- Turnover -33% y/y and EBITDA -49% y/y (-42% q/q): Group ROCE at 7.2% driven by EBITDA margin pressure (-580bps y/y and -400bps q/q) down to 17.8%. This was primarily from their UWF business, where revenue declined by 45% y/y (-41% q/q). UWF volumes were down -37% y/y (downtime in April, May and June); coupled with pricing pressure (-13% y/y and -6% q/q). Otherwise, they saw robust tissue (flat q/q and +10% y/y) and pulp demand (+79% y/y and +32% q/q).
- Global UWF demand down 13% YTD in May (-24% y/y): To date, Europe has fared better (-14%) than the US (-20%). May appears to have been the worst, with demand down 34% y/y vs. -19% in June. European UWF market contacted by 25% in Q2 (Q1: -4.1%) vs. -32% (Q1: -12%) in the US. There were diverging trends across Europe, with consumption holding up better where lock downs were less severe (Germany, Sweden and Holland) as opposed to strict lockdowns (US, UK, Spain and Portugal). The printing industry has been hit the hardest with the downturn in advertising and commercial printing negatively impacting sheets. Reels have been more resilient and versatile in terms of UWF applications.
- Outlook appears cautiously optimistic for UWF: They are expecting a gradual but slow recovery for UWF in Q3. Industry UWF order book has recovered in May and June to c.85% of the regular order for this time of year. Their order book in July is c. 40 days, one of the highest levels recorded for this period in the last 11 years. All of their UWF paper machines are up and running. They remain cautious on export markets outside of Europe, where the risk remains for a second wave of the pandemic. They also think there could be further pressure on UWF prices in Q3.
- Their Pulp sales increased by 34% y/y (-16% q/q), somewhat aided by producing less UWF: Global demand +8% YTD in May, with growth led by HW pulp (+13%). Regionally, there was strong demand in Other Asia and Africa (+24%); China (+12%); Latin America (+22%) and Eastern Europe (+16%). Europe and the US were steady.
- Pulp supply chain fully re-established and have now priced in the the sharp decline in graphic papers: H1 20A saw growth in tissue more than compensating for the reduction in printing and writing. The supply side responded quickly, with a reduction in producer stocks from 65 days in June 2019 to 49 days in June 2020 (was aided by various unplanned stoppages). However, resilient demand from tissue and packaging is now cooling off, coupled with pulp in a seasonally weaker period (Q3). Looking forward, there will be a number of restrictions on the production side as mills proceed with planned maintenance shutdowns postponed to H2 due to COVID.
- Navigator believes that pulp prices have bottomed: Net pulp prices are at their lowest level since the end of 2009. Spot prices are below the cost for some marginal cost producers and below the cost of integrated Chinese mills – this they view as the bottom having been reached. They are expecting prices to rise in the back end of H2.
- Bucking the trend, with impressive FCF generation (+9% y/y): Net debt/EBITDA under control at 2.3x, with EUR 317m of liquidity. Working capital was managed with downtime between April-June, which reduced stocks by 19% vs. industry of 6%.
Download Report
