Sappi Limited · JSE:SAP
Sappi — Investor Presentation (March 2012)
63 slides from Sappi's investor presentation, March 2012
Slide 1: Sappi
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: Agenda: Group Overview, Products, Strategy
• Group Overview • Products • Strategy • Results • Divisional Overviews • North America • Europe • South Africa • Conclusions | Roadbook | March 2012
Slide 4: Sappi at a glance
Sappi at a glance 2011 sales - $7.2bn @ 15,600 Employees Sappi Fine Paper Sappi Southern Africa Sappi Trading (75% ’11 sales) (25% ’11 sales) Jiangxi Chenming Paper & Paper (China JV) Sappi Fine Paper Europe Packaging Saiccor Sappi Fine Paper (Chemical Cellulose) Uncoated fine paper North America 8%
Slide 5: Geographic diversification
Geographic diversification Global presence enables Sappi to take advantage of opportunities where markets are strong 8 Paper Mills 3 Paper Mills 1 Fine Paper Mill (JV) 13 Sales offices on 6 6 Pulp and Paper Mills continents 1 Chemical Cellulose Mill 555,000ha Forests 13% 54% 46% Europe
Slide 6: Pulp Integration
Pulp Integration Sappi sells slightly more pulp than it buys. Sappi Group Pulp Balance (‘000 tons) 1200 Net sales Net Purchases 900 910 600 300 152 181 104% Integrated 0 -300 -600 -881 -900 -1200 Fine Paper Europe Fine Paper N. Sappi Southern Africa Sappi Group America | Roadbook | March 2012 * Incl
Slide 7: Currency sensitivity
Currency sensitivity 10c change in ZAR/USD rate: • Annual impact ‐ US$8 million on operating income Change in USD/EURO rate: • Small direct impact on operating income – In Europe, we export paper in USD and buy USD denominated pulp • Macro‐economic impact on European export economies impact on a
Slide 8: Other sensitivities
Other sensitivities Some of the more important factors which impact the group’s operating profit excluding special items, based on anticipated revenue and cost levels, are summarized in the table below. Sensitivities Change SFPE SFPNA SA Group Euro'm US$'m ZAR'm US$'m Net Selling Prices 1% 27 13 127
Slide 9: Agenda: Group Overview, Products, Strategy
• Group Overview • Products • Strategy • Results • Divisional Overviews • North America • Europe • South Africa • Conclusions | Roadbook | March 2012
Slide 10: Printing & Writing Paper Grade Structure
Printing & Writing Paper Grade Structure Coated Fine Paper (CWF) 100% chemical pulp fiber furnish Uncoated Woodfree (UWF) Increasing mechanical/recovered fiber content Coated Mechanical (CGW/LWC) FIBER QUALITY Supercalendered (SC‐A) Supercalendered (SC‐B) Machine Finished Specialities (MFS) Improved
Slide 11: Industry Consolidation
Industry Consolidation Capacity share of top 5 Coated Woodfree Paper producers Europe North America Rest of World Global 100% 93% 81% 80% 60% 60% 46% 38% 40% 33% 27% 25% 20% 0% 1990 2011 1990 2011 1990 2011 1990 2011 | Roadbook | March 2012 Source: EMGE March 2011
Slide 12: Global Coated Woodfree Paper Balance
Global Coated Woodfree Paper Balance million metric tons 35 Demand Capacity 30 97% 79% 84% 25 20 15 10 5 0 1999 2001 2003 2005 2007 2009 2011 2013 2015 | Roadbook | March 2012 Source: EMGE, Sappi
Slide 13: Global Coated Mechanical Paper Balance
Global Coated Mechanical Paper Balance million metric tons 25 Demand Capacity 20 87% 80% 87% 15 10 5 0 1999 2001 2003 2005 2007 2009 2011 2013 2015 | Roadbook | March 2012 Source: EMGE, Sappi
Slide 14: Energy costs
Energy costs Sappi FY2011 Energy Usage (% split based on US$ consumption) Oil 8% Purchased Electricity 29% Natural Gas 33% 15% 18% Biomass & Other Coal • Sensitivity: 1% energy input cost change = US$6 million impact on operating income | Roadbook | March 2012
Slide 15: Chemical cellulose
Chemical cellulose • Uses wood as its raw material, but not a paper pulp • Diverse range of end use products • Fibres (woven and non-woven textiles) and films • Chemicals and pharmaceuticals • Acetates and plastics • Largest single facility and biggest market share • Well placed for exports to Asia
Slide 16: Industry overview – Chemical Cellulose
Industry overview – Chemical Cellulose Global Top 5 Chemical Major Global Market Segments Cellulose Producers (Total 2011 demand = 5m tons) 2011 % Capacity VSF* Sappi Ethers Birla RGE Acetate Rayonier Tembec Others Others 53% of Global Capacity 0 5 10 15 20 * Viscose Staple Fiber Global capacity 5.8
Slide 17: Key Demand Drivers for Textiles
Key Demand Key Demand Drivers forDrivers Textiles for Textiles Population growth Increasing requirement for more comfortable clothing Rising urbanization and standard of living in the Greater Asian Region Middle class in Asia is rapidly increasing in size and purchasing power Asian middle
Slide 18: What is driving textile prices?
What is driving textile prices? World Cotton Price - "A" Index • Increasing demand for textiles 180 160 • Food security becoming an issue 140 US cents/pound 120 • Arable land increasingly scarce 100 80 60 • Land degradation 40 20 • Urbanisation • Growth in demand for biofuels • All non-food crops un
Slide 19: Share of Historical & Future Fibre Production
Share of Historical & Future Fibre Production • Production of cotton is forecast to remain stagnant or shrink Million Metric Fibre Production Tons 140 • Growth in total fibre Wool Forecast consumption will be covered by 120 Cotton man-made fibres 100 Man‐made Cellulosic Fibres 80 Synthetic Fibres •
Slide 20: Capacity additions
Capacity additions +‐ 3 Million tons of Capacity Announcements for 2012/4 Capacity Directed at China 2013 Cosm o China Bam boo, Sodra Morrum Cloquet Toba Bahia less Ow n Stora Enocell Thurso Sun Paper Chenm ing Jilin Paper Excellence Chenm ing Hubei Lee and Man Jilin Hunan Fujian Fujian Nanping Qing
Slide 21: Competitor cash costs
Competitor cash costs World Competitor CC Cash Costs into VSF includes 80% of supply volumes Below Average Cost Above Average Cost Sappi = 27% 45% Others = 28% + 25% Average Cash Cost ‐ 30% Source: RISI/sappi | Roadbook | March 2012
Slide 22: Agenda: Group Overview, Products, Strategy
• Group Overview • Products • Strategy • Results • Divisional Overviews • North America • Europe • South Africa • Conclusions | Roadbook | March 2012
Slide 23: The Past Year
The Past Year • Good start to 2011 – weaker in the 2nd half • European uncertainty and CWF export declines • Excellent SA Chemical Cellulose performance • Continued underperformance of SA paper operations incl. strikes • North America performed well • Successful refinance • A year of major intervent
Slide 24: Strategic Overview
Strategic Overview • Refined strategy with emphasis on value creation • Focus • Increasing importance of growth - Not at the expense of the balance sheet • Internal actions to improve EU and SA • Benefits in Europe have started • Benefits in South Africa to start in 2H 2012 | Roadbook | March 2012
Slide 25: Strategy
Strategy Four key elements • Improving Europe and South Africa, starting to see results • Maintain performance in NA and Chemical Cellulose, focus on volumes • Invest in high growth & margin businesses with leading positions • Chemical cellulose – focus on contracting volumes • Release – pattern dev
Slide 26: Agenda: Group Overview, Products, Strategy
• Group Overview • Products • Strategy • Results • Divisional Overviews • North America • Europe • South Africa • Conclusions | Roadbook | March 2012
Slide 27: Q1 2012 Summary
27 Q1 2012 Summary • European business performance benefits from restructuring and cost reduction actions – US$100m per annum cost reductions on track • South African chemical cellulose business performed strongly – achieved highest quarterly profit margin in 3 years • North America negatively affec
Slide 28: Operating Profit excluding special items
Operating Profit excluding special items* 2009: $33m 2010: $339m 2011: $404m 150 125 129 137 127 100 100 75 81 80 75 50 54 60 25 38 25 0 -13 -17 -25 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q** 2Q 3Q 4Q 1Q *Refer to the supplementary information in this presentation for a reconciliation to reported operating profit
Slide 29: EBITDA Trend
EBITDA* Trend 2009: $431m 2010: $752m 2011: $821m 250 200 150 227 246 228 100 193 194 150 156 176 164 183 50 106 93 82 0 Q1** Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q2 Q3 Q4 Q1 *EBITDA as shown above excludes special items. Refer to page 16 in our Q1 2012 results announcement booklet for a definition of special it
Slide 30: Divisional Operating Margins
Divisional Operating Margins* European actions driving recovery Q1 2012 25% Margins: 20% Southern 15% Africa 15.8% 10% 5% Europe 3.5% North America 0% 2.8% -5% -10% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2009 2010 2011 *The divisional operating margins exclude special items. Refer to page 15 in our
Slide 31: Net Debt Development
Net Debt Development Debt reduction remains a focus Rights Offer to finance European Acquisition Repaid $140m US$ m European Acquisition completed South African debt 3,000 Major Refinancing completed 2,500 2,000 1,500 1,000 Q111 Q109* Q110 Q211 Q311 Q411 Q112 Q209 Q309 Q409 Q210 Q310 * Cash proceeds
Slide 32: Debt maturity profile
Debt maturity profile Strong liquidity and maturity profile Cash on hand: US$401 million RCF US$324 million – undrawn As at December 2012 Includes 2014 (September fiscal year end) USD million $300m and 1 000 €350m Bonds 900 2021 $350m Bond 800 703* Includes 2018 700 RCF Headroom; €250m Bond 600 Unut
Slide 33: Agenda: Group Overview, Products, Strategy
• Group Overview • Products • Strategy • Results • Divisional Overviews • North America • Europe • South Africa • Conclusions | Roadbook | March 2012
Slide 34: Who We Are
Who We Are Leading North American coated paper producer 2011 Net Sales: $1.52B 2011 EBITDA: $203M (EBITDA margin of 13.4%) Two integrated coated freesheet mills and dedicated sheeting center and one specialties mill 1.2M short tons of paper production capacity 1.1M short tons of pulp pro
Slide 35: SFPNA has driven improvements through selected investment and strategic actions
SFPNA has driven improvements through selected investment and strategic actions Approved Grade change Rebuild SPM1 Somerset Pulp Chemical Cellulose Shut Muskegon optimization Mill Upgrade and Somerset PM3 rebuild 2006 2007 2008 2009 2010 2011 Product and Significant Right sized fixed Emerged from Ac
Slide 36: US Coated Paper Prices and Shipments
36 US Coated Paper Prices and Shipments 1.3 1.2 1.1 1.0 0.9 Q1 2007= 1 0.8 0.7 0.6 0.5 0.4 Domestic CFS shipments Total US CFS consumption CFS #3 60lb Rolls prices US Industry Shipments and total US consumption – Source AF&PA and RISI indexed to Q1 2007 | Roadbook | March 2012
Slide 37: SFPNA Release Papers - What is Release Paper?
SFPNA Release Papers - What is Release Paper? | Roadbook | March 2012
Slide 38: SFPNA key advantages
SFPNA key advantages • Well invested, premier asset portfolio with fully integrated facilities • Established brands with strong market position • Exposure to most attractive end‐market segments • Unmatched reputation for product innovation and customer service • A low cost producer with strong free
Slide 39: Agenda: Group Overview, Products, Strategy
• Group Overview • Products • Strategy • Results • Divisional Overviews • North America • Europe • South Africa • Conclusions | Roadbook | March 2012
Slide 40: Sappi Fine Paper Europe
Sappi Fine Paper Europe • # 1 in Coated Woodfree paper with 25.8% capacity share • # 2 in Mechanical Coated Paper with 13.5% capacity share • # 1 in high quality Flexpack • Total paper capacity of 3.7m Tons • 2011 Sales: $3,965m • 2011 EBITDA: $300m | Roadbook | March 2012
Slide 41: Strategy for healthy profit and cash generation
Strategy for healthy profit and cash generation Rightsizing capacity • ‐> Closure of Kangas 2010 (200KT MCR) • ‐> Closure of Biberist 2011 (435KT WFC) • ‐> M‐real closure of Äänekoski 2012 (180kt WFC, sold by Sappi) • ‐> We are full! Substantial cost reduction • ‐> Runrate for €100m cost reduction a
Slide 42: Key strengths
Key strengths • Well invested assets at the heart of the European market • Best service provider • Consistent strong cash generation • Decisive Management team with strong execution track record. • Becoming a low cost producer • Opportunities in highly profitable specialities market • Ability to cop
Slide 43: SFPE cost/ton
SFPE cost/ton • Sustainable improvement of $100million • Manpower reduction of 764 FTEs • Capacity reduction (Biberist +Äänekoski): 700Ktons • Index Variable Cost / ton: October 2010 = 100% • Index Quarterly Cash Fixed Cost: Q1‐2011 = 100% | Roadbook | March 2012
Slide 44: W. Europe Coated Paper Deliveries & Prices
44 W. Europe Coated Paper Deliveries & Prices 1.20 1.10 1.00 0.90 Q1 2007 = 100 0.80 0.70 0.60 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2008 2009 2010 2011 CWF MCR CWF 100gsm sheets prices LWC 60gsm offset reels prices Western Europe Shipments Incl. Export – Source Cepifine,
Slide 45: Market development – CWF Western Europe
Market development • Differing ViewS – CWF Western Europe Growth Rates Western Europe CWF 15.0% 10.7% 10.0% 10.4% 8.1% 7.9% 2.0% 5.0% 1.0% 1.1% 1.1% 2.8% 0.8% 1.3% 0.0% -2.4% -0.8% -1.0% -5.0% -2.7% -6.7% -4.5% -10.0% -15.0% -17.1% -20.0% EMGE RISI SAPPI PPPC | Roadbook | March 2012
Slide 46: Market development – MC Western Europe
Market development • Differing Views – MC Western Europe | Roadbook | March 2012
Slide 47: Summary
Summary Cost reduction leads to sustainable improvement Sappi is competitive in service, quality and cost in Europe Capacity is right sized Cash generative and profitable Management with strong executive track record Highly attractive and growing specialities business | Roadbook | March
Slide 48: Agenda: Group Overview, Products, Strategy
• Group Overview • Products • Strategy • Results • Divisional Overviews • North America • Europe • South Africa • Conclusions | Roadbook | March 2012
Slide 49: Sappi Southern Africa
Sappi Southern Africa • # 1 in Chemical Cellulose with 14% capacity share • Wide range of paper, tissue & packaging; • 567,000ha of forests in Southern Africa • Total paper capacity of 1.08m tons • Total pulp capacity of 2.02m tons • 2011 Sales: $1,801m • 2011 Op. Income: $199m | Roadbook | March 20
Slide 50: Strategy for Southern Africa
Strategy for Southern Africa Grow Chemical Cellulose • Saiccor expansion by 215k ton (Sep 2008) • Ngodwana expansion by 210k ton (Apr 2013) • Lowest quartile cost base • Market growth of >6% per annum Forestry resources / renewable energy • Low cost wood resources in SA and elsewhere • Renewable ene
Slide 51: Ngodwana Chemical Cellulose Project
Ngodwana Chemical Cellulose Project • Only 2 known lower cost producers • Timber • Logistics • Why are our costs so low • Cost of growing fibre • Proximity of forests to Ngodwana • Good logistics to main markets • Project time line • All major contracts concluded • Equipment delivery completed: Nov‐
Slide 52: Strategy – Southern Africa
Strategy – Southern Africa • Increase access to and beneficiation of low cost plantation fiber • Expand access to plantation land in Southern Africa • R&D focus on new commercial uses for fiber • Grow our pulp and chemical cellulose businesses • BEE – sustainable and continuous improvement in our au
Slide 53: Wood Resources
Wood Resources • Sappi owns and manages 555,000ha’s of timber plantations – Supplies 70% of wood requirements – all own plantations are FSC certified and 82% of fibre used is certified • Global wood prices being driven by increasing demand – Paper and paper products 120 – Bio energy/fuel 100 • Seeki
Slide 54: NBSK Pulp Price
54 NBSK Pulp Price* 1,100 NBSK (US$/ton) NBSK (EUR/ton) 1,000 900 $831/ton 800 700 €644/ton 600 500 400 300 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-12 Jan-11 • Pulp prices stabilizing * Source: Average monthly FOEX delivered European prices | Roadbook | March 2012
Slide 55: Low cost wood resources – Eastern Cape project
Low cost wood resources – Eastern Cape project • 30 000 ha of tree plantations by 2020; • Supply ± 450k ton/annum; • Ownership with communities; • Sappi as Implementation Partner; • 12 600 ha in Project Pipeline; • 690 ha planted to date; • 500 direct and 1500 indirect jobs /10 000 ha; • Grant fundi
Slide 56: Renewable energy and energy levy
Renewable energy and energy levy • Selling electricity to Eskom from: • Ngodwana • Saiccor • Access to biomass resources to improve energy self sufficiency • Energy levy of 2.5c/kW on generated electricity; • Exeption for co‐generation & renewable energy • Gazetted 15 Dec 2011 | Roadbook | March 201
Slide 57: Restructuring update
Restructuring update • Adamas • Fixed cost reduction of R77m • Profitable products carouselled • Site cleaned and being offered for sale • SG&A functions • Marketing, Sales & Supply Chain completed • Procurement, HR, Communications, Finance shared services • Other opportunities being investigated
Slide 58: Improving our operations and products
Improving our operations and products • Aligning capacity with demand • Closing highest cost lines • Address future environmental costs • Reduces cost by R250 million p.a. • Lowest cost producer • Simplified product range • Value for money products • Excellent, efficient service • Niche market oppor
Slide 59: Summary
Summary • Investing in Chemical Cellulose • Low cost producer • Fast growing market • Excellent customer relationships • Growing forestry assets • Improving paper business • Better use of timber • Improving cost position • Profitable with growth opportunities | Roadbook | March 2012
Slide 60: Agenda: Group Overview, Products, Strategy
• Group Overview • Products • Strategy • Results • Divisional Overviews • North America • Europe • South Africa • Conclusions | Roadbook | March 2012
Slide 61: Strategic Overview
Strategic Overview • Growth plans progressing well – realistic expectations and confidence in our track record. No other major projects in the next few years • Fixing our EU and SA businesses an on-going process, minimise cash expenditure and take out costs • Optimisation of NA and Chemical Cellulos
Slide 62: Conclusion
Conclusion • We have a sound strategy • We believe in what we are doing • Traction on actions to date • World is uncertain • Totally committed to achieving more wins and accelerating value creation for shareholders through improved profit, strategic positioning and debt reduction | Roadbook | March
Slide 63: Inspired by life
Inspired by life | Roadbook | March 2012