Sappi Limited · JSE:SAP
Sappi — Q3 2014 Earnings Presentation
43 slides from Sappi's earnings presentation, Jul 31, 2014
Slide 1: 3rd Quarter 2014 Financial Results Presentation
3rd Quarter 2014 Financial Results Presentation 31 July 2014
Slide 2: Forward-looking statements
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 earnings, savings, synergies, events, trends,
Slide 3: Summary
Summary | Q3 2014 Results | 31 July 2014
Slide 4: Q3 2014 Summary
4 Q3 2014 Summary • Continued year on year improvement in quarterly performance • Usutu and Nijmegen mill transactions completed • Specialised Cellulose business remains sold out • EPS 3 US cents (Q3 2013 loss of 9 US Cents) • EBITDA excluding special items US$140m (Q3 2013 US$88m) • Net debt US$2,2
Slide 5: EBITDA & Operating Profit ex-items
5 EBITDA & Operating Profit ex-items* USD million *Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported Operating Profit and page 19 in our Q3 2014 Results booklet (available on www.sappi.com) for a definition of special items. **2013 figures restate
Slide 6: Q3 Product Contribution Split
6 Q3 Product Contribution Split EBITDA excluding special items* Operating Profit excluding special items* Paper 20% Specialised Paper Cellulose 50% 50% Specialised Cellulose 80% *Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported Operating Profit a
Slide 7: Net Debt Development
7 Net Debt Development 3,000 $510m Specialised Cellulose Capex projects 2,500 USD million 2,000 1,500 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014 ‐‐‐‐‐‐ Targeted net‐debt level *F2013 and Q1 14 figures restated per adoption of IFRS 10 ‐ Consolidated Financial Statements | Q3 2014 Results |31 Jul
Slide 8: Net Debt/EBITDA Development
8 Net Debt/EBITDA Development EBITDA* Net debt/LTM EBITDA** 250 5.00 4.50 200 4.00 3.50 150 US$m 3.00 100 2.50 2.00 50 1.50 0 1.00 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014 * EBITDA ex special items ** The covenant Net Debt/LTM EBITDA calculation has adjustments and therefore differs from that
Slide 9: Capex Development
9 Capex Development Maint Expansion 600 500 400 US$m 300 200 100 0 2012 2013 2014 YTD 2014 EST | Q3 2014 Results |31 July 2014
Slide 10: Maturity profile – Fiscal years
10 Maturity profile – Fiscal years Includes Includes US$400m Bond €250m Bond US$221m US$300m Bond Bond US$350m Bond | Q3 2014 Results |31 July 2014
Slide 11: Divisional Overviews
Divisional Overviews | Q3 2014 Results | 31 July 2014
Slide 12: Regional EBITDA Margin development
12 Regional EBITDA Margin development North America : 2.6% Europe : 7.2% EBITDA* EBITDA* Margin EBITDA* EBITDA* Margin 70 18 100 12 60 16 80 10 14 50 12 8 US$m US$m 40 10 60 30 8 % 6 % 40 6 4 20 4 20 10 2 2 0 0 0 0 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014 2012 2013 2014 South A
Slide 13: Sappi Europe
13 Sappi Europe • Stronger than expected quarter, saw overall volumes 2% lower year-on-year. Growth in specialty paper volumes and stable CWF volumes. The CM market remains weak, both domestically, and globally. • Average net sales prices in Euro terms were lower across all product grades year-on-ye
Slide 14: Sappi North America
14 Sappi North America • The graphic paper markets characterised by weak pricing during the quarter, whilst our volumes were flat year-on-year. Price increases for web products were announced during the quarter and pricing and orders during July have improved. • The specialities business is experien
Slide 15: Sappi Southern Africa
15 Sappi Southern Africa • The performance of the Southern African business improved compared to the equivalent quarter last year; a quarter impacted by the conversion to dissolving wood pulp at Ngodwana. • Variable costs, particularly for wood and pulp, were negatively impacted by the weaker rand w
Slide 16: Specialised Cellulose
16 Specialised Cellulose • Dissolving wood pulp prices under pressure due to weaker viscose staple fibre prices and excess capacity • Dissolving wood pulp profitability in NA was negatively impacted by the planned annual maintenance shut at Cloquet as well as higher logistics costs and lower pricing
Slide 17: Global Paper Market Trends
17 Global Paper Market Trends Supply & Demand Volumes stronger than expected Coated paper capacity shuts happening in Europe Demand remains mixed regionally, globally flat‐to‐down Costs & Prices Proactively managing our costs – more to come Price increases announced on coated paper in US and Europe
Slide 18: Global Specialised Cellulose Market Trends
18 Global Specialised Cellulose Market Trends Supply & Demand Supply (+19%) growing faster than demand (+5%) YTD ‘14 v ‘13 Demand growth impacted by lower textile fibre prices Costs & Prices DP prices expected to remain under pressure in the medium‐term Our 1.3 million tons are among the world’s low
Slide 19: Strategic Focus
Strategic Focus | Q3 2014 Results | 31 July 2014
Slide 20: No radical change in direction in the next two years
20 Strategic Focus No radical change in direction in the next two years while preparing for renewed growth! Achieve cost Rationalise declining Grow through advantages businesses moderate investments Accelerate growth in Generate cash to strengthen adjacent businesses from a balance sheet strong base
Slide 21: Focus Areas: Achieve cost advantages
21 Focus Areas Achieve cost advantages We work to lower fixed and variable costs, increase cost efficiencies and invest for cost advantages. North America • Workforce reduction • Gas conversion of Somerset boiler Europe • Investment in Kirkniemi power plant • Variable and fixed cost saving projects
Slide 22: Focus Areas: Optimise and rationalise declining businesses
22 Focus Areas Optimise and rationalise declining businesses Recognising the decreasing demand for graphic paper, we manage our capacity to strengthen our leadership position in these markets, realising their strategic importance to the group and maximising their significant cash flow generation. Eu
Slide 23: Focus Areas: Growth through moderate investment
23 Focus Areas Growth through moderate investment We will make smaller investments in existing areas with strong potential growth, including pulp, speciality grades and packaging papers. Europe • Alfeld investment South Africa • South African packaging | Q3 2014 Results | 31 July 2014
Slide 24: Focus Areas: Strengthen the balance sheet
24 Focus Areas Strengthen the balance sheet Over the next two years, we will continue our focus on having a cleaner, stronger balance sheet so that we can then accelerate our growth in adjacent businesses. South Africa • Sale of Usutu – ZAR1bn • Potential Mpumalanga forestry assets - ~ R700m Group •
Slide 25: Outlook
Outlook | Q3 2014 Results | 31 July 2014
Slide 26: Outlook
26 Outlook • We have made steady progress in improving the European business, an important cash contributor to the group . Capital projects at Gratkorn and Kirkniemi are underway, allowing us to make further headway in improving the financial performance of the business. • The North American busines
Slide 27: Outlook (cont’d)
27 Outlook (cont’d) • Due to the competitive nature of the dissolving wood pulp market and weak viscose staple fibre pricing, we are experiencing continued pressure on our prices. However, demand remains strong and our mills are essentially sold out for the remainder of the year. • Capital expenditu
Slide 28: Q&A
Q&A | Q3 2014 Results | 31 July 2014
Slide 29: Supplementary Information
Supplementary Information | Q3 2014 Results | 31 July 2014
Slide 30: W. Europe Coated Paper Deliveries & Prices
30 W. Europe Coated Paper Deliveries & Prices 1.2 1.1 1.0 0.9 Q1 2008 = 1 0.8 0.7 0.6 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 CWF MCR CWF 100gsm sheets prices LWC 60gsm offset reels prices Western Europe Shipments Incl. Export
Slide 31: Sappi Fine Paper Europe
31 Sappi Fine Paper Europe Q3 14 Q3 13 YTD 14 YTD 13 Tons Sold ('000) 783 796 2,492 2,527 Sales (€) 543 574 1,727 1,814 Price / Ton (€) 693 721 693 718 Cost / Ton* (€) 678 736 681 717 Operating profit ex items (€m) ** 12 (12) 29 3 * Sales less operating profit excluding special items divided by tons
Slide 32: US Coated Paper Prices and Shipments
32 US Coated Paper Prices and Shipments Domestic CFS shipments Total US CFS consumption CFS #3 60lb Rolls prices 1.2 1.1 1.0 0.9 Q1 2008 = 1 0.8 0.7 0.6 0.5 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 US Industry Shipments and tota
Slide 33: Sappi Fine Paper North America
33 Sappi Fine Paper North America Q3 14 Q3 13 YTD 14 YTD 13 Tons Sold ('000) 362 297 1,079 963 Sales ($'m) 380 324 1,127 1,011 Price / Ton ($) 1,050 1,091 1,044 1,050 Cost / Ton* ($) 1,075 1,098 1,051 1,019 Operating profit ex items** ($'m) (9) (2) (7) 30 * Sales less operating profit excluding spec
Slide 34: Pulp Prices - spread widening
34 Pulp Prices* - spread widening US$/ton $925/ton $742/ton * Source: Average weekly FOEX delivered European prices | Q3 2014 Results |31 July 2014
Slide 35: Sappi Southern Africa
35 Sappi Southern Africa Q3 14 Q3 13 YTD 14 YTD 13 Tons Sold ('000) 423 405 1,253 1,172 Sales (ZAR'm) 3,592 3,066 10,654 8,612 Price / Ton (ZAR) 8,492 7,570 8,503 7,348 Cost / Ton* (ZAR) 6,948 7,096 6,918 6,793 Operating profit ex items** (ZAR'm) 653 192 1,986 651 * Sales less operating profit exclu
Slide 36: Cash Flow - US$m
36 Cash Flow - US$m Q3 14 Q3 13 YTD 14 YTD 13 Cash generated from operations 118 61 406 326 - Movement in working capital (29) 8 (119) (128) - Net finance costs paid (50) (57) (136) (144) - Taxation paid (4) (2) (1) (15) Cash generated from operating activities 35 10 150 39 Cash utilised in investin
Slide 37: EBITDA recon to reported operating profit
37 EBITDA recon to reported operating profit* Q3 14 Q3 13 YTD 14 YTD 13 EBITDA ex-items 140 88 458 373 Depreciation and Amortisation (73) (83) (236) (260) Operating Profit ex-items 67 5 222 113 Special Items - gains (losses) 2 (19) 16 16 Plantation price fair value adj. 5 (11) 18 93 Net restructurin
Slide 38: DWP global demand
38 DWP global demand + 5% YTD v 2013 +30% v 2012 ‘000 tonnes Source: PPPC | Q3 2014 Results |31 July 2014
Slide 39: Chinese VSF production continues to grow
39 Chinese VSF production continues to grow ‘000 tonnes Source: RISI | Q3 2014 Results |31 July 2014
Slide 40: Further weakness in cotton prices could undermine demand for viscose
40 Further weakness in cotton prices could undermine demand for viscose US$ per tonne Source: RISI | Q3 2014 Results |31 July 2014
Slide 41: Cotton Linter pulp trading at similar levels to DWP
41 Cotton Linter pulp trading at similar levels to DWP US$/ton $854 $840 Source: CCF | Q3 2014 Results |31 July 2014
Slide 42: Overcapacity putting pressure on prices
42 Overcapacity putting pressure on prices US$ per tonne $1,917 $865 Source: RISI | Q3 2014 Results |31 July 2014
Slide 43: Thank You
Thank You