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

Ladies and gentlemen, welcome to Navigator's Company Conference Call and Webcast for the Fourth Quarter and Full Year 2020 Results. We are sorry that we have a few minutes -- we are a few minutes late because we had a question with the password. I expect that everybody has been able to join now. Thank you. So today, participating in the call, we have the following members of the Board: António Redondo, Adriano Silveira, João Lé, João Paulo Oliveira, Fernando Araújo and Nuno Santos. As usual, we will start with a brief presentation of the main highlights for the period, and we will have a Q&A session at the end. The presentation is accessible through the links available on the website, and you can also address written questions through the webcast platform. I will ask António now to start with a few comments on the figures for the period. António, please?

Thank you, Joana. Good afternoon, and thank you for joining us today. I will start by going to Slide 4, please, and make a global overview on Q4 2020. We continue to register signs of improvement in demand for uncoated woodfree products throughout the quarter, especially in Europe, but also in the Middle East, North African region, albeit the partial lockdowns implemented. We maintain good operating and commercial performance in the pulp and tissue businesses. We kept our efforts to contain costs, both fixed and variable, and ended the year delivering significant amounts of savings versus 2019. All of this in an extremely difficult market environment in terms of pricing that finally started to improve towards year end, namely in pulp. So going over some specific figures for the first 2 months of the quarter, I would say that the uncoated woodfree market continued to perform better than other grades, falling 8% globally versus 9% in coated and a decrease of 18% in mechanical papers. Demand for uncoated woodfree in Europe fell 7% in Q4, which compares to a 10% fall in Q3 and a 28% reduction in Q2. Demand in the rest of the world fell also 7% in October and November with a steeper decline in U.S.A., minus 13% in the 2-month period. As previously observed, sheeted business recorded the largest drop in consumption, and office was by no means worse than last week, whilst the reels business was more resilient. All of Navigator's machines have been operating since July without any commercial stoppage. We have been controlling our stock levels and managing our order books. Our uncoated woodfree sales totaled 343,000 tons, up by 2% in relation to Q3 and 6% lower than Q4 last year. Sales performance remained slightly more positive in Europe than in other markets. In terms of price, the benchmark for uncoated woodfree paper remained under pressure over the period, dropping 2.3% versus Q3 and 8.5% versus Q4 2019. Navigator's average sale price followed this trend, reflecting also, first, the pressure from non-European markets; second, with the change in the formats/quality mix, increasing proportion of reels and economy products; third, the [ uncoated's mix ]; and fourth, the weakness of the U.S. dollar and other European currencies against the euro. Still, I would like to point out that in the fourth quarter, Navigator implemented price increases in international markets of more than USD 40 per ton in sales denominated in dollars. Sales in euros in international markets evolved even more positively. But even though these increases in euros and dollars in sell price allowed to recover part of the erosion in net prices, this was not fully reflected in the final price in euros in view of the unfavorable cost of U.S. dollar-euro exchange rate and the sales mix per currency. In terms of pulp, the quarter was a solid quarter for volumes, even though we have less available pulp to sell due to the increase in paper integration and the low stock level. Pulp sales volume totaled 97,000 tons, down 7% in relation to the third quarter and down 3% year-on-year. In terms of prices, even though still at very low levels, we registered an improvement in our average sales price in last quarter versus the previous one. The tissue business registered a solid performance with strong volumes and stable prices in a quarter that was marked by maintenance stoppages in Aveiro and Vila Velha de Rodão mills, as we previously announced. In this 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 our remarkable teamwork in improving specific consumption as well as price negotiations of raw materials like fibers, chemicals, packaging and energy. Our turnover stood at EUR 341 million, and the EBITDA registered in the quarter was EUR 75 million, improving 7% versus Q3 and 5% (sic) [ 4% ] versus Q4 2019, reaching a margin EBITDA/sales of 22%. After paying an additional EUR 99 million in dividends, net debt stood at EUR 680 million and net debt-to-EBITDA at 2.38x. Our free cash flow will evolve positively to EUR 63 million from EUR 56 million registered in Q3. So if you now go, please, to Slide 5, we have an overview of the performance of the full year 2020. I would like to stress once more that in an extremely troubled year in which demand for our products was hit hard by the pandemic and prices fell sharply, Navigator's business model proved to be both flexible and resilient, and we were able to adjust swiftly to changes in the market, taking significant actions to improve sales on tissue and pulp as well as significantly reduced fixed and variable costs. When compared to 2019, the impact of the pandemic remains evident. Overall turnover declined 18% year-on-year and EBITDA 23%. Still, even among an extremely adverse period as what we experienced, Navigator was able to deliver a profitability margin of 21% in the year. One of the aspects worth mentioning is the high generation of cash flow, which the group, once more, has proven to be capable of. We reached EUR 234 million of free cash flow at the end of December, using each and all of the possible levers, delivering EUR 47 million more than in 2019. If we take a look in more detail at the performance evolution over the last 5 quarters on Slide 6, we can see clearly the impact of the COVID-19 pandemic on Q2 and the rebound initiated in Q3 and continued in Q4 2020. After a strong start of the year, we had to adjust the decline in uncoated woodfree sales registered in Q2, reducing paper outputs and increasing significantly our sales of pulp to the market and our tissue products as well. In 2020, we sold 394,000 tons of market pulp, the highest level since 2009 after we started up PM4, our latest machine in Setúbal, and the site became fully integrated into uncoated woodfree paper. At the time, we decided to maintain our drying capacity. And this has proven to be a sound decision in the context of adverse market for paper. And we have then the flexibility to increase our market pulp sales. Tissue volumes also performed quite well and reached an all-time high of 106,000 tons, even with the decline of the Away from Home market. So in Q4, uncoated woodfree volumes recovered 148% from the lows in Q2, getting very close to pre-COVID level. This was achieved in the midst of low pulp and paper prices, as I've already mentioned, which we try to offset by containing costs. And we were able to achieve consecutive improvement in EBITDA and operating cash flow since Q2. I will now ask Fernando to comment on the EBITDA evolution on the next slide. Fernando, please?

Thank you, António. EBITDA in Q4 was negatively impacted by a decline in paper and in average tissue prices. The latter impacted by a product mix that favored reels and a steeper decline on their prices. Our net pulp price evolved positively and grew 80% over Q3. In terms of volume, increasing paper allowed to more than offset declining volumes of pulp due to higher integration into paper and the very low level of stocks and slightly in volumes of tissue. When compared to Q3, the global cost impact is negative due to increasing human resources costs as the company decided to attribute the bonus at the end of the year. The rest of the fixed costs evolved positively in terms of variable costs, although persisting in the efforts to optimize specific consumption, the rate of improvement is not stabilizing due to the pickup in production speed. Others include a positive impact of EUR 16.7 million from the biologic assets' revaluation related to our Mozambique fund. As stated in our results release, we have started wood harvesting operations on Portucel Moçambique's plantations in Manica, for export through the Port of Beira. And 3 shiploads are currently planned for delivery in 2021, representing approximately 100,000 tons cubic meters of wood. In view of these developments, the group revised the assumption concerning the eucalyptus wood market in Mozambique, valuing the forest in Manica and Zambézia by approximately EUR 16.7 million, a value impact to biologic assets and a reversal from the symmetric movement than in the recent past years. Let me add that given the remaining uncertainties, the group maintained its exposure to Mozambique assets fully provided. If we go to Slide 8, with the compression of EBITDA between Q3 -- Q4 2020 and Q4 2019, the impact of these adjustments is negligible as we registered a positive impact in biologic assets in 2019 as well. When comparing Q4 2020 to Q4 2019, EBITDA evolved February by 4%, mainly as a result of cost reduction on both value and fixed costs, namely function costs as price and volumes evolve negatively. Looking at the EBITDA evolution for the full year on Slide 9, the main negative drivers were prices for pulp, paper and tissue, even though [ the 2 later ] present higher resilience. Volumes also negatively impact 2020 EBITDA, namely the reduction in paper volumes hampered by the COVID crisis, which was still partially balanced by strong increase in pulp and tissue volumes already mentioned. The positive impact of cost is also very clear in the graph. We achieved a significant reduction of EUR 170 million. And these figures includes EUR 60 million in variable costs, namely external fibers, wood, chemicals and packaging as well EUR 47 million in fixed costs, 15% reduction versus 2019, achieved in human resources, personnel, EUR 11 million, 23%; maintenance, EUR 7 million, 15%; and function cost, EUR 29 million, 62%. I will now ask Nuno Santos to give us a few words on the market conditions.

Thank you, Fernando. Good afternoon to all. On Slide 11, we have an overview of pulp and paper price evolution over the last years for the main price indexes in Europe, A4 B-copy and BHKP in euros, the hardwood kraft pulp. Net pulp prices in 2020 reached a very low point, which is actually the lowest point since the 2009 crisis. A consequence of the strong supply, decrease in demand from China, which led to excess stocks in the value chain and the devaluation of the dollar versus the euro, which significantly impacted European pulp producers' margins. Paper prices, although more resilient, are also under pressure and are down 7.4% year-on-year, declining 8.3% from January until December 2020. So going over to Slide 12, we have a brief overview of the pulp market. The global pulp market held up well against the adverse environment of an economic downturn caused by the pandemic. World demand for hardwood is estimated to have risen 8% year-on-year, year-to-date November, driven by China, where demand actually surged by around 16%. Stocks of short fiber at manufacturers have come down over the year, currently standing at around 37 days, below the average level of 41 days for the period of 2009 to 2019, over the last 10 years. Hardwood pulp has been supported by robust demand for end products, in particular, in China, where tissue, uncoated woodfree and packaging grew in excess of estimates, especially in the second half of 2020. Demand for hardwood pulp also benefit from the effect of substitution of softwood fiber due to the wide price gap between the 2 fibers, with softwood price abnormally higher than hardwood. Finally, due to the low price of virgin hardwood fiber into the growing scarcity of high-quality recycled fiber, which diminished availability due to the pandemic, there was a substitution effect between recycled fiber for virgin fiber pulp, which was another important factor supporting increased demand for pulp in 2020. At the same time, the supply of pulp was constrained in the fourth quarter by planned maintenance shutdowns in hardwood and softwood at a larger number of manufacturers. These stoppages proved longer than normal as a result of the safety restrictions required by the pandemic. Net pulp prices continued on a downward trajectory over the year, reaching a low point in this price cycle during the summer. Over the course of 2020, the gross benchmark released for hardwood kraft pulp in Europe in dollars stayed at $680 per ton, which is 20% lower than the average price of $855 per ton in 2019. The price of hardwood pulp in euros also dropped by 22% to EUR 597 per ton versus the EUR 762 per ton. Recent -- and the recent weakness of the dollar against the euro during the second half in line the PIX index in euros, thereby hitting the profitability of European pulp manufacturers. However, in the second half of the year, prices on international markets started to recover with substantial price increases being announced in various geographical regions for both short and long fiber, including in Europe as from first quarter 2021. Pulp price in China started improving in Q3, with an increase of $115 for softwood during the second semester and $50 for hardwood during the fourth quarter. In Europe, softwood also increased $40 throughout Q4 2020. This further widened the price gap between hardwood and softwood, thus favoring softwood substitution, including positive price pressure on hardwood. Major softwood producers announced price increases for first quarter 2021 of $960 for January and up to $1,030 for February in Europe and to $690, around $700 for January and $800 for February in China. Also for hardwood, there were announcements of $750 for January 2021 and $820 for February in Europe and to $530 for January and $580 for February in China. Ourselves at Navigator, we have already closed February sales in Europe at $820. In the U.S.A., there are already announcements of $1,300 for February for softwood, after $1,180 for January. I will now ask João Paulo to comment on the paper market.

Thank you, Nuno. Going now to Slide 13 and looking at demand, estimates point to a global reduction of approximately 16% in printing and writing with uncoated woodfree performing better than other grades falling by around 13% year-to-date November. This reduction is smaller than in other printing and writing paper segments. Demand for coated paper is estimated to have dropped 17% and mechanical paper, 21%. In Europe, the estimated accumulated reduction is 12%. And in the United States, the figures point to a drop of close to 19%. After the sharp slump in April and May, demand for paper recovered gradually from June onwards. And this trend was confirmed over the third and fourth quarters with the reopening of the economies, especially in the European markets. Although noticeable signs of improvement were also weak in the Middle East and North Africa throughout Q4, all uncoated woodfree formats 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 announcement of permanent capacity closures. In uncoated woodfree, some 0.8 million tons will exit the North American market. And in Asia, namely Japan, Thailand and Indonesia, an additional 0.8 million tons is being reduced. Also, several producers in Europe have announced closures and conversions in printing and writing, mainly in coated and newsprint. On the other hand, there were approximately 0.8 million tons of new capacity starting in China at the end of the year. At the end of the year, analysts estimated lower stocks of cut-size at European distributors. The year-on-year trend in sales prices reflects the adjustment that started in the second half of 2019 and continued throughout the first half of 2020 and the pressure from the pandemic and the low level of pulp prices. The benchmark index for A4 showed a downward adjustment of 2.3% between Q3 and Q4, falling 7% year-on-year. The benchmark price dropped 8.3% from January to December. On Slide 14, looking at the year-on-year evolution of the order entry for European mills for fine papers and mainly for uncoated woodfree and coated woodfree, we can draw several conclusions. First, a better performance from uncoated versus coated throughout the year. Second, considering 2 COVID waves, the first in Q2 and the second in Q4, the impact of these 2 waves was completely different as the second wave had a less severe reflection on order inflow than the first one. Actually, the recovery of uncoated woodfree continued throughout Q4, and demand in December was just minus 5% year-on-year. The comparison is actually a difficult one as Q4 2019 had a strong order inflow. With the increase in COVID-19 infection rate in several countries in Europe, current environment is uncertain. Still, during the first weeks of 2021, the order inflow from European clients to European mills has been the highest of the last 4 years. Let's go over to Slide 9 -- 15 with the group paper and pulp performance. The gradual recovery in the market, coupled with a significant effort at the commercial front, was translated into a significant increase in sales output in Q3 and Q4, plus 148% in Q4 versus Q2 to 343,000 tons with a strong performance recorded in Europe. Uncoated woodfree sales for the year totaled 1,276,000 tons, down by approximately 12% on previous year. The sales value in the group's uncoated woodfree business was also hit by falling paper prices. And the sales dropped in value by around 21% to EUR 945 million. The reduction in the group sales price was in line with PIX, and the average price outside Europe was brought down by exchange rate trends, mix of currencies and evolution of the product, favoring reels and market mix. During the second quarter, Navigator adopted a large package of innovative measures to support each distributors and their sales teams in different parts of Europe and around the world. This was successful in achieving a significant increase in the order book at the end of December. The group registered orders equivalent to 30 days' output in line with the levels recorded in the previous years and 8% above competitors. These intensive sales efforts also allowed Navigator to boost its market share in Europe, up 1.2 percentage points versus 2019. When comparing the first and second halves of 2020, this gain among European competitors widens to an impressive 2.6 percentage points. Navigator inventories reduced throughout the second half of 2020 to reach the end of the year with a lower level than the average 2019 in days of sales and represented less than half of European competitors' inventories. Stocks in the pipeline are estimated to be below normal. So to comment on the pulp performance, I will hand over to Nuno again. Nuno, please.

Thank you, João Paulo. As António already stated, Navigator succeeded to record a volume of 394,000 tons of pulp sold to the market in 2020, 25% higher than in 2019, making this the best period since 2009 in terms of volumes. This growth was made possible by the increased diversification of sales to destinations outside Europe by sizing opportunities in the tissue and packaging segments and by taking advantage of the greater availability of market pulp as a result of reduced paper production in the second quarter. Sales turnover reached EUR 156 million in the full year, declining 6% from 2019 amidst the context of low-price environment as we have just seen. Let's take a look at the tissue performance on Slide 16. Demand for tissue products proved very resilient and presented a slight growth even in the context of an economic slowdown in the pandemic situation. As a result, in 2020, demand for tissue grew by 1.8% in Europe, although this was lower in Iberia, despite the overall decline across the Away from Home segment. Global sales volume stood at 106,000 tons in 2020, reflecting a 7% increase from 2019. The group's tissue business was able to react positively to the opportunity offered by the peak in demand triggered by the 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. Now these products are aimed, at a large extent, at HORECA channels, hotel, restaurants and cafes, and at companies which were severely affected by the lockdown measures implemented from mid-March onwards. This was particularly devastating in Iberia, home of our main Away from Home sales, where tourism represents a significant part of the economy and brings a very significant number of new tissue customers to the region every year. Still, the group made a significant effort, both industrially and commercially, to adjust its production to market needs and to the growing demand for the At Home products. Several new products were launched throughout the year in a strong commercial effort to complete our At Home product portfolio. The group, accordingly, recorded an increase in tissue turnover of approximately 7% to EUR 141 million. Finished products represented 76% of our sales in 2020. In terms of industrial activity, we had a good performance in the period in both the Aveiro and Vila Velha de Rodão mills, and we managed to improve our fixed costs. Overall, 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'd like to stress that a significant part of this margin improvement is related to the overall reduction in costs, both variable and fixed. For example, fixed costs were reduced by 12% versus 2019 while tissue prices were kept relatively stable. For example, we reduced 1% the prices from 2019 in finished goods. And also, we were able to sell more volume of finished goods. We increased 7.5% versus last year. I will now hand over to Adriano, who will comment on the CapEx side.

Thank you, Nuno. On Slide 17, we have an overview of the CapEx in the full year of 2020. As previously announced, Navigator has decided a substantial agreement of its CapEx plan for 2020. From investment initially estimated at EUR 158 million to approximately EUR 80 million. As a result, capital expenditure in 2020 totaled EUR 81 million as compared to EUR 158 million in 2019. This sum includes mostly projects aimed to -- at -- in maintaining production capacity and achieving efficiency gains. It also includes EUR 25 million for environmental projects, namely the new biomass boiler in Figueira da Foz, EUR 22 million for this project. And around EUR 17 million on projects to recondition assets, in particular, 2 projects undertaken at the Aveiro mill, new chip pile and the revamping of the wet pulp section in the pulp machine, pulp grinding machine. Both projects are part of the road map for decarbonization and modernization of the group. Our investment plan has been reassessed, and our main focus will be on efficiency in print, modernization and digitalization of the operations, while continuing with the decarbonization plan. As part of this strategy, some capacity increase in the pulp business will be also [ small development metrics ]. One of the major investments that started in the previous year is our new biomass boiler in Figueira da Foz that will allow for a reduction in our CO2 emissions by 32%. I will hand over to João Lé to comment on this project. João, please.

Thank you, Adriano. If we turn to Slide 18, we have a few details on that project. As you know, this is the most relevant step that the group is taking towards the goal of achieving carbon neutrality of its industrial facilities by 2035 in a EUR 55 million investment. This new unit will be -- will enable the company to reduce its emissions of fossil carbon dioxide at the Figueira da Foz site by between 150,000 and 200,000 tons a year, cutting the group's emissions by 30% in 2021, representing already slightly more than 1/3 of the goal the company has set itself to accomplish 14 years from now. This capital project was part of the company's decarbonization strategy, reflecting the decision taken in 2019 to meet the European targets 15 years ahead of schedule in 2035 and so achieve carbon neutrality at all its industrial complexes, entailing a reduction of 86% in its CO2 emissions. And so achieving this will involve a total investment of EUR 154 million. Approximately 400,000 tons of biomass will be used each year to fuel the new unit. Half of this will come from internal waste, produced in debarking eucalyptus wood, bark and sawdust, joined by a further 200,000 tons of external forestry waste, produced in forestry and countryside management operations. The new boiler will use this waste forestry biomass to generate thermal energy for the company's production processes, resulting in much greater efficiencies in generating energy, combined generation and heat and the -- of heat and electricity. And that the new facility will have increased capacity and meet tougher standards of environmental performance as a result of The Navigator Company's commitment in using the best technology available today for this purpose. I will ask Fernando to make the next comments. Fernando, please?

Thank you, João. On Slide 19, it should be recalled that the year starts with free cash flow generation of EUR 15 million in the first quarter, and the strong growth was recorded after the early impact of the pandemic: EUR 99 million in the second quarter, EUR 56 million in the third and EUR 63 million on the fourth quarter. In the last quarter, our free cash flow was positively impacted by significant reductions in inventories namely of wood, a reduction in client receivables and the reimbursement of approximately EUR 14 million from the antidumping process received in Q4. On Slide 20, we have an overview of free cash flow for the full year of 2020, where we obtained an impressive figure of EUR 234 million, comparing very favorably to the free cash flow of EUR 186 million reached in 2019. Free cash flow in 2020 was positively impacted by an overall reduction in inventories of wood and pulp; client receivables, once again; and state reimbursements related to corporate income tax. Free cash flow was also positively impacted by around EUR 18 million from the antidumping process received during 2020, the same EUR 40 million for POR1 in Q4, [ mentioned here ], and in addition, EUR 3.6 million for POR2 in June 2020. This strong free cash flow generation allow for the reduction in net debt over the year of EUR 35 million. After being paid a total amount of EUR 198 million of dividends in the year, as you can see on Slide 21. Thus, at the end of December, net debt totaled EUR 680 million, excluding the impact of IFRS 16. And the net debt-to-EBITDA ratio stood at a conservative level of 2.38x, excluding the impact of IFRS 16 once again. Let's go now to the next slide with a quick overview of our financial activity over 2020. We took a highly active approach to financing activities in this year. Three phases may be identified over the course of the year. First, our main concern was to secure sufficient liquidity to face the great uncertainty about impacts of the pandemic on the group's business. To this end, the company contracted a number of short-term facilities around EUR 210 million. Once it had guaranteed the liquidity it needed, the group turned its attention in the second half of the year to refinancing a series of operations maturing in 2021, issuing long-term debt totaling EUR 222 million. These operations did not involve any immediate cash injection, cash in, instead providing for use of the funds as and when needed, in accordance with the projections. This planned approach geared to stay one step ahead of the developments, forms the basis of the group's long-established financial policy. Lastly, in the final quarter, the group partially restructured a loan maturing in 2023, buying back the bonds and simultaneously issuing fresh bonds totaling EUR 75 million maturing in 2026. With these operations, the group extends the average maturity of its medium- and long-term debt to approximately 3.7 years. Our average cost of debt remains very competitive at 1.5% at year-end, and most of our debt has a fixed rate. We believe that Navigator maintains a strong financial [ stance ]. I will now hand back to António for the wrap-up.

Thank you, Fernando. So if we please can go to Slide 24, we have a recap of the main developments occurring in Q4. The recovery in uncoated woodfree demand in Europe continued during Q4, as mentioned before, in spite of the implementation of partial lockdowns. We have all our machines up and running since mid-July. We have improved uncoated woodfree sales and registered strong volumes for both pulp and tissue. Paper prices continued depressed during the quarter, but pulp prices started to improve at year-end. We continued our cost contention efforts during Q4 and managed to achieve strong operation figures and generate a high level of free cash flow while paying an additional EUR 99 million in dividends. And then we kept our net debt under control and our net debt-to-EBITDA levels to, as mentioned by Fernando, under 2.4x. Before going to our outlook for 2021, I'd like to say a few words on the antidumping process, if we can please move to Slide 25. The -- this antidumping process has been impacting our uncoated woodfree sales to U.S.A. for the last 5 years. As you may recall, since August 2015, U.S. authorities have been conducting extensive reviews of all Navigator's U.S. and Portuguese sales and costs, following their own guidelines and their own comparison criteria. From this analysis, a technical dumping margin has been applied to the company's U.S. exports, even if the company believes no commercial dumping exists. Given high preliminary [ dumping rates applied ], which were effectively revised downwards after due process, excess amounts deposited in these initial deals are now being refunded to Navigator with interest when interest is due. So far, the company has received all excess point -- deposits for the period of review 2 or POR2, and almost all excess deposits for period of reviews 1 or POR1. As such, we received total amounts for both periods in 2020 of approximately EUR 18 million and a further EUR 6 million is expected in 2021, actually partially already received. On January 19, 2021, the Department of Commerce, DoC, confirmed the final rate to apply to the third period in the review, POR3. The final rate and change versus preliminary rate is 6.75%. The confirmed rate is in line with the company's estimates and means that the estimated duty paid when importing to U.S. will now be 6.75% until the final results of POR4. Going now to our outlook on Slide 26. The worsening of the pandemic situation and the additional restrictions on economic activities that are occurring in many European countries will probably impact performance during Q1. Nevertheless, the current market context is quite positive as the early weeks of January have started quite well, not only in [ all the usual terms ], but also with a recovery in pulp prices with a number of producers and new announcing price increases for uncoated woodfree as well. In pulp, the recent price increases for both long and short fiber in China and Europe have been successful and have started to be reflected in the PIX, price index. Producer stocks are close or below normal levels, mainly in short fiber, as it is our case. The increase in pulp prices provided support to rising paper prices. And Navigator announced a 4% to 6% increase in uncoated woodfree products for Europe of February and many other producers have followed. I do remember that we did announce in December an increase of another $50 for international markets that we are actually implementing as well. In tissue as well, as soon as pulp prices increase take effect, it's highly likely that prices will rise in the tissue market, possibly around 4% to 5%, so as not to undermine the profitability of the different manufacturers. A significant increase in the price of tissue reels is expected for reels imported to Europe, not only due to the increase in pulp, but also due to the inflation in logistics. This impacts quite significantly -- this will impact quite significantly nonintegrated producers, nonintegrated tissue producers. In our case, we were actually able to implement already a 5% increase for rolls, tissue rolls in Q1 2021. Finally, let's go to Slide 27 with a few words on our CapEx and cost estimates for 2021. As just seen, CapEx for 2020 stood at EUR 81 million, after being revised down from EUR 158 million. And for 2021, we estimate the CapEx will stand somewhere between EUR 100 million and EUR 120 million. This amount will be mainly geared at maintaining our production capacity and reconditioning our assets as well as for environmental projects. In terms of costs, after delivering a very significant reduction of EUR 107 million in overall variable and fixed costs, EUR 60 million in variable and EUR 47 million in fixed, our goal is to continue focus on cost control and consolidate the reductions achieved in 2020 over 2019. Although some of the reductions were leveraged by the pandemic, we expect to retain some of the efficiency in specific consumptions achieved in variable costs. And in fixed costs, retain around 80% of the reduction achieved in functioning and maintenance costs. Thank you.

Thank you, António. This ends our comments for now. So we will now be open for the Q&A session.

[Operator Instructions] We have an audio question on the line from João Pinto from JB Capital.

I have 4 questions, if I may. The first one on Mozambique. Can you tell us what kind of financial impact can we expect from the shiploads that are planned to deliver in 2021? Second one on dividends. What would be a reasonable assumption for the dividend proposal this year? 100% payout, would it make sense? Or could it be more, given the amount of dividends paid in the recent past? My third question regarding EBITDA margins. Can you give us some color on the margin range that you expect next year? Is it reasonable to expect stable margins versus 2020? And lastly, you mentioned in the outlook in the full year release that UWF capacity closures in the U.S. and Asia for 2021 can support balance in the market. Can we -- can you give us some color on the amount of tons that will exit the market?

Thank you, João. I will address some of the questions, and then I will pass if -- we turn to -- my comments to further comments. So starting with the Mozambique shiploads, as we mentioned before, we started operations. We start harvesting in 2020. And we expect to bring rolls into ports, so rolls of wood, not chips, into ports, well, in 3 vessels, so around about 100,000 cubic meters. Our expectation is that the total cost of the operation will be competitive with other extra Iberia imports we do for Portugal. João, can you comment on this further, please?

Yes, António, of course. So well, this is an operation that will be conducted this year. As António previously said, we started the harvesting process in the end of December -- or in the middle of December last year. And this will bring us around -- wood from Manica province and will be also extended to another vessel in 2022. So that's it for now.

Regarding your second question about dividends. At this moment, we have no decision in this particular chapter. And the Board of Directors will obviously do, in the right moment. And obviously, we'll do it within the legal limits to distribute dividends. Fernando, do you want to add something?

No. I would say that on the time of decision, that will be in the second quarter, we'll take in consideration the results of the environment as well the pandemic exchange on our views for the moment, but it's something to be decided in March.

Regarding your third question about the EBITDA margin range for 2021. We actually are working -- expect and are working a slight improvement on our EBITDA margin. As mentioned before, we are seeing a good price momentum at least in the first part of the year, in the first months of the year. We do expect pulp prices to be strong, at least into the summer. Most likely all the year, but at least into the summer, while no new capacity is going to start up. And this will obviously put pressure on the variable margins of uncoated woodfree producers. And as we mentioned before, also in the margins of tissue producers. So we expect to have a favorable win on the price dimensions. We also expect to have a more favorable win on the demand for uncoated woodfree. And as explained, we intend to keep on working on our cost base. So all together, this will -- we are going to fight for an improvement on the EBITDA margin 2021. Regarding your last question about the possible operating rate for 2021. There are different scenarios, so I'm not going to comment on the different scenarios. Obviously, we are not going to be -- yet, to the 90%, which is typically the average [ OER ] for the European industry in the last few years, except this year. But we also believe we are going to be significantly better than this year. So we expect a more favorable [ OER ] in 2021. Thank you.

We have a question from António Seladas of A|S Independent Research.

I don't know if you can add more coloring with Mozambique project, namely the exports. If you can mention what is the amount in euros of what you are going to export in volumes in 2021 and this year? What are the estimates or what we can -- what do we expect for the coming year in terms of exports? If the -- if all the wood that we export is for Portugal or if you can export for China? So I don't know if you can add more color on this project in Mozambique. And secondly, I think that you mentioned that you value the assets by about EUR 17 million. However, I think that transformation that all the asset base is provisioned. So if you can explain what is the difference [ put in the ] asset in Mozambique [ that are provisioned and ] the revaluation. And the third question is related with your order book. You mentioned that your order book at the end of the year was about 30 days. And taking consideration in your presentation, your environment, that described very, very -- well, at least in terms of prices, are strong, we can assume that your order book currently is also at 30 days.

Okay. Thank you for your questions, António. I will give you some comments in each one of them. João Lé will further comment on the Mozambique project, and then Fernando will comment as well on the Mozambique assets. But I must say that the question regarding Mozambique assets was not very clear. So if you are -- it was because of the sound. So if you will be so kind to repeat it, I would be...

Sure. So I think that you revalued the asset by EUR 17 million by the end of the year, more or less, the Mozambique asset. But I think that in the press release, you also mentioned that the assets -- that you kept the asset provision on your press release. So it's just, I think -- I couldn't understand. You value the assets. But at some time, you also mentioned, at least on the press release, that the assets are provisioning. So...

Okay. It's very clear. Fernando will comment on that shortly. Regarding the Mozambique project. Obviously, we cannot give guidance of the specific costs of wood and the specific amount of export. But as mentioned, the price at which these wood will go back to Portugal, ballpark figure is competitive vis-a-vis our imports from outside Iberia, so from Latin America. And the other question that you -- is implicit in your question is regarding the -- what we are going to do. We need to understand this is the first commercial pilot, okay? We need to make sure that -- we know a couple of things already about Mozambique. We know that the wood grows at very nice rates, equal to probably the best we have in Brazil or above the average that we have in Brazil. So from the point of view of the forestry, we are quite happy. We know that we are able to harvest efficiently. But we need to prove that we're able to put it in the port, export into a vessel and arrive in Portugal. So this is a commercial pilot with 3 vessels. If this commercial pilot is successful, we do believe that we have conditions to continue. And João already alluded to this, to continue to export rolls, so wood rolls, in the coming years into Portugal. Exporting to other regions of the world at this moment might be more complicated because the typical wood market is -- the wood export market is based in ships, not in wood rolls. So as you probably know, one of the ideas, possible ideas on development of Mozambique in the future, is exactly to prepare exports of ships. We are not yet at that stage, the commercial pilot, 3 vessels with the continuation in 2022. And if successful, we will have a capability during the next few years to do some export of rolls. João, do you want to shed some light on this, please?

Thank you, António. I think you said most of it. So this is a -- in fact, this is our first trial in terms of volumes involved. This is very significant, in fact. So the intention is to go through all the logistics process, the certification process, the loading in the vessels, the use of the part of their facilities. So this is most of all, an important test for all of us to improve and to create conditions to develop the project in the long run.

Regarding the second question, Fernando will provide you further discussion.

Okay. The first thing that you need to recall, [ this effected ] in the past, after 2014, we have 2 kinds of assets in the -- our balance sheets related with Mozambique projects. One, it's a fixed asset, it's regarding preparation of the land. This means what we have to do with the machines to be able to plant the eucalyptus seeds. And that was recorded as a fixed asset. In addition to that, we have the biologic assets. In 2016 and 2017, we have impaired both values. This means the balance sheet was with a 0 impact. This means that we have netted the asset side of the balance sheet with these 2 types of assets. In 2018, we have, I would say, a negative perspective of -- on the project. This means we are not sure that we'll be able to proceed with the projects in the future, depend on some conditions that should be fulfilled by the government, local government. And we were not very convinced that, that will happen in the future. Nowadays and during last year, we saw a slight improvement in the project. And that's why in 2018, we have provided a figure. If you want to close down the activities, we need to pay to our employees at the time, we need to have certain expenses, and that was provided in this balance sheet in 2018. This means, at the end of 2018, we have a passive -- we have a liability in our asset, only a liability in our balance sheet. Now regarding some developments and some commitments that the local government and some private investors have made that they will proceed with the Macuse project port. We believe that they are strong commitments that in 2024, we'll have a port in Macuse. This means now we are not so negative. And because we have some assets that we could recover and buy back to Portugal, we have reversed the impairment but only in what concern, biologic assets. And we have reversed EUR 16.7 million. In the same -- at the same time, we still have a provision in our balance sheet with a similar amount. That's why we say that in net terms, Mozambique is 0 in our accounts. I hope that I was not -- it's the best I can do to explain. So with accounting...

That's very comprehensive. I didn't -- okay. I didn't know that you're -- you -- well, okay. That's okay. I understood.

Okay. So probably what you can extract from our words regarding Mozambique, I'll jump on the first question in a second, is that we are very committed. We are more optimistic than we were before, but we are extremely cautious at the same time. And order book. We ended the year with 30 days order book. As it was commented by João Paulo, the order inflow in the first 3 weeks of January was actually very good. It was actually the best of the last 4 years, but we are living times of great uncertainty. So the volatility on the order books has been quite big, like we saw when we moved from Q1 to Q2 and Q2 to Q3 last year. So as we speak, our order book today is actually 34 days, so above 30 days, we end up the year. So it shows well with all the machines up and running, shows well the improvement of the order in the first few weeks of January. But again, I need to underline the volatility and the uncertainty we are all living across the world.

At this time, we do not have any other questions on the telephone line.

Hello? Yes. We do have a question that has -- a couple of questions have come up to the webcast. I will read them. And we will answer it one by one. So first question by [ Homer Wei from GEICO ]. You have been taking efficiency measures for many years. Do you think there is still room to improve them? Can you quantify the measures you are going to take for this year? I believe we have already -- did -- shed some light on that in the last comments from António regarding the 2021 cost, but I will pass it again so you can complete the answer.

Thank you. Thank you very much for your question. Probably just before trying to shed a bit of more light or repeat what I've said, just a comment. We have been always taking efficiency measures all over the years. This is part of the DNA of this company for many, many decades. And there is always room for improvement. Having said that, I don't remember in the last 33 years that in 1 year, the company kept EUR 107 million of costs. So it means that, of course, the challenge, going forward, is much more -- that much more complicated. Having said that, as mentioned before, the whole team, this has been a very large teamwork and that was very deep into the organization. The whole team is extremely committed to keep on cost efficiency measures and to further enhance them. And we have registered that into our budget for 2020 in what refers to variable costs. So we keep on working on our variable cost, learning what was done in 2020 in a very specific environment. I would like to believe that 2020 is a new normal for cost, and we can still slightly improve, but we need to profit fully. Anyhow, we are as committed that we have included -- put that into our 2021 budget. Regarding fixed costs. Fixed costs, for us, we have 3 main components. There's HR costs or personnel costs, there is the maintenance cost and there's sanctioning costs. We have, in 2020, obviously, a very reduced bonus to our people. So we do expect if the commissions will allow it, that we have a better variable pay in 2021 regarding 2020. So if this is the case, and we hope it's the case, we are working for that, obviously, this cost will increase. The other 2 costs, so sanctioning and maintenance, as I think I've mentioned, we believe that about 80% of what we have kept in 2020, in very tough decisions and very tough measures, we'll be basically retaining into the future.

Okay. Thank you, António. We have an additional question on the platform. This is from [ Lorenzo Vandebaro from the Group Peter Chem ]. Could you shed some light on the net working capital improvements year-on-year? When it comes to inventories, what are the drivers for the improvement? Is it sustainable? Or should we expect some kind of unwinding in the coming quarters?

Okay. I think Fernando will start answering the question.

This means that we have made a very good rotation of our assets in inventory. And in receivables, in what concerns receivables, we will try to maintain as we could, but it's -- always depends on the starting point. And on the starting point, this year, will be more difficult than prior year. Nevertheless, our goal is to try to maintain it to our -- to the best of our efforts.

Okay. So we have an additional question on the platform. I will read it now. Since the amount of dividends and payouts will only be known in March, will there be a distribution twice during the year of 2021? That's the first question. The second question is, if the trend of digitalization is due to the pandemic, how does it affect sales of A4 paper? This is from a private shareholder. I will pass to António.

Again, it's very soon to give any kind of guidance regarding the first question. We have yet not defined any decision on that aspect. And we cannot forget that 2020 was also a very special year. And these sales, of course, implied as well, the way we have distributed the dividends. The only thing we can tell is that if there are no reserve distribution, which we don't know yet if there are or not, it will be only one, in case there are no reserve distribution. But again, I'm not giving any guidance if we are going to do it or not. Regarding the trend of digitalization due to the pandemic. Obviously, this will affect the A4 paper. So we have tried to understand with our distributors and have performed a small market research to analyze this impact. And again, we didn't took yet any conclusions. Everybody is yet with a very short sight on the real reasons behind what has happened into A4 paper demand. Having said that, as we have mentioned in previous calls and again in this call, by no means office paper decreased more than graphic paper, which I think is a good indication. Graphic paper decreased. Graphic paper is very much related to things like commercial prints, and this is very much related with the economy. And office paper decrease was of the same magnitude. So I think it's yet too soon to expect that the disposition trend due to the pandemic will have a higher impact on A4. Thank you.

Okay. Thank you very much. We have no further questions on the platform. So thank you, ladies and gentlemen. This ends our session for today.