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

Good afternoon. We welcome you to The Navigator Company Full Year Results 2024 Presentation. [Operator Instructions] I now hand the conference over to Ana Canha. Please go ahead.

Ladies and gentlemen, welcome to the Navigator's Company conference call and webcast for the fourth quarter and full year results. Joining us today are the following Directors, Antonio Redondo, Fernando Araujo, Nuno Santos, Joao Le, Dorival Almeida, Antonio Quirino Soares. As usual, we will start with a short presentation followed by the Q&A session. You can access the presentation through the links on our website, and you can also send your questions via the webcast platform. Antonio will begin by presenting the main highlights for the year. I will now hand over to Antonio.

Thank you for joining us today. I am very pleased to be here once again and to share with you our fourth quarter and full year results. As you will see in today's presentation, 2024 was reached in initiatives and achievements that reflect our commitment to growth and diversification. Navigator has once again proved to be in a unique competitive position in Europe in terms of the efficiency in which it manages the mix of businesses and within each business, its product, market and customer needs. Navigator has consistently shown flexibility in adapting to different market dynamics, focusing on value creation, growth and diversification as once again, was the pace this year. I will start with Slide 4 for an overview of the year. Pulp prices saw a sharp increase in H1, followed by severe correction in H2, contrasting with a stable paper price. Orders for improving wood-free paper and packaging improved especially in the first half and the end of the year. Tissue paper remained strong throughout the year. Navigator ended 2024 with a total turnover of around EUR 2.09 billion, up 7% year-on-year, the company's second-best results ever with the new business, tissue and packaging already contributing 26%. EBITDA totaled EUR 547 million, with an EBITDA margin of 26.2%. Again, the company's second best result ever in both cases, turnover and EBITDA even when not including the 2 recent acquisitions in the Tissue segment in Spain and in the United Kingdom. Thanks to leading price increases, volume growth in most businesses and proactive management of mixes: product, brand, customer and geography, as well as a continuous focus on cash cost management. In fact, cash costs were again significantly reduced with 2024 presenting an accumulated year-on-year reduction of between 2% and 10%, depending on the business segment. We continue to deliver our diversification plan. Following the successful integration of Tissue Ejea concluded last year, we acquired Acroll in U.K. during the second quarter. We also continue to diversify the packaging business by doubling the volumes and expanding our customer base through existing and new applications, in particular, in the Flexible Packaging segment. These new products for new final applications were launched during 2023 in an extensive program of customer presentations and trials, and are now generating more significant sales volumes. In the Packaging segment, Navigator has also start up production at its new industrial unit for molded fiber packaging in Aveiro. This is not only the largest operation in Europe, but also the first in the world to produce this type of packaging in a vertically integrated unit using eucalyptus fiber. A few days ago, we achieved another very relevant milestone. We are now -- the first molded fiber producer in the world, compliant with BfR XXXVI and EU 1935/2004 for food contact applications. All this, while sticking to conservative financial follow, the net debt-to-EBITDA ratio stood at 1.13, further consolidating the financial strength displayed by the group. Turning to Slide 5. We can clearly see the resilience of navigated business model. In fact, Navigator has shown exceptional stability in delivering results even in a highly volatile market. Navigator leverages it's unrival [indiscernible], cost efficiency and strategic focus on premium and mill-branded wells, which is strong and sustained results. Business diversification into high-quality tissue papers and innovative packaging solutions together with the investment across all mills in efficiency and environmental improvement, ensure long-term profitability. This robust positioning enables Navigator to consistently outperform in peers, even in challenging market conditions, underscoring its resilience and competitiveness. Turning to Slide 6, please. You can see a hallmark of Navigators strength applies in its ability to generate substantial cash flows driven by its vertical integrated model and leadership in pulp and uncoated wood-free paper production. These cash flows have been strategically reinvested to grow and diversify the business, while continuously paying shareholders a robust dividend. Navigator's business results have been boosted by the recent international expansion and diversification of its asset portfolio. New business [indiscernible] packaging already accounting for 26% of the turnover. This business diversification attempts from Navigator growth -- Navigator turnover and EBITDA continues to grow with a compound annual growth rate of approximately 3.5% and 4.4%, respectively, from top 27 [indiscernible] and continuously turnover remained stable from 2017 to 2024. While we managed to significantly improve [indiscernible] margins and in addition with less and [indiscernible] volumes, but better margins. We have added pulp sales that we didn't integrate with benchmark margin levels for an European-based hardwood producer. I will now hand over to Joao, who will provide more details on responsible investment.

Thank you, Antonio. Turning to Slide 7, please. As Antonio commented, responsible investment for climate and nature and society -- and for society with a positive impact on the profitability of our business, securing our long-term growth, while we build a sustainable future for everyone. Navigator's decarbonization road map is ambitious and requires action in a huge number of locations and processes across the company, involving around 23 initiatives, of which 17 are supported by the recovery and resilience plan and one by the innovation fund, European Union Fund for climate policy focused, in particular, on energy and manufacturing. We also -- we are also working on water efficiency with investment of more than EUR 25 million to look at water in use and promote water circulation. Since 2019, specific use of water in operations has fallen by around 13%, a significant step towards achieving target of 33% reduction by 2030. Navigator is likewise committed to investing strategically in digital technology and cybersecurity, ensuring its operations are resilient, efficient and innovative, evolving to face the challenges ahead in its business and with competitive advantage when promoting sustainable development. In the past 2 years, the company has worked on more than 30 digital projects using artificial intelligence, machine learning and artificial vision in different business areas and segments, bringing rewards in terms of lower production costs, optimization of processes, customer satisfaction and workforce productivity. Our commitment to health and safety remains firm. We continue to focus on our Mission Zero strategy. This year, we achieved the lowest ever accident rate down by 40% since 2020. We see this as a historic milestone reflecting the progress we have made in the company's stronger safety culture. Aware of the need to manage natural resources responsibly, Navigator has made remarkable strides in its contribution to management of Portugal forests, namely by setting up the Forestry Producers Club. Since November 2023, the club has grown to more than 185 members, representing a combined turnover of more than EUR 600 million and accounting for more than 3,100 direct jobs. This club is [ empowering ] and unique program for strengthening relations with our partners, and making an important contribution to a significant increase in Portugal's forestry yields and good output by disseminating the sustainable and active management practices in the country's woodlands. We seek to reinforce our strategy and our ability to conduct our operations successfully and sustainably by building partnerships with different stakeholders incorporating with the organizations that share our values, creating a positive impact on society, the climate and nature, and Tony will comment on financial highlights. Antonio, please?

Turning to Slide 8. Moving on to the financial highlights. Net profit stood at EUR 287 million, up 4%, also the second best ever results achieved. CapEx totaled EUR 141 million, half of which classified as value-added sustainability investment, making strong contribution to reduce future cost. Net debt increased by EUR 128 million in relation to year-end 2023 after significant outflows, namely the payment of EUR 153 million for Accrol's acquisition, the distribution of EUR 150 million and a strong level of CapEx, value-added CapEx, as Joao also mentioned. While maintaining a strong financial position with a net debt-to-EBITDA ratio nearly 1.16. Turning to Slide 9. We can take a closer look at the main impacts on EBITDA in a year-on-year comparison. Although still below last year's level, market prices [indiscernible] tissue, show a net worth price comparing second half of 2024 versus second half of 2023, reflecting price resume. In terms of volumes sold, we saw an increased volume of printing and packaging paper sales, up 8%. Thanks to the faster pace of new orders up to May and again at year-end, as I've mentioned before. Drop in volume of pulp sales down 16%, due to increase in corporation in paper product was offset in part by higher paper price -- higher price year-on-year, up 13% and an increase in tissue sales up 55% driven by growth in sales of finished products and by the additional capacity provided by our higher tissue mill as from the second quarter of 2023 and by the U.K. tissue operations as from 1st of May last year. As it was mentioned, there was again a significant reduction in cash costs between 2% and 10% in all Pulp and Paper segment. Printing and writing tissue and packaging. Total fixed costs ended up higher than in the same period last year due to the inclusion of both Ejea and U.K. unit, and employee profit sharing as well as higher redundancy costs and the workforce resumation program and nonrecurring costs related to the Acroll acquisition. However, when the new acquisitions are excluded, fixed costs, not including personnel costs rose by well under the rate of inflation for the year. A comment on the fourth quarter result. The results were brought down by the longer-than-planned annual maintenance shutdown at one of the mills and by a series of one-off events in our energy assets, namely problems identified in the course of the planned shutdown of our largest power generation turbine, a breakdown in the power supply transformer, interrupting our supply to the National Grid and unplanned shutdowns of 2 biomass boilers. This sequence of events relating to situations, which have since been sold result in a significant reduction in power sales and increased purchases of natural gas and electricity during a period close to peak prices for this [indiscernible]. In addition, the drop in pulp price, together with higher prices for chemicals, also energy-related had as well a relevant impact on results for the year. Turning to Slide 10, we can look to our financial position and specifically our debt maturity profile. Over the year, navigate to repay debt of nearly EUR 100 billion, and at the same time, took on a significant volume of new long-term financing of more than EUR 330 million. As a result, Navigator continues to enjoy ample liquidity above EUR 500 million, an appropriate level of average debt maturity, with rationally staggered repayments, and approximately 60% of the total debt tied to sustainability versus 40% cost. And with nearly 90% of total debt issued on a fixed rate basis enabling us to maintain low financing costs. It should be noted that despite the new facilities contracted, incorporating higher market interest rates, our average cost of financing by the end of the year remained low at approximately 2.4%. I will now hand over to my colleagues for a brief commentary on each of the business segments starting with [indiscernible] with a comment on the time.

Thank you, Antonio. Moving please to Slide 12, we have the evolution of pulp and paper prices. After the first half of 2024, marked by the strength of the benchmark index from hardwood pulp price in Europe in dollars, which rose to record levels in early July to USD 1,440 per ton. The second half brought a severe correction in prices in China, ending the year in China at $545 per ton. This slump in prices confirm 2024 downward cycle and the fastest and sharpest in recent years. As a consequence, prices also adjusted downwards in Europe in the second half of the year, most markedly in the fourth quarter, ending the year at $1,000 barrels per ton. This volatility in the pulp price contrasted markedly with the resilience in benchmark prices for printing and writing paper, which were very stable during the year, as Antonio mentioned in the beginning. The benchmark index for office paper in Europe stood at EUR 1,096 per ton at the end of December, up slightly from its level at the start of the year, which was EUR 1,092, pointing again to the resilience of pulp price in Europe. We noted that the index closed the year of 2024 at an average price of EUR 1,107 per ton, representing an increase of 31% over prepandemic levels, which was EUR 845 per ton between 2015 and 2021. If we move now to Slide 13, we have summarized the main development [indiscernible] Apparent global demand for printing and writing paper grew by 0.5% across all segments with demand for coated wood-free papers at 0.3%. Total papers growing by 0.5%, whilst mechanical papers experienced growth in demand of 1.2%. In Europe, apparent demand for uncoated printing and writing papers grew by 8% year-on-year with the strongest growth in paper for printing industry, 10%, followed by office paper, 8% and reels for the paper processing industry growing by 5%. In the United States, demand dipped by just 0.2%, while in China recorded a growth of 2% up until November 2024. Significantly, uncoated woodfree has remained the most resilient segment of mills, especially due to its versatile end users. Unlike other grades, where demand has slumped since 2020 and uncoated woodfree has been practically flat, declining 0.58% a year, as compared to a drop of 4.1% in uncoated woodfree and 6.9% in papers made from mechanical pulp. All of this during the period of 2020 to 2024. To be noted that in challenging markets, own brands and high-value segments provide excellent production for Navigator's results. In fact, premium product sales increased their share tower and pulp business this year, while mill brands and products kept the record high share. In fact, premium products boost margins by yet to 80% more in relation to [indiscernible] pulps. Now I will hand over to Nuno who will give you some market context on pulp.

Thank you, Quirino. Turning to Slide 14. As Quirino just mentioned, the second half of '24 brought a strong price correction in China and in Europe. On the demand side in Europe, pulp consumers performed well this year, especially in printing and writing and packaging paper industries, we then got [indiscernible] up 8% year-on-year, as Quirino just mentioned, and Tissue up 7% year-on-year. On the supply side, new capacity in Chile and Uruguay, which started in '23 and the start-up of new production capacity in '24 in Latin America and China, both led to a gradual increase in supply, especially over this period, putting downward pressure on prices. Global demand fell by 2% for bleached chemical pulp, reel demand for hardwood pulp fell 1% with eucalyptus pulp growing by 1%. It is worth noting that worldwide, eucalyptus pulp represents almost half of all pulp in the market and nearly 80% of hardwood pulp. Eucalyptus kraft market pulp was an innovation just by the Navigator Company in the 50s that became a world center in hardwood pulps. Looking at tissue performance on Slide 15. Demand for tissue paper remained strong, up 5.4% in Western Europe, boosted essentially by the recovery of the away-from-home segment and growing household spending power. Navigators tissue sales were up by 55% year-on-year, driven by the additional capacity provided by Navigator Tissue Ejea as from the second quarter of '23. And by Navigator Tissue U.K. from 1st of May, of '24. Sales of outside Portugal in our Tissue business accounted for 79%. Sales broke down into 97% finished products and 3% reels, representing an improvement in the mix of 3 percentage points year-on-year. In terms of client segments At Home or Consumer retail has grown currently accounting for around 80% of our sales, while away-from-home and wholesalers account for the remaining 20%. Navigator also differentiates itself to high-quality tissue papers and cutting-edge innovation. Our tissue papers have received awards and market recognition. The Five Star award for the fourth year running, Amoos has won the Five Star Award, coming out top in the napkins category with its 40x40 product in the Naturally Soft range. This award shows that Portuguese consumers are interested in a more sustainable, high-quality solution, featuring softness, in the case of napkins provided by our Natural Soft Fibre technology. The naturally soft range is made up of dermatologically tested products, made from 100% virgin fiber, free of chemical bleaching agents, making more efficient use of certain resources such as wood, energy and water. Consumer Choice '25, number one, in toilet paper. For the first time, the Amoos brand also won the title #1 brand in the 2025 consumers choice in the toilet paper category. Finally, Product of the Year Awards, the U.K. In June 2024, we launched a multi-purpose kitchen roll range in the United Kingdom under the iconic Flash cleaning brand. Made from paper, which is 100% FSC certified, Flash Kitchen Roll combined strength and absorption, providing consistent and reliable cleaning power. In 2025, Flash Kitchen Roll was voted Product of the Year in the domestic papers category of the Product of the Year Awards, the largest consumer survey in the United Kingdom and on product innovation. Our tissue paper provides a higher profit margin than our competitors. [indiscernible] will now comment the main development in packaging.

Thank you, Nuno. Now turning to Slide 15. After a strong start to production during [indiscernible] free kraft paper, markets posted a growth in Europe 2024, reaching the peak volumes of 2.2%. Navigator sales volume more than doubled year-on-year, as Antonio mentioned, with 7% of our sales in Europe, mainly in Iberia, France, Italy and Germany, and the remaining 30% in overseas markets where Turkey and North Africa are our leading markets. This performance has been supported by investment in innovation and market trials into several new applications, above all in the Flexible Packaging segment. These products were launched during 2023. Indeed, looking at the breakdown of sales by segment this 2023, we have successfully reduced the segment dependency on that, strategically increasing sales in the flexible packaging and box, reels packaging vacancy segments. This change has enabled us to diversify our pulp volume and position ourselves more strongly on the growing flexible packaging market. Navigator has, therefore, continued to broaden its customer base, which already in numbers close to 300 clients in a sales operation 100% based on its own brand, geography. Let's turn to Slide 17 to move on to the molded pulp project. Last year, the new industrial unit in Aveiro for molded fiber packaging started production. The first line was commissioned in Q4 '24 and the remaining 3 lines in Q1 '25. With 7 products for single-use applications in the food sector, which are fully recyclable and/or compostable, tableware were such as plates, bowls, and cups; takeaways such as takeaway packaging for the food retail and HoReCa channel; and food packaging such as laminated pouch for meat and ready meals, boxes for fruit and vegetables. These products offer production flexibility and scalability for exploiting the various opportunities opening up for replacing single-use plastics and aluminum. Alongside this, work has proceeded on developing new molded products in partnership with national and international clients and on researching and developing new sustainable barrier proper solutions as well as trials of commercial products. In an important breakthrough already this year, geographic bioshield molded fiber products achieved it's compliance certification for food contact and they're not only on European regulation, but also with BfR XXXVI recommendation issued by ISEGA. gKraf Bioshield is the first molded fiber product globally compliant with this recommendation. This certification enable us working products for the Food segment for contact with fatty, moisty and dry foods, applying to our entire tableware and takeaway line. This new avenue for growth falls within our responsible business strategy through which we are seeking to [indiscernible] to a more decarbonised society, for harnessing the crucial role of well-managed planted forests in the transition from a linear fossil model, with no future, to a circular bioeconomy model, which is carbon neutral and ecofriendly. I now hand over to Antonio for a wrap up of the full year results.

Thank you, [indiscernible]. Let's turn to Slide 18. 2024 reported once again strong performance. By focusing on efficiency and cost management, we achieved a significant reduction in cash costs across the whole pulp and paper segment. Printing and writing, tissue and packaging by 10% to 10% year-on-year by 10% to 14% from the peak levels of like 2022, although they perceive higher than prepandemic levels. We continue focus on the core business as well as on business transformation and innovation. There can be seen in our value-added CapEx that reached EUR 141 million. One of Navigator's key strength is its capacity to produce significant cash flows, thanks to this vertical integrated model and its leadership in pulp and [indiscernible] paper products. These cash flows have been strategically reinvested to diversify the business particularly in each segment, where Navigator also differentiated itself to high-quality tissue papers and cutting-edge innovation. This year, we successfully went ahead with the acquisition and integration of Navigator Tissue UK. Additionally, the cash flows support investment in the new and innovative packaging business and our Packaging segment continues to involve in new developments on paper products. Sales volumes more than doubled boosted by 2023 Flexible Packaging launches, and we started up an innovative unit for integrated production of molded fiber packs, defined to replace single use plastic packaging and aluminum in the food service and food packaging industry, as well as investing in operational and environmental efficiency improved and the decarbonization of all our industrial [indiscernible]. These investments in efficiency and environmental improvements aims to ensure longevity and continued exceptional margin generation of our world-class set of yard, paper an tissue mills. This transition reflects a commitment to leveraging our [indiscernible] views, while expanding the adjacent markets with high growth [indiscernible]. In Navigator workforce today is stronger and more diverse with more than 4,000 employees, 14 different nationalities, 10 production plants in [indiscernible] countries Portugal, Spain and UK and the first project movement. Let's move on to Slide 20 with few words. After the 2 years in which we have surpassed initial expectations [indiscernible] again presented challenges to [indiscernible] driven by ongoing context, economic volatility and changing mobile trades. In the pulp sector, prices in China and Europe are anticipated to rebound a trend that has already begun. On the supply side, the [indiscernible] projects in 2024 and 2025 will increase the availability of pulp in the market and so is eucalyptus market pulp. However, on the demand side, levels of pulp consumption in China and in Europe should increase year-on-year. Market [indiscernible] 3.2% to 6.1% growth, remain positive following the environment with a very little number of pulp projects set us apart in 2026 and 2027, in parallel with [indiscernible] cost inflation in many geography and the very clear scarcity anticipated in Asia in the coming years. In the Paper segment, the pace of new orders is expected to [indiscernible] on Slide 5, there is a potential for further reduction in capacity. Already in Q1, '25 close to 7% of the European capacity has been taken off the market. And in the U.S. approximately 107,000 tons per year [indiscernible] close to [indiscernible]. These changes, combined with the level of cash cost will higher than the 15-year levels [indiscernible], we will continue to stay [indiscernible] above those levels. In China, new capacity is expected, but given the low-capacity position rising in China industry and rising pulp prices, the possibility of further streamlining of supply cannot be ruled out. In the Tissue segment, demand continues [indiscernible] level. In the segment Navigator, continuously levered synergies driven by business growth particularly in acquisition of Ejea last year and with the new acquisition of [indiscernible] to tissue packages, operational flexibility in paper and pulp, and within different type of paper, the dynamic management of differently within each segment, production adjustment and an efficient commercial strategy, combined with [indiscernible] problems to control costs, as well as the company's strong financial position have enabled us to deliver consistently strong and stable results in challenging market context. It is worth pointing out that we are now a quite different company from what we would. We both -- we boost Europe's top [indiscernible] business, which have [indiscernible] strong, very distinct demand dynamics, some other [indiscernible]. We have proven we can sell our pulp at low discounts and solid margins. Our integrated tissue base model outperforms competitors with much stronger market experience, and we are building a diversified innovative and growing packaging. By combining deep industrial expertise with a forward-looking approach, Navigator continues to pioneers sustainable practice that align in global trends and consumer demands. This diversified portfolio grouped in a tradition of excellence and innovation positions the Navigator [indiscernible] as a leader in sustainability driven growth and value creation. Let's move to Slide 21 with a few words on [indiscernible]. Considering Navigator's performance in 2024, the Board of Directors will propose to the General Meeting of Shareholders distribution of dividends of EUR 175 million, corresponding to EUR [indiscernible] per share or EUR 24.06. The Board of Directors will also propose employee profit sharing for the period of up to EUR 9 million. The proposed distribution of dividend does result in an initial dividend of EUR 75 million after the EUR 100 million distributed in advance on the 14th of January 2025, a proposal of employee profit sharing of up to EUR 60 million after the EUR [indiscernible] million significant advance in December. Thank you.

[Operator Instructions] And our first question comes from the line of Alberto Espelosin from JB Capital.

I have 3, if I might. First is on office paper. How do you see demand after that small recovery you guide to in the first quarter? And how should we think of office paper prices throughout the year 2025? The second one would be on EBITDA margins, considering that fourth quarter was impacted by some one-offs related mainly to energy assets, but also taking into account lower prices year-over-year. What are your current expectations for margins in the full year 2025? And the last one would be on capital allocation. So we still expect CapEx in 2025 close to EUR 200 million? And are you still considering inorganic growth opportunities in tissue and packaging. If you could please elaborate on this, it would be great.

Okay. Just for second clarity, I will try to repeat the questions you have raised. The first question is about office paper demand and how do we see demand going forward? A reflection of demand in 2024, and how we see going in the 2025. The second question is about guidance on EBITDA margin not -- for 2025. The third question is about CapEx 2025, and what the expectations you have for CapEx. And the last question is about new opportunities [indiscernible] is it right?

Exactly.

I'm going to give some elements of response in each question, except the second because we don't give guidance on future EBITDA margins, and my colleague will follow. So regarding office paper, actually, the demand in 2024 was quite impressive. And as we said in previous calls, office paper has not been the driver, with the lowest performance within the uncoated woodfree space, [indiscernible] paper, graphic papers in all the sizes and [indiscernible] Having said this, it's extremely difficult under the present volatility to give very, very precise indications on where demand is going to stay. The best we can tell you is what we see in the beginning of the year and is rather [indiscernible]. I'll ask [indiscernible] to fill in with some more details.

Yes. I fully agree, Antonio, -- so last year, as I mentioned, office paper grew 8%. Europe, it was actually let's say, around the average of about 8%. The graphical industry volume size has increased a little bit more than this in Europe, 10%, and Middle East, a little bit less, it's still a little over 5%. We saw a little bit of a decline in Q4 of the -- last year, but the beginning of this year has been particularly better in terms of orders intake and particularly in cut-size. So we see beginning of the year model robust in terms of demand, particularly in cut-size.

Okay. Moving to the second question. As I said before, we don't give guidance for future EBITDA margins. You can speak about [indiscernible]. In the last 14 years, our EBITDA margin has been 25%, with the minimum of 21%, and a maximum of 30% and the standard deviation of about 2%. So we see a good indication of what is the range in which [indiscernible] typically. Moving to the third question about the CapEx 2025. CapEx 2025 will ballpark similar to 2024, slightly below 2024. I would like to remember that during 2023, 2024 and 2025 we have a significant increase in our CapEx in several areas of the business, but mainly on decarbonization and also on packaging, taking advantage of the resilience plan of Europe to the [ EU ] next-generation fund, and according to what we have shared in previous conference calls, we have submitting projects that could be not far from EUR 250 million for those projects. And out of this EUR 250 million, we expect to incentive rate of around 40%, so around EUR 100 million. So we will conclude a large majority of those projects during the 2025. So 2025 will not deviate much from 2024 and 2023. From 2026 onwards, we plan to go to more normalized levels. And I do like to remember that normalized levels are typically, they would typically for the previous perimeter around -- or land in the EUR 120 million, a new and large perimeter. So most likely it will be [indiscernible] We do not get deviated much from this ballpark here. Regarding your last question of new opportunities this year, I'll make an introductory comment then I'll pass to Nuno to further develop [ an idea ]. As we said before, the acquisition that we had in U.K. is a converter, a converter that buys reels in the market in Europe, in both Europe and outside Europe The capacity of the installation that we have in U.K. is more or less equal to the capacity of 2 tissue mills -- 2 double with tissue mills. So our, I would say, more open flex move that of course, are already standing in comparing is a decision to install a tissue machine to feed half of the leads of our U.K. operations. Nevertheless, I'd like also to point out that our capacity in Spain, we have also more more converting capacity, length paper capacity. So we have the capability to create more. Of course, we will look to all opportunities that make sense wise, but the priority is very clear is the integration of U.K. in our existing business and developing a new tissue mill. Nuno?

In the results [indiscernible] we're always very much obsessed with performance improvement and with growth. So -- but also only value-creative growth. So we don't set actually target for specific growth movements. We only make them when we are very comfortable with value creation that is associated with that growth movement. And I think as Antonio mentioned, currently, we want to grow our current operations and possibly grow our paper mill business section operations as well. Always obsessed with performance improvement, value-creative growth. That's the story so far over the last 10 years.

The next question comes from the line of Bruno Bessa from Caixa Bank.

The first one, just looking to the numbers released, we see a relevant increase in terms of depreciation, amortization and impairment losses in nonfinancial assets. more than EUR 30 million year-on-year. Just trying to understand here, if this is all explained by the change in the perimeter of the company, -- or if there is any kind of one-off here and whether this figure of around EUR 165 million or EUR 170 million would be a good reference for 2025? So this will be the first question. And the second question relative with the one-off costs that you saw in the energy business. So if you could try -- if you could quantify those one-off costs and give some color on that would be very useful. And the third question on the evolution of paper prices since December and particularly during the month of January, the relevant decline that we are seeing at the time when the shutdown of capacities is already -- or should at least already have started to have an impact in the industry. I'm trying to understand your view on why paper prices have been going on this first. Is there any kind of lack of discipline in the market, something that we were not used to see over the recent year. So trying to have a bit more color from you on the recent paper price evolution?

Thank you for your question, Bruno. Let me see if I can rephrase them to make sure you understand. The first one, you'd like to have some insight about impaired depreciation you saw on our 2024 accounts. The second one is about if you are able to quantify our one-off cost for Q4 last year on the energy asset. And your last question is about the evolution of paper prices, shutdown of capacities and discipline on the market?

That's correct.

Okay. I will start with question #2, which is probably the easiest one. Yes, of course, we can quantify the one-off costs that we have, but we are not going to share that presentation [indiscernible] Regarding depreciation of assets, the depreciation of assets is all -- practically all justified by the new enlarged perimeter, let's not forget that the perimeter is not only new equipment on existing mills as well as the new companies that we have acquired, 1 with 1 site in Spain and the other one with 5 different sites in the U.K. Regarding the evolution of paper price, I will make an introductory comment and then I'll ask Jim to complement. And I think unfortunately, the rule of this market for a tissue packaging is lack of discipline what we have in the last few years, was clear leadership [ incompetency ] from Navigator to try to increase market discipline. And I think in a very large extent, and you can see that from our room prices, we have managed to implement that not everybody has followed. And we saw, I would say, a couple of reasons. One, the fact that some nonintegrated producers took advantage of the reduction of pulp price to try to gain temporarily market share and they drop their selling price. And secondly, much to our surprise, I should say, the significant increase of imports -- cheap imports from overseas. So they have an effect. And I believe this effect will be felt still in the beginning of this year. Let's not forget as well that sometimes we mix up the prices because of mix effect. So if one company sells more low-end upsized [indiscernible] this has a direct impact on averag sell prices, even if prices of premium and standard grades are kept at a higher level. Neto, can you fill in some more information?

Yes. This is very much the case in Europe. So the comments so far, I think the question is more around Europe. We did increase prices twice in last year, in April and then again in July, mostly our reading is that we were not followed, right? So we were applying the price increase, but the market -- the rest of the market did not move. And so we witnessed some softening towards the end of the year. And as Antonio highlighted, we also see that most likely including Q1. This impact will be felt still and it's available in the indexes, which declined a little bit during the beginning of Q1 this year. But now over the last few weeks, more stable. Indeed, the absolute price level is very interesting in Europe, so it is attracting imports, although logistics is not easy from let's say, the main regions of import, which is Asia nowadays. So I guess this is the story for Europe. In the U.S., it's a bit different. We see already moves to increase prices over there. So there is already a move in the market to increase prices in the beginning of the year. So it's a different situation out there.

Just to conclude, having said all that, we anticipate that the prices will keep significantly higher than the pre-pandemic levels. We should not forget that the cost base of the industry has significantly increased. If you look to wood price across the world, particularly across Europe from Iberia to Central Europe and Scandinavia, wood prices are significantly more expensive now than they were pre-pandemic level. Energy is more expensive, chemicals are more expensive. And in spite of what I said about discipline, the market is still -- and I believe, not being humble here, I believe, much because of the work of Navigator, there is still a higher discipline than we have before. So we expect prices even if you see like the index show a slight degradation, we expect prices to be significantly above pre-pandemic level.

The next question comes from the line of Antonio Seladas from A|S Independent Research.

So I have 3 questions. First one is on gross margin that performed quite well. So if you can comment on wood ships prices on wood prices. So you already mentioned that prices now are higher than pre-pandemic. But regarding the recent past, how those prices are. The second question is related -- you mentioned that you are not going to say what were the levels of extraordinary costs related with energy, but should we expect for the coming quarters that external supplies and service remain around EUR 120 million, EUR 125 million or not. I don't know if you want to comment on this. And last question. So I understood that the tissue decision about mill, the new mills to integrate should be taken over the coming year -- over this year. So just to confirm it.

Okay. Antonio, thank you for your questions. I'm going to repeat them. I'm not sure if I could understand the second one. But your first question, if I understand correctly, is if you'd like to have a little bit more light regarding wood costs, wood pricing?

Yes.

Your second question, I think I didn't got it completely, is about the evolution of cost of external service supply?

Exactly. So should we expect the same kind of figure that we had before this quarter.

Okay. And your last question is if the decision about the new tissue mill, we can expect this year or not?

Yes.

I'm going to make a few comments on the different answers and I ask my colleagues to complement. Regarding wood price. Wood price, we saw an inflation of wood prices in -- across all Europe from Portugal to Scandinavia, both hard wood and soft wood, quoting by memory in Portugal, the cost increase from '16, the figure I have in mind are from '16 to 2024. They are not far from 40%, 30-plus-percent, but in Central Europe and Scandinavia, the increase are even above that. So I will ask [ Joao ] to comment in more detail.

Yes, I confirm that those price rises that we've been assisting these most recent years. In terms of the main markets, European markets, in Finland, Sweden and Poland. For hard goods and also for soft woods, we've been assisting to price raises but since 2016 up to now are over or reaching 50% increase, in Portugal, close to 30%. That's a fact that this is not only price -- those prices are not rising only in Portugal. We believe and we know that this is also happening in South America, mainly because of the higher land prices and the cost of the operations. And this is what we've been seeing so far. And for the time to come, we don't expect to watch higher price increases, we believe this is -- will be more or less stable -- stabilized for this coming year.

So just repeating what we said during the call, -- and Joao rightly so mentioned, South America. But we also believe that in Asia, this scarcity of wood is going to be even worse. There are a significant number of projects that are now either under development or on paper that we have doubts if those projects will have in wood or wood at the price that they can operate. Regarding your second question about the supplies and service, I will do not comment specific figures that I probably can share the following. And I will ask Dorival to help me out and give further detail. And you know that we pay our direct employees, average salaries that are significantly above the Portuguese average salary. A significant number of external supplies are based on, if not minimum wage, close to minimum wage, as minimum wage is increasing faster than average rate, we can expect to have some pressure on some of these external supplies. At the same time, materials, which is the second big part on external supplies are significantly more expensive now than they were a couple of years ago. So what we are doing, and I think we have also mentioned that during the conference that our maintenance and functioning costs are increasing at the level that is lower than inflation. Dorival?

Yes. Thanks, Antonio. The main impact is, as Antonio mentioned, in our maintenance costs and other services in the mills as well. And we are managing to mitigate this impact, and we are doing well, but it has been tough to control everything and to keep our costs according to our budgets and targets.

Regarding your last question about the new mill. Actually, I have few comments, then and I will ask Nuno to complement on this one. We have already decided to commission the reengineering phase. We have already started reengineering phase, This will take us a large number of months, probably somewhere 4, 5, 6 months maximum. So after the reengineering phase, we will be in a position to take a final investment decision somewhere around summer. Probably Nuno can give a bit more light on this.

So yes, we have done the first the step of projects, which includes feasibility -- the feasibility of the business case. We're now moving, as Antonio mentioned, to the reengineering with the kickoff happening over the next few days. We hope to get the decision by summer, as Antonio mentioned, up until now things are moving well. We're moving to the reengineering because first, let's say, numbers on the business case seems to make sense, but it's obviously too early to -- we don't even have that up until now. But I mean, let's see if we confirm the numbers and get more comfort on the decision that we've said should ideally happen by summer.

At the same time, you can follow what we said in previous calls, we have submitted to the Portuguese authority by step process -- project concept to see what kind of support [indiscernible] is prepared to give. And we keep our discussions, both in Spain with the local authorities and in U.K. with the local authorities because there is not yet decision -- final decision where the mill will be installed. Although it was not your question, I think we can also add that we have also commissioned recently, have studied to reconvert PM3 approval. So the largest of the 2 smaller mills in Setubal, we have mentioned already that PM1 is already fully dedicated to packaging. We have commissioned a service on PM3 to analyze the possibility to make a further investment on this machine to specialize the machine on low basis rates for flexible packaging. And we are also looking to a final investment vision somewhere in the first half of this year to take a decision if we move or not PM3 into dedicated to flexible packaging. Having said that, with the same concept we did before, we have PM3, as a flexible machine without jeopardizing the possibility to still do some uncoated woodfree. So most likely by this year, we will have 2 decisions in 1 in the tissue area and another 1 in the packaging area.

[Operator Instructions] And our next question comes from the line of Mr. Toledo from ODDO.

I have few questions from my side. The first one, referring to the soft selling volumes of paper in the last quarter. I don't know if you attribute all mainly to external factors or there are also reasons behind the maintenance shutdown that you announced or the production disruptions in the energy business. I would like to know also if the -- considering your integration and so on. If the production levels that you achieved 2 years ago in paper are something that you could expect in the future? Are you -- are the relevant to those statistics for the future, considering your penetration in higher added value segments. And the last question would be referring to trade payables. I believe there's been an increase in the fourth quarter. And I don't know if it's something that you had to do something specific, your new perimeter with -- after the actual acquisition or something to monitor for the future?

Luis, thank you for your questions. I'm so sorry, but the last 1 I think I understood more or less the first 2. The last one, I didn't at all. Are you so kind to repeat or rephrase it.

Sure. Sorry for that. It refers to trade payables that appear to be -- to have increased in the fourth quarter. I don't know if there's any reason behind that.

I'm sorry, Luis, but the connection is not [indiscernible].

Sorry. In the balance sheet, I witnessed that the accounts payable are significantly higher than those reported historically and those for example, in the 9 months, it can be any reason, but I mean it's just that it's something that struck my attention when I saw it. I assume there's nothing relevant behind that?

So let me see. So the first question is about the impact of our energy issues in Q4, and you are linking that to softness of volumes, if I understand correctly. The second question is about what we do expect as paper volumes going forward. And the last question is about the accounts payable. You noticed a higher accounts payable on the balance sheet.

Correct.

Did I got them right.

Absolutely.

Okay. So first one, and I will ask my colleagues to comment individually on the different businesses. The big impact of Q4 was energy and energy related, not particularly volumes of pulp leave pulp -- let's leave pulp in the end of uncoated woodfree paper packaging of tissue because pulp is the result, okay? We had a slightly longer shutdown in one of our mills. And this, of course, affects more the pulp availability, but the main impact was on energy. So I will ask [indiscernible] to comment quickly volumes of paper and packaging in Q4 and normal pulp and tissue in Q4.

Yes. The packaging volume is quite stable, uncoated woodfree packages volumes as well quite stable. So it was not a key factor in Q4.

Okay. In energy, basically, what happened in '24, we have reduced sales in -- mostly because our renewable natural gas cogeneration went into self-consumption. I think as you know, we -- most of our energy producing units have feed-in tariffs, while we see tariffs exist and are above our market practice, it's worth selling, of course, it's important when we actually move or they end the [indiscernible] tariffs, we tend to have moved the operation into self-consumption because, of course, we don't want to sell and then buy at the same price plus paying [indiscernible] access tariffs. So at the end of the day, when the feed-in tariffs life cycle ends, we tend to turn out our operating units into self-consumption mode. And this is basically what happened in Q4 with our Portugal natural gas cogeneration. So that's why we have -- we see a reduction in sales of power, okay? In terms of pulp, basically, let me move for the numbers exactly. Basically, what we've seen is a result of higher integration or paper operations. We have reduced the availability of the pulp into the market slightly. So [indiscernible] what happened there.

Okay. Regarding your second question about what we expect as volumes for paper production going forward. You know that we have capacity, the paper capacity on 5 paper machines that is above good vendor tonnage is about 1.6 million tonne. Of course, when you do converted products, you don't have the same capacity because you lose when you do converting products. And the mix, if you do more foam, you'll lose more than in cut-size. If you do reels, depending -- reels more or less depending on the type of it. That is 1.6 million tonnes is for an average grammage of around 80 gram. So now that we are moving to flexible packaging, the average grammage of flexible packaging is significantly lower than 80-grams, almost half -- not quite half but almost half of the average. So what we expect going forward is that in uncoating [indiscernible] very close, again, good vendor tonnage to 1.4 million tons of capacity utilization and about 100-plus thousand tonnes of flexible packaging. If you look at 100,000 tonnes of flexible packaging, and you deduct the grammage, it means that we expect to be in the next 2 years, not very far from capacity. Regarding your last question, I will ask Nuno Neto, our Finance Director to give you a precise...

Okay. There are 2 main issues that justify this evolution in trade payables. The first one is the EUR 100 million dividend that we declared at the end of the year, which was outstanding in December, and that is being paid in January. And the other one pertains to the fact that we are under every investment pace. And as a consequence, we have high operating balances with our suppliers for those CapEx items, but all within the regular paying terms.

There are no further questions from the conference call at this time. So I hand the conference back to the management team.

This ends our session. Thank you all for your time. As always, we are available for any additional clarifications or usual contacts. Have a great evening. You May disconnect.