Earnings Release • Oct 26, 2017
Earnings Release
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| 9M | 9M | % Change (5) | |
|---|---|---|---|
| in million euros | 2017 | 2016 | 9M 17 / 9M 16 |
| Total sales | 1 209,8 | 1 155,4 | 4,7% |
| EBITDA (1) | 300,1 | 301,5 | -0,5% |
| Operating profits | 185,5 | 178,0 | 4,2% |
| Financial results | - 6,5 | - 16,6 | -61,0% |
| Net earnings | 145,8 | 134,3 | 8,6% |
| Cash flow | 260,4 | 257,8 | 2,6 |
| Free Cash Flow (2) | 148,7 | 101,1 | 47,7 |
| Capex | 75,7 | 100,6 | -24,9 |
| Net debt (3) | 742,0 | 723,4 | 18,6 |
| EBITDA / Sales (%) | 24,8% | 26,1% | -1,3 pp |
| ROS | 12,1% | 11,6% | 0,4 pp |
| ROE | 16,4% | 15,1% | 1,3 pp |
| ROCE | 13,2% | 12,7% | 0,5 pp |
| Equity ratio | 46,7% | 47,6% | -0,9 pp |
| Net Debt / EBITDA (4) | 1,87 | 1,82 | 0,05 |
| Q3 | Q3 | % Change | Q2 | % Change | |
|---|---|---|---|---|---|
| in million euros | 2017 | 2016 | Q3 17/Q3 16 | 2017 | Q3 17/Q2 17 |
| Total sales | 397,2 | 376,8 | 5,4% | 420,0 | -5,4% |
| EBITDA (1) | 101,7 | 106,2 | -4,3% | 108,2 | -6,0% |
| Operating profits | 62,0 | 70,1 | -11,5% | 71,4 | -13,1% |
| Financial results | 1,8 | - 3,2 | -157,5% | - 4,4 | -141,6% |
| Net earnings | 49,8 | 48,8 | 1,9% | 60,5 | -17,7% |
| Cash flow | 89,4 | 84,9 | 4,4 | 97,3 | -7,9 |
| Free Cash Flow (2) | 75,9 | 69,7 | 6,2 | 48,7 | 27,2 |
| Capex | 40,5 | 25,3 | 15,2 | 20,9 | 19,6 |
| Net debt (3) | 742,0 | 723,4 | 18,6 | 737,9 | 4,1 |
| EBITDA / Sales (%) | 25,6% | 28,2% | -2,6 pp | 25,8% | -0,2 pp |
| ROS | 12,5% | 13,0% | -0,4 pp | 14,4% | -1,9 pp |
| ROE | 16,8% | 17,1% | -0,3 pp | 20,5% | -3,8 pp |
| ROCE | 13,2% | 14,8% | -1,6 pp | 15,4% | -2,2 pp |
| Equity ratio | 46,7% | 47,6% | -0,9 pp | 44,9% | 1,7 pp |
| Net Debt / EBITDA (4) | 1,87 | 1,82 | 0,05 | 1,84 | 0,03 |
(1) Operating profits + depreciation + provisions
(2) Var. 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
Turnover for the first nine months of 2017 stood at € 1 210 million, up by 4.7%, sustained essentially by strong operating performance in sales of pulp, power and tissue.
Pulp sales grew by around 25%, to more than 250 thousand tons, driven by the strong demand experienced over the period, with prices continuing on the upward course recorded since late 2016. The benchmark PIX – BHKP index in euros recorded an average price of 703 €/ton, as compared to 636 €/ton in the same period in 2016 (up 10.6%). The Group's average price also followed an upward course, with pulp sales growing by 32% in value, to a total of € 129.5 million.
Conditions in the paper market also improved gradually over the year, with progressively stronger order books in Europe and in overseas markets. The Group recorded a healthy volume of paper sales, setting a new record of 1 158 tons sold, around 3 thousand tons more than in the first nine months of 2016.
In the period, the Navigator Group implemented three price rises up to July, and also announced a fourth increase from September onwards. These increases helped to offset the price reduction recorded in the final quarter of 2016, with the Group's average price in the first nine months of 2017 still lower than the average price in the same period last year.
Despite the improvement in the product mix sold, with premium and own-brand products accounting for a larger share of sales, the Group's average price in Europe was brought down by the evolution of the exchange rate and by the evolution of the market mix. In Europe, the main impact was the weakness of sterling which, combined with an increase in sales in markets outside Europe, mostly USDdenominated, and with exchange rate trends in recent months, had a negative effect on the Group's overall sales average price.
Tissue sales also recorded growth in volume, up by 11% to approximately 41 thousand tons, made possible by the expansion in production and converting capacity over the course of 2015. Portugal and Spain remained the Group's main geographical markets and away-from-home products represented a larger slice of sales. Overall, the product mix improved, with reels accounting for a smaller share of sales and, as a result, the average sales price was slightly higher than in the same period in 2016, with sales volume totaling € 55.3 million (up 11%).
At the end of the third quarter of 2017, power sales were up by 16% in value from the same reference date in 2016, reflecting successful operation of power generation assets, with especially strong performance from the renewable cogeneration plant and the combined-cycle natural gas power station at the Setúbal industrial complex. Of course, figures for power sales at the end of the 3rd quarter of 2016 had shown the negative impact of stoppages and breakdowns at the renewable cogeneration plants in Setúbal and Cacia. Due to these factors, Navigator's total gross power output at the end of the third quarter of 2017 was up by 6% year-on-year.
Power sales from the operation of the natural gas combined-cycle power stations also benefited from the sharp hike (roughly 20% year-on-year) in Brent prices, to which the sales price is indexed.
Having completed its new pellets mill in late 2016 in Greenwood, South Carolina, USA, the Group started up production and marketing of products in 2017. Sales up to the end of September totalled 91 thousand tons, and approximately € 12 million. The pellets business continues to contribute negatively to EBITDA, although the situation has improved in relation to the end of the 1st half.
In this general context, EBITDA totalled € 300.1 million, in line with the figure recorded in the previous year, and reflecting an EBITDA/Sales margin of 24.8%.
Concerning the impact of the forest fires up to the end of September in mainland Portugal (essentially in the central region of the country), estimates point to an area burned of roughly 216 thousand hectares, including 2700 hectares of Navigator's eucalyptus forests. As a result, biological assets have been written down by a total amount year to date of € 2.2 million (€1.4 million registered in Q3).
Over the course of the year, the Group has pressed ahead with its programme of cost optimisation and efficiency, M2, and results have continued to outperform targets. At the end of September, this programme's accumulated impact on EBITDA entailed an overall reduction in costs and an improvement in productivity adding up to around € 18 million, in relation to 2016.
Over this period, out of a total of 92 successfully launched initiatives, 24 projects achieved outstanding results, in particular in purchasing, where savings were recorded on energy (€ 2.6 million), product packaging (€ 2.3 million) and chemicals for pulp and paper (€ 1.0 million). Significant success has also been achieved in pulp and paper logistics (€ 1.1 million) and in manufacturing improvements and maintenance in industrial areas (€ 2.8 million). In product development and quality, higher competitiveness has been achieved through a more efficient product allocation and specification (€ 1.4 million) and strong performance was recorded in wood supplies, thanks to measures adopted to optimise logistical resources (€ 3.1 million).
Financial results through to the end of September improved in relation to the previous period, with a loss shrinking YoY from € 16.6 million to € 6.5 million euros. This was essentially due to a significant reduction in borrowing costs, thanks to the restructuring of the Group's debt concluded in 2016 as well as the commercial paper issue at very favourable rates. On a comparable basis, excluding the cost in 2016 of the decision to proceed with early repayment of a bond issue of € 6 million, interest expense fell by € 4.2 million, whilst financial results also benefited from gains of approximately € 3.2 million on forex hedges.
Net income totalled € 145.8 million, as compared to the figure of € 134.3 million recorded in the first nine months of 2016.
At the end of September, the Group's net debt stood at € 742 million, up by € 101.3 million from year-end 2016, reflecting essentially payment in June and July of dividends of € 250 million. Free cash flow generated over the period surged to € 148.7 million, as compared to € 101.1 million in the first nine months of 2016, whilst capex in the period totalled € 75 million, down by € 25 million on the accrued figure at the end of September 2016.
The Net Debt / EBITDA ratio is 1.87, slightly up from the figure of 1.61 recorded at year-end 2016.
Third quarter performance reflected improving market conditions over the course of the year. Turnover grew by 5.4% when compared with the figure recorded in the same quarter last year, due essentially to strong performance in pulp business, where the sales price rose by almost 22%, and to the growing volume of paper sales (up 1.7%). Figures were also positive for sales of tissue and power, and the new pellets business also added roughly € 5 million euros to total Group turnover.
EBITDA stood at € 101.7 million in the 3rd quarter of 2017, as compared to a figure of € 106.2 million in the same period last year, when earnings were positively impacted by a series of non-recurrent items with a net impact of around € 3 million, related essentially to the discount rate used in valuing biological assets. In 2017, EBITDA was negatively affected by the impact of forest fires, bringing down the total by € 1.4 million in the third quarter.
Financial results improved and the Group recorded a financial profit in the quarter by € 1.8 million, reflecting the gains recorded on forex hedges. As a result, net income totalled € 49.8 million, comparing positively with the figure of 48.8 million recorded in the third quarter of 2016.
| (in 000 tons) | Q3 2016 | Q4 2016 | Q1 2017 | Q2 2017 | Q3 2017 |
|---|---|---|---|---|---|
| BEKP Output | 367.8 | 359.0 | 382.4 | 377.4 | 357.3 |
| BEKP Sales | 71.2 | 89.8 | 90.4 | 92.0 | 68.8 |
| UWF Output | 399.9 | 392.4 | 396.4 | 383.4 | 406.1 |
| UWF Sales | 380.0 | 431.3 | 371.3 | 400.6 | 386.4 |
| FOEX – BHKP Euros/ton | 600 | 607 | 645 | 719 | 747.0 |
| FOEX – BHKP USD/ton | 670 | 654 | 686 | 792 | 877.4 |
| FOEX – A4- BCopy Euros/ton | 820 | 807 | 803 | 808 | 819 |
| (in 000 tons) | Q3 2016 | Q4 2016 | Q1 2017 | Q2 2017 | Q3 2017 |
|---|---|---|---|---|---|
| Reels Output | 13.1 | 14.7 | 14.7 | 13.6 | 13.0 |
| Output of finished products | 10.9 | 10.8 | 11.7 | 12.6 | 12.2 |
| Sales of reels and goods | 2.4 | 2.7 | 2.7 | 1.7 | 1.1 |
| Sales of finished products | 10.7 | 10.8 | 11.3 | 12.3 | 12.3 |
| Total sales of tissue | 13.2 | 13.5 | 14.0 | 14.0 | 13.3 |
| (in 000 tons) | Q3 2016 | Q4 2016 | Q1 2017 | Q2 2017 | Q3 2017 |
|---|---|---|---|---|---|
| Production (GWh) | 537.2 | 549.4 | 561.3 | 556.4 | 535.9 |
| Sales (GWh) | 425.3 | 440.7 | 449.4 | 446.8 | 426.0 |
Over the past three months, Group investment has picked up speed in the two major development projects in progress in Portugal: construction of a tissue plant in Cacia (with reels production and converting capacity) and upgrading pulp production efficiency and environmental performance at the Figueira da Foz mill. These capex projects got under way in 2017 and will continue into 2018, involving total investment of approximately € 205 million (€ 120 million in Cacia and € 85 million in Figueira da Foz).
As a result, total capital expenditure in the first nine months of 2017 stood at € 75.7 million, divided between the capacity expansion project at Figueira da Foz (€ 34.3 million), recurrent pulp and paper business (€ 21.1 million), the new tissue mill in Cacia (17.3 million) and the existing tissue operation in Vila Velha de Rodão (€ 2.2 million).
As previously reported, the Group has decided to proceed with its capital project in Mozambique at a more moderate pace and to implement its plans in stages. At this moment, the project is essentially a forestry venture, with the option of industrial development involving construction of a large-scale pulp mill. The first phase includes developing a eucalyptus woodchip production and export operation, geared essentially to the Asian market. This is planned to be up and running by 2023, with phase two - if it goes ahead - being implemented up to 2030.
Operating through its subsidiary Portucel Moçambique, the Navigator Group is focused on resolving the outstanding issues, which include, among others, the legalization, regularization and demarcation of the DUAT (Direito de Utilização e Aproveitamento de Terra) areas, the revision of the access to land model, the confirmation of appropriate logistical conditions, the definition of a stable legal and fiscal framework and the project social acknowledgement. The Group expects that
the bulk of these issues will be overcome by the coming months, which will allow forestry plans to proceed at the envisaged pace.
Over the first nine months of 2017, the short fibre pulp market continued to present the strong performance recorded since the end of last year: demand has grown sharply, stock levels are low and upward pressure on prices is strong. Most forecasts for pulp prices in 2017 have been revised upwards, and concerns about the impact of new capacity have been partially offset by the production shutdowns still planned for 2017. However, the pace of growth in demand over recent quarters will be hard to sustain and the price differential between short and long fibre pulp has been at all-time lows, which could lead to a degree of adjustment in the market in 2018.
Conditions in the paper market also improved gradually over the year, and by the end of September global demand for UWF had grown by around 0.9%, with a special focus on Asian markets, and China in particular. In Europe, apparent consumption edged down by 0.3% in the first nine months of the year, although demand for folio sizes grew by approximately 2% and demand for cut size held steady in relation to the same period last year. The Group has taken the lead in a series of price increases since the start of the year, the last of these in September. Order books remain comfortably full, and sound performance can be expected in the fourth quarter. Forex trends, in particular the EUR/USD rate, remain the main cause for concern.
The tissue market has seen an increase in competition in the Iberian Peninsula and a rise in production costs causes by higher pulp prices. Navigator announced a price increase for its tissue products in Portugal and Spain, for gradual implementation from October to January 2018.
Setúbal, 26 October 2017
In October, Portugal was again ravaged by a large number of fires, estimated to have raised the total area burned to around 520 thousand hectares across the country and approximately 6100 hectares related to the Group, whose financial impact is still being assessed. It is difficult to estimate the consequences of these fires for wood supplies in future years, but at this time no risks are anticipated to the supply of wood to the Group's industrial units.
Date:
26 October 2017
Time:
17:00 - Western European Time – UTC
Portugal: +351 308801485
Spain: +34 914142021
UK: +44 (0) 2030432440
All numbers should be followed by the pincode: 87253674#
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| Amounts in Euro | 9 Months Ending 30-09-2017 |
9 Months Ending 30-09-2016 |
|---|---|---|
| Revenues | ||
| Sales | 1.206.126.730 | 1.152.396.501 |
| Services rendered | 3.669.409 | 2.997.235 |
| Other operating income | ||
| Gains on the sale of non-current assets | 614.787 | 633.876 |
| Other operating income | 12.340.191 | 22.408.503 |
| Change in the fair value of biological assets | 3.186.006 | 10.579.146 |
| Costs | ||
| Cost of inventories sold and consumed | (494.858.603) | (499.277.864) |
| Variation in production | (1.409.554) | 14.991.558 |
| Cost of materials and services consumed | (300.891.039) | (285.838.409) |
| Payroll costs | (111.180.117) | (106.285.595) |
| Other costs and losses | (17.547.662) | (11.096.953) |
| Provisions | (3.055.219) | (2.961.513) |
| Depreciation, amortization and impairment losses | (111.529.226) | (120.518.942) |
| Operational results | 185.465.703 | 178.027.543 |
| Net financial results | (6.488.744) | (16.619.934) |
| Profit before tax | 178.976.959 | 161.407.610 |
| Income tax | (33.175.866) | (27.142.575) |
| Net Income | 145.801.093 | 134.265.035 |
| Non-controlling interests | (6.446) | 22.383 |
| Net profit for the period | 145.794.647 | 134.287.418 |
| Amounts in Euro | 30‐09‐2017 | 30‐09‐2016 | 31‐12‐2016 |
|---|---|---|---|
| ASSETS | |||
| Non‐Current Assets | |||
| Goodwill | 377.339.466 | 377.339.466 | 377.339.466 |
| Other intangible assets | 3.876.509 | 2.207.967 | 4.300.642 |
| Fixed tangible assets | 1.259.527.643 | 1.316.984.362 | 1.294.978.932 |
| Investment in property | 423.958 | ‐ | 426.838 |
| Biological assets | 128.798.954 | 127.576.074 | 125.612.948 |
| Other financial assets | 400.415 | 260.486 | 260.486 |
| Financial assets available for sale | ‐ | ‐ | 81.636 |
| Deferred tax assets | 45.331.690 | 46.084.156 | 44.198.753 |
| 1.815.698.635 | 1.870.452.512 | 1.847.199.702 | |
| Current Assets | |||
| Inventories | 223.775.143 | 241.324.650 | 208.888.472 |
| Receivable and other current assets | 213.688.882 | 210.718.429 | 215.877.823 |
| State and other public entities | 60.979.210 | 63.173.430 | 69.619.349 |
| Cash and cash equivalents | 111.548.132 | 51.786.449 | 67.541.588 |
| 609.991.367 | 567.002.957 | 561.927.232 | |
| Total Assets | 2.425.690.002 | 2.437.455.468 | 2.409.126.934 |
| EQUITY AND LIABILITIES | |||
| Capital and Reserves | |||
| Share capital | 500.000.000 | 717.500.000 | 717.500.000 |
| Treasury shares | (1.002.084) | (1.002.084) | (1.002.084) |
| Fair value reserves | (1.146.543) | (9.528.854) | (7.571.781) |
| Legal reserves | 327.290.475 | 99.709.036 | 99.709.036 |
| Translation reserves | 1.274.373 | 385.650 | (779.369) |
| Other Reserves | 168.893.215 | 211.954.854 | 205.639.863 |
| Net profit for the period | 145.794.646 | 134.287.418 | 217.501.437 |
| 113.855.536 | 1.153.306.020 | 1.230.997.102 | |
| Non‐controlling interests | 2.400.801 | 6.678.702 | 2.272.606 |
| 1.140.956.137 | 1.159.984.723 | 1.233.269.708 | |
| Non‐current liabilities | |||
| Deferred taxes liabilities | 70.414.901 | 82.049.563 | 59.859.532 |
| Pensions and other post‐employment benefits | 6.910.375 | 907.456 | 6.457.116 |
| Provisions | 22.246.853 | 56.323.191 | 31.048.808 |
| Interest‐bearing liabilities | 778.207.391 | 753.314.443 | 638.558.905 |
| Other non‐current liabilities | 27.618.158 | 39.256.640 | 33.301.140 |
| 905.397.678 | 931.851.292 | 769.225.503 | |
| Current liabilities | |||
| Interest‐bearing liabilities | 75.332.675 | 21.896.937 | 69.702.381 |
| Payables and other current liabilities | 246.355.672 | 220.211.773 | 255.831.284 |
| State and other public entities | 57.647.841 | 103.510.741 | 81.098.059 |
| 379.336.187 | 345.619.451 | 406.631.724 | |
| Total liabilities | 1.284.733.865 | 1.277.470.744 | 1.175.857.227 |
| Total equity and liabilities | 2.425.690.002 | 2.437.455.466 | 2.409.126.934 |
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