistently over recent years. So now on Slide 19. As a result, at the end of September, Navigator interest bearing debt totaled 776,000,000 dollars up by $93,000,000 in relation to year end 2018. In a period when the group paid $200,000,000 in dividend and acquired $18,000,000 in its own shares. The net debt to EBITDA ratio remains at a conservative value of 1.87 times. 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 a restructuring process. Following this restructuring, where we managed to increase our average tenure and diversify our source of funding, average term of the group's debt was 3.7 years at the end of September with a cost of debt of 1.70 percent and with a proportion of fixed debt of 83%. Just a quick word regarding the end of the rating service from Standard and Poor's and Moody Agency. Following the completion of the restructuring process as mentioned, Navigator decided that in view of the associated costs, there was no current verification for maintaining the rating service and informed the above mentioned agencies of its decision to end their service. To finish the comments for the quarter, I will give back the floor to Duran. Thanks, Fernando. Just a few words from 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 global, with the Eurozone affected by fears of the possible hard freeze. These factors remained in place throughout the Q3 culminating in September in the publication of macroeconomic data that confirmed that the global economic is entering a period of deceleration. All these adverse events have impacted economic growth worldwide and have particularly affected the pulp and paper industry. In pulp, after a sharp reduction in demand from local purchasers and a significant increase in stocks at manufacturers, which then push pulp prices down, prices in China are currently at very low level. Pulp prices in Europe are currently showing significant reduction and prices are now close to those observed in China, which may suggest that the turning point will soon be reached. In case of softwood pulp, there are signs that this might happen in the course of the Q4. With a certain upturn in demand and the absence of any significant increases in supply until the second half twenty twenty one, the coal prices can be expected or moderately well as from early 2020. On the paper side, the Q3 also reflected worsening conditions in the global economy and also a degree of reduction in stocks along the supply chain, which has held down paper prices. As the uncoated goods free market leader in Europe, the Navigator Group continues to present a resilient business model, the capacity to take market action that allows it to take current market conditions in its stride. The 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, 2019 remains a year of consolidating recent investments with a view to increase total sales. Main aim is to achieve sizable gains in sales of finished products as the industrial operation matures and our share of the target market grows. After posting record results in 2018, the group's performance over the 1st 9 months of 2019 has been constrained by the market context and by a number of external factors, which have hampered global economic growth and have an impact on cost reduction items. Essentially, the increase in factors costs could not be transferred into pricing or volumes in this particular market context. Even so Navigator has recorded results that are compared favorably with those for the past 5 years and is working actively on improving operational efficiency. By pressing ahead with its M2 program for cost reduction and operational excellence. This was joined in April by the 0 based budget project, which sets out to design and implement the barriers and initiatives to cut fixed costs, the benefits of which may be expected into 2020. We are confident that with these efforts and its superior industrial and commercial model, the company will be ready to continue to deliver the strong results it accustom the market to throughout the cycle, which will eventually turn back. Thank you. Thank you. The first question comes from Joao Pinto from JB Capital Markets. Good morning, everyone. Thanks for taking my questions. First one on paper market. Could you please give us some color on how Veman in Europe has been performing since September? This destocking trend that occurred in Q3 remains or you're seeing some stabilization? Following this, what can we expect for paper volumes in the Q4? Should we expect them flat versus this quarter? And also, if you could give us your view, where do you see POP volumes in 2020, it would be great. Also on supply closures, could you give us an upside on expected capacity shutdowns and conversions in the UWS paper market? And finally, on M2 program, you forecast a potential annual impact of €14,000,000 if I understood correctly. Could you please tell us how much of this has been already reflected in the first 9 months of the year? Thank you. Jean, I will ask you to repeat the last two questions. No. The last one I think I got is the previous 2 to the last I think you should repeat that. We got the one on paper volumes Q4 and then we got the one on M2 on the M2 program. But there are the others in the middle where for some reason we could not visit them well, okay? Can you repeat please? Okay. So I will repeat everyone. So first one was on paper markets. So how the market is evolving in Europe since September? Then I asked about paper volumes in Q4 2020. And then supply closures, if you could give us an update on expected capacity shutdowns and conversions in the UWS Piper market? And finally, on the M2 program, how much of the efficiency gains are reflected in this set of results? You want to address the one on the paper? Thank you, Joao, for your questions. And as you know, we cannot and we will not provide guidance. And in full honesty, we don't know yet the numbers of October because the October month is not closed. And we don't know that as you probably know the statistics of the industry are typically 2 to 3 weeks delayed. So only by the second half of November we will know the truth demand in October. Regarding the second question regarding about paper volumes in Q4 and paper volumes in 2020, we are relatively optimistic that Q4 is a seasonally it is always a seasonal pickup in Q4. So we expect to see a seasonal pickup in Q4 again this year. Regarding 2020, we do expect that with a rebound on pulp prices, pulp paper prices will first stabilize and then rebound towards the Q1, Q2 2020. And hence, typically, the confidence of the supply chain is regained and people start to restock. So we anticipate sheds, I believe that you know them probably better than we do, but trying to list what we believe it will happen. We expect in Indonesia in total by the end of this year, beginning of next year, in excess of 500,000 tonnes will move from Enco to the 3 and about 200,000 to 300,000 tonnes from Co to the 3 to packaging. We expect the reconversion in Mexico of Copamax also to packaging. We expect the conclusion of the shut of a mill in Japan. We expect the conclusion of the 2nd shut that was announced by Domtar in USA. And the only capacities that will come to market this year are in Middle East, which as far as we understand, isn't yet fully materialized in production and a smaller capacity in India for the local market. Regarding 2020, we know because it has been already, so to say, announced another shutdown in U. S. A, another shutdown in Japan and which is quite interesting, the possible reconversion from containerboard to 1Co 2 23, which is actually the opposite movement than the ones that I described before in China. But this also proves the strong view these agents, these producers have on the Chinese and Kotol 3 paper market by reducing capacity on containerboard and moving into Kotol 3. Thank you. On the M2 question, the answer is yes, the EUR 14,000,000 are there. The question is that the way we compute this is against a baseline of constant factors. And unfortunately, this baseline has not evolved favorably, right? So if you keep the volume production production volumes, specific consumptions and prices of the main factors constant, then you could see this effect in the bottom line. But as I said, volumes, specific consumptions and particular effector prices deteriorated during the period and therefore the baseline corrected in a way that you cannot spot the €40,000,000 directly in our bottom line, but they're there. Yes. Just a follow-up. Assuming that the baseline was the same, this $14,000,000 would be in the 1st 9 months or on an annual basis? 1st 9 months. Okay. Thank you. Very clear. Thank you. The next question comes from Joao Calada from BIC. Please go ahead. Hello. Thank you for taking my questions. So I would like to start maybe by asking about your inventories on paper, if you may comment on that. And then secondly, on production, we saw the maintenance in Figueredo Falls. May you comment on the impact of this maintenance in this quarter? Because when we account, for example, for 10 days of stoppage in pulp and 5 days stoppage in paper, if we estimate those valleys, it will be a decrease in production of around 18,000 tons in pulp and 11,000 tons in paper. But since but comparing with the Q3 of 2018, we saw a decrease of 30,000 tons in both of them. So maybe if you could comment on that. And the third question regarding the costs. May you please comment if you have seen any decrease in costs of wood due to the fall in oil prices year on year? Can you repeat the question please, this last one? If you have seen fall in costs due to the fall in oil prices year on year in the Q3 of wood costs on the production of wood costs. Okay. Okay. Okay. Good. So on the stocks question, I will ask Antonio to comment please. Thank you for your questions. So on the paper stocks, by the end of September, we are actually with a low level of inventory. And we do believe, according to the statistics of the industry, by the end of September, this is also the case of the majority of our competitors. But we have a very lean stock in our mills by the end of September. In USA, according also to industry sources, we believe that stocks are a bit higher than in Europe at the production side. Let's jump on the line to the question. Okay. I'm not sure whether I understood everything, but we have planned to do the mill shutdown in October and we decided to anticipate to September. Therefore, you might see some changes in the figures. We did take a little bit longer than we initially planned because we wanted to have a closer look to our recovery boiler and we had some specialists coming from the manufacturer and we decided to check on a few critical equipment that require our attention and that's why it took a little bit longer. Okay. And maybe Yes, please. Maybe just one follow-up of that. Regarding the paper machine 3 in Stobo, is that already fully operational or you still have a drop in production? Yes. The paper machine 3 is in full operation. We are producing now the full range of paper that we planned. We have decided to run the machine a little bit slower because we want to stabilize all the different criteria. Just to recall, maybe of interest for you, this is the only machine in the world producing from 60 to 300 grams and therefore it requires our full attention. So Nuno Santos will answer another question on wood procurement. Okay. So as you know, in Portugal, the wood cost is not dependent on pulp prices and so on. So it's pretty stable. Also, as you know, for the year, so for example, for this year, our contract supply contracts from outside Iberia are also predefined. And so during the year, we do not see any change of on the price on the wood cost on those extra Iberian contracts. Yes, indeed, in Spain, especially in Galicia, historically, the market operates and the prices somehow fluctuate following the leader in the wood costs follows somehow there's indexation on the pulp price. So we are expecting this last quarter slight softening of the wood costs in Galicia. Looking forward to the next year, we do expect that the average wood cost coming from Spain, mostly Galicia, and from outside Iberia to soften a little bit versus this year. Okay. Thank you. Thank you. The next question comes from Bruno Beza from Caixabank BPI. Please go ahead. Hello and good morning. So a few questions from my side. The first one regarding the pulp demand, and we've mentioned in the presentation that you have already been seeing signs of pulp demand recovering. And my question is, if you believe that this is an underlying improvement of demand in the industry or if this might represent an opportunistic behavior from distributors in China as a response to Susano's strategy of reducing the prices of pulp sold in China from Q3 onwards? This will be my first question. My second question regarding paper prices, we have started to see paper prices posting more relevant declines over the last couple of weeks. You have already mentioned that the outlook for pulp prices seems to be better for 2020. And my question is, under a scenario in which pulp prices start to recover in 2020 and perhaps only after the Chinese New Year festivities, When would you expect paper prices to react to this potential positive evolution of pulp prices at the beginning of the year. So this will be my second question. And if I may, further two questions. The first one on your CapEx expectations particularly for 2020 and particularly considering this environmental CapEx commitment that you have as of today, if you could upgrade or update us on the CapEx expectations for 2020 will be good? And also related with CapEx, considering that you have a solid balance sheet and considering the depressed valuations that we see across the sector as of today, if you could consider any potential M and A opportunity, particularly in the tissue business for 2020? Last question, if you could give us any or if you have already any visibility on the final U. S. Tariff, which I believe was expected to be announced between September November this year? Thank you very much. So I will ask Antonio to answer the question on pulp demand paper prices and the U. S. Tariff, okay? And then we'll move to the next question. Thank you for your question. Let me start with pulp limit. So year to date in China and I speak a bit about hardwood. Year to date in China, the decrease has been 1.3%. But in the last 3 months, and the last 3 months is June, July August, we don't have yet the September figures, we saw a rebound of meaning an increase of almost 5%. So if you look to this quarter by quarter, you see that last year, we have a record quarter of demand, which was Q3. And then, as I mentioned previously, we had a very severe correction, a decrease in Q4 last year and Q1 this year. However, from April to July in China, the 4 months from April to July, they posted record sales in China already. And August was not a record sale, it was slightly below last year only because last year was the strongest August ever. Most likely in September, it's going to be very difficult also to post a record because September last year was by far the highest month ever. So yes, we see a pickup in China. We expect we see a very strong period from April until July. We probably August September will show on a comparison year on year will show a slight decrease just because it's a very difficult comparison with 2 strong months last year. Obviously, there is an element of psychology and most likely there is an element of speculation on the evolution of pulp prices and purchases in China. And we do believe with stocks available on ports and stocks at consumers, we believe depleted, we expect to see a strong rebound of pulp demand. Also as far as we can see on the paper side, the demand of paper in USA already started to pick up and prices of paper sorry, I said U. S. A, I mean China. And prices of paper in China also increased from the beginning of this year onwards. Regarding the impact on the paper side, you need to speak probably about 3 different segments and 3 different speeds of reaction. If we look to USA, I think prices in USA have been relatively stable and we have no reasons to believe that prices in USA will have a dramatic drop on the coming months. Hence, we can also not expect a dramatic increase if there's not a dramatic drop. And this is very much linked to the question you have raised in the end, I will comment to that, the balance of supply demand in USA A. And the role of imports and exports. I will come back to that probably a bit later. Europe, we know that there is a lag in Europe. It might be 10 weeks, might be 12 weeks. So we might see the paper prices still flying a little down in the coming months. But after the bottom of pulp cycle is achieved, as we said, we believe it might happen the beginning of next year. With the same lag, we expect paper prices to increase from that moment onwards. Regarding the international markets outside the 2 main regions, so Europe and U. S. A, paper prices typically drop very fast, which occurred in Q3 this year, but also is the market where paper prices recover increase faster. So as soon as we see signs of pulp prices increasing, we expect the international markets outside Europe and USA to react faster than Europe. Regarding your last question on the anti ramping case, we don't have yet the decision regarding the 2nd period of review. This decision is due latest by the middle of November. So we have a couple of weeks. As we said previously, we are quite confident and comfortable with the result that we are looking at. Of course, bearing in mind that in these cases, we might have surprises like we had last year that we are able to revert quickly. But we have something that is very positive is that the USA tried the same petitioners tried to raise the case against the same countries, so Australia, Brazil, China, Indonesia and Portugal on a circumvention of rills, meaning that those countries were selling rills to circumvent the measure of ships and to be able to supply and cut rueals into sheets into USA. And the ruling of the OC was that they will not proceed this case against Portugal because once again there is no evidence of any damping from our case. So this is a very positive news that was announced a few days ago. So we expect this to be a positive sign for us. Okay. Jean Paul, you want to address the CapEx question? Yes. Okay. So concerning the CapEx, as I mentioned, we have until now invested $88,000,000 I expect that we end up the year with $120,000,000 $130,000,000 and we are forecasting for next year a decrease a slight decrease on this number. So on the final question, you're right. We do have a solid balance sheet, but we want to be extremely prudent on how we deploy our resources and capital. The focus now on the tissue side is to consolidate our investment in Resia and make sure that we have a long forming and winning business model, which we think we will. But that is where our priority is right now. So we are not actively looking for any consideration opportunities at this point in time. Okay. Thank you very much. Very clear. Thank you. The next question comes from Luis de Toledo from BBVA. Please go ahead. Good morning. Just two questions from me on my side. The first one, maybe if you could elaborate on the raw material, pulp and paper integration rate optimization that you're looking? I mean, if you could detail where it's coming from, if it's related with any productions in heavyweight tissue or if you expect additional improvements in yields and how much improvement can we expect? And the second one also on CapEx on the environmental program you announced, long term €158,000,000 If you could give us some hint on how we should expect that to be shared between in the Panzburn? Thank you very much. So could we ask so we got the one on environmental CapEx. But the first one, if we could ask you to repeat the you were speaking a bit fast and was not so much to report. Okay. You have referred to improvements in raw material integration, the amount of pulp that your paper and digital paper production needs. I would like to know if that's related with the mix in paper, if there's improvements in yield that you were targeting or if there's I mean, I would like to understand if that trend is has additional room for improvement. That will be the question on raw material integration. I don't know if I understood correctly the question. We have announced 158,000,000 dollars over a time span between 2020 2,035. So I will not be able to tell you specifically how much we will be investing a year, but maybe as a reference, we have acquired a new biomass boiler for our Figueres de Forche mill. That's a total investment of around $55,000,000 that's occurring between 2019 2020. So next year, the new boiler will go live. Okay. Very good. I think on the first question, Luis, again not totally sure that we understood it, but I will answer nevertheless, which is always a risky thing to do. On the pulp side, we mentioned that we have more pulp available for sale, but it is more related with the fact that we have just less paper and therefore we have to integrate less pulp. There was rather than specific consumption type of effect. And of course, we also invested in more pulp capacity. So it's the product of these two things rather than optimization in terms of specific consumption of Coke into paper. But again, I'm not sure if that was your question, if it was Yes. Of course, happy to listen to it again and try to give it an answer. No, absolutely, Thanh. That was the question. So it's not something that I mean, it's more on the mix and the lower production pulp that you had more paper less paper, sorry, more availability of pulp to sell to the market. It's not something about the specific consumption yields or new processes in which you're optimizing the production of paper. Although I know that you obviously constantly seek for that. Thank you very much. Thank you. The next question comes from Joao Colado from BIG. Please go ahead. I had one on CapEx that was already replied, but maybe if you can comment on buybacks and if you expect them to continue going forward given that you already have this extra CapEx of the environmental program? Again, you asked a question on the environmental program? No, but Sorry. You reached the question. Two questions, right? Yes. So no, the CapEx is already replied. I was asking regarding buybacks, if you have any comments on going forward, what your plans are? Okay. So we will remain attentive to. Whenever we think the share is going to be below its fundamental value, we will consider that possibility. I cannot say much more than this right now. Okay? Okay. Thank you. Thank you. Ladies and gentlemen, there are no further questions in the conference call. I now give back the floor to the company. Thank you. Thank you very much, ladies and gentlemen. This concludes our call. Thank you.