Navigator Company SA

ELI:NVG

Earnings Call Transcript 2020-Q3

[Unknown Executive]

Welcome to the Navigator Company conference call and webcast for the third quarter and 9 months for 2020 results. Participating in the call today are the following members of the Board: Antonio Redondo, Adriano Silveira, João Lé, João Paulo Oliveira, Fernando Araújo, Nuno Santos. As usual, we will start with a brief presentation of the main highlights of 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 addressed also through the webcast platform. Antonio will start with a comment on the main figures recorded in this period. Antonio, please?

[António José Pereira Redondo]

Good afternoon, and thank you for joining us here today. In the region, in a 21 degrees sunny afternoon. I will start by making an overview on Q3 2020. On Slide 4, please, a quarter that has initiated the recovery versus the previous quarterly periods. This has been one of the most challenging times in the group's history, and I'm glad to say that with the reopening of economies and the gradual recovery in demand of paper, Navigator experienced a significant improvement in its business during this third quarter. Our first priority has been the health and welfare of all our people. And until now, we have around -- we had around 20 confirmed cases of COVID-19 within the company. Fortunately, none of them serious. And I'm glad that all of our employees are well and back to work. We have put in place a contingency plan from the very early stages of the pandemic that has proven very effective with temperature control, hygiene and disinfection measures, mandatory use of masks and so on. The level of contamination within our mills was extremely low. The commitment of all of our employees was exemplary, and thanks to the hard work and dedication of the entire workforce, it was possible to react swiftly and efficiently. So after an estimated contraction of European and of Q3 markets of around 5% in Q1 this year and around 28% in Q2, demand in this last quarter fell approximately 10%. The U.S.A. also registered a recovery in demand, minus 19% versus minus 31% in Q2. There are 2 important aspects that I would like to emphasize. First, the recovery in demand for uncoated woodfree has been gradual and constant since the lows registered in May. Actually, September registered a fall of just 7%. Secondly, the recovery in uncoated woodfree has been much stronger than in all other printing and writing grades, a clear sign of the versatility and resilience of this type of paper. We will see this more in the trial further ahead when we look at the order info evolution in the past months. In terms of formats, the real businesses, which is more versatile in terms of uncoated woodfree application has proven to be more resilient. Contrary to the commercial wisdom, sheeted paper business, particularly for graphic use, was harvested more than office papers, with advertising and commercial printing severely affected by the crisis. In terms of pulp, the quarter was a solid quarter for volumes, even though we had less available pulp to sell due to the increased integration to paper. But we actually made a significant destocking and managed to increase volumes by 15% versus Q3 2019 and registered only 5% less volumes than in Q2. Prices, as you know, remained at minimums, even though there has been an improvement throughout the quarter. In pulp, we have seen a recovery outside Europe of approximately 7% and in paper, we have also witnessed a recovery of prices in the overseas markets from June and through September. Europe has also shown some positive signs with uncoated woodfree average prices throughout the quarter even though in a much more contained way. The tissue business reached a solid performance with strong volumes and stable prices. In the context of low pulp and paper prices, we continue to work on our cost structure acting on fixed costs but also on variable costs. We were able to record important savings due to price negotiations of raw materials, like fibers, chemicals, packaging and energy as well as significant improvement in specific consumption.We were actually increased in revenue of 20% versus Q2 2020 and an improvement in EBITDA of 36%, reaching a margin EBITDA to sales of over 20%. We managed to improve financial ratios during -- reducing our net debt by EUR 56 million. So overall, we continue to present a very solid financial situation. So if you go now to Slide 5, we have an overview of the performance of the first 9 months of 2020. When comparing periods, the impact of the pandemic remains very evident. Overall, turnover declined 18% year-on-year and EBITDA, 30%. Still even among an extremely adverse period, as what we experienced, Navigator was able to deliver a profit margin over 30%. One of the other aspects worth mentioning is a high generation of cash flow, which the group wants more as proven to be capable of. We reached EUR 170 million of free cash flow at the end of September, and using each and all of the possible levers, we have delivered EUR 45 million more than in the same period of 2019. We have maintained a strong balance sheet with net debt standing at EUR 644 million, and our net debt-to-EBITDA ratio remains at 2.28x. If you take a look in more detail at the performance evolution of the last 5 quarters, on Slide 6, we can see clearly the impact of COVID-19 pandemics on Q2 and rebound initiated on Q3 2020. Uncoated woodfree Q3 volumes recovered 45%, and we were able to record a significant improvement in turnover. Volumes in the pulp and tissue business remains strong. Overall performance is improving in spite of a significant deterioration in pulp and uncoated woodfree prices. Paper price declined about 8% against Q3 2019 and over 2% against Q2 2020. Pulp prices fell 19% year-on-year and 6% versus Q2 2020. Even in this backdrop, EBITDA totaled EUR 70 million and operational cash flow approximately EUR 66 million. I will now ask Fernando to comment on the EBITDA evolution year-on-year on Slide 7.

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

Thank you, Antonio. EBITDA in Q3 was negatively impacted by a decline in pulp and paper prices. Our net pulp prices were affected by [indiscernible] Euro exchange rate evolution over the quarter, and paper price reflects market pressure as well as product mix change, more low end products and the exchange rate fluctuation as well. Our average tissue price evolved positively over the quarter, reflecting an increased rate of converted products in our product mix. On the positive side, we registered a significant role in uncoated woodfree volumes more than 20 -- 45%, while pulp decline -- while pulp volume stood slightly below Q2 when we achieved the maximum volume sold since 2009. And tissue increased 5%. As you can see, the positive impact of increase in volume double the effect of declining price. Costs evolved positively over the quarter, namely variable costs, wood, chemicals and packaging. This reduction was essentially due to specific consumption optimization and renegotiation of raw materials. When comparing Q2 EBITDA year-on-year in Slide 8, decline in prices is main negative impact on EBITDA. All of our products suffered a price decline year-on-year, especially pulp, as we have already mentioned. Paper prices was more resilient, but nevertheless, registered a reduction of 8% in Europe and was impacted by even lower prices in overseas markets and by product mix as well. Exchange rate also impact negatively in paper prices. We have to take into consideration that comparison is hampered by several prices increase in uncoated woodfree market achieved during 2019, which was actually the highest price since 2003. Issue price just slightly. In terms of volume, uncoated woodfree declined 7%, whereas pulp volume increased by 15% and tissue ever moderated variation. Cost optimization efforts are also clearly visible when comparing Q3 2020 and Q3 2019, both in terms of variable and fixed costs. On the variable cost front, external fiber, wood and chemicals evolved positively. And on the fixed front, the main achievements were releasing and function costs. Now looking at the results for the first 9 months on Slide 9. EBITDA totaled EUR 210 million versus EUR 300 million for the same period last year. In Q1, we reached EUR 88 million, in Q2 EUR 52 million, and in the third quarter, as I stated previously, reached EUR 70 million with a good recovery in terms of volumes but still feeling the negative impact of low prices. For the 9 months period, network price remain at a very low level, expressing the current market downward price pressure. Paper and tissue kept showing a higher resiliency but will still impact negatively. The declining prices were partially offset by the sales volume growth in pulp and tissue and also by cost savings.The main factors optimizing variable costs were the cost of external fiber, thanks to falling price for long and short fiber and to reduction in specific consumption. In spending on wood, due particular to lower specific consumption in the period as well in lower cost for chemicals, essentially due to lower prices for certain inputs and reduced consumption mainly for bleached. I would like to stress that the significant work has been done to reduce levels of specific consumption, for instance, taking advantage of the slower path of production despite instability that this shut down and change in operating speed can cause. We also achieved some gains in renunciation contracts of raw materials and subsidy materials. On the fixed cost front, we managed to achieve a reduction of nearly EUR 30 million, below the level recorded in the same period in 2019. Nearly half of it in corporate functions with positive evolution in personnel costs and functional running costs. I will now ask Nuno Santos to give us a few words on the market conditions. Nuno, please.

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

Thank you, Fernando, and good afternoon. On Slide 11, we have an overview of pulp and paper price evolution over the last 6 years for the main price indexes in Europe, a 4B copy and hardwood kraft pulp in euros. With market discounts increasing in recent years, prices are probably as low as in the start of the century and in 2009. Recently, with the devaluation of the U.S. dollar versus the euro, European producers have seen further erosion in their markets. Paper price is also more resilient, are also under pressure and are down 7% year-on-year. So going over to Slide 12, we have a brief overview of the pulp market. Up until now, over the first 8 months of 2020, worldwide pulp demand grew 11% versus same period in 2009 with the strong growth in China, up 20%, compensating the slowdown in Europe and Africa and in Asia, excluding China. On the demand side, we have seen producer stock rebalancing, leading to a decline in short fiber inventories, which stands currently at 38 days below the 5-year average of 44 days. Pulp demand was supported by sustained increase in tissue and paper consumption in China. A continued decline in imports of recycled paper and by restocking of buyers. Estimates point that Board inventories in China stand at high level, estimated at around 1.7 million to 1.9 million tons, so indicating that inventories have shifted from producers to buyers. The benchmark of bleached hardwood kraft pulp in dollars per ton remained stable at $680 per ton during Q3 -- the third quarter in Europe. But fell 25% year-on-year. As I just referred with the recent devaluation of the U.S. dollar versus euro, prices in euros have declined almost 6% during the third quarter versus the second quarter with many pulp producers selling now below marginal costs. During the month of August, soft wood pulp traded in Shanghai futures rallied 10%, using a bit afterwards. The softwood price has now increased USD 30 to USD 40 per ton in China. Hardwood is expected to follow positive trend during the fourth quarter, first in China, which we are now seeing and then in Europe. I would like to stress that we have already seen some improvements in both prices outside Europe during the third quarter. We believe there is a positive trend, and we have already witnessed a number of relevant producers announcing price increases on November.One of the main reasons we believe hardwood price should see some upside in the current gap between hardwood and softwood prices, which stand at a maximum of USD 150 per ton, favoring softwood substitution. Finally, on the supply side, the pandemic situation has led to maintenance postponements from second quarter to the second half of this year. After some maintenance stoppages in the third quarter, more scheduled stoppages are expecting now in the fourth quarter, impacting around 420,000 tons in Latin America. I will now ask João to comment on the paper market.

[Unknown Executive]

Thank you, Nuno. Going to Slide 13 and looking at the end as, estimates point to a reduction of roughly 20% increasing and rising. We can closely increase performing better than other grades with demand falling 15% year-to-date orders. This compares with a decline of 19% in coated woodfree and in 22% in mechanical paper. So in Europe, the estimated accumulated reduction of in uncoated woodfree is 14% year-to-date August, and in the United States, the figures point to a drop of 21%. But we have seen a gradual and consistent recovery of uncoated woodfree demand during Q3. After the lows registered in May, there has been a continuous improvement in demand in Europe, with Q3 falling 10% comparing compared to phase very to the 28% decline in Q2 and weak September actually recording a decline of just 7%. The recovery has also been significant in U.S.A. with demand falling 19% in Q3 versus 31% in Q2. China actually registered almost flat demand year-to-date of uncoated woodfree. All uncoated woodfree format showed signs of recovery, with sales of reels proving the most resilient since the start of the pandemic. On the supply side, we have also seen announcements of permanent capacity closures. In uncoated woodfree, some 0.8 million tons will exit the North American market, the sales in Indonesia, and in Europe, we have seen some closures and conversions announced in printing and writing operators for coated and newsprint. When looking at paper prices, the average benchmark index for the first 9 months of 2020 fell by roughly 7% versus the same period in 2019, falling around 2% from Q2 to Q3 in 2020. If we turn to Slide 15, it is clear the performance of uncoated woodfree versus the printing and writing grades. Uncoated woodfree inflow year-to-date has been recovering clearly and consistently from the lows of April and also faster. Order inflow for uncoated woodfree in Q3 stood at 90% of order inflow in 2019; and in the last 4 weeks, we have seen that order inflow improve to 96%, once again, performing better than other grades. Let's go over to Slide 15 with the group's paper and pulp performance. The gradual recovery in the market, coupled with a significant effort at the commercial front, has translated into a significant increase in sales output in Q3, plus 45% versus Q2 to 336,000 tons with the strong performance recorded in Europe. In recent months, Navigator has adopted a large package of innovative measures to support its distributors and their sales team in different parts in Europe and around the world. This was successful in, again, achieving a significant increase in the order book. The significant sales effort resulted in healthy order books over the third quarter with orders equivalent to 26 days' output at the end of September, in line with levels recorded in previous years. This also compares favorably with Navigator's competitors and have enabled it to gain ground in market share against its European competitors up to 2 points versus 2019. With its machine running at full capacity since July, the company managed carefully its stocks and ended the third quarter with a level much the same as in previous year, representing around half the stock of its European rivals. Paper turns in Q3 stood at EUR 238 million, representing a 36% increase versus Q2. In terms of year-to-date September 2020, paper turnover declined 22% year-on-year. Sales value in the group uncoated woodfree business was hit by the downward trend in paper prices as we have just seen. It should be noted that the reduction in the group's sales prices in Europe was in line with peaks and that the average price outside Europe was brought down by exchange rate trends and the sharp downturn in prices in those markets. So now to comment on the pulp performance, I hand over to Nuno again.

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

Thank you, João. Our market sales volume year-to-date in September reached 297,000 tons. And this was actually the highest level since 2010 after we started the fourth paper machine in Setúbal and the site became fully integrated into paper. In the third quarter, even after we started operations in all -- we started operations in all of our paper machines, so with less available pulp for the market, we managed to sell 104,000 tons of pulp, destocking and taking advantage of market opportunities in tissue and packaging. Sales turnover reached EUR 117.5 million in the first 9 months, declining 3% year-on-year amidst the context of low price environment with prices falling 25% versus last year. Let's now take a look at the tissue performance on Slide 16. Our sales volume stood at 79,000 tons in the first 9 months, reflecting a 7% year-on-year increase. The group's tissue business was able to react positively to the opportunity offered by the peaking event triggered by COVID-19 for products in the at-home segment. But it should also be noted that the away-from-home segment was quite affected by the COVID-19 situation, and these products are aimed to a large extent at the record channel, hotel, restaurants, cafes and at companies, which were severely affected by the lockdown measures implemented from mid-March onwards.During the third quarter, this impact was particularly relevant due to the strong reduction of tourists in the Iberian Peninsula where the group places most of its sales to this sector. Still, the group made a significant effort, both industrially and commercially with just its production, the market needs and the growing demand for the at-home segment and succeeded in increasing sales of finished products by around 9% to 61,000 tons. As you can see, the weight of consumer products in our sales for tissue increased significantly versus the same 9 months last year, 44% in '19 -- 2020 versus 35% in 2019. The group recorded an increase in tissue turnover of approximately 5% to EUR 106.7 million. The sales mix improved in relation to the same period in the previous year, with the proportion of finished products rising to 77% as compared to 75% in 2019. In terms of industrial activity, we had a good performance in the period of both the Aveiro and the Vila Velha Rodão mills, and we managed to improve our fixed costs -- reduce our fixed costs. We are pleased to acknowledge that the EBITDA margin for the tissue business has improved significantly over the previous year and is now clearly closer to what we believe we can achieve in this business. I will now hand over to Adriano, who will comment on the CapEx side.

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

Thank you, Nuno. On Slide 17, we have an overview of the CapEx in the first 9 months. As previously announced, Navigator decided on a substantial review of its CapEx plan for 2020. From investments initially estimated at EUR 158 million to approximately EUR 70 million. Considered on a cash flow basis, this figure was further revised down to approximately EUR 55 million. It should be noted that the CapEx that will be report on the accounting basis is expected to stand at approximately 90. As a result, capital expenditure report that this first 9 months stood at EUR 70 million. The comparable amount in the same period in 2019 was EUR 119 million. This amount includes a figure of around EUR 47 million in maintenance, efficiency improvement and asset replacement; and EUR 23 million in several environmental projects. More than 80% of investment spending in 2020, this relates to maintenance and projects that start in previous years. That, we could not stop. On the major investments that started in the previous year, is our biomass boiler at Figueira da Foz included in governmental projects. I will ask João Lé to do the next comments, including this biomass boiler projects.

[João Paulo Cabete Gonçalves Lé, Member of Executive Board & Executive Director]

Thank you, Adriano. If we turn to Slide 18, we have a few details on that project. As you know, this is the first and most relevant step that the group is taking towards the goal of achieving carbon neutrality of its industrial facilities by 2035. This project, which represents a global CapEx of EUR 55 million will allow to reduce CO2 emissions by 20% for Navigator as a whole and the Figueira da Foz mill. We'll have steam and the electric energy produced 100% from renewable sources. The project is currently being finalized and has already entered the testing period. We expect the ramp-up to be finalized by Q2 2021, and we estimate that we will be able to achieve significant savings in costs with this new boiler, mainly through the reduction in the budgets of our natural gas and maintenance costs. The plan to achieve carbon neutrality by 2035 was launched last year and has 4 main goals: first, to reduce use of fossil fuel emissions with the implementation of cleaner technologies; second, to reduce -- the reduction of specific energy consumption, less 10% from 2015 until 2025; third, achieve 100% of electrical energy production from renewable sources; and fourth, carbon offsetting of unavoidable carbon emissions. Energy and climate is 1 of the 9 material topics defined by Navigator in the sustainability agenda for the period 2025. I will ask Fernando to make the next comments. Fernando, please.

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

Thank you, João. On Slide 19, we have an overview of the free cash flow evolution, which was particularly strong in the period and reached EUR 170 million. This compares to a free cash flow of EUR 125 million in the first 9 months of 2019. It should be recalled that the year starts with free cash flow generation of EUR 50 million in the first quarter, and the strong growth was recorded after the early impact of the pandemic, EUR 99 million the second quarter and EUR 56 million in the third quarter. This was achieved through highly effective management of working capital, which combined healthy capacity to collect customers' accounts and continued care in managing suppliers, where extension of certain payment periods was coordinated with the provision of financial solutions to support the liquidity of our partners. There was also a reduction in stocks in regards to beginning of the year and to the end of second quarter. Another strategic factor was the more moderated path in implementing our CapEx plan. This strong free cash flow generation translates into a significant reduction in net debt over the period. And as you can see, on Slide 20, at the end of September, net debt totaling EUR 644 million, excluding the impact of IFRS 16, representing a decline of around EUR 30 million over year-end 2019 and EUR 32 million year-over-year. The net debt EBITDA ratio remains at a conservative level of 2.3x, excluding the impact of IFRS 16 once again. The group debt profile is referred to on the next slide. Our short-term liquidity was increased to EUR 345 million by the end of September. We have already repaid some of the short-term lines contracted in March and April and during the third quarter. The group contracted several growing operations and in order to refinance debt maturity in 2021. In line with well-established policy, this operation we're planning in advance to the extent considered appropriate and did not entail in the end funding. Instead, the new facilities are coordinated with the actual maturity date of the increasing debt, lowering financial costs. This increase and prolongs the group's liquidity situation has been appropriated in present context. Our average cost of debt remains very competitive at 1.62%, and most of our debt has a fixed rate. We believe that Navigator maintains a strong financial standing. Now we'll now hand back to Antonio for the wrap-up.

[António José Pereira Redondo]

Thank you. Thank you very much. So going to Slide 23, we have an overview of the main developments occurring in Q3. Due to the reopening of economies and the gradual recovery in demand for uncoated woodfree paper, Navigator experienced a significant improvement in its business during the third quarter. By quickly adapting to market changes and consequently stepping up our sales efforts, we were able to register a significant improvement in sales volume. We achieved strong operational performance in pulp and tissue businesses and continued our boost action to control costs. Unfortunately, both pulp and paper prices remained under pressure and continue to impact negatively on our margins. Still, we recorded a significant improvement results over the previous quarter, increasing EBITDA by 36% and continue to generate a strong free cash flow. We have ended the quarter with a strong financial position, as mentioned by Fernando. Let's go on Slide 24 with an update on our measures to mitigate the impact of the COVID-19 pandemic. As mentioned in the beginning, first and foremost, our priority was the health and welfare of all our people. And we are proud to say that the quick actions taken very early proved to be effective and the level of continuation in our mills was extremely low. Also, the commitment of all our employees was exemplary. And thanks to the hard work and dedication of the entire workforce, it was possible to react swiftly and efficiently. Regarding the 4 decisive actions we undertook to protect our business: on the supplier side, we continue to provide financial solutions to support the liquidity of our partners. We increased our short-term liquidity to EUR 345 million in cash and cash equivalents and have additional unused credit facilities of EUR 95 million. We have already started to renegotiate the debt maturing in 2021, almost 80% of our structural debt, and we have managed to do that with -- while gaining flexibility as the new facilities are coordinated with actual maturity rates of the existing debt. These increases and prolongs the group's liquidity situation as deemed appropriate in the present context. We have revised our CapEx for 2020 in a very significant manner. We do not expect a cash out of more than EUR 55 million. The CapEx that will be reported on an accounting basis is expected to stand at approximately EUR 90 million. Of this amount, we registered almost EUR 70 million of CapEx in the first 9 months but over 80% of those refers to maintenance and projects began in the previous years. We have also achieved a significant reduction in fixed costs of circa EUR 30 million versus the first 9 months of last year, proving that we are committed to strong cost optimization. We also achieved a very meaningful reduction in our variable costs of around EUR 44 million in what was a global effort across different areas, and through excellent teamwork in order to contribute to a significant reduction of specific consumption, taking advantage of the slower pace of production despite the instability that these shutdowns and changes in operating speed can cause. We also made relevant progress in renegotiating contracts for all our raw and subsidiary materials. Finally, a few words on the outlook for the rest of the year. We saw a progressive recovery in the uncoated woodfree business in Q3, and Navigator's performance reflects this market improvement. Although the risk of a second wave of the pandemic persists, with the extent and impact still difficult to estimate, the group has registered in recent weeks some positive signs, namely an even greater dynamism in the [ jobs and ] flow from the European market, which allow us to predict that the market recovery will continue in the fourth quarter. The order book at the beginning of October increased to almost 30 days, but the entry of orders outside Europe and U.S. is still at a very early stage. In the pulp business, prices remain at very low levels and, in some cases, below marginal costs both in Europe and in China, and certain factors may contribute to an improvement in prices during the fourth quarter. The group has already witnessed a recovery trend throughout the third quarter in pulp prices outside Europe in September mainly, standing about 7% above July prices. Current price gaps between long and short fiber at maximum levels close to USD 150 per ton, mainly to positive pressure on short fiber prices. And also a number of maintenance shutdowns are scheduled, in particular Latin America, having been originally planned for the second quarter and estimates point to this removing approximately 420,000 tons from the market. We have already seen some hardwood producers announcing price increases for the beginning of November, and we believe we should see an improvement in pulp prices in the short term. In the tissue business, after positive performance in the first 9 months, there is some concern about the possible contraction in demand, especially in the away from home segment. For the fourth quarter, some days of maintenance stoppage are scheduled in the pulp mills -- in some of our pulp mills and in some of our paper machines. The annual maintenance stoppages will also take place in some of our tissue paper machines. We will, of course, continue to work on all aspects that are within our control. We will remain focused on our cost structure control and our capital expenditure. We will maintain a strong financial position. Industrially and commercially, our teams have done an amazing job throughout the year, and we expect to be able to continue to deliver a good performance in the future. With a geographically diversified business, Navigator's uncoated woodfree product mix continues to present a strong versatility and a higher resilience when compared to other printing and writing grades. Thank you.

[Unknown Executive]

Thank you, Antonio. This ends our comments for today. We are now open for the Q&A session.

[Operator]

[Operator Instructions] And the first question we have from the phone lines comes from João Pinto of JB Capital.

[João Filipe Pinto, Associate of Equities Research Portugal]

I have several. The first one on dividends, you said previously that you expect it to arrive at the end of the year in a healthy position to distribute dividends. Do you maintain this view? And what can we expect on this front in the short term? The second one, this difference that you mentioned between CapEx in accounting terms versus CapEx in cash flow terms in 2020, should we expect the difference to be a cash outflow in the beginning of 2021? My third question, regarding UWF paper prices in Europe, do you expect them to fall more, to correct more in the near future? Or you believe you are reaching support levels? And finally, if I may extend this question to pulp prices, we understand that the spread is high versus long fibers. However, what are triggers that could lead pulp prices upwards in the short run in your view?

[Unknown Executive]

João, thank you very much for your questions. So because there were a number of questions, I will just go over them to see if we have everything -- if we have -- do note of everything. So the first question is regarding dividends. The second would be around the CapEx and the cash -- the possible cash outflow for CapEx at the beginning of 2021 or [ for ] 2021...

[João Filipe Pinto, Associate of Equities Research Portugal]

The accounting and cash flow CapEx in 2020.

[Unknown Executive]

Yes. Okay. And so the third one is regarding the uncoated woodfree prices and whether or not we see still a downward trend in Q4, correct?

[João Filipe Pinto, Associate of Equities Research Portugal]

Yes.

[Unknown Executive]

And the last one is regarding pulp prices in what would be a possible lever for increasing prices in the short term.

[João Filipe Pinto, Associate of Equities Research Portugal]

Yes, about triggers that could lead to higher pulp prices.

[Unknown Executive]

Okay. Okay. Thank you. I will now hand over to Antonio.

[António José Pereira Redondo]

Thank you, João for your questions. I will give you some insight for the first question. Then Fernando will answer the second; João Paulo, the third; and Nuno the fourth; and if necessary, I will wrap up again. So regarding dividends, you probably remember from our previous discussions that amidst the COVID-19 pandemic, we have suspended our dividend distribution in May for the sake of approvals and then also after, we use the layoff measures associated with the production stoppage of some of our paper machines. However, we have said that -- we have said previously that even under the most adverse scenarios regarding the impact of the pandemics, the company should maintain the ability to distribute reserves. After these 9 months of activity, and as you can -- saw from the Q3 results just published, Navigator confirms that it is in a comfortable financial position to adequately remunerate its shareholders. An initial distribution of reserves on top of what was already produced in January might be considered until year-end, as long as there is a proposal from the shareholders on that regard. Therefore, such distribution to occur, the companies to organize a general shareholders' meeting requested by the Chairman of the assembly upon the request of the shareholders. Thank you.

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

On what concerns the CapEx, the answer is easy. It's yes, there is a difference between the accounting and the segment. In cash terms, this will be enough flow in 2021 or at the end of the year.

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

Regarding uncoated prices in -- uncoated woodfree prices in Europe, we don't expect prices to go down more. So there was even an announcement last week of a price increase by a company.

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

So regarding pulp prices. We see several factors that should help lead to a recovery in the hardwood pulp prices. So first, on the demand side. As you know, the Chinese economy is growing and is recovering strongly. And this helps. It's one of the most important demand centers for pulp. We also see tissue and printing and writing recovery. And so this also helps on the demand side. Also, as I mentioned earlier, the gap between softwood and hardwood also pushes and increases demand for hardwood. The price gap between softwood and hardwood is now historically very high at $150. Historically, it's been around $90, $100, and so it's -- pushes for substitution. Also, this is on the demand side. On the supply side, we are expecting some stoppages in some pulp operations and pulp plants, especially, as I said earlier as well, from some delayed stoppages from the first half of the year. Also, still on the supply side, prices are, in fact, too low and some pulp producers are operating with negative cash margins. So sooner or later, they will stop producing with negative crush margins or prices will go up. And last, the U.S. dollar devaluation over the last few months will also push for a correction in prices. So there's a lot of factors, both on the demand side, on the supply side that will lead, hopefully, to a gradual recovery of pulp prices in hardwood.

[João Filipe Pinto, Associate of Equities Research Portugal]

That was very clear. Just one follow-up if I may regarding the UWF prices. The price hike that you mentioned, can you say the amount -- is that in Europe?

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

Thank you. No, we cannot explain the amount, but we can say it was significant. And as it was mentioned, it was very mild. We are comparing the end of Q2, beginning of Q3 with September, was very, very mild in Europe but was significant outside Europe. But no, we cannot make specific comments on the quantities -- on the amounts.

[Operator]

The next question comes from Carlos Jesus of Caixa Bank.

[Carlos de Jesus, Analyst]

I had another question concerning dividends, but that was already answered. My next question was concerning costs. Can you know to what extent do you believe that the current cost reduction or the cost reduction that you implemented in the last quarters can be considered permanent going forward?

[António José Pereira Redondo]

Thank you for your question, Carlos. As it's easy to understand, what we have done this first 9 months of the year was extremely tough on costs, obviously, in some way, helped by the full environment that we have around us. So we are going to fight to make sure that a very good part is going to be largely sustained but obviously, by no means, we can guarantee that all is sustained. I can give you a very easy example. We obviously saved a lot in traveling and accommodation because the majority of our customers were unable to accept the visits. And I must say that we were recognized to be the very first European paper maker on the street from early June visiting customers. But obviously, we want to -- as soon as this nightmare disappears, we want to go back with all the team on the streets, and of course, travel and accommodation will increase.

[Operator]

We now have a question from Antonio Seladas from ASI Independence Research.

[António Seladas, Analyst]

I have 3 questions. First one is also related with fixed costs. I think that year-to-date, you save EUR 30 million as far as you mentioned on the presentation, but I think that the target was higher than this, so EUR 40 million, EUR 45 million. So if you can elaborate on this. And in this case, fixed costs should we understand as permanent? Or it should be included in traveling costs, as you mentioned? So just to know if this kind of fixed cost will be -- the reduction will be permanent or not. The second question is related with capital spending for next year, if you can share with us what are your intentions. And the last question is related with something that everyone is talking about. The permanent decrease on the uncoated wood free demand. So you mentioned that 7% -- minus 7% demand in September. So if you can share with us, if this 7% is something that will be reference levels or if you believe that the figures could be even lower than this one 1 or higher, so minus 5, minus 3, minus 2.

[António José Pereira Redondo]

Thank you, Antonio, for your questions. I'm not sure if I fully understood the question related with fixed costs and how far is this different from the previous question. So I'm going to give you some elements of answer, and then Fernando will develop further, mainly if I miss the question that you have raised. So yes, in this, we have fixed a very, very, very ambitious target for the full year. And we are not yet there in spite of the EUR 30 million that we have said so far. We are -- we still keep battling to achieve the target by the year-end, is not impossible, although it's harder. It's not impossible to achieve that target. And we have used and we are using several levers to go on that direction. On top of the fixed costs. We have done a very big job that continues as well on the variable costs. So we took as well a significant amount of variable cost out of the equation. In the first 9 months of the year, for -- if we consider the same volume of production, which obviously we didn't, but considering the same volume of production to take out the volume effect. We have achieved around EUR 44 billion of variable cost decrease, mainly by being more efficient using our resources by changing the recipes of our products and by renegotiating the contracts with our suppliers. Regarding fixed costs again, and I'm trying to go back to the question I've answered before. We do believe that we will fight to make sure that a lot of those costs will be permanently cut, but obviously, it's not possible to permanently cut costs in the same amount that we had this year by the reasons I've explained before. This year was very specific, and we expect next year to be different from this. So some of the cost, I gave the example of travel and accommodation for our sales team, just as an example. Those are costs that, obviously, we can't and we don't want to cut in the future because we want our people to be in the street. Fernando, do you want to add something?

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

Yes, I can. The first thing is our goal, EUR 46 million is for the year. This means that at the end of Q3, we have EUR 30 million, and we are at EUR 10 million of the initial planning that we have made. Normally, the last quarter is heavily imposed by annual contracts, revisions and things like that. This means since the beginning, we know that the Q4 will be the challenge one. Nevertheless, we are EUR 10 million a year of our initial expectation for this time. In addition, I want to add 3 things. These fixed costs are compounded by functional costs, corporate costs, let's say, in this way, maintenance and payroll. On the payroll side, we know that we can maintain -- cannot maintain this for the next year, or at least we need to substitute, for instance, for 2 reasons -- 2 main reasons. One, it's -- we have applied for a layoff. On the layoff, we have some savings that we'll not expect to have the same savings next year. The second item is what we call the premium. We have announced agreement or what we call it gratification for the last months of this year, but it's not compared with the premium that we usually pay to our employees because we have some EBITDA levels. We have some commitment, and we are below from the EBITDA levels that we want to achieve at the beginning of the year as planning our budget. This means that this will be much lower than in prior years. There are some amounts that we cannot maintain. And fortunately, because that will demonstrated, the company is in good path and we are having much more higher EBITDA than this.

[António José Pereira Redondo]

Regarding your question #2 on CapEx. So again, obviously, this year, we have a very, very significant cap on CapEx or, if you will, postponement of CapEx programs that we consider to develop. As it was expressed in the presentation, the CapEx in accounting terms, it will be around EUR 90 million. 80% of that -- over 80% of that refers to CapEx initiatives in the previous years. So we are now revising our CapEx plan for next year and the following years. You probably remember we had a CapEx of over EUR 150 million -- between EUR 150 million, EUR 160 million in 2019, which actually was originally our CapEx plan for 2020 as well. So the cap that we have performed is quite significant. And we are working under a scenario for next year, for the next few years that we will not go back to the levels of CapEx that we had in 2019 and originally planned for 2020 because we believe that the market will be relatively better but still relatively difficult in the near future. But obviously, we need to do more than what we did this year. So it will be somewhere between what we are going to accomplish this year and the level that we have been using in the last 2 years or actually '19 and then for '20. Regarding your third question, on the decrease on uncoated woodfree demand is extremely hard to give you a precise answer, namely today and what the news that we are hearing by the minute regarding the situation in France, in Belgium, in Germany with lockdowns or family lockdowns, it's very difficult to anticipate. But what we expect still in Europe this year is that, by the end of the year, the decrease will be around 10%. In U.S.A., a bit more than 10%. But in the world, significantly lower than 10%. We do believe that, for instance, in China, the production is minus 0.9% or minus 1%, but the balance between imports and exports make an apparent consumption that is probably 3% or 4% positive. So the world is a bit uneven in terms of the evolution of uncoated woodfree demand. For next year, according to the sources that we typically use, the analysts, the market analysts of this sector, we are considering that at least in Europe, we might see an increase in demand of 3% to 4%, so compensating the -- partially compensating the 10% decrease that we have this year. But again, I'm just sharing public figures that everybody can have access to. And it's very, very difficult to anticipate at this very moment what is going to be the evolution.

[Operator]

We have no further questions registered on the line, so I will hand back over to the management team.

[Unknown Executive]

Okay. Thank you. We have a few written questions that we received on the platform, and I will read them over, and we'll try to answer them one by one. So the first question from [ Hame Rai ] from [ Gaesco ] is the following. Regarding the project in Mozambique, in your results, you say next year, you will start to export some wood. Can you provide us with the revenues or the number of tons that you expect for the coming years? I will give the floor to João Lé.

[João Paulo Cabete Gonçalves Lé, Member of Executive Board & Executive Director]

Thank you. I would say this is a little bit early to answer to that, so not yet, as we are still in the process of finalizing both contracts for harvesting and logistics as well as all the regulatory work, namely in what refers to forest certification, accreditation, chain of custody and EUTR regulations applicable while importing into Europe.

[Unknown Executive]

Thank you, João. The next question is from [ Laurance Alio ]. There are 2 questions. Why not find some synergies in bigger size via merger with NC. Both companies are small companies in Iberia, would make a bigger company and more profitable company for investors look at. I will ask Antonio to answer.

[António José Pereira Redondo]

Thank you very much for your question, [ Laurance ]. As you can easily understand, we obviously don't comment or give any sort of guidance on any theoretical possible type of M&A at this time.

[Unknown Executive]

[ Laurance's ] second question is the following. Does it make sense to make paper in Iberian region when Brazilian is 10x bigger and far more profitable.

[António José Pereira Redondo]

It's a difficult question to answer. But okay. So I'm not sure it's difficult because we are not sure about what paper grade you are referring to. But if you are referring to uncoated woodfree, the stealth capacity in Brazil is not 10x bigger than in the Iberia area. It's actually relatively equivalent, no matter the population in Brazil is 4x bigger than the population in Iberia. And within Iberia, we have several different uncoated woodfree players, and each of them very different from each other. What we can tell is that Navigator sits very comfortably with its main assets on the first quartile of the cash cost curve of uncoated woodfree paper landed in Europe, including the Brazilian paper that arrives into Europe.

[Unknown Executive]

Thank you, Antonio. We have the next question also from [ Rasco ]. Regarding the supply paper in Europe, can you provide us with the capacity that has been shut down this year?

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

There has been no announcement of capacity shutdown in Europe this year in uncoated wood free paper.

[Unknown Executive]

Okay. Thank you, João Paulo. The next question comes from [ Trian Capital ]. Why has uncoated woodfree paper recovered faster than the other grades? Was this because it's now furthered first? Or is there another reason?

[António José Pereira Redondo]

This is actually a very good question, and we are very thankful that you have raised that question for us to try to explain the difference in between uncoated woodfree paper and the other grades. Coated woodfree dropped in the world, about 20%. Uncoated and chemical dropped about 20%. Coated mechanical drop over 26%. So why uncoated woodfree dropped much less than that? We do believe this is mainly due to the versatility use of uncoated woodfree. Uncoated woodfree is not only office paper. It's clearly behind office paper. It can be used for printing. It can be used for commercial printing. It can be used for even packaging. It can be used for stationery. It can be used for monthly statements, so the first -- it can be used for books, for school books, for bank books, for exercise books. So the first utility of uncoated woodfree is actually its greatest protection against decrease in demand because all the other grades are typically much more focused on one single application, which is not the case of uncoated woodfree.

[Unknown Executive]

Thank you, Antonio. So we have a question -- a couple of questions from [ Degrove Petercam ]. One is related to fixed cost, and I believe it has been already answered. The second question is related with working capital. So net working capital was positively impacted -- it was positive in Q2. To what extent is this net working capital inflow normalized over Q3? Should we expect net working capital to unwind in Q4?

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

Our expectation is to have an improvement in free cash flow in the same level as Q3.

[Unknown Executive]

Okay. [ Petercam ] had another question regarding the uses of uncoated woodfree, which I believe Antonio has already answered. Finally, another question also from the group. To what extent have the discounts applied by Navigator hurt the competition? Do you expect to continue gaining market share?

[António José Pereira Redondo]

Yes, we do expect to continue to gain market share, but not necessarily because we compete on price. We do expect to gain market share because we compete on value. And obviously, we are even within this very tough moment that we are living. Once again, the fact that we have a mill-branded premium-based business proves to show our resilience. Our premium sales continue to represent a far larger majority of our sales. And our mill brands still represents circa 70% of our sales. So we do compete on value rather than on price. Obviously, under the specific conditions that we have over these last few months, we thought it was our responsibility to help our distributors to decrease their own stocks to help our distributors to sell our products into the marketplace. And yes, because of that, some discounts have been granted, but we are now actually beyond that.

[Unknown Executive]

Okay. This was the last question we had on the platform. So thank you very much, ladies and gentlemen. This ends our session for today. Thank you.