Good afternoon. We welcome you to The Navigator Company third quarter 2026 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 your telephone keypad. I will now hand the conference over to Ana Canha. Please, go ahead.
Good afternoon, ladies and gentlemen, and welcome to The Navigator Company's conference call and webcast covering our third quarter and first nine months results. Joining us today are António Redondo, Fernando Araújo, Nuno Santos, João Lé, Dorival Almeida and António Quirino Soares. As usual, we will begin with a brief presentation, followed by a Q&A session. I will now hand over to António, who will take you through the main highlights of the period.
Good afternoon, and I am so sorry for the slight delay. We have experienced some technical difficulties on the platform. Thank you also for joining us today. The first nine months of 2026 combined a challenging operating environment with an important period of investment execution. We completed a major phase of our investment program, accelerating decarbonization, improving environmental and operational efficiency, expanding our packaging capabilities, and consolidating our tissue operation in U.K. At the same time, we continued to make progress on pricing and business diversification. Let me start with the key messages from the period. I will begin with slide five with an overview of the key highlights. There are a few key messages I would like you to take away from today's presentation. First, our results reflect a challenging market environment with higher energy and raw material costs alongside temporary operational constraints.
Weather-related disruptions on Q1 were followed by unplanned shutdowns caused by external factors, including the cyber attack and seven power grid disturbances. We also had extended planned maintenance shutdowns in Q2 and Q3 as we completed several investments across our three mills. Setúbal in Q2, Aveiro and Figueira da Foz in Q3. These disruptions further reduced inventories that were already significantly below the industry average, leaving them at historically low levels. This limited our ability to fully meet demand and capture additional sales despite order books remaining above the industry average. These constraints were largely temporary, and operational conditions improved as the third quarter progressed, supporting a clear sequential recovery versus both Q2 and Q1. During the periods, Navigator again led and controlled three price increases in Europe, with a third upward move in 2026 applied in June.
This was complemented by more than three price increases across overseas markets, depending on the region, and two in the U.S. These increases were both earlier and stronger than the broader market trend. As a result, Navigator's average uncoated woodfree price over the PIX A4 Copy- B benchmark increased by 6 percentage points in the third quarter compared with 2025, reaching its highest level on record and standing 12 percentage points above pre-pandemic levels. Specifically, our differentiated brand management strategy continued to deliver strong results with our Navigator Office Paper brand price maintaining a 31 premium over the PIX A4 Copy- B benchmark index, consistent with the highest levels achieved historically. Overall, September prices across pulp, paper and packaging increased between 5% and 17% compared to the December average. This highlights our strong market position, even when the overall market doesn't timely follow.
Importantly, we completed a major phase of our investment program, leveraging NextGeneration funds to accelerate decarbonization, improve efficiency, and expand our packaging production capabilities. These investments strengthen our efficiency, sustainability, and structural competitiveness, providing a stronger foundation for future growth and value creation. Beyond the NextGen program, we also completed the oxygen delignification project at the Setúbal pulp mill. This investment is an environmental improvement initiative with cost reduction in wood and bleaching chemicals consumption. Diversification also continues to progress well. In tissue, the U.K. transformation program is moving ahead, and we are preparing for additional capacity from Q2 2028 onwards. In packaging, the PM3 conversion is complete and ramp-up curve is on track, further strengthening our position with low basis weights in this growing segment. Finally, our financial position remains robust, providing the flexibility to continue executing our strategy with a disciplined approach to capital allocation.
With that overview, I will now hand over to my colleagues, who will take you through results in more detail and provide further insights into the performance of our different business areas. I will now hand over to Fernando to walk you through our financial highlights.
Thank you, António. Now turning to slide six. Sales increased by more than 5% quarter-on-quarter, despite the usual seasonal slowdown in Europe. The quarter was mainly affected by maintenance shutdowns in July, followed by a clear recovery in August and September. This sequential improvement is encouraging and demonstrates the resilience of our operation as we exit the quarter. For the first nine months, turnover reached EUR 1,333 million, while EBITDA stood at EUR 212 million. CapEx reached EUR 174 million in the first nine months, with 48% allocated to sustainability and ESG related investments. Dorival will take you through the main investments shortly. Free cash flow remained positive at EUR 19 million in the first nine months, despite a particularly strong investment peak. Turning to slide seven, we can take a closer look at the key drivers behind the year-on-year EBITDA evolution.
The year-on-year comparison was mainly affected by lower production availability, which, together with historically low inventories, limited our ability to fully meet the demand our products and brands have generated. Performance was only affected by higher energy and logistic costs. These pressures were partially offset by improving price across pulp, paper, and packaging, together with our cost optimization initiatives. As the temporary operational constraints approximately ease, these measures should provide greater support to performance. Turning to slide eight, with debt maturity and liquidity. As António mentioned, Navigator has maintained a robust financial position by securing new long-term debt with a well-spread maturity profile and limited near-term refinancing needs. We continue to lead in sustainable finance, with 90% of our total debt now indexed to sustainability indicators. This directly aligns our financial strategy with our environmental targets.
With 57% of debt at fixed rates, our balance sheet remains well-positioned in the current interest rate environment. Despite the general rise of market rates compared to the previous financing cycle, our proactive treasury management has kept our average cost of financing below 3%. Comparing with December 2025, the reference rate increased by 97 basis points, while our cost of debt increased only by 30 basis points. We also maintain a comfortable liquidity position with EUR 147 million of cash and EUR 323 million of committed undrawn long-term facilities. At the end of September, net debt stood at EUR 765 million, EUR 61 million higher than at year-end, despite EUR 8 million in dividend payments and EUR 174 million of CapEx over the period. Our net debt to EBITDA ratio stood at 2.66x , while our average debt maturity remained at five years.
Compared with the same period last year, net debt was EUR 5 million lower. Dorival will now comment on our CapEx execution.
Thank you, Fernando. Turning to slide nine. Responsible investment remains central to our strategy. Our NextGeneration supportive investment program has now been successfully completed. Navigator participated in ine projects covering areas such as decarbonization, innovation, and the development of new bio-based products. At the heart of the program are six major decarbonization projects across our four industrial sites, representing investment of around EUR 193 million. These six projects are expected to reduce scope 1 and 2 emissions by close to 300,000 tons of CO2, while reducing fossil fuel consumption, increasing renewable energy generation for self-consumption, and improving operational efficiency. This forms part of a broader decarbonization journey. Since 2018, we have committed more than EUR 350 million to progressively reduce emissions and our dependence on fossil fuels.
By 2027, the first full year with all projects operating, scope 1 and 2 emissions are expected to be 54% below 2018 levels, equivalent to a reduction of around 415,000 tons of CO2. While natural gas consumption is expected to be close to 50% lower. These investments should also be viewed through the lens of industrial resilience. By certainly reducing our dependence on natural gas, they reduce our exposure to fossil energy and carbon costs, as well as to their volatility. When these investments were approved, they were assessed under a very different energy environment with substantially lower assumptions for gas price and consequently more challenging standalone economics. NextGenerationEU support therefore played an important role in sharing investment risk and accelerating the implementation of the energy transition target by European Union. Since then, energy and carbon markets have become substantially more expensive and volatile.
While this was not the basis on which the investments were originally assessed, it has increased the strategic value of the resilience they provide. Navigator now operates with a certainly lower exposure to fossil fuel energy and carbon costs than it would otherwise have been. For us, this is increasingly important. Decarbonization is not only reducing our environmental footprint, it is making our industrial cost base more resilient, reducing sensitivity to energy price shocks and strengthening our long-term competitiveness. Innovation and diversification are another important part of this program. Packaging is a clear example where we are building a differentiated portfolio of fiber-based solutions, combining product innovation, flexibility, and sustainability to address increasingly demanding packaging applications. In parallel, initiatives such as the From Fossil to Forest Mobilizing Agenda continue to expand our pipeline of cellulose-based solutions and future diversification opportunities.
Overall, this investment cycle leaves Navigator with a more efficient and decarbonized industrial base while creating new opportunities for innovation and functional growth. Beyond the NextGeneration program, another important investment was the oxygen delignification project in Setúbal, which already delivered tangible operational benefits in Q3, particularly through lower bleaching chemicals, less wood consumption, and as mentioned before, also improving as well water efficiency and effluent quality, support product quality, and reduce operational risk, while contributing to the ongoing modernization and efficiency of our industrial base. Turning to slide 10. Alongside our sustainability and efficiency investments, we are also moving forward with the strategic growth projects that will support Navigator's future earnings potential. One of the key milestones this quarter was the completion of the PM3 conversion in Setúbal, an important step forward for our packaging business. The converted machine brings greater flexibility, improved energy efficiency, and state-of-the-art technology.
It will allow us to produce 90,000 to 100,000 tons of low grammage kraft papers per year for flexible packaging, with grammage ranging from 30 g to 90 g per sq m. PM3 alone positions Navigator as Europe's fourth largest player in flexible packaging kraft papers with a leading cost position across both bleached and unbleached virgin fiber grades. Together with the proven capability to produce packaging grades on PM1 in both Setúbal and Figueira da Foz, this brings our total packaging capacity to between 350,000 and 400,000 tons, while retaining full swing flexibility with uncoated woodfree papers. This positions Navigator as the first or second largest European player in the segment. The learning curve is progressing as expected. We are currently in the production trial phase and are already producing paper of marketable quality.
We see attractive long-term growth ahead in this market, with European demand expected to increase by around 2.5%-3% per year through to 2035. At the same time, the conversion significantly improved PM3's competitive position, moving the machine from the third quartile in printing and writing paper to the first quartile in flexible packaging. This is particularly relevant in a market characterized by non-integrated, small-scale producers and paper machines that are often several decades old. We also see a clear competitive advantage for our integrated model and the distinctive characteristics of eucalyptus globulus fiber, which allow us to develop differentiated high-performance papers for a broad range of packaging applications. The strategic rationale is clear.
PM3 gives us exposure to a growing market, improves the cost position of the asset, and opens the door to higher-value applications, while retaining the flexibility to optimize our production mix as market conditions and relative profitability across uncoated woodfree and packaging differs. António Quirino will now comment on pulp, paper, and paper price.
Thank you, Dorival. Good afternoon. Turning to slide 12 to discuss the pricing environment in our core markets. Pulp prices increased in both regions over the first nine months, despite some volatility during the third quarter of this year. This recovery was supported by the delayed startup of new Asian pulp capacity, wood supply disruptions resulting from adverse weather conditions, and the cancellation of several timber concessions in Indonesia, together with consequent higher imported wood chip costs to both China and Indonesia. No structural change in these supply-side constraints is expected in the coming months. In Europe, the benchmark price reached its highest level at the beginning of the quarter and then gradually adjusted downwards through the end of September. Despite these recent adjustments, pulp prices remain significantly above the levels observed at the beginning of this year.
At the end of September, the PIX BHKP benchmark in Europe stood at $1,310 per ton, which is around 18% above the first week of the year. In China, the benchmark increased by approximately 4% over the same period. Turning to office paper prices in Europe, the PIX A4 Copy benchmark stood at EUR 956 per ton at the end of September. Since the start of the year, the index has edged up by around 3%. Price increases led by Navigator in January, April, and June continued to push the market's benchmark index upwards. In the third quarter, the price index averaged around EUR 948 per ton, up by EUR 14 per ton on the previous quarter. Navigator also successfully implemented at least three price increases across overseas markets, depending on the product and region, and two in the U.S.
This was reflected in Q3 2026 prices, being 13% higher year-on-year in overseas markets and 5% higher in the U.S. Navigator's average uncoated woodfree prices also remained on an upward trajectory. In Europe, the uncoated woodfree price premium over PIX A4 Copy- B rose by 6 percentage points in the third quarter versus 2025. At the same time, our ongoing commitment to differentiated brand management enabled us to maintain, in Europe, a price premium of 31% over the PIX A4 Copy- B benchmark index for the Navigator Office Paper brand, in line with the best levels achieved this study. Moving to slide 13, we have summarized the main developments in the uncoated woodfree market. Global printing and writing paper demand remained broadly stable through August, with uncoated woodfree continuing to outperform other grades and now representing around 65% of global demand.
In Europe, the apparent uncoated woodfree demand declined by 2% through September, confirming a slower pace of market contraction, although rising imports continued to put pressure on local producers. Market fundamentals nevertheless remained supportive, with producer inventories below historical levels, improving order books, and further capacity rationalization. Navigator's operating rates stood at 89%, 7 percentage points above the European industry average. In the U.S., demand declined by 3% through August, while continued capacity reductions and increasing imports underlined the market's growing dependence on external supply. Against this increasingly competitive backdrop, our differentiated portfolio remains a key strength. New brands represented 77.0% of sales, and premium products represented 50% of sales, while sales volumes exceeded production and order books remained six days above the industry average. We also ended the quarter with inventories 25% below the historical average. Nuno will give some market context on the pulp markets. Nuno, please.
Thank you, Quirino. Moving to slide 14. Turning to the pulp market, ongoing downtime and tighter supply continue to provide support, with hardwood pulp availability also constrained as some swing producers, particularly in Latin America, shifted production towards dissolving pulp. Wood supply remains constrained in China and Southeast Asia, reflecting China's reliance on imported wood chips, adverse weather, tighter forestry restrictions, and revoked plantation permits in Indonesia, all contributing to higher fiber prices, with persistently high logistics costs adding further pressure. In Europe, market conditions were also supported by port stocks remaining below last year's average in volume terms, at 1.4 million tons versus 1.5 million tons. In days of supply, however, inventories increased to 36 days from 33. On the demand side, global hardwood pulp demand declined by 3% year on year through August, while eucalyptus pulp demand was down 4%.
Europe was more resilient, with eucalyptus pulp demand growing by 2%. Overall, the pulp market remains primarily supply-driven, with tighter availability continuing to provide support despite relatively subdued global demand. Looking at tissue performance now on slide 15. Global apparent demand increased by 1.8% year-t o- date through July. In Europe, apparent demand rose by 0.2%, reflecting a complex macroeconomic environment affecting customer choices. Tissue remains a key pillar of Navigator's diversification strategy, supported by international expansion and increasing operational scale. In the first nine months of 2026, tissue sales, including finished products and jumbo reels, reached 160,000 tons. Performance reflected a significantly more competitive environment in the U.K. than in our other geographies. Against this backdrop, we deliberately prioritized portfolio and margin management over volumes, focused on improving our sales mix and average selling prices.
This strategy is already delivering results, with average prices in the U.K. in the third quarter more than 2.2% above the second quarter. Additionally, our U.K. transformation program is now at its most demanding phase and remains on track for completion by the end of the first half of next year, with implementation progressing without disruption to customer service. At the same time, we are working to improve the structural profitability of the business by increasing integration. The new 70,000 ton tissue machine in Aveiro in Portugal, expected to start up in the second quarter of 2028, will support the U.K. operation and help improve its overall profitability. Alongside these investments, we continue to differentiate our offering through new products, partnerships, and licensing agreements, namely with Procter & Gamble across Iberia, France, and the U.K., supporting innovation and further premiumization.
This increasing international reach is also reflected in our sales mix, with 79% of tissue volumes now sold outside Portugal, compared with 54% in 2022. Together, these initiatives support greater scale, integration, and sustainable margin improvement. João will now comment on the main developments in packaging.
Thank you, Nuno. Now turning to slide 16, please. The European kraft paper market continued to show positive momentum with deliveries up to 7% year- to- date through August across machine finished and machine glazed grades. Navigator continued to outperform the market, with packaging sales volumes increasing by 44% year-o n- year to 91,000 tons. Growth continues to be supported by a broadening customer base, with 50 new customers placing their first orders during the first nine months, while prices in September reached their highest level since June 2023. September pricing is up 17% compared to last December's average and 6% quarter- on- quarter.
The business now represents 6% of Group sales, showing that packaging is becoming an increasingly meaningful contributor to the Group. We also saw encouraging momentum in bags, one of the first segments we have entered years ago, which reached 11% of Group sales in the first nine months, increasing our exposure to higher value applications. Building on the expertise and customer relationships developed over recent years, we continue to broaden our offering across flexible packaging, bags, industrial, medical, and e-commerce solutions. Overall, packaging continues to execute strongly with growing international reach and increasing exposure to attractive value-added applications. Our ambition goes beyond growth. We see renewable fiber-based packaging supporting the transition towards a more circular, low-carbon economy and reducing the dependence on fossil-based plastics. Navigator's expertise in sustainable forestry, eucalyptus globulus fiber, and innovation gives us a distinctive platform to help develop the packaging solutions of the future.
I will now hand over to António for a wrap-up.
Thank you, João. Let's please turn to slide 17. As we enter the final part of the year, I'd like to highlight four key takeaways. First, operational conditions are normalizing with smaller maintenance shutdowns planned for the coming quarters and improving pricing momentum. Second, diversification is becoming more meaningful to the group, with Tissue and Packaging together now structurally representing 30% of turnover and around 1/3 of the group EBITDA. Third, the investments completed over recent years are structurally improving our cost and risk profile and strengthening our operational efficiency by reducing wood and chemical consumption, while also lowering our exposure to fossil energy and carbon costs. Finally, our solid financial position provides the flexibility to continue executing our strategy with ease. Let's move on to slide 19 with a few comments on market outlook.
The broader environment remains uncertain, with geopolitical tensions, trade disruption, and volatile energy and commodity markets. That said, the global economy continues to show a certain resilience, and we remain cautiously confident about the outlook. In pulp, prices appear to have bottomed in August and started to recover in September. This was supported by a more favorable supply backdrop, including the postponement of new capacity in Indonesia and tightened wood availability in both Indonesia and China. Looking ahead, market expectations point to a gradual recovery, with prices in 2027 expected to improve from the levels seen in 2025 and 2026, while still remaining below historical averages. On the demand side, global annual consumption is expected to decline by around 2% in 2026, with Europe showing modest growth while China and other regions are expected to contract. Market balance, therefore, continues to rely primarily on supply discipline.
The pace of new projects has slowed down this year or is expected to moderate during 2027. In printing and writing paper, healthy order books and higher production costs continue to support pricing. End product pricing momentum is clearly strengthening across the industry. While some competitors are only now implementing their second or third European price increases, we remain ahead of the curve, having implemented our third increase in June. With no significant planned shutdowns expected in the coming quarters, we expect production and supply availability to progressively normalize. The U.S.A. also remains an important market for Navigator, where we have continued to strengthen our position despite tariffs and anti-dumping measures. More broadly, the U.S. experience provides an interesting perspective on the limits of trade measures when domestic supply has structural challenges. Despite anti-dumping measures, domestic capacity has continued to decline substantially.
Since proceedings began in 2015, U.S. capacity has fallen by an estimated 4.1 million tons or 51% of the initial capacity, while imports have increased by 18% to ensure adequate market supply. South Africa has also moved in this direction, and there are persistent indicators that other countries may consider similar measures. Europe, by contrast, needs to be more vigilant and timely in using its own trade defense instruments when justified, particularly as European producers face increasing asymmetric competitive conditions. The objective should be to preserve fair condition rather than to protect inefficiency. The industrial policy Europe needs goes well beyond trade defense, but it cannot be built without it. In Tissue, the outlook remains stable despite the 2025 softening in European demand caused by macroeconomic and geopolitical uncertainties.
We forecast moderate growth driven by our expanded footprint in Iberia, France, and U.K., combined with innovative product launches, licensing agreements, and partnerships. In U.K., our transformation program is progressing according to plan, with a clear focus on improving efficiency and profitability. Packaging continues to perform strongly, supported by good demand, a growing customer base, enlarged product offer, and improving prices. The PM3 ramp-up is progressing according to plan, adding further low basis weights, packaging capacity, and flexibility to support growth in higher value applications. Beyond these individual market dynamics I have just described, there is one final point worth highlighting, the structural transformation of our energy cost and risk profile. Decarbonization is an important part of that transformation. By 2027, the first full year with all projects in operation, our natural gas consumption is expected to be closer to 50% below 2018 levels.
These material reduces our structural exposure to fossil energy and carbon costs. This is particularly relevant as we enter 2027. While we currently have no natural gas hedging in place from January onwards, our exposure to market prices will apply to a substantially lower consumption base, reflecting the decarbonization investments completed over recent years. Energy price volatility remains a risk, but the amount of fossil energy to which our industrial cost base is exposed has been structurally reduced. These decarbonization investments were never based on predicting today's energy prices. Their value lies in having made Navigator structurally less exposed to them. This makes us more resilient to energy price shocks and strengthens our competitiveness through the cycle. On electricity, we also enter 2027 with a level of coverage broadly in line with 2026 and well above the level we are entering the year 2025.
Furthermore, as mentioned in our last call, our cost control program is progressing well. With more than 220 initiatives now underway across the company. These initiatives target all areas of the cost base, and we are already starting to see tangible results expressed, as we have seen, on the year results bridge on page seven. One example is domestic wood, where our continuous focus on reducing costs at the mill gate is beginning to generate savings with a meaningful financial contribution expected already this year. Together with improving pricing, operational normalization, and a more diversified business mix, these structural gains leave Navigator best positioned to translate the investments of recent years into sustainable earnings and long-term value creation. Thank you.
Thank you, António. This concludes our presentation. We will now move to the Q&A session.
Ladies and gentlemen, we will now begin the Q&A session. If you would like to ask a question, please press star five on your telephone keypad. If you change your mind, please press star five again. Please ensure that your device is unmuted locally before proceeding with your question. The first question comes from António Seladas from AS Independent Research. Your line is now open. Please go ahead.
Hi. Good afternoon. Thank you for taking my questions, and thank you for the presentation. I have two. First one is related with your performance on the fourth quarter. I know that you do not like to talk about the current quarter and about guidance. Nevertheless, since you have just completed the investment program, as you mentioned, and taking into consideration that there are several constraints over the first nine months of the year, it is probably fair to assume I-
Sorry.
Sorry?
I am so sorry to interrupt, but we are not able to clearly understand you. Can I kindly ask you to speak a bit slowly because we are not able, or closer to the micro because we are not able to understand at all your question.
Okay.
Thank you.
Sure. I am asking if you should expect the fourth quarter better in terms of volumes, namely in paper and pulp, than the last three quarters, take into consideration there were several constraints on the last three quarters of the year. If you should also expect lower costs or at least a more balanced cost, also assuming that there were extraordinary costs on the first nine months of the year. This is first question. Second question is related with tissue volumes that have been lower than last year, and if you should continue to expect this kind of performance or do you think that volumes will, at some point in time, increase for the levels that you recorded in 2025? Thank you very much.
Okay. Thank you. I think it was better, but I am going to try to rephrase the questions.
The first question is about fourth quarter. You would like to understand if we expect more normalized volumes, and therefore lower costs or more balanced costs vis-à-vis the nine months of the year, the previous 9 months. Is that correct?
Exactly.
The second question is about tissue volumes. They are lower in the first nine months of the year, vis-à-vis 2025, you would like to understand why is that.
Exactly. If you can expect higher volumes again next year. Thank you very much.
Okay. I am going to make some introductory comments on the two questions. I would like my colleagues, Dorival and Quirino, to help on the first question, I would like Nuno to help on the second question. Yes, indeed, having no planned maintenance ahead of us on the fourth quarter, having the significant investments that we did that started up this year, already in progress, including PM3, which was our last investment. Just for understanding, PM3 was shut down during about eight weeks, which is a normal shutdown for the level of rebuild. We are obliged to go on the paper machine. With that behind us, we do not anticipate any specific bottleneck. Having said that, it was also referred that we had, in the first nine months of the year, a significant number of unplanned external events. Seven issues with the grid.
Actually eight, because we had already one this quarter. We had a cyberattack, so we had a significant number of unplanned events in the first nine months of the year. Obviously, we are not planning to have them on the last quarter of the year. I would say that we expect better volumes. Having said that, we are operating with very low stock levels in all products. Any unplanned disruption will not be able to compensate with stocks because the stocks are very depleted. With a more stable operation and after the starting-up phase of all equipments, we have started up a paper machine rebuild. We have started up lime kilns that move to biomass-based fuels. We have started up an oxygen delignification plant. We have started up one of our largest boilers that had a major overhaul and cleaning over the summer.
All this, of course, has affected our costs. With a more stable production, we are anticipating, as you have expressed, more balanced, meaning lower costs also for the quarter. As we speak, we do not see any issue on demands. We still have very healthy order books on all products. If nothing special happens, we could expect exactly better volumes and lower costs. I do not know if, Dorival, you want to add something on the operations?
I do not think so. I have just one comment. Our last annual outage was in July, and after that, we noticed some improvements in the last two months, which give us some confidence that we will have all the conditions to perform better in the third quarter.
Thank you. Quirino, do you have something on the market side?
No, I think you said it all. I would just probably add that we, as you mentioned, António, that we continue with robust order books, so having more, let us say, output, we are confident we can do the following sales. Maybe, as mentioned, now that some of the price moves that we did before in the year are now being materialized in the market with other players, we may see a pickup in demand towards the end of the year as an anticipation to the price increase moves that may happen. But the main point is that the order books we have continue robust above 30 days, which for the time of the year is a good number. That is it.
Thank you. Regarding your second question, tissue volumes. As it was shown by Nuno on the presentation, with the macroeconomic situation and the cost increase on the consumer side due to cost inflation, the demand for tissue this year was a bit lower than what is a typical yearly demand. This does not mean that people are using less units necessarily, but most likely, they are downgrading from higher qualities to lower qualities, from three-ply napkins to two-ply or one-ply napkin, and this has an impact in volumes. We also suffer that. On top, we have seen increased competition in some geographies, and we have decided to protect margins and prices rather than participating in a value-destroying spiral on the tissue prices.
With the energy costs that we have seen during Q3, chemicals, logistics, pulp, we believe that the cost pressure on tissue players is going to be significant, and therefore, we also anticipate that early next year, we will see a price recovery, and we will have more room to play with larger margins. Nuno?
Okay. Thank you. Again, I think you said it all. Maybe just to add on, I think the volumes question, we do not expect further decreases on our volumes. Our volumes have been steady. In fact, despite market contraction that António mentioned, we expect to keep volumes relatively stable going forward, possibly actually increasing slightly here and there. That is the overall message.
Perfect.
Okay. Thank you very much.
There are no further questions via telephone. We will now proceed with the written questions. We have a few questions coming from Maksym Mishyn from JB Capital. The first one: Could you kindly share your view on the outlook for BHKP prices, and would you expect the depreciation of Brazilian real to have an impact on the willingness of local producers to increase prices further? The next question by Maksym.
Sorry. Can we answer one by one? Because if there are many questions, it is going to be difficult to take notes of them all.
Absolutely.
Our view on the outlook, we expressed that before, is basically based on the average view of the analysts that follow this sector. Their view, and actually recently published, and I think we mentioned that during the call, show a recovery in 2027 vis-à-vis what has happened in 2026 and 2025. We are speaking about this year, most likely we are going to end up the year slightly below EUR 600, and the forecasts for next year are slightly above EUR 600, so close to EUR 610. Our view is based on their average. Regarding the second part of the question is what I am going to say is more speculation than anything else. For a Brazilian exporter, the net effect tends to be positive with the real devaluation.
In their favor, each dollar of revenue converts in more reals and dollar-denominated prices become more competitive against imported or dollar linked inputs like chemicals, fuel, logistics, fertilizers, spare parts, components become more expensive. Anyhow, with the dollar debt, and we know that many of them have debts in dollar, they see their liability rise in reais. Also, we see that future interest rates are also rising, which makes financing in reais more expensive and part of the financing is reais. It is very difficult, first of all, to understand what we have seen in the last couple of days is a peak situation or is a trend, and it is very difficult to be able to explore more than what I just said.
Okay. The next question from Maksym Mishyn : Can you provide more color on how you plan to manage your paper inventories given they are 25% below the historical average? Should we expect a slow recovery in sales volumes and rebuild of inventories going forward?
I think we have partially answered that question. I am going to make a couple of comments and then ask Quirino to follow up. It is going to be very difficult to further stretch our existing stocks. We also don't plan to increase them in the coming at least two quarters. Typically, Q4 and Q1 are two seasonally strong quarters in terms of UWF demand. As it was expressed as well, we have strong order books. I don't think we can expect to be able to squeeze further down our stocks, but I don't think it is the moment, unless the market changes dramatically, which we don't see, with the prices going up, namely by cost pressure and by healthy order books. With the supply relatively contained and facing ahead of us six months of good demand, most likely is also not the moment to rebuild stocks.
Nothing to add.
The next question, do you have any update to your CapEx plans for the coming years?
I think we have also expressed that in previous calls. I am going to try to re-express what we have said before. We had a peak CapEx in the last five years, including 2026. From 2022 to 2026, we had a peak CapEx because we took advantage of the NextGenerationEU funds to diversify our business into packaging, to decarbonize. We also have investments in our tissue operations. I am not speaking about M&A. I am speaking about the regular maintenance CapEx. The average of these last five years is probably somewhere between EUR 190 million- EUR 200 million per year on average. Our historical CapEx below that is more close to EUR 100 million. In a couple of years, EUR 110 million, EUR 120 million.
What we could expect, including the projects that are under development, and we have two projects that are relevant, still under development, both of them in tissue, is the consolidation of our tissue operations in U.K. and the construction, the erection of the new tissue mill in Aveiro. I think we are going to be most likely around EUR 100 million, give or take. Also because we want to be able to get enough breathe in case an interesting operation appears for tissue M&A to conclude that operation. In short, we are going to move from EUR 190 million to EUR 200 million to around EUR 100 million, which is our historical CapEx. And within this EUR 100 million, on average, we are speaking, EUR 100 million for next five years on average. We are speaking about these two important projects. 2027 will be above EUR 100 million still, and 2028 probably above EUR 100 million.
But on average, for next five years, probably around EUR 100 million. This is probably a bit lower than what we have done in the past, but we want to take enough precaution to be in a financial position that allows to participate in M&A if that appears, namely in tissue.
The following question by Maksym Mishyn . Can you update us on how well your clients are accepting price increases during this year?
Right. I am okay. Then you make the comment and I will ask Quirino to comment on the two products where we have increased more the prices and that depend more on us. Both prices have increased but do not depend on us, are uncoated woodfree and packaging. But I would like also Nuno to make a comment about tissue, mainly in U.K., where also we had a positive trajectory on prices. I have never seen during a couple of years that I work in this sector, I have never seen, probably one exception, 2022, I have never seen a price increase that was accepted with will by our customers. All price increases are typically difficult. They require a lot of stamina, a lot of convincing, and a lot of negotiation. This time was particularly difficult because we were alone. The market did not evolve at the same speed that we did.
It was expressed that until in Europe, let us use Europe as an example, and then Quirino might highlight other areas. Europe and uncoated woodfree. We increased this year until June three times our prices. Our competitors increased one or two times during the same periods. They are now increasing in October, November, the second or the third increase. You can imagine that under these circumstances, it is extremely difficult to increase prices. Quirino.
Yes. You mentioned the main thing. Uncoated woodfree in Europe, during the period where we increased three times, most of our competitors, either one or two times. During the summer, we actually lost a little bit of market share because of that. We lost market share, particularly on economy products where it hurts less in margin. But really here the key is the resilience of our premium products, of our brands, where we continue to enjoy fairly interesting price premiums, actually growing price premiums. In those particular segments, we continue to increase our market share. In Europe, we take this lead and this was more or less the picture. In the U.S., we were followers. We followed the market twice in March and then in June.
In overseas, in the regions where we are strongest, so Mediterranean, but also Latin America, we also played an important role in leading, particularly on the lower end of the business in reels. There, as we mentioned, we increased prices three times and in some cases, five times in nine months. It is every other month increased prices. There the pricing, the customers can accept or not, can discuss more hardly or less hardly. The proof of the pudding, as they say in England, is if the order goes through and overseas, we did capture a lot of orders, and the order book that we have of excess of 30 days is the proof that the price increases went through.
In packaging is a smaller business where we managed to increase volume by more than 40% and increase prices even more than we did in uncoated woodfree. There is, let's say, a lot of convincing and discussion around costs as well. That's the fundamental part of the discussion.
Okay.
Nuno, do you want to comment on that?
Yes, I can comment on the tissue side. Two parts on my comment. I think António described pretty well how these processes and the difficulties of going through these price increases that, of course, need to be done and are prone for the equilibrium of us, ourselves, the suppliers, and our clients. The first part, we have done a price increase this year already in the first semester. It was ended July, August this year. It was roughly 3%-4% price increase. The contraction that we are seeing for the first time in tissue for some years on demand made it a bit more difficult for the overall industry to achieve the objectives. Some players, as you've seen, have announced 7%, 8%, so I guess we can say that half of the targets were achieved.
More importantly, if we now see market going forward, we see that actually pulp continues to increase. There are announcements for pulp increases both in Europe and in China. We see now energy skyrocketing again. We've seen last week market leader in tissue announcing that they're going through an already price increase. If I'm not mistaken, they've announced 3%, 4% already achieved. They still need to achieve much more than this. We expect, I think António mentioned also earlier in the call, up until January, the industry needs to rebalance the P&Ls, and so we expect, given the pressure we're feeling on the cost side, again, especially on energy and pulp, that a price increase is necessary, and we expect to see it happening over the next couple of months.
The following question by Maksym Mishyn : Could you please walk us through the EBITDA margin bridge quarter-on-quarter? What drove the deterioration of EBITDA margin? What are your expectations for the fourth quarter of 2026?
Okay. I will make some comments, and I will ask Fernando to help me on this. Let's start with fourth quarter. We do not give specific guidance. I think we have already mentioned what we expect to happen with our volumes and prices and also with our costs with more normalized volumes. I will not make any specific guidance on Q4 EBITDA. Let's just say that we expect, obviously, to have a significant improvement from Q3 to Q4. Let's analyze Q2 to Q3 because this is actually quite an interesting case. Let me start with prices. Prices had a marginal negative contribution to EBITDA. The largest contribution was production, and I will explain exactly what is production cost. Let me start with prices. Prices had a marginal negative impact on EBITDA. If we look to the different, let's look to uncoated woodfree. Q3 versus Q2.
Prices in Europe, in U.S.A., and in overseas, in all three regions individually have improved. We have a stronger seasonality in Europe and somehow in U.S.A. than in overseas. Prices in overseas are lower than prices in Europe and the U.S.A. Not necessarily margins are lower because also the type of products that we sell and logistic costs are significantly lower. In our largest business, three regions where prices significantly improved from Q2 to Q3 have a marginal negative impact on the mix because the geographical mix was not favorable with overseas being more representative than Europe and U.S.A. Packaging, another example. There we have an overall positive evolution within all packaging, with positive evolutions in the three regions, Europe, U.S.A., and overseas. Tissue, Nuno already commented. We had a positive evolution in Q2 to Q3 in U.K.
We had a slightly negative evolution in Iberia, so the overall evolution was not positive. This shows our difficulties to forecast and the evolution of prices. Cases where all prices have improved and the overall impact in prices is marginal negative. Again, Q2 to Q3, we had a positive impact on the volumes in spite of the fact that we had longer shutdowns. Why? Because it was the quarter where we depleted more our stocks.
Another interesting factor, we had a positive impact on logistic costs in spite of the fact that the peak price of oil was during Q3. Price of oil in Q3 was higher than Q2, but we were able to manage a significant number of cost control initiatives as well as the mix. It proves to have a positive impact on EBITDA. The largest negative impact was on production costs. Why? Because of instability, because the need to use more gas during instability, and because some of the projects of decarbonization were not fully ready during. They are now, but they were not in Q3. The main evolution, we have positive contribution of volumes and logistic costs with positive contribution of fixed costs.
We had a negative marginal, negative contribution of prices in spite of the fact that all prices move upwards, and the negative impact of production costs, namely because of extended shutdowns and the external events. Fernando, , with his detailed-
It is detailed message, I cannot add anything more.
The following question comes from Bruno Bessa from CaixaBank BPI. Could you please quantify your level of hedging for electricity and natural gas costs in 2027?
I think we have answered that during the call. Gas, although we expect a significant reduction of consumption in 2027 due to all the decarbonization projects, we mentioned that vis-à-vis the reference year is going to be about 50% less, which is huge. We are totally exposed in general. In electricity, I think we have also mentioned that we start the year with the same level of exposure that we started 2026 and above the level of exposure we had in 2025.
Question number two by Bruno Bessa. Could you please provide a sensitivity to natural gas costs after the investments concluded in 2026? I mean, how much would a 10% natural gas price increase impact your cash cost in 2027?
I understand Bruno's curiosity, but this is a level of detail that we are not prepared to disclose. I think we can make a couple of comments. First of all, the gas impact on costs on all business is not equal, not even in the same business, in different mills. Let me give you an example. In pulp, we have three, we have one mill that is basically not exposed to gas unless there is a problem in the boiler and the restart implies the usage of gas. We have another mill that is still dependent on gas. So two very different situations. Actually, the same applies for packaging. I think Bruno can derive the conclusions from what we have said before. Again, 2027, first full year of all decarbonization projects being fully implemented and taking full advantage of the projects during the year.
A reduction of gas of 50% vis-à-vis the reference year that is 2018. I think we can also comment something else. I cannot comment on cash costs, but I think we can comment on variable costs. When we compare with our peers based on public information, our gas dependency in all different businesses is lower than the average of the gas dependency of our Central European and Northern European competitors.
The third question by Bruno Bessa. Could you please give some color on your CapEx expectations for 2027, considering that there is still a relevant CapEx related with the new tissue machine in Aveiro?
I think we have also answered to that. As I said before, 2022 to 2026, EUR 190 million-E UR 200 million per year of CapEx. Next five years, this will be more on the range of 100. 2027 and a bit of 2028 will be above par, above 100 because of the situation of the investment on the tissue mill. I think you can assume somewhere middle way in between what is going to be the next five years and what was the previous five years.
The following question comes from Jaume Miró from GVC Gaesco. A question about the cash cost of Navigator. As you said, you have been making many investments in last years, and you are carrying also an efficiency plan in order to reduce costs. On the other hand, you have been also facing headwinds in cost, in energy, raw materials, and logistics as all the industry that may be are structural. Can you give us more color about how the cash cost of Navigator will be against recent years and also the competitive position against the overall industry?
Okay. Thank you for the question. I will start by the second part of the question. We use the data that is published by consultants of the industry, and we update that data every quarter. Our competitive position didn't change. It's basically the same. Regarding the first part of the question, of course, we are not going to give any specific guidance on our cash costs stand, but we can say the following. Probably I'm going to repeat myself. The biggest impact we had on cash costs this year was because of a significant number of plant shutdowns and startups. Startups of new equipment and plant shutdowns. The instability had the largest impact on the cash cost evolution. Having said that, particularly in the market pulp, we are actually even slightly better than last year.
This is not the case on the other areas of the business because what I just said. I'm not sure if we can say that the energy, raw materials, and logistics are all structural. Energy is probably the more structural. Anyhow, as we said, we took a lot significant number of measures on CapEx to reduce our dependency on fossil-based energy. Raw material, the main raw material is wood. We are working to reduce wood cost. Actually, the majority of our competitors are doing the same a bit across Europe. Logistics, I think I just gave a good example. We have put in place a significant number of logistic projects that allow us in Q3 to have a positive impact in logistics, exactly Q2, in a moment where logistic costs were at the peak.
And another question by Jaume Miró. How would you describe the M&A opportunity for Navigator in the current market? Is there any room for them before the new tissue machine in Figueira da Foz is built?
Well, first, Jaume, the machine is not Figueira da Foz, it is in Aveiro. The new tissue machine is in Aveiro, which is not far away from Figueira da Foz but is not exactly Figueira da Foz. As we said in previous calls, our main concern at this moment is the consolidation of our tissue operations in U.K. and the erection of the new tissue machine. Having said that, if a good opportunity arises for M&A, as I mentioned in this call and in previous calls, we want to have our CapEx plan sufficiently light in the coming years to allow us to perform an M&A opportunity. But it needs to be a very sound opportunity for us to get in. And those sound opportunities, they do not come very often, but we are always very attentive to what might happen. Nuno, I do not know if you want to add something.
No, I think it is pretty clear.
The following question comes from Mauro Monteiro, from [Codes. Is it likely that Navigator will be the target of a takeover bid by Semapa?
Well, I hope you have another question because if this is the last question, we are not going to answer this question. I am not the best person to answer this question. Ask Semapa, not us. I would not like to leave with not answered questions, so I hope you have another question.
This concludes the Q&A session. I will now hand it over to Ana Canha for the final remarks.
Thank you for joining us. Should you have any further questions, please contact us through the usual channels. Have a pleasant afternoon.