Altri SGPS — Interim / Quarterly Report 2018

Oct 31, 2018

ALTRI, SGPS, S.A. Public Company

Head Office: Rua do General Norton de Matos, 68, r/c – Oporto Fiscal number 507 172 086 Share Capital: 25,641,459 Euro

Financial Information – 3 rd Quarter of 2018 (Unaudited)

This document is a translation of a document originally issued in Portuguese, prepared using accounting policies consistent with the International Financial Reporting Standards and in accordance with the International Accounting Standard 34 – Interim Financial Reporting, some of which may not conform or be required by generally accepted accounting principles in other countries. In the event of discrepancies, the Portuguese language version prevails.

The financial information was prepared in accordance with the International Financial Reporting Standards (IFRS).

Income Statement – 3Q 2018

thousand Euro	3Q 2018	3Q 2017	3Q18/3Q17 Var%	2Q 2018	3Q18/2Q18 Var%
Total Revenues	205,193	165,539	23.9%	205,040	0.1%
Cost of sales External supplies and services	61,084 46,725	62,233 39,832	-1.8% 17.3%	74,657 47,869	-18.2% -2.4%
Payroll expenses	8,976	8,649	3.8%	8,597	4.4%
Other expenses	5,011	1,089	360.2%	2,390	109.6%
Provisions and impairment losses	1,385	0	-	-1,199
Total Expenses (a)	123,180	111,802	10.2%	132,314	-6.9%
EBITDA (b)	82,013	53,737	52.6%	72,726	12.8%
margin	40.0%	32.5%	+7.5 pp	35.5%	+4.5 pp
Amortisation and depreciation	16,096	13,729	17.2%	11,721	37.3%
EBIT (c)	65,916	40,008	64.8%	61,005	8.1%
margin	32.1%	24.2%	+8.0 pp	29.8%	+2.4 pp
Gains/Losses in associated companies Financial costs Financial gains	1,315 -5,440 1,390	882 -7,300 1,331	49.0% -25.5% 4.4%	449 -7,354 3,127	192.7% -26.0% -55.6%
Financial Results	-2,736	-5,087	-46.2%	-3,777	-27.6%
Profit Before Income Tax	63,181	34,922	80.9%	57,228	10.4%
Income Tax	-16,579	-8,489	95.3%	-16,064	3.2%
Profit for the period attributable to parent company's shareholders	46,602	26,433	76.3%	41,165	13.2%

(a) Operating costs excluding amortisation, financial expenses and income tax

(b) EBITDA = earnings before interest, taxes, depreciation and amortisation (c) EBIT = earnings before interest and taxes

The third quarter was characterized by the stability of the average hardwood pulp sales price (BHKP) in USD, while in EUR there was a slight increase (3.5%). Regarding industrial operations, during the quarter under analysis, Altri Group achieved the quarterly record in pulp production.

3 rd Quarter 2018: production record

During the third quarter, operational results of Altri Group achieved a new record, with EBITDA amounting to 82 million Euro, which corresponds to a 13% increase over the previous quarter and a 53% increase when compared with the same period of the previous year. The margin EBITDA amounted to 40%.

In terms of top line, total revenues achieved 205 million Euro, an increase of approximately 24% over the value recorded in the same period of 2017, in line with the revenues recorded on the second quarter of the current year.

During the period under analysis the Group produced 286.8 thousand tons of pulp, of which 27.6 thousand tons refer to dissolving pulp.

Pulp production quarterly evolution in 2018

In terms of sales, between July and September of 2018, there were sold 269.2 thousand tons of pulp (+6% over the same period of 2017 and -4% when compared to the second quarter of this year), of which approximately 24.5 thousand tons were dissolving pulp (-10% comparatively with the same quarter of the previous year). Sales evolution reflects, essentially, the need to reload stocks, aiming to maintain the quality of service provided to customers.

In cumulative terms, during the first nine months of 2018, Altri Group's mills produced around 814.7 thousand tons of pulp and total sales amounted to 797.1 thousand tons.

Exports amounted to 451 million Euro until September 2018

Regarding exports, during the third quarter of 2018, Altri exported around 241.2 thousand tons of pulp, which increased the total exports of pulp between January and September 2018 to 705.4 thousand tons. In monetary terms, the quarterly exports amounted to 160.7 million Euro, which totalizes approximately 451 million Euro of exports during the first nine months of 2018.

The total sales of pulp in the 3rd quarter amounted to 178.7 million Euro, which corresponds to a 28% increase over the same period of the previous year and is similar to the previous quarter.

Operating costs recorded a 10% increase over the same quarter of 2017 and a decrease of 7% over the previous quarter motivated, essentially, by the reduction of the Cost of sales caption. During the third quarter of 2018 the price of electric power kept increasing. Hence, total costs, excluding amortisation, financial expenses and income taxes, in the third quarter of 2018, amounted to 123 million Euro.

EBITDA for the third quarter of 2018 achieved approximately 82 million Euro, an increase of 53% over the EBITDA recorded in the same period of 2017. Regarding the second quarter of 2018, EBITDA recorded an increase of 13%.

The financial result was a net expense of 2.7 million Euro, which corresponds to a 46% improvement over the net financial expense recorded in the third quarter of 2017.

Altri's consolidated net profit reached approximately 46 million Euro, which corresponds to a 76% increase over the same period of 2017 and an increase of 13% over the second quarter of the year.

9M 2018: EBITDA of 218 million Euro and profit of 120 million Euro

thousand Euro	9M 2018	9M 2017	9M18/9M17 Var%
Total Revenues	583,618	490,792	18.9%
Cost of sales	194,435	200,195	-2.9%
External supplies and services	135,580	121,663	11.4%
Payroll expenses	25,888	24,829	4.3%
Other expenses	9,512	2,865	232.0%
Provisions and impairment losses	186	0	-
Total Expenses (a)	365,601	349,552	4.6%
EBITDA (b)	218,017	141,240	54.4%
margin	37.4%	28.8%	+8.6 pp
Amortisation and depreciation	41,680	41,562	0.3%
EBIT (c)	176,337	99,678	76.9%
margin	30.2%	20.3%	+9.9 pp
Gains/Losses in associated companies Financial costs	2,487 -17,660	2,303 -19,494	8.0% -9.4%
Financial gains	6,751	3,029	122.8%
Financial Results	-8,422	-14,162	-40.5%
Profit Before Income Tax	167,915	85,516	96.4%
Income Tax	-47,503	-17,532	171.0%
Profit for the period attributable to parent company's shareholders	120,412	67,985	77.1%

(a) Operating costs excluding amortisation, financial expenses and income tax

(b) EBITDA = earnings before interest, taxes, depreciation and amortisation

(c) EBIT = earnings before interest and taxes

During the first nine months of 2018, total revenues amounted to 583.6 million Euro, a 19% increase over the same period of 2017. EBITDA amounted to 218 million Euro (+54%), while EBITDA margin was 37.4%. The net profit of the period recorded a 77% increase over the same period of the previous year, for achieving 120.4 million Euro.

Net debt of 355 million Euro

Altri's nominal debt net of cash and cash equivalents as of September 30, 2018 amounted to 355.1 million Euro, which corresponds to a decrease of 20.5 million Euro over the net debt record in the previous quarter.

The total net investment (CAPEX) incurred until September 2018 by Altri's mills amounted to 55 million Euro. It should be highlighted that during the third quarter Altri granted 18 million Euro of shareholders' loans to Bioeléctrica in order to finance the ongoing investment in the new biomass plant at Figueira da Foz (located at Celbi's mill).

Altri's remunerated gross debt maturity profile, as of September 30, 2018, is as follows:

Regarding risk management, Altri uses exchange rate derivatives to hedge future cash flows. Hence, Altri has contracted European-style call and put options (exchange rate collars) of USD 10 million per month, for the full 2018 financial year. Moreover, as of September 30, 2018, Altri had contracted Asian-style exchange collars, in the amount of USD 12 million per month, covering all 2019 financial year.

Key balance sheet indicators

thousand Euro	30-Sep-18	31-Dec-17	Var%
Biological assets	94,907.5	94,848.3	0%
Tangible assets	395,969.8	396,515.7	0%
Goodw ill	265,531.4	265,531.4	0%
Investments in associated companies and joint ventures	46,487.7	17,456.9	166%
Others	58,464.3	52,609.1	11%
Total non current assets	861,360.8	826,961.4	4%
Inventories	69,750.8	50,728.0	37%
Customers	131,081.7	113,284.7	16%
Cash and cash equivalents	344,760.1	193,599.7	78%
Others	11,997.8	25,514.6	-53%
Total current assets	557,590.5	383,127.1	46%
Total assets	1,418,951.2	1,210,088.5	17%
Shareholders' equity and non controlling interests	445,471.1	394,567.1	13%
Bank loans	33,500.0	39,500.0	-15%
Other loans	517,488.2	442,483.9	17%
Reimbursable incentives	10,526.8	14,565.8	-28%
Others	50,688.9	45,427.5	12%
Total non current liabilities	612,203.9	541,977.1	13%
Bank loans	8,853.5	6,216.6	42%
Other current loans	140,509.7	94,830.7	48%
Reimbursable incentives	4,838.8	3,121.5	55%
Suppliers	109,519.9	95,373.3	15%
Others	97,554.3	74,002.2	32%
Total current liabilities	361,276.2	273,544.3	32%

Pulp Market

According to data from Pulp and Paper Products Council (PPPC World Chemical Market Pulp Global 100 Report – August 2018), during the first 8 months of 2018, total demand for hardwood pulp increased 4% comparing to the previous quarter, which corresponds to an additional consumption of 0.9 million tons, reaching around 22.7 million tons.

Geographically, the consumption of hardwood pulp in Europe increased by 5.3%, while in China there was a 9.1% increase.

In terms of BHKP, third quarter of 2018 was characterized by a slight increase of USD pulp price over the previous quarter (+0.5%) – to point out that the price in USD is stable at 1,050 USD/ton since May 29, 2018. In Euro, the average price recorded in the third quarter amounted to 903 EUR/ton (vs. 872 EUR/ton in the previous quarter).

Evolution of BHKP pulp price in Europe since 2003 until October 2018 Source: FOEX

Outlook

In operational terms, after the start-up in the end of the second quarter of the turbogenerator for electric power production in Celtejo's mill, the mill entered the ramp up stage in terms of pulp and electric power production. It is expected to present improvements during the fourth quarter of 2018.

On the other hand, during the third quarter of 2018, Altri announced the acquisition of the total share capital of Bioeléctrica, a company that produces electricity through biomass. During the fourth quarter of 2018 the transaction should be completed, thus enabling the full consolidation of this operation by Altri Group.

Regarding the pulp market, no significant changes are expected for the fourth quarter.

Altri – Business Profile

Altri is a reference European eucalyptus pulp producer. In addition to pulp production, the Company is also present in the renewable power production business from forest base sources, namely industrial cogeneration through black liquor and biomass. The forestry strategy is based on the full use of all the components provided by the forest: pulp, black liquor and forest wastes.

Currently, Altri has under its intervention over 81 thousand hectares of forest in Portugal entirely certified by Forest Stewardship Council® (FSC®)¹ and by Programme for the Endorsement of Forest Certification (PEFC), two of the most worldwide acknowledged certification entities.

Currently, Altri has three pulp mills in Portugal with an installed capacity that in 2017 amounted to more than 1 million tons/year of eucalyptus pulp.

The Altri Group, through its subsidiaries Celbi and Celtejo, engaged two investment contracts with the Portuguese State, represented by AICEP, at the beginning of 2017, considered to be of strategic interest to the country for the innovation introduced by the creation and qualification of jobs and the development of the regions where the industrial units are located, with financial and fiscal incentives being granted to those projects.

The investment project contracted for Celbi is completed. At Celtejo, the amount of investment contracted was 85 million Euro and aims to improve the innovation and economic and environmental sustainability of the industrial unit with interventions at the level of the recovery boiler, steam reduction installation and industrial waste water treatment facilities.

Oporto, October 31, 2018

The Board of Directors

¹ FSC-C004615