Papeles y Cartones de Europa : Management Report 9M 2017

MANAGEMENT REPORT 9M2017

PAPELES y CARTONES DE EUROPA, S.A. AND SUBSIDIARIES

OCTOBER, 2017

1. GROUP RESULTS 9M2016 2

   EXECUTIVE SUMMARY 2

2. GROUP RESULTS 9M2017 4

   PAPER 4

   PACKAGING 6

3. EUROPAC ON THE STOCK EXCHANGE 7

4. RESULTS OF THE CONSOLIDATED GROUP (according to IFRS) 9

   CONSOLIDATED INCOME STATEMENT 9

5. KEY EVENTS IN 9M2016 11

6. SIGNIFICANT EVENTS SUBSEQUENT TO END OF THE PERIOD 13

7. CONCLUSIONS 14

8. GROUP RESULTS 9M2016

   EXECUTIVE SUMMARY

   (Figures en K€)	9M 16	9M 17	Var%
   Aggregate income	799.233	876.911	9,7%
   Consolidated income	603.576	641.124	6,2%
   Recurring EBITDA	93.139	103.987	11,6%
   Consolidated EBITDA	89.895	118.291	31,6%
   PROFIT before TAX	43.467	74.633	71,7%
   NET PROFIT	32.037	58.242	81,8%
   Consolidated EBITDA Margin	14,9%	18,5%

   Consolidated EBITDA grew by +31.6% on the same period of the previous year to 118.3 million euros, and includes the gains from the sale of subsidiaries and the final settlement of the sales agreement of the Rouen factory. Profitability improved as the consolidated EBITDA margin increased to 18.5%, an increase of 3.6 percentage points on the margin for the first nine months of 2016, as a consequence of the rises in sales prices of recycled and kraftliner papers in an environment of strong final demand and low stocks and as a result of the internal operational and commercial management projects undertaken.

   Recurring EBITDA in 9M17 was 11.6% up on the same period of the previous year and recurring EBITDA for 3Q17 was 34.2% up on the comparable quarter. The cumulative recurring EBITDA margin to September 2017 stood at 16.2%.

   The Paper Division recorded a 30.8% increase in EBITDA compared with the first nine months of 2016 as a result of the increase in sales prices and segmentation towards higher added value papers, such as kraftliner paper, coated paper and high feature white and brown papers, despite the increase in the price of the raw material (recovered paper) and the scheduled maintenance halts in the Viana do Castelo and Rouen machines in May.

   The Packaging Division recorded an 88.1% fall in EBITDA compared with 9M2016 as a result of the significant impact of the raw material price rise, which is being passed on to the market.

   Profit before tax rose by 71.7% on 9M2016 and includes a reduction in the net finance expense of 66.8% due to a lower balance of net debt, optimisation of the financial structure and improvement in the conditions of the syndicated loan, which was renewed in December 2016, and the one-off income as a result of the sale of shares in Ibex companies.

   Consequently, net profit rose by 81.8% compared with the first nine months of the previous year, to €58.2m.

   The performance of consolidated EBITDA was extremely positive as shown in the following table:

   Other key management aspects for the period:

   • Following a proposal from the Board of Directors, the General Shareholders' Meeting (GSM) of the Europac Group (Papeles y Cartones de Europa, S.A.), held on 28 June, approved the payment of a final dividend of 0.223 euros per share, which was paid on 17 July, and which, when added to the dividend paid in February 2017, amounted to a total dividend of 28.9 million euros charged to 2016 earnings. This represents a pay- out or percentage of the profits for shareholders of 60%.

     The Europac Group therefore distributed a total of 0.318 euros per share to its shareholders, a dividend yield of 4.3% on the share price at the end of the session prior to the holding of the General Shareholders' Meeting.

   • Similarly, the GSM approved a bonus issue against unrestricted reserves through the issue of up to 3,894,735 shares with a free allotment of 1 new share for every 25 old shares, which will be carried out in November.

   • It also approved the cancellation of 1,947,368 treasury shares, which accounted for 2% of the company's share capital, which was carried out in October.