Navigator Company SA

ELI:NVG

Earnings Call Transcript 2018-Q1

[Operator]

Welcome to The Navigator Company conference call. I will now hand over to Joana Appleton. Please go ahead.

[Joana Lã Appleton]

Thank you. Ladies and gentlemen, welcome to Navigator's company conference call and webcast for 2018 first quarter results. Participating in the call are Diogo da Silveira, the company's CEO; Fernando Araújo, CFO; António Redondo, CCO; Nuno Santos, responsible for new business and forest; João Paulo Oliveira, responsible for industrial areas and R&D department.We will start with a brief presentation of the main achievements of the quarter, and we'll follow with a Q&A session at the end. The presentation can be accessed to links available on the website, and questions may be addressed also through the webcast platform.Diogo will start with the main highlights of the quarter and António will follow with an overview of the pulp and paper market. Fernando will focus on the main financial issues and Nuno Santos will give an update on the tissue project in Cacia. I will now hand over to Diogo.Diogo, please?

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

Good afternoon, and thank you for joining us today. I will be brief on my comments on the results and take the opportunity to share with you some key messages. So let's start with the pack we've prepared and go over to Slide 3.2018 did start very positively for the pulp business, continuing the upward trend registered throughout 2017, with additional price increases announced during the current quarter. As for paper, market conditions also improved with strong order books in Europe and overseas and uncoated woodfree prices finally improving. Navigator led 2 price increases in Europe during the quarter and recently announced increases in the U.S. and in other international markets.In this context, the group's performance in the quarter reflects higher prices for both pulp and paper while registering a decrease in sales volumes due to several production stoppages, which affected not only but mainly the pulp business.The first quarter was also impacted by the conclusion of the sale of our pellets business in the U.S. As previously announced, we were presented with an attractive opportunity to divest this business for a total transaction value of USD 135 million. The deal was closed in February and impacted our quarterly figures. There was an upfront payment of around EUR 68 million. This was translated in a capital gain of approximately EUR 16 million, which deducted of several adjustments had an impact in EBITDA of around EUR 9 million.So excluding the impacts of the pellets business, excluding the positive impact of this business, our EBITDA for this quarter would have been EUR 101 million and would reflect an 8% improvement year-on-year and an EBITDA over sales margin of 26.4%. This cash inflow and the strong operational cash flow generated in the period allowed for a significant reduction in the group's net debt, lowering our ratio net debt-to-EBITDA to 1.3.Some of our key concerns over the last years have been focused on improving efficiency and reducing costs, and we did continue our program during the quarter, which translated in an estimated impact of EUR 3.8 million year-over-year.Finally, after the closing of the quarter, we received some positive news regarding the antidumping process in the U.S. We were informed by the authorities that the provisional antidumping duty to be applied retroactively for paper sales in the U.S. for the periods going from August 2015 to February 2017 will be 0%. We are very happy with the decisions as it confirms the position consistently defended by Navigator, which was and is and will be that there were no grounds for applying measures of this type to our products sold in the United States of America. It should be recalled that the rate initially applied between August 2015 and January 2016 was 29.53%, then revised downwards to 7.8%, and now we have the confirmation that it will be 0 for this first period under review, which ended on February 2017. Unfortunately, as you can see, they are very long and burdensome procedures, which lack fundaments and only exist to defend uncompetitive producers.I will now ask António to share his views on the pulp and paper market.António?

[Antonio Jose Pereira Redondo, Executive Director & Member of Executive Board]

Thank you, Diogo. Going to Slide 4 and after the year 2017 where prices for hardwood pulp increased during the year an impressive 51% in U.S. dollars and 33% in euros, the momentum continued during Q1 2018. As a result, hardwood pulp prices in Europe were on average $65 higher than in Q4 last year and USD 327 above Q1 '17 levels. We believe this is the result of a combined number of factors as shown on Slide 5. We try to summarize what we think might be a quite conservative view of 2018 pulp market. Q1 actually proved that. And we believe we'll continue to enjoy a healthy demand that will absorb the new capacity available in the markets.Regarding the first quarter, eucalyptus pulp delivery has increased in the period by an excess of 4% in Q1, additional 250,000 tons in one quarter only for eucalyptus. Actually, if we count hardwood, the increase was 340,000 tons, which implies an annual volume close to 1.4 million tons. Together with this good demand evolution, supply disruptions continued over the quarter, removing an estimated over 500,000 tons of effective production capacity. Uncoated woodfree papers continued to be one of the best-performing printing and writing grades globally, as you can see on Slide 6, with a marginal positive demand evolution year-to-date February on a year-on-year basis after another positive demand evolution for the whole 2017.In more detail, turning now to Slide 7, we can see that Europe, our main regional market, experienced here in Q1 apparent demand decline of circa 4%, primarily in office papers, which can be attributed mainly to a pipeline stock decrease across Europe since November last year and up until late Q1 this year. Despite this decline on apparent consumption, mills operated at high levels and carried the highest order book since the peak in 2010, only second to Q2 last year. There was also some adjustments in supply in paper this year as some machines were stopped during at least part of the period.Conditions in the paper market in the U.S. improved from the last couple of years with apparent demand declining around 2%. Apparent consumption was negatively impacted by another steep reduction of imports into the U.S. of approximately 18% year-to-date February, and deliveries from U.S. mills into U.S. were actually flat during the period in a moment marked by capacity reductions, which will accelerate as we move into Q2. We estimate that less than 25% of the total capacity that will be reduced during the year in U.S.A., 640,000 tons, was actually reduced in Q1. So the majority of the volume is still ahead of us. This has enabled U.S. mills to operate at quite good levels, and prices have moved up in January, February and are moving up again during the month of May.Demand continues positive in other regions of the world including Asia, Middle East and Africa. The major Asian players announced significant price increases during Q1 on top of the more than USD 200 than during 2017. Some new capacity is expected for 2018, which will probably be offset by the closures of the ongoing policies around the Chinese supply side reform, mainly by shutting down polluting capacities.So as you can see, on Slide 8, prices have increased again in the beginning of the year in the context of record low papermakers' margins, representing an increased pressure on nonintegrated mills. This has led to another price hike in uncoated woodfree in Europe in late March and early April, as you can see on Slide 9. On average, paper price benchmark improved over EUR 40 year-on-year on Q1 in excess of 5%.Now back to you, Diogo.

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

Thank you, António. In this context, let's turn to Slide 10 with the overview of Navigator's paper business performance. Volumes came down year-on-year to 361,000 tons. You know the group continued to enrich its product mix during this period, with another improvement of the premium share of the paper business of 6 percentage points year-on-year and a growth of 8 percentage points on the share of mill brands sales. And you know how relevant this is, how core it has been for the strategy of Navigator for the past 20 years.As stated previously, Navigator took the lead in 2 price rises in Europe, announced in January and in March for implementation in April and announced other price increases in the U.S. and other international markets. The group's average price improved by 3.1%, but of course, with quite different developments depending on the end markets. And this was mainly due to the negative impact of the euro-U.S. dollar exchange rate. Let me just remind you that approximately 30% of our paper sales are dollar-denominated and, therefore, directly impacted by the dollar-euro exchange rates. So clearly, our paper prices recovered significantly in Europe, maybe more than 5%, also growing in markets besides the U.S. despite the evolution of the dollar.However, you should note that the average exchange rate for the quarter was 1.23 versus 1.06 in the first quarter of 2017. This, of course, caused a sharp erosion in sales prices in the U.S., mainly where actually price evolved year-on-year negatively.The increase -- the overall increase in the average sales price combined with a slight decline in the volume available for sale resulted in a modest increase in the value of paper sales in euros with a total of 283 million. So going now to Slide 11, Navigator's pulp business, which was affected by the reduction in the volume of pulp available for sale due both to the planned maintenance shutdown at the Setúbal pulp mill. There was no such stoppage in the same quarter in 2017, but also due to the stock buildup to prepare for the Figueira da Foz shutdown required to complete the expansion of the mill's pulp production capacity. As a result of those 2, pulp sales stood at 53,000 tons, which compare fully to 95,000 tons in the first quarter of 2017 where no stoppage occurred and where the group recorded its highest quarterly figure ever.The upward trend in pulp prices observed in the previous year continued. And the average peaks of the BHKP index in euros was up 28% in the quarter versus the average benchmark price in the first quarter 2017. The group's average pulp price also gained 28%, and this partially mitigated the drop in sales volume with total sales standing at the value of EUR 33 million, which still represents a drop of 24%.We continue to improve our sales mix in pulp as well, increasing mainly the weight of decor and special paper sales in Europe quite significantly from 64% to 84% year-on-year.Going now to the tissue business on Slide 12. The markets suffered quite an increase in production cost in the first quarter mainly as a consequence of pulp prices. Despite the efforts of the main manufacturers, this significant cost inflation has not been yet reflected in higher prices for sales of tissue products mainly to retailers.At Navigator, tissue grew in volume to approximately EUR 19 million, benefiting from an increase in the average sales price due essentially to an improvement in the mix. We're here talking of smaller proportion of sales with reels versus finished goods, but also to a step-by-step implementation of end-consumer price increases, which started in October and the second rise taking place last January.In terms of channel sales mix, the away-from-home segment increased to 64% and at-home segment, consumer segment, was at 31%. Reels decreased to 5%. So in this context, our EBITDA in the quarter totaled EUR 111 million comparing to EUR 90 million in 2017, as you can see on Slide 13. This clear increase was due essentially to price improvement as well as to the positive impact of the sale of the pellet business. Without this last impact, EBITDA would have stood at EUR 101 million, still increasing 8% year-on-year.As for costs, we, of course, continued to be extremely focused on improving our production efficiency and have managed to offset some of the main impacts reduced during the quarter, namely the increase in the price of several chemicals, in particular caustic soda for which unit prices increased by more than 60% over the quarter. I repeat, 60%.Also significant was the increase in personnel costs due essentially to the growing workforce because of the new tissue project in Cacia, but also to some severance pay and pension fund costs associated with the ongoing rejuvenation program.So Navigator continues to press ahead with its M2 Programme, as you know, the name we give to our overall cost reduction program, improving operational efficiency through sustained reduction of production costs, as can be seen on Slide 14. This program has had an estimated impact of EUR 3.8 million year-on-year on EBITDA, thanks in particular to successful saving initiatives in consumption of fibers, roughly EUR 1.3 million; and chemicals, EUR 0.6 million.In addition to this effort and these reductions, the group, of course, is also active in many renegotiations, namely the renegotiation of its electricity and natural gas contracts, which are quite large, as you know. This quarter, we managed savings estimated against the market prices of around EUR 7.3 million, which, of course, add up to the EUR 3.8 million that was just mentioned before. I will now ask Fernando to comment on the next slides.

[Jose Fernando Morais Carreira de Araújo, Member of Executive Board & Executive Director]

Thank you, Diogo. Going to Slide 15, we have some detail on the evolution of our free cash flow, which stood at EUR 134 million, a very strong figure for the quarter, which was positively impacted by the sale of the pellets business. CapEx stood at EUR 29 million, and working capital invested during the first quarter was significantly lower with a crucial contribution from the improvement in balance receivable/payable to the state, thanks to the high number of VAT refunds in the period. The group recorded a balance receivable from the state of approximately EUR 51 million, which more than offset the increase of EUR 14 million in the value of inventories.So at the end of March, as you can see on Slide 16, the group's net debt stood at EUR 559 million, representing a significant reduction in relation to year-end 2017, where the amount was EUR 693 million and reflecting the first inflow from the sale of the pellets business, EUR 68 million, as well as strong cash flow generation over the period.Going now to Slide 17. Financial results show a loss of EUR 5.5 million as compared to a loss of EUR 3.9 million in 2017. This increase was caused essentially by recording a loss of EUR 3.3 million, resulting from the recognition of the difference between the nominal and present values of the deferred amounts related to the disposal of the pellets business. As you recall, the payment to us then was upfront payment of 67% of sales value, and the remaining USD 45 million will be paid over a 5 years period. It should be stressed that nominal interest receivable shall bear interest at a rate of 2.5%.Finally, our CapEx is detailed on Slide 18. The group's capital expenditure in the first quarter of 2018 was around EUR 29 million. The project to expand capacity in Figueira da Foz represent investment of EUR 4.2 million; and the new tissue mill in Cacia, around EUR 11 million. Recurring investment in pulp and paper business totaled EUR 11.5 million as well EUR 1.9 million in the current tissue operation in Vila Velha de Rodão and other projects. The CapEx in the next quarter should be a slow rate, namely associated with Figueira da Foz and Cacia tissue projects as we maintain our guidance of around EUR 200 million for overall CapEx during 2018.Back to you, Diogo.

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

We see the demand in the market remains robust and has been able to absorb the noble pace of operations at pulp mills and the production ramp-up of the new capacities. The tissue markets will remain under strong pressure from the high level of pulp prices, and it is absolutely critical that the tissue producers succeed in passing on part at least of this increase in the sales prices for the rest of the year.In uncoated woodfree paper, order books remained strong and the group continues to take the lead in price increases, announcing already this month, in May, a further price increase in Europe taking effect as of July 1. So there are currently no foreseeable signs to a significant change in conditions in the pulp and paper market, and our main concerns and real concerns remain the exchange rate evolution and certain production costs, mainly chemicals.It should also be noted that the group's pulp business performance in the second quarter will be affected by the maintenance stoppage at the Figueira da Foz mill, which will also be used, of course, to finalize and start up the project of the expanded pulp capacity, but first we lose capacity because of the maintenance shutdown, then we gain capacity because of the increase.On Slide 20, we have an update on this Figueira da Foz expansion project, a project internally we call PO3 for Optimization Project 3. As this is a debottlenecking that will allow not only to increase pulp capacity from roughly 580,000 to 650,000 tons per year, but also to increase the overall efficiency of the pulp production process. We are mainly implementing a new oxygen delignification line with significant environmental advantages in terms of flue gas and liquid effluent emissions while also investing as we did in Cacia in the reduction of odor gases. As known, total CapEx was kept on budget at EUR 81.5 million, and the project was completed in April and is currently, as we speak, in the start-up phase.I will ask now Nuno Santos to comment on the update of the ongoing tissue project in Cacia. Nuno?

[Nuno Miguel Moreira de Araújo Dos Santos, Executive Director & Member of Executive Board]

Thanks, Diogo. We thought this would be a good opportunity to give you a more thorough update on the projects as some of the key dates are approaching, so let's turn to Slide 21.So the project continues on time and on budget, EUR 120 million overall CapEx, and the paper machine will start production of reels in August while converting lines have already started production this week. We have been working very actively on the commercial front, enforcing our teams and progressing successfully in our client building. We are expanding new clients not only in Portugal and Spain, but also in France and in the U.K.I will quickly show you some pictures of the mill sites on the next slide, but also the new converting lines, which are due to start -- as I said, which have started production this week.On Page 22, you see the sites, the left -- on the left hand side, we see the converting part of the operation. On the right side, the place where the future paper machine will be operating.Slides 23 and 24 show our first converting line with capacity of 15,000 tons per year. You see on Page 25 the first rolls of toilet paper that came out last week on the left, and you see the first pallet produced already this Monday of the first product.And finally, a flavor -- this mill is an important step in our growth path for the tissue business as we estimated Navigator, as we can see on Slide 26, will become #2 player in Iberia once this project is concluded.So this is all back to you Diogo.

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

So just a final word on the dividend proposal for our AGM on Slide 27. The Navigator company Board of Directors proposes a dividend of EUR 170 million to be paid in June, which does correspond to EUR 0.2371 per share. Our main shareholder has proposed distribution of reserves totaling EUR 30 million, which reflects into EUR 0.04184 per share. In total, this means EUR 0.28 per share or a total distribution of EUR 200 million, which do represent an implicit dividend yield of roughly 6%.Thank you.

[Joana Lã Appleton]

Thank you, Diogo. This concludes our comments on results. We are now ready for the Q&A.

[Operator]

[Operator Instructions] The first question comes from Tony Seladas from InterMoney.

[Antonio Seladas]

I have 3 questions. First one is related with -- if you can explain a little bit better the difference between the impact from the pellets business, the 17 million, and the impact at EBITDA level, so 7 million, 8 million plus. And if you can explain what was staff expenses and what was external supplies and services? Second question is related with the EUR 30 million that are in the U.S. account. I think it's a captive amount, so it's still in your balance sheet but is a captive amount, just to confirm it. And third question is related to the volumes on the second quarter. From the presentation, I understood that volumes will go down sequentially on pulp and paper, if you can confirm it or not.

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

I shall repeat just to be sure that I understood. I guess, I understood the first question, you'd like to get a better understanding on the impact of the pellets business, what was EBITDA and what was not EBITDA. Second question, you want to understand a little bit better what's the situation for the EUR 30 million that we have already paid as antidumping taxes, both from a P&L and a balance sheet viewpoint. But I'm not clear exactly on your first question if you could repeat, please?

[Antonio Seladas]

The first question is related with the impact at EBITDA level of the pellets business sales. So at top line, it was 17 million, 1-7; and at the EBITDA level, it was around 10 million. So there's a difference of 7 million, 8 million in terms of cost. If you could do the breakdown namely between external supplies and service and staff expenses. And the last question was volumes on pulp and on paper for the second quarter. From the presentation, I understood that volumes are going down sequentially during the first quarter, if you can confirm it, please?

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

Okay. So I'll start with the third one and then -- yes, so maybe on the volumes, we don't expect our volumes in Q2 to be lower to volumes in Q1 neither in pulp nor in paper. So it's an easy answer. Your second question on antidumping is -- I will ask Fernando to address it as well as the pellets impact, the 17 million overall versus the 10 million that went to the P&L and the EBITDA. Fernando?

[Jose Fernando Morais Carreira de Araújo, Member of Executive Board & Executive Director]

Okay. The first one, the pellets, the impact on the EBITDA includes the capital gain. The net impact is EUR 9.1 million. This is the net impact. And we start with the EUR 15.8 million on capital gain. On that, we should deduct 2 items: one, related with the possible liability after the deal has been concluded. Our thought now is that that's [ likely ] not to arrive. But the amount considered in the accounts were 5 million. In addition to that, we have the normal running business from 1st of January until 15 of February, including the expense on the deal, and that amounts to 1.8 million. Regarding antidumping, like we have said, we have -- this is affecting our balance sheet, not our profit and loss account. Since the beginning, we thought that we are in conditions to prove that we have no liability on the antidumping. This means that the accounts -- the profits and loss since the beginning were not affected by this, but the balance sheet was because we have to render some deposits, and those deposits amount now more or less EUR 30 million. And we expect to recover that beginning next October. I hope I have answered your questions.

[Operator]

The next question comes from Nuno Estácio from Haitong Bank.

[Nuno Estácio, Equity Research Analyst]

Just wanted to clarify if possible in terms of the volumes when we look at the full year, do you expect to recover this low -- this 3% -- this drop of 3% in terms of paper sales? So do you expect to arrive at full year with the same level of uncoated woodfree paper sales, stable at least or even at year-on-year? And in pulp, I imagine that this decline in the first quarter will not be fully recovered. Can you give us an indication of how much you expect to sell this year in terms of volumes?

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

So I will ask António to address this with -- as you will hear a different perspective on paper versus pulp. António?

[Antonio Jose Pereira Redondo, Executive Director & Member of Executive Board]

Thank you for the question Nuno. Starting on paper. Yes, we do expect to recover a part of the volumes lost due to the shutdown, the plant shutdown, through the rest of the year and to recover, if not all, the very large majority of what we have lost, which will imply that by the end of the year we expect volumes in 2018 above volumes in 2017. On the pulp side, it will be tougher because, as you know, we have made a major overhaul in our mill in Figueira da Foz. So we need to be quite careful with the start-up, and start-ups after major overhauls always might have surprises. So we do expect to recover a good part of what we have lost due to the shutdown. It's yet uncertain how much we will be able to recover.

[Nuno Estácio, Equity Research Analyst]

Okay. And just on this shutdown in the re-initiation of the mill. I imagine that this includes higher costs than a normal shutdown. Can you give us an indication of how much your EBITDA this year could be affected by this event?

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

So I will ask João Paulo Oliveira, as you know, in charge of our industrial operations, to give you some more inputs on the stoppage, even though we will not be able to yet to share the numbers on the EBITDA, but so that you get a better feeling of what type of stoppage we're talking about given the expansion projects. João Paulo?

[João Paulo Araújo Oliveira, Member of Executive Board & Executive Director]

Okay. So thank you very much. We have combined the stoppage of an 18-month period. That's the period of stoppages between 2 events at the Figueira mill. We have combined that normal, let's say, stoppage with a capacity increase of approximately 70,000 tons, which will increase our total capacity to 650,000 tons. Concerning your cost question, I'm not able to give you a specific answer at the moment because we have just concluded the stoppage, so we are still looking at the cost. But I can tell you that it will be within the expected figures, so we will not have a surprise.

[Operator]

Our next question comes from José Rito, Caixabank.

[José Manuel Rito, Analyst]

So just to follow up on the pulp volumes evolution in the quarter. You mentioned that you also have this stoppage in Q2 related to the expansion. Could you give, following the decline in Q1 and the expected shutdown or lower production in Q2, what is your expectation for the full year in terms of volumes? Just for us to have an idea in terms of pulp volumes, how much should we start to consider. And the second question on the list of paper prices, which currently stand at EUR 860 per ton in Europe. What is your expectation for the second half of this year?

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

I mean, it is not yet obvious to have a clear view. But to put it simple, by the end of the year, we should have produced more pulp than last year. That's the floor currently, then it will depend a lot on how we work in the very coming weeks, how the plant reacts to this capacity increase. So as a floor, we will be selling contrary to Q1 very clearly. At the end of the year, we will have at least produced the same amount of pulp than we did in 2017.

[Operator]

The next question comes from Jose Martins Soares from JB Capital Markets.

[Jose Martins Soares, Managing Director]

I have 2 questions, and they're both on inorganic growth. There is apparently a pulp producer for sale in Brazil. We've heard that through press reports. Is there something that will be interesting for you? And if so, do you expect any decision to be taken in the short term? And then the second also on consolidation. What we're getting from other tissue producers is that they haven't been able to pass on increasing costs to their clients. And I suspect there's going to be a few nonintegrated players struggling. Do you see any imminent acquisition opportunities arising from this scenario, too?

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

Very good. So very -- 2 questions, very easy to answer. So on the first one, we have also heard that there is such an opportunity in the market. I am, unfortunately, unable to comment whatsoever regarding that opportunity. On the tissue, certainly, there will be several tissue producers, as also other paper producers, nonintegrated. Actually, that does not only impact tissue. That -- if the prices continue where they are, will be up for sale. Never in the past as the difference between the average selling prices of both tissue, uncoated, coated and pulp being so small, never before. So for sure, it must be very difficult for nonintegrated producers. However, as we have said previously, we consider -- we don't know yet well enough the overall tissue market to embark in an acquisition. So midterm, something that could happen. Short term, even though we recognize there will be opportunities, we don't see ourselves having those opportunities.

[Operator]

The next question comes from Carlos de Jesus from Caixa.

[Carlos de Jesus, Analyst]

First of all, a specific question. Can you provide some visibility on the timetable of the payments of the remaining amount of the pellets sale in order for us to know how to distribute the amount over the 5 years that come? And the second one, more generic, how do you see the performance of pulp prices namely in the second half of this year given the current market balance? And also, if you can provide your view on pulp prices also for 2019.

[Antonio Jose Pereira Redondo, Executive Director & Member of Executive Board]

So thank you for your question. I will start by the second one, by the view on the pulp prices. And we see the market quite strong at the moment, probably stronger than everybody was expecting a few months ago. We do believe that the strength in the hardwood will sustain, will be able to continue. The strength on the softwood, it will very much depend, I think, on what will happen in the next summer with the start-up of softwood on the pipeline. So this will affect the softwood prices. And obviously, this will affect as well -- because of the interchangeability in some grades, this affect as well the hardwood evolution. So far, hardwood, I will say, is likely to be stronger than softwoods, but we need to see what is going to happen after the summer. An important remark, I think, on the first quarter is that mainly on hardwoods, this time it was not China that was the main driver of demand. Other regions of the world, including Europe, posted a significant growth year-on-year on the demand of hardwood.

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

Very good. So now Nuno will share with you the almost bullet payment scheme we have for the remaining part of the pellets business.

[Nuno Miguel Moreira de Araújo Dos Santos, Executive Director & Member of Executive Board]

Okay. So there's $45 million remaining, of course. The $2.5 million will be paid every year over the next 4 years, and the last payment of $35 million paid on year 5. And this will be an interest-bearing debt. And so there will be interest paying on these amounts.

[Operator]

[Operator Instructions] The next question comes from Luis de Toledo from BBVA.

[Luis de Toledo, Chief Analyst of Oil and Materials]

Two questions from my side. The first one with regards to the antidumping in the next regulatory periods and the way you will proceed. And I don't know if it's changing on what future impact you're expecting and if you will continue the same level of deposits and what's your perception there. And the second one is related with costs, particularly also for chemicals, if -- I would like to know if you have suffered there, the full extent of the inflation of those costs in the first quarter or you expect some lack on -- impact on future quarters as well as what we can assume for transportation logistics. And is there negotiations you're considering on energy and natural gas [indiscernible] magnitude, which could offset that impact? Or is that concern that you have on rising costs -- I mean, what's your view within the next quarters? And if you believe that this is something that will impact more into second half or first half?

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

I shall repeat just to make sure that we understood currently the questions. So the first question is how we view the current periods from an antidumping viewpoint. We have seen that until February 2017, we have included that's at 0%. You would like to get our feeling on how we see going forward. And I will ask António to address that question. The second question if I understood correctly was to get a feel from our side on a couple of cost items to understand how we view them evolving in the coming quarters. And you referred mainly chemicals, logistics and energy. Is that correct?

[Luis de Toledo, Chief Analyst of Oil and Materials]

Correct.

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

So we'll start with our view on antidumping with António and then João Paulo will address the cost issue.

[Antonio Jose Pereira Redondo, Executive Director & Member of Executive Board]

So as we said in previous quarters, we do believe that this antidumping case was groundless and soundless and unfair. So we have been operating in the U.S. since the antidumping case was issued as business as usual. So we actually took into consideration the antidumping to develop our commercial policy. This will be exactly the same going forward. We are very committed to the U.S. market, and our objective is to develop mill brand business and profitable business. So as far as we are able to develop profitable business in U.S.A., bearing in mind price evolution and the exchange rate, we'll continue to do so regardless of antidumping.

[João Paulo Araújo Oliveira, Member of Executive Board & Executive Director]

Concerning costs and especially on the 2 items mentioned, chemicals and energy. Chemicals, there were some legislation changes in the European Union, which have limited production using lead sales. And some chemicals have been -- there has been a shortage in Europe on those chemicals, especially on caustic soda, as Diogo mentioned before. We have planned a radical increase on those prices. And we now see the situation tending to stabilize more because it also opened the opportunity for American and Asian suppliers to enter Europe. So the situation does not seem as critical from the perspective of today as we have thought it would be in October, November last year. Concerning energy, the behavior of the electricity prices is a little bit awkward. We have all energy purchased for 2018. Therefore, we are not concerned. We are on the safe side. We are at the moment preparing or starting to prepare the year of 2019. And therefore, it's a little bit soon to talk about the future.

[Operator]

The next question comes from José Rito from Caixa.

[José Manuel Rito, Analyst]

Just a question on the list of price -- of paper prices in Europe. Currently, they are at EUR 860 per ton. I asked before, what is your expectation regarding the evolution of prices for the second half of this year. We have recently a price increase in the markets. What do you think that prices could reach in the second half? And then another question related with the strategic view of investing in pulp because in the past you have this long-term project of investing in a pulp mill in Mozambique. This is kind of out for the moment. Could you be interested in the future from a strategic point of view to have further investments in pulp?

[Antonio Jose Pereira Redondo, Executive Director & Member of Executive Board]

So on the paper market prices, as you have noticed, there's been an effort and slow move so far. So we have implemented fixed price increases since the beginning of last year. And the peaks has improved less than we were you expecting it to improve. We are confident that the July pricing raise that we have recently announced will be implemented. All the conditions are set on that direction. After that, it's very hard to predict what will happen further than the summer, and this will be very much related, as I said before, to the pulp price developments.

[Diogo António Rodrigues da Silveira, Vice Chairman, CEO & Chairman of Executive Board]

Very good. On the question on pulp, yes, we do believe that there will be opportunities for us to invest further in hardwood pulp and namely eucalyptus pulp. And we will be considering certainly additional debottlenecking opportunities as a minimum.

[José Manuel Rito, Analyst]

Just a follow-up on these paper prices. Do you think that prices could reach the EUR 900 per ton in the second half? Or this could be too much?

[Antonio Jose Pereira Redondo, Executive Director & Member of Executive Board]

Well, we wish. I think it's going to be very hard to have this move on the present -- with the present data that we have.

[Operator]

Ladies and gentlemen, there are no further questions. I now give back the floor to the company. Thank you.

[Joana Lã Appleton]

[indiscernible] our conference call for today. Thank you.