Earnings Call: H1 2019

Jul 25, 2019

Good morning, ladies and gentlemen. Welcome to Navigators' Conference Call and Webcast for the Second half of twenty nineteen. Today, participating in the call are the following members of the Executive Committee, Jean Castell Branc, Antonio Klum, Glenn Jean Marcin and Jean Paul Wiebelle. We will start with a brief presentation of the main achievements during the first half of twenty nineteen and the second quarter and follow with a Q and A session at the end. The presentation can be accessed through the links available on the website and questions may be addressed also through the webcast platform. John will start with the comments on the main figures recorded in this period, and Antonio will follow with an overview of the pulp and paper market. Milsens will comment on tissue market and business, and Jean Paul de Vida on cost reduction initiatives and tasks. And then we'll follow with the demand financial issues. I will now hand over to John. John? Good morning, everybody. 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 both economic conditions with severe increase in major cost factors and also market conditions for the pulp and paper industry, I would say that Navigator presented a quite robust set of results. So, let's start with the presentation and go over to Slide 3. We have registered a turnover of 4 €32,000,000 in the quarter, in line with the same quarter last year and growing 2.5% over the Q1 of 2019. This increase was sustained on the growth of paper sales volume at 4% and stable paper prices that more than compensated the reduction in pulp sales. EBITDA in the quarter totaled €102,000,000 roughly in line with the previous quarter but lower than last year's, reflecting a context of lower pulp prices and higher production factor costs. 2nd quarter was impacted by several stoppages, namely program maintenance at Sofia and Sotubo and the strike at PM4 at Sotubo as well. Free cash flow generating during the second quarter stood at $90,000,000 a clear increase over the Q1, mainly due to working capital improvements. CapEx in Q2 was €36,000,000 slightly above CapEx during Q1 and included mainly maintenance and recurring items related to pulp, paper and tissue. Taking just a brief note on the antidumping tariff. During the Q2, Navigator was notified by the Department of Commerce that the preliminary rate for the 2nd period period under review, which includes the period from March 2017 to February 2018 was 5.96%. This rate is in line with our calculations and if confirmed, will have no impact in our accounts as it has already been registered in the accounts. We expect to have a decision on the final rate for POR2 until the end of Q3. In Slide 4, we have an overview of the main figures for H1 2019. We have registered a 4.6% increase in turnover over the first half of twenty eighteen to €854,000,000 sustained on higher paper price and higher volumes of pulp and tissue sold. Recurrent EBITDA, excluding the pellets transaction impact last year, declined 2.8% And the margin of EBITDA over sales stood at 24.2%, reflecting a market context of higher production sector costs, as it will be explained later, and declining pulp prices. Steel, EBITDA for the first half totaled 2 0 7,000,000, the 3rd highest EBITDA recorded in a semester versus last year's 2013,000,000. Euros Also noteworthy is the generation of free cash flow in the period, which was very strong and totaled €101,000,000 in the first half comparing to an adjusted free cash flow without pellets of €85,100,000 in the first half of twenty eighteen. Over the course of the semester, we paid dividends in the amount of €200,000,000 a similar amount as the one paid in 2018. We also acquired approximately 4,000,000 own shares, investing 14,200,000 in the wake of severe price correction, which occurred at the end of 2018. I will ask now Antonio Rovondo to make a few comments on the market. Antonio, please. Thank you, Joao, and good morning, everyone. Please go to Slide number 6. I think by now, you all must be rather familiar with the graphic with the pulp price evolution, namely for our rules in both the U. S. Dollar and euros, showing that prices have been declining since the end of 2018. The VHKP index in U. S. Dollars has declined approximately 16% year to date in 2019 and 15% in dollars and 50% in euros. Still, average price in 'nineteen for both U. S. Dollars and euros in Europe is clearly above the average pulp price in the last 5 years. The average for pulp price between $13,000,000 and $20.18 in U. S. Dollars was USD 8.13 per ton. Average price year to date 2019 is USD 9.51 per ton. The PIKS index for Europe corrected more significantly in July, reflecting the fall in prices in China. Still, I just wanted to stress that even though we have seen old prices correcting, the current price levels are quite high and actually the average price in euros for BHPP for the first half of twenty nineteen was basically the same as the average price in H1 last year, €851. So let's take a closer look at what happened in the last 18 months. If you please move to Slide 7. This is a graph with the evolution of AGRU pulp shipments and producers' stocks, global shipments and also shipments to China, which represents 36% of the market. We believe that namely within densification of trade war tensions, there was a slowdown in economic activity in China, which led to a significant reduction in consumption. At the same time, without any relevant unplanned events, pulp producers produced at full capacity, leading to an increase in stocks at Chinese ports. At the end of last year, Chinese buyers severely reduced their pulp purchases and forced prices down. Producer stocks started to increase during Q4 last year and reached a peak in February this year, adjusting slowly afterwards. Demand in Q2 seems to be picking up with moderate growth registered between April May as shipments for short fiber increased 1.6% globally and 16% in China and 17% in Western Europe. However, there is little visibility on how much stocks have declined at Chinese end users. We strongly believe a significant part of the stock increase at Chinese ports represents a stock transfer from consumers to producers. We have entered summer low season and this together with an impressive economic activity and uncertain outcome on the trading negotiations with U. S. Might foster some additional minor price adjustments. Still, we remain positive that we already are close to the bottom of the price cycle. Hence, we can or we might witness a rebound from the end of 2019. Of course, this is subject to the world economic activity picking up, namely in China and the rest of the world, and we have just seen how buyers reacted to uncertainty brought by trade tensions. This is also dependent on coal producers' production discipline to balance stock levels. We have seen some responsible 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. Furthermore, according to public sources, this it is likely that this supply discipline will continue in the coming months. This, together with additional maintenance stoppages expected to occur during Q3 this year, will decisively contribute to balanced market. 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 H2 'twenty one. On the demand side, market pulp will be mainly driven by tissue investments with industry consultants forecasting increasing tissue capacity of 1,700,000 tons this year and 1,100,000 tons next year, besides the 3,700,000 tons already built in the recent past. Half of this growth is occurring in China, where, by the way, fine paper printing and writing grades seem to have as well recovered production levels in the last months. Let's go now please to Slide 8. With an update on the paper market, I would like to show that the global paper demand has been impacted by economic activity and sand destocking as well, namely due to uncertainty regarding pulp prices. Global demand for printing and writing papers decreased 1,900,000 tons, representing a 5.7% fall year to date May. However, with ancoto3 falling 1.5%. And as this is clearly above the trend for the past 5 years, we believe this is due to the global economic slowdown and the reduction of inventories to the entire supply chain in no main grades. The average over the last 5 years is a reduction of 2.3 percent in demand for global printing and writing papers, so much lower than what we are witnessing so far this year. We then 3 showing a significant resilience adjusting only 0.3%, a 5th of what we see what we saw here today May. The resilience is also clear when we look at the paper prices on Slide 9. As you can see, the index for A-four B copy price is currently at €9.04 per ton. After experiencing an increase in the beginning of the year and the mild decline afterwards, is now flat with average price year to date standing at $9.12 This price is well above the average for the last 5 years, which stood at €8.35 per ton and is also above the average of the last 10 years. Let's go to Slide 10, please, with a wrap up of uncoated woodfree market conditions. Starting with pulp, we have seen that notwithstanding its correction, pulp prices remain high in spite of the recent fall, and we are still optimistic that there will be a rebound at the end of the year. As you well 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 may slightly adjust over the next few months, but will remain high. This stability is a clear reflection of the resiliency of the Encotun free 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, namely in USA, Europe and Asia. In 2019, the net balance between increase and decrease in paper supply based on consultants and company announcements is actually supportive to the paper price environment. I will now pass to Nuno Santos, who will comment on the tissue market. Thank you, Antonio. I will make just some brief remarks on the tissue market as it is increasing its weight on our turnover and represents now 8% of our sales. Demand for tissue, as we know, is very dependent on economic activities. Since the beginning of the year, GDP growth has been quite slow, namely in the Eurozone with GDP dropping to 0.9% from the Q1 to the 2nd. Still, when looking in the medium term, tissue demand continues to present interesting growth rates. From 2017 to 2,009 over the last 2 years, 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 all know, we started a new tissue machine in Avero. And in Spain, other players are also starting new production. This brings additional commercial challenges, but we believe that Navigator's new distribution is particularly well positioned quality and cost wise to serve the French and UK markets, the latter being the largest importer of tissue in Europe. Now back to you, Joao. Okay. I will ask you now to go please to Slide 13, where we have some detail for our a comparable amount of €230,000,000 last year, which is adjusted with the sale of the pellet. When looking at the delta between the two periods, we see a number of factors. First of all, the main positive impact came from paper price, which together with exchange rate contributed with a net value of EUR 33,000,000 dollars in increase in EBITDA in the period compared to last year. Average paper prices increased 6% year on year, and this more than compensated the negative evolution of pulp prices. In terms of volumes, the global impact is negative by an amount of around €4,000,000 in EBITDA terms, as the increase in pulp and tissue sold were not enough to offset the decrease in paper volumes, on which I will comment later. Also quite relevant was the cost impact, as you can see from the chart, where we registered a significant increase versus last year. This increase deserves an explanation and was mainly due to the market context of our main variable cost factors, including energy, wood, external fiber, chemical costs, as well as the U. S. Dollar euro exchange rates. Again, I will explain this afterwards. Overall, these external headwinds, in some cases cyclical, justify that year on year our energy costs were $13,700,000 higher, our wood costs €6,100,000 higher and then our external fiber costs €4,600,000 higher than last year. As said, most of these increases have to do with market conditions for these imports and the U. S. Dollar euro exchange rate, although wood cost was also influenced by a deliberate policy of fostering a higher proportion of certified wood in purchases of wood from Portuguese suppliers. This rose from 37% to 51%. Chemical costs also evolved negatively increasing $4,800,000,000 year on year and were influenced by increased prices of reference products such as optical brison agents, namely EAS and starch, although also by a slight increase in specific consumption. In terms of fixed costs, personnel costs performed favorably, although and there was a less favorable performance in operating and maintenance costs in the period. I will turn now to Slide 14, where we have an overview of our paper and boat performance. Volumes for uncoated goods free came down 5% year on year, but increased 5% from Q1 to Q2. Decline versus last year was a consequence of a deliberate pricevolume optimization strategy, as well as some issues impacting paper production, including 2 strikes that stopped PM4's Duo in January April, amounting to a total of 8 days of production lost and the slower ramp up of PM3 after the last reconfiguration. Still, average price during the first half more than compensated the decrease in volumes. We have recorded turnover in the paper business of 6 €11,000,000 a figure that corresponds to the highest paper turnover ever recorded in a 1st semester. Also in a difficult context and after a number of proactive price increases in different geographies, the group managed to increase the weight of new brands in 2 percentage points to 70%. In terms of pulp performance, production grew 2.4% year on year to 698,000 tonnes, despite maintenance stoppages in Cassia and Sertul, benefiting from the additional capacity installed at the Galera Force Mill in 2018. The quantity of pulp available for sale was greater than in the previous year, making it possible to record an increase in pulp sales of 8.4 percent to 124,000 tons and a turnover increase of 6 0.8 percent to €78,000,000 Also worth noticing were the additional 15,000 tons of pulp integrated in the new fusion plant production in Cassia. Over the Q2, conditions in the pulp market worsened, pushing down the HKT benchmark index in euros by almost 5%, as Antonio just explained. Group sales were hit by a reduction of almost 4% in the average sales price and recorded a slight reduction in volumes as a consequence of intended supply discipline actions, totaling NIS38 1,000,000,000. On Slide 15, we try to summarize the main factors impacting our production costs. To a certain extent, one could say that our performance has been quite remarkable in the context of a quite adverse sector cost environment visavislast year, impacted by a number of exogenous factors, which in some cases are cyclical in nature. More specifically, the cost of acquisition of electricity in natural gas suffered significant increases in the first half compared to the same period of 2018, about 15% in unit cost of electricity and 23% in the unit cost of natural gas, essentially resulting from the increase in Brent prices and CO2 emission licenses with a strong impact on electricity prices. During the first half of twenty nineteen, there was a drastic price increase for the main raw material required for OVA production, BAS. Since early January 2019, the price of this material has increased by around 300%, dragging the prices of different OBAs up to 40% percent to 90%. The reasons for this increase are related to measures taken by the Chinese government well as the opportunistic behavior of the main suppliers of this raw material. Navigator product mix bias towards high bright premium product is more impacted than others. In wood, non Iberian wood prices increased 18% year on year in terms of unit costs, reflecting the specific circumstances of the fiber market. In external fiber, NBSK increased year on year 5% in euros per ton. Finally, the U. S. Dollar euro rate averaged for the first half 1.12, comparing to 1.21 in Phase 1, 2018. Considering that several input costs are purchased in dollars, non Iberian wood and certain chemicals, the valuation of the dollar against Europe also contributed to cost inflation. I will ask Nuno to comment now on the Tissue business. On Slide 16, on the Tissue business, there was a significant increase of 66% in the volume of sales, so we sold 4,700 tons As a result of the start up of the new tissue plant in Africa, the value of sales stood at €66,000,000 up 62% in relation to the first half of twenty eighteen. This growth in volume brought to the 2 changes. On the one hand, sales of finished products grew by around 29% to 36,000 months. And on the other hand, the group sales of RIL, which has been taxable negligible in the same period of 2018, grew 16 times to roughly 11,000 months. Both finished product and the release benefited from price rises in relation to the first half of twenty eighteen, really necessary to offset the recent costs, especially in terms of fiber cost and NAND. However, the faster growth in new business, particularly of the early stages on production in the industry yield, change in the use of protocol, which had an impact on the group's average sales price. In terms of geography, we have now increased considerably the weight of sales outside Portugal and Spain to other markets such as France. Gopaul? Thank you, Nuno. Let's go to Slide 17 about our cost efficiency M2 program. As Svein already stated, we work a lot on the cost side and have been implementing cost reduction and efficiency measures throughout the company for some years. The M2 started in 2016 as a cost reduction and operational excellence program with a 5 year target to achieve €100,000,000 in savings in 5 years. Until the end of 2018, we have recorded a global saving of €64,000,000 In this first half, Navigator actively pursued with its M2 cost reduction operational excellence program, an effort that is particularly relevant in period when we are dealing with such an adverse external context as well just explained. This first half, we managed to yield a positive impact of €8,100,000 in our EBITDA. The most significant of these projects include initiatives to optimize logistics, example, using rail freight to supply wood to the Avero Industrial Center integrated negotiations of chemical purchases through an economic interest grouping and in industrial operations, several initiatives to improve equipment performance. On Slide 18, we have an overview of the CapEx registered in the first half. Navigator recorded total investment of €68,200,000 corresponding to €37,700,000 in the second quarter. This amount includes investment €6,200,000 related to the completion of the new tissue mill in Averao and in the remaining investment in heavyweights production at our paper mill number 3 in Setubal as well as €8,600,000 in environmental measures. These large investments are directly essentially at further improving environmental and sustainability performance at group plants. The main investment made in this period is the start of construction of a new biomass boiler at the Figueres de Forges Mill, replacing the existing one and the natural gas combined cycle power station. This new biomass boiler is part of the group's wider carbon neutrality program and will make it possible to replace the use of a fossil fuel by renewable fuel, which is biomass, leading to a reduction in fossil CO2 emissions at this site. Investments in this area also included sleeve filters on the biomass boilers in Citubal and Avero as well as the revamping and redesign of FOM treatment in Villaverde Rodam. I will now ask Fernando to comment on the next slides. Thanks, Jean Paul. On Slide 19, cash flow from operations generated in the first half was $168,000,000 which compared to $185,000,000 in 2018. Free cash flow totaled $101,000,000 comparing to $85,000,000 last year, net of $68,000,000 inflow from the pellets business sale and improved considerably during the Q2. In relation to operational cash flow generated in 2019, free cash flow was brought down by capital expenditure of CAD68 1,000,000 which compares to CAD75 1,000,000 in 2018 and also by a significant increase in inventories, up by $31,000,000 especially in news due to the recovery of stocks to levels regarded as equated as well as substantial growth in pulp stocks over the period. So the group operational performance enabled it once again to recover the robust capacity to generate funds that we have displayed consistently over the recent years. So now on Slide 20. As a result, at the end of June, navigator interest bearing debt totaled $796,000,000 up by $113,000,000 in relation to year end 2018. In a period when the group paid $200,000,000 in dividends and acquired $14,200,000 in shares, treasury shares. Net debt to EBITDA ratio remains at a conservative value of 1.8. I would like to spend some minutes on Slide 21 and go over the depth restructuring and accomplish in the first half. In view of the approaching maturity of a substantial portion of our debt, which was due in 2020, we decide to undertake restructuring progress. This process involved contracting 4 loans and 2 backup facilities with a total value of $455,000,000 After this renegotiation, the group managed to extend average tenure of its debt to 4.1 years with the same cost of debt around 1.6%. Also, the proportion of fixed debt increased to 78%. To finish the comments for the quarter, I will give back the floor to Joao. Thank you, Fernand. Just a few words on the outlook for 2019 on Slide 23. 2019 has been dominated by severe geopolitical and significant trade tensions globally. With the Eurozone affected by fears of a possible hard Brexit. All these adverse events have impacted economic growth worldwide and have particularly affected the pulp and paper industry both on the output and the input sites. In pulp, the expected in market demand has been slow in materializing, held back by the performance of the global economy, especially China, after a sharp reduction in demand from local purchases and a significant increase in stock at manufacturers, As was explained before, which then pushed pulp prices down, prices in China are currently at very low levels, which may indicate that we may be approaching a turning point. Reductions in supply in the months ahead, namely as a result of conversion of pulp grades and maintenance shutdowns and increases in tissue capacity over 2019 2020 will be the 2 main factors restoring balance in the pulp market, especially for short fiber. With a certain upturn in demand and the absence of any significant increases in supply until the second half of twenty twenty one, pulp prices can be expected for moderate to well for both fibers in the latter part of 2019. On the paper side, the Q2 also reflected worsening conditions in the global economy and also a degree of reduction in stocks along the supply chain. Nonetheless, demand for uncoated woodfree paper and cut size in particular remains extremely resilient. In comparison to other types of papers and prices have been highly stable. Announcements by several manufacturers of uncoachable free capacity closures and ore conversions planned for the second half of the year will help balance out the market and compensate further investments scheduled in uncoated production. The tissue business, as we have seen, demand continues to present interesting growth rates. For Navigator, 2019 will be a year of consolidating recent investments with a view to increasing total sales and EBITDA. The main aim will be to achieve sizable gains in sales of finished products as the introduction of vessel operation matures and our share of the target market grows. Additionally, the group has also grown to improve business margin, thanks to the sharp price increase implemented by economies of scale associated with the business growth and by the sorry, sharp price increase implemented and by the economies of scale associated with the business growth. The group's activity during the first half twenty eighteen has been impacted by several dangerous events that have affected global economic growth and the cost of some production factors. In that context, Navigator has been paying special attention to its production and running costs. In particular, as Jean Paul already talked about, we have continued with our M2 program for operational cost reduction and excellence that has allowed us to minimize some of the cost inflation produced by external tariffs. But we know that we have to go further if we want to remain as competitive as we are today. So we launched at the end of April the 0 based budget project, which sets out to design and implement a series of initiatives to capture cost savings in SGA, SG and A and non industrial personnel that will be implemented start to be implemented in 2020. Thank you very much. Thank you, John. This concludes our comments on the slides. We are now ready for the Q and A. Ladies and gentlemen, the Q and A session starts now. The first question comes from Joao Pinto from JB Capital Markets. Please go ahead. For taking my questions. I have 3, if I may. The first one on strikes. Have you already reached an agreement with the labor union? The second one on heavyweight paper products. I understand that the ramping up is taking longer than expected to reach the planned output. My question is, assuming no more strikes, can a normalization in production of heavyweight products lead the gap between Navigators' realized price and the fixed benchmark to narrow through the end of the year? Or the impact won't be that material? And the last one on the zero waste budget program, do you have any target of total cost savings that you aim to achieve with this initiative? Thank you. Okay. So, maybe I would ask Joao Paulo to answer the strikes, the M4 question, okay? I'm not sure whether I understood correctly your question, but I believe there was a mixture of 2 different issues. So our heavyweight production happened at our paper machine number 3 and the strike was concerning only our new paper mill, paper mill number 4. We are not yet ready with all the discussions with the unions, but the progress so far is very positive and we don't see any risks at this moment in time. On the CVV effort, the effort is ongoing. For a number of months now, The whole organization is participating in it. We did establish internal targets, and we are working hard to identify a number of measures to get to that. We are not yet ready to disclose what externally what these targets are. But I can tell you, this is very much committed to this particular effort. Okay. Just a follow-up on the second question. As the ramping up of the heavyweights goes by, this could have an impact on the discount versus the price benchmark that Navigator has currently? Or we won't have that impact until the end of the year? Antonio Rudan will answer that question. Thank you for the question. No, we don't expect any impact on the discounts that heavyweights will bring. I would like to remember you that the heavyweights business is something that we already enjoy today, either through licensing our brands or through buying and selling the heavyweights. So what we will do is basically internalize what is today outsourced. Okay. Thank you very much. Thank you. The next question comes from Javier Pinedo from Exane. Please go ahead. Hi, good morning everyone. I have two questions, if I may. The first one is on working capital. We have seen interesting reduction in the first half of the year. Can you share with us what should we expect for the full year? Or put it another way, what we should expect in terms of working capital cash flow for the second half? The next question is regarding prices. You commented on the pulp price outlook that you see pulp price bottoming out and that we expect some uptick in the pulp price in the second half. I was wondering if you could share us your thoughts on the paper price for the second half. I think that you mentioned that they are under pressure. What does that mean? And what is the outlook that you expect for the second half? Thank you very much. Fernando to ask the working capital in the inventory price question. Okay. On the working capital, as you might remember last year, on the free cash flow, we achieved BRL211 1,000,000. This semester we achieved BRL100 1,000,000. This means our guess is to be roughly the figures of last year. As you can well imagine, we cannot and will not give any paper price guidance. I can just share the following. It will be very much dependent on the pulp price evolution from one side. Paper prices so far this year have shown a very high resilience visavis what is happening in the pulp price market. And obviously, at the same time, it's going to be half comparison H2 2019 to H2 2018. As last year, we were increasing prices towards the end of the year. Thank you. Thank you very much. If I may follow-up on that, can you basically, without giving any guidance, explain what do you mean with prices being under pressure that you mentioned in your presentation? Sure. Price is being under pressure, meaning that customers would like to buy cheaper. Thank you. Thank you. The next question comes from Joao Calado from Baik. Please go ahead. Hello. Thank you for allowing us to ask questions. Regarding the buybacks, do you expect them to continue? Also on Mozambique, we saw some provisions last year. Can you give us an update on the project? And if there will be or if there is a possibility of having more provisions this year? And just regarding on the also on the question of Trondinto, quarters onwards will be recovered? Or should we expect the heavyweights still to limit the total production of paper? Thank you. So maybe let me ask I'll answer the buyback question. At this point in time, we have not planned to do more buybacks, but as always, we'll depend on price evolutions in the future, okay? But that is what there's no we are not planning to do more. I'll ask Nuno to answer on the Mozambique question. On Mozambique, basically we continue the discussions with the Mozambique government in line with the MoU that we signed last year in July. In fact, the conversation and negotiations are taking longer than defined on the MOU, maybe not longer than expected. Paul, do you want to answer the PM4? Yes, the heavyweight topic, just to give you an explanation, We decided to do a project that was an engineering challenge, which is to produce in a normal machine the whole scale up to 300 grams. And the project is now at the last stage. We are enjoying a very good overall equipment performance. Therefore, we are ready to tackle the market challenges now. Okay. Thank you. Thank you. The next question comes from Luis Betoleto from BBVA. Please go ahead. Can you hear me? Hello? Yes. Okay. Sorry, sorry. I have two questions. The first one relating with M2 program. You mentioned that you have already achieved a EUR 64,000,000. I don't recall if you mentioned that figure was in first half twenty nineteen, adding the €8,000,000 or only the 3 1st years. And in that sense, if you believe that, I mean, the continued cost inflation, I mean, the remaining of this program could be enough to preserve margins at current levels, because we heard you are launching this new initiative in order to become more competitive. I just want to know if you believe the current cost tensions will be structural? Or it's just a reaction and you want to remain on the low cost position? It's just if it's something that you really need to maintain current margins or just your overall strategy? And that will be my main reflection regarding cost. Thank you. Okay, very good. Thank you for the question. It is an important one. I think on the M2 problem, the €64,000,000 number is accumulated savings. It's not in the period. So some of them have shown up in previous periods, okay, 2016, 2017, 2018. The number for this year is around €8,000,000 Okay? And it is it has not proved sufficient to oppose the factors, the external factors that affect cost sector costs, as I mentioned, when I when we presented the results. So, it has not been enough. And as you can see, our cost evolution has been on the whole unfavorable, right? Again, as I said, we are very conscious of the need to internally do some efforts to mitigate possible adverse conditions in our cost factors. And we've been working with that with the M2 and that's where the zero waste budget effort comes in, okay? Whether these initiatives will be sufficient to mitigate whatever those markets are going to present to us, I cannot tell. We believe some of these factors are cyclical. I mean, the cost energy prices, U. S. Dollar, euro prices, prices in some chemicals, I mean, definitely the external fiber prices, these are all cyclical elements that come and go. But I will not dare to forecast when they will come or where they will go. But we hope some of them will get back to a better stage and therefore that at some point in time we'll recover with that and our internal cost efforts, we will be able to recover much. Yes, I cannot tell you when, okay? Okay. Thank you very much. The whole strategy is to work on the things we can influence, which is our industrial efficiency, specific consumptions, fixed costs, fixed costs at the level of central service. Those are things we can influence and we do have 2 major problems and ongoing to make sure that we are doing everything that we can be sure on both dimensions. That is the strategy. On the external factors, we will be subject to whatever the market sent to us. Some of them are cyclical, so we hope they will get back to a better position at some point in time. Thank you very much, Diernav. Thank you. Thank you. The next question comes from Bruno Beza from CaixaBank BBIA. Please go ahead. Hi, good morning. So two quick ones from my side. The first one related with the negotiations that you are having with unions. I think you mentioned that the progress is good so far and you do not foresee further impacts on the P and L from strikes going forward. My question is the outcome from these negotiations, how could this impact your cash cost base for over the coming years, if you already have any kind of visibility on that that you could share with us would be appreciated? And the second question, if you could give us an update on the situation of tariffs in the U. S. Market, it will also be great. Thank you very much. I mean, maybe I'll ask the first one. I think the impact of the strikes on the whatever negotiations are going on with the unions, we don't anticipate they will have a major influence. I mean, of course, there's going to be inflation. We're going to adjust things with inflation, some minor adjustments. I would not say it's going to be a major factor in terms of evolution of our cost base. Okay, on the various question. Antonio? So on the tariffs, as it was referred previously by Joao, we got preliminary tariff for POR 2, the 2nd period of review of 5.96%, which is actually on the high range of our expectations. And we are going to have soon an audit from the Department of Commerce, which we welcome very much. This one that will help us to explain the present situation. And the final tax will be announced before the end of the year, most likely somewhere in between late September and late November. We are working well with this than that, but it will depend, of course, on the results of the audit in the coming weeks. Thank you very much. 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. Yes, thank you. We have one more question that will come through the platform. I will read it now. From Pablo DeAntheria, Kepler Cheuvreux. Good morning. Following the weak uncoated book free volumes sold in the first half of the year, how do we expect to finish the year? Could you please give us an estimated figure for 2019? Obviously, we cannot give guidance on a figure, but I can give you some comments on that. And as it was explained, the H1 volume has been the result of a combination of an equilibrium in between availability from the paper machines with the difficulties that we had on production as well as the strike, but also an active management of our price volume binomial to make sure that we have supply discipline. As it was also expressed, we do believe that paper prices have been suffering from destocking from the supply chain, from our downstream customers. And we expect this destocking has reached an end or will reach an end very soon. So with all this in mind, of course, volumes will very much dependent on the dynamics of pulp and paper prices, but we are confident that volume wise, H2 will be higher than H1 and most likely not very different from H2 last year. Thank you very much, Antonio. So this ends our conference call for today. Thank you very much, ladies and gentlemen.