Sonae Industria : Indústria, SGPS, SA announces consolidated results of 2018

EARNINGS ANNOUNCEMENT FULL YEAR 2018 RESULTS

FY 2018 RESULTS

27 March 2019

EARNINGS ANNOUNCEMENT

FULL YEAR 2018 RESULTS

Maia, Portugal, 27 March 2019: Sonae Indústria reports audited Consolidated Results for the year ended 31 December 2018 which are prepared in accordance with IFRS (International Financial Reporting Standards). Proportional Indicators are unaudited.

2018 FULL YEAR HIGHLIGHTS

Financial

•Net Results positive for the third consecutive year reaching 11.0M€

•Recurrent EBITDA1 of 26.7M€, with 12.1% margin1

•Proportional Recurrent EBITDA1 of 73.6M€, with 12.0% margin1

•Proportional Net Debt1, 2 at 297.5M€ and Proportional Leverage1,2 of 4.0x

•Sales of inactive sites assets totalling circa 7M€

Commercial

•Launch of the new Surforma® brand for our Laminates business

•Reinforcement of Tafisa Canada's decorative solutions offer in North America with the launch of:

two new EIR textures: Feria and Brava;

a complete matching collection of Surforma® Laminates (HPL) for the decorative MFC products

Operational

•Operations in Mangualde and Oliveira do Hospital plants restarted during 1H18 following the forest fires in 4Q17

•Completion of the investment in a new continuous MDF press in Mangualde plant in Portugal with production ramp up starting in 4Q18

•Start of the investment in a new continuous particleboard press at our Beeskow plant in Germany

•Tafisa Canada's operations negatively affected by higher downtime on both its particleboard lines including the impact of a fire that occurred in November

1See Glossary of Terms

2Considering an adjustment on Sonae Arauco 2018 Net Debt of 27.6 million euros corresponding to outstanding insurance compensation (related to the damages for the fires in Portugal) already received in 2019 of 32.6 million euros net of estimated 5 million euros for amounts still to be paid by Sonae Arauco at YE18.

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EARNINGS ANNOUNCEMENT

FULL YEAR 2018 RESULTS

MESSAGE FROM THE CHAIRMAN

Sonae Indústria's results in 2018 were marked by a sharp contrast between the first and the second half of the year. Notwithstanding the more challenging second half of the year on which I comment below, I am pleased to report that for the third consecutive year Sonae Indústria presented positive consolidated Net Results reaching 11.0 million euros in 2018.

Proportional results, which consider our 50% share of Sonae Arauco, reflect lower contributions from our two main businesses in 2H18, leading to Proportional Recurrent EBITDA of circa 73.6 million euros with a 12.0% margin. Proportional Net Debt stood at 297.5 million euros after adjustment for outstanding insurance receipts, with a proportional leverage ratio of 4.0x.

Despite the above, Sonae Indústria's capital structure improved once again in 2018, driven by a simultaneous reduction in Net Debt and an improvement in Shareholders' Funds.

I will now turn to the review of the most significant developments of the year at our fully owned businesses and at Sonae Arauco.

Our North American business performed below our expectations for the year, primarily due to higher variable costs but also due to higher downtime on particleboard production. The increase in variable costs comprised higher transportation costs (both inbound and outbound), higher maintenance costs and higher thermal energy costs. The higher downtime was noticed particularly in the second half of the year due to a number of production issues which limited our ability to maximise sales. These problems were exacerbated by a fire incident on one of our lines which occured immediately after the annual shutdown of that line in November, requiring additional stoppage time during the second half of that month and resulted in a material increase in maintenance and related costs. This was particularly disappointing as in October we had reached our best production month and the highest EBITDA level of the year.

However, during 2018 significant business development projects were implemented by our North American operations. At the International Woodworking Fair which took place in August (USA), we launched for the North American market two new EIR textures, Feria and Brava, and a complete matching collection of Surforma® Laminates produced in Portugal for Tafisa Canada's decorative MFC products. These market initiatives were aimed at widening our leading position in decorative solutions in North America and we are encouraged by the positive reception by our customers. In this regard, we will continue to pursue other opportunities to improve our business in North America by further enhancing our decorative product offering.

It is also worth noting that during 4Q18 Tafisa Canada refinanced its main credit facility, increasing its size, extending the maturity profile and obtaining greater flexibility to support the execution of its strategy.

The results of our Laminates & Components business were below those achieved in 2017, primarily due to lower sales volumes of the Laminates business particularly to the Nordic region. Actions are being put in place to recover those volumes and to improve the profitability of the Laminates business. The most important initiative already initiated is the strategic project between our Laminates and North American businesses - under which, since 3Q18, we are supplying the North American market with matching Surforma® Laminates (HPL) produced in Portugal - that has started to bring positive results for both businesses.

Importantly, in respect of our fully owned assets, during 2018 we made progress in the sale of real estate and equipment from our inactive sites totalling circa 7 million euros. This not only contributed positively to the reduction of net debt in 2018, but will allow us, from 2019 onwards, to reduce the running costs of our inactive sites.

Turning to Sonae Arauco, 2018 was a challenging year with contrasting results in the first and second half of the year.

In the first half of the year we experienced good conditions in most markets where we operate and Sonae Arauco delivered sound results with Recurrent EBITDA above 1H17. During this period, with the strong commitment from our teams and the support from our stakeholders, our plants in Mangualde and Oliveira do Hospital, severely affected by the forest fires in October 2017, became operational again, enabling us to serve our customers with improved industrial assets, production and supply chain processes.

The second half of 2018 was nevertheless marked by a tougher business environment. In Iberia, this coincided with the reintroduction of capacity in the market from our two Portuguese plants and with the coming on stream of additional capacity by our competitors. In Germany, Sonae Arauco experienced tougher market conditions in the second half of 2018, particularly in respect of MDF.

I am pleased to be able to report that, at Sonae Arauco, over the course of 2018, we made progress in the execution of our industrial investment plan that will continue during 2019. This plan aims to build a more competitive and sustainable business by providing better products to our customers, capturing market opportunities namely in the higher value added segments, and improving the competitiveness of our industrial assets. Within this framework, during the 4Q18 we started production on the new continuous MDF press in Mangualde. During 2018, we also began two important investments: a new melamine surfacing line at our White River plant in South Africa and an investment to replace the two multi daylight particleboard presses by a new continuous press with state of the art technology at our Beeskow plant in Germany. With the investment in Beeskow we will complete a three year period of heavy investments to replace our remaining multi and single daylight presses with continuous presses.

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EARNINGS ANNOUNCEMENT

FULL YEAR 2018 RESULTS

Since 2008 and with the investment planned for 2019, we will have replaced, shut down or sold 14 non continuous presses. This represents a significant capital outlay for Sonae Indústria but constitutes a vital investment for the future that will give us a significantly improved platform to generate value and withstand the negative phases of the sector cycles.

As final words, I would like to thank the contribution over the last year of Sonae Indústria employees, management teams and Statutory Boards but also to challenge them in making further progress towards building an increasingly profitable and sustainable business, able to deliver long term value to our stakeholders.

Paulo Azevedo

Chairman, Sonae Indústria

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EARNINGS ANNOUNCEMENT

FULL YEAR 2018 RESULTS

1.SONAE INDÚSTRIA RESULTS

1.1PROPORTIONAL RESULTS (UNAUDITED)

SUMMARY OF 2018 RESULTS

Due to the fact that one of Sonae Indústria's main assets (its 50% shareholding in Sonae Arauco) is accounted by the Equity method, this section 1.1. provides unaudited Proportional Indicators, to help improve the understanding of size of the business, valuation and financial leverage of Sonae Indústria. Proportional Indicators consider the full results of our wholly owned businesses and the proportional consolidation of the 50% contribution from Sonae Arauco.

FINANCIAL INDICATORS

(UNAUDITED)

	2017	2018
Proportional Turnover	630	612
Proportional Rec. EBITDA	89	74
Proportional Rec. EBITDA margin	14.0%	12.0%
LEVERAGE
Proportional Net Debt	301	297
Proportional Leverage (Net Debt / LTM Rec. EBITDA)	3.4 x	4.0 x
LOAN TO VALUE
Net Debt of Sonae Indústria	209	196
Asset Value3	496	386
LTV (Net Debt of Sonae Indústria / Asset Value)	42%	51%

Proportional Turnover in 2018 was circa 18.4 million euros lower than in the previous year. This evolution was driven by a lower contribution from our fully owned businesses, essentially due to the depreciation of the Canadian Dollar (circa 9.1 million euros), and by a circa 7.6 million euros lower contribution by Sonae Arauco, partially due to the fact that the two Sonae Arauco plants in Portugal hit by the forest fires in October 2017, only gradually resumed production in the first half of 2018 (it should be noted that insurance income related with business interruption is not included under Turnover).

Proportional Recurrent EBITDA in 2018 was circa 15.0 million euros lower than in 2017. This evolution was driven by a lower contribution from our fully owned businesses and by Sonae Arauco.

In 2018, Net Debt to Recurrent EBITDA (proportional) stood at 4.0x, which represents an increase of 0.6x vs. 2017. Loan to Value also increased when compared to 2017, reaching circa 51% at the end of 2018. In respect of Proportional Net Debt, Proportional Net Debt to Recurrent EBITDA and Assets Value at year end 2018, it should be noted that Sonae Arauco Net Debt considers an adjustment of 27.6 million euros corresponding to outstanding insurance compensation (related to the damages for the fires in Portugal) already received in 2019 of 32.6 million euros net of estimated 5 million euros for amounts still to be paid by Sonae Arauco at YE18.

3Calculated as described in the Glossary of Terms. This compares with a Consensus 'Asset Value' of EUR 443M based on the average of the sum of the parts valuation (as at year-end 2019) of Sonae Indústria assets carried out by two independent equity research houses.

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