Sappi Limited · JSE:SAP
Sappi — Q3 FY18 Earnings Presentation
49 slides from Sappi's earnings presentation, Aug 13, 2018
Slide 1: Q3 FY18 financial results delivering on strategy
Q3 FY18 financial results delivering on strategy 13 August 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 Q3 FY18 EBITDA ex-special items: US$155m (Q3 FY17: US$155m) Profit for the period: US$51m (Q3 FY17: US$58m) EPS ex-special items: 10 US cents (Q3 FY17: 11 US cents) Net debt: US$1,603m (Q3 FY17: US$1,318) 4
Slide 5: From paper to woodfibre
From paper to woodfibre Transition from global paper company to global woodfibre business 3 phases since 2010 Balance 2010-2013: reduce balance sheet risk while investing in DWP and speciality packaging Debt reduction 2014-2016: reduce leverage from 4.6X to below 2X Net debt:EBITDA Growth
Slide 6: Transformation – from paper to woodfibre
Transformation – from paper to woodfibre EBITDA* by Segment Segment analysis: EBITDA* 100% margin 90% 40 80% 34 35 30 30 70% 30 60% 25 % 50% 20 40% 15 13 10 9 30% 10 7 8 4 20% 5 10% 0 2010 2014 Q3 2018 LTM 0% 2010 2014 Q3 2018 LTM Specialised cellulose Specialities and packaging papers Specialised c
Slide 7: 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 8: Trends in our market
Trends in our market Specialities and Packaging Papers Economic Concerns Technology and Regulations Demographic Change Innovations o Cost reduction (TCO) o Traceable packaging o Food safety – Mineral oil o Easy opening o Light weighting and o Customized packaging barriers o More functionality and do
Slide 9: Trends in our market
Trends in our market Specialities and Packaging Papers Regulations o Food safety – Mineral oil barriers o Plastic bans and waste directive 9
Slide 10: Viscose-grade DWP demand growth
Viscose-grade DWP demand growth Dissolving wood pulp market Europe Americas China Other Products Applications Market size 2017 CAGR 2010-17% Demand DWP grade (examples) (examples) Mtpa geography • Textiles (viscose) Rayon • Non-wovens Viscose 6.1 7.5 Grade • Cellophane • Sausage skins • Cigarette fi
Slide 11: 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 12: Update on conversions and debottlenecking
Update on conversions and debottlenecking Q3 FY18 Specialities and Packaging Papers Specialised Cellulose Maastricht: Ngodwana: On time, within budget, legacy products After late start up and commissioning, qualified at lower costs focus is on September evaporator New product trials ar
Slide 13: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 180 160 Key ratios Q3 FY16 Q3 FY17 Q3 FY18 160 155 155 140 Net debt/LTM EBITDA 2.2 1.7 2.1 120 Interest cover 7.0 8.4 11.0 US$ million EBITDA % 13.1 12.3 10.7 97 93 100 85 ROCE % 14.0 12.8 9.7 80 60 40 • US$8m impact of Somerset shut overrun 20 •
Slide 14: EBITDA bridge
EBITDA* bridge Q3 FY17 to Q3 FY18 300 Sales revenue 250 94 (77) 200 US$ million 13 (28) 2 150 (4) 100 155 155 50 0 EBITDA Sales Volume Price & Mix Variable & Fixed Costs Other Exchange Rate EBITDA Q3 FY17 Delivery Costs Q3 FY18 Notes: Jun 1. All variances were calculated excluding Sappi Forestry. Ex
Slide 15: Product contribution split – LTM
Product contribution split – LTM EBITDA excluding special items Operating profit excluding special items Specialised Cellulose 29% 54% 41% 41% Specialities & Packaging Papers Printing Papers 17% 18% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to repor
Slide 16: Maturity profile
Maturity profile Fiscal years 600 548 500 EUR450m bond 451 400 365 EUR350m bond 317 US$ million 300 221 200 US$221m bond 100 74 83 70 29 47 46 1 0 2018 2019 2020 2021 2022 2023 2024 2032 Cash Short-term SPH term debt Securitisation SSA 16
Slide 17: Capex development
Capex development Saiccor expansion capex subject to EIA approval 700 600 500 US$ million 400 300 200 100 0 2013 2014 2015 2016 2017 2018F 2019E Maintenance Efficiency and expansion 17
Slide 18: Divisional overview
Divisional overview 18
Slide 19: Global P&W paper market trends
Global P&W paper market trends Supply and demand Operating rates remain healthy – CM partially at expense of CWF in EU. Capacity closures and conversions (many to recycled containerboard) in North America and Europe Selling prices and input costs Paper prices rising globally, tracking pulp
Slide 20: Global speciality & packaging paper market trends
Global speciality & packaging paper market trends Supply and demand Environmental concerns spurring legislation incentivising the use of more paper-based packaging Negative public perception weighs on plastic packaging Conversions into recycled grades driven by China ban on RCP Selling pri
Slide 21: Global DWP market trends
Global DWP market trends Supply and demand Continued strong demand from new viscose capacity – depressing VSF prices New market DWP capacity likely in 2019 – limited capacity addition 2018. Cotton tariffs causing uncertainty in textile markets Selling prices and input costs DWP market pr
Slide 22: Sappi Europe
Sappi Europe BHKP Europe (EUR) CWF-S 100g, Germany 950 80 12% EBITDA* EBITDA Margin* 900 10% 60 850 8% Eur million 800 40 6% 750 4% 700 20 650 2% 600 Apr-17 Oct-17 Apr-18 Jan-17 Jan-18 Jul-17 Jul-18 0 0% Q3 FY15 Q3 FY16 Q3 FY17 Q3 FY18 Strong performance despite cost pressures CM demand good, ai
Slide 23: Sappi North America
Sappi North America No 3 Coated freesheet - 60 lb (90g) rolls US$/ton - US East** 25 7% 980 EBITDA* EBITDA Margin* 960 6% 20 940 5% 920 US$ million 15 4% 900 3% 880 10 860 2% 840 5 1% 820 0 0% 800 Q3 FY15 Q3 FY16 Q3 FY17 Q3 FY18 Profitability improved marginally versus last year – US$8m impact fro
Slide 24: Sappi Southern Africa
Sappi Southern Africa China market price – Hardwood DWP (US$/ton)** 1400 40% 1000 EBITDA* EBITDA Margin* 35% 975 1200 30% 950 1000 ZAR million 25% 925 800 20% 900 15% 875 600 10% 850 400 5% 825 200 0% 800 Q3 FY15 Q3 FY16 Q3 FY17 Q3 FY18 Weaker result due to currency and poor re-starts from schedul
Slide 25: 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 26: 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 27: 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 28: Our group strategy
Our group strategy Maintain leverage below 2x Net debt:EBITDA Finance costs US$60-70m/annum going Maintain forward. a healthy Optimise Renewal of RCF working balance capital sheet Lower spread (165bp), cost and commitment fee Additional flexibility for acquisitions and disposals Strong cas
Slide 29: Our group strategy
Our group strategy We will make investments in existing and Expand 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 and Accelerate
Slide 30: Our group strategy
Our group strategy Expand paper Ngodwana Energy Biomass Facility Enhance packaging specialised grades ZAR1.8bn 25MW boiler approved by DoE cellulose portfolio Construction begins Q3 FY18, expected completion Q4 FY20 Extract Accelerate Sappi share ZAR139m = 30% equity stake value from our gro
Slide 31: Speciality and packaging papers expansion plans
Speciality and packaging papers expansion plans Expand Europe paper Maastricht: construction done, 2 year ramp-up Enhance packaging specialised grades -160k CWF, +150k specialities (FBB) cellulose portfolio Ehingen: to be completed Q3 FY18, 1.5 year ramp-up -75k CWF, +60k specialities (WTL
Slide 32: DWP expansion plans
DWP expansion plans Expand Debottlenecking paper Enhance packaging Saiccor – 10kt complete April 2018 specialised grades Ngodwana – 50kt complete September 2018 cellulose portfolio Cloquet – 30kt complete Q3 2019 Accelerate additional 70kt swing capacity available Extract growth in value f
Slide 33: Outlook
Outlook 33
Slide 34: Outlook
Outlook DWP market is tightly supplied, limited new capacity in medium term Operating rates in EU and NA remain healthy, average realised prices continue to rise Good demand growth for specialities and packaging papers. Commercial sales from conversions expected to start Q4 and ramp up in 2019
Slide 35: Thank you
Thank you 35
Slide 36: Supplementary information
Supplementary information 36
Slide 37: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 EBITDA Operating profit ex special items 221 211 209 200 208 201 195 152 175 145 145 172 142 US$ million 136 133 160 150 155 155 112 105 97 93 100 85 50 0 * Refer to the supplementary information in this presentation for a reconciliation of EB
Slide 38: Net debt/EBITDA development
Net debt/EBITDA development 4.6 2,600 5.0 4.5 2,400 2,380 2,286 4.0 2,200 2,248 3.5 2,000 2.1 2,040 3.0 US$ million 1,946 1,917 1,916 1,800 2.5 1,771 1,734 2.0 1,600 1,652 1632 1603 1583 1.5 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 Q1 15 Q2 15 Q3 15 Q4 15 Q
Slide 39: 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 Q1 18 CWF Demand MCR Demand CWF 100gsm Sheets LWC 60gsm offset reels Western Europe shipments including export. Source: Cepifine, Cepiprint and RISI indexed to
Slide 40: Sappi Europe
Sappi Europe Q3 FY18 Q3 FY17 YTD 18 YTD 17 Tons sold (‘000) 833 795 2,502 2,501 Sales (EURm) 636 554 1,823 1,737 Price/Ton (EUR) 764 697 729 694 Cost/Ton* (EUR) 726 668 689 658 Operating profit excluding 31 23 99 91 special items** (EURm) * Sales less operating profit excluding special items divided
Slide 41: 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 Domestic CWF shipments Domestic CWF purchases RISI price CFS #3 60lb rolls US industry purchases defined as industry shipments, plus imports, les
Slide 42: Sappi North America
Sappi North America Q3 FY18 Q3 FY17 YTD 18 YTD 17 Tons sold (‘000) 318 316 1,008 998 Sales (USDm) 339 314 1,044 1,003 Price/Ton (USD) 1.066 994 1,036 1,005 Cost/Ton* (USD) 1,063 1,000 1,018 985 Operating profit excluding 1 (2) 18 20 special items** (USDm) * Sales less operating profit excluding spec
Slide 43: 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 44: Pulp prices US$/ton
Pulp prices* 1,300 1,200 1,100 US$/ton 1,000 900 800 700 600 NBSK Europe BHKP Europe Commodity DWP Cotton linter pulp * Source: FOEX, CCF group. 44
Slide 45: Textile fibre prices
Textile fibre prices* 2,800 2,400 US$/ton 2,000 1,600 1,200 800 Cotton 328 Cotton "A" Index PSF 1.4 D VSF 1.2 D VSF 1.5 D * Source: CCF group. 45
Slide 46: Sappi Southern Africa
Sappi Southern Africa Excluding Sappi Forests Q3 FY18 Q3 FY17 YTD 18 YTD 17 Tons sold (‘000) 383 387 1,179 1,159 Sales (ZARm) 4,105 4,207 12,509 12,848 Price/Ton (ZAR) 10,718 10,871 10,610 11,085 Cost/Ton* (ZAR) 9,274 8,499 8,538 8,149 Operating profit excluding 553 918 2,443 3,404 special items** (
Slide 47: Cash flow
Cash flow US$m Q3 FY18 Q3 FY17 YTD 18 YTD 17 Cash generated from operations 141 139 497 544 Movement in working capital 33 (7) (85) (130) Net finance costs paid (21) (20) (42) (61) Taxation refund (paid) (6) 4 (50) (62) Dividend paid - - (81) (59) Cash generated from operating activities 147 116 239
Slide 48: EBITDA and operating profit
EBITDA and operating profit Excluding special items reconciliation to reported operating profit US$m Q3 FY18 Q3 FY17 YTD 18 YTD 17 EBITDA excluding special items* 155 155 538 564 Depreciation and amortisation (70) (62) (206) (190) Operating profit excluding special items* 85 93 332 374 Special items
Slide 49: Thank you
Thank you 49