Speaker: Good afternoon. The conference on the 2017 first quarter results of the Europac Group is about to commence.

Transcription

1 Speaker: Good afternoon. The conference on the 2017 first quarter results of the Europac Group is about to commence. Fernando Vidal: Good afternoon everyone. Welcome and thank you for participating in the conference on the 2017 first quarter results of the Europac Group. My name is Fernando Vidal, investor relations and communications director. With me is Oliver Hasler, CEO the Europac Group and Jorge Bonnin, the company's CFO. After, Oliver is going to present the results from this quarter following the presentation which we have sent you by and is also available on the CNMV and on the Europac Group corporate website. After the presentation, we will have the usual round of questions. I would like to remind you that the conference call is going to be recorded and that transcript will be available shortly in English and Spanish. The presentation starts with a disclaimer that we will consider as read. I would like to give the floor to Oliver Hasler, CEO the Europac Group. Oliver Hasler: Thank you, Fernando. Good afternoon everyone. As usual, I would like to start with a summary of the most noteworthy aspects that will be gone in to in more depth during the presentation. For those that were present during the last presentation in April, we mentioned that this first quarter would be a quarter of transition. The second quarter that we are presenting today is influenced by the increase in paper prices which go from more to less, thus we see those expectations we spoke of in the first quarter consolidated. The results of this year's first quarter results once again show the positive growth trend of the group's results, being the 5th consecutive quarter to show an increase in profits. We have achieved a consolidated EBITDA of 72 million euros in the first quarter of This represents an increase of 20% compared to the same period last year. We must highlight the fact that this result reflects the effect of the 10 million income from the sale of Morocco, which I will comment on later. In terms of our paper activity, we can see there is a growth in EBITDA thanks to the improvements in management and the impact they have on the market prices, in spite of the rise in prices of raw materials and the programmed stoppages we have in Viana and Rouen. In the Packaging Division, we saw a reduction in EBITDA due to the increase in the cost of raw materials, which was partially compensated by the improvements in management and the increased volume. The group's EBITDA margin reached 17.3%, which means 2.4 percentage points above that reached in The effect of the paper machine stoppages represented 3 million. If we hadn't had these stoppages, our EBITDA result would have shown an improvement of 3 million. We have continued with the reduction of debt achieving an EBITDA debt index of 1.55, and financial expenses have fallen by 80%. New profit grew by 55% compared to the same quarter last year, reaching 32 million. It is very important to highlight this quarter the solid end demand we have had, which has facilitated the increase in sale price of our finished end products. On the other hand, the solid

2 demand has helped us to increase prices and we have also been forced by the increases in raw materials. Please can you turn to page 6. The market and operations. Firstly we are going to talk about kraft paper. The increased end-user demand in kraft paper is stretching the market. This is reflected in the reduction of stocks and as a result has caused the rise in sales prices. We were seeing this increase in end demand at the end of 2016, where other factors such as a lesser presence of paper exported by the USA to Europe has caused pressure we can see in the market. The USA for example has reduced its exports by 14%. In graph 1. we can see the reduction of stocks that reflect the existing strain on the market. Passing to graph 2. we can see the solid growth of European shipments. If we compare the first quarter results of the Europac Group 2017 with the same period last year, the European shipments have risen by 5.2%. It is noteworthy that the average price rise of kraft in the 2nd quarter 2017, compared to last year, is 23 per tonne. It is also important to highlight that the real rise, compared to last year of these important increases we have been talking about, can be seen reflected in the 2nd quarter, as last years the prices went from more to less, this year they shift from less to more. In kraft paper, quarter by quarter, we can see an increase of 23%. But kraft since the start of the year has risen 60 per tonne in March and 50 per tonne in May, as the result of the strong demand. And they have announced an additional increase of 50 per tonne for the start of August. All these announcements accumulated an increase in kraft paper prices in 2017 of between 27 and 33%. I would like to point out that the difference between one quarter this year and last year is only 23 per tonne, whereas during this quarter the prices have risen between 27 and 33%. For this we would like to assure you that the best is yet to come in the 2nd quarter. Now we will look at recycled paper on page 7. In the same way as kraft paper, end demand is very strong and stock are at low levels, which causes pressure on the market and pushes the prices up as a result. In graph 1. we can see the strong stock reduction that began in the 4th quarter of 2016 and has continued more intensely in In the middle graph we can see the growth in European shipments this year, which is 5.1%, and that reflects the same trend as kraft paper compared to last year. And in the last graph we can see the average increase in recycled paper sales in the first quarter 2017 compared with the same period last year, that is only 7 per tonne. As with kraft paper, what we are going to see is the impact, which is really, going to be seen reflected in the 2nd quarter. The sale price of recycled paper has increased in Europe during the months of February, March, again in April and now it is rising again in July. This accumulates into an increase in the price of recycled paper from 23% to 25%, depending on which region of Europe. Now moving on to the recovered paper market, paper for recycling, on page 8. Stocks of recovered paper were at similar levels to the previous year. The average price of paper saw a significant recovery during the year's first quarter, where it went up 22 per tonne compared to the previous year's price. This is mainly due to the increase in exports to China, which has tightened the demand of paper for recycling in Europe.

3 If we look at the next page. In terms of corporate operations carried out in the first quarter. As most of you are aware, on 31 June we announced the sale of the packaging factory in Tangier to International Paper, for the sum of 44 million. This operation contributes a net profit of 10 million to our Group. This is our reaction to the changes in structure we saw in the Moroccan market, where we have seen a fall in margins and an increase in competition and the announcement of several projects to increase the capacity in that country. This was an excellent financial operation for the group, which is going to allow us to continue with our strategic objective of growing in the packaging and waste management sectors in our priority market, which is Spain, without increasing the debt ratio as was forecast in our Strategic Plan. During this quarter we also announced the purchase of a packaging company in Lucena, with the intention of increasing our packaging capacity in the Spanish market, the acquisition of Transcon, which permits us to diversify our recycling activity in Spain. We have also continued to invest in order to duplicate production capacity in our Dueñas packaging factory, and we have planned investments, which we have started converting in Alcolea, where we are in the process of adding three converting lines in the factories. Let's move on to the first quarter 2017 results. On page 11 we show the company's income statement for the first six months. On the right side are the weekly results and on the left, the quarterly ones. Here we can see the growth in income, both recurring as well as consolidated, fundamentally due to the improvement in management and the increase in sales prices. The recurring EBITDA for the second quarter of 2017 was 7% higher than the same period last year, and 13% more than the first quarter of 2017, influenced by the management improvements, the impact of the rise in the sales price of kraft and recycled paper, in spite of the rise in recycling paper the programmed stoppages we had on our machines in Viana and Rouen. In the 2017 financial year, the paper prices go from less to more. The EBITDA corresponding to the first quarter 2017 has been higher than the same period in 2016 by 0.6%. We cannot overlook the programmed stoppages of 3 million which affects our EBITDA. If we hadn't had these losses, we would have increased our EBITDA by 5.6%. The consolidated EBITDA has increased by 20% due to the capital gain from the sale of the Tangier Iñigo Recio factory, which was 10 million and exactly the same amount in net profit. Which means it is fiscally neutral. If we continue to lower our income statement, we can see a reduction in financial expenses of 80%. This is the result of a lower average debt ratio, better syndicate loan conditions and principally, the sale of financial instruments whose total effect has been 4.1 million. Net profit has increased by 55% to reach 32 million. If we isolate the 2nd quarter, the increase has been 97%. In these circumstances the recurring EBITDA in June was 13 million. If we take June's recurring EBITDA as a base, we must highlight that we still need to apply the effect of the stoppages at Viana and Rouen. What's more, we still need to see the increase in the price of recycled paper in June and the kraft paper increases in August. All this to reiterate that fact that we are convinced that the best of 2017 will be seen in the 2nd quarter.

4 Now let's look at page 12. We can see the quarterly consolidated results that show a solid progression of EBITDA, of the EBITDA margin and the profits during the last consecutive five quarters. In graph 1. we can see the income, where the evolution shows a 3% recovery in the first quarter influenced by the rise in sale prices. In graph 2. we can see the evolution of consolidated EBITDA that shows a continuous quarter by quarter growth as a result of the internal projects, both operative and commercial. The first quarter of 2017 also reflects the capital gain of the sale of our port in Viana and Med Packaging in Morocco. As a result, we see the good evolution of net profit on a upwards trend, quarter after quarter, year after year. Lastly, in the last table we can see the evolution of EBITDA margin from the last 12 months. Here we can see that lately the EBITDA margin has been increasing continuously in the last 12 months, July 2016 to June 2017, by 17%. But the quarterly margin stagnated in the 2nd quarter of 2017, it is 19.8%. Now please turn to page 13. We will look at the income for paper. On the one hand, we see a lowering in volume of kraft paper volume, as a result of the stoppage in May when we lost 17,000 tonnes of production and sales. In recycling paper, we see a slight increase in volume by 0.7%, in spite of the stoppage we had in Rouen. The sales in paper activity in euros rose by 7.3% compared to the first quarter of last year due to the increase mainly in paper prices, compensated by the reduction in volumes due to the programmed stoppages. It is important to reiterate that there are no programmed stoppages on any of our machines during the 2nd quarter. On page 14 we can see the paper EBITDA. We can see that there is an 11% increase in EBITDA and an increase in margin by 16.5% as a result of the rise in sale prices, in spite of the increases in the costs of raw materials and the machine stoppages we had. The industrial cost reduction projects have largely influenced these results. We see that the effect of the price increases quarter after quarter is low, 27 per tonne in kraft and 7 per tonne in recycled. This said, we have improved the result by almost 6 million. This is the result of our low cost reduction projects Europac Operation Systems and Europac Sales Systems. Here what we have done is improve the mix of our sales. On the one hand we have improved the qualities, increasingly converting Dueñas into a factory of added value products, which is the sale of white products. The sale of corrugated products has risen by 47% thanks to our big project in Dueñas last year. Last year we carried out an important project to reduce our transport costs and this year we have seen the fruit of this work. We have reduced specific consumption, to give you an example, we have improved energy consumption with an investment in turbochargers in Viana. This project alone has increased our margin by 200,000. We have invested in track lines in Alcolea and in Dueñas. In Alcolea we were able to increase our EBITDA by 600,000 thanks to the improvement in our qualities and mechanical characteristics, we improved the SST, which allowed us to increase prices. We have also lowered the starch. In Rouen, for example we have improved the performance of our raw materials and have improved results by more than one million euros. We have improved the efficiency of our machines: in MP1 in Dueñas, the group's first machine, by nearly 3,000 tonnes; in Alcolea by over 2,000 tonnes; in France by almost 7,000

5 tonnes. You can see that a large part of the results continue being boosted by management improvements. We are going to see the same in the Packaging Division, on page 15, where we can see an improvement in volume of 1.9%, which has increased our market share, especially in Portugal and Spain. Here we have also continued our operational and sales improvement projects. To give you an example, although I have already given you many about paper on operational excellence improvements, in this case we are going to talk about commercial excellence developments. Here we have invested a lot to increase our commercial activity with Europac System, which includes a CRN system. We have increased our commercial activity by 19%, it's like a factory, the sales team in the end search for achieving the best performance and they visit more customers. This increases the prospecting by 26%, allowing us to gain 9% new customers. In packaging we have started to increase prices, which was necessary after the increase in raw materials, the paper. We except to transfer 100% of the paper units to the market. We had already seen this, the group was successful in passing 100% of the price increases between 2015 and This process started even before finishing the increase of the results from the first raise, we are already starting with a second raise in all of our markets with the objective of passing the total increase of paper prices. In terms of the packaging EBITDA on page 16, the growth of end demand is causing relevant rises in the sales price of paper, which impacts the paper division's EBITDA very positively, and as a result that of the group, but by being integrated this affects the Packaging Division, where the raw material of paper represents 60% of its cost structure. Although, what is good for paper, is bad for packaging, but we have to remember that our group is big in paper, we have a lot more paper than the packaging we sell. The effect of the rise in paper in the case of packaging has meant a loss of 3.9% EBITDA margin, which would have been a 5.6% margin in the first quarter of This means that if we hadn't had the rise in paper, packaging would have achieved an EBITDA of 5.6%, higher than the 4.4% we announced for the same quarter last year. This once again shows that we continue with our operational improvement projects, both in supply chain, where we have carried out many important projects, and continue to do so, as well as transport, lowering the cost of pallets, reducing the warehouse costs and the amount of external warehouses on the operations side, improving our maintenance and continuously identifying practical improvements by comparing ourselves to our internal factories and the competitors' factories and practical improvements outside of our industry. We have an operational plan for all our packaging factories, the effects of which we will see in 2017 and in an increased way in 2018 and 2019 in our ambition plan, which we will look at a little later. Let's move on to our cash and dividend generation, on page 16. As you will see, we invested 31 million in CapEx during the first quarter of this year, we have continued the investments to improve our industrial assets. To give you an example, the investments that we have made in the paper division indicate the increase of production capacity and improvement in Viana, during the stoppage we have just had. We invested in the Rouen stoppage for the purpose of reducing our specific costs and increasing the production volume at Rouen. As you will see, we have continued our environmental investments.

6 In the Packaging Division we have important investment projects to improve the corrugation productivity in Val de Seine, the converting productivity in Ovar and in general in Albarraque. We continue investing in our Dueñas project, where we are looking to double our capacity: the first goal is to reach 80 million square metres and exceed 100 in the second. We have launched new capacity growth projects in our Lucena factory and converting line installation in Alcolea. Moving on to debt evolution now, on page 19. You can see that we continue with the reduction of net debt as a result of cash generation, the growth of income from our MMI operations. Year after year we have reduced our EBITDA debt ratio, which has now improved to a 1.5 factor. Our aim, and we must be clear on this, has not changed, our objective is still to have an EBITDA debt ratio of 2. This objective is linked to the plan we have for investment, corporate operations and shareholder remuneration. We already exceeded the target of 2, but as we have always said, we will invest more in our operations or we will increase our shareholders' remuneration. Turning now to page 20, where we talk about the ROCE. It continues to improve as a result of the increase in operating result and the lowering of capital employed, which this first quarter will reach 12.3%. The shareholders' remuneration is on page 21. The 2016 results have shown an increase in dividend of 78.4%. We have shared out this year, as a result of 2016, a dividend of per share, which is 60% higher than the previous year. Also in the last shareholders' meeting the share bonus one for 25 was approved, and the amortization of almost 2 million treasury stock was also approved, which represented 2% of our social capital. In conclusion, please turn to page 23. This slide shows the route travelled and what is left to cover until meeting the targets in our Strategic Plan The progress in the degree of fulfilling until this moment is notable and shows the commitment of all our team to meet these targets. We continue with many management projects, in order to continue with good results that guarantee the fulfilment of these objectives, regardless of the market conditions. This year we see an improvement in results thanks to the favourable wind, but even so we continue with many management projects. The consolidated EBITDA margin in the first quarter of 2017 amounts to 17.3% and influences the special and significant effect of the non-recurrent expenditures, as is the case with the capital gains with the Morocco sale. Without considering this expenditure, the recurring EBITDA margin amounts to 16.1% for the 2nd quarter. Once again I would like to remind you that the improvement in the 2017 margin, compared with the first quarter of 2016, does not originate from the market but from the operations, the projects we have done with operational excellence in our factories and commercial teams. We consider that the increases in paper are going to continue being implemented in the second quarter of 2017, just like the impact of packaging prices to the end customer. There are no more programmed maintenance stoppages with regard to last year. There is potential to increase the recurring EBITDA margin, and what's more import is that we continue with our

7 structural management improvement plans included in our 3B transformation programme: Better before bigger. On page 24 we can see a very positive scenario for the 2nd quarter. The strength of the demand in European markets based on a structural consumer increase permits us to increase the announced paper price rise, resonating on the raw material market rise in the Packaging Division and to increase the sales volumes in the paper and Packaging Divisions. Moreover, we are implementing internal management projects that are currently underway and are value generators, which we will talk about at the end of this presentation. On page 25 you can see the evolution of our share comparing 2007 to If we analyse the historical evolution of the share we can see a positive progression since the end of In June 2007 Europac had the greatest capitalization in its history, with an amount of 754 million. In 2007 Europac had aggregate income for the year of 540 million, accommodating an EBITDA of 82 million and net profit of 32. If we take the situation of the first quarter 2017 and we analyse the last two quarters the last quarter of 2016 and the first quarter of 2017, Europac has had aggregate income of almost 1100 million and an EBITDA of 138 million with a profit of 60 million. From the viewpoint of results and production capacities, both in paper and packaging alike, Europac today has doubled in terms these magnitudes. Nevertheless, it capitalized a lower amount that of ten years ago. This gives us an idea of the enormous potential that our share still has. Please turn now to page 26, 2017 vision. The first quarter of the year was a quarter of transition, passing from low prices to a continuous increase. The 2nd quarter of this year shows a tendency of change and the best is yet to come in the 2nd quarter, where we will see the profits for the strong demand this is key for the 2nd quarter, the increase in prices for recycled paper and kraft, as well as the rise in packaging continuing with our management projects. On the following pages, on pages 28 and 28 I would like to conclude by providing you with an overview of the management projects we have. We can see the projects that we have underway in packaging, our so-called operational excellence projects under the Europac Operation System. We have started a very ambitious project called the ambition, project, where we search for competitive improvements in all of our factories to obtain 20% further cost reductions outside of paper. This translates into an EBITDA margin increase of 10 percentage points. We have this divided into projects, both in supply and also in operations. But apart from this ambitious project where we seek a breakthrough of all our cost lines, in all the factories, comparing ourselves with the best in the industry not just our own industry, but industry in general we are expanding our factory in Dueñas, we are expanding all of the converting warehouse in Alcolea, integrating Lucena into the Group, increasing its installed capacity and continuing with the high quality printing projects in our factories, Ovar our factory in Portugal, has also implemented a capacity increasing project; we continue searching for commercial excellence projects, we have launched a PLV project materials, where we have seen a growth in sales of 10%, all sales with a strong aggregate value. In the paper decision we have increased our kraft liner capacity. During the last stoppage we made an investment with the aim of increasing our production by 20,000 tonnes

8 per year. We have improved the efficiency of our recycled paper plants, we continue with our improvement mix at Dueñas, pushing the white qualities, and particularly the double corrugated products. In Alcolea we have launched a new paper called kraft liner high performance 1, which permits our factory to specialise and obtain a higher sales margin. In our recycled division, we have developed new products and services with the intention of becoming integrated waste management experts. As you can see, there are many structural improvement projects, many management projects. All these paper and cardboard projects permit us to generate higher value for the Group, and its impact can be seen gradually reflected in the company's improved EBITDA. Thank you very much, this now concludes the presentation of the first quarter 2017 results. Fernando Vidal: Thank you, Oliver. Now let us open the floor to questions. Speaker: Good afternoon, the question time is about to start. If you would like to ask a question, please press 01 on your telephone keypad. Thank you. We don't have any questions. If you would like to ask a question, please press 01 on your telephone keypad. Thank you. We have a question from Luis de Toledo. Please go ahead. Q1 - Luis de Toledo: Hello, good afternoon. I have a question, I don't believe I understood the data relating to the ambition project in packaging. You had mentioned that we could expect a reduction in costs, beyond what paper represented, of 20% and you don't know the effect it could have on the EBITDA. You mentioned an improvement of 10 percentage points. Please can you confirm this figure? Oliver Hasler: Thank you, Luis. As we discussed, our aim is clear: to reduce all these costs by 20% outside of paper, which are the ones controlled by the factory. As a result, this will have an increase on our EBITDA margin of 10 percentage points from now until Q1 - Luis de Toledo: Thank you. Let's say that the margins you had achieved, could we arrive at double digit EBITDA margin level in the Group's whole Packaging Division in such a short period of time, in two years? Oliver Hasler: I don't say that's it's short. If we look at operational excellence we are seeking breakthrough projects, making a correct benchmarking, trying to look we are comparing ourselves with the improvements in other industries. I believe we can reach these levels in the Packaging Division. If we look at improvements in other markets, we see there are companies with these figures. Q1 - Luis de Toledo: Doesn't this project require big investments apart from those you announced in corrugated, of the improvement mix in the plants...; the other initiatives will come more from the cost reduction side from operational improvements without requiring large expenditure? Oliver Hasler: This is the condition we have given the teams Luis, because if not we will have twelve customers asking us for a complete change of their factories for the latest generation equipment. And this does not represent any effort on their side, what we are asking for are breakthrough projects and management that is in their power to do, as this represents minimum CapEx, perhaps some peripherals or small facilities, but you know that we cannot discuss large CapEx. We could do this with other projects, but not with this one.

9 Q1 - Luis de Toledo: Very well, thank you very much. Oliver Hasler: Thank you Speaker: We have a question from Alberto Sánchez. Please go ahead. Q2 - Alberto Sánchez: Hello, good afternoon. I have a question related to exchange rates. I would like to know if you are thinking of making any impact for the strong euro, weak dollar in terms of kraft exports to Europe from the USA. Thank you. Oliver Hasler: I think if we are going to discuss exchanges rate I would like to give the floor to Jorge, our CFO. Jorge Bonnin: Hello, Alberto. Basically we didn't expect such big movements and in any case, as Oliver mentioned earlier, the demand for kraft in Europe is very solid and we see the forecast for the following quarters being solid as well. Therefore, regardless of the volume that the exchange rate could affect the US exports slightly upwards or downwards, we can see that the impact of European demand is practically irrelevant, that it will continue, and we see it being even more solid in future months. Meaning the wind is behind us as previously mentioned. Q2 - Alberto Sánchez: OK, thank you very much. Speaker: We have a question from Iñigo Horacio. Please go ahead. Q3 Iñigo Recio: Hello, good afternoon, this is Iñigo Recio. I would like to ask if this favourable situation of paper prices could be affected by an increase in liner test capacity for example, or if you see this price trend positive towards Thank you. Oliver Hasler: Jorge, I am passing you Iñigo's question. Jorge Bonnin: Íñigo, basically as I commented, the comment about solid demand in Europe is valid for both kraft and recycled, meaning the increase in capacity is always small to small and the growth of European demand is larger than this increase in new capacities being placed in the market. Oliver Hasler: On the kraft side, Íñigo, we see it as a structural change, because there is a great entry barrier to building kraft factories; not only the enormous cost involved in building a kraft factory, but the lack of raw materials to sustain it. Today we have less USA exports. The solid US market that absorbs all its kraft requirements with a high margin, meaning there are no exports to Europe, where there is a growing demand, where we also know that structurally we lack capacity of kraft to cover this demand and with a high entry barrier. Therefore here we see that this kraft change is structural. In recycled we currently see demand on both sides, from the USA and Europe, and we haven't seen increases in demand beyond 5% for some time now, as we are seeing in our markets now. Q3 Iñigo Recio: Thank you. I would like to take this opportunity to know a little on your opinion of how 2018 is coming along: So you think that removing 2017's EBITDA the increase is non-recurring, could you have growth in EBITDA or would it be complicated to grow more at these levels? Thank you.

10 Oliver Hasler: If we look at our recurring line, we expect paper to continue at the weight levels we have today, or even increase this lack of capacity and for it to continue the demand in the direction it is in. Apart from this, we should see significant results in packaging as well as results on the price increase we are experiencing in the market, but we won't see the total and end result until the following year. Above all, it is important to talk of the projects that we control. We don't control the paper price market or the demand, what we do control however are our internal management projects, our Europac Operation System and Europac Sales System, so we continue with those and we have many of these project in type line. Q3 Iñigo Horacio: Thank you. Speaker: We have a question from Iván San Félix. Please go ahead. Q4 - Iván San Félix: Hello, good afternoon. My question was on the amortization that, if I am not mistaken, was 16 million in the 2nd quarter. This is around 3-4 million more than what has been normal. Could you comment on what this is due to and how do you see it at the end of the year? Thank you. Oliver Hasler: Jorge, could you answer Iván please. Jorge Bonnin: Yes. Hello Iván. Basically this increase in amortization is partly owing to the increase in accumulated CapEx and also accelerated amortization on some machines and software applications we have carried out. Do you have any more queries? Q4 - Iván San Félix: All right, fine, thank you. Oliver Hasler: I don't see any more questions. I am looking at the telephone numbers, today we don't just have people in Spain but also from Germany, England, Hong Kong and other countries whose dialling code I don't recognise. I would simply like to close by commenting on the strong demand in Europe, many management projects and the improvement that is to come from the impact of price increases in the 2nd quarter. Good afternoon everyone. Fernando Vidal: Very good. The presentation of results has come to a close. As you are already aware, our investor relation area is at your disposal to answer any query or additional questions. Good afternoon.