Good afternoon. We welcome you to The Navigator Company first half 2025 results presentation. During the presentation all participants will be on a listen- only mode. There will be an opportunity to ask questions after the presentation. If you wish to ask a question during the Q&A session, you may do so by pressing the star followed by five on the telephone keypad. I now hand the conference over to Ana Canha. Please go ahead.
Ladies and gentlemen, welcome to The Navigator Company conference call and webcast for the second quarter and first half results. Joining us today are the following Director: António Redondo, Fernando de Araújo, Nuno Santos, João Lé, Dorival de Almeida, and António Quirino Soares. As usual, we will start with a brief presentation and then we'll have a Q&A session at the end.
The presentation can be accessed through the links available on the website and questions may also be submitted using the webcast platform. I'll start by commenting on the main highlight. I will hand over to António.
Good afternoon and thank you for joining us today. I'm glad to be here once again and share with you our second quarter and half results. As we will see in today's presentation, Navigator again demonstrated its ability to quickly adapt to very challenging circumstances while preserving its unique competitive position in Europe. The company continues to display the capacity to respond to market dynamics through its focus on creating value, protecting its margins while continuously investing in diversification and consolidating its foundations for sustainable growth. I will begin with slide number four, which provides an overview of the first half. The year started with rising Pulp prices, largely due to constraints on supply and an upturn in market activity. However, from early April onwards, after the formal announcement of rising protectionism and the normalization of Pulp supply, it triggers a sharp drop in Pulp prices in China.
Although imports remained overall robust, this drop in China had almost an immediate knockout effect. In Europe, protectionist measures have added to market volatility, contributing to slower economic activity and the decline in consumer spending. Despite that, the slower economic activity and the decrease in consumer spending, our packaging and tissue segments delivered solid year-on-year growth in tissue. We are successfully scaling up operations and harnessing synergies. With 35% growth in turnover, volume is up 27%. Animal brands are up 20% on a year-on-year basis. This is following the recent acquisitions, namely Navigator Tissue UK. As key highlights, our international sales represent now 81% of our Total tissue sales in packaging. Our sales continue to show positive momentum with growth in volume, value, and strategic positioning in lower basis weights.
The share of low basis weights products in our portfolio rose to 46%, up from 15% in 2021. Over the same four year period, Total sales increased by 2.6 times. Navigator sales were up 8% year-on-year in first half thanks to a 4% rise in price and a 5% increase in volume. Measured in area of paper sold, sales were up by 9% due to the increased penetration in low basis weight segments. Navigator continues to be a world leader with its sustainability practices, keeping with Sustainalytics list of 2025 ESG top rated companies and ranking within the first top five companies in this sector worldwide, also with a top score of A in both CDP Climate Change and CDP Forests. This international recognition has bolstered our commitment to responsible management of climate and deforestation risks.
Of the more than 22,000 companies assessed by CDP in 2024, only 2% are included in the A list for achieving the highest rating in one or more of CDP questionnaires. While we actually add A in both CDP indicators, we maintained a strong financial position after dividends and strong CapEx. Our net debt to EBITDA ratio was 1.46 times. Now turning please to slide five with the main financial highlights. Turnover Totals EUR 1.019 billion. The success of the diversification strategy with tissue and packaging segments already accounting for close to 30% of turnover, supported by commercial initiatives geared to grow in new markets, has secured consistent and stable turnover despite a macroeconomic and geopolitical situation dominated by deep uncertainty and volatility, slack global demand, and significant trade tensions which have affected the performance of the overall Pulp and paper sector. EBITDA stood at EUR 216 million, down 28% on 2024.
Fernando will soon highlight the main impacts on the period in an uncertain macroeconomic environment. Our EBITDA margin remains among the strongest in the paper industry, although below our historical average, yet still outperforming once again the sector's average and well within the variance of the last 15 years. Net debt stood at EUR 676 million, up by EUR 58 million in December, despite an interim dividend payout of EUR 100 million in the first quarter and the high level of CapEx over the period. I will now hand it over to my colleagues who will walk you through the results in more detail and share some insights on how our different business areas have been doing. Fernando will start by the main impacts on EBITDA. Fernando, please go ahead.
Thank you, António. Turning to slide six, we can take a closer look at the main impacts on EBITDA in a year-on-year comparison. As mentioned, EBITDA stood at EUR 216 million, down 28% year-on-year, with an EBITDA margin of 21%. Year-to-date results were below last year's due to lower selling price and rising cash costs, mainly for energy and chemicals in the first quarter. Sales volumes were above last year's, driven by increased tissue capacity as from May 2024. This more than offset the slowdown in European demand for Pulp and PET. As referred, the production costs show a year-on-year increase due to higher energy and chemical costs. Also, the acquisition of a tissue free converter resulted in greater demand for external reels. Turning to slide seven with a quarter-on-quarter EBITDA analysis, this second quarter EBITDA stood at EUR 101 million, down 13% quarter-on-quarter, reflecting an EBITDA margin of 21%.
The weakness of the U.S. dollar, combined with lower sales volumes across all segments, in spite of an overall slight positive pure price impact, contributed to a quarter-on-quarter drop in EBITDA. Navigator's Pulp price dipped EUR 14 per ton quarter-on-quarter, but including a negative foreign exchange impact of EUR 28 per ton due mostly to the weakness of the dollar, the currency in which Navigator trades in more than 100 countries around the world. The pure price impact without the exchange rate effect was actually positive. Sales volume declined quarter-on-quarter across all business segments. Output in paper was impacted by the slowdown in demand in Europe as well as a more selective management of opportunities in Pulp. Additionally, in early April, given the deep uncertainty surrounding tariffs, the company took the strategic decision of preventively building up stocks in the U.S.
during the quarter, trimming potential paper sales in Q2 by approximately EUR 10 million, with the aim of achieving higher margins in the future, which proved to be a wise move due to the increase in the final tariffs. The downward trend in production costs in the second quarter, especially in energy, benefited from financial hedge contracts in 2024 and already in 2025. We entered 2025 with special coverage of electricity at 60% and natural gas at 25%, but no further hedging was made until February in view of the significant price volatility. However, in March it was possible to reinforce the coverage and currently around 75% of electricity needs and over 40% of gas have already been covered until the end of the year, turning to slide eight with debt maturity and liquidity. As António mentioned, net debt stood at EUR 635 million.
Debt repayment totaling EUR 217 million was made over the first half. At the same time, new long-term debt of EUR 200 million was contracted. The final terms for the new debt are linked to attainment of three ESG indicators already invested in our sustainability agenda and also aligned with United Nations Sustainable Development Goals. Our average debt maturity currently stands at 4.3 years as compared to 3.5 years in December with rational, deemed staggered repayments. More than 75% of Total debt is tied to sustainability and 75% of Total debt is issued on a fixed rate basis directly or using interest rate swaps. It should be noted that despite interest rates rising across the market in relation to the last financial cycle, our average cost of financing remains low at 2.5%. The unused longer-term credit facilities currently total EUR 100 million.
Since the end of the quarter in July, new facilities were finalized that will further extend average debt maturity beyond five years while maintaining low average cost. António Quirino will now comment on open paper price. Thank you, Fernando, turning please.
Thank you, Fernando, turning please t o slide 10 with Pulp and paper prices, the benchmark index 100 Pulp in Europe ended the first half at an average price of $1,125 per ton, which is down by 10% on the same period last year. The first half of the year was marked by a significant rise in prices, particularly in Europe. This upward trend persisted until early April, when prices began to decline. The sharpest drop occurred in China, where prices fell by 16% between April and June. The index ended the first half at an average price of $562 per ton in China, which is 6% below average historical prices. Hardwood Kraft Pulp Price index in Europe was up by 16% to $1,160 per ton by the end of Q1.
In the second quarter, the index continued to rise until April to $1,218 and has since fallen back, dropping around 13% to currently stand at $1,060 per ton. Moving to papers, the benchmark index for office papers prices in Europe, the peak Safeguard Copy stood at an average of EUR 1,035 per ton in the first half, which is down by 6% on the same period last year, but notably 22% above the pre-pandemic average, which was EUR 847 per ton in the period of 2015-2019, but below 24% from the peak achieved in 2022, a level of EUR 1,358 per ton. The second quarter ended at EUR 1,006 per ton in the A4B Copy, down from EUR 1,094 per ton at the beginning of the year.
As already mentioned by António Redondo, Navigator's paper price dipped by EUR 14 per ton quarter on quarter, including a negative forex exchange impact of EUR 20 per ton due mostly to the weakness of the dollar. The evolution of product and market mixes helped to offset the declining prices explained by exchange rate, which was, as explained, aggravated by the exchange rate. In Europe, the A4B Copy index recorded a 4% quarter on quarter decline in average prices, while Navigator's average price remained stable, sustained by the preservation of substantial price premiums on new brands whose reputation and market penetration enables the company to position its prices at a higher level. Turning now to slide 11, let's look at the printing and writing paper markets, where global apparent demand for these papers fell by 2.4% in May.
On the global printing and writing papers, where uncoated woodfree papers remain the most, resumed falling by 1.7% compared to a 4.3% fall in coated woodfree papers, where coated and uncoated mechanical fiber papers recorded a 2.5% decrease. In Europe, apparent demand for uncoated free papers fell by 8.6% up to June, reflecting a general contraction in deliveries and especially imports. Inter-European deliveries fell by 7% while imports fell by 17% compared to the same period of last year, confirming a sharp slowdown in effective consumer demand in the region. In the U.S., consumption declined moderately by 2.1%. Although the region remains a significant met important in order to meet domestic demand, the heavy dependence on imports, exacerbated by the introduction of custom status, is likely to push prices up even in situations of falling consumption.
Notably, Navigator's ordering flow, in other words, the form of orders received during the period or the first half regardless of the delivery of increasing date, increased by 10% in the first half of 2025, contrasting with a 2% industry decline. Navigator also performed well in its European markets, growing 4% compared to an industry-wide average decline of 4%. As such, Navigator's operating rate rose to 87% in the first half of the year, that to 2 percentage points on the same period of last year. Meanwhile, the industry rate fell to 83%, a decline of 2 percentage points compared to the first half of 2024. Navigator's performance exceeded that of our European peers, particularly between Q1 and Q2, during which we effectively maintained price levels.
These developments enabled Navigator to strengthen its order intake market share by 3 percentage points globally to 27% and by 2 percentage points in the European market to range 20% compared to the same period of last year. Nuno will give you now some more context on Pulp. Nuno, please.
Thank you. Quirino, turning to slide 12 with the Pulp market. As António mentioned, the year began with price increases. However, after April, uncertainty caused by increased protectionism, particularly the global announcement of tariffs by the new U.S. administration on April 2nd and normalization of supply, led to a sharp fall in prices in China with knock-on effects in Europe. The current downward cycle came on the heels of an incomplete rebound from the previous downturn. In fact, prices peaked at $600 per ton in April 2025, well below the previous cycle's peak of $741 per ton in July 2023. The 20% gap in this new drop started from a structurally weaker base and has already accelerated by more than 15% in just three months. As already mentioned by Quirino, the index ended the first half at an average price of $562 per ton, 6% below average historical prices.
Global demand for short fiber Pulp grew by 5% year-on-year up to May. This growth was primarily driven by China, which saw a significant increase of 11%, and to a lesser extent by the rest of the world at +3%. In contrast, the European and U.S. markets saw demand dip by 3% and 8% respectively, evidence of the difficulties felt across different paper markets in these regions in the period. Demand grew fastest for eucalyptus Pulp, increasing by over 6% up to May. Chinese demand grew by 13% while European demand contracted by 3% year-on-year. The widening cost differential for softwood, particularly evident in Northern Europe, highlights a structural loss of competitiveness following the disruption of access to low-cost Russian wood, which had historically supported the region's Pulp industry.
This shift presents a strong opportunity for eucalyptus-based fibers to gain market share through fiber-to-fiber substitution, increasingly positioning Scandinavian long fiber as niche products.
On the supply side, the ramp up.
Of new capacity in 2024 put some pressure on the operating rate. However, increased consumption and maintenance shutdowns, namely in the first quarter, contributed significantly to sustaining the activity levels of short fiber producers. China is expected to continue playing a central role in global market dynamics due to the growing importance of its domestic consumption and a new capacity plant between 2022 and 2024. Around 3.7 million tons of Pulp production capacity is estimated to have been added in the country, with a further 2.4 million tons projected for 2025, a significant expansion which has so far largely been supported by inexpensive local woods. As a result of the significant decrease of the consumption of such wood on the significantly depressed real estate market, the future sustainability of this relatively unexpected source of chip supply is being questioned.
This is disrupting global market balances, putting pressure on prices and altering trade flows. Nevertheless, despite being substantially more expensive, international wood is expected to remain the main source of supply for the Chinese industry, with significant growth projected for the coming years. Turning to slide 13, weak tissue market European demand dipped 0.3% following 2023's 6.3% growth amid economic headwinds and softer consumer spending. Navigator's tissue sales volumes, finished products and reels grew to 119,000 tons, a 27% increase compared to first half of 2024, with sales up by 35%, boosted by the integration of Navigator Tissue UK in May 2024. The recent acquisition in Spain in 2023 and in the UK in 2024 have enabled us to balance our geographical mix and create greater resilience in our tissue business. Finished products accounted for 98% of Total sales while reels accounted for 2%.
Broken down by customer segment, the consumer segment has grown in importance and currently accounts for around 83% of sales. Away from home segment wholesalers, the Horeca channel, and offices account for the remaining 17%. Additionally, mill brands grew by 20% year-on-year on the strength of a diversified customer base and innovative products. Dorival de Almeida will now comment on the main developments in packaging.
Thank you, Nuno. Now turning to slide 14.
The global.
Market for kraft paper on flexible packaging applications, machine glazed and machine finished, grew by around 9%, demonstrating strong momentum in this segment. Navigator sales grew by 8% year-on-year in the first half of the year, with improvements in both price 4% and volume 5%. Merridin area of paper sales were actually up by 9% due to greater penetration. Low grammage segments, Navigator has been developing and investing in gKRAFT sustainable packaging segment, offering alternatives to fossil-based plastics and supporting the transition to renewable low carbon products. The gKRAFT brand has won market record recognition and continues to evolve, more than 309 active clients. In this regard, the final investment decision was taken to convert the PM3 Paper machine at the integrated Pulp and Paper mill in Setúbal, with the aim of directing its production towards low basis weight flexible packaging papers.
This investment will boost our competitiveness in the flexible packaging market to the industry's top quartile, positioning us as a leader in this segment. With this paper machine conversion, Navigator will become Europe's fourth largest producer of low basis weight flexible packaging paper, strategically consolidating its presence in a segment with strong growth in demand and where the unique features of Eucalyptus Globulus provide once again differentiation opportunities. Additionally, as part of the diversification of packaging business, progress has continued as planned on the project for integrated production of eucalyptus-based modified properties designed to replace single use plastic packaging in the food service and food packaging market under the.
gKRAFT BioShield sub-brand.
The startup of four production lines was completed in the first quarter, and these are now operating around the clock, whilst work is proceeding to consolidate the marketing of five products for the food sector. Navigator achieved certification for food contact by Zega, being the first company in the world to achieve such certification on molded cellulose products, and by the end of this quarter the first contracts were signed with major retail outlets. This innovative packaging solution is undertaken because of exhaustive testing under tough industrial and supply chain conditions in order to ensure it is suitable for packing lines used to process plastic materials as well as refrigeration conditions used by the overall supply chain. Replacing long recyclable PET or teat trays with packaging solutions which are 100% recyclable and compostable. Now I turn over to you, thank you.
Turning to slide 15 please. Our ongoing commitment and investment in consolidating our responsible business has also been reflected in positive assessments from independent rating agencies. In 2025 Navigator was again classified by Sustainalytics as a low risk company for investors, maintaining its status as an ESG industry top rated company and reasserting its leadership in the forestry and paper sector, placing it in the prestigious global list at 2025 ESG Top Rated Companies. This recent assessment consolidates Navigator's position as one of the world's best companies in terms of environmental, social, and governance practices. Additionally, Navigator obtained the top score of A on both the CDP Climate Change and CDP Forest questionnaires for last year. She agreed in place on the procedure to take partitions cabalies for both climate and forest and consequently its coveted leadership status.
This assessment by CDP provides international recognition of Navigator's commitment and good practices in relation to risk management and deforestation. Of the more than 22,000 companies assessed by CDP in 2024, only 2% are included in the A list for achieving the highest rating in at least one of the questionnaires. We've navigated having secured two ACE codes. I will now hand over to António.
Thank you, Fernan. Let's turn, please, to slide 16 with a wrap-up of the Q2 and H1 results. Our diversification strategy is paying off. This diversification into higher growth and less cyclical markets such as tissue and packaging, although more dependent on end use consumption, reinforces the company's long-term value creation and resilience in tissue. We are successfully scaling up our operations, expanding into new markets, and positioning ourselves to further unlock long-term synergies that will drive sustained growth on packaging. Increased penetration in low grammage segments confirmed the strong appeal of Eucalyptus globulus fiber for these segments, leading to a 9% increase in paper sold compared to a 5% increase in sales volumes in tons. The 9% are, as referred before, in area resilient results. Despite extremely high geopolitical instability that led to significant uncertainty and severe volatility, we kept our focus on 1. core operations, 2.
business acceleration, and 3. innovation. Value-added CapEx of EUR 94 million for sustainable long-term cost efficiency, highlighting 60% value-added ESG investments and growth initiatives in the packaging sector. All this was done while keeping consistent, conservative financial policies after high level of CapEx and EUR 100 million dividend payouts. To be noted that in terms of safety, the first half of the year marked a significant milestone for Navigator , achieving its best result ever in the Half Year Infrequency Index, an indicator that reflects the number of accidents involving sick leave per million hours worked. A remarkable, almost 50% year-on-year improvement highlights the company's strong commitment to occupational health and safety, driven by its Mission Zero strategy and continuous efforts in prevention, training, and fostering a robust safety culture. Let's turn to slide 17 with a few words about the outlook.
In view of the volatility created by the trade policies of the new U.S. Administration, it is still too early to predict precisely what the total impact will be.
Be on international trade.
Over the weekend, though, the European Union and the United States announced the principles of a trade deal which includes a 15% tariff on European exports to the U.S. This is of course expected to impact our anti-netting duties, though the exact percentage expected is yet to be confirmed in the uncover sector. North America as a whole, so U.S. and Canada, has an overall shortfall in production, a situation recently aggravated by the closure in the carrying months of August of the largest mill of the U.S. third largest manufacturer, a mill of 350,000 tons capacity, further exacerbating North American structural deficits which is estimated at approximately 800- 1,100,000 tons, or 800 million- 1.1 million tons to be more precise. It's worth to note that only a few number of companies can supply the demanding U.S.
market either in terms of capacity or in terms of technical capability. Navigator is also seeing new opportunities in Latin America as parties in Mexico and Colombia on Asia and regional imports create oak leaves. At the same time, relevant Latin American operation is reportedly pertained to fight for insolvency, potentially shifting market dynamics. We also note that the Chinese and Indonesian producers subject to high anti-dumping duties and with relatively small volumes of sales to the U.S. are likely to play a very minor role and will not feel the need to repatriate large volume of exports amid the ongoing global uncertainty. Navigator is proactively strengthening its resilience to a large number of targeted initiatives under the program called Operational Excellence Initiatives 2025- 2026.
Keeping its focus on high operational standards, the company has launched internal programs designed to act on different fronts to protect its results. This involves problems, namely for optimization and reduction of variable costs by streamlining specific consumption of raw and subsidiary materials, seeking strategic negotiations with its suppliers as well as logistics. The company will also step up its commitment to IBM root, promoting its further development. To be noted, the importance of AI as the means to reach new optimal operating points at Navigator is reflected in various ongoing projects. Notably, these include optimization models for fiber usage, our main raw material, contributing to a more sustainable use of wood, as well as APCs, advanced process control solutions, and introducing chemicals consumption starting with the Pulp bleaching process that will be extended to all company departments in the coming periods.
Developing some of these tools internally has proven to be a strategic advantage as it enables us to build deep expertise on how to best leverage available technologies such as LLMs in alignment with our operational needs. By combining process knowledge with data science, we create a strong bridge between technology and our core business. This approach not only enhances tool adoption across teams, but also supports more effective management changes throughout the organization. We are also focusing on improving efficiency by cutting fixed costs, namely freezing headcounts and optimizing running costs. Investments in reliability are also to be noticed and are already in place by speeding up implementation of the asset performance management APS system and executing specific action plans to build up teams and improve systems for asset management, maintenance, and reliability.
Alongside these, CapEx plans will be subject to careful review, especially as regards scheduling, seeking to reduce projects in 2025 by approximately EUR 40 million, prioritizing those under the EU Next innovation funds and those offering higher rates of return. Lastly, the commercial strategy and market diversification by relaunching more economic products without compromising quality. This means being more aggressive with low end products in the face of the current economic situation while protecting the margins and volumes of premium products. Also with a positive perspective, following the decisions of the European Commission on 24th of April and the Portuguese regulator 22nd of July, a revised brief third party access tariffs or TPA tariffs for electro-intensive customers has been set. Navigator installations in high and medium voltage will benefit from a relevant discount on TPA tariff between May and December.
It, however, should be noticed that this support has been both delayed and modest, especially when compared to the more substantial measures provided to our competitors in other European countries, notably in Spain, France, and Germany. Business diversification and innovation in ecology remain at the heart of Navigator strategy, especially in the tissue and packaging segments where there is a skilled rate potential for growth. The next slide, please, provides a quick update on our growth strategy. We will keep strengthening current businesses and investing in the future by assessing profitable diversification opportunities in line with our two founding values, innovation and sustainability. Our first obligation is inward facing to enhance the group's operational efficiency not only by driving innovation in new products but also by reducing costs, increasing output, improving energy and efficiency, and continuing to invest sustainably. This involves decarbonization and the digitalization of all operations in tissue.
Focus on product differentiation, function of high tech products, and also the feasibility of installing a new tissue machine with a capacity of circa 70,000 tons is being studied to supply the UK operation as it is, as you know, a pure converter and thus has no real production capability. This new machine will supply part of the circa 130,000 tons of the UK capacity and upon successful completion of the feasibility study we would expect a final rational decision during this semester. In packaging, Navigator is operating in multiple segments and multiple problems. As already mentioned by Dorival de Almeida, machine number three in Setúbal will be converted to focus on producing flexible packaging. The new packaging operation is set to launch by the end of 2026 with an annual production capacity of around 100,000 tons. The project is advancing and equipment has already been acquired.
This conversion will enable Navigator to respond flexibly and efficiently to increasing demand in the flexible packaging market as well as offering more flexible management of our industrial assets as the machine will be able to swing between producing printing and writing papers and packaging papers depending on the state of the market. Also, as previously shared by Dorival de Almeida, in molded fiber packaging business Navigator achieved certification for food contact by Zegger. We were the first in the world to do so for molded channel and the first contracts were already signed with major retail outlets by the end of the last quarter and there is a very wide range of biomaterials, biochemicals, and biofuels.
Namely the study, the conceptual study to produce biofuels in one of our mills that we are currently undergoing, but also in the near future synthetic fuels which we are looking all with great interest. We believe that all these factors, together with continuous development focused on diversifying the group's business base, will further underpin the resilience and sustainability of our business model. Thank you.
Thank you, António. This ends our presentation. We are now open for Q and A.
Thank you, ladies and gentlemen. We will now begin the Q and A session. If you would like to ask a question, please press 5 on your telephone keypad. If you change your mind, please press 5 again. Please ensure that your device is unmuted locally before proceeding with your question. Our first question comes from the line of Bruno Bessa from Caxia Bank. Please go ahead.
Yes, good afternoon. A few questions from my side. The first one, just a clarification.
You mentioned that one of your energy.
Plants moved to south consumption during the quarter. Just wondering if you could quantify the impact that this change had in your EBITDA in the quarter, and if some way you intend to continue to compensate this negative impact over the coming quarters. This will be the first topic, the second.
Focusing on the paper market.
If you could share with us a bit the evolution of paper imports in Europe, particularly those coming from Asia, if this is a source of concern considering the tariffs raised in the U.S. or not. Lastly, just trying to understand where do you believe the marginal cost producer is in Europe, considering that we are seeing prices relatively low for long, and just trying to understand if there is room for any further capacity closures in the near term in the paper industry in Europe. Thank you very much.
Thank you, Bruno, for your questions. I'm going to repeat them. I'm going to start on the second and the third because the first one, to be honest, and I'm so sorry for that, I didn't understand. The second is about the paper market evolution, namely paper imports into Europe and namely coming from Asia, correct?
Yes, that's it.
The third, I'm not 100% sure if you are referring to paper or gold, is about marginal cost producer in Europe. Where do we believe it stands today?
Yes, for paper. Yes, trying to understand. Okay.
The first one, can you be so kind to repeat the first question?
Yes, regarding the first question, it was related with the fact that one of your power plants moved to self consumption in the quarter. Just trying to understand if you could quantify the impact that that change has on your EBITDA in the quarter, and if there is any way that you could recover that impact on the EBITDA over the coming quarters.
Okay, I'm going to give a couple of elements of answer on each question, and I will ask my colleagues to follow and give you more detail on. The first question is actually, to be more precise, we had two installations that moved to self consumption. One turbo generator in Figueira and another one in another mill in Setúbal. They both moved to self consumption because of the loss of the feeding tariffs. I will not give you any specific guidance on the impact on EBITDA, but I can tell you it's very difficult to anticipate also future impacts because it depends very much on the cost of energy that we are substituting in the future. We don't know exactly.
We can have some views on the future, but we don't know exactly what is the cost of energy that we are not going to buy because we produce it internally and the tariffs that we will not pay because we don't need to buy energy. Nuno, do you want to add anything further?
I think it's perfect.
On the second question I will ask Quirino to help me out with figures, more precise figures. I'm quoting from the slide we had the degrees of, if I'm not mistaken, 17% of imports H1 on H1 into Europe, and this is not because we didn't have more capacity, namely in Asia we have more capacity to supply, but as we said in previous conference calls, the production capacity in Asia is not meant to supply Europe, it's meant to stay in Asia and this is what is happening, they stay in Asia. Actually, the decrease of 17%, one of the big contributors were actually Asia and Latin America, also quoting by heart.
We don't expect Asia to be a big factor, and depending towards the end of this year, the approval of the EUDR, so the regulation for deforestation, it might even happen that those imports will be lower than what we are today.
Quirino, just to complement, actually so far this year, the first half, the decline in imports from Asia has actually been more significant than the decline overall. As António mentioned, the decline overall was 17%. The imports from Asia was minus 22%. Bruno, you mentioned how do we expect this evolution to occur after any possible, you know, the tariffs, the implications of the tariffs. We don't see today Asians very much present in the U.S. market because of very important anti-dumping processes that they face over there. It depends on the country and on the company, actually, but they face extremely significant tariffs over the ordinary tariffs with additional tariffs right now. They were out of the market and they will stay out of the market. We don't see significant relevant reallocations o f volume because of that.
Regarding your third question about where does the marginal cost producer sit today in Europe, even with the Pulp prices where they are today? Without, again, quoting by heart, without looking to any figures outside, they head somewhere between the high EUR 900 to above EUR 1,000 per ton. However, when we look to the cost curve, some of those products might be considered specialties and they can go up to EUR 1,100- EUR 1,200. It's difficult to anticipate what are the capacities in this area of the curve that will shut down. What we have seen in the past is that typically the shutdown is not on the very marginal cost producer, it's more midway in the curve, namely mills that belong to companies that have other businesses and can repurpose their assets to different types of papers. Do you want to add.
No.
Thank you, Bruno.
Thank you very much.
Our next question comes from the line of Leonel Lucas from Oxy Capital. Please go ahead.
Hi, good afternoon. Thank you for taking my questions.
I have many two here. First, regarding the PM3 machine conversion, how much time do you expect the machine to remain offline during the conversion and when the process should start? When should we start to see it being offline? If you can share some context on the differences in the price level and gross margins between the packaging and the paper segments that this machine was producing before. This would be the nine questions.
Okay, so the first one is to understand how long it will take and when will start the shutdown for the conversion. Yes. The second one are price levels, or I guess what you'd like to know is margin levels, price levels for packaging and the cotton sweet paper segment on that specific machine.
Yes, to understand a bit the difference.
Okay, I will obviously on second one we cannot give you precise figures, but I will try to give you overall comments and then I will ask Dorival de Almeida to give a bit more insight on the first and Kirillo on the second, the conversion. As it was explained by Dorival de Almeida, we already bought the main pieces of equipment. They are of course being produced by the machine manufacturers, and they will start to be shipped here to Portugal somewhere next spring. We look to start up late Q3, early Q4, and without being very precise, we probably estimate four to five weeks of shutdown. Dorival de Almeida can probably help on that.
Thank you, António. We are expecting four weeks of shutdown in the next year, starting Congress and.
Starting back in September.
That's our plan: four weeks in the end of August.
Okay, on the second question, I'm going to split the answer in two parts and then Kino can give you a bit more highlight. What we can comment is what we do today. Okay, today if we look to our tail of Encotitude 3, namely produced on that machine, but not only overall tail of uncontrollute free and the margins of the products that we produce, packaging products that we produce on that machine, the packaging products represent easily three to four times a higher margin than the tail of uncoutable three. The tail today is the tail that remains after taking this volume out. Second comment. I think we have shared that publicly when we in the press release on the study.
We believe that we are going to move a machine that is on the third quartile in encodulatory today to a machine that will be on the first quartile of flexible packaging in the future. Quirino can add a bit more.
Sure.
The whole idea of the project is to position the machine into low basis weights, as you mentioned a few times. Typically, today these products have a supply-demand balance, very specific supply-demand on this niche in tissue, as we see it, favorable. Typically, the price levels are more interesting than the commodity and the commodity packaging markets as well. Another element which contributes to the margins that António mentioned is that this is purely a reel product for us, so no converting costs for us like we have in some of the inclusive products like Catsnice, where we have to convert into the final product. This also contributes to elevate the margins of these products.
Although what your task probably is.
Good moment to remember, because this is.
Information that we have shared already in the past. We are committing to this packaging project, the overall packaging project, something between EUR 60 million-EUR 70 million. Okay. This includes the conversion of the Pulp for in avenue to produce ICAP Pulp. To produce this innovatve ICAP Pulp with eucalyptus, this includes the conversion of the PM3 machine that we are speaking about and includes as well the molded fiber packaging business. It's around EUR 70 million, a good part of this process.
Sorry.
were also some adjustments on PM1 in Setúbal and some adjustments on the effluent treatment plant to handle brown paper. The paper machine itself is around EUR 30 million. All these investments have been submitted to, actually not all, but almost all have been submitted to the EU Next Generation funds. We expect, of course, a contribution from the EU Next Generation funds out of the EUR 70 million. The PM3 machine itself is about EUR 30 million. Now, to compare the two producers, it was referred 100,000 tons to compare with a greenfield project. A greenfield project will produce basically the same quantity. 100,000 tons is more or less the size of the machines that are today available in Europe for flexible packaging, and it will cost only the paper machine five to seven times more than the conversion.
Our inroads into packaging are low CapEx, low risk, and of course, when successful, with chemistry.
Thank you. Just to clarify one thing, when you mentioned the three to four times higher margin, you're mentioning EBITDA margin or gross margin?
Margin.
Gross margin.
Understood.
Thank you.
Is actually a good point.
Because the.
Staff to operate a machine for packaging is smaller than the staff for operating a machine for Encodulant free. Proportionally, on every PA, it will be even slightly better.
Our next question comes from the line of António Seladas from AS Independent Research. Please go ahead.
Hi, good afternoon. Thank you for your presentation. Thank you for taking my questions. I have three. In terms of tariffs, you already mentioned that it's too early to measure the impact. Nevertheless, its impact going from 10% to 15% seems to be manageable. I don't know if you can confirm if all this uncertainty that is now clarified could improve the demand from your customers. Maybe some customers just postponed orders. I don't know if you can confirm it or not. Second question is related with cost. You mentioned about cost of optimizing running costs. I don't know if you can provide some color, some figures on this, and if it's already for the second half of this year or just for 2026. The last question, in terms of CapEx, you mentioned that you are now slashing CapEx by EUR 40 million this year.
It's contemplated as on the new figure on CapEx. Thank you very much.
Okay, Anthony, thank you for your questions. I understood one question is about the certainty of tariffs. Now that we know the tariffs, if we can provide some color on that.
Yes, well.
Sorry, please go on.
Just because of the tariffs, it seems from my side that moving from, because we all have it suffering 10%, so moving from 10%- 15%, it seems manageable. Nevertheless, I would like to hear your comments on this. If you really believe that there are customers that have been postponing orders because all of this uncertainty and if now with the agreement on tariffs then settle, if you expect more orders or an inflow of orders or something different from the pace up to now.
Okay, the third question was about cost optimization, if we could provide figures for our cost optimization targets. The last question was about CapEx, if we could anticipate where we will end CapEx by the end of this year. I didn't follow the first question if you are so kind to repeat it.
First question was on tariffs, if you can comment on tariffs and about this 10% to 15% increase.
Okay, so I'm going to give some introductory comments on tariffs and Quirino, which actually has been recently visiting customers in the U.S., can give you more color. I will comment costs and I'll ask Dorival to comment costs as well, but obviously we are not going to share specific figures and CapEx. I will ask Fernando also to comment expectations or arrange for CapEx towards the end of the year with a reduction of around EUR 40 million. Tharios, my introductory comment again is it's yet too soon to understand the full impact because it depends on the impact of other regions of the world. Let me build a scenario. If Europe has 15% and Brazil is the 50% that has been commented so far, this could present a great opportunity for us. There are not. The main players into the U.S.
are Portugal, one Scandinavian producer, specifically Brazil, and then all the others are very small. A couple of small in Asia, namely Thailand, namely in the Middle East, one in Israel, but all very small. If our gap to Brazil is positive, this will present a great opportunity for us and it might be manageable. However, like we said in previous calls, the tariff will be a cost for the antidumping, so we will see an antidumping increase. Having said that, our antidumping today is significantly lower than the antidumping that Brazil or China or Indonesia are suffering. If this gap to Brazil is positive, like it is already today to Asia, I think this will present a good opportunity and yes, we believe that customers will be even willing to cooperate more with us. Quirino can give you more color on this subject.
Okay, sure.
As we mentioned, out of the market of 5 million tonnes consumption, Canada plus the U.S. because Canada is USMCA compliant in these products. Let's look at Canada plus.
There.
is a deficit of supply of 1 million tons in a market of around 5 million. This is quite relevant, and there is still not speculating, but there is still the question mark of one and one further machine which is being discussed if and when it will shift in.
The coming months or not.
Even without taking that into consideration, 1 million tonnes out of 5.
Million tonnes is a big deficit.
This is a relatively new picture in the U.S. and the customers start to realize that. When I was there very recently, customers are clearly aware that the supply to this million tons deficit is not available from many origins, as António mentioned. You have a few producers that can do it. Many of the products have specificities that make them possible to produce only if you have dedicated lines for that. You need to have equipment ready to do that, particularly in the capsize area. You need to have a letter size capability and you don't have all the mills in the world available to do this. It is really a matter of who gets the relative tariff which is less harming. It can be a good opportunity for us. There is a lot of discussion now about pricing.
We mentioned in our presentation that one possible scenario is also that the price moves up because of the tariffs. We are discussing with a lot of customers, existing customers and actually new customers that are looking at us with the eyes of an opportunity. Let's see where it stands. It all ends up with how much will the price develop and what is the final. That is for everybody.
Okay, thank you, Kirin. On cost optimization, I will give also introductory comments and Dorival de Almeida will fill with more information. Obviously we are not going to give specific figures on where we expect our cash costs to land. I'd like just to comment that we are working in all the different areas of cash costs. So consumables, efficiency of production, logistics, better negotiating chemicals, mix of supplies from different origins and so on. Also, it's difficult to anticipate the evolution because we are moving from the traditional approach of cost control to introduce.
Artificial.
Intelligence, mainly through APCs on controlling better our processes, we have already examples on lime kilns, on bleaching, on recovery boilers, and we expect to extend these APCs to other areas of the business, to other parts of our operations. Also, we have developed internally a process of improving reliability. We had a couple of hiccups on our mills in the last quarter. We expect to improve reliability and only by improving reliability, namely through asset performance management. Only that will improve cost efficiency. Dorival de Almeida probably can add some more on this.
Okay. In terms of variable costs, as António Redondo had mentioned, the advanced process controls will play a significant role in terms of chemicals optimization and in the paper side for the furnish optimization as well. We already developed the reliability improvement plan, and reliability is very critical and the impact cost as well. For the fixed cost, we already said that we are working to freeze on headcount, and we have plans for expenses reduction as well.
Okay. On CapEx, I'd like Fernando to add some comments, indications.
Okay.
First of all, we need to consider that we are committed to fulfilling our obligations with the PRR. Nevertheless, I would say that our investment.
In the second half will be lower.
Than investment in the first half, slightly.
Lower, but.
I think we will not.
Exceed the amount of first half. Thank you.
Okay, just on the cost side, sorry.
About cease on this issue.
I understood that the measures that we are going to take will save costs immediately over the second half, or is that something that we should see just the benefits over the next year?
Actually a very good question, thank you. Some will have an immediate impact, some will have an impact on Q4, and some will have an impact next year. We have a mixed bag, but I think probably more important than when the impact is that through this, I would say, digitalization of our processes, we expect them to have a longer term effect. Okay. Thank you very much. Thank you.
Our next question comes from the line of Luis De Toledo from ODDO. Please go ahead.
Good afternoon.
Thanks for taking my question. The first one, with regards to the Navigator Hub E-commerce tool you mentioned last quarter, I don't know if you could provide some update on the performance.
Number of orders that you're receiving across.
That channel and the potential impact.
It's having on your prices and your relative comparison with.
The second question, with regards to the final investment decision on the backward integration into paper tissue activity in the UK, which are the factors that could.
Weigh more on the final decision?
Are they internal, are they external factors?
Assuming that they will not receive next generation funds next.
Okay, thank you, Luis, for your questions. If I understand correctly, the first one is about The Navigator performance, and the second question is on the final investment decision of Navigator Tissue UK, what are the factors that might impact the decision, internal and external.
Correct?
Correct.
Okay, I will give an introductory comment for each one of them and I'll ask Quirino to comment the first and Nuno to the second. The performance of Navigator Hub has been reinforced and continued over the quarter and over the first half of the year. I think we already mentioned we expect that over EUR 300 million of our turnover will pass through the Hub. I do remember that the Hub has been mainly a relationship with existing customers. We are starting because namely the situation of the paper merchanting in Europe with the bankruptcy of a large paper merchanting company in Europe that had a brand that was owned by us but exclusively distributed by them. We plan to do some inroads of supplying the customers of this customer, not the customers of other customers, the customer of this customer with these brands.
We have plans to start small projects in a couple of European markets very soon b ut Quirino can give you more insights.
Yes, not to repeat. The hub has been so far the transactional platform for a few years now. It has grown. All the customers are basically onboarded. Many of them actually place their orders. Of the several businesses that we have, paper packaging and tissue and cell loss, they actually place the orders online. We are on the track, as António Redondo mentioned, to reach orders of around EUR 300 million, actually in excess of around EUR 300 million this year. This second tier approach, as António just mentioned, we are inroads in a few, the first inroads in a few selected markets in Europe. As we mentioned already in the first quarter, we started Poland. We are now also approaching Spain, Italy, France, and the Netherlands for different reasons from the pilots we have seen. I think you also touched that in your question.
We see that by doing this we can have interesting average price and new brand sales which actually contaminates positively the rest of the market. We see that we can penetrate more on those direct sales.
In the second tier.
By allowing more, a better penetration into the market with those brands, with our brands we have more exposure, we increase brand awareness, and it benefits collaterally. Actually, our business in those markets, not only in those customers, but more generally in the markets with all the customers.
In summary, this is not to have to compete with existing customers. It's more to substitute customers that left the market and our experience is that it provides price stability that benefits everybody. On the second question, I'll also give some introductory comments. Furthermore, I will split this in two: the internal factors and external factors. Internal factors are obviously more related with the key variable costs for producing Mother Earth. One is our view on Pulp evolution and the impact of Pulp evolution pairs on the production of materials. Does it make sense to produce Pulp and sell Pulp and buy materials? Or does it make sense to integrate Pulp into materials? Besides that, the other two costs that are critical are energy, which is very critical in tissue, and HR. The external area where we are looking is that we didn't have a final decision on the location.
We are still looking and discussing with the authorities three possible locations: Portugal, Spain, when we also need mother reels. We are short in reels in Spain as well, or directly in Ukraine. The external most important angle is the kind of support local authorities are prepared to grant Navigator to conquer and establish this investment in their consequences.
I think you said it all. At the end of the day.
The decision, we view the business.
Tissue business as an integrated business.
On a long term basis we.
Do believe that we have to be.
Balanced between converting and paper production. At the end of the day we are looking forward to invest as.
We are now long in converting.
We're looking forward to invest in.
Paper production and shaping machines.
As António Redondo mentioned, not an easy decision to make.
We will look forward to the.
Support and incentives that we will be offered from the different locations.
We know that in some of these locations we have some synergies in terms of energy, Pulp, and personnel integration.
We hope to be competitive in any of the locations.
At the end of the day.
It will be very important to see the level of incentives and support that we will get from the different markets where we are considering to invest the new paper machine.
Thank you. Thank you very much.
This ends our session. Thank you all for your time. As always, we are available for any additional clarification through our usual contacts. Have a great evening.