Navigator : S.A. informs first 9 months 2023 Results - Material Information

2023 FIRST NINE MONTHS INTERIM RESULTS

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CONTENTS

1.	PERFORMANCE IN 3rd QUARTER / FIRST 9 MONTHS OF 2023	2
2.	LEADING INDICATORS	3
3.	ANALYSIS OF RESULTS	4
4.	A BIOINDUSTRY ON THE RIGHT SIDE OF THE FUTURE	10
5.	MARKET OUTLOOK	11
6.	FINANCIAL STATEMENTS	13

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1. PERFORMANCE IN FIRST 9 MONTHS OF 2023

Over the course of the first half of 2023, destocking of paper and packaging along the distribution chain was slower than expected. As a result, new orders in these segments stood at historically low levels. A slight improvement was observed in the 3rd quarter, in line with the decrease in inventories. The Tissue segment continued to perform well in the first nine months of 2023, with shorter supply chains, less likely to accumulate stocks. However, the current geopolitical environment and the slowdown in global economic growth are having a negative impact across the industrial spectrum, and on our sector in particular.

In this context, rigorous implementation of cost control programmes and efficiency in specific consumption levels, combined with production management and planning, have been crucial in adjusting supply to demand and, consequently, operating results. As explained in previous quarters, this year's figures are compared with 2022, an altogether exceptional year, where prices reached historical levels, due to an unprecedented imbalance between supply and demand in all products, created by logistical constraints and cost inflation which we have succeeded in controlling in 2023, keeping our cash costs at the level recorded at the start of 2022.

We remain committed to our plans for investment and innovation in all segments where we operate and continue to explore growth opportunities with differentiation in Tissue, Packaging and Energy. Navigator's product range and sustainable business, the scale of our operations and its strong financial position have all supported a resilient business model, enabling us to present consistent results, even under adverse market conditions.

3rd Quarter Analysis (vs Q2 2023 and vs Q3 2022)

• Navigator recorded turnover of € 481 million (up 0.6% on Q2; down 29% on Q3 2022);
• EBITDA stood at € 124 million (up 1% from Q2; down 40% from Q3 2022), reflected in an EBITDA margin of 25.7% (up 0.1 pp on the previous quarter; down 4.8 pp from Q3 2022);
• Net income stood at € 63 million (down 4% from Q2; down 42% from Q3 2022);
• Pulp sales totalled 154 thousand tons (up +25% on Q2; up +191% on Q3 2022). Decreased incorporation into paper resulted in more pulp available for sale, which was quickly absorbed thanks to its distinctive properties, highly valued for decades by international markets;
• Paper sales stood at 276 thousand tons (up 6% on Q2; down 31% on Q3 2022), representing a slight improvement on the previous quarter. Although slow at first, the process of destocking appears to have continued more expressively throughout Q3;
• Sales of Tissue stood at 41 thousand tons (up 11% on Q2; up +54% on Q3 2022), driven by growth in demand for finished products and by the new capacity added by Navigator Ejea;
• We continue to explore new opportunities in the Packaging sector, with new product ranges, aimed at the food industry, for which trials and the market launch is currently in progress. This will open doors in the short term to other high value-added segments, not only in the food industry and consumer goods, but also in other industries. At the same time, work is proceeding to plan on the project for integrated production of moulded cellulose components, designed to substitute single use plastic packaging. Production is expected to start up at the end of the 1st half of 2024.

First 9 months of 2023 vs. 9 months 2022

• Navigator recorded turnover of € 1,461 million (down 20% on 9M 2022);

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• EBITDA stood at € 377 million (down 32% on 9M 2022), and the EBITDA margin at 25.8% (down 4.5 pp from 9M 2022);
• Net income totalled € 201 million (down 26% from 9M 2022);
• Net debt of € 550 million, reflecting the impact of Gomà-Camps Consumer acquisition in Q1, distribution of € 200 in dividends in Q2, and the level of tax payments, in view of the exceptional results in 2022, as well as the demanding schedule for the capex plan under the Recovery and Resilience Plan (RRP). The Net Debt / EBITDA ratio was 0.98x.
• 
  2. MAIN INDICATORS

			9M	9M		%
	Million euros		2023	2022	9M 23/ 9M 22
	Total Sales		1 460.6	1 822.5		-19.9%
	EBITDA (1)		376.5	551.9		-31.8%
	Operating Profits (EBIT)	277.6	437.9		-36.6%
	Financial Results		-15.7	-60.1		73.9%
	Net Earnings		200.8	270.5		-25.8%
	Cash Flow		299.7	384.5		- 84.8
	Free Cash Flow (2)		32.5	322.4		- 289.9
	Capex		142.1	64.6		77.5
	Net Debt (3)		549.7	372.5		177.2
	EBITDA/Sales		25.8%	30.3%		-4.5 pp
	ROCE (4)		21.5%	35.8%		-14.3 pp
	ROE (5)		21.4%	31.4%		-10.0 pp
	Equity Ratio		46.1%	43.3%		2.8 pp
	Net Debt/EBITDA (6)(7)	0.98	0.56		0.42
		Q2	Q1	%		Q2	%
Million euros	2023	2023	Q2 23/Q1 23	2022	Q2 23/ Q2 22
Total sales	481.1	478.3	0.6%		680.4	-29.3%
EBITDA (1)	123.5	122.3	1.0%		207.4	-40.4%
Operating profits	90.0	88.4	1.8%		165.0	-45.5%
Financial results	- 7.2	- 5.8	24.1%		- 15.1	-52.2%
Net earnings	63.3	65.8	-3.7%		108.6	-41.7%
Cash flow	96.9	99.7	- 2.8		150.9	- 54.0
Free Cash Flow (2)	22.8	- 21.1	43.9		148.2	- 125.4
Capex	29.5	70.9	- 41.4		30.3	- 0.8
Net Debt (3)	549.7	572.5	- 22.8		372.5	177.2
EBITDA/Sales (%)	25.7%	25.6%	0.1 pp		30.5%		-4.8 pp
ROCE (4)	20.9%	20.8%	0.1 pp		40.4%		-19.5 pp
ROE (5)	20.2%	21.4%	-1.2 pp		37.8%		-17.6 pp
Equity ratio	46.1%	43.4%	2.7 pp		43.3%		2.8 pp
Net Debt/EBITDA (6)(7)	0.98	0.89	0.09		0.56	0.42

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 invested (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 (9M 2023) of 1.1; Net Debt / EBITDA (9M 2022) of 0.65;
8. Variation in figures not rounded up/down

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3. ANALYSIS OF RESULTS

Energy	Packaging
9% (vs 11%	2% (vs 4%
in 2022)	in 2022)
Pulp 13%
(vs 8% in
2022)

Tissue

15% (vs 8%

in 2022)

€1 461M

Turnover

Paper

61% (vs

69% in

2022)

The reduction achieved in cash costs in all segments over the course of the year continues to make itself felt, being more pronounced in this quarter. At the same time, the resilience in international prices for printing papers, and tissue, combined with the sales strategy and diversification of products and markets, enabled us to achieve good results, in an international context of a sharp downturn in demand in most of the segments in which we operate.

The printing and writing papers industry

The industry recorded a significant adjustment in capacity utilisation rates (production/capacity) in 2023, and Navigator likewise steadied the pace of production. The average capacity utilisation rate in the first 9 months was 75%, as compared to an industry average of 66%.

The third quarter saw a slight improvement in the market environment in relation to the first half. Although initially slow, the destocking process along the distribution chain appears to have intensified in the end of the third quarter, with most operators continuing to adjust stock levels for the levels of demand experienced. This situation has led to a slight increase in the level of new orders to European manufacturers, in particular in September, substantially offsetting the seasonal factors to which the industry is normally subject.

As a result, the third quarter saw a slight increase in capacity utilisation, with Navigator at 76% (vs an industry average of 66%).

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Global demand for printing and writing papers

Mt, YtD

41,5	28,1	8,9	0,9	3,6
	-5,9%
-11,2%
		-17,9%		-18,3%
			-22,4%
Total	Uncoated	Coated	Uncoated	Coated
	Woodfree	Woodfree	Mechanical	Mechanical

Source: Navigator, PPPC (August).

In a global context of sharply falling apparent demand (down 11%), UWF paper remains the most resilient, as usual, in view of its versatile uses, with a reduction of 6%, as compared to CWF papers, for which demand dropped by 18%. Demand for paper produced from mechanical pulp dropped by 21%.

In Europe, apparent demand for UWF paper fell by 21% YoY (September), and this also remained the most resilient grade.

In the United States, demand declined by 13% YTD August. Apparent UWF consumption in other world regions decreased by 2%, with China growing 1% in UWF consumption compared with 2022.

The benchmark index for office paper in Europe stood at 1,127 € /ton at the end of September (vs 1,204 €/t at the end of June). Despite the downward trend over the first nine months of 2023, the benchmark price index for paper has proved resilient, with the average price in the first nine months of 2023 still 6% higher than in the same period of 2022. Significantly, the reduction in the index since the start of the year has been 16%, while the pulp index has dropped by more than 40%.

Navigator's UWF sales totalled 819 thousand tons in the first nine months of the year, down by 29% on the same period last year. Third quarter sales were nonetheless up by 6% on the preceding quarter, reflecting the return of stocks to normal levels along the distribution chain, which were abnormally high in the first half. The value of sales in the first 9 months was 31% down on the same period in 2022. We can once again point to the resilience of our mill brands which have accounted for approximately 80% of sales since the start of the year (as compared to an average of 65% in the period 2012-2021). Premium products also continue to represent a large share, at 58% (compared to a historical average of 53% in the period 2012-2021).

Packaging - From Fossil to Forest - investment in sustainability, innovation, and transformation

The Packaging segment saw a sharp downturn in demand in comparison with previous years, when unusually high levels of demand resulted in an abnormal increase in stocks at processors and end customers. In a context of a wider economic slowdown and high inflation, destocking has been a slow process, which explains the drop in demand. Consumption of retail packaging and bags has been hit by new ways of taxing packaging across the board, failing to take into account the sustainability of products

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and applying the same rules to natural, renewable and biodegradable and compostable paper products, as to other packaging products obtained from fossil and/or finite resources. Even so, there have been encouraging signs of a degree of recovery in recent months, and the Packaging segment continues to hold promise for Navigator's future development.

Our gKRAFT™ products, made from eucalyptus globulus fibre, have established a reputation for quality and been used by high profile brands in sectors ranging from fashion to food retail, e-commerce, manufacturing and agriculture, creating an ever larger and more diverse base of clients, already totalling more than 250 active clients, in 33 countries, since the brand's launch in 2021.

Navigator therefore remains committed to packaging papers, essentially in the paper bags (retail), flexible packaging and Food & Beverage packaging markets, where its innovative introduction of the quality offered by eucalyptus fibre has proved enormously popular.

As well as other projects in progress to expand its market offering, Navigator has been working since early 2023 on developing new product ranges, aimed at the food industry, and also at a variety of consumer products. These are currently being trialled and launched on the market and will soon open the door to other segments with potential for high added value, not only in the food and consumer goods sector, but also in other industries.

The project for integrated production of eucalyptus-based moulded cellulose components, designed to substitute single-use plastic packaging in the food service and food packaging market, continues to progress as planned, the project is now 75% executed, and production is planned to start up by the end of 1st half of 2024.

Pulp Market

The benchmark index for short fibre (hardwood) pulp in Europe - PIX BHKP in dollars - rose to record levels in 2022 (1,380 USD/t), and started to adjust downwards in the 1st quarter of 2023, falling more sharply in the 2nd and 3rd quarter to 820 USD/t at the end of September, representing a drop of 13% from the end of June 2023. Average prices in the quarter were 40% lower than those in the same period in 2022. The benchmark index in China for hardwood pulp rose 9% in relation to the end of June, standing at 553 USD/t at the end of September. It should be noted that prices in China fell to their lowest level in May (475 USD/t), down by 45% from the level of 866 USD/t recorded in September 2022, and in Europe, in August (800 USD/t), they dropped by 42% from the peak of 1,380 USD/t recorded in January 2023.

This was driven by: (i) the downturn in global demand in particular in Europe; (ii) rising stocks along the supply chain in later 2022 and early 2023; (iii) easing of the logistical constraints experienced during 2022; and (iv) growth in supply, due to new capacity coming online, especially in Latin America, where one venture started up in December last year (1.3Mt) and another during the second quarter of 2023 (2.2Mt).

In the 3rd quarter of 2023, global demand for eucalyptus fibre (euca) performed better than in the first half of the year, (where growth was practically zero), starting to grow this quarter. China has been the driving force behind this recovery, with restocking after prices fell to their lowest level in May. Demand was up (YoY August) by by 20% for EUCA. The strong performance of the Chinese market more than compensated for slack demand in Europe, at levels 19% lower than the same period in 2022, both in total demand for hardwood pulp and in demand for eucalyptus pulp (euca).

This fairly positive movement in the pulp market was due to the effect of restocking in China after prices hit a low in May (as already mentioned), and also to an apparently strong upturn in printing and packaging paper and tissue production in China (August was the second-best month in the past three years in terms of output of paper and tissue from virgin fibre), surprising analysts and market players. The upswing

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explains the increase in prices for November in China, to 630 USD/t (up 33% from May) and in Europe, to 980 USD/t (PIX 24/Oct at 847 USD).

Over the course of the year, Navigator has had a larger quantity of pulp available for sale, as a result of less being incorporated into paper. As a result, YTD sales stood at 370 tons, representing an increase of 83% over the same period in 2022, whilst the value of sales (in euros) was brought down by the current level of prices, consequently showing growth of approximately 30%.

Tissue business continues to perform strongly

The Tissue segment continues to perform well, with sustained growth in demand for finished products in the first nine months of 2023, allowing for good business performance.

This growth was achieved in a context of stable market demand in Iberia (Spain growing by 0.2% in the first 7 months of 2023), whilst demand for Western Europe contracted by 2.4%.

The volume of tissue sales stood at 102 thousand tons in the first nine months, up by 32% YoY, and rising prices led to growth of approximately 51% in the value of sales. This growth was helped by the integration of the new mill, now operating as Navigator Tissue Ejea, since the 2nd quarter. The integration of NVG Tissue Ejea has boosted growth in sales, diversified the client base and brought significant gains in terms of synergies.

Growth in the value of sales of finished products was achieved above all through the At Home channel, thanks to new clients and a stronger position in the pre-existing client base, and through increased sales to France and Spain.

Navigator has maintained a responsible pricing policy, continuing to adopt prudent management of its variable and fixed costs, with balanced margins and a consistent focus on innovation and distinctive features, which has succeeded in making its products attractive and building their market reputation.

The focus on innovation and product differentiation continues to enable Navigator to expand its position with customers, especially through use of mill brands, which in the first 9 months accounted for 24% of the total value of sales of finished products, resulting from growth of 26% YoY in the sales volume.

Energy

In the first nine months of the year, electricity sales totalled approximately € 130 million, representing a YoY reduction of close to 33%.

This reduction was due essentially to the fact that, in the first half of the year, the average price for the Portuguese area of OMIE, serving as the benchmark for sales in this period, stood at 90.4 €/MW, in contrast to a figure of 205.8 €/MWh in 2022. The group's total sales volume in the period was in line with that recorded in the previous year.

It should be stressed that the group's renewable cogeneration plants switched in June from the market price system for sales to the special pricing system.

In an important development, work started on building the new solar power facilities for the group's self- consumption at the industrial sites in Figueira da Foz, Aveiro and Vila Velha de Rodão. This will triple the capacity installed on our sites, from 12 MW at present to close to 38 MW.

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Slowdown in costs and resilient prices offset falling demand, resulting in EBITDA of € 377 million

Variable costs were brought down in the first nine months, with a reduction in unit cash costs in all segments. The resilience of paper prices, especially in segments with higher value added, has offered additional protection to profits, in a context where volumes of paper sales have dwindled. These factors, combined with a sales strategy of product and market diversification, made it possible to achieve EBITDA of € 377 million.

The positive evolution in unit cash costs was already visible over the first half and gathered strength in the third quarter. When we compare cash costs with those recorded in the 1st half, a reduction of between 12% and 15% can be observed in the pulp and paper segments, and of more than 9% in Tissue.

Comparing the 3rd quarter with the same quarter in 2022, we can point to a sharp drop in costs in all segments, with a reduction of between 16% and 18% in the pulp and paper segments and close to 12% in Tissue.

Total fixed costs grew by approximately 1% YoY, due in part to lower personnel costs and modest rises in running and maintenance costs, which increased at below the rate of inflation.

Navigator therefore remains focused not just on managing its variable costs, but also on boosting efficiency in consumption of raw and subsidiary materials, by reducing specific consumption levels, in particular in pulp, paper and Tissue production, whilst also making continued efforts to contain fixed costs.

In this context, Navigator achieved EBITDA of € 377 million in the first nine months and an EBITDA / Sales margin of 25.8% (down 4.5 p.p. YoY).

Financial Results

Financial results showed a loss of € 15.7 million (as compared to € 60.1 million in the same period in 2022). It should be noted that in the same period last year, financial results were penalised by non- recurrent (non-cash) impacts of approximately € -40 million, resulting essentially from recognition, in income for the period, in 2022, of accumulated exchange rate losses, relating to repayment of shareholder loans provided to the subsidiary Portucel Moçambique.

If non-recurrent items are excluded, we can point to an improvement YoY of € 4.4 million. One contributing factor to this result was the rise in interest rates which enabled us to optimise management of cash surpluses, resulting in a positive result of € 3.6 million. Another factor was the policy on hedging interest rate risk which, despite the rapid rise in reference rates, enabled us to keep financing costs stable. Significantly, the average cost of debt remained at under 2% in September 2023.

Pre-tax profits totalled € 262 million and corporation tax payable stood at € 61 million, with a taxation rate for the period of 23.3%. Net income totalled € 201 million, as compared with € 271 million recorded in the same period in 2022.

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Free cash flow generation impacted by acquisition operation and tax payments

Free cash flow generation in the first nine months totalled approximately € 33 million (compared to close to € 322 million in the same period in 2022), reflecting the impact of the disbursement for acquisition of Gomá-Camps Consumer, a higher level of tax payments than in the previous year, in view of the outstanding results in 2022, and also the demanding schedule for the capex plan under the Recovery and Resilience Plan (RRP).

The level of investment in working capital was again contained and, at the end of the quarter, the value of inventories, which had been rising, began to fall, accompanied by a reduction in the balance of accounts receivable.

Distribution of € 200 million in dividends - Flat rate borrowing ensures competitive cost

Net debt stands at € 550 million euros, reflecting the impact, among other things, of the disbursement for acquisition of Gomà-Camps Consumer in the first quarter and the distribution of € 200 million in dividends in the second quarter. As a result, the ratio of Interest-Bearing Net Debt/EBITDA ratio stood at 0.98, further consolidating the financial strength displayed by the Group in recent years.

In the 1st quarter, debt of approximately € 50 million was repaid, followed in the 2nd quarter by repayment of approximately € 11 million, and of close to € 14 million in the 3rd quarter. Average debt maturity remains appropriate, with rationally staggered repayments, and close to 40% of total debt tied to sustainability and 94% of total debt issued by the Group on a flat rate basis, enabling us to maintain low financing costs in a scenario of sharply rising interest rates. Unused long term credit facilities currently total € 145 million.

Capex of € 142 million

In the first nine months of 2023, capital expenditure totalled € 142 million (compared to € 65 million in the same period in 2022). It should be noted than 61% of total investment in the first 9 months, corresponding to € 86 million, is classified as ESG investment - in environmental projects or others geared to sustainability.

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