Eucatex Industria e Comercio : 4Q16 Earnings Release

INVESTOR RELATIONS

José Antonio Goulart de Carvalho Executive Vice President and Investor Relations Officer

Waneska Bandeira Investor Relations

Telephone: [phone] [e-mail] ri.eucatex.com.br

Conference call

(Portuguese only)

March 23, 2017

9:30 a.m. (Brasília) / 8:30 a.m. (US ET)

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4Q16 Earnings Release

São Paulo, March 22, 2017 - Eucatex (BM&FBovespa: EUCA3 and EUCA4), one of the largest manufacturers of panels in Brazil, with operations also in the paint and varnish, laminated flooring, wall partitions and doors segments, announces today its results for the fourth quarter of 2016 (4Q16). The consolidated financial statements are presented in accordance with the International Financial Reporting Standards (IFRS). Except where stated otherwise, the amounts are in millions of Brazilian real (R$ million) and comparisons are with the same period the previous year.

Webcast

ri.eucatex.com.br

After the conference call, the transcript will be available in English

4Q16 Earnings Release

Highlights

4Q16 Net Revenue of R$284.5 million (-1.7%) Recurring EBITDA of R$46.7 million (+1.9%), with margin of 16.4% Recurring Net Income of R$14.0 million (+182.9%) Exports increased 51.3% in Volume and 17.6% in Net Revenue 2016 Net Revenue of R$1,144.5 million (+0.1%) Recurring EBITDA of R$185.8 million (-5.5%), with margin of 16.2% Recurring Net Income of R$53.5 million (+140.0%) Exports increased 41.9% in Volume and 22.9% in Net Revenue

Amounts in R$ million	4Q16	4Q15	Var. (%)	2016	2015	Var. (%)
Net Revenue	284.5	289.4	-1.7%	1,144.4	1,143.3	0.1%
Gross Income	85.7	77.7	10.3%	323.4	334.8	-3.4%
Gross Margin (%)	30.1%	26.8%	3.3 p.p.	28.3%	29.3%	-1 p.p.
EBITDA adjusted by non-cash events	43.8	41.6	5.2%	165.8	184.9	-10.3%
EBITDA Margin (%)	15.4%	14.4%	1 p.p.	14.5%	16.2%	-1.7 p.p.
Net Income	11.0	0.7	1499.1%	33.5	10.5	218.9%
Recurring Net Income	14.0	5.0	182.9%	53.5	22.3	140.0%
Net Debt	332.1	333.9	-0.5%	332.1	333.9	-0.5%
Net Debt / EBITDA (LTM)	1.8	1.8	-2.4%	1.8	1.7	5.3%
Recurring Adjusted EBITDA	46.7	45.9	1.9%	185.8	196.7	-5.5%
Recurring Adjusted EBITDA Margin (%)	16.4%	15.9%	0.5 p.p.	16.2%	17.2%	-1 p.p.

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4Q16 Earnings Release

Management Comments

The year 2016 started off under the effects of worsening economic indicators during 2015, which continued throughout the entire period. Between the second and third quarters, with the change of government in Brazil, there was widespread belief about a recovery in economic activity, driven by an improvement in consumer and industry confidence levels which, however, did not materialize.

Sluggish economic activity, rising unemployment, high interest rates and political turbulence negatively impacted the Company's main operating segments - furniture and construction - which reflected in its results. According to the Brazilian Tree Industry (IBA), the domestic panel market contracted 2.2% this year. The Brazilian Construction Materials Industry Association (ABRAMAT) index, which measures the performance of construction industries, has been pointing to a downward trend in recent years, declining from 12.6% in 2015 to 11.5% in 2016.

The outlook for 2017 is lower interest rates, lower inflation rates, improvement in consumer and industry confidence and a slight increase in employment rate, resulting from a reduction in the high level of corporate and household debt. These factors, combined with the release of the Guarantee Fund for Length of Service (FGTS) inactive accounts, enable the resumption of investments and consumption, though the recovery of economic activities should still remain slow.

Since 2015, the Company has been preparing for the economic recovery and growth of exports, modernizing and adjusting its product lines, reducing costs and investments in order to preserve its business during the still challenging period.

Operating Performance and Results

Sales in the Company's Wood segment, combining domestic and export markets, declined by 5.9% and 2.5% in 4Q16 and 2016, respectively, compared to the same period last year, impacted by lower domestic sales. According to IBA, the domestic panels market grew 11.8% in 4Q16, driven by higher volumes of MDP (+10.0%) and MDF (+14.5%) and lower volumes of Fiberboard (-4.5%). In 2016, the market as a whole registered growth of 3.7%, of which 8.9% from MDP and 1.1% from MDF, and a decrease of 5.3% in fiberboard compared to the same periods in 2015.

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4Q16 Earnings Release

In this Segment, the highlights were the Company's exports, which are in line with its strategy, growing both quarter-over-quarter and year-over-year. Volume increased 51.3%, while Net Revenue increased 17.6% in the quarterly comparison, and 41.9% and 22.9%, respectively, in 2016. This result was driven by higher sales of T-HDF/MDF and MDP, whose exports were still incipient in 2014 and which started accounting for a higher share of the export mix in 2015, and continuing the pace of expansion this year. According to IBA, the sector increased its exports by 61.6% and 62.1% in 4Q16 and 2016, respectively, compared to the same periods last year. The significant growth in exports - which totaled more than 1 million m³ in 2016 - helps regulate domestic supply.

The Company's Paint sales remained stable in 4Q16 (+0.3%) and decreased 3.7% in 2016 compared to the same period in 2015. According to ABRAFATI, this market contracted 5.7% in 2016.

Operating Performance base 100 - 2005
Physical Sales	4Q16	4Q15	Var. (%)	2016	2015	Var. (%)
Wood Panels (DM)	127	146	-13.0%	140	153	-8.3%
Wood Panels (EM)	227	150	51.3%	215	152	41.9%
Paints	304	303	0.3%	342	355	-3.7%
DM - Domestic Market /	EM - Export Market

Net revenue

Net Revenue Breakdown (R$ million)	4Q16	4Q15	Var. (%)	2016	2015	Var. (%)
Wood Segment	199.5	208.5	-4.3%	820.6	850.3	-3.5%
Paint Segment	68.4	65.7	4.1%	260.0	253.7	2.5%
Other	16.6	15.2	9.2%	63.9	39.2	63.0%
Net Revenue	284.5	289.4	-1.7%	1,144.5	1,143.3	0.1%

Net revenue totaled R$284.5 million, down 1.7% from R$289.4 million in 4Q15. In 2016, net revenue remained stable at R$ 1,144.5 million, compared to R$1,143.3 million in 2015.

In the Wood Segment, revenue decline lagged the decline in volumes due to the substantial share of higher-value products in total sales, as well as higher prices. Despite the sharp currency depreciation, export revenue increased 17.6% in 4Q16 and 22.9% in 2016, reflecting the continued growth of this market.

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