Altri SGPS — Interim / Quarterly Report 2019

Nov 7, 2019

Informação financeira 2012

ALTRI, SGPS, S.A. Public Company

Head Office: Rua Manuel Pinto de Azevedo, 818 – Porto Fiscal Number 507 172 086 Share Capital: 25,641,459 Euro

Financial Information – 3 rd Quarter of 2019 (Unaudited)

This document is a translation of a document originally issued in Portuguese, prepared using accounting policies consistent with the International Financial Reporting Standards, 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). Since January 1, 2019, IFRS 16 was adopted, and in accordance with this standard, 2018 information was not restated.

thousand Euro	3Q 2019	3Q 2018	3Q19/3Q18 Var%	2Q2019	3Q19/2Q19 Var%
Total revenues	174,790	205,193	-14.8%	199,980	-12.6%
Cost of sales	62,986	61,084	3.1%	73,583	-14.4%
External supplies and services	44,415	46,725	-4.9%	47,286	-6.1%
Payroll expenses	9,323	8,976	3.9%	9,742	-4.3%
Other expenses	2,385	5,011	-52.4%	1,772	34.6%
Provisions and impairment losses	1,181	1,385	-	-159	-840.8%
Total expenses (a)	120,290	123,180	-2.3%	132,224	-9.0%
EBITDA (b)	54,500	82,013	-33.5%	67,756	-19.6%
margin	31.2%	40.0%	-8.8 pp	33.9%	-2.7 pp
Amortisation and depreciation	19,035	16,096	18.3%	18,229	4.4%
EBIT (c)	35,465	65,916	-46.2%	49,527	-28.4%
margin	20.3%	32.1%	-11.8 pp	24.8%	-4.5 pp
Gains / (losses) related to investments	101	1,315	-	25	-
Financial expenses	-7,047	-5,440	29.5%	-7,460	-5.5%
Financial income	1,621	1,390	16.7%	594	173.1%
Financial profit / (loss)	-5,325	-2,736	94.6%	-6,841	-22.2%
Profit before income tax	30,140	63,181	-52.3%	42,686	-29.4%
Income tax	-7,295	-16,579	-56.0%	-11,549	-36.8%
Net profit attributable to parent company's shareholders	22,845	46,602	-51.0%	31,137	-26.6%

3Q2019 Profit and Loss Statement

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

(b) EBITDA = Earnings before interests, taxes, depreciation and amortisation

(c) EBIT = earnings before interests and taxes

As in the previous quarter, the third quarter of 2019, was characterised by a continuous downward trend in BHKP pulp sales price, which, according to the price index PIX, the average for the month of September 2019, reached 764 USD/ton (692 EUR/ton).

The decrease in total revenues volume is explained by the downward trend in the price, as well as the demand decrease from regular clients.

During the quarter under analysis it was applied a commercial strategy that reduced the exposure to peripheral markets (spot), where the sales price is substantially lower.

Hence, during the third quarter of 2019, the tons level of pulp sold has been reduced compared to the previous quarter.

3 rd Quarter of 2019: EBITDA reached 54.5 million Euro

During the third quarter of 2019, EBITDA of Altri Group reached approximately 54.5 million Euro, which corresponds to a 33.5% decrease when compared to the same quarter of previous year. EBITDA margin achieved 31.2%.

In terms of top line, total revenues amounted to 175 million Euro, a 15% decrease when compared with the same period of 2018.

During the period under analysis, 285.3 thousand tons of pulp were produced, of which 27 thousand tons of dissolving pulp. The volume of pulp produced was slightly lower than the same period of the previous year (-0.5%) and slightly higher than the second quarter of 2019 (+0.6%).

In terms of sales, during the period between July and September 2019, 260.1 thousand tons of pulp were sold (-3.4% over the same period of 2018 and -4.4% over the second quarter of 2019), of which 22.3 thousand tons of dissolving pulp. Total pulp sales amounted to 133.6 million Euro, which corresponds to a 25% decrease when compared to the same period of the previous year and a 19% decrease over the previous quarter of 2019.

Exports reached 116 million Euro

Regarding exports, during the third quarter of 2019, Altri exported around 224.2 thousand tons of pulp (-7% over the same period of 2018). In monetary terms, quarter exports amounted to 116 million Euro, which corresponds to a 28% decrease, when compared to the third quarter of 2018.

Regarding expenses, total operational expenses decreased 2.3% over the same period of the previous year and a 9% decrease when compared to the second quarter of 2019.

EBITDA recorded during the third quarter of 2019 amounted to 54.5 million Euro, a 33.5% decrease over the EBITDA recorded in the same period of 2018 and a 20% decrease over the previous quarter of the current year.

Amortisations and depreciations amounted to 19.0 million Euro, representing a 18% increase over the same period of 2018. This increase reflects the consolidation of biomass companies; the conclusion of the investment projects occurred at Celbi and Celtejo, namely the installation of the new recovery boiler; and the impact of IFRS 16 adoption.

The net financial loss amounted to 7.3 million Euro.

Altri's consolidated net profit amounted to 22.8 million Euro.

9 months period of 2019: EBITDA reached 197 million Euro

Regarding the first nine months of 2019, total revenues recorded 582.1 million Euro, which corresponds to a slightly decrease of 0.3% over the same period of 2018. EBITDA amounted to 196.8 million Euro, corresponding to a 9.7% decrease. EBITDA margin reached 33.8%. The net profit of this period achieved 90.7 million Euro (-24.7%).

thousand Euro	9M 2019	9M 2018	9M19/9M18 Var%
Total revenues	582,124	583,618	-0.3%
Cost of sales	214,037	194,435	10.1%
External supplies and services	135,786	135,580	0.2%
Payroll expenses	28,335	25,888	9.5%
Other expenses	5,992	9,512	-37.0%
Provisions and impairment losses	1,181	186	-
Total expenses (a)	385,330	365,601	5.4%
EBITDA (b)	196,794	218,017	-9.7%
margin	33.8%	37.4%	-3.5 pp
Amortisation and depreciation	56,191	41,680	34.8%
EBIT (c)	140,603	176,337	-20.3%
margin	24.2%	30.2%	-6.1 pp
Gains / (losses) related to investments Financial expenses	128 -20,696	2,487 -17,660	-94.9% 17.2%
Financial income	3,608	6,751	-46.5%
Financial profit / (loss)	-16,960	-8,422	101.4%
Profit before income tax	123,643	167,915	-26.4%
Income tax	-32,937	-47,503	-30.7%
Net profit attributable to parent company's shareholders	90,706	120,412	-24.7%

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

(b) EBITDA = Earnings before interests, taxes, depreciation and amortisation

(c) EBIT = earnings before interests and taxes

Remunerated net debt of 529.6 million Euro

Altri's nominal remunerated net debt as of 30 September 2019 amounted to 529.6 million Euro, which corresponds to an increase of 97 million Euro over the net debt recorded in the end of 2018.

Total investment (CAPEX) recorded until September 2019 by industrial and biomass units amounted to approximately 57 million Euro.

The increase in the net debt in the third quarter of 2019 when compared to the first half of 2019, in the amount of 11.9 million Euro, is explained mainly by the effect of payments on account (over the income) made during the quarter under analysis.

Altri believes that is only possible to achieve a truly environmental, economic and social development if criteria leading Group decisions are sustainable, turning Altri, therefore, strongly focused in reinforcing its sustainable commitment by integrating sustainability in its corporate finance.

Consequently, under this context, Altri began, in the late 2018, preparing its first bond issuance aligned with the "Green Bond Principles" published by the International Capital Market Association, which was issued, in February 2019, as the first Green Bond Issuance admitted to trading in Portugal, on Euronext Access Lisbon.

More recently, as part of "Climate Finance Week", taking place this week in Dublin, Euronext has launched the "Euronext Green Bonds" – a pan-European initiative of the Euronext Group that seeks to promote the green bonds listed on Euronext Amsterdam, Brussels, Dublin, Lisbon, Paris and Oslo – in which Sociedade Bioelétrica do Mondego, S.A. green bond was integrated, from the first hour.

Key balance sheet indicators

thousand Euro	30.Sep.19 31.Dec.18		Var%
Biological assets	103,300	98,474	5%
Property, plant and equipment	554,581	555,510	0%
Goodw ill	265,531	265,531	0%
Intangible assets and Right of use	123,114	55,284	123%
Others	45,830	41,760	10%
Non-current assets	1,092,356	1,016,559	7%
Inventories	96,118	70,096	37%
Customers	94,760	120,825	-22%
Cash and banks	139,663	240,766	-42%
Others	30,115	43,943	-31%
Current assets	360,656	475,630	-24%
Total assets	1,453,012	1,492,189	-3%
Equity and non-controlling interests	453,498	521,597	-13%
Bank loans	585,818	539,536	9%
Lease liability	71,262	-	n/a
Others	80,671	82,586	-2%
Non-current liabilities	737,751	622,122	19%
Bank loans	83,492	135,348	-38%
Lease liability	11,998	-	n/a
Suppliers	95,513	123,710	-23%
Others	70,760	89,412	-21%
Current liabilities	261,763	348,470	-25%

Impacts da IFRS 16

Since 1 January 2019, Altri's Group financial statements reflect the adoption of IFRS 16. The Group did not restate the comparative information regarding 2018, according to the possibility stated in this standard. The main impacts of the standard in the semester under analysis are as follows:

• 1. EBITDA: increase of 8.2 million Euro;
• 1. Amortisations: increase of 6.5 million Euro;
• 1. Financial expenses: increase of 1.8 million Euro;
• 1. Asset ("Right of Use"): increase of 68 million Euro;
• 1. Liability ("Lease Liability"): increase of 83 million Euro;
• 1. Equity: decrease of 7 million Euro (net of deferred taxes).

The nominal remunerated net debt of 529.6 million Euro does not include the lease liability mentioned above.

Pulp market

In accordance to demand's last data available (G100 Chemical Market Pulp Flash Report - August 2019), pulp total demand will have grown around 2.7% in August, where softwood pulp demand increased 11% and hardwood pulp demand decreased 1.6%. Hence, total pulp demand accumulated between January and August 2019 recorded a 0.6% decrease over the same period of 2018. If detailed by type of pulp, it is verified that softwood pulp demand recorded an increase of 3.8%, while hardwood pulp demand recorded a 3.4% decrease.

Considering the normal process of stocks accumulation linked with the Chinese Lunar New Year (which will take place as of 25 January 2020), demand has been increasing in recent months (compared to the date of this release).

In terms of BHKP pulp price, the third quarter of 2019 was characterised by an average price of 815 USD, which corresponds to a 22% decrease over the homologous quarter of 2018. In Euro, the average price evolution recorded during the same period was -19%.

Evolution of BHKP pulp price in Europe from 2003

Altri – business profile

Altri is a reference in European eucalyptus pulp producers. In addition to pulp production, the Group 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 manages over 80 thousand hectares of forest in Portugal, entirely certified by the Forest Stewardship Council® (FSC®)¹ and by the Programme for the Endorsement of Forest Certification (PEFC), two of the most worldwide acknowledged certification entities.

Altri has three pulp mills in Portugal, with an installed capacity that in 2018 reached more than 1 million tons/year of eucalyptus pulp.

Altri's organic structure can be represented as follows:

Oporto, November 7, 2019

¹ FSC-C004615