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July 27 th 2017 The Navigator Company 1H 2017 Results Presentation

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Page 1: The Navigator Company 1H 2017 Results Presentationen.thenavigatorcompany.com/var/ezdemo_site/storage/original/... · brand share in Q2 2017 /63% ) since Q3 2015; ... • M2 cost reduction

July 27th 2017

The Navigator Company

1H 2017Results Presentation

Page 2: The Navigator Company 1H 2017 Results Presentationen.thenavigatorcompany.com/var/ezdemo_site/storage/original/... · brand share in Q2 2017 /63% ) since Q3 2015; ... • M2 cost reduction

Diogo da Silveira – CEO

Fernando Araújo– CFO

António Redondo

Nuno Santos

João Paulo Oliveira

Joana Appleton - IR

Participation

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Significant turnover growth and diversification over the last years

H12017 – Strong volumes

• Turnover improved 4.4% sustained by strong sales from:

+ BEKP+ 40%+ Tissue + 13%+ Energy + 23%

• UWF volumes of 772 thousand tons (- 0.5% YoY)but sales value decreased 3% due to lower prices

• EBITDA growth of 1.6% to €198 million (vs.€ 195million in H1 2016)

• Cost reduction program with positive impact of € 10 million

• Significant improvement in financial costs (-38%)

• Market conditions continue positive, with significant order book at the end of June

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Strong figures for H1 2017

(million euros) H1 2017 H1 2016 %

Total Sales 813 779 +4%

EBITDA 198 195 +2%

EBITDA/Sales (%) 24.4% 25.1% -0.7 pp

Net Income 96 86 +12%

Net Debt / EBITDA 1.8 2.0 - 0.2 pp

ROCE 13.4% 11.4% +2.0 pp

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Q2 vs.Q1 - Clear improvement

(million euros) Q2 2017 Q1 2017 %

Total Sales 420 393 +7%

EBITDA 108 90 +20%

EBITDA/Sales (%) 25.8% 23.0% +2.9 pp

Net Income 60 36 +70%

Net Debt / EBITDA 1.8 1.6 +0.2 pp

ROCE 15.4% 11.1% +4.3 pp

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750

865

400

450

500

550

600

650

700

750

800

850

900

2012 2013 2014 2015 2016 2017

5

Industry pulp prices: upward trend

Average PIX prices for BHKP in Euros during H1 2017 were 5%above H1 2016, (2% above in USD); index increased 11% in Q2 vsQ1 2017 (15% in USD).

BHKP USD

BHKP EUR

PIX Europe

Prices: Week 1/ Week 29

+127 EUR/t(+21%)

+213 USD/t(+33%)

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BEKP - Market conditions improvement continues

Sales to other markets include Africa, Latin America, Middle East, Turkey, Asia, mainly in USD

BHKP market continues to improve:

• W100 YTD May data from PPPC presents a 3.7% increase in global demand, with 5.2% from BEKP;

• Forecasts in early 2017 expecting some imbalance mainly due to the 2 large projects - OKI (L2 Dec 2016 + L1 Apr 2017) and Fibria(Sep 2017); however until now there are no signs of pressure in the market

• Healthy demand for market pulp sustained by high production level from clients and scarce availability of pulp

• Upward pulp price momentum remains for now, last Pix (W29) at 865 USD/tAD

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Navigator Pulp Performance in H1 2017

• Pulp sales increased 41% in volume to 182 thousand tons (recordvolume sold since 2009), sustained by capacity increase in Caciamill

• Even though the PIX index evolved positively HoH, Navigator´saverage price in H1 remained slightly below the first half of 2016:− mainly due to higher discounts− lag of 1 month versus the Index

• The Group´s average sale price from December to Juneactually gained 21%

• Despite a 21% increase from Dec-2016 until June 2017, 13%Growth YoY in Décor and Special papers segments, highcontribution segments (representing 68% of EuropeanSales)

• Increase sales to overseas markets: +39 thousand tons (YoY)

• End of June inventories lower then at year end 2016

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Source: Risi; EMGE Euro-Graph; PPPC; The Navigator Company

ADD attracted Europeanvolumes

European producers placingmore volumes in USA

Capacity Decrease:-2,8% YoY, (-100 K Ton)

Paper Market impacted by several events (I)

World

8

+1,1%Global UWF growth, YTD May

USA EUR

Growing DemandCut-size & Folio:

~1% H1 2017 YoYCapacity Decrease:-2,4% YoY, (-100 K Ton)

Pipeline stocks depleted

RoW

+1,5-3% (e), Growthin Rest of the World

namely in Asia (China, Japan, Korea) and Middle East.

Capacity changes:

• Polution Controllingcapacity shut in China (unknown volume)

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Paper Market impacted by several events (II)

Sales to other markets include Africa, Latin America, Middle East, Turkey, Asia, mainly in USD

• Largest order book in industry since 1999 (June, ~5 weeks)

• Operating rates during 1H 2017 improved significantly to 95%, withshipments increasing throughout the quarter.

+ Producers destocking and using full capacity.

+ As such, import volumes are back to 2016 levels filling growing

demand in Europe.

Europe

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600

650

700

750

800

850

900

1 11 21 31 41 51 9 19 29 39 49 6 16 26 36 46 4 14 24 34 44

2014 2015 2016 2017

10

European Market Prices Evolution

Source: FOEX

Benchmark price evolution for paper

The average price for paper was down 3.3% Y0Y (H12016 vs H1 2016),but is showing signs of improvement, with last price for July at 817€/ton.

NVG announced

3 price increasesfor Feb.,

April, Julyand +1

September.836 €/ton

803 €/ton

SeptemberPrice Increase

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NVG Paper sales - Main Highlights

772 K ton

YTD Jun Sales495 KtEurope64%

Premium 49%

Standard 39%

Eco 12%

Mill Brands60%

356 Kt

300 KtCertified

Sales

63 KtUSA8%

Source: The Navigator Company

213 KtOverseas

28%

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Paper performance in H1 2017

• Sales of 772 thousand tons of UWF – second best first halfregistered;

• Decrease in average sales price YoY (-2.9%), but improvement fromDecember 2016 until June 2017 (+3.1%)

• Navigator announced price increase in Europe (Fev, Apr &Jul) and International markets (Jan, Apr & Jul).

• Recovery in product mix: premium products share up to 49%(+0.5 pp. YoY & +6 pp. HoH); mill brands up to 60% (best millbrand share in Q2 2017 /63% ) since Q3 2015;

• Best load on the mill ever, reaching 60 days in July;

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Tissue market update

• Western Europe demand for tissue is estimated to have grownbetween 2-3% YTD

• Tissue consumption in 2017 reflects stronger economy ingeneral, namely rising employment and income levels

• Market has been impacted by a rise in competition in Iberia:

• In 2016 : + 60,000 tons

• In 2017: forecast + 30.000 tons

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Tissue business performance H12017

• Volume of tissue sold increases 16% YoY sustained by the 2015capacity increase;

• Sales increased 13% to € 37 million (vs €33 million);

• Average sales price in H12017 2% lower, mainly due tocommercial effort to place additional volume, combined with lag inpassing pulp prices to tissue

AFH 52%

AH 26%

C&C 11%

Reels 11%

Tissue Sales by segment

Portugal 63%

Spain 34%

Other 2%

Tissue Sales by market

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Tissue business - Main developments

• Tissue sales reflect an increase in the weight of towels andkitchen rolls, in line with the company´s strategy to grow inproducts with higher contribution margins

• Reflecting the commercial effort undertaken by the Company, 89 newtissue clients were assigned during the first half

TOIPA 52%

KIRO 4%

Parent Rolls 11%

Towels 33%

H1 2016

TOIPA: Toilet PaperKIRO: Kitchen RollsTowels: include napkins, industrials, faciasl

TOIPA 46%

KIRO 6%

Parent Rolls 11%

Towels 38%

H1 2017Tissue Sales by product

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Continuing focus on cost reduction

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• M2 cost reduction and efficiency programme continues withestimated impact on EBITDA in H1 2017 of € 10 million

• Of a total of 64 projects with successful initiatives, the followingstand-out:

+ Energy purchases: € 1.9 million

+ Packaging purchases: € 1.5 million

+ Logistics: € 0.8 million

• Initiatives aimed to improve equipment and process efficiency atindustrial level continue with positive impact of € 0.9 million in thefirst half (reduction of production losses, control of consumption ofraw materials, maintenance costs)

• With significantly more initiatives than in 2016, estimatedimpact on EBITDA in 2017 is greater than in 2016 (€ 16million)

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Prices-17.9 Volumes

+ 11.0

Costs+ 6.5

Non rec.*+ 1.6

Others**+ 1.8

EBITDAH1 2016195,3 M€

EBITDAH1 2017198.4 M€

EBITDA - Negative impact of prices offset by cost reduction and volumes

(Mais info nos anexos)

The negative impact of pulp and paper prices was reduced byhigher volumes and cost reductions

• Non recurring items include insurance indemnities (TG Setúbal + Cacia + VVR) deducted from start-up costs for pellets business

• ** others include biological assets

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EBITDA of 390 M€ : highest EBITDA in the last 5 yearsVery strong Q2 EBITDA and EBITDA/Sales impacted by lower prices

EBITDA in Q2 2017 increased 20% versus Q1 2017 and compares favorably with other Q2

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

30%

0,0

20,0

40,0

60,0

80,0

100,0

120,0

EBITDA EBITDA / Sales

Values in

 million Eu

ros 

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Good operating performance but limited free cash flow 

With operating cash flow in line with H12016, free cash flow gained€ 41 million vs H12016, positively impacted by lower capex.

Working capital with negative impact from higher inventories(namely wood), taxes and anti-dumping.

Cash Flow

CAPEX Change in inventories

Other * Free Cash Flow

171- 35

-21

-51

73

Val

ues

in m

illio

n E

uro

s

9

Free Cash Flow at € 73 mln

Change in accounts

receivables

* Other includes accounts payable, taxes, antidumping and insurance

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• Net debt increased € 97 million from year-end (€ 121 millionQoQ), due to dividend payment of € 170 million in June. Secondpayment of € 80 million occurred in July.

Val

ues

in m

illio

n E

uro

s

YoY Net debt increased by € 97 million

20

700

687

463364

307 274

654 6417383,1

1,71,2

0,9 0,9 0,8

1,7 1,6 1,8

0,00,40,81,21,62,02,42,83,2

0100200300400500600700800

Net Debt Net Debt / Ebitda

Dividend Payment 2012 2013 2014 2015 2016 2017Total amount paid (€ million) 164.4 201.4 200.8 440.5 170.0 250.0

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Debt profile continues to improve

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Total Debt– € 821 mln Maturity – 3.9 years

• The successful restructuring of the Group´s debt in 2016 resulted in a longer maturity and lower cost of debt, as well as an increased diversification of counterparties.

• In February, a new credit facility of USD 10 million was contracted in the US

• The Group has a total of € 225 million of committed commercial paper facilities that mature in 2020.

• Average cost of debt, as of June 2017 is 1.60%.

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€ -13.5 mln

€-8.3 mln

1H 2016 1H 2017

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New credit facilities and extension of maturity reduce cost of debtH1 2017 - Financial results

Significant reduction in borrowing costs

Financial costs reflect debt restructure and improve significantly YoY:

- Financial costs improved from -€13.5 to -€ 8.3 million

- Financial costs in 2016 were negatively impacted in approximately € 6 million by the premium paid for the high yield call;

- Comparable financing costs would be - € 10.9 million vs -€ 7.3 million

- Interest paid down € 4 million YoY

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• € 11 million for pulp, paper and others; includes recurrent capex of € 6.8 million

• € 20 million for Figueira da Foz pulp capacity project

• € 4 million for tissue, which includes Cacia new mill and Capex in new converting lines at V.V. Rodão

Capex of € 35 million (vs.€ 75 million)

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Increase efficiency and cost reduction iniciatives Tough start of operations at Colombo

Energy

24

• First pellets sold from Colombo Energy Inc project in Greenwood, SouthCarolina during the first half

• Mill in its start-up phase, still fine-tuning the industrial operations andworking on improving volume and production costs

• Difficult market environment, but sales efforts proceed for 2018onwards for both in the industrial market (Europe) and residentialmarket (Europe and US)

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Increase efficiency and cost reduction iniciatives Mozambique project - Reminder

• Scale down rhythm of investment and operations due to politicaland economic situation, which remains unstable

• Completion of experimental operation to export 2,000 tons ofwood from Zambézia via the port of Nacala, with unexpectedport/export tariffs issue

• Capex for 2017 reduced to 10 M€ - Company remains engagedbut needs to clarify situation and conditions precedent toproceed with the project

• Announcement of plans to build the Moatize-Macuse railway lineand the port of Macuse, due for completion in 2021-22.

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Increase efficiency and cost reduction iniciatives Update on New Projects - Cacia Tissue

• Integrated tissue mill with capacity to produce 70 thousand tons ofreels and converting products with estimated capex of 120 million(78% of project commissioned)

• Main equipment suppliers have been selected and site preparationwork occurring; commercial preparation underway

• Project on time and on budget: paper machine to start up inQ3 2018

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Increase efficiency and cost reduction iniciatives Update on New Projects – Pulp F.Foz

• Target to increase production efficiency and pulp capacity atFigueira da Foz, by 70 thousand tons

• Capex of €85 million includes important environmentalinvestments in reduction of odor, waste, air and liquidemissions and also investments in innovativemanufacturing processes, improving equipment efficiencyand product differentiation.

• Recent progress:

+ 81% of capex already commissioned

+ Civil construction started

+ Main equipment to be fitted in August /September

• Project on time and on budget: new capacity planned tocome online in March 2018.

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Outlook for 2016 

• Pulp - Even though new capacity coming to the market wasanticipated (+1.95 million tons, of which 0.377 during 2017) toAug./ Sept., there are positive signs to consider for H2 2017 :

+ Estimated reduction in market pulp due to maintenance/ strategic stoppages of 0.7 million tons

+ Possible consolidation among Latin American producers

• Tissue - more aggressive competition and increased pressure onmargins due to rise in pulp price

• Paper – Group has strongest order book since 1999: 60 days

an implemented a third price increase in July and fourth in

September

Outlook for H2 2017

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Outlook for 2016 

• Dividend payment:

+ Distribution of reserves of € 80 million paid in July

+ Total amount paid in 2017: € 250 million

+ Implicit dividend yield of 9%

• New eucalyptus legislation

+ New legislation approved by the Portuguese Parliament prohibiting the increase of new eucalyptus plantations

+ Long-term impact to be felt in approximately in 12 years

+ Companies need to develop initiatives to increase productivity of current eucalyptus areas

Subsequent Events

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Disclaimer

This presentation does not constitute or form part of and should not be construed as any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any

securities in any jurisdiction nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract commitment or investment decision in

relation thereto nor does it constitute a recommendation regarding the securities analysed herein. No action has been made that would permit a public offering of any securities

mentioned in this presentation in any jurisdiction. No offers, sales, re-sales or delivery of any securities mentioned I this presentation or distribution of any offering material relating to any

such securities may be made in or from any jurisdiction.

Any decision to subscribe for or purchase ordinary shares in any offering should be made solely on the basis of information contained in any offer document that may be published by the

relevant issuer in final form in relation to such offering and securities.

This presentation is intended to provide a general overview of Portucel, S.A. business and does not purport to deal with all aspects and details regarding Portucel. Accordingly, no

representation, undertaking or warranty, express or implied, is given by Portucel or any of its subsidiary undertakings, affiliates, directors, officers, employees or advisors or any other

person as to the fairness, accuracy, completeness or correctness of the information or opinions contained in this presentation or of the views given or implied or any other material discussion in connection with this presentation. This presentation has been prepared by Portucel solely for information purposes. Portucel any of its affiliates, directors, officers, employees or advisers or any other person shall not have any liability whatsoever (in negligence or otherwise) for any

loss, errors or omissions howsoever arising, directly or indirectly, from any use of this presentation or its contents or otherwise arising in connection therewith.

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