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

Hello. Good afternoon, ladies and gentlemen. Welcome to the Navigator's company conference call and webcast for the fourth quarter and final year 2021 results. Participating in the call today are the following members of the Board: António Redondo; Fernando Araújo; João Lé; and João Paulo Oliveira. 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 can be accessed through the links available on the website, and questions may be addressed also through the webcast platform. António will start with a comment on the main figures records in this period. António, please?

Good afternoon and thank you for joining us this afternoon. I'm very pleased to be here today and share with you our fourth quarter and full year 2021 results. We believe the results demonstrated once again our ability to adjust to an uncertain and volatile market environment this year very constrained by higher variable input costs that Navigator successfully and proactively managed to mitigate, demonstrating the resilience and the flexibility of its business model. I will invite you to start by going to Slide #4 and make a global overview on Q4 and closing numbers of 2021. The recovery on paper consumption boosted by the economic upturn as well as the improvement between supply and demand in the United States, Europe, Middle East and North Africa region, following the capacity closures and conversions already announced, allows for a good recovery of the performance in 2021. Actually, Q4 was a record turnover quarter. Turnover stood at EUR 476 million, up by 18% from Q3 and by 40% from 2020, driven by uncoated woodfree volumes and higher prices. Following the pulp rally that occurred since the beginning of the year, paper prices started an upward adjustment, and Navigator implemented price increases across all geographies. We registered a very strong order book throughout the quarter, and we ended 2021 with the highest order book ever registered of more than 80 days. As a result of the paper demand, the focus on pricing and product market strategies, the continuation of our efforts to contain fixed costs and manage working capital, EBITDA in Q4 improved 14% to EUR 109 million, reaching a 22.8% margin. Tissue business continues to perform with revenue increasing 3% year-on-year. Our packaging project performing well as production more than doubled, and turnover was above EUR 40 million last year with a very low CapEx so far. Free cash flow remained strong at EUR 235 million. Net debt stood at EUR 595 million, decreasing EUR 85 million versus 2020, after the distribution of EUR 100 million of dividends to shareholders in the first semester and advance on 2021 profits of EUR 50 million by December. Finally, sustainability has always been at the core of our business. It continually drives our innovation agenda and our collaboration with all stakeholders. Following the commitment made in our 2030 Agenda, Navigator has signed up to the Science Based Targets Initiative and underlining this commitment differently of the practice of the peers from the sector, the company immediately submitted for validation its targets for cutting greenhouse gas emissions. On the basis of the latest climate science data, therefore, dismissing the 2-year period that companies dispose and typically used to do so, taking another important stride in its positioning to fight against climate change. João Lé will give more details on Navigator's sustainability achievements further ahead. Now let's turn please to Slide #5, the financial highlights of the year. After 2020, marked by a strong impact of the pandemic on demand and sharp fall in prices, 2021 registered a strong order intake, reaching historically high levels during the second semester and an impressive increase on pulp and paper prices. Turnover stood at EUR 1,596 million, 15% above 2020; and Q4, as mentioned, totaled EUR 476 million, increasing 18% over the third quarter. This performance was mainly due to the increase in paper volumes. EBITDA amounted to EUR 355 million with the increase of uncoated woodfree paper prices and volumes offsetting raw material costs. EBITDA sales margin was 22% for the year. Strong free cash flow generation of EUR 235 million, as I referred previously. Our balance sheet remains solid. Our net debt was reduced by EUR 85 million to EUR 595 million, allowing a comfortable net debt-to-EBITDA ratio of 1.68x versus 2.38 in 2020. CapEx stood at EUR 80 million, mainly including investments at modernizing equipment, optimizing production capacity, maintenance and environmental projects. To note that the CapEx execution plan over 2021 was hampered by the pandemic, not only causing delays to start projects, but also delaying deliveries by most suppliers, pushing back to 2022 some of the CapEx originally scheduled in 2021. I would like you to turn to Slide #6, where we have an overview of the evolution of the last 6 quarters. Regarding paper sales, Q4 '21 clearly shows a strong improvement over the previous quarter. It is the highest performance since Q2 2018. In terms of pulp, Q4 showed a strong increase of volumes by 56% in relation to the third quarter. This year, we have less pulp available to sell, resulting from the higher integration into paper and longer maintenance shutdowns postponed from 2020. Tissue, as mentioned previously, kept the good performance we have been commenting in the last few quarters. Turnover, EBITDA and operating cash flow all experienced [Audio Gap] on the EBITDA evolution. Fernando, please?

Thank you, António. Turning to Slide 7. We can take a closer look at the main impacts of EBITDA on year-over-year comparison. As António mentioned, this year, which is a clear improvement over 2020 with the increase in pulp and paper price as well as strong demand for both. In terms of price impact, paper, pulp and tissue evolved favorably year-over-year, especially pulp and paper. Still, costs were impacted by over EUR 50 million by the extraordinary increase in logistics and inflationary pressure on energy and commodities and by more than EUR 20 million due to the increase of HR cost, human resource costs, mainly in its very own elements. The increase in HR costs follow Navigator strong results in 2021 that allowed, again, the payment of performance bonus to staff and resumed the rejuvenation program spend in 2020. At the same time, the amount of HR costs in 2020 compares with the low cost in 2021 -- compared with the low cost in 2020, which were favorably affect by the public support measures adopting view of the pandemic. Alongside this, the company implemented a new career framework for operational technicians, and a qualitive employment agreement was also conclude for the first time in the tissue segment. Uncoated woodfree volumes improved 16% year-over-year, supported by strong demand growth with a strong positive contribution to EBITDA. Tissue volumes were in line, and pulp stood below as, of course, we registered a much higher integration of pulp into paper. Longer maintenance stoppage, shutdowns, postponed from 2020, and we have been operating with extremely low levels of stocks. Opposite to what has occurred in 2020, when we had a strong positive impact from the valuation of our farms in Mozambique as the fair value was adjusted to harvest wood from Manica and positive evolution of Mozambique project in Zambézia. In 2021, the impact of this is almost negligible. It is the compression with 2020 that leads to the significant negative variation, almost EUR 18 million against last year. In addition, we have a negative antidumping impact of almost EUR 6 million, resulting essentially for the increase of logistics costs to late dispatch. Should be noted that the final rate of 21% was published in October for PR and for period of revision for March 2019 until February 2020 periods. In January 2022, the U.S. authorities decided to continue with antidumping process for a further 5 years, despite Navigator continued price increase in the U.S. market and the supply reduction from local productions in this market. Let's turn to Slide 8 with key quarter-over-quarter comparison, namely quarter 4 2021 versus quarter 3 2021. We registered a 14% increase in EBITDA to EUR 109 million from Q3 to Q4. The marketing investments sustained improvements in quarter 3 was 10% and tissue price was 7%. Higher total availability compared with Q3, plus 56%. Uncoated woodfree maintained a positive quarter-versus-quarter trend, plus 4%, while tissue was above last quarter, plus 6%. In the last quarter preference, it is already very clear negative impact of logistics, energy and raw materials price. The price improvement implemented in uncoated woodfree and tissue helped to compensate inflationary pressure on purchased prices. Now turning to Slide 9 with EBITDA quarter 4 2021 versus quarter 4 2020 analysis. EBITDA grew 45% from EUR 75 million to EUR 109 million sustained by higher prices across all business segments, backed by higher pulp price, paper mark dynamics, logistic disruptions and constantly price improvement measures. Uncoated woodfree sales volume significantly grew more 15% compared with last year-end quarter. Pulp integration limited volume ability to sell in the market, less 12%. The negative effect of logistics, energy, wood and other commodities price impact particularly Q4 '21 performance, while optimization efforts in fixed costs persist. We have a nonrecurring impact compared with Q4 of last year, namely in the fair value of biologic assets, as I said previously. That impact is related to the valuation of our [indiscernible] in Mozambique in the previous year. And comparing quarters, we have other main nonrecurring impact due to foreign exchange hedge in place. João Paulo will comment on market performance. João Paulo, please.

Thank you, Fernando. Let's look at pulp and paper price evolution on Slide 11. Pulp benchmark prices saw a sharp and significant hike at the beginning of the year, first in China then in Europe. The benchmark index for hardwood pulp in Europe, the big BHKP in Europe, was up to 82% at year-end with a historical high level of EUR 1,013 per ton. The benchmark index in China for hardwood pulp rose steeply to a peak of USD 780 per ton in May, later adjusting downwards to USD 550 per ton at the end of November. Following on -- from announcements of further price increases, it raises to USD 576 per ton at the end of December, 15% up on the start of the year. Average price for the year of USD 1,023 per ton is well above 2020's average price of USD 680 per ton and above the average for the period 12 -- 2014 to 2019 of USD 823 per ton. This price in Europe is hampered by the exchange rate in 2021, but still above 2020 and also above the 2014-2019 periods. The paper price -- the paper index in Europe reflects the price increases over the last quarter with the average price of 2021 above 2020 and now in line with '14-'19 periods. On Slide 12, we have an update on the pulp market. As already commented, there was a sharp and significant recovery in benchmark prices in the pulp market in the beginning of 2021, first in China and then in Europe. The benchmark index for hardwood pulp in Europe stabilized in record levels, peak BHKP of USD 1,140 per ton. In terms of the demand evolution year-on-year, global hardwood demand dropped 4.5% in November year-to-date, hit by China's abnormal negative performance, minus 10.9% year-on-year. In Europe, demand is growing healthy, 4% year-on-year with end users, printing and rising packaging, and more recently, tissue performing a strong order intake in the last few months with very limited competition of imports leading to the implementation of successive price increases. On the supply side, pulp stocks at European ports are below 2015 and 2021 periods, averaged 1.3 million tons at 1.1 million tons by December. Stocks at Chinese ports by year-end were one of the lowest of the last 2 years already -- although above the periods 2015-2021 average. Exponential rise on logistic costs and freight cost trends hampering pulp imports to and paper exports from Asia. At the same time, constraints have been held in the pulp market due to production shutdowns, planned and unplanned, and lower-than-usual maintenance shutdowns as a result of the pandemic. Increasing production and new capacity entries in Latin America are expected to create downward pressure on prices later in the year. On Slide 13, we have summarized some of the main developments in the uncoated woodfree. We have seen an increasing pressure throughout 2021 on paper producers' margins due to cost inflation, coming not only from pulp prices, but also from other cost inputs such as energy, chemicals, packaging and logistics. In terms of demand, as António mentioned, figures for global printing and writing papers recovered 1.4 million tons year-to-date November, which is 2% plus, with uncoated woodfree paper showing a positive performance of 3%, comparing once again more favorably versus demand evolution for other grades, namely 2% for coated paper and 0% for mechanical paper. In Europe, the demand for uncoated woodfree paper in 2021 continues the positive evolution with a plus 7% that compares with the drop in 2019 of 7%. In the U.S.A and rest of the world, uncoated woodfree accumulated demand in 2021 grew 3% year-on-year. It is important to highlight that the current market decrease is only slightly higher than the structural market decreased before the pandemic. Looking at the growth rate. The component growth rate 2019-2021 of minus 3.3% per year versus the compound growth rate 2014-2018 with a minus 2.4% per year. But worth notice that office work is not yet contributing to the increased demand during 2021 due to the dynamic limitations on normal work office. In terms of the supply and demand balance, there have been some shutdowns and conversions that are creating positive pressure. In North America, producers have been reducing their uncoated woodfree capacity by approximately 1.7 million tons. In Europe, the reduction in uncoated woodfree sales add approximately 1.2 million tons for the period 2019 -- since 2019. European imports at low levels pressured by price availability and cost, while European producer sales in Europe up to 10% year-on-year. Finally, just a word on prices. We saw a positive and gradual evolution since the beginning of the year. Paper benchmark in Europe had a positive evolution following industry price increase announcement due to inflation costs. The benchmark index in Europe stood at EUR 976 per ton at the end of December, well above the EUR 806 per ton at the beginning of the year. Navigator demand increased in all regions during the year. The upward trend of sales prices over the course of 2021, mainly during the second half, resulted in an average sales price for the year higher than that recorded in 2020, up to 6%, while other also outperforming the benchmark index up to 1%. In uncoated woodfree, the average price between January and December went up almost 30%, an unparalleled increase in the group's history. So we go to Slide 14, where we have a few remarks on group's paper performance. Navigator closed the year with an order book above 80 days, an all-time high record. The market share among its European competitors increased in the second half compared to the first half, in Europe, up to 2 point percentage and worldwide, up to 2.4. To highlight the resilience and Navigator's dynamics, Navigator diversified its product and markets in reaction to the pandemic situation in Europe, channeling more of its sales to overseas markets. In the second half, the group kept pace with surging demand in Europe and in the U.S.A. with growing sales in these markets. Regarding Navigator product mix, the share of premium paper increased 4% and the share of mill brands increased another 1 point percentage when compared with 2020. Now looking into tissue performance on Slide 15. Tissue performed well during 2021 despite the volatile environment. The sharp rise in pulp prices over the years, currently peaking at USD 1,140 per ton for BHKP in Europe, has put heavy pressure on the margins of tissue producers with a large number announcing price rises. Tissue sales were up by nearly 3% above market performance. This good performance stands on top of the business performance of 2020 when it recorded a 7% increase, positive evolution on average selling prices, along a favorable sales turnover. Tissue sales stood at 105,000 tons with sales of finished products once again overcoming 80,000 tons as tissue consumption normalizes from 2020 level. In 2021, Navigator launched the new differentiated and innovative products such as us Amoos Naturally Soft, offering a high standard of softness without using chemical bleaching agents, Amoos Aquactive. A new generation of tissue paper incorporating soap, Amoos Air Sense, with a perfume activated on every usage. Navigator continues to step-up its commercial presence in this segment, investing in differentiated products and creating new sustainable and environmentally responsible better ranges, offering an innovative response to customer needs. Fernando will now give some color on CapEx. Fernando, please.

Thank you, João. On Slide 16, we have an overview of CapEx over the year. Capital expenditure in 2021 was close to EUR 80 million. This amount includes mostly projects aimed at modernizing plants, maintaining production capacity and achieving efficiency gains. But it also includes EUR 14 million in environmental projects and decarbonization, mostly significant with the final components of the investment in new [indiscernible] at Figueira da Foz and the new evaporation line in [indiscernible]. The exclusion of the CapEx planned during 2021 was constrained by restrictions related to the pandemic, as already mentioned. If maybe you recall that in 2020, in view of the specifics created by the pandemic, Navigator only is beyond the biomass valuing investment, potential projects to maintain the group's capacity projects while postponing all other projects. As the outlook, we can clear exclusion of CapEx plan resumed at the end of the first half of 2021. The next few years are expected to bring a gradual resumption of activity, and the CapEx plan will return to the levels of previous years. 2022 CapEx plan will be targeted to assess the replacement and performance, environmental and decarbonization projects and at the Industry 4.0 as well. 2022 plan contain also several projects to modernize plants and facilities, some of them launched already in 2021, such as the new wood processing plant in Figueira da Foz, the new evaporation mine in [indiscernible] and replacement of coil or wireless by new natural gas points. But there are also other projects that we are considering. The European council has created a next-generation EU a strategic instrument to mitigate the economic and social impact of the [indiscernible]. The recovery in resilient mechanism has been developed on the basis of this instrument, and recovery resilience plan fits into this framework. Navigator's commitment to innovation and to projects that promote resilient climate and digital transition position the company for investments and the recovery and resilience plan. Navigator submitted a number of applications together with other companies in line with its own strategy, namely, the project from fossil to forest, focused on several packaging initiatives, but also many other projects in partnership with [indiscernible] and other companies are being considered, namely projects focused on biomass-based ethanol, another one focused on e-methanol produced from green H2 and biogenic CO2, a project that aims at the industrial-light secularity, one on industrial [indiscernible] focused on logistics and another one focused on digital installation of forest value chains. These projects were successful in moving to the next stage, and the former submission will be made at the end of first quarter of 2022. Navigator is thereby focused in its growth strategy and meaningful investments and our partnership unities from portion. On Slide 17, we have an update on the package project, good start of packaging project. The group has continued to invest in the packing segment with both production and sales dynamics continuing as planned. This paper machine 1 and paper machine 3, machines at Setúbal mill ensure supply on a flexible basis with PM1 already fully dedicated to packagers white and brown, and the packaging sector achieved sales of more than EUR 40 million in 2021, sending bag manufacturing industries flexible packaging and corrugated bags and boards. Sales reflect favorable conditions on demand. The efforts in developing innovative products and the creation of a broad base of new clients, reaching in 2021 a total basis of 125 active packaging clients. The ambitions product with [indiscernible] plan launched in 2021 will continue into 2022 through the expansion of the existing range and the innovation and development of new sustainable packaging solutions, able to replicate fossil plastic-based products. Last quarter, Navigator launched the gKraft brand. As said before, gKraft presents itself as the best solution that guarantees the reduction of use of fossil material, mainly single-use plastics, by using renewable, recyclable and build bigger enable forest materials and the concept from fossil products. This will help us all to build a more sustainable future. Despite the improved specs in paper for almost 30 years, Navigator Company capitalized on the pandemic period to carry out extensive research, development and innovation, led by a multidisciplinary team and supported by RAIZ for every such incident, which took advantage of the specific molecular structure and morphology of the collective global spirits to develop resistant and sustainable better materials as alternatives to single-use plastic. These virgin fibers are safer and healthier for the food industry when comparing with the usage of recycled fibers that are recognized to carry harmful contaminants. Estimated CapEx for PM1 and PM2 machines fully dedicated to package of EUR 50 million, EUR 60 million until 2025 with total capacity of 250,000 tons. So as a recap, this continues to be an extremely attractive growth and diversification options with low risk, limited CapEx at start and significant return of capital employed, given the moderate level of investment and the possibility to replace uncoated woodfree less added value products. Additionally, the growth can be done in the first phase by improving the use of consistent uncoated woodfree assets, opening the way for future greenfield investment, new machines as we learn how to efficiently operate in this market. João Lé will update on Mozambique project.

Thank you, Fernando. Let's go to Slide 18, please. Navigator and the Mozambican government have continued to work in the implementation of an Outgrowers program, a government initiative with World Bank's funding and other partners that aims promoting small and medium-scale sustainable commercial forest protections and restoration of degraded areas. We keep also focusing efforts on establishing the necessary groundwork for Phase 1 export wood chips, in particular, but not exclusively on logistical issues relating to the Port of Macuse. The Port concessionaire, TML, and the U.S. Fund Asset Management Inc. announced in the market in mid-November the conclusion of a long-term financing agreement worth USD 400 million that will assure the construction of Port of Macuse Phase 1 and access roads. This will entail building terminals for agricultural products, operations, wood chips, fertilizers and fuels able to accommodate vessels up to 65,000 deadweight tons. And the construction is planned to start in 2022 and operating in 2025. And currently, Navigator has other initiatives ongoing. Approximately 100,000 cubic meters of own and third-party wood was, obviously, in the course of 2021. And 3 vessels have been shipped to Portugal, totaling around 90,000 cubic meters. Further 5 vessels are planned for 2022 with new markets for wood export being considered. Among other goals, this will put Mozambique in the world map of the forest -- in the forest-based industries. More opportunities for wood exports are being analyzed that can enhance the continuous wood flow in the next few years from Manica to worldwide markets. Reforestation in Manica province aiming to renew harvested areas and guarantee the sustainability of the forest alongside forest maintenance activities with a view to the new product cycle. The company signed up in 2021 to the Circular Bioeconomy Alliance, CBA, underlining its commitment to the circular economy with the aim of reversing forestry in rural areas to more resilient and developed landscapes. CBA is an initiative sponsored by His Royal Highness Prince Charles, which plays nature at the heart of the global circular bioeconomy. This inclusive project takes a holistic approach that ensures the integrity of ecosystems, community development and well-being and increasing production of natural products. Now moving on to our sustainability commitment on Slide 19. Following the commitment made in the 2030 agenda, Navigator has signed up to the Science-Based Target Initiative. And underlining this commitment, as opposed to what the majority of the peers from the sector have been doing, the company immediately submitted for validation its targets for cutting greenhouse gas emissions. On the basis of the latest climate science, therefore, is missing the 2-year period that companies dispose and typically used to do so, taking another important stride in its positioning to fight against climate change. Scope 1 and Scope 2 targets, consistent with the level of decarbonization required to keep global temperature increase to 1.5 degrees and for Scope 3, well below 2 centigrade degrees. To highlight the annual assessment by the sustainability rating agency published in late January, which again puts Navigator at the lowest-risk level as well as improving its previous rating to 14.3. Navigator was ranked third, out of a total of 81 global companies in the paper and forest industry cluster and third in a subset of 60 global companies in the paper and pulp assets. Navigator's score reflects its ongoing efforts to integrate sustainability as a priority in its business model, demonstrating its capacity to anticipate and manage ESG risks in the conduct of its operation. Regarding Navigator's carbon-neutrality program, recall that Navigator's road map objective is to reduce 85% of the CO2 emissions from 2018 to 2035, and this remains unchanged with 2021 achieving a reduction of 30% of CO2 direct emissions at mill sites as of 2018, which with 35% of total reductions goal already achieved. Fernando will comment now on the HCF generation.

Thank you, João. Let's go to Slide 20. Strong free cash flow generation of EUR 230 million, EUR 52 million in Q4, reflecting the good operational performance. Investment in working capital was kept at low levels over the year in a context of a moderate hike in some stocks, following the gradual activity have turned. Above all, this was observing pulp stocks, which, although still at historically low levels, rose slightly in 2021 from the historical but unsustainable low level at year-end 2020. In this context, our supplies management policy, combined with the provision of liquidity to support client solutions for our partners, actively contributed to the level of cash flow generation. Going now to Slide 21. Net debt has significantly reduced, less EUR 85 million compared to year-end 2020, despite the payment of EUR 100 million in dividends during the first half and in advanced profits of EUR 50 million in December regarding 2021 profit of the year. Supported by the improvement in operational performance, the net debt-to-EBITDA ratio of 1.68x shows a downward course, further consolidating the robust financial position of the group over last years. On Slide 22, we have an overview of our debt maturity profile. Group's debt profile continues conservative. Two financial transactions in 2021 were especially significant as they paved the way to our sustainable findings. In the first half, the company issued EUR 35.5 million related to a loan contract with the European Investment Bank in 2020. This step was directly linked to the new biomass boiler at Figueira da Foz industry or complex, which, with overall capital expenditure equivalent to EUR 55 million, will enable the company to reduce emissions of fossil carbon dioxide. Then in the second half, Navigator issue a sustainable-linked bond of EUR 100 million index to ESG goals. With these two operations, we reached year-end 2021 with approximately 20% of total borrowings on a sustainable finance base. This new 5-year sustainable liquid bond was issue against early repayment of a financing operation of the same amount, EUR 100 million, which has been due to mature in 2023. This operation, which was combined with a floating profit swap, further extend the average maturity of the group debt and reduced company's financing costs as well represent a commitment to sustainable goals alignment. The terms of the loan and index to ESG indicators envisioned in the company's sustainability agenda, which in turn are aligned with the United Nations Sustainable Development Goals. The first indicator sets targets for reduction of CO2 emissions, consistent with the company roadmap for carbon neutrality. As João mentioned, in 2021, Navigator already achieved a reduction of 30% of CO2 direct emissions at mill sites as of 2018, circa 35 of total reduction go. The second indicator sets targets for increasing the percentage of certified wood purchase on the Portuguese market. Certification of wood is one of the most direct routes to achieve sustainability goals in our business sector. And the best guarantees that process leading to sustainable forest management have been adopted. After distributing dividends of EUR 100 million in the first half of the year, the group foresees, as already mentioned, to pay interim dividend in December in relation to its 2021 profits, totaling EUR 15 million. We're also maintaining a cash position of EUR 239 million at the end of the year. The average cost of debt remains low, and the weight of fixed debt rate increased to 86%. In January of 2022, Navigator paid already EUR 65 million of commercial pipeline, reducing the debt. I will return the slot now to António.

Thank you, Fernando. Let's please turn to Slide 23 with an overview. [Technical Difficulty] I will probably start on Slide 23 because we had a technical problem with our mic here. So I invite you all to turn to Slide 23, where we have an overview of what we have just presented. We had a record quarter, and we also see a very good first quarter approach here. Driven by demand, Navigator registered the largest order book ever above 80 days that has been kept so far this year. With full year results showing our resilience as well, tissue business with total revenue increasing 3% after an increase of approximately 7% in 2020. Also would notice a good start of the packaging project with turnover above EUR 40 million. In parallel of the Phase 1 export of wood chips of Mozambique's project, 3 shipments from Portucel Mozambique exported, and further 5 vessels are planned for 2022 with new markets for wood export being considered. Net debt reduction to EUR 595 million, allowing a comfortable net debt-to-EBITDA ratio of 1.68x. Following the commitment towards 2030 agenda, Navigator joined Science Based Targets Initiative and submitted simultaneously its goals for validation in reduction of green gas emissions (sic) [ greenhouse emissions ], therefore, dismissing the 2-year period that companies dispose and typically use it to do so, taking advantage of its level of preparedness. Aligning emission reduction targets with the latest climate science is an important step to reinforce the company's leading position in contributing to fight climate change. Regarding capital allocation, the Board will propose the distribution of an ordinary dividend of EUR 0.1406 per share, totaling around EUR 100 million, in addition to the EUR 50 million advanced plus December. Finally, a few words on the outlook on Slide 25. On the pulp side, China is registering a climb on index prices since the end of 2021, driven mainly by supply and logistic disruptions and a moderate to low-level of stocks throughout the pipeline. In Europe, pulp prices will be supported by economic recovery, healthy level of demand, also logistic constraints in exports from Latin America and Europe and the ongoing labor dispute in fitment. Going forward, a significant increase in supply in Latin America and possible improvement in the present logistics situation are expected to create a downward pressure on prices. On paper, a positive outlook with economic rebound and a strong balance between supply and demand to occur in the first months of 2022, both in Europe and U.S.A., following the capacity closures already announced. Above-normal order books, balanced low pipeline stock, reduced capacity, while logistic constraints continue will keep to consolidate this perspective. In 2022, Navigator will also expand its client and packaging offer into new markets. Regarding the tissue business, as tissue consumption normalizes from 2020 levels, demand for tissue products is expected to gradually take up in Iberia as tourism, and consequently, away-from-home segment activities recover. Navigator will continue to analyze strategic opportunities to grow its business. These views, paralleled with the global economic recovery, lead us to believe that commissions on pulp, paper and tissue segments will remain globally positive in the coming months. However, with the strong inflationary pressures on virtually all relevant depots, which will oblige in the short term to pass along new price increases. Thank you.

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

[Operator Instructions] And the first question comes from António Seladas from A|S Independent Research.

So the first one is related with energy. From your press release, I understood that your cogeneration facilities are now going to sell energy in the market instead of regulated prices. However, I also understood that, that will offset the increase in energy, which means the final result will be close to nil. So just to confirm if I understood well. Second question is related with the shipping market. If you can provide some insights, and how do you expect it will evolve over the year? And also locating your cost base, that increase sales also increased too, fortunately. But your cost base, should we -- well, is your cost base now starting to flat versus Q4 last year or do you still expect more price increases? And well, and finally, just pulp prices. You already mentioned that expect that pulp prices could come down by the second half of the year or by the end of the year due to higher supply. Well, if you can provide more color on this or it's just not what we mentioned.

So just to be clear, the first question is regarding on energy and pricing and full prices outlook as well?

Exactly. And then the other one is related with the shipping market, the current constraints, how do we expect that will evolve over the year? And how do we expect your cost base, your variable cost base will evolve versus Q4 2021?

I will pass to António.

Okay. I will try to answer the 3 questions, and I invite my colleagues to add any further details that I might miss. Regarding your first question, yes, you are right. Our cogeneration facilities are all now on market sales, and this will compensate the rising prices for energy. But we believe that it will more than compensate the rising prices for energy. However, and I will probably jump to the last question, the cost -- we still see a lot of pressure on our cost base, not only on energy but on all other raw materials, wood, chemicals and logistics. I will come back to logistics. So even if we more than offset the energy bill by selling our cogeneration facilities on the market, the remaining cost drivers will probably get a good part of the delta we will generate by selling the energy. So in reality, we have -- we still see pressure on our cost bases. And how are we dealing with the pressure? We try to be more efficient in all our operations. We have ongoing programs in all mills to improve the specific consumption of different input in our pulp, paper, tissue and packaging operations. Regarding your question about shipping, we're still shipping -- we still see the shipping market quite tough, particularly, which was what affected us most in 2021, deep sea. We have impacts in rolled. We had impact in short sea. But by far, the largest impact were in deep sea, and we still see impacts going up in some lines on deep sea. We hope this impact will be reduced along 2021 -- sorry, along 2022. It's very early to say for how much and when. But as we mentioned in previous conference calls, let's not forget that the maritime lag is only one part the full logistics model. We see still issues at ports. We still see issues in road transport with lack of truck drivers in many regions across the world. So even if the shipping market eases a bit along 2022, it's not fully guaranteed that the remaining logistic elements will be easy during the rest of the year. I would like to go back to shipping in a second, but I'll try now to answer your question regarding pulp. We see the trend in 2022 as we saw it probably in November, December. We just see this trend starting up into a much higher level than we were anticipating, but the trend is the same. So I think we didn't mention that we see prices going down on the second half of the year or in the last part of the year. We don't know. I don't think it's adequate to comment when prices will go down, but we see the trend as more or less the same as it was before, however, starting with a more comfortable level than we were all anticipating 3 or 4 months ago. Regarding shipping market, let's not forget the following. As it was mentioned by myself and my colleagues during the call, although shipping costs are an important part of our costs, and they have been increasing, they have also been protecting significantly prices on all grades, on pulp, on paper, on tissue and on packaging. So shipping -- the overall balance in between the increased cost of shipping and the fact that Europe and our, let's say, closer influenced markets, like Middle East, North Africa, and so the overall balance has been positive in spite of the shipping cost increase.

Okay. So just to recapitulate shipping, despite the direct price increases because it is closing EMEA to import, has been positive or the net result is positive is what you mentioned, yes?

Yes, overall.

Okay. Congratulations on the figures.

Your next question comes from Carlos Jesus from Caixa Bank.

I have a couple of questions, if I may. First of all, can you provide when do you think or when do you expect the normalization of working capital needs going forward? The second question, coming after the ones that were answered in terms of OpEx, you expect that price increases that the company is implementing could offset completely the cost inflation in 2022 and its impact on margin? And finally, a third one, if I can. Can you give us any light on what is the impact on margin from your packaging business?

Carlos, thank you for your questions. So just to recap, the first question is about working capital needs? Next, OpEx and the relation between price increases versus inflation costs, right?

Yes.

And packaging margins?

Yes. The third one, I think that you mentioned EUR 40 million of contribution from packaging. I don't -- just wanted to see if you can provide any light in terms of margin, yes.

Okay. Thank you. I will pass it to António.

Okay. Carlos, thank you very much for your questions. I will probably start by second and third. I'll ask João Paulo to make some further inroad into this question. We will now pass your first question on Fernando. So regarding price increases, of course, we are working towards the compensation of the costs to all the price increases. Probably, it would be good to mention what has happened so far in 2021 and already in 2022 by main regions. In Europe, we had last year four price increases. We have already done this year two price increases, one in January and no later than today, we have another one for March. In U.S.A., last year, also, we increased prices 4 times. We had another increase already this year, and we do believe that the conditions will be so that most likely, in the first half of the second quarter of the year, another price increase is possible. All overseas, and overseas is a big bucket of countries, we have last year 3 to 8 price increases, depending on the region. And this year, we have one or two. And we also believe in the second quarter more to come. So we are doing a lot of effort on the price increases and applying surcharges to compensate the costs. So I mean it's very soon to say if they are all fully compensated, but I can tell you that our commercial teams are very much committed to work with our customers in this direction. Of course, these price increases are not all led by cost increases. These price increases are less by what we have mentioned before, supply chain and logistics disruptions, reduce the capacity by some of our competitors that have shut down capacity. And last but not least, but very important, a demand that is recovering, namely, it was mentioned during the call, mainly in Europe, which is by far still our main market. The demand of uncoated woodfree in the last two years which is a negative demand but does not distinguish itself from what was the trend before the pandemic. And we don't have yet the office work fully in store. Therefore, office paper is not yet fully consumed. So the price increases are not only led by cost increases but also led by the overall market dynamics. Regarding our packaging business, the margins of our packaging business, as we mentioned before, our packaging business today, the objective is to reduce the tile -- so the worst businesses of uncoated woodfree, and we have successfully done so. So we can tell you that contribution margin on average, we reached not far from twice the last tons -- the equipment plus tons of uncoated woodfree. I'm not thinking about the last tons of uncoated woodfree that are gone. I'm speaking now about plus uncoated woodfree that remains. So we are confident that so far, the packaging business generates marches that are quite interesting. João Paulo?

I think I won't be where anything else. You mentioned all the most important points. Just as an add-on the packaging business internally has to compete along with the uncoated woodfree business. And we are, therefore, creating an internal, let's say, competition because the machines are able to produce both uncoated. And packaging machines are quite flexible, and therefore, we have this internal let's say, competition, as I mentioned before, that will help us to select the best businesses for the company. At the end of the day, that's the most important thing.

Regarding working capital needs. I'm not quite sure what you intend with the question. What I can say is we are above the levels of December 2019. At December 2019, we had working capital of EUR 28 million. Now we have EUR 40 million. And regarding December, we are below December '20, where we had EUR 75 million of working capital. I would say that after the pandemic, we are more cautious, more rigorous. And we have more instruments to manage the working capital and free cash flow generation. I would say that we intend to be in the same level that we are having today. But as we expect a little more on clients, we expect our turnover will increase. For sure, the inventories will increase. But we are confident that despite these low levels comparing with forensic 2018, we have instruments to manage and do not exceed the balance of 2020.

Our next question comes from Bruno Bessa from Caixa Bank.

The first one was related with the change to market sales in your cogeneration business. Just trying to understand if you could give us an indication of what will have been the impact on the EBITDA in the fourth quarter of 2021 if all your production units were selling energy to -- at market prices. So this will be my first question. The second question related with the tissue business, trying to understand where the profitability of this business lies to lay considering the very high level of pulp prices. If you could give us an indication of the EBITDA margin or at least how it compares with your long-term objectives, it will be appreciated. And the third question, if I may, related with your cash flow and dividend policy. You already announced this EUR 100 million dividend to be proposed to the shareholders meeting. This will mean EUR 150 million dividend to be distributed related with the 2021 results. And my question here is if you feel that you have room to distribute another dividend on top of the EUR 100 million you have proposed this year considering the strong evolution of the paper industry and your healthy balance sheet situation. And that will be all from my side.

Thank you, Bruno, for your questions. So just for recap, the first one will be about energy and the change on the regulation context on energy, then about tissue business profitability and regarding cash flow and dividend policy. I don't know if you have any more questions, I think these are the four ones that you will talk about.

Perhaps I can start with the easiest one, about the dividend. For the moment, we are not considering any further distribution of dividends.

Thank you, Fernando. Regarding your first question about energy, if I understood it correctly, in Q4 last year, we didn't have the installation -- all the installations. We have one installation selling in the market only in Q1 this year. And not exactly in the beginning of January but during the month of January, we have the other installations selling into the market. Regarding your second question about the profitability, and I fully understand your question because some of our competitors already published results on their tissue operations, which were considerably worse than 2020. Actually, this was not our case. The results have not been as good in terms of EBITDA margin as 2020, which was a very good year for tissue, an excellent year for tissue. But the results have been on the same ballpark figure, no matter if you speak about total EBITDA margin or EBITDA in terms of percentage margin. So we are quite happy with the results of tissue so far. And as mentioned before, we do believe we have here an area that we can further reinforce into the future.

Yes. Just a follow-up, if I may, on the energy with -- on the question related to the energy topic. My question was a bit on the sense -- of trying to understand what would have been the EBITDA in Q4 if you have all your cogeneration plants selling at market prices. I know that only from January or only from Q1 this year you will move to that regime. But if you were in that regime during the fourth quarter of last year, would you have an estimation of the EBITDA that you have generated in Q4 under these circumstances?

Bruno, thank you very much again for your follow-up question. I think we understood very well your question in the beginning, but this is exactly what we are prepared to share at this moment.

[Operator Instructions] Our next question comes from António Salida from A|S Independent Research.

Just as a quick question, regarding CapEx for 2022. You didn't mention the figure, but should we take in a level between EUR 110 million and EUR 140 million? You think that this is a right figure or -- millions, of course. EUR 10 million?

As you know, António, we don't give this kind of specific guidance. But we have in previous calls mentioned that our normalized CapEx would be ballpark figure not far from EUR 100 million to EUR 100-plus million. So I think -- although we are a bit delighted because of the reasons we have explained during the call on the -- on launching some projects. And at the same time, all suppliers are also delayed in supplying the equipment, the materials and so on, we believe that we are going back to a more normalized figure. Probably the second figure you mentioned, the highest figure you mentioned is a bit too high.

Thank you. We currently have no further questions. So we'll hand over back to the management team for any webcast questions.

Okay. Thank you. We have no further questions. So this ends our session. Thank you all for your time. As always, we are available for any additional clarification through our IR usual contact. Have a great day.