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

Good afternoon. We welcome you to The Navigator Company One half 2026 Results Presentation. [Operator Instructions] I will now hand the conference over to Ana Canha. Please go ahead.

Ladies and gentlemen, welcome to The Navigator Company's conference call and webcast covering our second quarter and first half results. Joining us today are Antonio Redondo; Fernando de Araújo and António Quirino Soares. As usual, we will begin with a brief presentation for Q&A session. The presentation is available on our website, and questions may also be submitted using the webcast platform. I will now hand over to Antonio, who will take you through the main highlights of the period.

Good afternoon, and thank you for joining us. The first half of 2026 was characterized by a challenging external environment. Despite geopolitical uncertainty, cost inflation and temporary operational disruptions, Navigator continued to execute its strategy with discipline and focus. While short-term performance was affected by largely loan recurring operational factors, the underlying performance of the business continue to improve. Pricing recovery gained momentum and also our core business. Our efficiency program delivered tangible results, and we continue to make significant progress in the execution of strategic investments that are enhancing impactiveness, reducing our cost base and supporting low term growth. I will begin with Slide #5 with an overview of the key highlights. There are 6 key measures we would like you to take away from today's presentation. First, H1 performance was impacted by a combination of adverse weather conditions and planned industrial interventions aimed at improving efficiency and competitiveness. Second, pricing momentum continued to improve across business. In [indiscernible], June average prices were up 10% versus December level. And in Europe, on a quarter-on-quarter price increase of peso exchange mark by more than 3x. In packaging, June added prices were 13% above December level. Third, cost optimization and innovation continue to support margins, with cash costs improving year-on-year across all stand-alone businesses, paper, packaging and tissue in both Iberia and Ukraine. Fourth, our strategic investments and diversification initiatives continue to strengthen Navigator's long-term value creation potential and future earnings capacity. This while the Middle East crisis negatively impacted H1 results and cost pressures are expected to persist into H2, Navigator has proactively launched as specific mitigation program focused on logistics optimization, product engineering, operational efficiency and energy management. These initiatives are expected to offset around 2/3 of the additional cost impact, while strengthening competitors and generating structural benefits from 2027 onwards. Further details will be provided later in the presentation. Finally, we are funding this transformation on the back of a strong financial position. During the first half we reduced net debt by EUR 10 million, while investing EUR 137 million in strategic growth and efficiency initiatives. Our strong balance sheet gives us the flexibility to continue investing in the future and accelerating our tradition towards a more diversified, innovative and higher value-added business. I will now hand it over to my colleagues who will walk you through results in more detail and share some insights on how our different business areas have been doing. I will now hand over to Fernando to walk you through our financial outlook.

Thank you, Antonio. Now turning to Slide 6. EBITDA increased by 20% quarter-on-quarter confirming a clear earnings recovered, driven by strong price and continued cost discipline as operational conditions perceivably normalized. For the first half, turnover reached EUR 869 million, while EBITDA stood at EUR 143 million. For the year-on-year operation was affected by reducing operational availability, lower production availability and historically low inventory levels, which limits our ability to fully meet demand. We also continue to invest in our strategic transformation program. Several projects opted by next-generation new funding are now in their final stage and unexpected to be fully completed this quarter. The first half CapEx totaled EUR 127 million with 57% allocated to value-added sustainability and AHG investments. The result will provide further detail later in the presentation on these strategic investments and how they support Navigator future growth and competitiveness. The level of CapEx and temporary operational constraints affect H1 free cash flow. As our main strategic projects moved closer to completion, CapEx is expected to creatively normalize with H2 investment below H1 levels. Despite the PM3 rebuild, the U.K. transformation project and the new tissue machine in Avail, planned CapEx over the next 2 years is expected to remain below 2026 levels, supporting stronger cash generation and providing greater flexibility for the group next phase of growth. Turning to Slide 7. We can take a closer look at the key drivers behind the year-on-year EBITDA evolution. The year-on-year EBITDA cooperation was mainly effect by reduced operational availability during the period, while historically low inventories limit our ability to fully meet demand. Lower pulp and paper volumes together with higher energy and CO2-related costs weighed on short-term performance. Part of the lower paper volumes reflects preparation from the PM3 flexible packaging launched in Q3. One of our largest uncoated-free paper machines, was used to produce lower granite packaging papers, reducing output and consequently develop the volume of uncoated with free available for sales. These effects were partially offset by improving price trends and lower production costs resulting from our efficiency programs and operational optimization initiatives. Importantly, several factors affecting H1 profitability are already behind us. While the strategic investments and initiatives executed during the period are expected to support efficiency and competitiveness. Turning to Slide 8, with debt maturity and liquidity. As Antonio mentioned, Navigator maintained a robust financial position by securing new long-term debt, ensuring we have no significant payments due within the next 5 years. Over the past 2 years, we have successfully increased our average debt maturity to more than 5 years with a well-staggered repayment schedule. We continue to lead in sustainable finance with 95% of our total debt now indexed to sustainability indicators. This directly aligns our financial strategy with our environmental targets. In a volatile global rate environment, our balance sheet remains well protected. 60% of our total debt is at fixed rates, supported by a combination of fixed rate debt and interest rate hedging instrument. Despite the general rise in market rates compared to the previous financing cycle, our proactive treasury management has keep our average cost of finance highly competitive at approximately 2.9%. We closed the quarter we ample liquidity of approximately EUR 590 million, combined with a conservative net debt ratio of 2.29x. This is more than enough to provide Navigator with agility to fund our short-term CapEx requirements, namely the question of PM3 to packaging and the new tissue mill in Aveiro as well as to consider foreign expansion, while navigating market volatility with total confidence. Dorival will now comment on now our CapEx execution.

Thank you, Fernando. Turning to Slide 9 to discuss the evolution of our strategic CapEx and execution. Responsible investment remains central to our strategy. Across all business areas, we continue to invest in projects that improve efficiency, reduce our environmental footprint and strengthen the long-term competitiveness of our operations. Recent investments in renewable power generation, biomass based and solar energy solutions and industrial modernization has significantly reduced fossil fuel consumption and related fossil CO2 initiatives while improving the energy efficiency, energy sales sufficiency and operational performance. A key milestone during the quarter was the startup of the oxygen [indiscernible] line. This project has water efficiency improves excellent quality, reduced chemical consumption, supports product quality and reduces operational risk while pivoting to the overall modernization of our industrial base. Alongside these sustainability driven initiatives, we continue to advance strategic growth projects that will further strengthen Navigator's market position and future earnings potential. We announced the most important projects currently underway is the conversion of the PM3 paper machine in Setúbal. And three, we will expand our packaging capabilities with innovative eucalyptus-based products, increase flexibility and efficiency and support our growth in attractive flexible package. This investment positions Navigator to capture growing demand for sustainable packaging solutions and further expand the GKraft brand while providing greater flexibility to optimize production between packaging and printing and variety of paper according to market conditions. In tissue, we took the final investment decision in early 2026 to install a new tissue machine at Aveiro industrial complex with annual production capacity of 70,000 tons, the project will support the growth of our U.K. operation with an innovative logistics concept. Currently, U.K. operation has converted capacity exceeding 100,000 tons per year, excluding our lives but no integrated real production. The new machine represents a total investment of approximately EUR 115 million, with EUR 48 million into 2026, EUR 53 million in 2027 and EUR 14 million in 2028, supported by Portugal [indiscernible] funding, scheduled to restart operations by Q2 2028. The new machine will restrain vertical integration, improve competitiveness and support profitable growth in a high-value segment. We have already started project implementation during the last quarter. Together, these investments are reinforcing Navigator's competitiveness, diversification and long-term earnings capacity, while reinforcing the resilience and sustainability of our operations. Importantly, innovation, sustainability and competitiveness go hand in hand beyond that their environmental benefits these recent projects are lowering our structural cost base, reducing energy independence and improving operational efficiency. Without the implementation of our decarbonization plan launched in 2019 and implemented since 2020, our CO2 and fossil fuel-related costs in 2025 would have been more than EUR 50 million higher than in the 2018 baseline year, reflecting reduced emissions, fuel free CO2 allowances and significantly higher CO2 and fossil fuel prices. António Quirino, will now comment on pulp and paper prices.

Thank you, Dorival. Turning to Slide 11 to discuss the pricing environment in our core markets. Pricing conditions improved during the semester, particularly in both markets and progressively across paper markets. This provides a supportive backdrop as we move into the second half of the year. Looking at the pulp market, we have moved past the significant pressure seen in 2025. The downward cycle that began in China in labor last year finally signaled a turnaround in August, and that momentum continued to improve throughout the first half of 2026, although market conditions remain mixed across regions. As a result, the PIX BHKP benchmark for hardwood pulp in Europe closed the first half [indiscernible] $109 per ton representing an increase of approximately 27% in Europe compared with the first week of 2026. Meanwhile, in China, prices ended the period at $605 per ton, reflecting a more moderate increase of 7%. Turning to the European office paper market. The PIX A4 B-copy index stood at EUR 938 per ton at the end of June versus EUR 926 per ton at the end of March. Since the start of the year, the index has edged up by around 1%. Over the course of the first half, Navigator announced and applied 3 price hikes in Europe, contributing to growth in prices from December to June of 5% in Europe, 8% in overseas and 2% in the United States and 10% overall in [indiscernible] on average. The competitive environment held down the increase in the market index, just to 1%, as mentioned. And this compares with the 5% achieved Navigator index. This meant that Navigator's average uncoated free prices remained on an upward trajectory during the first half, and average prices in June were up EUR 90 per ton PAUSE above those recorded in December, an increase above 10%. Between June and December, our economy range of office paper saw a price increase of 14%, 12% in Europe, reflecting the company's strong ability to implement price increases and reposition the market towards healthier levels of profitability. At the same time, our ongoing commitment to differentiated brand management enabled us to maintain in Europe, a price premium of 30%, 3-0 percent over the PIX A4 copy-B benchmark. In the premium cut size segment, in line with the best levels achieved this quarter by the company. Moving please to Slide 12. Let's summarize the main developments in uncoated free margins. Apparent global demand for printing and writing paper saw a slight decrease of 0.8%. However, uncoated free remains the most resilient grade in the industry, while coated papers and mechanical pulp products saw a sharper decline of up to 4%. Uncoated-free remained resilient, increasing by 0.4% versus last year. To be noted that uncoated-free rate represents now 65% of global printing and writing market demand. Europe, while uncoated free demand was down by 1% only in the first half of the year, the industry is maintaining healthy order books supported by a strong inflow of export orders. Supply-side shifts are also supporting providing support. The discontinuation of production by a leading manufacturer late last year, we moved 185,000 tonnes of annual capacity from the European market, while no further closures have been announced for 2026. Many of our competitors continue to face intense margin pressure, which may lead to further announcements or consideration in the future. A key highlight for us this quarter is our operating rate. Despite the disruptions experienced during the semester, and the output reduction resulting from production from producing flexible packaging in one of our largest uncoated free machines, Navigator achieved 90% operating rate on space compared with our competitors' average of 85% in the period. Regarding the United States, the reported 7% decline apparel consumption through May seems to be largely a supply side distortion. We believe real consumption remains relatively stable, but the figures have been skewed by the anticipated shutdown of a major U.S. plant a correspondent preparatory stock buildup and also the gradual destocking of the high import volumes from 2025. This creates a temporary statistical dip rather than a shift in long-term demand. Finally, we continue to see robust order books outperformed the industry average by 8 days and 31% above the industry average over the last 12 years. Also, our inventory levels at the end of the first half reached a historical low for the first -- for this time of the year, standing 18% below the average of the same period of 12 years. Now Nuno will give some more market context on pulp. Nuno?.

Thank you, Quirino. Turning to Slide 13 with the pulp market. As previously mentioned, after a challenging '25, the pulp market entered a recovery phase in the latter part of last year. This positive momentum continued to build during the first half of '26 supported by tighter supply conditions and ongoing downtime across the industry. Market conditions were influenced by capacity reductions from a major Indonesian producer, following the cancellation of forestry licenses on the grounds of deforestation as well as by limited hardwood pulp supply resulting from the strategic conversion of certain pulp lines to dissolving pulp, particularly in Latin America. In Europe, inventory levels at force remained below above '25 levels and the 5-year average combined with the leasing shipments to the region, these tighter supply missions provided producers with the opportunity to implement successive price increases throughout the semester. At the same time, geopolitical uncertainty and trade tensions continue to generate volatility in global markets. The conflict in the Middle East contributed to higher energy, chemicals and logistics costs creating additional inflationary pressures across the pulp value chain. Overall, tighter supply conditions, disciplined capacity management and low inventory levels supported the recovery in pulp prices throughout the first half of 2016. Turning to demand, global demand for market and hardwood pulp remained relatively resilient, declining by 2% year-to-date through May. China recorded growth of 2%, while Europe saw a margin decline of 0.6%, broadly reflecting softer consumption trends in uncoated free paper and tissue. Looking now at tissue performance on Slide 14. The European tissue market remains resilient. As of April, global apparent demand grew by 1.6% year-on-year. Tissue remains one of the key pillars of Navigator densification strategy. The business continues to grow, supported by international expansion and increasing operational scale. Tissue sales volumes remained broadly in line with the first quarter, while average sale prices improved, increasing by 2% quarter-on-quarter. In the U.K., transformation initiatives are progressing as planned. We are currently streamlining U.K. assets, optimizing locations and equity in profitable client contracts. This project is on schedule for completion by middle '27 aimed at restoring operational efficiency and segment margins. Our U.K. business currently operates on a converting model and like our fully integrated Iberian operations, where one of the 3 mills is even integrated with our own pulp, the U.K. operation currently offers significant margin investment potential through the addition of integrated real production. The improved strategic tissue expansion, as highlighted by Dorival earlier, will provide in-house real supply for our U.K. operations, structurally enhancing margins through rate vertical integration. Project implementation already started last quarter. Our diversification strategy has successfully rebalanced our geographical exposure. Finished products now account for 19% of sales. The at home or consumer segment represents 84% or mix. We continue to strengthen our premium positioning through the launch of innovative products resulting from an intense R&D activity in partnership with the leading FMCG brands, Procter & Gamble. The first half, we reached the final development stages for a series of high-impact innovations in the toilet paper category, with launches focused on consumer experience, sustainability and product depreciation. These investments reinforce our position as a leader in tissue innovation. By delivering high perceived value and sustainability led differentiation, we are effectively insulating our premium offering and increasingly competitive global market. The extension of the Procter & Gamble licensing agreement is reflected in the strengthening of Navigator's positioning the Iberian tissue market through the rollout of Don Limpio range in Spain, alongside the preparation for entry into France with [indiscernible] brands in the coming quarters. [indiscernible] will now comment on the main developments in packaging.

Thank you, Nuno. If you now turn to Slide 15, please. Flexible packaging market growth in line with expectations with European up 2.8% year-to-date May with Navigator outperforming the market. The packaging business delivered and had a strong performance in the first half. The business now represents 6% of group sales with turnover up 41% and paper area sales in square meter, increasing 66%. Average price in June were around 13% higher than in December. This growth has been achieved largely through the repurposing of existing and uncoated wood-free assets, with limited capital investment, highlighting the strength of Navigator asset base and commercial execution. Performance was led by flexible packaging, particularly application serving the food and personal care markets, where geopolitical style offers a compelling combination of performance, sustainability and product competitiveness. We also saw an encouraging momentum in the box segment, one of the first uses of our eucalyptus paper, which represented 11% of geographic sale during the first half, underlining its growing relevance with our -- within our portfolio. This segment is it on value applications, including food contact packaging, premium consumer goods and e-commerce solutions, where demand for high-performance virgin fiber products continues to expand, supported by increasingly stringent food safety and quality requirements. Having invested several years in developing expertise and customer relationships in these markets, we believe they offer significant long-term growth potential and further highlight the unique therapies of Eucalyptus Globulus fiber. As a result, GKraft continues to strengthen its position in attractive value-added segments, supporting both profitable growth and portfolio diversification. Overall, the packaging business continues to execute strongly reinforcing GKraft as a growing packaging brand with increasing international reach and exposure to attractive value-added applications. I will now hand over to Antonio for a wrap-up.

To conclude, let me leave you with 4 key messages on Slide 13 that we would like you to take a look. First, despite the challenging operating environment, the business demonstrated a strong recovery in the second quarter. EBITDA increased by 21% quarter-on-quarter as pricing recovery gained traction across our businesses and cost discipline continue to deliver results. Importantly, the maintenance shutdown is carried out during the period were also used to accelerate strategic investment innovation projects that will enhance competitiveness. Second, our strategic investments and diversification agenda continue to strengthen long-term value creation. In packaging, the rapid growth of GKraft demonstrates our ability to create new growth venues by leveraging existing assets with great capital investment. In tissue, we continue to scale operations and capture the benefits of integration, positioning the business for further profitable growth. Third, we remain focused on transforming the company for the future. Our value-added CapEx program is progressing well and is expected to deliver meaningful, structural cost reductions. As discussed during this presentation, without the decarbonization initiatives implemented since 2020, our CO2 and fossil fuel-related costs in 2025 would have been more than EUR 50 million higher than in 2020 base line year. Additionally, another series of cost mitigation initiatives focused on product engineering, logistics optimization, operational efficiency, and improvement in energy, raw material and consumable usage are expected to generate additional EUR 90 million of savings in [indiscernible] increasing EUR 20 million on an annualized basis from 2027 onwards. These measures are expected to offset nearly 2/3 of the estimated 2026 cost impact arising from Middle East content. In parallel, we have initiated organizational adjustments affecting 136 positions by the end of 2026, comparing to the yield of the first half of 2025 in support of a more agile operation demand. Finally, target is being achieved while maintaining a conservative financial profile, giving us the flexibility to further increase investments to grow and continue creating value throughout the quarter. Next slide showcases how we are leveraging our brokerage expertise to create new products, applications and growth opportunities. In the first half of the year, we are strengthening our core businesses, we continue to make progress in developing innovative products and new growth business areas that leverage Navigator's unique fiber base, investment capabilities and R&D expertise. In tissue, our focus remains on depreciation through higher value-added and functional tissue products, supported by a growing portfolio of innovative IG solutions driving enhanced consumer performance and sustainability. Also through a strategic partnership with Procter & Gamble, a leading global FMCG player in the household premium category. In reconversion 3, we continue to expand our range redifferentiated products that address evolving customer needs, improving products for further structural [indiscernible] premium offset grades for the growing publishing sector and enhanced surface in jet papers, the fastest growing [indiscernible]. All reinforcing our competitive position in attractive higher values. In packaging, we are developing solutions to specific Aveiro's applications, including flexible packaging service carrier in shopper bags, industrial, rules based, medical and e-commerce, combining product performance and sustainability conventions. These innovation efforts is being further supported by the [indiscernible] and the next gen new program where advanced [indiscernible] technologies have now reached the stage of industrials on packaging applications, including paper and molded pulp solutions. Beyond our [indiscernible] businesses, we continue to evaluate opportunities in biomaterials, bio-based chemicals and renewable flops, a low opportunities gain our invasion pipeline, the renewable biomethanol project has progressed through the final preengineering stage to our investors current plant accelerated towards investor requirements. Initially, as fossil fuel substitutes within our operations and over time as a Biocare platform to our higher value downstream applications. These initiatives illustrate how Navigator is combining innovation, sustainability and [indiscernible] to create new growth avenues diversifying its business portfolio and further strengthen the resilience of its business model over the long term. In spite of being the European leader in the production of eucalyptus pulp and uncoated free papers, we are becoming much more than that, transforming ourselves in a diversified, profitable company with several growth options. Let's move on to Slide 19 with a few comments on the market outlook. While the macroeconomic backdrop remains volatile, specified discipline and limited new capacity continue to work market conditions across our business. In Europe, Pulp prices are expected to continue to strengthen while market conditions in China remain mixed in the near term. Despite near-term price pressure in China, higher wood and wood chip costs increase logistic cost, wood supply constraints mainly in Indonesia, potential pipeline-related disruptions and the delaying of Indonesian capacity acquisitions should provide downside production. With the recent $50 per ton price increase announced by a leading Asian player, this sectors may help limit further price erosion and support a recovery towards year-end. On the supply side, no significant capacity additions are expected this year. The startup of the Asian project is now expected to be delayed until Q1 2027, while Brazilian project is not anticipated to impact supply before the second quarter of 2028, supporting a favorable supply-demand balances in near term. In premium writing paper, we successfully cemented a multi-age pricing strategy across Europe, international markets, Latin America and United States, supported by strong order books and need to offset rising production costs. As a result, pricing momentum continued to build throughout the quarter and we expect average processing Q3 to be higher than those achieved in Q2. Although conception trends remain challenging in different regions, we will grow capacity rationalization in Europe and North America is contributing to a progressively more pulp markets and improved industry fundamentals. In the U.S. specifically, supply is tightening rapidly. We estimate a structured short fall of around 1.2 million tons, equivalent to approximately 25% of market launch. While no further cuts have been announced the remainder of Q3 high-margin pressure persists across the industry maintaining a very tight operating environment. In the Tissue segment, demand remains resilient with an estimated value of growth rate of 1.6%. We continue to start significant value from the integration of Navigator tissue area and Navigator tissue [indiscernible]. To protect margins, last quarter, we have announced a price release of 5% to 7% across all markets that will impact Q3. Our packaging business continues to perform strongly with growth quarter-on-quarter in both volumes and prices. On the price side, we have already moved prices upwards by 5% to 10% as a way across with an additional [indiscernible] that will also impact tree. Supported by stronger prices, the digital revenue incompletion, structural cost reductions and a revised balance sheet, Navigator is converting its translation efforts in stronger competitiveness, enhance earnings capacity and the low value creation. Thank you.

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

[Operator Instructions] Our first question comes from Maksym Mishyn from JB Capital.

Two questions from me, please. One is a follow-up on the cost efficiency plan. I was just wondering if it involves any upfront investments you have to make to generate the savings? And then also a follow-up on CapEx, just if I missed it, apologies, what kind of CapEx you expect in the second half of 2026? And any color on 2027 would be super helpful. And then just a quick one on pulp. Sales volumes went down notably in the second quarter. You mentioned restocking. When do you expect it to finish and get back to normalized sales volumes?

Thank you for your questions. I'm not 100% sure if I listened to the last one, but I understand the first one is a follow-up on our cost initiatives and if this requires any additional CapEx? The second one is what kind of CapEx we will expect for H2 2026 and 2027? The last one, I understood about restocking, but I'm not 100% sure...

What is sales -- when will focused sales will be normalized I guess.

Exactly, exactly.

Can you please respecify what more are you referring to? What kind of sales?

Well, I mean, historical in terms of tons, like 70,000 80,000 tonnes per quarter, according to my estimates, you did 45,000 in the second quarter, which is significantly below the historical average. So I was just wondering what we should expect for the next quarters?

You are referring to normal sales of pulp?

Market pulp, yes.

Yes, yes, yes.

Okay. I will make some introductory comments and then I'll ask my colleagues to follow up on that. Regarding the cost initiative, as you surely know following our conference calls, this is another initiative because we have always ongoing initiatives on cost reduction. This one is weird towards the offsetting the impacts of the Iran war conflict and the resulting cost of energy, logistics and some chemicals, mainly oil-based chemicals. These particular initiatives, as I think it was mentioned in the call is looking through things like logistics optimization, product engineering, option efficiency, energy management, and they do not require any significant CapEx at all. I'm not sure if any of my colleagues want to follow up on this?

And just a quick comment. We have, in our initiatives for cost reduction in the [indiscernible] area. We are developing the advanced process controls and it requires minimum investment and our savings that [indiscernible]. Regarding the CapEx, as you probably know, we don't give any specific guidance on that. But as was explained, our -- we anticipate that the CapEx in spite all the projects that are ongoing. The CapEx on the second half of the year to be below the CapEx of the first half of the year. And at the same time, in despite of the fact that in 2027, we are picking the CapEx of the tissue machine, the new tissue machine, we expect the overall CapEx in 2027 to be below the CapEx of 2026. Broad figures, we expect CapEx by the end of this year to be on the range of EUR 220 million, and we expect 2027 to be below that level.

Regarding the top, as it was expressed, we have 2 impacts, one unplanned and one planned. One unplanned on top of the year were the result of the storms, which significantly affected our pulp capability in Q1, and we ended the year last year with [indiscernible] stop on all roads. And in Q this year, we have a significant number of the shutdowns, mainly shutdowns to restart projects that we have initiated in the last few months. So this also affected our capability to produce pulp. And as it was mentioned, we have increased our paper and packaging sales. So we are interested a bit more pulp in paper packaging. The large majority of the projects and the shutdowns are over. The last one, we are actually ending now in our figures -- Portuguese we had a very long shutdown in July because of the meat of our recovery boiler, which requires special attention. So we are -- as we speak, we are starting up the pulp line. So we expect a normalization towards the next 5 months, so August till December and growing volumes already in Q3 and the normalized volumes in Q4.

The next question comes from Cole Hathorn from Jefferies.

I'd just like to follow up on the commentary that you made around your kind of office paper business. I mean you mentioned some impressive statistics around your operating rates being 90%, industry below 85%. You got stronger order books versus the industry, lower inventory versus the industry. And you're also able to achieve higher pricing versus the industry. Can I just follow up on the pricing point considering you're already more premium, how were you able to push through more pricing versus the industry? Just some color there would be helpful.

Cole, thank you for the question. This is an easy one because we are much better than our competitors. Look, we have -- let me try to give more color and I'll ask on also to follow up on this one. First of all, we have over the course of the last quarter, we have clearly valued price more than volume. Although in the last quarter, we have bought in this volume impact. We have a very strong value proposition to our customers. We rely strongly on our brands. And 70% of our sales in Q2 have been based on our brands, which helps prices and about 60% of our sales have been based in the premium products, which also helps price. Having said that, we are aware and concerned that selling our Navigator offset 30% above the PIX is probably stretching a bit too much. And we expect, of course, as well our competitors will do their part and we'll be more in a position to stabilize the prices that we have achieved on the first half of the year. But unfortunately, we are facing a very weak competition and although this has been helpful so far is obviously events for the future. [indiscernible] wants to add something more.

Nothing really relevant. So I think you touched everything. It's really centered around 30 years of building brands, so on top of extremely high quality, a very complete range. Typically, these products, these branded products have started [indiscernible] 16% premium. Indeed, of 40% we are stretching historically high levels for this kind of products. So therefore, the strategy for this plus 2 quarters on the price increase that we have made was actually to push stronger on the economy products. I mentioned we increased 14% the price of on the economy products. So that we try to guide the market to -- so that the commodity rates are on a higher level of price. And therefore, the price premium on our -- at size premium products start to go down to a more adequate level.

And then maybe just following up on office paper. I mean you've got -- you always mentioned the supply rationalization point and office paper is one where there is more supply, and we haven't seen the closures I've seen in some of the other grades. And I'm just wondering what do you think is going to be the trigger to finally see these closures come through because the closure costs, the cash closure costs are quite high to close the mills. So I'm just wondering, is it realistic to assume that we see closures sooner rather than later or is this going to take a long time?

Well, that one is very hard to guess. But when we look to the past quarters and the results of some of our competitors, it's difficult to believe that they can continue to perform in this fashion for the near future. On top of that, as we explained, and in spite we see this happens to reduce costs, which was shown in the presentation, there are significant cost pressures. Real but not only and still persist in logistics, in energy, in chemicals. So either some of these competitors that have posted very weak results or negative results are able to turn around that business in the coming quarters. Or probably will accelerate that actually. But it's guesswork, and I don't even dare to share to share names.

It's still helpful. So hopefully, we see some closures. And then I do have a difficult question and I understand if you don't want to answer this, but I completely understand your strategy to consolidate and grow in tissue? And hopefully, as you build of transformation and you get more synergies out of that business, it's going to be helpful. But I just wondered, do you see benefit from doing selective M&A -- and we -- if I was to point to ST as an example with some U.K. operations and some Iberian operations, there would be sites that geographically and from a commercial standpoint, I think would offer Navigator a lot of synergies. But I'm just wondering, would there be challenges with brand issues or market share issues. I'm just wondering if with this issue M&A at the right price is on the table, yes.

Thank you for the question. I'll make retracting comment, and then I will ask one to complement results. Actually, our development issue is more M&A based than organic growth based. So we started the tissue business by one in the company. Then we developed or concluded the project of doubling capacity that [indiscernible]. We installed a greenfield tissue machine in [indiscernible]. Then a few years later, we bought the company in Spain. Plus a few months later, we bought in U.K. Now we are building again a new tissue machine in Brazil, and this is our priority, for sure. And we are always strategically in tissue. We are always very attentive to M&A and M&A is not only a viable strategy, but something that we have in our rather further. We are not pressured to grow and buy if we are not convinced that the business or buy [indiscernible] price, but definitely, not only, but particularly in the geographies that we are already present, M&As for sure the.

Okay. I think just to add a couple of thoughts. On your questions on synergies, yes, I mean, I guess you're right in the sense that we see value creation in consolidated in the regions where we are present from several angles. So indeed, we learned when we acquire and consolidate new industrial operations. There is always room to learn. Learn from the new operations, but also to improve the operations that we acquire. There is also some commercial synergies in the sense that we're able to serve our clients. Most of our largest clients are present in the region across many markets and countries. And this way, we're able to supply and give them an offer that is present in all the regions where they are. In addition, as well as we get bigger, economies of scale in some areas of important fixed cost can also be leveraged. So as we get bigger, if the assets and the operations are good operations and have potential to grow our potential to foods operationally we have found so far that the history over the last 11 years when we started, we have been able to successfully lead this M&A, let's say, relation that we are undertook, as Antonio mentioned.