Earnings Call: Q3 2018

Oct 30, 2018

Welcome to The Navigator Company Conference Call. I will now hand over to Joanna Abelton. Please go ahead. Hello. Good afternoon, ladies and gentlemen. Welcome to Navigators Company earnings conference call for Q3 and for the 1st 9 months of 2018. We will start as usual with a presentation on our results. Our CEO, Diego Silvaera, will make some brief remarks on the main achievements of the period, and it will be followed by the Pulp and Paper market comments from Antonio Grom. The main financial figures will be addressed by Fernando Rouge, and we will finish with a Q and A session where the audience can ask questions to the whole executive committee present here today. The presentation can also be accessed through the links available on the website and questions may be addressed through the webcast platform as well. I will now hand over to Diogo Silvaera. Diogo, please? Good afternoon and thank you for joining us today. The Q3 has been impacted by several factors, and I'm glad to have the opportunity to update and clarify the market on the main issue. So let's start and go over to Slide 3. The company's results for the 1st 9 months of 2018 reflect the considerable improvement in pulp and paper sale prices, which was partially offset by a reduction in sales volume. The reduction in volume sold was due to production stoppages, mainly in pulp, which did not occur in the same period of 2017. This happened throughout the 1st semester impacting both the first and second quarter. The fact that we started the year with very low pulp inventories as well as the length of those stoppages and the need to build up stocks in the previous months had a severe limiting effect on the quantities of pulp available for sale. Paper volumes were also impacted by low inventories at the beginning of the year and some production stoppages, namely in Figueira de Forche. Despite these operational issues, the group achieved a record EBITDA figure of EUR 341,000,000 for the 1st 9 months, an improvement of 14% over 2017 and an EBITDA over sales margin of 27%. Even considering the adjusted EBITDA figure, net of the impact of the Carriage Business sale as well as the negative impact of the antidumping duties, even though these are record levels. So the anti dumping duty rate was one of the main issues that impacted this Q3. As you know, in August, Navigator was notified by the U. S. Department of Commerce that the final rate on sales made during the 1st period of review would be 37.34%. This came as a total surprise as we were informed in March 2018 by the very same authority that in accordance with its preliminary assessment, the anti dumping duty to be applied would be 0%. There was actually no change on the information provided, neither any additional requests were made, and yet the rate went from 0% to 37.34%. So of course, we reacted immediately against this decision, pointing to administrative errors in the ruling and took all the legal measures at our disposal to demonstrate that the new rate for the period in question was wholly unfounded. After approximately 2 months, the Department of Commerce re examined the calculations and decided on the new final rate of 1.75%, quite a change. This, of course, was excellent news as it confirmed that the previous rate was an error and supports our claim that the Navigator company does not engage in anti dumping practices in its commercial activity neither in the U. S. Nor anywhere else. Unfortunately, this had several consequences for the company. We believe the impact of this rate was clearly overestimated by at least some investors and the share price suffered quite significantly. Also it brought us additional commercial challenges in a quarter that has typically lower paper activity from a seasonal perspective. In terms of impact in our accounts, this final duty of 1.75% will imply the recognition of a one off impact of €3,600,000 related to the that is to say from August 2015 to February 2017. It will also imply an additional accumulated amount of around EUR 6,000,000 relating to the registration of the duty for the second and the third periods of review so far. So the global impact so far is around €10,000,000 and has, of course, been fully registered in our 9 months accounts. The EBITDA for the Q3 was particularly penalized by the negative impact of this antidumping. EBITDA reported was €115,000,000 But if we do not consider the impact of the antidumping, we would have registered a figure of €123,000,000 another quarterly record level. And an EBITDA over sales margin of 28%. Another significant fact that occurred during Q3 was the start up of production of tissue wheels at the Cassia Mill site. We're still in the ramp up phase, of course, but we think this is a very important step in our growth strategy mapped out back in 2015. With this new capacity, the Navigator company is now the 3rd largest tissue manufacturer in Iberia with total production capacity of, on the real side, 130,000 tons. On the converting capacity side, that's to say finished products, 120,000 tons. The new mill, equipped with a large scale sophisticated industrial assets, is integrated upstream with pulp production, giving it competitive advantages in terms of production costs, use of the high quality Eucalyptus Global's pulp manufacturing case here and an excellent location near the port of Arzayro, which will allow it to sell its products to more distant markets. The fact that the mill is backwards integrated into pulp is a quite distinctive feature of our investment and a very relevant one, namely considering the current market situation of very high pulp prices. As you know, most tissue payers in Europe are not integrated into pulp, actually all but free. So they need to buy the pulp in order to produce the tissue. That is also our current situation in our plant at Vivavelle do Grodgen and the cost of fiber was one of the main items that impacted the tissue business unit results. So one of the other aspects I would like to stress regarding the quarter is that in a context of growing costs in raw materials, such as chemicals, fibers and transportation, We recognize that cost efficiency is key to maintaining competitiveness and therefore, we continue to pursue our efforts around cost reduction and operational efficiency embedded in our M2 program. The results achieved during the quarter are very encouraging as we have captured an additional €8,000,000 which do represent almost double of the amount achieved in the previous two quarters, bringing therefore the total figure year to date, that's to say for the 1st three quarters, to EUR 17,000,000 positive impact on EBITDA. Another aspect that also accelerated as expected was capital expenditure. With the conclusion of the 2 main development projects, CapEx increased to €148,000,000 to date, of which almost half €71,000,000 were in Q3. I will add here my main comments on the results. I will be back, but right now, I will hand over to Antonio Rudondo, who will give you an update on the markets. Antonio, please? Thank you, Diogo. Going to Slide 5, we can see that continuing the upward trend initiated at the end of 2016, prices for arguable pulp increased an impressive 32% in U. S. Dollars and 24% in euros in the 1st 9 months, meaning year on year. As a result, our good pulp prices in Europe in this period were on average USD 2.33 per ton higher than in 2017. Prices have been stable since early May for hardwood and since July for softwood. And hence, lease price for hardwood pulp in Europe has remained at a level of $10.50 per ton. On Slide 6, we tried to provide a view of what we believe impacted mostly the pulp market during Q3. During the 1st 8 months of 2018, the global hardwood market pulp demand grew 4% year on year, driven mainly by Eucalyptus with 4.7%. Slanted demand for hardwood increased 9.1% year on year, with the Eucalyptus growing at 10.2%. In a more global context, we saw the increase in available pulp due to the ramp up of new capacity that started last year, namely last quarter or the Q3 of last year in Latin America. And at the same time, there have been planned and unplanned stoppages and output reductions that decreased once again top availability on the market, and this allowed prices to remain at a very stable level throughout the quarter. Also, with softwood prices growing significantly since the beginning of the year, increasing 33% 23% year to date, The gap between the two fibers has grown, currently standing at approximately US100 dollars per ton in Europe, giving further support to our gold prices. We have also seen some slowdown in activity in China that we believe results from a combination of factors impacting Chinese economy. The trade wars between China and the USA have created a major uncertainty and instability in the business climate, which together with the seasonal activity decline has resulted in a slowdown of economic and industrial activity in China. The Chinese currency devaluated 6% between June September, which has made pulp imports even more expensive in a moment when it was not possible to push paper prices upwards. These are, in our view, temporary issues that might impact the pulp market, but we believe the fundamentals remain very strong. There is no significant capacity coming to the market in the next 2 years at least, and demand is estimated to continue to increase at current levels or above. There were new paper capacities starting all over the world, and namely in China in 2018, both in tissue and end code 2, 3, in a total that we estimate to be close to 4,000,000 tons, which impact on demand for pulp and will be felt mainly in the second half of twenty nineteen and beginning of 2019. We also anticipate more production stoppages in Q4 than the ones we had in Q3. Issues around wood availability have also been imposing some restrictions in pulp production, both in softwood and hardwood, and we'll likely continue to see conversions of hardwood capacity in flatter grades, such as the Soviet pulp and softwood, which will impact the market shortly. Going now to the paper market on Slide 7. Figures show that ENCO 2.3 paper continued to be the most and best performing printing and writing grade globally. The slight decrease of 0.2% year to date August is, by far, the lowest percentage decline among printing and writing grades. And if you go to Slide 8, we summarize what we believe are the specific conditions of the end quote to do free market, and we can say that the global market conditions continue stable, even though with some differences amongst regions. Europe, our main regional market, experienced some cool down in demand for office papers during the 1st 8 months, which we attribute mainly to some cut size destocking to the pipeline earlier in the year. Actually, the performance of papers for graphical applications better than that for office applications. In the U. S, consumption continues to decline, but at a much lower pace than in previous periods. Despite this operating consumption decline, mills operated at high levels, 91% year to date, and carried solid order books. Some other regions in the world, North Africa and Middle East, namely, are experiencing some difficulties due essentially to recent currency devaluations, credit availability and political instability pressuring paper imports. Taking a closer look at prices for ANCO23 on Slide 9, we can see that the main index A-four Copy B continues to perform very positively, gaining 7.2% on average versus the same period last year and ended the quarter at €8.90 per tonne. Back to you, Diogo. Thank you, Antonio. Following on Antonio's words, I would like to go over the group's performance into more detail. So let's go over to slide 11. During the 1st 9 months, we sold 1137,000 tons of paper, recording a 2% year on year decline on volume, which was mainly due to operational issues. Still, we managed to improve our product mix with not only higher share of premium products, gaining 6 percentage points year on year, as well as new brands with an additional 7.4 percentage points. We also led pre price increases in Europe and several in international markets and in the U. S. These actions translated into a net increase of 7.8% year on year on our paper price, even considering the negative impact that the exchange rate, and especially the U. S. Dollar, had on our profitability, maybe around €30,000,000 If we had stayed at constant exchange rates as last year, the price increase would have been around 10%. Our pulp business now on slide 12 had a more considerable impact of the production stoppages that occurred during the 1st and second quarter. Top mills lost a significant amount of days due to maintenance downtime as well as the expansion project at Figueres de Forche. And with very low inventories at the beginning of the year, we haven't been able yet to recover the lost production. This reduction in volume was partially offset by the increase in sales price, with Navigator's average sales price improving 24% year on year. Our pulp sales were focused on our regular clients and the greater weight of sales directed to the highest contribution segments of Decor and Special Papers, which together went from 57% to 76% of our total sales. This was achieved during the 1st 9 months. Going now to the tissue business on Slide 13. We managed to increase global volume sold by 9.2% year on year, with namely a growth of almost 24% in the sale of converted products. This already includes the output from the new converting lines installed in Cassia. The reduced weight of frills and the increased percentage of finished products allowed for an improvement in our average selling price, which together with the price rise we also implemented translated into a figure of 7% growth in the average tissue price for Navigator. Nevertheless, the higher average tissue prices is still not enough to absorb the increase in production costs, in particular, the price of pulp, both hardwood and softwood as well as of chemicals. So in this context, our EBITDA in the 1st 9 months totaled €341,000,000 which do compare to €300,000,000 in 2017, as you can see on Slide 14. This increase was essentially due to the significant price improvement of both pulp and paper prices. As we've mentioned previously, volumes had a negative impact on EBITDA and some costs also evolved negatively during the period. Production costs have again been pushed up by negative trends in chemicals, impacting our variable unit production costs of both pulp, paper and tissue, we would say a global estimate of €8,300,000 of impact. Also fiber costs increased approximately €9,100,000 essentially due to the acquisition of hardwood fiber for the tissue operations at Villa Verde Rodon as well as the purchase of softwood pulp in our other plants. Logistic costs also increased by €2,100,000 largely due to higher Brent prices. In fixed costs, payroll costs registered the most significant increase, plus €14,400,000 as a result of workforce expansion associated with the new tissue project in Kaseya, associated to the rejuvenation program underway and an increase in our estimate of performance bonuses, which are indexed to our quite healthy results. So we experienced an increase in these cost items that would have had a greater negative impact if we hadn't also worked, as we mentioned, on the cost reduction measures that we do explain on the next slide. Contributing positively to EBITDA is the sale of the pellet business already reported. This was partially offset by the negative impact of the antidumping duties, which we registered in the Q3 accounts. So EBITDA figure for 9 months 2018 would have been €338,000,000 if there is 2 key impacts would not have occurred. Going to Slide 15 now. As said previously, with the results of our M Square cost reduction program, where we achieved a positive impact of roughly €17,200,000 year on year on EBITDA. This is the result of roughly 143 new initiatives that have been launched since the beginning of the year to cut costs. With around 85 of those initiatives already yielding a positive impact. Just to give you some flavor of this program, we have included projects such as improving efficiency at our new PM4 in Stobo, representing the outcome of an area of continuous improvement initiatives with a year to date saving of close to €1,000,000 or optimization of chemicals consumption, namely chlorine dioxide production in Casilla, by upgrading sulfates filtering with a year to date impact of, again, almost €1,000,000 For example, reduction in consumption of bleaching agents at the Figueira de Forage Industrial Complex with a year to date impact of around €700,000 In addition to all those initiatives that are reflected in the P and L, the renegotiation of power and natural gas contracts resulted in an estimated avoided costs of close to €28,000,000 versus market prices. I will now ask Fernando to comment on the next slides. Thank you, Diogo. On Slide 16, we have some detail on the evolution of our free cash flow, which stood at €161,000,000 Free cash flow was positively impacted by a strong operating cash flow as well as an inflow from sale of the pellet business totaling EUR68 1,000,000 and negatively affected by capital expenditure over the period of ERL 148,000,000 largely associated with the construction of the new tissue mill in Kasir. In the 3rd quarter, generation of free cash flow, euros 8,500,000 was significantly constrained by the concentration of CapEx reversal in the period €71,000,000 combined with sizable corporate tax prepayments, totalizing euros 24,000,000 So at the end of Q3, as you can see on Slide 17, the group net debt stood at $732,000,000 up by $39,000,000 from year end 20 17, which stood at €693,000,000 As a result of payment of dividends, around or in fact, euros 200,000,000 exactly in June and capital expenditure of EUR148 1,000,000 during the period as already mentioned. Net debt to EBITDA stands at 1.65 ratio, which is already reduction from the peak level of 1.7 at the end of June and should reduce even further by year end. Just a couple of additional details for your benefit regarding our debt profile on Slide 18. At the end of September, our total debt had an average maturity of 2.9%, an average cost of 1.5%. A significant portion of the debt is fixed 63% versus 37%, and there are no significant reimbursements scheduled before 2020. Going now to Slide 19 with financial results. Navigator recorded a financial loss of $16,500,000 up from a loss of $6,500,000 last year, even though we resisted a reduction in the cost of funding in our operations, results evolved negatively mainly due to the following points: a drop of BRL5 1,000,000 in gains on currency hedged taken out by the company in a rising dollar scenario with a positive impact on operating results. The recognition at the end of Q1 of a negative amount of approximately EUR3,300,000 resulting from the difference between the nominal value and the current value of the amounts to be received in the coming years, further from the sale of the pellets business around EUR 45,000,000 and at last, a loss of EUR 1,500,000 in yields from application of surplus liquidity in opposition to extremely positive performance in 2017. Finally, our CapEx is written on Slide 20. The group record capital expenditure of 148,000,000 in the 1st 9 months with $71,000,000 in the 3rd quarter, peso $49,000,000 in the 2nd quarter. With a value of €75,000,000 the Casia Tissue project represent around half of the total investment. The capacity expansion in Figueredo Falls around 90%, 28,000,000 and investment in regular pulp and paper business around $46,000,000 Back to you, Dior. Very good, Sven. Now just a few words on our outlook for 2018 on Slide 22. As Antonio said earlier, there are no significant new increases in production capacity for market pulp being announced for the next 3 years. So capacity utilization rates can be expected to increase and allow hardwood pulp prices to stay above the US1000 dollars per ton mark in those 3 coming years. In the short term, demand continues solid and supply disruptions due to planned and unplanned stoppages are questioning the impact of the new capacity that started up last year. In coated woodfree paper, order books remained at the higher level. After leading a series of price rises in Europe and also increasing prices in the U. S. And in international markets during the 1st 9 months of the year. The Navigator company implemented a further price increase as from October in our European markets. In the tissue markets, manufacturers have been under very heavy pressure from increases in pulp prices and in the cost of chemicals and energy. Navigator announced new price increases of between 8% 12% for its products in November. At the same time, the company's new tissue mill in Cassia started producing rims in September. A strong commercial performance in recent months allows us to anticipate the successful placement of the new output with clients. However, this positive context may be affected by increasing certain costs, especially for energy and there are also continued concerns about the evolution of exchange rates, namely euro to U. S. Dollar. Operations in the 4th quarter will be constrained by some production stoppages programmed for November December at our Sotubal Mill Site. The most significant one is related to the heavyweights project, which will imply 10 day production stoppage at our PM3. The Navigator company continues to develop its business model successfully, acting proactively in relation to factors under its control, seeking to achieve continuous improvement in its performance and reducing its cost structure. Furthermore, we believe to have proven to be able to successfully overcome several adversities with which we have been confronted. The last such event occurred on October 13 after the end of the reported period with the impact of Hurricane Leslie, which caused damage at our Figrid de Farge production center, forcing to suspend temporary operations. With the efforts and the remarkable performance of local teams, combined with support and engagement from various multidisciplinary teams within the group, the work on repairing the damage started immediately and allowed to minimize production stoppage with the pipeline and PMs 12 quickly going back into operation. Nonetheless, this stoppage will cause an estimated production loss of approximately 9,000 tons of pulp and silica 10,000 tons of paper. Thank you. Thank you, Diogo. This concludes our comments on results. We are now ready for the Q and A. Ladies and gentlemen, the Q and A session starts now. The first question comes from Maxim Mishin from JV Capital Markets. Please go ahead. Hi, good afternoon. Thank you for taking my questions. I have 3. First one is, are you happy with the current inventories level because they've been low in the end of 2017 and you have been restocking through the 1st three quarters? Or you plan to continue restocking in the Q4 2018? The second question is could you talk a little bit more about the outlook for the paper market? Particularly I'm particularly interested in first half results you mentioned that some of non integrated producers were operating at negative margins. Do you see this trend continuing in the Q3? And finally, the third question is with the tissue expansion and debottlenecking investments are now complete, Do you have anything in mind for the future? Should we expect CapEx to converge to the levels of maintenance next year? And particularly, will the lastly hurricane impact have will increase the CapEx in the Q4? Thank you. Very good. Thank you for the 3 questions. So Antonio Rudondo will address the first two ones, the one on our level of happiness related to our inventory level and also our happiness as regards the outlook on the paper. I'll then take the question on any additional new projects. Antonio? Thank you for your question. We are yet at the level of stocks that is not totally comfortable to make sure we service the market properly and without any disruption. So I don't know how to define happiness in stock is a new measure that I'm not yet fully acquainted with. But I think we can still accommodate more and more stocks because we are not at the level we usually operate with very low stocks, and we are not at a level that is completely easy to operate with in a stressed supply chain environment. Regarding to your question number 2, I believe that the prices of pulp have been stable in the last few months and is the trend is very clear. Paper prices have been improving and have been continuously improving, and the last price increase was in October. So this, for sure, has given some at least temporary relief to the non integrated paper producers. Thank you. So on the new profits, Currently, as far as growth is concerned, we have no new big project underway. We have projects related to environmental constraints that we have to clear, that we are always looking at and we might have some coming up. But as far as new growth projects, there is nothing. However, we will be starting soon some strategic thinking, I would say, over the course of the coming 3 to 4 months to revisit our strategy and see whether there are opportunities that to appear that we should be considering. So we potentially would have some more news on this during Q1 next year. Thank you very much. Thank you. The next question comes from Jose Rito from CaixaBank BBI. Please go ahead. Yes. Hi, good afternoon. Thank you for the presentation. So my first question related to beef prices. So pulp prices stand at 10.50 per tonne, but we have been seeing some news saying that some discounts have been applied in China. How do you see these? Have you noticed also some of your clients in Europe asking for discounts? Or this is only a specific issue in China and you don't think that this will basically spill over to other markets? That will be my first question. My second question related to the corporate volumes, considering the hurricane and the stoppages that are expected for the last quarter of the year. Should we assume a further 20,000 tonnes decline year on year for the last quarter of the year? Do you think this is a good reference? Thirdly, on the tissue business, if you could provide a little bit more visibility in terms of margin evolution for this year 2019. We have been witnessing some prices price increases announcements recently. Do you expect in 2019 margins to be at least at the same level as in 2017, so basically offsetting this recent increase in pulp prices? How do you see this evolving? And also because we know that we have these increased capacity in Iberia and the fact that pulp prices has been increasing, so pressuring the profitability of some of the players, Do you see some M and A possibility in Iberia? Thank you. Very good. So on the pulp prices and impact on sales coming on from potentially from Leslie, we will have Antonio addressing that issue. I will then take the questions on tissue trying to give you some more visibility there. So, Antonio? Thank you for your questions. As you know, we are not a big maker of pulp sales into China. However, from the market reading we have and from the customers we work with and discuss with, we believe that most likely, the evidence about discount has been somewhat largely exaggerated. We see prices and, unfortunately, these prices in China more stable than what some market analysts explain. Although we recognize that particularly in the month of August and probably early September, some discounts have been applied, mainly not directly by mills selling to China, but by traders that were piling up stocks because of the effects that we have explained, the slowdown of economy activity in China, the slowdown of industrial activity and this pile up of stocks of pulp led them to destocking and offering higher stocks. This is already in China, which is not totally coincident with I believe you have said. Regarding Europe, obviously, customers are always asking for higher discounts. But obviously as well, our answer is typically the same. We are not equipped to discuss the higher discounts. So we don't see the risks of a spillover effect if this effect in China is really as clear as some people mentioned, which we don't believe being the case. Regarding your second question about paper volumes affected by the hurricane, We expect this to be ballpark figure around 10,000 tons. And I will answer the overall question. Yes. But on hurricane plus the stoppages for the conversion of paper into heavy weight, you mentioned that you should also have some higher impacts in terms of production. So combining the 2, 20,000 tons could be a good reference? Yes. Sorry. I thought that you're commenting on the hurricane, Leslie. I think the ballpark figure for the 2 might be then closer to 20. Okay, okay. Thank you. Thank you. Sorry, go ahead. Yes. I was going to address the question on the issue margins and consolidation and M and A. I mean, the very high pulp prices have clearly depressed our margins in tissue. So, I mean, ours, like any other tissue player, we have, of course, to see that because this is a market where over 95% of the production is non integrated. So we will have clearly an EBITDA margin at the end of the year that will be below 10% over sales, which is, of course, not our objective. But we clearly believe that next year, we should be able to recover, if not all part of what we have lost during this year, thanks mostly to the price increases that we are now implementing. So a tough year 2018 for the tissue, certainly a much better year margin wise 2019. As far as M and A and consolidation is concerned, for sure, the tissue market is a very fragmented market. You have 2 industrial steps in tissue, the Jumbo wheel production, just like in uncoated wood free paper and the converting facility, which is not so relevant in uncoated wood free paper because you just cut in tissue, you cut, you emboss, you roll, you do a lot of things. So certainly, there will be consolidation, at least among the converting facilities. There are lots of them and potentially among also Jumbo Rio production, but this is a higher investment issue. Overall, we believe, yes, that it is a market that will certainly go through consolidation. There are currently many, many at least several industrial tissue assets up for sale, even groups of them, that's to say some companies or parts of tissue companies are up for sale. So yes, it is expected to we expect to see consolidation. What could be our role there? For the time being, none. But by as I said before, by Q1 next year, when we will be clearer on the different investment opportunities in our different businesses, we will be able to prioritize and make decisions. Until then, I don't see anything happening on our front. Okay. Just a clarification. So at this point, you are not considering because you are not you have not decided to move forward with potential M and A or because of pricing? So you still see these assets available for sale as true prices, let's say, versus organic growth? As we have said, the one of the interest of being in tissue is that it allows for a very modular approach. So we have to go step by step. I would before we do any additional big move in tissue, I would like to see the result of the current move, which is quite sizable. This greenfield investment means doubling the capacity. So I would like to be sure that we know how to be a player in tissue before we do an additional move. So currently, it's mostly an internal perspective. We have to prove ourselves that we know how to be a profitable player in T2 before moving further in this market. Understood. Very clear. Thank you. Thank you. The next question comes from Nuno Stasi from Haitong Bank. Please go ahead. Hi, good afternoon everyone. Just a couple of questions. The first one would be, if you see room for you to keep increasing both on quoteable free and tissue prices, although pulp prices are not stable and as you have mentioned paper prices are still going up. So do you think this trend can continue for a couple of quarters more even if pulp prices stay stable? The second question would be on your strategy regarding U. S. Paper sales, considering all that happens with this anti dumping taxes in the U. S? Are you more cautious now into the U. S? Because this eventually the U. S. Department of Commerce becomes more and more harsh again. What is your view on this and what are you doing internally to defend or to protect yourself from this? The third question would be in terms of CapEx. First, I would like to ask you what is this paper heavyweight investments and essentially what will be the impact of this? And if you could give us the CapEx budget for Q4 2019, it would be helpful. Thank you. Very good. We'll do our best even though I'm sure we'll not be able to answer all your questions, but I would also ask if I would be in your shoes. So first, we'll start with Antonio trying to share our thoughts on uncoated woodfree price evolution even with stable pulp prices as well as what we've been considering for the U. S. Because, of course, we have been thinking quite a lot about this. I'll then take the share the views on tissue and address the CapEx issue as much as I can. Antonio? Thank you for your question. Indeed, we still see room for improvement on MCO2-two free paper prices even in a scenario of pulp or even milder decline in pulp prices, which we don't consider, but it's not an impossibility. The papermakers' margin is today still very low, even if it's better than it was a couple of months ago because of the last paper price increases. But we do believe that there are still more room to increase prices. I'm not sure if it's going to be as quick and as timely as it was during this year, which was basically once per quarter. But for sure, the room is there. Regarding U. S. Paper sales, we have always been extremely cautious with our U. S. Paper operation, not because of the anti dumping, which, by the way, we keep on since early August till early October was actually quite interesting because we're obliged to have a fresh look into the U. S. Market. And even with the new anti dumping rate, we have decided to keep a lot of the actions that were defined during these 2 months period in between August October. So we will keep being cautious as we have been so far. We keep looking to the U. S. Market. We don't have an intention to abandon the U. S. Market. We didn't have that intention even with 37.34%. But of course, this will obliges to do some fine tuning. And now we have the luxury of having more time and more room to maneuver for this fine tuning. On the tissue prices, I am not sure that in 2019, we'll be able to again introduce price increases. But for sure, the we will be recognizing the impact of the very significant price increases that we have been applying in October, November December. Clearly, those tissue price increases did come, I would say, late. It was not possible to get them through before. But as they came later, they came higher. So the clearly average price in 2018 2019 will be much higher than in 2018, even though I don't see additional price increases, namely in the Consumer segment, I see this difficult. On the CapEx issue, so first question you mentioned was about heavyweights. As you know, among our range of uncoated woodfree products, you have what we call heavyweights. These are grammages above, say, 120 grams that goes up to 300, even 400 grams. We mostly outsource currently those papers in 2 plants. And we those this is a quite interesting market segment, and we want now to be able to produce most of it in our own facilities. Therefore, in one of our PMs in Surubo, we will be investing between EUR 10,000,000 and EUR 12,000,000 to adapt the machine to be able to produce heavyweights. Then you asked our numbers for Q4 and for 2019 CapEx. It's tougher for us to say as we don't give, as you know, those forward looking statements, but we have no big growth project currently for 2019. So if it stays so, the total CapEx will certainly be lower than it was in 2018. Okay. Thank you. Thank you. The next question comes from Antonio Celadis from Intermoney. Please go ahead. Hi, good afternoon. The first question is related with the energy, your energy policy and the hedge policy. If you complain on the press release about the energy prices, so when are we going to feel the impact of the higher energy prices on your figures, if you can explain? As far as I understand, also you are net buyers of energy, but we also sell energy. So if you could provide some color on this. So regarding the tissue price, just to confirm that on the consumer market, you cannot increase prices. So that was what I understood just to confirm it. And in terms of working capital, working capital also went up from the second to the third quarter sequentially. If you can explain the reasons for that? And lastly, last question is related with a couple of minutes ago, you mentioned that when you talk about the investment on tissue and the market is fragmented and needs to be consolidated. From my point of view, I think that maybe in the future you will go to Watson converters, but I'm not expecting that you buy tissue mills not integrated. Could you provide some color on this? Okay, that's it. Sure. So the first question was on energy. So I'll try to address all the questions except working capital where I will ask Fernando to address it. So energy, yes, I mean, the current energy prices are clearly on the high side. So we expect our 2019 figures to be quite impacted by higher energy prices. So cannot yet share with you by how much, but it will be significant. Second question was on consumer tissue prices. Maybe I was not very clear. We have been able to increase prices even in the consumer segment. That's to say at the key retailers, both in Portugal, in Spain, in France, in the UK and quite significantly, but I don't think we will be able to add an additional price increase unless pulp prices move up. But as we don't see pulp prices moving up, we see tougher to introduce a new significant price increase in tissue. So as I said, I will leave working capital question to Fernando. So then you had a question on the M and A opportunities and the fact that there could be non integrated opportunities, and that is not our current strategy. So you are right. But in tissue, to be an integrated player or a fully integrated player, you have 3 production steps: 1st step, the pulp 2nd step, the Jumbo reel 1st step, the converting lines. I can be integrated pulp to jumbo reel, but I can then transport my jumbo reel and get it converted in the local market. So we could potentially we are not considering any, but we could potentially acquire some converting facilities given that our the way currently we see our model our business model to go further into Europe would be exactly this one. If the Jumbo will production in Portugal so as to benefit from the backward pulp integration, but get converting lines in the local markets so that we don't transport too much air and finished goods of tissue are lot have lots of air in it. So we would be transporting jumbo wheels and having them converted locally. With that local conversion, we can either consider greenfield or we can buy a converting line. So we could be looking into those options potentially in the future, not before Q1 next year. So now I hand over to Fernando to be more explicit on the increase we had on working capital. On the working capital, in what concerns operating cash flow, the income of the cash ins of the 3rd quarter was €83,000,000 less €9,000,000 than in the average of the previous ones. But the main difference, it's on the investment because our CapEx in the period was €71,000,000 and the CapEx on the 2 previous quarters was €77,000,000 This means almost the same. In addition to that, we have 2 main amounts related with corporate income tax. For one side, we have paid $24,000,000 on prepayments, payments on account on corporate income tax. And we have to receive more or less $11,000,000 from the corporate income tax related to last year. This should have been reimbursed by the state in August, but we are nearly November and we didn't receive it yet. I would say, to summarize, more CapEx and more taxes. On clients and inventories, it's more or less the same difference, it's €3,000,000 Okay. Thank you very much. Thank you. The next question comes from Alberto Sanchez from Fidentiis. Please go ahead. Hi, good afternoon. I've got a question on capital allocation. It looks that the pricing environment would remain favorable next year and you would face lower CapEx requirements. So my question would be, what do you think about the ways to deploy that capital? You mentioned about potential new opportunities. How do you think about your leverage targets, the potential to reduce debt further, the possibility of increasing dividends? How do you think about that? Very good. Not an easy question, but I'll try to give a simple answer. I mean, we have been having over the last years, I would say, a policy that features the following two aspects. First, trying to have a net debt to EBITDA below 2. So we are currently comfortable below that and clearly don't expect to cross that barrier. 2nd, we have been we are now used to having the general assembly of shareholders go for a reasonable dividend that over the last years has been around 200 €1,000,000 So we would be ready to cope with such a figure. So if we have low CapEx needs, we'll just be decreasing debt. We don't believe we'll be suggested to increase the dividend, but we don't know. As you know, the executive team does not make a decision there. And on the other side, we don't anticipate currently to have such a high CapEx that would question the net debt to EBITDA level. Again, as I said, we'll know a lot more on that by the end of Q1 next year as we are embarking on this strategic thinking, the same one we did in a way now 4 years ago, and that yielded in namely in entering the tissue market. This time, let's see. The context has changed. The environment, there are certainly opportunities. There are also threats. We'll know a lot more in a couple of months. Okay. Thank you. Thank you. Ladies and gentlemen, there are no further questions in the conference call. I now give back the floor to the company. Thank you. Thank you. This now concludes our conference call for today. Thank you very much.