ANNUAL REPORT 2017 ANNUAL REPORT 2017 Contents MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS . .................................................................................................................................................................. 10 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER . ................................................................................................................................................................... 16 01. 05. THE COMPANY SUSTAINABILITY . ....................................................................................................................................... 30 . ....................................................................................................................................... 60 5.1. Forestry ......................................................................................... 65 02. 5.2. Energy ............................................................................................ 69 OUR PAPER 5.3. Water and Environment ................................. 71 5.4. Research and Development .................. 72 . ...................................................................................................................................... 40 5.5. New Projects ........................................................................ 75 03. OUR STRATEGY 06. OUR PERFORMANCE . ...................................................................................................................................... 46 . ....................................................................................................................................... 76 04. 6.1. Risk Management ...................................................... 79 6.2. Financial Performance ................................... 82 OUR PEOPLE 6.3. Optimisation and . ....................................................................................................................................... 52 Cost Reduction Programme ............... 84 6.4. Supplier Relations ................................................... 86 4.1. Corporate Responsibility ........................... 55 6.5. Client Relations ............................................................. 87 4.2. Social Responsibility .......................................... 58 6.6. Navigator 4.0 .................................................................... 89 07. 11. WHAT TO EXPECT FROM 2018 CONSOLIDATED ACCOUNTS . ...................................................................................................................................... 90 AND NOTES TO THE FINANCIAL STATEMENTS 08. ..................................................................................................................................... 186 PROPOSED ALLOCATION OF PROFITS 12. ....................................................................................................................................... 94 REPORTS AND OPINIONS OF AUDIT BODIES AND STATUTORY 09. AUDITOR . ................................................................................................................................... 284 DECLARATION REQUIRED BY ARTICLE 245 12.1. Legal Accounts Certificate OF THE SECURITIES CODE and Audit Report .................................................. 287 CORPORATE BOARDS 12.2. Report and Opinion 296 . ....................................................................................................................................... 98 of the Audit Board ............................................. 10. CORPORATE GOVERNANCE . .................................................................................................................................... 104 Note: The non-financial information required by Decree-Law 89/2017 is included in the 2016-2017 Sustainability Report. Navigator in 2017 Key Figures €1,637 million Turnover 24.7% EBITDA/Sales 50% 4 Market share in the premium office paper segment 2017 2017 €114.7 million ANNUAL REPORT _ REPORT ANNUAL Capital expenditure Navigator is the most widely recognised paper brand in Europe 55 2017 2017 ANNUAL REPORT _ REPORT ANNUAL Navigator is an integrated manufacturer of UWF (uncoated woodfree) printing and writing paper and a leader in the European market. It has set new records for output at all its industrial units and in its different product segments, whilst maintaining its commitment to quality, distinctive products and added value. Sales and Production 1, 578 55 thousand t thousand t UWF paper sales Tissue sales 2,227GWh 6 Power output 311 2017 2017 thousand t BEKP pulp sales All-time Highest Industrial Output ANNUAL REPORT _ REPORT ANNUAL 573 593 thousand t thousand t UWF Paper – ATF Setúbal BEKP Pulp – Figueira da Foz Mill 354 56 thousand t thousand t BEKP Pulp Tissue reels – Cacia Mill – Vila Velha de Ródão Plant The Navigator Company is a prestige brand in Portugal and around the world. Ranked third in the league table of Portugal’s top exporters, Navigator was selected by Exame magazine for its “Biggest and Best Exporter” award. Navigator makes a significant contribution to wealth creation in Portugal, accounting for 1% of national GDP. It is also one of the country’s largest employers and a major producer of electricity. Weight in the Portuguese Economy 95% 1% € Products Portugal’s 1.3 sold outside Portugal billion – pulp and paper product – GDP Exports corresponding to to of Portuguese 77 130 exports of goods countries 2.4% 2017 Portuguese containerised 6% cargo 3,197 _ REPORT ANNUAL Employees 7,658 4% 31 Suppliers Country’s power output thousand Direct, indirect 72% and induced Portuguese jobs* * KPMG 2015 study The Navigator Company is vertically integrated, managing vast tracts of certified woodlands in Portugal. The Company’s woodlands are one of its most precious assets and the sustainability of the forestry sector is built into its DNA. Forestry million 12 Plants/year produced at Portuguese nurseries 62% € Wood suppliers 8 3.4 with Chain of Custody (CoC) 2017 2017 million Investment in protection against forest fires MORE THAN 40% ANNUAL REPORT _ REPORT ANNUAL IN PREVENTION 5.4 ACTIONS milliont CO2 Carbon sequestration by forests managed 112,000ha 54% by Navigator Forest with certified management Supply FSC® (FSC-C010852) of certified and PEFCTM (PEFC/13-23-001) wood Research & Development and the environmental improvement programme are central to The Navigator Company’s vision for the future and have been crucial in making and keeping it competitive. The environmental results achieved reflect the Company’s sense of social and environmental responsibility. Environmental Impact 90% 69% 82% Renewable raw Primary energy used Water returned to materials from renewable sources environment during (biomass) production process GWh/year 99 3.1 Production 2017 84% at photovoltaic Waste recovery rate power plant – ATF Setúbal ANNUAL REPORT _ REPORT ANNUAL Total CO2 emissions - avoided through 52% Score A renewable energy Power generation Climate sources from biomass in Portugal Carbon Disclosure Project t (CDP) 1,140 t /year Solar 0.228 CO2 Energy / mil CO2 year emissions – pulp and paper product 460 thousand t /year CO2 Biomass and cogeneration plants Message from the Chairman of the Board of Directors Life renews itself daily on our estates 12 2017 2017 ANNUAL REPORT _ REPORT ANNUAL Message from the Chairman of the Board of Directors Dear Shareholders, The fires that last year tragically affected a significant part of Portugal’s forests are still fresh in our memory. Forest fires have unfortunately been a recurring event in our country, but the extent of the damage in 2017, and above all the terrible loss of life mean that I must start by saying some words on this matter. Firstly and most importantly, of course, I wish to express my deep sorrow and sympa- thy for the suffering of the families affected, directly or indirectly, by the fires. The Navigator Company joined in the national wave of solidarity with the victims of the fires, both by putting its weight behind the initiative headed by the Calouste Gulbenkian Foundation, and also by providing assistance to the national and regional authorities in the work needed to protect the land affected against the risk of erosion. There are broad areas of consensus between the assessment and recommendations of the Independent Technical Commission, appointed in the wake of the first wave of fires, and the position long defended by companies, associations and experts in the sector. This is es- pecially true of the emphasis placed on shortcomings in planning, the importance of proper forestry management and the need for the right combination of resources for prevention and fire-fighting. It also emerged clearly that the problem of wildfires cannot be blamed on any individual forest species. Unsurprisingly, the conclusions drawn from cool analysis of the facts were not enough to silence the deeply-rooted prejudice against eucalyptus forests, blaming this species for the fires even in the face of clear evidence showing that, in a significant proportion of the 1313 areas burned, eucalyptus was not the dominant species, and in many cases was not actually present at all. 2017 Our business model – based on natural and renewable resources, obtained from correct- ly managed and certified forests, making efficient use of the resources needed for production, and reclaiming waste with economic and environmental benefits – is consistent with the aims of the circular economy. In around