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Dear Shareholders,

In 2019, The Navigator Company reinforced its commitment to corporate, social and environmental sustainability as one of the most relevant values of its business model.

In fact, sustainability is in Navigator's DNA, materialising in the most diverse areas of its activity, with emphasis on the sustainable management of the approximately 109,000 hectares of forest that it directly manages, the significant investment it makes in the environment, research and development, the professional growth of its people and its constant commitment to local communities.

We operate in a sector, the bioeconomy, which is, by definition – and also because of the recurring efforts and investments we make in the environmental area – an environmentally integrated and sustainable business model:

  • Our raw material, the forest, is renewable and is also the main source of CO2 fixation.
  • Our final product is essentially biodegradable, approximately 80% recycled in successive cycles and subject to energy recovery at the end of such cycles.
  • We recover about 80% of our waste through energy recovery, composting and incorporation into higher-value products.
  • We return more than 80% of the water we use into the environment, after treatment according to the most demanding control parameters.

It is in this context, and in keeping with Navigator's long-standing commitment to sustainability, that the year 2019 was marked by the commitment to achieve carbon neutrality at its manufacturing facilities as early as 2035, meeting the target already assumed by the European Union and Portugal 15 years in advance. In this way, we demonstrate unequivocally our commitment to go further and to achieve the most demanding standards.

To this end, we have the objectives of producing all our electricity from renewable sources, of reducing fossil CO2 emissions in other production processes by replacing fossil fuels with biomass, of reducing specific energy consumption by 15% by 2025 and of offsetting emissions that cannot be eliminated by increasing the productivity of eucalyptus areas, planting native forests and the forest products produced.

As regards the economic and financial performance of the Company, the 2019 financial year was also characterised by an adverse market environment, with a sharp drop in pulp prices and a fall in demand for both pulp and paper, as well as a deterioration of variable production costs, particularly due to increases in the prices of wood, energy and chemical products.

In addition to these market conditions, 2019 was also a year characterised by operational difficulties at our industrial sites and some social instability, which led to stoppages due to strikes that occurred throughout the year in Setúbal, Figueira da Foz and Vila Velha de Ródão, which meant that production volumes did not reach the levels reached in previous years.

These difficulties, both external and internal, led to the Company's results being lower than the previous year, with an EBITDA of €372 million, i.e. around 18% lower than in 2018, and an EBITDA/sales margin of 22%.

Nevertheless, and looking at the industry , it must be acknowledged that these results are quite robust in the light of the circumstances and behaviour of our peers, demonstrating once again the high quality of our teams and the resilience of our integrated pulp and paper business model.

Thus, in the pulp business Navigator managed to increase sales volume by more than 10%, partially offsetting the effect of the sharp decline in prices, with a turnover of about €165 million, nearly 1.2% lower than in 2018.

In the UWF paper business, sales volumes were about 4.4% below those of 2018, reflecting lower production volumes, but paper prices showed great resilience, with the A4 B-copy benchmark registering an average value of €903/ton, 3.4% above the 2018 average; this despite the pressure on prices, with special emphasis on the last quarter. The Company's performance reflects a strategy of protecting its margin in Europe and the U.S., regions where we record most of our sales, and some redirection of volume to other geographies with occasionally more favourable market situations.

With regard to the tissue business, the volume produced and sold increased significantly by 52%, reaching 95,700 tonnes, as a result of the start-up of the new mill in Aveiro. Sales volume stood at €132 million, up 45% on 2018. Both finished products and reels registered price increases compared to 2018, which offset the rise in costs. The accelerated growth of the reel business, resulting from the start-up of the new tissue mill, has altered the mix of products sold, impacting the Group's average selling price, a situation which will be mitigated by the consolidation of the Aveiro mill's activity.

The line of robust results also made it possible to maintain a very attractive shareholder remuneration. Thus, on 24 April 2019, The Navigator Company distributed a dividend of €200 million, resulting in a gross value of €0.27943/share. In addition, several purchases of own shares occurred during the year, totalling 5,452,000 shares, in a clear sign of confidence in these instruments, representing an investment of around €18 million.

Additionally, relevant changes occurred in Corporate Governance in 2019, with the election of the Board of Directors to a new term of office, which also resulted in the replacement of the Company's Chief Executive Officer. This process involved a transition in which I had the opportunity to combine the functions of the Chairman of the Board of Directors with those of the interim CEO, an experience that allowed me to better understand the enormous value and skills of the people working in our Company who, undoubtedly, represent its main asset.

This is the reason why the Executive Committee – which I had the honour of chairing, in defining what will be the fundamental pillars of its activities in the new term of office – has made it a priority to continue investing in people as a key asset for the future, making special mention of the strengthening of a culture of differentiation through merit, technical, operational and leadership development and training, developing the potential of its employees and continuing a policy of rejuvenation with the commitment to avoiding any loss of knowledge.

Along this priority, the following are also defined as fundamental guidelines:

  • The protection and development of the Company's core business. The Company's performance is also especially tied to a great concern with the excellence of the production process, the quality of its products and the Company's overall efficiency.

Strengthening forest productivity and sustainability and commercial excellence in managing our margins and sales are other key objectives for the term of office described in this chapter.

  • The consolidation and development of options for the Company's organic growth, seeking to further develop the tissue business as a natural growth option, and also evaluating other growth possibilities related to the main businesses.
  • Strengthening our sustainability agenda, defining and implementing objectives that reconcile shareholder return with the social impact of our activity; seeking sustainability as a source of competitive advantage aligned with our business; protecting the forest and biodiversity and promoting the role of the forest in combating climate change and creating wealth for local communities; pursuing our goal of achieving carbon neutrality in our industrial complexes by 2035.

I have now completed this period in which I have combined the duties of Chairman with those of the Chief Executive Officer, duties which have now been assigned to Mr António Redondo, who has been with this Company since 1987. He possesses a profound knowledge of the Company's activity and business after having worked in various operational areas and also because he has served as Executive Director since 2007. I would like to express my wish that all members of our executive management as well as all the Company's employees enjoy the best personal and professional success. I am certain that their skills, competence and commitment will enable them to achieve excellent operational performance, which I am certain they are capable of delivering.

To all of the stakeholders in general, and to our shareholders in particular, we extend our thanks for continuing to invest decisively in Navigator.

Lisbon, 19 February 2020


João Castello Branco

Chairman of the Board of Directors

Chief Executive Officer until 31 December 2019.