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Navigator : 1st Quarter Report 2022

06/01/2022 | 09:52am

CONTENTS

  1. PERFORMANCE 1st QUARTER 2022……………………………………..2
  2. LEADING INDICATORS…………………………………………………..…3
  3. ANALYSIS OF RESULTS……………………………………………………..4
  4. QUARTERLY OPERATING FIGURES……………………………………..8
  5. OUTLOOK………………………………………………………………………10
  6. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES……….12

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1. PERFORMANCE 1st QUARTER 2022

The early months of 2022 were marked by Russia's invasion of Ukraine and the start of the war in Europe. Europe lives today in an adverse geopolitical environment: the near future is expected to be challenging, in a highly uncertain and unstable international context. Raw material costs have risen across the board, especially in the case of chemicals, energy, and logistics. The constraints have become more severe and Navigator is managing this unfavourable trend by working concertedly to improve efficiency and boost productivity, softening the impact of higher variable costs by containing consumption, and through ongoing endeavours to control fixed costs.

In this hostile environment, Navigator has succeeded in increasing its sales, offsetting the heavy pressures on costs. Operating in competitive international markets, where prices are set based on expectations and the balance between supply and demand, it is the resilience and flexibility of its business model that supported the strong results. The business model based on vertical integration and the excellent quality of the fibre allowed to operate with competitive efficiency. The deep knowledge of all teams and the differentiation strategy based on premium products and mill brands with high prestige and international reputation, supports the good performance of the Company in this highly uncertain market environment.

1st Quarter Analysis (vs. Q4 2021 and vs. Q1 2021)

  • Several factors constrained the dynamics of the paper market over the quarter, most notably the outbreak of the war in Europe, which affected markets through increased uncertainty and fears of disruption in the various supply chains upstream and downstream of our business. The resulting increase in costs in relation to the previous quarter was substantial, especially for raw materials, as for chemicals, energy, and logistics. To note that cost increases do not yet express the full extent of price hikes already announced by suppliers, as they partly reflect stocks or contracts carried over from 2021;
  • At the same time, the prolonged strike in Northern Europe, in some competitors of Navigator, with an impact on all printing and writing papers, logistical constraints, which have been felt for over a year, as well as the expressive capacity closures and conversions, namely in Scandinavia, significantly conditioned the volume of supply available in Europe;
  • The quarter was marked by strong growth in pulp prices, with the benchmark index rising +48% in USD and +58% in Euros in relation to the average prices in the 1st quarter of 2021, and up +1% in USD and +3% in Euros in relation to the final quarter of 2021;
  • Under pressure from rising pulp prices, higher costs for energy, commodities and logistics, and also a mismatch between supply and demand, the index for paper prices in Europe also strongly rose in the 1st quarter of 2022, in comparison with both the 1st quarter of 2021 (up 28%), and also the previous quarter (up 15%);
  • Sales volumes for paper were down by 17% on the 4th quarter of 2021 and 3% lower than in the 1st quarter of 2021. This reduction was due to the need to replenish stocks and to logistical constraints which had been encountered. These were exacerbated by the problems in road freight caused by the strike in Spain towards the end of the quarter, and the consequent migration of sales volume from road to maritime freight in Europe;
  • The volume of pulp sales was down by 9% on the fourth quarter, and 1% lower than in the first quarter of 2021, also given by the need to replenish pulp stocks as well as increased integration of pulp into paper;

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  • The volume of tissue sales fell by 6% in relation to the previous quarter and 4% YoY, essentially due to a sharp slowdown in sales of reels, while the finished product segment continued to record growth;
  • Output grew in all business sectors in relation to the same period in 2021, with an increase of 12% in the pulp segment, 5% in the paper segment, 2% in Tissue and 3% in the energy segment. This growth allowed for increased efficiency in the use of several raw materials;
  • Turnover totalled € 492 million, on the strength of favourable price increases, up 44% on the same quarter in 2021 and 3% on the previous quarter; it should be noted that Navigator exported 93% of its UWF sales during the first quarter, making only 7% of its sales on the domestic market;
  • The Company achieved an EBITDA of € 122 million and a margin over sales of 25% (up 4 p.p. on the same period in 2021 and 2 p.p. on the previous quarter), benefiting from improved efficiency and consumptions as well as the favourable evolution of sales prices established in international markets;
  • Net income for the quarter totalled € 50.6 million, as compared to €51.2 million in the 4th quarter of 2021 and € 23.5 million in the first quarter last year;
  • To highlight the strong generation of Free Cash Flow of €77 million, and the reduction of Net Debt to € 518 million, cutting the Net Debt / EBITDA ratio to a level of 1.3 X.

  • 2. LEADING INDICATORS

Q1

Q1

Change

(8)

Q4

Change

(8)

Million euros

2022

2021

Q1 22/Q1 21

2021

Q1 22/Q4 21

Total Sales

492.2

340.8

44.4%

476.2

3.4%

EBITDA

(1)

121.6

70.6

72.3%

108.7

11.8%

Operating Profits (EBIT)

89.4

40.1

123.1%

72.8

22.8%

Financial Results

- 4.7

- 9.7

51.7%

- 5.0

6.6%

Net Earnings

50.6

23.5

115.2%

57.2

-11.5%

Cash Flow

82.8

54.0

28.8

93.1

- 10.3

Free Cash Flow

(2)

77.0

56.4

20.5

52.1

24.9

Capex

14.7

20.1

- 5.4

28.3

- 13.6

Net Debt

(3)

517.9

623.6

- 105.7

594.8

- 77.0

EBITDA/Sales

24.7%

20.7%

4.0 pp

22.8%

1.9 pp

ROS

10.3%

6.9%

3.4 pp

12.0%

-1.7 pp

ROCE

(4)

22.1%

9.5%

12.6 pp

17.4%

4.7 pp

ROE

(5)

19.1%

9.1%

10.0 pp

22.1%

-3.0 pp

Equity Ratio

40.6%

39.9%

0.7 pp

41.4%

-0.7 pp

Net Debt/EBITDA

(6)(7)

1.28

2.33

-1.05

1.68

-0.40

  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
  7. Impact of IFRS 16: Net Debt / EBITDA Q1 2022 of 1.41; Net Debt / EBITDA Q1 2021: 2.53;
  8. Variation in figures not rounded up/down

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3. ANALYSIS OF RESULTS

In the first quarter of 2022, The Navigator Company recorded a turnover of € 492 million, with paper sales accounting for around 67% of turnover, pulp sales 11%, tissue sales 9% and energy sales 13%.

Paper market dynamics strongly affected by reduction in capacity in Europe and United States and limited supply in Middle East and African markets

Global demand for printing and writing papers rose by 0.6% (YTD February), with UWF paper recording growth of 0.7% and coated papers 4.5%; papers produced from mechanical pulp saw demand drop by 4.1%.

In Europe, apparent demand for UWF paper fell by 6.8% over the quarter. This drop in apparent demand results from the calculation model (based on deliveries by producers) which was highly influenced by the constraints on supply observed in Europe (down 9% YoY, especially after a mill closure in Scandinavia at the end of Q3 2021), which were joined by the strike in the same region, starting in January, and the low level of imports resulting from current logistical difficulties. Without these affects, the apparent demand for UWF paper in Europe would certainly follow a positive evolution.

In the United States, demand for UWF paper held steady in the first quarter (down 0.1% YoY), and in other world regions growth in UWF demand was in the order of 2.1% (YTD February).

The benchmark index for office paper in Europe stood at 1,104 € /ton at the end of March, up from its level at the start of the year (976 €/ton). It should be stressed that Navigator has endeavoured to implement a responsible pricing policy that nonetheless enables to protect its margins, anticipating the impacts of higher costs. Despite the price increases implemented over the quarter, unit margins in paper business remained practically unchanged in relation to the previous period.

In this context, Navigator has maintained a healthy order book, in line with the industry and reflecting the sharp drop in available supply in the main regions where it operates. Navigator's UWF sales totalled 327 thousand tons, down by 2.6% on the same period last year and 17.2% on the previous quarter, penalised by the logistical constraints currently being experienced, and by the need to replenish stocks. The value of sales was driven by rising prices internationally, with which Navigator kept pace. The value of sales was therefore up by around 39% on the same period in 2021 and down by 4.6% on the previous quarter. It should be noted that Navigator exported 93% of its UWF sales in the first quarter, only performing 7% of its sales on the domestic market, where the price increase was more modest.

With the growing order inflows and limitations on supply, combined with substantial increases in maritime freights, price rises in markets outside Europe were around the double than those on European markets, in relation to the same period in 2021. At the same time, within Europe, price increases were more significant outside the Iberian markets.

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The Navigator Company SA published this content on 01 June 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 01 June 2022 13:51:12 UTC.

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