Welcome to The Navigator Company conference call. I will now hand over to Joana Appleton. Please go ahead.
Thank you. Ladies and gentlemen, welcome to The Navigator Company's conference call and webcast for the first quarter of 2019. This conference call is the first one held after the changes in the CEO, which occurred at the AGM of April 9th, 2019. Today we have participating in the call the following members of the executive committee, João Castello Branco, the company CEO. Si. Yes. Sorry for this. We have a problem with the sound. Welcome to The Navigator Company's conference call and webcast for the Q1 2019. This is the first call to be held after the changes in the CEO. Today we have participating in the call the following members of the executive committee, João Castello Branco, the company CEO; António Redondo, CCO; Fernando Araújo, CFO; Nuno Santos, and João Paulo Oliveira.
We will start with a brief presentation of the main achievements in Q1 and follow with the Q&A session at the end. The presentation can be accessed to the links 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 the quarter, and António will follow with an overview of the pulp and paper markets. Nuno Santos will comment on the tissue business and João Paulo Oliveira on cost reduction initiatives and CapEx. Fernando will address the main financial issues. I will now hand over to João. João, please.
Thank you, Joana. Good afternoon, everybody. I will start by making some brief comments on the results for the quarter. Let's start with the presentation and go to slide three. The Navigator Company experienced relevant growth in turnover in the quarter of almost 10% to EUR 422 million. This increase was sustained by higher prices and higher sales volumes for pulp and tissue when compared to Q1 2018. We recorded higher average prices in pulp and paper, which more than compensated a reduction in paper volumes sold. There were some production deviations in paper due to the strike in one of our paper mills at the beginning of the year, as well as some adjustments in the heavyweights production at PM3 in Setúbal.
In the pulp business, production was more in line with previous first quarters and was not subject to the output limitations from maintenance stoppages, which occurred in Q1 2018. We also recorded higher production and sale of tissue on the back of the new installed capacity at the Aveiro tissue mill. The group registered increase in the turnover of all its products. Uncoated wood-free paper grew 6% to EUR 300 million. Pulp registered an increase of almost 22% to EUR 40 million, and tissue 75% to EUR 33 million. In this context, EBITDA stood at EUR 105 million, growing 3.3% when compared to recurrent EBITDA of EUR 102 million. As you recall, in Q1 2018, the group completed the sale of its pellets business, and EBITDA was positively influenced by approximately EUR 4.9 million. Sorry, EUR 9.4 million.
EBITDA margin in this quarter stood at 24.9%, -2.5% versus recurring margin impacted by higher costs. Our CapEx in this period stood at EUR 32.5 million, almost EUR 4 million above CapEx in Q1 2018, with more than half of this CapEx related to recurrent CapEx, 26% to regulatory CapEx, which we will detail ahead, and 15% still related to the growth CapEx of tissue, pulp, and heavyweights completed last year. One of the highlights of the quarter was the improvement accomplished in our debt profile. Fernando will explain it in more detail. We managed to renegotiate a significant part of our total debt, namely debt maturing in 2020, with a considerable extension of maturities and a diversification of the sources of funding. Finally, I would like to stress the approval at our annual general assembly of the dividend payment in the amount of EUR 200 million.
A figure in line with previous year, implying a 7% dividend yield. Going now to slide four, we can take a look in more detail at the main factors that impacted EBITDA in the quarter. Prices were definitely key to the growth achieved, and prices and volumes more than offset the increase registered in costs. The main cost items impact in the quarter were energy costs, EUR 11.6 million, mainly due to the increase in electricity and natural gas acquisition prices versus Q1 2018. Also, the cost of fibers had a negative impact of almost EUR 7 million, due essentially to the increased acquisition of long fiber for the new Aveiro tissue mill and the acquisition of short fiber in Vila Nova de Famalicão. Wood also experienced some inflation to different factors. A larger proportion of acquisition of certified wood in Portugal, which rose from 34%-49%.
The price increase of wood chips in international markets, and the evolution of the euro-U.S. dollar exchange rate for wood purchased outside of the Iberian Peninsula. In fixed costs, personal costs performed favorably, although there was negative performance in functional and maintenance costs. These costs were influenced by seasonal factors, and are expected to normalize throughout the year. Most of the increase registered in costs are related to external factors. Excuse me. Sorry. As I was saying, most of the increase registered in costs are related to external factors. This means basically that we aim to compensate these effects that we cannot control with continued strong focus on cost elements that we do control. As a concept, we have been implementing cost reduction efficient measures throughout the company, such as the M2 program that João Paulo will refer to subsequently.
We have in the pipeline new cost initiatives, which we will also talk about later on. With that, I will hand over to António Redondo, which will talk to us about the pulp and paper market.
Thank you, João. Good afternoon again, ladies and gentlemen. Please go to slide six, with evolution of the PIX index for BHKP Europe. We see since the end of 2018, pulp remains at historically high levels at the moment. During Q1 2019, market prices for softwood increased in gross terms $80, but declined for hardwood around $22. However, with the valuation of the U.S. dollar against the euro, hardwood prices in euros actually increased EUR 48 per ton, almost 6% when compared to Q1 2018. Turning please to slide number seven, we have an update on the market conditions for pulp. The PPPC reported a fall in global chemical pulp shipments of about 0.5% in Q1 2019, with shipments to China decreasing 5.4%.
In the six months up to October 2018, total shipments of short fiber grew by around 1.1 million tons year-on-year at a pace faster than structural growth, replenishing stocks in the supply chain. In the final quarter of 2018, as a consequence of an economic slowdown, reduction in apparent global consumption of paper and cardboard, and a downturn in a vast range of commodities, shipments of pulp started to fall gradually, wiping out all of the year-on-year gains referred to above. The consequences of this downturn was still felt during Q1 2019, but there are some signs that may indicate an improvement in the coming months. On the one hand, economic stimulus measures taken by the Chinese government appear to positively impact overall Chinese consumption and should lead to a growth in pulp consumption.
On the other, recent figures indicate that China pulp inventories might have started to decline, a positive sign, even though inventories remain at a high level and will take some time to come significantly down. More important recent news that relevant players allegedly plan to take 1.5-2 million tons of downtime at BHKP mills through year-end, indicates that supply will work to meet demand, and hence, inventories will most probably come significantly down in the coming quarters. Going now to slide eight, please. We have an overview of the performance of the printing and writing papers in Q1 2019. The global and uncoated woodfree market remains, once again, a benchmark for resilience and stability in the context of slowing economies and sharp downturns in all types of printing papers, having contracted by 2% in the first quarter.
This contraction occurred in a context of substantial reductions in uncoated wood-free papers and papers based on mechanical pulps, neither produced or marketed by Navigator, and both reducing between 9% and 12%. In this context, demand for uncoated woodfree dropped 1.4% in the U.S. year-on-year in Q1, and 2% in Europe, reflecting the slowdown in the main economies in this geographical area. Moving to slide nine, the evolution of paper prices translate our European uncoated woodfree manufacturers implemented price increases in 2018 and January 2019 in response to rising production costs. This allows the European uncoated woodfree prices to rise EUR 69 at 8% in Q1 2019 in relation to the same period of 2018, and EUR 15 per ton or up 2% in relation to the last quarter of last year.
In the U.S., price increases, in particular in March 2019, pushed up the CPI office paper index in Q1 2019 by $136 per ton, up 12.5% year-on-year, and by $4 per ton quarter-on-quarter. If you are so kind to move to slide 10, we summarize now our views of conditions in the paper market. Pulp prices remain high, namely in EUR, and the continued pressure in paper margins is a reality. There is also cost stress from chemicals, fuels, energy, and logistics, which will put uncoated woodfree prices under upward pressure. Uncoated woodfree, as mentioned before, shows the highest resilience among graphic papers, namely in cut-size, which has shown 0.2% growth year-on-year in Europe. With several conversions, shutdowns announced in Europe, Mexico, Asia, and North America, uncoated woodfree markets should be more balanced, leading to an improvement in market conditions.
I will continue now with some comments on our paper performance on slide 12. In our paper business, uncoated woodfree sales totaled 353,000 tons, 2% down on the same period of last year, due essentially to production deviations, mainly related to maintenance and unexpected shutdowns, and also for a four-day production stoppage as a result of the strike in January in one of our Setúbal paper machines. However, rising sales prices for paper permitted the group to record a record turnover of EUR 300 million, up by 6% on the same quarter of 2018. In fact, the average benchmark price for uncoated woodfree paper in Europe was 8% higher in the first quarter than in the same period of last year, and also rose over the course of the quarter.
The group's average price outperformed the index, driven by implementation of price rises over the course of 2018 and also in early 2019 in Europe, which remained throughout the quarter, and also by the favorable evolution of the euro-U.S. dollar exchange rate. We also recorded, again, a slight improvement on the weight of our new brands that have reached now 69%. Please, let's go now to slide 13 with an overview of the pulp performance. Output of pulp in the first quarter of 2019 stood at approximately 350,000 tons, 7% up on the same period in 2018, when at that time, the company was subject to limitations on output due, in particular, to a number of stoppages in Setúbal.
As a result, the quantity of pulp available for sale in 2019 was clearly above that in the previous year, although in line with the first quarters of the previous years, making it possible to an increase in pulp sales to 62,000 tons. The group is working with a higher level of inventories than normal, but below the benchmark, explained in part by a value management play, where price is being privileged over volumes. The group's average price moved upwards over the quarter above the peak performance in EUR when excluding off-grade pulp sales from the startup phase of the new capacity in Figueira da Foz pulp mill last year. Pulp sales in value stood at around EUR 40 million, up by 22%. I will now hand over to Nuno Santos for some comments on the tissue business.
Thank you, António. Going to slide 14. The tissue business sales performed very positively during the quarter. There was a significant increase of 76% in the volume of sales to 23,700 tons. As a result of the startup of the new tissue plant in Aveiro. The value of sales stood at EUR 33 million, up 75% versus the first quarter of 2018. This growth in volume brought two distinct changes to the business. On the one hand, sales of finished product grew by around 40% to 18,000 tons. On the other hand, the group recorded a sharp increase in the sales of reels times nine, multiplied by nine, to 6,000 tons, which did not exist last year. Both finished products and reels benefited from significant price rises in relation to the first quarter 2018.
Approximately 8% in finished products and more than 10% in reels. Clearly necessary to offset the increase in costs, especially in terms of pulp, chemicals, and energy. However, the faster growth in reels business, typically at the early stages of production in a new tissue mill, altered the mix of products sold, which had an impact on the average sales price. Looking at the revenue by geography, we can see that there was a significant increase in sales outside Portugal and Spain, with the weight of extra Iberian increasing to 13% of total sales from 2% last year. I will now ask João Paulo to comment on the next slide.
Thank you, Nuno. Let's go to slide 15 on our cost efficiency M2 program. As João said, we work a lot on the cost side, and we 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 savings in five years, involving the entire areas of the company. Until year-end 2018, we recorded accumulated savings of approximately EUR 64 million. In this first quarter, Navigator continued with its M2 cost reduction, resulting in a positive year-on-year impact of EUR 2.9 million in EBITDA. A total of 82 cost-cutting initiatives are currently being implemented in 16 different areas of the company, and 56 of these have already made a positive contribution to this year's result.
The top-performing initiatives in progress, illustrating an entrenched continuous improvement mindset in Navigator, include projects focused on speed increase and energy consumption reduction in our paper machines at Figueira da Foz mill, as well as softwood consumption reduction in our tissue machines at Vila Velha de Ródão by optimizing several of operational procedures. Likewise, projects relating to wood transportation cost reduction through introducing a new acquisition model or alternative means and optimizing our logistic costs, namely on drayage and on sea transport to the U.S., have heavily contributed to the aforementioned program results. On slide 16, we have an overview of the CapEx registered in the quarter. Navigator recorded total investment of EUR 32.5 million in the first quarter.
This amount includes maintenance and current investment of approximately EUR 19 million, as well as EUR 4.6 million relating to completion of the new tissue mill in Aveiro, and the remaining investment in heavyweight production in Setúbal. Investment in the period includes a figure of EUR 8.6 million classified internally as regulatory, directed essentially at improving environmental and sustainability performance at group plants. The main investment made in this quarter was the construction work of a new biomass boiler at the Figueira da Foz mill, replacing the existing boiler and the natural gas combined cycle power station. This new biomass boiler is part of the group's wider carbon neutrality program, will make it possible to replace the use of fossil fuel by a renewable fuel, in this case, biomass, leading to a reduction in fossil CO2 emissions at that mill site.
Investment in this area also included sleeve filters on the biomass boilers in Setúbal and Aveiro, as well as the revamping and redesigning of effluent treatment in Vila Velha de Ródão. I will now ask Fernando to comment on the next slides.
Thank you. On slide 17, cash flow from operations generated in the quarter was EUR 88 million as compared to EUR 86 million in 2018. Free cash flow in the quarter stood at EUR 9.9 million as compared to EUR 134 million in 2018. It should be noted that cash flow in first quarter of 2018 was affected positively by a cash inflow of EUR 68 million from the sales of the pellet business. In quarter one 2019, there was also a significant delay in the January and February VAT reimbursements in the amount of EUR 45 million, as well as acquisition of own shares in the amount of EUR 4.6 million. In 2019, in view of the operating cash flow generatedThe evolution of free cash flow was impacted by a CapEx of EUR 32.5 million versus EUR 28.6 million in 2018.
By the increase in working capital, mainly due to the rise in inventories of EUR 27.4 million. Inventories were higher, in particular for tissue, due to the development of new business and in the stocks of finished and intermediate products in pulp, tissue, and uncoated, allowing to improve customer service. Now on slide 18, as a result, at the end of March, Navigator interest-bearing debt totaling EUR 670 million in relation to year-end 2018. The net debt to EBITDA ratio remains at a conservative value of 1.5, which is in line with net debt to EBITDA at the end of last year. I would like to spend some minutes on slide 19 and go over the debt restructuring accomplished in the first quarter. 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 for loans and two backup facilities with a total value of EUR 455 million. The main results of this process were as follows. Extension of maturities. The new loans have average lifetime between five and seven years, as opposed to an average maturity of 2.6 years at the end of 2018. Increase in fixed rate component. All the new loans were contracted on a fixed rate basis. Reduction of costs in relation to discontinued operations. Diversification of funding sources with the inclusion of a new international bank in the lineup of lenders. Finally, conversions of a backup facility into a green commercial paper facility, the first operation of its kind in Portugal. This last operation, in which the pricing terms are linked to evolution of a specific score awarded by an environmental and sustainability governance consultant, is a reflection of Navigator Group commitment to sustainability.
To finish the comments for the quarter, I will give the floor back to João.
Thank you, Fernando. Just a few words on the outlook for 2019. Slide 21. Demand for market pulp should pick up moderately in the upcoming quarters, particularly from September onwards, albeit subject to economic performance, especially in China, in response to government stimulus measures and the negotiations with the U.S. The continuous emphasis on environmental protection in China will likely lead to further substitution of non-wood and mechanical pulps by chemical pulps, and the increase in tissue capacity between 2019 and 2020 will be two of the main factors sustaining growth in demand for short fiber pulp. With the absence of any significant increase in supply until at least the second half of 2021, upward adjustments in pulp prices can be expected for both fibers over the second half of 2019. In tissue, 2019 will be a year of consolidating recent investments with a view to increasing total sales.
The main goal will be to achieve sizable gains in sales of finished products as the industrial operation matures and Navigator's share of the target market grows. Additionally, the company aims to improve the tissue business margin following the strong effort achieved in price increases. In the paper business, a more balanced market is expected as announced conversions and shutdown in capacity materialize throughout the year, compensating for the new investments in uncoated entering the market. Having said all this, we must acknowledge that the permanent macroeconomic environment is a major factor of uncertainty. The global economic slowdown and the current international framework of protectionist policies are factors that Navigator sees with some concern and may influence, in a relevant manner, the above described outlook. During Q2, a maintenance shutdown occurred at the pulp mill in Setúbal in April and was extended for commercial reasons.
Other maintenance stoppages are also scheduled in Aveiro's pulp mill and at the paper mills in Setúbal and Figueira da Foz. Production and operating costs continue to deserve special attention. In this context, the company has continued the cost reduction and operational excellence program M2, and has also started a zero-based budget project in April with the objective of defining and implementing a set of fixed cost reduction initiatives.
Covering operating costs, general and administrative expenses, and personal costs of non-industrial areas. These efforts should materialize in 2020. Industrial fixed costs efforts will also follow these efforts.
Great. Thank you very much, João. This concludes our on the road. 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 Nuno Estácio from Haitong Bank. Please go ahead.
Hi. Good afternoon, everyone. First question would be in terms of production and sales of uncoated woodfree paper. In 2017, you have produced almost 1.6 million tons. This has been down in 2018, and 2019 is also not starting on a brilliant tone. What can you tell us in terms of off production? Is there any problems? Is that why you are doing these extended stoppages? Do you think you can recover production later in the year? This would be the first point. In terms of volume sold, we are also seeing slight negative performance in the first quarter. I think, João, now you mentioned that one of the reasons for the prolonged stoppage is for commercial reasons. Are you having problem or difficulties in shipping the paper? Can you give us a little bit more insight about that?
A final question would be in terms of the working capital evolution. Clearly weak in this quarter. You have mentioned this EUR 45 million, or I think it was EUR 45 from VAT. Should we expect a meaningful recovery in second quarter, or is this something that will not be recovered throughout this year? Thank you.
Okay, Nuno. Thank you for the questions. I will hand over to João Paulo, then António, and then Fernando to answer your three questions, okay? João Paulo.
Thank you for the question concerning production issues. We have last year converted our machine 3 in Setúbal from a normal paper grade machine into a heavyweight machine, having full flexibility on the total scope. This was a very ambitious project because it was the first project on a worldwide scale to be done, revamping one machine to do the complete grade. We have been facing some difficulties, not in producing the paper. The paper, in fact, the heavyweight paper is produced at a very, very high quality level, but we have not been able to achieve the output that we have planned. We have also the effect of the strike in Setúbal at our machine 4. Besides that, all the machines are running at planned efficiency, and therefore we are not concerned about that.
It's a momentary effect that will elapse over this quarter that we are now in. I pass now to António to explain about the market conditions.
Thank you, Nuno, for your question. Very quickly, in terms of sales in Q1, the sales reflect the paper available. Our stocks of paper in value, of course, they are higher because paper has a higher value than they had last year. In terms of tons, they are actually at the same level of last year. The comment made by João previously was not related to paper, was related to pulp. Yes, in pulp, we have also participated on the effort to make sure that supply meets demand, and hence, we took advantage of already this quarter on the shutdown of one of our mills to extend the shutdown for commercial reasons in pulp. I now hand over to Fernando.
The answer is clearly yes. For us, we are not very worried with this. The cash flows from the operation are at the same level as the first quarter 2018. On the free cash flow side, we'll do expand less on CapEx this year. There is some structural increase on inventories because we have two expansion of the Figueira da Foz mill in pulp and a new mill in Aveiro regarding tissue. There is also some management value play, and we hope to end with the free cash flow at the level that you are used to see.
Just following up on the paper volumes, because paper was slightly down versus last year, and by the end of last year, I remember that in the call, one of the things that Navigator mentioned was that we would have an increase in paper volume sold in 2019. Should we expect this to next quarter, or because of the stoppages, this is more a theme for the second half? Thank you.
We would expect already to see a positive sign on the second quarter. We expect H2 to be stronger than H1.
Okay, thank you.
Thank you. The next question comes from Maxime Missonnier from JB Capital Markets. Please go ahead.
Hi. Good afternoon. Thanks for taking my questions. I have three, if I may. The first one is, could you please provide us with an update regarding the negotiations with labor unions? I think there was some news in the press saying that these negotiations could lead to a potential strike. Question number 2, could you provide more color on how you expect to tackle higher energy costs going forward, and what do you expect for EBITDA margin in 2019? Finally, I was wondering whether you still plan to present an update of the strategic plan. Thank you.
Okay. I'll ask João Paulo to talk about the labor situation. We'll follow up with the other questions, okay? Okay. Every year, as you imagine, we negotiate the packages with all our unions. We have done that also this year. Fortunately, we have made final agreements with eight of the nine unions. It was not possible to achieve a final consensus in Setúbal, but we are working on this topic. Therefore, results will come. Yes. On the energy cost side, as you know, we are subject to external factors that have to do with the energy markets which we do not control, both electricity prices as well as natural gas prices, which are the main elements. As mentioned, we will be launching and we're strengthening our cost efforts. Some of them will only have effects in 2020.
On the other hand, as was mentioned, there's been a positive price evolution over the quarter, which we will expect to remain over the rest of the year. If you put together all these elements, we think we will be able to compensate for the energy cost situation, which as I said, is something that we cannot control. We've seen the impact of it on the first quarter already. Overall, we expect EBITDA margins to remain stable over the year. Okay?
Thank you.
There was a question on the strategy plan. Let me handle that one. On the strategy plan, it is an exercise that we do every now and then, every four years, typically, so that the time elapsed, and we launched a strategic planning effort, as was mentioned, in the past recently. Okay. It is a normal effort. It is not that we are on the verge of any major strategic change. Basically, the effort is finished, and it has, in essence, confirmed the orientation that we were taking, that has been commented with the market before. There are no major changes expected from that effort. This is what I would say. I can go into some specifics of it.
First of all, we continue to believe that the fundamentals on the pulp business are solid and will remain so in the foreseeable future, particularly if you take a medium-term view. The balances of supply and demand, we don't see any major concerns there. The plan also confirmed our belief that we have a very strong uncoated woodfree business that is solid and resilient and will remain so for the foreseeable future, and we are in a good place to face eventually some more stress in the market because given our position and our brands, et cetera. The plan basically confirmed our hypothesis on this, our belief that we are in a very good position on that critical business for us. It has also confirmed that tissue continues to be a value-creating opportunity for us, and it is an opportunity to pursue.
We are now in the process, as was said before, of consolidating this bet, and bringing the new capacity that we invested in to the market in the best possible manner, and maturing our industrial operation, and perfectioning our integrated business model. That's the priority right now. Strategically, it remains as a value-creating opportunity for us. Then the fourth element, which is again, not new, it's, of course, continued emphasis on costs and cost optimization efforts. Again, there are external factors we do not control, like energy prices or wood chip prices or whatever, or the exchange rate for that matter. Our focus here is going to continue to be, particularly the M2 program on specific consumption, with all the things that matter to us. As I mentioned, strong effort in fixed costs.
We will start now in corporate functions, et cetera, and we will then proceed to the industrial side also with a specific fixed cost effort. These are the highlights of the plan, and again, they're not new, but we are moving forward with the confidence that we were on the right path before. We will continue on the right path, on the same path moving forward. We do have some smaller bets on the table, they are smaller, and the ones that I've talked so far are the ones that really matter. We will have to pursue studying smaller bets on eucalyptus packaging and biochemicals. Again, they're smaller. The essence of the plan are the main ones, the four initial ones that I talked about.
Thank you very much. Very clear.
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 Bruno Bessa, from CaixaBank. Please go ahead.
Hi. Good afternoon. Three questions from my side. The first one regarding paper prices. In the Q4 conference call, you mentioned that despite the positive trend of paper prices, net prices will be flat, mainly reflecting a worse sales mix. We have seen the opposite trend in Q1 with the net prices inclusively slightly outperforming the peaks, also supported by positive currency effects, as you mentioned in the release. My question is, could this be extrapolated for the coming quarters? Basically, if you could provide us your view regarding the evolution of net prices this year, would be appreciated. The second question related with the cash costs. Cash costs increased by EUR 36 million or 13% year-on-year, despite paper volumes having slightly declined in the quarter. You already mentioned that you could see some reversion of the negative external factors that impacted cash costs in Q1.
My question is, what kind of cost inflation could we expect this year? If you are already seeing any kind of recovery on this front in Q2. Last question, a quick one. If you could provide us an update of your CapEx expectations for 2019. Thank you very much.
Okay. Thank you. António, you want to address the price issue?
Thank you for your question. As you know, we don't give specific guidance on price evolution, but I'll try to make a few comments. Our view for 2019 was that prices of both pulp and paper will be on average for the year, slightly below the previous year, 2018. We obviously keep the same view. As I said before, we expect pulp prices, which are the driving factor for paper prices, we expect pulp prices to be stronger on the second half of the year, namely from September onwards. Following that, it might happen that paper prices have a slight decrease over the next few months, namely outside Europe. Going back again to the levels that we are enjoying today or even last year, in the second part of the year.
Before I hand over to João Paulo on the CapEx plan, on the cash costs, our main cash cost items are, of course, external fiber. These, I think we talked about already about the outlook for the pulp market. I guess you can elaborate from that. The wood chip market is also very much linked to the pulp market. We would expect the context that we've been living in the first quarter to remain, and I will not dare elaborating on the energy market outlook because it is a complex one. What I can tell in terms of cash costs, on the fixed cost side, we said we have some elements of those fixed costs that are seasonal in nature, and that we expect to normalize over the year as we said.
On the cost side, I think at this point that's what we could say. I will then hand over now to João Paulo to talk about the CapEx plan.
For 2019, we have a plan between EUR 120 million and EUR 140 million. This is divided mainly in rough, about 35% we plan for maintenance of our mills. We have this year, which is already something that we have planned in the past, a higher investment due to legal and environmental requirements.
That is expected to increase over the years for our industry. We are also planning some budget to finish the projects that we still have not yet completed. Therefore, it will be between, as I said, EUR 120 million and EUR 140 million.
Okay. Thank you very much.
Thank you. The next question comes from Luis Toledo, from BBVA. Please go ahead.
Hey, good afternoon. Two question from my side, the first one regarding the certified wood percentage, which you have increased notably. I was wondering if the impact that this could have on wood cost inflation, also if this comes as something you're actively seeking or it's your customer-driven orientation. The second question is with regard to Mozambique plans. We know the stage in which it is now, but I was wondering if you could provide an update on the forestry and nursery operations and what minimal contribution are having, if it's negative, or if you could provide some update on that. Thank you.
Certified wood costs and Mozambique. I will hand over to Nuno Santos. Okay?
On the certified wood, yes, I confirm your hypothesis. The efforts and the increase in the certified wood is driven by our efforts and by our incentives to increase the percentage of certified wood in Portugal. Yes, it is true. You've seen the increase in the wood costs as João was mentioning. Overall, the key factors was, as we said, the increase in the prices of wood chips in the international market, the exchange rate, and the increase in the certification. On Mozambique, as you know, we have signed the MoU, memorandum of understanding, with the Mozambique government. We are currently in negotiations and working tightly together with the government to make sure that the condition precedents are fulfilled and that we are able to go ahead with the project.
Right now, we have not yet, let's say, we cannot say that these conditions have been met, so the project is a little bit in a standstill waiting for these conditions to be met. Currently, we have 13,000 hectares of planted eucalyptus in Mozambique that we are nurturing well for the future. I hope this answers your question.
Yes, 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.