Interim / Quarterly Report • Jul 25, 2018
Interim / Quarterly Report
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| H1 | H1 | % Change (5) | ||
|---|---|---|---|---|
| in million euros | 2018 | 2017 | H1 18/H1 17 | |
| Total sales | 816.9 | 812.6 | 0.5% | |
| EBITDA (1) | 226.0 | 198.4 | 13.9% | |
| Operating profits | 160.8 | 123.4 | 30.3% | |
| Financial results | - 11.4 | - 8.3 | 36.9% | |
| Net earnings | 119.4 | 96.0 | 24.4% | |
| Cash flow | 184.6 | 171.0 | 13.6 | |
| Free Cash Flow (2) | 152.6 | 72.8 | 79.8 | |
| Capex | 77.2 | 35.2 | 42.0 | |
| Net debt (3) | 740.1 | 737.9 | 2.2 | |
| EBITDA/Sales (%) | 27.7% | 24.4% | 3.2 pp | |
| ROS | 14.6% | 11.8% | 2.8 pp | |
| ROE | 21.0% | 16.6% | 4.5 pp | |
| ROCE | 17.4% | 13.4% | 4.0 pp | |
| Equity ratio | 44.8% | 44.9% | -0.1 pp | |
| Net Debt/EBITDA (4) | 1.73 | 1.84 | -0.12 | |
| Q2 | Q1 | % Change (5) | ||
| in million euros | 2018 | 2018 | Q2 18/Q1 18 | |
| Total sales | 432.0 | 384.9 | 12.2% | |
| EBITDA (1) | 115.0 | 110.9 | 3.7% | |
| Operating profits | 82.9 | 78.0 | 6.3% | |
| Financial results | - 5.9 | - 5.5 | 6.1% | |
| Net earnings | 66.2 | 53.2 | 24.3% | |
| Cash flow | 98.4 | 86.2 | 12.2 | |
| Free Cash Flow (2) | 18.6 | 134.0 | -115.4 | |
| Capex | 48.6 | 28.6 | 20.0 | |
| Net debt (3) | 740.1 | 558.7 | 181.4 | |
| EBITDA/Sales (%) | 26.6% | 28.8% | -2.2 pp | |
| ROS | 15.3% | 26.4% | -11.1 pp | |
| ROE | 23.3% | 17.7% | 5.6 pp | |
| ROCE | 17.9% | 17.0% | 0.9 pp | |
| Equity ratio | 44.8% | 49.7% | -4.9 pp | |
| Net Debt/EBITDA (4) | 1.73 | 1.32 |
(1) Operating profits + depreciation + provisions
(2) Variation net debt + dividends + purchase of own shares
(3) Interest-bearing net debt – liquid assets
(4) EBITDA corresponding to last 12 months
(5) Variation in figures not rounded up/down
In the first half of 2018, The Navigator Company recorded turnover of € 817 million, representing a slight increase in relation to the first half of 2017. With sales of € 604 million, the paper sector accounted for 74% of turnover, energy for 10% (€ 84 million), pulp 9% (€ 73 million), and tissue business 5% (€ 40 million). Prices evolved positively over the period for UWF paper, BEKP pulp and Tissue, at the same time as the volumes available for sale were down, due essentially to production stoppages which had not taken place in the same period in 2017.
In pulp business, in addition to the maintenance downtime at the Setúbal mill in the first quarter, a further maintenance stoppage was needed at the Figueira da Foz mill in April, and this was prolonged to complete work on the capacity expansion project under way. The length of these stoppages and the need to build up stocks in the previous months had a severe limiting effect on the quantities of pulp available for sale by the Group during the first half. As a result, Navigator's sales totalled 114 thousand tons, down by 37.5% on the figure recorded in the first half of 2017. This reduction in volume was partially offset by the increase in sales prices, and sales in value showed a reduction of 21%, standing at approximately € 73 million.
Global conditions in the pulp market remained positive over the period, with prices still on an upwards trajectory that has been observed since late 2016. The benchmark index – FOEX BHKP – rose by 25% over the period (851 €/ton vs. 682 €/ton). According to figures from PPPC, global demand for BEKP grew by 4.5% YTD May, in particular in China (up 8.9%), whilst a number of constraints were experienced on the supply side (maintenance shutdowns and other unexpected developments), causing an estimated reduction in the volume of hardwood pulp on the market of more than 1 million tons.
In paper business, UWF sales totalled 756 thousand tons, down by 2% on the same period in 2017, due essentially to production deviations caused by a number of stoppages, as well as the need to replenish stocks so as to guarantee a high standard of customer service. The reduction in sales volume was offset by the upward evolution in prices and sales in value were up by 3.3% to € 604 million. Navigator implemented a
series of price rises over the first half, in Europe and other geographical regions, resulting in an increase of approximately 6% in its average sales price when compared with the same period in 2017. This increase is in line with the European benchmark index, FOEX A4 B-copy, and was positively influenced by a significant improvement in the product mix in terms of quality (53% premium sales, up from 46%) and in the proportion of mill brand products (68%, up from 60%). On the negative side, this was countered by evolution of the EURUSD exchange rate (the average exchange rate for the period was 1.2104, as compared to 1.0830 in the same period in 2017).
In tissue business, the average sales price was adjusted upwards (up 7.6%), thanks to an improved product mix, with the reduced weight of reels and increased percentage of finished products, as well the price rise implemented. The sales volume stood at 28.5 thousand tons, representing growth of almost 2% year on year. Higher average tissues prices were not however enough to absorb the increase in production costs, in particular the price of pulp (hardwood and softwood) and of chemicals. May saw the start-up of the new converting line at the Cacia plant, and the reels production line is due to go into production in late August.
In the energy sector, the second quarter brought a recovery in the value of power sales, resulting in a modest increase of 0.2% for the first half as a whole, in relation to the first half of the previous year (€ 84.3 million). This figure includes sale of energy from pulp and paper units (€ 73.2 million) as well as the stand-alone sale from Biomass Power Stations, worth € 11.1 million. Gross total power output at the end of the first half of 2018 was down by 2.5% year on year, due above all to the planned stoppages at the pulp mills; even so, output stood at 1.09 TWh.
In this context, EBITDA totalled € 226 million, as compared with the figure of € 198 million recorded in the first half of 2017. The final impact of sale of the pellets operation in the USA, net of costs and adjustments, totalled € 13 million (representing a positive adjustment in relation to the figure of € 9.4 million reported at the end of the first quarter; that figure over assessed costs, some of which failed to materialise); first half EBITDA without this effect would have been € 213 million. The EBITDA/Sales margin stood at 27.7% (26% net of the impact of sale of the pellets business), as compared to 24% in 2017.
On the cost side, chemicals, and caustic soda in particular, have continued to perform unfavourably, with an impact on variable unit production costs. Logistics also increased, due essentially to higher Brent prices. In fixed costs, payroll continued to show the upward trend observed in the first quarter, as a result of workforce expansion due to the new Tissue project in Cacia, the rejuvenation programme under way and the increase in performance bonuses due to the improved results registered by the Group.
At the same time, Navigator has pressed ahead with its M2, programme for operating excellence; this achieved a positive impact of approximately € 9.2 million YoY on EBITDA. Roughly 118 new initiatives have been launched since the start of the year to cut costs, with around 85 of these achieving a positive impact. One of the most significant initiatives is centred on cutting specific consumption of long fibre at the Figueira da Foz Industrial Complex, with an impact of € 1.14 million, involving a system that has improved control of fibre consumption per type of product. Another initiative with a significant impact (€ 1.04 million) has to do with optimisation of logistics in sea transport to Europe and international markets. Attention is also drawn to a project for greater efficiency in the paper machine production and planning, improving the technical specifications of end products and reducing unit production costs. In addition to these initiatives, the renegotiation of power and natural gas contracts has resulted in avoided costs in relation to market prices of around € 14.1 million.
Navigator recorded a financial loss of € 11.4 million, up from a loss of € 8.3 million; this increase was due essentially to a non-recurrent factor associated with the disposal of the pellets business. As previously reported, at the end of the first quarter the Group recorded a loss of approximately € 3.3 million resulting from the difference between the nominal and current value of the amount receivable for the sale of the pellets business (USD 45 million). The nominal value receivable is subject to interest at a rate of 2.5%.
At the end of June, the Group's net debt stood at € 740.1 million, up by € 47.4 million from year-end 2017 (€ 692.7 million), reflecting essentially payment of dividends of € 200 million in June.
Free cash flow stood at € 152.6 million, and was positively affected by an inflow from sale of the pellets business in the first half (totalling € 67.6 million) and negatively
affected by capital expenditure over the period of € 77.2 million, in construction of the new tissue unit in Cacia, expansion of capacity in Figueira da Foz and other investments in regular pulp, paper and tissue operations.
With regard to working capital, the Group recorded a moderate reduction in the amount invested during the first half; crucial to this was the very favourable performance in balances receivable/payable to the state, as a result of substantial VAT rebates obtained during the period. This evolution had a very favourable impact (approximately € 53 million in the period), which more than offset the combined effect of increased inventories (replenishment of stocks of finished products, above all) and of client and supplier accounts.
Pre-tax profits totalled € 149.4 million (up from € 115.1 million), and the effective tax rate for the period was negatively affected by the constitution of a number of tax provisions and an increase in the state surtax rate.
As a result, the Group achieved net income for the period of € 119.4 million, up by 24% on the first half of 2017.
The defining feature of the second quarter was the upward tendency in pulp, paper and tissue prices. As in previous years, the sales volume recovered from the first to the second quarter (with pulp sales rising by 15% and paper sales by around 9%). Even so, sales were lower than the volumes recorded in the second quarter of 2017, due to the production stoppages reported above.
The price effect nonetheless more than offset the volume effect, and in terms of value sales grew by 12% in the quarter to € 432 million. EBITDA totalled € 115 million, a quarterly record for the Group, while the EBITDA/Sales margin stood at 26.6%. If adjusted to eliminate the impact of sale of the pellets business, EBITDA would have stood at around € 112 million (margin of 26%), which would still be an all-time quarterly high.
| (in 000 tons) | Q2 2017 | Q3 2017 | Q4 2017 | Q1 2018 | Q2 2018 |
|---|---|---|---|---|---|
| BEKP Output | 377.4 | 357.3 | 371.9 | 346.1 | 335.4 |
| BEKP Sales | 92.0 | 68.8 | 59.7 | 53.1 | 60.9 |
| UWF Output | 383.4 | 406.1 | 406.7 | 385.8 | 392.9 |
| UWF Sales | 400.6 | 386.4 | 419.9 | 361.2 | 395.1 |
| FOEX – BHKP Euros/ton | 719 | 747 | 805 | 824 | 878 |
| FOEX – BHKP USD/ton | 792 | 877 | 948 | 1013 | 1046 |
| FOEX – A4- BCopy Euros/ton | 808 | 819 | 831 | 845 | 864 |
| (in 000 tons) | Q2 2017 | Q3 2017 | Q4 2017 | Q1 2018 | Q2 2018 |
|---|---|---|---|---|---|
| Reels Output | 13.6 | 13.0 | 14.8 | 14.1 | 14.4 |
| Output of finished products | 12.6 | 12.2 | 12.4 | 13.6 | 13.9 |
| Sales of reels and goods | 1.7 | 1.1 | 1.8 | 0.6 | 0.1 |
| Sales of finished products | 12.3 | 12.3 | 12.2 | 12.8 | 14.9 |
| Total sales of tissue | 14.0 | 13.3 | 14.0 | 13.4 | 15.0 |
| Q2 2017 | Q3 2017 | Q4 2017 | Q1 2018 | Q2 2018 | |
|---|---|---|---|---|---|
| Production (GWh) | 556.4 | 535.9 | 573.7 | 553.5 | 536.1 |
| Sales (GWh) | 446.8 | 426.0 | 462.8 | 444.7 | 435.8 |
Navigator recorded capital expenditure of € 77.2 million in the first half, with € 48.6 million in the second quarter (vs. €28.6 in the first quarter). The tissue project in Cacia represented investment of € 36.5 million and capacity expansion in Figueira da Foz a figure of around 9.3 million. Capital expenditure into regular pulp and paper business totalled around € 30.8 million.
The period saw the completion and start-up of PO3 (Optimisation Project 3), increasing pulp production capacity in Figueira da Foz, where nominal capacity was expanded from 580 thousand tons/year to 650 thousand tons/year. This project also entailed a series of important environmental improvements with a significant overall impact at the Figueira da Foz Industrial Complex. One of the aims was to improve efficiency in the pulp production process, cutting specific consumption of wood and chemicals, and also implementing best environmental practices, in particular incorporating oxygen delignification, with a consequent decrease in effluents, and also investment in an integrated burner for non-condensable gases in the Recovery Boiler, with a consequent reduction in odours to extremely low and almost imperceptible levels.
In order to finance this project, the Group contracted a loan of € 40 million from the European Investment Bank, repayable in ten years from the date of issue (which had not occurred at the end of the first half); the project's aim of increased efficiency and a significant improvement in environmental factors is clearly in line with the institution's objective of fighting climate change.
The outlook for the pulp sector remained positive over the course of the first half of 2018, with upwards pressure on prices throughout the period. Improved discipline from producers, combined with planned production stoppages and a number of unexpected events, again limited the quantity of pulp available on the market, whilst demand remained high, managing to absorb the new capacity that came on line last year. At this moment, no factors are expected which might significantly alter this positive trend in the market.
In the UWF paper business, the order book is full and the Group took the lead during the first half with a series of price increases in Europe, in the US market and in international markets. Non-integrated paper producers remain under strong pressure from the sharp increase in pulp costs, as well as from rising costs for chemical and logistics; this has translated into negative margins, something never seen before in the sector. Other producers announced further price rises in the United States and other international markets, and Navigator announced to its clients (in May) a price rise in Europe taking effect on 1 July. A further hike of an equivalent size is foreseen for October.
In the tissue market, producers also remain under strong pressure from high pulp prices, and despite the upward trend in tissue prices over the period, manufacturers as a whole have not yet managed to reflect the entire increase of this cost factor in the end price of their products. Navigator will implement further price rises. In parallel, production of reels is planned to start up in Cacia during the third quarter, allowing Navigator to double its production capacity. Strong commercial performance in recent months allows us to look forward to the new output being successfully placed with clients.
It is important to note that, despite the continuing positive expectations for growth in the world's main economies, especially in North America and Europe, market volatility is also increasing with fears regarding the potential consequences of increased trading tensions. Navigator - which sells its products to around 130 geographical regions and whose sales are exposed to variations in different international currencies, in particular USD inevitably sees these recent developments with some concern.
As reported to market on 9 July 2018, Portucel Moçambique and the Government of Mozambique have signed a memorandum of understanding concerning the company's revised investment plans, due to be implemented over two phases. In the first instance, Portucel Moçambique will create a forestry base occupying 40 000 hectares, to supply a (future) unit producing eucalyptus wood chips for export; total investment is estimated at USD 140 million, for annual exports of around 1 million tons.
Portucel Moçambique and the Government have set up a joint team to work over an estimated period of six months to ensure that the pre-conditions for advancing with the investment plan are met. This will involve establishing the logistical infrastructures needed for exporting wood chips. The first phase of the project is accordingly conditional on satisfactory resolution of the pre-conditions identified in the Memorandum of Understanding signed this month with the Government of Mozambique.
Setúbal, 25 July 2018
Date: Wednesday, 25 July 2018 Schedule: 17:00 - Western European Time – UTC
Dial-in:
PORTUGAL: +351 210609110 SPAIN: +34 911140101 UNITED KINGDOM: +44 (0) 2071943759
All numbers should be followed by the pincode: 45556184#
| 6 Months Ending | 6 Months Ending | |
|---|---|---|
| Amounts in Euros | 30-06-2018 | 30-06-2017 |
| Revenues | ||
| Sales | 814,323,768 | 810,175,169 |
| Services Rendered | 2,578,883 | 2,467,376 |
| Other Operating Income | ||
| Gains on the Sale of Non-current Assets | 17,722,330 | 342,006 |
| Other Operating Income | 7,373,427 | 6,138,999 |
| Change in the Fair Value of Biological Assets | 1,119,656 | 3,210,175 |
| C osts | ||
| C ost of Inventories Sold and Consumed | (344,674,553) | (330,348,337) |
| Variation in Production | 20,103,964 | (5,188,158) |
| C ost of Materials and Services C onsumed | (195,369,103) | (201,300,731) |
| Payroll C osts | (84,696,485) | (75,634,979) |
| Other Costs and Losses | (12,519,277) | (11,484,551) |
| Provisions | 1,300,221 | (189,617) |
| Depreciation, Amortization and Impairment Losses | (66,444,913) | (74,766,617) |
| Operational Results | 160,817,918 | 123,420,733 |
| Net Financial Results | (11,370,740) | (8,305,941) |
| Profit Before Tax | 149,447,178 | 115,114,793 |
| Income Tax | (30,004,152) | (19,068,699) |
| Net Income | 119,443,026 | 96,046,094 |
| Non-Controlling Interests | 979 | (2,630) |
| Net Profit for the Period | 119,444,005 | 96,043,464 |
| ASSETS Non-Current Assets Goodwill 377.339.466 377.339.466 Other Intangible Assets 2.886.753 3.878.245 Fixed Tangible Assets 1.188.586.838 1.171.125.052 Investment in Property 98.351 99.174 Biological Assets 130.516.592 129.396.936 Other Financial Assets 478.032 424.428 Financial Assets Available for Sale - - Other Assets 32.262.359 - Deferred Tax Assets 46.343.082 44.727.571 1.778.511.472 1.726.990.872 Current Assets Inventories 216.600.562 187.795.595 Receivable and Other Current Assets 284.417.508 237.704.322 State and Other Public Entities 39.323.646 75.076.422 Cash and Cash Equivalents 105.059.086 125.331.036 645.400.802 625.907.375 Non-Current Assets Available for Sale Non-Current Assets Available for Sale - 86.237.049 - 86.237.049 Total Assets 2.423.912.274 2.439.135.296 EQUITY AND LIABILITIES Capital e Reservas Share Capital 500.000.000 500.000.000 Treasury Shares (1.002.084) (1.002.084) Fair Value Reserves (6.962.881) (3.020.990) Legal Reserves 100.000.000 109.790.475 Other Reserves 197.292.250 217.500.000 Translation Reserves (22.818.802) (13.966.898) Advancement on Profits 200.632.803 167.388.264 Net Profit for the Period 119.444.005 207.770.604 1.086.585.291 1.184.459.371 Non-Controlling Interests 207.669 420.277 Total Equity 1.086.792.961 1.184.879.648 Liabilities Non-Current Liabilities Deferred Taxes Liabilities 61.797.517 83.023.517 Pensions and Other Post-Employment Benefits 9.171.507 5.090.242 Provisions 42.156.167 19.536.645 Interest-bearing Liabilities 765.080.404 667.851.880 Other Non-Current Liabilities 26.559.873 25.466.139 904.765.468 800.968.424 Current Liabilities Interest-Bearing Liabilities 80.059.524 150.205.591 Payables and Other Current Liabilities 291.240.469 259.509.848 State and Other Public Entities 61.053.853 43.571.785 432.353.846 453.287.224 Total Liabilities 1.337.119.314 1.254.255.647 Total Equity and Liabilities 2.423.912.274 2.439.135.296 |
Amounts in Euros | 30-06-2018 | 31-12-2017 |
|---|---|---|---|
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