Eucatex Industria e Comercio : 3Q16 Earnings Release

INVESTOR RELATIONS

José Antonio Goulart de Carvalho Executive Vice President and Investor Relations Officer

Waneska Bandeira

Investor Relations

Telephone: [phone] [e-mail] ri.eucatex.com.br

Conference call

(Portuguese only)

November 10, 2016

11:30 a.m. (Brasília) / 8:30 a.m. (US ET)

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3Q16 Earnings Release

São Paulo, November 9, 2016 - Eucatex (BM&FBovespa: EUCA3 and EUCA4), one of the largest manufacturers of panels in Brazil, with operations also in the paint and varnish, laminated flooring, wall partitions and doors segments, announces today its results for the third quarter of 2016 (3Q16). The consolidated financial statements are presented in accordance with the International Financial Reporting Standards (IFRS). Except where stated otherwise, the amounts are in millions of Brazilian Real (R$ million) and comparisons are with the same period the previous year.

Webcast

ri.eucatex.com.br

An English translation of the conference call transcript will be made available in a timely manner

Highlights

3Q16

Net Revenue of R$ 304.3 million (-2.2%) Recurring EBITDA of R$ 47.6 million (-10.6%), with margin of 15.7% Recurring Net Income of R$ 8.8 million (+268.7%)

9M16

Exports increased 36.3% in Volume and 12.6% in Net Revenue Net Revenue of R$ 859.9 million (+0.7%) Recurring EBITDA of R$ 139.1 million (-7.8%), with margin of 16.2% Recurring Net Income of R$ 39.5 million (+127.8%) Exports increased 38.9% in Volume and 24.6% in Net Revenue

Amounts in R$ million	3Q16	3Q15	Var. (%)	9M16	9M15	Var. (%)
Net Revenue	304.3	311.0	-2.2%	859.9	853.8	0.7%
Gross Income	83.4	94.3	-11.6%	237.6	257.2	-7.6%
Gross Margin (%)	27.4%	30.3%	-2.9 p.p.	27.6%	30.1%	-2.5 p.p.
EBITDA adjusted by non-cash events	43.1	51.1	-15.7%	122.1	143.3	-14.8%
EBITDA Margin (%)	14.2%	16.4%	-2.2 p.p.	14.2%	16.8%	-2.6 p.p.
Net Income	4.2	0.2	2485.7%	22.5	9.8	128.8%
Recurring Net Income	8.8	2.4	268.7%	39.5	17.3	127.8%
Net Debt	338.6	367.9	-8.0%	338.6	367.9	-8.0%
Net Debt / EBITDA (LTM)	1.8	1.7	3.0%	1.8	1.7	5.8%
Recurring Adjusted EBITDA	47.6	53.3	-10.6%	139.1	150.8	-7.8%
Recurring Adjusted EBITDA Margin (%)	15.7%	17.1%	-1.4 p.p.	16.2%	17.7%	-1.5 p.p.

Management Comments

Albeit slowly, economic activity is recovering. The manufacturing industry registered production expansion of 0.5% in September, and expectations are positive for the last quarter of the year. Nevertheless, unemployment is still on the rise, at 11.8%, without any outlook of improvement in the medium-term, with an impact on the wage bill, which fell 3.8%.

Meanwhile, industry and consumer confidence levels continued to recover, the former more slowly and the latter more substantially among the middle-income class. In spite of the recovery, household consumption is still short of the pre-crisis period, despite the declining trend of indebtedness. Inflation continued to slowdown and the Selic basic interest rate was reduced by 0.25 p.p. to 14.0%.

The furniture and construction industries, the Company's main operating segments, showed some recovery in recent months though not enough to reverse the indicators since the start of the year. Despite the improvement in relation to previous quarters, indicators in these sectors closed the first nine months of the year below the levels of last year. One example is the Brazilian Construction Materials Industry Association (ABRAMAT) index, which dropped by 11.3%, compared to drops of 17.3% and 14.3% in 1Q16 and 2Q16, respectively, and is expected to close the year down 10%.

In 2015, the Company prepared itself to increase exports by modernizing and adjusting its product lines to meet this market, which brought positive results in 9M16: 15% share of revenues and 24.6% growth in revenue compared to 9M15. This growth has enabled the Company to maintain its operations at levels close to those in the same period last year. Efforts are also under way to reduce costs and investments in order to safeguard the Company during this challenging moment.

Operating Performance and Results

Sales in the Company's Wood segment, combining domestic and export markets, declined by 11.2% in 3Q16 compared to the same period last year, impacted by lower domestic sales. According to the Brazilian Tree Industry (IBA), the domestic panels market grew by 1.1% in the period, driven by higher volumes of MDP (+12.5%) and lower volumes of MDF (-4.7%) and Fiberboard (-5.2%).

In this Segment, the highlights were the Company's exports, which are consistent with its strategy. Volume increased 36.3%, while Net Revenue increased 12.6% in the quarterly comparison. The result was supported by higher sales of T-HDF/MDF (+289.5%) and MDP (+175.6%), whose exports were still incipient in 2014 and which have been accounting for an increasingly greater share of the export mix since 2015 and are continuing the pace of expansion this year. According to IBA,

the sector increased its exports by 78.8% in 3Q16 compared to 3Q15. The substantial growth in exports - which amounted to 272,000 m³ in 3Q16 - helps regulate domestic supply.

The Company's Paint sales fell 1.3% in 3Q16 compared to 3Q15, while the Paints market contracted by 7.8%, according to the Brazilian Paint Manufacturers Association (ABRAFATI).

Operating Performance base 100 - 2005
Physical Sales	3Q16	3Q15	Var. (%)	9M16	9M15	Var. (%)
Wood Panels (DM)	157	188	-16.6%	145	155	-6.7%
Wood Panels (EM)	140	102	36.3%	213	154	38.9%
Paints	365	369	-1.3%	358	377	-5.0%
DM - Domestic Market /	EM - Export Market

Net revenue

Net Revenue Breakdown (R$ million)	3Q16	3Q15	Var. (%)	9M16	9M15	Var. (%)
Wood Segment	208.7	227.6	-8.3%	621.1	641.8	-3.2%
Paint Segment	73.6	70.0	5.3%	191.6	188.0	1.9%
Other	21.9	13.5	62.2%	47.3	24.0	97.1%
Net Revenue	304.3	311.0	-2.2%	859.9	853.8	0.7%

Net revenue totaled R$304.3 million, down 2.2% from R$311.0 million in 3Q15. In the Wood Segment, revenue decline lagged the decline in volumes, due to the substantial share of higher- value products in total sales, as well as higher prices.

Export Revenue increased 12.6% in 3Q16, reflecting the continued growth of this market. The Paint Segment registered Net Revenue growth of 5.3%, driven by higher prices (+6.6%) in 3Q16 compared to 3Q15.

Cost of Goods Sold (COGS)

In 3Q16, costs were less pressured, due to the negative exchange variation, which helped reduce prices of dollar-denominated inputs, although prices for key inputs are still higher than in the previous year. Additionally, the higher electricity bill also impacted COGS, which decreased 1.9% in the quarter.