Good morning, ladies and gentlemen. Welcome to The Navigator Company's call and webcast for the second half of 2019. Today, participating in the call are the following members of the Executive Committee, João Castello Branco, António Redondo, Fernando Sousa, Nuno Santos, and João Paulo Oliveira. We'll start with a brief presentation of the main achievements during the first half of 2019 and the second quarter, and follow with a Q&A session at the end. The presentation can be accessed through the link available on the website, and questions may be addressed also to the webcast platform. João will start with a comment on the main figures recorded in this period, and António will follow with an overview of the pulp and paper market. Nuno Santos will comment on tissue market and business, and João Paulo Oliveira on cost reduction initiatives and CapEx.
We'll follow with the main financial issues. I will now hand over to João. João?
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. Let's start with the presentation and go over to slide three. We have registered a turnover of EUR 432 million in the quarter, in line with the same quarter last year and growing 2.5% over the first quarter 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 EUR 102 million, roughly in line with the previous quarter, lower than last year's, reflecting a context of lower pulp prices and higher production factor costs. Second quarter was impacted by several stoppages, namely programmed maintenance at Cacia and Setúbal, the strike at PM4 at Setúbal as well. Free cash flow generating during the second quarter stood at EUR 90 million. A clear increase over the first quarter, mainly due to working capital improvements. CapEx in Q2 was EUR 36 million, slightly above CapEx during Q1, included mainly maintenance and recurrent items related to pulp, paper and tissue. I'll take just a brief note on the antidumping tariffs. During the second quarter, Navigator was notified by the Department of Commerce that the preliminary rate for the second 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 four, 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 2018 to €864 million, 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 factor costs, as it will be explained later, and declining pulp prices. Still, EBITDA for the first half totaled EUR 207 million, the third highest EBITDA recorded in a semester versus last year's EUR 213 million.
Noteworthy is the generation of free cash flow in the period, which was very strong and totaled EUR 101 million in the first half, comparing to an adjusted free cash flow without pellets of EUR 85.1 million in the first half of 2018. Over the course of the semester, we paid dividends in the amount of EUR 200 million, a similar amount as the one paid in 2018. We also acquired approximately 4 million own shares, investing EUR 14.2 million in the wake of severe price correction, which occurred at the end of 2018. I will ask now António Redondo to make a few comments on the market. António, please.
Thank you, João, and good morning, everyone. Please go to slide number six. I think by now you all must be rather familiar with the graphic with the pulp price evolution, namely for our views in both U.S. dollar and euros, showing that prices have been declining since the end of 2018. The BHKP index in U.S. dollars has declined approximately 16% year to date in 2019, and 15% in U.S. dollars and 15% in euros. Still, average price in 2019 for both U.S. dollars and euros in Europe is clearly above the average pulp price in the last five years. The average for pulp price between 2013 and 2018 in U.S. dollars was $813 per ton. Average price year-to-date 2019 is $951 per ton. The BHKP index for Europe corrected more significantly in July, reflecting the fall in prices in China.
I just wanted to stress that even though we have seen pulp prices correcting, the current price levels are quite high, and actually, the average price in euros for BHKP for the first half of 2019 was basically the same as the average price in H1 last year, EUR 851. Let's take a closer look at what happened in the last 18 months. If you please move to slide number seven. This is a graph with the evolution of our wood pulp shipments and producer stocks. Global shipments and also shipments to China, which represents 36% of the market. We believe that namely with intensification 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 and planned 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 and May, as shipments for short fiber increased 1.6% globally and 16% in China and 17% in Western Europe. 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, this, together with an impressive economic activity and uncertain outcome on the trade negotiations with U.S., might foster some additional minor price adjustments. We remain positive that we already are close to the bottom of the price cycle, hence we might witness a rebound from the end of 2019. This is subject to the world economic activity picking up, namely in China and the rest of the world, we have just seen how buyers reacted to uncertainty brought by trade tensions. This is also dependent on pulp producers' production discipline to balance stock levels. We have seen some responsible attitudes from producers controlling supply, 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, 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 balance the market. 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 2021. On the demand side, market pulp will be mainly driven by tissue investments, with industry consultants forecasting an increase in tissue capacity of 1.7 million tons this year and 1.1 million tons next year, besides the 3.7 million 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 eight.
With an update on the paper market, I would like to show that the global paper demand has been impacted by economic activity and some destocking as well, namely due to uncertainty regarding pulp prices. Global demand for printing and writing papers decreased 1.9 million tons, representing a 5.7% fall year-to-date May. With uncoated woodfree falling 1.5%. As this is clearly above the trend for the past five years, we believe this is due to the global economic slowdown and the reduction of inventories to the entire supply chain in all main grades. The average of the last five years is a reduction of 2.3% in demand for global printing and writing papers, so much lower than what we are witnessing so far this year, with uncoated woodfree showing a significant resilience, adjusting only 0.3%, a fifth of what we saw year-to-date May.
The resilience is also clear when we look at the paper prices on slide nine. As you can see, the index for A4 B-copy price is currently at EUR 904 per ton. After experiencing an increase in the beginning of the year and a mild decline afterwards, it is now flat, with average price year-to-date standing at EUR 912. This price is well above the average for the last five years, which stood at EUR 835 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 uncoated woodfree 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 U.S.A., 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, António. 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 first quarter to the second. When looking in the medium term, tissue demand continues to present interesting growth rates. From 2017 to 2019, over the last two 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 Aveiro, and in Spain, other players are also starting new production.
This brings additional commercial challenges, but we believe that Navigator's new tissue is particularly well-positioned, quality and cost-wise, to serve the French and U.K. markets, the latter being the largest importer of tissue in Europe. Now back to you, João.
Okay. I will ask you now to go please to slide 13, where we have some detail for our EUR 207 million versus a comparable amount of EUR 230 million last year, which is adjusted with the sales of the pellets. 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 to the net value of EUR 33 million in increase in EBITDA in the period compared to last year. Average paper prices increased 6% year-on-year, this more than compensated the negative evolution of pulp price.
In terms of volumes, the global impact is negative by an amount of around EUR 4 million 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. 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 rate. I will explain this afterwards. These external headwinds, in some cases cyclical, justify that year-on-year, our energy costs were EUR 13.7 million higher, our wood cost EUR 6.1 million higher, and our external fiber cost EUR 4.6 million higher than last year.
As said, most of these increases have to do with market conditions for these inputs and the US 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 EUR 4.8 million year-on-year, and were influenced by increased prices of reference products such as optical brightening agents, namely DAS and starch, although also by a slight increase in specific consumption. In terms of fixed costs, personal costs performed favorably, 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 pulp performance. Volumes for uncoated woodfree came down 5% year-on-year, but increased 5% from Q1 to Q2.
The decline versus last year was a consequence of a deliberate price volume optimization strategy, as well as some issues impacting paper production, including two strikes that stopped PM4 at Setúbal in January and April, amounting to a total of eight days of production lost, and the slower ramp-up of PM3 after the last reconfiguration. Still, average price during the first half more than compensates the decrease in volumes. We have recorded turnover in the paper business of €611 million, a figure that corresponds to the highest paper turnover ever recorded in a first semester. 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 two percentage points to 70%.
In terms of pulp performance, production grew 2.4% year-on-year to 698,000 tons, despite maintenance stoppages in Cacia and Setúbal, benefiting from the additional capacity installed at the Figueira da Foz 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% to 124,000 tons, and a turnover increase of 6.8% to EUR 78 million. Also worth noticing were the additional 15,000 tons of pulp integrated in the new tissue plant production in Cacia. Over the second quarter, conditions in the pulp market worsened, pushing down the BHKP benchmark index in EUR by almost 5%, as António 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 EUR 38 million.
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 factor cost environment vis-à-vis last year, impacted by a number of exogenous factors which in some cases are cyclical in nature. More specifically, the cost of acquisition of electricity and natural gas suffered significant increases in the first half compared to the same period as 2018. About 15% in unit cost of electricity and 23% in unit cost of natural gas, essentially resulting from the increase in Brent prices and CO2 emission allowances with a strong impact on electricity prices. During the first half of 2019, there was a drastic price increase for the main raw material required for OBA production, DAS.
Since early January 2019, the price of this material has increased by around 300%, dragging the prices of different OBAs up to 40%-90%. 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 product mix biased 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 EUR per ton. Finally, the U.S. dollar-euro rate averaged for the first half 1.12, comparing to 1.21 in Q1 2018. Considering that several input costs are purchased in U.S. dollars, non-Iberian wood and certain chemicals, the valuation of the U.S. dollar against EUR also contributed to cost inflation.
I will ask Nuno to comment now on the tissue business.
On slide 16 for the tissue business, there was a significant increase of 66% in the volume of sales, so we sold 47,000 tons tons, as a result of the startup of the new tissue plant in Aveiro. The value of sales stood at EUR 66 million, up 62% in relation to the first half of 2018. This growth in volume brought two different changes to the business. On the one hand, sales of finished products grew by around 29% to 33,000 tons. On the other hand, the group sales of reels, which had been negligible in the same period of 2018, grew 16 times to 11,000 tons. Both finished products and reels benefited from price rises in relation to the first half of 2018, clearly necessary to offset increasing costs, especially in terms of fiber pulp and energy.
The faster growth in reels business, typically of the early stages of production in a new tissue mill, changed the mix of product sold, 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. João Paulo?
Thank you, Nuno. Let's go to slide 17 about our cost efficiency M2 program. As João 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 five-year target to achieve EUR 100 million in savings in five years. Until the end of 2018, we have recorded a global saving of EUR 64 million. 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 João just explained. This first half, we managed to yield a positive impact of EUR 8.1 million in our EBITDA. The most significant of these projects include initiatives to optimize logistics. Example, using rail freight to supply wood to the Aveiro 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 EUR 68.2 million corresponding to EUR 37.7 million in the second quarter.
This amount includes investment in maintenance and current investment of approximately €50.3 million, as well as EUR 6.2 million related to the completion of the new tissue mill in Aveiro, and in the remaining investment in heavyweights production at our paper mill number 3 in Setúbal, as well as €8.6 million in environmental measures. These last 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 Figueira da Foz 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 Setúbal and Aveiro, as well as the revamping and redesign of effluent treatment in Vila Velha de Ródão. I will now ask Fernando to comment on the next slides.
Thanks, João Paulo. On slide 19, cash flow from operations generated in the first half was EUR 168 million, which compared to EUR 185 million in 2018. Free cash flow total EUR 101 million comparing to EUR 85 million last year, net of EUR 68 million inflow from the pellets business sale, and improved considerably during the second quarter. In relation to operation cash flows generated in 2019, free cash flow was brought down by capital expenditure of EUR 68 million, which compares to EUR 75 million in 2018, and also by a significant increase in inventories, up by EUR 31 million, especially in news due to the recovery of the stocks to levels regarded as adequate, as well as substantial growth in pulp stocks over the period. The group operational performance enable it once again to recover the robust capacity to generate funds that it has displayed consistently over the recent years.
Now on slide 20. As a result, at the end of June, The Navigator Company interest-bearing debt totaling EUR 796 million, up by EUR 113 million in relation to year-end 2018. In a period when the group paid EUR 200 million in dividends and acquired EUR 14.2 million in own shares, treasury shares. Net debt EBITDA ratio remains at the conservative value of 1.8. I would like to spend some minutes on slide 21 and go over the debt restructuring accomplished in the first half. 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. This process involved contracting four loans and two backup facilities with a total value of EUR 455 million. 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 João.
Thank you, Fernando. 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 input sides. In pulp, the expected upturn 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 purchasers 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 grade and maintenance shutdowns and increases in tissue capacity over 2019 and 2020, will be the two 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 2021, pulp prices can be expected for moderate growth for both fibers in the latter part of 2019. On the paper side, the second quarter 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 uncoated woodfree capacity closures and/or 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 Inpactus industrial operation matures and our share of the target market grows. Additionally, the group has also the goal to improve business margin, thanks to the sharp price increase implemented and by the economies of scale associated with business growth.
The group's activity during the first half of 2019 has been impacted by several exogenous 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 João Paulo 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 factors. We know that we have to go further if we want to remain as competitive as we are today. We launched at the end of April the zero-based budget project, which sets out to design and implement a series of initiatives to capture cost savings in SG&A and non-industrial personnel that will start to be implemented in 2020. Thank you very much.
Thank you, João. This concludes our comments on the results. We are now ready for the Q&A.
Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press 01 on your telephone keypad or use the webcast platform for written questions. There will be a short silence while questions are being registered. Thank you. The first question comes from João Pinto from JB Capital Markets. Please go ahead.
Good morning, everyone. Thanks for taking my questions. I have three, 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 leave the gap between Navigator's realized price and the peak benchmark to narrow through the end of the year or the impact won't be that material? The last one on the Zero-Based Budget program. Do you have any target of total cost savings that you aim to achieve with this initiative? Thank you.
Okay. Maybe I would ask João Paulo to answer the strikes, the PM4 question. Okay?
I'm not sure whether I understood correctly your question, but I believe there was a mixture of two different issues. Our heavyweight production happens at our paper machine number 3, and the strike was concerning only our new 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.
Yes. On the ZBB 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 externally what the targets are, but I can tell you the whole organization is very much committed to the required 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?
Well, António 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 heavyweight. What we'll 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 an interesting reduction in the first half of the year. Can you share with us what should we expect for the full year? Put 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, a look 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, and then António with the price questions. I'm so sorry.
Okay. On the working capital, as you might remember, last year on the free cash flow, we achieved EUR 211 million. This semester, we achieved EUR 100 million. 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 vis-à-vis what is happening in the pulp price market. Obviously, at the same time, it's going to be a hard comparison, H2 2019 with 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. Prices being under pressure, meaning that customers would like to buy cheaper. Thank you.
Thank you. The next question comes from João Calado from BIG. Please go ahead.
Hello. Thank you for allowing us to ask questions. Regarding the buybacks, we expect them to continue. 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? Just regarding on the question of João Pinto regarding the heavyweights, does the capacity of heavyweights from this quarters onwards will be recovered, or should we expect the heavyweight still to limit the total production of paper? Thank you.
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, will depend on price evolutions in the future. Okay. At this point, 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 conversations and negotiating there are taking longer than defined on the MoU, but maybe not longer than expected. We will keep you advised on it.
Oh, do you want to go on to 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. 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. Ladies and gentlemen, just a reminder, in order to ask a question, please press 01 on your telephone keypad. The next question comes from Luis de Toledo from BBVA. Please go ahead.
Can you hear me? Hello?
Yes.
Okay. Sorry. I have two questions. The first one relating with M2 program. You mentioned that you have already achieved EUR 64 million. I don't recall if you mentioned that figure was in first half 2019, adding the EUR 8 million or only the three first years. In that sense, if you believe that, they continue the cost inflation, the remaining of this program could be enough to preserve margins at current levels. 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. If it's something that you really need to maintain current margins or just your overall strategy. 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 program, the EUR 64 million number is accumulated savings. It's not in the year, so some of them have shown up in previous periods. Okay. 2016, 2017, 2018. The number for this year is around EUR 8 million. Okay. It has not proved sufficient to oppose the external factors that affect our factor costs, as I mentioned when we presented the results. It has not been enough, and as you can see, our cost evolution has been on the whole unfavorable. Right. Again, as said, we are very conscious of the need to internally do some efforts to mitigate possible adverse conditions in our cost sectors. We're working with that with the M2, and that's where the zero-based 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, US dollar, Euro prices in some chemicals, and definitely the external fiber prices. These are all cyclical elements that come and go. I will not dare to forecast when they will come or where they will go. We hope some of them will get back to a better stage and therefore that at some point in time we will recover. With that and our internal cost efforts, we will be able to recover margins. 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 at the level of central service. Those are things we can influence, and we do have two major problems ongoing, to make sure that we are doing everything that we can be sound on both dimensions. That is the strategy. On the external factors, we will be subject to whatever the market presents 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. Cheers. Thank you.
Thank you. The next question comes from Bruno Bessa from CaixaBank BPI . Please go ahead.
Hi, good morning. 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&L from strikes going forward. My question is, the outcome from these negotiations, how could this impact your cash cost base over the coming years? If you already have any kind of visibility on that you could share with us, would be appreciated. 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.
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. Of course, there's going to be inflation.
Things with inflation, some adjustments, we would not say it's going to be a major factor in terms of the evolution of our cost base. Okay, on the tariffs question, António?
On the tariffs, as it was referred previously by João, we got preliminary tariff for POR2, the second period of review of 5.96%, which is actually on the high range of our expectations. We are going to have soon an audit from the Department of Commerce, which we welcome very much. This audit will help us to explain the present situation, and the final tariff 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 5.96%, and we do believe that we have reasons to explain that we can have even a lower tariff 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 was sent through the platform. I will read it now. From Pablo Renteria, Kepler Cheuvreux. Good morning. Following the weak uncoated woodfree volume sold in the first half of the year, how do we expect to finish the year? Could you please give an estimated figure for 2019?
Well, obviously, we cannot give guidance on a figure, but I can give you some comments on that. 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 a 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 destocking has reached an end or will reach an end very soon.
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, António. This ends our conference call for today. Thank you very much, ladies and gentlemen.