- Weaker pound may have impact on profit margins in Britain
- The U.K. is among the company’s top five European markets
The Navigator Company, a Portuguese paper producer exporting to 130 countries, is putting on hold any plans to invest in the U.K. following that country’s shock vote last month to leave the European Union.
“The U.K. used to come high on the priority list and now we have lots of questions,” Chief Executive Officer Diogo da Silveira, 55, said in an interview in Lisbon on Wednesday. “Without Brexit, there would be a significant chance that in the coming three years we would be investing in the U.K. Right now I’m unable to say if there is such a chance or not.”
Navigator exports more than two thirds of the 1.6 million tons of paper produced each year to other European markets, including the U.K. While a weaker pound hasn’t hurt sales to Britain because of the company’s hedging policy, it may impact profit margins in that market further down the road, said Silveira.
“If it stays like this, the margins are less acceptable,” said Silveira, referring to the pound’s drop to three-decade lows against the dollar in recent days. “So the first consequence is that we and all the players will have to increase prices.”
A possible investment in the U.K. would have been to increase production, said Silveira, without providing details. Navigator has been expanding to Mozambique to increase output and is also betting on new products with the construction of a wood pellet plant in the U.S. and the acquisition of tissue paper producer AMS BR Star Paper SA in Portugal.
The investment in tissue can help compensate for falling office-paper demand, he said. Office paper consumption has declined about 1.2 percent over the past three years in Europe compared to a 3 percent annual increase in demand for tissue paper, said Silveira. He expects sales this year to be similar to the 1.6 billion euros posted in 2015.
“For most tissue applications, Ipads are not a good substitute,” Silveira said. “So we decided to get into tissue. And we will do so slowly.”