Sappi Limited · JSE:SAP
Sappi — Q1 FY2019 Earnings Presentation
41 slides from Sappi's earnings presentation, Feb 6, 2019
Slide 1: Q1 FY19 financial results delivering on strategy
Q1 FY19 financial results delivering on strategy 6 February 2019 2019 Vision 2020 next phase growth intentional evolution Steve Binnie Chief Executive Officer Sappi Limited 1
Slide 2: Forward-looking statements and Regulation G
Forward-looking statements and Regulation G Forward-looking statements Certain statements in this release that are neither reported financial results nor other historical information, are forward-looking statements, including but not limited to statements that are predictions of or indicate future
Slide 3: Highlights – Q1 2019
Highlights – Q1 2019 Excluding special items* • Improved performance in difficult operating EBITDA* +15% climate year-on-year • Strong growth in packaging volumes Net Profit +29% year-on-year • Net debt increased due to Cham acquisition and higher capital expenditure Key ratios Q1 FY17 Q1 FY18 Q1 FY
Slide 4: EBITDA reconciliation Q1 FY18 to Q1 FY19
EBITDA* reconciliation Q1 FY18 to Q1 FY19 Sales revenue 300 260 US$ million 220 180 140 100 172 (7) 131 (84) (11) (5) 1 197 Q1 FY18 EBITDA Sales volume Price & mix Variable & delivery Fixed costs Other Exchange rate Q1 FY19 EBITDA costs Dec Notes: 2018 2017 1. All variances were calculated excluding
Slide 5: Product contribution split – LTM
Product contribution split – LTM EBITDA excluding special items Operating profit excluding special items Specialised Cellulose 32% 41% 41% Packaging & 53% Speciality Papers Printing Papers 15% 18% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reporte
Slide 6: Maturity profile
Maturity profile Fiscal years 600 536 500 EUR450m bond 442 EUR350m bond 400 376 350 US$ million 300 221 US$221m bond 200 100 80 79 69 47 45 27 0 0 2019 2020 2021 2022 2023 2024 2025 2032 Cash Short-term SPH term debt Securitisation SSA 6
Slide 7: Capex development
Capex development 700 600 500 US$ million 400 300 200 100 0 2013 2014 2015 2016 2017 2018 2019E Maintenance Efficiency and expansion 7
Slide 8: Divisional overview
Divisional overview 8
Slide 9: Global P&W paper market trends
Global P&W paper market trends Supply and demand Demand softening globally Capacity reductions expected in US and Europe Selling prices and input costs Pulp prices falling from historical highs on weak Chinese demand – declines differ by geography Paper prices stable Strategy Focus o
Slide 10: Global speciality & packaging paper market trends
Global speciality & packaging paper market trends Supply and demand More capacity entering the space – mostly containerboard Brand owners pushing for paper based packaging solutions Short term pressure on demand in consumer packaging and self-adhesives Selling prices and input costs Most
Slide 11: Global DWP market trends
Global DWP market trends Supply and demand Continued DWP and VSF capacity growth – both integrated and market 80% of swing capacity moved to DWP as paper pulp demand in China dried up Selling prices and input costs DWP selling prices are down as VSF prices decline on excess capacity. Wea
Slide 12: Sappi Europe
Sappi Europe Excluding special items* o Printing and Writing volumes down 7%, while Sales Tons -1.6% specialities and packaging volumes up 50% year-on-year (4% like-for-like) from last year Sales +9% o Packaging and specialities average net year-on-year selling prices were 17% (10% like-for-like) hi
Slide 13: Sappi North America
Sappi North America Excluding special items* o Higher prices for most products and higher Sales Tons -6% DWP volumes lifted profitability year-on-year o Coated paper markets weakened during the Sales +3% quarter, however we increased volumes from year-on-year European mills o Packaging and specialit
Slide 14: Sappi South Africa
Sappi South Africa Excluding special items* o Strong improvement in performance due to increases in volumes and selling prices Sales Tons +3% year-on-year o DWP volumes were lower sequentially due to low inventories, but higher year-on-year Sales +10% year-on-year o Volumes and prices were up for ou
Slide 15: Our group strategy
Our group strategy Achieve Maintain Improve operational cost Optimise a healthy and machine advantages working balance efficiencies capital sheet Expand paper Enhance packaging Strong specialised grades Maximise Continuously procurement cash Smart cellulose Optimise balance benefits paper supply gen
Slide 16: Our group strategy
Our group strategy We work to lower fixed and variable costs, increase cost efficiencies and invest for cost advantages. Achieve Improve operational cost Group efficiency and procurement initiatives US$60m and machine advantages target for 2019: +US$80m achieved in 2018 efficiencies Ongoing co
Slide 17: Our group strategy
Our group strategy Recognising the decreasing demand for Continuously balance paper supply graphic paper, we manage our capacity to and demand in all regions strengthen our leadership position in these Where markets, realising their strategic importance to possible convert paper Rationalise the gr
Slide 18: Our group strategy
Our group strategy Maintain leverage below 2x Net debt:EBITDA Finance costs US$60-70m/annum going Maintain forward. a healthy Optimise Renewal of RCF working balance capital sheet Lower spread (165bp), cost and commitment fee Additional flexibility for acquisitions and disposals Strong cas
Slide 19: Our group strategy
Our group strategy Expand We will make investments in existing and paper Enhance packaging adjacent areas with strong potential growth. grades specialised cellulose Debottlenecking of Saiccor and Ngodwana DWP portfolio complete, Cloquet in 2019. Accelerate Additional packaging at Ngodwana and
Slide 20: Outlook
Outlook We expect DWP sales volumes to increase this year following the completion of debottlenecking of Saiccor and Ngodwana. Variable market conditions for speciality papers. Packaging and paperboard markets remain strong. Increased volumes from Somerset and Maastricht forthcoming. Graphic p
Slide 21: Thank you
Thank you 21
Slide 22: Supplementary information
Supplementary information 22
Slide 23: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 EBITDA Operating profit ex special items 224 221 200 211 209 208 201 197 195 152 148 175 145 145 172 142 US$ million 136 150 133 160 128 155 155 112 105 97 93 100 85 50 0 * Refer to the supplementary information in this presentation for a reco
Slide 24: Net debt/EBITDA development
Net debt/EBITDA development 4.6 2,600 5.0 4.5 2,400 2,380 4.0 2,286 2,200 2,248 3.5 2,000 2.0 2,040 3.0 US$ million 1,946 1,917 1,916 1,800 2.5 1,771 1,734 2.0 1,600 1,652 1632 1603 1583 1568 1557 1.5 1,400 1408 1.0 1349 1338 1329 1322 1318 1,200 0.5 1,000 0.0 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3
Slide 25: Sappi specialities and packaging papers
Sappi specialities and packaging papers Global production sites with the ability to switch between graphics and packaging at various sites* Stockstadt Mill* (Germany) Carmignano Mill (Italy) Flexible packaging Flexible packaging and functional papers and functional papers Condino Mill (Italy) Maastr
Slide 26: Speciality and packaging papers expansion plans
Speciality and packaging papers expansion plans Expand Europe paper Maastricht: complete, ramp-up by 2021 Enhance packaging specialised grades -160k CWF, +150k specialities (FBB) cellulose portfolio Ehingen: complete -75k CWF, +60k specialities (WTL) Accelerate Extract growth in Alfeld:
Slide 27: DWP expansions
DWP expansions Expand Debottlenecking paper Enhance packaging Saiccor – 10kt complete April 2018 grades specialised Ngodwana – 50kt complete September 2018 cellulose portfolio Cloquet – 30kt complete Q3 2019 Accelerate additional 70kt swing capacity available Extract growth in value from o
Slide 28: Sappi Europe
Sappi Europe Q1 FY19 Q4 FY18 Q1 FY18 Tons sold (‘000) 809 864 822 Sales (EURm) 642 671 571 Price/Ton (EUR) 794 777 695 Cost/Ton* (EUR) 756 733 657 Operating profit excluding 30 38 31 special items** (EURm) * Sales less operating profit excluding special items divided by tons sold. ** Refer to the su
Slide 29: Coated paper deliveries and prices
Coated paper deliveries and prices Western Europe 1.2 1.1 1 0.9 0.8 0.7 0.6 0.5 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Q1 18 CWF Demand MCR Demand CWF 100gsm Sheets LWC 60gsm offset reels Western Europe shipments including export. Source: Cepifine, Cepiprint and RISI indexed to
Slide 30: Sappi North America
Sappi North America Q1 FY19 Q4 FY18 Q1 FY18 Tons sold (‘000) 321 363 343 Sales (USDm) 351 388 342 Price/Ton (USD) 1,093 1,069 997 Cost/Ton* (USD) 1,065 983 1,000 Operating profit excluding 9 31 (1) special items** (USDm) * Sales less operating profit excluding special items divided by tons sold. **
Slide 31: Coated paper prices and shipments
Coated paper prices and shipments United States of America 1.2 1.1 1 0.9 0.8 0.7 0.6 0.5 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Q1 18 Domestic CWF shipments Domestic CWF purchases RISI price CFS #3 60lb rolls US industry purchases defined as industry shipments, plus imports, les
Slide 32: Sappi South Africa
Sappi South Africa Q1 FY19 Q4 FY18 Q1 FY18 Tons sold (‘000) 396 441 383 Sales (ZARm) 4,709 4,824 4,073 Price/Ton (ZAR) 11,891 10,939 10,634 Cost/Ton* (ZAR) 8,818 8,488 8,180 Operating profit excluding 1,217 1,081 940 special items** (ZARm) * Sales less operating profit excluding special items divide
Slide 33: Pulp prices
Pulp prices* 1,300 1,200 1,100 US$/ton 1,000 900 800 700 600 NBSK Europe BHKP Europe Commodity DWP Cotton linter pulp * Source: FOEX, CCF group. 33
Slide 34: Textile fibre prices
Textile fibre prices* 2,800 2,400 US$/ton 2,000 1,600 1,200 800 Cotton 328 Cotton "A" Index PSF 1.4 D VSF 1.2 D VSF 1.5 D * Source: CCF group. 34
Slide 35: Cash flow
Cash flow US$m Q1 FY19 Q4 FY18 Q1 FY18 Cash generated from operations 197 212 162 Movement in working capital (87) 6 (83) Net finance costs paid (5) (24) (6) Taxation (paid) (3) (23) 6 Cash generated from operating activities 102 171 79 Cash utilised in investing activities (109) (145) (93) Capital
Slide 36: EBITDA and operating profit
EBITDA and operating profit Excluding special items reconciliation to reported operating profit US$m Q1 FY19 Q4 FY18 Q1 FY18 EBITDA excluding special items* 197 224 172 Depreciation and amortisation (69) (76) (67) Operating profit excluding special items* 128 148 105 Special items* - gains (losses)
Slide 37: Cellulosic fibre properties helping drive that growth
Cellulosic fibre properties helping drive that growth Key strength Qualifies Issue Nonwovens/Technical textiles Home textiles Apparel Fibre properties and applications Cellulosic fibres Cotton Polyester 7 21 28 27 Applications 52 62 17 66 20 • On a pure property basis, Durability cellulosic f
Slide 38: Viscose-grade DWP demand growth
Viscose-grade DWP demand growth Dissolving wood pulp market Europe Americas China Other Products Applications Market size 2017 CAGR 2010-17% Demand DWP grade (examples) (examples) Mtpa geography • Textiles (viscose) Rayon • Non-wovens Viscose 6.1 7.5 Grade • Cellophane • Sausage skins • Cigarette fi
Slide 39: Headroom to increase cellulosic fibre blending
There is still significant headroom to increase the level of cellulosic fibre blending in most sub-categories POLYESTER COTTON CELLULOSIC Today Future Gap Today Future Gap Today Future Gap Apparel Denim 5% 5% 0 95% 95% 0% 0% 0% 0% Shirts 35% 40% +14% 50% 40% -20% 15% 20% +33% T-shirts 30% 50% +67% 7
Slide 40: Product Segments
Product Segments Q1 Q2 Q3 Q4 FY18 Q1 19 Tons sold (‘000) 1,063 1,074 968 1,045 4,150 977 Printing & Writing Sales 877 945 851 927 3,600 867 Papers EBITDA 69 90 57 101 317 76 margin 8% 10% 7% 11% 9% 9% Q1 Q2 Q3 Q4 FY18 Q1 19 Tons sold (‘000) 287 302 277 332 1,198 297 Dissolving Wood Sales 241 279 245
Slide 41: Thank you
Thank you 41