Navigator Company SA

ELI:NVG

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you very much for your patience, and welcome to today's call. I'm pleased to present the speakers. Please go ahead.

[Joana de Avelar Pedrosa Rosa Lã Appleton]

Yes, so. Ladies and gentlemen welcome to the call. We are sorry for this -- to start late, but we have some technical issues regarding at the start of the call. So we will now start the call to the Q -- the first quarter 2020 results. And participating in the call today are the following members of the Board: Antonio Redondo, Adriano Silveira, João Paulo Oliveira, Joao Le, Fernando Araujo and Nuno Santos. We will start with usual with a brief presentation of the main highlights for the period, and we will have a Q&A session at the end. The presentation can be accessed through the links available on the website, and questions may be also addressed through the webcast platform. So Antonio will start now with a comment on the main figures recorded in the period. And follow with an overview of the paper market. Nuno Santos will comment on the pulp issue -- pulp and tissue business, and Fernando will address the main financial issues. At the end, Adriano will provide more detail on some of the Group's initiatives in light of the COVID-19, and António will close the presentation with the outlook for 2020. I will now hand over to Antonio.

[António José Pereira Redondo]

Thank you, Joana. Good morning, everyone, and thank you for joining us today. Once again, our apologies for the stand for difficulties to start the call on time. I will start the presentation by making some brief comments on the results for the quarter that we published last week, and please go to Slide #4, where we compare Q1 2020 with Q4 2019. Prices in this comparison are relatively aligned, and we can see a clear positive overall evolution. The comparison year-on-year is tough as prices in Q1 2019 was still at high levels when compared to Q1 2020, especially paper prices. As average paper prices in Q1 2019 was EUR 940 per ton, the highest price for the quarter in the last 16 years since Q2 2003. For Navigator, the year 2020 actually started off in a quite positive manner as we have registered a significant improvement in our operational performance across the notes without any relevant disruptions or stoppages throughout the quarter. We also registered a strong recovery in our paper order book, attaining one of the highest levels ever for a similar period with an order book over 50 days. Actually, we feel that if this impacting demand and the tax obligation have not been interrupted by the current pandemic situation, we would have seen a recovery in prices starting already in Q2. But, of course, as you all know, at the end of the quarter, external commission change recently, and we were faced in a totally different context. Yet, our first quarter performance was almost not affected by the impact of the COVID-19 pandemic, and we managed to increase significantly our volumes sold across all our businesses and coated free paper, eucalyptus pulp and tissue. Not mostly, our production costs also evolved quite positively throughout the quarter, both in terms of variable costs as well as fixed costs. I would get back to that later on. So the main aspect, I would like to enhance about Navigator's first quarter results is the good operational performance and recovering volumes. This allow us to offset a part of the decline in prices already anticipated in our 2020 budget. Also important to enhance in the period is the payment made in early January of EUR 100 million in reserves to our shareholders. At the end of March, our leverage was still profitable, with a net-debt-to-EBITDA ratio of 2.5x. Of course, as the COVID-19 pandemic started to grow, we decided to increase our immediate liquidity by almost EUR 165 million to EUR 256 million. That was further enhanced in April and May. Consequently, we have all our financial needs for 2020 completely assured. One of the many decisions taken, was the review once again and to further extend our cost reduction plan established for 2020. And also to develop another set of even more decision, cross-cutting measures. We will go over the measures and actions taken by the company within the 19 -- COVID-19 pandemic in more details further ahead in the presentation. But now let's go, please, to Slide #5. With the main financial highlights for the quarter. So turnover declined less than 2% quarter-on-quarter and close to 4% year-on-year as we have registered lower prices for pulp and paper, as mentioned before. As said also previously, the lower prices were partially offset by higher volumes, more than 34% year-on-year in pulp, about 4% in paper. And the EBITDA in the quarter totaled EUR 88 million, which represents an increase of 23% when compared to Q4 2019 and a 16% fall when compared to Q1 2019. Margin at a -- over sales was almost 22%, improving 4.4 percentage points over Q4, but comparing to 25% year-on-year. Our CapEx in the period was under EUR 23 million, which compares to EUR 33 million in Q1 2019. So EUR 10 million less, and this was mainly focused on main growth projects to improve the core business and environmental protection. The moderate pace in implementing our CapEx plan as well as a careful working capital management allowed to generate a free cash flow of around EUR 15 million. And our net debt at the end of the period stood at EUR 800 million. And the net debt ratio remained at a conservative level of 2.25x, excluding the impact of IFRS 16. Next slide on Page 6, shows the evolution of the last 5 quarters, and you can clearly see the recovery that's occurred in this period. Our solid order book and the pickup in volumes allowed for stable turnover and increase in earnings. Yet, the impact of the decline in paper prices over the last quarters coming from a peak level in Q1 '19 is also evident. Let's please look at the EBITDA in more detail on Page #7. So EBITDA, as mentioned before, totaled $88 million in Q1, a very significant improvement of 23% vis-à-vis the EUR 72 million, which is in Q4 2019. Essentially due to the reduction in costs, mainly fixed costs that reduced more than 20% and variable production costs as well that reduced about 4%. As Q1 2020 and Q4 2019 have more aligned prices for pulp and paper, the impact of prices was just slightly negative, and the overall impact of volumes was positive, especially in the tissue business. The other items include change in biological assets, with a positive impact in Q4, losses value in stocks and antidumping adjustments. Going to Slide #8. We have the evolution of EBITDA in Q1 2020 versus Q1 2019, when EBITDA stood at EUR 105 million. In this comparison, the EBITDA in Q1 2020 was mainly impact by the decline in record high paper and pulp prices. In the tissue business, we actually had a positive revision of the average selling price mainly due to the mix improvement as we sold more converted products and less reals than in 2019. Prices for both converted reals were actually slightly lower. These declining prices from historical high levels was offset by both the positive impact from volumes across all businesses, plus 4% in paper, plus 34% in pulp and plus 12% in tissue. As well as by the positive impact of production costs. In variable costs, the main savings were related to wood due in particularly to low specific consumption in the period. Chemicals, especially because of lower prices, we were able to negotiate for certain chemicals and we'll also to work than to reduce consumption of chemicals at the bleaching stage. As well as external fibers, thanks to falling prices for both long and short fiber and the optimization of the fiber mix increased, leading to a better specific consumption. The variable production costs fell about 2% year-on-year and close to 4% quarter-on-quarter. Fixed costs in the quarter also improved circa 8% over the first quarter of '19 and over 20% quarter-on-quarter. With positive evolution in operating costs, in particular, in the cost of corporate factors, in line with the cost reduction plan announced last year in payroll, with a reduction in the headcount as well as reductional failure of variable sellers and lower maintenance costs, which were positively influenced by the postponement of maintenance shutdowns at the pulp mills in Figueira da Foz and Setubal, shutdowns which took place in the first quarter of 2019. Other items totaling EUR 11 million impacted negatively EBITDA and was essentially due to 3 main factors: impact of antidumping tax, record managing the accounts which had a positive impact of EUR 2 million in '19 and a negative one of EUR 2.4 million in 2020, the insurance indemnity of circa EUR 1 million recognized at the end of Q1 2019 and change in the logical assets as well with circa EUR 1 million. Let me make a few comments on the antidumping. The antidumping impact on the accounts were related to small adjustments made to relate of recent periods under review. Period of review 3, period of review 4 and even period of review 5 [indiscernible] March this year. On the antidumping reforms, we actually had some very positive news that we have shared on our earnings release. As you may recall, the antidumping rate to be applied retroactively on paper sales to the U.S. for the second period of review, which ran rent from March 2017 to February 2018, initially set at 5.96%, was adjusted down to 4.37% at the end of 2019 by the United States Department of Commerce. As a result of this decision, the Customs and Border Protection agency has already processed a refund in relation to part of POR2 with an initial total value of USD 4.7 million, refunds and interest due, which we expect to receive before the end of the first half 2020. This is an update from the previous report, as we have just received over USD 2.2 million of the total EUR 4.7 million just mentioned. In relation to the first period of review, POR1 the matter is currently before the U.S. Court of International Trade. Just to give you some background, the final rate for POR1 was reviewed by DoC from 37.3% to 1.75% in October 2018. The port, however, decided in November 2019, to request the DoC to review that outcome. The DoC had until February 2020 to submit its decision to the court, which it did, again recalculating rate, which is now set at a lower level of 1.68%. Proceedings at the court are taking normal course. I will now ask Nuno Santos to comment on the pulp market. Nuno, please.

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

Thank you, Antonio. Let's go to Slide 10 of the presentation, which shows the evolution of the PIX index in dollars and in euros. The U.S. dollar price of the hardwood in Europe was stable over the quarter at USD 680 per ton. It was 31% down from the price of $991 per ton recorded in the first quarter of 2019. The price of hardwood pulp in euros drops by around 29% to EUR 616 per ton in the quarter as compared to EUR 872 per ton in the first quarter of 2019. When compared to quarter-on-quarter price of hardwood in dollars of 1.6%, and 1.3% in euros. More important, when compared to the last 6 years, it is clear that pulp prices are now at the bottom of the cycle and at the lowest level since 2014, especially when we consider the market discounts that market discounts have been increasing over the past years. So let's go to Slide 11 with a brief pulp market update. By the end of February, the global pulp market demand increased by approximately 13% in year-to-date. And it is estimated that in first quarter 2020, demand might have grown approximately by 15% year-on-year. On the supply side, there are -- there were a number of unplanned shutdowns and reductions in output. Above all the supply of short fiber from Asian producers as well as a reduction in available output of short and low fiber as a result of the 3-week strike by forestry open paper workers in Finland. In addition, the COVID-19 pandemic resulted in very significant limitations on logistical operations in China. As from the Chinese New Year on January 25 throughout to March, severely limiting the dispatch of pulp from ports and mills. As we have just seen, prices remained at the bottom during most Q1, both in Europe and in China. Creating pressure on producers who have attempted price increases in both softwood and hardwood. The latest announcements were made in April and May in the main pulp consumption regions and are still under negotiation. Regarding hardwood capacity, it should remain relatively stable during 2020 and first half of 2021 until a start-up of a new unit in Chile. Now João Paulo Oliveira will comment in the paper market. Juan Paulo, please?

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

Hello. Good morning. Thank you, Nuno. On Slide 12, we can see the evolution of paper price. The benchmark index for A4 showed a downward adjustment of 6% year-on-year to an average price of EUR 864 per ton as compared with EUR 940 per ton in the first quarter of 2019. As already stated by Antonio, after a peak in Q1 2019, prices have come down progressively since Q2 2019 and are currently at the same level of the beginning of 2018. Still, current price of EUR 844 per ton is above the average price of the period between 2014 and 2018 of EUR 832 per ton. When compared Q1 2020 with Q4 2019, the A4 index fell 2.3%. On Slide 13, we have an overview of the paper market. After the distribution chain ended 2019 with very low stock levels. By February 2020, we started to see the reverse phenomenon as the European industry experienced strong growth in orders. Navigator recorded a very high level of paper of load on the mill in the first quarter in excess of 50 days, one of the highest ever for this period of the year. In the final fortnight of March, lockdowns were imposed in most European and Asian countries. The company began to receive some cancellations and above all postponement of order by its clients. Despite this, it still ended demand with an order book of more than 40 days, a level 45% higher than European counterparts. We believe that Navigator's very high order book in the first month of the year, minimized the impact of the fall in demand that occurred at the end of the quarter. Figures for paper demand in Q1 2020 showed an overall fall of 6.4%, which we believe is influenced by the significant reduction experience in Asia in March as demand in Europe fell only 3.9%. However, due to a strong stock reduction which occurred in Europe during last quarter 2019 and considering its effects real paper consumption was only 2.1%, in line with our forecast. As seen in the past, uncoated woodfree appears to be one of the least effected grades among printing and writing as coated woodfree and mechanical grades experienced double-digit reduction of 11% and 13%, respectively. Still the adjustment in demand may not have been so harsh as apparent consumption seems to estimate, as the fall in imports and the very low paper inventories at the beginning of 2020 may have influenced this figure. This global downturn in demand following the lockdown due to COVID-19 pandemic has led the large majority of producers to announce temporary downtime in reduction in production across the world for April, May and June, and officially for longer periods of time. The loan figures show a reduction of approximately 10% in Europe and the U.S.A., but we actually believe the number is probably much higher as many producers do not announce this downtime. Let's go now to Slide 14, with a view on Navigator's pulp and paper performance in the quarter. Our total output increased by an impressive 12% quarter-on-quarter and by 5% year-on-year. Navigator sales volume for uncoated woodfree paper rose by around 4% in relation to the first quarter of 2019 and were flat quarter-on-quarter. Our average price for Q1 2020 was in line with Q4 down, but 6% down versus Q1 2019, in line with the index. In geographical terms, sales outside Europe rose steeply, up to more than 10%. Premium segment sales accounted for 53% of total, and mill brand sales also rose to 71% of total. Despite the increase of 4% in sales volume, the sales values in the Group's uncoated woodfree business was impacted by falling prices over the period. And the sales dropped in value by around 2% to EUR 293 million. As stated before, it is important to note that the year-on-year price comparison between quarters is hindered by the fact that Navigator implemented a price increase for uncoated woodfree paper right at the start of 2019, following on from a further 4 increases over the course of 2018. I will now ask Nuno to comment on pulp and business -- and tissue business. Nuno, please.

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

Thank you, João Paulo. Well, going over the quarter, Navigator's succeeded in increasing its pulp output in terms by 8% quarter-on-quarter and by 7% year-on-year. We recorded a volume of sales of market pulp significantly higher than in the same quarter in 2019. Up 34% in times due to recovering sales in Europe and diversification of sales to other markets. This increase in sales is in line with expectations given the capacity expansions at the Figueira da Foz mill and the return to good operating performance over the quarter. Still, due to the downward trend in prices, the value of pulp business sales stood at EUR 35 million as compared to EUR 40 million in the first quarter of 2019. Moving now to Slide 15, with the performance of the tissue business, we can see that tissue sales in the quarter amounted to over EUR 36 million, growing 8% year-on-year. And that the tissue business has increased its weight in the Group's turnover to 9%. This is a result of the expansion and recent investments made in the tissue business by the company. Tissue business evolved very favorably over the first quarter, with sales in volume reaching close to 26,000 tons, representing an increase of 20% versus the last quarter and 10% in relation to the first quarter of 2019. The Group operations succeeded in reacting positively, seizing the opportunity offered by the peak in demand triggered by the COVID-19 for At Home products. The Aveiro and Vila Velha de Ródão tissue plant operated without any restriction during the state of emergency, achieving an increase in output, especially on converting lines. However, it must be noted that increased sales in the At Home segment were counterbalanced by evolution in the away-from-home segment, which was affected by the COVID-19 situation. These products are aimed to a larger extent to HORECA channels, hotels, restaurants and at companies which were severely affected by the lockdown measures implemented from mid-March onwards. The sales mix improved in relation to the same quarter in the previous year, with the proportion of finished products rising to 86% as compared to 74% in 2019, to the detriment of reels. In terms of geographic distribution, Portugal remains the main market, but sales to outside Iberia increased significantly, mainly to France and U.K. Fernando will now comment the CapEx plan.

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

Thank you, Nuno. Let's go now to Slide 16. Where we have an overview of CapEx registered in the first quarter of 2020. Navigator record total investment of almost EUR 23 million versus EUR 33 million in quarter 1 2019. This figure includes a sum of approximately $14 million invested in maintenance, efficiency and others, EUR 7 million in improvements to our core business assets and around EUR 2 million on environmental projects, in particular, the new biomass boiler at Figueira da Foz plant. As you recall, the reconstruction of a new biomass boiler at Figueira da Foz site, replace the existing boiler and natural gas combining its cycle power plant will make it possible to reduce fossils CO2 emissions at the new site. This is a project that starts in 2019, and we expect it to be concluded by the end of Q3 this year. This project is linked to our aim to have our industrial operations carbon neutral that the group disclosed in 2019. On Slide 17, cash flow from operations generated in the quarter was $71 million compared to $88 million in Q1 2019. Free cash flow totaled $15 million in the first quarter as compared with $10 million in the same period a year ago. It should be recalled that sizeable annual payments traditionally are made on the first quarter accounts, like bonus, insurance premiums joined this year by an additional tax assessment. This situation was handled smoothly, thanks to a careful policy of working capital management, in which the extension of certain payment periods was coordinated with implementation of complementary measures to support liquidity of our partners. The adoption of a significantly more moderate pace in implementing our CapEx plan also contributed to this success. The second [ increase ] seen in clients is mainly due to the significant reduction of [indiscernible] by year-end 2019. Where an effort was made in principle receivables. These amounts reflect the variation versus the end of the year and does not reflect an increase in the average collection fees. In terms of inventories, year-end is also traditional low period for stocks at the end of Q1 2020, reflects increase in line with previous periods. So now on Slide 18. As a result, at the end of March, Navigator interest-bearing debt totaled EUR 800 million, up by EUR 85 million in relation to year-end 2019 after the group paid around EUR 100 million in reserves to shareholders. The net-debt-to-EBITDA ratio still remains at a conservative value of 2.3 without IFRS 16 effect.I would like to spend some minutes on Slide 19 and go over to the recent initiatives taken to increase liquidity. At the end of the quarter, immediate liquidity at EUR 256 million from EUR 160 million at the end of the year, to which should be added the continued existence of sizeable unused medium/long-term backup facilities, standing at EUR 75 million at the end of this year as well as short-term facilities of EUR 20 million. Our average cost of debt at the end of the period was extremely competitive at 1.5%, and we maintain a net rate proportional fixed, 67% and very odd debt, 53%. So the Group has maintained a sound financial position enabling to face comfortably the current situation with all its financial needs for 2020 issues. I would like to add that we will continue to pursue this policy in April with the contract of additional short-term finance with a value of EUR 35 million, which in combination with the implementation of new measures to manage working capital and made it possible to reinforce this liquidity position. Now -- will now give the floor to Adriano.

[Adriano Augusto da Silva Silveira, Member of Executive Board & Executive Director]

Thank you, Fernando. Thanks. I would like to go to Slide 21. With some of the key measures that have been implemented over the last month following the COVID-19 pandemic situation. We believe that face with such unprecedented events, a prompt and definitive response was needed. With the main focus being, of course, the protection of our people. On Slide 22, we have highlighted some of the main initiatives taken. Our first priority was to protect with the health of our employees, their families and our communities as well as our suppliers and clients. This was achieved with a contingency plan drawn in February and essential to -- in aligning the entire company towards this effort of strict prevention and containment. Some of the measures taken to assure worker safety. Have included organizing working areas and share areas. So as to reduce the number of persons in the same space and the distance between the people. Increasing disinfection actions and materials in workplace, distribution of protective equipment to internal external personal, restrictions on access of noncompany personnel, and of course, the organization of homework for around 940 employees. And I am proud to say that so far, we have detected only 4 positive cases of COVID-19 in our facilities. 2 amongst external providers and 2 in our own employees. In [indiscernible] of approximately 4,500 employees. 3,200 direct and 1,300 indirect. We believe this is clearly the result of the strict and quick action taken by company and the overall efforts of every single employee. Essentially, when we consider that 2 of our new sites are operating areas where there is a very high number of case like Aveiro and Setubal. Going to Slide 23. We have some of the main actions taken to support our community. The Group launched a number of initiatives to support local people in the municipalities where it operates. In particular, by jointly donating digital radiology treatment to Figueira da Foz hospital and repeated donations to a range of a range of protective materials to hospitals in Setubal and Aveiro. We also launched several initiatives through paper donations, mainly to 3,600 children from needy families in order to support the school activities. Navigator also joined the largest distributor of newspapers and magazines in Portugal. In order to allow 1,500 points of sales to be able to print their customers' documents during the containment phase. As part of this initiative, [indiscernible], meaning paper [indiscernible] 100,000 paper bags were distributed at points of sale with the message of encouragement to the Portuguese population. We also provided support to our supply chain through the implementation of a plan for daily monitoring of supply risks in order to anticipate any interruption of supply originating from production needs of our suppliers and from logistics transporting corporation chains. So far, there has been no upstream or downstream disruptions. These initiatives were also a way to protect and support our relationship with our regular providers, most of which are small and mid-sized companies allowing them to continue to operate in this difficult time allowing them to keeping their ability to remain as our business partners and as providers of the Portuguese economy. If we go to Slide 24, we have some of the actions undertaken regarding our business continuity plan. In parallel of the contingency plan. The Group implemented in this office in charge of managing the evolution of the COVID-19 with the involvement of the of the [ executive ] boards on a permanent rates. The business continuity plan also includes a range of initiatives, mainly monitoring the situation throughout the supply chain. From suppliers of woods and raw and subsidiary materials, including logistics to technical and support service provided by foreign companies, and providers of outsourced services. Other measures adopted by the Company were control of operations in the various industrial units and in different businesses, boosting the capacity of information systems, which has allowed almost 1,000 employees to work from home and stepping up security measures in the Company's networks that -- so that telework could proceed safely and without any disruption. New cultural process for stock management has been implemented at our production site, allowing them not only to streamline talks on raw materials, but also to make rapid adjustments in orders in line with our [indiscernible] in the current situation, with probably COVID-19, and we postponed maintenance shutdowns for Q2 and Q3. As announced previously, we increased our immediate liquidity, maintaining a robust balance sheet. This have been some of our preventive actions when face the huge uncertainty brought by the COVID-19 at the end of the quarter. So I will pass the floor to Antonio Redondo.

[António José Pereira Redondo]

Thank you, Adriano. If we can now move to Slide 25, please. In April, we started to see some of the early impact on our business. So as stated on this slide, on the market side, the sharp downturn in economic activity in most of the markets where the company operates, has had a very significant impact on uncoated woodfree paper consumption and demand, and Navigator accordingly decided to cut its output by approximately 700 to 2,000 tons a day, for a period of 30 days. On May 20, considering the visible signs related to paper orders, the Company started to extend the cut in production until the end of June and actions, which will preserve a better balance between supply and demand, and minimize the risk of stock accumulating along the supply chain with the related consequences. In order to assure operational normality and stability in stock levels, adjustments have been made to the pace of production at the mills producing pulp integrated into uncoated woodfree paper and also to alter and shorten the maintenance shutdowns planned for Q2. Following the situation, Navigator decided to apply the simplified partial lay off measure in the form of a temporary suspension of employment contracts or reduction in worktime provided by the Portuguese law. Approximately 1,200 workers will be impacted by these layoff measures, 97 of which will be in full layoff with impacts as of June 1 onwards. In terms of full-time equivalents, this represents less than 13% of the total number of workers within the group. It is noted that the company will maintain the full remuneration of these workers, excluding the components associated to the actual provision of work. Considering recent developments for the sake of prudence and because of use of various measure, the Board of Directors has decided to withdraw the proposal related to the profit allocation in the agenda of the next general meeting to be held on May 28. As previously mentioned, Navigator has already paid to shareholders an amount of approximately EUR 100 million related to reserves in January 2020. And the proposal that is being withdrawn referred to an additional distribution of approximately EUR 99 million. The Company will issue a new convening notice for the general meeting with a discussion of the new proposal for allocation of net profit, to be made by the Board of Directors, for such profits to be fully applied into free reserves, as the sole item in the agenda. Accordingly, operations of our insulated [ book loans ] have been adjusted. We are [ available ] and working under business as usual. The tissue mill located in Aveiro and Vila Velha de Ródão continue to produce without any restrictions. So in order to offset this is cutting paper production and consequent from the impact in revenues, Navigator implemented a set of measures summarized on Slide 26. Besides the support to suppliers and the liquidity increase on resonation, we have decided to reduce our 2020 CapEx plan, which in our budgets were estimated at around EUR 160 million. In addition to CapEx allocated to maintenance and efficiency gains, this sum also included environmental investments, major repairs and other CapEx projects for reconditioning assets, which will now be cut very significantly by around EUR 88 million to close to EUR 70 million. As announced in our Q4 '19 results, we have launched a new cost optimization and operational efficiency plan at the start of the year, involving the entire organization and all its business areas as well as a new Digital Transformation Project in the corporate sector. However, with the shift to a deep recession, as a result of the measures to contain and mitigate the COVID-19 pandemic, the Group has had to review and extend the scope and depth of the cost reduction initiatives originally envisaged, and to contemplate a thorough reformulation and streamlining of the Group's operating structure, addressing fixed costs, variable and investment costs. This should make it possible to obtain very significant reductions in particularly fixed costs totaling EUR 46 million in 2020 in relation to 2019. Keeping our focus on boosting sales in business areas in this particularly challenging context, all of the Group's sectors are committed to the essential efforts to optimize costs, as a way of preserving the Group's sustainability in the immediate future and the long term. So let's take a look on Slide 27, please. Of the main challenges that lie ahead of us and what we can expect in terms of our short-term outlook in Q2. Q2 will be very challenging and marked by great uncertainty and recovery will depend on the rhythm of reduction in lockdown measures. Specifically in paper since the start of COVID-19 pandemic, Navigator implemented models for monitoring and forecasting the likely impact on its core business. The sales volume has so far been in line with the projections initially made in March. The uncoated woodfree sales volume fell by about 20% in April in relation to the same month in the previous year, whilst the combined drop in the first 4 months of the year in relation to 2019, is only 2%. Demand for printing and writing papers is severely affected by a situation of social paralysis with schools, shops and offices all closed. Even so, uncoated woodfree paper is more versatile in its final applications than other forms of printing and writing papers, and continues to display a stronger level of resilience. Preliminary figures for April show that demand for uncoated woodfree is being less affected, although very much effective then demand for other printing papers. The year-on-year percentage drop in the domestic sales by European producers in uncoated woodfree has been around half of that for coated woodfree. The dynamism of the uncoated woodfree market in the near future is dependent, like most economic sectors, on the success of the reopening of the economy, which is believed to be happening gradually alongside plans for ending lockdowns and a return to normality, to the extent possible. The demand for office paper will be boosted, in particular, by the reopening of schools and universities, the return of employees working from home to an office environment and the resurgence of the service sectors. Demand for folio paper and reels will depend on the revival of the publishing and advertising sectors. Significant drops in demand are therefore expected in second quarter, most accurately in the key European markets and in the United States, and a gradual recovery is then anticipated until the year-end. In pulp, Navigator expects to achieve a slight increase in sales of pulp to the market, in particular, in the second quarter, in line with its budget projections. At the Figueira da Foz mill, the capacity expansion implemented in 2018, combined with reduced needs for integration in paper and the current drying capacity, will enable the Company to free up some pulp capacity for the market, in addition to sales from Aveiro mill. We believe that signs of improvement in global demand for pulp, sustained by China and a recovery in Europe. In the tissue business, the COVID-19 had a positive effect on first quarter sales, and continued business growth is expected in the months ahead, in line with Navigator's budget projections, despite predictions of a slight downturn in demand in the Tissue market, as economic activity slows, especially in the tourism sector. As previously envisaged, tissue business will enjoy a positive impact from growing output and sales, and from a more efficient cost structure combined the economies of scale. Finally, I would like just to point out that recent investments made over last years in pulp and tissue capacity have allowed the group to envisage diversification, and we expect that during the most critical period of this pandemic, March to June, the increase in this 2 businesses will allow us to mitigate the impact felt in the uncoated woodfree business. The uncoated woodfree business world is a resilient and soft business, of course, but is not immune to the extraordinary situation we are currently realizing. Thank you very much.

[Joana de Avelar Pedrosa Rosa Lã Appleton]

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

[Operator]

[Operator Instructions] The first question we have is from the line of Joao Pinto from JB Capital Markets.

[João Filipe Pinto, Associate of Equities Research Portugal]

The first one on paper volumes, how much can we expect them to fall in the second quarter, could you give us some indication of the magnitude, 30%, 40%? If you could leave us some comment would be great. Secondly, what's your view on the inventories level of your clients right now? So they remain low and once the economy returns to normality do clients have to purchase? And following this, as lockdowns have started to ease, are you already seeing the initial signs of an increase in the order book for the upcoming months? Finally, my last question on the dividend. Will you consider the possibility of reserving to this topics later in the year? I mean, once there is visibility in the market.

[Joana de Avelar Pedrosa Rosa Lã Appleton]

Okay. Joao, thank you for your questions. I would ask you if you can repeat them, sorry, because we have some issues on the line. So if you can go over them again, I believe you started with the paper volume question. So if you can please rephrase the question again.

[João Filipe Pinto, Associate of Equities Research Portugal]

Yes. So the first question is on paper volume. How much can we expect them to fall in the second quarter? Some indication about the magnitude, 30%, 40%? Just some color.

[António José Pereira Redondo]

Can you please be so kind to repeat all the questions because the line is dreadful and…

[João Filipe Pinto, Associate of Equities Research Portugal]

Okay.

[António José Pereira Redondo]

We got the first one, but if you also kind to repeat the other ones, please.

[João Filipe Pinto, Associate of Equities Research Portugal]

Okay. The second one is your view on the inventories level of your client to say they remain low? And once the economy returns to normality, will clients have to purchase? And following on this one, as you are seeing that more [indiscernible] are starting to lease, are you already seeing initial positive time as an increase in the order book for the upcoming months? And finally, my last question was on the dividend. Will you consider the possibility of returning to this topic later in the year once you have visibility in the market?

[António José Pereira Redondo]

Okay. So I'm going to give you some elements for the first questions. And I will ask then my colleagues to complement my thoughts, okay? So regarding paper volumes, our view is that paper volumes for the year rather than for the second quarter, will probably drop not far from 15%. So the drop in 2020 vis-à-vis 2019 will, unfortunately in the main markets, Europe and USA, we expect to be around 15%. Is -- More difficult to comment quarter-by-quarter, but we expect the figures on the second quarter to be worse than in the third and the third will be worse than on the fourth. Total for the year about 15%. On the inventory levels of our clients, we do believe that the inventory levels, as we speak, at a very high level. Churns, we have developed a set of new tools, and I would say, innovative tools, to help our clients to sell more speedy our own products, reducing the inventories of our own products in order to be able to restock again in the next to come. Signs of the initiative of -- initial positive order book flow. Yes, we saw them. We saw them for about 2 weeks now, including this week, although we expect things to go up again, soon. We cannot forget that we are now in the period of Ramadan, the festivities after Ramadan, so all the markets outside the Europe and USA, are at a quite low level. We expect that to pick up significantly after the end of the festivities. So our expectations is that the order inflow will gradually return to more adequate levels. In spite of that and to make sure that we don't put more paper into the pipeline, we can stock through the pipeline, we have decided to extend the reduction of capacity for another month. Before moving to the fourth question, which is of a different nature, I will ask my colleague Joao Paulo Oliveira, if he wants to add something on these 3 questions. Joao Paulo, please?

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

Well, I think you gave the answers that are known to us at the moment. So nothing to add. Thank you.

[António José Pereira Redondo]

Okay. So if I now move to the dividend question, I will also give some elements of answer, and I would like to Fernando to complement my thoughts. The first thing that I'd like to call your attention to is the fact that we are living times of great uncertainty. And these times of great uncertainty requires a prudent approach. We have the best way to manage uncertainty in our view is to build scenarios. And when this pandemic situation started by the end of Feb, we built several scenarios from very very stressful scenarios to more normal operational scenarios. I think we mentioned during the call that the last -- the period where we expect rates to be worse is like a period somewhere between April and June, so the second quarter, and so far, all the low adjusted scenarios, all the low stressful scenarios are not confirmed. We are following what we call our operational forecast, which is much more optimistic than the stressful scenarios. Everyone, even in the most stressful scenarios, we do believe we'll have a position to adequate pay our shareholders. So we kept that possibility that because of the uncertainty and because of the prudence, we have decided to extend the shutdowns of the machines or the reduction of capacities and entering into layoff. When we enter into a layoff according to the Portuguese law during the period of time, you are not allowed to pay dividends. And we were also obliged to change the country of our general shareholder [indiscernible]. And to make sure that the amount we call is -- referred to is past due results. But again, the situation we are having today and how we see it today, we do believe that the company will have the possibility if the shareholders asked to properly pay shareholders later on in the year.

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

I think I cannot complement much more, but to say that in our planned financial plans, we have considered the payment of dividend is for the timing is postponed, but we consider to distribute that at the end of the year. Provide that to the shareholders are set on special generating anything like in the years because the Board could distribute the results cannot distribute reserves. In that case, the reserved will be a full decision of the shareholders.

[Operator]

The next question is from Bruno Bessa from Caixabank BPI.

[Bruno Filipe Bessa, Research Analyst]

And the first one would be focused on the negotiations for the workers' career plan that in the last conference call, you mentioned that was expected to be closed during February, if I'm not mistaken, if you could give us an update on this, would be appreciated. And the second question on the -- on your cost savings plan for this year, you mentioned EUR 46 million savings. My question is, what are your estimated one-off costs in order to reach these savings. And if you are expecting any kind of one-off cost during the year, related with the adopting measures to fight the pandemic? So this will be my second question. And third question, you have canceled the dividend for this year. You already mentioned that you are under a comfortable balance sheet position if the shareholder and -- ask for a distribution of reserves. My question is, would you consider a share buyback plan during the year? This will be my last question.

[Joana de Avelar Pedrosa Rosa Lã Appleton]

Okay. Bruno, thank you very much for your questions. I will just repeat the first 2. So -- you can be sure that we have heard properly. So the first has to do with the career plan negotiations with the employee, and you want to have an update on that? Correct?

[Bruno Filipe Bessa, Research Analyst]

Right. Yes. That's correct. The second one. If you are expecting any kind of one-off costs related both with the cost savings plan that you are mentioning for this year or with any other measure that you are adopting to fight the pandemic during the year?

[Joana de Avelar Pedrosa Rosa Lã Appleton]

So you want to know if there are one-off costs regarding the pandemic of the COVID?

[Bruno Filipe Bessa, Research Analyst]

The pandemic or the cost savings.

[Joana de Avelar Pedrosa Rosa Lã Appleton]

Okay. Okay. Give us just a second. Okay. Thank you.

[Bruno Filipe Bessa, Research Analyst]

Sure.

[António José Pereira Redondo]

Thank you for your questions. I will give a few elements for the question number two. And then Fernando will answer 1 -- first question, and we'll have something on question number two. On the cost savings, so the plan of cost savings, as we try to explain is across the board, both variable costs, fixed costs, corporate costs, cost at lower sales relatively across the board. The cost of fighting the pandemic is obviously relevant from what we look to do in terms of what we did so far to that. But I will not say that this will represent any specific significant one-off costs. So it will distributed normally throughout the year. So if we understand correctly your question, there is not a specific high cost that you need to incur to fight the pandemic distributed over, particularly now, and the cost savings program is across the business. So I'll now hand over to Fernando to answer your question number one. Question number three and to add on question number two.

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

Regarding question number one, yes, we have consider that probably in February, we could close the negotiations with the unions that has normally happened, this was postponed. During March, at the end of March, both sides consider that regarding the pandemic situation it will be wiser to postpone the negotiations. The negotiations were postponed till last week. Last week, the unions asked us to come back and start again the negotiations, and we have done that last Friday. And we are in conditions to conclude. I will not say, if possible, during this semester. But at least, we have started already the negotiations after the pandemic situation we have, we agreed to postpone. In what regards the share buyback, like we have said, we have no visibility for the year. It's a tough year. But nevertheless, we have considered the dividend for the end of the year, for the share buyback, we are not considering that for the moment.

[António José Pereira Redondo]

Probably, just one point that we would like to have for question number one. A few months ago, the Head of the new Union Center in Portugal, the largest union center in Portugal, has mentioned publicly that -- what we are doing together on the negotiation within the mean of organizations that represent the workers is quite innovative in the country. So was interesting to [indiscernible] that even they have of the unions -- the center of unions refer that that.

[Operator]

The next question we have is from the line of Carlos de Jesus from Caixa Bank.

[Carlos de Jesus, Analyst]

I have some questions, if I may. Can you please provide us a little bit to your vision about working capital needs evolving in Q2 and also in Q3, but most precisely in Q2 as with the most endangered quarter? Also on pulp prices, do you see the latest charge of pulp price increases in Asia are chose to being accepted? And when do you anticipate that the same move could be implemented in Europe? And also in terms of tissue, is there any danger of stock accumulation in the At Home segment with the reopening of the economies now?

[Joana de Avelar Pedrosa Rosa Lã Appleton]

Okay. Carlos, thank you very much for your questions. I will just repeat them again. So to be sure that we have heard it properly. So the first question is regarding the working capital need, that we may have for Q2 and probably Q3? Right?

[Carlos de Jesus, Analyst]

Okay, yes.

[Joana de Avelar Pedrosa Rosa Lã Appleton]

The second question, as I understand, is regarding pulp prices. And vision of whether or not the latest charge of pulp prices are chose to be accepted in Asia? Perhaps…

[Carlos de Jesus, Analyst]

And when do you see the same being implemented in Europe?

[Joana de Avelar Pedrosa Rosa Lã Appleton]

In Europe, okay. And the third is regarding the tissue and possibility of having stock filing regarding the At Home segment. As the pandemic the has touched, correct?

[Carlos de Jesus, Analyst]

Yes. Yes, correct.

[Joana de Avelar Pedrosa Rosa Lã Appleton]

Okay. So I will give the floor now to Fernando, and he will address the first question, okay.

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

On the working capital, like we have said we are very rigorous on the conduction of the working capital. We think that by the end of the quarter, we stood at a ratio net-debt-to-EBITDA, far below 2.5 or at least 2.5. Nevertheless, like we have done, we have enough liquidity, and we are considering the clients and then the supply side conducting this with rigorously. And in what concerns inventories, we are trying to reduce those inventories especially on the pulp side.

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

Hello. So regarding pulp prices, the jury still out there regarding what's going to be the outcome of the recent announcements of price increases. So we'll see what will happen over the next few days, few weeks. So we do not exactly know what will happen. We see fundamental strong, but later in the second half of the year for price increases in pulp. Until there, more or less, you will see prices maybe not rising too much, but we will see what will happen over the next few weeks. On the tissue side, in terms of stock accumulating effort At Home, we don't see risk, we see strong demand at At Home. There was, yes, kind of anabatic peak in demand in March. But this month and the last month and the next few months, the fact that the away-from-home has been reduced and people are actually spending more At Home. We see on one side, reduction in demand in away-from-home segment and an increase in demand in the At Home segment. And so we do not have a stock accumulation in At Home in fact, we have the opposite to shorten stocks for selling to the At Home segment.

[Operator]

In the interest of time, the final question we have is from Antonio Seladas from SA (sic) [ AIS ] Independent Research.

[António Seladas, Analyst]

Three questions for me. First one is related with -- if you can share with us how is the capacity in paper shutdowns and uncoated woodfree, could you share with us the balance between supply and demand. And if there will be total shutdowns on pipeline? Second question is related with costs. The EUR 46 million, I'm assuming that fixed cost, and so they will be reduced this year and in the coming years. So they will not be there in the coming years. And the last question is related with strategy. Should we see from now on more pulp and more tissue and less paper, all this to believe is too early to reduce capacity in paper and if you're comfortable with the current installed capacities?

[Joana de Avelar Pedrosa Rosa Lã Appleton]

Okay. Thank you, Antonio, for your questions. Can I just confirm? The first one is regarding the balance between supply and demand in terms of uncoated woodfree specifically regarding the downtimes that have been announced, is that it?

[António Seladas, Analyst]

Yes, is that it? There were downtime that were structurally announced. And this -- after the pandemic crisis, we should see -- we'll see less supply or not?

[Joana de Avelar Pedrosa Rosa Lã Appleton]

Okay. Can you give us just a minute, I will ask Antonio to answer the first question.

[António José Pereira Redondo]

Thank you for your question. I will try to give you elements for the first and the third question at the same time because I believe they are related. And then Fernando will comment more in detail regarding the fixed costs and the likelihood of this fixed cost program to keep on for the following years. The truth is too soon to surface in the call about what is going to happen in structural -- in the conventional market. We don't know exactly the impact of teleworking. We don't know exactly if in the future, schools will be a mixture of online and inside lectures. So yet, too soon to call. And basically, we are trying ourselves to figure out with a small market results until the end of the year, what would likely be the habits of consumers as we go further. It is also difficult to anticipate if we are -- if we think the end of the first wave and that there is the second wave so it is yet to soon to call. What we can say is probably the following. We are comfortable with our cost position on uncoated woodfree, but this only means that we have time to adjust. We obviously are looking to other alternatives of developing our own business. Pulp is the most immediate alternatives, and we actually believe we have the capability to be more present in the pulp market if needed. Tissue, yes, we still have the capability to further optimize our tissue operations. And as you probably are aware of, they are somehow related but not necessarily related to traditionally mass market and coating-free products that we already produce in some of our paper machines. Those products represented 2 years ago, less than 2% of our portfolio, and they represent now a 4.5% approximately of our portfolio. And the development of those rates will be, for sure, further strength in the coming years. So we want to play a role in the plastic substitution, and we do believe that some of our paper machines can be adaptive usually for that. So the strategy will be to continue to be as efficiently as possible in our core business and uncoated woodfree, pulp and tissue, we reported to further develop pulp if needed, the need to fund and develop tissue because we still have a ability to extract more value from the tissue market, we do believe, and we need to be adaptive in our smallest paper machines that can do -- probably are somehow related to uncoated woodfree, but not necessarily purely and contribute products. Our 2 largest machines are, we do believe very competitive and will be remaining very competitive in that coating-free arena, both in Europe and in some countries outside Europe. The supply and demand at the very moment, obviously very much effective because the production was significant cut in Europe, U.S.A. and even in Asia. So the supply demand is affected by this. We expect, as we said, for that to be restored in the end quarters. I will now hand over to Fernando, that he will make a few comments on fixed costs. Thank you.

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

And the fixed costs, like we have said in the press release, we have a saving of EUR 6 million this quarter. This saving as flat between payroll, maintenance and functional costs, mainly 50% of these savings are on functional costs. This is not a surprise because last year, we have developed a program on this, what you call ZBB. On this, we had -- on this after the COVID, we enhance our targets. At the end of the year, we expect to have a selling cost at least EUR 46 million as comparing with 2019. And this will be mainly on personnel and functional costs as this means, for instance, comparing the cost of this quarter with the last quarter of 2019 due to the savings we are measuring savings of EUR 20 million, but during the 4 quarters, the average of the sum will be EUR 46 million savings that we are expecting to achieve.

[Operator]

The final question we do is from Luis de Toledo from BBVA.

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

Just a final question on CapEx. The level you have budgeted for this year, there's EUR 70 million. Do you believe it could be sustainable for the next years, after 5 years of investments? Do you think that with EUR 70 million of investments you would be able to sustain your earnings power?

[Joana de Avelar Pedrosa Rosa Lã Appleton]

Okay. Thank you for the question. I'm sorry. I have to repeat it again. So in order to be sure that we got this well. Can you say it again, please?

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

On CapEx, the new levels you're targeting for this year, EUR 70 million. If you think that in the future, regardless of new projects, with that level of investment, you would be able to sustain the earnings powers of the company within the current portfolio of operations. On the future CapEx post-2020.

[Joana de Avelar Pedrosa Rosa Lã Appleton]

Okay. Thank you.

[António José Pereira Redondo]

Thank you for your question. So some of the CapEx that we have kept this year, obviously, we need to do it next year. But some of the CapEx that was planned for next year, we need to postpone it further. So we don't expect we expect to have a significant reduction of the planned 2020 CapEx this year. Some will pass-through 2021. But then we don't expect 2021 CapEx to be very much different from what was originally planned for the year 2020 and for -- that was actually done in 2019.

[Operator]

At this time, there are no further questions in queue. I'd like to hand back to the speakers if there's any closing comments.

[Joana de Avelar Pedrosa Rosa Lã Appleton]

Thank you. We have another question on the chat, but I believe it has been already answered regarding the dividends. So thank you very much. We apologize for the delay, and we hope you have enjoyed the call. Thank you.

[Operator]

Ladies and gentlemen, that concludes your call for today. We thank you very much for joining. And I ask you disconnect your lines. Have a great day ahead.