Sonae Industria SGPS : Indústria announces consolidated results for the first nine months of 2019

9 MONTHS 2019 RESULTS

30 October 2019

EARNINGS ANNOUNCEMENT 9 MONTHS 2019 RESULTS

Maia, Portugal, 30 October 2019: Sonae Indústria reports unaudited Consolidated Results for the first nine months of 2019 (9M19) which are prepared in accordance with the IAS 34 - Interim Financial Reporting. Proportional Indicators are unaudited.

9M19 HIGHLIGHTS1

• 9M19 Recurrent EBITDA of 21.4M€, with 12.3% margin
• Recurrent EBITDA of 8.4M€ in the quarter, with 14.3% margin, both the highest in four quarters
• 9M19 Net Results of -4.2M€, including -3.4M€ one off charges
• LTM Recurrent EBITDA of 25.4M€, with 11.2% margin
• LTM Proportional Recurrent EBITDA of 65.0M€, with 10.7% margin
• Proportional Net Debt at 349M€ with Proportional Leverage of 5.4x

1 Notes:

• Except when stated, figures after 4Q18 include the effects from the adoption of the IFRS 16, effective from 1 January 2019. See note related with the adoption of IFRS 16 in Sonae Indústria results section (page 4).
• See Glossary of Terms (page 10).

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EARNINGS ANNOUNCEMENT 9 MONTHS 2019 RESULTS

MESSAGE FROM THE CHAIRMAN

Notwithstanding the improved EBITDA result of our fully owned businesses in the second and third quarter of this year, driven mainly by our North American business, Sonae Indústria registered a negative net result of circa 6.6 million euros in the third quarter of 2019, which contrasts with the profits achieved in the 1H19 and led to negative net results in the first nine months of this year of 4.2 million euros.

The results in the quarter are primarily explained by a one off charge of circa 3.4 million euros but also reflect a deterioration in the underlying profitability at Sonae Arauco as explained below.

Our North American business achieved a steady performance in 3Q19 generating the highest Recurrent EBITDA result and margin in four quarters despite the ongoing increase of installed capacity in the North American market and softer market demand compared to last year.

At our Laminates & Components business, Turnover in the quarter evolved positively versus the previous quarter and when compared to the same period of last year supported in part by sales of our matching Surforma® Laminates into the North American market alongside our successful North American MFC collection. The positive evolution in Turnover is an essential step forward in our goal to recover the desired profitability for this business.

At Sonae Arauco, in the quarter, underlying profitability reduced materially driven by a combination of factors, including the seasonal slowdown in our customers activity in the summer period combined with the annual shutdown of our plants in Europe, but also due to the more difficult business environment in the main geographies where we operate. In particular, the Iberian market has experienced greater competitive tensions since mid 2018 when we restarted our plants at Mangualde and Oliveira do Hospital after the rebuild and recovery from the forest fires in October 2017, at a time that the market also saw capacity increases from local competitors and less a dynamic product demand. Additionally our operations in South Africa have suffered from the poor economic environment although performance should be enhanced once the new surfacing line at our White River plant is fully operational.

Although we are facing more difficult business conditions at Sonae Arauco compared to last year, we continue to push ahead with the execution of our strategic plan to build a more competitive and sustainable business by providing an increasingly better product and service offer to our customers.

Paulo Azevedo

Chairman, Sonae Indústria

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EARNINGS ANNOUNCEMENT 9 MONTHS 2019 RESULTS

1. SONAE INDÚSTRIA RESULTS

Note IFRS 16: The mandatory adoption of the IFRS 16 from the beginning of 2019 financial year affects the comparability of Sonae Indústria's results in 2019 with previous years. This new accounting standard on leases implies that lease contracts (except short term and low value leases) previously classified as operational leases, are now recognized in the balance sheet as an asset with a corresponding liability equal to the present value of the lease payments (under financial liabilities). This new treatment also affects the consolidated income statement, with corresponding rental or lease charges being replaced by the recognition of depreciation charges and interest expenses.

1.1 PROPORTIONAL RESULTS (UNAUDITED)

SUMMARY OF 9M19 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 which consider the full results of our wholly owned businesses and the proportional consolidation of the 50% contribution from Sonae Arauco.

FINANCIAL INDICATORS (UNAUDITED)

	9M18	9M19
Proportional Turnover	468	462
Proportional Rec. EBITDA	60	51
Proportional Rec. EBITDA margin	12.8%	11.1%
	LTM 9M18	LTM 9M19
Proportional LTM Turnover	613	606
Proportional LTM Rec. EBITDA	79	65
Proportional LTM Rec. EBITDA margin	12.8%	10.7%
LEVERAGE
Proportional Net Debt	336	349
Proportional Leverage (Net Debt / LTM Rec. EBITDA)	4.3 x	5.4 x

Proportional Turnover in 9M19 was 5.9 million euros lower than in the same period of last year. This evolution was driven by a lower contribution from Sonae Arauco (-11.8 million euros) affected by a reduction in total sales volumes and average selling prices and with lower sales in two of the regions where it operates (Germany and South Africa), which more than offset the positive contribution of our fully owned businesses (+5.9 million euros).

Proportional Recurrent EBITDA in 9M19 reached circa 51.2 milion euros (including a positive effect from the adoption of the IFRS 16 of circa 3.1 million euros), 8.6 million euros lower than in 9M18 driven essentially by a 7.3 million euros lower contribution from Sonae Arauco driven mostly by lower turnover and by the fact that 9M18 Recurrent EBITDA included material insurance compensation recognition.

For the first nine months of the year, Net Debt to Recurrent EBITDA (proportional) stood at circa 5.4x (including IFRS 16 effects), which represents an increase of 1.1x vs. 9M18.

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EARNINGS ANNOUNCEMENT 9 MONTHS 2019 RESULTS

PROPORTIONAL TURNOVER BY DESTINATION MARKET	PROPORTIONAL TURNOVER BY DESTINATION MARKET
9M18		9M19
Other European countries	Other European countries	Others
3.8%
4.1%	Others	5.3%
Germany
Germany	5.1%
20.9%
21.8%	Poland
Poland
		3.9%
	3.5%
			Iberian
	Iberian		Peninsula
	South Africa	20.9%
South Africa	Peninsula
5.4%
6.3%	21.5%
	UK		UK
		2.8%
United States	2.4%	United States
	16.9%
15.4%		Scandinavia
Scandinavia
	Canada	2.8%
Canada	2.7%
17.2%		17.3%

1.2 CONSOLIDATED RESULTS SUMMARY OF 9M19 RESULTS

80						35.0%
70	57	51	57	60	58	30.0%
60					25.0%
50
15.0%			13.9%	14.3%	20.0%
40
		8.4%		15.0%
30		7.8%
			10.0%
20
					5.0%
10
0						0.0%
	3Q18*	4Q18*	1Q19*	2Q19*	3Q19*

Turnover

Recurrent EBITDA %

*Quarterly and year to date information unaudited.

200		175	35.0%
169
	30.0%
150			25.0%
			20.0%
100	13.4%	12.3%	15.0%
50			10.0%
			5.0%
0			0.0%
9M18*	9M19*

Turnover Recurrent EBITDA %

Consolidated Turnover for the first nine months of the year reached circa 174.8 million euros, an improvement of 3.5% vs. same period of last year (+5.9 million euros), driven by both our North American business (in local currency but also benefiting from a circa 4.6 million euros favourable exchange rate effect resulting from the appreciation of the Canadian dollar vs. the EUR) and by our Laminates and Components business which in 2019 includes sales of HPL y.o.y. in North America. For the quarter, Consolidated turnover reached 58.4 million euros, which represents an increase of circa 1.4 million vs. same period of last year, mainly driven by our North American business.

Variable costs per cubic meter increased both in local currency and in euros in the first nine months of the year, when compared to the same period of the previous year, mainly driven by higher maintenance costs and input

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