Sappi Limited · JSE:SAP
Sappi — Q2 FY2019 Earnings Presentation
40 slides from Sappi's earnings presentation, May 9, 2019
Slide 1: Q2 FY19 financial results delivering on strategy
Q2 FY19 financial results delivering on strategy 9 May 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 – Q2 2019
Highlights – Q2 2019 Excluding special items* o Unexpectedly weak global market conditions for printing and writing papers EBITDA* -11% year-on-year o Downtime of ~85,000t graphic paper • US$23m EBITDA impact estimated • Our inventory levels have normalized Profit for the period US$72 million o Good
Slide 4: EBITDA reconciliation Q2 FY18 to Q2 FY19
EBITDA* reconciliation Q2 FY18 to Q2 FY19 300 260 US$ million 220 180 140 211 1 79 (76) (44) 9 7 187 Q2 FY18 EBITDA Sales volume Price & mix Variable & delivery Fixed costs Other Exchange rate Q2 FY19 EBITDA costs Mar Notes: 2019 2018 1. All variances were calculated excluding Sappi Forestry. Exchan
Slide 5: Product contribution split – LTM
Product contribution split – LTM EBITDA excluding special items Operating profit excluding special items Dissolving Wood 30% Pulp 39% 44% Packaging & Speciality Papers 57% Printing & Writing Papers 13% 17% * Refer to the supplementary information in this presentation for a reconciliation of EBITDA t
Slide 6: Maturity profile
Maturity profile* Fiscal years 600 EUR450m bond 505 500 400 381 393 EUR350m bond US$221m bond US$ million 300 215 221 200 98 88 100 79 43 43 43 20 0 2019 2020 2021 2022 2023 2024 2025 2026 2032 Cash Short-term SPH term debt Securitisation SSA *The maturity profile is adjusted for the repayment of th
Slide 7: Capex development
Capex development 600 500 400 US$ million 300 200 100 0 2013 2014 2015 2016 2017 2018 2019E 2020F Maintenance Efficiency and expansion Forecast 7
Slide 8: Market and Segmental overview
Market and Segmental overview 8
Slide 9: Global P&W paper market trends
Global P&W paper market trends Supply and demand Demand softening globally Capacity reductions expected in US and Europe over next 18 months Selling prices and input costs Paper prices stable in US and EU Pulp prices falling from historical highs on weak Chinese demand – declines differ
Slide 10: Global packaging and speciality paper market trends
Global packaging and speciality paper market trends Supply and demand Additional containerboard conversions entering the market Smaller speciality packaging producers exiting due to cost pressures Demand continues to grow, long-term prospects encouraging, driven by legislation and consumer p
Slide 11: Sappi Europe
Sappi Europe o Market demand weaker than expected – Sales Tons +1% necessitating 46,000t of downtime year-on-year o Higher selling prices did not offset higher variable Sales +1.5% costs year-on-year o Pulp prices have reduced, but remain elevated EBITDA* -27% o Some packaging and speciality segment
Slide 12: Sappi North America
Sappi North America Sales Tons +1% o Weak domestic graphic paper demand exacerbated by year-on-year increased imports - 39,000t of downtime taken Sales +4% o Growth in legacy packaging and paperboard volumes year-on-year o Ramp-up of Somerset continues – product mix not yet optimal EBITDA* -16% year
Slide 13: Global DWP market trends
Global DWP market trends Supply and demand VSF capacity growing faster than demand, operating rates declining Demand continues to be strong, growing by ~6% per annum Most swing capacity now on DWP New DWP capacity entering the market by year-end Selling prices and input costs DWP selli
Slide 14: Sappi South Africa
Sappi South Africa Sales Tons +1% o DWP sales volumes increased post debottlecking year-on-year and with good operational performance Sales -1% o Packaging sales volumes lower based on timing year-on-year of seasonal demand o Price increases and weaker Rand offset higher EBITDA* +1% wood and energy
Slide 15: 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 16: 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$60m and machine advantages target for 2019: +US$80m achieved in 2018 efficiencies Ongoing co
Slide 17: 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 18: Our group strategy
Our group strategy Maintain leverage below 2x Net debt:EBITDA Finance costs US$60-70m/annum going Maintain forward a healthy Optimise 7 yr €450m bond raised @3.125% - used to working balance capital sheet repay €450m 2022 bond Strong cash Smart generation financing 18
Slide 19: Our group strategy
Our group strategy Expand We will make investments in existing and paper Enhance packaging adjacent areas with strong potential growth. grades specialised cellulose Debottlenecking of Saiccor, Ngodwana and Cloquet portfolio DWP complete Accelerate Expansion of Saiccor by 110kt/annum has starte
Slide 20: Outlook
Outlook We expect continued healthy demand for DWP. Lower prices/volumes next quarter due to market pricing and shuts. Most grades continue to grow for our packaging and specialities segment. Product qualifications and customer trials proceeding. Weak demand for graphics, Lanaken conversion fo
Slide 21: Thank you
Thank you 21
Slide 22: Supplementary information
Supplementary information 22
Slide 23: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 EBITDA Operating profit ex special items 224 221 200 211 208 201 197 187 152 148 145 172 142 US$ million 136 150 128 155 155 117 105 100 93 85 50 0 * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to
Slide 24: 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 2.2 3.0 US$ million 1,946 1,917 1,800 1,916 2.5 1,771 1,734 2.0 1680 1,600 1,652 1632 1603 1583 1568 1557 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 1
Slide 25: 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 26: Product Groups and Products
Product Groups and ProductsEU Packaging and Specialities 26
Slide 27: 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 28: Sappi Europe
Sappi Europe Q2 FY19 Q2 FY18 YTD 19 YTD 18 Tons sold (‘000) 842 847 1,651 1,669 Sales (EURm) 675 616 1,317 1,188 Price/Ton (EUR) 802 727 798 712 Cost/Ton* (EUR) 773 684 765 671 Operating profit excluding special 24 37 54 68 items** (EURm) * Sales less operating profit excluding special items divided
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 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 index
Slide 30: Sappi North America
Sappi North America Q2 FY19 Q2 FY18 YTD 19 YTD 18 Tons sold (‘000) 350 347 671 690 Sales (USDm) 378 363 729 705 Price/Ton (USD) 1,080 1,046 1,086 1,022 Cost/Ton* (USD) 1,051 994 1,058 997 Operating profit excluding special 10 18 19 17 items** (USDm) * Sales less operating profit excluding special it
Slide 31: 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 32: Sappi South Africa
Sappi South Africa Excludes forestry Q2 FY19 Q2 FY18 YTD 19 YTD 18 Tons sold (‘000) 418 413 814 796 Sales (ZARm) 4,981 4,331 9,690 8,404 Price/Ton (ZAR) 11,916 10,487 11,904 10,558 Cost/Ton* (ZAR) 9,234 8,816 9,033 8,813 Operating profit excluding 1,121 950 2,338 1,890 special items** (ZARm) * Sales
Slide 33: Pulp prices
Pulp prices* 1,300 1,200 1,100 US$/ton 1,000 900 800 700 600 NBSK Europe BHKP Europe Commodity DWP Cotton linter pulp * Source: FOEX, CCF group. 33
Slide 34: Textile fibre prices
Textile fibre prices* 2,800 2,400 US$/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. 34
Slide 35: Cash flow
Cash flow US$m Q2 FY19 Q2 FY18 1H 19 1H 18 Cash generated from operations 182 194 379 356 Movement in working capital (80) (35) (167) (118) Net finance costs paid (20) (15) (25) (21) Taxation (paid) (43) (50) (46) (44) Dividend paid (92) (81) (92) (81) Cash generated from operating activities (53) 1
Slide 36: EBITDA and operating profit
EBITDA and operating profit Excluding special items* reconciliation to reported operating profit US$m Q2 FY19 Q2 FY18 1H FY19 1H FY18 EBITDA excluding special items* 187 211 384 383 Depreciation and amortisation (70) (69) (139) (136) Operating profit excluding special items* 117 142 245 247 Special
Slide 37: 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 38: 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 39: Product Segments
Product Segments Q1 18 Q2 Q3 Q4 FY18 Q1 19 Q2 Tons sold (‘000) 1,063 1,074 968 1,045 4,150 977 987 Printing & Writing Sales 877 945 851 927 3,600 867 880 Papers EBITDA 69 91 57 101 317 76 65 margin 8% 10% 7% 11% 9% 9% 7% Q1 18 Q2 Q3 Q4 FY18 Q1 19 Q2 Tons sold (‘000) 287 302 277 332 1,198 297 350 Dis
Slide 40: Thank you
Thank you 40