THE NAVIGATOR COMPANY Packaging - From Fossil to Forest - investment in sustainability, innovation and transformation | |
Power Output of 381 GWh, of which 75% was from renewable energy sources | |
EBITDA of € 133 million due to cost management, growing demand and rising prices | |
New green Financing consolidates Sustainable Financial Management | |
OUTCOME OF THE OFFER FOR ACCROL | 10 |
WE CREATE VALUE BY PLANTING THE FUTURE | 10 |
OUTLOOK | 12 |
FINANCIAL STATEMENTS | 14 |
FIRST QUARTER RESULTS 2024 | 1 | 15 |
PERFORMANCE 1st QUARTER 2024
At the start of 2024, demand for pulp and paper continued on the upward course that had been observed in the second half of 2023. In the UWF market, the process of destocking, which took up much of the previous year, has come to an end, and apparent demand at manufacturers is now a more realistic reflection of end demand, especially in Europe. This has driven demand for pulp in the region, added to robust demand from China, due to new paper capacity starting up in the second half of 2023.
Rising benchmark prices for pulp and paper were another key feature of the 1st quarter, sustained by the dynamics of demand as well as by significant restrictions on supply, caused in particular by low stocks at the start of the year, strikes in Finland and logistics constrains in the Red Sea.
Navigator remains committed to its sustainable investment and innovation plans in all the segments in which it operates.
As part of our strategy of diversification and growth, on 22 March we launched a public all-cash firm offer (Offer) for Accrol Holdings Plc (Accrol), a leading player in the UK tissue market. We have also pressed ahead with diversifying our Packaging business, and in the second half of 2024 we will start up an innovative unit for integrated production of moulded eucalyptus cellulose, designed to replace single-use plastic packaging in the food service and food packaging markets. From a medium-long term perspective, we are still looking into the attractiveness of investing in green fuels, both biofuels and e-fuels, or synthetic fuels. And our R&D programme is moving forward to explore and develop new bioproducts from Eucalyptus globulus, with a vast range of applications in different industries, such as the automobile sector, textiles, pharmaceuticals, the food industry and even for the defence sector.
As an integrated producer of Forests, Pulp, Paper, Tissue, Packaging and Energy, Navigator has consistently demonstrated its resilience, adjusting quickly to market conditions, successfully protecting its margins and delivering results, as well as pressing ahead with its strategy of investment, growth and diversification.
1st Quarter Analysis (vs. Q4 2023 and vs. Q1 2023)
- Turnover stood at € 536 million, up 9% on the 4th quarter and up by 7% YoY;
- EBITDA totalled € 133 million (up 7% on the 4th quarter and 2% on the 1st quarter of 2023), with an EBITDA margin of 25%;
- The volume of paper and packaging sales stood at 354 thousand tons (up 10% on the 4th quarter and 29% on the 1st quarter of 2023), whilst in value, sales grew by 12% in relation to the previous quarter, and 9% YoY;
- The volume of pulp sales stood at 110 thousand tons (up 20% both on the 4th quarter and on the 1st quarter of 2023), in a quarter when less pulp was available for sale on the market due to incorporation into paper, packaging and tissue;
- The volume of tissue sales stood at 38 thousand tons, down by 6% in relation to the previous quarter, due to lower production availability, which affected sales of reels, and up by 59% YoY. The YoY leap in sales volume can be attributed to Navigator's strategy of diversification, with the acquisition of what is now Navigator Tissue Ejea, positioning the group as Iberia's second largest tissue producer;
FIRST QUARTER RESULTS 2024 | 2 | 15 |
- Packaging segment order books tended to recover, due essentially to: (i) improving demand and (ii) development of new product ranges in flexible packaging, enabling Navigator to diversify its business and achieve growth in its client base and markets.
- The outcome of the Offer to acquire the entire share capital of Accrol was announced yesterday, after the General Meeting. The Offer was approved at the Court Meeting with 99.12% of the votes and the connected resolution was passed at the General Meeting with 99.17% of the votes cast, enabling the acquisition of 100% of the company's share capital; Navigator expects to become effective upon May 24th.
LEADING INDICATORS
Q1 | Q1 | Q1 24/Q1 23 (8) | Q4 | Q1 24/Q4 23 (8) | |||||||
Million euros | 2024 | 2023 | 2023 | ||||||||
Total Sales | 536,4 | 501,2 | 7,0% | 492,7 | 8,9% | ||||||
EBITDA | (1) | 133,3 | 130,7 | 2,0% | 125,0 | 6,6% | |||||
Operating Profits (EBIT) | 97,7 | 99,2 | -1,5% | 88,7 | 10,1% | ||||||
Financial Results | - 8,8 | - 2,7 | -229,2% | - 3,6 | -143,0% | ||||||
Net Earnings | 64,1 | 71,7 | -10,6% | 74,2 | -13,6% | ||||||
Cash Flow | 99,7 | 103,1 | - 3,4 | 110,5 | - 10,8 | ||||||
Free Cash Flow | (2) | 46,3 | 30,8 | 15,4 | 59,9 | - 13,6 | |||||
Capex | 40,7 | 41,7 | - 1,0 | 44,4 | - 3,7 | ||||||
Net Debt | (3) | 443,6 | 351,4 | 92,2 | 489,9 | - 46,3 | |||||
EBITDA/Sales | 24,9% | 26,1% | -1,2 pp | 25,4% | -0,5 pp | ||||||
ROS | 11,9% | 14,3% | -2,4 pp | 15,1% | -3,2 pp | ||||||
ROCE | (4) | 21,8% | 23,8% | -2,0 pp | 20,6% | 1,2 pp | |||||
ROE | (5) | 19,0% | 22,1% | -3,1 pp | 23,0% | -4,0 pp | |||||
Equity Ratio | 47,5% | 44,4% | 3,1 pp | 46,8% | 0,7 pp | ||||||
Net Debt/EBITDA | (6)(7) | 0,88 | 0,47 | 0,41 | 0,98 | -0,10 | |||||
1.Operating results+ depreciation + provisions;
2.Change in net debt + dividends + purchase of own shares
- Interest-bearingliabilities - liquid assets (not including effect of IFRS 16)
- ROCE = Annualised operating income / Average Capital invested (N+(N-1))/2 5.ROE = Annualised net income / Average Shareholders' Funds (N+(N-1))/26.(Interest-bearing liabilities - liquid assets) / EBITDA corresponding to last 12 months; 7.Impact IFRS 16: Net Debt / EBITDA Q1 2024 of 1.02; Net Debt / EBITDA Q1 2023 of 0.56; 8.Change in figures not rounded up/down
FIRST QUARTER RESULTS 2024 | 3 | 15 |
ANALYSIS OF RESULTS
Energy 6% | Packaging 3% |
(vs 9% FY2023) | (vs 2% FY2023) |
Tissue 14%
(vs 15% FY2023)
Pulp 12% (vs 13% FY2023)
-
536 M
Turnover
Paper 65%
(vs 61% FY2023)
The healthy results recorded in the first quarter can be explained by the focus on managing costs, growing demand and sales volume for paper and tissue and rising prices for pulp, printing paper and tissue, as well as the sales strategy and diversification of products and markets.
The printing and writing papers industry
The upward course of demand observed in the second half of last year continued into early 2024. Demand was essentially driven by restocking in the supply chain, especially in Europe.
Global demand for printing and writing papers | |
+ 1.1% | |
118 | +1.5% |
104 |
+4.2% | ||||
38 | ||||
- 1.1% | 0.0% | |||
-25 | 0 | |||
Total | Uncoated | Coated Woodfree | Uncoated | Coated |
Woodfree | Mechanical | Mechanical |
Mt, YtD
Source: PPPC, February (2024 vs. 2023)
Apparent global demand grew by 1.1% in the 1st quarter (February), with stronger demand for UWF (up 1.5%), in contrast to CWF papers, which were down by 1.1%. Demand for paper produced from mechanical pulp grew by 2.2%.
FIRST QUARTER RESULTS 2024 | 4 | 15 |
In Europe, apparent demand for UWF paper grew by 10.4% this quarter, with the folio segment as the top performer, at 20.4%, followed by cutsize office paper (up 9.6%) and reels (up 4.6%). This was due essentially to restocking throughout the supply chain and to significant restrictions on supply, caused by logistical constraints in the Red Sea and at Finnish ports.
After a recovery in the pace of new orders in the second half of 2023, this tendency continued in the 1st quarter of 2024, with an orders/capacity ratio of 90% (vs. 70% in the 1st half of 2023 and 80% in the 2nd half of 2023).
In the United States, demand dropped by 1.3%. Apparent UWF consumption in other world regions grew by 0.7% (February), with China recording an impressive 12.2% YoY (February) (CAGR 5.8% 21-24).
The benchmark index for office paper prices in Europe, PIX A4 B-copy, recorded an average in the 1st quarter of 2024 similar to that for the previous quarter, 1,097€/t. The index eventually ended the quarter at 1,105€/t, up by 1% from the start of the year (1,093€/t). Average sales prices in Navigator's segment performed strongly, up by around 2%. Significantly, from November - when prices in Europe and in overseas markets started to move upwards again - to April, Navigator's UWF price increased by around 3% in Europe, 9% in overseas markets and 5% to the total sales mix. Implementation of the last price increase announced, which started in April, is expected to be concluded by May/June.
Navigator's sales of paper and packaging totalled more than 354 thousand tons in the quarter, representing an increase of 10% over the previous quarter and of 29% over the same quarter in 2023. Paper and packaging sales grew in value by 12% in relation to the previous quarter, and 9% YoY.
This has highlighted the strength of our business model, based on differentiation, Premium products and own brands in the various markets where we operate. Mill brands represented close to 76% of the quarter's sales (vs. an average of 67% over the period 2012-2023), again pointing to the resilience of the company's branding strategy. The proportion of premium products remained high in relation to 2023, at 57% (compared to an average of 53% in the period 2012-2023). When market conditions are more difficult, mill brands and segments with greater value added offer an additional safeguard for Navigator's results.
Pulp Market
The first quarter of 2024 ended with the benchmark index for hardwood pulp (PIX BHKP in dollars) rising to 1,242 USD/t. Since the start of the year, pulp prices have grown by approximately 22% and everything suggests they will continue upwards, at least over the next quarter. Prices in China mirrored the developments in Europe, reaching 684 USD/ton at the end of the quarter, up 5% since the start of 2024.
The dynamics of supply and demand were crucial in sending prices upwards. China remains the great driving force behind the recovery, thanks to new packaging paper capacity, which started up in the 2nd half of 2023 (0.7 Mt of UWF paper, 1 Mt of Packaging and 1 Mt of Tissue), although the developed economies have also presented growth in hardwood demand due to the performance of downstream markets, in particular in Europe (up 4.2% in February).
Performance at end consumers of cellulose pulp was better than expected, especially in the printing and writing paper industry, where order books grew substantially. On the supply side, logistical constraints in the Red Sea, constraints on supply in Canada, the strike in Finland and the unavailability of output from one of the largest pulp mills of a leading player, also in Finland, due to an incident at the production unit, put upwards pressure on long fibre prices, adding further to the substitution of long fibre by short fibre.
At the same time, further pressure on prices has stemmed from the structural increase in the costs of pulp production, which continue to incorporate very significant increases in wood, chemicals and manpower costs
FIRST QUARTER RESULTS 2024 | 5 | 15 |
in relation to pre-pandemic levels. These rising costs are having a more severe impact on producers outside Europe, in particular in Latin America.
In this context, global demand grew YoY by 6.5% in bleach chemical pulp (BCP), 8.9% in hardwood pulp (HW), and 14.4% in eucalyptus pulp (EUCA), most significantly in China (+9.4% BCP, +16.1% HW, +35.7% EUCA) and in Europe (+3.9% BCP, +4.2% HW, +2.1% EUCA).
The year started with stocks at low levels, above all at ports in China and Europe, but also at manufacturers. The level of stocks at European ports remains below the average for the past five years. In China, stocks at ports increased over the quarter, explained by the fact that much of the volume traded in the second half of 2023 has now arrived in the 1st quarter, somewhat behind schedule. Late deliveries have also helped sustain higher prices and price increases.
As a consequence, pulp sales for the period stood at 110 thousand tons, representing an increase of 20% over the previous quarter and YoY, whilst the value of sales was up 28% and down 2% in relation to the same periods.
Growth and strong performance in Tissue business
Demand for Tissue paper showed positive dynamics at the start of 2024. After a period of stock reduction in the first months of 2023, the first two months of 2024 saw growth of 2% in Europe.
Navigator's Tissue sales (finished products and reels) totalled 38 thousand tons in the 1st quarter, representing growth of 59% over the same period in 2023 and a reduction of 6% in relation to the previous quarter, due to lower production availability, which affected sales of reels. In value, sales grew by 41% YoY, and there was a downward correction of 4% in relation to the previous quarter.
The YoY figures were boosted by the integration of the Navigator Tissue Ejea mill, as from the second quarter, which, as well as contributing to growth in sales, expanded the customer base and generated significant gains by unlocking synergies. It has also permitted cross-selling, which has further strengthened commercial relations with clients.
In the 1st quarter of 2024, international sales accounted for 71% of turnover in Tissue business. The Spanish market took the largest share, with 42% of sales, followed by France, with 23%, and the UK, which accounted for 4% of sales. Finished products represented 94% of total sales, and reels 6%. In terms of client segments, At Home or Consumer (retail) business has grown in importance, currently accounting for around 80% of sales, whilst Away-From-Home and wholesalers account for the remaining 20%. Attention is drawn to Navigator's balanced and diversified customer portfolio (its largest client represents around 10% of total sales).
Navigator's focus on innovation and differentiation continues to be welcomed by customers, with sales of mill brands growing by 11% YoY in the first quarter of 2024. Significantly, in the retail segment, where retailers' own brands dominate, with 70 to 80% of Tissue sales, Navigator's mill brands grew by 14% YoY. As part of the success of our mill brands, sales of innovative products continued to experience rapid growth, up 11%, once again strongly driven by retail business, where growth stood at 25%.
FIRST QUARTER RESULTS 2024 | 6 | 15 |
Packaging - From Fossil to Forest - investment in sustainability, innovation and transformation
After a challenging year in 2023, with a drop in business in several segments, the European market has started to show signs of recovery in 2024. European Sack and Kraft deliveries grew by 14% in relation to the same period last year.
In this context, Navigator's Packaging business - still consolidating its position in the international market - enjoyed stronger and more consistent demand in the main segments, at the same time as a positive impact can already be seen from the move into several new segments (above all, flexible packaging), in the early months of the year. The process of trials and market placement, still under way, consists of a large scale approach to new clients, backed up by more than 250 market trials to date, in a commercial operation 100% based on Navigator's own brand - gKraft™.
Navigator has based its offering of packaging papers on three gKraft™ macro-segments: BAG, FLEX and BOX, which subdivide into 12 segments for different applications, aimed respectively at the markets for Bags (retail, consumer and industrial bags), Flexible Packaging (serving a vast array of end applications in a number of industries, such as the agro-food sector, restaurants and pharmaceutical products), and boxes (corrugated cardboard boxes for value-added products and food packaging, including cardboards for producing paper cups and food trays). The innovative introduction of the properties of eucalyptus fibre has been crucial in securing the wide acceptance and recognition these products already enjoy in the market.
As part of the diversification of packaging business, progress has continued as planned in the project for integrated production of eucalyptus-based moulded cellulose components, designed to substitute single-use plastic packaging in the food service and food packaging market, and production is planned to start up in the 2nd half of 2024, under the gKraft™ Bioshield brand. The facility will have production capacity for approximately 100 million units a year, making it one of the largest in Europe and the first such integrated facility in southern Europe, moving into a fast growing, high-potential market. Operations will start with 4 products for the food sector, and the facility offers production flexibility and scalability in order to exploit the various opportunities opening up for substituting plastics.
Power Output of 381 GWh, of which 75% was from renewable energy sources
First quarter power sales totalled 33.3M€, down by approximately 32% on the same period in 2023 and by 14% on the previous quarter.
This reduction is explained essentially by: (i) reduction in the electricity market price (OMIE) which in the first quarter averaged 44.4 €/MWh in the first half of the year, in contrast to the figure of 97.9 €/MWh in the same period in 2023; and (ii) the fact that the combined cycle natural gas power station in Setúbal is operating with only one generator set, when last year it operated with two sets, given that evolution of the price differential (electricity and natural gas) means that operating the second set is not economically viable at present.
On the other hand, these lower electricity sales are matched by lower acquisition costs for natural gas and reduced use of fossil energy, as well as lower acquisition costs for power purchases indexed to OMIE.
The Group's industrial units continue to participate in the Regulation Reserve Band Market, a system service provided to the operator of the power grid by qualified major power consumers, designed to contribute to the fundamental aim of safeguarding the security of supply in the National Electrical System, which has already proved to be decisive for protecting domestic consumers and critical users.
FIRST QUARTER RESULTS 2024 | 7 | 15 |
EBITDA of € 133 million due to cost management, growing demand and rising prices
Over the course of the quarter, Navigator remained focused not just on managing its variable costs, improving its negotiation of purchase prices and optimising consumption, especially of fibre (including wood) and chemicals, but also on continued efforts to contain fixed costs.
As a result, there was another sharp reduction in cash costs, which were cut, in relation to the same period in 2023, by between 9% and 16% in all pulp and paper segments (printing and writing, tissue and packaging). In relation to the previous quarter, costs continued to be brought down in the Paper and Tissue segment, with reductions of between 4% and 5%, whilst costs in the pulp segment held steady.
It should be stressed that the 1st quarter of 2024 was marked by the crisis in the Red Sea, requiring changes to shipping routes and prompting an upward tendency in freights worldwide. Despite these difficulties, Navigator succeeded in keeping its maritime freights on a downwards course.
Total fixed costs ended the period 5% higher than in the same period in 2023, due to the inclusion of the Tissue Ejea unit and increased disbursement of severance pay as a result of rejuvenation.
In this context, Navigator achieved EBITDA of € 133 million in the first quarter (vs. € 131 million in the same period last year and € 125 million in the preceding quarter) with an EBITDA margin of 25% (down 1.2 p.p. YoY; down 0.5 p.p. on the preceding quarter). Earnings were boosted by increased volumes and decreasing variable costs, although the reduction in costs was not enough to offset all of the reduction in sales prices, specifically in comparison with the same period in 2023, bringing the EBITDA margin down by 1.2 pp.
Financial Results benefit from interest rate hedging policy
Financial results showed a loss of € 8.8 million (as compared to € 2.7 million in the same period in 2023 and € 3.6 million in the preceding quarter), up by € 6.1 million YoY.
This was caused by an extraordinary (non-cash) effect of € -4.2 million and a foreign exchange loss, in contrast to the gain recorded in the first quarter of 2023. Financing costs remained stable, despite the rise in interest rates, thanks to the policy of hedging interest rate risk.
Pre-tax profits totalled € 89 million (vs. € 97 million in Q1 2023 and € 85 million in the preceding quarter) and the corporation tax burden for the period was € 25 million (in line with the same period last year and vs. 11 million in the preceding quarter), with a tax rate for the period of 27.9% (vs. 25.8% in Q1 2023 and 12.9% in Q4 2023). Net income stood at € 64 million (vs. € 72 million in Q1 2023 and € 74 million in Q4 2023).
Free cash flow generation of €46 million
Free cash flow generation in the quarter stood at € 46 million (vs. approximately € 31 million in the same quarter in 2023 and approximately € 60 million in the preceding quarter).
Cash generation has remained high, even with the moderating effect of our continued policy of supporting the liquidity of our partners (visible in lower supplier balances) and despite the amount disbursed for capex projects in the period.
FIRST QUARTER RESULTS 2024 | 8 | 15 |
New green Financing consolidates Sustainable Financial Management
At the end of the quarter, net debt stood at € 444 million euros. The Interest Bearing Net Debt/EBITDA ratio stood at 0.88, further consolidating the financial strength displayed by the Group.
Debt of € 61 million was repaid over the quarter and a long-term loan (7 years) of € 30 million, with financial terms tied to the company's ESG performance. Navigator has also contracted long term finance from the European Investment Bank (EIB) with a value of 115 million euros, which can be drawn in 3 tranches over a period of 18 months after signing (in December 2023), with maturities of up to 12 years.
Average debt maturity therefore remains appropriate, with well-balanced maturities, and close to 44% of total debt tied to sustainability and 92% of total debt issued on a fixed rate basis, directly or via interest rate swaps, enabling us to maintain low financing costs in a scenario of sharply rising interest rates.
Unused long term credit facilities currently total € 268 million.
Capital expenditure of € 41 million
Capital expenditure totalled € 41 million in the 1st quarter of 2024 (compared to € 42 million in Q1 2023 and
- 44 million in the preceding quarter), of which approximately € 13 million was classified as environmental or sustainability (ESG) investment, accounting for 32% of total.
Capital expenditure consisted mostly of projects aimed at decarbonisation, maintaining production capacity, modernising plant and achieving efficiency gains, as well as structural and safety projects. The most significant capex projects include the new high efficiency Recovery Boiler in Setúbal, the new Tower and Washing presses in Aveiro, the new biomass-fuelled lime kiln in Figueira, conversion of the Setúbal lime kiln to burning biomass and the new solar facility in Figueira da Foz.
Navigator has continued to move forwards with projects under the Recovery and Resilience Plan (RRP), in particular projects addressing the Climate Transition and the Digital Transition. For eligible investments
FIRST QUARTER RESULTS 2024 | 9 | 15 |
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The Navigator Company SA published this content on 16 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 May 2024 17:12:04 UTC.
