Sappi Limited · JSE:SAP
Sappi — Q3 FY2017 Earnings Presentation
42 slides from Sappi's earnings presentation, Aug 3, 2017
Slide 1: Q3 FY17 financial results delivering on strategy
Q3 FY17 financial results delivering on strategy 03 August 2017 2017 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: Summary
Summary 3
Slide 4: Highlights
Highlights Q3 FY17 EBITDA ex-special items: US$155m (Q3 FY16: US$160m) Profit for the period: US$58m (Q3 FY16: US$32m) EPS ex-special items: 11 US cents (Q3 FY16: 11 US cents) Net debt US$1,318m, down US$265m year-on-year US$400m bond repaid from available cash reserves 4
Slide 5: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 180 160 Key ratios Q3 FY15 Q3 FY16 Q3 FY17 160 155 140 Net debt/LTM EBITDA 3.1 2.2 1.7 120 Interest cover 3.9 7.0 8.4 US$ million EBITDA % 8.6 13.1 12.3 97 109 93 100 ROCE % 5.7 14.0 12.8 80 60 43 40 20 0 Q3 FY15 Q3 FY16 Q3 FY17 EBITDA Operating p
Slide 6: EBITDA bridge
EBITDA bridge* Q3 FY16 to Q3 FY17 190 Sales revenue 185 180 (7) 175 14 (8) 170 US$ million 1 165 9 (14) 160 155 150 160 155 145 140 EBITDA Sales volume Price and mix Variable and Fixed costs Other Exchange rate EBITDA Q3 FY16 delivery costs Q3 FY17 All variances calculated excluding Sappi Forests. '
Slide 7: Product contribution split - LTM
Product contribution split - LTM EBITDA excluding special items* Operating profit ex special items Specialised cellulose 65% Specialised Paper cellulose 50% 50% Paper 35% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and pag
Slide 8: Maturity profile
Maturity profile Fiscal years 600 521 500 446 EUR450m bond EUR350m bond 406 400 US$ million 309 300 US$221m bond 221 200 88 100 67 24 38 24 30 30 27 0 2017 2018 2019 2020 2021 2022 2023 2024 2032 Cash Short-term SPH term debt Securitisation SSA 8
Slide 9: Capex development
Capex development 600 500 400 US$ million 300 200 100 0 2013 2014 2015 2016 2017E 2018E 2019E Maintenance Efficiency and expansion 9
Slide 10: Divisional overview
Divisional overview 10
Slide 11: Global paper market trends
Global paper market trends Supply and demand Robust export markets for European producers. Speciality packaging paper demand continues to grow 1-5%. Selling prices and input costs Coated paper price increases in Europe, North America announced 01 July. Variable costs pressure, especially
Slide 12: Sappi Europe
Sappi Europe 80 12% 90 EBITDA* EBITDA Margin* Speciality packaging volumes 10% 80 60 8% US$ million ‘000 tons 70 40 6% 60 4% 20 50 2% 0 0% 40 Q3 FY14 Q3 FY15 Q3 FY16 Q3 FY17 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Margins declined due to higher year-on-year raw material prices; all major categor
Slide 13: Sappi North America
Sappi North America 25 7% 920 EBITDA* EBITDA Margin* No 3 Coated freesheet - 60 lb (90g) rolls US$/ton - US East** 6% 900 20 5% 880 US$ million 15 4% 860 3% 10 840 2% 5 820 1% 0 0% 800 Q3 FY14 Q3 FY15 Q3 FY16 Q3 FY17 Similar performance to last year. DWP prices and volumes were higher while vari
Slide 14: Global DWP market trends
Global DWP market trends Supply and demand Continued strong demand from new viscose capacity. New DWP capacity has been delayed – limited capacity addition 2017/2018. Selling prices and input costs Textile fibre price declines lead to lower DWP prices April to June. Viscose and polyester
Slide 15: Sappi Southern Africa
Sappi Southern Africa 120 35% 1000 EBITDA* EBITDA Margin* Market price – Hardwood DWP (US$/ton)** 975 30% 100 950 25% 80 925 US$ million 20% 900 60 15% 875 40 850 10% 825 20 5% 800 0 0% 775 Q3 FY14 Q3 FY15 Q3 FY16 Q3 FY17 Results reflect effect of stronger Rand/Dollar exchange rate and higher main
Slide 16: Strategic focus
Strategic focus Achieve cost advantages Generate cash to strengthen balance sheet Rationalise declining businesses Accelerate growth in adjacent businesses from a strong Grow base through moderate investments 16
Slide 17: Our group strategy: achieve cost advantages
Our group strategy Achieve cost advantages We work to lower fixed and variable costs, increase cost efficiencies and invest for cost Achieve advantages. Improve operational cost US$50m investment in Saiccor Mill woodyard. and machine advantages efficiencies Group procurement initiatives >US$10
Slide 18: Our group strategy: rationalise declining businesses
Our group strategy Rationalise declining businesses Continuously Recognising the decreasing demand for balance paper supply and demand graphic paper, we manage our capacity to in all regions strengthen our leadership position in these Where possible markets, realising their strategic importance to
Slide 19: Our group strategy: grow through moderate investments
Our group strategy Grow through moderate investments Expand paper We will make investments in existing areas Enhance specialised packaging grades with strong potential growth, including pulp, cellulose product speciality grades and packaging papers. portfolio Grow Debottlenecking of Saiccor and
Slide 20: Our group strategy: generate cash to strengthen balance sheet
Our group strategy Generate cash to strengthen the balance sheet US$400m 2017 bonds called in April. US$21m in net finance cost savings/annum. Generate Refinancing and debt reduction leads to lower cash to Optimise strengthen finance cost - US$60-70m/annum going working capital balance forward
Slide 21: Our group strategy: accelerate growth in adjacent businesses
Our group strategy Accelerate growth in adjacent businesses from a strong base We will continue our focus on having a cleaner, stronger balance sheet so that we can Accelerate then accelerate our growth in adjacent growth in businesses. adjacent Speciality packaging paper. businesses from a stro
Slide 22: Outlook
Outlook ¢ 2} : ‘ 5
Slide 23: Outlook
Outlook Expect lower realised prices for DWP next quarter, yet longer term market dynamics appear favourable. In Europe, market demand has stabilised and export markets are encouraging. US markets remain difficult - focus on price increases. Demand for our speciality packaging products continu
Slide 24: Thank you
Thank you 24
Slide 25: Supplementary information
Supplementary information 25
Slide 26: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 EBITDA Operating profit ex special items 209 200 208 201 201 195 175 145 145 170 US$ million 136 136 133 160 150 155 145 112 104 97 93 109 100 74 43 50 0 * Refer to the supplementary information in this presentation for a reconciliation of EBI
Slide 27: 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 2 040 3.0 US$ million 1.7 1 946 1 917 1 916 1 800 2.5 1 771 1 734 2.0 1 600 1 652 1583 1.5 1 400 1408 1.0 1338 1329 1318 1 200 0.5 1 000 0.0 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY
Slide 28: 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 CWF Demand MCR Demand CWF 100gsm Sheets LWC 60gsm offset reels Western Europe shipments including export. Source: Cepifine, Cepiprint and RISI indexed to calend
Slide 29: Sappi Europe
Sappi Europe Q3 FY17 Q3 FY16 FYTD 17 FYTD 16 Tons sold (‘000) 795 760 2,501 2,430 Sales (EURm) 554 540 1,736 1,745 Price/Ton (EUR) 697 711 694 718 Cost/Ton* (EUR) 668 678 658 682 Operating profit excluding special items** 23 25 91 87 (EURm) * Sales less operating profit excluding special items divid
Slide 30: Sappi packaging and speciality papers
Sappi packaging and speciality papers Global production sites Alfeld Mill (Germany) Maastricht Mill (The Netherlands) Flexible packaging, label, SBB board, topliner and release liner Folding boxboard – atelier™ Ehingen Mill (Germany) Cloquet Mill (USA) Topliner – Fusion® Label paper – LusterCote® So
Slide 31: Markets and growth rates
Markets and growth rates Global market size – Speciality packaging Flexible packaging Release liner Rigid packaging Containerboard Functional papers and label papers o C1S papers o CCK graphic arts o SBS printing and o Coated white o Barrier and grease o 1.2 million tons o 300,000 tons converting To
Slide 32: 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 Domestic CWF shipments Domestic CWF purchases RISI price CFS #3 60lb rolls US industry purchases defined as industry shipments, plus imports, less expo
Slide 33: Sappi North America
Sappi North America Q3 FY17 Q3 FY16 FYTD 17 FYTD 16 Tons sold (‘000) 316 305 998 966 Sales (US$m) 314 325 1,003 1,007 Price/Ton (US$) 994 1,066 1,005 1,042 Cost/Ton* (US$) 1,000 1,072 985 1,018 Operating profit excluding special items** (2) (2) 20 24 (US$m) * Sales less operating profit excluding sp
Slide 34: Viscose-grade DWP is used almost exclusively in textile applications
Viscose-grade DWP is used almost exclusively in textile applications Dissolving wood pulp market Europe Americas China Other Products Applications Market size 2016 CAGR 2010-16 Demand DWP grade (examples) (examples) Mtpa % geography • Textiles (viscose) Rayon • Non-wovens Viscose 5.3 7.8 Grade • Cel
Slide 35: Cellulosic fibre properties are superior to cotton and polyester
Cellulosic fibre properties are superior to cotton and polyester for many Key strength Qualifies Issue textile applications 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 prope
Slide 36: Significant 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 37: Pulp prices
Pulp prices* 1 100 1 000 900 US$/ton 800 700 600 NBSK Europe BHKP Europe Commodity DWP Cotton linter pulp * Source: FOEX, CCF group. 37
Slide 38: Textile fibre prices
Textile fibre prices 2 800 2 400 2 000 1 600 1 200 800 Cotton 328 Cotton "A" Index PSF 1.4 D VSF 1.2 D VSF 1.5 D * Source: CCF group. 38
Slide 39: Sappi Southern Africa
Sappi Southern Africa Excluding Sappi Forests Q3 FY17 Q3 FY16 FYTD 17 FYTD 16 Tons sold (‘000) 387 407 1,159 1,197 Sales (ZARm) 4,207 4,097 12,848 12,267 Price/Ton (ZAR) 10,871 10,066 11,086 10,248 Cost/Ton* (ZAR) 8,499 7,486 8,149 7,530 Operating profit excluding special items** 918 1,050 3,404 3,2
Slide 40: Cash flow
Cash flow US$m Q3 FY17 Q3 FY16 FYTD 17 FYTD 16 Cash generated from operations 139 144 544 502 Movement in working capital (7) 56 (130) (66) Net finance costs paid (20) (29) (61) (87) Taxation paid 4 (32) (62) (54) Dividend paid - - (59) - Cash generated from operating activities 116 139 232 295 Cash
Slide 41: EBITDA and operating profit reconciliation
EBITDA and operating profit Excluding special items reconciliation to reported operating profit US$m Q3 FY17 Q3 FY16 FYTD 17 FYTD16 EBITDA excluding special items* 155 160 564 530 Depreciation and amortisation (62) (63) (190) (188) Operating profit excluding special items* 93 97 374 342 Special item
Slide 42: Thank you
Thank you 42