Sappi Limited · JSE:SAP
Sappi — Q3 FY2019 Earnings Presentation
42 slides from Sappi's earnings presentation, Aug 1, 2019
Slide 1: Q3 FY19 financial results delivering on strategy
Q3 FY19 financial results delivering on strategy 1 August 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 – Q3 2019
Highlights – Q3 2019 Excluding special items* o Challenging quarter for our major products o Commercial downtime of ~89,000t graphic paper EBITDA* $118m • US$19m EBITDA impact estimated o Lower DWP pricing as VSF operating rates and Profit for the period pricing declined US$8 million Key ratios Q3 F
Slide 4: EBITDA reconciliation
EBITDA* reconciliation Q3 FY18 to Q3 FY19 200 175 Sales revenue 150 US$ million 125 100 75 50 155 (18) 29 (40) (10) (6) 8 118 Q3 FY18 EBITDA Sales volume Price & mix Variable & delivery Fixed costs Other Exchange rate Q3 FY19 EBITDA costs Jun Notes: 2019 2018 1. All variances were calculated excludi
Slide 5: Product contribution split – LTM
Product contribution split – LTM EBITDA excluding special items Operating profit excluding special items Dissolving Wood 31% Pulp 39% 44% Packaging & Speciality Papers 59% Printing & Writing Papers 10% 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 512 500 393 EUR350m bond 400 367 US$221m bond US$ million 300 226 221 200 107 100 67 81 68 44 44 21 21 0 2019 2020 2021 2022 2023 2024 2025 2026 2032 Cash Short-term SPH term debt Securitisation SSA 6
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 remains very weak Capacity reductions expected in US and Europe over next 18 months Selling prices and input costs Paper prices beginning to decline – driven by lower demand and lower costs Pulp prices falling, led by China, partial
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 Weak domestic and export demand - downtime of Sales Tons -5% 30k tons ~US$8m EBITDA impact year-on-year o Realised prices for graphics were 5% higher and Sales flat our packaging and specialities were 4% higher year-on-year than last year o Variable costs 3% higher than last year, fix
Slide 12: Sappi North America
Sappi North America Sales Tons +1% o Commercial downtime of 59kt ~ $11m EBITDA impact year-on-year o Cloquet debottlenecking complete Sales +1% year-on-year o Packaging and paperboard volumes continue to grow o Variable costs were 5% higher; fixed costs 7% lower EBITDA* -45% (last year included the
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 Selling prices and input costs DWP selling prices declining as VSF prices and margins fall Wood price increases, chemical
Slide 14: Sappi South Africa
Sappi South Africa Sales Tons -2% o Lower DWP pricing due to excess VSF capacity year-on-year o DWP volumes were lower than prior quarter due Sales +7% to scheduled annual maintenance at Ngodwana year-on-year and Saiccor o Lower containerboard volumes - delayed start to EBITDA* +7% the citrus season
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 and machine advantages +US$60m target for 2019 efficiencies Ongoing continuous improvement acro
Slide 17: 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
Slide 18: 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 19: 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 20: Our group strategy
Our group strategy Maintain leverage below 2x Net debt:EBITDA No new major capex commitments Maintain Finance costs US$60-70m/annum going a healthy Optimise forward working balance 7 yr €450m bond raised @3.125% - used to capital sheet Strong repay €450m 2022 bond cash Smart generation finan
Slide 21: Our group strategy
Our group strategy Expand We will make investments in existing and paper Enhance packaging adjacent areas with strong potential growth. grades specialised cellulose Debottlenecking of Saiccor, Ngodwana and Cloquet portfolio DWP complete Accelerate Expansion of Saiccor by 110kt/annum has starte
Slide 22: Outlook
Outlook DWP pricing will be under pressure but we expect volumes to continue to grow as we utilize our expanded capacity Packaging and speciality end-markets are variable. Despite macro concerns, volumes are growing; ramp-ups, trials and qualification progressing. Further weakness in graphic g
Slide 23: Thank you
Thank you 23
Slide 24: Supplementary information
Supplementary information 24
Slide 25: EBITDA and operating profit
EBITDA and operating profit Excluding special items* 250 EBITDA Operating profit ex special items 224 221 200 211 208 201 197 187 152 148 145 172 142 US$ million 136 150 128 155 155 117 105 118 93 100 85 48 50 0 * Refer to the supplementary information in this presentation for a reconciliation of EB
Slide 26: 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 2.4 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 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
Slide 27: 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 28: Product Groups and Products
Product Groups and ProductsEU Packaging and Specialities 28
Slide 29: 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 30: Sappi Europe
Sappi Europe Q3 FY19 Q3 FY18 FYTD 19 FYTD 18 Tons sold (‘000) 789 833 2,440 2,502 Sales (EURm) 637 636 1,953 1,824 Price/Ton (EUR) 807 764 800 729 Cost/Ton* (EUR) 785 726 771 689 Operating profit excluding special 18 31 72 99 items** (EURm) * Sales less operating profit excluding special items divid
Slide 31: 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 32: Sappi North America
Sappi North America Q3 FY19 Q3 FY18 FYTD 19 FYTD 18 Tons sold (‘000) 320 318 991 1,008 Sales (USDm) 343 339 1,072 1,044 Price/Ton (USD) 1,072 1,066 1,082 1,036 Cost/Ton* (USD) 1,100 1,063 1,072 1,018 Operating profit excluding special -9 1 10 18 items** (USDm) * Sales less operating profit excluding
Slide 33: 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 34: Sappi South Africa
Sappi South Africa Q3 FY19 Q3 FY18 FYTD 19 FYTD 18 Tons sold (‘000) 375 383 1,189 1,179 Sales (ZARm) 4,418 4,105 14,108 12,509 Price/Ton (ZAR) 11,781 10,718 11,866 10,610 Cost/Ton* (ZAR) 10,459 9,274 9,483 8,538 Operating profit excluding special 496 553 2,833 2,443 items** (ZARm) * Sales less opera
Slide 35: Paper pulp prices
Paper pulp prices* 1,300 1100 1050 1,200 1000 1,100 950 1,000 900 US$/ton EUR/ton 900 850 800 800 750 700 700 600 650 500 600 NBSK Europe BHKP Europe BHKP China NBSK Europe Euros BHKP Europe Euros * Source: FOEX 35
Slide 36: Dissolving pulp prices
Dissolving pulp prices* 1,050 1,000 950 900 US$/ton 850 800 750 700 Imp SW DWP Imp HW DWP China origin DWP * Source: CCF group 36
Slide 37: Textile fibre prices
Textile fibre prices* 2,800 2,400 US$/ton 2,000 1,600 1,200 800 Cotton 328 Cotton "A" Index PSF 1.4 D VSF 1.2 D VSF 1.5 D * Source: CCF group. 37
Slide 38: Cash flow
Cash flow US$m Q3 FY19 Q3 FY18 FYTD 19 FYTD 18 Cash generated from operations 118 141 497 497 Movement in working capital 20 33 (147) (85) Net finance costs paid (15) (21) (40) (42) Taxation (paid) refund (5) (6) (51) (50) Dividend paid - - (92) (81) Cash generated from operating activities 118 147
Slide 39: EBITDA and operating profit
EBITDA and operating profit Excluding special items* reconciliation to reported operating profit US$m Q3 FY19 Q3 FY18 FYTD 19 FYTD 18 EBITDA excluding special items* 118 155 502 538 Depreciation and amortisation (70) (70) (209) (206) Operating profit excluding special items* 48 85 293 332 Special it
Slide 40: 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 41: 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 42: Thank you
Thank you 42