Sappi Limited · JSE:SAP

Sappi — Q2 FY2017 Earnings Presentation

41 slides from Sappi's earnings presentation, May 15, 2017

  1. Slide 1: Q2 FY17 financial results

    Q2 FY17 financial results 15 May 2017 Steve Binnie Chief Executive Officer Sappi Limited

  2. 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 e

  3. Slide 3: Summary

    Summary sappli Inspired by life

  4. Slide 4: Highlights

    Highlights Q2 FY17  EBITDA ex-special items US$208m (Q2 FY16 US$195m)  Profit for the period US$88m (Q2 FY16 US$100m)  EPS ex-special items 17 US cents (Q2 FY16 16 US cents)  Net debt US$1,329m, down US$323m year-on-year 4

  5. Slide 5: EBITDA and operating profit

    EBITDA and operating profit Excluding special items* 250 Key ratios Q2 Q2 Q2 200 208 FY15 FY16 FY17 195 Net Debt/ 145 170 2.9 2.4 1.7 133 150 LTM EBITDA US$ million 104 Interest Cover 3.7 6.5 7.7 100 EBITDA % 12.7 15.1 15.8 50 ROCE % 13.5 19.3 20.5 0 Q2 FY15 Q2 FY16 Q2 FY17 EBITDA Operating profit 5

  6. Slide 6: EBITDA Bridge

    EBITDA Bridge* Q2 FY16 to Q2 FY17 240 230 2 220 6 (18) Sales revenue 7 210 13 200 3 USD million 190 180 208 170 195 160 150 140 EBITDA Sales Volume Price & Mix Variable & Fixed Costs Other Exchange Rate EBITDA Q2 FY16 Delivery Costs Q2 FY17 o All variances calculated excluding Sappi Forestry. o “Exc

  7. Slide 7: Product contribution split - LTM

    Product contribution split - LTM EBITDA excluding special items* Operating profit ex special items Specialised cellulose Paper 63% Specialised 51% cellulose Paper 49% 37% 7 * Refer to the supplementary information in this presentation for a reconciliation of EBITDA to reported operating profit and p

  8. Slide 8: Net debt/EBITDA development

    Net debt/EBITDA development 2 600 4.6 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 1.7 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 1338 1329 1 200 0.5 1 000 0.0 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16 Q2

  9. Slide 9: Maturity profile

    Maturity profile Fiscal years US$m 800 703 700 EURO 350m bond 600 Includes USD EURO 450m bond 500 487 400m bond 479 USD 221m bond 400 373 302 300 221 200 100 62 85 37 0 2017 2018 2019 2020 2021 2022 2023 2032 Cash Short-Term SPH Term Debt Securitisation SSA 9

  10. Slide 10: Capex development

    Capex development 600 500 400 US$m 300 200 100 0 2013 2014 2015 2016 2017E 2018E 2019E Maintenance Efficiency & Expansion 10

  11. Slide 11: Divisional overviews

    Divisional overviews — ? pat = ©

  12. Slide 12: Global paper market trends

    Global paper market trends  Supply and demand  Continued weakness in graphic markets  Necessitating industry closures/conversions – SC closures announced  Speciality packaging paper demand continues to grow 1%-5%  Selling prices and input costs  Selling prices have stabilised after past year d

  13. Slide 13: Sappi Europe

    Sappi Europe Speciality Packaging Volumes 100 12% EBITDA* EBITDA Margin* 80 10% 80 70 ‘000 tons 8% 60 US$ million 6% 60 40 4% 50 20 2% 40 0 0% Q2 FY14 Q2 FY15 Q2 FY16 Q2 FY17 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17  Margins declined due to lower year-on-year coated paper selling prices - price increase

  14. Slide 14: Sappi North America

    Sappi North America CWF Imports into US by source** 40 12% 200 EBITDA* EBITDA Margin* 10% 30 190 8% US$ million 180 20 6% 4% 170 10 2% 160 0 0% Q2 FY14 Q2 FY15 Q2 FY16 Q2 FY17 150 1H FY16 1H FY17 Europe Asia & ROW  Improved profitability on lower variable costs and efficiency initiatives  Higher D

  15. Slide 15: Global DWP market trends

    Global DWP market trends  Supply and demand  Continued strong demand from new viscose capacity  New DWP capacity has been delayed – limited capacity addition 2017/2018  Selling prices and input costs  Textile fibre price declines lead to lower DWP prices during April  Commodity prices and curr

  16. Slide 16: Sappi Southern Africa

    Sappi Southern Africa Market price – Hardwood DWP (US$/ton)** 120 35% 1000 EBITDA* EBITDA Margin* 975 30% 100 950 25% 925 80 US$ million 900 20% 875 60 15% 850 40 825 10% 800 20 775 5% 0 0% Q2 FY14 Q2 FY15 Q2 FY16 Q2 FY17  Continued robust margins on higher DWP volumes and prices offset increased v

  17. Slide 17: Strategic focus

    Strategic focus Achieve aavanlages a _ Accelerate ~ growth in eam investments Intentional 17 = SVOIUIO

  18. Slide 18: Focus areas: achieve cost advantages

    Focus areas Achieve cost advantages  We work to lower fixed and variable costs, increase cost efficiencies and invest for cost advantages  Saiccor and Tugela turbines – FY2016/17  Group procurement initiatives >$100m annually by 2020 – US$63m by end 2017  Ongoing continuous improvement across al

  19. Slide 19: Focus areas: rationalise and optimise declining businesses

    Focus areas Rationalise and optimise declining businesses  Recognising the decreasing demand for graphic paper, we manage our capacity to strengthen our leadership position in these markets, realising their strategic importance to the group and maximising their significant cash flow generation  Pr

  20. Slide 20: Focus areas: grow through moderate investments

    Focus areas Grow through moderate investments  We will make investments in existing areas with strong potential growth, including pulp, speciality grades and packaging papers  Debottlenecking of Saiccor and Ngodwana DWP  Investments in Somerset, Maastricht, Alfeld and Ehingen  Additional packagi

  21. Slide 21: Growth through moderate investments

    Growth through moderate investments • Moderate investments in cost efficiency and energy generation projects have delivered good returns to date • We are now moving into the next phase of our strategy via investments for growth ROCE % 25% 20% 15% 10% 5% 0% 2013* 2014* 2015 2016 Q1 FY17 Q2 FY17 21 *

  22. Slide 22: Growth through moderate investments

    Growth through moderate investments Investing in speciality packaging businesses in Europe and North America • US$140m at Maastricht, Ehingen, Alfeld and Lanaken • Maastricht, Ehingen and Alfeld to expand offering • Investments to be made over a 3-year period • Additional 200kt/annum of SBB,FBB and

  23. Slide 23: Focus areas: generate cash to strengthen the balance sheet

    Focus areas Generate cash to strengthen the balance sheet  US$400m 2017 bonds called in April  US$21 in net finance cost savings/annum  Refinancing and debt reduction leads to lower finance cost and EPS growth 23

  24. Slide 24: Focus areas: accelerate growth in adjacent businesses

    Focus areas Accelerate growth in adjacent businesses from a strong base  We will continue our focus on having a cleaner, stronger balance sheet so that we can then accelerate our growth in adjacent businesses  Speciality packaging paper  Biomaterials, biochemicals – lignins, sugars  Expanded DWP

  25. Slide 25: Outlook

    sappl Inspired by life

  26. Slide 26: Outlook

    Outlook  DWP demand remains favourable; pricing currently under pressure from textile fibre prices.  Graphic paper markets expected to remain weak - input costs and sales pricing key to profitability in coming quarters  Continued growth in speciality packaging paper sales – conversion projects un

  27. Slide 27: Thank you

    Thank you — Inspired by life

  28. Slide 28: Supplementary information

    Supplementary information 28

  29. Slide 29: EBITDA and operating profit

    EBITDA and operating profit Excluding special items* 250 EBITDA Operating profit ex special items 209 200 208 201 201 195 175 145 145 170 US$ million 136 136 133 160 150 145 112 104 97 109 100 74 43 50 0 29 * Refer to the supplementary information in this presentation for a reconciliation of EBITDA

  30. Slide 30: Coated paper deliveries and prices

    Coated paper deliveries and prices Western Europe CWF Demand MCR Demand CWF 100gsm Sheets LWC 60gsm offset reels 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 30 Western Europe shipments including export. Source: Cepifine, Cepiprint and RISI indexed to cal

  31. Slide 31: Sappi Europe

    Sappi Europe Q2 FY17 Q2 FY16 1H 17 1H 16 Tons sold (‘000) 839 834 1,706 1,670 Sales (EURm) 581 604 1,183 1,205 Price/Ton (EUR) 692 724 693 722 Cost/Ton* (EUR) 658 685 653 685 Operating profit excluding 29 33 69 62 special items** (EURm) 31 * Sales less operating profit excluding special items divide

  32. Slide 32: Sappi Packaging and Speciality Papers

    Sappi Packaging and Speciality Papers Global production sites Sappi Alfeld (Germany) Sappi Maastricht (Netherlands) Sappi Ehingen (Germany) Sappi Cloquet (USA) Flexible Packaging, Label, SBB Label Paper – LusterCote® Folding Box Board - atelier™ Topliner - Fusion® Board, Topliner and Release Liner S

  33. Slide 33: 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 mtons o 300 ktons converting Topliner res

  34. Slide 34: Coated paper prices and shipments

    Coated paper prices and shipments United States Domestic CWF Shipments Doemstic CWF Purchases RISI Price CFS #3 60 lb rolls 1.2 1.1 1 Q1 FY08 = 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 34 • US industry purchases defined as industry shipments, plus imports, le

  35. Slide 35: Sappi North America

    Sappi North America Q2 FY17 Q2 FY16 1H FY17 1H FY16 Tons sold (‘000) 329 331 682 661 Sales (US$m) 335 339 689 682 Price/Ton (US$) 1,018 1,024 1,010 1,032 Cost/Ton* (US$) 976 985 978 992 Operating profit excluding 14 13 22 26 special items** (US$m) 35 * Sales less operating profit excluding special i

  36. Slide 36: Pulp prices

    Pulp prices* 1 000 900 US$/ton 800 700 600 NBSK Europe BHKP Europe Commodity DWP 36 • Source: FOEX, CCF group

  37. Slide 37: Textile Fibre Prices

    Textile Fibre Prices Cotton 328 Cotton "A" Index PSF 1.4 D VSF 1.2 D VSF 1.5 D US$/t 2 800 2 400 2 000 1 600 1 200 800 Jul-15 Jul-16 Apr-15 Oct-15 Jan-16 Apr-16 Oct-16 Jan-17 Apr-17 37

  38. Slide 38: Sappi South Africa

    Sappi South Africa Excluding Sappi Forests Q2 FY17 Q2 FY16 1H FY17 1H FY16 Tons sold (‘000) 408 404 772 790 Sales (ZARm) 4,619 4,376 8,641 8,171 Price/Ton (ZAR) 11,321 10,832 11,193 10,343 Cost/Ton* (ZAR) 8,093 7,725 7,972 7,553 Operating profit excluding 1,317 1,255 2,486 2,204 special items** (ZAR

  39. Slide 39: Cash flow

    Cash flow US$m Q2 FY17 Q2 FY16 1H FY17 1H FY16 Cash generated from operations 203 187 405 358 Movement in working capital (26) (22) (123) (122) Net finance costs paid (24) (22) (41) (58) Taxation paid (32) (4) (66) (22) Dividend paid (59) - (59) - Cash generated from operating activities 62 139 116

  40. Slide 40: EBITDA and operating profit reconciliation

    EBITDA and operating profit Excluding special items reconciliation to reported operating profit US$m Q2 FY17 Q2 FY16 1H FY17 1H FY16 EBITDA excluding special items* 208 195 409 370 Depreciation and amortisation (63) (62) (128) (125) Operating profit excluding special items* 145 133 281 245 Special I

  41. Slide 41: Thank you

    Thank you sappi Inspired by life

Sappi — Q2 FY2017 Earnings Presentation on 6ix