Sappi Limited · JSE:SAP
Sappi — Q1 2018 Earnings Presentation
43 slides from Sappi's earnings presentation, Feb 7, 2018
Slide 1: Q1 FY18 financial results delivering on strategy
Q1 FY18 financial results delivering on strategy 7 February 2018 2018 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 Q1 FY18 EBITDA ex-special items: US$172m (Q1 FY17: US$181m like-for-like) Profit for the period: US$63m (Q1 FY17: US$90m) EPS ex-special items: 14 US cents (Q1 FY17: 16 US cents) Net debt: US$1,349m (Q1 FY17: US$1,338) 4
Slide 5: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 Key ratios Q1 FY16 Q1 FY17 Q1 FY18 200 Net debt/LTM EBITDA 2.6 1.7 1.8 201 Interest cover 5.1 7.7 9.9 175 172 136 150 US$ million EBITDA % 13.6 15.4 12.9 112 ROCE % 16.2 19.5 13.5 105 100 50 0 Q1 FY16 Q1 FY17 Q1 FY18 EBITDA Operating profit *
Slide 6: EBITDA bridge
EBITDA bridge* Q1 FY17 to Q1 FY18 210 200 12 190 9 180 US$ million Sales revenue 8 170 6 3 3 201 160 150 172 140 130 EBITDA Sales volume Price and mix Variable and Fixed costs Other Exchange rate EBITDA Q1 FY17 delivery costs Q1 FY18 All variances calculated excluding Sappi Forests. 'Exchange rate'
Slide 7: Product contribution split - LTM
Product contribution split - LTM EBITDA excluding special items Operating profit excluding special items 21% Specialised 35% Cellulose 49% Packaging & Specialities 16% 63% Printing papers 16% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported ope
Slide 8: Maturity profile
Maturity profile Fiscal years 700 618 600 553 EUR450m bond 500 433 EUR350m bond 390 US$ million 400 300 US$221m bond 221 200 93 100 70 57 25 40 26 39 38 0 2018 2019 2020 2021 2022 2023 2024 2032 Cash Short-term SPH term debt Securitisation SSA 8
Slide 9: Capex development
Capex development Saiccor expansion capex subject to EIA approval 700 600 500 US$ million 400 300 200 100 0 2013 2014 2015 2016 2017 2018E 2019E Maintenance Efficiency and expansion 9
Slide 10: Divisional overview
Divisional overview 10
Slide 11: Global P&W paper market trends
Global P&W paper market trends Supply and demand Robust export markets for European producers – less competition from Asian producers Capacity closures in North America – 15% reduction in local supply Selling prices and input costs Coated paper prices rising globally, further increases in
Slide 12: Global S&PP market trends
Global S&PP market trends Supply and demand Growing trends driven by legislation and environment to encourage more paper based packaging Speciality packaging paper long-term demand continues to grow 1-5%, more recently well above this. Strong virgin fiber packaging demand in South Africa S
Slide 13: Global DWP market trends
Global DWP market trends Supply and demand Continued strong demand from new viscose capacity. New market DWP capacity likely in 2019 – limited capacity addition 2018. Some swing mills revert to BHK pulp production due to high paper pulp pricing Selling prices and input costs DWP market p
Slide 14: Sappi Europe
Sappi Europe BHKP Europe (EUR) CWF-S 100g, Germany 900 100 14% EBITDA* EBITDA Margin* 12% 80 10% 800 Eur million 60 8% 6% 40 700 4% 20 2% 600 Apr-17 Oct-17 Nov-17 Dec-17 Aug-17 Sep-17 Jan-17 Jun-17 Jan-18 May-17 Feb-17 Mar-17 Jul-17 Feb-18 0 0% Q1 FY15 Q1 FY16 Q1 FY17 Q1 FY18 Solid performance, st
Slide 15: Sappi North America
Sappi North America EBITDA* EBITDA Margin* No 3 Coated freesheet - 60 lb (90g) rolls US$/ton - US East** 40 10% 920 900 8% 30 880 US$ million 6% 20 860 4% 840 10 2% 820 0 0% 800 Q1 FY15 Q1 FY16 Q1 FY17 Q1 FY18 Volumes were lower on production challenges and ongoing capital projects at Somerset.
Slide 16: Sappi Southern Africa
Sappi Southern Africa China market price – Hardwood DWP (US$/ton)** 1600 40% 1000.00 EBITDA* EBITDA Margin* 1400 35% 975.00 950.00 1200 30% 925.00 ZAR million 1000 25% 900.00 800 20% 875.00 600 15% 850.00 400 10% 825.00 200 5% 800.00 0 0% 775.00 Q1 FY15 Q1 FY16 Q1 FY17 Q1 FY18 Strong packaging pap
Slide 17: 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 18: Our group strategy
Our group strategy We work to lower fixed and variable costs, increase cost efficiencies and invest for cost Achieve advantages. Improve operational cost Group efficiency and procurement initiatives and machine efficiencies advantages US$60m target for 2018. Ongoing continuous improvement acro
Slide 19: 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 20: Our group strategy
Our group strategy Maintain leverage below 2x Net debt:EBITDA US$400m 2017 bonds called in April 2017. Maintain US$21m in net finance cost savings/annum. a healthy Optimise Refinancing and debt reduction leads to lower working balance capital sheet finance cost - US$60-70m/annum going forwar
Slide 21: Our group strategy
Our group strategy Expand We will make investments in existing and Enhance paper packaging adjacent areas with strong potential growth. specialised grades Debottlenecking of Saiccor, Cloquet and Ngodwana cellulose portfolio DWP. Investments in Speciality packaging incl. Rockwell Extract Accele
Slide 22: DWP expansion plans
DWP expansion plans Expand Debottlenecking paper Enhance packaging Saiccor – 10kt complete April 2018 specialised grades cellulose Ngodwana – 50kt complete September 2018 portfolio Cloquet – 30kt complete Q3 2019 additional 70kt swing capacity available Extract Accelerate value from our gr
Slide 23: Outlook
Outlook 23
Slide 24: Outlook
Outlook DWP demand good – pricing to recover in Q2. In Europe, utilisation rates remain good, higher sales prices lag pulp cost increases In NA paper price increases offset by extended downtime on PM1 at Somerset. Maastricht and Somerset Mills conversions complete in 2nd and 3rd quarters, re
Slide 25: Thank you
Thank you 25
Slide 26: Supplementary information
Supplementary information 26
Slide 27: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 EBITDA Operating profit ex special items 221 209 200 208 201 195 152 175 145 145 172 US$ million 136 133 160 150 155 112 105 97 93 100 50 0 * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reporte
Slide 28: Net debt/EBITDA development
Net debt/EBITDA development 4.6 2 600 5.0 4.5 2 400 2 380 4.0 2 200 2 286 2 248 3.5 2 000 2 040 3.0 US$ million 1 946 1.78 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 1349 1338 1329 1322 1318 1 200 0.5 1 000 0.0 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4
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 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 30: Sappi Europe
Sappi Europe Q1 FY18 Q4 FY17 Q1 FY17 Tons sold (‘000) 822 842 867 Sales (EURm) 571 583 602 Price/Ton (EUR) 695 692 694 Cost/Ton* (EUR) 657 651 648 Operating profit excluding special 31 35 40 items** (EURm) * Sales less operating profit excluding special items divided by tons sold. ** Refer to the su
Slide 31: 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 32: 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 33: 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 34: Sappi North America
Sappi North America Q1 FY18 Q4 FY17 Q1 FY17 Tons sold (‘000) 343 361 353 Sales (US$m) 342 357 354 Price/Ton (US$) 997 989 1,003 Cost/Ton* (US$) 1,000 914 980 Operating profit excluding special (1) 27 8 items** (US$m) * Sales less operating profit excluding special items divided by tons sold. ** Refe
Slide 35: 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 36: 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 37: 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 38: Pulp prices
Pulp prices* 1 100 1 000 900 US$/ton 800 700 600 NBSK Europe BHKP Europe Commodity DWP Cotton linter pulp * Source: FOEX, CCF group. 38
Slide 39: Textile fibre prices
Textile fibre prices* 2 800 2 400 US$/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. 39
Slide 40: Sappi Southern Africa
Sappi Southern Africa Q1 FY18 Q4 FY17 Q1 FY17 Tons sold (‘000) 383 447 364 Sales (ZARm) 4,073 4,641 4,022 Price/Ton (ZAR) 10,634 10,383 11,049 Cost/Ton* (ZAR) 8,180 7,908 7,838 Operating profit excluding special 940 1,106 1,169 items** (ZARm) * Sales less operating profit excluding special items div
Slide 41: Cash flow
Cash flow US$m Q1 FY18 Q4 FY17 Q1 FY17 Cash generated from operations 162 204 202 Movement in working capital (83) 103 (97) Net finance costs paid (6) (20) (17) Taxation refund (paid) 6 (38) (34) Dividend paid - - - Cash generated from operating activities 79 249 54 Cash utilised in investing activi
Slide 42: EBITDA and operating profit reconciliation
EBITDA and operating profit Excluding special items reconciliation to reported operating profit US$m Q1 FY18 Q4 FY17 Q1 FY17 EBITDA excluding special items* 172 221 201 Depreciation and amortisation (67) (69) (65) Operating profit excluding special items* 105 152 136 Special items* - gains (losses)
Slide 43: Thank you
Thank you 43