PORTUCEL GROUP ANNUAL REPORT PORTUCEL GROUP YEAR IN REVIEW 2012 4 MESSAGE FROM THE CHAIRMAN 6 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER 8 THE PORTUCEL GROUP IN 2012 12 Business Areas 14 Location of Production Plants, Commercial Subsidiaries, R&D Units and Nurseries 14 Technology Showcases 14 Economical and Financial Indicators 15 The Portucel Group 16 Analysis of Results 20 Financial Situation 22 Development 23 Risk Management 24 CAPITAL MARKETS AND SHARE PRICE PERFORMANCE 26 Capital Markets 28 MARKET PERFORMANCE 30 Economic Environment 32 UWF Paper 33 Branding 35 BEKP Pulp 44 Logistics 45 INDUSTRIAL OPERATIONS 46 Production 48 Capital Expenditure Projects 49 RESOURCES AND SUPPORTING FUNCTIONS 50 Sustainability 52 Forestry 53 Procurement 59 Environment 61 Energy 67 Human Resources 69 Social Responsibility 70 Innovation 72 OUTLOOK 78 Acknowledgments 82 Proposal for the Allocation of Profits 83 Declaration required under Article 245.1 c) of the Securities Code 84 Corporate Bodies 85 Mandatory Disclosures 86 CONSOLIDATED FINANCIAL STATEMENTS 90 Statutory Auditors Report 154 Report and Opinion of the Audit Board 155 Corporate Governance Report 156 CONTACTS 206 Printed on FSC® certifiedS oporset Premium Offset paper, obtained from responsibly managed forests. | Management report - 120g/m2 | Consolidated Financial Statements and Corporate Governance - 80g/m2 | Cover - 350g/m2 2 ANNUAL REPORT 2012 CONTENTS 3 PORTUCEL GROUP YEAR IN REVIEW 4 ANNUAL REPORT 2012 Business Performance ENVironmental Performance ° Turnover of more than 1.5 billion euros, representing ° Positive indicators for environmental performance at all approximately 1% of Portugal's GDP; the Group's industrial plants, in all areas: air, water and ° The Group recorded excellent operating performance, with natural resources; an EBITDA/Sales margin of 25.7%; ° Certified wood supplied to Group plants represented ° Net income of 211.2 million euros, representing growth of around 30% of total; 7.6% over the previous year; ° Continued certification of management systems ° Debt down by around 100 million euros, permitting the Net implemented. Debt/EBITDA ratio to improve to 0.9. ENERGY DEVelopment ° Total electricity generated corresponded to almost 4.4% ° Investment project in Mozambique achieves good results of the country’s entire power output; in field trials for selecting the plant materials with the best ° Group continues to enjoy the status of Portugal’s leading potential and the forestry model trials; producer of electricity from biomass, accounting for 49% ° Completion of the extension of the nurseries at the Espirra of the total power produced from this natural resource. Estate: annual production capacity increased to 12 million plants, equipping the Group with the largest nursery for certified forest plants in Europe. HUMAN RESOURCES ° Investment in ongoing training and professional PAPER Business / BRANDING development of workforce, with 117,826 training hours divided between 1,495 training initiatives; ° Group consolidated its position as leading European ° Professional traineeship programmed widened, doubling manufacturer of uncoated woodfree paper (UWF) printing the number of places offered. and writing paper, setting new records for output and sales; ° Growth of 4% over the previous year in volume of paper sales on European markets; SOCIAL RESPONSIBILITY ° Strong performance by Group's own brands, accounting for 62% of total sales of sheeted products; ° Group has continued the Social Project, a partnership ° Navigator, the world's best-selling premium brand of office with charity organizations which involves donating basic paper, consolidated its leadership position with 4% growth foodstuffs to families facing economic hardship; in sales worldwide. ° "Give the Forest a Hand" - nationwide programme designed to raise awareness amongst city-dwellers and PULP BUSINESS primary school children of the need to protect and improve Portugal's woodlands; ° “Open Doors 2012”: Programme of visits to industrial ° Group reinforced its position in the special papers segment, complexes designed to create closer ties between the offering higher value added; this segment grew from 57% company and local communities. of Group pulp sales in 2011 to 63% in 2012; ° Almost all pulp sales were made on the European markets, home to manufacturers of higher quality paper, where the intrinsic qualities of the Eucalyptus globulus pulp produced INNOVation by the Group are more properly valued. ° Launch of Navigator Students, geared to the needs of the youth market; ° Completion of the PADIS (High Performance Paper for Industrial Operations Printing) project, in partnership with Portuguese scientific and technological research institutions, seeking to expand ° New record levels for output of printing and writing papers knowledge of the printability of uncoated papers; at the Group's industrial facilities; ° Approval by the Directorate-General of Economic Activities ° Completion of project to increase evaporation capacity of Ferticel a compound developed by RAIZ, the Group's at the Figueira da Foz Industrial Complex, with positive forestry and paper research institute, as a soil corrective impact on energy efficiency at the site; obtained from pulp and paper by-products of recognized ° Significant gains in efficiency and productivity thanks to nutritional interest; the MEO Project - Improving Operational Efficiency. ° RAIZ' genetic improvement programme has made it possible to formulate a new cloning recommendation for 2012/2014, comprising 4 new Eucalyptus globulus clones ForestrY and 2 new hybrids, offering gains in forestry and industrial productivity. ° Renewal of forest management certificates awarded to the Group under the two international forest certification schemes: FSC and PEFC; ° Responsible management of 120 thousand hectares of agro-forestry holdings, spread over 160 Portuguese municipalities; ° Investment of approximately 3 million euros in defence against forest fires, with a special emphasis on prevention, training, research and development. 5 PORTUCEL GROUP MESSAGE FROM THE CHAIRMAN SHAREHOLDERS, The financial year of 2012 was fairly positive for the Portucel Group. Despite a particularly difficult economic situation at home and abroad, it was possible to break the symbolic barrier of 1.5 billion euros in sales, confirming the Group's position as the main European manufacturer of uncoated woodfree (UWF) printing and writing papers. This target was achieved without sacrificing the Group's level of profitability. The Group has in fact for several years enjoyed a position as one of the leading companies in the world in its sector in terms of the most important factors for its future competitiveness, in particular with regard to profitability and the strength of its balance sheet. Personally, it gives me great satisfaction to point to the significant contribution the Group continues to make to Portugal's efforts to balance its external accounts. In 2012, the Group's exports rose to an impressive figure of 1.25 billion euros, accounting for approximately 3% of the country's exports of goods. The relative importance of the Group's export activity is in fact greater than suggested by this percentage figure, if we consider the coefficient of national value added, which in Portucel Group's case is well above the average for Portuguese exports. The crucial importance of the Portucel Group is today a fact almost unanimously acknowledged. Its positive contribution, in particular to the trade balance and to creating skilled employment, is all the greater when we consider that its operations have an impact over much of the country's territory. The Group's three industrial complexes - in Cacia, Figueira da Foz and Setúbal - are hubs which radiate wealth to the regions, providing work for countless small and medium sized companies, in the primary, secondary and tertiary sectors. 6 ANNUAL REPORT 2012 Portucel Group is well aware of the important role it positive contribution to this success made by plays in adding value to the country's resources. It our clients, suppliers, financial institutions and is therefore with a degree of frustration that I must employees, and also by a wide range of other once again refer to the great under-exploitation of organizations, with which we have been able Portugal's capacity for forestry operations. Alongside to cooperate on sound, lasting and mutually other consequences which are less obvious, this advantageous basis. results in the need to make very significant imports of raw material each year to supply the processing It is my clear conviction that Portucel Group will needs of the manufacturing sector. This situation continue to enjoy success in its ongoing quest represents an enormous waste, which the country to consolidate its position amongst the leading can ill afford. companies in the sector, adding to its achievements, year after year. The Group has worked systematically to encourage critical analysis of the factors hindering the modernization of Portugal's woodlands, as well as other issues which represent inefficiencies which could be avoided, and which together add to what Setúbal, 29 January 2013 have generally been called the context costs of the Portuguese economy. PEDRO QUEIROZ PEREIRA There is plenty of common ground between the CHAIRMAN OF THE Board OF Directors needs of the Portucel Group and the positive effects, both for all companies operating in the field of tradable goods and also, in general for the balanced development of