Sappi Limited · JSE:SAP
Sappi — Q4 FY2019 Earnings Presentation
47 slides from Sappi's earnings presentation, Nov 14, 2019
Slide 1: Q4 FY19 financial results delivering on strategy
Q4 FY19 financial results delivering on strategy 14 Nov 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 – FY 2019
Highlights – FY 2019 Excluding special items* o Graphic paper markets are weak – requiring EBITDA* $687m 268,000t of downtime in the year o Increased DWP sales post debottlenecking projects Profit for the period US$211 million o Packaging and speciality volumes increase 12% y-o-y as machines ramp-up
Slide 4: Highlights – Q4 2019
Highlights – Q4 2019 Excluding special items* o Lower EBITDA in DWP and graphics business, offset somewhat by increased profitability from packaging and speciality EBITDA* $185m o Commercial downtime of ~94,000t graphic paper • ~ US$25m EBITDA impact Strong cash generation of US$173m o DWP pricing f
Slide 5: EBITDA reconciliation Q4 FY18 to Q4 FY19
EBITDA* reconciliation Q4 FY18 to Q4 FY19 250 200 US$ million 150 Sales revenue 100 224 (10) (25) 15 (15) (3) (1) 185 Q4 FY18 EBITDA Sales volume Price & mix Variable & delivery Fixed costs Other Exchange rate Q4 FY19 EBITDA costs Notes: Sept 2019 2018 1. All variances were calculated excluding Sapp
Slide 6: Product contribution split – LTM
Product contribution split – LTM EBITDA excluding special items Operating profit excluding special items 25% Dissolving Wood 37% Pulp 45% Packaging & Speciality Papers Printing & Writing 13% 62% Papers 19% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA t
Slide 7: Graphics volume/EBITDA margin development
Graphics volume/EBITDA margin development 1,200 12% 1,100 10% 1,000 8% 900 6% 800 4% 700 2% 600 0% Q117 Q217 Q317 Q417 Q1 18 Q218 Q318 Q418 Q119 Q219 Q319 Q419 Graphics volume Graphics margin 7
Slide 8: Pack/Spec volume/EBITDA margin development
Pack/Spec volume/EBITDA margin development 350 18% 16% 300 14% 12% 250 10% 8% 200 6% 4% 150 2% 100 0% Q117 Q217 Q317 Q417 Q1 18 Q218 Q318 Q418 Q119 Q219 Q319 Q419 Pack/Spec volume Pack/Spec margin 8
Slide 9: DWP volume/EBITDA margin development
DWP volume/EBITDA margin development 400 45% 40% 350 35% 300 30% 25% 250 20% 200 15% 10% 150 5% 100 0% Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 DWP volume EBITDA margin 9
Slide 10: Maturity profile
Maturity profile Fiscal years 600 500 492 EUR450m bond 393 403 EUR350m bond 400 366 US$ million 300 US$221m bond 221 200 76 86 99 100 64 42 42 20 0 2020 2021 2022 2023 2024 2025 2026 2027 2032 Cash Short-term SPH term debt Securitisation SSA After year-end the acquisition of the Matane mill was fina
Slide 11: Capex development
Capex development 700 600 500 US$ million 400 300 200 100 0 2013 2014 2015 2016 2017 2018 2019 2020F Maintenance Efficiency and expansion Forecast Capex reduction US$150m reduction over 2 years 11
Slide 12: Market and Segmental overview
Market and Segmental overview 12
Slide 13: Global graphic paper market trends
Global graphic paper market trends Supply and demand Demand remains very weak Capacity reductions positively impacting operating rates over next 12 months Selling prices and input costs Small declines in paper prices Paper pulp prices declined due to high inventories and weak demand St
Slide 14: Global packaging and speciality paper market trends
Global packaging and speciality paper market trends Supply and demand Brand owners pushing for paper-based packaging solutions, demand remains firm Containerboard conversions entering the market Selling prices and input costs Stable selling prices; negotiations upcoming for 2020 pricing
Slide 15: Sappi Europe
Sappi Europe o Profitability declined due to lower graphics sales volumes Sales Tons -7% year-on-year o CWF volumes down 7%, industry was down 13%; CM volumes down 15% due to our Lanaken conversion Sales -6% year-on-year o Pricing for graphics and packaging and speciality higher y-o-y. EBITDA* -28%
Slide 16: Sappi North America
Sappi North America o Packaging and speciality volumes up 36%, margins increasing Sales Tons +7% year-on-year o Profitability down year-on-year due to downtime and lower DWP prices Sales +2% year-on-year o Graphics demand down13%, 57kt downtime taken US$13m EBITDA impact. Realised prices were flat y
Slide 17: Global DWP market trends
Global DWP market trends Supply and demand Demand continues to be strong, growing by ~6% per annum VSF remains oversupplied in a weak Chinese textile market Swing producers on DWP as a result of weak paper pulp markets Selling prices and input costs Both DWP and VSF prices historically l
Slide 18: Sappi South Africa
Sappi South Africa Sales Tons +2% o Increased sales volumes and a weaker ZAR/USD year-on-year exchange rate were insufficient to offset lower DWP prices and higher wood and energy costs Sales +7% o Progress on the Saiccor expansion continues to year-on-year plan, completion expected late 2020 EBITDA
Slide 19: 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 20: 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$87m and machine advantages realised in 2019 efficiencies Ongoing continuous improvement acro
Slide 21: Matane Mill Acquisition
Matane Mill Acquisition Capacity of 270,000t per annum of aspen and maple high yield pulp Matane Mill Somerset Mill Mill located in Matane, Quebec 21
Slide 22: Matane Mill acquisition
Matane Mill acquisition Supports strategy and 2020 vision through the achievement of cost advantages and growth in higher margin packaging and speciality paper. Increase the pulp integration by supplying high yield pulp to our US and European packaging operations, thereby enabling Sappi to: Se
Slide 23: 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 24: Our group strategy
Our group strategy Maximum sustained leverage - 2x Net debt:EBITDA No new major capex commitments Maintain a healthy Optimise Reduced capex by US$150m over two years working balance capital sheet Leverage covenant adjusted for next two years Strong Tight working capital management cash Sma
Slide 25: 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, Ngodwana and Cloquet portfolio DWP complete Accelerate Expansion of Saiccor by 110kt/annum 40% comple
Slide 26: Outlook
Outlook We expect markets will remain tough, and profitability to be negatively impacted DWP pricing remains under pressure, down over $300/ton (>30%) from last year, demand growing We continue to make good progress with customer acceptance in our packaging and speciality segment, volumes will
Slide 27: Thank you
Thank you 27
Slide 28: Supplementary information
Supplementary information 28
Slide 29: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 EBITDA Operating profit ex special items 224 221 200 211 208 201 197 187 185 152 148 145 172 142 US$ million 136 150 128 155 155 117 109 105 118 93 100 85 48 50 0 * Refer to the supplementary information in this presentation for a reconciliati
Slide 30: 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 2.2 3.5 2,000 2,040 3.0 US$ million 1,946 1,917 1,916 1,800 2.5 1,771 1,734 1728 2.0 1680 1,600 1,652 1632 1603 1583 1568 1557 1.5 1501 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
Slide 31: 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 32: Product Groups and Products
Product Groups and ProductsEU Packaging and Specialities 32
Slide 33: Packaging and Speciality papers expansion plans
Packaging and Speciality 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 34: Sappi Europe
Sappi Europe Q4 FY19 Q4 FY18 FY 2019 FY 2018 Tons sold (‘000) 801 864 3,241 3,366 Sales (EURm) 633 674 2,586 2,495 Price/Ton (EUR) 790 777 798 741 Cost/Ton* (EUR) 764 733 770 701 Operating profit excluding special 21 38 92 137 items** (EURm) * Sales less operating profit excluding special items divi
Slide 35: 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 0.4 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Q1 18 Q1 19 CWF Demand MCR Demand CWF 100gsm Sheets LWC 60gsm offset reels Western Europe shipments including export. Source: Cepifine, Cepiprint and RISI i
Slide 36: Sappi North America
Sappi North America Q4 FY19 Q4 FY18 FY 2019 FY 2018 Tons sold (‘000) 388 363 1,379 1,371 Sales (USDm) 394 388 1,466 1,432 Price/Ton (USD) 1,015 1,069 1,063 1,044 Cost/Ton* (USD) 972 983 1,044 1,009 Operating profit excluding special 17 31 27 49 items** (USDm) * Sales less operating profit excluding
Slide 37: 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 Q1 19 Domestic CWF shipments Domestic CWF purchases RISI price CFS #3 60lb rolls US industry purchases defined as industry shipments, plus import
Slide 38: Sappi South Africa
Sappi South Africa Q4 FY19 Q4 FY18 FY 2019 FY 2018 Tons sold (‘000) 450 441 1,639 1,620 Sales (ZARm) 5,145 4,824 19,253 17,333 Price/Ton (ZAR) 11,433 10,939 11,747 10,699 Cost/Ton* (ZAR) 9,216 8,488 9,410 8,524 Operating profit excluding special 998 1,081 3,831 3,524 items** (ZARm) * Sales less oper
Slide 39: Paper pulp prices
Paper pulp prices* 1,300 1100 1,200 1000 1,100 900 1,000 EUR/ton 800 US$/ton 900 800 700 700 600 600 500 500 400 400 NBSK Europe BHKP Europe BHKP China NBSK Europe (Euros) BHKP Europe (Euros) * Source: FOEX, CCF group. 39
Slide 40: Paper pulp prices
Paper pulp prices* 1,300 1100 1050 1,200 1000 1,100 950 1,000 900 US$/ton EUR/ton 900 850 800 800 750 700 700 600 650 500 600 NBSK Europe BHKP Europe BHKP China NBSK Europe Euros BHKP Europe Euros * Source: FOEX 40
Slide 41: Dissolving pulp prices
Dissolving pulp prices* 1,100 1,050 1,000 950 900 US$/ton 850 800 750 700 650 600 Imp SW DWP Imp HW DWP China origin DWP * Source: CCF group 41
Slide 42: Textile fibre prices
Textile fibre prices* 2,800 2,400 US$/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 42
Slide 43: Cash flow
Cash flow US$m Q4 FY19 Q4 FY18 FY 2019 FY 2018 Cash generated from operations 176 212 673 709 Movement in working capital 132 6 (15) (79) Net finance costs paid (5) (28) (51) (84) Finance income received 3 4 9 18 Taxation (paid) refund - (23) (51) (73) Dividend paid - - (92) (81) Cash generated from
Slide 44: EBITDA and operating profit
EBITDA and operating profit Excluding special items* reconciliation to reported operating profit US$m Q4 FY19 Q4 FY18 FY 2019 FY 2018 EBITDA excluding special items* 185 224 687 762 Depreciation and amortisation (76) (76) (285) (282) Operating profit excluding special items* 109 148 402 480 Special
Slide 45: 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 46: 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 47: Thank you
Thank you 47