The Navigator Company S.A. (OTCPK:POELF) Q2 2024 Results Conference Call July 25, 2024 10:00 AM ET
Company Participants
Ana Canha - IR
Antonio Redondo - CEO
Fernando Araujo - CIA
Quirino Soares - Head of Supply Chain Board & Marketing Director
Nuno Santos - Executive Director
Dorival Almeida - Director
Conference Call Participants
Enrique Parrondo - JB Capital
Antonio Seladas - AS Independent Research
Operator
I now hand the conference over to Ana Canha. Please go ahead.
Ana Canha
Ladies and gentlemen, welcome to Navigator's company conference call and webcast for the Second Quarter and First Half results. Joining us today are the following directors Antonio Redondo, Fernando Araujo, Nuno Santos, Joao Le, Dorival Almeida and Antonio Quirino Soares. As usual, we will start with a brief presentation, and we will have the Q&A session at the end. The presentation can be accessed through the links available on the website, and questions may be addressed also through the webcast platform. Antonio will start commenting on the main highlights for the quarter.
I will now hand over to Antonio.
Antonio Redondo
Thank you, Ana. Good afternoon, and thank you all for joining us today. I'm very honored to be here once again and to share with you our second quarter and first half results. As you will see in today's presentation, Navigator has shown once again a unique competitive position in Europe in terms of the efficiency in which managed business mix and within each business, its marketing mix. It has consistently shown flexibility in adapting to different market dynamics, focusing on results and protecting margins as once again was the case this quarter.
I will start with Slide 4 for a global overview of the year. The first half of 2024 got off to a very positive start marked by an all-time high in the pulp reference price and the positive trend in the paper reference price with improved paper and pulp demand across all segments, printing and writing, packaging and tissue. Navigator ended this first half of the year with a total turnover of €1,066 million, up 9% year-on-year. EBITDA stood at €299 million with a strong EBITDA margin of 28%, enabled by enrichment of the product mix, an efficient commercial strategy focused on price and marketing mix and managed a significant reduction in cash costs. Regarding cash cost, we again recorded a reduction year-on-year in all segments from 6% to 14%.
While staying focused on our diversification plan, during the second quarter, Navigator successfully completed the acquisition of Accrol, a leading player in the U.K. tissue market, fourth in the ranking. We are also continuing to focus on diversifying our packaging business. We have continued to enlarge our customer base through existing and new paper application segments as well as with innovative integrated production unit for molded eucalyptus pulp products intended to replace single-use plastic packaging in the foodservice and food packaging markets. The commissioning of the mill site already started, and the commercial production is planned to start in the latter part of this quarter.
Net debt stood at €665 million at the end of June, impacted by significant outflows from acquisition of Accrol by distribution of €150 million in dividends and a higher level of CapEx as previously anticipated. Even so, the net debt-to-EBITDA ratio stood at 1.2, further consolidating the financial strength displayed by the group. In a very significant development this month of July, the annual assessment by the Sustainalytics, the sustainability rating agency once again, iterated Navigator as a low-risk for investors. Actually, Navigator was evaluated as the number 1 in the world on 85 global paper and forest companies evaluated, topping the list of companies with the lowest ESG risk, more precisely on the lower fringes of the low risk level with most issues presenting negligible risk. Fernando will start with the main financial highlights.
Fernando, please go ahead.
Fernando Araujo
Thank you, Antonio. Turning to Slide 5. As mentioned, EBITDA stood at €299 million, up 18% year-on-year, with an EBITDA margin of 28%. Net profit stood at €159 million, up 16% year-on-year. CapEx totaled €93 million, of which approximately 45% -- 44%, was classified as a value-added sustainability, ESG investments, making a positive contribution to reduce future costs.
If we turn to Slide 6. This quarter, we recorded higher sales price across all segments: pulp, paper, tissue and packaging. The volume of paper sales was down 10% in the first quarter and up by 23% over the second quarter in 2023. Pulp sales were down 35% quarter-over-quarter and 43% on Q2 2023, in a quarter with less pulp available for the market and maintenance [indiscernible]. The volume of tissue stood at 56,000 tonnes, up by 48% quarter-on-quarter and up by 50% in Q2 2023, driven by dynamic demand and the new capacity of Accrol now called Navigator Tissue U.K.
The value of sales grew by 51% over the previous quarter and by 41% over the same period in 2023. My colleagues will give more details on the performance of the individual business.
Turning to Slide 7. We can take a closer look at the main impacts on MPCA in a year-on-year comparison. Lower market pricing and [indiscernible] packaging and tissue more than offset by higher sales volume and decreased cash costs. When comparing to the same period in 2023, as Antonio mentioned, there was a significant reduction in cash costs of between 6% and 14% in all pulp and paper segment, rating and writing tissues and packaging. It should be noted that the first half of the year was marked by restrictions in the Red Sea, which lead to changing maritime transport routes and overall upward trend in freight rates.
[indiscernible] East to West and North Atlantic. Despite this context, Navigator maintaining downward trend in maritime rates, mainly within Europe, Mediterranean and Africa and thus, saw a reduction in logistical costs in all business segments.
Total fixed costs ended up higher than in the same period last year due to the inclusion of Navigator Tissue Ejea and Navigator Tissue U.K. units and employee profit sharing as well as higher redundancy costs and the regulation scheme and nonrecurring costs related to the Accrol acquisition. Regarding EBITDA quarter-on-quarter now -- this second quarter EBITDA stood at €155 million, up 34% quarter-on-quarter and up 35% in Q2, 2023, reflecting an EBITDA margin of 51%. The quarter-on-quarter improvement is essentially the result of the increase in pulp price in all business. The reduction in production costs and the fact that we kept fixed costs relatively stable from Q1 from Q2.
In addition, there was also gains in the energy business with a positive second quarter due to an increase in sales part of the [indiscernible] and also the impact of two months of operation of tissue in U.K.
Lastly, quarter-on-quarter, there was a positive net effect on the change in production costs in Q2. In Q1, we sold products produced in 2023, which had a higher production cost than those produced in 2024, while in Q2, all sales were made with the stock produced in the same year, therefore, with the lower cost of sales compared to Q1. Quirino will now comment on pulp and paper price. Quirino, please.
Quirino Soares
Thank you, Fernando. Moving to Slide 9, we see the evolution of pulp and paper prices. The first quarter of 2024 ended with a benchmark index for hardwood pulp, fixed BHKP in dollars, rising to USD 1440 per tonne. Since the start of the year, pulp prices have grown by approximately 41%, and everything suggests they will continue at significantly above the average level at least over the next quarter and until the end of the year. Currently at USD 1440, this is the highest nominal value average.
Prices in China developments in Europe, reaching USD 741 per ton at the end of the quarter, up 14% since the start of 2024. The benchmark index for office paper prices in Europe, [indiscernible] ended quarter at €11 per tonne, up by 2% from the start of the year, which was €93 per tonne.
Moving to Slide 10, we have summarized the main developments in the [indiscernible]. The paper global demand grew by 1.3% in the first half, which is until May, available paper across all segments of products with demand for uncoated woodfree papers strongest, up by 1.6%. And coated woodfree papers growing by 0.6%, whilst papers with mechanical fiber experienced growth in demand of 1%.
In Europe, the apparent demand for uncoated woodfree paper grew by 14.8% over the first half with the folio segment as the top performer growing at 20.6%, followed by size office paper up by 14.8% and [indiscernible] up by 10.1%. We recorded an increase in market share in Europe, first half of the year compared to the same period of last year. Capacity utilization rates in the European industry divided by capacity average by -- average 87% in the first half of the year, while Navigator operated at above the industry average at 92% or 5 percentage points above the average.
In the United States, demand declined by 2.6% year-to-date. Despite the drop in market demand and after a very difficult 2023, Navigator sales in the U.S. grew again as did its market share in the market. The apparent and continuous consumption in other world regions grew by [indiscernible] until May, with China recording an impressive 7.1% growth year-on-year, which compares to 2.9% compound rate from '19 through '23.
As just mentioned, the benchmark index for office paper prices in Europe recorded the modest increase in the period. Nevertheless, the average sales price in Navigator Paper segment performed slowly. From November to June, Navigator uncoated woodfree price increased by around 8%. The increase in Europe was a bit below that average, and the increase outside Europe was higher than 8% mentioned. It should be noted that the total paper turnover continues at high levels historical.
In challenging markets, own brands and high-value segments provide extra protection from Navigator's results. Nuno will give some market context on pulp. Nuno?
Nuno Santos
Turning to Slide 11. As Quirino just mentioned, the first half of '24 witnessed a significant and rapid increase in pulp prices. The supply and demand dynamic was decided for increase in prices. On the demand side in Europe, the market of end consumers of pulp performed strongly, especially in printing and writing and packaging paper industries, where order books grew substantially in contrast to the same period in '23. Tissue demand also performed well.
In China, the strong demand for pulp in late '23 continued into the first half of '24 due to the new paper capacity installed. On the supply side, logistical restrictions in the Red Sea as well as pressures on supply in Canada, Finland, Latin America and Asia due to production and availability, maintenance stoppages, capacity closures and logistical constraints have sustained the current price levels. It should be noted, however, that at the end of the first semester, demand for short fiber in China slowed down, and with the constraints observed during the first few months of the year being overcome, the availability of pulp increased, especially in Europe and the Mediterranean. Nevertheless, demand has been strong and stocks are still below the historical average for the last five years.
Looking now at tissue performance on Slide 12. Demand for tissue paper remained strong, up 3.5% in Western Europe year-to-date. The recovery in household spending power, driven by lower inflation, lower inflation has yielded positive effects as well and tourism growth has boosted the away from home segment. The Navigator recorded first half tissue sales of 94,000 tonnes, up 55% year-on-year as a result of including two months of operations by Accrol, now called Navigator Tissue U.K. and of Navigator Tissue Ejea in the second quarter of '23.
Sales outside Portugal accounted for 76% of turnover in tissue business in the first half of '24. The Spanish market took the largest share with 35% of sales, followed by the U.K. with 20%, and France, which accounted for 18% of sales. Sales broke down into 95% of finished products that have grown 34% year-on-year and 5% will grow a significant mix improvement.
In terms of clients at home or consumer, business has grown in importance, currently accounting for 81% of sales, while away from home and wholesalers account for the remaining 19%. Navigator's focus on innovation and differentiation continues to be welcomed by clients with sales with new brands growing by 29% year-on-year in the first half of '23. A strong contribution to this growth in new brand sales has come from sales of innovative products, which again recorded excellent growth, up 16%. The portfolio of tissue products has benefit significantly from the recent integration of the industrial units in the U.K. It now includes wet wipes, moist [indiscernible] tissue and facials.
Dorival will now comment on the main development in packaging.
Dorival Almeida
Thank you, Nuno. Now turning to Slide 13. After a promising first quarter, the second quarter confirmed the trend for recovery with robust and consistent demand. Segments where we operate grew by 25% year-on-year. Navigator's Packaging segment recorded 9% growth in sales volume, this half compared to the first half of 2023.
In this context, Navigator implemented price increase in all its markets, justified by the rise in production costs and by improved market performance.
This strong performance is firmly supported by the move into several new segments above all in the area of flexible packaging, where the company launches products in the early months of the year and is now seeing more significant sales volumes. The first half of the year also saw a reduction [indiscernible] on the paper bag segment with the shift towards flexible packages. Navigator has continued to broaden its customer base, which already numbers close to 300 clients in our sales operation, a 100% based on its own brand [indiscernible]. Fernando will comment on our financial position.
Fernando Araujo
Thank you, Dorival. On Slide 14, the debt maturity profile. Group debt profile remains conservative in a quarter with significant outflows, as Antonio mentioned, in particular, €150 million dividend payment, and Merger & Acquisition reflection and strong CapEx. Navigator debt maturities remain well balanced. Debt maturities excuse me 93% of total debt issued on a fixed rate basis, enable us to maintain low financial costs in the scenario of sharply rising interest rates.
Also, it's worth to mention that the company has a sound balance sheet with liquidity close to €530 million in both and used long-term credit lines and cash. In addition to the long-term financing agreement with European Investment Bank of €150 million, which can be drawn in Swiss banks with maturities up -- in the second quarter, new long-term bonds were contracted was €300 million in order to maintain an appropriate average debt profile, with balanced maturities and linked to sustainability platform. Joao will give more color on our meeting. I will now hand over to Joao.
Unidentified Company Representative
Thank you, Fernando. Turning to Slide 15, please. Navigator is committed to carrying on its business while complying with principles and best practices related to environment, society and governance issues, ESG and has established this sustainability-linked finance framework, support the financing and/or refinancing of its activities in general through bond issues or loans indexed to sustainability indicators. . This sustainability-linked financial instruments are effective tools for securing the funding for its operations and at the same time, bolster its commitment to sustainable practices.
These principles are voluntary guidelines, which fosters transparency and credibility in the sustainable in loan markets. The sustainability indicators selected for linking to the financial cost of the financial operations relate to the central goals of our sustainable strategy, meaning reduction of CO2 emissions, Scope 1 ETS credits, purchases of certified wood and consumption of energy from renewable sources. The KPIs are consistent with the sustainability performance targets presented in timelines with annual targets from 2024 to 2030. And consistent with the planning horizon for the company's 2030 agenda. Also, the use of proceeds of the long-term finance available from the European Investment Bank, mentioned by Fernando is linked to our decarbonization targets through the construction and the operation of a high-efficiency recovery at industry are complex, a key step in the decarbonization road map.
Turning to Slide 15 -- 16, please -- sorry. Our commitment to the sustainability of our operations in all dimensions was recognized in July in the annual assessment of the Sustainalytics rating agency, which again classified Navigator as a low-risk company for investors, placing us in the 1st position in the list of companies with the lowest ESG risk in the lower fringe of our low-risk spend, with the most material topics presenting only negligible risk. Navigator was ranked in the 1st place out of a total of 85 global companies in paper and forest industries, in this cluster. In 1st place also in the subgroup of 63 global companies in the pulp and paper cluster.
And in the top 5% of more than 16,200 companies worldwide in all business segments. A continuous commitment to improving practices relating to environmental, social and business governance issues has resulted in some management of Navigator's exposure to ESG risks, assessed over more than 70 indicators in the Sustainalytics framework and led to very significant improvement in this rating since the last assessment already top rated. The indicators assessed encompass topics related to corporate governance, management of carbon emissions, waste and effluent water management, community relation, products and service, human capital, occupational health and safety, land use and biodiversity and stakeholder governance. Bioindustry in the right side of the future. I will now hand over to Antonio.
Antonio Redondo
Thank you, Joao. Let's please turn to Slide 17 with the wrap-up of the Q2 and H1 results. We believe the company has delivered strong results despite the geopolitical instability, the uncertainty involving the [indiscernible], in fact, is the second best first half results there. 2024 got off to a positive start with a significant increase in demand for pulp, paper, packaging tissue as we have explained. We registered the positive evolution in prices across all sales.
Navigator then could receive paper sales price increase implemented since last time [indiscernible], a very agile management of our business mix as well as an active management of our marketing mix in each and a significant drop in cash costs achieved thanks to purchase price negotiations and better consumption efficiency across all, especially for fiber, chemicals and logistics. We also pressed ahead with our diversification plan.
During this quarter, we successfully completed the tissue acquisition Navigator Tissue Ejea, and in the Packaging segment on top of new developments on paper products, the more the pulp project already under commissioning and planned initial start-up later in this quarter and the [indiscernible] brand. In the meanwhile, we have again demonstrated the consistency of our conservative financial policies, maintaining our sustainability and investment committee.
Let's turn to Slide 19 with an overview of our strategy. Our sound financial position allows us to consider opportunities for debottlenecking in our core businesses, investing in efficiency and innovation. As already mentioned, the strong CapEx of €93 million demonstrates our commitment to value-added investments in the sustainability of our operations.
Also this quarter, we went ahead with acquisition of Accrol. This acquisition will enable us to grow, providing greater scale in the business and more diversification with two new tissue segments: wet wipes inflation as well as providing synergies with our actual tissue business. And in the second half of 2024, we will start up an innovative unit for integrated production of molded eucalyptus globulous, designed to replace single-use plastic packaging in the foodservice and food packaging markets, as already explained, and Dorival will update you on the project shortly.
Let's turn on to Slide 20 with the glance at our footprint already including Navigator Tissue U.K. 10 world-class product units and state-of-the-art technology, with a global capacity of 1.6 million tonnes of paper, 1.6 million tonnes of pulp, 165,000 pounds of tissue production and 310,000 tonnes of pulp as well as 381 megawatts of energy, which will grow towards the end of this year again. Commercial companies in 17 different geographies, and goods sold to 130 countries, actually more than 130 countries across all the five continents. Now reaching close to 4,000 employees with 38 nationalities, which can offer a wide range of opinions, perspectives and forms of interaction thereby boosting our potential for innovation. And Navigator continues to seek the new opportunities for sustainable growth.
I will now hand over to Dorival to comment on the molded project.
Dorival Almeida
Thank you, Antonio. Going to Slide 21. As Antonio just said, the project or integrated production of the project molded pulp products continues to progress as planned, with the commissioning of the plant having already begun and commercial production starting at the end of the third quarter of 2024 under the gKRAFT BioShield brand. The plant will have a production capacity of around 100 million units a year making it one of the largest in the world and the first integrated plant using eucalyptus fibers, entering a market with high potential growth. The launch will be based on 7 products for the food sector, at 22 centimeters plate, at 17 centimeters plate, a 500 millimeters bowl, a 1-liter takeaway packaging, eliminated trade for a fruit basket and an Espresso coffee cup.
The 7 products offer production flexibility and scalability for exploiting the various opportunities opening up to replace single-use plastics. Alongside this, work has proceeded on developing new products in partnership with national and international clients and on developing new and sustainable paper solutions as well as tiles of commercial products. I will now hand over to Antonio, who will wrap up with a few words on the outlook.
Antonio Redondo
Thank you, Dorival. Let's turn to Slide 22. The current geopolitical tensions, which have created a highly complex situation in both industrial and list operations and in several markets are leading to increased volatility in the international markets present producing dividend. That set for Q3 2024, a seasonal slowdown in demand and an increase in pulp supply are expected, which will result in negative pressure on the benchmark. However, H2 price of pulp is expected to remain above H1, and very clearly evolved last year's average.
Actually, only surpassed by the price achieved in H2 2022. On the other hand, the impact of new capacity coming online in Latin America of 2.6 million tonnes is anticipated to help mainly into 2025, which may ease the pressure expected for the second half of the year.
In the paper segment in Europe, as we have signaled last and above average slowdown in the growth rate of the order book there in the [indiscernible] of Q3. Although we anticipate a better quarter versus the same period last year. Recovery is expected in Q4 as it is always a seasonally strong quarter for paper and with the impact of capacity reductions. Strong cost pressures are expected to continue with cost stabilizing at a level well above pre-pandemic levels. Also, the increased East to West freight rates and capacity exits in Europe and U.S.A. with positive pressure on paper prices.
Regarding store capacity, there is still room for further temporary or permanent capacity reductions in the paper segment due to profitability issues. In the tissue segment, demand continues to rise at interesting levels and the growth of 3.2% is estimated for Europe in 2024. In this segment, Navigator continues to leverage synergies driven by business growth, particularly with the acquisition of Navigator Tissue Ejea and growing with the new acquisition of Navigator Tissue U.K. This was diversification to tissue. Operational flexibility between paper and pulp, and within different types of paper.
Market and business mix product, market and business mix, production adjustment and an efficient commercial strategy, combined with rigorous programs to control costs as well as the company's strong financial position have enabled us to deliver consistently strong and stable results in changing market
We are confident that all these factors in parallel with the continuous development of both our packaging and tissue business will continue to point to the resilience of Navigators model. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question comes from the line of Enrique Parrondo from JB Capital.
Antonio Redondo
I'm so sorry, but we are not listening to you.
Enrique Parrondo
Can you hear me now better?
Antonio Redondo
Now better.
Enrique Parrondo
Yes. So I have two. The first one is regarding the volume outlook. You gave some guidance for volumes in the second half of the year for the uncoated woodfree paper business by quarter. So I was wondering if you could also share similar views on volumes for the pulp business?
And the second one related to costs. When looking at gross margins, this has been close to record highs in the second quarter. With COGS being positively impacted by variation in production. So if you could help us understand what were the moving parts behind the good data in the second quarter? And what we can expect in terms of gross margins for the second half of the year and the flow-through to EBITDA, that would be helpful.
Antonio Redondo
I'm so sorry. I think I understood the first question, but to be fully honest, I didn't understood the second question. Are you so kind to repeat the question a bit slowly, please?
Enrique Parrondo
Yes, sure. So it's related to costs. Okay. When looking at gross margins, this has been close to record highs in the second quarter, with cost of goods sold being positively impacted by variation in production. So I just wanted to see if you could help us understand what were the moving parts behind the good data in the second quarter and what we can expect for the second half in terms of gross margins?
Hope that was clear?
Antonio Redondo
I think so. But for the sake of clarity, I'm going to repeat those questions. Your first question is you'd like to have some kind of indication where we believe volumes for the pulp business will be in H2 this year.
Enrique Parrondo
That's correct.
Antonio Redondo
And your second question is related with the gross margins. And in your view, an explanation of the group gross margin of Q2 was related to variation in production, and you'd like to have a kind of guidance for gross margins on the second half of the year.
Enrique Parrondo
Yes, that will be helpful.
Antonio Redondo
Okay. I will ask Nuno to help me out on the first question. I will try to give you a first indication. I will also try to give a first indication on the cost issue. And I will ask Fernando to help me on answering the second question.
So starting with the first question. The nature of the pulp business makes it significantly more difficult to preview the evolution quarter-on-quarter. Actually, even the statistics available for pulp do not make that prediction easier. Having said that, I think we have witnessed a very strong demand for pulp, both -- a bit across towards the particularly in Europe and Asia in the first half of the year. We understand, as we speak, that particularly outside Europe, as we speak.
So during Q3, there is a certain decrease of demand for pulp. So lots of businesses are delaying their pulp decisions eventually with the expectations on price evolution. So I would expect that the pace of growth on the second half of the year will be lower than the growth that we have on the first half of the year. Having said that, this, of course, depends very much on the evolution of pulp -- sorry, of paper markets. And as we said, the tissue market, we see still a very a robust demand on the second half of the year, ending up the year in Europe with 3.2%.
We expect on graphic papers Q4 to be better than Q3. And actually, in Q3 the seasonality is affecting more volumes outside Europe than actually European volumes. And on the packaging segment, we actually have seen as we have also expressed a very robust demand. We would expect this to continue on H2 as well on the packaging side. So eventually, we will see second half of the year with a lower pace of growth on pulp consumption, again, a bit aligned with our view on paper, so a bit lower in Q3, a bit better in Q4.
But I will hand over to Nuno. Nuno probably has a further input to add.
Nuno Santos
Okay. Just -- you're talking about market growth or actually about our growth. You're talking about?
Enrique Parrondo
Both of them. I think the view was helpful, but also to understand your particular volumes, if you could see some room to increase pulp sales, your pulp sales volumes, considering that maybe market demand for pulp could be a bit better than for actual graphic papers considering that the end demand is for tissue and packaging as you were commenting.
Nuno Santos
Okay. So just -- I mean, I can give you a couple of figures. One, just giving some light to what Antonio just described. I think that globally, we'll end the year for demand on hardwood pulp between just a stable market between 0% and minus 2% versus 23. So overall, the stable market versus 23.
And given what you just described, I think we might expect double-digit growth, but low double-digit growth on the pulp business for us Navigator in the second semester versus the first semester.
Antonio Redondo
Okay. Regarding the cost of goods sold and your comment on the cost of goods sold, I'll also give you an introduction of that and Fernando will give you further details. Actually, the explanation of the improved EBITDA Q2 with Q1 is largely explained by prices. So we have managed to increase prices in all our businesses and by the reduction of variable and fixed costs, right? Both have explained a good part of the delta.
On top -- yes, indeed, we had some variation in production that Fernando will describe for better than I do. But don't forget that we have also other positive effects that explain the move from Q1 to Q2. CO2, a positive variation on CO2 licenses that have impacted our EBITDA. Of course, the integration of Tissue U.K. during two months, a better performance also on our energy division and also a positive impact on the incident.
Fernando?
Fernando Araujo
I think the answer is, we try to anticipate this question in our comments. Like we have said, there is one inventory at the end of the year, that inventory was with higher costs, especially because we have decreased from 6% to 14% on a very low cost. When we are coming from the inventory, there was a higher cost of goods sold that it was not the first in the second half. If you ask if you maintain EBITDA sales margin up 31.2 in the further quarters, not for sure, even with 38% it's very good. And if you see our quarter production in the last year, we have a very stable margin -- EBITDA margin around 35% with a deviation that it's a [indiscernible] 38%, that too not for sure.
Operator
Next question comes from the line of [Jose Antonio Soleros] from Scotia Bank.
Unidentified Analyst
So I have two questions. And one for if you may clarify the last one regarding the EBITDA margin a little bit the focus because my line cut out a little bit. The first one is, if you could provide some information regarding how you've been able to -- the difference because you've been mentioning you've been able to pass, I think you mentioned 8% of increased price -- paper prices around 8% over a little bit less in Europe. But [indiscernible] it has been pretty much stable, declining slightly last week. So could you explain the different dynamics between what you were mentioning in the pass-through price and what actually the [indiscernible] is showing.
This will be the first question.
Antonio Redondo
Sorry -- I'm so sorry. To be honest, I don't think we understood the first question. We understood is about paper price increase and 8% that we have referred, but we didn't understood the question. I guess you are speaking too close to the mic because there is a lot of kind of feedback and noise here.
Unidentified Analyst
Okay. Can you hear me better now?
Antonio Redondo
Yes. And if you speak a bit slower, it will be perfect.
Unidentified Analyst
Perfect. I'll do so. So my first question was regarding that -- we've seen U.S. paper price pretty much stable and even declining slightly last week. And this is mentioning that you've been able to pass-through price hike to the market.
So if you could explain the different dynamics between your pass-through and the prices we're seeing in the peaks? This will be the first question.
The second one would be related to Accrol. And if you could provide some color on the outstanding balance sheet amount of operating leases and also some color on the operating lease cost, moved from EBITDA of Accrol. This will be the second one.
And the third one would be related if you could explain again a little bit -- you explained that EBITDA margin of 31% was impacted by prices and some positive payable and fixed cost, but if you could provide a little bit more -- you could explain again how are you seeing margins evolving in the second half of the year? I don't know if you heard my three questions.
Antonio Redondo
I think the question that we didn't understood again, I told you the second one. Probably, I will repeat the question. If you can share again the second one. If you are so kind to speak a bit slowly, probably we understand better. .
Unidentified Analyst
Sorry. So the second question was regarding if you could provide some color on the balance sheet amount of operating leases for Accrol? And also, if you could provide some color on the operating risk costs removed from EBITDA of Accrol? So if you could provide some information on those two topics regarding Accrol.
Antonio Redondo
Okay. So let me try to rephrase to see if I understand. First question, you would like us to give you a bit of insight how did we manage to increase our overall prices of about 8%, while our -- while the peaks have moved significantly less than that. This is your first question.
Unidentified Analyst
Correct.
Antonio Redondo
Your second question is to provide you color on the balance sheet of Accrol the EBITDA margins of Accrol?
Unidentified Analyst
The balance sheet amount of leases, operating and operating lease cost for Accrol, yes.
Antonio Redondo
And the third question is about if you can repeat what we have explained about the drivers for the excellent margin of Q2, and you would like to give you guidance for the rest of the year.
Unidentified Analyst
Correct.
Antonio Redondo
Very good. I will give you some input comments for one. I'll ask Antonio Soares to further develop it. The second one is going to be the easy to answer, but I will ask Nuno to also complement. And the third one, I will try to repeat and I'll ask Fernando again to give some further color, if needed, okay?
So on the first question, first of all, when we speak about PIX we speak about Europe, office papers, standard quality, okay? So I repeat. PIX is an index that is based exclusively in Europe, exclusively in office papers, and exclusively in the standard part of the segment, it is standard segment of -- so if you will, the average quality of the market, okay? . When we speak about 8%, we speak about our overall sales related to our network in Europe, outside Europe, office papers, papers for the graphic industry, papers for the graphic industries, they have -- they can be used in different kinds of technologies, offset, laser printing, inkjet, can be sold in rails, in ships.
So we are not comparing the same thing. PIX looks to a very -- is a very narrow view of our presence in uncoated woodfree, okay?
So having said that, what we did, and I think we have also mentioned that, the 8% is compound with an amount of increase, slightly below 8% in Europe, and slightly above 8% outside Europe, right? I would like to remember you a couple of things. First, we operate in over 130 countries. We have a certain capability to maneuver if we want to sell more in country A or in country B, if the margins are better in country A or in country B.
Secondly, office papers in [indiscernible] which is what's relating to PIX Europe, is a bit less than half of our sales. We sell more graphical product than office paper. And let's not forget that we sell about 40% of our sales are outside Europe. So what we have tried to explain during the call is that we have been actively managing our market mix, meaning the product quality, we sell more premium than standard PIX under the standards, developing our branded business, 80% closing, 20% of we sell is our brands, not private labels.
Secondly, we have a very differentiated products for specific applications like, for instance, web inkjet printing. So we have a capability to actively manage our market mix and it is what explains that our price increase was better than our competitors and what is translating to the marketplace. You have probably seen already some of our competitors have published their H1 results. And the ones that have a comparable business with us, no office papers, communication papers or in uncoated woodfree papers, all of them have decreased prices more than we did. So we have been able to show our consumers that we have a superior value proposition, please, Quirino.
Quirino Soares
Nothing really to add, Antonio. The comments were complete. I would just summarize that we have led the price increase moves in Europe. So we are ahead somehow of the competition. But it is also a matter of mix.
So across the combination of products, formats, geographies, we managed to have a better price increase. Also, we explained during the presentation, that we have been able to improve the mix, and this is quite powerful in leveraging price and profitability.
Antonio Redondo
Okay. So moving to the second question. This one will be I think easier to answer. We obviously don't share margins and the balance sheet and the P&L from many of our companies. And actually, it's even yet too soon because we took over Accrol, not long ago, a few weeks ago.
So what we can share with you, which actually we have also shared in previous conversations with you guys, is that Accrol is a converter. So they don't have paper machines, they are converting operations. And typically, converters have lower margins than integrated producers that have paper machines and converting and even lower that producers that have pulp, paper machines and converters. So what will be our focus in the near future is obviously to develop a business that is with better margins and aligned with what is our DNA. I don't know if Nuno wants to add anything further.
Nuno Santos
I just -- I could just add that these lower margins obviously reflect lower invested capital on the business. In the case of converting in tissue, as you can imagine, as we're talking about the highest prices among what per tonne that we have versus packaging versus printing and writing versus pulp, the prices for tissue are significantly higher, given that we're just at the end of the value chain, with let's say lead to invested capital. The lower margins do not mean lower, let's say, profitability or return on invested capital. They are appropriate lower than the businesses that are more upstream.
Antonio Redondo
Regarding your third question, so what are the main drivers that explain the evolution of the EBITDA from Q1 to Q2 prices. So we've managed to increase prices in basically across all our businesses, okay? Pulp, of course, by adjusting to the evolution of the pulp market prices and uncoated woodfree like we said, but also tissue. So we have improved margins of all our businesses. We have keep on working on our costs, both variable and fixed costs.
And we have, as explained, a set of other positive inputs for the margin evolution, like selling of CO2 licenses. Of course, the integration of Tissue U.K. that was not counting for Q1 and counted for two months of Q2. At the energy division also had an improvement with a positive evolution on antidumping. And like Fernando explained, we had also a positive evolution on stocks.
Mainly because in Q1, we have sold some stocks. We have sold more than what we have produced and we have sold some stocks produced by the end of 2023. And in Q2, we have the opposite effect. So the about in two years has a positive impact. Fernando?
Fernando Araujo
Thank you. I think we are repeating for the [indiscernible] anything else
Antonio Redondo
So as also -- it was also explained, 31% is a very robust margin that has occurred just a couple of times in our business. Our average margin of 28%, if you have seen what has been published so far by the majority of our competitors, and I'm going to quote by memory. We had a competitive publishing margin of around 14%, slightly below 14%, another one about 16%, one about 18% to 19%, another one about 10% to 11%. We have posted a 28% margin. So it's probably close to the double of the average of our competitors.
And I think Fernando explained, if you look to our past, our past 12 years, our margin is very close to 25% with a very low standard deviation. So about 2.8% standard deviation. We have a minimum of 21% and a maximum of 30%. So I think what is normal to expect is that our margins will be not deviating much from our standard margin. .
Operator
[Operator Instructions] And our next question comes from the line of Antonio Seladas from AS Independent Research.
António Seladas
So first one is still relatively the gross margin. So for my understanding, your stock, your COGS -- the cost of your COGS are now for the rest of the year are similar to the second quarter. That is the first question. And the second question is related with your packaging new projects. I don't know if you want to share with us some figures.
I think or I guess you will not like to do it. Nevertheless, I don't know if you want to share with us some figures. .
Antonio Redondo
Thank you, Antonio for your interest and your question. So if I understand correctly, you would like to have some kind of comfort that we believe that our costs in the remaining of the year -- our costs in the remainder of the year will be similar to Q2. This is your first question.
António Seladas
Yes, that's it.
Antonio Redondo
And your second question is about figures for the molded cellulose project.
António Seladas
Yes, Yes.
Antonio Redondo
Or is packaging overall? Or is specifically mold itself?
António Seladas
I was talking about the new projects, in fact, but if you want to share more information with the packaging as a whole. That's correct also.
Antonio Redondo
I cannot share a lot of figure you can imagine. I think it would be a very good. But I will do my best to give you some insights, and I ask my colleagues to complement what I would sure is. I mean as you know, in these times of volatility uncertainty is extremely difficult to forecast costs and forecast prices of raw materials. It is extremely difficult.
What I think we can share with you is two things. First, that because of this volatility, while we believe some products that we buy have prices that can be still better negotiated, we try to do very short-term negotiations, quarterly negotiations to make sure that we can profit for the evolution that we are anticipating.
If we believe that the prices are already at a reasonable level, we, of course, do the opposite. We try to enlarge our negotiation periods. At the same time, we have in place a significant number of initiatives to reduce or to improve efficiency of consumption, to reduce the specific consumption on our products. For instance, a good part of the variable of our employees depends on how efficient we are in using raw materials to produce 1 tonne of pulp, 1 tonne of paper, 1 tonne of tissue, okay?
What we can tell you is that the company is always extremely focused on better negotiations and more efficiency. And if you ask me what we would like to do, we would like to be able to further reduce costs. If you ask me, if you believe this is possible, I think we can say it's going to be extremely difficult to further reduce costs under this uncertainty that we are leaving. I will ask Fernando or Dorival if you want to add something.
Fernando Araujo
No. I think to be I would say that for the year we expect the same. While not further reducing, but we hope to keep this level of cost in [indiscernible].
Antonio Redondo
That is a hope, Antonio, it's not a problem. Is a promise of working hard on that direction. So it's best effort, not the results guarantee.
António Seladas
I hope.
Dorival Almeida
I would like to add that we will keep our efforts to reduce the specific consumption for everything and to optimize our recipes and our variable costs [indiscernible].
Antonio Redondo
So regarding strategy. What we can share with you. You remember from previous calls that we said our strategy is, first, develop a tailor-made innovative pulp-based on eucalyptus, which is actually protected by patents that we have registered, and we are waiting for the confirmation that those patents will be awarded.
And at the same time, using our smallest uncoated woodfree assets to produce packaging without losing the ability that in those assets, we are able to produce as well uncoated woodfree. And at the same time, we said it is a relatively low-risk strategy because we are going to commit not a big amount of capital for this paper packaging. And we can do it in such a way that if the returns are not good, we can still producing uncoated woodfree.
This seems quite common sense, but I must say it's not typically what the industry has done. The industry typically has reconverted fully printing and machines to packaging without having the capability to go back. We have this capability to go back. So what we did during this last few years was investing in our mill to be able to structurally produce this high yield eucalyptus chemical pulp. Part of this project was submitted to the EU next-generation funds and was awarded.
So we will have until the end of next year to conclude the investment on this high-yield pulp, which today we are doing with some difficulties with campaigns.
And we believe that most likely we are going to be able to anticipate that. So most likely by the end of this year, we'll be in a position to produce regularly high yield pulp. I also remember that this high yield pulp translates into a significant reduction of wood consumption. So as you know, we typically have 2.85, 2.9, maximum 2.95 cubic meters of wood per tonne of white pulp.
We do believe that we will have to 2.4 to 2.5 maximum if we are successful in this high-yield chemical pulp. So translating into a significant cost reductions when producing this kind of package materials. Just to give you a reference to 2.4 to 2.5 is half or less than half the wood consumption of our Northern European competitors when they use their wood for producing packaging. At the same time, we said we are not going to do a packaging -- mainstream packaging because mainstream packaging like containerboards use a lot of recycled fiber. And in some cases, long fiber.
We are going to try to find some issues. So far, we have been able to find some issues. We have already our PM1, full with packaging. Actually, we are already producing more packaging than what PM1 is able to do.
So we are already producing packaging in other mills, in other machines, namely and as well in PM3, which is the second smallest mill -- sorry, paper machine. So the program is progressing. And I think we are going to add in terms of tonnes sold, we are going to end up this year, not very far from the year 2022, which was an extraordinary year for packaging. We have also explained that last year was very tough for packaging and also very tough for us.
So we are -- this year, I think we are going to achieve a level very similar to this extraordinary year of 2022. We have live about 300 customers, and we have developed products for a very significant number of applications. And this is what we will progress in the next few years. So packaging also as we expressed in the past, being based on eucalyptus pulp, being based on a patented process for high chemical pulp, is not something that we can grow by acquiring somebody else because we are the only ones that are developing this strategy. So if successful, the next step will be, of course, to build from scratch a new greenfield paper machine dedicated to pulp.
Molded cellulose is a very interesting bet because we are very confident on our capability to succeed. It's the first time in the world that an integrated eucalyptus pulp is used in -- I mean, in an integrated way in the production of molded celluloses. We believe that the plastic fight is going to help us. The -- of course, it's a completely new business for us. It's a smaller bet.
I think we have mentioned in the past, this is shorts of €15 million CapEx. This is something that we have already expressed in the past.
And I think it's yet too soon to tell you what could be the impact this will have in our packaging strategy, but there is a big advantage. When successful, is relatively easy to replicate and to grow because this technology is easier to install and quicker to install than a paper machine. Quirino, you want to add something.
Quirino Soares
Very complete, Antonio. I just probably have -- maybe I will repeat what you said and what we said earlier on by the result. But coming a few steps back. Just to remind, 2022 was extraordinary for paper, also was for packaging. Back then, we were very dependent on one segment, which was the paper bag segment.
By then was 85%, 90% of our sales on the packaging side. We have used the difficult year of 2023 to develop new products to look for the niches that Antonio mentioned. The niches where eucalyptus is very differentiated this way. So now we are profiting from the work done last year. Volumes are grown by, as Dorival mentioned, by 90%.
We are on track with our plans, so it's according to the budgets. Compares very well with the tail of uncoated woodfree. So if we look at the margins of packaging and compared with the worst volumes of uncoated woodfree, we have clear advantage. And today, we have a much more diversified business with paper bags representing around 40% of the volumes and not the 85% it was two years ago.
Operator
There are no further questions on the phone at this time. So I will now move to the written questions. And we have one from [Luis de Toledo] from ODDO. The question is as follows. Could you rank the cash cost reductions from minus 14% to minus 6% across the different business segments, BHKP, UWF, tissue, packaging and power?
Antonio Redondo
Thank you, for the question. You can imagine, we will not give you precise figures, but we can probably give you a range. In between the 6% and 14%, actually, the 14% is slightly above 14%. On the low range, you have more pulp products. On the high range, you have more the paper products being tissue, the one that has shown a bigger reduction.
Please understand this is the maximum we are prepared to share publicly.
Operator
There are no further questions at this time. I hand the conference back to you.
Ana Canha
This ends our session. Thank you all for your time. As always, we are available for any additional clarifications through our usual contact. Have a great evening.