Altri SGPS — Interim / Quarterly Report 2019

Nov 29, 2019

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

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF 30 SEPTEMBER 2019 AND 31 DECEMBER 2018

(Translation of financial statements originally issued in Portuguese - Note 20) (Amounts expressed in Euro)

ASSETS	Notes	30.09.2019	31.12.2018
NON-CURRENT ASSETS:
Biological assets		103,299,815	98,473,925
Property, plant and equipment		554,581,422	555,509,551
Right of use	3	68,117,795	-
Investment property		113,310	113,310
Goodwill		265,531,404	265,531,404
Intangible assets		54,996,295	55,284,353
Investments in associated companies	4.2	824,169	696,660
Other financial investments		239,987	822,913
Other non-current assets		6,453,853	3,210,260
Derivatives	11	-	733,653
Deferred tax assets	3	38,197,620	36,183,398
Total non-current assets		1,092,355,670	1,016,559,427
CURRENT ASSETS:
Inventories		96,117,708	70,096,250
Trade receivables		94,571,640	120,825,225
Contract assets		3,442,569	8,018,340
Other debtors		15,103,616	25,079,689
Income tax receivable		2,922,511	3,702,509
Other assets		7,088,900	7,043,093
Derivatives	11	1,209,282	98,873
Cash and banks	6	139,663,160	240,765,868
Total current assets		360,119,386	475,629,847
Total assets		1,452,475,056	1,492,189,274
EQUITY AND LIABILITIES		30.09.2019	31.12.2018
EQUITY:
Share capital	8	25,641,459	25,641,459
Legal reserve		5,128,292	5,128,292
Other reserves	3	332,011,592	296,330,045
Consolidated net profit / (loss)		90,706,486	194,497,353
Total equity attributable to the equity holders of the parent company		453,487,829	521,597,149
Non-controlling interests		10,000	-
Total equity		453,497,829	521,597,149
LIABILITIES:
NON-CURRENT LIABILITIES:
Bank loans	9	27,500,000	33,500,000
Other loans	9	558,867,913	506,035,710
Reimbursable government grants	9	2,942,267	6,581,251
Lease liability	3	71,262,016	-
Other non-current liabilities		17,105,137	16,411,963
Deferred tax liabilities		41,512,574	41,427,492
Pension liabilities		3,774,864	3,774,864
Provisions	10	14,386,930	14,390,330
Derivatives	11	2,294,645	-
Total non-current liabilities		739,646,346	622,121,610
CURRENT LIABILITIES:
Bank loans	9	6,216,448	6,536,505
Other loans	9	77,275,614	128,811,525
Reimbursable government grants	9	5,197,888	5,511,090
Trade payables		94,231,579	123,710,486
Contract liabilities		7,911,373	5,670,445
Lease liability	3	11,998,261	-
Other creditors		22,053,153	29,391,301
Income tax payable		2,111,283	25,228,590
Other liabilities	3	27,939,418	20,677,215
Derivatives	11	4,395,864	2,933,358
Total current liabilities		259,330,881	348,470,515
Total equity and liabilities		1,452,475,056	1,492,189,274

The accompanying notes form an integral part of these condensed consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF PROFIT AND LOSS

FOR THE NINE AND THREE MONTHS PERIODS ENDED 30 SEPTEMBER 2019 AND 2018

(Translation of financial statements originally issued in Portuguese - Note 20) (Amounts expressed in Euro)

	Notes	PERIOD ENDED AT		QUARTER ENDED AT
		30.09.2019	30.09.2018	30.09.2019	30.09.2018
Sales		571,668,701	571,210,038	169,952,058	200,261,929
Services rendered		3,343,629	6,931,598	1,179,964	2,302,597
Other income	14	7,111,466	5,475,977	3,657,674	2,628,530
Cost of sales		(214,036,505)	(194,435,312)	(62,986,089)	(61,083,659)
External supplies and services	3	(135,785,816)	(135,580,406)	(44,414,846)	(46,725,452)
Payroll expenses		(28,334,715)	(25,887,621)	(9,323,419)	(8,976,121)
Amortisation and depreciation	3	(56,190,549)	(41,679,701)	(19,035,126)	(16,096,161)
Provisions and impairment losses		(1,180,865)	(185,680)	(1,180,865)	(1,384,610)
Other costs		(5,991,897)	(9,511,647)	(2,384,799)	(5,010,654)
Gains / (losses) in associated companies	4.2	127,509	2,487,176	100,695	1,314,708
Financial expenses	3 and 12	(20,696,208)	(17,660,245)	(7,046,904)	(5,440,108)
Financial income	12	3,608,331	6,750,644	1,621,490	1,389,613
Profit before income tax		123,643,080	167,914,821	30,139,832	63,180,612
Income tax		(32,936,594)	(47,503,225)	(7,294,845)	(16,578,871)
Profit after income tax		90,706,486	120,411,596	22,844,987	46,601,741
Consolidated net profit		90,706,486	120,411,596	22,844,987	46,601,741
Attributable to:
Parent company's shareholders		90,706,486	120,411,596	22,844,987	46,601,741
Non-controlling interests		-	-	-	-
		90,706,486	120,411,596	22,844,987	46,601,741
Earnings per share: Basic	13	0.44	0.59	0.11	0.23
Diluted	13	0.44	0.59	0.11	0.23

The accompanying notes form an integral part of these condensed consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE NINE AND THREE MONTHS PERIODS ENDED 30 SEPTEMBER 2019 AND 2018

(Translation of financial statements originally issued in Portuguese - Note 20)

(Amounts expressed in Euro)
			PERIOD ENDED AT	QUARTER ENDED AT
	Notes	30.09.2019	30.09.2018	30.09.2019	30.09.2018
Consolidated net profit for the period		90,706,486	120,411,596	22,844,987	46,601,741
Other comprehensive income: Items that may be reclassified to profit and loss in subsequent periods Change in fair value of cash flow hedging derivatives - gross amount Change in fair value of cash flow hedging derivatives - deferred taxation Changes in currency translation reserves Others	11 11	(4,798,019) 837,996 24,722 53,453 (3,881,849)	(10,214,384) 2,207,672 39,824 (1,157) (7,968,045)	(6,280,067) 1,274,504 15,352 1,532 (4,988,680)	(1,869,442) 192,154 26,459 32 (1,650,797)
Other comprehensive income		(3,881,849)	(7,968,045)	(4,988,680)	(1,650,797)
Total comprehensive income for the period		86,824,637	112,443,551	17,856,307	44,950,944
Attributable to: Equity holders of the parent company Non-controlling interests		86,824,637 -	112,443,551 -	17,856,307 -	44,950,944 -

The accompanying notes form an integral part of these condensed consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE NINE MONTHS PERIODS ENDED 30 SEPTEMBER 2019 AND 2018

(Translation of financial statements originally issued in Portuguese - Note 20) (Amounts expressed in Euro)

					Attributable to the parent company's shareholders
	Notes	Share capital	Legal reserve	Other reserves	Net profit	Total	Non-controlling interest	Total shareholders' funds
Balance as of 1 January 2018	8	25,641,459	5,128,292	267,729,157	96,068,168	394,567,076	-	394,567,076
Appropriation of the consolidated net profit of 2017		-	-	96,068,168	(96,068,168)	-	-	-
Dividends distribution		-	-	(61,539,503)	-	(61,539,503)		(61,539,503)
Total comprehensive income for the period		-	-	(7,968,045)	120,411,596	112,443,551	-	112,443,551
Balance as of 30 September 2018	8	25,641,459	5,128,292	294,289,777	120,411,596	445,471,124	-	445,471,124
Balance as of 1 January 2019	8	25,641,459	5,128,292	296,330,045	194,497,353	521,597,149	-	521,597,149
IFRS 16 adoption effects	3	-	-	(7,239,153)	-	(7,239,153)	-	(7,239,153)
Balance as of 1 January 2019 restated		25,641,459	5,128,292	289,090,892	194,497,353	514,357,996	-	514,357,996
Appropriation of the consolidated net profit of 2018		-	-	194,497,353	(194,497,353)	-	-	-
Dividends distribution		-	-	(147,694,804)	-	(147,694,804)	-	(147,694,804)
Entry of new companies		-	-	-	-	-	10,000	10,000
Total comprehensive income for the period		-	-	(3,881,849)	90,706,486	86,824,637	-	86,824,637
Balance as of 30 September 2019	8	25,641,459	5,128,292	332,011,592	90,706,486	453,487,829	10,000	453,497,829

The accompanying notes form an integral part of these condensed consolidated financial statements

Condensed consolidated financial statements and notes

CONDENSED CONSOLIDATED CASH-FLOW STATEMENTS

FOR THE NINE AND THREE MONTHS PERIODS ENDED 30 SEPTEMBER 2019 AND 2018

(Translation of financial statements originally issued in Portuguese - Note 20) (Amounts expressed in Euro)

			PERIOD ENDED AT	QUARTER ENDED AT
	Notes	30.09.2019	30.09.2018	30.09.2019	30.09.2018
Operating activities:
Cash flow from operating activities (1)		126,032,564	203,239,661	11,809,456	58,402,696
Investment activities:
Receipts relating to:
Tangible assets		81,615	198,776	4,029	21,125
Financial investments	6	151,209	144,000	48,000	48,000
Interests and similar income		1,694,071	2,017,807	261,730	235,312
Other financial assets		6,801,689	6,000,000	69,243	-
Investment subsidies		1,822,308	1,747,075	75,233	-
Payments relating to:
Investment subsidies		(1,818,120)	(877,048)	1
Financial investments	6	(32,075)	(26,500,000)	-	(18,000,000)
Loans conceded		(4,390,817)		-	-
Tangible assets		(56,063,359)	(55,034,611)	(16,705,092)	(15,001,484)
Intangible assets		(555,999)	-	-	-
Other financial assets		(977,457)	(10,633,888)	(384,152)	(1,183,252)
Cash flow from investment activities (2)		(53,286,935)	(82,937,889)	(16,631,008)	(33,880,299)
Financing activities:
Receipts relating to:
Loans obtained		172,037,608	186,413,334	71,466,633	30,746,527
Other financial operations			131,206	-	(22,558)
Payments relating to:
Loans obtained		(176,900,086)	(84,461,402)	(122,957,484)	(37,335,514)
Interest and similar costs		(18,141,083)	(12,476,179)	(7,682,645)	(4,321,299)
Other financial operations		(2,872,231)	-	-	-
Dividends distribuition		(147,694,804)	(61,539,503)	-	-
Cash flow from financing activities (3)		(173,570,596)	28,067,456	(59,173,496)	(10,932,844)
Cash and cash equivalents at the beginning of the period	6	240,476,078	193,599,737	203,646,159	328,379,412
Exchange rate effect		-	(2,879)	-	(2,879)
Variation of cash and cash equivalent: (1)+(2)+(3)		(100,824,967)	148,369,228	(63,995,048)	13,589,553
Cash and cash equivalents at the end of the period	6	139,651,111	341,966,086	139,651,111	341,966,086

The accompanying notes form an integral part of these condensed consolidated financial statements

1. INTRODUCTORY NOTE

Altri, SGPS, S.A. ("Altri" or "Company") is an public company established as of 1 March 2005 and has its head-office located at Rua Manuel Pinto Azevedo, 818, Porto and its shares are listed in the Euronext Lisbon Stock Exchange. Its main activity is the management of investments.

Altri dedicates to the management of investments mainly in the industrial area, being the parent company of a group of companies listed in Note 4 and known as Altri Group. There is not any Company above Altri, which includes these consolidated financial statements.

The current activity of Altri Group focuses on the the production of bleached pulp of eucalyptus through three mills (Celbi in Figueira da Foz, Caima in Constância do Ribatejo and Celtejo in Vila Velha de Ródão).

The condensed consolidated financial statements of Altri Group are presented in Euro rounded off to the unit, which is the currency used by the Group in its operations and considered as the functional currency.

2. MAIN ACCOUNTING POLICIES AND BASIS FOR PRESENTATION

The accounting policies used in the preparation of the condensed consolidated financial statements of Altri are consistent with those used in the comparative periods, except for IFRS 16 adoption (Note 3).

The accompanying condensed consolidated financial statements were prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS-EU"). These correspond to the International Financial Reporting Standards issued by the International Accounting Standards Board ("IASB"), and interpretations issued by the IFRS Interpretations Committee ("IFRIC") or by the previous Standing Interpretations Committee ("SIC"), as adopted by the European Union as from the consolidated financial statements issuance date.

The interim condensed consolidated financial statements are presented quarterly and in accordance with the International Accounting Standard 34 – Interim Financial Reporting and includes the statement of financial position, the statement of profit and loss, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows as well as the selected explanatory notes.

The accompanying condensed consolidated financial statements have been prepared from the books and accounting records of the company and subsidiaries, adjusted in the consolidation process, on a going concern basis and under the historical cost convention, except for some property, plant and equipment, for the biological assets and for the derivative financial instruments, which were measured under revaluation cost or at fair value in the end of each reporting period.

3. CHANGES IN ACCOUNTING POLICIES AND COMPARABILITY OF THE CONSOLIDATED FINANCIAL STATEMENTS

During the period there were no changes in accounting policies, neither were identified any material mistakes related to previous years.

New accounting standards and their impact in these condensed consolidated financial statements:

Up to the date of approval of these consolidated financial statements, the European Union endorsed the following standards, interpretations, amendments and revisions some of which become mandatory during 2019:

With mandatory application during 2019	Effective date (for financial year beginning on or after)
Annual Improvements to IFRS standards (cycle 2015-2017)	01 Jan 2019
IAS 19 (amendment) – Employee benefits (Plan amendment, curtailment or settlement)	01 Jan 2019
IAS 28 (amendment) – Long-term interests in Associates and Joint ventures	01 Jan 2019
IFRIC 23 – Uncertainly over income tax treatments	01 Jan 2019
IFRS 9 (amendment) – Prepayment features with negative compensation	01 Jan 2019
IFRS 16 – Leases - (recognition and measurement principles)	01 Jan 2019

The Group made an analysis of the changes made by the adoption of IFRS 16.

IFRS 16 impact adoption

The Group opted for the modified retrospective model foreseen in paragraphs C3(a), C5(b), C7 and C8 of IFRS 16. Consequently, it determined the discount rate based on the incremental borrowing rate using the currency, maturity and cash flows inherent to the lease and to the credit risk of the Group. The Group elected to use the exemption foreseen in IFRS 16 on lease contracts for which the lease terms ends within 12 months as of the date of initial application.

Recognition

The Group present assets "Right of use" and "Lease liability" in captions properly segregated in the financial position statement.

The Group recognizes a right of use of an asset and a lease liability on the start date of the lease.

The right of use of the asset is initially measured at the cost, comprising the initial value of the lease liability adjusted for any lease payments made on or before the start date, in addition to any initial direct costs incurred, as well as an estimate of the dismantling costs and removal of the underlying asset (if applicable), deducted from any incentive granted.

The liabilities recorded as "Lease liability" correspond to the actual value, as of 1 January 2019, of the remaining lease payments from contracts previously classified as operational leases, as stated at IAS 17, and do not correspond to short-term leases, accordingly to IFRS 16.

Altri uses its incremental interest rate as the discount rate to be applied. Lease payments included in the measurement of lease liabilities include fixed payments, deducted from any incentives already received.

The lease liability is measured at amortized cost, using the effective interest method, being remeasured when changes in future payments derived from a change in the rate or index are verified, as well as the possible modifications of lease agreements.

When the liability is remeasured, the value of the right of use is also adjusted, or if the carrying amount of the asset of the right of use was already reduced to zero, a profit or loss is recorded in the income statement.

The asset right of use is depreciated through the straight-linear method, based on lease term.

If this standard had not been adopted, the main changes in the condensed consolidated financial statements as of 30 September 2019 would be as follows:

	ASSETS	30.09.2019	IFRS 16 Effect	30.09.2019 without IFRS 16 effect
NON-CURRENT ASSETS:
Biological assets		103,299,815	221,166	103,078,649
Right of use		68,117,795	68,117,795	-
Deferred tax assets		38,197,620	2,135,795	36,061,825
Total non-current assets		1,092,355,670	70,474,756	1,021,880,914
CURRENT ASSETS:
Total current assets		360,119,386	-	360,119,386
Total assets		1,452,475,056	70,474,756	1,382,000,300
EQUITY AND LIABILITIES		30.09.2019	IFRS 16 Effect	30.09.2019 without IFRS 16 effect
EQUITY:
Other reserves		332,011,592	(7,239,153)	339,250,745
Consolidated net profit / (loss)		90,706,486	77,815	90,628,671
Total equity attributable to the equity holders of the parent company		453,487,829	(7,161,338)	460,649,167
Non-controlling interests		10,000	-	10,000
Total equity		453,497,829	(7,161,338)	460,659,167
LIABILITIES: NON-CURRENT LIABILITIES:
Lease liability Total non-current liabilities		71,262,016 739,646,346	71,262,016 71,262,016	- 668,384,330
CURRENT LIABILITIES:
Trade payables		94,231,579	(17,680)	94,249,259
Lease liability		11,998,261	11,998,261	-
Other liabilities Total current liabilities		27,939,418 259,330,881	(5,606,503) 6,374,078	33,545,921 252,956,803
Total equity and liabilities		1,452,475,056	70,474,756	1,382,000,300
		30.09.2019	IFRS 16 Effect	30.09.2019 without IFRS 16
Cost of sales		(214,036,505)	221,196	(214,257,701)
External supplies and services		(135,785,816)	8,219,641	(144,005,457)
Amortisation and depreciation		(56,190,549)	(6,536,349)	(49,654,200)
Fianancial expenses		(20,696,208)	(1,792,547)	(18,903,661)
	Profit before income tax	123,643,080	111,941	123,531,139
Income tax		(32,936,594)	(34,126)	(32,902,468)
	Profit after income tax	90,706,486	77,815	90,628,671
Consolidated net profit		90,706,486	77,815	90,628,671

The following standards, interpretations, amendments and revisions were not at to the date of approval of these consolidated financial statements endorsed by the European Union:

With mandatory application after 2019	Effective date (for financial year beginning on or after)
IFRS 17 – Insurance contracts	01 Jan 2021
Amendments to references to the Conceptual Framework in IFRS Standards	01 Jan 2020
IFRS 3 (amendment) – Business combinations	01 Jan 2020
IAS 1 and IAS 8 (amendment) – Definition of material	01 Jan 2020
IFRS 7 and IFRS 9 (amendment) – Interest Rate benchmark reform	01 Jan 2020

The Group did not proceed with the early implementation of any of these standards in the financial statements for the year ended 30 September 2019 due to the fact that their application is not mandatory, lying in the process of analyzing expected effects of those standards.

Condensed consolidated financial statements and notes

4. INVESTMENTS

4.1 INVESTMENTS IN SUBSIDIARIES

The companies included in the consolidated financial statements by the full consolidation method, its headquarters, percentage participation held and main activity as of 30 September 2019 and 31 December 2018, are as follows:

Company	Head Office		Percentage Held	Main Activity
Parent Company:
Altri, SGPS, S.A.	Porto			Investment management
Subsidiaries:
Altri Abastecimento de Madeira, S.A.	Figueira da Foz	100%	100%	Wood commercialization
Altri Florestal, S.A.	Figueira da Foz	100%	100%	Forest management
Altri Sales, S.A.	Nyon, Suíça	100%	100%	Group management support services
Altri, Participaciones Y Trading, S.L.	Pontevedra, Espanha	100%	100%	Commerciallization of pulp
Caima Energia – Empresa de Gestão e Exploração de Energia, S.A.	Constância	100%	100%	Production of energy
Caima Indústria de Celulose, S.A.	Constância	100%	100%	Production and commercialization of pulp
Captaraíz Unipessoal, Lda.	Figueira da Foz	100%	100%	Purchase and sale of properties
Celtejo – Empresa de Celulose do Tejo, S.A.	Vila Velha de Ródão	100%	100%	Production and commercialization of pulp
Celulose Beira Industrial (Celbi), S.A.	Figueira da Foz	100%	100%	Production and commercialization of pulp
Inflora – Sociedade de Investimentos Florestais, S.A.	Figueira da Foz	100%	100%	Forest management
Sociedade Imobiliária Porto Seguro – Investimentos Imobiliários, S.A.	Porto	100%	100%	Purchase and sale of properties
Viveiros do Furadouro Unipessoal, Lda.	Óbidos	100%	100%	Production of plants in nurseries and services related with forests and landscapes
Florestsul, S.A. (a)	Figueira da Foz	100%	--	Forest management
Sociedade de Energia Solar do Alto Tejo (SESAT), Lda. (b)	Nisa	80%	--	Renewable energy
Bioelétrica da Foz, S.A.	Figueira da Foz	100%	100%	Production of electric energy through waste sources and biomass
Bioródão, S.A.	Figueira da Foz	100%	100%	Production of electric energy through waste sources and biomass
Ródão Power - Energia e Biomassa do Ródão, S.A.	Vila Velha de Ródão	100%	100%	Production and commercialization of electric and thermal energy through cogeneration
Sociedade Bioelétrica do Mondego, S.A.	Figueira da Foz	100%	100%	Production of electric energy through waste sources and biomass
Ribatejo Green, Lda (c)	Algés	70%	--	Production of electric energy
Amieira Green, Lda (c)	Algés	70%	--	Production of electric energy
Paraimo Green, Lda (c)	Algés	70%	--	Production of electric energy
Piara Solar, Lda (c)	Algés	70%	--	Production of electric energy
Maior Green, Lda (c)	Algés	70%	--	Production of electric energy

(a) Company acquired in the end of the first half of 2019 (Nota 5)

(b) Company incorporated during the second quarter of 2019

(c) Company incorporated during the third quarter of 2019

All the above companies were included in the Altri Group consolidated financial statements in accordance with the full consolidation method.

4.2 INVESTMENT IN ASSOCIATED COMPANIES

The associated company, percentage of capital held and main activity as of 30 September 2019 and 31 December 2018 are as follows:

Company	Head Office	Statement of financial position		Percentage Held		Activity
		2019	2018	2019	2018
Associated companies: Operfoz – Operadores do Porto da Figueira da Foz, Lda.	Figueira da Foz	824,169	696,660	33.33%	33.33%	Harbor operations
		824,169	696,660

This associated company was included in the Altri Group consolidated financial statements in accordance with the equity method.

The movements occurred in the balance of this caption in the periods ended in 30 September 2019 and 31 December 2018 were as follows:

	Statement of financial position
	30.September.2019		31.December.2018
	Operfoz	Operfoz	EDP Bioeléctrica (a)
Opening balance	696,660	701,421	16,755,511
Dividends distribution Acquisition of the remaining 50% of capital Equity method:	- -		- - - (21,039,089)
Effects on gains and losses in associated companies and joint ventures	127,509	(4,761)	4,283,578
Closing balance (a) – Includes loans granted.	824,169	696,660	-

The accounting policies used by these companies do not differ significantly from those used by Altri Group, fact that led to no accounting policies harmonization.

5. CHANGES OCCURRED IN THE CONSOLIDATION PERIMETER

In the first half of 2019, Altri Group acquired the complete share capital of Florestsul, S.A. (Note 4.1). Hence, as prescribed by IFRS 3 – Business Combinations, Florestsul, S.A., has been consolidated from the acquisition date by the full consolidation method.

The impact of the acquisition in the consolidated financial statements of Altri Group can be detailed as follows:

	At purchase date
Acquired Net Assets:
Biological assets	4,000,000
Deferred tax assets	300,000
Other current assets	340,323
Cash and cash equivalents	30,000
Loans	(3,190,817)
Supplementary payments	(1,200,000)
Trade payables and other current liabilities	(195,508)
	83,998
Compensation:

Trade payables and other current liabilities	(32,075)
	51,923

The acquisition of Florestsul included the acquisition, at face value, of credits for loans and supplementary payments held by the former shareholder, amounting to Euro 4,390,817.

The profit and loss statement of Florestsul was included in the Group's consolidation for the months July to September, once the acquisition occurred in the end of June.

At the date of presentation of these financial statements, and taking into consideration that the acquisition of control only occurred by the end of June 2019, the purchase price allocation is still considered subject to review, as prescribed by IFRS 3. The purchase price allocation will be completed by the end of the twelfth month from the acquisition date, as permitted by IFRS 3.

If this subsidiary had been consolidated since 1 January 2019, the Group's turnover would have been unchanged and the operational results would have been lower in 55 thousand Euro.

6. CASH AND BANKS

As of 30 September 2019 and 2018, the caption "Cash and banks" can be detailed as follows:

	30.09.2019	30.09.2018
Cash Bank deposits	26,343 139,636,818	36,711 344,723,401
Total available cash w ithin balance sheet	139,663,160	344,760,112
Bank overdrafts (Note 9)	(12,049)	(2,794,026)
Cash and banks	139,651,111	341,966,086

During the first nine months period ended on 30 September 2019, the payments related to financial investments refer to the acquisition of the share capital of Florestsul, S.A..

During the period ended as of 30 September 2018 the payments related to financial investments refer to loans granted to EDP Bioelétrica (currently named Bioelétrica da Foz, S.A.).

During the period ended as of 30 September 2018, the receipts relating with financial investments correspond to the partial collection of the sale of Sócasca – Recolha e Comércio de Recicláveis, S.A. (disposed in 2011).

7. CURRENT AND DEFERRED TAXES

In accordance with current legislation, tax returns are subject to review and correction by the tax authorities during a four year period (five years for Social Security), with the exception when there have been tax losses, cases when there have been granted tax benefits, or tax inspections or claims are in progress, in which cases the periods may be extended or suspended. Therefore, the Company tax returns since 2015 are still subject to review.

The Board of Directors of Altri believes that any potential corrections resulting from reviews/inspections of these tax returns by the tax authorities will not have a significant effect on the consolidated financial statements as of 30 September 2019.

8. SHARE CAPITAL

As of 30 September 2019 and 2018, the Company's fully subscribed and paid up capital consisted of 205,131,672 shares with a nominal value of 12.5 cents of Euro each.

9. BANK LOANS, OTHER LOANS AND REIMBURSABLE SUBSIDIES

Condensed consolidated financial statements and notes

As of 30 September 2019 and 31 December 2018, the captions "Bank loans", "Other loans" and "Reimbursable subsidies" can be detailed as follows:

			30.09.2019
	Nominal value			Book value
	Current	Non-current	Total	Current	Non-current	Total
Bank loans	6,000,000	27,500,000	33,500,000	6,204,399	27,500,000	33,704,399
Bank overdrafts	12,049	-	12,049	12,049	-	12,049
Bank loans	6,012,049	27,500,000	33,512,049	6,216,448	27,500,000	33,716,448
Commercial paper	72,000,000	65,000,000	137,000,000	72,034,681	64,994,904	137,029,585
Bond loans Other loans	- 2,992,709	495,700,000 48,000	495,700,000 3,040,709	2,248,222 2,992,711	493,825,009 48,000	496,073,231 3,040,711
Other loans	74,992,709	560,748,000	635,740,709	77,275,614	558,867,913	636,143,527
Reimbursable government grants	5,197,888	2,942,267	8,140,155	5,197,888	2,942,267	8,140,155
	86,202,646	591,190,267	677,392,913	88,689,950	589,310,180	678,000,130
			31.12.2018
		Nominal value			Book value
	Current	Non-current	Total	Current	Non-current	Total
Bank loans Bank overdrafts	6,000,000 289,790	33,500,000 -	39,500,000 289,790	6,246,715 289,790	33,500,000 -	39,746,715 289,790
Bank loans	6,289,790	33,500,000	39,789,790	6,536,505	33,500,000	40,036,505
Commercial paper Bond loans Other loans	42,000,000 40,000,000 43,828,573	61,500,000 446,400,000 192,000	103,500,000 486,400,000 44,020,573	42,127,037 42,855,915 43,828,573	61,490,259 444,353,451 192,000	103,617,296 487,209,366 44,020,573
Other loans	125,828,573	508,092,000	633,920,573	128,811,525	506,035,710	634,847,235
Reimbursable government grants	5,511,090	6,581,251	12,092,341	5,511,090	6,581,251	12,092,341
	137,629,453	548,173,251	685,802,704	140,859,120	546,116,961	686,976,081

The expenditures with the constitution of the loans were deducted from its nominal value, being these recognized as financial expenses along the loan's life period (Note 12).

10. ACCUMULATED PROVISIONS AND IMPAIRMENT LOSSES

The movements occurred in provisions and impairment losses for the nine months periods ended at 30 September 2019 and 2018 can be detailed as follows:

		30.09.2019
		Impairment losses in	Impairment losses in
	Provisions	accounts receivable	inventories	Total
Opening balance	14,390,330	3,630,547	8,336,698	26,357,575
Increases	5,752	-	1,175,113	1,180,865
Utilizations	-	-	-	-
Transfers	(9,152)	-	-	(9,152)
Closing balance	14,386,930	3,630,547	9,511,811	27,529,288
		30.09.2018
		Impairment losses in	Impairment losses in
	Provisions	accounts receivable	inventories	Total
Opening balance	5,025,260	3,604,839	7,803,018	16,433,117
Increases	1,008,013	-	200,000	1,208,013
Utilizations	(9,153)	(1,518)	(1,020,815)	(1,031,486)
Closing balance	6,024,120	3,603,321	6,982,203	16,609,644

As of 30 September 2019, the amount recorded in the caption "Provisions" includes the dismantling and decommissioning provisions of the power generation plants operated by Bioeléctrica da Foz and its subsidiaries.

The amount recorded under that caption as of 30 September 2019 and 31 December 2018 is the best estimate of the Board of Directors in order to face all the losses that may be supported due to claims in force.

11. DERIVATIVE FINANCIAL INSTRUMENTS

As of 30 September 2019 and 31 December 2018, the companies of the Group operated with contracts for derivatives related to hedge interest rate variations, exchange rate derivatives and pulp price (commodities) derivatives, which are recorded according to their fair value.

Altri Group's companies only use derivatives to hedge cash flows associated with operations related with their activities.

As of 30 September 2019 and 31 December 2018 the detail of the financial derivative instruments is as follows:

		30.09.2019				31.12.2018
		Assets	Liabilities		Assets		Liabilities
	Current	Non-current	Current	Non-current	Current	Non-current	Current	Non-current
Interest rate derivatives	-	-	1,609,768	-	-	-	788,929	-
Exchange rate derivatives	-	-	2,786,096	2,294,645	-	733,653	870,615	-
Pulp price derivatives	1,209,282	-	-	-	98,873	-	1,273,814	-
	1,209,282	-	4,395,864	2,294,645	98,873	733,653	2,933,358	-

As of 30 September 2019, the movements of the financial derivative instruments occurred in the nine months periods then ended is as follows:

2019	Pulp price derivatives	Interest rate derivatives	Exchange rate derivatives	Total
Opening balance	(1,174,941)	(788,929)	(136,962)	(2,100,832)
Derivatives fair value variation Effects on shareholders' funds Effects on profit and loss statement Effects on the balance sheet	2,384,223 - -	(739,961) (257,127) 176,249	(6,442,281) 1,498,502 -	(4,798,019) 1,241,375 176,249
Closing balance	1,209,282	(1,609,768)	(5,080,741)	(5,481,227)

12. FINANCIAL RESULTS

The financial results for the nine months periods ended at 30 September 2019 and 2018 are detailed as follows:

	30.09.2019	30.09.2018
Financial expenses
Interests	11,803,422	12,667,558
Other financial expenses	8,892,786	4,992,687
	20,696,208	17,660,245
Financial income
Interests	214,847	391,633
Other financial income	3,393,484	6,359,011
	3,608,331	6,750,644

The caption "Other financial expenses" includes, mainly, expenses with loans setup, which are recognized in the profit and loss statement through the duration of those loans (Note 9) and on interest rate derivatives instruments that matured or were paid until that date (Note 11). The caption "Other financial income" includes, mainly, exchange rate gains.

Condensed consolidated financial statements and notes

13. EARNINGS PER SHARE

Earnings per share for the nine months periods ended as of 30 September 2019 and 2018 were determined taking into consideration the following amounts:

	30.09.2019	30.09.2018
Shares number considered for the computation of basic and diluted earnings	205,131,672	205,131,672
Net profit considered for the computation of basic and diluted earnings	90,706,486	120,411,596
Earnings per share
Basic	0.44	0.59
Diluted	0.44	0.59

14. OTHER INCOME

As of 30 September 2019 and 2018 the caption of the statement of profit and loss "Other Income" is detailed as follows:

	30.09.2019	30.09.2018
Subsidies to investment and exploitation	3,456,790	4,377,465
Gains on disposal of fixed assets	168,959	466,277
Other income	3,485,717	632,235
	7,111,466	5,475,977

15. SEGMENTAL INFORMATION

In 2008, was signed the Altri SGPS, S.A. spin-off public deed. Under the terms of that project, the planned reorganization implies the split of Altri's two business units that manage equity holdings in the pulp and paper sector and in the steel and storage systems sector. This reorganization aimed a bigger focus and transparency on ALTRI's business, and giving each of the areas an opportunity to be better seen and better evaluated by the market. This allows for the Altri Group to focus its activity on its core business, production and commercialization of bleached pulp from eucalyptus, so the Board of Directors believes that there is only one business segment and the management information is reported and analysed on this basis.

16. RELATED PARTIES

The subsidiary companies of the Group have between each other transactions that classify as transactions with related parties and which are made at market prices. In the consolidation procedures the transactions between the companies included in consolidation by the full consolidation method are eliminated, once the consolidated financial statements present the owner and its subsidiaries information as one single company, therefore they are not disclosed in this note.

During the nine months periods ended at 30 September 2019 and 2018, there were no transactions or loans granted to the members of the Board of Directors.

As of 30 September 2019 and 2018 the balances and transactions with related parties are as follow:
	Purchases and serv	ices obtained	Sales and serv	ices rendered		Interest income
Transactions	30.09.2019	30.09.2018	30.09.2019	30.09.2018	30.09.2019	30.09.2018
Associated companies and joint v entures (a)	1,693,947	1,862,019	-	11,857,258	-	122,535
Other related parties (b)	6,555,576	767,931	-	-	-	-
	8,249,523	2,629,950	-	11,857,258	-	122,535
	Accounts pay	able	Accounts receiv	able	Loans conceded
Balances	30.09.2019	30.09.2018	30.09.2019	30.09.2018	30.09.2019	30.09.2018
Associated companies and joint v entures (a)	124,371	211,011	29,838	2,949,246	291,563	38,026,483
Other related parties (b)	5,155,591	99,156	-	505,558	-	-
	5,279,962	310,167	29,838	3,454,804	291,563	38,026,483

(a) All entities consolidated by the equity method as of 30 September 2019 and 2018 (Note 4.2);

(b) Were considered as related parties the companies listed below.

Besides the companies included in consolidation (Note 4), entities considered as related parties as of 30 September 2019 can be detailed as follow:

• Actium Capital, S.A.
• A Nossa Aposta Jogos e Apostas On-line, S.A.
• Caderno Azul, S.A.
• Cofihold, S.A.
• Cofihold II, S.A.
• Cofina Media, S.A.
• Cofina, SGPS, S.A.
• Elege Valor, Lda.
• Expeliarmus Consultoria, Lda.
• F. Ramada II, Imobiliária, S.A.
• Ramada Investimentos e Indústria, S.A.
• Grafedisport Impressão e Artes Gráficas, S.A
• Livrefluxo, S.A.
• Mercados Globais Publicação de Conteúdos, Lda.
• Planfuro Global, S.A.
• Préstimo Prestígio Imobiliário, S.A.
• Promendo Investimentos, S.A.
• Ramada Aços, S.A.
• Socitrel Sociedade Industrial de Trefilaria, S.A.
• Universal Afir, S.A.
• Valor Autêntico, S.A.
• VASP Sociedade de Transportes e Distribuições, Lda.
• 1 Thing Investments, S.A.

17. APPLICATION OF NET PROFIT

Regarding the fiscal year of 2018, the Board of Directors proposed, in its annual report, approved at the General Shareholders' Meeting held on 28 May 2019, that the individual net profit of Altri, SGPS, S.A., amounting to 135,210,911.23 Euro, would be entirely distributed as dividends. The Board of Directors proposed, as well, the distribution of free reserves amounting to 12,483,892.84 Euro, as of dividends, which corresponds to a total dividend of 0.72 Euro/share.

18. SUBSEQUENT EVENTS

There were no significant subsequent events from 30 September 2019 until the date of approval of these financial statements.

19. FINANCIAL STATEMENTS APPROVAL

The financial statements were approved by the Board of Directors and authorized for issuance in November 7, 2019.

20. EXPLANATION ADDED FOR TRANSLATION

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 Board of Directors

Paulo Jorge dos Santos Fernandes

João Manuel Matos Borges de Oliveira

Domingos José Vieira de Matos

Laurentina da Silva Martins

Pedro Miguel Matos Borges de Oliveira

Ana Rebelo de Carvalho Menéres de Mendonça

José Manuel de Almeida Archer

ALTRI, SGPS, S.A.

Rua Manuel Pinto Azevedo, 818 4100 – 320 Porto PORTUGAL Tel: + 351 22 834 65 02

www.altri.pt