Navigator : S.A. informs on results for Q3 2020

Performance 3rd Quarter and YTD September 2020

With the reopening of economies and a gradual recovery in demand for paper, Navigator experienced a significant improvement in its business during the third quarter. By quickly adapting to market changes and consequently stepping up its sales efforts, which were further supported by strong operational performance in pulp and tissue business and robust action to control costs, the Group recorded a significant improvement in results over the previous quarter with a strong generation of Free Cash Flow.

3rd Quarter Analysis (vs. Q2 2020 vs. Q3 2019) - Turnover up 20% and Ebitda grows 36% to € 70 million

• Paper and pulp production returned to their normal pace in the third quarter. All the Group's UWF machines have been working at full capacity since early July, and demand has gradually recovered from the situation recorded in the second quarter;
• Paper sales stood at 336 ktons (up 45% on the second quarter and down by 7% in relation to the same quarter last year); pulp sales totalled 104 thousand tons, growing by 14% in relation to the 3rd quarter of 2019 and down by 5% from the record level achieved in the 2nd quarter, when less pulp was needed for paper production. Tissue sales continued to grow, to 27 thousand tons, 5% up on the previous quarter and up by 2% on the same quarter last year;
• Turnover totalled € 348 million, growing 20% vs. Q2 2020 and down 17% vs. Q3 2019 and Ebitda stood at € 70 million (up 36% vs. Q2 2020 and down 25% vs Q3 2019); the EBITDA /
  Sales margin was 20.2% (vs. 17.8% and 22.2%);
• Free Cash Flow Generation in the quarter of € 56 million (vs. €99 million in Q2 2020 and € 25 million in Q3 2019);
• Net profits stood at € 31 million, up by 133% from the previous quarter (down 41% vs. Q3
  2019)

YoY analysis (YTD Sep.2020 vs. YTD Sep.2019) - Navigator highly resilient to the impact of lockdown on UWF business thanks to pulp and tissue sales, combined with cost reductions

• UWF business felt the direct impact of lockdown, resulting in total UWF sales of 934 thousand tons, down by 14% on the same period in 2019; this was offset by growth of 39% in pulp sales to 297 thousand tons and tissue sales up 7% to 79 thousand tons;
• The first nine months of the year saw sales prices fall in comparison with 2019: the BHKP pulp index (in euros) fell by 26% and the A4 paper index dropped by 7%;
• Turnover stood at € 1 044 million (down 18%) and Ebitda at € 210 million (down 30%);
• A substantial reduction in variable production costs and firm containment of fixed costs cushioned the effect of falling sales prices and resulted in an EBITDA / Sales margin of over 20% (down 3,4 pp);
• Financial results improved to € -9 million (vs. € -11 million) and income tax totalled €- 15 million (vs. €- 41 million), resulting in net income of € 75 million (vs. € 147 million);
• The Group continued to demonstrate excellent capacity to generate free cash flow, which totalled € 170 million (vs. €125 million), with capex of approximately € 70 million (vs. € 119 million);

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• Net debt dropped substantially, down by € 132 million to € 644 million, whilst the Net Debt /
  Ebitda ratio stayed at a comfortable level of 2.28 X; the Group also increased its liquidity in cash and cash equivalents to € 345 million.
• Project for the new biomass boiler in Figueira da Foz at its final stage, with tests starting in September. This investment, 50% funded by EIB (European Investment Bank), will enable the plant in Figueira da Foz to reduce its CO2 emissions by 81%, and will allow for significant cost savings.

Leading Indicators

				YTD Set	YTD Set		Change (7)
	Million euros		2020	2019	YTD 20/ YTD 19
	Total Sales		1 043.9	1 274.2		-18.1%
	EBITDA (1)		210.5	300.2		-29.9%
	Operating Profits (EBIT)	99.6	199.8		-50.1%
	Financial Results		- 9.1	- 11.4		-20.5%
	Net Earnings		75.2	147.5		-49.0%
	Cash Flow		186.1	248.0		- 61.9
	Free Cash Flow (2)	170.4	125.4		45.0
	Capex (8)		69.7	118.9		- 49.2
	Net Debt (3)		644.0	776.0		- 132.0
	EBITDA/Sales		20.2%	23.6%			-3.4 pp
	ROS		7.2%	11.6%			-4.4 pp
	ROCE (4)		7.6%	14.2%			-6.6 pp
	ROE (5)		9.4%	17.1%			-7.7 pp
	Equity Ratio		41.5%	43.7%			-2.2 pp
	Net Debt/EBITDA (6)	2.28	1.87		0.41
			Q3	Q2	Change (7)		Q3		Change (7)
in million euros		2020	2020	Q3 20/Q2 20		2019	Q3 20/ Q3 19
Total sales	348.4	289.7	20.3%			420.1		-17.1%
EBITDA (1)	70.4	51.7	36.1%			93.3		-24.6%
Operating profits	35.9	15.4	134.0%			65.8		-45.4%
Financial results	- 0.8	- 2.1	-62.1%			- 1.7		-53.5%
Net earnings	31.2	13.4	132.6%		52.6		-40.7%
Cash flow	65.7	49.7	15.9			80.2		- 14.5
Free Cash Flow (3)	56.4	99.1	- 42.6			24.6		31.8
Capex	21.0	26.0	- 5.0			20.1		0.9
Net debt (5)	644.0	700.4	- 56.4			776.0		- 132.0
EBITDA/Sales (%)	20.2%	17.8%	2.4 pp			22.2%		-2.0 pp
ROS	9.0%	4.6%	4.3 pp			12.5%		-3.6 pp
ROCE (7)	8.3%	3.4%	4.9 pp			18.3%		-10.1 pp
ROE (6)	11.8%	5.1%	6.7 pp			14.0%		-2.2 pp
Equity ratio	40.5%	40.1%	0.5 pp			43.7%		-3.2 pp
Net Debt/EBITDA (6)	2.28	2.29	-0.01			1.87		0.41

1. Operating profits + depreciation + provisions;
2. Variation net debt + dividends + purchase of own shares
3. Interest-bearingliabilities - liquid assets (not including effect of IFRS 16)
4. ROCE = Annualised operating income / Average Capital employed (N+(N-1))/2
5. ROE = Annualised net income / Average Shareholders' Funds last -1 months
6. (Interest-bearingliabilities - liquid assets) / EBITDA corresponding to last 12 months
   Impact of IFRS 16: Net Debt / EBITDA in 9M 2020 of 2,47; restated 2018 Net Debt / EBITDA in 9M 2019 of 1,98;
7. Variation in figures not rounded up/down
8. Capex for 9M 2019 and 3Q 2019 restated

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ANALYSIS OF RESULTS

3rd Quarter 2020 vs. 2nd Quarter 2020 vs. 3rd Quarter 2019

The third quarter of 2020 saw a gradual upturn in demand for printing and writing papers, after a second quarter severely hit by lockdown measures and the consequent impact on paper consumption. In fact, after the strong drop verified in April, order inflow for UWF in Europe has been improving, with UWF paper showing the strongest recovery among other paper grades. During the third quarter, order inflow for UWF in Europe (from European customers) reached 90% of last year's third quarter level, i.e. the best performance as compared with all other countries.

Thus, after a drop of 28% in the months from April to June, UWF demand in the European market contracted 10% in Q3 2020. In the US, demand also improved significantly between the 2nd and the 3rd quarters, recovering from a 31% to a 19% drop. As in the previous quarter, the largest fall in consumption was in sheeted paper, especially for printing use, whilst reel business appeared to be more resilient. It should be noted that the office paper fell slightly less than the graphic paper, a business that represents around 50% of the Group's UWF paper sales. The Navigator Company has built over the years a balanced mix of formats, between cut-size (office paper), folio (graphic) and reels.

In this context, the Group registered a turnover of € 348 million, up by 20% in relation to the second quarter of 2020 and down by 17% when compared with the same quarter in 2019. The upturn in output at all the Group's paper machines over the quarter resulted in an increase of 45% in the sales volume (vs. 2nd quarter) and a 7% reduction in relation to the same period last year. Sales to Europe and the US have had a much more positive YoY evolution as compared to the rest of the world.

However, the benchmark sales price for UWF paper remained under pressure, down by 2% in relation to the previous quarter, and by 8% in relation to the third quarter in 2019. Navigator's average sales price followed the general trend, reflecting also the pressure from non-European markets, the change in the formats/quality mix (increasing proportion of reels and economy products) and the weakness of the US dollar against the Euro. It should be noted that Navigator's average selling price in Europe adjusted less and later than that of its competitors. It should also be noted that the USD sales price in September in international markets reflect some recovery from June prices.

Third quarter paper sales totalled € 238 million, up by 36% vs. the second quarter and down by 19% in relation to the third quarter of 2019.

Despite the recovery of the paper mills operations, pulp sales to the market remained at a high level, around -5% vs. second quarter and +15% vs. the third quarter of 2019. This volume was made possible by successful sales efforts and increased market diversification.

In the tissue business, the volume of sales grew again by around 5% in relation to the second quarter and approximately 2% in relation to the same period in the previous year, to around 27 thousand tons, with finished products representing a larger proportion of sales (74%, as compared to 70% in the second quarter and the third quarter of 2019). Despite the situation in the market, the quarter set new records for sales and profitability in tissue business.

As a result, in a context of a gradual recovery in demand combined with strong pressure on UWF and pulp prices, Navigator managed to explore the diversification of its business model, recording significant growth in turnover in relation to the preceding period. Combined with a series of fixed and variable cost control measures, this enabled the Group to record Ebitda of € 70 million in the quarter, up by 36% on the second quarter of 2020 (down by 25% on the same quarter last year), resulting in an EBITDA / Sales margin of 20.2%.

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