The Navigator Company, S.A. (NVGS) Earnings Call Transcript & Summary

Good afternoon. We welcome you to The Navigator Company First Half 2025 Results Presentation. [Operator Instructions] I now hand the conference over to Ana Canha. Please go ahead.

Ladies and gentlemen, welcome to The Navigator Company Conference Call and Webcast for the Second Quarter and First Half Results. Joining us today are the following directors: Antonio Redondo, Fernando de Araujo, Nuno Santos, Joao Le, Dorival Almeida and Antonio Quirino Soares. As usual, we will start with a brief presentation, and then 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 also be submitted using the webcast platform. Commenting on the main highlights, I will hand over to Antonio.

Good afternoon, and thank you for joining us today. I'm glad to be here once again and share with you our second quarter and half results. As we will see in today's presentation, Navigator again demonstrated its ability to quickly adapt to very challenging circumstances while preserving its unique competitive position in Europe. The company continued to display the capacity to respond to market dynamics through its focus on creating value, protecting its margins while continuously investing in diversification and consolidating its foundations for sustainable growth. I will begin with Slide #4, which provides an overview of the first half. The year started with rising pulp prices, largely due to constraints on supply and an upturn in market activity. However, from early April onwards, after the formal announcement of rising protectionism and the normalization of pulp supply, it triggered a sharp drop in pulp prices in China, although imports remained overall robust. This drop in China had almost an immediate knockout effect in Europe. Protectionist measures have added to market volatility, contributing to slower economic activity and the decline in consumer spending. Despite that, the slower economic activity and the decrease in consumer spending, our Packaging and Tissue segments delivered solid year-on-year growth. In Tissue, we are successfully scaling up operations and harnessing synergies with 35% growth in turnover. Volume is up 27% and mill brands are up 20% on a year-on-year basis. This is following the recent acquisitions, namely Navigator U.K (sic) [ Navigator Tissue UK ]. As key highlights, our international sales represent now 81% of our total tissue sales. In Packaging, our sales continue to show positive momentum with growth in volume, value and strategic positioning in lower basis weight. The share of low basis weight products in our portfolio rose to 46%, up from 15% in 2021. Over the same 4-year period, total sales increased by 2.6x. Navigator sales were up 8% year-on-year in the first half, thanks to a 4% rise in price and a 5% increase in volume. Measured in area of paper sold, sales were up by 9% due to the increased penetration in low basis weight segments. Navigator continues to be a world leader with its sustainability practices, keeping with Sustainalytics' list of 2025 ESG Top-Rated Companies, and ranking within the first top 5 companies in this sector worldwide. Also with a top score of A in both CDP Climate Change and CDP Forests, this international recognition has bolstered our commitment to responsible management of climate and deforestation risks. Of the more than 22,000 companies assessed by CDP in 2024, only 2% are included in the A List for achieving the highest rating in one or more of CDP questionnaires, while we actually had A in both CDP indicators. We maintained a strong financial position after dividends and strong CapEx. Our net debt-to-EBITDA ratio was 1.46x. Now turning please to Slide 5 with the main financial highlights. Turnover totaled EUR 1,019 million. The success of the diversification strategy with Tissue and Packaging segments already accounting for close to 30% of turnover, supported by commercial initiatives geared to grow in new markets, has secured consistent and stable turnover despite a macroeconomic and geopolitical situation dominated by deep uncertainty and volatility, slack global demand and significant trade tensions, which have affected the performance of the overall pulp and paper sector. EBITDA stood at EUR 216 million, down 28% on 2024. Fernando will soon highlight the main impacts on the period. In an uncertain macroeconomic environment, our EBITDA margin remains among the strongest in the paper industry, although below our historical average, but yet still outperforming once again the sector's average and well within the variance of the last 15 years. Net debt stood at EUR 676 million, up by EUR 58 million in December despite an interim dividend payout of EUR 100 million in the first quarter and the high level of CapEx over the period. I will now hand it over to my colleagues, who will walk you through the results in more detail and share some insights on how our different business areas have been doing. Fernando will start by the main impacts on EBITDA. Fernando, please go ahead.

Thank you, Antonio. Turning to Slide 6, we can take a closer look at the main impacts on EBITDA in a year-on-year comparison. As mentioned, EBITDA stood at EUR 216 million, down 28% year-on-year, with an EBITDA margin of 21%. Year-to-date results were below last year's due to lower selling price and rising cash costs, mainly for energy and chemicals, in the first quarter. Sales volumes, above last year's, driven by increased tissue capacity as from May 2024. This more than offset the slowdown in European demand for pulp and paper. As referred, the production costs show a year-on-year increase due to higher energy and chemical costs. Also, the acquisition of a tissue-free converter resulted in greater demand for external reels. Turning to Slide 7 with the quarter-on-quarter EBITDA amount. This second quarter, EBITDA stood at EUR 101 million, down 13% quarter-on-quarter, reflecting an EBITDA margin of 21%. The weakness of the U.S. dollar, combined with lower sales volumes across all segments in spite of an overall slight positive pure price impact contributed to a quarter-on-quarter drop in EBITDA. Navigator's paper price dipped EUR 14 per ton quarter-on-quarter, but including a negative foreign exchange impact of EUR 28 per ton due mostly to the weakness of the dollar, the currency in which Navigator trades in more than 100 countries around the world. So the pure price impact without the ex rate effect was actually positive. Sales volume declined quarter-on-quarter across all business segments. Pulp and Paper were impacted by the slowdown in demand in Europe as well as a more selective management of opportunities in pulp. Additionally, in early April, given the deep uncertainty surrounding tariffs, the company took the strategic decision of preventively building up stocks in the U.S. during the quarter, trimming potential paper sales in Q2 by approximately EUR 10 million with the aim of achieving higher margins in the future, which proved to be a wise move due to the increase in the final tariffs. The downward trend in production costs in second quarter, especially in energy, benefited from financial hedge contract in 2024 and already in 2025. We entered 2025 with special coverage of electricity, circa 60%; and natural gas, 25%, but no further hedging was made during until February in view of the significant price volatility. However, in March, it was possible to reinforce the coverage, and currently around 75% of electricity needs and over 40% of gas have already been covered until the end of the year. Turning to Slide 8 with debt maturity and liquidity. As Antonio mentioned, net debt stood at EUR 675 million. Debt repayment totaling EUR 217 million were made over the first half. At the same time, new long-term debt of EUR 200 million was contracted. The final terms for the new debt are linked to the attainment of 3 ESG indicators already embedded in our sustainability agenda and also align with the United Nations Sustainable Development Goals. Our average debt maturity currently stands at 4.3 years as compared to 3.5 years in December with rationally staggered repayments, more than 75% (sic) [ 76% ] of total debt tied to sustainability and 75% (sic) [ 78% ] of total debt issued on a fixed rate basis, directly or using interest rate swaps. It should be noted that despite interest rates rising across the market in relation to the last financial cycle, our average cost of financing remains low at 2.5% (sic) [ 2.4% ]. The unused long-term credit facilities currently total EUR 100 million. Since the end of the quarter, in July, we have finalized new facilities that will further extend the average debt maturity beyond 5 years while maintaining low average cost. Antonio Quirino will now comment on pulp and paper price.

Thank you, Fernando. Turning please to Slide 10 with pulp and paper prices. The benchmark index for hardwood pulp in Europe ended the first half at an average price of $1,125 per ton, which is down by 10% on the same period last year. The first half of the year was marked by a significant rise in prices, particularly in Europe. This upward trend persisted until early April when prices began to decline. The sharpest drop occurred in China, where prices fell by 16% between April and June. The index ended the first half at an average price of $562 per ton in China, which is 6% below average historical prices. Hardwood kraft pulp price index in Europe up by 16% to $1,160 per ton by the end of Q1. In the second quarter, the index continued to rise until April to $1,218 per ton and has since fallen back, dropping around 13% to currently stand at $1,060 per ton. Moving to paper. The benchmark index for office paper prices in Europe, the PIX A4 B-copy, stood at an average of EUR 1,035 per ton in the first half, which is down by 6% on the same period last year, but notably 22% (sic) [ 23% ] above the pre-pandemic average, which was EUR 847 per ton in the period of 2015 to 2019, but below 24% from the peak achieved in 2022, a level of EUR 1,358 per ton. The second quarter ended at EUR 1,006 per ton in the A4 B-copy, down from EUR 1,094 per ton at the beginning of the year. As already mentioned by Fernando, Navigator's paper price dipped by EUR 14 per ton, 1-4, quarter-on-quarter, including a negative foreign exchange impact of EUR 20 per ton due mostly to the weakness of the dollar. The evolution of product and market mix has helped to offset the decline in prices explained by exchange rate, which was, as explained, aggravated by the exchange rate. In Europe, the A4 B-copy index recorded a 4% quarter-on-quarter decline in average prices, while Navigator's average price remained stable, sustained by the preservation of substantial price premiums on mill brands whose reputation and market penetration enables the category to position its prices at a higher level. Turning now to Slide 11, please. Let's look at the printing and writing paper markets, where global apparent demand for these papers fell by 2.4% in May on the global printing and writing papers, where uncoated woodfree papers remained the most resilient, falling by 1.7% compared to a 4.3% fall in coated woodfree papers, where coated and uncoated mechanical fiber papers reported a 2.5% decrease. In Europe, apparent demand for uncoated woodfree papers fell by 8.6% up to June, reflecting a general contraction in deliveries and especially imports. Intra-European deliveries fell by 7%, while imports fell by 17% (sic) [ 19% ] compared to the same period of last year, confirming a sharp slowdown in effective consumer demand in the region. In the U.S., consumption declined moderately by 2.1% although the region remains a significant net importer in order to meet domestic demand. The heavy dependence on imports, exacerbated by the introduction of custom tariffs, is likely to push prices up even in situations of falling consumption. Notably, Navigator's order inflow, in other words, the volume of orders received during the period of the first half, regardless of the delivery of invoicing date, increased by 10% in the first half of 2025, contrasting with a 2% industry decline. Navigator also performed well in its European markets, growing 4% compared to an industry-wide average decline of 4%. As such, Navigator's operating rate rose to 87% in the first half of the year, up 2 percentage points on the same period of last year. Meanwhile, the industry rate fell to 83%, a decline of 2 percentage points compared to the first half of 2024. Navigator's performance exceeded that of our European peers, particularly between Q1 and Q2, during which we effectively maintained price levels. These developments enabled Navigator to strengthen its order intake market share by 3 percentage points globally to 27% and by 2 percentage points in the European market to reach 20% compared to the same period of last year. Nuno will give you now some more context on Pulp. Nuno, please.

Thank you, Quirino. Turning to Slide 12 with the pulp market. As Antonio mentioned, the year began with price increases. However, after April, uncertainty caused by increased protectionism, particularly the global announcement of tariffs by the new U.S. administration on April 2, and normalization of supply led to a sharp fall in prices in China with knock-on effects in Europe. The current downward cycle came on the heels of an incomplete rebound from the previous downturn. In fact, prices peaked at $600 per ton in April '25, well below the previous cycle's peak of USD 741 per ton in July '23, a 20% gap. This new drop started from a structurally weaker base and has already accelerated by more than 15% in just 3 months, as already mentioned by Quirino. The index ended the first half at an average price of $562 per ton, 6% below average historical prices. Global demand for short fiber pulp grew by 5% year-on-year up to May. This growth was primarily driven by China, which saw a significant increase of 11% and, to a lesser extent, by the Rest of World, plus 3%. In contrast, the European and U.S. markets saw demand dip by 3% and 8%, respectively, evidence of the difficulties felt across different paper markets in these regions in the period. Demand grew fastest for eucalyptus pulp, increasing by over 6% up to May. Chinese demand grew by 13%, while European demand contracted by 3% year-on-year. The widening cost differential for softwood, particularly evident in Northern Europe, highlights a structural loss of competitiveness following the disruption of access to low-cost Russian wood, which have historically supported the region's pulp industry. This shift presents a strong opportunity for eucalyptus-based fibers to gain market share through fiber-to-fiber substitution, increasingly positioning Scandinavian long fiber as niche products. On the supply side, the ramp-up of new capacity in '24 put some pressure on the operating rate. However, increased consumption and maintenance shutdowns, namely in the first quarter, contributed significantly to sustaining the activity levels of short fiber producers. China is expected to continue playing a central role in the global pulp market dynamics due to the growing importance of its domestic consumption and the new capacity plant. Between '22 and '24, around 3.7 million tons of pulp production capacity is estimated to have been added in the country with a further 2.4 million tons projected for '25, a significant expansion, which has so far largely been supported by inexpensive local wood as a result of the significant decrease of the consumption of such wood on the significantly depressed real estate market. However, the future sustainability of this relatively unexpected source of chip supply is being questioned. This is disrupting global market balances, putting pressure on prices and altering trade flows. Nevertheless, despite being substantially more expensive, international wood is expected to remain the main source of supply for the Chinese industry with significant growth projected for the coming years. Turning to Slide 13 with tissue market. European demand dipped 0.3% following 2024's 6.3% growth amid economic headwinds and softer consumer spending. Navigators tissue sales volumes, finished products and reels, grew to 119,000 tons, a 27% increase compared to the first half of '24, with sales up by 35% boosted by the integration of Navigator Tissue UK in May '24. The recent acquisition in Spain in '23 and in the United Kingdom in '24 have enabled us to balance our geographical mix and create greater resilience in our tissue business. Finished products accounted for 98% of total sales, while reels accounted for 2%. Broken down by customer segment, the Consumer segment has grown in importance and currently accounts for around 83% of sales. The Away from Home segment, wholesalers, the Horeca channel and offices, accounts for the remaining 17%. Additionally, mill brands grew by 20% year-on-year on the strength of a diversified customer base and innovative products. Dorival will now comment on the main developments in packaging.

Thank you, Nuno. Now turning to Slide 14. The global market for kraft paper, on flexible packaging applications, machine glazed and machine finished, grew by around 9%, demonstrating strong momentum. In this segment, Navigator sales grew by 8% year-on-year in the first half of the year, with improvements in both price, 4%; and volume, 5%. Measured in area of paper, sales were actually up by 9% due to greater penetration in low grammage segments. Navigator has been developing and investing in gKRAFT sustainable packaging segment, offering alternatives to fossil-based plastics and supporting the transition to renewable, low-carbon products. The gKRAFT brand has won market recognition and continues to evolve more than 309 active clients. In this regard, the final investment decision was taken to convert the PM3 paper machine at the integrated pulp and paper mill in Setúbal with the aim of directing its production towards low basis weight flexible packaging papers. This investment will boost our competitiveness in the flexible packaging market to the industry's top quartile, positioning us as a leader in this segment. With this paper machine conversion, Navigator will become Europe's fourth largest producer of low basis weight flexible packaging paper, strategically consolidating its presence in a segment with strong growth in demand and where the unique features of eucalyptus globulus provide once again differentiation opportunities. Additionally, as part of the diversification of packaging business, progress has continued as planned on the project for integrated production of eucalyptus-based molded products designed to replace single-use plastic packaging in the foodservice and food packaging market under the gKRAFT Bioshield brand. The start-up of 4 production lines was completed in the first quarter, and these are now operating around the clock, whilst work is proceeding to consolidate the marketing of 5 products for the food sector. Navigator achieved certification for food contact by ISEGA, being the first company in the world to achieve such certification on molded cellulose products. And by the end of this quarter, the first contracts were signed with major retail outlets. This innovative packaging solution is undertaking exhaustive testing under tough industrial and supply chain conditions in order to ensure it is suitable for packing lines used to process plastic materials as well as refrigeration conditions used by overall supply chain, replacing nonrecyclable PET or PE trays with packaging solutions which are 100% recyclable and compostable. Now I turn over to Joao.

Thank you, Dorival. Turning to Slide 15, please. Our ongoing commitment and investment in consolidating our responsible business has also been reflected in positive assessments from independent rating agencies. In 2025, Navigator was again classified by Sustainalytics as a low-risk company for investors, maintaining its status as an ESG industry top-rated company and reasserting its leadership in the forestry and paper sector. Placing it in the prestigious global list of 2025 ESG top-rated companies, this recent assessment consolidates Navigator's position as one of the world's best companies in terms of environmental, social and governance practices. Additionally, Navigator obtained the top score of A on both the CDP Climate Change and CDP Forests questionnaires for last year, securing it a place on the prestigious A List for both climate and forests, and consequently, its coveted leadership status. This assessment by CDP provides international recognition of Navigator's commitment and good practices in relation to risk management and deforestation. Of the more than 22,000 companies assessed by CDP in 2024, only 2% are included in the A List for achieving the highest rating in at least one of the questionnaires, with Navigator having secured 2 A scores. I will now hand over to Antonio.

Thank you, Joao. Let's turn please to Slide 16 with a wrap-up of the Q2 and H1 results. Our diversification strategy is paying off. This diversification into higher growth and less cyclical markets, such as tissue and packaging, although more dependent on end-use consumption, reinforces the company's long-term value creation and resilience. In Tissue, we are successfully scaling up our operations, expanding into new markets and positioning ourselves to further unlock long-term synergies that will drive sustained growth. On Packaging, increased penetration in low grammage segments confirm the strong appeal of eucalyptus globulus fiber for these segments, leading to a 9% increase in paper sold compared to a 5% increase in sales volumes in tons. The 9% are, as referred before, in area. Resilient results despite extremely high geopolitical instability led to significant uncertainty and severe volatility. We kept our focus on: one, core operations; two, business transformation; and three, innovation. Value-added CapEx of EUR 94 million for sustainable long-term cost efficiency, highlighting 60% value-added ESG investments and growth initiatives in the packaging segment. All this was done while keeping consistent conservative financial policies after high level of CapEx and EUR 100 million dividend payout. To be noted that in terms of safety, the first half of the year marked a significant milestone for Navigator, achieving its best result ever in the half year in frequency index, an indicator that reflects the number of accidents involving sick leave per million hours worked. A remarkable almost 50% year-on-year improvement highlights the company's strong commission to occupational health and safety driven by its mission zero strategy and continuous efforts in prevention, training and fostering a robust safety culture. Let's turn to Slide 17 with a few words about the outlook. In view of the volatility created by the trade policies of the new U.S. administration, it is still too early to predict precisely what the total impact will be on international trade. Over the weekend though, the European Union and the United States announced the principles of a trade bill, which includes a 15% tariff on European exports to the U.S. This is, of course, expected to impact our antidumping duties, though the exact percentage expected is yet to be confirmed. In the uncoated woodfree paper sector, North America as a whole, so U.S.A. and Canada, has an overall shortfall in production, a situation recently aggravated by the closure in the coming month of August of the largest mill of the U.S. third largest manufacturer, a mill of 350,000 tons capacity, further exacerbating North American structural deficit, which is estimated at approximately 800 to 1,100 thousand tons, so 800,000 to 1.1 million tons, to be more precise. It's worth to note that only a few number of companies can supply the demanding U.S. market, either in terms of capacity or in terms of technical capability. Navigator is also seeing new opportunities in Latin America as tariffs in Mexico and Colombia on Asian and regional imports create [ arbitrage ]. At the same time, a relevant Latin American operation is reportedly preparing to file for insolvency, potentially shifting market dynamics. We also know that the Chinese and Indonesian producers, subject to high antidumping duties and with relatively small volumes of sales to the U.S., are likely to play a very minor role and will not feel the need to repatriate large volume of exports. Amid the ongoing global uncertainty, Navigator is proactively strengthening its resilience through a large number of targeted initiatives under the program called Operational Excellence Initiatives 2025-2026. Keeping its focus on high operational standards, the company has launched internal programs designed to act on different fronts to protect its results. This involves programs namely for optimization and reduction of variable costs by streamlining specific consumption of raw and subsidiary materials, seeking strategic negotiations with the suppliers as well as logistics. The company will also step up its commitment to Iberian wood, promoting its further development. To be noted, the importance of AI as a means to reach new optimal operating points at Navigator is reflected in various ongoing projects. Notably, these include optimization models for fiber usage, our main raw material; contributing to a more sustainable use of wood; as well as APCs, advanced process control solutions, aimed at reducing chemicals consumption, starting by the pulp bleaching process that will be extended to all company departments in the coming periods. Developing some of these tools internally has proven to be a strategic advantage as it enables us to build deep expertise on how to best leverage available technologies, such as LLMs, in alignment with our operational needs. By combining process knowledge with data science, we create a strong bridge between technology and our core business. This approach not only enhances tool adoption across teams, but also supports more effective management changes throughout the organization. We're also focusing on improving efficiency by cutting fixed costs, namely freezing head count and optimizing running costs. Investments in reliability are also to be noticed and are already in place by speeding up implementation of the asset performance management, APM, system and executing specific action plans to build up teams and improve systems for asset management, maintenance and reliability. Alongside this, CapEx plans will be subject to careful review, especially as regards to scheduling, seeking to reduce projects in 2025 by approximately EUR 40 million, prioritizing those under the EU NextGeneration funds and those offering higher rates of return. Lastly, the commercial strategy and market diversification by relaunching more economic products without compromising. This means being more aggressive with low-end products in the face of the current economic situation while protecting the margins and volumes of premium products. Also with a positive perspective, following the decisions of the European Commission on the 24th of April and the Portuguese regulator on the 22nd of July, a revised green third-party access tariffs, or TPA tariffs, for electro-intensive customers has been set. Navigator's installations in high and medium voltage will benefit from a relevant discount on the TPA tariff between May and December. It is, however, should be noticed that this support has been both delayed and modest especially when compared to the more substantial measures provided to our competitors in other European countries, notably in Spain, France and Germany. Business diversification and innovation in new products remain at the heart of Navigator's strategy, especially in the tissue and packaging segments where there is still great potential for growth. The next slide, please, provides a quick update on our growth strategy. We will keep strengthening current businesses and investing in the future by assessing profitable diversification opportunities in line with our 2 founding values, innovation and sustainability. Our first obligation is inward-facing, to enhance the group's operational efficiency, not only by driving innovation in new products, but also by reducing costs, increasing output, improving energy efficiency and continuing to invest sustainably in both decarbonization and the digitalization of our operations. In Tissue, focus on product differentiation, function of high-tech products and also the feasibility of installing a new tissue machine with a capacity of circa 70,000 tons is being studied to supply the U.K. operation as it is, as you know, a pure converter and thus has no lost production capability so far. This new machine will supply part of the circa 130,000 tons of the U.K. capacity. And after successful completion of the feasibility study, we would expect a final investment decision during this semester. In Packaging, Navigator is operating in multiple segments and multiple products, as already mentioned by Dorival. Machine #3 in Setúbal will be converted to focus on producing flexible packaging. The new packaging operation is set to launch by the end of 2026 with an annual production capacity of around 100,000 tons. The project is advancing and equipment has already been acquired. This conversion will enable Navigator to respond flexibly and efficiently to increasing demand in the flexible packaging market as well as offering more flexible management of our industrial assets as the machine will be able to swing between producing printing and writing papers and packaging papers, depending on the state of the market. Also, as previously shared by Dorival, in molded fiber business, Navigator achieved certification for food contact by ISEGA. We were the first in the world to do so for molded cellulose. And the first contracts were already signed with major retail outlets by the end of the last quarter. And there is a very wide range of biomaterials, biochemicals and biofuels, namely the study, the conceptual study, to produce biofuels in one of our mills that we are currently undergoing, but also in the near future synthetic fuels, which we are looking all with great interest. We believe that all these factors, together with continuous development focused on diversifying the group's business base, will further underpin the resilience and sustainability of our business model. Thank you.

Thank you, Antonio. This ends our presentation. We are now open for Q&A.

[Operator Instructions] And our first question comes from the line of Bruno Bessa from Caixa Bank.

So a few questions from my side. The first one, just a clarification. You mentioned that one of your energy plants moved to self-consumption during the quarter. Just wondering if you could quantify the impact that this change had in your EBITDA in the quarter and if there's some way you intend to compensate this negative impact over the coming quarters. So this will be the first topic. The second is focusing on the paper market. So if you could share with us a bit the evolution of paper imports in Europe, particularly those coming from Asia, if this is a source of concern, considering the tariffs raised in the U.S. or not. And lastly, just trying to understand where do you believe the marginal cost producer is in Europe, considering that we are seeing prices relatively low for long. Just trying to understand if there is room for further capacity closures in the near term in the paper industry in Europe.

Thank you, Bruno, for your questions. I'm going to repeat them. I'm going to start on the second and the third because the first one, to be honest, and I'm so sorry for that, I didn't understood. The second is about the paper market evolution, namely paper imports into Europe and mainly coming from Asia. Correct?

Yes. That's it.

The third, I'm not 100% sure if you are referring to paper or mold, is about marginal cost producer in Europe, where do we believe it stands today?

Yes, for paper.

Okay. And the first one, can you be so kind to repeat the first question?

Yes. So regarding the first question, it was related with the fact that one of your power plants moved to self-consumption in the quarter. Just trying to understand if you could quantify the impact that, that change had on your EBITDA in the quarter, and if there is any way that you could recover that impact on the EBITDA over the coming quarters.

Okay. I'm going to give a couple of elements of answer on each question, and I'll ask my colleagues to follow and give you more detail. On the first question, actually, to be more precise, we had 2 installations that moved to self-consumption: one turbo generator in Figueira and another one in another mill in Setúbal. They both moved to self-consumption because of the loss of the feed-in tariffs. And I will not give you any specific guidance on the impact on EBITDA, but I can tell you it's very difficult to anticipate also future impacts because it depends very much on the cost of energy that we are substituting in the future. So we don't know exactly -- we can have some views on the future, but we don't know exactly what is the cost of energy that we are not going to buy because we produce it internally and the tariffs that we will not pay because we don't need to buy energy. Nuno, do you want to add anything further?

I think you got it.

On the second question, I'll ask Quirino to help me out with the figures, more precise figures. I'm quoting from the slide. We had a decrease of, if I'm not mistaken, 17% of imports H1 on H1 into Europe. And this is not because we didn't have more capacity, namely in Asia, we have more capacity to supply Europe. But as we said in previous conference calls, the production capacity in Asia is not meant to supply Europe. It's meant to stay in Asia. And this is what is happening. Actually, the decrease of 17%, one of the big contributors were actually Asia and Latin America. I'm also quoting by heart. So we don't expect Asia to be a big factor, and depending towards the end of this year, the approval of the EUDR, so the regulation for deforestation, it might even happen that those imports will be lower than what we are today. Quirino?

Just to complement, actually, so far this year, in the first half, the decline in imports from Asia has actually been more significant than the decline overall, so as Redondo mentioned, the decline of 17%. The imports from Asia was minus 22%. Bruno, you mentioned how do we expect this evolution to occur after any possible tariffs or the implications of the tariffs. We don't see today Asians selling much in the U.S. market because of very important antidumping processes they face over there. It depends on the country and on the company actually that they face extremely significant tariffs over the already antidumping tariffs with additional tariffs right now. So they were out of the market and they will stay out of the market. So we don't see significant or relevant reallocations of volume because of that.

Regarding your third question about where does the marginal cost producer sits today in Europe, even with the pulp prices where they are today and, again, quoting by heart, without looking into any figures, I would say they are somewhere between high EUR 900 to above EUR 1,000 per ton. However, when we look to the cost curve, some of those products might be considered specialties, and they can go up to EUR 1,000, EUR 1,100, EUR 1,200. So it's difficult to anticipate what are the capacity in this area of the curve that will shut down. What we have seen in the past that typically the shutdown is not -- or the very marginal cost producer is more midway in the curve, namely the mills that belong to companies that have other businesses and can repurpose their assets to different types of papers. Quirino, do you want to add?

No.

Our next question comes from the line of Leonel Lucas from Oxy Capital.

So I have mainly 2 here. First, regarding the PM3 conversion. How much time do you expect the machine to remain off-line during the conversion? And when the process should start, so when should we start to see it being off-line? And then also if you can share some context on the differences in the price level and gross margins between the Packaging and the Paper segment that this machine was producing before? So this would be the main questions.

Okay. So the first one is to understand how long it will take and when we'll start the shutdown for the conversion?

Yes.

And the second one are price levels or, I guess, what you have to know is margin levels, price levels of Packaging and the coated woodfree Paper segment on that specific machine.

Yes, to understand a bit the difference.

Okay. Obviously, on the second one, we cannot give you precise figures, but I will try to give you overall comments, and then I will ask Dorival to give you a bit more insight on the first and Quirino on the second. The conversion on the -- so as it was explained by Dorival, we already bought the main pieces of equipment. They are, of course, being produced by the machine manufacturers, and they will start to be shipped here to Portugal somewhere next spring, and we'll look to a start-up late Q3, early Q4. And without being very precise, we probably estimate 4 to 5 weeks of shutdown, but Dorival can probably add to that.

Thank you, Antonio. We are expecting 4 weeks of shutdown in the next year, starting in August and starting that in September. And that's our plan, 4 weeks in the end of August.

Okay. On the second consecutive question, I'm going to split the answer in 2 parts, and then Quirino can give you a bit more highlights. What we can comment is what we do today, okay? Today, if we look to our tail of uncoated woodfree, mainly produced on that machine, but not only, overall tail of uncoated woodfree, and the margins of the products that -- packaging products that we produce on that machine, the packaging products represents easily 3 to 4x a higher margin than the tail of uncoated woodfree. And the tail today is the tail that remains after taking this volume out. Second comment, I think we have shared that publicly in the press release, on the study, we believe that we are going to move a machine that is on the third quartile in uncoated woodfree today to a machine that will be on the first quartile of flexible packaging in the future. But Quirino can add a bit more.

Sure. And the whole idea of the project is to position the machine into low basis weight, as mentioned a few times. And typically, today, these products have a supply-demand balance, a very specific supply-demand on this niche, which is, as we see it, favorable. And typically, the price levels are more interesting than the commodity, and coated and the commodity packaging market as well. Another element which contributes to the margins that Antonio mentioned is that this is purely a reels product for us, so no converting costs for us like we have in some of the uncoated woodfree products at sites where we have to convert into the final product. So this also contributes to elevate the margins of these products.

Although what you have asked probably is a good moment to remember because this is information that we have shared already in the past. We are committing to this packaging project, the overall packaging project, something between EUR 60 million to EUR 70 million, okay? And this includes the conversion of the pulp fiber to produce high kappa pulp, so to produce this innovative high kappa pulp with eucalyptus. This includes the conversion of the PM3 that we are speaking about and includes as well the molded cellulose business. So it's around EUR 70 million. A good part of this process -- sorry, and also some adjustments on PM1 in Setúbal and some adjustments on the effluent treatment plant to handle brown paper. The paper machine itself is around EUR 30 million. All these investments have been submitted to -- actually, not all, but almost all have been submitted to the EU NextGeneration funds. So we expect, of course, a contribution from the EU NextGeneration funds. Out of the EUR 70 million, the paper machine itself is about EUR 30 million. Now to compare the 2 producers, it was referred, 100,000 tons. To compare with a greenfield project, a greenfield project will produce basically the same quantity, 100,000 tons is more or less the size of the machines that are today available in Europe for flexible packaging, and it will cost only the paper machine 5 to 7x more than the conversion. So our inroads into packaging are low CapEx, low risk. And of course, when successful, we can scale them.

And just to clarify one thing, when you mentioned the 3 to 4x higher margin, you are mentioning EBITDA margin or gross margin?

The contribution margin, gross margin.

It's actually a good point because the staff to operate a machine for packaging is smaller than the staff for operating a machine for uncoated woodfree. So proportionally, on EBITDA, we'll be even slightly better.

Our next question comes from the line of Antonio Seladas from A/S Independent Research.

So I have 3. So in terms of tariffs, I don't know, you mentioned that it's still early to measure the impact. Nevertheless, its impact, going from 10% to 15%, it seems to be manageable. I don't know if you can confirm if all this uncertainty, now that it's now clarified, it could improve the demand from your customers. So maybe some customers just postponed orders. I don't know if you can confirm it or not. Second question is related to cost. You mentioned about cost, optimizing running costs. I don't know if you can provide some color, some figures on this, and if it's already for the second half of this year or it's just for 2026. And the last question in terms of CapEx. You mentioned that you are now slashing CapEx by EUR 40 million this year. So if you can update us on the new figure on CapEx.

Okay. Antonio, thank you for your questions. Can you please -- I understood one question was about the certainty of tariffs, but now that we know the tariffs, if we can provide some color on that?

Yes. Just in terms of the tariffs, it seems from my side that moving from -- because you all have it suffering 10%. So moving from 10% to 15%, it seems manageable. Nevertheless, I would like to hear your comments on this. And if you really believe that there are customers that have been postponing orders because of all this uncertainty and if now with the agreement on tariffs done, settled, if you expect more orders or an inflow of orders or something different from the place up to now.

Okay. The third question was about cost optimization, if we could provide figures for our cost optimization targets. And the last question was about CapEx, if we could anticipate where we will end CapEx by the end of this year. But I didn't follow the first question, if you are so kind to repeat it.

First question was on tariffs, if you can comment on tariffs and about this 10% to 15% increase.

Okay. So I'm going to give some introductory comments on tariffs, and Quirino, which actually has been recently visiting customers in U.S., he can give you more color. I will comment costs, and I'll ask Dorival to comment costs as well, but obviously, we are not going to share specific figures. And CapEx, I will ask Fernando also to comment on expectations, a range for CapEx towards the end of the year with a reduction of around EUR 40 million. So tariffs, my introductory comment. Again, it's yet too soon to understand the full impact because it depends on the impact of other regions of the world. Let me build a scenario. If Europe has 15% and Brazil has the 50% that has been commented so far, this could present a great opportunity for us, okay? There are not -- so the main players into U.S.A. are Portugal, one Scandinavian producer specifically, Brazil. And then all the others are very small, a couple of small in Asia and in Thailand, namely in the Middle East, one in Israel, but all very small. So if our gap to Brazil is positive, this will present a great opportunity for us, and it might be manageable. However, like we said in previous calls, the tariff will be a cost for the antidumping. So we will see the antidumping increase. Having said that, our antidumping today is significantly lower the antidumping that Brazil or China or Indonesia are suffering. So if this gap to Brazil is positive, like it is already today to Asia, I think this will present a good opportunity. And yes, we believe that customers will be even willing to cooperate more with us. But Quirino, can you give more color on this subject.

Okay, sure. So as we mentioned, out of a market of 5 million tons consumption, Canada plus the U.S., because Canada is USMCA compliant in this product, so let's look at Canada plus U.S., there is a deficit of supply of 1 million tons in a market of around 5 million. So this is quite relevant. And there is still -- not speculating, but there is still the question mark of 1 further machine, which is being discussed of when it will shed in the coming months or not. But even without taking that into consideration, 1 million tons out of 5 million tons is a big deficit. And this is a relatively new picture in the U.S. and the customers start to realize that. So when I was there very recently, the customers are clearly aware that the supply to the million tons deficit is not available from many origins, as Antonio mentioned. So you have a few producers that can do it. Many of the products have specificities that make them possible to produce only if you have dedicated lines for that. So you need to have equipment ready to do that. Particularly, in the Capesize area, you need to have a letter size capability and you don't have all the mills in the world available to do this. So it is really a matter of who gets the relative tariff, which is less harming. So it can be a good opportunity for us. There is a lot of discussions now about pricing. So we mentioned in our presentation that one possible scenario is also that the price moves up because of the tariffs. We are discussing with a lot of customers, existing customers and actually new customers, that are looking at us with the eyes on an opportunity. So let's see where it stands, but it all ends up with how much will the price develop and what is the final tariff for everybody.

Thank you, Quirino. On cost optimization, I will give also introductory comments and Dorival will fill with more information. Obviously, we are not going to give specific figures on where we expect our cash costs to land. I'd like just to comment that we are working in all the different areas of cash costs, so consumables, efficiency of production, logistics, better negotiating chemicals, mix of supplies from different origins and so on. Also, it's difficult to anticipate the evolution because we are moving from the traditional approach of cost control to introduce artificial intelligence, mainly through APCs, on controlling better our processes. We have already examples on lime kilns, on bleaching, on recovery boilers, and we expect to extend these APCs to other areas of the business, to other parts of our operations. Also, we have developed internally a process of improving reliability. We had a couple of hiccups on our mills in the last quarter, so we expect to improve reliability. And only by improving reliability, namely through asset performance management, only that we'll improve cost efficiency. But Dorival can add some more on this.

Okay. In terms of variable costs, as Antonio already mentioned, the advanced process controls will play significant role in terms of chemicals optimization and in the paper side for the furnace optimization as well. And we already developed the reliability improvement plan and reliability is very critical and it impacts cost as well. And for the fixed cost, we already said that we are working to freeze some head count, and we have plans for expenses reduction as well.

Okay. On CapEx, I'd like Fernando to add some comments to give you some indications.

Okay. First of all, we need to consider that we are committed to fulfill our obligations with [ PRR ]. Nevertheless, I would say that our investment in the second half will be lower than the investment in the first half, slightly lower. I think we will not exceed the amount of the first half.

Okay. Just on the cost side, sorry about insisting on this issue. So I understood that the measures that we are going to take will save cost immediately over the second half or it's something that benefits over the next year?

It is actually a very good question, Antonio. Thank you. Some will have an immediate impact. Some will have an impact on Q4 and some will have an impact next year. So we have a mixed bag. But I think probably more important than when the impact is that mainly through this, I would say, digitalization of our process, we expect them to have a longer-term effect.

Our next question comes from the line of Luis de Toledo from ODDO.

Two from my side. The first one with regards to the Navigator Hub, the e-commerce tool. You mentioned last quarter, I don't know if you could provide some update on the performance, number of orders that you're receiving across that channel and the potential impact that it's having on your prices and your relative comparison with sector average. And the second question with regards to the final investment decision on the backward integration into paper for the tissue activity in the U.K., which are the factors that could weigh more on the final decision? Are they internal? Are they external factors, assuming that they will not receive NextGeneration funds?

Okay. Thank you, Luis, for your questions. If I understand correctly, the first one is about the Navigator performance. And the second question are on the final investment decision of Tissue UK, what are the factors that might impact the decision, internal and external, correct?

Correct.

I will give an introductory comment for each one of them, and I'll ask Quirino to comment on the first and Nuno to comment on the second. So the performance of Navigator Hub has been reinforced and continued over the quarter and over the first half of the year. I think we already mentioned we expect that over EUR 300 million of our turnover will pass through the hub. I do remember that the hub has been mainly a relationship with existing customers, but we are starting -- because mainly the situation of the paper merchanting in Europe with the bankruptcy of a large paper merchant in Europe that had a brand that was owned by us, but exclusively distributed by them, we plan to do some inroads of supplying the customers of this customer, not the customers of other customers, the customer of this customer, with these brands. And we have plans to start small projects in a couple of European markets very soon. But Quirino can give you more insights.

Yes. Not to repeat, so the hub has been so far a transactional platform for a few years now. It has grown. All the customers are basically onboarded. Many of them actually place their orders of the several businesses that we have, paper, packaging and tissue and then molded cellulose, they actually placed the orders online. And we are on track, as Antonio mentioned, to reach orders of around EUR 300 million -- actually, in excess of around EUR 300 million this year. This second tier approach, as Antonio just mentioned, we are having inroads in a few -- the first inroads in a few selected markets in Europe, as we mentioned already in the first quarter. We started in Poland. We are now also approaching Spain, Italy, France and the Netherlands for different reasons. From the pilots we have seen, I think you also touched that in your question, we see that by doing this, we can have interesting average price and mill brand sales, which actually contaminates positively the rest of the market. So we see that we can penetrate more on those direct sales in the second tier by allowing a more -- a better penetration into the market with those brands, with our brands. We have more exposure, we increase brand awareness and it benefits collaterally actually our business in those markets, not only in those customers, but more generally in the markets with all the customers.

So in summary, this is not to compete with the existing customers, it's more to substitute customers that left the market and our experience that provides price stability that benefits everybody. On the second question, I'll also give some introductory comments and Nuno will comment furthermore. I will split this in 2: the internal factors and external factors. Internal factors are obviously more related with the key variable costs for producing materials. One is our view on pulp evolution and the impact of pulp evolution has on the production of materials. Does it make sense to produce pulp and sell pulp and buy materials? Or does it make sense to introduce -- to integrate pulp into materials. And besides that, the other 2 costs that are critical are energy, which is very critical in tissue, and HR. The external area where we are looking at is that we have not -- we didn't have yet a final decision on the location. We are still looking and discussing with the authorities 3 possible locations: Portugal, Spain, where we also need materials, we are sorting reels in Spain as well or directly in U.K. So the external most important angle is the kind of support local authorities are prepared to grant Navigator to conquer and establish this investment in their constituencies. Nuno?

I think you said it all. So at the end of the day, the decision, we view the tissue business as an integrated business. So on a long-term basis, we do believe that we have to be balanced between converting and paper production. So at the end of the day, we are looking forward to invest as we are now long in converting. So we're looking forward to invest in paper production and paper machine. As Antonio mentioned, not an easy decision to make. So we will look forward to the support and incentives that we will be offered from the different locations. We know that in some of these locations, we have some synergies in terms of energy, pulp and personnel integration. So we hope to be competitive in any of the locations. But at the end of the day, it will be very important to see the level of incentives and support that we will get from the different markets where we are considering to invest the new paper machine.

This ends our session. Thank you all for your time. As always, we are available for any additional clarification through our usual contact. Have a great evening.