Navigator's Q4 EBITDA down 32% year-over-year to €125M on revenue down 23% to €493M; volume of paper, packaging sales down 12% from year ago to 322,000 tons, while pulp sales volume up 75% from Q4 2022, and tissue sales volume up by 64% year-over-year

PERFORMANCE 4TH QUARTER AND FULL-YEAR 2023

At the start of 2023, the global economic outlook was far from promising, with the expectation that growth in the main developed economies would be modest, or even negative. On the geopolitical stage, the war in Ukraine and the tensions between China and Taiwan were joined in the final quarter of the year by conflict in the Middle East , making for periods of significant risk aversion over the course of the year.

In this context, 2023 was also a challenging year for the Pulp and Paper sector. The 1st half was marked by a sharp drop in benchmark prices for pulp, down from record high levels in 2022, with a downtuin demand, especially in Europe . Over the course of the first half, we also saw a slow reduction in stocks of printing and packaging paper which had accumulated along the distribution chain over the course of 2022. New orders were consequently at a historically low level in these segments, but started to improve as from the 3rd quarter, rising more clearly in the final quarter, as stocks normalised. In the Tissue paper segment, with shorter supply chains and so less tendency to accumulate stocks, performance remained considerably stronger, benefiting also from the increased market share and positive synergies brought by integration of the new Tissue mill in Zaragoza.

Navigator's operational flexibility enabled it to produce more Pulp, in response to scaling down Paper output, and to place this additional output in geographical regions where demand was more robust in 2023. In the writing and packaging paper business, careful planning of production also made it possible to manage output and stocks at better adjusted levels. Combined with responsible management of prices and margins, this enabled Navigator to protect its operating results.

We nonetheless remained committed to investment and innovation in all the sectors in which we operate and have continued to exploit opportunities for growth with distinctive value in tissue, packaging and energy. Navigator's product range, the quality of our brands and different products, our sustainable business approach, the scale of our operations and our sound finances have all supported a resilient business model, enabling us to present consistent results, even in hostile market conditions.

2023 vs. 2022

• The Group recorded strong industrial performance, most notably in the pulp sector, where the Figueira da Foz complex set a new record for annual pulp output, at 649 193 tAD; the Tissue segment also increased its output (up 24% for reels and up 70% finished products) in relation to 2022, with acquisition of the Ejea mill in the first quarter. The takeover of this unit permitted Navigator to position itself as Iberia's 2nd largest manufacturer of Tissue paper.
• In the Packaging segment, work has continued on expanding our offering, with the development of new product ranges which in the short will open the door to other high value-added segment, in a move supported by market trials (220 in 2023), of which 45 trials are still under way. The trials were carried out on more than 100 customers, two thirds of them new customers;
• Turnover in 2023 stood at € 1,953 million, the second-best result in the company's history, 11% up on average turnover for the past 5 years (2018-2022), the all-time record of € 2,465 million having been set in 2022;
• In a particularly volatile year, Navigator once again showed considerable stability in the generation of quarterly results;
• Expansion of Tissue business and flexibility of operational management in production and sales made it possible to offset both the drop in international demand for paper and also the reduction in demand for cellulose pulp in Europe , with pulp sales growing by 26% and Tissue sales up by 49%, counterbalancing a 32% downtuin paper sales;

• EBITDA stood at € 502 million, with cost management and resilient prices offsetting the downtuin demand, and the EBITDA margin stood at 26%, comparing with an average margin of 24% in the past 5 years (vs. € 736 million and a margin of 30% in 2022);
• Annual net income totalled € 275 million, down by 30% on 2022 but still 29% higher than the average for the past five years;
• Capital expenditure in 2023 totalled € 187 million (vs. € 113 million in 2022), of which close to €
  106 million related to capital projects classified as ESG, representing 57% of total capex;
• Navigator closed the year with net debt of € 490 million, reflecting the impact of acquisition of a Tissue mill in the first quarter, distribution of € 200 in dividends in the second quarter, 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 remains at a very comfortable level of 0.98x;
• In December, Navigator contracted green finance from EIB worth € 115 million, to be used over the next 18 months, repayable in 12 years.

4th Quarter Analysis (vs. Q3 2023 and vs. Q4 2022)

• Turnover stood at € 493 million, up 2% on the 3rd quarter, but down by 23% YoY;
• EBITDA totalled € 125 million (up 1% on the 3rd quarter and down 32% on the final quarter of 2022), with an EBITDA margin of 25.4% (down 0.3 pp on the 3rd quarter and 3.3 pp YoY);
• The volume of paper and packaging sales stood at 322 thousand tons (up 17% on the 3rd quarter and down 12% on the 4th quarter of 2022);
• The volume of pulp sales stood at 92 thousand tons (down 41% on the 3rd quarter and up 75% on the 4th quarter of 2022), showing above all the impact of planned maintenance stoppages;
• The tissue sales volume stood at 40 thousand tons, down by close to 2% in relation to the previous quarter, due to the decreased availability of paper (reels) for sale, and up by 64% YoY;
• Strong cash flow generation with free cash flow of €60 million (vs. € 23 million in the previous quarter and vs. €140 million in the 4th quarter of 2022);
• After the close of the period, in January 2024 , Navigator signed up to the United Nations Global Compact and is taking part in the Business & Human Rights Accelerator Program, reasserting its commitment to sustainable development, responsible business and defence of human and employment rights.

MAIN INDICATORS

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 in 2023 of 1.1; Net Debt / EBITDA in 2022 of 0.60;
8. Variation in figures not rounded up/down

Source: PPPC

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 17%. Demand for paper produced from mechanical pulp dropped by 18%.

In Europe in particular, apparent demand for UWF was down by 20%, although it also remained the most resilient grade, with the cutsize segment, in principle more vulnerable to the tendency for digitisation, presenting better performance than the others. It should also be noted that, in Europe , between 2013 and 2023, apparent demand for UWF fell by an average of 4.7% a year (CAGR). A clearly better trend than any of the other segments in the printing and writing paper family.

In the United States , demand declined more slowly than in Europe , down by 14%. Apparent UWF consumption in other world regions dropped by 2%, with China presenting growth of 6% in UWF consumption by November, in relation to 2022.

The benchmark index for the price of office paper in Europe (PIX A4 B-copy) averaged 1,206€/t (vs. 1,216€/t) in 2023, a variation of only 0.8% in relation to 2022, although the benchmark index closed the year at 1,092€/t, down by 18% on the start of the year (1,334€/t). Significantly, the 18% drop in the index is also comparable with the sharp adjustment in the pulp index which, despite rallying in the 2nd half, presented an overall decline of 27% since the start of the year.

Navigator's UWF sales totalled 1,131 thousand tons in 2023, down by 25% on the previous year. It is important to note that mill brands represented close to 80% of the year's sales (vs. an average of 65% over the period 2012-2021), highlighting the resilience of the company's branding strategy. The proportion of premium products, whilst lower than in the previous year, remains high, at 57% (compared to an average of 53% in the period 2012-2021).

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

In the packaging business, where a consolidated presence on the international market is still being built up, Navigator likewise felt the adverse conditions of a year marked by overstocking throughout the distribution chain, which was reflected in the slower and irregular behaviour of demand. In particular, consumption of bags (one of Navigator's main segments) fell by 40% after the introduction of mandatory in-store charges for consumers.

Nonetheless, the development of our Packaging business continues to show considerable promise, with a growing customer base, recognition of the quality of our products, based on eucalyptus globulus fibre, and consequently of the gKraft™ brand. Our products are being used by high profile brands in sectors ranging from fashion to food retail, e-commerce, manufacturing and farming.

This success is confirmed by growth in the client base, which today boasts more than 230 active clients, in 30 countries, since starting up in 2021. gKRAFT has won recognition not only in the marketplace: Navigator's work in the field of sustainable packaging solutions was rewarded in June this year by winning the National Innovation Prize. In addition, the Mobilising Agenda entitled "From Fossil to Forest - Sustainable Packaging Products to Substitute Fossil Plastic", led by Navigator, was selected by Deloitte Portugal for its Transformation Award, distinguishing transformation and innovation projects with an impact on markets.

Navigator has based its offering of packaging papers on three gKraft™ macro-segments: BAG, FLEX and BOX, which subdivide into 12 segments for different applications, aimed respectively at the markets for Bags (retail, consumer and industrial bags), Flexible Packaging (serving a wide variety of flexible packaging solutions), and boxes (corrugated cardboard boxes for value-added products and food packaging, including cardboards for producing paper cups and food trays). The innovative introduction of the properties of eucalyptus fibre has been crucial in securing the wide acceptance these products already enjoy in the market.

Navigator worked over the course of 2023 on developing new product ranges, aimed at the food industry, and also at a variety of consumer products. These are currently still being trialled and launched on the market, in a large-scale operation aimed at new customers, supported by the conducting of 220 market trials in 2023. Developments included the creation of new product ranges, most significantly for innovative 100% Eucalyptus products, with a total of 31 new grades.

As part of the diversification of Packaging business, progress has continued as planned in 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, and production is planned to start up in the 2nd half of 2024, under the gKraft™ Bioshield brand. The facility will have production capacity for approximately 100 million units a year, making it one of the largest in Europe and the first such integrated facility in southeEurope, moving into a fast growing, high-potential market. Operations will start with 4 products for the food sector, and the facility offers production flexibility and scalability in order to exploit the various opportunities opening up for substituting plastics.

Pulp Market

The 1st half of 2023 saw prices drop sharply from historically high levels. The benchmark index for short fibre (hardwood) - PIX BHKP in dollars- had climbed to an all-time record level in 2022 of 1,380 USD /t. In the 2nd quarter, we saw prices rally in China and in Europe - prices in China bottomed out in May ( 475 USD /t) and ended 2023 at 653 USD /t, whilst in Europe they fell to their lowest level in August ( 800 USD /t), recovering by December to 1,008 USD /t.

Falling pulp prices in the first half of the year could be traced to (i) the YoY reduction in demand globally, and in particular in Europe ; (ii) rising stocks along the supply chain in late 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 2022 (1.6 Mt) and another during the second half of 2023 (2.1 Mt).

The second half of the year brought a reversal of fortunes for the pulp market, with global demand for eucalyptus (EUCA) pulp performing more strongly than in the first half of the year (when growth was practically nil). China was the driving force behind this recovery, with restocking after prices bottomed out in May.

As a result, Chinese demand for hardwood pulp (HW) performed well in the second half, culminating in growth of 29% HW and 24% for short eucalyptus fibre (EUCA) in 2023, comparing favourably with the first half (up 21% HW, up 14% EUCA).

As a result, global demand for hardwood pulp (HW) kept pace with this positive tendency in the second half, culminating in growth of 8.0% HW and 6.5% for short eucalyptus fibre (EUCA) in 2023, comparing favourably with the first half (up 3.1% HW, up 0.6% EUCA).

Stocks at manufacturers and ports were also high in the first half of the year, and then normalised in the second half. Comparing 2nd half stock levels with those in the first half of the year, we may observe that stocks at manufacturers of chemical and hardwood fibre pulp fell by 7% and 6% respectively and stocks at ports fell by 11% in China and in Europe recorded a significant downwards adjustment (-35%).

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 consequence, pulp sales for the period stood at 462 thousand tons, representing an increase of 81% YoY, whilst the value of sales was constrained by the current level of prices, showing growth of 26%.

Growth and strong performance in Tissue business

Tissue business took a front seat in 2023, with the acquisition of a production unit in Zaragoza, taking effect from the start of the 2nd quarter. The takeover of this new mill is part of Navigator's ambitious plan for growth and diversification and has bolstered its strategic position in the Tissue market, where in just eight years it has established itself as the 2nd largest player in Iberia, with total annual production capacity of 165 thousand tons and annual converting capacity of 180 thousand tons.

In 2023, Tissue sales proved significantly resilient, and there was sustained growth in demand for Navigator's finished products, despite the contraction of demand in WesteEurope (down 2.9%, first eleven months), especially in the second half.

The volume of Tissue sales (finished product and reels) totalled 142 thousand tons in 2023, representing an increase in volume of 40% in relation to 2022, whilst the value of sales grew by 49%. This success was boosted by the integration of the new mill in the second quarter, changing its name to Navigator Tissue Ejea. As well as contributing to growth in sales, the new mill has also expanded our customer base and generated significant gains by unlocking synergies.

Sales of Navigator brands in 2023 were up by 25% in comparison with 2022. Similarly, sales of more distinctive and innovative products continued to set new records in 2023 and were up by 64% in relation to 2022.